ExamFX Focused Exam
Which of the following is the largest equity derivatives clearing organization worldwide? A. OCC B. FINRA C. CBOE D. SEC
A. OCC The Options Clearing Corporation (OCC) is the largest equity derivatives clearinghouse in the world, providing clearing and settlement services for listed options as well as for security futures and over-the-counter (OTC) options.
A director of a public corporation wishes to sell some of his stock in the company. Under SEC Rule 144, how long is the holding period? A. 3 months B. 6 months C. 12 months D. 24 months
B. 6 months Before restricted securities may be sold in the marketplace, they must be held for a specified period of time. If a selling company is subject to the SEC reporting requirements, the securities must be held at least 6 months; otherwise, at least 1 year.
Realized appreciation is a) The net appreciated value in a security that has been sold. b) A decrease in the value of a security that has been sold. c) An increase in the value of a security that is held by the investor. d) A decrease in the value of a security that is held by the investor.
Once a security is sold, the increase in value, or appreciation, is realized. When a security is sold for less than its purchase price, the loss is also realized at the time of sale.
Which type of preferred stock would potentially pay dividends in addition to the stated dividend if a company has excess earnings? a) Noncumulative preferred b) Participating preferred c) Straight preferred d) Cumulative preferred
Participating preferred allows investors to participate in excess earnings after the company has met its normal interest and dividend obligations. In other words, investors may receive dividends in addition to the stated dividend.
ABC stock is trading at $18.30 a share. The ABC Jun 20 put has a premium of $2.60. It has a time value of a) $0.90. b) $1.30. c)$2.60. d )0; it only has intrinsic value.
a) $0.90. The Jun 20 put is in the money. To determine the time value, you have to determine how much of the premium is intrinsic value (in the money), 20 (strike price) - 18.30(market price of ABC) = $1.70 (intrinsic value). Premium - intrinsic value = time value, so $2.60 - $1.70 = .90.
An issuer who has at least $100,000 in average daily trading volume and $25 million in public float is planning to bring additional shares to market. What would the restriction period be? a) 1 day prior to the effective date b) 3 days prior to the effective date c) 10 days prior to the effective date d) 20 days prior to the effective date
a) 1 day prior to the effective date For issuers offering additional shares who currently have an average daily trading volume of at least $100,000 and $25 million in public float, the restriction for offering participants is 1 day prior to the effective date.
Retail communications and the names of the people who prepared and approved them must be kept on file for a) 3 years. b) 5 years. c) 10 years. d) Indefinitely.
a) 3 years.
The current market price of ABC stock on March 30 is $25. Which one of the following options contracts is out of the money? a) ABC June call with a strike price of $30 b) ABC June put with a strike price of $27 c) ABC June put with a strike price of $30 d) ABC June call with a strike price of $20
a) ABC June call with a strike price of $30 A call is out of the money if the current market price of the underlying security is lower than the strike price.
Mutual fund shareholder rights include all of the following EXCEPT a) Appointment of the investment adviser. b) Voting by proxy. c) Approving changes in investment objectives and policies. d) Election of the directors.
a) Appointment of the investment adviser.
A closed-end management company has shares that a) Are not redeemable. b) May be issued continually so new shares are available when new investors make a purchase. c) Do not fluctuate with market demand. d) Are redeemable. Shares from closed-end companies are not redeemable.
a) Are not redeemable. The other characteristics listed represent shares of open-end investment companies.
Which of the following is a lagging indicator? a) Average prime rate b) Housing starts c) The S&P 500 index d) Industrial production Lagging indicators include average duration of unemployment, labor costs, commercial and industrial loans, and average prime rate. Industrial production is a coincident indicator, and housing starts and S&P 500 are leading indicators.
a) Average prime rate Lagging indicators include average duration of unemployment, labor costs, commercial and industrial loans, and average prime rate. Industrial production is a coincident indicator, and housing starts and S&P 500 are leading indicators.
Which of the following is a lagging indicator? a) Average prime rate b) Housing starts c) The S&P 500 index d) Industrial production
a) Average prime rate Lagging indicators include average duration of unemployment, labor costs, commercial and industrial loans, and average prime rate. Industrial production is a coincident indicator, and housing starts and S&P 500 are leading indicators.
When a customer sells a security in the secondary market, he or she will receive the a) Bid price. b) Ask price. c) Net asset value. d) Offering price.
a) Bid price. The highest price a dealer will pay for a security is the bid price, which is the price the seller (customer) will receive.
Which of the following is correct with regard to the withdrawal of funds from a tax-qualified retirement plan? a) Contributions can be deducted from that year's taxable income. b) The employee will be taxed at the ordinary income rate on his cost basis. c) Funds may be withdrawn at retirement tax free. d) All early withdrawals are subject to a penalty.
a) Contributions can be deducted from that year's taxable income. Cost basis has already been taxed and will not be taxed again upon withdrawal. Premature withdrawals are taxed and penalized unless withdrawn for a qualified exemption. A traditional IRA is a top choice for immediate tax savings because contributions can be deducted from that year's taxable income.
#53. A background check on a registered representative may include a search for all of the following information EXCEPT a) Current and previous marital status. b) Civil litigations. c) Criminal history. d) Bankruptcies.
a) Current and previous marital status. Firms must verify the accuracy and completeness of a broker's registration information on Form U4, as well as conduct a search of reasonably available public records that pertain to criminal history, bankruptcy, civil litigation, liens and business records of a registered representative.
Which of the following is a coincident indicator? a) Industrial production b) Machine tool orders c) Business inventories d) Orders for durable goods
a) Industrial production
A private securities transaction exists when a representative a) Is selling away. b) Makes a trade for his personal account. c) Is engaged in any outside business activity. d)Has a joint account with a family member.
a) Is selling away.
Which of the following statements about the balance of payments is TRUE? a) It is the sum of all transactions between a country and the rest of the world over a specified period of time. b) Large trade deficits appear as an outflow of foreign capital. c) Any transaction that results in money flowing into the country is a debit to its BOP account. d) It is a measure of a country's total economic activity in one year.
a) It is the sum of all transactions between a country and the rest of the world over a specified period of time. The U.S. balance of payments (BOP) is an accounting of the country's international transactions over a specified period of time, typically a calendar quarter or year. It represents the sum of all transactions between individuals, businesses and government agencies in the U.S. and the rest of the world.
A registered representative is making recommendations to diversify a customer's portfolio by selecting several mutual funds for purchase. The customer has $100,000 to invest. The sales charge for an investment under $25,000 is 5%, but drops by 1% for each incremental $25,000 spent. Assume that the customer invests the entire $100,000 and the same amount is invested in each fund. Which of the following sales is an example of breakpoint selling? a) One fund each in five different fund families b) Three funds in one fund family and two funds in another fund family c) Two funds in two different fund families d) Three funds in the same fund family
a) One fund each in five different fund families When a registered representative sells a customer one fund each in five different fund families, it is an example of breakpoint selling. This would bring each sale to $20,000 and the customer would not be able to take advantage of the lower sales charge at the higher sales level. Remember that breakpoint selling violations apply to sales in different fund families. Sales in the same fund family are combined to meet the breakpoint.
Participation in seminars, radio or television interviews would be best described as a) Public appearances. b) Sales presentation. c) Correspondence. d) Institutional communications.
a) Public appearances.
An asset-backed security is backed by a) Short-term loans on credit cards or automobiles. b) Equipment owned and operated by the issuer. c) Securities of a different issuer. d) Real estate mortgage pools.
a) Short-term loans on credit cards or automobiles. Asset-backed securities are backed by short-term loans on assets other than real estate, such as autos or credit cards.
All of the following are differences between qualified and nonqualified retirement plans EXCEPT a) Taxation on accumulation. b) Taxation of withdrawals. c) Taxation of contributions. d) IRS approval requirements.
a) Taxation on accumulation. Taxation on accumulation is deferred in both types of plans. The rest of the characteristics differ.
Which of the following joint accounts is designed specifically for married couples? a) Tenancy by the Entirety b) Transfer on Death c) Tenants in common d) Joint Tenants with Rights of Survivorship
a) Tenancy by the Entirety
A company issues $10 million worth of bonds, and the whole issue matures in 15 years. What type of bond is this? a) Term bond b) Short-term bond c) Series bond d) Serial bond
a) Term bond This describes a term bond, which is a bond that is structured so that the whole issue matures at once.
A customer purchased 200 shares of XYZ 2 years ago at $40. The current market price is $50. If the customer gifts these shares to his daughter today, which statements describe the tax consequences? a) The daughter will have a tax liability if she sells the shares at the current market price. b)The daughter will not have a tax liability if she sells the shares at the current market price. c)The customer will not have a tax liability if she sells the shares instead of gifting them. d)The cost basis to the daughter is $50 a share.
a) The daughter will have a tax liability if she sells the shares at the current market price.
The ex-dividend date is a) The first date on which the stock trades without the dividend. b) Two business days after the record date. c) The date the corporation distributes the dividends to shareholders. d) The last date to purchase the stock for cash settlement and receive the dividend.
a) The first date on which the stock trades without the dividend. The ex-date is the first day that the stock trades without the legal right to receive the dividend. On the ex-date, the stock price drops by the amount of the dividend.
Grandparents with a combined adjusted gross income (AGI) of $125,000 want to set up a Coverdell ESA (education savings account) on behalf of their grandchild. Which of the following is true? a) The grandchild must be under age 18. b) They cannot set up this account since their AGI is too high. c) The account beneficiary may never be changed. d) The maximum annual contribution limit is $1,000 per beneficiary.
a) The grandchild must be under age 18. Education savings accounts (ESAs) may be opened for any student who is under age 18. Account assets must be used before the student reaches the age of 30, although unused funds may be rolled over into an ESA for another eligible family member before the primary beneficiary reaches age 30. The earnings portion of an ESA distribution that is not used for qualified education expenses will be included in the gross income of the child and a 10% IRS penalty may also apply.
Gross Domestic Product (GDP) is a) The sum of all goods and services produced in the U.S., computed in real dollars. b) The value of all net exports from the U.S., computed in real dollars. c) The broadest measure of all products manufactured in the U.S., computed in actual dollars. d) A representative sample of selected goods and services produced in the U.S., computed in real dollars.
a) The sum of all goods and services produced in the U.S., computed in real dollars. GDP is the sum of all goods and services of the U.S. in real dollars.
Which of the following statements regarding limit orders is true? a) There is no guarantee a limit order will be filled. b) A buy limit is placed above current market value. c) A limit order may not be left with the designated market maker. d) A limit order is executed immediately.
a) There is no guarantee a limit order will be filled. Because a limit order is dependent on market movement in a certain direction, it may never be executed. Buy limits are placed below, and sell limits above, current market value. Market orders are executed immediately; limit orders are left with the designated market maker for possible future execution.
Which of the following is true of index options? a) They can be used to protect a portfolio of securities. b) Breakeven is calculated differently than for equity options. c) They settle in securities. d) Covered writes are often used as a strategy.
a) They can be used to protect a portfolio of securities.
If XYZ stock is trading at 27.50, which of the following options are in-the-money? a) XYZ Jul 25 call b) XYZ Aug 27 put c) XYZ Aug 25 put d) XYZ Jul 30 call
a) XYZ Jul 25 call The Jul 25 call is in the money by 2.50. A call is in the money when the price of the underlying security is higher than the strike price. A put is in the money when the price of the underlying security is lower than the strike price.
A customer purchased 100 shares of XYZ stock at $30 per share. Two years later, the customer donated the shares to charity. At the time of the donation, XYZ had a market value of $50 per share. What are the tax consequences for the customer? a)The donor will have a $5,000 income tax deduction. b)The recipient's cost basis is $3,000. c)The donor must pay capital gains tax on the appreciation. d)The donor will have a $3,000 income tax deduction.
a)The donor will have a $5,000 income tax deduction. Subject to certain restrictions, charitable donations of stock are tax deductible at their market value at the time of the donation, in this case, $5,000. The donor is not subject to capital gains tax on the appreciation. The recipient's cost basis is $5,000.
The par value of preferred stock is a) $1. b) $100. c) $1,000. d) The same as that of a common stock.
b) $100.
When a customer adds another owner to their account, the Customer Relationship Summary (Form CRS) must be updated within a) 15 days. b) 30 days. c) 45 days. d) 6 months.
b) 30 days.
ABC Corporation originally authorized 1 million shares and has issued 600,000 shares. ABC Corporation has decided to buy 50,000 of their shares back and record them on the balance sheet under treasury stock. How many shares are currently outstanding? a) 400,000 shares b) 550,000 shares c) 600,000 shares d) 1 million shares
b) 550,000 shares The formula to calculate the number of outstanding shares is as follows: Total issued shares - Treasury stock = Number of outstanding shares (or in this scenario, 600,000 - 50,000 = 550,000 outstanding shares).
Which of the following is NOT part of a corporation's capital structure? a) Paid-in capital surplus b) Accounts payable c) Debentures d) Preferred stock
b) Accounts payable Accounts payable includes short-term (30- to 60-day) liabilities. It is not part of a corporation's long-term capital structure.
John owns a contract that entitles him to buy 100 shares of ABC at a specified price prior to a fixed expiration date. John owns a a) Warrant. b) Call option. c) Preemptive right. d) Put option.
b) Call option. A call option contract gives the buyer of the contract the right to purchase 100 shares of the underlying security at the strike price.
Recommending the exchange of a deferred variable annuity is subject to suitability standards and to all of the following additional considerations EXCEPT a) Loss of benefits of the existing annuity. b) Commissions for the firm and sales representative. c) Features and enhancements of the new annuity that would benefit the customer. d) Surrender charges on the existing annuity.
b) Commissions for the firm and sales representative. Commissions should not be a factor in considering the exchange of a deferred variable annuity. An exchange must benefit the customer.
All of the following regarding preferred stock dividends are correct EXCEPT a) The dividend is fixed or stated. b) Like common stock dividends, the dividend may change. c) The dividend is based on par value. d) The dividend is interest rate sensitive.
b) Like common stock dividends, the dividend may change. Preferred stock dividends are fixed or stated. For example, an investor who owns a preferred stock paying a 5% dividend would receive 5% of the par value ($100) or $5. In order to complete for investor dollars, a company that issues preferred stock will consider the prevailing interest rates when determining the dividend. That is why dividend-paying preferred stock is considered to be interest rate sensitive.
Variable life policy provisions allow for a) Changing among investment alternatives within the separate account subject to current capital gain/loss consequences. b) Loans against a percentage of the policy's cash value. c) The payment of a death benefit in the event of suicide within the first year of the policy. d) Converting the policy to a term policy at certain intervals.
b) Loans against a percentage of the policy's cash value. The payment of a death benefit is not required if the insured commits suicide within the first 2 years of the policy. Variable policies may be converted to another type of permanent policy such as whole life or universal life, but not a term policy. Changes in investment alternatives within the separate account are not taxable events. Loans are permitted against a minimum of 75% of the cash value after the policy has been in place for 3 years.
Which statement concerning a Unit Investment Trust is TRUE? a) Portfolio is actively managed b) May be liquidated upon order of the SEC c) Units are negotiable and traded in the secondary market d) No substitutions of securities are allowed
b) May be liquidated upon order of the SEC A Unit Investment Trust (UIT) may be liquidated if ordered to do so by the SEC. This could happen if the SEC determines that the trust is ineffective or that a liquidation would be in the best interest of the unit holders. Remember that a UIT is generally a fixed portfolio, substitutions of securities are allowed with proper notice to the SEC, and units most be redeemed by the issuer as they cannot be traded in the secondary market.
The ex-dividend date for a mutual fund is a) The same date as the ex-dividend date for a stock. b) The day after the record date. c) Set by the SRO. d) The date before the record date.
b) The day after the record date. The dividend date for a mutual fund is different from that of a stock. It falls the day after the record date. Mutual funds are purchased by application, and the buyer's name is recorded the day on which the application is received by the fund. The buyer's name is in the stockholder record on the record date. All four of the dates surrounding mutual fund dividends are selected by the board of directors. This includes the declaration, ex-dividend, record, and payable dates. In contrast, the self-regulating organization (SRO) chooses the ex-dividend date for stock dividends.
Which of the following statements is true about a municipal dealer who has an out firm quote from another municipal dealer? a) The dealer may renegotiate the price prior to the sale. b) The dealer has the right to buy the bonds at a fixed price for a certain period of time. c) The dealer must buy the bonds before the stated time period expires. d) The dealer cannot sell the bonds before buying them.
b) The dealer has the right to buy the bonds at a fixed price for a certain period of time. The dealer has received an out firm bid, which is a stated price for a fixed time subject to fill or kill recall. The dealer can sell the bonds prior to buying them. No renegotiation is available, and the dealer is not obligated to buy.
Realized appreciation is a) A decrease in the value of a security that is held by the investor. b) The net appreciated value in a security that has been sold. c) A decrease in the value of a security that has been sold. d) An increase in the value of a security that is held by the investor.
b) The net appreciated value in a security that has been sold.
Regarding CDSCs, which of the following is NOT true? a) The different share class options should always be pointed out by the rep. b) They reduce the amount of the initial investment. c) They represent alternate methods of recovering fund marketing costs. d) For a given holding period, costs associated with each class will differ.
b) They reduce the amount of the initial investment. Contingent deferred sales charges (CDSCs) are back-end loaded. They do not reduce the amount of the initial investment.
The statistic that measures fund performance and includes reinvested distributions and share appreciation, net of sales charges and expenses for the period is a) Current distribution rate. b) Total return. c) Investment objective. d) Standardized yield.
b) Total return. A fund's total return considers the fund's net return after sales charges and expenses. It includes the effect of reinvested distributions and share price appreciation during the period in question.
According to the Investment Company Act of 1940, the term "management company" applies to all of the following EXCEPT a) Closed-end companies. b) Unit investment trusts. c) Diversified companies. d) Open-end companies.
b) Unit investment trusts. According to the Investment Company Act of 1940, management companies may be organized either as open-end or closed-end companies, and can be classified as either diversified or nondiversified. Unit Investment Trusts (UITs) fall into a separate category of investment companies, along with management companies and face amount certificate companies (FACs).
The "liquidity" of an investment is best described as a) Whether the investment can be sold as quickly and profitably as expected, should the investor wish to sell. b) Whether the investment can be traded on an exchange (auction market) or must be negotiated over the counter. c) Whether trading activity is heavy or light on a given trading day. d)The extent to which the investment is composed of cash or cash equivalents.
b) Whether the investment can be traded on an exchange (auction market) or must be negotiated over the counter.
XYZ stock is selling at $50 on September 30. All of the following options contracts are in the money EXCEPT a ) XYZ December call with a strike price of $40. b) XYZ December put with a strike price of $45. c) XYZ December call with a strike price of $45. d) XYZ December put with a strike price of $55.
b) XYZ December put with a strike price of $45. Remember that this is an EXCEPT question. We are looking for the options contract that is out of the money. A put is out of the money if the price of the underlying security is greater than the strike price.
XYZ stock is selling at $50 on September 30. All of the following options contracts are in the money EXCEPT a) XYZ December call with a strike price of $40. b) XYZ December put with a strike price of $45. c) XYZ December call with a strike price of $45. d) XYZ December put with a strike price of $55.
b) XYZ December put with a strike price of $45. Remember that this is an EXCEPT question. We are looking for the options contract that is out of the money. A put is out of the money if the price of the underlying security is greater than the strike price.
An investor learns that he inherited a mutual fund that had a NAV of $50 per share on the date of the owner's death. Thirty days after the death of the owner, the NAV is $55. It is now 2 months since the owner died and the NAV is $60. The owner's cost basis was $20. What is the cost basis for the beneficiary? a)$20 b)$50 c)$55 d)$60
b)$50 When a security is inherited, the beneficiary's cost basis is the fair market value (in this case, the NAV) of the security on the day of the deceased's death. This is called a "stepped up" basis.
Asset-backed securities are traded based on a)Current yield. b)Average life. c)Stated maturity dates. d)Yield to maturity.
b)Average life. Asset-backed securities are backed by a pool of assets: auto loans/leases, credit card receivables, and home equity loans. They are traded based on the average life of the pool of assets in which they have an interest.
The last quotation of a U.S. government bond is 98.08. An investor purchasing the bond would pay a) $98.80. b) $980.80. c) $982.50. d) $988.00.
c) $982.50. Bond prices are quoted at par in 32nds. The quote of 98.08 means $980.00 + 8/32, which equals $2.50, making the bond price $982.50.
Regulation T requires mutual fund purchases to be paid for no later than a) The next day. b) 3 business days. c) 4 business days. d) 7 calendar days.
c) 4 business days. Don't confuse Federal Reserve Board Regulation T with FINRA regular way settlement. FINRA requires securities purchases, including mutual funds, to be paid for regular way, which is T+2, meaning 2 business days after the trade date. However, Regulation T allows the customers 2 additional days to pay, for a total of 4 business days. This is latest time you can pay, unless you are granted an extension. Without an extension, your purchase will be sold out and your account will be frozen for 90 days, during which time you must pay cash in advance for additional purchases.
FinCEN requires banks and broker/dealers to adhere to anti-money laundering (AML) rules, including a) Blue sky laws. b) SRO reporting procedures. c) A designated independent party to test the procedures. d) Perpetrator forfeiture rules.
c) A designated independent party to test the procedures. Firms are required to establish anti-money laundering (AML) policies and procedures, provide employee training, appoint an AML compliance officer and schedule independent testing of the program. In addition, the procedures must contain features to detect suspicious activity and money laundering activity as well as confirm customer identification.
Due to drought conditions, an experienced high net worth investor believes that the prices of a broad range of agricultural commodities will increase. Which of the following might be an appropriate investment for this investor? a) Inverse agricultural sector total return ETN b) Soybean futures c) Agricultural sector total return ETN d) Farm equipment limited partnership
c) Agricultural sector total return ETN An agricultural sector total return ETN would provide exposure to price increases in a range of agricultural products.
An Emerging Market Currency ETN may be an appropriate investment for which of the following persons? a) An experienced investor who is building a long-term portfolio of debt securities. b) A sophisticated investor seeking current income c) An experienced investor looking for a simple way to gain exposure to a portfolio of emerging market currencies d) A sophisticated investor seeking to invest in a portfolio of emerging market equities
c) An experienced investor looking for a simple way to gain exposure to a portfolio of emerging market currencies
A closed-end management company has shares that a) Do not fluctuate with market demand. b) Are redeemable. c) Are not redeemable. d) May be issued continually so new shares are available when new investors make a purchase.
c) Are not redeemable. Shares from closed-end companies are not redeemable. The other characteristics listed represent shares of open-end investment companies.
The safekeeping of an investment company's cash and securities is the responsibility of the fund's a) Board of directors. b) Investment adviser. c) Custodian. d) Transfer agent.
c) Custodian.
Which of the following will cause the NAV per share of a mutual fund to increase? a) Decrease in market value of securities b) Distribution of dividends c) Existing stock holding pays dividends d) Distribution of capital gains
c) Existing stock holding pays dividends
All of the following are duties of a transfer agent EXCEPT a) Issuing new shares physically or electronically. b) Canceling redeemed shares. c) Holding customers' securities for safekeeping. d) Distributing capital gains to shareholders.
c) Holding customers' securities for safekeeping. Transfer agents are contracted by the fund to perform basic clerical functions, including keeping track of the individuals and entities that own their stocks and bonds, issuing new shares, and canceling redeemed shares. Holding customers' securities for safekeeping is a function of the custodian.
A hybrid REIT invests in a) Collateral trust certificates. b) Leveraged ETFs. c) Mortgages. d) ETNs.
c) Mortgages. Hybrid REITS invest in both mortgages and real property.
A customer deposits $7,500 in currency in his account at a financial institution. The financial institution a) Must file a CTR. b) Cannot accept the deposit. c) Must file an SAR. d) Is not required to do anything.
c) Must file an SAR. The financial institution may accept the deposit. However, if a customer deposits $5,000 or more in currency or nonverifiable funds within a 24-hour period, the firm must file a Suspicious Activity Report (SAR) within 30 days. If the firm receives more than $10,000 in currency from a customer within a 24-hour period, it must file a Currency Transaction Report (CTR) within 15 days.
A 50-year-old individual needs $20,000 for his child's education, and wishes to withdraw the necessary funds from his traditional IRA. Which of the following statements is true concerning taxation on the withdrawal? a) Regular income tax on withdrawals in excess of his basis will apply, but no penalty tax. b) A 10% penalty tax will be assessed for early distribution. c) The entire amount will be taxed as ordinary income. d) The withdrawal will be subject to regular income tax and a 10% penalty tax.
c) The entire amount will be taxed as ordinary income. Withdrawals from a traditional IRA are subject to regular taxation. In addition, a 10% premature withdrawal penalty is assessed on anyone withdrawing the money under age 59½. However, the penalty will be waived if the distribution is due to the owner's death or disability, for medical or education expenses and first-time home ownership. The withdrawal is still subject to taxes as ordinary income.
All of the following must be included in a prospectus EXCEPT a) Per share income and capital changes. b) Sales loads and fees. c) The individual securities that make up the portfolio. d) An expense table.
c) The individual securities that make up the portfolio.
If an option contract is covered, this means that a) The option holder is long the underlying security. b) The option holder is short the underlying security. c) The option writer is long the underlying security. d) The option writer is short the underlying security.
c) The option writer is long the underlying security. In a covered option contract, the option writer is long or owns the underlying shares. If the option holder exercises the option contract, the option writer is obligated to deliver the security or cash and is protected by owning the underlying security or having cash available equal to the exercise price. Remember that the terms naked and covered apply to the options writer.
Which of the following applies to put option contracts? a) The put writer has the right to sell to sell at the strike price. b) The put holder has the obligation to buy at the strike price. c) The put holder has the right to sell at the strike price. d) The put writer has the obligation to sell at the strike price.
c) The put holder has the right to sell at the strike price. A put option is a contract that gives the put holder the right to sell 100 shares of the underlying security at the strike price (also called the exercise price), until expiration. Long put - right to sell. Short put - obligation to buy.
When two corporations agree to merge, what is the outcome? a) The stock of only one of the corporations survives. b) Shareholder approval is never required. c) The stocks of both corporations are surrendered. d) Shareholders receive only stock.
c) The stocks of both corporations are surrendered. In a merger, the stocks of both companies are surrendered, and a new corporation is formed with all shareholders receiving new stock in proportion to their prior holdings. Shareholders may receive a combination of stock and cash. The merger must be approved by a majority of the shareholders if there will be a significant impact on either company.
Which of the following statements is true about tax-qualified annuities? a) They can discriminate. b) Withdrawals are not taxed. c) They must meet IRS requirements. d) Employee contributions are not tax deductible.
c) They must meet IRS requirements.
A registered representative with verbal authority from the customer can decide which of the following? a) Price and quantity b) Security and price c) Time and price d) Quantity and time
c) Time and price
An investor owns 300 shares of LYPA stock, which is currently trading at $60 per share. The company announces a 1:3 reverse split. What will the investor own after the split? a) 100 shares at $20 per share b) 900 shares at $20 per share c) 900 shares at $60 per share d) 100 shares at $180 per share are.
d) 100 shares at $180 per share are. In a reverse split, the number of shares is reduced and the price per share increases proportionately. 1/3 × 300 shares before the split = 100 shares after; 3/1 × $60 price before the split = $180 price after. The investor will own 100 shares at $180 per share.
According to FINRA rules, members are required to report any violations of laws, rules, and regulations within how many days? a) 3 days b) 10 days c) 15 days d) 30 days
d) 30 days
Which of the following mutual fund share classes has a front-end sales charge? a) B b) C c) B and C d) A Only Class A shares are front-end loaded, meaning that they have a sales charge that is paid at the time of purchase. When an investor buys these shares, the initial investment is less than the price paid due to the sales charge. (POP = NAV + SC)
d) A Only Class A shares are front-end loaded, meaning that they have a sales charge that is paid at the time of purchase. When an investor buys these shares, the initial investment is less than the price paid due to the sales charge. (POP = NAV + SC)
A Series 6 registered representative may take a customer order for all of the following investments EXCEPT a) A closed-end bond fund in the primary market. b) A no-load mutual fund. c) A sector mutual fund. d) A closed-end bond fund in the secondary market.
d) A closed-end bond fund in the secondary market. A Series 6 representative is not licensed to take orders for secondary market securities.
Under Reg S-P, a broker/dealer's procedures to safeguard its customers' personally identifiable information (PII) must provide for each of the following EXCEPT a) The customer must be given the opportunity to opt out of any disclosure of PII to nonaffiliated parties. b) The broker/dealer is not required to give the customer an opt-out option regarding sharing of PII with its affiliates. c) The broker/dealer's responsibility to protect customers' PII extends to the personal equipment (such as laptops and cell phones) of its associated persons. d) A notice to the customer describing the firm's privacy procedures must be sent with the first statement of activity in the account.
d) A notice to the customer describing the firm's privacy procedures must be sent with the first statement of activity in the account. The initial privacy notice describing the firm's related procedures must be provided at the time a customer relationship is established, which may be well before an initial transaction. An initial transaction could be some time later than that. As soon as the firm obtains the PII for a new customer, the rule would be in effect. In addition, customers must be provided with an annual privacy notice.
The current market price of ABC stock on March 30 is $25. Which one of the following options contracts is out of the money? a) ABC June put with a strike price of $27 b) ABC June put with a strike price of $30 c) ABC June call with a strike price of $20 d) ABC June call with a strike price of $30
d) ABC June call with a strike price of $30 A call is out of the money if the current market price of the underlying security is lower than the strike price.
XYZ is a publicly traded company and its stock has been doing well for the last several years. XYZ is planning to expand into new markets and would like to raise additional capital to finance this expansion. How may this be done? a) After the IPO, XYZ can no longer raise capital in the primary markets b) Registered secondary offering c) Initial public offering or IPO d) Add-on offering
d) Add-on offering In an add-on, or subsequent primary offering, a publicly traded company increases its capitalization by issuing additional shares in the primary market. In a registered secondary offering, a party other than the issuer (usually a large shareholder) sells unregistered shares through a process of registration. In a registered secondary offering, the issuer does not receive the sale proceeds.
FINRA administers the continuing education (CE) program for the securities industry, which consists of two mandatory programs: the Regulatory Element and the Firm Element. All registered individuals must satisfy the Regulatory Element a) Every other year by December 31. b) Within 60 days of their first anniversary and every 2 years thereafter. c) Within 120 days of their second anniversary and every 3 years thereafter. d) Annually.
d) Annually. The Regulatory Element of CE, involving industry regulations and ethics, must be completed annually. The Firm Element training is also an annual requirement.
Which one of the following statements describes the market manipulation practice of painting the tape? a) Trading ahead of customer orders b) Purchasing a large enough number of shares of a security to be able to control the supply of stock c) Spreading false or misleading information about a company to impact the price of a security d) Buying and selling a security among traders to create a high level of activity to influence the price of a stock
d) Buying and selling a security among traders to create a high level of activity to influence the price of a stock
The sum of all issued securities of a corporation is referred to as the corporation's a) Articles of Incorporation. b) Outstanding stock. c) Treasury stock. d) Capital structure.
d) Capital structure.
A variable life insurance policy states all of the following EXCEPT a) Current and maximum investment management fee. b) Current and maximum administrative expenses. c) Current and maximum mortality costs. d) Current and minimum guaranteed cash value.
d) Current and minimum guaranteed cash value. Variable life policies do not guarantee cash values. All the other choices are charges and expenses detailed in a variable life policy.
This entity is entitled to purchase mutual fund shares from the underwriter or sponsor at a discount from the public offering price. a) Transfer agent b) Investment adviser c) Principal underwriter d) Dealer
d) Dealer
The ABC European Bond Fund invests in the debt of European corporations and other companies doing business in Europe. Investors in this fund are subject to all of the following risks EXCEPT a) Inflation risk. b) Interest rate risk. c) Currency exchange risk. d) Liquidity risk.
d) Liquidity risk. Redeemable securities, such as mutual funds, are liquid investments. Bonds are subject to both inflation and interest rate risk, and foreign investments are subject to currency exchange risk.
The settlement on options when they are exercised may be either physical or cash. Which of the following statements is NOT true? a) Most stock options are physically settled. b) Physically settled options are usually American style. c) Cash settled options are typically European style. d) Most stock options are cash settled.
d) Most stock options are cash settled. Most stock options are physically settled. Physically settled options tend to be American style. Cash settlement is usually used for options contracts that are not easily transferred or delivered, for example, index, foreign currency and commodities contracts. Cash settled options are typically European style.
All of the following are considered money market instruments EXCEPT a) Tax anticipation notes. b) Bankers' acceptances. c) Repurchase agreements. d) Newly issued Treasury notes.
d) Newly issued Treasury notes. Money market instruments include securities that mature in 1 year or less. Treasury notes have a maturity of up to 10 years; therefore, they are not traded in the money market. A tax anticipation note is a short-term municipal security issued in anticipation of future tax collections.
All of the following are true concerning preferred stock EXCEPT a) Preferred stock dividends are always paid prior to common stock dividend being paid. b) Bond interest payments are considered senior to preferred stock dividend payments. c) Preferred stock certificates can be "callable" for a period of time throughout their ownership. d) Preferred stock dividends must be paid annually regardless of corporate profitability.
d) Preferred stock dividends must be paid annually regardless of corporate profitability.
Which of the following accurately describes an ETN? a) ETNs are senior secured debt instruments. b) ETNs have principal protection. c) Interest payments fluctuate based on the underlying index. d) Principal at maturity is based on an index.
d) Principal at maturity is based on an index. Principal at maturity is based on the underlying index at that time, minus fees. ETNs are unsecured debt; they are backed by the credit of the issuing bank. ETNs have no principal protection. They do not pay periodic interest.
How are a Roth IRA and a Roth 401(k) similar? a) There are no maximum contribution limits. b) Contributions are made on a pre-tax basis. c) There are no early distribution penalties. d) Qualified distributions are not subject to federal income taxes.
d) Qualified distributions are not subject to federal income taxes. Contributions for both Roth individual retirement accounts (IRAs) and Roth 401(k) plans are made on an after-tax basis and, therefore, qualified distributions are excluded from federal income taxes. In both cases, there is a maximum annual contribution, and an additional catch-up for those who are age 50 or older. And, nonqualified distributions, which include distributions made before the age of 59½, are subject to a penalty for early withdrawals.
According to Rule 144A, what type of buyer is permitted to purchase restricted stock? a) Non-accredited investor that has previously purchased restricted stock b) Accredited investor c) Financial institution d) Qualified institutional buyer (QIB)
d) Qualified institutional buyer (QIB) Rule 144A provides an exemption that allows a qualified institutional buyer (QIB) to purchase restricted stock. A QIB has at least $100 million in assets under discretionary management.
The Federal Act that established procedures for the protection of customer funds and securities in the event that a broker/dealer becomes insolvent is called a) The Securities Act of 1933. b) The Securities Exchange Act of 1934. c) The Securities Advisers Act of 1940. d) The Securities Investor Protection Act of 1970.
d) The Securities Investor Protection Act of 1970. The Securities Investor Protection Act of 1970 (SIPA) established procedures for the protection of customer funds and securities in the event that a broker/dealer becomes insolvent. This act created the Securities Investor Protection Corporation (SIPC). The SIPC collects assessments from broker/dealers to protect customers from loss due to a failed broker/dealer.
A customer purchased 100 shares of XYZ stock at $30 per share. Two years later, the customer donated the shares to charity. At the time of the donation, XYZ had a market value of $50 per share. What are the tax consequences for the customer? a) The recipient's cost basis is $3,000. b) The donor must pay capital gains tax on the appreciation. c) The donor will have a $3,000 income tax deduction. d) The donor will have a $5,000 income tax deduction.
d) The donor will have a $5,000 income tax deduction. Subject to certain restrictions, charitable donations of stock are tax deductible at their market value at the time of the donation, in this case, $5,000. The donor is not subject to capital gains tax on the appreciation. The recipient's cost basis is $5,000.
Realized appreciation is a) A decrease in the value of a security that has been sold. b) An increase in the value of a security that is held by the investor. c) A decrease in the value of a security that is held by the investor. d) The net appreciated value in a security that has been sold.
d) The net appreciated value in a security that has been sold. Once a security is sold, the increase in value, or appreciation, is realized. When a security is sold for less than its purchase price, the loss is also realized at the time of sale.
Which of the following applies to a discretionary account? a) A customer chooses to buy 100 shares of ABC and the registered representative chooses the price. b) The registered representative chooses only the time and price of the trade. c) The registered representative is responsible for approving the discretionary account. d) The registered representative decides to buy 100 shares of ABC for a customer.
d) The registered representative decides to buy 100 shares of ABC for a customer. A registered representative has discretionary authority when he chooses one or more of the following: security, quantity or action. If the registered representative makes the decision to buy 100 shares of ABC for a customer, he has chosen all three: the action (buy), the quantity (100 shares) and the security (ABC). If a customer chooses to buy 100 shares of ABC and the registered representative chooses the price, the registered representative is not exercising discretion because he is only controlling the price. He has not picked the security, quantity or action. If a registered representative controls only execution time and price, he is not exercising discretion. A discretionary account must be approved by a principal, not a registered representative. The principal is also responsible for approving a discretionary trade. Finally, discretionary authority must be given in writing prior to the first transaction in the account.
Annuity contracts have a number of important features. Which of the following accurately describes an annuity contract? a) The insurance company's investment returns determine the amounts of the periodic payments to the annuitant. b) There is a penalty if withdrawals are taken from a variable annuity prior to age 62. c) When a nonqualified annuity is paid out, the payments are income tax-free. d) The type of annuity selected partly determines the payment amounts to the annuitant.
d) The type of annuity selected partly determines the payment amounts to the annuitant. The type of annuity partly determines the payment amounts to the annuitant. For example, a fixed annuity guarantees a certain amount of income based on the purchase payments deposited. These payments are invested in the general account of the insurance company and the insurance company assumes the investment risk. In a variable annuity, the separate account performance determines the amount of income the annuitant will receive. The contract holder bears the investment risk in the separate account.
When a company splits their stock, who maintains a record of shareholders eligible to receive the additional shares? a) Issuer b) Custodian c) Investment banker d) Transfer agent
d) Transfer agent The transfer agent is responsible for keeping track of the individuals and entities that own the securities of a company. Among the transfer agent's responsibilities are issuing and cancelling certificates to reflect changes in ownership.
Private equity funds a) Are investment companies. b) Are open to all retail investors. c) Have low minimum investment requirements. d) Typically invest in high risk ventures.
d) Typically invest in high risk ventures. Private equity funds invest in privately owned entities, such as startups and developing technologies. The investments are risky and require high minimum investments. Therefore, private equity funds are only open to institutions and high net worth individuals, not the general public. They are not investment companies under the Investment Company Act of 1940.
What is the timeframe for filing relevant Suspicious Activity Reports? a) Within 30 days of the suspicious transaction b) Within 90 days of initial discovery c) Within 90 days of the suspicious transaction d) Within 30 days of initial discovery
d) Within 30 days of initial discovery
The payment to mutual fund investors who redeem their shares will be based on the a) Next computed ask price as of the day the shares are received. b) Current offering price. c) Previous bid price as of the day the shares are received. d)Next computed bid price as of the day the shares are received.
d)Next computed bid price as of the day the shares are received. The Forward Pricing Rule states that all purchases and liquidations will take place at the 4 p.m. EST Net Asset Value per share AFTER receipt of the order to purchase or sell. In this question, the liquidation sale of shares back to the fund takes place at the next computed bid (which means NAV).
Which of the following would NOT issue overlapping debt? a)Water district b)Library district c)School district d)State
d)State
