Final misses #1

Treasury Receipts pay interest when

at maturity

variable annuities are sold with or without a sales charge?

bc they are structured as participating unit trusts, variable annuities are regulated under the investment company act of 1940. selling with a sales charge that must be "fair and reasonable" under FINRA rules

If a registered representative is notified that a customer with an individual account at the firm has died, the FIRST action to take is to:

cancel all open orders and freeze the account

A customer has an existing margin account that shows: $6,000 LMV $5,000 Debit The customer will receive a call for minimum maintenance margin of:

$500. account has 6000 of securities x 25% min. maintenance margin= 1500 min. equity requirement. the account only has 1000 of equity so a $500 call will be made

If a member firm acts as the managing underwriter in an initial public offering of an issuer's securities, then the member is prohibited from issuing a research report on that company for how long

10 days following the effective date

Contributions to Individual Retirement Accounts must be made by:

April 15 tax filing date the year after which the contribution may be claimed on that persons tax return

Which of the following statements is TRUE regarding quotes for municipal bonds found in Bloomberg? A. All quotes shown in Bloomberg are for round lots B. All quotes shown in Bloomberg are subject to prior sale or change in price C. All quotes shown in Bloomberg must reflect the current "inside market" at the time of entry D. All quotes shown in Bloomberg are nominal

B

On the same day, in a margin account, a customer wishes to buy 1 ABC Jan 50 Call @ $10 and sell 1 ABC Jan 60 Call @ $5. Regarding this transaction, which statement is TRUE? A. The position results in unlimited loss potential B. The position is uneconomic and should not be placed C. The position requires the deposit of $500 margin D. The position will generate income that can be used to reduce the margin requirement

C. Since this is a debit spread, the margin call equals the debit spread of 5 points

Which of the following statements are TRUE regarding new issue offerings? I A clause is included in the underwriting agreement that releases the syndicate if a calamity occurs affecting the financial markets II The manager is allowed to repurchase shares in the secondary market to correct price imbalances that can occur III The manager may penalize syndicate members by taking away their concession if shares are resold to the manager IV A clause is included in the syndicate agreement that releases the syndicate member from liability if all of the securities are not sold

I, II, III

A client, age 72 has $314,000 in her Traditional IRA. She is required to take an $11,000 RMD for this year. She does not need the cash and wants to maintain her investment portfolio. She asks her representative if she can take the RMD in shares into her cash account at the firm This action will result in a: Cost basis of ___ for the share distribution and a sale proceeds of ___, with ____ of ordinary income and a cost basis of ___ for the shares transferred into the cash account

cost basis of "0" for the share distribution and a sale proceeds of $11,000, with $11,000 of ordinary income and a cost basis of $11,000 for the shares transferred into the cash account

A customer sells short 100 shares of ABC stock at $60 and sells 1 ABC Oct 60 Put @ $6. The maximum potential loss is:

unlimited

A customer buys 100 shares of XYZ stock at $30 per share. The customer then sells 1 XYZ 30 Call contract for a premium of $300. The call contract expires unexercised. After expiration, the customer's cost basis in the XYZ shares is:

$3,000. The expiration of the call contracts results in a short term capital gain to the writer of $300, taxable in that year. The cost basis of the stock position is unaffected at $30 per share, for a total cost basis for 100 shares of $3,000. Notice that this tax treatment is the one that is most beneficial to the IRS; and worst for the investor. The call premium is taxed as a short term capital gain at expiration; it cannot be used to reduce the cost basis of the long stock position, which has the same effect as increasing the potential capital gain on the stock.

Customer Z is a single 26-year-old man who earns $125,000 annually. He informs you that he is getting married and that his new wife's income of $75,000 per year will put them into the highest federal tax bracket. The couple will have investable income of $25,000 per year. The couple wishes to buy a house in 5 years that will be substantially more expensive than the condominium in which they currently reside. To meet the customer's needs for the large cash down payment in 5 years and to reduce taxable income, the BEST recommendation is to: A. open a margin account and invest in income bonds B. open an Individual Retirement Account and invest in tax-deferred variable annuities C. open a cash account and invest in mutual funds holding high yielding common and preferred stocks D. open a trust account and invest in Treasury STRIPs

C. since cash dividends are taxed at a max. rate of 15% (reducing taxable income), and the mutual fund shares can be easily liquidated in 5 years to make the house down payment

A customer opens a short margin account by selling short 300 shares of XYZ stock at $80 per share and deposits the required margin. If the stock declines in value by 25%, the customer's equity in the account will: A. remain unchanged B. increase by 12.5% C. increase by 25% D. increase by 50%

D. increase by 50%

Which of the following statements are TRUE regarding the preliminary prospectus? I The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest II The preliminary prospectus may not be sent to a potential customer prior to that customer expressing an indication of interest III The preliminary prospectus constitutes an offer to sell the issue IV The preliminary prospectus does not constitute an offer to sell the issue

I and IV

A declining rate of inflation would lead to: I lower bond prices II higher bond prices III lower bond yields IV higher bond yields

II and III

Which of the following are prohibited from buying an IPO directly from an underwriter? I A registered investment company II An officer of a registered investment company III An insurance company IV An officer of an insurance company

II and IV only

Which of the following securities CANNOT be sold by an individual holding an investment companies/variable annuities registered representative's (Series 6) license? I Municipal Investment Trusts II Real Estate Investment Trusts III Municipal Bond Funds IV Revenue Bonds

II and IV only

who makes trades on a principal basis (3)

market makers, registered options traders or specialists (DMMs), and competitive traders -MM, DMMs, CTs

Bonds quoted on a yield to maturity basis are generally:

serial bonds

execution date for stock dividends, stock splits and rights offerings

set at business day after payable date

who is prohibited from trading for their own account (meaning they trade on an agency basis) (2)

floor brokers and OBOs (order book officials) -FBs, & OBOs

A floor broker enters the crowd around the Specialist's (DMM's) post to buy 20,000 shares of ABC at the market for a public customer. The Specialist (DMM) tells the trader "20,000 shares of ABC have been stopped at 25." This means that:

the specialists/DMM has guaranteed a price of $25 to the trader

The Master Manufacturing Company has just announced a tender offer for its own common stock. Master is offering to buy up to 100% of the company's stock at $20 per share contingent on at least 64% of the outstanding shares being tendered. After the announcement of the offer, the stock closed on the NYSE up 2.50 at $18.75. A customer has 100 shares of Master stock in his cash account. The customer tells you that he wishes to "cash out" his position. You should recommend that the customer: A. tender the shares B. sell long C. sell short D. hold the shares for a better offer

sell long

Which statements are TRUE regarding Eurodollar bonds? I U.S. issuers of Eurodollar bonds are subject to foreign currency risk II U.S. issuers of Eurodollar bonds are not subject to foreign currency risk III Non-U.S. issuers of Eurodollar bonds are subject to foreign currency risk IV Non-U.S. issuers of Eurodollar bonds are not subject to foreign currency risk

II and III

if an account is frozen this means that

purchases require cash in advance for 90 days

A customer sells 1 ABC Jan 60 Put @ $7 and buys 1 ABC Jan 45 Put @ $1 when the market price of ABC is $58. The maximum potential loss is:

$900 - the customer has created a short put spread with a credit of $6. if the market drops both puts go in the money, the customer can then "put it" at $45 for a 15 point loss. since 6 points were collected in premiums, the max loss is 900

formula to find the maintenance call amount for an account below minimum

25% of LMV - equity= maintenance call amount

XYZ Corporation has declared a rights offering to stockholders of record on Wednesday, November 15th, payable on Tuesday, December 5th. Under the offer, shareholders need 5 rights to subscribe to 1 new share at a price of $24. Fractional shares can be rounded up to purchase 1 full share. The last day to buy XYZ shares before they go ex rights is:

Tuesday, December 5. payable date is the 5th, therefore exec. date is the 6th. to buy shares before they go ex rights, they must be purchased before december 6th

A wealthy retired investor is interested in buying Agency mortgage backed securities collateralized by 30-year mortgages as an investment that will give additional retirement income. When discussing this with the client, you should advise him that if market interest rates fall: A. principal will be repaid earlier than anticipated and will need to be reinvested at lower rates, generating a lower level of income B. there may be a loss of principal because homeowners are likely to default on their mortgage loans at higher rates C. the maturity of the security is likely to extend and principal will be returned to the customer at a slower rate than anticipated D. he will be able to sell the mortgage backed securities at a large profit because of their long maturity

A. If market interest rates fall, the homeowners will repay their mortgages faster because they will refinance and use the proceeds to pay off their old high rate mortgages that collateralize this mortgage-backed security. In effect, the maturity will shorten and the investor will be returned principal faster, which will have to be reinvested at lower current rates - another example of reinvestment risk.

To sell variable annuities, salespersons must be registered with (the): I FINRA II State Insurance Commission III State Banking Commission

I and II - To sell a variable annuity, a salesperson must be registered with FINRA with either a Series 6 (mutual funds and variable annuities only) license or Series 7 (general securities) license. In addition, the salesperson must be registered with the State Insurance Commission (since these products are sold by insurance companies; and insurance companies are regulated only at the state level).

Which statements are TRUE about OEX index options? I OEX index options are issued "American Style" II OEX index options are issued "European Style" III OEX index LEAP options are issued "American Style" IV OEX index LEAP options are issued "European Style"

I and III