Practice Exam #1

The amount of money a company has retained before paying taxes and interest of outstanding debt issues

(EBIT) - Earning before interest and taxes

Investment Clubs:

-Cannot take advantage of breakpoints on mutual fund purchases -Are permitted to purchase new equity issues at the POP

If a customer buys a new issue municipal bond at a discount in the primary market, which of the following statements are TRUE?

-The discount must be accreted -At maturity, there is no capital gain

Which of the following would be the usual use of a stop order?

-To protect the profit on a long position -To prevent loss on a short position

A defensive issue would include companies producing

-Tobacco -Clothing -Food

Defined benefit plans gives the highest return to employee who:

-are highly compensated -have fewer years until retirement

Hedges funds are:

-are unregulated -use investment techniques most suitable for sophisticated investors

A broker/dealer that is a financial advisor to a municipal issuer:

-cannot act as an underwriter of the issuers in a negotiated underwriting and receive compensation for both services -cannot act as an underwriter of the issuers bonds in a competitive bid underwriting and receive compensation for both services

True statements regarding SIMPLES are;

-employees contributions are pretax -catch-up contributions for those age 50 and older are permitted -SIMPLEs are retirement plans for small business with fewer than 100 employees

Reg T call must be met by _____

-within 5 business days in a margin account -within 5 business days in a cash account

FINRA rules for limited partnerships offerings limit underwriting compensation to __________

10% of the total money raised

one in which 25% or more of the properties are not specified

A blind pool offering

A quotation on a municipal security between dealers is assumed to be a(n):

Bona fide quote

Combinations are never

Bullish or Bearish

Minority stockholder are more likely to be able to elect directors through which form of voting?

Cumulative

Stock dividends ________ affect total equity

DO NOT

Which organization determines which OTC securities are eligible for purchase on margin?

FRB (Federal Reserve Board)

Which of the following is the most sensitive/volatile short-term interest rates:

Federal funds rate

The 30-day visible supply published in The Daily Bond Buyer contains:

General obligation & Revenue Bonds

Which of the following investment vehicles has the HIGHEST CREDIT RISK?

Industrial revenue bonds

Stop orders are the same as _____

Limit Orders

Bond confirmations must disclose the ______ of the yield to call or yield to maturity.

Lower; on a premium bond, the yield to call is going to be the lower of the two

client is buying the option

Opening purchase

client is writing the option

Opening sale

Which of the following could an analyst use to establish the rate of return on a direct participation program?

Present value; internal rate of return

ERISA requirements apply to pension plans established by:

Private sector organizations ONLY

Regulation D (Private Placement) offerings, which of the following statements is TRUE?

Registration with the SEC is not required

Selling calls against restricted ___________ shares is prohibited because the restricted shares could not be delivered if the calls were exercised by the buyer

Rule 144

Which factos affect SMA in a long account?

Sales of securities in the account cash deposited by the customers

A technical Analyst is concerned with all of the following:

Support levels changes in DJIA Reversals

Which of the following best describes how a syndicate determines the amount to bid for a new municipal issue?

The average reoccurring price - the spread

shows the relationship between the number of bonds actually place (sold) and total number offered sale

The placement ratio

In disputes involving a customer for amounts great than $100,000 __________ will be used unless both parties agree on one.

Three

If a stocks ex dividend date is Tuesday, January 13, when is the record date?

Thursday, January 15

Which of the following are governed by the prudent investor rule?

Trustee; executor; custodian; registered representative who has been granted discretionary authority

The record date is

Two business days after the ex-dividend date

An option writer liquidates a position by purchasing an option. This order must be marked as:

a closing purchase

An investor owning an option contract liquidates the position. This liquidation is

a closing sale

All of the following may receive breakpoint discounts:

a husband and wife in a joint account an investor in an individual account a pension plan trustee

Municipal securities advertisements must be approved by:

a municipal securities principal

Traders can sell short when:

a stock ticks up a stock ticks down unrestrictedly in both exchange and OTC markets

Municipal bonds would be considered the most suitable for which customer scenario?

an investor in high income tax bracket wanting income for their investment account

All US exchange listed foreign currency options

are settled in cash (US Dollars) expire on the third Friday of the expiration month

The writer of an in-the-money put will receive the upcoming dividend from the underlying issuer if the contract is exercised:

before the ex-date

Unit Investment Trusts (UIT) has no ___________, instead has a board of trustees

board of directors

If all other factors are equal, an investor would expect which type of preferred tock to pay the highest stated dividend rate?

callable

Nonsystematic risk, or company risk ______

can be diversified

If a customer wants his account designated by number, not by name, the registered representative:

can open the account with a written statement of ownership from the customer

Systematic risk, which affects all investments ______

cannot be diversified away

The long-term effect of the Federal Reserves buying and selling of securities in the marketplace is to:

check inflation or to create a situation which the economy can recover from a recession

Writers Liquidate =

close their short positions

Put and a call on the same underlying sector with the strike prices and/or expiration months being different

combination

investments not accepted in Keogh plans are

commodities

Which of the following securities carries the greatest amount of risk

common stock

An instrument that illustrates the transfer of title to any dividend, interest, or right that pertains to securities contracted for is called:

due bill

ERISA does not apply to whom?

employees of public sectors: such as city, and state governments

An opening transaction is used when _____

establishing a new option position

Regular way settlement of the following transactions must settle on the third business day after the trade date EXCEPT:

for a broker/dealer buying a treasury bond for its own account

The premium of a option changes as the market price of the underlying security moves, therefore:

if the stock price increases, the premium of a call is also going to increase; VICE VERSA

Disputes between anyone in the industry, __________

including registered clearing corporations, must go to arbitration; with the exception of statutory discrimination claims. (Sexual harassment)

As the underlying stock price increases, the premium of a call option generally:

increases

Breakpoints are not available to _________

investment clubs

A qualified legal opinion issued for a municipal bond underwriting means that the

legal opinion is qualified with restrictions and conditions

SIPC does not protect against ______

losses produced by flucutations in the market

The immediate effect of the Federal Reserve's buying and selling of securities in the marketplace is to:

make credit more or less available

For a client to get immediate execution, it should be place as:

market order

Every Sell order must be _________

must be marked Long or Short

Regulation D offerings are exempt transactions, therefore:

no SEC registration is required

Settlement for the weekly Treasury bill auction normally occurs ________

on the Thursday of the same week as the auction

Where must the SEC's no-approval claus appear in a prospectus?

on the cover

Under SIPC rules, customer claims are valued ______

on the day a federal court is petitioned to appoint a trustee

For a customer who has purchased stock and wants to write a call option, the option ticket would be marked

opening sale

The receipt of all of the following would raise concern about the possibility of money laundering except

personal check

All of the following could be redeemable security under the Investment Company Act of 1940 Except:

security sold on an exchange at the market price buyers and sellers have established

In a proxy contest, a member firm holding securities in street name for clients who are beneficial owners must:

send the proxy material to the beneficial owners at the issuing company's expense

All of the following are functions of the Federal Reserve:

setting the discount rate setting reserve requirements for banks acting as fiscal agent for the U.S. Treasury

For numbered accounts. the customer must _____

sign a document attesting to ownership

The writer of a combination expects the market to be:

stable

Which of the following governmental bodies receive the least amount of their revenues from property taxes

state governments

Fundamental Analysts are concerned with:

stocks intrinsic quality PE ratios earnings per share

An index option differs from an equity option in that

the exercise settlement is in cash

All open orders must be confirmed to the order book:

the last business days of April and October

True statement about Banker Acceptances

they are used primarily to finance imports and exports

FINRA's Trade Reporting Facility (TRF) electronically facilitates the reporting of trade data such as price and volume for

trades in NASDAQ-listed securities and exchange-listed securities when they occur off of the exchange trading floor

For a retired person, which of the following investments would provide the greatest protection against inflation?

variable annuities

Your customer in his early 30's has received a modest inheritance from a relative. Listing Tax-deferred growth as an objective and retirement income, which of the following investments is most suitable?

variable annuity

The buyer of a combination expects the market to be:

volatile

Treasury Bills are auctioned by the U.S. Treasury

weekly

It would be fair and equitable for a brokerage firm to assign an option exercise notice to a customer:

who first wrote that option

What affects a customers equity balance?

withdrawals of SMA cash dividends interest charged

The visible supply has been increasing steadily over the last 30 days. This is an indication that:

yields are likely to rise