Progress Exam 4a
To sell a security in a given state, a registered representative: AMust be registered in that state BMust be registered in that state only if he is a resident of that state CNeed not be registered in that state if his brokerage firm is registered in that state DDoes not need to be registered in that state if he is registered with FINRA
Any broker-dealer or registered representative selling securities in a particular state must be registered in that state. Being registered with FINRA does not necessarily register an individual in a given state. Many states have additional registration requirements besides joining FINRA.
Which of the following statements are TRUE regarding a comparison of strategic versus tactical asset allocation? Strategic asset allocations are more passive and tactical asset allocations are more frequently rebalanced. Strategic asset allocation has a long-term outlook, while tactical asset allocation encompasses short-term decisions. Unlike strategic asset allocators, tactical asset allocators believe that investors can time the market. AI and II only BI and III only CII and III only DI, II, and III
Asset allocation based on a client's risk tolerance and investment objectives is called strategic asset allocation. In theory, it is the best mix of assets given the client's goals and level of risk aversion, giving it a long-term outlook. Strategic asset allocators tend to view the market as efficient and market timing as ineffective. By contrast, those who believe securities markets are not perfectly efficient may try to use an active strategy to alter the portfolio's asset mix, to take advantage of anticipated economic events. This market timing approach is sometimes called tactical asset allocation.
A client contacts an RR after reviewing the financial statements of the S-Works Carbon Company. The client is confused since the company paid a cash dividend but had a loss for the last fiscal year. Which of the following statements is TRUE? AThe company is permitted to pay a cash dividend even though it had a loss BThe company is not permitted to pay a cash dividend if it had a loss CIf the company has a loss in its last fiscal year, it may pay a cash dividend only with prior approval from shareholders DIf the company has a loss in its last fiscal year, it may pay a cash dividend only with prior approval from the SEC
A company is permitted to pay cash dividends in excess of its net income even if it had a loss. In terms of financial accounting, cash dividends are paid out of retained earnings that are part of shareholders' equity. Therefore, cash dividends paid will reduce shareholders' equity. The company could have paid the cash dividend easily based on retained earnings from previous years.
A customer sells securities at $35 that she previously purchased at $29. The confirmation for the sale includes: AThe cost basis of $29 BThe sales proceeds of $35 CBoth the cost basis of $29 and the sales proceeds of $35 DThe profit of $6
A confirmation includes information regarding a trade, not the results of an investor's position. On a purchase, the confirmation shows the cost of purchasing the security. On a sale, the confirmation shows the proceeds received when selling the security. The customer needs to determine her own gain or loss.
A fundamental analyst, evaluating the common stock of a corporation, will examine all of the following choices, EXCEPT the: ASales of the corporation BManagement of the corporation CCurrent amount of earnings paid as dividends to shareholders DCurrent amount of short interest positions for the stock
A fundamental analyst will examine all the factors listed relating to a common stock except the current amount of short interest positions for the stock. Short interest is a statistic examined by a technical analyst. It represents the total amount of shares sold short that will be covered in the future.
If a temporary hold has been placed on an account, it will expire: AAfter two business days BAfter 15 business days CAfter 30 days DAfter the firm completes its investigation of the account
If a temporary hold is placed on the account of a specified adult, it will expire by no later than 15 business days after the date that it was first placed on the account, unless it was otherwise terminated or extended by another authorized regulatory entity. The temporary hold may be extended by the firm for no longer than 10 business days following the date, unless it was otherwise terminated or extended by another authorized regulatory entity
An institutional client has contacted Market Maker Z to purchase a block of common stock. Market Maker Z indicates it is willing to conduct the trade provided the customer pay a net price 10 cents higher than Market Maker Z's acquisition price. The customer agrees and Market Maker Z buys the block from Market Maker T for $23.60 per share. Market Maker Z: AIs in violation of FINRA rules for interpositioning BMust disclose a price of $23.60 + .10 commission on the confirmation as riskless principal CWould disclose a price of $23.70 as a net basis transaction DWould report the single transaction into the TRF at $23.60
Market Maker Z has acted as a principal on two separate transactions. It has purchased the shares at $23.60 from Market Maker T. Market Maker T, as the seller in this transaction would be obligated to report this transaction to the Trade Reporting Facility. Market Maker Z then sold the securities to the customer at $23.70. The capacity would be disclosed as a net basis trade. Additionally, it is necessary to obtain a customer's permission to conduct net basis trades.
Which TWO of the following statements are TRUE concerning revenue bonds? Revenue bonds may be issued only with voter approval Revenue bonds may be issued even though local debt limits have been reached Revenue bonds usually pay higher interest than general obligation bonds Revenue bonds are not exempt from federal income taxes AI and III BI and IV CII and III DII and IV
Revenue bonds may be issued without voter approval and may be issued even though a local debt limit has been reached. They are backed by the revenue derived from a project and not the taxing power of a municipality. They usually pay higher rates of interest than general obligation bonds since they have no taxing power as do general obligation bonds. The interest from both GO and revenue bonds is exempt from federal income taxes.
Which of the following municipal issues is MOST likely be brought to market as a negotiated issue? AGeneral obligation bond BBonds issued by a city CSchool district bond DIndustrial development revenue bond
Revenue issues are generally brought to market as negotiated issues.
A person purchasing securities in a private placement would receive; AControl stock BRegistered stock CRestricted stock DAn exempt security
Securities purchased in a private placement or private securities offering would be considered an exempt transaction, not an exempt security. The term exempt transaction refers to the method used in selling the security (a private placement). The term exempt security refers to the security itself (a municipal or U.S. government security). A person purchasing securities in a private placement would receive unregistered or restricted stock. The term unregistered or restricted stock refers to securities that have not been registered with the SEC and there is a restriction on when they may be resold publicly. Control stock is stock that has been acquired in the open market by an affiliated or control person of the issuer, such as an officer or director.
A selling group is used by an underwriting syndicate primarily to: AExpand the distribution of the securities being offered BReduce the overall risk of the syndicate CExpand the number of shares being offered DReduce the underwriting spread
Selling group members are broker-dealers who participate in the sale of a new issue on a best-efforts basis, and who assume no risk. They receive a selling concession (compensation) that is less than that received by syndicate members, who do assume risk.Unsold securities are returned to the underwriters.
The original asset allocation of an investment portfolio was 10% cash, 40% bonds, and 50% stocks. A recent bear market, however, has altered this allocation to 10% cash, 50% bonds, and 40% stocks. The client's investment objectives and risk tolerance have not changed. The adviser recommends that the portfolio be systematically rebalanced by selling: AStocks and buying bonds with the proceeds BBonds and buying stocks with the proceeds CStocks and bonds and placing the proceeds in cash until market conditions stabilize DStocks and bonds and allocating 10% of the portfolio to alternative investments
Systematic rebalancing is the process of buying and selling securities within a portfolio to restore its original asset allocation. Systematic rebalancing may be done either periodically (annually, quarterly, or monthly) or whenever market forces or different rates of return cause a significant change in the original asset allocation. In this case, a bear market has caused the value of the stocks in the portfolio to shrink so that this asset class now represents only 40% of the total portfolio. The adviser would rebalance the portfolio by selling bonds and buying stocks with the proceeds.
The Bond Buyer contains a 20-Bond Index and an 11-Bond Index. The bonds included in the 11-Bond Index have an average rating of: AAAA- BAA CAA+ DA+
The 11-Bond Index contains general obligation bonds with an average rating on S&P of AA+ and on Moody's of Aa1. The 20-Bond Index has an average rating on S&P of AA and on Moody's of Aa2
What is the maximum allowable percentage that may be sold above the original size of the offering that the syndicate can purchase from the issuer through a Green Shoe option? A10% B15% C20% D25%
The overallotment provision of an underwriting agreement may contain a Green Shoe clause, which allows the syndicate to increase the number of shares by 15% over the original number of shares in the offering.
If the S&P 500 has been increasing on high volume for several days, what term would BEST define this situation? AMarket momentum BAn efficient market CMarket neutral DA resistance level
The term market momentum is used to describe a situation where prices are moving in a certain direction and there is a high level of trading volume. There is also an expectation that this pattern will continue in the near future. For example, if the S&P 500 Index has been trading up or down significantly over a period of days along with heavy trading volume, some traders will anticipate this pattern may continue for a few more days. Market neutral is used to describe attempting to profit by buying some securities while at the same time selling short others. A resistance level is a point on a chart where the price of a security stops increasing. Efficient market is a term used to define that stock prices already represent all available information and there is no benefit that may be gained by using professional analysis.
Ann Smith instructs her broker-dealer to stop sending brokerage account-related mail, since she accesses all information from the Internet. What should the firm do regarding this request? AThe broker-dealer must refuse the customer's request BThe broker-dealer may deliver the confirmations electronically but must send physical account statements quarterly CThe broker-dealer may honor the request provided Ann signs an LOA waiving mail receipt DThe broker-dealer may honor the request
Under industry rules, a broker-dealer is permitted to deliver either statements and/or confirmations electronically to a client upon her request. Some firms charge a fee for delivery of paper confirmations but may not charge for physical delivery of statements. No client LOA (letter of authorization) is required for electronic delivery.
What effect will the declaration of a cash dividend have on a company's balance sheet? Cash will be reduced Dividends payable will increase Net working capital will remain the same The retained earnings figure is reduced AI and II only BI and IV only CII and III only DII and IV only
When a company declares a cash dividend, dividends payable (a current liability) is increased by the amount of the announced dividend. But, remember, the balance sheet must remain balanced. The assets of the company are not affected by the announcement, but retained earnings (stockholders' equity) is reduced and the balance sheet stays in balance. Cash is unaffected. It is, however, reduced when the company pays the cash dividend that it just declared. Net working capital (current assets - current liabilities) is reduced because a current liability was increased while current assets did not change.
A registered representative is taking over the business of another RR who is leaving the firm. Upon examining the accounts, the RR notices that the variable annuities owned by many of the clients have high expenses, mediocre performance, and few investment options. The RR decides that her first action will be to recommend that these customers redeem the old annuities and invest in the new Platinum One variable annuity that has substantially lower expenses, higher long-term performance, and many more subaccounts with varying investment strategies. This activity is: AKnown as churning and is strictly prohibited BCalled switching and is permitted only in those accounts that will not incur a deferred sales charge CPotentially acceptable if the benefits of the new annuity outweigh the possible taxes and additional sales charges the client might incur DPermitted only if the customer signs a switch waiver form
he practice of recommending that a client redeem one annuity or mutual fund and invest the proceeds in another annuity (or fund) is called switching. When redeeming the first annuity, the investor might incur deferred sales charges and a tax liability. (The tax liability can be avoided if the switch is eligible to be treated as a Section 1035 exchange.) The reinvestment in another annuity might also involve sales charges or might subject the investor to an additional period when surrender charges could be imposed on redemptions. These disadvantages mean that switching is frowned on by regulators, who suspect the RR involved is often motivated by the prospect of additional commissions rather than the client's best interests. However, when the new annuity is clearly superior to the old product, the additional benefits might outweigh the disadvantages.
