Securities Industry Essentials Exam

Under industry regulations, an initial purchase of $3,000 of common stock in a margin account requires cash deposit of

$2,000

A customer buys 1 ABC Jan 35 put for a premium of $3 and simultaneously buys 100 shares of ABC stock for $35 per share. The customer will break even when the stock is selling at what price per share at expiration?

$38

Broker-dealer ABC seeks to underwrite a municipal securities offering by a local town in which the mayor is currently seeking re-election. A municipal finance professional who resides in the town and works fro ABC contributed $200 to the mayor's re-election campaign 13 months ago. If the employee wants to support the campaign further without impacting the municipal securities business of the firm, he is permitted to make an additional contribution of up to what amount?

$50

Company ABC announced a 20% stock dividend for its common shareholders. If a customer holds 1,000 shares at $50, what is the new price and number of shares following the payment of the stock dividend

1,200 shares at $41.67

Under normal circumstances, a customer's letter of intent on a mutual fund purchase is valid for what maximum period of time?

13 months

A decline in the GDP must last for at least how many quarters to be considered a recession?

2 quarters

The computation of dollar prices and accrued interest on municipal bonds is normally on what calendar basis?

30/360

An investor owns 100 shares of XYZ common stock at the current market price of $50 per share. If XYZ conducts a 1-for-2 reverse stock split, the investor's post-split stock position will be

50 shares at $100 per share

Annuity contract

A contract under which an insurer promises to make a series of periodic payments to a named individual in exchange for a premium or series of premiums.

Treasury Stock

A corporation's own stock that has been reacquired by the corporation and is being held for future use.

Roth IRA

A personal savings plan; contributions are not tax-deductible; earnings are tax-free

Under the securities act of 1933, registration is required for

American depository receipts (ADRs)

The call provision of a bond stipulates which of the following factors?

Call date and call price

Upon expiration, all in-the-money S&P 100 index call options are settled by the delivery of which of the following?

Cash

Which of the following actions is required of a broker-dealer's anti-money laundering (AML) program?

Designating an AML compliance officer

Under FINRA rules, this action by registered representatives requires written notification to the firm

Driving part time for a transportation network company on weekends

What is adversely impacted if the issuer's credit rating is downgraded?

Exchange-traded notes (ETNs)

A savings account at a bank is guaranteed by which of the following entities?

FDIC

What is required when a firm receives cash in excess of $10,000 from one customer in one business day

File a currency transaction report (CTR)

The following communications with the public can be considered misleading

Literature providing 10-year performance information to support predictions of future performance

At issue, which of the following debt securities mature in one year or less?

Money market instruments

The redemption value of an open-end investment company's shares is based on the

NAV (net asset value) computed after the order is received

No-Load mutual funds may have lower expense ratios than load mutual funds for which of the following reasons?

No-load funds are not permitted to charge a 12b-1 fee greater than 25 basis points

Difference between a primary distribution and a secondary distribution

Primary distribution involves a sale of newly issued shares by the issuer while a secondary distribution involves the sale of already issued and outstanding shares

Which of the following outcomes are possible for the writer of a covered call option?

Profit unlimited and loss limited

Under rule 144A, an issuer of restricted stock is permitted to sell to

Qualified institutional buyers (QIBs)

To offer its shareholders a privilege to obtain its shares at a fixed price, which of the following products doe a corporation issue?

Rights

When is interest on Treasury noted paid?

Semiannually

A registered representative wants to participate in a private securities transaction. which of the following actions must the RR take?

Send written notice to his supervisor outlining the activity and compensation structure

FinCEN accomplishes its mission to safeguard the financial system from the abuses of financial crime, including terrorist financing and money laundering, by enforcing

The Securities Act of 1933

Which of the following represents the effect of a stock split?

The price per share of common stock decreases

Under Federal Reserve Regulation T, a 90-day restriction is imposed when a customer opens and closes which of the following positions?

The same stock in different accounts on the same day

Qualified Institutional Buyer (QIB)

To be this type of buyer, investors must pass this three part test: 1. Eligibility is limited to insurance companies, registered investment companies, pension plans, corporations, and registered investment advisers 2. Buyer must be purchasing for its own account or for the account of other QIB's 3. The buyer must own and invest at least $100mm of the securities of issuers that are not affiliated with the buyer.

UTMA

Uniform Transfers to Minors Act. A law similar to the Uniform Gifts to Minors Act (UGMA) that extends the definition of gifts to include real estate, paintings, royalties, and patents.

Security type that provides investors with a stated maturity date, a floating interest rate, and an option to put the security back to a financial intermediary on a daily or weekly basis?

Variable rate demand note

A transaction in which a writer covers a position by purchasing an option is

a closing purchase

What Form U4 reportable event results in a statutory disqualification?

a felony conviction for a driving under the influence (DUI) charge

A member of a stock exchange responsible for providing liquidity in a security by being willing to buy and sell at all times is known as

a market maker

The last transaction in XYZ 5.50s 2030 was at 102. This bond is selling at

a premium

A registered representative (RR) who wants to place a mutual fund advertisement must obtain written approval from

a registered principal of the RR's firm

A married couple who earned income that exceeded $300,00 in each of the prior two years and reasonably expects the same for the current year is

an accredited investor

When a broker-dealer charges a commission on a securities transaction, it has acted as

an agent

Investments generally traded according to their average life rather than their stated maturity dates?

asset-backed securities

In the over-the-counter market, the term "spread" refers to the difference between the

bid and asked prices

The primary purpose of a syndicate desk in the context of an equity offering is to

build an order book and allocate the stock

If a market maker posts a quote of 10.00 - 10.10 [25x10], which of the following actions is the market maker willing to take?

buy 2,500 shares at $10 and sell 1,000 shares at $10.10

In a period of low inflation and economic recession, the Federal Reserve is expected to take which of the following actions?

buy bonds in the open market

Under FINRA rules, non-cash compensation connected with the sale of variable contracts doesn't include

commissions

Roth 401(k)

contributions with after tax dollars and qualified distributions at retirement are received income tax free

What isn't an example of inside information if the customer shares with his registered representative?

declared stock dividend

What action violates FINRA rules regarding selling away?

engaging in private securities transactions without written prior consent of the employing BD

Direct participation programs (DPPs) provide

exposure to non-correlated assets with steady returns

Advantage of index funds?

lower management fees due to passive management of the fund

What investment risks is the greatest risk in a variable life insurance policy?

market risk

Stability in the value of a debt portfolio is greatest when

maturities of the debt securities are short

UTMA accounts are opened under the tax ID of the

minor

Regular way settlement on Treasury bonds is

next business day

Accredited Investor

person who is permitted to invest in higher-risk investments such as business start-ups

Under SEC regulation S-P (consumer privacy), what information must a firm include in its customer privacy and opt-out notices?

policies to protect the security of nonpublic information

A firm is a participant in a public offering. To sell a substantial amount of the securities to its customers, the firm agrees to repurchase the shares at no less than the original sales price. Such agreements are

prohibited as fraudulent and manipulative

An associated person who is not a registered representative is permitted to engage in

providing account opening forms to a new customer

Roth 401(k) and roth individual retirement account (IRA) plans share

qualified distributions are excluded from federal income tax

How often must a firm send an account statement

quarterly

A broker-dealer is permitted to accept payment for a new issue from a new customer when the

registration is effective

Call protection is most valuable to a bond owner when bond prices are generally

rising

nonsystematic risk

risk that can be eliminated by diversification

Which stakeholders have first claim priority in a chapter 11 proceeding?

secured debt holders

Under a system of statutory voting, a common stockholder has as many votes for each vacancy on the board of directors as the number of

shares owned by the stockholder

Blue Sky laws are regulated by

state securities regulators

What is the cost basis of an inherited mutual fund?

the net asset value (NAV) of the shares when the owner dies

What is true regarding a customer account held as tenants in common?

the ownership of the decedent's assets is governed by their will or state of law

A registered representative discussing a 529 college savings plan should explain _________ to the customer?

the potential deductibility of contributions from state taxes

Rule 144A regulates:

the sale of restricted stock to institutional investors

What is primarily used to determine how much of the counter currency the customer will receive when selling a fixed amount of a base currency to purchase a counter currency

the spot exchange rate

What is true about all U.S. government agency issues

they are exempt from registration under the Securities Act of 1933

In the event of a stock split, which of the following parties is required to maintain a record of the shareholders eligible to receive the additional shares?

transfer agent

Owner of __________ is most exposed to inflationary risk

treasury bonds

At the time of issuance, which of the following securities normally has the longest period of expiration?

warrants