Series 7

A constant dollar investment plan requires

that the same aggregate dollar amount be kept invested in equities

statements are true about margin on securities

the FRB sets margins for non-exempt securities FINRA sets margins for exempt securities FINRA sets margins for non-exempt securities

monetarist theory states t hat economy is stimulated by

the action of the federal reserve

A small investor with $2,200 of available funds wishes to make a crowdfunding investment. Which statement is TRUE about this

the client can make the investment without resitriction

statements are true about a company that is highly leveraged

the company has the greatest portion of its capitalization as debt if the company's operating earnings are highly variable, it may default in an economic downturn they "trade on the equity," producing a disproportionate increase in earnings per share once earnings cover debt service

interest received from older "tax free" IDBs issues is taxable if the holder of these bonds

the corporate lessee

Strategic asset allocation

the determination of the percentage of assets to be placed in each asset class under an asset allocation scheme

official statement

the disclosure document for a new municipal bond offering which details the material information necessary for the investor to judge the creditworthiness of an issue and to determine whether or not to invest.

concession

the discount from the public price given to the member of a selling group that is participating in a new issue underwriting

bond buyer worksheet

the form used by an underwriter in a competitive bid municipal bond offering to formulate a bid - i.e., write the scale.

spread

the gross compensation that an underwriter receives for distributing a new issue

federal funds rate

the interest rate charged on borrowings between Federal Reserve System member banks for overnight loans of reserves. Because this rate changes daily in response to the need for borrowing, it is considered an indicator of future interest rate changes. Also note that this is the lowest interest rate in the economy.

discount rate

the interest rate which the Federal Reserve charges member banks for making direct loans of reserves. This rate is typically set at 50 basis points (.50%) higher than the Fed Funds rate. Making changes to the discount rate is a monetary policy tool employed by the Fed to tighten or loosen the money supply.

Which statements are TRUE about a tender offer for common shares

the offer must remain open for at least 20 days each "sweetening" of the offer must extend the offer for an additional 10 days

dow jones average

the oldest measure of the activity and movement of the overall market, which consists of 30 industrial stocks, 20 transportation stocks and 15 utility stocks.

A parent opens a custodial account for a 10-year old child. The grandparents then donate into the account. If the total investment income in the account exceeds $2,300 in 2022, the income is taxed at the

the parents tax rate

Tactical asset allocation

the permitted variation from the fixed percentage of assets to be placed in each asset class given to the asset manager under an asset allocation scheme

Active asset management

the pursuit of investment returns in excess of the specific benchmark return. Active asset managers believe that undervalued stocks exist in the marketplace, and that by investing in them, they can surpass the performance of a similar index fund

Portfolio Rebalancing

the reallocation of funds in an asset allocation model from overperforming asset classes to those that have underperformed. In this manner, the percentage allocations to each asset class are kept within the desired range

prime rate

the short-term interest rate that commercial banks charge their most credit-worthy business customers.

Under MSRB rules, confirmation disclosure for bonds sold at a discount or premium must include

the yield at which the transaction was effected and the resulting dollar price whether the securities are callable capacity in which the broker-dealer acted

Under MSRB rules, which of the following records must be kept for specified time periods

trade comparisons customer account statements customer complaints

A customer buys $10,000 of 30 year corporate bonds with 10 years left to maturity at 92. The customer elects not to accrete the discount annually. At maturity, the customer will have

$800 of taxable interest income

exchange rate risk is a factor to consider when investing in foreign debt issues

- U.S. dollar appreciates in value - foreign currency depreciates in value

resistance level is

- above current market price of the stock - a point through which the stock's price tends not to rise

adjustment income bonds

- any interest payment made is predictable in amount - timing of interest payments made is not predictable

regarding warrants

- are typically issued with an exercise price that is higher that the stocks current market price - would be exercised when the stocks market price id above the warrants strike price

used to protect a gain on a short sale stock position

- buy a call - sell a put - place a buy stop order

Gross domestic product consists of

- consumer spending - U.S. government spending - fixed investment

mutual funds

- continuously issued -redeemable - non-negotiable

European style foreign currency options

- contracts can only be exercised at expiration - contacts can be traded at any time

Roth IRAs

- contributions are not tax deductable - distributions are after age 59 1/2 are not taxed

Coverdell Educations savings accounts

- contributions are not taxable deductible - distributions are not taxable

when recommending municipal securities disclosure must be made to customers of

- control relationships - existence of financial advisory relationships

needed to determine the annual accretion amount on an original issue municipal discount bond

- dated date - maturity date - acquisition cost

amortization of a municipal bond premium for tax purposes result in

- decrease in the bond's cost basis - no change in the amount of interest income recevied

included in the taxable income of a corporation

- dividends received from foreign investments - gain on the sale of a capital asset

regulation NMS required market centers to do

- electronically link and make quotes accessible in real time - provide an automated execution at the best price within 1 second - put procedures in place to prevent trade-throughs

ABC declares and pays a stock dividend...after distributions received in the amount

- equity in the account remains the same - market value of the ABC stock in the account in the account will be the same

items included on a company's income statement

- installment sales - interest income revenues - sales fixed assets

Treasury STRIPS

- interest is accreted annually - interest is subject to tax annually

Functions of the transfer agent

- mailing dividend payments to shareholders - canceling old shares and issuing new shares - preparing and mailing proxies

individuals who make a secondary market in the corporate bonds

- market makers -traders - dealers

Fidelity bonds

- member firms are required by FINRA to maintain fidelity bond coverage - is insurance against loss due to employee theft

can be sold with a series 6 license

- municipal investment trusts - municipal bond funds

Reg. SHO requires that if stock falls by 10% or more

- only be sold short on an up bid - short sales of that security are subject to the "bid test" rule for the remainder of that trading day and the entire next trading day

An investor in a limited partnership generating passive losses can offset these against:

- passive income generated from other limited partnership investments - income generated from direct investment in real estate

a market maker that compensates a retail member firm for sending its customer orders to the market maker

- paying for order flow - permitted to do so, subject to best execution requirements

the manager of an unregistered hedge fund is typically compensated by a fee based on a

- percentage of assets under management - performance fee based on profits

activities of municipal broker's broker

- perform trades on an agency basis only - do not carry inventory positions

variable life policy

- policy builds cash value that can be borrowed - it is a form of permanent insurance - sale of the product requires the delivery of a prospectus to the purchaser

in a corporate new issue offering, the issuer's responsibilities include

- printing the certificates - registering the certificates

U.S. government agency securities

- quoted in 1/32nds - traded with accrued interest computed on a 30 day month/360 day year basis

types of complex products

- reverse convertible note - asset-backed note - structured note

defined benefit plan

- smallest contributions are for those far away from retirement - largest benefits will be paid to high salaried employees nearing retirement

intrastate offerings are subject to

- state registration - FINRA regulation

securities sold through auction

- treasury bills - treasury TIPS - general obligation bonds

generally trade OTC

- treasury issues - municipal issues - corporate debt issues

the standard and poors 100 option contract is

-traded on the CBOE - broad based

Under FINRA rules, copies of order tickets must be kept for

3 years

Under FINRA rules, research reports approved by a supervisory analyst must be kept by member firms for:

3 years

Which asset allocation is BEST for a 35-year old single risk tolerant investor looking to achieve the highest returns

95% stocks / 5% money markets

Under FINRA Rule 5130, which of the following are prohibited from buying a new issue directly from an underwriter

A FINRA registered representative A person who is financially dependent on a FINRA registered representative A financially independent sibling of a FINRA registered representative

rights agent

A corporation is attempting to sell additional shares to its existing shareholders through a rights distribution. A shareholder who wishes to subscribe must send the purchase amount with the rights certificate to the

Deferred Compensation Plan

A nonqualified retirement plan whereby the employee defers receiving current compensation in favor of a larger payout at retirement (or in the case of disability or death).

following would be considered a "control" relationship to be disclosed to customers?

A principal in a municipal firm is the supervisor of the school board whose bonds the firm is underwriting A principal in a municipal firm is the supervisor of the school board whose bonds the firm is trading The Treasurer of the township, whose bonds the firm is offering on a principal basis, is on the Board of Directors of the municipal firm The Treasurer of the township, whose bonds the firm is offering on an agency basis, is on the Board of Directors of the municipal firm

Regulation D offering can be advertised

An offering made to an unlimited number of accredited investors and no non-accredited investors

quotes found on pink sheets

BW, OW, and AON

The Federal Reserve Bank has made a policy decision to devalue the U.S. Dollar versus the Japanese Yen. Which of the following intervention actions would decrease the U.S. Dollar's exchange value?

Buy Japanese Yens and sell U.S. dollars

A customer has just received a $100,000 inheritance and wants to know what to do with the money until he decides how to use it. He thinks that he will make his decisions on what to do with the funds within 3 months. The BEST recommendation is for the customer to buy

treasury bills

offering memorandum

under regulation d, purchasers of private placement offerings must be given full disclosure through

synonymous when talking about open-end funds

underwriter/sponsor pop/ask price

long call

unlimited upside potential gain

There is no real benefit for the manager of a pension plan to invest in which of the following securities?

muicipal bonds

sales literature distributed by a member firm connection with the promotion of a BDC offering

must be filed with FINRA 10 business days after distribution

Rule 103 of Regulation M requires that a market maker in a stock that is also a syndicate member in an "add-on" offering of that issue, during the 20-day cooling off period

must resign as a market maker can act as a passive market maker

On Wednesday, May 15th, a registered representative receives an order to sell 100 shares of ABC stock that has been "transferred and shipped" to the customer. Before executing the order, the registered representative must make sure the securities can be delivered by

Friday May 17th

Which of the following are appropriate investment strategies for a client with a 20-year time horizon

Holding less cash Holding more stock Holding less bonds

A balance of payments deficit would be narrowed by which of the following

Decreased levels of U.S. imports Increased sales of U.S. securities to foreign holders Increased levels of foreign tourists visiting the United States

are "preference" items included in the alternative minimum tax computation

Excess intangible drilling costs Excess depletion

Margins on government and municipal securities are set by (the)

FINRA

If the federal reserve tightens credit via open market operations, which of the following interest rates will increase?

Federal funds rate discount rate broke loan rate prime rate

who sets Regulation T initial margin requirements

Federal reserve board

A customer has made multiple purchases of a stock at different dates. If the customer sells a portion of the position, the customer's cost basis is reported by the broker-dealer on:

Form 1099-B and FIFO

takedown

In a new issue municipal bond offering, the discount from the public price given to a member of the syndicate.

Which asset classes are subject to currency risk (exchange rate risk)?

International stock and emerging markets

technical indicators that are bearish

Inverted Saucer formation Breakout through a support level Head and shoulders top formation Odd lot purchases

Under MSRB rules, advertising relating to municipal securities must be approved by the

Municipal Securities Principal General Securities Principal

A prospective options customer must receive which of the following at, or before, the time that sales literature that includes recommendations is sent to the client

Options disclosure document

Which of the following are defined as "portfolio income" under IRS guidelines

Proceeds from the sale of securities in excess of the tax basis of those securities Interest income received from bond holdings Dividends received from preferred stock holdings

Corporate officers who wish to trade their own company's stock must comply with which of the following rules?

Prohibitions on short sales of that company's stock Trading is restricted to decisions based on publicly available information Filing change of holding reports with the SEC

The Securities and Exchange Commission is empowered to administrate which of the following Acts

Securities Act of 1933 Trust Indenture Act of 1939 Investment Company Act of 1940

The overall economic performance of developing countries is expected to outpace that of the United States over the coming years. A customer that wishes to profit from this should receive which recommendation and accompanying risk disclosures?

The customer should be recommended an emerging markets fund, as long as the customer is willing to assume political risk and exchange rate risk

activities of the registrar

The registrar accounts for the number of shares issued The registrar keeps the integrity of the shareholder record

A corporation would repurchase its debt for which of the following reasons

To increase the market value of its equity issues To reduce its sensitivity to earnings fluctuations due to cyclical conditions To decrease its capitalization

Which of the following are defined as "accredited investors" under Regulation D

Trust with assets in excess of $5,000,000 whose purchase is directed by a sophisticated person A bank or savings and loan institution

Which of the following MUST be disclosed in a research report recommending the purchase of a specific security?

Whether the firm or its affiliates own 1% or more of the issuer's securities Whether the employees of the firm have a financial interest in the security Whether the firm has been a manager or co-manager in an underwriting of any of the issuer's securities within the past year

non-convertible preferred stock

Which security of the same issuer is likely to give the highest current yield?

an oil & gas limited partnership investment would be least suitable for

a custodial account

value line index

a geometrically weighted index consisting of some 1,700 selected issues that are on the NYSE, NYSE American (AMEX), and NASDAQ markets.

defined benefit plan

a pension plan in which the amount an employee is to receive on retirement is specifically set forth distributions upon retirement are 100% taxable employees with the highest salaries and fewest years to retirement benefit the most contributions made to the plan can vary from year to year

competitive trader

a registered New York Stock Exchange member who trades solely for his or her own account on the floor of the exchange. The presence of such persons on the exchange floor added liquidity to the market (another person willing to buy or sell always helps!)

floor trader

a registered exchange member, only on the CBOE floor, who trades for his or her own account, at his or her own risk.

reallowance

a small portion of the underwriting spread which the managing underwriter allocates to a non-syndicate, non-selling group broker-dealer who sells part of a new issue.

S&P 500

a weighted index that overwhelmingly includes the largest issues that trade on the New York Stock Exchange and NASDAQ. The largest weighting in the index is technology stocks

A customer is short 1 ABC Jan 90 Call @ $5. The call is assigned when the market price of ABC is $100. The sales proceeds of the shares is:

strike price plus premiums

The transfer agent is typically responsible for all of the following functions

acting as disbursement agent for the corporation issuing new stock certificates canceling old stock certificates

The President of PDQ Corporation donates restricted PDQ shares to the United Way after holding them for 3 months fully paid. United Way can sell the stock without restriction

after holding securities for 3 months

market maker

synonymous with an OTC dealer, a FINRA member firm that disseminates bid and ask prices at which it stands ready to buy stock into, and sell stock from, its inventory at its own risk in the over-the-counter market

trust indenture

also called the indenture, a series of covenants or protective promises made by the issuer of a debt security to the purchasers of a debt security.

broker call loan rate

also known as the call loan rate, the interest rate that banks charge brokerage firms for loans collateralized by marketable securities (margin loans). This rate is lower than the prime rate (the rate that banks charge their best business customers for unsecured loans) because marketable securities are placed with the bank as collateral

floor broker

an employee of an exchange member firm who executes orders for the company's public customers on the exchange floor.

major market index option

an index option that mimics the Dow Jones Industrial Average, it consists of 20 stocks in different industries, and is traded on the American Stock Exchange under the symbol XMI

The designated Registered Options Principal is responsible for all of the following functions

approval of options advertising writing of procedures for supervision of options accounts review of procedures for supervision of options accounts

Under Rule 144, a customer wishing to sell must file the 144 "Notice of Sale" with the SEC

at, or prior to, the placement of the sell order

Cyclical stock

automobile manufactur

Strategic portfolio management is the selection of the

target asset allocation for each asset class selected for investment

Regarding the notification of a broker-dealer's financial condition to customers, a brokerage firm must send semi-annual statements which include the firm's

balance sheet and net capital compution

Institutional portfolio managers have been allocating an increasing percentage of their funds to cash and cash equivalent positions. This is an indication that their market sentiment is:

bearish

A support level is:

below the current market price of the stock a point through which the stock's price tends not to fall

contract between an issuer and a bidder to buy a municipal issue

bid form

best describes a stock that moves with the market?

blue chip stock

AMBAC insurance guarantees the timely payment of

both interest and principal from the time of default

Which of the following technical indicators would be considered to be bullish?

breakout through the resistance level head and shoulders bottom formation

All of the following must be registered under state blue sky laws

broker dealers limited partnership offerings sales representatives

A head and shoulders "bottom" formation is

bullish and a reverse downward trend

how the customer buy and sells

buys at ask and sells at bid

how the dealer buys and sells

buys at the bid and sells at ask

Which item would be found on a corporation's income statement

taxes

a restricted margin account is one

that is below 50% initial regulation T margin

An investment strategy where a higher price is paid for a stock based upon expected returns is

growth investing

offer the greatest protection from "interest rate risk"

high coupon bonds with long maturities

primary benefit of a municipal zero-coupon bond

capital appreciation

how can custodial accounts be open?

cash account

Which ratio is the most stringent test of liquidity?

cash assets ratio

If a portfolio manager's market sentiment is bearish, then which of the following are appropriate actions?

cash positions will be increased investments in stock positions will be decreased

corporate characteristics most difficult for a limited partnership

centralization of management

All of the following income received by a corporate investor is partially excluded from income tax

common dividends received preferred dividends received convertible bond interest received

in a delationary period, which security would be most negatively affected

common stock

example of a double barreled bond

convention center bond backed by user fees and unlimited ad valorem taxing power

A communication sent to fewer than 25 existing or prospective retail clients is defined as (a)

correspondese

A customer buys 1 ABC Jan 35 Call @ $5 and exercises the contract. The tax consequence is a

cost basis of $40 per share

A customer has written 1 ABC Jan 50 Put @ $3. The contract is assigned. The tax consequence to the writer is a:

cost basis of $4700

An investor is considering a municipal bond tax swap. All of the following should be considered when determining whether a municipal bond tax swap will result in a "wash sale"

coupon rate maturity issuer

considering a municipal bond tax swap. What should be considered when determining whether a municipal bond tax swap will result in a wash sale

coupon rate maturity issuer

When making a recommendation of corporate commercial paper to a customer, which risk is the MOST important consideration

credit risk

an investor wishes to do a municipal bond tax swap, the investor can expect to pay extra funds for the swap if the newly purchased bonds have

higher coupon and higher rating

The "effective" Federal Funds Rate is the

daily average rate of member banks of the Reserve System

Under the flow of funds in a revenue bond trust indenture, the first use of NET revenues is to pay: A. operation and maintenance B. debt service C. debt service reserve D. reserve maintenance fund

debt service

A recession is defined as a(n)

decrease in GDP for at least 6 consecutive months

The principal tax benefit of an oil and gas "income" program is

depletion

The use of index funds as investment vehicles for asset classes increases

diversification

can be distributed by an REIT to its shareholders

dividends and capital gains

A change in each of the following is a leading economic indicator

durable goods orders initial claims for unemployment index of industrial production

John Jones has an individual cash account; a joint margin account with his wife; a custodian account for his minor daughter; and a custodial account for his minor son; all at the same brokerage firm. If the firm should fail, Securities Investor Protection Corporation will cover

each account separately

529 plan

education plan that permits an adult donor to be the beneficiary

A younger female customer, in the highest tax bracket, already has a substantial investment portfolio that is invested in a balance of quality stocks and bonds. She wants an investment that will provide rapid asset growth and is willing to assume risk. The BEST recommendation would be

emerging market funds

A 45-year old investor has stated investment objectives of income and growth. Which mutual fund could be added to the customer's portfolio?

equity income fund

usual order of the economic cycle

expansion prosperity recession recovery

Intrastate offerings are exempt from

federal registration

who sets minimum maintenance margin requirements

financial industry regulatory authority

In order to sell restricted stock under the provisions of Rule 144, the stock must be

fully paid for and held for 6 months

constitutional debt limits are imposed on the issuance of

general obligation bonds

Types of progressive taxes

gift, income, and estate

Rule 105 of Regulation M, covering transactions that occur in the secondary market during the 20-day cooling off period for "add on" securities offerings, requires that any short sales of the issue

that occur 5 business days prior to the effective date cannot be covered by purchasing the issue from the syndicate

bid form

in a competitive bid underwriting of a new issue municipal bond, the form on which an underwriting syndicate submits its bid to the issuing municipality. The form includes the coupon rates proposed by the underwriter and the price at which the underwriter proposes to purchase the new bonds from the issuer

reinvestment risk occurs...

in falling markets

A balance of payments deficit would be widened by which of the following

increased levels of U.S. imports Decreased sales of U.S. securities to foreign Decreased levels of foreign tourists visiting the United States

An older female customer, in the lowest tax bracket, wants an investment that will provide asset growth for retirement. The best recommendation would be

index fund

A registered representative receives an order from a corporate issuer to buy 500,000 shares of that issuer's stock in the market, 5 minutes prior to market close. The registered representative should

inform the company that this is a possible market manipulation under the Securities Exchange Act of 1934

During prolonged periods of economic expansion all of the following will occur

interest rates can be expected to rise the Federal Reserve will begin to tighten credit business activity will increase

Information barriers are required between which brokerage firm departments?

investment banking and research and trading and investment banking

payment for U.S. government securities that are sold through auction is made on

issue date

To make a public offering of a Direct Participation Program

issue must be registered with the SEC

A customer, age 51, has a 20 year investment time horizon, a moderate risk tolerance, and is looking for investments that provide both income and growth. The best recommendation would be

large capitalization growth stocks

defined as options "sales literature"

lecture on options investing

short leg of a bear put spread

limits potential gain

Historically, which of the following investments has provided the highest return over time

listed common stocks

Selling short against the box

locks in a gain and is taxable that year

to determine if position limits have been violared, the O.C.C. would combine

long call and short puts

Gain or loss on all of the following options positions will be short term

long equity options short equity options short equity LEAP options

An investor believes that interest rates will be flat or falling into the future; and that prices may deflate. The MOST appropriate investment is

long term U.S. government bonds

Federal Reserve enters into a repurchase agreement

loosens credit

A constant dollar investment plan is one which

maintains a fixed dollar amount of a portfolio's assets in equities

has the greatest impact on the company's "alpha" coefficient

major change in a corporation's capital structure

10 year treasury notes most important risk

market risk

Defensive stocks included in a portfolio's construction will minimize exposure to

market risk

What risk is the greatest concern in a Rule 144A transaction?

market risk

The Self Regulatory Organizations (SROs) are

membership organizations

an indicator of "market sentiment"

number of bullish investors vs number of bearish investors

if an index option is exercise, the writer is...

obligated to deliver cash

call loans made by banks to broker dealers are secured by

partially paid securities held in margin accounts for customers of the broker-dealer

The portfolio management technique that uses a performance benchmark such as a market index that any investments must match is called

passive management

Pre-arranged trades by insiders are

permitted under Rule 10b-5-1

are coincident economic indicators

personal income employment levels industrial production

Under MSRB rules, all of the following may be changed by mutual agreement between municipal dealers

place of delivery time of delivery form of delivery

Speculators in foreign currencies would be subject to all of the following risks

political risk market risk exchange rate risk

The "Efficient Market Theory" states that securities markets are efficient if

prices instantaneously and fully reflect all relevant available information

highest interest rate

prime rate

investment is LEAST liquid

private placements

A sharp rise in interest rates would have the greatest effect on the market price of

public utility stocks

option position would be used to hedge a 2x leveraged ETF

purchase 1 put option on the ETF

A municipal bond "tax swap" is the

purchase and sale of similar, but not identical bonds, to incur a tax deductible loss for that year

to evaluate investor sentiment, a technical analyst would examine

put/call ratio short interest figures odd lot transactions

diversification of a portfolio among asset classes

reduces the variability of the rate of return over the investment time horizon

Corporate earnings that are not paid to shareholders as a dividend are credited to:

retained earnings

defined contribution plan

retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account

A head and shoulders "bottom" formation is a(n)

reverse downward trend

What is a type of regressive tax?

sales tax

Which of the following technical indicators would be considered to be bullish

saucer formation odd lot sales

A retired customer that has a portfolio of blue chip stocks is looking to supplement his retirement income. An appropriate recommendation would be to:

sell covered calls

"Selling short against the box" is

selling stock short (borrowed shares) that the customer owns

All of the following are considered to be advertising by the MSRB

seminar texts market letters form letters

Under IRS rules, if a customer selling shares of stock wishes to use specific identification instead of FIFO for cost basis reporting, the broker-dealer effecting the trade must be notified of this no later than

settlement date

will cause an issue to be a "designated security" under the penny stock rule

share price under $5 per share Non-NASDAQ OTC issue

trades for foreign currencies settle

sport and forward

Under SEC Rule 145, all of the following corporate distributions by an issuer are exempt from the requirement to file a registration statement

stock dividend fractional stock split whole stock split

Buy ABC at $55 stop GTC

stock has been fluctuating in prince between $40 and $54 per share over the last 3 months. If the analyst expects a break through the resistance level. What should be placed?