Series 7
All of the following must be sold with a prospectus except an IPO of common stock or closed end fund in the secondary market?
Securities sold in the secondary market do not have a prospectus delivery requirement.
On the morning of the ex-date for a cash dividend, which of the following orders on the order book will not be reduced? Buy limit or sell limit
Sell limit
The disclosure document for a new municipal bond issue is the
Official statement
European-style foreign currency options can be exercised and traded at any time or at expiration?
Only exercised at expiration but can be traded anytime.
The primary tax benefit of an income oil and gas program is depreciation or depletion?
depletion
Capital gains distributed by a mutual fund to shareholders are reported and taxable for the year paid by the fund or earned?
Earned
It would be fair and equitable for a brokerage firm to assign an option exercise notice to a customer with the largest position or the first position?
FIFO whoever did it first
Regulation T extensions are granted by SRO (FINRA) or the transfer agent?
FINRA
Which of the following is not part of the Federal Farm Credit System (FFCS)?
Federal Home Loan Bank
A person legally responsible for the handling of the financial assets of another, such as an executor or guardian, is usually called
Fiduciary
Automatic exercise will occur for equity options at expiration that are in the money by at least
$0.01 one penny
A customer receives a cash dividend of $1,000 in his margin account. How much of the dividend will be credited to the special memorandum account (SMA)?
$1,000. Considered a deposit
A 38-year-old investor places $25,000 into a single premium qualified deferred variable annuity. Twenty years later, with the account valued at $72,000, the investor withdraws $50,000. If the investor is in the 25% marginal income tax bracket, the total tax liability is
$17,500 all taxed as ordinary income and penalty
Your firm is a member of an underwriting syndicate for an issue of municipal bonds. The municipal syndicate release terms letter states that the bonds are being offered net, with a two-point concession and a half-point additional takedown. If your firm sells $100,000 of these bonds to a retail customer, it will receive a credit of $2,500 or $2,000?
$2,500
A technical analyst has been charting XYZ stock and notes that it fluctuates between $36 and $41. If the analyst expects a breakout through resistance, which of the following orders should be placed? Buy stop at 35 or 42?
Buy stop at 42. Purchased above the resistance level
Your 65-year-old client owns a nonqualified variable annuity. He originally invested $29,000 four years ago, and it now has a value of $39,000. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal?
$2,800. This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). The tax on this is $2,800 ($10,000 × 28%). Because the client is older than age 59½, she does not pay 10% premature distribution penalty tax.
A customer owns 10M of 7% U.S. Treasury bonds. He is in the 28% federal tax bracket and the 10% state tax bracket. What is his annual tax liability on these bonds?
$266. The 10M means $10,000. (Remember your Roman numerals? M equals 1,000). His tax liability is as follows: $1,000 times 7% equals $70 annual interest per bond; $70 times 10 equals $700 annual interest, which is taxable only by the federal government; and $700 times 28% equals a $196 tax liability.
The Profligate Perpetual Growth Fund's prospectus states that the fund meets the Investment Company Act of 1940's qualifications of a diversified management company. If the fund has net assets of $1 billion,
$300M .Diversified management companies must follow the 75-5-10 rule. That means, of 75% of the fund's net assets, no more than 5% of the fund's total assets can be in the voting shares of a single issuer. There are no restrictions on the other 25%
Disregarding commissions, and investor purchasing $10,000 face amount of Treasury notes at a price of 98.12 would expect to pay
$9,837.50. Please note that the purchase is not for $1,000, but for $10,000. Treasury notes (and bonds) are quoted in 32nds. This quote of 98.12 is 98 12/32 or 98 3/8% of $10,000.
A 10 mill tax rate is
1 cent
Unrestricted stock does not have a holding period. Compliance with Rule 144 relies on a volume limit. A control person may sell the greater of what?
1% of outstanding shares or the average of the last 4 weeks of trading volume
A customer buys a new issue municipal bond with a dated date of January 1 for settlement on January 31. If the first interest payment date is March 1, how many days of accrued interest will the customer pay to the syndicate?
30. In this new issue, interest begins to accrue as of the dated date, so the customer (buyer) must pay the syndicate interest from the dated date up to, but not including, the settlement date. The number of days from January 1 up to, but not including, January 31 is 30.
United States Treasury notes are intermediate length securities. Treasury notes are NOT issued with maturities of 2, 3, 4, 5, 7, and 10 years
4
The Municipal Securities Rulemaking Board requires firms to retain abstracts of official statements for four years—the same as all pieces intended to communicate with the public.
4 years
ADJ Corporation's charter has authorized 10M shares of common stock. It has issued 5M shares and has 1M shares in its treasury. How many shares of common stock are currently outstanding? 9M, 6M, 4M, 5M
4M.
The fine print stated that this was available solely to accredited investors. You would explain that this is a private placement being offered under the exemption provided in SEC Rule 144, 147, 506(b), 506(c)
506(c)
If you were reading sales literature about a mutual fund that claimed its objective is to be a single source investment for most equity investors, it would most likely be describing
A blend/core fund
An order confirmed for the entire underwriting syndicate's benefit is called
A group net order
One of your customers calls and asks you about a security with an S&P rating of SP-2. The customer is most likely asking about which of the following?
A municipal note
When an institution wishes to take a large position in a municipal bond issue but does not want its activities to be well known, it will generally make use of the bond buyers visible supply or the municipal securities broker's broker?
A municipal securities broker's broker
Which of the following refers to the primary market for municipal securities?
A notice of sale
When an investor's account contains penny stocks, orders must be approved before being submitted or account statements must be sent monthly?
Account statements must be sent monthly
Which of the following investors would be exempt from filing Form 144 when selling securities they own? Selling shares acquired in a Reg D or an employee of the company selling registered shares purchased in the open market?
An employee of the company selling registered shares purchased in the open market
Which of the following would give a bearish sign to a technical analyst? odd-lot purchases or dropping below resistance level?
An increase in odd-lot purchases
A young first-time investor wants to put $10,000 of savings in an investment that she wants to see grow over many years. She intends to add to it in small amounts whenever able. A balanced mutual fund and an equity growth fund are chosen. What would be the most suitable share class for this initial investment? A,B,C or D share class?
B
For a state resident, a general obligation state municipal bond is exempt from state taxes, federal taxes or both?
Both.
A registered representative has a client who wants to save for college for her child. The child will be entering college in five years. This would be an example of an investment objective or an investment contraint?
Investment constraint
When analyzing a direct participation program investment, a method that takes into account the revenues and expenses is fundamental or cash flow analysis?
Cash flow analysis
All of the following would be considered when evaluating a municipal revenue bond's creditworthiness except management expense or collection ratio?
Collection ratio. The collection ratio shows the percentage of property taxes that are collected. This would be relevant in evaluating general obligation bonds, which are backed by the taxing authority of the issuer. Revenue bonds, however, are backed by user fees, not taxes.
Riskless and simultaneous transactions by a broker-dealer are permissible when: only if there is a profit for the customer, new issues, comply with 5% policy, not permissible
Comply with 5% policy
You receive a not-held order from a customer who wants you to buy 1,000 shares of ABC when the price is right. Under NYSE rules, this order is a day order or good until cancelled?
Day order
Which of the following is least likely to be a risk concern to an investor in an oil and gas DPP?
Deductions for intangible drilling costs
Which of the following do NOT need to set standards for vesting, eligibility and funding: 401k, deferred comp, profit sharing or pension plans?
Deferred comp
Many fixed-income investors diversify their portfolios by maturity. If one were investing in CMOs, that would be done by buying yield-based options or different tranches?
Different tranches.
Regulation BI contains four key component obligations. Which two of them apply to registered representatives? Disclosure Obligation Care Obligation Conflict of Interest Obligation Compliance Obligation
Disclosure Obligation Care Obligation
Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements? Reporting and disclosure, Vesting, Funding policy, orNondiscrimination
Funding policy
Which of the following are a direct obligation of the U.S. government? Ginnie Maes, treasury reciepts, or Fannie Maes
Ginnie Maes
Which of the following order types are available to customers for use in NYSE equity markets?
Immediate or cancel (IOC) and Order cancels other (OCO)
Riskless or simultaneous transactions by a broker-dealer are permissible if performed in compliance with the 5% policy or only in new issues?
In compliance with the 5% policy
All of the following risks are considered diversifiable except
Inflation risk
Last week one of your customers placed a good-til-canceled order to sell 200 shares of ABC with an 18 stop when the stock was trading at $18.85. It is now the ex-date for a $0.55 dividend and the order has not yet been executed. What has happened to your customer's stop order?
It is reduced to $17.45.
All of the following are characteristics of a direct participation program (DPP) except
It pays federal income taxes
Which of the following orders is reduced on the order book on the ex-dividend date for a cash dividend?
Limit Order to buy
When acting as an agent for a customer, Municipal Securities Rulemaking Board (MSRB) rules require the broker to make a reasonable effort to obtain which of the following? Fair or reasonable
MSRB rules require only that municipal securities dealers effect trades for customers at prices that are fair and reasonable in current market conditions.
Sale (redemption) takes place at NAV or POP?
NAV
Covered calls are or are not considered to be a speculative option strategy?
NOT - they would be permitted as long as the strategy is deemed prudent and is consistent with the objectives of the plan.
An investor purchases a PQR convertible bond at 98 on June 18, 1994. The bond is convertible at $25, and on June 19, 1995, when the common stock is trading at $26 per share, the investor converts his bond into the stock. For tax purposes, these transactions will result in a $40 capital gain, neither gain nor loss., $40 capital loss, or a $60 capital gain.
Neither a gain nor a loss.
Does a municipal bond broker's broker maintain inventory?
No
eurodollar bonds - currency risk? Filed with the sec?
No currency risk. NOT filed with SEC.
A municipal bond dealer gives your firm's trading desk an estimate of a municipal security's market value. This is nominal quote, holding a quote, a firm quote, a workable indication.
Nominal
Under SEC rules, soft dollars may be used to pay for all of the following except
Not permitted by the SEC are computer hardware, office equipment, and reimbursement of travel expenses to attend seminars.
Which of the following are spreads? Long 1 FLB May 40 call, short 1 FLB May 50 call Long 1 FLB May 40 call, long 1 FLB May 50 call Long 1 FLB Aug 40 call, short 1 FLB May 40 call Long 1 FLB Aug 40 call, short 1 FLB Aug 50 put
Options I and III fit the definition of a call spread because each includes one long and one short option of the same type with different strike prices (I, a price spread) or different expiration dates (III, a time spread). Option II involves options of the same type, but both are long. Option IV involves options of different types.
Your clients' option position has been adjusted due to a 2-for-1 stock split. Which of the following regarding this 2-for-1 adjustment is true? Number of shares or options contracts will increase?
Options contracts
Many parents find that opening an UTMA account for their child is not only a good way to accumulate funds for the future but also a good way for the child to gain an appreciation for investing. The account custodian may use principal as well as income generated in the account to pay for all of the following for the child except
Parental obligations food, clothing, and shelter.
The IRS requires a municipal bondholder to use straight-line amortization for the purpose of determining the annual increase to a discount bond's cost basis or decrease to a premium bond's cost basis?
Premiums are amortized; discounts are accreted
Which of the following items appears on the confirmation statement for a when-issued trade of municipal bonds? Principal or agency trade or settlement date
Principal or agency trade
All of the following would flow through as a loss to limited partners except
Principal repayments are not deductible for tax purposes. The interest is deductible.
A customer wishes to purchase 100 shares of ABC for $35 but does not wish to be charged a commission. To accommodate this request, the member firm purchases the shares for the customer in its proprietary trading account and sells the shares to the customer with a markup. This trade is a principal or agency transaction?
Principal transaction
Which of the following municipal securities are backed by the full faith and credit of the U.S. government? Tax assessment bonds, General obligation bonds, Industrial revenue bonds, or Public Housing Authority bonds?
Public Housing Authority bonds
Which of the following factors will affect the special memorandum account (SMA) in a long account?
Sale of securities and cash deposits
If an investor were to purchase a bond in the secondary market several years after the public offering, which of the following would factor in calculating the total dollar amount paid for the bond? Settlement date, Dated date, Coupon, Scale
Settlement date and coupon.
Which of the following would be most likely to require a mandatory sinking or surplus fund? public housing authority, water and sewer revenue bond, A general obligation, A tax anticipation note
Sinking or surplus funds force revenue bond issuers to set aside a portion of their revenue for debt retirement.
An option series has the same strike price, expiration date, and underlying security.
Straddle
The name of the FINRA system that tracks both NYSE and NASDAQ transactions is
TRF (Trade Reporting Facilities).
Margin requirements on exempt securities (U.S. government securities and municipal securities) are set by the SEC or the DEA?
The DEA. The FRB sets the initial margin requirements for nonexempt securities. The margin requirements for exempt securities, such as U.S. governments, are set by a firm's self-regulatory organization or DEA.
The determination as to whether an over-the-counter stock is eligible for purchase on margin is made by
The Federal Reserve Board
Which of the following is not a correct statement in respect to the at-risk provisions when investing in a direct participation program (DPP)?
The at-risk provisions do not apply to oil and gas exploration programs. THEY APPLY TO ALL DPPS
A customer has his broker enter an order to buy GHI stock at the opening. Though transmitted promptly, the order does not reach GHI's trading post in time to be filled at the opening. How is the order handled?
The order is cancelled
A municipal revenue issue's flow of funds statement is contained in
The bond contract.
What are specified in SEC Rule 10b-10 and followed by the MSRB and FINRA? They cannot be altered by a mutual agreement.
The contents of confirmations
Index options differ from stock options in which of the following ways?
The exercise settlement is in cash.
Yield-based options expire on the day following the third friday of the month or the last day of trading
The last day of trading
If a municipal bond rated BBB is prerefunded, all of the following statements are true except
The marketability will decrease. When funds are escrowed to call in a bond at a predetermined call date, the bond is said to be prerefunded. The money set aside is invested in government securities, which makes the issue very safe and highly marketable. The rating of prerefunded bonds is AAA, as they are now backed by U.S. government securities.
The Customer Identification Program requires that a tax identification number must be obtained when opening a new account. When the account is an UTMA, the Social Security number used is that of
The minor. the account is fully owned by and taxed to the minor, not to the custodian or the parent.
The underwriting of most corporate issues is done on a negotiated basis. The investment banker who negotiates with the issuer on a firm commitment underwriting is known as the prime investment banker or the syndicate manager?
The syndicate manager
Which of the following is an automated system of delivering information relating to the market for municipal securities?
Thomson's Muni News or Muni Market Monitor (Munifacts)
An instrument that illustrates the transfer of title to any dividend, interest, or right that pertains to securities that are contracted for is called
a due bill
In general, the most senior position is held by
a gross revenue pledge. The simplest way to think about this question is to look at our paycheck. What is the higher number - your gross pay or your net (take-home) pay? You could also say, "Who has the first claim on my earnings?" The government
An official statement has a dated date of March 1, but the first interest payment is October 15. This most likely reflects
a long coupon. With a dated date of March 1, the first interest payment will not be made until October 15. That is a period of 7½ months and is why it is a long coupon (longer than 6 months).
All of the following are oil and gas program sharing arrangements except disporportionate sharing or all-or-none underwriting arrangement?
all-or-none underwriting arrangement
Closing the short call means
bought back something you sold
In general, FINRA rules prohibit member firms from improper use of customer funds. One example is intentionally holding up an account transfer. Another is holding on to funds that belong to the customer. One of the features of FINRA Rule 2165 dealing with senior exploitation is the ability of a member firm to place a temporary hold on disbursements from the account of a specified adult. This serves as a safe harbor for funds held in the manner described above. A member relying on this rule must report all temporary holds to FINRA within 15 days or develop and document training policies?
develop and document training policies or programs reasonably designed to ensure that associated persons comply with the requirements of this rule.
Regulation T permits borrowing money for the purchase of each of the following except
listed options with expirations of less than nine months.
If one of your clients dies, upon notification of death, you should immediately
mark the account Deceased until proper documents are received and cancel all good-til-canceled orders for the account.
Net overall debt of a municipality is
net direct debt plus overlapping debt.
Which of the following regarding a municipal bond broker's broker are true? Protects customer identity Must disclose the identity of customers Has no inventory Maintains an inventory
protect customer identity and have no inventory
The practice of naked short selling is prohibited by regulation SHO or regulation T?
regulation SHO
Your broker-dealer has prepared an advertising piece for general distribution to all of its retail customers regarding numerous option strategies. Filing the piece with FINRA is
required at least 10 business days before first use or publication.
Covered call writing normally occurs in which type of market
stable
TSA plan stands for
tax sheltered annuities
Rule 144A regulates the sale of restricted stock to institutional investors or by control persons?
to institutional investors
The longest initial maturity for U.S. T-bills is: 2 years, 52 weeks, 13 weeks or 39 weeks?
52 weeks.
If a customer gives his broker-dealer an order to sell his stock if it falls to or below 69 and will not accept a price below 69, the order is
A stop limit order
Corporations issue equity securities. One category of equity is preferred stock. A number of different adjectives can apply to preferred stock issues. Which of the following preferred stock issues would likely offer the greatest protection against interest rate risk?
Convertible
Minority stockholders are more likely to be able to elect directors through which form of voting? Regular, statutory, progressive, or cumulative
Cumulative - Minority stockholders are more likely to be able to elect representatives to the board of directors through cumulative voting. Small stockholders may cast all of their votes on one position rather than spread them out, and thus dilute them over two or three positions.
If a customer who has granted a durable power of attorney to her son dies, which of the following statements regarding the power of attorney is true?
It is canceled upon the death of either principal.
Coverdell Education Savings Account (ESA) are tax deductible and/or withdrawals are tax free or taxed?
Not tax deductible and tax free withdrawals for education expenses. Just like 529 plans.
A FINRA member firm sends a promotional piece to 35 individuals over a three-day period. Twenty of these individuals are current customers of the firm. The other 15 are prospects whose names came from a commercially available mailing list service. Under the FINRA rule on communications with the public, this promotional piece would be considered retail communication or correspondence?
Retail communication (client or prospect does not matter. Over 25)
The Bond Buyer is a source of information for new (primary market) municipal bond issues. It contains what?
Revdex, an index for revenue bonds, as well as general obligation bond indexes. Additionally, it includes the 30-day visible supply and the placement ratio.
True or false. The reallowance is part of the consesion.
True
Once a variable annuity has been annuitized are the units and/or value fixed?
Units is fixed, value varies
The basis of a bond is also known as what?
Yield to maturity
Treasury STRIPS and Treasury receipts are quoted based on
Yield to maturity. Noninterest-bearing securities, like zeroes, are quoted based on their yield to maturity. They are sold at a discount and mature at par.
Broker-dealers are required to maintain customer identification programs and check the names of new clients against
a list compiled by the Office of Foreign Assets Control (OFAC).
Pristine Brokerage Services, (PBS), accepted as a FINRA member firm seven months ago, is planning a direct mail campaign to several thousand potential investors. The topic of the campaign deals with owning real estate through direct participation programs. Under FINRA Rule 2210 on communications with the public, this is considered
a retail communication and must be filed with FINRA at least 10 business days before first use or publication.
To calculate a capital gain or loss on the sale of an original issue discount municipal bond, the discount must be
accreted
Accrued interest for U.S. government bonds is computed on the basis of
actual days lapsed
At 3:55 pm ET, a registered representative receives a market order from an officer of XYZ to buy 75,000 shares of XYZ for the company's account. The registered representative must
advise the officer that a safe harbor under SEC Rule 10b-18 no longer exists before placing the order.
That accretion is tax-exempt income when the bond is
an original issue discount bond.
Trading in penny stocks may not begin in that account until
at least two business days after sending the statement.
Debit put spread is bullish or bearish?
bearish
If a customer buys 2 Canadian dollar 78 calls and writes 2 Canadian dollar 80 calls, this position is bull, horizontal, or credit spread?
bull
All listed options trades with resulting gains or losses are treated as
capital gains or losses.
FINRA Rule 2210, communications with the public, describes several different categories of communications. One of those categories is called
correspondence, institutional communications, and retail communications
Taxable interest equals to
coupon payment minus accrued interest
An investor purchases an original issue discount municipal bond on the offering at 80. The bond matures in 25 years. Eight years later, the investor sells the bond for 84. The tax consequence of this transaction is
long-term capital loss of $24. The 20 point ($200) discount accretes over the 25-year life of the bond. That makes the annual accretion $8 per year ($200 divided by 25 years). After 8 years, there has been $64 of accretion ($8 times 8 years). That means the cost basis of the bond is $864. The sale at $840 represents a loss of $24 and has a long-term holding period.
Generally available types of REITs include all of the following except
preferred REITs.
An offering of securities in compliance with Rule 144A is sold primarily to
qualified institutional buyers (QIBs).
A charge of churning would likely be brought against a registered representative who was found to have disregarded the FINRA rule on
quantitative suitability
A customer purchases a noncallable bond at a discount in the secondary market. All of the following must be on the customer's confirmation except rating or the capacity in which the dealer acted
rating
All of the following may be used to service special tax bond issues except
real estate taxes
After accepting as good delivery securities that have minor irregularities, a buying dealer can return the securities to the delivery dealer through
reclamation - this is post delivery
A taxable gain or loss on a long call option transaction would be
recognized when expired or sold.
Who must sign to open an options account
registered representative
If short calls expire worthless, the gain (for tax purposes) is considered a long-term or short-term capital gain.
short-term capital gain
A new client turns in the new account form. While reviewing the information on the form, the registered representative handling the account notices that the space for listing the Social Security number is blank. Under the provisions of the USA PATRIOT Act of 2001,
the account can be opened if the client has already applied for a number.
The Municipal Securities Rulemaking Board (MSRB) is authorized to adopt rules concerning all of the following except
the information to be provided by municipal issuers. MSRB does not regulate issuers.
A FINRA member firm wishes to encourage its registered representatives to sell more limited partnership DPPs. As an incentive, the firm offers an all-expenses-paid trip to a popular vacation resort for those reaching certain sales targets. FINRA rules provide that
the target must be based on the total production of associated persons with respect to all direct participation programs offered by the member. (no proprietary products)
Currency options and equity options expire on
the third Friday of the expiry month.
Under the 5% markup policy, the markup is calculated on
the total of both sides
If an investor buys 300 shares of FLB, and one month, later buys 1 FLB Jul 50 put, how does this affect the holding period on his stock?
this erases the holding period on 100 shares owned because it is a PUT. Calls don't affect the holding period.
One of your customers purchased 1,000 shares of PKZ stock on the day preceding the ex-dividend date. Her account instructions are to have all purchases registered in her name. Several weeks after the payable date, she contacts you with the news that she did not receive the dividend from the issuer. The proper procedure is
to have your broker-dealer send a due bill to the firm representing the seller.
One of the primary differences between rights and warrants is
warrants have a life before expiration that is much longer than rights.
If a bond is sold to a customer at par, under Municipal Securities Rulemaking Board rules, all of the following must be disclosed to the customer on his confirmation except
yield to maturity.
