series 7 pt. 2
Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements?
Funding policy -- The funding policy covers how an employer contributes to, or funds, a retirement plan.
If an investor is in the highest federal income tax bracket and is subject to the alternative minimum tax (AMT), which of the following securities should an agent recommend?
General obligation (GO) bond -- Municipal bonds are suitable for the portfolio of an investor who is in a high tax bracket because the interest is exempt from federal income tax. A GO bond is a better recommendation than an industrial revenue bond because the interest on industrial revenue bonds is likely subject to the AMT.
Which of the following regarding a municipal bond broker's broker are true? 1. Protects customer identity 2. Must disclose the identity of customers 3. Has no inventory 4. Maintains an inventory
I and III -- Municipal brokers' brokers generally purchase and sell securities on an anonymous basis for institutional clients. They are not in the business of making a market; therefore, they maintain no inventory.
A customer, long 100 shares of ABC at 73, writes 1 ABC Apr 75 call at 2 to generate additional income. ABC stock subsequently moves higher, at which time, the customer is exercised. For tax purposes, which of the following statements are true? 1. Cost basis is $73 per share 2. Cost basis is $71 per share 3. Sales proceeds are $75 per share 4. Sales proceeds are $77 per share
I and IV -- If a covered call writer is exercised, cost basis (for tax purposes) is the cost of stock purchased. Sales proceeds are adjusted (strike price plus premium) to reflect the premium received.
Which of the following statements regarding Section 529 education savings plans are true? 1. Contributions are considered gifts under federal law. 2. Contributions are tax deductible under federal law. 3. Earnings generated are taxable each year. 4. Earnings generated are tax deferred.
I and IV -- Under federal law, contributions made into Section 529 plans are considered gifts and are not deductible at the federal level. Furthermore, earnings generated each year are tax deferred and, on withdrawal, are tax free at the federal level—if used for qualified education expenses.
Progressive taxes would include 1. personal income tax. 2. gift taxes. 3. estate taxes. 4. excise taxes.
I, II, and III -- Progressive taxes are those where the rate of taxation increases as the dollars being taxed increase. Personal income tax, while not as progressive as it was before the 1986 reform, is still considered a progressive tax because the highest tax rate is levied against the highest earnings. Gift taxes and estate taxes are highly progressive, but excise taxes, such as fuel tax and transportation tax, are a fixed rate, and therefore, would not be considered progressive.
When determining a position limit, a member firm aggregates which of the following customer positions? 1. Long calls and long puts 2. Long calls and short puts 3. Short calls and short puts 4. Short calls and long puts
II and IV -- Contracts on each side of the market are used for determining position limits. Long calls and short puts are on the same side (bullish), and long puts and short calls are on the same side (bearish).
If ALFA Securities, a broker-dealer, is a position-trading firm, which of the following statements is true?
It is trading for its own account. -- Position trading is simply trading as principal, or dealer, for a firm's own account. This is the typical case with a market maker. The opposite role is that of a broker, or an agent, purchasing or selling securities in the secondary market for customers.
A real estate limited partnership is created for $800,000 with 1 general partner and 10 limited partners. Each of the limited partners has an equal 10% share. The proceeds are used to purchase an office building for $2 million. The additional financing is provided by a nonrecourse bank loan. Economic conditions cause the occupancy rate to fall dramatically, and the partnership is dissolved as insolvent. Each limited partner may claim a loss of
$200,000. -- Losses may only be claimed to the extent of tax basis. The initial $800,000 was divided 10 ways, so each LP had a basis of $80,000. To this was added the share of the financing of $1.2 million. That is another $120,000 basis (10% of $1.2milion) bringing the total to $200,000 ($80,000 + $120,000). That is the maximum loss that can be claimed. It is important to note that nonrecourse financing adds to basis only in RELPs. Because the loan adds to the basis of all LPs equally, you could also solve this by taking the total $2 million investment and dividing it by 10 to arrive at the same $200,000.
ABC Company issues a 10% bond due in 10 years. The bond is convertible into ABC common stock at a conversion price of $25 per share. The ABC bond is quoted at 90. Parity of the common stock is
$22.50. -- The bond is quoted at 90, so it is selling for $900. The parity price of the common stock is $22.50, calculated as follows: the bondholder could convert the bond into 40 shares of stock ($1,000 face amount / $25 per share = 40 shares). Because the bond has a current price of $900, divide $900 by 40 to get the underlying parity price (90% × $25 = $22.50).
If a customer owns a $10,000 8% U.S. Treasury Bond, and she is in the 28% federal tax bracket and a 2.5% state tax bracket, what amount of tax will she pay on the income received from the bond?
$224 -- Interest on U.S. Treasury bonds is taxable at the federal level only; $800 of interest taxed at 28% equals $224.
If a customer has a margin account with a long position worth $20,000 and a debit balance of $8,000, what is the purchasing power of this customer's account?
$4,000 -- The account has $12,000 of equity. If 50% of the market value is $10,000, the account has $2,000 of excess equity. When Regulation T is 50%, the purchasing power of excess equity is 2:1.
A customer owns a 7.5% ABC convertible bond currently trading at 115. The conversion price is $40. What is the parity price of the common?
$46.00 -- What does parity price mean? Here is what it says in the LEM: Calculating Conversion Parity Parity means that two securities are of equal dollar value (in this case, a convertible bond and the common stock into which it can be converted). The question is looking for the parity price of the common stock. That is the market price per share, where the total value of the stock received upon conversion equals the market price of the bond. There are two ways to do this. The first is generally the easiest to understand. We are told that the bond has a conversion price of $40. That means you can get 25 shares if you wish to convert. That is because the issuer is basically saying, "We owe you $1,000 and will let you spend it on our stock at $40 per share." Now that we know we can get 25 shares, what does each share have to be worth to equal $1,150? If you divide $1,150 by 25 shares, the result is $46. The other method to do this is as follows: The bond is selling at a 15% premium. To be equal to that, the stock must be selling at a 15% premium over the conversion price. $40 times 115% equals $46. If that makes sense to you, it is much faster than the first method.
Your customer has purchased 100 shares of Synovial Lubrication Products (SLP) at $95 per share. The date of the purchase was April 22, 2021. Simultaneously, the customer purchased one SLP Dec 90 put for 3. At the expiration date of the option, SLP's market price is $101 and the option expires unexercised. What is the customer's cost basis in SLP?
$98 per share -- If, on the same day, a customer buys stock and buys a put option on that stock as a hedge, the put is said to be married to the stock. For tax purposes, irrespective of what happens to the put, the cost basis of the stock is adjusted upward by the premium paid. Even if the put expires worthless, there is no capital loss on the put. Rather, the premium paid is reflected in the cost basis of the stock. Therefore the initial cost of $95 per share is now increased by the $3 premium paid resulting in a new cost basis of $98 per share.
Under the provisions of Rule 144, what percentage of outstanding stock may a control person sell every 90 days?
1% -- Rule 144 (sale of restricted or control stock) allows for the sale of 1% of the outstanding shares or the weekly average of the past four weeks' trading volume (whichever is greater) every 90 days.
An individual purchases a variable life insurance policy. Under federal law, the individual is entitled to a complete refund of all premiums paid if the request is made within
45 days from the execution of the application, or for 10 days from the time the owner receives the policy, whichever is longer. -- The Investment Company Act of 1940 specifies a free-look period for the purchaser of a variable life insurance policy. That period is the longer of 45 days after the execution of the application or 10 days after the actual policy is delivered to the owner. The 24 months is the minimum time limit for the exchange of the variable policy into another form of permanent insurance.
Trade confirmations must show yield to call on which of the following callable bonds?
5.5%, 5% basis, maturing 2038 -- Bond confirmations must disclose the lower of the yield to maturity or yield to call. On a bond selling at a premium, the yield to call is the lower of the two. The 5.5% bond with a 5% basis is the only bond trading at a premium. We know that because the yield to maturity (or basis) is lower than the coupon.
The ELLA Distributing Company issued a bond with a nominal yield of 5%. The bond matures in 12 years and is currently trading at 94. The bond's yield to maturity is closest to
5.67%. -- The first point to notice is that the bond is trading at a discount. When bonds trade at a discount, our yield chart and example tells us that the yields, in ascending order, are nominal yield, current yield, yield to maturity, and yield to call. That last one is of no relevance to this question because a call feature is not mentioned anywhere. Therefore, we know that the yield to maturity must be greater than the nominal (coupon) yield of 5%. There are only two choices that are, so if you are running out of time or do not remember how to do this, at least you have a 50% chance. However, 50% doesn't pass the exam, so let's make that 100%. The yield to maturity computation is tricky, but current yield is not. It is simply the coupon divided by the current market price. In our question, that is 5% divided by 94 equals 5.32% (or $50 divided by $940). We know the yield to maturity for a bond selling at a discount is higher than its current yield. That means the correct answer must be greater than 5.32%. If you have a question like this on the actual exam, there will be only one choice higher than the current yield. As shown in the LEM, the YTM calculation goes like this: [annual interest + (discount divided by the number of years to maturity)] divided by the average price of the bond Plugging in the numbers, we get a numerator of $50 + ($60 divided by 12 years) = $50 + $5 = $55. The denominator is ($940 + $1,000) divided by 2 = $1,940 divided by 2 = $970. Solve by dividing $55 by $970 and the answer is 5.67%.
A customer is long 1 XYZ Jan 50 put. To create a bull put spread, the customer must sell a Jan
55 put. -- In any spread, put or call, if the customer is buying the lower strike price, the spread is bullish. Therefore, to create a bull put spread, the customer (who is long the 50 put) must sell a put with a higher strike price. A bull put spread is also called a short put spread.
Which of the following businesses must have more than one owner?
A partnership -- If you think about it, how could you have partners with less than one person? Although the other business forms usually have more than one owner, it is legally possible, for them to have a single owner.
Which of the following methods of real estate investing is a flow-through vehicle?
A real estate limited partnership (RELP) -- Limited partnership vehicles provide for a flow-through of the program's income or loss. A REIT is not a DPP and does not offer flow-through of losses (although IRS rules require the REIT to pay out at least 90% of its taxable income to avoid being taxed as a corporation). Many investors play the real estate market by investing in the stock of companies that are in the real estate business. Stock is not a flow-through vehicle. Although owning a personal residence can be considered an investment (you do hope the property will appreciate), it is not a security and there is no income or loss to flow through.
Which of the following would be considered an inappropriate investment for your client's traditional IRA?
A unit investment trust whose portfolio consists solely of tax-free municipal bonds -- Tax-free bonds, whether purchased individually or through a mutual fund or UIT, are considered inappropriate investments because the tax-free benefit is lost. On the other hand, taxable municipal bonds benefit from the tax deferral offered in an IRA. What about the stamp collection? That is an ineligible investment, not merely inappropriate.
Dale Johnston has been a registered representative with Consolidated Investment Services (CIS) for over 20 years. Taylor Kahn has been Johnston's client for most of that time. Kahn recently reached full retirement age for Social Security and has begun using those funds for investment. Johnston's practice is to speak with clients on a quarterly basis, unless something merits a special call. It seems to Johnston that on the last call, Kahn seemed a bit confused over the strategy being used with the Social Security funds. A second call seemed to verify that Kahn was still a bit fuzzy. This morning, a phone call came in from Kahn's son asking Johnston to sell one of the holdings and forward the proceeds to his bank. Kahn's son does have a full power of attorney over the account but has never given instructions to have money sent to him before. What is the most appropriate action for Johnston to take?
Place a temporary hold on the withdrawal -- Member firms may place a temporary hold on the distribution of funds or securities from the account of a specified adult. The temporary hold is also allowed in certain circumstances where the member reasonably believes that financial exploitation of the specified adult has occurred, is occurring, has been attempted, or will be attempted. FINRA considers temporary to be up to 15 business days.
In a rising interest rate environment, which of the following risks associated with mortgage-backed securities such as a collateralized mortgage obligation (CMO) is of least consequence to a potential investor?
Prepayment risk -- Prepayment risk is the risk that mortgage holders will refinance or repay their mortgages early as a result of falling interest rates. Therefore, in a rising interest rate environment, it would be less of a concern for a CMO investor. Extension risk is the risk that mortgage payments will be missed or slower than anticipated in a faltering economic environment. Credit and interest rate risks are always of concern with CMOs.
Which of the following items appears on the confirmation statement for a when-issued trade of municipal bonds?
Principal or agency trade -- The capacity of the firm, principal or agent, must be disclosed on all confirms. The settlement date, accrued interest, and total price would not appear on a when-issued confirm.
If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor?
Purchasing power risk -- An investor who purchases a fixed-annuity contract assumes purchasing power risk. Fixed annuities pay a fixed monthly benefit that loses purchasing power if there is inflation.
What is the latest date that an IRA participant may make an IRA deposit for the current year?
April 15 of the following year -- Contributions to IRAs can be made up to April 15 of the year following the year for which the contribution is being made.
If a customer believes the market price of a stock will sharply rise or fall in the near future, which of the following is the best strategy?
Buy a straddle -- If the stock goes either up or down sharply, the investor will profit from owning a straddle.
How may a retail customer of a FINRA member firm gain access to the FINRA manual?
By visiting the firm's office or viewing it through a hyperlink on the firm's website -- FINRA Rule 8110 requires that members make available a current copy of the FINRA manual for examination by customers upon request. Firms used to have to maintain an inventory of FINRA manuals. In keeping with modernity, members may comply with this rule by maintaining electronic access to the manual and providing customers with such access upon request. This is done by having a hyperlink to the FINRA website. The Municipal Securities Rulemaking Board had a similar rule (G-29). It eliminated it recognizing that investors are going to use the internet to get the information they need.
You have a client who owns a small business. The business provides an ERISA-qualified plan for employees. Your client manages the investments and asks you about permitted strategies. ERISA rules would permit which of the following investments?
Covered call options -- Uncovered call options carry a potentially unlimited risk of loss. As such, ERISA has declared them unsuitable for investments in a qualified plan. However, covered calls, as well as protective puts, are allowable investments. Selling a security to or buying a security from a plan participant is a prohibited transaction. Most collectibles are not permitted in ERISA plans.
If a corporation attaches warrants to a new issue of debt securities, which of the following would be a resulting benefit to the corporation?
Reduction of the debt securities' interest rate -- Usually, a warrant is issued along with a debt instrument, which is an enhancement that allows the issuer to offer a slightly lower interest rate.
Which of the following carries the least amount of market risk?
Savings accounts -- Savings accounts carry no market risk, which, by definition, is the risk that an investor will experience losses due to day-to-day fluctuations in the prices of securities bought and sold in the market.
A customer who is long 1 XYZ Sep 50 call could create a spread by combining it with which of the following positions?
Short 1 XYZ Sep 60 call -- A spread involves two simultaneous positions in related options of the same type—one long and the other short of the same underlying security.
Which of the following positions does not expose a customer to unlimited risk?
Short 2 XYZ uncovered puts -- The maximum potential loss on a short put position is the market price declining to zero reduced by the premium. Remember, a stock's price can never go below "worthless." For example, if the investor sold 2 XYZ 90 puts and received a premium of 4 point each, the maximum loss would be $8,600 (worthless stock is put to the writer for $9,000 but the writer received the $400 premium) per contract or $17,200. That is a significant loss, but all of the other positions expose the client to unlimited risk because a loss will occur if the stock price rises and there is no upper limit to a stock's price.
A significant portion of municipal bond trading is done by dealer banks. These are commercial banks that are not members of FINRA or any exchange. For those market participants, enforcement is in the hands of all of the following except
The Municipal Securities Rulemaking Board (MSRB). -- The MSRB makes rules but is not the one who enforces them. When it comes to bank dealers, those MSRB rules are enforced by these banking agencies. For securities firms, enforcement is in the hands of FINRA.
Five years ago, the ABCD mutual fund bought 200,000 shares of Comet Industries at an average price of $42.25. After a series of accounting scandals, the shares are now trading at $6. If the fund decides to sell its shares, what will be the impact of the sale of Comet shares on the net asset value (NAV) of the ABCD fund?
The NAV will not change -- Portfolio holdings in a mutual fund are marked to the market each day. Therefore, the NAV of the fund already reflects the current value of each security in its portfolio, including Comet Industries. When the fund sells the position, the value of the stock is replaced by an equivalent amount of cash, so NAV does not change.
An affiliate of an issuer that holds control stock for five months sells 1,000 shares for a $10,000 profit. How will this transaction be treated?
These short-swing profits must be disgorged from the holder of the stock to the issuing corporation. -- If control stock is sold before a six-month holding period, any profits are defined as short-swing profits, and the company receives the profits. The term disgorged refers to the profits being removed from the affiliate and given to the issuer.
Which of the following is not good delivery for 470 shares of stock?
Two 100-share certificates and three 90-share certificates -- Shares must add up to 100 or be in multiples of 100, with the exception of odd lots.
An example of a taxable bond issued by a municipal government is
a Build America Bond (BAB). -- BABs are municipal issues created under the Economic Recovery and Reinvestment Act of 2009 to assist in reducing the cost of issuing municipalities and to stimulate the economy. Bonds to fund municipal projects have traditionally been sold in the tax-exempt arena, but BABs are taxable obligations.
An investor who wants a long-term tax-free bond with the highest possible safety should invest in
a New Housing Authority bond. -- The one advantage that NHA bonds (sometimes called PHAs) have is that they are the only municipal bonds with the full backing of the U.S. government. Even a GO or revenue bond with the highest S&P or Moody's rating doesn't have that safety.
A customer buys 1 XYZ Aug 50 put at 1 and sells 1 XYZ Aug 65 put at 10 when XYZ is at 58. If XYZ is at 52 at expiration, the customer has
a loss of $400 -- The 50 put expires because it is out of the money. The customer can close the position in the 65 put by purchasing it for its intrinsic value ($1,300) or, because the option is thirteen points in the money, it will be exercised. If exercised, the stock is purchased for $6,500 but is only worth $5,200. In either case, the investor loses $1,300. Because the account was credited $900 when the spread was established, there is a net $400 loss ($1,300 − $900). Please note that in test questions like this, the put writer who is exercised never buys and holds the stock; it is immediately sold at the current market price. Alternately, breakeven is 56 (65 − 9), and the spread is bullish. Therefore, the customer makes money above 56 and loses below 56. Because the stock is at 52 at expiration, the customer has a $400 loss (56 to 52).
Stabilizing bids may be entered at
a price no higher than the public offering price. -- Stabilizing bids cannot be used to raise the market price of an issue. Stabilization may only be used to support a new issue security at or below the public offering price.
All of the following are characteristics of unlisted options except
active secondary trading. -- Unlike listed options, unlisted options do not trade continuously in an organized secondary market; trades are negotiated between individuals.
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 constraint. -- Time constraints include such conditions as liquidity and time horizon, both of which are in play here. It may be true that the client has started too late, but that is not what the exam would be looking for as the correct answer. This is an investment goal, not an investment objective.
Your customer, a resident of New York, wants to open up a Section 529 plan for his 10-year-old son. Because his son wants to attend Notre Dame, your customer wants to start a plan sponsored by the state of Indiana. You should
explain that the potential state tax benefits available to residents of New York may not be available when opening an out-of-state plan. -- Many states offer tax benefits to residents who open 529 plans in their home state. These benefits are generally not available when opening out-of-state plans. Federal tax benefits are available regardless of the state where the plan is opened.
All of the following statements regarding commercial paper are correct except
it is quoted as a percentage of par. -- Commercial paper is short-term, unsecured corporate debt. It is issued and traded at a discount of face value and does not pay periodic interest. Like all zeroes, it is quoted on a discounted yield basis.
All of the following about a good faith deposit on a municipal bond underwriting are correct except
it is returned to the winning syndicate to cover any loss incurred in the subsequent sale of the bonds. -- In a municipal bond underwriting, the good faith deposit is submitted by a potential syndicate as earnest money. If the syndicate is not awarded the issue, the check is returned. If the syndicate is awarded the issue, the money is applied against the payment. However, if the syndicate fails to carry out the provisions of the underwriting, the money is retained by the issuer. If you have ever bought or sold a house, this is comparable to the earnest money deposit turned in by the buyer with the offer.
A variable-rate municipal bond investment's main advantage is that
its price should remain relatively stable. -- A variable-rate bond has no fixed coupon rate. The coupon is tied to a market rate (e.g., T-bond yields) and subject to change at regular intervals. Because the interest paid reflects changes in overall interest rates, the bond price remains relatively close to its par value. Its coupon is always representative of the current market rate. As rates rise, the coupon is adjusted upward. As rates fall, the coupon is adjusted downward.
Funds for Life (FFL) is an SEC registered broker-dealer. The only securities business done by the firm is the sale of redeemable investment company securities. If FFL should go into bankruptcy proceedings, SIPC would
not offer protection to any of the customers. -- SIPC, the Securities Investor Protection Corporation, is a nonprofit membership organization. SIPC members pay assessments into a general insurance fund that is used to meet customer claims in the event of a broker-dealer's bankruptcy. All registered brokers or dealers, by law, automatically become SIPC members, except for those persons whose business as a broker or dealer consists exclusively of the distribution of shares of registered open-end investment companies or unit investment trusts (redeemable securities). Therefore, FFL would not be a member of SIPC, and its customers would not have SIPC protection. **This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.
All of the following securities trade in the over-the-counter (OTC) market except
open-end investment companies. -- Municipal bonds, government and agency securities, and corporate securities (listed and unlisted) all trade in the OTC market. Foreign securities trade in the United States if the companies comply with SEC registration and disclosure requirements. Mutual fund shares (open-end companies) do not trade.
The City of Concord has floated a new bond issue to expand the public library. Concord has arranged for these bonds to be insured. If Concord defaults on these bonds for any reason, the insurance company will
pay the bondholders the principal and interest as scheduled. -- Bond insurance is a feature offered by many municipal bonds. The effect of the bond insurance is that both interest and principal will be paid as scheduled, over time, through the life of the bond. Payments are made to the bondholders by the insurance company.
Depreciation expense is a deduction for investors in all of the following except
real estate investment trusts (REITs). -- REITs are not flow-through vehicles. That tax treatment is available to limited partnership investments. If the REIT owns depreciable property, it will take the deduction, but not the investor.
Customers will have a potentially unlimited loss if they are
short 1 ABC Jan 50 call and short one ABC Jan 50 put. -- When trading options, there is one way in which to have a potentially unlimited loss. That is the uncovered (naked) call. When a call option is written without a corresponding long position in the underlying, the writer loses when the price goes up. Because there is theoretically no limit as to how high a stock's price can go, the potential loss is unlimited. In this short straddle position, it is the short call that creates this possibility. With a short put, the lowest a stock's price can go is to zero. With a 50 put, that is a maximum loss of $50 less the premium received. The maximum loss on any long position, stock or option, is what the investor paid for it.
A client with an options account contacts the registered representative handling the account with instructions to open the following spread: Buy 1 ABC 100 call and Sell 1 ABC 105 call at a 5-point debit. Under FINRA rules, this order
should be refused. -- The order should be refused because it is impossible for it to be profitable. This is a bull call spread (but that is not the correct answer here because it has nothing to do with FINRA rules) and will become profitable when the spread widens. With strike prices of 100 and 105, it can never widen more than 5 points. If the client paid 5 points for the spread, once commissions are factored in, the client must lose money and certainly cannot profit. FINRA looks at this as an uneconomic position, and the firm should refuse to take the order.
A registered representative's compensation consists of trailer commissions. The most likely reason for this is
some of the representative's customers own mutual funds with 12b-1 charges. -- Trailer commissions are a feature when you have customers owning mutual funds with 12b-1 charges. In most cases, those charges are levied every year and, over time, can add up to considerable compensation to the representative.
When a customer sells $20,000 of securities from a margin account, all of the following are affected except
the equity. -- Equity is only affected by changes in market prices and never by sales of securities in the account.
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. -- The MSRB does not regulate issuers. Rather, it regulates the underwriting of municipal securities and subsequent secondary market trading. Disclosure requirements for issuers are mandated by the SEC.
The Nasdaq quotation system offers three different levels of service depending on the needs of the user. The information generally available to the retail investor is found on Level 1, and the quote represents
the inside market. -- The Nasdaq Level 1 service shows the inside market. That quote is the highest bid and the lowest offer of all of the current market makers in the stock. Traders generally refer to that as the NBBO (national best bid and offer). Firm quotes are only available on Levels 2 and 3. Level 1 will display the most recent trade, but that is not a quote because it only shows one side, not a bid and ask.
Investor information about the financial condition of a municipal issuer is most likely found in
the official statement. -- The official statement, which is the disclosure document used in new municipal offerings, will describe the issue's financial condition in detail.
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. -- FINRA made a slight modification to its rules on noncash compensation because of the SEC's Regulation BI (best interest). Specifically, if there is to be any kind of sales contest or other method of incentivizing registered representatives, sales of the particular product type must give equal weighting to all of those investments sold by the firm. This applies largely, but not exclusively, to sales of investment companies, variable products of life insurance companies, and direct participation programs. Previously, firms could give higher weighting to sales of proprietary products, but that ended on June 30, 2020. **This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.
Marcus owns 5,000 shares of KYZ stock. He recently received proxies in the mail. Marcus would be able to use the proxies for all of the following except
to buy additional shares of KYZ common stock after the stock splits 2:1. -- A proxy is a form of absentee ballot used by stockholders to vote on company matters such as stock splits, members of the board of directors, and issuance of additional equity-related securities such as convertible securities. Stockholders do not vote on dividend-related matters, nor are proxies used to purchase shares of stock.
In the case of an unsolicited order, a prospectus must be delivered to the purchaser of a unit investment trust
with the purchase confirmation. -- A purchaser of newly issued securities must receive a prospectus no later than by receipt of the purchase confirmation. However, any solicitation must be preceded or accompanied by a prospectus.
A customer's confirmation for a municipal bond callable at par and quoted higher than the nominal yield would show
yield to maturity (YTM). -- Because the quoted yield is higher than the nominal yield, the bond is offered at a discount; the lower of YTM or YTC is the bond's yield to maturity.
