Series 7 Simulated Exam Questions

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 A) develop and document training policies or programs reasonably designed to ensure that associated persons comply with the requirements of this rule. B) report all temporary holds to FINRA within 15 days of the end of the month in which the hold took place. C) segregate customer funds from those of the firm to avoid commingling of assets. D) place temporary holds on disbursements of funds or securities from the accounts of specified adults whenever there is suspected exploitation.

A) develop and document training policies or programs reasonably designed to ensure that associated persons comply with the requirements of this rule. In FINRA's eyes, this is all about making sure that associated persons of the firm are adequately (and frequently) trained. Although customer and firm assets must be segregated, that is not part of the senior exploitation rule. The rule permits, but does not require, that these holds be placed on disbursements from the affected accounts−it is voluntary. There is no reporting of this activity, but detailed reports must be made and retained, containing the relevant information leading to the decision to enforce the hold. LO 14.c

A broker's broker does all of the following except A) makes a market in securities. B) acts as agent for dealers. C) conceals the identity of the principals. D) assists in placing securities.

A) makes a market in securities. A broker's broker acts as the agent in transactions by facilitating the movement of blocks of bonds. The broker's broker is allowed to conceal the identities of the contra-parties, thus protecting investment strategies. A broker's broker does not make a market in securities. LO 6.d

If a customer buys 100 XYZ at $52.50 and buys 1 XYZ Aug 50 put at 1.50, what is the customer's maximum possible loss? A) Unlimited B) $400 C) $5,400 D) $5,250

B) $400 Stockholders often buy puts to protect long positions. In this case, if the stock falls below 50, the investor will exercise the right to sell it at 50. The loss on the stock is limited to 2.50, which, combined with the premium paid of 1.50, results in a $400 loss. LO 10.h

Excess margin securities are defined as securities in excess of A) 70% of the customer's debit balance. B) 140% of the customer's debit balance. C) the customer's debit balance. D) the minimum maintenance margin requirements.

B) 140% of the customer's debit balance. Excess margin securities are securities in excess of 140% of the customer's debit balance. Margin securities (140% of the debit balance) are at a bank collateralizing the customer's debit. For example, if a customer purchases $20,000 of stock, the customer will put up $10,000 and borrow $10,000. The member will take $14,000 of the stock to a bank to collateralize the $10,000 debit. The balance ($6,000) of the stock must be placed in segregation (excess margin securities). LO 16.d

Who attests to the legality of a bond issue and issues a legal opinion on a proposed new municipal bond issue? A) Case attorney B) Bond counsel C) Syndicate manager D) State administrator

B) Bond counsel The issuer hires a firm or an individual to act on its behalf as bond counsel. LO 6.a

Income from which of the following is not partially exempt to a corporate investor? A) Common stock B) Convertible bonds C) Preferred stock mutual funds D) Preferred stock

B) Convertible bonds Fifty percent of dividend income received from investments in common stock and preferred stock is excluded from taxation for a corporate investor. This exclusion applies to dividends from mutual funds where all of the portfolio securities are preferred or common stock. LO 13.g

A customer who owns TCB stock wants to continue holding the security. The stock has fallen from 26 when he bought it on February 2 to a 52-week low of 20.75. He sells the stock on December 1 at the low and repurchases it at 21 on December 15. What is the tax consequence of this investment? A) The holding period for the stock was wiped out. B) The tax loss is not allowed. C) He has a capital loss. D) By repurchasing the investment at the same price, he keeps the original cost basis.

B) The tax loss is not allowed. Because the security was repurchased in less than 30 days, the IRS will not allow the loss due to the wash sale rule. It would have been allowed had the customer bought back the security after 30 days. LO 13.h

If a customer believes the Swiss franc will depreciate against the U.S. dollar, which of the following option strategies may best take advantage of the expected depreciation? A) Uncovered put writing B) Uncovered call writing C) Debit call spread D) Credit put spread

B) Uncovered call writing Call writing is bearish, while credit put spreads, debit call spreads, and uncovered put writing are bullish. LO 10.g

The visible supply includes all of the following except A) general obligation bonds. B) municipal notes. C) revenue bonds. D) industrial development bonds.

B) municipal notes. Short-term notes are not part of the visible supply, which measures the dollar amount of new issues scheduled over the coming month. LO 13.f

The writer of an equity call option who is assigned A) must deliver stock within one business day. B) must deliver stock within two business days. C) can enter a closing transaction on the day the exercise notice is received. D) can enter a closing transaction any time before exercise settlement.

B) must deliver stock within two business days. If exercised, the assigned call writer must deliver the underlying stock within two business days (regular way settlement for equity transactions). LO 10.b

Under Options Clearing Corporation (OCC) rules regarding options communications with the public, if an educational piece making no projected performance figures or recommendations is distributed to customers, it A) can only be distributed to institutional customers. B) need not be preceded by an options disclosure document (ODD). C) need not be approved by a registered options principal (ROP). D) can only be distributed to retail customers.

B) need not be preceded by an options disclosure document (ODD). OCC communications rules do not distinguish between retail and institutional customers. Therefore, their communications rules apply to all customers. All communications pieces must be approved by an ROP. If the educational piece makes no recommendations or performance projections, it need not be preceded by an ODD, but it must be accompanied by a notice containing a name and address where the ODD can be obtained. LO 19.d

The manager of a portfolio that consists predominately of large- and mid-cap stocks could hedge against a market downturn and generate additional income by A) selling broad index puts. B) selling broad index calls. C) buying broad index puts. D) buying broad index calls.

B) selling broad index calls. The only way to generate income through the use of options is to sell them. If concerned that the market may fall, selling calls is the appropriate strategy. LO 10.g

GIN Corporation is offering shareholders the right to subscribe to a new issue of stock at $30 per share. The current market price of the GIN stock is $44 per share, and it takes 20 rights plus the subscription price to purchase one share. The theoretical value of a single right, prior to the ex-rights date, is approximately A) $0.67. B) $0.70. C) $0.73. D) $1.50.

A) $0.67. Because this is cum rights (before the ex-rights date), the formula is M ‒ S N + 1 Thus, $44 ‒ $30 = 14 ÷ 21 = $0.67 20 + 1 LO 3.f

As a registered representative, you recommend the purchase of the ABC Fund family corporate bond mutual fund to a customer whose objective is current income. The customer agrees to the purchase and you enter the order. What type of securities has the investor purchased? A) Common stock B) Corporate bonds C) Preferred stock D) Government bonds

A) Common stock The customer has purchased common stock in the mutual fund because that is the only security an open-end management investment company (mutual fund) can issue. Using the customer's invested funds, the fund manager purchases securities for the fund portfolio that will meet the fund's investment objectives. For a corporate bond fund, the principal purchases for the portfolio would be corporate bonds. Likewise, if the fund were the ABC Preferred Stock Fund, the investment manager would purchase preferred stocks. Please do not confuse how a mutual fund raises capital for the manager to invest (it issues common stock shares in the fund) with what the manager invests in with that money. LO 8.b

Planned amortization class (PAC) collateralized mortgage obligation were designed to provide which of the following benefits, compared to plain vanilla tranches? A) Reduce prepayment risk for tranche holders B) Eliminate prepayment risk for tranche holders C) Match the prepayment risk of plain vanilla tranches D) Increase prepayments to tranche holders

A) Reduce prepayment risk for tranche holders PACs reduce, but cannot eliminate, prepayment risk for tranche holders. The companion tranches will have higher prepayment risk than the PAC, as they were designed to absorb the bulk of the prepayment risk. LO 12.d

A 38-year-old investor places $25,000 into a qualified single premium deferred variable annuity. Twenty years later, with the account valued at $72,000, the investor surrenders the policy. If the investor is in the 25% marginal income tax bracket, the total tax liability is A) $16,450. B) $11,750. C) $25,200. D) $18,000.

C) $25,200. Because this is a qualified annuity, the entire withdrawal is taxable. The surrender value of $72,000 has a cost basis of $0.00. That $72,000 is taxed at the marginal rate of 25%. Furthermore, because the investor is younger than 59½ (38 + 20 = 58), there is the additional 10% penalty tax. Effectively, this is a 35% tax on $72,000. LO 9.d

An investor has an established margin account with a long market value of $6,500 and a debit balance of $3,750, with Regulation T at 50%. A maintenance call would be triggered if the long market value decreased below A) $2,812.50. B) $4,875.00. C) $5,000.00. D) $8,666.67.

C) $5,000.00. To determine long market value at maintenance, divide the debit balance of $3,750 by 75% ($5,000). LO 16.d

A customer establishes the following positions: Buy 100 JMB at 28 Buy 1 JMB Dec 25 put at 2 What is the maximum potential loss? A) $200 B) $2,800 C) $500 D) $3,000

C) $500 The investor loses money on the long stock position when the market value falls. With the purchase of the put, the investor can sell the stock for no less than the strike price, but also loses the premium. In this example, the investor loses a maximum of $3 on the stock (28 − 25) plus the premium of $2, for a total loss of $500 on 100 shares. LO 10.d

A syndicate won the bid for a general obligation bond of $1 million issued by a city. The syndicate has received the following orders: $500,000 net designated, $500,000 presale, and $1 million member at takedown. The orders would be filled as A) $500,000 presale, $250,000 net designated, $250,000 to members. B) none to presale, none to net designated, $1 million to members. C) $500,000 presale, $500,000 net designated, none to members. D) $250,000 presale, $500,000 net designated, $250,000 to members.

C) $500,000 presale, $500,000 net designated, none to members Municipal syndicate customs dictate that presale orders have first priority, with group orders, net designated orders, and member orders following in that order. LO 20.b

If a customer buys 200 shares of ABC at 40 and writes 2 ABC Oct 45 calls at 2 in a cash account, the customer must deposit A) $2,000. B) $8,400. C) $7,600. D) $400.

C) $7,600. The customer must deposit 100% of the stock purchase price ($8,000) in this cash account. However, the customer received $400 for writing the two calls at $200 each, and the calls are covered by the stock purchased. The deposit can be reduced by the premium income, which leaves a required deposit of $8,000 minus $400, or $7,600. LO 16.d

An investor purchased a corporate bond with a 6% coupon at a net price of 101. The bond had accrued interest for 45 days. Which of the following statements regarding the confirmation of this trade is correct? A) The total amount due on the purchaser's confirmation will appear as $1,017.50. B) The total amount due on the purchaser's confirmation will appear as $1,010. C) The total amount received on the seller's confirmation will appear as $1,002.50. D) The total amount due on the purchaser's confirmation will appear as $1,025.

A) The total amount due on the purchaser's confirmation will appear as $1,017.50. Accrued interest is always added to the price of a bond. When you buy the bond, you pay that accrued interest, and when you sell a bond, you receive that accrued interest. The principal value is 101, or $1,010. Forty-five days of accrued interest is ⅛ of a 360-day year, or ¼ of a 180-day semiannual interest payment. With a 6% coupon, the bond pays $30 every 6 months. One quarter of that is $7.50 so the total cost to the purchaser is the $1,010 plus the $7.50, or $1,017.50. LO 6.e

An investor with a relatively low risk tolerance for loss of principal wishes to make a long-term investment that will meet his needs and provide some protection against inflation. Which of the following mutual funds is likely the most suitable for him? A) A U.S. government bond fund B) A municipal bond fund C) A balanced fund D) An S&P 500 index fund

C) A balanced fund Although suitability questions are rarely "cut and dried," we attempt to show you what the regulators are looking for. Balanced funds, with their mix of equities and fixed-income securities, offer some downside protection with the bonds and upside (inflation-beating) growth from the equities. Neither of the bond funds will protect against inflation. Furthermore, municipal bonds are never going to be a suitable choice unless something in the question refers to a high-tax-bracket investor. The index fund will surely provide the inflation protection, but as history demonstrated in 2008 and again in the spring of 2020, losses of 30% or more are possible. LO 8.g

An accumulation unit in a variable annuity contract is A) an accounting measure used to determine the contract owner's interest in the separate account. B) fixed in value until the holder retires. C) none of these. D) an accounting measure used to determine payments to the owner of the variable annuity.

A) an accounting measure used to determine the contract owner's interest in the separate account. When money is deposited into the annuity, it is purchasing accumulation units. LO 9.c

You sell a municipal bond that has been advance refunded. It will be called at 102 four years from now. On the confirmation, the yield must be stated as the yield to A) call. B) maturity. C) maturity or yield to call, whichever is lower. D) maturity or yield to call, whichever is higher.

A) call. Municipal Securities Rulemaking Board rules require that, when a call date has been fixed by a prerefunding, the yield to call so fixed must be reflected on the confirmation statement. Because of the prerefunding, this bond issue will be called at the call date. There is no uncertainty surrounding this event. Therefore, it is appropriate to price the bond to the call date. The old maturity on the bond has no further significance. LO 6.d

An options investor wishing to follow a market-neutral strategy would be most likely to find which of the following most appropriate? A) A long straddle B) A debit put spread C) A time spread D) A long broad index call

C) A time spread Time spreads, also called calendar or horizontal spreads, consist of two options of the same type with the same strike price, but different expiration months. The strategy expects the market to stay relatively level. The profit arises from the time decay of the later expiration date. A long straddle is profitable only if there is market movement. The same is true with the long call - the market price must go up. A debit put spread is a bearish strategy, so this strategy requires the market price to decline. LO 10.e

A customer enters an order to buy 1,000 ABC at 50, good for the week only. How will this order appear on the order book? A) Buy 1,000 ABC 50 GTW B) Buy 1,000 ABC 50 GTM C) Buy 1,000 ABC 50 GTC D) Buy 1,000 ABC 50 Day

C) Buy 1,000 ABC 50 GTC Limit orders and stop orders are entered on the order book as either good til canceled (GTC) or day orders. Orders that are good for only a particular time frame (good for the week) will appear as GTC. It is the responsibility of the broker-dealer that entered the order to cancel it at the end of the week, if unexecuted. LO 16.a

Which of the following secures an industrial revenue bond (IDR)? A) State taxes B) Municipal taxes C) Corporate net lease payments D) Trustee guarantees

C) Corporate net lease payments Corporate net leases back up IDRs, which means the credit of the bond is as good as the credit of the corporation that signs the net lease. LO 6.b

The Union Fidelity Bank of Highville has issued jumbo CDs with a term of three years and a fixed interest rate of 3.5%. The minimum denomination of the CDs is $100,000, and the CDs are callable at 101% of face value beginning on the first anniversary of the issue date. Under which of the following circumstances is it most likely that the bank would exercise the call feature on that anniversary date? A) Three-year jumbo CDs are currently being issued with a fixed interest rate of 3.5%. B) One-year jumbo CDs are currently being issued with a fixed interest rate of 4%. C) Five-year jumbo CDs are currently being issued with a fixed interest rate of 2.7%. D) Three-year jumbo CDs are currently being issued with a fixed interest rate of 4%.

C) Five-year jumbo CDs are currently being issued with a fixed interest rate of 2.7%. As is the case with other fixed payment callable issues, whenever interest rates decline, it is generally beneficial to call in the older issue. In this case, the bank would pay an extra 1% to redeem but could refinance at a rate that is at least .8% lower and extend the maturity. We say at least .8% lower because with the new five-year CDs paying 2.7%, if the bank wanted to keep to the same final maturity date (two more years), it is expected that the rate on two-year CDs would be lower than that of CDs with a five-year maturity. LO 4.c

The function of a broker's broker in the municipal bond business is to do which of the following? Help sell municipal bonds that a syndicate has been unable to sell Protect the identity of the firm on whose behalf the broker's broker is acting Help prepare bids for an underwriting syndicate Serve as a wholesaler, offering bonds at a discount from the current bid and offer A) I and IV B) III and IV C) I and II D) II and III

C) I and II A broker's broker helps sell the bonds a syndicate has left and does not disclose the identity of the firm on whose behalf it is acting. Brokers' brokers do not charge fees for quoting a security, do not maintain inventory, and act solely as agents earning a commission for their services. LO 6.d

When determining a position limit, a member firm aggregates which of the following customer positions? I. Long calls and long puts II. Long calls and short puts III. Short calls and short puts IV. Short calls and long puts A) II and III B) I and III C) II and IV D) I and IV

C) 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). LO 10.j

A customer buys 100 DEF at 70, but several months later, the stock is trading at 82.85. The customer, concerned about a possible pullback, buys 1 DEF Aug 80 put at 1.50. If the stock subsequently falls to 77.25, and the customer sells her stock by exercising the put, the result is A) a gain of $575. B) a loss of $150. C) a gain of $850. D) a gain of $875.

C) a gain of $850. The customer bought 100 shares at 70 and sold them at 80 by exercising the put for a gain of $1,000. However, it cost $150 to buy the put, so the customer's gain is $850. In other words, breakeven for long stock-long put is the cost of stock purchased (70) plus the premium paid (1.50). Breakeven is 71.50, and the customer sold stock at 80 (80 − 71.50 = 8.50-point gain). LO 10.h

A legal opinion that has restrictions placed on it by the municipality's bond counsel is called A) a restricted opinion. B) a contingent opinion. C) a qualified opinion. D) an unqualified opinion.

C) a qualified opinion A qualified opinion is one where the bond counsel to the municipality places certain legal restrictions (qualifications) on the issue that must be disclosed to purchasers. An unqualified opinion has no restrictions. LO 6.a

A mutual fund can use the term, "no-load" as long as A) there is no 12b-1 charge. B) any 12b-1 charge does not exceed 1.00%. C) any 12b-1 charge does not exceed .25%. D) any 12b-1 charge does not exceed .75%.

C) any 12b-1 charge does not exceed .25%. Mutual fund can call themselves no-load as long as they do not have a 12b-1 charge that exceeds .25%. In addition, there cannot be any front-end load. LO 8.d

A successful chain of retail stores in the maximum corporate tax bracket may exclude from taxation 50% of income earned on investments in A) municipal bonds from the same state in which the corporation is located. B) industrial development bonds. C) domestic corporate common and preferred stock. D) government and agency securities.

C) domestic corporate common and preferred stock. Corporate ownership of another company's stock allows the investor to exclude 50% of the dividends from taxation. LO 13.g

A company very concerned about liquidity would want A) high P/E ratio. B) low current ratio. C) high current ratio. D) low P/E ratio.

C) high current ratio. The current ratio is a measure of liquidity. It is the current assets divided by the current liabilities. The higher the ratio, the more liquid the company. This has no bearing on whether high or low P/E ratios are desirable LO 13.d

All of the following statements regarding a municipality's debt limit are true except A) that unlimited general obligation bonds may be issued when a community's taxing power is not restricted by statutory provisions. B) that the purpose of debt limits is to protect taxpayers from excessive taxes. C) that the debt limit is the maximum amount a municipality can borrow in any one year. D) that revenue bonds are not affected by statutory limitations.

C) that the debt limit is the maximum amount a municipality can borrow in any one year. The debt limit is the maximum amount of debt a municipality can have. LO 6.c

A customer buys a municipal bond in the secondary market at 96 that has four years to maturity. Two years later, the customer sells the bond at 99. The tax consequences of this investment are A) three points of ordinary income. B) three points of capital gain. C) two points of ordinary income and one point of capital gain. D) two points of capital gain and one point of ordinary income.

C) two points of ordinary income and one point of capital gain. When a municipal bond is purchased in the secondary market at a discount, the annual accretion is taxed as ordinary income. The annual accretion is one point per year (four points divided by four years to maturity). Therefore, when the bond is sold two years later, its cost basis is 98. If the bond is sold at 99, there is a long-term capital gain of one point per bond. Also, there is ordinary income taxation on the accretion of two points. LO 6.f

In early September, a customer buys 100 shares of QRS stock for $83 per share and simultaneously writes 1 QRS Mar 90 call for $4 per share. If the QRS Mar 90 call was exercised and the QRS stock delivered, what would be the customer's per-share profit? A) $4 B) $7 C) $0 D) $11

D) $11 If the stock rises above $90, the writer will be exercised and make $700 on the stock (buy at $83, deliver at $90) and keep the $400 received in premiums. Alternatively, the breakeven point is $79 ($8

An investor buys 1 XYZ Nov 50 call at 8 and sells 1 XYZ Nov 60 call at 3.50. At what stock price will the investor break even? A) $63.50 B) $50.00 C) $60.00 D) $54.50

D) $54.50 To determine the breakeven point, net the option premiums (8 − 3.50 = 4.50). For a call spread, add the netted premiums to the lower strike price (50 + 4.50 = 54.50). LO 10.h

A customer buys XYZ Oct 75 put at 7 when XYZ is trading at 72. The stock falls to 69, and the customer exercises the put. For tax purposes, sales proceeds are A) $6,500. B) $7,500. C) $6,200. D) $6,800.

D) $6,800. When a put is exercised, the holder is selling stock at the strike price (75). However, the tax rules require that, if exercised, the cost basis of stock purchased or sales proceeds of stock sold is adjusted to the breakeven point of the option. For puts, breakeven is strike price minus premium (75 − 7 = 68). LO 10.i

Which of the following statements regarding both traditional and Roth IRAs is true? A) Contributions are tax deductible. B) Withdrawals at retirement are tax free. C) Distributions must begin in the year after the owner reaches age 72. D) Contribution limits are the same.

D) Contribution limits are the same. The common factor for both traditional and Roth IRAs is that contribution limits are identical. A significant difference between the two is that Roth IRAs do not have RMDs. LO 1.g

A retiree is paid an annual amount equal to 30% of the average of his last five years' salary. Which of the following retirement plans offers this type of payment? A) Defined contribution B) Profit-sharing C) Deferred compensation D) Defined benefit

D) Defined benefit A defined benefit retirement plan establishes, in advance, the payout to be received by the retiree. The formula is based on earnings and years of service. LO 1.h

One of the most important roles played by registered representatives is making suitable recommendations to their customers. Doing that requires gathering as much information about the customers as possible. Which of the following factors would likely be the least important when dealing with a couple in their late twenties with two children? A) Current employment stability B) Values C) Education goals for the children D) Expected retirement age

D) Expected retirement age Although saving for retirement is the single most common investment objective, determining an expected retirement age for a couple this young is unrealistic—it is just too far away to make an accurate determination. Meeting the children's educational needs is something that needs to be addressed now. Knowing the reliability of the family's income stream is critical for financial planning. Selecting investments matching the customers' attitudes is necessary to ensure that their values are being met. LO 2.b

A customer purchases a municipal bond in the secondary market with a settlement date of August 1. If the next interest payment is September 1, which of the following statements regarding interest on this bond are true? The bond pays interest on March 1 and September 1 each year. The seller must pay accrued interest no later than settlement day. Accrued interest on this bond is computed using actual days elapsed. On September 1, the buyer will receive from the issuer interest for the period March 1 through August 31. A) I and III B) II and IV C) II and III D) I and IV

D) I and IV Municipal bond accrued interest is calculated using a 30-day month and a 360-day year, with interest paid every six months. On settlement day, August 1, the buyer will pay the seller five months accrued interest from March 1 through July 31. Then on September 1, the next interest payment date, the buyer will receive payment for the full semiannual interest directly from the issuer. LO 6.e

Which of the following statements regarding U.S. government agency obligations are true? I. They are direct obligations of the U.S. government. II. They generally have higher yields than direct U.S. obligations. III. The Federal National Mortgage Association (FNMA) is a publicly traded corporation. IV. Securities issued by the Government National Mortgage Association (GNMA) trade on the NYSE floor. A) II and IV B) I and III C) I and II D) II and III

D) II and III U.S. government agency debt is an obligation of the issuing agency. This obligation causes agency debt to trade at slightly higher yields that reflect this greater risk. FNMA securities and GNMA pass-through certificates trade over the counter. GNMA is the only agency whose securities are direct U.S. government obligations. LO 7.c

If an investor buys 1 DWQ Apr 70 call at 5, giving him the right to buy 100 shares of DWQ at $70 per share, which aspect of the transaction is not set or standardized by the Options Clearing Corporation (OCC)? A) Contract size of 100 shares B) Exercise price of 70 C) Expiration date in April D) Premium of 5

D) Premium of 5 The OCC sets standard exercise prices and expiration dates for all listed options, but the options premiums that buyers pay are determined by the market. LO 10.b

The term municipal fund security refers to A) an advance refunded municipal bond. B) a municipal bond with a sinking fund. C) a mutual fund whose portfolio is exclusively municipal bonds. D) a Section 529 savings plan.

D) a Section 529 savings plan. Section 529 plans, used primary for saving for college, are legally considered municipal fund securities. LO 6.g

Filing with FINRA within 10 business days of first use is required for all of the following except A) retail communications concerning public direct participation programs (DPPs), B) retail communications concerning collateralized mortgage obligations (CMOs) registered under the Securities Act, C) retail communications that promote or recommend a specific registered investment company or family of registered investment companies including exchange-traded funds (ETFs). D) retail communications that promote or recommend a specific real estate investment trust (REIT).

D) retail communications that promote or recommend a specific real estate investment trust (REIT). Real estate investment trusts (REITs) are not included in FINRA's list of retail communications requiring postfiling. LO 19.d

TANs, RANs, GANs, and BANs are issued by municipalities seeking A) bond insurance. B) financing for low-cost housing. C) special tax assessments for general obligation bonds. D) short-term financing.

D) short-term financing. Municipal short-term notes (tax anticipation notes, revenue anticipation notes, grant anticipation notes, and bond anticipation notes) are used as interim financing until a permanent long-term issue is floated or until tax receipts increase or revenue flows in. LO 6.b

Your customer opens a Coverdell ESA for his niece. To meet qualified education expenses of $9,000, she takes a distribution of $10,000. The amount of the distribution in excess of her education expenses that represents earnings in the account will be A) nontaxable to either party. B) automatically reinvested back into the plan. C) taxable to the uncle, the donor to the plan. D) taxable to the niece, the beneficiary of the plan.

D) taxable to the niece, the beneficiary of the plan. Any excess distribution representing earnings that is not used to meet qualified education expenses is taxable to the beneficiary who took the distribution. LO 1.g