SIE

Statement of Additional Information (SAI) contains

-balance sheet -statement of operations -income statement -portfolio list at the time the SAI was complied

when opening a corporate account the firm must obtain

-corporate charter: proof that the corporation exists -corporate resolution: authorizes the opening of the account and the officers designated to enter orders

traditional IRA qualified reasons

-death -disability -adoption of birth of a child -education expense for child, grandchild, taxpayer or spouse -first time home-buyer ($10K) -medical expenses exceeding AGI limit -medical premiums for unemployed

Fed Reserve dual mandate

-max. employment -price stability (inflation)

If an arbitration agreement has not been signed, under which two of the following circumstances would a dispute between a Financial Industry Regulatory Authority (FINRA) member firm and a retail customer go to arbitration? 1. The dispute cannot otherwise be resolved to the satisfaction of both parties. 2. The customer requests that the dispute go to arbitration. 3. The amount under dispute is less than $50,000. 4. The FINRA director of arbitration so rules.

1 & 2 Generally speaking, a broker-dealer firm has the customer sign a binding arbitration agreement before opening the account. In the absence of such an agreement, if a dispute cannot otherwise be resolved, the dispute can go to arbitration if the customer wishes it so. LO 10.a

Your client, Bill Hearst, inherited several thousand shares of his grandfather's auto parts manufacturer, National Autoparts. He sells a portion of the position in order to raise some cash to buy a new boat. Which of these is true? 1. This is a secondary market transaction. 2. This is a primary market transaction. 3. This is a long sale of the stock. 4. This is a short sale of the stock (he never purchased it).

1 & 3

A deficit in the U.S. balance of payments can occur if 1. interest rates in foreign countries are higher than U.S. domestic rates. 2. interest rates in foreign countries are lower than U.S. domestic rates. 3. U.S. consumers are purchasing (importing) foreign goods. 4. foreign consumers are purchasing (importing) U.S. goods.

1 & 3 Anything that sends money out of our domestic economy leads to a deficit (more money flowing out than coming in). When interest rates abroad are higher, money flows out of the United States to those foreign locations. When U.S. consumers are purchasing more foreign goods and services, money flows out of the United States to those foreign markets. LO 14.d

A registered representative has left a firm and joined another. The new firm must obtain a copy of the Form U-5 filled out by the old firm. Where might the new firm obtain a copy of the form? 1. From the new employee 2. From the Securities and Exchange Commission (SEC) 3. From Financial Industry Regulatory Authority (FINRA)'s Central Registration Depository (CRD) 4. From the representative's former employer

1 & 3 Copies of a new employee's Form U-5 may be obtained from the employee, or from FINRA's Central Registration Depository (CRD). Whichever the source, the firm must obtain the copy within 60 days of filing the new Form U-4 for the new employee. LO 31.a

A customer leaves the sale proceeds from a recent transaction in the account. This amount would be considered 1. a free credit balance. 2. a margin debit balance. 3. available to the customer at any time. 4. a loan to the broker-dealer, who will pay interest to the customer.

1 & 3 Sale proceeds that are not reinvested and held in the account at the broker-dealer are considered a free credit balance. These funds are available to the customer on demand (freely available). LO 29.g

^A firm designated as self-clearing can 1. act in a back-office capacity for an introducing firm. 2. not act in a back-office capacity for an introducing firm. 3. clear and settle transactions executed by other firms. 4. only clear transactions it executed.

1 & 3 Self-clearing firms not only clear and settle their own executions (transactions) but can clear the executions of other firms that would be considered introducing or fully disclosed firms. In this light, fully disclosed firms are those that introduce their business to clearing firms. Clearing and settling transactions includes providing any back-office functions needed. LO 8.c-9

An exception report would be most likely generated by which of the following observations? 1. Seeing activity in the account of a deceased person 2. Noting that a customer's telephone area code matches the ZIP code provided 3. Receiving an execution for 300 shares when the order was for only 100 4. Receiving a written complaint from a customer

1 & 3 There are a number of red flags that might generate an exception report. Among them are a trade in the account of a deceased person and a trade for an amount in excess of the customer's order. Address numbers or area codes matching what we know or is expected is not a red flag nor is a single complaint, but excessive complaints could be. LO 29.e

For each transaction, a customer must be sent or given a written confirmation of the trade at or before the completion of the transaction, the settlement date. Information on that trade confirmation would include 1. the markup (markdown) charged on a principal transaction. 2. the commission charged on an agency transaction. 3. the number of bonds purchased in a bond trade. 4. the Committee on Uniform Securities Identification Procedures (CUSIP) number (if any).

2 & 4 Commissions for agency transactions are shown on confirms but not markups or markdowns charged in principal transactions. In a bond trade, the par value of the bond purchase (or sale) is confirmed, not the number of bonds. If the security has one, the applicable CUSIP number is included. LO 29.g

^***A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is A) a clearing agent. B) a depository. C) a transfer agent. D) a broker-dealer.

A A clearing agent is an intermediary between the buy and sell sides of a transaction that receives and delivers payments and securities on behalf of both parties. While some broker-dealers are self clearing (act as their own clearing agent), simply being a broker-dealer doesn't always include being able to provide the services of a clearing agent. LO 8.c

A company has just conducted a stock offering, by prospectus, through an investment banker. The proceeds of the offering are used to purchase a portfolio of securities. The stock, now in the hands of the public, is freely traded in the secondary market, and the portfolio is managed to generate maximum profit according to a specific investment objective. The company must be A) a closed-end company. B) a fixed UIT. C) a mutual fund. D) a nonfixed UIT.

A A closed-end company, or closed-end management investment company, is much like any other company, just that its source of profit is investments, rather than selling a product or service. Shares of closed-end companies are traded in the secondary markets, while the other choices listed here offer only redeemable securities. LO 4.b

A customer who is short against the box may close the position by all the following except A) depositing the fair market value of the shorted stock into his account. B) combining purchases of stock with stock already owned by the customer. C) purchasing twice the stock in the open market. D) covering the short with the stock in his account.

A A customer who is short against the box owns the stock he shorted. As a result, the customer may use his owned stock to cover the short position, buy back the short position in the open market, or any combination of the two. The customer cannot simply deposit funds into his account. LO 18.c

Financial Industry Regulatory Authority (FINRA)'s Conduct Rules regarding gifts and gratuities would permit a branch manager to A) invite a portfolio manager to see a popular Broadway show together. B) offer two tickets to the portfolio manager only if their value did not exceed $100. C) transfer ownership and the rights to a luxury box to the portfolio manager. D) offer a portfolio manager two tickets to all shows for that theater season.

A A gift of tickets to a single event would be permitted under the Conduct Rules. A scenario where a representative of the firm accompanies the guest would fall under the heading of normal business dealings and the requirement that gifts be of no more than $100 in value is waived. LO 32.f

Which of the following statements is true of income bonds? A) Unlike other bonds, they don't pay income unless declared by the board of directors. B) Unlike other bonds, they pay income monthly. C) Unlike other bonds, they pay income annually. D) Unlike other bonds, they pay income quarterly.

A An income bond is normally issued by a corporation emerging from bankruptcy. In order to allow the company to regain a firmer footing, these bonds only pay interest when the board of directors declares that a payment will be made. LO 2.a

Mr. Smith bought an American depository receipt (ADR) in a French company at $13.03 and recently sold the shares for $24.88. How would this trading profit be taxed? A) The profit is taxed as a capital gain in the United States only. B) The profit is not taxed because ADRs are tax-exempt securities. C) The profit is taxed as income in the United States only. D) The profit is taxed as income in France only.

A Any trading profits (capital gains) from an ADR would only be taxable here in the United States. A capital gain is the profit realized when buying then selling the shares. Remember, dividends paid to a U.S. investor may be subject to a withholding tax by the home country of the underlying foreign stock issuer. In many cases, the amount of tax withheld by the foreign government is applied as a credit against the investor's U.S. tax liability. LO 1.h

John Christensen places a buy limit order at 42 when the market price of the stock is at 45. Which of the following best describes how the order would fill? A) The order can only be filled at a price of 42 or lower B) The order would be filled between when the stock price is between 42 and 45 C) The order would be filled immediately because the market price is already above 42 D) The order would be filled at the next available price after the stock price drops to 42

A Buy limit orders are placed below the current market price and fill at the stated price or lower. LO 16.b

When a broker-dealer pledges customer securities to a bank as collateral for a margin loan, the pledge is known as A) rehypothecation. B) credit agreement. C) hypothecation. D) loan consent.

A By signing the margin agreement, a customer hypothecates (pledges) the securities to the broker-dealer who then rehypothecates (pledges) them to the bank as collateral for the margin loan. LO 24.b

Which of the following would be included in a mutual fund's list of expenses? 1. Shareholder records and service 2. Investment advisor's fee 3. Broker-dealer sales charges 4. Underwriter's sales loads

A Costs to maintain shareholder records, costs to provide services to shareholders, and the investment adviser's fees are all expenses to the fund. The costs paid in the form of sales charges (loads) to an underwriter or broker-dealers selling mutual funds to the public may never be treated as an expense to the fund. They are expenses to the investor. LO 4.d

Which of the following would be recommendations? A) Discussing the advantages of day trading with an existing client in order to generate more business for you and your firm B) Discussing the advantages of you firm over another firm with a prospective client C) Discussing the pros and cons of a variety of account types and registrations with a prospective client D) Discussing the pros and cons of a variety of products and services with a prospective client

A Discussions with individuals who are not clients where the firm and the registered representative are not receiving compensation is not considered a recommendation. Suggesting a particular strategy with an existing client is a recommendation. LO 26.b

A broker-dealer wants to give an employee of another firm a gift. This is permitted provided all of the following conditions are met except A) the gift or compensation is preapproved by the firm's self-regulatory organization (SRO). B) the gift or compensation is not conditional on sales. C) the gift or compensation doesn't exceed the annual $100 limit. D) the gift or compensation has the employing member firm's prior approval. Explanation

A Firms may not distribute gifts, gratuities, or compensation to the employees of other member firms unless the compensation is not conditional on sales or promises of sales, it has the employing member's prior approval, and the compensation's total value does not exceed the annual limit of $100 per person. Approval of the self-regulatory body the firm reports to is not a requirement or condition. LO 32.f

A municipal securities dealer has just made a contribution to the mayor's reelection campaign. How long must the firm wait before it can enter competitive bids on proposed bond issues by the city? A) No waiting period B) Can never underwrite a bond for the city again C) Six months D) Two years

A If a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a two-year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not. LO 32.g

A broker-dealer may allow a registered representative to work from home - that is, to have a home office. If this is the case, the registered representative must A) expect the office to be treated like any branch office. B) carry out sales presentations in some other location. C) not specify the office as a place of business in advertising. D) use the office only to perform clerical functions.

A If a registered representative works from home, the office must be subject to site review and visits to the premises by principals of the firm and Financial Industry Regulatory Authority (FINRA) examiners, may be specified in advertising of various kinds as a business office, and function in all ways like any other branch office of the firm. LO 32.h

When a registered person leaves the securities business, Financial Industry Regulatory Authority (FINRA) retains jurisdiction over that person for how long? A) 2 years B) 30 days C) 1 year D) In perpetuity

A If a terminated person becomes subject to a customer complaint or charges are brought against that person by FINRA, that person remains subject to FINRA jurisdiction for two years following termination. LO 31.c

ABC Corporation's common stock has increased in price by 10% and its shares outstanding has increased 5%. This has what impact on ABC's earnings per share (EPS)? A) EPS has increased B) EPS has decreased C) EPS has stayed the same D) Not enough information to answer the question Explanation

A If earnings (net income) have increased faster than the shares outstanding, EPS will increase. LO 15.d

If the portfolio of a variable annuity separate account is directly and actively managed by the insurance company, the separate account must be registered as A) an open-end management investment company. B) a closed-end management investment company. C) an equity unit investment trust. D) a face-amount certificate company.

A If managed by the insurance company's own investment advisor, a separate account must register as an open-end company. If it is managed by a third party, it must register as a unit investment trust. LO 4.c

Which of the following is true regarding no-load shares? A) They have fees associated with sales and redemptions. B) They offer more return per dollar invested. C) They are redeemed with no charges or fees of any kind. D) They are sold with no charges or fees of any kind.

A No-load shares have fees that are not considered sales charges, but rather service fees, purchase fees, redemption fees, and so on. Some fees, especially some of those levied at redemption, may look like sales charges but are not—hence, the term "no-load shares." LO 4.d

Which of the following best describes the calculation for gains or losses for tax purposes? A) Proceeds minus cost basis B) Proceeds plus cost basis C) Proceeds plus dividends minus cost basis D) Proceeds minus dividend plus cost basis

A Proceeds minus cost basis equals capital gains the dividends are not part of the calculation for capital gains. LO 20.c

A company has issued bonds (debt securities) to investors. For these investors, these securities represent A) a loan to the issuing company. B) liability for the issuing company's debt. C) equity in the issuing company. D) ownership in the existing company.

A Purchasers of bonds have essentially given the issuer a loan for which they will receive repayment plus interest. LO 2.g

State registration is not required if the transaction is exempt. An example of an exempt transaction would be A) one that is unsolicited. B) one involving municipal bonds. C) one that is solicited. D) one involving U.S. government bonds.

A Purchases and sales that are unsolicited (unsolicited transactions) are exempt under the blue-sky (state securities) laws. Municipal bonds and U.S. government bonds are examples of exempt securities, not transactions. LO 7.d

call protection is most valuable to a bond owner when bond prices are A. rising B. falling C. stable D. flucuating

A Rising ASKING ABOUT PRICES NOT INTEREST RATES when IR fall, expect a call but when interest rates fall bond prices are rising

Rule 144 stipulates that after holding restricted stock fully paid for six months, an affiliate may begin selling shares A) subject to volume restrictions within any 90-day period. B) at the discretion of the issuer's board of directors (BOD). C) completely unrestricted. D) subject to the volume restrictions on any single day.

A Rule 144 stipulates that after holding restricted stock fully paid for six months, an affiliate may begin selling shares but is subject to volume restrictions within any 90-day period. LO 1.g

Which of the following would lead to a standardized cost-base adjustment for stockholders? A) Dividend B) Takeover C) Spin-off D) Merger

A Scheduled, common events such as dividend declarations, issuance of rights and warrants, and forward and reverse stock splits are accompanied by standardized adjustment of the stock's cost base. Unique events such as corporate mergers, takeovers and spin-offs are dealt with in a nonstandardized case-by-case manner that depends on the individual circumstances. Ideally, the outcome is what is best for the stockholder and the company. LO 21.f

Short-term securities that generate funds for a municipality that expects alternate longer-term financing include all of the following except A) real estate investment trusts (REITs). B) revenue anticipation notes (RANs). C) tax anticipation notes (TANs). D) bond anticipation notes (BANs).

A TANs, for example, are used to finance current operations in anticipation of future tax receipts. This helps municipalities to even out cash flow between tax collection periods. Similarly, BANs will be converted to long-term financing through the sale of bonds, and so on. REITs are not a municipal security. They issue shares of beneficial interest in a trust set up for real estate investment. LO 2.h

Accusations of Financial Industry Regulatory Authority (FINRA) Conduct Rule violations will heard and handled under the A) Code of Procedure. B) Uniform Practice Code. C) Uniform Securities Act. D) Code of Arbitration Procedure. Explanation

A The Code of Procedure describes how member violations of the Conduct Rules will be heard and handled. LO 10.a

All of the following names describe the Securities Act of 1933 except A) The Exchange Act. B) The Prospectus Act. C) The Truth in Securities Act. D) The Full and Fair Disclosure Act.

A The Exchange Act is the Securities Exchange Act of 1934 and covers the secondary markets. The Securities Act of 1933 covers the primary market and requires full and fair disclosure on new issues by providing a prospectus to the investor. LO 7.a

An investor buys 1 DWQ May 70 call at 2, giving the investor the right to buy 100 shares of DWQ at $70 per share. All the specifications of the transaction are set or standardized by the Options Clearing Corporation (OCC) except A) premium of 2. B) contract size of 100 shares. C) exercise price of 70. D) expiration date in May.

A 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 3.k

Two years ago Joshua Ryan bought 100 XYZ at $60 per share. While he held the stock it paid dividends of $1 the first year and $1.50 the second year. Joshua sold the shares at $40 per share after a 2 for 1 stock split. How much gain or loss did he incur per share for tax purposes? A) $10 gain B) $17.50 Loss per share C) $12.50 gain per share D) $20 loss

A The formula to calculate a gain or loss for tax purposes is the proceeds minus the cost basis. He bought the shares for $60 then there was a 2 for 1 split, so the cost basis was adjusted to $30 per share. He sold at $40, so he had a $10 gain dividend are not part of the calculation for gain or loss. LO 20.c

In a leasing partnership program, loans are taken to purchase equipment that is then leased to companies in return for the lease payments. This process A) allows for the loan interest and equipment depreciation to be taken as deductions that will shelter the income from the lease payments received. B) eliminates any possibility of sheltering the income from the lease payments received with deductions or credits. C) enables the partners to take tax credits against the income received from the lease payments. D) allows for the equipment to be depreciated, adding to the income realized by the partnership.

A When a leasing program purchases equipment that it will lease to companies in return for the lease payments, the program can deduct over the life of the program any interest costs on the loans to purchase the equipment, as well as any depreciation on the equipment it owns and leases. These deductions shelter the income taken in from the lease payments. LO 5.e

An option contract having no intrinsic value at expiration will likely be A) allowed to expire. B) assigned to the holder. C) exercised by the holder. D) exercised by the writer.

A With no intrinsic value at expiration, an option contract is worthless. Therefore, the owners of these contracts would most likely allow them to expire rather than exercise them. LO 3.b

An investor with no existing positions in MMS stock sells 100 shares. This is A) a short bearish position. B) a short bullish position. C) a long bullish position. D) a long bearish position.

A With no other existing positions, this sale transaction would have to be opening a position. Sell to open a position = short = bearish. LO 18.c

under expiration all in the money S&P 100 index call options are settled by the delivery of which of the following? A. Cash B. S&P 100 index stocks C. S&P ETF D. same # of S&P 100 Index put options

A equity option-shares index and foreign currency are settled in cash

The rules to prevent pay to play regarding contributions made to political parties, candidates, and elected officials by firms involved in the underwriting or sales of municipal securities are enforced by A) Financial Industry Regulatory Authority (FINRA). B) Municipal Securities Rule Board (MSRB). C) Federal Reserve Board (FRB). D) Securities and Exchange Commission (SEC).

A having no authority to enforce the rules it enacts, the MSRB relies on FINRA to enforce its municipal securities rules. This would include the enforcement of the pay to play or play for pay rules regarding political contributions. LO 32.g

John got a athletic scholarship valued at $15,000 and has a college savings plan. Mr. John's dad can do anything except A. w/d the value tax free B. transfer to a brother C. w/d the value penalty free D. leave the money in the fund for future use

A if the $ is w/d for a non-qualified use it is still subject to taxes on the growth. The penalty is waived because of the scholorship and the amount w/d is the same amount

******amortization

A method for computing equal periodic payments for an installment loan.

An official statement is a disclosure document that would be used in connection with an offering of which of the following securities? A) Limited partnership interests B) Municipal bonds C) U.S. Treasury notes D) Common of preferred stock offered privately

B An official statement serves as a disclosure document and contains any material information an investor might need about a municipal bond issue. Municipal bonds are exempt from registration under the Securities Act of 1933. LO 7.e

Distributions from IRAs are taxed at A) long term capital gains rate on the amount of the distribution that exceeds the amount contributed. B) ordinary income tax rates on the full amount of the distribution. C) ordinary income tax rates on the amount of the distribution that exceeds the amount contributed. D) long term capital gains rate on the full amount of the distribution.

B Because no taxes were paid on the amount deposited, the full amount is taxable at distribution. Even though some of the distribution is from capital gains, the whole amount is taxes at the ordinary income tax rate. LO 23.a

The prospectus delivery requirement, access equals delivery, is satisfied when A) a red herring is initially sent by mail to investors during the cooling-off period. B) the final prospectus has been filed with the Securities and Exchange Commission (SEC) and is available on the SEC's website for investors to see. C) the final prospectus has been filed with Financial Industry Regulatory Authority (FINRA) and is available on FINRA's website for investors to see. D) the preliminary prospectus has been filed with FINRA and is therefore available on FINRA's website for investors to see.

B Beyond physical delivery of a paper prospectus, access equals delivery is the industry standard for meeting the final prospectus delivery requirements. It is deemed to be satisfied when the final prospectus has been filed with the SEC and is therefore available on the SEC's website for investors to log in and see. This standard does not apply to delivery of a preliminary prospectus before the effective date. LO 7.d

For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are A) made by the introducing broker-dealer. B) made by the clearing firm. C) made by the customer. D) never permitted.

B Broker-dealers who are self-clearing will make their own extension requests. For those that are not self-clearing, known as introducing broker-dealers, the extension request must be made by the clearing firm. LO 24.b

If the dollar price of a municipal bond is 101 and the basis is 6.10, the nominal yield is A) 6.10. B) greater than 6.10. C) equal to the yield to maturity (YTM). D) less than 6.10.

B CHART For bonds trading at a premium (101), the nominal yield (or coupon) is higher than the basis (YTM). For bonds at a premium, yields from lowest to highest are yield to call (YTC), YTM, current yield, and nominal yield. LO 2.b

Which of the following accurately characterizes capital risk? A) It is minimal when investing in derivatives, such as options. B) It can be reduced by diversification. C) It is always high when investing in government securities. D) It is the potential for loss due to an issuer's financial strength.

B Capital risk is one of the nonsystematic risks that can be reduced by diversification. It represents the potential for loss due to circumstances unrelated to an issuer's financial strength. While it is considered minimal to none for U.S. government securities, it is generally high for derivative products, such as options. LO 6.d

The statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" is A) mandated by the Financial Industry Regulatory Authority (FINRA) to be placed in both the preliminary and final prospectus. B) mandated to be in the final prospectus by the Securities and Exchange Commission (SEC). C) is the disclaimer placed by the underwriters in a tombstone advertisement. D) placed by the issuer in the preliminary prospectus.

B Commonly known as the Securities and Exchange Commission's disclaimer, the SEC mandates that it be found in the final prospectus. LO 7.d

^Which of the following is not a type of real estate direct participation program? A) New construction B) Income C) Existing properties D) Raw land

B Direct participation real estate programs come in three types: raw land, new construction, and existing properties. Income is a type of oil and gas program. LO 5.e

The best characterization of how economists view the money supply is A) savings and checking accounts and all lines of credit but not paper money or coins. B) cash, loans, different forms of credit, and other liquid instruments. C) all forms of cash and liquid instruments but no forms of credit. D) paper money and coinage only.

B Economists take a broad view of the money supply and include within it all cash (paper money and coins), loans, credit, and other liquid instruments, such as savings and checking accounts. LO 13.b

Which of the following statements best describes financial risk? A) A risk generally caused by poor management and operating decisions B) The risk that an issuer will be unable to meet interest and principal payments on debt obligations C) The risk that a security with a call feature might be called before maturity D) The risk that when interest rates decline, it is difficult to invest proceeds from redemptions

B Financial risk emanates from the use debt financing (leverage). It represents the potential inability to meet interest and principal payments on debt obligations, which can lead to bankruptcy. It is sometimes called credit risk or default risk. LO 6.d

Public offerings of securities are regulated under A) Financial Industry Regulatory Authority (FINRA)'s communications with the public rules. B) the Securities Act of 1933. C) the Securities Act of 1934. D) the Consumer Protection Act.

B In a public offering, securities are offered and sold to the investing public. Public offerings of securities are regulated under the Securities Act of 1933. LO 7.b

All the following are exempt from the Securities Act of 1933 except A) fixed annuity contracts. B) limited partnership. C) U.S. Treasury securities. D) debt securities issued by religious organization.

B Limited partnership interests are not exempt securities. The exempt securities include U.S. government securities, municipal bonds, commercial paper and banker's acceptances that have maturities of less than 270 days, insurance policies and fixed annuity contracts (but not variable annuities), charitable, religious, educational, and nonprofit association issues and more. LO 7.e

Which of the following securities can never be purchased on margin? A) Any warrants B) Any mutual funds C) Any stocks that trade on Nasdaq D) Any over-the-counter (OTC) stocks

B MUTUAL FUNDS CANNOT BE BOUGHT ON MARGIN ETF BENEFIT

A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following? A) A fully disclosed introducing firm B) A carrying firm C) An investment company D) A depository trust

B Most firms choose to introduce their customers to another member firm known as a clearing or carrying firm to handle back-office tasks, such as clearing trades, sending trade confirmations, settlement and reporting compliance, trade execution, and custody of customer funds and securities. LO 8.c

Your customer has purchased 1 February 35 call at 2 on Tuesday, December 4. This transaction will settle on A) the same day. B) Wednesday, December 5. C) Thursday, December 6. D) the last business day of February.

B Options transactions settle on the next business day after the trade date, T + 1. In this case, an option transaction occurring on Tuesday, December 4, would settle on Wednesday, December 5. LO 3.k

Regarding transferability for common shares, which of the following is true? A) Shares can be sold or given away but only with the permission of the corporation. B) Shares can be sold or given away without the permission of the corporation. C) Shares can be sold without the permission of the corporation but may never be simply given away. D) Shares can be sold but not given away, unless the permission of the corporation is received first.

B Shareholders have the right to sell or give away their shares without permission of the corporation. LO 1.e

The monetarist theory proposes which of the following? A) The federal government can impact the economy by raising and lowering the federal funds rate. B) The Federal Reserve may impact the economy by raising and lowering the discount rate. C) The Federal Reserve has a major impact on the economy by raising and lowering taxes. D) The federal government impacts the economy through repurchase and reverse repurchase agreements.

B The Federal Reserve controls the discount rate and repurchase and reverse repurchase agreements. The federal government controls taxes and spending. LO 13.c

Which of the following is a benchmark for small cap stocks? A) Standard and Poor's 500 Index B) Russell 2000® Index C) Wilshire 5000 D) Dow Jones Industrial Average

B The Russell tracks 2,000 small company stocks. LO 20.f

Which of the following is a bench mark for small cap stocks? A) Standard and Poor's 500 B) Russell 2000 C) Dow Jones 30 D) Wilshire 5000

B The Russell tracks 2000 small company stocks. LO 20.g

What is the name for the legal framework of state laws for broker-dealers, registered representatives, investment advisors and investment advisor representatives? A) The Investment Advisor Act B) The Uniform Securities Act C) The Securities and Exchange Act of 1934 D) The Securities Act of 1933

B The Uniform Securities Act is a template for state securities laws in the United States. LO 9.f

All of the following would be included in the expense ratio of a fund except A) portfolio management fee. B) front-end or back-end load. C) 12b-1 fee. D) salaries and administrative fees.

B The expense ratio includes ongoing operating expenses but not sales charges. A front- or back-end load is a sales charge. LO 4.f

A measure of a nation's citizen's economic activity is A) S&P 500 Index. B) gross national product. C) gross domestic product. D) Consumer Price Index.

B The gross national output is a measure of only the economic output of a country's citizens and companies, regardless of location. The gross domestic product measures all the output only within a nation's borders. LO 11.a

If an investor is long an option contract and wishes to exercise the contract, the investor notifies the broker-dealer, who then notifies A) the Financial Industry Regulatory Authority (FINRA). B) the Options Clearing Corporation (OCC). C) the Federal Reserve Board (FRB). D) the Securities and Exchange Commission (SEC).

B The investor who is long will notify the broker-dealer to exercise. The broker-dealer will then notify the OCC. LO 3.k

A syndicate is a group of broker-dealers working together to help an issuer raise capital. Each member of this syndicate is known as a(n) A. Mutual fund B. Market maker C. Underwriter D. Limited partner

C The participants in a syndicate are known as underwriters, and the objective is for each underwriter to share the financial risk associated with offering the securities to the public. Please see textbook section 8.3

The U.S. balance of payments deficit would decrease in all of the following scenarios except A) a decrease in imports of foreign goods into the United States. B) a decrease in dividend payments by U.S. companies to foreign investors. C) a decrease in purchases of U.S. securities by foreign investors. D) an increase in exports of domestic goods from the United States.

C A deficit in the balance of payments occurs when more money is flowing out of the country than in. When foreign investors decrease their purchases of U.S. securities, the flow of money coming into the United States decreases, this adds to the deficit rather than decreasing it. LO 14.d

An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another is known as A) an investment company. B) a fully disclosed firm. C) a custodian. D) a unit investment trust.

C A person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another is known as a custodian, for example, the custodian for the account of a minor. This is different than a trustee who is a legally appointed entity. By contrast, anyone can open a custodial account for a minor as long as they are themselves an adult. LO 8.c

In an LP, which of the following is true? A) The partners are not responsible for paying taxes on gains. B) Any gains realized from a limited partnership are tax exempt. C) The partnership entity is not responsible for paying taxes on gains. D) Only losses but not gains flow through to the individual partners.

C Both gains and losses from an LP flow through to the individual partners. Gains are taxable, and any taxes due are the responsibility of the individual partners, not the partnership entity. LO 5.d

Which class of shares have a 12b-1 fee as the primary sales charge? A) Class B shares B) No load C) Class C shares D) Class A shares

C Class C shares charge a level load built into the expense ratio, usually as a 12b-1 fee. Class B shares have back-end loads that reduce over time (contingent deferred sales charge, or CDSC). Class A shares charge an upfront load. No load funds have no sales charge. LO 4.d

Promissory notes are a form of A) jumbo CDs issued by banks. B) Treasury notes issued by the U.S. government. C) commercial paper issued by corporations. D) Treasury bills issued by the U.S. government.

C Corporations issue short-term, unsecured commercial paper, known as promissory notes. The proceeds from these notes are generally used to fund such items as pending accounts receivable and seasonal inventory gluts. LO 2.m

Deflation occurs during A) a depression, coinciding with economic expansion in the business cycle. B) a recession, coinciding with economic peaks. C) a recession, coinciding with an economic contraction. D) a depression, coinciding with an economic trough in the business cycle.

C Deflationary periods in the economy are most associated with severe recessions. Recessions occur during periods of economic contraction in the business cycle. LO 11.c

Which of the following characteristics are typical of an exchange-traded product (ETP)? A) An ETP is marginable but may not be sold short. B) The value of an ETP is derived by formula disclosed in the prospectus and it trades on an exchange only after normal trading hours. C) The value of an ETP is derived from other investment instruments, and it trades on a national securities exchange. D) An ETP is an ineligible investment for retail customers, and may not be purchased on margin.

C ETP=ETN+ETF ETPs are priced so that the value of the product is derived from other investment instruments, such as a commodity, a currency, a share price or an interest rate. ETPs are benchmarked to stocks, commodities or indices. They are marginable and may be sold short. LO 5.k

Failure to complete the regulatory element continuing education (CE) requirement within the allotted time period will result in A) suspension of the individual until all CE requirements are met. B) an automatic bar from the industry for three years. C) the registration being deactivated until the requirements are met. D) an automatic extension request, which Financial Industry Regulatory Authority (FINRA) will normally be grant.

C Failure to complete the regulatory element within the allowable time frame will lead to FINRA's deactivating that person's registration until the CE regulatory element is met. LO 32.b

Which of the following prospectus delivery requirements for negotiable securities sold in the secondary markets is not accurate? A) For an IPO if listed on an exchange or Nasdaq the delivery requirement is 25 days. B) For an additional issue listed on an exchange or Nasdaq there is no delivery requirement. C) For an additional issue if the security is non-Nasdaq there is no delivery requirement. D) For an initial public offering (IPO) if non-Nasdaq the delivery requirement is 90 days.

C For an additional issue, if the security is non-Nasdaq the delivery requirement is 40 days. LO 7.g

Which of the following are potential benefits associated with a real estate direct participation program? A) Depletion allowances B) Dividends and interest C) Tax deductions and credits D) Intangible costs

C For real estate programs, both deductions (from mortgage interest expenses and depreciation) and credits (for certain types of programs) are potential benefits. Depletion and intangible costs are associated with natural resource programs such as oil and gas, and DDPs do not pay dividends or interest. LO 5.e

Each of the following are likely benefits of owning shares of common stock except A) limited liability. B) dividend payments. C) interest payments. D) voting rights.

C Interest payments are paid to bond holders but not on common stock. Common shareholders may receive dividends if declared by the board of directors. They may also expect to vote on certain critical issues facing the company such as its leadership. Common shareholders have a liability limited to the amount invested. LO 1.e

a luxury tax that consumers must pay that is levied on nonessential items of a certain value or more is an example of A) political risk. B) regulatory risk. C) legislative risk. D) consumer risk.

C Legislative risk is the risk that laws are introduced or amended. Always associate changes in tax laws or code with legislative risk. LO 6.d

Which of the following statements is correct concerning the pricing of American depository receipts (ADRs)? A) ADR pricing is dollar-based using an end of day net asset value (NAV). B) ADRs are priced in foreign currency. C) ADR pricing is dollar-based and fluctuates throughout the day. D) ADR pricing is dollar-based using an end of day public offering price (POP).

C Many ADRs are listed on exchanges such as the NYSE or Nasdaq. ADRs trade throughout the day and settle in the same manner as would the shares of a U.S.-based company. ADRs are priced in U.S. dollars. LO 1.h

Which of the following investments would not require heightened suitability requirements before recommending them to your clients? A) An exchange-traded note (ETN) B) A hedge fund C) A Utilities Mutual Fund D) An oil and gas limited partnership

C Mutual funds are generally considered suitable for a broad class of investors. ETNs, limited partnerships, and hedge funds are complex products (often illiquid) that require heightened suitability. LO 26.c

In which of the following accounts would the use of margin always be prohibited? A) Corporate accounts B) Partnership accounts C) Individual retirement accounts D) Fiduciary accounts

C Of those listed, only qualified retirement accounts, such as IRAs, prohibit the use of margin. As long as the use of margin is not listed as being restricted, it is allowed in both corporate and partnership accounts, and as long as the use of margin is specifically listed as being allowed, a fiduciary account may do so. LO 24.b

All of the following may be purchased on margin except A) Nasdaq listed stocks. B) exchange-listed securities. C) call and put contracts. D) municipal securities.

C Option contracts—calls and puts—are among those securities products that cannot serve as collateral for a margin loan and, therefore, may not be purchased on margin. In the case of options, their unpredictable intrinsic value, diminishing time value, and limited life make them inappropriate for securing any kind of loan. LO 24.b

Which of the following transactions has the least risk? A) Selling to open B) Selling short C) Short against the box D) Buying to open

C Short against the box is when a customer owns the shares she wants to sell but borrows some additional shares, sells the borrowed shares, and then covers the short position with shares already owned. Historically it was a tax strategy, but it doesn't work as well anymore with the tax law change. There is no loss potential. Buying to open can cause a loss of the amount invested; selling short and selling to open have unlimited loss potential. LO 18.c

An investor has some stock held in street name and has just received proxy statements forwarded by the broker-dealer for an upcoming shareholders' meeting. If the investor wishes the shares to be voted as recommended by the issuer's management, which of the following must the investor do? A) Inform the broker-dealer by letter or phone call how the shares are to be voted B) Nothing in this case C) Sign and the proxy statements by the 10th day before the meeting D) Sign and return the proxy statements by the fifth day before the meeting

C Sign with no vote-firm will vote as issuers management suggests no response-firm decides for the investor Signing and returning proxy statements to a broker-dealer for stock held in street name is enough to get the shares voted as recommended by the issuer's management, as long as the broker-dealer receives the statements by the 10th day before a shareholders' meeting. If the shares are to be voted in some other way, the investor must specify the desired changes. LO 21.g

An investor purchases a T-bill for $9,925 that will mature at $10,000. The difference between the $9,925 paid and the $10,000 that will be received is A) the premium above par and will be considered dividends received at maturity. B) the premium above par and will be considered the interest received at maturity. C) the discount to par and will be considered interest received at maturity. D) the discount to par and will be considered a capital gain at maturity.

C T-bills are purchased at a discount to par. In this case, it is bought at $9,925, which is a $75 discount to the $10,000 par value to be received at maturity. Debt instruments pay interest not dividends, and the $75 difference between what was paid and what will be received is considered the interest paid on the T-bill at maturity. LO 2.j

Purchased 15 years ago with a coupon of 6.25%, a corporate bond in an investor's portfolio has matured. With interest rates now substantially lower at 2.75%, this investor, having no immediate need for the proceeds, is now exposed to A) financial risk. B) call risk. C) reinvestment risk. D) interest-rate risk.

C The inability to invest proceeds from an investment that had been earning a higher rate of return, at the now current lower rate, is known as reinvestment risk. LO 6.b

A bank is likely to do which of the following when the Federal Reserve Board (FRB) eases the money supply? A) Raise its broker call loan rate B) Lower the hypothecation loan rate C) Lower its prime rate D) Raise its prime rate

C The prime rate and the broker call loan rate are set by banks for loans to corporate customers and broker-dealers, respectively. If the FRB eases the money supply (makes more money available to lend), banks can charge less for loans and will lower their lending rates. The hypothecation process isn't a rate, but a percentage amount (140% of the debit balance) and will not be impacted by the Fed's action with the money supply. LO 13.d

To meet a Regulation T margin call, a customer would have how long? A) Trade date plus two additional business days B) Settlement date plus two additional calendar days C) Settlement plus two additional business days D) Trade date plus five additional calendar days

C The rule requires that the call be met within two business days of the settlement date, referred to as S + 2. If regular way settlement was T + 2, adding two additional business days to the trade date would be T + 4. LO 24.c

Shelf offerings are covered under which if the following? A) The Investment Company Act of 1940 B) The Trust Indenture Act of 1939 C) The Securities Act of 1933 D) The Bank Secrecy Act

C The shelf offering (registration) provision under the Securities Act of 1933 allows issuers to quickly raise capital when needed or when market conditions are favorable. LO 7.f

All of the following are provisions of Financial Industry Regulatory Authority (FINRA)'s rules for holding mail for customers except A) the firm must receive instructions in writing for the mail to be held more than three months. B) the member firm must establish reasonable intervals that the customer's instructions would apply. C) the firm must hold the customers mail for up to three months if it receives notice in writing that it is for security reasons. D) the customer must be made aware of alternative methods for receiving and monitoring account activity.

C There is no requirement that the firm agree to hold the customers' mail, but if they do, the other three requirements would be in place. LO 27.e

XYZ Corporation is guaranteeing a debt issue for the IHG Company. Regarding these bonds, which of the following is true? A) These bonds are secured, with the value of the guarantee being as good as the strength of IHG issuer. B) These bonds are secured, with the value of the guarantee being as good as the strength of XYZ. C) These bonds are unsecured, with the value of the guarantee being as good as the strength of XYZ. D) These bonds are unsecured, with the value of the guarantee being as good as the strength of IHG the issuer. Explanation

C These are guaranteed bonds where the value of the guarantee is only as good as the financial strength (good faith and credit) of the company making the guarantee—in this case, XYZ Corporation. Because these bonds are backed by the good faith and credit of XYZ and not by any tangible asset, they are unsecured debt instruments. Always remember that even though the word "guaranteed" is used to describe such issues, the bonds are unsecured debt. LO 2.f

The risk when investing, where one has the potential to lose all or part of the investment due to circumstances that are unrelated to the issuer's financial strength or well-being, is known as A) business risk. B) call risk. C) capital risk. D) financial risk.

C This is the definition of capital risk. For example, capital risk might be least when investing in securities backed by the federal government but much more prevalent when investing in derivative products. LO 6.d

A customer writes (sells) a call. This customer will realize the maximum gain if A) the customer is assigned on the contract. B) the price of the underlying stock rises. C) the option contract expires without being exercised. D) the price of the option contract rises.

C Those who write options contracts realize the maximum gain if the contract goes unexercised at expiation. The maximum gain is the premium received. If the contract is not exercised by the owner, the writer keeps the premium. For calls, remember that as the underlying security rises in price, so will the price of the call contract; while good for the call owner, it is not good for the call writer. LO 3.g

Limited partnerships sold publicly via a prospectus offering would be expected to have A) a large group of investors, each contributing a large sum. B) a small group of investors, each contributing a small sum. C) a large group of investors, each contributing a small sum. D) a small group of investors, each contributing a large sum.

C Unlike partnerships sold as private placements, those limited partnerships sold through a public offering via a prospectus would consist of a large group of investors (partners), each contributing a small investment sum to the partnership. LO 5.e

A corporation is issuing a bond with an interest rate below that which is commonly being offered for this type of bond. To improve the bond's marketability without reducing the capital to be obtained, which of the following actions might the corporation take? A) Offer the bond at a discount B) Conduct a rights offering for potential bond buyers C) Offer a warrant on the stock with each bond D) Offer a stock dividend to the current shareholders

C Warrants are sometimes offered as sweeteners attached to bond issues to improve the marketability of bond. Rights offerings and stock dividends do not apply in this case, and selling the bonds at a discount would be self-defeating because the issuer wouldn't be able to raise the needed capital. LO 1.f

^U.S. government deposits securities with a trustee against which certificates are sold representing principal only with no regular interest payments. These are known as A) Treasury receipts. B) Treasury bonds. C) Treasury STRIPS. D) Treasury notes.

C When the U.S. government deposits securities with a trustee, against which it issues certificates representing principal payments only, and no regular interest payments, these are known as Treasury STRIPS. LO 2.j

An investor has been putting aside funds for retirement in a nonqualified variable annuity for over five years. She is now age 66 and takes a lump-sum distribution. How are the earnings taxed? A) As long-term gain B) As tax free C) As ordinary income D) As long-term capital gain, except for any portion contributed in the previous 12 months

C With a nonqualified annuity, all distributions more than the cost basis will be taxed as ordinary income. LO 20.f

DEF Corporation has 4% noncumulative preferred stock outstanding. The company eliminated its dividend payments for the past three years but now is in a position to resume paying them again. Before paying common shareholders a dividend, the company would be required to pay the preferred shareholders A) $1.00. B) $2.50. C) $4.00. D) nothing.

C With noncumulative preferred stock, missed or skipped dividends need not be paid or made up. However, in order to pay common shareholders in any year, preferred shareholders must receive their full dividend for that year. While it can be paid in one annual payment, quarterly, or however the board approves it to be paid, the total in this case would be $4.00. 4% × $100 par value = $4.00. LO 1.i

Which of the following would you expect to have the lowest expense ratio? A) The QRS Stock Income Fund B) The MNO Small Cap Growth Fund C) The ABC Corporate Bond Fund D) The XYZ Aggressive Growth Fund

C bond mutual funds typically have lower expense ratios than stock funds, which tend to be riskier and require more sophisticated investment strategies. The ABC Bond fund is the only bond mutual fund listed. Growth funds involve equities (stock), and of course, the stock income fund specifies equities as well. LO 4.d

Which of the following is a benefit of 529 plans but not Coverdell Education Saving Accounts? A) Withdrawals are tax free if used for qualified education expenses B) Available for use for K-12 C) No income restrictions D) Can be transferred to a sibling if not used by the original beneficiary

C coverdell has income restrictions

which of the following may purchase an IPO at POP? A. Jim a RR B. Jim's brother C. Jim's niece D. Jim's father

C grandparents, uncles, aunts, nieces, nephew don't count

A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm? A) Market making B) Clearing/carrying C) Prime/executing D) Introducing/fully disclosed

D A fully disclosed introducing broker-dealer is what the word implies—it introduces its customers to a clearing firm. Clearing firms (often referred to as carrying firms) hold their customer's funds and securities as well as those of their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm's back office. Because the risk associated with holding customer funds and securities is not present, net capital requirements are much lower for introducing firms than they are for self-clearing or carrying broker-dealers. LO 8.c

An associated person of a Financial Industry Regulatory Authority (FINRA) member firm would not be considered a municipal finance professional (MFP) if involved solely in which of the following? A) Research involving municipal securities for the firm B) Municipal securities communications with customers C) Underwriting municipal securities for the firm D) Municipal securities sales to customers

D Associated persons whose activities are limited solely to sales or have only clerical or ministerial functions are not MFPs. All the other activities would be associated with an MFP. LO 32.g

Ms. Johnson purchased 100 shares of FHD 2 years ago for $40/share. The stock has risen to $62/share. She's concerned that the recent death of the founder and CEO could have a negative impact so she buys a 60 put on the stock with a premium of $2. the BE is A. $64/share B. $62/share C. $58/share D. $42/share

D BE for a protective put is stock price+ premium $40+$2=$42 USE THE ORIGINAL STOCK PRICE

At expiration, for those who trade put options, which of the following is true? A) Put buyers want the contract to be out of the money. B) Put writers want the contract to be in the money. C) Put writers want the contract to be trading with intrinsic value. D) Put buyers want the contract to be in the money.

D BUYERS WANT TO BE IN THE MONEY SELLERS WANT TO BE OUT OF THE MONEY OR AT THE MONEY At expiration, put buyers (like call buyers) want the contracts to have intrinsic value and, therefore, to be in the money. Put writers (like call writers) want the contracts to be either at or out of the money and, therefore, have no intrinsic value. LO 3.d

^Some institutions can function as a depository and intermediary for settling transactions between buyers and sellers of securities. All of the following are acceptable for this purpose except A) the National Securities Clearing Corporation (NSCC). B) carrying firms. C) the Depository Trust Company (DTC). D) national banks.

D Being a bank alone does not allow for serving as a depository or clearing facility for securities transactions. The NSCC and the DTC are set up specifically to perform these functions, and they may also be performed by broker-dealers known as carrying or clearing firms. LO 8.c

which of the following form U4 reportable events results in a statutory disqualification? A. a personal bankruptcy filing B. a written customer complaint alleging misappropriation of assets C. felony theft charge D. felony conviction of a DUI

D C charges don't count B written complaints don't disqualify

Which of the following statements is the most correct regarding customer accounts? A) Hypothecation agreements are required for joint cash accounts only. B) Only margin accounts need to be approved by an authorized principal of a broker-dealer. C) Cash accounts need to be approved by a principal promptly after the first trade. D) A customer may open both a cash and margin account at the same time.

D Customers may open a cash account, margin account, or any other account so long as the firm supports that type of an account and an authorized principal approves it. LO 24.a

Direct participation programs (DPPs) are set up A) to pass on taxable income only to the investors, but not losses. B) as tax-free investments with no potential write-offs. C) to be taxed directly, much like corporations are taxed. D) having the owners of the business liable for any taxes due.

D DPPs are not taxed directly as a corporation would be. Instead, the income or losses from the business are passed directly through to the owners of the partnership. These are the investors who are then individually responsible for any tax liability. LO 5.e

During the cooling off period, underwriters would be allowed to do all of the following except A) publish a tombstone. B) distribute a preliminary prospectus. C) take indications of interest. D) advertise the issue.

D During the cooling off period sales, solicitations and advertising are not allowed. LO 7.d

For collateral trust bonds, all of the following are true except A) a trust serves as a depository holding the securities to serve as collateral. B) securities backing the debt can be securities of either fully or partially owned subsidiaries. C) the issuer deposits securities it owns into a trust. D) these are unsecured debt securities.

D For a collateral trust certificate, the issuer deposits securities of other corporations that it owns, or securities of fully or partially owned subsidiaries into a trust. The securities held in the trust are the collateral backing the certificates, and thus with this backing, the certificates are considered secured debt instruments. LO 2.f

The rules to prevent pay to play regarding contributions made to political parties, candidates, and elected officials by firms involved in the underwriting or sales of municipal securities are enforced by A) Municipal Securities Rule Board (MSRB). B) Federal Reserve Board (FRB). C) Securities and Exchange Commission (SEC). D) Financial Industry Regulatory Authority (FINRA).

D Having no authority to enforce the rules it enacts, the MSRB relies on FINRA to enforce its municipal securities rules. This would include the enforcement of the pay to play or play for pay rules regarding political contributions. LO 32.g

If a customer's Regulation T margin deposit is late, which of the following is true? A) The broker-dealer can apply to the bank where the margin loan originated for an extension. B) The customer may apply to the broker-dealer's designated examining authority (DEA) for an extension. C) The customer can apply to the bank where the margin loan originated for an extension. D) The broker-dealer may apply to its designated examining authority (DEA) for an extension.

D In the event of late margin deposit, requests for extensions are made by the broker-dealer to the firm's designated examining authority (DEA). LO 24.c

Interest is best described as A) the amount the borrower receives from a lender. B) a specific rate of return the lender pays the borrower over the life of the loan. C) the amount that an investor lends to a borrower. D) a specific rate of return the borrower pays the investor for use of the funds.

D Interest is the rate of return above the principal sum received by a lender (investor) from a borrower. Interest is rate of return the investor receives for use of the funds over the life of the loan. LO 2.a

What is the intrinsic value of an XYZ 30 call purchased at a premium of 3 when the current market value of XYZ is at 40? A) -$7 B) $7 C) -$10 D) $10

D Intrinsic value is the amount that a contract is in the money. The premium of the contract is not a factor. All calls are in the money when the market value of the stock is above the strike price. LO 3.d

What is the intrinsic value of an XYZ 40 call sold at a premium of 3 when the current market value of XYZ is at 30? A) -$10 B) $7 C)-$7 D) $0

D Intrinsic value is the amount that a contract is in the money. The premium of the contract is not a factor. All calls are in the money when the market value of the stock is above the strike price. LO 3.d

Regarding registration for the sale of securities, those registered under the Investment Company Act of 1940, such as mutual funds, would be considered A) federal covered securities required to register at the state level only. B) securities required to register at both the federal and the state level. C) securities that are exempt from registration at all levels. D) federal covered securities and not required to register at the state level.

D Investment companies registered under the Investment Company Act of 1940 offer securities that are deemed to be federally covered. The effect of this designation is that states do not have jurisdiction over the registration requirements of these securities; no state registration can be required. Therefore federally covered securities are required to register at the federal level only. LO 9.f

Commercial paper is A) unsecured debt with a maximum maturity of one year. B) secured debt with a maximum maturity of one year. C) secured debt with a maximum maturity of nine months. D) unsecured debt with a maximum maturity of nine months.

D Issued by corporations, commercial paper, also known as prime paper or promissory notes, are unsecured money market instruments with maximum maturities of 270 days (nine months). LO 2.m

When selling a bond, the issuer is taking A) an equity position. B) a creditors position. C) a loaners position. D) a borrower's position.

D Issuers of bonds are borrowing money from the purchaser of the bond. LO 1.h

Lipper Indexes track which of the following? A) Municipal bonds B) Mid-cap stocks C) Corporate bonds D) Mutual funds

D Lipper ranks mutual fund in a variety of categories by performance. LO 20.g

Rules to protect the public during initial public offerings (IPOs) include all of the following except A) members may not withhold shares for their own benefit. B) members cannot take advantage of their insider status to gain access to shares for their own benefit. C) shares must be offered to the public at the public offering price. D) shares may be held to reward others who can direct business to the member.

D MAY NOT BE HELD TO REWARD

Which of the following statements is correct concerning the pricing of American depository receipts (ADRs)? A) ADR pricing is dollar-based using an end of day public offering price (POP). B) ADRs are priced in foreign currency. C) ADR pricing is dollar-based using an end of day net asset value (NAV). D) ADR pricing is dollar-based and fluctuates throughout the day.

D Many ADRs are listed on exchanges such as the NYSE or Nasdaq. ADRs trade throughout the day and settle in the same manner as would the shares of a U.S.-based company. ADRs are priced in U.S. dollars. LO 1.h

Secondary market transactions would include all of the following except A) sale of $10 million of corporate stock by a broker-dealer acting as a market maker. B) sale of $10 million of municipal bonds by a broker-dealer acting as a market maker. C) sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker. D) sale of $10 million of corporate bond by a broker-dealer acting as an underwriter.

D Market makers are broker-dealer who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market. LO 8.c

Match the following statement to the best expression: A well-controlled, moderately increasing money supply leads to price stability and a healthy economy. A) Balance of payments B) Keynesian Theory C) Socialism D) Monetarist Theory

D Monetarists judge that a well-controlled, moderately increasing money supply leads to price stability. Price stability allows business managers (considered to be more efficient allocators of resources than the government) to plan and invest, which in turn keeps the economy healthy. LO 14.b

When the supply for money exceeds the demand, A) interest rates fall, making consumer borrowing more difficult. B) interest rates rise, making consumer borrowing easier. C) interest rates rise, making consumer borrowing more difficult. D) interest rates fall, making consumer borrowing easier.

D Money available to lend is like all commodities in that its cost (interest) is impacted by supply and demand. When the supply is greater than the demand for money, interest rates fall, making consumer borrowing easier. LO 13.c

When a bank lends money to a broker-dealer for the purpose of lending to margin account customers, the bank is lending at which of the following rates? A) Discount B) Prime C) Federal funds D) Broker call loan

D Money lent to broker-dealers by banks for the purpose of making loans to margin account customers, the money is borrowed at the broker call loan rate (broker loan rate or call rate). LO 13.d

Which of the following is a coincident indicator? A) Increase in unemployment B) S&P 500 Index C) Housing starts D) Household income

D Personal or household incomes are coincident indicators, moving up and down along with the overall economy. Equity prices and housing starts are both leading indicators. Changes in unemployment are lagging indicators. LO 11.b-23

Preferred shareholders have A) voting rights only. B) preemptive rights only. C) both voting and preemptive rights. D) no voting or preemptive rights.

D Preferred shareholders have no voting rights, nor do they have preemptive rights, which is the right to maintain the same percentage ownership in the corporation should additional shares be issued. LO 1.i

Preferred shares have A) only the characteristics matching those of debt securities. B) only the characteristics matching those of equity securities. C) characteristics of neither equity nor debt securities. D) characteristics of both equity and debt securities.

D Preferred shares are equity securities, but not only do they have the characteristics of equity securities, they share some of the characteristics of debt securities as well. The most notable characteristic is that a preferred stock's annual dividend represents its fixed rate of return, like the fixed rate of return for a bond (debt security). LO 1.i

Repurchase agreements and reverse repurchase agreements are A) equity instruments. B) long-term bonds. C) intermediate-term notes. D) money market instruments.

D Repurchase (repo) agreements and reverse repurchase agreements are short-term debt securities and are, therefore, a type of money market instrument. LO 2.m

^Regarding the sale of a new issue, a customer is considered a restricted person if the person is A) a grandparent of an associated person of a member firm. B) working as a salesperson for a supplier of the issuing corporation. C) working as a private investigator collecting information on the issuing firm's competitors. D) working as a salesperson who works for the issuing firm's underwriter.

D Restricted persons include Financial Industry Regulatory Authority (FINRA) member firms and their associated persons, such as a salesperson working for an underwriter, plus immediate family members. Immediate family members do not include aunts and uncles or grandparents. LO 7.b

An investor holds a Treasury note with a stated interest of 6%. The investor will receive A) one $6 interest payment per year. B) one $60 interest payment per year. C) two $60 interest payments per year. D) two $30 interest payments per year.

D SEMI ANNUAL PAYMENTS Treasury note (T-note) annual interest is stated as a percentage of par value ($1,000) and is paid in semiannual payments. Therefore, a 6% T-note pays $60 per year in two payments of $30 each. LO 2.j

Which of the following would not require delivery of notice? A) A 2:1 stock split B) Payment of a cash dividend C) A rights offering D) An interest payment on a corporate bond

D Stockholders must receive notice from the issuer in the event of actions to shareholders, chiefly those that are unscheduled or unpredictable. Some examples are stock splits, dividend payments, and rights or warrant offerings. A scheduled interest payment on a corporate bond thus does not require delivery of notice. LO 21.f

Match the following statement to the best expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes. A) Socialism B) Monetarist Theory C) Keynesian Theory D) Supply-side Economic Theory

D Supply-side economics holds that governments should allow market forces to determine prices of all goods. Supply-side adherents judge that the federal government should decrease government spending and taxes. In this way, sellers of goods will price them at a rate that allows them to meet market demand and still sell them profitably. LO 14.b

Investors face many different risks. Which of the following would be factors of systematic risk? I. War II. Global security threats III. Call risk IV. Interest rate fluctuation A) II and IV B) III and IV C) II and III D) I and II

D Systematic risk points to changes in the overall economy. It has an adverse effect on individual securities apart from the company's circumstances. It is generally caused by factors that affect all businesses, such as war, global security threats, or rampant inflation. No matter how diversified a portfolio is, it remains subject to systematic risk. An investor cannot diversify systematic risk away. LO 6.a

A customer has a significant amount of money in bank deposit accounts: $225,000 in a savings account titled in the customer's name; $240,000 in a checking account titled jointly with a spouse; and $100,000 in an account where the customer is custodian for a grandchild. Should that bank fail, the Federal Deposit Insurance Corporation (FDIC) insurance would cover A) $225,000 for the savings account, $100,000 for the custodial account, and nothing for the checking account. B) a total of $250,000, divided proportionately among the three accounts. C) $250,000 for the savings and checking accounts and $100,000 for the custodial account. D) the entire $565,000.

D The FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each deposit ownership category in each insured bank. Each account listed (savings, checking, and custodial) is a separate ownership category under FDIC rules, so all the money in each of them is covered. LO 9.e

Each self-regulatory organization (SRO) functions under the Securities and Exchange Commission's (SEC's) oversight and is accountable to the commission for enforcing federal securities laws. While the Municipal Securities Rule Board (MSRB) regulates all matters related to the underwriting and trading of state and municipal securities, it does not have enforcement powers of its rules. Which of the following does the MSRB rely on for enforcement of these rules? A) Federal Deposit Insurance Corporation (FDIC) B) Securities and Exchange Commission (SEC) C) Chicago Board Options Exchange (CBOE) D) Financial Industry Regulatory Authority (FINRA)

D The MSRB regulates all matters related to the underwriting and trading of state and municipal securities but does not have enforcement powers. It depends on other SROs (e.g., FINRA) for the enforcement of its rules. LO 10.b

Which of the following must be a member of the Securities Investor Protection Corporation (SIPC)? A) A firm that deals only with mutual funds B) A firm that deals only in U.S. government bills, notes, and bonds C) A firm that deals only in industrial development revenue bonds D) A firm that deals only in over-the-counter (OTC) and exchange-listed stocks

D The Securities Investor Protection Act, which established SIPC, was passed in 1970 to protect persons with brokerage accounts from loss due to failure of their broker-dealer. Firms with such accounts are required to join, with the exception of dealers exclusively in government and municipal bonds and those involved only with investment company securities. LO 9.d

Recommendations regarding investment strategies under the know your customer (KYC) rule would not apply to recommendations to A) make equity purchases in a particular market sector. B) buy, hold, or sell common stock. C) make purchases and sales intraday (day trading). D) buy or sell commodities.

D The definition of investment strategy does not include non-security investments such as commodities or fixed annuities. The term does apply to recommendations to invest in (buy), hold, or sell specific securities, as well as specific market sectors; trading, both long or short-term; or divesting of any asset or investment to make funds available to purchase securities. LO 26.a

Advantages enjoyed by the limited partners in a partnership might be all of the following except A) having liability limited to the loss of the money invested. B) owning an interest in an investment managed by others. C) having income and expenses flow directly through to them. D) being in a fiduciary position with responsibilities to others.

D The fiduciary responsibility is borne by the GPs, not the LPs. The flow through of income and expenses, limited liability, and having an investment managed by the GPs are all considered advantages for the LPs. LO 5.e

All of the following are types of direct participation programs (DPPS) except A) oil and gas. B) real estate. C) leasing. D) retail distribution.

D The most common types of direct participation programs are real estate, oil and gas, and leasing programs. LO 5.e

Which of the following regarding Treasury STRIPS, receipts, bills, notes and bonds is true? A) They all pay semiannual interest payments. B) They are all backed by the good faith and credit of the U.S. government. C) They are all sold at a discount to par. D) They all mature at par value.

D The only commonality for all of these is that each matures at par. Only T-bills, receipts and STRIPS are sold at a discount to par. Only T-notes and bonds make semiannual interest payments, and though STRIPS, bills, notes, and bonds are all backed by the good faith and credit of the U.S. government, Treasury receipts issued by broker-dealers are not. LO 2.j

The prime rate is set by A) the Federal Reserve Board (FRB). B) the Securities and Exchange Commission (SEC). C) the Federal Open Market Committee (FOMC). D) individual banks.

D The prime rate is the interest rate that large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans. Each bank sets its own prime rate. LO 13.d

What limit is placed on the number of outstanding shares a mutual fund may have in the hands of investors? A) The limit varies from state to state. B) Federal law specifies how many shares a mutual fund may sell. C) The number is specified in the fund's corporate charter. D) There is no limit.

D The reason a mutual fund is also called an open-end investment company is that it may sell an unlimited number of shares to the public. This is referred to as a continuous primary offering. Other stock-issuers are limited to the number of shares specified in the corporate charter. When they reach that limit, no more new shares can be sold unless they change the charter. LO 4.d

The regulatory element of training requires that all registered persons complete a computer-based training session how frequently? A) Within 120 days of the person's third registration anniversary and then every 2 years thereafter B) Within 90 days of the person's third registration anniversary and then every 2 years thereafter C) Within 90 days of the person's second registration anniversary and then every 3 years thereafter D) Within 120 days of the person's second registration anniversary and then every 3 years thereafter

D The regulatory element of training requires that all registered persons complete a computer-based training session within 120 days of the person's second registration anniversary and every three years thereafter (i.e., within 120 days of the person's 2nd, 5th, 8th, 11th registration anniversary, and so on). LO 32.b

All of the following must be on the cover page or beginning of the summary prospectus of a mutual fund except A) the fund share class or classes ticker symbols. B) the website where a full prospectus may be downloaded. C) the share class or classes offered by the fund. D) the name of the investment advisor.

D The summary prospectus, as the name implies, contains the important information about a mutual fund in summary form. The cover page must contain a standardized listing of certain information, including the fund's name, share classes offered, ticker symbols, information on how to get a full prospectus, a warning that the information is in summary form, and other facts. There is no requirement that the name of the investment adviser be on the cover page of the summary prospectus. LO 4.i

If a broker-dealer suspects that a transaction involves funds derived from illegal activity, a suspicious activity report (SAR) would be triggered at what threshold? A) More than $5,000 in funds or other assets B) At least $10,000 in funds or other assets C) More than $10,000 in funds or other assets D) At least $5,000 in funds or other assets

D The threshold for triggering a suspicious activity report (SAR) is at least $5,000 in funds or other assets. Do not confuse this with a Currency Transaction Report (CTR), which is triggered by amounts greater than $10,000. LO 25.d

An investor receives an unsolicited email about a startup company trading for pennies. The email notes that a patent for a new technology is forthcoming and investors need to get in now. The next day the investor sees lots of information on the same stock in an internet chat room. The hype seems to be similar to what was received in the email blast. Being cautious, the investor senses that this could be A) an attempt to generate commissions by churning investors accounts. B) a front running scheme to get ahead of large buy orders. C) a fraudster attempting to peg the price of the stock. D) an effort to spread market rumors in an attempt to manipulate the stock.

D This is an example of potential market manipulation by spreading rumors. Regulators have issued alerts to warn investors about fraudsters who may attempt to manipulate share prices by spreading false or misleading information about stocks. This is often done through social media platforms where large numbers of people can be contacted. LO 29.c

To tighten its monetary policy, making it more difficult for consumers to borrow money, the Federal Reserve Board (FRB) can A) raise the federal funds rate. B) lower the discount rate. C) lower the federal funds rate. D) raise the discount rate.

D Wanting to tighten its monetary policy, which would make it harder for consumers to borrow money, the FRB can raise the discount rate—the rate it charges its member banks for short-term loans. This lessens the availability of money its member banks have to lend to consumers. The federal funds rate isn't a rate charged by the FRB but instead by large commercial banks to one another. LO 13.c

^benefits of mutual funds include all of the following except A) mutual funds can provide broad diversification inside a single fund. B) mutual funds report distributions annually to investors. C) mutual funds are professionally managed. D) reinvested dividends are not taxed until withdrawal.

D When dividends (or capital gains) are reinvested they are still taxed. All the other options are considered benefits of mutual funds. LO 4.k

Isaac James has some call options in his account that he would like to exercise. He wants to know when the resulting purchase of the stock would settle. You would tell him A) trade date. B) trade date plus 1 business day. C) trade date plus 3 business days. D) trade date plus 2 business days.

D When purchasing or selling an option, the settlement is the next business day. When an option is exercised the resulting stock transaction is 2 business days following exercise. LO 19.b

For securities held in street name, which of the following is true? A) The bank accepting the securities as collateral is the beneficial owner. B) The broker-dealer is the beneficial owner. C) The customer is the named or nominal owner. D) The customer is the beneficial owner.

D When securities are held in street name (the name of the broker-dealer), the broker-dealer is the named or nominal owner, but the customer is still the beneficial owner retaining all rights of ownership. LO 21.g

^When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this will do which of the following? A) Have no impact on lending rates to consumers B) Decrease interest rates on loans to consumers C) Loosen the money supply D) Increase interest rates on loans to consumers

D When the FOMC directs that Treasury securities be sold in the open market, this will tighten the money supply; securities go into the economy, and money comes out of the economy. Less money available increases interest rates to consumers. LO 13.c

Regarding primary offerings, which of the following is true? A) After its initial public offering (IPO), a corporation can have only one more primary offering—its subsequent primary offering (SPO). B) A corporation can have two primary offerings—the initial public offering (IPO) and an additional public offering (APO). C) A corporation can have only one primary offering—the initial public offering (IPO). D) There is no limit to the number of primary offerings a corporation can issue.

D While a corporation can have only one IPO, there is no limit to the number of SPOs or APOs it can issue. IPOs, SPOs, and APOs are all primary offerings—those where the offering proceeds go to the issuer. LO 7.b

A bank issues and guarantees certificates of deposit, and those that are negotiable are considered money market instruments. What makes a CD negotiable? A) Short-term maturity B) Backing by the banks good faith and credit C) A fixed interest rate D) Secondary market trading

D While all of these are characteristics of negotiable certificates of deposit issued by banks, it is the ability to trade the CDs in the secondary market that makes them negotiable. LO 2.m

A tombstone advertisement would be expected to include all of the following information except A) the name of the issuer and underwriters if they are being used to assist in the offering. B) an advisory that the advertisement is neither an offer to sell nor a solicitation of an offer for any of these securities. C) the price or price range at which the securities are expected to be offered. D) any inherent risks associated with the offering or the issuer offering the securities.

D While any inherent risks associated with the issuer or the securities the issuer is offering would be expected to be shown in a prospectus, they would not be expected to be found nor is it required that they be shown in a tombstone advertisement. Each of the remaining answer choices shows information expected to be shown in these ads. LO 7.d

An investor has been putting aside funds for retirement in a nonqualified variable annuity for over five years. She is now age 66 and takes a lump-sum distribution. How are the earnings taxed? A) As tax free B) As long-term gain C) As long-term capital gain, except for any portion contributed in the previous 12 months D) As ordinary income

D With a nonqualified annuity, all distributions more than the cost basis will be taxed as ordinary income. LO 20.f

An investor who buys and sells options on stock is A) a stockholder. B) a lender to the company. C) an owner of the company. D) neither an owner of nor a debtor of the company.

D derivative securities of corporate equity securities represent neither equity (ownership) in a company nor debt (a loan). They represent the right to either buy or sell the stock at a later time at a fixed price. LO 3.a

Which of the following securities can never be purchased on margin? A) OTC stocks B) Warrants C) Stocks that trade on NASDAQ D) Mutual funds

D mutual funds cant be bought on margin but ETF's can

What dollar limit is placed on damages if a suit is filed based on allegations of manipulative practices? A) $500,000 B) $250,000 C) 300% of the damages suffered D) No dollar limit

D no dollar limit is placed on damages collectible from a lawsuit based on allegations of fraudulent or manipulative practices. LO 29.b

If a bond is trading at a discount, which of the following rates is correctly ranked from high to low? A) Yield to call, current yield, nominal yield, coupon rate B) Nominal yield, yield to maturity, current yield, coupon rate C) Coupon rate, current yield, yield to maturity, yield to call D) Yield to call, yield to maturity, current yield, nominal yield

D page 58

An investor having no affiliation with CDS Company has just purchased shares that were sold subject to Rule 144. This investor A) can only sell subject to volume limits. B) must wait six months before any sales can be made. C) must wait six months before selling shares subject to volume limits. D) can sell the shares unrestricted at any time.

D selling shares under Rule 144 effectively registers the shares. In other words, buyers of stock being sold subject to Rule 144 are not subject to any restrictions if they choose to resell. LO 1.g

in the event of a stock split, which of the following parties is required to maintain a record of the shareholders eligible to receive additional shares A. DTC B. issuer C. custodian D. transfer agents

D transfer agents are responsible for maintaining a record of shareholders, issue shares, making sure the names are correct, replacing lost, stolen or destroyed shares

Statutory Disqualification

Disciplinary sanctions by the SEC, another SRO, a foreign financial regulator, or a foreign equivalent of an SRO can be cause for statutory disqualification (SD) of FINRA membership.

credit agreement

Discloses the terms of the credit extended by the broker/dealer, including the method of interest computation and situations under which interest rates may change

The U.S. deficit has been steadily increasing. Which of the following are likely? I. U.S demand for foreign products is increasing II. U.S. Demand for foreign products is decreasing III. The Fed may purchase foreign currency to stabilize the value of the dollar IV. The Fed may sell foreign currency to stabilize the value of the dollar.

I & III The deficit typically increases when demand for foreign products rises. This results when the value of the dollar is strong against foreign currency. To counteract the strong U.S. dollar the FED may actually attempt to weaken its value by purchasing foreign currency (selling dollars). This is also accomplished when the FED injects more money into the economy (purchasing securities) or by lowering interest rates. These actions help make our goods less expensive to foreign customers. Please see textbook section 10.4.3

When a limited partnership is liquidated (dissolved), the priority of payments to settle accounts are made from first to last in which order? General partners Limited partners General creditors IRS and wages Secured creditors

IRA and wages Secured creditors General creditors/unsecured liabilities Limited partners General partners

For restricted stock (unregistered) held by an affiliate (insider), which of the following applies?

Six-month holding period, with volume limits thereafter

The Office of Foreign Asset Control maintains a list of people and organizations with whom U.S. citizens and companies are not allowed to do business. This list is called the

Specially Designated Nationals List

Blue Sky Laws

State laws that regulate the offering and sale of securities for the protection of the public.

preemptive right

Stockholders' right to maintain their proportionate interest in a corporation with any additional shares issued.

T or F: common shareholders have the right to examine the corp. books

T

exercise of an equity options settle

T+2

exercise of equity options settle

T+2

municipal securities settle

T+2

under Regulation T in a cash account, payment is due__- for corporate stock

T+4

What security is considered a money market security at the time of issuance?

T-bills since they are short term securities

To expand the overall economy, the Federal Reserve Board (FRB), acting as agent for the U.S. Treasury department, will

buy securities via open-market operations, lowering interest rates

Lipper Indexes tracks

mutual funds

who have redeemable securities?

mutual funds

Index Funds

mutual funds that attempt to mirror the movements of an existing stock index

GDP

nation's economic output

An investor who buys and sells options on stock is

neither an owner of nor a debtor of the company

the Hoffman Equipment company of Anaheim, California is preparing to sell share to the public in an IPO. They plan to sell exclusively to residents of the state of California and use the proceeds to build a new showroom in Long Beach, California. This offer would need to be registered with

state admin since it is excluded from SEC since its only offered in state

mutual fund prospectus types

statutory prospectus summary prospectus

capital market

stock and bond market

the primary investment objective of leasing programs are

tax-sheltered income

UIT

investment company who sells redeemable shares in a professionally selected portfolio of securities

two types of bankruptcy

liquidation and reorganization

exchanges set rules for

listing and delisting a security order priority capital requirement

protective put components

long stock and long put

Statutory prospectus

is still required at or prior to confirmation

debt to equity is a measure of

long term solvency

greatest risk in variable life annuity

market risk

when US $ is weak, foreign currency buys

more US goods, imports increase

paying commissions to unregistered persons

not allowed

regulation S

offers and sales made outside US by US issuers

De Minimis Rule for IPO

no more than 10% owning stock of a member firm

are commodities, futures, options and losses in currencies covered by SIPC?

no since they arent securities

special situations

non-recurring circumstances that show unusual profit potential coming from special situations

business risk is a

non-systematic risk can be reduced by diversification

blue chip stocks

provide hedge against inflation

protective call

short stock and buying a call

protective call components

short stock and long call

intrinsic value

the amount in the money

spread

the difference between the bid and ask prices

market risk

the potential decrease in the value of a stock in a stock market

strike price

the price that will be paid for the shares the transfer if the option is exercised

***UGMA what happens to the custodian when the minor turns the age of majority?

the property is transferred to the minor

*credit risk

the risk that borrowers might default on their loans

bond power

-substitutes for the owners signatures on the back of a stock or bond certificates -document that's used in lieu of an assignment form to authorize the transfer of the debt securities

firms must file a SAR within _________days of discovering aware of a suspicious transaction

30

are income bonds a good investment if the investor is seeking income?

no

do clerical persons need to be fingerprinted?

no

currency risk

potential threat to a firm's operations in a country due to fluctuations in the local currency's exchange rate

What is the intrinsic value of an XYZ 30 call sold at a premium of 3 when the current market value of XYZ is at 40?

$10

Banker's Acceptance (BA)

A money market instrument used to finance international and domestic trade. BA typically pays for goods and services

In 2011, RST Corp. had both common stock and $100 par value 4% noncumulative preferred stock, outstanding. The preferred stock, like the common stock, pays dividends on a quarterly basis. Because of financial difficulties, the company stopped paying dividends after 2011. After resolving its problems in 2015, the company resumed dividend payments in 2016. Before paying the first quarterly common stock dividend that year, the company would have to pay a quarterly dividend to the preferred stockholders of

$1

Summary Prospectus

A summary prospectus is the disclosure document provided to investors by mutual fund companies prior to or at the time of sale. investment objectives and goals, sales charges and expense ratio, focused investment strategy, and data on the fund's management team. Relevant tax information and broker compensation are also included in the disclosure document. A summary prospectus provides investors the information they need from the final prospectus quickly and in plain English.

SAR wire transfer

$3000 or more requires notification

SAR

$5,000+ if derived from illegal activity, serves no business purpose, evades Bank Secrecy Act, or facilitates criminal activities file within 30 days

Your customer purchases 200 shares of Seabird Airlines (the ticker is SBRD) at $30 a share in a cash account. Under Regulation T, the Federal Reserve has set the initial margin requirement at 50%. How much does your customer need to deposit for this trade?

$6,000

a bond trading at 90 is priced at

$900

acid/quick ratio

(Current Assets - Inventory) / Current Liabilities

Fixed Annuity

(NOT a security) Investors pay premiums to the insurance company. Insurance company is then obligated to pay a guaranteed payout (typically monthly). Insurer guarantees a rate of return. fixed income/real estate

RMD equation

(amount that was left *0.5)+ (total amount that should have been taken * tax bracket)

index options multiplier

* 100 in the equation

expense ratio is made up of

-12b-1 fee. -salaries and administrative fees. -portfolio management fee -accounting fees -BOD costs X CDSC X LOAD

Non Financial Considerations

-Age -marriage -age and # of dependents and their employment status -Time Horizon -employment status

Securities Act of 1934 covers

-BD and associated persons -manipulative devices -trading of corp. securities

home based offices

-FINRA approval and visit

Firm Element Continuing Education

-Firm must identify training needs of employees at least annually -regulatory developments -scope of memberships business

Holding Customer Mail

-Firms are allowed to hold mail for 3 months -alternate methods of monitoring -Rule does not require them to do so, this is more of a courtesy rule.

6 year records

-General Ledger -Blotter -Customer Account Records -Stock Records -Suspense Account Records -Customer Ledger -designation of principals

certain accounts must be set up as cash accounts

-IRA -custodial -corporate retirement accounts

qualification registration

-Intrastate securities offerings (1 state) -Effective when the administrator declares -Supply any information asked for by Administrator

Coordination registration

-It becomes effective in state at the same time it becomes effective at the Federal level.

can be bought on margin and used as collateral

-NASDAQ stocks -warrants -exchanged listed stocks -OTC issues approved by Fed

can be bought on margin

-NYSE stocks and bonds _NASDAQ -OTC issues -warrants

No-load shares

-No front load Low or no back end - 12b-1 fee <.25% -Low expense ratio -No breakpoints, etc. -can charge redemption, purchase, and account fees -investor time frame neutral, investor amount neutral

General Obligation Bonds

-REQUIRE VOTER APPROVAL -a municipal bond that is backed by the issuer's full faith and credit or full taxing authority

Which of the following would be applicable to nonexempt securities (those that must be registered) being offered to the public by a corporate issuer? -Securities Act of 1933 -Prospectus -Securities Act of 1934 -Secondary market

-Securities Act of 1933 -Prospectus

Option seller (writer)

-Sells (or writes) the option and has a short position in the contract -Because the long side has the option to exercise, the short side has an obligation to fulfill the contract if it is exercised

exempt from FRB Regulation T margin requirements

-US gov. Bills, bonds, notes -gov. agency issues -muni securities

3 types of investment companies

-Unit Investment Trust -Management Company (open and closed) -Face Amount Certificate

SIPC Coverage

-Up to $500,000 per separate customer NOT PER SEPARATE ACCOUNT -Of $500,000, $250,000 in cash covered -Margin and cash not separate customers -No coverage for commodities contracts -Firm may provide additional insurance coverage, but must inform customers 30 days prior if they reduce or cancel the additional coverage

UGMA/UTMA

-accounts require an adult to act as a custodian for the minor (beneficiary). -Any kind of security or cash can be given to the account without limitation -under UGMA, when the minor reaches the age of majority, the property in the account is transferred into the name of the new adult -Under UTMA the custodian can withhold transfer of property in the account until the new adult reaches the age of 25, or 21 in some states.

A benefit for BD offering margin accounts

-additional income generated from the payment of margin interest -higher commission since they are larger positions

3 year records

-advertising -trial balances -U4 & U5 -customer confirmations -order tickets -ledgers -compliance and procedural manual -trial balances -list of offices of business

financial exploitation of seniors

-ages 65+ -18+ with mental or physical impairments where they are unable to protect their own interest

customer statements show

-all activity in the account -securities positions -account balances

Transfer on Death (TOD)

-allows the account owner, upon death, to transfer all or partial proceeds to a named beneficiary. -account avoids probate because the estate is bypassed -the assets in the account do not avoid estate tax, if applicable

Who needs to be fingerprinted?

-anyone who deals with cash or securities -incoming mail -supervisors who supervise people who do these things

****home office

-approval of SRO -premise visit by FINRA and principals of the firm

wrap accounts

-are accounts for which firms provide a group of services, such as asset allocation, portfolio management, executions, and administration, for a single fee

lifetime records

-articles of inc. -stock certificate book -minute book-partnership articles -organizational documents -amendments

discretion authority decides

-asset -amount -action

financial reports must contain

-balance sheet -valuation of all securities -income statement -a complete statement of all compensation paid to the BOD -statement of total dollar amount of securities bought and sold during the period

**********ADR specifications

-bought in domestic currency in the foreign company's home market -listed on domestic exchange (NYSE, OTC or NASDAQ)

to ease the money supply Fed

-buys gov securities -lowers discount rate -lowers reserve requirements

***real estate program opportunities

-capital growth -cash flow -tax deductions -tax credits

real estate program benefits

-capital growth potential -cash flow (income) -tax deductions -tax credits

cyclical industries include of

-cars -heavy equipment -raw materials -steel

if a BD is found guilty of falsifying or withholding documents. FINRA can

-censure -fine -bar of associated persons -suspend the membership -expulsion the member -or any other fitting sanction

A BD is subject to (5) if it does not comply with the SEC

-censure -limits of activities -suspension on its registration -revocation if registration -fines

Depository Trust & Clearing Corporation

-clears transactions -provides custody and safekeeping worldwide -can not open savings/checking accounts -member of the federal reserve system

AML requires

-designate AML officer -establishes compliance procedures

ABLE

-disability occurred before 26 -income tax free -limited contributions

benefits of owning preferred stock

-dividend prefernce -priority of dissolution over common stock

conduct rules

-establish relationships between firms and their customers -fair and ethical trade practices when dealing with the public

continued education components

-firm element -regulatory element

loan consent form

-gives permission to the firm to loan customer margin securities to other customers or broker/dealers, usually for short sales

penny stock risks

-highly speculative -customer needs to have received the risk disclosure statement before initial transaction -customer needs monthly statement

The Conduct Rules permit borrowing or lending (5)

-immediate family relationship between the representative and customer -customer is in the business of lending money -customer is an employee of the firm -customer and the representative have a close relationship or business relationship outside of firm

introducing broker/ fully disclosed

-is one that introduces its business to a clearing firm to clear transactions.

exemption for state regulations

-isolated nonissuer transactions -unsolicited transaction

transfer agent is responsible for

-issues are in right name -canceling & issuing new certificates -maintaining records of ownership -handling lost, stolen or destroyed certificates NOT state registering

balance of trade

-largest component of balance of payments -exports & imports

convertible bonds

-lower coupon bond -creditor to the company -affects the price

****exempt calls

-made on behalf of non-profit organizations -actual debt collectors -the customer expressed interest in receiving calls -not made for commercial purpose -surveys

common stock risks

-market risk -decreased or no dividend income -low priority at dissolution

Risk of Owning Common Stock

-market risk -low priority -reduced dividend

Rihanna resigns from her position as a Series 7 registered representative with Princeton Securities, a FINRA member firm, where she has worked for five years. After completing an accelerated graduate studies program, and receiving a Ph.D. in 30 months, she wishes to return to her prior position as a registered representative. In order to do so she

-must retake and pass both the SIE and the Series 7 exams. -return limit is 2 years

cannot be margin but can be used as collateral after 30 days of holding

-mutual funds -new issues

form u4 includes

-name and aliases -10 year employment history -address for the past 5 years -information on convictions, arrests or charges relating to the securities business

Tombstone Ad

-name of issuer -type of security -number or shares being sold -POP -names of underwriting members

Accredited Investor

-net worth of $1M non including the house -$200,000 annual income for an individual or $300,000 jointly for the past 2 years -officers, general partners, directors of an issuer of securities

to open a margin account customers also need a risk disclosure document which specifies

-not entitled to chose which sec. are sold if faced with a margin call -can lose more than deposited -not entitled to a extended margin call -can inc. their initial margin requirement without advanced notice

Cannot be purchased on margin and cannot be used as collateral:

-options -rights -insurance contracts -non-national market securities OTC issues approved by the Fed

Two types of 529 plans

-prepaid tuition plans for state residents -savings plans for residents and nonresidents

Penny Stock Cold Calling Rules

-prevent certain abusive sales practices involving high risk securities sold to unsophisticated investors -involve the solicitation of Non-Nasdaq equity securities traded in the OTC market for less than $5 per share -must determine suitability and sign and date the suitability statement before the penny stock trades can be affected

municipal advisor

-provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities -undertakes a solicitation of a municipal entity

local government investment pools (LGIP)

-provides cities, counties, or school districts with short term investment vehicles to invests funds -no SEC registration required

Advantages of margin accounts for customers

-purchase more securities with a lower initial cash outlay -leverage the investment by borrowing a portion of the purchase price

risk of owning preferred stock

-purchasing power risk -interest rate sensitivity -decreased or no dividend -priority at dissolution

Customer Identification Program (CIP)

-required by USA PATRIOT Act -The processes used by a financial institution to verify and validate the stated identity of a customer. It is normally part of the anti-money laundering processes of a financial institution.

FDIC account covers

-savings -checking -CD -self directed IRA -money market depository accounts NOT -stocks -bonds -insurance products -VA -life insurance -mutual funds

negotiable CD

-similar to a unsecured promissory note -banks promise to pay principal and interest

established customer

-someone who has held an account with the B/D for at least one year (and has made deposit of funds or securities) -has made at least three penny stock purchases of different issuers on different days

during cool off periods underwriters may

-take indications of interest -distribute preliminary prospectus -publish tombstone

A registered representative enters a discretionary order for her clients account. All of the following are required

-the order should be included in those required to be reviewed frequently -no churning -the order must be identified as or marked discretionary. -a record of the order must be maintained.

Rehypothecation

-the repledging of customer margin securities to a bank by a broker-dealer to collateralize a broker loan -the hypothecation agreement SIGNED BY A CUSTOMER to open a margin account permits the broker to repledge these securities to a bank for a loan

liquidity/marketability risk

-the risk that a client might not be able to sell his investment quickly at a fair market price

guaranteed bonds

-unsecured backed by a company other than the issuer

Common Stock Benefits

-voting rights -capital appreciation -income from dividends -limited liability in bankruptcy -hedge against inflation

****If a person does not meet the requirements of their letter of intent within 13 months, they

-will be given a choice of sending a check for the difference in sales charge OR -cashing in escrowed shares to pay the difference

Keegan and Drew, spouses, have a checking account at Gloria City National Bank. The balance is $450,000. What is their protection from SIPC if Gloria City fails?

0

maximum a no load fund can charge for 12b-1

0.25%

Rule 144 imposes volume limitations on the number of shares that can be sold by 1. control persons selling registered stock held for one year. 2. control persons selling restricted stock held for two years. 3. nonaffiliates selling registered stock held for one month. 4. nonaffiliates selling restricted stock held for more than six months.

1 & 2 Control persons are always subject to volume limitations. Nonaffiliates have no volume (or any other restrictions) when selling registered stock. If, however, the shares are restricted, volume limits for nonaffiliates are imposed for six months. LO 1.g

Which of the following are included in the semiannual financial reports a mutual fund must provide to its shareholders? 1. Balance sheet showing assets, liabilities, and net assets 2. Separate listing of physical property held by the fund 3. Income statement detailing profit and loss for the period 4. Personnel list detailing any changes in staff or position titles

1 & 3 A mutual fund must provide two reports per year to shareholders: an annual audited report and a semiannual unaudited report. The reports must include among other things, the balance sheet and profit and loss statement, a list of portfolio securities as of the date of the balance sheet, compensation paid to the board of directors (BOD) and advisory board, and total dollar amount of securities bought and sold during the period. LO 4.i

Regarding limited partnerships, which of the following are true? 1. A general partner can be held personally liable for business losses and debts. 2. A limited partner can be held personally liable for business losses and debts. 3. A general partner business decisions are legally binding on the partnership. 4. A limited partner business decisions are legally binding on the partnership.

1 & 3 General partners have unlimited liability, meaning that they can be held personally liable for the partnership's losses and debts. In their role to manage the partnership, they make decisions that are legally binding on the partnership. LO 5.d

Municipal revenue bonds 1. do not require voter approval. 2. generally have a higher rating than general obligation (GO) bonds from the same issuer. 3. are not subject to statutory debt limits. 4. are backed and supported by ad valorem (property) taxes.

1 & 3 Revenue bonds are designed to be self-supporting. They are backed by the revenue derived from the project funded by the bonds. Because they are not backed by property taxes, voter approval is not required. GO bonds however are backed by taxes, such as ad valorem (property) taxes, and therefore voter approval is generally required. With GO bonds, there is a debt ceiling or limit imposed on the issuer as well. Because they are backed by taxes, the issuer is limited as to how much can be issued. They generally have a higher rating than the same issuer's revenue bonds. LO 2.h

When customers open margin accounts, when must they be provided with a risk disclosure document? 1. Before initially opening the account 2. Quarterly 3. Semiannually 4. Annually

1 & 4 The risk disclosure document is required before opening the account and annually after opening the account. LO 24.b

Commercial paper issued by corporations can have maturities as short or as long as

1 day or 270 days.

distributions before 59.5 and not for a qualified reason

10% tax -treated as regular income

FINRA initial margin

100% or 2000 whichever is less

bonds are in

1000

basis 1% =

100bp

***how long is a hold for suspected financial exploitation?

15 days -only a state regulator can terminate or extend that hold

the economy is in a depression when a decline in real output of goods and services lasts

18 months or more (6 quarters)

A broker-dealer has hired an individual for the position of a registered representative. The individual is struggling to pass the necessary qualification exam and has failed four times. After that fourth failure, the applicant faces a waiting period of

180 days

NYSE composite has

1900

the SEC was created by the Act of

1934

the Securities Exchange Commission was authorized by

1934 act

A trade of an equity option settles in ( ) days, while an exercise of an equity option must be completed in ( ) days.

1; 2

Fiscal policy 1. is the most efficient means for solving short-term economic issues. 2. is not considered the most efficient means to solve short-term economic issues. 3. is reflected in the budget decisions enacted by our president and Congress. 4. is reflected in the money supply decisions enacted by the Federal Reserve Board (FRB).

2 & 3 Fiscal policy is reflected in the budget decisions enacted by our president and Congress. This political process takes time for conditions and solutions to be identified and implemented and is therefore not considered the most efficient way to solve short-term economic issues. LO 14.a

how long should books and records be easily assessable?

2 years

if a political contribution is made the adviser cannot provide services for

2 years

statue of limitations under the Securities Exchange Act of 1934 for market manipulation is

2 years from discovery OR 5 years from occurrance whichever comes first

cooling off time period

20 days

ABLE account disability has to be diagnosed before

26

retail investor

A retail investor is an individual investors who buy and sell securities for their personal account, and not for another company or organization.

T bills can mature with except 1. 4 weeks 2. 13 weeks 3. 39 weeks 4. 52 weeks

3 26 weeks

Which of the following are true regarding mutual fund sales charges? 1. They are used to defray fund expenses, such as operating costs and salaries. 2. They are set by the fund's transfer agent. 3. They are not an expense to the fund, but to the investor. 4. They are used to compensate the fund's underwriter and sales representatives.

3 & 4 Sales charges are not among the standard business expenses of a mutual fund and may not be considered part of them. They are intended to compensate the underwriter and broker-dealers and their sales representatives who sell the fund shares to the public, and are thus expenses to the investor, not to the fund. LO 4.d

correspondence is held for

3 years

statute of limitations for manipulative practices

3 years from alleged manipulation within 1 year of discovering it no dollar limit placed on damages

The following records must be kept for how many years? -A list of the offices where registered representatives conduct business -Compensation records for registered representatives -The firm's compliance manuals

3 yrs

Ron buys 522 shares of Narcissus Inc., common stock in a cash account on Monday, March 19. He deposits cash in the account sufficient to cover the trade on March 20. How soon would he be able to withdraw those shares?

3/22

Form U5 is filed with FINRA within ____ days of resignation or termination of association with a member firm.

30

corporate and municipal bonds trades use a ______________ calculation for accrued interest

30 day/ 360 days a year

updating customer account records need to be made within

30 days -should update every 3 years

****corporate bonds accrued interest is calculated using

30 days and 360 days in a year

****municipal bonds accrued interest is calculated using

30 days in a month, 360 days in a year

****rights window

30-45 days

A school district has overspent its budget and is in need of funds to meet current expenses for the next 90 days. It will most likely issue 1. PHAs. 2. GOs. 3. RANs. 4. TANS.

4 Tax anticipation notes (TANs) are short term municipal instruments that are issued in anticipation of an upcoming tax collection. Schools are supported by property taxes, so TANs can be used to provide interim financing until the tax revenue is available. Please see textbook section 3.4.4.1

Customer Complaints is held for

4 years

Josephine takes and passes the Securities Industry Essentials exam while employed as an intern at Seacoast Securities, Inc. She then returns to school full time to complete her undergraduate degree in Business Administration at the University of San Francisco. How many years does she have to affiliate with a member firm and complete a top-off exam before she would be required to retake the SIE?

4 yrs Once an individual passes the SIE, a person must also take and pass a top-off exam within four years. After four years have passed they will need to requalify by taking and passing the SIE again before passing a top-off exam.

does a 401k or a IRA have hardship withdrawls?

401k does IRA does not

Your customer, Leo, recently purchased one put contract on Napa Valley Spirits, Inc., stock. The strike price is $50.00 and the premium was $4.50. He later executed the contract. How much did he pay for the contract?

450

CTR files must be kept for

5 years

copies of SAR must be held for

5 years

loan term limit for qualified retirement plan

5 years

***contemporaneous traders may sue persons who violated insider trading regulations, suits can be initiated up to

5 years after the violation has occurred

whose price is more volatile a 5 yr 3% coupon vs. a 5 yr 10% coupon?

5 yr at 3% -lower coupon=higher duration

TIPS maturities

5, 10 or 20 years

Regulation T

50% initial margin, set by the Federal Reserve -150% if shorting

What is the penalty for not taking the required minimum distribution (RMD) for the year?

50% of the amount short of what should have been taken

what id the fee for over-contribution in an IRA?

6%

A registered representative speaks to a customer about a particular 6% municipal bond quoted on a 6.5% basis. What is the YTM and coupons?

6%=coupon 6/5%=YTM

ira contribution age limit

70 1/2

To fill a customer buy order, over-the-counter, your broker-dealer requests a quote from a market maker for 800 shares. The response is 15 bid, and ask 15.25. If the order is placed, the market maker must sell

800 shares at $15.25 per share

Solicitations may only occur between

8:00 am and 9:00 pm the customers time zone

standard expiration of put and call options

9 months

The Big Shoe Sneaker Company is a small manufacturer of athletic shoes. It is selling $100 million of its stock. This will be its first public offering. It will use the money to enhance both marketing and production with a plan to grow the business and obtain a Nasdaq listing in two or three years. After the initial sale of the new shares, buyers of the stock in the over-the-counter market should expect to receive the final prospectus for how many days?

90

how far can a letter of intent be back dated?

90 days

******who's an accredited customer? A) couple with $300000 net income the last two years B) nonprofit firm with $1,000,000 in assets C) A defined benefit plan with $1,000,000 in total assets D) brother of a registered representative

A

***Which of the following would require a SAR and a CTR? A) a customer makes several deposits in one day totaling $9500 B) a customer deposits and withdrawals a total of $9500 over the course of the week C)

A

which of the following outcomes are possible for the writer of a covered call option? A. profit and loss is limited B. profit is limited and loss is unlimited C. profit is unlimited and loss is limited D. profit and loss and unlimited

A

If par value of the bond is $1,000, what is the value of 1 bond point? A) $10 B) Cannot be calculated without knowing the current price of the bond C) $1 D) $100

A A bond point is 1% of the bond's par value of $1,000 ($10). LO 3.g

A company that offers sales of another company's securities would best be described as A) an underwriter. B) a market maker. C) an issuer. D) a transfer agent.

A A broker-dealer (investment banker) that works with an issuer to bring the issuer's securities to the market by offering the securities for sale to investors is best described in this context as an underwriter. LO 7.c

A fully disclosed broker-dealer A) is one that introduces its business to a carrying firm to clear transactions. B) is also known as a full-service clearing agent able to process and clear transactions. C) clears all of its retail customer transactions and those of other broker-dealers. D) is like a clearing agent in that it can take custody of funds and securities.

A A fully disclosed broker-dealer is also known as an introducing broker-dealer because it introduces its business to a carrying firm that can clear and process transactions for it. Unable to clear transactions themselves, they are not a clearing agent or carrying firm and therefore cannot take custody of funds and securities. LO 8.c

A partnership account wants to trade on margin. When would this be permitted? A) Only if it is not restricted from doing so in the partnership resolution B) Only if it is specifically stated as being permitted in the partnership resolution C) Always D) Never

A A partnership account will be allowed to trade on margin as long as there are no restrictions against doing so in the partnership resolution. This is the same standard used for corporate accounts. LO 24.b

A preliminary prospectus is used to solicit A) indications of interest before the effective date. B) sales after the effective date. C) sales before the effective date. D) indications of interest before the registration filing date.

A A preliminary prospectus cannot be distributed before the registration date. Between the registration and effective dates, it is used to solicit or gauge indications of interest. After the effective date, sales can be solicited and a final prospectus would be available and must be used to do so. LO 7.d

The aftermarket prospectus requirement for exchange-listed securities is A) 0 days. B) 40 days. C) 25 days. D) 90 days.

A Aftermarket=APO For exchange-listed additional public offerings, there is no aftermarket prospectus requirement. LO 7.g

Which of the following is a characteristic shared by both corporate debentures and income bonds? A) Both must pay principal as it comes due. B) Neither pay interest. C) Both are a type of mortgage bond. D) Both are secured by assets of the corporation.

A All bonds must pay principal when due. Income bonds, however, are not required to pay interest when due unless the earnings of the issuer are deemed to be sufficient and the board of directors (BOD) declares that interest payments be made. LO 2.f

An investor opens an account with BNZ Government Securities, a broker-dealer limiting its transactions exclusively to securities issued by the U.S. government. The account holds $250,000 of Treasury bonds, $250,000 of Treasury notes, and $50,000 in cash. If BNZ's broker-dealer business should fail, the investor would receive Securities Investor Protection Corporation (SIPC) protection in the amount of A) $0. B) $50,000 of the cash and $450,000 of the securities. C) all of the securities and all of the cash, because U.S. government securities do not go bankrupt. D) $500,000 of the securities and none of the cash.

A Although the vast majority of broker-dealers are required to be members of SIPC, those who deal exclusively in U.S. government securities are exempt. LO 9.e

A registered representative has left one firm to join another. Sometime later, the former employer discovers that some information on Form U-5 filed at the time of termination was inaccurate. The firm need not file an amended U-5 if at least how much time has gone by? A) No stated time limit B) 30 days C) 2 years D) 5 years

A An amended U-5 form must be filed and a copy sent to the affected former employee within 30 days of discovery of the inaccuracy. It does not matter how long it has been since the employee's termination. LO 31.b

If a preferred shareholder received a $3.50 annual dividend each year, it could be assumed that A) this is a 3.5% preferred class. B) these shares are trading at $35.00. C) the common shareholders receive the same $3.50 annual dividend. D) the shares had increased by 3.5% each year.

A An annual dividend of $3.50 simply tells you that this is a 3.5% preferred class of stock (3.5% × par ($100) = $3.50) or ($3.50 ÷ par ($100) = 0.035). The current market value is not used to calculate the fixed dividend, nor does this dividend amount tell us what common shareholders received. LO 1.i

Broker-dealers who transact securities business with other broker-dealers or customers must be registered with A) the Securities and Exchange Commission (SEC). B) the Federal Reserve Board (FRB). C) the Financial Industry Regulatory Authority (FINRA). D) the Options Clearing Corporation (OCC).

A Any entity such as a broker-dealer intending to do business with other broker-dealers or customers involving securities must be registered with the SEC. LO 9.a

Which type of underwriting is characterized by the broker-dealer buying the entire issue from the issuer and then reoffering it to the public? A) Firm commitment B) Best efforts C) All-or-none D) Mini max

A BD is the underwriter

Your customer opens a position at 45 and then closes it later at 47. This represents A) a 2-point gain or loss. B) a 47-point gain. C) a 2-point gain. D) a 2-point loss.

A Because we do not know if the opening transaction was a buy or a sell from what we are told, this could be either a 2-point gain or loss. If the opening transaction was a buy, this represents a gain (bought at 45, sold at 47). But if the opening transaction was a sell, this represents a 2-point loss (sold at 45, bought back at 47). LO 18.a

CMO are backed by A. mortgages B. real estate C. municipal taxes D. the full faith and credit of the US gov.

A CMO=collateralized MORTGAGE obligations

In order for a registered representative of a member firm to receive any form of compensation, such as commissions, after terminating employment, all of the following statements are correct except A) earnings from referred business from existing clients would be eligible for payment. B) the agreement must be entered into before the termination of employment. C) there must be a contract in effect calling for these continuing commissions. D) it would be permissible to pay continuing commissions to a surviving spouse.

A Continuing commissions are permitted, but there is no requirement that they be offered. In order for a former registered representative to receive them, the terms must be spelled out in a contract entered into before termination. The contract may call for payment to heirs but cannot provide any compensation for business referred or introduced by an employee after that person ceases to be registered with the member. LO 31.c

A company that is extensively overleveraged using debt financing whenever available would be exposing its investors to A) financial risk. B) business risk. C) call risk. D) liquidity risk.

A Debt financing or utilizing debt leverage too much can lead to the inability to meet principal and interest payments on a company's debt obligations. This is the definition of financial risk. LO 6.d

All of the following are part of Financial Industry Regulatory Authority (FINRA)'s manual regarding employee conduct and reportable events except A) Sales Practice Code. B) Uniform Practice Code (UPC). C) Code of Arbitration Procedure. D) Conduct Rules.

A FINRA publishes the Conduct Rules, the UPC, the Code of Procedure, and the Code of Arbitration Procedure to regulate employee conduct and reportable events. There is no Sales Practice Code. LO 10.a

Financial risk is most attributed to which of the following investments? A) Corporate bonds B) U.S. government bonds C) Value stock D) Municipal general obligation bonds

A Financial risk is the risk that an issuer would not be able to make principal and interest payments. This rules out government bonds and municipal general obligation bonds because they are backed by taxing power, and stocks don't pay principal and interest. LO 6.c

A client calls a registered representative and states that she lives in New York City and is looking for a bond that would be triple tax free in New York. The registered representative tells the client that his firm has some bonds in inventory that are from the Albany New York School District that would be triple tax free for the client. Which of the following would be the registered representative's best course of action? A) Determine suitability prior to placing the trade and mark the trade solicited. B) No suitability determination is required because the bonds will be tax free for the client and mark the trade solicited. C) Determine suitability prior to the trade and mark the trade unsolicited. D) No suitability determination is required because these bonds will be tax free for the client and mark the trade unsolicited.

A For a trade to be unsolicited, the client would need to specifically identify the bonds he wanted to purchase; instead the registered representative is the one who recommended these bonds, making the trade solicited. Suitability must be determined on solicited trades. LO 18.e

A shareholders' meeting for ABC Corporation will take place in eight days. A customer whose stock is being held in street name has not returned the proxy statements. Which of the following is true? A) The member firm may vote the shares as it wishes on minor matters. B) The member firm votes the shares as recommended by the issuer's management. C) The member firm may not vote the shares under any circumstances. D) The member firm must ascertain how the investor wishes to vote the shares.

A If an owner of shares held in street name has not returned proxy statements earlier than 10 days before a shareholders' meeting, the member firm holding the shares may vote them as it sees fit, provided the matters voted on are minor. If they are major—for example, changing the direction of the business, offering additional stock, effecting a merger—the member firm may not vote the shares at all. LO 21.g

CDT Corporation has issued 4.5% callable preferred shares. If these shares are ever called in, stockholders should expect that the shares would be called in at A) par value or higher. B) par value. C) par value or lower. D) current market value.

A In return for the call privilege, the corporation may pay a premium exceeding the stock's par value at the time of the call. It's reasonable that a shareholder would expect to receive at least par value or higher in the event of a call. LO 1.i

An underwriter is placing a tombstone advertisement for a company's new issue. A prospective investor might expect to see all of the following information on the advertisement except A) the names of the company's officers. B) the names of the underwriting members. C) the type of security to be sold (stock or bond). D) the number of shares to be sold.

A Information on a tombstone, those advertisements allowed to be placed prior to the effective date, is limited to; name of issuer, type of security, number of shares to be sold, public offering price or expected range, and names of the underwriters or group. LO 7.d

An investment that allows for a share in the income, gains, losses, deductions, and tax credits of the business entity to pass through to investors is known as A) a limited partnership. B) an option. C) a general partnership. D) a real estate investment trust (REIT).

A Limited partnerships (LPs) pass through to investors (partners) a share in the income, gains, losses, deductions, and tax credits of the business entity. LO 5.d

For real estate program partners, tax credits will A) reduce tax liability dollar for dollar. B) reduce taxable income from rents received dollar for dollar. C) add to the appreciation of the real estate properties. D) be applicable in all types of real estate programs.

A Offered by the federal government for only certain types of real estate programs (not all), tax credits reduce tax liability dollar for dollar. In this light, credits are considered far greater benefits than deductions, which only reduce taxable income. LO 5.f

The Federal Reserve sets which of these rates? A) Discount B) Prime C) Federal funds D) Broker call

A Only the discount rate is set by the Fed. The others are set by the banks. LO 13.d

Your customer has purchased an MJS October 35 call at 4. Their proof of ownership will be A) the trade confirmation. B) the certificate issued by the underlying company (MJS). C) the Options Clearing Corporation (OCC) issued certificate. D) the executing broker-dealer's account records.

A Options are issued by the OCC and traded by investors without a physical certificate. The definitive proof of ownership is the trade confirmation—essentially, the document that confirms the purchase. LO 3.k

Which of the following projects would be funded by general obligation (GO) bonds? A) Public schools B) Sports stadiums C) Public housing D) Airports

A Schools are funded by state and local taxes which is what backs GO bonds. LO 2.h

All of the following pay interest except A) T-bills. B) T-bonds. C) T-notes. D) GNMAs.

A T-bills are sold at a discount and pay par at maturity. The difference between the discounted price and par is considered interest, but T-bills don't make interest payments. LO 2.j

Which of the following benchmark interest rates is considered a barometer of the direction of short-term interest rates? A) Federal funds rate B) Broker call loan rate C) Discount rate D) Prime rate

A The federal funds rate is the rate that commercial money center banks charge each other for overnight loans of $1 million or more. Overnight, representing the shortest of loans, makes this rate a good indicator of the direction short-term interest rates are taking. LO 13.d

Which of the following preferred stocks allows the issuer to pay the shareholders par and cease dividend payments following a stated period? A) Callable B) Puttable C) Adjustable D) Redeemable

A The issuer can pay off callable preferred at any time after the call protection period, and dividends will cease. LO 1.i

^All of the following is true about local government investment pools (LGIPs) except A) investors must be provided a prospectus at or before they purchase shares in the investment portfolio. B) the pool maintains a fixed $1 net asset value. C) LGIPs operate similarly to a money market instrument. D) pools are not required to register with the Securities and Exchange Commission (SEC).

A The operating characteristics of LGIPs are similar to those of money market funds, and they keep a $1 net asset value (NAV). They are not required to register with the SEC and therefore there is no prospectus but do provide information statements, which include details of the management fees. LO 5.b

Which of the following investment companies has an actively managed portfolio? A) Closed-end company B) Face-amount certificate company C) Debt fixed unit investment trust (UIT) D) Equity fixed unit investment trust (UIT)

A The portfolios of both face-amount certificate companies and UITs are nonmanaged. The closest they come to management is when the securities to make up the portfolio are selected. After that, the portfolio does not change. Closed-end companies have an investment adviser who actively manages the portfolio, buying and selling securities. LO 4.b

Shelf offerings are covered under which if the following? A) The Securities Act of 1933 B) The Trust Indenture Act of 1939 C) The Bank Secrecy Act D) The Investment Company Act of 1940

A The shelf offering (registration) provision under the Securities Act of 1933 allows issuers to quickly raise capital when needed or when market conditions are favorable. LO 7.f

Which of the following prospectus must be provided no later than confirmation of the sale? A) Statutory prospectus B) Summary prospectus C) Statement of additional information D) Rule 498 prospectus

A The summary prospectus and the rule 498 prospectus are the same thing. They can be used to discuss key information, but the statutory prospectus is still required at or prior to confirmation. The statement of additional information is only provided if requested by the customer. LO 4.i

Elizabeth has one Roth IRA, which she started at age 50. She is now age 62 and wants to distribute $10,000 for retirement income. What is the tax consequence of her distribution? A. All $10,000 is tax-free and there is no 10% penalty B. The full $10,000 is taxable and there is a 10% penalty C. Only the earnings portion is taxable and there is no 10% penalty D. Only the earnings portion is taxable, and there is a 10% penalty

A This is a qualified distribution. She has met both requirements: five-year holding period and after age 59 ½. The withdrawal is tax-free and there is no penalty. Please see textbook section 12.2.2

Under the Securities Exchange Act of 1934, registration is required for A) broker-dealers. B) foreign securities exchanges. C) securities. D) initial public offerings (IPOs).

A Under the Securities Exchange Act of 1934, broker-dealers and domestic exchanges are required to register with the Securities and Exchange Commission (SEC). Registration of securities and IPOs is a requirement of the Securities Act of 1933, sometimes called the Paper or New Issues Act. The SEC does not have authority over foreign exchanges. LO 9.a

Transactions where the penny stock rules are applicable would be those that A) are solicited. B) are unsolicited. C) are neither solicited nor unsolicited transactions. D) are either solicited or unsolicited.

A Unsolicited transactions (those not recommended by the broker-dealer or registered representative) are exempt from the penny stock rules. Solicited transactions are nonexempt, and the rules therefore apply. LO 1.c

A company offers to repurchase outstanding debt securities it has issued directly from its bondholders for cash in what would commonly be known as A) a tender offer. B) a buy back. C) an acquisition. D) a hostile takeover.

A When a company offers to buy outstanding securities for cash or for cash plus other securities from its stockholders or bondholders this is known as a tender offer. In contrast, a buyback, sometimes referred to as a repurchase, is when a company buys its own outstanding securities in the open market rather than appealing directly to its investors. LO 21.c BUYBACKS TAKE PLACE IN THE OPEN MARKET NOT TO DIRECT INVESTORS

A bond certificate represents A) the borrower's obligation to repay the amount it borrowed plus interest. B) the lender's right to receive an ownership share in the entity it leant the funds to. C) the lender's obligation to repay the amount it borrowed plus interest. D) the borrower's right to receive interest on the amount it received.

A When an investor lends money to an entity, the certificate evidencing the loan is known as a bond. This certificate represents the borrower's obligation to pay the investor back the amount it borrowed plus interest. LO 2.a

Common shareholders have the right to receive an audited set of financial statements of the company's performance A) annually. B) each quarter. C) biannually. D) monthly.

A While a company can supply this information as often as they want to shareholders, it is only required that an audited report be received on an annual basis. LO 1.c

Partners in direct participation leasing programs can receive write-offs for all the following except A) depletion. B) interest expenses. C) operating expenses. D) depreciation.

A Write-offs (deductions) associated with leasing programs are those taken for operating expenses, depreciation of the equipment owned and leased, and interest costs on the loans to purchase the equipment. Depletion, however, is a deduction associated with natural resources programs, such as oil and gas. LO 5.e

All of the following would be considered tax advantages relating to DPP investment except A. depreciation recapture B. depletion C. intangible drilling costs D. accelerated depreciation

A depreciation recapture is not an advantage is it the opposite. it is when you have to pay back the taxes you wrote off

If the portfolio of a variable annuity separate account is directly and actively managed by the insurance company, the separate account must be registered as A) an open-end management investment company. B) a closed-end management investment company. C) a face-amount certificate company. D) an equity unit investment trust.

A if managed by the insurance company's own investment advisor, a separate account must register as an open-end company. If it is managed by a third party, it must register as a unit investment trust. LO 4.c

all of the following about an ABLE account is true except A. account must be opened before the bene turns 26 B. the AO and the bene must be disabled C. the income is tax free D. the onset disability must have occurred before bene turned 26

A in an able account AO and bene must be disabled

A municipal advisor does which of the following activities? A) Advises municipalities on selling securities B) Advises municipalities on buying securities C) Advises institutions on buying municipal bonds D) Advises institutions on selling municipal bonds

A municipal advisor acts under contract with a municipality, providing advice on the structure and sale of the municipality's securities. A municipal advisor may not switch from that role to the role of an underwriter on an issue the advisor has consulted on. LO 7.c

official statement

A disclosure document prepared for a new municipal issue by or for the issuer. It contains a complete description of the issue and financial details about the issuer. MSRB rules require that a copy of the official statement be given to each purchaser of a new issue, if one has been prepared

Telephone Consumer Protection Act of 1991

A federal law that places restrictions on telephone solicitation

All-or-none underwriting (AON)

A form of best efforts underwriting in which the underwriter agrees that if it is unable to sell all the shares the issuer will cancel the offering.

Tenants in Common (TIC)

A form of joint ownership of an account whereby a deceased tenant's fractional interest in the account is retained by his estate and doesn't go to the surviving tenants

Comptroller of the Currency

A government office that regulates national banks responsible for the enforcement of MSRB rules for banks dealing in municipal securities

Your client, Nate Bauer, has been investing for several years and is comfortable with moderate risk as long as he can get in and out of the investment easily. His portfolio is mostly in stock and he would like to diversify into some other asset classes and thinks real estate would help with that. Which of the following would be most suitable for you to recommend for him?

A listed REIT trades on an exchange and meets Bauer's requirement for liquidity. The other three options are not very liquid. LO 26.c

Limited Power of Attorney

A written document in which a principal appoints and authorizes an agent or attorney in fact to buy or sell but cannot withdrawl

after-tax yield formula

After-tax yield = Rate on the taxable bond * (1 － Tax rate)

Securities Exchange Act of 1934

An act that regulates the trading of securities such as stocks and bonds in the secondary market

earned income

Any income (wages/salary) that is generated by working

insider

Any person who possesses or has access to material nonpublic information about a corporation

****Municipal Securities Rule Board (MSRB) and Financial Industry Regulatory Authority (FINRA) rules specifically deter gaining political favor via contributions made to candidates, officials, or political parties. As such, if a political contribution is made to any of these entities then under the act, the firm may not provide advisory services to any government these individuals or parties represent for how long? A) three years B) two years C) six months D) five years

B

A pooled investment which is organized as a trust in which it gives investors buy shares of certificates of beneficial interest either on the stock exchange or OTC is A. an investment company B. REIT C. CMO D. DPP

B

All the following are coincident indicators except A) retail employment. B) changes in durable goods inventories. C) personal income. D) trade sales.

B

Call risk is most closely associated with A) currency risk. B) reinvestment risk. C) market risk. D) financial risk.

B

The SEC has regulatory authority over all of these entities except A) FINRA. B) municipalities. C) exchanges. D) Securities Information Providers (SIPs).

B

What is the name for the legal framework of state laws for broker-dealers, registered representatives, investment advisors and investment advisor representatives? A) The Investment Advisor Act B) The Uniform Securities Act C) The Securities Act of 1933 D) The Securities and Exchange Act of 1934

B

listed options transactions settle regular way A. on the third Friday of the expiration month B. on the next business day after trade date (T+1) C. on the third business day after trade date (T+3) D. when the option finally expires

B

no load funds may have lower expense ratios than load mutual funds for which of the following reasons? A. no load funds do not charge 12b-1 fees B. no load funds aren't permitted to charge 12b-1 gee greater than 25 bp C. sales charges for load mutual funds increase their annual expense ratios D. fund management fees for no load funds are always lower than load funds

B

A municipal advisor does which of the following activities? A) Advises institutions on buying municipal bonds B) Advises municipalities on selling securities C) Advises institutions on selling municipal bonds D) Advises municipalities on buying securities

B A municipal advisor acts under contract with a municipality, providing advice on the structure and sale of the municipality's securities. A municipal advisor may not switch from that role to the role of an underwriter on an issue the advisor has consulted on. LO 7.c

A statutory debt limitation imposed on a municipality restricts its authority regarding A) insuring municipal bond issues. B) issuing general obligation (GO) bonds. C) raising tax rates. D) selling municipal revenue bonds.

B A municipality may be limited by statute regarding the amount of GO debt it may incur, thus limiting the GO bonds it can issue. LO 2.h

the call provision of a bond stipulated which of the following? A. maturity date B. call date and call price C. original issue discount D. coupon rate and call date

B A no C no D call date check CALL

How often may funds be rolled over from one state's Section 529 plan to another's? A) No more than twice per calendar year B) Once every 12 months C) Once per semester D) As often as necessary

B A rollover involves actually withdrawing funds from one account for reinvestment in another. The investor thus has constructive receipt of the money and could be liable for taxes on any growth or earnings withdrawn if the rollover is not completed. The rollover procedure, when completed, protects from tax liability but may only be done once every 12 months. LO 5.a

The primary purpose of American depositary receipts (ADRs) is to facilitate the trading of A) domestic stocks in both foreign and domestic markets. B) foreign stocks in U.S. markets. C) foreign stocks in both domestic and foreign markets. D) U.S. stocks in foreign markets.

B ADRs facilitate the trading of foreign stocks in U.S. markets. LO 1.h

All of the following associated persons engaged in the investment banking and securities business are considered registered representatives, except A) an assistant officer who does not function as a principal. B) the chairman of the board. C) someone who supervises, solicits, or conducts business in securities. D) someone who trains others to supervise, solicit, or conduct business in securities.

B All associated persons engaged in the investment banking and securities business are considered registered representatives, including any assistant officer who does not function as a principal; any individual who supervises, solicits, or conducts business in securities; and any individual who trains people to perform functions in those capacities. LO 30.a

An investor is short 1 XYZ January 20 call at 3. This investor A) has the right to buy 20 shares of XYZ stock. B) has received $300 for writing the call contract. C) can exercise the contract to sell XYZ stock at $20 per share. D) can exercise the contract to purchase XYZ stock at $20 per share.

B An investor who is short 1 January 20 call at 3 has received $300 premium to write (sell) the call. Being short the call (sold), the investor will be obligated to sell 100 shares of XYZ stock if the contract is exercised at the strike price ($20). Remember that only the owner, the buyer or the party who is long can exercise the contract. LO 3.b

A party wishing to solicit proxy authority to vote a particular stockholder's shares must register with A) the Financial Industry Regulatory Authority (FINRA). B) the Securities and Exchange Commission (SEC). C) the regional exchange where the stock is traded. D) the New York Stock Exchange (NYSE).

B Any entity wishing to solicit proxies to vote a stockholder's shares must register with the SEC. LO 21.g

If a market maker posts a quote of $10 -$10.10 (25 x 10) which of the following actions is the market maker willing to take? A. sell 1000 shares at $10 and buy 2500 at $10.10 B. buy 2500 at $10 and sell 1000 at $10.10 C. sell 100 shares at 410 and buy 250 at $10.10 D. buy 250 shares at $10 and sell 100 shares at $10.10

B BD buys at bid A & B dont match (1x1) =100 shares so 25*100=2500 10*100=1000

Regarding CDs and negotiable CDs issued by banks, A) both CDs and negotiable CDs are considered money market instruments. B) only negotiable CDs are considered money market instruments. C) neither CDs nor negotiable CDs are considered money market instruments. D) only CDs are considered money market instruments.

B Banks issue and guarantee CDs with fixed interest rates. Some that can be traded in the secondary market are known as negotiable CDs. Only these negotiable CDs are considered money market instruments. LO 2.m

When is the electronic filing of all information on customer complaints by broker-dealers with Financial Industry Regulatory Authority (FINRA) due? A) Within 15 days of the end of each calendar year B) Within 15 days of the end of each calendar quarter C) Semiannually, in June and December D) Within 30 calendar days of receipt of the complaint

B Broker-dealer firms must electronically report information on all customer complaints to FINRA within 15 days of the end of each calendar quarter. Both these filings and the complaints must be retained by the firm for 4 years. LO 32.c

Current yield (CY) equals A) the stated rate divided by par value. B) annual income divided by the market price. C) par value divide the stated rate. D) the market priced divided by the annual income.

B CY equals the coupon rate (annual income) divided by the current market price. This is a very common formula on the test. LO 20.b

An investor purchases a bond at $900 with a 5% coupon and a 5-year maturity. The bond has a current yield of A) 7.4%. B) 5.6%. C) 4.5%. D) 7.8%.

B Current yield is determined by dividing annual interest (coupon) payment by the current market price of the bond ($50 ÷ $900 = 5.6%). Years to maturity is not a factor in calculating current yield. LO 2.b

which of the following is not backed by the full faith and credit of the US gov? A. GNMA B. FNMA C. STRIPS D. T-Bills

B FNMA=federal national mortgage association is not backed by the US gov

There are two types of do not call list. What are they and how long do names stay on the list? A) Broker-dealer list and names remain until removed by the customer, and national list and names remain for five years B) Broker-dealer list and a national list; names remain on list until removed by customer C) Broker-dealer list and name remain on list for five years, and national list and names remain on the list for 10 years D) National list and names remain on list for five years, and broker-dealer list and names remain on list for 10 years

B For both the broker-dealer list and the national Do-Not-Call list, names are not to be called unless the customers request that their name be removed from the list. There was a prior law that only required the broker-dealer list to hold names for five years, but that has changed and names remain on the list indefinitely. LO 27.d

Your client has a long-term investment time horizon and is willing to accept some risk to achieve a better rate of return. Of the following, which would be the least suitable recommendation? A) Common stock B) T-bills and negotiable CDs C) Preferred stock D) Corporate bonds and T-bonds

B Given the long-term investment time horizon and the willingness to accept some risk to earn better returns, the lease suitable recommendations would be short-term money market instruments, such as T-bills and negotiable CDs where the trade-off for safety is return. LO 2.m

While an associated person may work for an entity other than the member firm, the employing member firm's permission is A) not requested. B) not required. C) requested. D) required.

B If a registered person wants to be employed by or accept compensation from an entity other than the member firm, that person must provide prior written notice to the member. Note that notice must be made, but the employing member's permission is not being requested nor is it required. LO 32.e

A corporation has a shareholders' meeting coming up wherein several controversial proposals will be made. A number of persons will be actively soliciting proxies, and the corporation plans to send out up-to-date material on the proposals to shareholders to permit them to make informed decisions. Which of the following must review this material before it is sent out? A) None; review not required B) The Securities and Exchange Commission (SEC) C) The regional exchange where the stock is traded D) The Financial Industry Regulatory Authority (FINRA)

B If proxies are to be solicited in what is known as a proxy contest, the corporation must send out written material to the shareholders to permit them to make informed proxy decisions. The Securities and Exchange Commission (SEC) imposes this requirement and further requires that it be given the material to review before it is sent to the shareholders. LO 21.g

***Which of the following describes the position in a call option on a stock with a strike price of 20, a premium of 7, and a current market of 26? A) At the money B) In the money C) At parity D) Out of the money

B In this case, the strike price is less than the current market value, so a call option would be in the money by the difference between the strike price and the market price (6 points, in this case). At the money means the strike price and the market price are the same; at parity means the premium equals the intrinsic value. LO 3.b

Which of the following is an acceptable investment for an IRA? A) Gold coins minted in Switzerland but sold in the U.S. B) A mutual fund specializing in speculative bonds C) A universal variable life insurance contract D) A collection of medieval manuscripts and art

B Investments in an IRA are limited to cash and securities. This would include gold coins if they are from a U.S. mint. Collectibles and insurance are not acceptable IRA investments. LO 23.a

The Securities Act of 1933 protects investors who buy new issues by doing all of the following except A) regulating the underwriting and distribution of primary and secondary issues. B) requiring the licensing of persons affiliated with broker-dealers. C) requiring an issuer to provide full and fair disclosure. D) providing criminal penalties for fraud in the issuance of new securities.

B Licensing of individuals associated with broker-dealers is mandated under the Securities Exchange Act of 1934. The Securities Act of 1933 protects investors who buy new issues regulating, among other things, registration of new issues, underwriting, full disclosure, and the potential for fraud in the issuance of securities. LO 7.b

A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as A) a holding company. B) a market maker. C) a clearing corporation. D) a direct participation program.

B Market makers can be individuals or broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to Financial Industry Regulatory Authority (FINRA) that they can manage the operational and financial risk. LO 8.d

Water and sewer facilities are most likely to use what kind of debt financing to fund expansion plans? A) U.S. Treasury receipts B) Municipal revenue bonds C) Municipal general obligation (GO) bonds D) U.S. Treasury bills

B Municipal revenue bonds are issued to finance any municipal facility that charges user fees. These municipal bonds are self-supporting because principal and interest payments are made exclusively from revenues generated by the project for which the debt was issued, such as a water and sewer facility billing the municipalities' customers for usage each month. LO 2.h

For municipal debt issues, which of the following is true? A) Neither general obligation (GO) nor revenue municipal issues are backed by the municipality's good faith credit. B) Revenue bonds are self-supporting, while general obligation (GO) bonds are backed by the municipality's good faith and credit. C) General obligation (GO) bonds are self-supporting, while revenue bonds are backed by the municipality's good faith and credit. D) Both revenue bonds and general obligation (GO) bonds are backed by the municipality's good faith and credit.

B Revenue bonds are self-supporting. The project or facilities revenue supports the debt service of the bond. GO bonds are backed by the municipality's good faith and credit, namely the municipality's authority to tax. LO 2.h

When the demand for money exceeds the supply, A) interest rates fall, making consumer borrowing easier. B) interest rates rise, making consumer borrowing more difficult. C) interest rates fall, making consumer borrowing more difficult. D) interest rates rise, making consumer borrowing easier.

B STUDENT LOAN-higher interest rates mean more money YOU have to pay Money available to lend is like all commodities in that its cost (interest) is impacted by supply and demand. When the demand for money exceeds the supply, interest rates rise, making consumer borrowing more difficult. LO 13.b

In order to receive a declared dividend a shareholder must be an owner of record at the close of business on the A) payable date. B) record date. C) ex-dividend date. D) declaration date.

B Shareholders must be owners of the stock on or before the record date in order to receive the current dividend. LO 1.d

Which of the following statements regarding systematic risk as it relates to an investment portfolio is true? A) Diversification cannot mitigate it to any extent. B) Diversification will not eliminate it. C) Diversification can be used to eliminate it completely. D) Diversification ensures that portfolios are not subject to it.

B Systematic risk is the risk that changes in the overall economy will have an adverse effect on individual securities, regardless of the company's circumstances. Understanding what it is, is to know that no amount of diversification will eliminate it completely. While one might be able to mitigate it somewhat, one cannot diversify away systematic risk. LO 6.a

Deposits received in currency for amounts over $10,000 in a day would require the firm to report the transaction in how many days on what form? A) CTR within 30 days B) CTR within 15 days C) SAR within 15 days D) SAR within 30 days

B The Bank Secrecy Act requires firms to report on a CTR any currency received in the amount of more than $10,000 on a single day, within 15 days. LO 25.d

The law that provides the legal framework for state registration of securities is A) the Securities Act of 1933. B) the Uniform Securities Act. C) the Securities Exchange Act of 1934. D) the Trust Indenture Act of 1939.

B The Uniform Securities Act provides a legal framework for the state registration of securities, as well as the registration requirements applicable to broker-dealers, investment advisers, investment adviser representatives, and registered representatives. LO 9.f

The law that provides the legal framework for state registration of securities is A) the Securities Act of 1933. B) the Uniform Securities Act. C) the Trust Indenture Act of 1939. D) the Securities Exchange Act of 1934.

B The Uniform Securities Act provides a legal framework for the state registration of securities, as well as the registration requirements applicable to broker-dealers, investment advisers, investment adviser representatives, and registered representatives. LO 9.f

Deductions for depletion would most likely apply to which of the following direct participation programs (DPP)? A) Real estate limited partnership B) Oil and gas income program C) Oil and gas exploratory program D) Equipment leasing program

B The depletion allowance is a tax benefit reflecting the decreasing supply of oil or gas (or any other natural resource or mineral) after it is taken and sold. With income programs, the wells have been drilled and are already producing and, therefore, being depleted. By contrast, exploratory programs have a low expectation of success and it is therefore more likely that there will not be anything found to deplete. LO 5.f

An American Depository Receipt (ADR) may be quoted on the OTCBB if it is registered with the SEC and A. Is not listed on a major securities exchange in the U.S. or abroad B. Is not listed on a national securities exchange in the U.S. C. Does not exceed a maximum average daily trading volume D. Does not exceed a maximum public share float See results

B The main requirements for ADRs to be quoted on the OTCBB are SEC registration and no listing on a national U.S. exchange. However, if the ADR is listed on a national exchange but does not qualify for dissemination of transaction reports on the Consolidated Tape, it still may be quoted. Please see textbook section 9.3.4.1

The Securities Act of 1933 exempts all of the following securities from registration except A) savings and loan issues. B) public real estate investment trusts (REITs). C) U.S. government issues. D) municipal issues.

B Though some REITs trade on exchanges and others may not, all public REITs are nonexempt securities which must be registered with the Securities and Exchange Commission (SEC). LO 5.h

Treasury receipts are backed by A) the bank holding the T-notes and bonds backing the receipts. B) the issuing broker-dealer. C) the U.S. government as issuer of the collateral for the receipts. D) the trustee holding the collateral for the receipts.

B Treasury receipts are issued by broker-dealers. Although Treasury securities (T-notes and bonds) are held in trust at a bank and collateralize the Treasury receipts, unlike Treasury securities backed by the U.S. government, these Treasury receipts can only be backed by their issuer, the issuing broker-dealer. LO 2.j

Limited partnership programs are categorized as direct participation programs. The term direct participation refers to the A) ability of any partner, limited or general, to participate in the running of the partnership. B) flow through of profits and losses of the partnership to the individual limited partners. C) general partners directly participating in the day-to-day management of the partnership. D) ability for each partner to have her vote flow through to the general partner.

B Understanding the flow through concept is critical with DPPs. Only DPPs allow flow through of losses. LO 5.d

Which class of shares use a CDSC as the main sales charge? A) No load B) Class B shares C) Class A shares D) Class C shares

B What does CDSC stand for?\ 12b-1 C shares OPPOSITES

Selling long is equivalent to which of the following? A) Selling to open B) Selling to close C) Selling short D) Selling to open then buying to close

B When a customer owns a position and then sells that position, that is referred to as selling long or selling to close. LO 18.a

A strong U.S. dollar leads to more A) U.S. exports and a balance of payments deficit. B) U.S. imports and a balance of payments deficit. C) U.S. exports and a balance of payments surplus. D) U.S. imports and a balance of payments surplus.

B When the dollar is strong, it is more affordable for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit. LO 14.d

An investor in a direct participation program wishes to divest of a partnership interest purchased some time ago. You would correctly advise that A) the interest in the business once purchased, can never be sold. B) there is no secondary market making them highly illiquid. C) they trade in the secondary market and entering an order to sell should suffice. D) there is ample secondary market trading making them highly liquid.

B While one's interest in a DPP can be sold, there is virtually no secondary market. In this regard, they are considered highly illiquid. LO 5.e

Keynesianism

Belief in aggressive government intervention to combat recession & promote economic growth, especially by massive federal spending ("stimulus")

types of investments are most susceptible to interest rate risks?

Bonds

****municipal bonds

Bonds issued by state and local governments that are used for public purposes -GO and revenue bonds are types

Industrial Revenue Bonds

Bonds issued by state or local governments to benefit private corps.

mortgage bonds

Bonds that are secured by real property.

many years ago a client owned 100 shares of CJF and has had a stock split and now owns 500 shares. If the customer had the BD send out certificates for 200 shares of CJF in the mail then A. it would be unethical since any activity has to involve all of the shares B. it would be unethical because only the transfer agent can deliver share certificates C. nontrade confirmation would have to be generated D. the customer would endure a tax liability

C

the federal reserve board was established by A. Securities Act of 1933 B. Uniform Securities Act C. Federal Reserve Act of 1913 D. Trust Indenture Act

C

under 144A, an issuer of restricted stock is permitted to sell to who? A. financial institutions B> accredited investors C. QIB D. non accredited investors who have previously purchased restricted stock

C

which of the following security types provides investors with a stated maturity date, floating rate, and an option to put back to a financial intermediary on a daily or weekly basis? A. Equity put option B. Perpetual preferred stock C. variable rate demand note D. tax-deferred variable annuity

C

you overhear a discussion about a RR being disciplined because of selling away. Which of FINRA's conduct rules was violated? A. outside business activity B. accepting noncash compensation C. private securities transaction D. failure to direct the client's trade to the best available market

C

Your client Harry Swenson is very frugal. He feels like mutual funds have too many expenses, and he doesn't believe over a long period of time that the active management of investment advisors can outperform their respective bench marks. He likes the idea of a pooled investment in the stock market rather than picking individual stocks on his own. Which of the following types of investments should you recommend? A) A closed-end fund B) An exchange-traded note (ETN) C) An exchange-traded fund (ETF) D) An open-end fund

C Both open-end and closed-end funds have active management and have an investment advisor managing the portfolio that is paid a fee from the assets of the fund. ETNs are a debt investment not an equity investment. ETFs meet all of Harry's criteria. LO 26.c

What is the primary purpose of an issuer sponsoring an American depository receipt (ADR)? A) These securities are created to facilitate foreign investment in U.S. companies. B) These securities are created to provide tax relief for U.S. investors. C) These securities are created to attract a U.S. investor base. D) These securities permit the issuer to avoid Securities and Exchange Commission (SEC) jurisdiction.

C ADRs are a type of equity security designed to simplify foreign investing for Americans. An ADR is created when common shares are purchased in the foreign company's home market. These shares are then deposited in a foreign branch of a U.S. bank and a receipt (the ADR) is created. The ADR trades in the U.S and is denominated in U.S. currency making the process of buying a foreign stock much easier for an American investor. ADRs are subject to U.S. securities regulations. LO 1.h

which of the following organizations engaging in open-market operations acts as agent for the U.S. Treasury Department? A) Securities Investors Protection Corporation (SIPC) B) Securities and Exchange Commission (SEC) C) Federal Reserve Board (FRB) D) U.S. Congress

C Acting as an agent for the U.S. Treasury Department and under the direction of the Federal Open Market Committee (FOMC), the Federal Reserve Board (FRB) engages in open-market operations buying and selling Treasury securities: T-bills, notes, and bonds. LO 13.c

Which of the following preferred stocks' price would remain most stable in an environment of changing interest rates? A) Straight preferred B) Participating preferred C) Adjustable rate preferred D) Nocumulative preferred

C Adjustable rate preferred dividend resets when interest rates change so the price remains stable. LO 2.g

^All of the following are self-regulatory organizations (SROs) except A) Municipal Securities Rule Board (MSRB). B) Financial Industry Regulatory Authority (FINRA). C) Securities and Exchange Commission (SEC). D) New York Stock Exchange (NYSE).

C All U.S. exchanges such as the NYSE and Chicago Board Options Exchange (CBOE) are SROs. In addition, FINRA and the MSRB are SROs. The SEC is not. LO 9.a

When XYZ is trading at 30, an XYZ 40 put bought at 3 would be A) at the money. B) at parity. C) in the money. D) out of the money.

C All puts are in the money when the market price is below the strike price. They are out of the money when the market price is above the strike price. They at the money when the market price equals the strike price. They are at parity when the premium equals the intrinsic value. LO 3.d

Which of the following securities are most likely deemed marginable by either the Federal Reserve Board (FRB) or regulatory bodies such as Financial Industry Regulatory Authority (FINRA) and the NYSE? A) Rights certificates B) Listed options that expire in 9 months C) Treasury bonds D) Exchange-listed stock currently being offered to the public by prospectus

C Although Treasury securities are exempt from FRB Regulation T, they are OTC securities approved by the FRB as being good collateral for loans. LO 24.b

Regarding different types of debt security maturities available to issuers, which of the following is accurate? A) A term maturity uses elements of both serial and balloon maturities. B) No maturity types incorporate the elements of any other. C) A balloon maturity uses elements of both serial and term maturities. D) A serial maturity uses elements of both term and balloon maturities.

C An issuer can schedule its bond's maturity using elements of both serial and term maturities. This is known as a balloon maturity. The issuer repays part of the bond's principal before the final maturity date, as with a serial maturity, but pays off the major portion of the bond at maturity. LO 2.a

A prospectus must be delivered to customers following a transaction in all of the following except A) unit investment trust. B) mutual funds. C) ETFs. D) follow-on offering of common stock by a public reporting company.

C ETFs make final and summary prospectuses available, for example on a website, for viewing or downloading but there is no requirement to send one to those who trade the exchange-traded fund. Publicly traded closed-end funds are not obligated to deliver a prospectus when traded in the secondary market place. LO 5.k

Economists call mild, short-term contractions A) troughs. B) depressions. C) recessions. D) declines.

C Economists call mild, short-term contractions recessions. Longer, more severe contractions are depressions. LO 12.a

Your client bought 100 shares of ABC at $50 per share and later received a 10% stock dividend. What is her new cost basis per share? How many shares does she now have? A) 100 shares at 45.45 B) 110 shares at $55.00 C) 110 share at $45.45 D) 100 shares at $55.00

C Her original cost basis was 100 × $50 = $5,000. She now has 110 shares still worth $5,000. $5,000 divided by 110 equals $45.45. LO 21.a

A broker-dealer firm has just rehypothecated a thousand shares of MMS stock. This means A) the customer withdraws the stock from the bank and pledges it directly to the firm. B) a bank has pledged the stock to the firm, which now pledges it to the customer. C) the customer pledged the stock to the firm, which has now pledged it to a bank. D) the firm has withdrawn the stock from a bank and pledged it to the customer.

C In a long margin account, customers put up at least half the purchase price of securities, and the broker-dealer firm borrows the remainder on the customer's behalf from a bank. The customer pledges the securities to the broker-dealer, which is known as hypothecating the securities. The broker-dealer then rehypothecates them to the bank as collateral for the margin loan. LO 24.b

Index and foreign currency options must be settled in A) securities comprising the index and the foreign currency. B) banker's acceptances. C) cash. D) the underlying security.

C Index and foreign currency options are cash settled. Instead of shares of stock being delivered as a result of the exercise, cash must be delivered by the party assigned (short the contract). This is because delivering all of the components of an index is not possible and delivering foreign currency would require exchanging one currency for another, and possibly having banking relationships abroad. Settling in cash (U.S. dollars) facilitates the exercise and assignment process much easier for U.S. investors. LO 3.e

In order to meet federal budget needs, the types and quantity of government securities to be issued are determined by A) the U. S. president and Congress. B) the chairman of the Federal Reserve Board. C) the U.S. Treasury Department. D) the Federal Reserve Board (FRB).

C It is the U.S. Treasury Department that determines the types and quantities of government securities to be issued each week in order to accommodate budgetary needs. At the time of issue, the Federal Reserve Board acts as the Treasury Departments agent. LO 2.j

In order to meet federal budget needs, the types and quantity of government securities to be issued are determined by A) the chairman of the Federal Reserve Board. B) the Federal Reserve Board (FRB). C) the U.S. Treasury Department. D) the U. S. president and Congress.

C It is the U.S. Treasury Department that determines the types and quantities of government securities to be issued each week in order to accommodate budgetary needs. At the time of issue, the Federal Reserve Board acts as the Treasury Departments agent. LO 2.j

For investors, changes made to the tax code by the IRS are known as a form of A) regulatory risk. B) financial risk. C) legislative risk. D) political risk.

C Legislative risk results from changes in the law, not regulations. Changes in tax laws are one example. LO 6.d

All the following are lagging indicators except A) corporate profits. B) labor cost per unit of output. C) personal income. D) outstanding commercial loans.

C Personal income is a coincident indicator. Corporate profits, labor cost per unit of output, and outstanding commercial loans are lagging indicators. LO 11.b

Which of the following is a coincident indicator? A) S&P 500 Index B) Housing starts C) Household income D) Increase in unemployment

C Personal or household incomes are coincident indicators, moving up and down along with the overall economy. Equity prices and housing starts are both leading indicators. Changes in unemployment are lagging indicators. LO 11.b

A customer who tries to disguise deposits of more than $10,000 in currency by making multiple smaller deposits in currency is guilty of A) layering. B) placement. C) structuring. D) integration.

C Placement, layering, and integration are phases of money laundering. Making multiple deposits to stay under the radar of having a CTR filed is structuring. LO 25.d

As an investment vehicle, and regarding the tax consequences, Real Estate Investment Trusts (REITs) are organized as A) debt instruments. B) mutual funds. C) trusts. D) corporations.

C REITs, as their name tells us, are organized as trusts. Assets held in the trust and the distributions made can impact the tax consequences for the trust. As an investment vehicle, shares are sold to investors and these shares sometimes trade on exchanges. Whether traded or nontraded, the shares are considered to be equity (not debt) securities. LO 5.h

An affiliate holding unregistered shares can sell under Rule 144 A) two times a year. B) as often as wished. C) four times a year. D) one time a year.

C Rule 144 allows an affiliate to sell the greater of 1% of the outstanding shares or the average of the last four weeks' trading volume with each Form 144 filing. The filing is good for 90 days (three months), which would allow for as many as four filings per year. LO 1.g

Under regulation S-P, nonpublic personal information would not include a customer's A) account balance. B) information collected through an internet cookie. C) home address. D) social security number.

C The Securities and Exchange Commission (SEC) in Regulation S-P notes examples of nonpublic personal information to include a customer's Social Security number, account balances, transaction history, and any information collected through an internet cookie. A home address would not be considered nonpublic personal information. LO 27.f

When a bond is purchased at a premium, the current yield will be A) higher than the fixed rate. B) higher than the stated rate. C) lower than the coupon rate. D) the same as the nominal rate.

C The coupon rate, the stated rate, the fixed rate, and the nominal rate all mean the same thing. It is the amount the bond will pay each year. On a premium bond the coupon rate is always higher than the current yield. LO 20.b

A company very concerned about liquidity would want A) low price-to-earnings ratio. B) low current ratio. C) high current ratio. D) high price-to-earnings ratio.

C The current ratio is a measure of liquidity. The higher the ratio, the more liquid the company. This has no bearing on whether high or low price-to-earnings ratios are desirable. LO 15.c

intangible drilling costs (IDCs) associated with oil and gas DPPs can generally A) not be deducted at all. B) not be deducted until the end of the programs life. C) be deducted completely in the first year of the program. D) be deducted up to a certain percentage in the earlier years of the program.

C The deduction allowable for IDCs associated with oil and gas DPPs is one of the unique tax advantages of these programs. These costs can be deducted completely in the first year of the program instead of over the life of the program. LO 5.e

Who is responsible for meeting the desired returns on a defined contribution plan? A) The custodian B) The Pension Benefit Guaranty Corporation C) The employee D) The sponsor

C The employee chooses how the money is invested, so the employee takes responsibility for the returns. LO 23.a

The measure of a nation's economic output is A) gross national product. B) Consumer Price Index. C) gross domestic product. D) S&P 500 Index.

C The gross domestic product measures all the output within a nation's borders. The gross national output is a measure of only the economic output of a country's citizens and companies, regardless of location. LO 11.a

Under the Investment Company act of 1940 all of the following are examples of management companies except A. ETF B. VA C. UIT D. close ended fund

C UIT are investment companies not management companies

^*When making unsolicited cold calls to prospects, a registered representative must disclose all of the following to the individual called except A) the caller's name. B) the address at which the caller may be contacted. C) the address of any securities issuer mentioned during the call. D) the name of the member broker-dealer firm.

C When making cold calls, the caller must disclose his name and the name of the member broker-dealer, the telephone number or address at which the caller may be contacted, and that the purpose of the call is to solicit the purchase of securities. When securities of any issuer are mentioned in such a call, there is no requirement to disclose the address of the issuer. LO 27.c

A customer receives a Regulation T margin call for $3,200. To meet the deposit requirement, which of the following can be deposited? A) Fully paid for marginable securities totaling $3,200 in market value B) Fully paid for marginable securities totaling $1,600 in market value C) Fully paid for marginable securities totaling $6,400 in market value D) Cash in the amount of $1,600

C When meeting a Regulation T margin call with cash, 100% of the call must be deposited—in this case, $3,200. If using fully paid for marginable securities to meet the call, a deposit totaling twice the amount of the call must be made—in this case, $6,400. This is because securities are only marginable to 50% of their value. LO 24.c

^When the Federal Open Market Committee (FOMC) directs that Treasury securities be purchased in the open market, this will do which of the following? A) Increase interest rates on loans to consumers B) Tighten the money supply C) Lower interest rates on loans to consumers D) Have no impact on lending rates to consumers

C When the FOMC directs that Treasury securities be purchased in the open market, this will loosen the money supply; securities come out of the economy and money goes in to the economy. More money available lowers interest rates to consumers. LO 13.c

All of the following accounts are for unincorporated businesses except A) sole proprietorship accounts. B) partnership accounts. C) corporate accounts. D) limited liability company accounts.

C corporate accounts are incorporated

*****what is the change in price of products and services?

CPI

Options Disclosure Document (ODD)

Characteristics and Risks of Standardized Options - Delivery: - to customer, at or before a/c is approved Signed options agreement no later than 15 days after account approval

Which class of shares use a CDSC as the main sales charge?

Class B shares

Accusations of Financial Industry Regulatory Authority (FINRA) Conduct Rule violations will heard and handled under the

Code of Procedure

Mergers and acquisitions (M&A)

Combination of two separate firms either by their joining together as relative equals (merger) or by one acquiring the other (acquisition).

Federal National Mortgage Association (FNMA)

Commonly known as "Fannie Mae", this quasi-private corporation is the largest buyer of existing mortgages in the secondary mortgage market.

Government National Mortgage Association (GNMA)

Commonly known as "Ginnie Mae," this agency of HUD operates in the secondary mortgage market. It is involved with special government financing programs.

layering

Concealing the source of illegal income in confusing, sometimes multiple financial actions.

IRA contribution limits

Contributions are only allowed by investors with earned income. 100% of earned income or $6,000 whichever is lesser.

SIPC covers

Covers up to $500,000 in cash and securities but no more than $250,000 in cash

stability in the value of a debt portfolio is greatest when: A. IR are rising B. IR are falling C. maturities of the debt securities are long D. maturities of the debt are short

D

An investor is long 6 MAS February 60 calls at 2.25 each. If at the time of the February expiration, the calls expire unexercised, how much money will the investor lose? A) $225 B) $6,225 C) $810 D) $1,350

D 225*6=1350

Your client Nate McCann has been investing for several years and is comfortable with moderate risk as long as he can get in and out of the investment easily. His portfolio is currently mostly in stock and he would like to diversify into some other asset classes and thinks real estate would help with that. Which of the following would be most suitable for you to recommend for him? A) A real estate limited partnership B) A nonregistered real estate investment trust (REIT) C) An investment in individual rental properties D) A listed real estate investment trust (REIT)

D A Listed REIT trades on an exchange and meets Nate's requirement for liquidity. The other three are not very liquid. LO 26.c

All of the following are possible actions of an investor who has received stock rights except A) exercise the rights to purchase the new stock at a discount. B) allow the rights to expire unexercised. C) sell the rights for a short-term capital gain or loss. D) hold the rights for a possible long-term capital gain.

D A long-term capital gain would require a holding period of more than one year. Rights expire four-six weeks after issue, so this would not be possible. LO 1.f

Which of the following contracts do not have intrinsic value if the strike price is 40 and the market price is 30? A) Long call and long put B) Short call and short put C) Shot call and long put D) Long call and short call

D All calls are in the money when the market price is above the strike price. Contracts that are in the money have intrinsic value. LO 3.d

The phase of an annuity contract that is associated with annuity units is the A. Accumulation phase B. Performance phase C. Deferral phase D. Payout phase

D Annuity units are associated with the payout, or annuity, phase of a variable annuity contract. Please see textbook section 12.3.3.2

With money market securities held in one's portfolio, relative to other, longer-term debt securities, an investor should expect A) a higher degree of safety with higher returns. B) a lower degree of safety with lower returns. C) a lower degree of safety with higher returns. D) a higher degree of safety with lower returns.

D Because of their short-term maturities, money market securities are considered highly liquid and provide a relatively high degree of safety. In return for the safety, investors forgo a higher return for the lower returns generally associated with money market securities. LO 2.m

Common shareholders have the right to A) access a company's books and records with Securities and Exchange Commission (SEC) permission. B) full access to a company's books and records. C) no access to a company's books and records. D) limited access to a company's books and records.

D By virtue of owning the company's common stock, shareholders have a limited right to review the company's books and records. For example, they have the right to examine the minutes of meetings of the board of directors (BOD). LO 1.c

All of the following are true of negotiable commercial paper except A) it has a maximum 270-day maturity B) the issuers typically have strong credit ratings C) it is considered a money market instrument D) it is typically issued by banks

D Commercial paper is short-term unsecured debt issued by corporations having very good credit ratings. With a maximum 270-day maturity, it is considered a money market instrument. LO 2.m

For registered shares held by an affiliate (known as control stock), which of the following applies? A) Six-month holding period, with sales allowed freely thereafter B) No holding period or any volume restrictions C) Six-month holding period, with volume limits thereafter D) No holding period, but volume limits always apply

D Control stock would be registered shares held by an affiliate. There is no holding period, but there will always be volume limits for as long as the individual is an affiliate. LO 1.g

Those industries that are least affected by normal business cycles are A) special situation. B) cyclical industries. C) growth industries. D) defensive industries.

D Defensive industries are least affected by normal business cycles. Companies in defensive industries produce nondurable consumer goods, such as food, pharmaceuticals, and tobacco or supply essential services such as those supplied by utility companies. Public consumption of such goods remains fairly steady throughout the business cycle. LO 12.b

What is the final stage of money laundering? A) Placement B) Initiation C) Layering D) Integration

D FINAL NOT FIRST

To grow or expand the economy, U.S. fiscal policy should be to A) raise taxes and cut all government spending for programs and development. B) cut taxes and government spending for programs and development. C) raise taxes and government spending for programs and development. D) cut taxes and increase government spending for programs and development.

D Fiscal policies to grow or expand the economy would encompass cuts in taxes allowing consumers to have more money to spend, spurring the economy forward, and increasing government spending for programs and development that creates jobs, again spurring the economy forward. LO 14.a

An investor owns 1 November 15 put at 5. The 15 in this contract represents A) the premium, the price the investor can purchase stock at. B) the strike price, the price the investor has paid for the contract. C) the premium, the price the investor has paid for the contract. D) the strike price, the price the investor can sell stock at.

D For this put contract, 15 is the strike price, which represents the price at which the investor has the right to sell stock, and 5 represents the $500 premium paid for the contract. LO 3.b

A customer enters several orders in complex securities without concern on the returns or losses. This suspicious activity is most likely the result of which stage of money laundering? A) Structuring B) Integration C) Placement D) Layering

D Hiding the illicit nature of funds in money laundering is known as layering. This stage often involved using multiple accounts, countries, and asset types to leave a convoluted and difficult to follow trail on where the money came from. Customers unconcerned about losses can be a red flag for layering. LO 25.b

A FINRA maintenance call will occur in a short margin account if the equity drops below A) 50% or $2,500. B) 25% or $2,000. C) 35% or $2,500. D) 30% or $2,000.

D In a short margin account, equity must be maintained at 30% or $2,000 whichever is greater. LO 24.d

Regarding the decision to dissolve a LP before its scheduled predetermined dissolution date, it would need to be A) ratified by the IRS because of the tax implications to dissolve earlier than planned. B) voted on by the general partner(s) only. C) made by the general partner with the largest capital contribution with no vote required. D) voted on by the limited partners holding a majority interest.

D In instances where a decision to dissolve a limited partnership before its predetermined date is made, an affirmative vote to do so must be taken by the limited partners. LO 5.e

Margin calls can be met with deposits of A) cash only. B) either marginable or non-marginable securities. C) fully paid for marginable securities only. D) cash or fully paid for marginable securities.

D Margin calls can be met using either cash (100% of the call) or fully paid for marginable securities (twice the amount of the call because securities are only marginable to 50% of their value). LO 24.b

If a company files for bankruptcy, which of the following investors would be most likely to be paid first? A) Common stock B) Debentures C) Preferred stock D) Mortgage bonds

D Mortgage bonds are senior securities. Those who hold mortgage bonds expect to receive any assets from the dissolution of a bankrupt company before the holders of junior securities such as debentures and equity securities. LO 2.f

A client opens a new margin account and, as the initial trade, purchases 300 shares of MS Corporation common stock at $10 per share. The firm would send the client a margin call for A) $1,000. B) $3,000. C) $1,500. D) $2,000.

D No credit may be extended in a new margin account with less than $2,000 in equity. This purchase of $3,000 of stock would normally require 50% payment ($1,500) in accordance with Regulation T, but because it is the initial trade in the account, the $2,000 minimum must be met. LO 24.c

A REIT is taxed as a A. corporation B. partnership C. municipal bond D. conduit

D REIT is taxed as a conduit (pipeline) since it is not taxed as a corporation if it receives 75% of its income from real estate and 90% of NII is distributed to shareholders

Under the provisions of Rule 144, what percentage of outstanding stock may a control person sell every 90 days? A) 3% B) 4% C) 6% D) 1%

D Rule 144 pertaining to the sale of restricted or control stock allows for the sale of 1% of the outstanding shares or the weekly average of the last four weeks' trading volume (whichever is greater), every 90 days. LO 1.g

Which of the following sets of FINRA rules focuses on disputes in the industry and with customers who have filed a predispute agreement? A) Conduct Rules B) Code of Procedures C) Uniform Practice Code D) Code of Arbitration

D The Code of Arbitration covers disputes over money between representatives, member firms, banks, and customers. LO 10.a

Which of the following sets of FINRA rules focuses on how member violations will be handled? A) Conduct Rules B) Uniform Practice Code C) Code of Arbitration D) Code of Procedures

D The Code of Procedure covers improper acts by member firms and representatives. LO 10.a COA IS MONETARY DISPUTES

Which of the following sets of FINRA rules focuses on broker-dealers doing business with other broker-dealers? A) Code of Arbitration B) Conduct Rules C) Code of Procedures D) Uniform Practice Code

D The Conduct Rules deal with a broker-dealer's (and representative's) relationship with the customer and the public. The Uniform Practice Code deals with interactions with other broker-dealers. LO 10.a

All of the following are subject to MSRB rules EXCEPT A. An online brokerage firm that executes only unsolicited orders in municipal securities B. A municipal finance department within a general securities broker dealer C. A bank that acts as an underwriter of municipal securities D. A school district that is issuing GO bonds

D The MSRB does not have authority over issuers of municipal securities issuers. MSRB Rules apply to members and their associated persons, which are defined as broker-dealers and bank dealers that engage in municipal securities sales, trading, underwriting, or financial advice to issuers. Please see textbook section 13.1.2

The flow of money between the United States and other countries is known as A) the balance of trade. B) the surplus. C) the payment reserves. D) the balance of payments.

D The balance of payments represents the flow of money between the United States and other countries. LO 14.d

The sales charge for Class A shares may not exceed A) 8.5% of the NAV of the shares purchased. B) 6.25% of the NAV of the shares purchased. C) 6.25% of the total investment. D) 8.5% of the total investment.

D Though they are almost always much smaller, sales charges for Class A shares may not exceed 8.5% of the money invested. For example, if an investor spends $1,000 for Class A shares, no more than $85 may be charged as a sales load. LO 4.d

with CCD stock at 40, a September 45 call trading at 3 is out of the money by A) 5 points and has negative intrinsic value. B) 2 points and has negative intrinsic value. C) 2 points and has no intrinsic value. D) 5 points and has no intrinsic value.

D When a calls strike price is higher than the underlying stocks value, the call contract is out of the money. In this case, it is out of the money by 5 points (45 - 40). When a contract is out of the money, we say that it has no intrinsic value. We do not use the term negative when referring to contracts with no intrinsic value. LO 3.d

Selling long is equivalent to which of the following? A) Selling short B) Selling to open C) Selling to open then buying to close D) Selling to close

D When a customer owns a position and then sells that position that is referred to as selling long or selling to close. LO 18.a

An investor would expect which type of preferred stock to pay the highest stated dividend rate? A) Cumulative B) Convertible C) Straight D) Callable

D With callable preferred stock, to compensate for the possibility that the shares may be called, the issuer pays a higher dividend than with straight preferred. Cumulative and convertible preferred have positive characteristics that would justify a lower fixed dividend than straight. LO 1.i

Which of the following are true of nonqualified plans but not true of qualified plans? A) All withdrawals are taxable. B) All withdrawals are tax free. C) The plan cannot discriminate. D) The plan may discriminate. Explanation

D With qualified plans, all withdrawals are taxable and the plan cannot discriminate it has to be offered to all qualified employees. A nonqualified plan does not need to be offered to all qualified employees, and distributions above the cost basis are taxable. LO 23.b

Which of the following option positions would offer a full hedge to a long stock position? A) Short call B) Short put C) Long call D) Long put

D the best way to hedge a long stock position is with a long put. LO 3.h

Your client, Dana McRae, has no investment experience. She just retired and won't be in a high tax bracket. She also is concerned about volatility of her investments. She is more concerned about preserving her principal than getting a high rate of return. Which of the follow would you recommend?A) A money market mutual fund investing in short-term debt from city and county governments in her state B) A long-term U.S. government bond mutual fund C) A newly issued U.S. Treasury bond D) A money market mutual fund investing in short-term corporate debt

D) A money market mutual fund investing in short-term corporate debt B&C have high volatility

T or F: ETFs cant be purchased on margin and sold short

F

T or F: Mutual funds are sold OTC or/and are sold on the exchange

F

T or F: REIT's are a investment company

F

T or F: The Securities and Exchange Commission (SEC) requires that notice of corporate actions be given for interest payments on the issuer's debt instruments

F

T or F: a credit union can be a depository and intermediary for transactions between buyers and sellers of securities

F

T or F: once the SEC approves a registration the cooling-off period ends and the effective date is established

F

T or F: exchange has regulatory authority over dealers in 3rd market

F authority over traders, members, and market makers

Municipal Finance Professional (MFP) is an employee

FINRA

largest SRO

FINRA

who determines the ex dividend date

FINRA

Know Your Customer (KYC)

FINRA and the SEC require BD to know their customers. -understand financial status, investment objectives, and other facts to perform due diligence

any person associated with the member firm who intends to engage in the investment banking or securities business must be registered with

FINRA as an associated person

DOE investigates and hears violations of

FINRA code of procedures

Code of Procedures

FINRA rules focuses on how member violations will be handled

Federal Open Market Committee (FOMC)

Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply

Margin Maintenance requirements are set by

Finra

Prepayment risk is associated with which type of securities?

GNMA since they are mortgage backed securities

if the minor is a custodian account dies the money

Goes to the minor's estate not the parent's estate

GNP

Gross National Product - the sum of all goods and services produced in a nation in a year

Variable Rate Demand Notes

Have a fluctuating interest rate and are usually issued with a put option. -periodically return issue to issuer for stated value

factors that effect working capital

INCREASE WORKING CAPITAL: -increased profits -sale of securities -sale of non current assets DECREASE WORKING CAPITAL -dividends declared -paying off short term debt -net losses

prospectus delivery rules

IPO for listed or Nasdaq—25 days APO for listed or Nasdaq—none IPO for non-Nasdaq—90 days APO for non-Nasdaq—40 day

regulation T

Identifies which securities are eligible for purchase on margin and which may be used as collateral for loans

Which of the following orders need not be immediately filled in their entirety? Immediate or cancel (IOC) Fill or kill (FOK) Market at open All or none (AON)

Immediate or cancel (IOC) All or none (AON) Immediate or cancel (IOK) orders allow partial execution, with the unexecuted portion of the order being canceled. All-or-none (AON) orders may be executed piecemeal, until the end of the day (for day orders) or until they can be filled in their entirety (for good til canceled, or GTC) orders. Both FOK and market at open orders are expected to be filled immediately and in their entirety. If unable, a FOK order would be canceled (killed). LO 16.d

at dissolution who gets paid first LP or GP?

LP are paid first

Lipper Fund Index

Lipper calculates several indexes tracking different categories of mutual funds

Which of the following contracts are not in the money if the strike price is 40 and the market price is 30?

Long call and short call

M2

M1+ savings accounts, CDs, money market funds, and repos

structuring

Making multiple deposits to stay under the radar of having a CTR filed

mutual funds distributions are done at

NAV

the redemption value of an open-ended investment company is based on

NAV computed after the order is received

cost basis for inherited mutual funds

NAV when the owner dies

mutual fund (open-end fund) pricing

NAV+sales charge

For registered shares held by an affiliate (known as control stock), which of the following applies?

No holding period, but volume limits always apply

*Which type of shares allow the investor to buy and sell the shares at NAV and have a 12b-1 fee of 0.25% or less?

No load

****Do REIT losses pass through?

No, only income like dividends and gains

What government organization maintains the Specially Designated Nationals List?

OFAC

A registered representative opens a new options account for a customer. In which order must the following actions take place? Obtain approval from the branch manager Obtain essential facts from the customer Obtain a signed options agreement Enter the initial order

Obtain essential facts from the customer Obtain approval from the branch manager Enter the initial order Obtain a signed options agreement

When a bond is purchased at a discount the current yield will be

On a discount bond the current yield is always higher than the coupon rate.

****OTCBB

Over the Counter Bulletin Board -Provides two-sided quotes for OTC securities that can't meet listing standards of exchange or Nasdaq -DPPs and ADRs quoted on OTCBB -8:00 am to 8:00 pm -Displays quotes, volume, last sale price -Quotes entered by MM: bid / offer wanted, bid / offer only, two-sided quotes, quote modifications -Quotes firm unless DPP

****contemporaneous traders

People who enter trades at or near the same time, in the same security as a person who has inside information

Front Running

Placing broker's personal orders ahead of a customer's large order to profit from the market effects of the trade

front running

Placing broker's personal orders ahead of a customer's large order to profit from the market effects of the trade

pump and dump

Placing deceptive information online to get unsuspecting investors interested in a stock while those spreading the information sell previously purchased stock at an inflated price.

participating preferred stock

Preferred stock that shares with common stockholders any dividends paid in excess of the percent stated on preferred stock.

2 types of 529 plan

Prepaid tuition and qualified tuition plan.

Free Credit Balance

Proceeds from a sale that are not reinvested and held in the account at the broker-dealer

Office of Foreign Assets Control (OFAC)

Publishes and maintains a list of individuals and companies owned or controlled by, or who are acting for, or on behalf of, targeted countries and individuals, groups, or entities that are designated under programs that are not country specific, such as terrorists and those trafficking in narcotics.

private REIT

REIT that are NOT registered with the SEC

public REIT

REIT that are registered with the SEC

***nonlisted REIT

REIT that aren't on a stock exchange

***listed or exchange listed REIT

REIT that is on the exchange

SIMPLE IRA

Retirement place for businesses with no more than 100 employees that have no other retirement plan in place. Pretax contributions fully taxable distributions. Both employer and employees may contribute.

Exchange Privilege

Right of a shareholder to switch from one mutual fund to another within one fund family, often at no additional charge. Exchanges may be taxable.

1934 created

SEC

Uncovered (naked) Options

Selling (writing) options on securities which are not currently owned.

wash sale

Selling a security at a loss for tax purposes and, within 30 days before or after, purchasing the same or a substantially identical security. The IRS disallows the claimed loss.

Exchange Traded Notes (ETNs)

Senior, unsecured, unsubordinated debt securities -track performance of a particular market index

treasury share

Shares repurchased by the corporation; these shares do not have the right to vote

covered

Shares to sell short have been located in order to be borrowed. Once sold short, these shares will be known as

Short against the box

Short a stock which you already own or hold in inventory; involves no upward risk, but the potential of profit if the market on the stock declines.

Municipal Anticipation Notes

Short-term securities that generate funds for a municipality that expects other revenues soon.

Money Market Instruments

Short-term securities that have maturities less than one year -liquid -safe

T or F: FINRA member firm conduct securities business with a nonmember broker-dealer if the nonmember broker-dealer is a foreign firm and properly registered in their home jurisdiction

T

T or F: REIT's don't require proof of net worth and income criteria

T

T or F: full service BD clear their own transactions

T

T or F: the access = delivery rule isn't applicable to the preliminary prospectus

T

which IRA allows for contributions to be tax deductible?

T IRA

***When is a equity option settled?

T+1

Listed option transactions settle

T+1

listed options settle

T+1

GNMA settles

T+2

National Adjudicatory Council (NAC)

The body that hears appeals made by the department of enforcement (DOE)

trade date

The date on which a securities transaction is executed.

Form U4

The uniform application for securities industry registration or transfer

Retail Communication

This category is defined as any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30-calendar-day period.

regulation A+

Tier 1: small permits unregistered public offerings up to $20M in a 12 month period-$6M existing shareholders Tier 2: medium permits unregistered public offerings up to $50M in a 12 month period-$15M existing shareholders 30%

IRC Subchapter M,

To avoid triple taxation according to the IRC Subchapter M, an investment company must distribute at least 90% of its net investment income

trade execution of American depository receipts (ADRs)

Trades are executed domestically in U.S. dollars

T+1

Treasuries money market securities options

FINRA isnt in the

Treasury Dept

IRA permitted investments

UIT annuities mutual funds common stock bonds Government securities US government-issued gold and silver

where do the finger print records go to?

US attorney general

partnership

Unincorporated association of two or more persons to pursue a business for profit as co-owners.

Treasury Bonds

United States government bond with maturity of 10-30 years

Restricted Securities

Unregistered securities that are typically acquired by investors through private placements

Dwight was appointed a principal for Seacoast Securities in June of 1996. He continued in the position until 2012, when he left to start his own firm. How long did Seacoast need to maintain the record of his principal designation?

Until 2018

Barclays Capital U.S. Aggregate Bond Index

Use this index to compare the performance of bonds.

revenue bonds

Used to finance any municipal facility that generates sufficient income Not subject to statutory debt limits and do not require voter approval

Your customer, Eleanor, purchased an InDebt Inc., 5% debenture at a price of 94. It matures in 12 years. What is the yield to maturity?

YTM=% above 5.32

Treasury Receipts

Zero coupon bond created by brokerages. B/D buy treasury securities and place them in trust at a bank and sell separate "receipts" against the principal. *Not backed by the U.S. Government

^Regarding bankruptcy proceedings, A) courts protect both corporate and individual filers from creditors. B) a plan for reorganization must be submitted first before the courts can offer protection from creditors. C) liquidation of assets must occur first before the courts can offer protection from creditors. D) the procedure is only available to individuals seeking protection from creditors and not business entities.

a Bankruptcy is a general term for court procedures available to both individuals and businesses. During the proceedings, filers are protected by the court from creditors. Protection is granted independent of any actions to liquidate or file a plan for reorganization. LO 2.f

Money market instruments are typically A) fixed-income (debt) securities with short-term maturities. B) equity securities with short-term maturities. C) equity securities with short- to intermediate-term maturities. D) fixed-income (debt) securities with short- to intermediate-term maturities.

a Money market instruments are fixed-income (debt) securities with short-term maturities, typically one year or less. LO 2.m

By the Securities and Exchange Commission (SEC) definition, when is the latest that payment in full for purchased securities may take place in a cash account? A) T + 4 business days B) Promptly C) On the trade date D) T + 3 business days

a Regulation T, which applies to everyone who opens a brokerage account, specifies that payment in full for securities must take place no later than two business days after regular way settlement. Because regular way settlement is T + 2, it follows that T + 4 is the latest. LO 24.a

Last year Brownstone Properties, LP distributed $200 per unit to investors and reported a $500 business loss per unit on the K-1. For tax purposes the investors received

a $500 per unit passive loss

investment company

a business that specializes in pooling funds from individual investors and investing them -reduce the overall risk

An investor holds a debt security backed by ad valorem taxes. This security is issued by

a city or local municipality

straddle

a combination of a call and a put purchase, each with the same exercise price and expiration date

Face Amount Certificate offers

a contract between an investor and an issuer where the issuer guaranteed payment of a stated sum to the investor in the future

Collateral Trust Certificate

a corporate debt instrument secured by a pledge by the issuer of property that consists of stocks or bonds of other corporations

Prime Account

a customer contracts with one broker, the prime broker, to provide custody and other services, while contracting with numerous other brokers for executions trading services.

An investor has entered into a contract to pay an investment company a specific sum of money in exchange for the company's agreement to pay the investor a specific (larger) sum of money on a specific date in the future. The investment company must be

a face-amount certificate company

call feature

a feature that allows the corporation to call in, or buy, outstanding bonds from current bondholders before the maturity date

Variable Life Insurance

a fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer

long term capital gain

a gain on assets that were held for 12 months or longer -taxed at a favorable long term rate

short term capital gain

a gain on assets that were held less than 12 months -taxed at taxpayer's other ordinary income

Treasury Note

a government bond with a term of from 2 to 10 years

syndicate

a group of individuals or organizations combined to promote some common interest. each individual is responsible for a number of shares

market maker

a member of an exchange responsible for providing liquidity by being willing to buy and sell at all times

adjusting cost basis only happens when

a payment of stock dividend happens

stagflation

a period of slow economic growth and high unemployment or slow wages (stagnation) while prices rise (inflation)

Fiduciary Accounts

a person other than the account owner initiates trades, management and distribution decisions

*securitization

a pool of loans is assembled and shares of that pool are sold to investors

Limited partnerships must end on

a predetermined date or can be dissolves earlier by a vote

A company is looking to raise additional capital to fund an expansion plan. The company's senior management chooses to issue additional bonds to the general public. The best expression to explain this type of offering would be

a primary offering

capital gains

a profit from the sale of property or of an investment.

When the Options Clearing Corporation (OCC) receives a notice to exercise, it will assign that notice to

a short broker-dealer

Limited partnerships sold through private placements involve

a small group of investors, each contributing a large sum

401(k) plan

a tax-deferred retirement plan offered to employees by their employer it is a % of the employees salary and employer can contribute

day order

a trading order that expires at the end of the trading day during which it was made

solicited transaction

a transaction initiated by an agent or RR

Prime Brokerage Account advantage

ability to trade with multiple brokerage houses while maintaining a centralized master account with all of the cash and securities

US laws require that investors are ___________ fore hedge funds

accredited investors

equity REITs

acquire ownership in commercial, industrial, and residential properties BUT doesnt not own mortgage income received from rental of properties

treasury bonds and notes use a ____________ calculation for accrued interest

actual number of days

in a revocable trust, the grantor is allowed to

add and remove items

stock dividends

additional shares of a company's own stock given to stockholders done when the company wishes to reinvest its profits for business purposes

if an investor is looking for income which preferred stock would be the worst option?

adjustable preferred

***which preferred stock's price is most stable?

adjusted preferred since dividend yield changes

3 year record retention

advertising trial balances forms U4 and U5 customer confirmations order tickets compliance/procedure manuals

in a roth IRA how can earnings be distributed from an account without taxation?

age is 59.5+ and the money has been in the account for 5 years +

when a firm charges commission on a security it acts as a

agent

****Who is responsible for making sure that physical securities are delivered on time?

agents or their clearing brokers

purchasing power risk

aka inflation risk, resulting from possible changes in price levels, that can significantly affect investment returns

Best Efforts Underwriting types

all or nothing and mini-max

prepaid 529 plans

allow resident donors to lock in current tuition plans by paying now for future education costs

letter of intent

allows investor to receive breakpoint discounts based on commitment to buy specified number of mutual fund shares over time usually 13 months

Full Power of Attorney

allows someone who is not the owner of an account to deposit or withdraw cash or securities and make investment decisions for the account owner

when can individual and joint accounts use margin?

always

selling restricted stock when affiliated

always subject to volume restrictions

nearly all equity option use the _______________style

american

foreign currency options may use the __________________style

american OR European style

margin

amount of equity that must be deposited to buy securities in a margin account

CMO consists of

an FNMA, FHLMC, and other mortgage backed securities

proxy

an agent, substitute; a written permission allowing one person to act in another's place

capital appreciation

an increase in the market price of shares

Modulux, Inc., a NYSE listed manufacturing company, was founded by Clarence Mod. Clarence is now 82 years old and is looking to divest his significant interest in Modulux to capitalize the Mod Family Foundation, a charity. He has enlisted the help of Seacoast Securities, a FINRA member broker-dealer based in Seattle, to run the sale. Seacoast Securities is acting as

an investment banker

mutual fund (open-end fund)

an investment company that continuously offers new equity shares in an actively managed portfolio

shelf offering

an issuer who is already a publicly traded company can register new securities without selling the entire issue at once -2 OR 3 years (well known issuer)

options automatic exercise

any contract that is in the money by 0.01 will be automatically exercised

federal funds

any deposits in excess of the required amt

derivative

any financial asset whose value is derived from the value of some other "underlying" asset

private securities transaction/selling away

any sale of securities outside the scope of the regular business of the associated person involved and of the broker-dealer firm. Such a transaction done for an immediate family member, however, does not fall under the definition.

supporting

associated with short put options -entering purchase orders to keep the stock price from falling

how many principals are to be registered?

at least 2 if not a sole proprietorship

customer statements are sent

at least quarterly -monthly if its a penny stock or if there is activity in the account

A zero-coupon bond interest pays

at maturity and is taxed annually

interest from a zero coupon bond pays ______ and is taxed _______

at maturity; taxed annually

a typical fund calculates its NAV

at the end of each business day

MOS stock is trading at 55. A March 55 call contract would therefore be trading

at the money

nominal yield is set up

at the time of the issue -coupon/stated/nominal is a fixed % of the par value

An investor has purchased Class A mutual fund shares. The net asset value (NAV) per share of the fund is the price the investor A) knows will be the cost per share when the order is entered. B) will receive upon redemption of the shares. C) will use as the cost basis in tax return filings once redeemed. D) has paid for the shares when purchased.

b The NAV per share of a mutual fund is calculated by dividing the net assets of the fund by the number of shares outstanding. When purchasing Class A shares, NAV plus a sales charge is paid. When redeeming the shares, the investor simply receives NAV. Remember that for purchases and redemptions of mutual fund shares, the next calculated NAV per share is used, a practice known as forward pricing. Therefore, when purchasing or redeeming shares, because mutual funds use forward pricing, the investor can never be certain of the exact price that will be paid or received when entering the order. LO 4.d

At the time of dissolution, which of the following regarding a limited partnership is true? A) Limited and general partners are paid concurrently. B) Limited partners are paid before general partners. C) Limited and general partners are paid after the IRS. D) Limited partners are paid after general partners.

b When a limited partnership (LP) is dissolved, limited partners are paid before general partners. Remember that with an LP, all tax consequences are passed on to the partners. Therefore, it is the individual partners who may incur a tax liability to be paid to the IRS, not the partnership entity. LO 5.e

Which regulator requires broker-dealers to deliver a Margin Disclosure Statement on an individual basis, to non-institutional customers, before any margin account is opened? a. Comptroller of the Currency b. FINRA c. SEC d. FDIC

b. FINRA Rule 2264 requires firms to provide a margin disclosure statement to each customer prior to or at the time of opening a margin account. Please see textbook section 11.2.2.1

Class B

back end load -charge is paid at the time an investor sells shares previously purchased -% charge reduces annually, after 5 yrs it goes to 0

If an investor purchases a mutual fund based solely on seeing the summary prospectus, the investor must

be able to access a full prospectus no later than confirmation of sale

If a prospectus is being used to close a mutual fund sale, it must be given to the investor

before or during the sales presentation

traditional IRA contributions are

before tax

serial bond

bond issue matures in installments

Equipment Trust Certificates

bonds secured with factory and equipment as collateral

****Who has the most risk if interest rates are increasing?

bonds who have a lower coupon bond

All US gov. issues are delivered in

book entry

STRIPS are delivered in

book entry

agent

broker acting for customer to buy/sell securities in the market paid commission agent = broker = commission

primary purpose of a syndicate is to

build an order book and allocate the stock -selling group has no risk for unsold shares

****A call buyer has what outlook for the underlying security?

bullish

BD and IA are required to have a

business continuity plan

if you are an importer concerned with foreign currency rising

buy calls EPIC importers buy call

stop order

buy or sell, a stop order doesn't become "live" working order in the marketplace until the stock trades at or through the specified price

limit order

buy or sell, limits the acceptable purchase or selling price paid or received for the securities

a owner of an option is the

buyer

Electronic delivery of documents requires all of the following except A) procedures to deliver the information in paper form upon request. B) procedures to show that delivery took place as intended. C) a recording of the customer verbally agreeing to such receipt. D) assurance of confidentiality of the documents and personal information.

c RECORDING????? Consent to receive documents such as confirmations and account statements by electronic means must be in writing. LO 29.g

call provision bond stipulates

call date and call price

short stock hedge

call option

***American-style option

call or put buyers can exercise a contract any time before expiration

***European-style option

call or put buyers can exercise a contract on the expiration day (last day of trading ONLY)

An investor would expect which type of preferred stock to pay the highest stated dividend rate?

callable

Oil and gas income program

can claim a deduction for depletion

MSRB ______ enforces MSRB rules

cannot

Interest-rate risk

cannot be diversified away

systematic risk

cannot be diversified away

2 basic types of return on investment

capital gains income

highly leveraged

carrying a lot of debt

M1

cash, coin, money in demand deposits accounts (checking accounts)

bond

certificate stating a borrower's obligation to pay back a specific amount of money on a specific date to an investor

lagging indicator tend to

change direction after a change in the economy

******Options Clearing Company (OCC)

clearing corporation for listed options contracts

REITs

closed end investment companies publicly traded can sell at premium or discount to NAV

***which investment company can issue common stock and preferred stock?

closed ended

***which investment company can trade in the secondary market?

closed-ended

household income is a

coincident indicator

corporate profits, outstanding commercial loans, and labor cost per unit of output are

coincident indicators

changes in unemployment is a

coincidental indicator

balloon bond

combination of serial and term bond -series of payments but a large amount is due at the end

which account is good for customers who have a low trading activities?

commission based accounts

commission-based accounts

commission is billed for each transaction

SPIC doesnt cover

commodities or futures

All corporations will issue

common stock.

correspondence

communication of 25 or less retail investors within 30 calendar days -may be reviewed after use (postreview). -good faith

Regulatory Element Continuing Education

computer based training session

federal open market committee

consists of 12 members holds 8 regularly scheduled meetings/year reviews economic and financial conditions and determines monetary policy

mutual fund offers through

cont. primary offering

ABLE account taxes

contributions are made after tax

Which type of preferred stock typically has the lowest stated rate of dividend, all other factors being equal?

convertible stock

which type of preferred stock tends to fluctuate with the common stock?

convertible stock

A communication made available to 20 institutional clients and 20 retail clients is classified as

correspondence

self clearing (carrying) firms most likely have a

correspondent firm

buy 100 shares at $15 a share initial margin requirements

cost: $1500 Regulation T: $750 FINRA: $1500 $1500

sell short 100 shares at $15 initial margin requirements

cost: $1500 Regulation T: $750 FINRA: $2000 $2000 EVEN IF ITS CHEAPER THAN $2000 STILL HAS TO DEPOSIT $2000 since its initial

buy 100 shares at $30 a share initial margin requirements

cost: $3000 Regulation T: $1500 FINRA: $2000 $2000

sell short 100 shares at $30 per share

cost: $3000 Regulation T: $1500 FINRA: $2000 $2000

****If the customer shorts 100 shares at $50 what is there initial margin requirement?

cost: $5000 Regulation T: $2500 FINRA: $2000

buy 100 shares at $50/share initial requirements

cost: $5000 Regulation T: $2500 FINRA: $2000 $2500

sell short 100 shares at $50 initial margin requirements

cost: $5000 Regulation T: $2500 FINRA: $2000 $2500

hedge funds would invest in

currencies, selling short, options but not money market instruments

CTR

currency of $10,000+ in a single day report with in 15 days

Regarding the potential financial exploitation of seniors, impacted accounts would be those for individuals A) who are past the age of 75 and the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests. B) who at any age are unable to protect her own interests. C) age 55 and older, or age 21 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests. D) age 65 and older, or age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests. Explanation

d Financial Industry Regulatory Authority (FINRA) has specifically identified for the purpose of preventing financial exploitation of seniors individuals who are age 65 and older, or age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests. LO 29.f

april 15

date an IRA must be created and funded by following the year the contribution applies

to receive a dividend when must a person buy the stock?

day before ex dividend since it needs to settle

principal

dealer buying into/selling out of inventory to accommodate customer will mark up (if selling out of inventory) or mark down (if buying into inventory) rather than charge a commission principal = dealer = markup/markdown

A guaranteed bond is

debt backed by another company, such as a parent company.

in an expansion, defensive industries will

decline less

in a recession, defensive industries

decline less than others

reverse split

decreases the number of shares 1:2 1:3 1:4

ETN primary risk

default risk

if the US is selling less to foreign countries than the US people are exporting this is a

deficit

SEC vs. Howey

defines a security

if the SEC bars an associated person can a BD allow that person top associate with them?

depends, only can if the commission gives permission

if a client shorts a sales for their first initial margin what do they have to do?

deposit $2000 even if the purchase price is under $2000

The allowable deduction for equipment used in an oil and gas direct participation program is taken as

depreciation over the life of the program.

conversion premium

difference between a bonds price and conversion parity price

T-Bills

direct obligation of U.S. Government. Sold at discount, no coupon rate, mature at face amount. Maximum maturity is 1 year.

a member firm's failure to register an employee who performs any of the functions of an RR may lead to

disciplinary actions by FINRA

The Federal Reserve sets the

discount rate

a felony conviction DUI charge would

disqualify on the U4

********ADR tax

dividends paid to the US investor can be subjected to withholding tax by home country of foreign underlying currency -capital gains are taxed in the US

countercyclical industries

do the opposite, of the economy

Trade Confirmation

document containing details of a securities transactions, -price of the security -commissions -stock symbol -number of shares -account number -description of the security -price -yield -CUSIP # -registered rep code -trade date and settlement date -net amount -capacity

savings 529 plans

donors save money to be used later for education expenses

statutory voting rights

each stockholder gets to vote one per share held for each of the directors to be elected. but the shares must be voted as a block vote. ex: a stockholder owns 100 shares, 3 directors are being elected but 5 are running. the stockholder can vote 100 votes for 3 of the people

investment income

earnings from dividends, interest, and rent

marking the close

effecting trades or falsely reporting trades to influence the closing price of a stock

state admin

enforces state regulations and laws

SRO is responsible for

enforcing federal securities laws and supervises securities practices within a assigned jurisdiction

term bond

entire issue matures on a single date

Exchange Traded Fund (ETF)

equity security that invests in a specific group of stocks and generally mimics a particular index, -trades on the floor

who is exempt from being suitable for penny stocks?

established customers

Bank Secrecy Act

establishes the US treasury as the lead agency for developing anti-money laundering programs

For existing customer accounts, how often do broker-dealers required to send a written notice to the customer for verification of account information?

every 3 years

A company leaks some inside information to some key employees but not the public. One of those employees tells his registered representative, and the registered representative tell another customer who trades on the information before it becomes public. In this situation, who would be guilty of insider trading? The person at the company who leaked the information The employee who told the registered representative The registered representative The customer who traded on the information

everyone

MSRB has control over

everyone besides municipalities

Under the Securities Act of 1933, the SEC requires registration for

everything besides federal gov securities

T+2

everything except for Treasuries and money market securities and options

Private (nonpublic) securities offering are ________ from the Securities Act of 1933

exempt

When interest rates fall

expect a call

when interest rates rise

expect a put

expense ratio

expenses / average net assets

weak dollar

export surplus inc IR

DDPs provide

exposure to non-correlated assets with steady return

profit sharing plans

favor younger employees can be invested entirely in company stock defined contribution plan contributions are not required annually

defined benefit plan

favors older owner/employees

monetary policy

fed engages to influence money supply

most volatile interest rate in the US economy is the

federal funds rate

An account that charges a set fee on a monthly or quarterly basis, which covers all trading activity, is called a

fee based account

which account is good for a customer who engage in a moderate to high activity of trading?

fee based accounts

A control person/affiliate must

file a 144 Form in order to sell and are ALWAYS subject to volume limits

any changes to the U4 form requires

filing an amended form with the CRD no later than 30 days after member becomes aware of the changes

integration

final stage, illegal funds are commingled with legitimate funds in what appear to be legitimate business concerns

civil penalties for insider trading

fine up to $1M or 3x profit made/loss avoided whichever is greater

****Who oversees the OTC?

finra

without compensation from outside member

firm must acknowledge that it has received notification

rights

firm that offers its shareholders a privileged to obtain its shares at a fixed price usually lower than current market price -short time

USA patriot act wire transfers

firms must create and maintain records of wire transfers if $3000 or more

preferred stock rate of return is

fixed

political, repayment, and interest rate applies to

foreign and domestic debt instrument NOT EXCHANGE RATE

***what options use european style?

foreign currency and yield based

exempt under 1933 Act

foundations, railroads, municipalities

A representative's personal account has been identified for review because of account activity in which securities were bought and quickly sold, often on the following day. This may be evidence of the prohibited practice called

free riding

A registered representative has left a firm and joined another. The new firm must obtain a copy of the Form U-5 filled out by the old firm. Where might the new firm obtain a copy of the form?

from employee and FINRA

529 plan penalties if money is not used for qualifying education expenses

gain is taxed as ordinary income 10% penalty is applied

if a registered person leaves one member to join another the new firm needs to

get a new u4 and a copy of the u5 from the former employer within 60 days of u4 filing

convertible preferred stock

gives holders the option to exchange their preferred shares for common shares at a specified rate

Green shoe option

gives the investment bank the option to sell an additional 15% of the offering to investors when demand exceeds the planned offering size

fiscal policy

gov engages to influence money supply

board of governers

governing body of FRS/FINRA

tax credits for partners in a real estate program can come primarily from

government-assisted housing and historic rehabilitation properties.

qualified plans allow the money in the account to

grow tax deferred

Direct participation programs (DPPs) are set up

having the owners of the business liable for any taxes due

restricted stock may not be sold until

held for 6mo. fully paid and has volume restrictions

A signature endorsement on a stock certificate would not be required for good delivery if the shares were

held in street name

irrevocable trust benefit

helps pay estate taxes

interest rates go down

high prob of being called

a higher duration means

higher volatility

cyclical industries

highly sensitive to business cycles and inflation trends

clearing firm

holds funds and securities of the introducing firm's customers and perform related customers and perform related functions

code of procedure

how member violations of conduct rules are heard/handled -enforces

A mutual fund's share class determines

how sales charges and related expenses are paid

***DPP are highly illiquid or liquid?

illiquid -risky af

strong dollar

imports deficit dec IR

financial risk

inability to meet interest and principal payments on debt obligations

passive income

income resulting from business activities in which you do not actively participate

to decrease private spending keynesians

increase taxes

forward split

increases the number of shares

Rising employment due to an increase in demand for goods and services would be associated with periods of

inflation

The Mod Family Foundation is a $500,000,000 charitable foundation headed by Clarence Mod. The foundation is seeking to purchase a large block of WeariTech, Inc., a Nasdaq listed company, for the foundation's portfolio. Seacoast Securities is assisting with this secondary market transaction. In this example, the Mod Family Foundation is

institutional investor

The cost of borrowing money

interest rates

Holding a callable bond with call protection is least impactful for the investor when

interest rates are rising since bonds are likely to be called when interest rates are falling

a put feature benefits the

investor

partnership taxes

is a tax reporting entity but partners pay the taxes

control stock

is any security owned by an insider or affiliate (officer, director, or >10% shareholder) of that company and their family member

A fully disclosed broker-dealer

is one that introduces its business to a carrying firm to clear transactions.

offering

issue or sale of a security

collateral trust bonds

issued by corporations that own securities of other companies as investments

a call feature benefits the

issuer

ETN price will get adversely impacted if the

issuers credit rating is downgraded

a disadvantage of a limited partnership

lack of liquidity

penny stock risk

lack of liquidity

labor cost per unit of output

lagging

Average duration of unemployment

lagging indicator

Commercial and Industrial Loans outstanding is a

lagging indicator

duration of employment is a

lagging indicator

personal income is a

lagging indicator

Class A shares are best for

large investors with long time horizons

********who does statutory voting benefit?

larger investors

accrued interest is calculated from the

last coupon date and continues to the day prior to the settlement date

changes in consumer and business borrowing is a

leading

stock prices is a

leading

money supply is a

leading indicatior

building permits is a

leading indicator

New Haven Farms is a producer of specialty foods. They recently received a notice that the Wetlands Maintenance and Drainages Act (The WMD Act) passed indicates that a significant portion of their current land used in food production falls under the act's protection and may no longer be used for agriculture. This is an example of

legislative risk

when the US $ is strong, foreign currency buys

less US goods, exports increase

IOU

like a promissory not but does NOT specify repayment terms

if a security is illiquid how should it sell? market order or limit order?

limit order

Fill or Kill (FOK) order

limit orders to fill in its entirety IMMEDIATELY or kill (CANCEL) the order completely -NEVER PARTIAL EXECUTION

Short sellers have

limited profit potential and an unlimited loss potential

Before executing a short sale the broker-dealer must first

locate the shares to be borrowed.

****How to hedge a put option

long stock

debt ratio

long term debt/long term debt + net worth -ratio of long term liquidity

if an investor is worried about call risk they should

look for call protection

A March 30 call purchased at 3 has expired without being exercised. The owner of the call

loses the $300 premium paid

a low duration means

low price volatility

index fund advantage

lower management fees due to passive management

529 contributions

made with after-tax dollars

custodian

makes all investment, management, and distributions in the best interest of another

trustee

makes all investment, management, and distributions in the best interest of another who has been legally appointed to do so

all short sales must be executed through a

margin account

fourth market

market for exchange-listed securities in which investors trade directly with other investors, usually through a computer network

A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as

market maker

A broker-dealer that concentrated its business efforts on proprietary trading would most likely be functioning as

market maker

capping

market manipulation; attempts to keep the price of a security from rising with sell orders-used with a short position

market at open or market on close order

market orders designed to execute at closing or opening bell

If the stock market were to fall substantially in a single day, a portfolio consisting primarily of common and preferred stock would be most subject to

market risk

secondary markets

markets in which securities are traded after their first sale -trade in between investors

during the accumulation phase of variable annuity, div, int, and cap gains

may be reinvested wo any current tax liab

which is faster monetary or fiscal policy?

monetary

for short term fixing, monetary or fiscal policy?

monetary policy -fiscal policy is taxes and government spending

Unit Investment Trusts

money pooled from many investors that is invested in a portfolio fixed for the life of the fund is professionally selected but not managed

good faith deposit

money that underwriters give to issuer in exchange for right to place part of the issue typically < 5% of issue for municipal bonds

stagnation

motionless; inactivity and high unemployment

when does the $250 de minimis exception not apply to?

municipal financial professionals (MFP)

if the custodian in a custodian account dies

must appoint a new custodian

if a registered person wants to be employed by or accept compensation from any entity other than the member firm the person

must give written notice to the member

A FINRA member broker-dealer has a new hire with the sole responsibility of training associated persons. She will not have any dealings with the firm's customers. In order to hold this position, the new hire

must register as a principal

TIC the parties

must specify a % of interest in the account

if a person fails an exam

must wait 30 days

if a person fails 3 exams

must wait 6 mo.

*******can mutual funds be bought on margin?

no

*****Are T-bills FDIC insured?

no

***does REIT have depletion deduction?

no

do people who sell mutual funds, variable annuities and direct participation need to be fingerprinted?

no

do preferred shareholders have preemptive rights?

no

does a fund issuing securities change NAV?

no

does a fund redeeming shares change NAV?

no

FINRA required initial margin deposit needs to be

no less than $2000 unless total purchase price is less than $2000 then they are required to pay for the whole transaction

what is the limit of the # of transfers and IRA can do per year

no limit; as long as the money never goes into the hands of the taxpayer

what kind of risk is capital risk?

nonsystematic can be diversified away

Are hedge funds regulated?

not by the SEC

profits from the sale of long term held investments

not included in ordinary income

While an associated person may work for an entity other than the member firm, the employing member firm's permission is

not required.

selling restricted stock when not affiliated

not subject to volume restrictions after 6mo

Section 529 plans are considered municipal fund securities. They must therefore be sold by

offering circular

full service BD

offers all types of investment products like stocks, bonds, options, mutual funds etc

capital losses can be

offset for capital gains up to $3000

if no extension is given for a margin call

on 6th business day, firm must sell securities purchased and freeze account for 90 days

listed options expire

on the third Friday of the expiration month at 11:59 pm

consumer

ongoing relationship with the company

customer

ongoing relationship with the company

Sharing Profits and Losses exception

only allowed if customer and firm approves of the relationship -representative can only gain or loss the amount that they invested in the joint account -immediate family members can also have joint accounts

Who has fiduciary responsibility in a partnership?

only general partners

when can partnership accounts use margin?

only if it is not restricted in the partnership resolution

when can fiduciary accounts use margin?

only if it is specifically written that it allows margin

who has the right to exercise option contracts?

owners only

Qualified Institutional Buyer (QIB)

owns and invests $100 million in securities on a discretionary basis

****cash dividend tax and paid

paid quarterly and taxes in the year they are distributed

matching orders is also known as

painting the tape

the nickname for the securities Act of 1933 is also known as the

paper act

The three basic stages of money laundering are

placement, layering, integration

Hypothecation

pledging of customer securities as collateral for margin loans

bond pricing is measured in

points, 1% =$10

529 benefts

potential deductibility of contributions from state taxes

The holders of which of the following securities are considered owners of the issuing corporation? Mortgage bonds Debentures Preferred stock Common stock

preferred stock Common stock Persons who own stock in a company are considered owners; thus, both common and preferred shareholders have ownership (equity) in a corporation. Mortgage bonds and debentures are two types of debt securities offered by corporations. Debtholders are creditors of the corporation, not owners. LO 1.e

adjustable-rate preferred stock

preferred stock whose dividend is tied to another rate, often the rate paid on T-bills.

During the cooling-off period the disclosure document that may be delivered to interested parties is called the

preliminary prospectus

the price that the buyer of a contract pays, or the writer receives, on a per share basis for an option contract is called the

prem

ML on a long call is

premium

GNMA when mortgages are paid off early they are subject to

prepayment risk

PE ratio

price per share/earnings per share

Pursuant to Regulation S-P, a broker-dealer must provide a privacy notice to a customer

prior to engaging in any securities business with that customer.

Material Nonpublic Information

private knowledge that can substantially influence the share price of a stock that is not known to the public

Most hedge funds are typically organized as

private limited partnerships, requiring a limited number of investors or large investment minimums

regulation D

private placements -under 35 accredited investors

Saving plans and prepaid tuition plans are

products of 529 plans

covered call option outcomes

profit and loss are both limited

defined contribution plan types

profit sharing plans pension plans

short stock hedge with

protective call options

long stock hedge with

protective put options

local government investment plan (LGIP)

provide other gov. entities with short term investment vehicle to invest funds -maintains at NAV

Morality Guarantee

provides income for the rest of someones life

an absentee ballot is known as a

proxy

dutch auction

public offering auction when price is set after taking in all bids to determine highest price at which total offering can be sold

market makers

publish quotes to buy and sell

leasing programs are created when DPPs

purchase equipment leased to another business

forward pricing applies to

purchases and redemption of open market investment companies

protective put

purchasing a put option on a stock you already own

An investor has a long position in ABC Chemical Corp. (ABCCC), with a substantial unrealized loss. Wishing to use that loss to offset realized gains, the investor sells the stock. In reinvesting the proceeds of the sale, the investor could avoid violating the wash-sale rule by purchasing

put options

Roth 401k and IRA shares distributions

qualified distributions are excluded from federal income tax since they are made after tax -nonqualifies gets taxed 10%

what do stock rights do?

raise capital

REMIC

real estate mortgage investment conduit self liquidating and flow through entity invests in RE mortgages or other MBS

***A REIT can avoid being taxed as a corporation would by

receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders

The nation has passed through very trying economic times. Many have lost jobs and are tapping into savings to maintain their lifestyles. The economy is not weakening and shows a few signs of growth, but the damage from the downturn is very visible. The nation is likely entering a period of

recovery

redeemable securities

redeems upon shareholder's request -do not trade in the secondary market

Keynesian to increase private spending,

reduce taxes

Shelf offerings, APO's, and IPO's are not exempt from the

registration requirements of Securities Act of 1933

Rule 144

regulates the sale of control and restricted securities, stipulating the holding period, quantity limitations, manner of sale, and filing procedures

regulation t

related to margin calls customers have to meet initial deposit requirements 4 business days after the trade date (settlement + 2 additional trade days) -50% of the market value is required

Callable preferred stock is advantageous to the issuing company because it allows the company to

replace a higher, fixed-rate issue with a lower issue after the call date.

code of arbitration (COA)

resolution of disagreements and monetary claims

Securities acquired through some means other than a registered public offering are known as

restricted

Sam Malloy owns a small business and has built a substantial estate both with his business success and his early career as a pro athlete. He wants to set up his estate in a way that he will control the assets until he passes away or becomes incapacitated. Once that time comes, he wants control to transfer easily and he wants to avoid probate. Sam should

revocable trust since business

reclamation

right to demand payment of monies paid if theres been a bad delivery of stock or security

buyer of a put has the

right to sell the stock

call protection is most valuable to a bond owner/holder/buyer when bond prices are

rising -interest rates are falling

expansion has

rising interest rates and higher wages

sovereign risk

risk of a country defaulting on commercial debt obligations

business risk

risk that a company may go out of business or makes poor management decisions

interest rate risk

risk that as interest rates rise, bond prices will fall measured by a bonds duration

Non-systematic risk

risk that can be eliminated by diversification

operating expenses

salaries and admin

equity options are settled in

securities

in short margin accounts customer borrow

securities

rule 147

securities offered and sold exclusively intrastate receives 80% of its income, assets, proceeds in the state and most of the employees work in the state

GNMA (ginnie mae)

securities that are backed by the US gov

Marginable Securities

securities that can be used as collateral i n a margin account

exchange traded product (ETP)

securities that trade intraday on a national securities exchange and are priced so that the value of the product is derived from other investment

variable annuity is a

security

A customer is given a quote for ABC as: 17.00 - 17.25 6 × 12. This quote indicates the customer can

sell 600 shares for $17 per share.

a writer of an option is the

seller

Deflation occurs when

severe recession -prices fall

in a secondary offering, underwriting proceeds go to the

shareholders

financial reports and the Investment Company act of 1940 requires

shareholders to recieve financial reports semiannually

how are equity options settled?

shares of stock must be delivered

covered short selling

shares that have either been borrowed or located to be borrowed

repurchase agreements (repos)

short-term sales of government securities with an agreement to repurchase the securities at a higher price

brochures can never

show only an opportunity for gain and no loss -has to show both

Regulation A+

small and medium corporate offerings tier 1: up to $20M in 12mo. no more than $6M can be sold on behalf of existing shareholders tier 2: up to $50M in 12mo. no more than $15M can be sold on behalf of existing shareholders

buyback

sometimes referred to as a repurchase, is when a company buys its own outstanding securities in the open market rather than appealing directly to its investors.

Russell 2000 Index

specialty index that uses 2,000 stocks to measure the performance of the smallest U.S. companies

the coupon rate is also known as the

stated or nominal rate

partnership must complete a partnership agreement before opening an account which

states who can make transactions

Short Margin Account

stock is borrowed and then sold short, enabling the customer to profit if its value declines

protective put BE

stock price+prem

protective call BE

stock price-prem

a put is at the money when

stock price=strike price

a put is out of the money when

stock price>strike price

put in the money

strike>stock price

APO nicknames

subsequent offering follow on offering

if the US is selling more goods to foreign countries than US people are importing this is a

surplus

suspicious activity report (SAR)

suspicious behavior of customer more than $5,000 must be filed within 30 days of becoming aware (documentation retained for 5 years)

interest risk/purchasing power risk

systematic risk; the sensitivity of price or value to fluctuations at the current level of interest rate

market risk and inflation risk are

systematic risks

asset backed securities settle

t+2 these are FNMA, GNMA, etc.

in a revocable trust, the grantor is subjected to

tax consequences of the trust while alive

series EE bonds

tax exempt interest if proceeds are used to pay for qualifying expenses

Your customer is a resident of the state of Utah. She owns bonds issued by Puerto Rico. The interest from these bonds is

tax free at all levels for U.S. citizens -Bonds issued by or from a territory of the United States have tax-free income at all levels to U.S. citizens.

529 w/d

tax free at federal level if used for qualified education expenses -some states allow for state tax free

A BD attempting to apply for membership for FINRA's application is made to

the FINRA district office in which district the BD is applying to

Federal Reserve member banks needing to borrow money can borrow from

the Federal Reserve Bank at the discount rate

accrued interest and bond changing owners

the buyer (new owner) must pay the seller (old owner) the amount of interest earned to the date at the time of settlement

tender offer

the company offers to repurchase outstanding debt securities it has issued directly from its bondholders for cash & securities

****UTMA what happens to the custodian when the minor turns the age of majority?

the custodian ca withhold transfer of property in the account until adult reaches 25

declaration date

the date on which the board of directors officially approves a dividend

settlement date

the date on which the ownership actually takes place

payable date

the date that the dividend check is paid to investors

ex-dividend date

the date two business days before the date of record, establishing those individuals entitled to a dividend -it is the day before record date

spot exchange rate

the exchange rate at which a foreign exchange dealer will convert one currency into another that particular day

placement

the first stage in the cycle of money laundering in which illegally generated funds are placed into the financial system or are smuggled out of the country. -most susceptible for detection

balance of payments

the flow of money between the US and other countries

GNMA is backed by

the full faith and credit of the US government

bid price

the highest price offered to purchase a security

interest

the income paid to those who purchase debt securities

convertible bond benefits

the investor

in a custodian's account whose social is refernced?

the minor's name and social -minor is responsible for all tax implications

money laundering

the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.

collar

the purchase of a put and sale of a call at a higher strike price

arbitrage

the purchase of securities in one market for immediate resale in another to profit from a price discrepancy

yield to maturity

the rate of return a bondholder will receive if the bond is held to maturity

cumulative stock

the right to dividends in arrears before the current-year dividend is distributed

prepayment risk

the risk that the borrower will prepay the mortgage when interest rates fall

A cash settlement trade settles

the same day as the trade

record date

the stockholders of record on the record date receive the dividend distribution

********capitalization

the total amount of stocks and bonds issued by a corporation OR the number of shares outstanding X share price

Your customer has purchased an MJS October 35 call at 4. Their proof of ownership will be

the trade confirmation

Sparkly florescent earbuds made in the U.S. by Irksome, Inc., are suddenly popular in Asia. People from Canton to Calcutta are buying them in huge numbers. This is most likely to cause

the trade deficit to decrease, or surplus to increase

firm commitment underwriting

the type of underwriting in which the underwriter buys the entire issue, assuming full financial responsibility for any unsold shares -underwriter acts as principal

Best Efforts Underwriting

the type of underwriting in which the underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility

a call has intrinsic value when

the value is the amount is in the money market price>strike

when individuals or companies appear on the specially designated nationals (SDN) list

their assets are blocked and business is prohibited with them

when can corporate accounts use margin?

they can use margin if it is not restricted on the charter or bylaws

Your client is buying municipal bonds and wants to know when payment is due. You should tell him

trade date plus 2 business days

Asset Backed Securities trade

traded at their average life expectancy not their stated maturity date -FNMA, GNMA

Marking the Open

trading at the open, or falsely reporting trades at the open, just to affect the stock's opening price

Unsolicited Transactions

transaction initiated by the customer

FinCEN (Financial Crimes Enforcement Network)

treasury department agency that focuses on money laundering, terrorists and other financial crimes

finCEN is a part of

treasury dept

TIPS stands for and is taxed at

treasury inflation protected securities taxed at federal level only

countercyclical stocks tend to -----examples

turn down as the economy heats up and in a downturn they do well -gold -silver

The exercise of an equity option requires that stock must be delivered

two days after exercise since they have to buy them

bank draft

type of check where repayment is guaranteed to be available by issuing bank

indenture

unconditional contract between bond issuer and bond holder that specifies the terms of a bond

promissory note

unconditional written promise to pay sum of money to another in the future under specific terms

in firm commitment underwriting who's responsible for unsold securities?

underwriter is

general creditor is also known as

unsecured debt holders

ETN

unsecured debt securities backed by bank or financial institution -tracka particular index

negotiable certificate of deposit

unsecured promissory notes issued by banks

commercial paper

unsecured promissory notes issued by corporations -finance AR and seasonal inventory guts -aka prime paper mature 1-270 days

criminal penalties for insider trading

up to $5M up to 20 years in jail firm can be charged up to 3x damages or $25M

regulation SHO

updated short sale regulations addresses concerns regarding potentially abusive naked short selling

each LP's share of partnership losses may be

used to offset passive income

if a customer signs and returns a proxy statement and fails to indicate how shares are voted the management firm must

vote the shares as recommended by management

if a customer returns the proxy without a vote the firm

votes as recommended by issuer's management

if a customer does not return the proxy 10 days before its due, the firm

votes as they see fit only if its a minor issue

********cumulative voting

voting system in which all votes that one shareholder is allowed to cast can be cast for one candidate for the board of directors

spin-off

when a corp divests itself of all the shares of another company it owns to create a new company

An investor has purchased Class A mutual fund shares. The net asset value (NAV) per share of the fund is the price the investor

will receive upon redemption of the shares

the price of the bond reacts to market forces, the coupon

will remain the same %

529

withdrawals are tax free and contributions are tax-deductible

regulatory element CE takes place

within 120 days of their 2 year, 5, 8, 11

customer complaint filing must be available

within 15 days of the end of each calendar

Statement of Additional Information (SAI) is made available to a customer

within 3 business days free of charge

If a customer had a large cash position and was interested in purchasing stock at prices below where they are today, and possibly generating some income in the process, an option strategy would be to

write covered puts that are currently out-of-the-money. -generates premium income

those who sell calls and puts are known as

writers

covered calls

writing calls against her stock position is a conservative strategy for generating income

institutional communication

written and/or electronic communication directed exclusively to institutional investors

Cash Dividends are taxed in the

year that they are distributed

***if a customer is on the do not call list but expresses interest and gave permission that the firm may contact them can the firm do so?

yes

does a change in liabilities change NAV?

yes -decrease in liabilities=increase in NAV -increase in liabilities=decrease in NAV

does a fund distributing capital gains change NAV?

yes decreases NAV

does a fund receiving dividends change NAV?

yes increases NAV

does an education savings account (ESA) have to be used by a certain age?

yes, 30 years old

basis is also known as

yield to maturity

****Treasury STRIPS

zero-coupon bonds issued by the US government *Government backed

Individuals applying for registration as an associated person will be rejected if they:

■ have been or are expelled or suspended from membership or participation in any other SRO or from the foreign equivalent of an SRO ■ are under an SEC order or an order of a foreign nancial regulator denying, suspending, or revoking registration, or barring them from association with a broker/dealer ■ have been found to be the cause of another broker/dealer or associated person being expelled or suspended by another SRO, the SEC, or a foreign equivalent of an SRO.

which of the following is NOT true for trade confirmations A. commissions are added to the sales proceeds to arrive at the amt. seller will receive B. commissions aren't shown when a markup is charged C. the firm shows when its acting as a agent or principal D. they are received by both parties at or before settlement date

A

***stock dividend

stock itself isnt taxable but the adjusted cost basis will be adjusted when sold

529 withdrawals

tax free if used for qualified expense -non qualified expenses subject to any gains and 10% penalty on the gains

****an owner of REIT holds an

undivided interest in a pool of real estate investments

uniform practice code

uniform trade practices for BDs working with other firms transaction settlement good delivery ex dates/settlement dates trade confirmations don't know procedures

Customer Complaints

written communications that indicate whether or not customers are satisfied with the performance of the business

Standard & Poor's 500 (S&P 500)

An index based on the stock prices of 500 of the largest firms by market value. -basis for mutual funds and ETF

Dow Jones Wilshire 5000 index

An index of the total market value of the approximately 6,000-7,000 most actively traded stocks in the United States.

Dow Jones Industrial Average (DJIA)

An index that tracks stock prices of 30 large, well-known U.S. corporations.

clearing agency

An intermediary between the buy and sell sides in a securities transaction that receives and delivers payments and securities. Any organization that fills this function, including a securities depository but not including a Federal Reserve Bank, is considered a clearing agency.

All or None Order (AON)

An order that instructs the firm to execute the entire order. Firm does not have to execute immediately. -can be day or GTC order

Good-till-canceled order (GTC)

An order to buy or sell that remains in effect until it is either executed or canceled.

Private placements are primarily sold to A) individuals who meet the definition of accredited investor. B) investment bankers. C) institutional investors. D) general public investors.

C Although private placement securities may be sold to small numbers of wealthy individuals who meet certain net worth and income criteria (accredited investors), most investors are institutional investors. LO 7.b

A RR is reviewing the following portfolio: 30% ACB energy 30% FUN health care 30% ETF tracking S&P 500 10% MMF which of the following is inherent in the portfolio A. credit risk B. liquidity risk C. political risk D. nonsystematic risk

D C is a automatic no since it doesn't say that they are foreign investments B is a automatic no since we are assuming its on the exchange and its mostly common stock and MMF A idk-unrelated to business

Your broker-dealer executes trades for other broker-dealers and after execution settles those transactions for them. Your firm would be classified as which of the following? A) Introducing firm B) Fully disclosed firm C) limited broker-dealer D) Carrying firm

D Carrying firms, or clearing broker-dealers, can execute trades, clear and settle transactions, take custody of customer funds and securities, and handle all back-office tasks, such as sending trade confirmations and statements for themselves as well as for other broker-dealers. LO 8.c

an unsecured promissory note issued by a bank that can be traded in the secondary market is known as A) prime paper. B) mortgage bond. C) commercial paper. D) a negotiable CD.

D Corporations issue unsecured promissory notes known as commercial or prime paper. When a bank issues an unsecured promissory note, it is known as a negotiable CD. LO 2.m

a call and put option is at parity when

premium equals intrinsic value

****Whats the first coupon if the T-Bond has 2% coupon?

$10 since it is paid semiannually

Yield to Call (YTC)

the rate of return earned on a bond when it is called before its maturity date

The discount rate

the rate the Federal Reserve charges for short-term loans to member banks

*****Who is responsible for breakpoint sales notification?

the registered representative or agent

MG on a long call is

unlimited

In a real estate limited partnership (DPP), the general partner has

unlimited liability and an active role

penny stock

unlisted stock that sells for less than $5

bearer bond

unregistered bond no record kept regarding owner or transactions involving ownership

debentures

unsecured bonds backed only by the credit worthiness of the bond issuer

does a inc/dec of market value change the NAV?

yes

does the fund receiving dividend change NAV?

yes

immediate or cancel can it be a partial execution?

yes

political contributions cannot exceed

$250 PER Election

defensive industries produce

-food -drugs -tobacco -essentials

which of the following are characteristics of a revocable living trust? 1. It is established before the grantor dies 2. The grantor can change beneficiaries 3. The grantor can add or remove items from the trust 4. The grantor is subject to tax on income that remains in the trust

1, 2, 3, 4 In a revocable living trust the grantor has complete control over the trust while alive, and because of this, the grantor is also subject to any tax implications of the trust. LO 22.d

which of the following investment risks is the greatest in variable life insurance policy? A. credit risk B. market risk C. inflation risk D. interest rate risk

B

no-load funds cannot charge

a 12b-1 charge greater than 25 basis points

professional or education designations

a RR can never imply that his education in __ makes him more qualified than others

A private securities transaction 1. is nonexempt and must be register under the Act of 1933. 2. is exempt from registration under the Act of 1933. 3. can be sold to individual accredited investors. 4. can be sold to institutional investors only.

2 & 3 A private securities offering, sometimes called a private placement, is exempt from registration. While securities offered in a private securities transaction are generally sold to institutional investors, they can also be sold to small groups of wealthy individuals who meet net worth and income criteria, known as accredited investors. LO 7.b

Regarding oil and gas DPPs, tangible drilling costs are associated with items that 1. have no salvage value at the end of the program. 2. have some salvage value at the end of the program. 3. can be depreciated. 4. cannot be depreciated

2 & 3 Costs for items that will have some salvage value at the end of the program are considered tangible drilling costs. These items, such as equipment, can be depreciated and written off over the life of the program. LO 5.e

Money market instruments are typically A) fixed-income (debt) securities with short-term maturities. B) fixed-income (debt) securities with short- to intermediate-term maturities. C) equity securities with short- to intermediate-term maturities. D) equity securities with short-term maturities.

A Money market instruments are fixed-income (debt) securities with short-term maturities, typically one year or less. LO 2.m

security

1. an investment of money 2. into a common enterprise 3. with the expectation of profit 4. through a third party

if a firm believes that their customer is under financial exploitation they can

1. obtain the name of a trusted contact 2. place a hold on the account

utility company stock pays

1/4 income

How many days does a firm have to report information to the central registration depository if that information would cause statutory disqualification?

10 days

penny stock cold calling must disclose

>the name of the penny stock >the number of shares to be purchased >a current quotation >the amount of commission that the firm and the rep receive -must provide a monthly statement to the customer indicating market value and number of shares

Communicating the information in a firm's BCP to customers occurs at all of the following times except A) annually. B) at account opening. C) ongoing on the firm's website. D) when requested.

A

Municipal bonds are issued by all of the following government entities except A) districts. B) agencies. C) territories. D) states.

B Municipal bonds can be issued by any government entity except the federal government. LO 2.h

Listed options expire on A) the third Friday of the expiration month. B) the business day after settlement. C) the first Friday of the expiration month. D) `the first day of the expiration month.

A

The Federal Reserve could use which of the following to stimulate the economy? A) Buy Treasury securities from banks B) Increase government spending C) Raise the federal funds rate D) Lower taxes

A

The most common type of DPP in the securities industry is A. LP B. REIT C. CMO D. investment company

A

What is the greatest disadvantage of limited partnerships? A) Lack of liquidity B) May invest in oil and gas drilling C) The tax consequences D) May invest in real estate

A

With CDT stock at 42, a September 40 call trading at 3 is A) in the money by 2 points. B) at the money. C) in the money by 3 points. D) out of the money by 2 points.

A

the federal regulatory body that governs the securities industry is A. FINRA B. SEC C. NYSE D. Fed

A

the most common typeof DPP in the sec. industry is A. open investment company B. REIT C. CMO D. investment company

A

current yield

a bond's annual coupon divided by its price

ABC Corporation raised capital through an offering of equity securities. Which component of the balance sheet has changed as a result? A) Current assets B) Fixed assets C) Long-term liabilities D) Current liabilities

A When equity securities are issued, cash (a current asset) and net worth increases. Fixed assets and liabilities remain unchanged as a result of the offering. LO 15.c

Which of the following would be the interest rate charged for overnight, uncollateralized loans negotiated between two money center banks? A) Federal funds rate B) Prime rate C) Discount rate D) Repo rate

A the federal funds rate is the rate commercial money center banks charge each other for an overnight, unsecured loan. It is considered a barometer of the direction of short-term interest rates such as commercial paper and Treasury bills, which often move up or down roughly in parallel with the funds rate. LO 13.d

Put Feature

A bond feature that allows the investors to demand the issuer to purchase the bonds back prior to maturity

A broker-dealer may extend credit under Regulation T for which of these transactions?

A closed-end investment company purchased on the NYSE

growth industries

An industry whose products stay in high demand, and whose companies grow, without regard to the business cycle -computer

***which of the following would NOT cause a CTR to be filed? A. deposits of 4 checks of $3000 each B. 22 deposits of $500 cash C. 4 deposits of $3000 cash and a wire of $10000 D. w/d of $12000 and a deposit of $11000 into a third party account

A. CTR ARE ONLY& FILED IF IT IS CURRENCY CHECKS ARE NOT CURRENCY

which is backed by the US government? A. STRIPS B. Treasury receipts C. both D. none of the above

A. strips are backed by the US gov

ACE, an open-end investment company, operates under the conduit, or pipeline, tax theory. Last year, it distributed 91% of all net investment income as a dividend to shareholders. Therefore,

ACE paid taxes on 9% of its net investment income last year

income bonds

AKA adjustment bonds are used when a company is reorganizing and coming out of bankruptcy. -Only pay interest if the corporation has enough income and the BOD declares a payment. Missed payments do not accumulate, so these are not suitable for investors seeking income.

ABLE accounts

Accounts for disabled individuals that provide some of the benefits of special needs trusts without the complexities typically associated with those trusts.

*Rule 144A

An exemption to the holding period and volume restrictions of nonstandard offerings by control persons

net worth/equity equation

Assets - Liabilities

A registered representative provides financial support and housing at her home for her grandfather. Regarding the purchase of new issues, A) the registered representative is restricted, but her grandfather is not. B) both persons are considered restricted. C) neither are considered restricted. D) the grandfather is restricted, but the registered representative is not.

B Working for a broker-dealer, the registered representative is considered restricted. While grandparents of restricted persons are generally not considered restricted, anyone being provided financial support and/or living under the same roof as a restricted person (as is the case here) is also restricted. LO 7.b

Which of the following is a benefit of 529 plans but not Coverdale Education Saving Accounts? A) Withdrawals are tax free if used for qualified education expenses B) No income restrictions on income restrictions C) Can be transferred to a sibling if not used by the original beneficiary D) Available for use for K-12

B) No income restrictions on income restrictions

****The Investemtn company Act of 1940 determines all except ___ as investment companies A) UIT B) REIT C) FAC D) management companies

B) REIT

Under Securities Act of 1933, registration is required for A. Eurodollar bonds B. municipal securities C. ADR D. federal government securities

C ADR is required

An investor purchases 100 shares of XYZ stock at 67 and writes 1 covered call for a premium of $2.25 each. What is the investor's breakeven point? A. $2.25 B. $64.75 C. $67 D. $69.25

B. $64.75 67-2.25=64.75 opposite of a call

money market securities include

BA, CD, commercial aper, REPO's federal fund loans

speculative bonds, high yield, junk

BB/Ba or lower

SIPC

BD

recruitment advertising

BD advertising for new RR can never exaggerate

FINRA is a primary regulator for

BD and RR

proprietary capital

BD can engage in this to trade the firm's capital

carrying firm

BD that accepts funds and securities from customers and its corespondent member firms -trade executions -clear and settle transactions -takes custody of customer's funds

YTM is also known as

BEY: Bond Equivalent Yield REMEMBER ON THE EXAM THEY WILL TRICK YOU, ALWAYS MAKE IT SEMI-ANNUAL YIELD BECAUSE ITS A BOND!!! so if it's annual on your calc, transfer it back to semi-annual!!!

who determines the declaration, record, and payable date?

BOD

FinCEN enforces

Bank Secrecy Act

***An underwriter is placing a tombstone advertisement for a company's new issue. A prospective investor might expect to see all of the following information on the advertisement except A) the type of security to be sold (stock or bond). B) the number of shares to be sold. C) the names of the company's officers. D) the names of the underwriting members.

C

***What is a dated date of a bond? A) issued date B) first coupon payment C) date on which a newly issued bond begins to accrue interest

C

Members and non-members alike can look into a broker's service and qualifications record by accessing

BrokerCheck

Freeriding

Buying and immediately selling securities with- out making payment. This practice violates the SEC's Regulation T.

****How can the SEC penalize those who manipulate the market? A) suspension B) community service C) $5 million dollar fine

C

Joint Tenancy with Right of Survivorship all parties

have undivided interest in the account

A fully disclosed BD A. self clears B. is known as a clearing agent C. is like the depository trust company in that it can take custody of funds and securities D. is an introducing firm clearing its transactions through a carrying firm

C

All of the following are issuer transactions where the proceeds of the offering go to the issuing company except A) a subsequent public offering (SPO). B) an additional public offering (APO). C) a repurchase agreement (REPO). D) an initial public offering (IPO).

C

An individual opens an account with your fir. She tells you that upon her death she wants any assets in the account to be divided equally among her 3 children. She also wants the ability to change the allocation in the event that conditions change and one is in greater need than the others. She also doesn't want to incur any legal expense. A. joint account with rights of survivorship B. joint account with TIC C. individual account with TOD D. discretionary account

C

The options disclosure document (ODD) must be provided A) before any discussions of options can occur with the customer. B) only if the customer requests to see it. C) at or before the time of account approval. D) at the time the confirmation for the first transaction is delivered.

C

closed-ended company is a ___________ managed portfolio

actively

clearing broker

acts as liason between investor and clearing corporation helps to ensure trades are settled appropriately and transactions are completed

The stated coupon on a bond is its A) current yield. B) basis. C) nominal yield. D) yield to call.

C The coupon on a bond, also known as the stated or nominal yield indicates the annual interest paid. For example, a 4% bond pays $40 of interest per year (0.04 × $1,000 par). LO 2.b

****government bonds accrued interest is calculated using

actual days in the month and year

To expand the overall economy, the Federal Reserve Board (FRB), acting as agent for the U.S. Treasury department, will A) sell securities via open-market operations, pushing interest rates up. B) sell securities via open-market operations, pushing interest rates down. C) buy securities via open-market operations, pushing interest rates down. D) buy securities via open-market operations, pushing interest rates up.

C to expand the overall economy, we want to push interest rates down by increasing the money supply. Lower interest rates make borrowing and spending easier for consumers. To increase the money supply, the FRB will buy securities via open-market operations, taking securities out of the banking system and putting money into the banking system. LO 13.c

Which of the following is not part of the secondary markets? A) Over-the-counter market B) Third market C) Mutual fund market D) The exchanges

C) Mutual fund market

to fill a customer buy order OTC your broker dealer requests a quote from market maker. the dealer says 15 bid, 15.25 ask. if the trade is entered the market maker must A. sell the shares at $15 B. buy at $15 C. sell at $15.25 D. buy at $15.25

C. sell at $15.25 opposite of what you think since its a market maker so they are selling to the customer

CBOE

Chicago Board Options Exchange -regulates all matters relating to options and contracts

****If a co-owner decides to sell shares of their company and files the appropriate paperwork but decides to not sell the shares and sells them months later what kind of offering is it? A) IPO B) follow on offering C) private securities transaction D) shelf

D

which of the following are municipal securities? A) Coverdale Saving Plans B) UGMA Saving Accounts C) UTMA Saving Accounts D) 529 Savings Plans

D 529 plans are established by each individual state—therefore they are municipal issues. LO 2.f

All of the following could be considered money market instruments except A. T bonds maturing in 12mo B. T Bills C. commercial paper D. equities such as common and preferred shares

D

All of the following statements are true regarding no-load shares except? A) They offer more return per dollar invested. B) They are sold with no charges or fees of any kind. C) They are redeemed with no charges or fees of any kind. D) They have fees associated with sales and redemptions.

D

An investor asks for a copy of mutual funds Statement of Additional Information (SAI). The request must be satisfied within A) five calendar days, with a fee for postage permissible. B) three business days, with a fee for postage permissible. C) five calendar days, free of charge. D) three business days, free of charge.

D

Blue-sky laws are regulated by A. SEC B. FINRA C. MSRB D. state securities regulators

D

Gerald is 78 years old. He approaches you to help him invest $150,000. He would like the money to generate some income to help pay for his new hobby, massive, multi-player, online role-playing games. He is rather risk adverse outside the digital world and wants the principal to remain largely intact when he leaves it to his heirs. Which of the following would you recommend? A) Junker's aviation fund B) Jim's growth fund C) Windmill balanced fund D) Benji U.S. Treasury income fund

D

Solicitations may only occur between A) 9:00 am and 8:00 pm of the caller's time zone. B) 9:00 am and 8:00 pm of the customer's time zone. C) 8:00 am and 9:00 pm of the caller's time zone. D) 8:00 am and 9:00 pm of the customer's time zone.

D

Those persons employed by a Financial Industry Regulatory Authority (FINRA)-registered broker-dealer to do nothing other than provide training for its associated persons A) need not be registered. B) are exempt from the firm element of the firm's continuing education requirement. C) must be registered as a representative. D) must be registered as a principal.

D

While a branch office manager can initially approve an options account for trading, it must ultimately be approved by A) the Options Clearing Corporation (OCC). B) the forms trading department. C) the registered representative opening the account. D) the firm's registered options principal (ROP).

D

roth IRA contributions are

after tax

ll of the following are part of Financial Industry Regulatory Authority (FINRA)'s manual regarding employee conduct and reportable events except A) Uniform Practice Code (UPC). B) Conduct Rules. C) Code of Arbitration Procedure. D) Sales Practice Code.

D) Sales Practice Code.

mutual fund dividend

DRPE

which is cheaper mutual funds or ETF?

ETF

Fed reserve was established by

Fed Reserve act of 1913

most common way investors pay a mutual fund's sales charge?

Front-end load

nav per share

Fund's NAV / Number of shares outstanding

annuity income amount is based on

GAAPI G-gender A-age A-account value P-payout option I-interest rate

most common referenced indicator of economic activity

GDP

***what options use American style?

all equity and equity index

federal funds rate

Interest rate banks charge each other for overnight loans of $1Million +

6 year record retention

blotters general ledgers stock records customer ledgers customer account records

cloverdell

JUST LIKE A ROTH EXCEPT HAS TO BE TRANSFERRED AT 30

is the SEC a SRO?

No

Dividends are usually paid

Quarterly

securities act amendments of 1975

SEC obligated to consider impacts of new regulations on companies empowered SEC to establish national market system and system for nationwide clearing and settlement of securities transactions gave authority to MSRB

private offerings are regulated under the

Securities Act of 1933

Trading Authorization

Someone other than beneficial owner may be authorized to enter orders for the account. Discretionary authority must be granted in writing for the following account types: -Discretionary Accounts -Custodial Accounts -Fiduciary Accounts

T or F: A bond may not issue bonds

T

T or F: APO of listed securities don't require the delivery of a prospectus

T

T or F: a closed ended company may issue bonds

T

depletion allowances

Tax deductions that compensate the partnership for the decreasing supply of oil or gas (or any other resource or mineral)

What does the mortality guarantee of a variable annuity insure?

That payments will continue for the life of the annuitant

Hypothecation Agreement (part of margin agreement)

The "hypothecation agreement" gives permission to the broker/dealer to pledge customer margin securities as collateral.

broker loan rate

The interest rate banks charge broker/dealers on money they borrow to lend to margin account customers -usually 1% point higher above other short term rates

*****CMO

a collateralized mortgage operation, a very complicated "derivative" that gets its value from underlying mortgages or mortgage backed securities -monthly payments

Which of the following items may be required to be kept more than three years? U-4 forms U-5 forms Customer order tickets Customer Confirmations

U-4 forms U-4 forms must be kept for three years after the rep terminates, so if the rep worked for the firm 30 years, the form would have to be kept for 33 years; all others are three-year records. LO 28.b

Treasury Inflation-Protected Securities (TIPS)

U.S. Treasury securities that protect investors against inflation because the amount to be repaid rises with inflation -principal value is adjusted every 6mo. based on inflation rate

Form U5

When a registered representative resigns or is terminated from employment with a member firm, the firm is required to notify FINRA within 30 days by filing Form U5 with the applicable details.

commercial paper is issued by

corporations who have a very good credit rating

ADR

domestic security representing a foreign security in U.S. markets.

*****prorata

proportionate

long stock hedge

put option

Before an option trade may be entered for a customer, that customer's account must be approved for option trading by

registered option principal

NAV

total assets-total liabilities

is GNMA backed by the US gov?

yes Government National Mortgage Association

preliminary prospectus (red herring)

-gauges interest not binding -no final price

churning

excessive buying and selling of securities to generate commissions

third market

exchange-listed stock traded OTC primarily by institutional investors

management companies

exchange-listed: closed-end fund, ETF, VA NOT UIT

*****Who does cumulative voting benefit?

smaller investors

Open-End Investment Company or Mutual Fund

A mutual fund that has the ability to issue as many shares as investors want. The value of all the investments that the fund holds determines how much each share in the mutual fund is worth.

farm credit system (FCS)

A national network of lending institutions that provides agricultural financing and credit. -privately owned but gov sponsored

Limited Partnership (LP)

A partnership in which one or more partners have limited liability as long as at least one partner (the general partner) has unlimited liability. The limited partners are passive investors that cannot take an active role in the firm's management.

tippee

A person who receives inside information.

Federal Home Loan Mortgage Corporation (FHLMC)

A privately owned agency which buys mortgages in the secondary money market from commercial banks and federally insured savings and loan associations: "Freddie Mac"

***Regulation SP notice

The notice must be given to the customer prior to account opening and annually thereafter

capital risk

The risk of losing some or all of the principal invested unrelated to the issuer's financial strength

****Reinvestment Risk

The risk that a decline in interest rates will lead to a decline in income from a bond portfolio

regulatory risk

The risk that changes in regulations may negatively affect the operations of a company. -FDA

legislative risk

The risk that new laws reduce the value of a security, such as a change in the tax laws increasing tax rates on interest received from debt investments.

Mini-Max Underwriting

The underwriter agrees to sell a minimum number of shares. There is also a maximum number of shares available.

For real estate program partners, tax credits will

reduce tax liability dollar for dollar

interest on a muni bonds is tax free on the federal and state level when

the investor lives in the state of issuance

In a stock buyback who is the one buying back the securities?

the issuer

GTC orders are automatically canceled

the last business day of April and October

ask price

the lowest price anyone is willing to accept to sell the securities

monetarists economic theory

the money supply is the major determinant of price levels -increasing money supply leads to price stability -controlled by the fed

who has the highest expense ratio for funds?

the most aggressive

option buyer

the one who pays the premium for the contract is referred to the owner, holder, or party who is long the contract

call risk

the risk that a bond might be called before maturity and an investor will be unable to reinvest the principal at a comparable rate of return

credit risk

the risk that a investor might lose of their money or some of their money under circumstances unrelated to their financial strength

To avoid double taxation on dividends paid to shareholders, REITs must invest what portion of their total assets in real estate?

75%+

what is the maximum sales charge for A shares?

8.5% of money invested

ira RMD age

72

POP equation

=NAV+SC

notice filing registration

federal covered

market order

a buy or sell order to be executed immediately at current market prices

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

QIB

tipper

The person who gives the tip

firm element CE takes place

annually

FDIC

banks

SEC v Howey ruled in favor of the

gov

blotters

record of original entry for: purchase/sale of securities receipt/delivery of securities receipt/disbursement of cash

REIT risks

transparency, liquidity, and reliability

****if preferred stock is converted to common stock what happens?

# shares outstanding increases decreasing EPS and can decrease common stock market value

QIB

-$100 million managing -doesnt need to register with SEC

UGMA/UTMA account may only have

1 custodian and 1 bene

recessions last for

2 quarters

time value equation

Time value=premium-intrinsic money aka (in the $)

seller's option

A special transaction that gives the seller the right to deliver the stock or bond at any time within a specified period while locking in a price

omitting prospectus

Advertisement used by mutual fund company that advises readers to obtain a full prospectus NOT allowed to include application to invest

basic balance sheet equation

Assets = liabilities + net worth

options are issued by

OCC -not corps

Which of the following is an example of an unsecured debt security? Debenture Preferred stock Mortgage bond Income bond

Debenture Income bond

closed ended offering

IPO

M3

M1 & M2 + jumbo CDs, multi-day repurchase agreements

joint account

a bank account held by more than one person, each individual having the right to deposit and withdraw funds.

IRA catch up provision

applies to those age 50 or older

covered contract

writer already owns the underlying security

when can individuals retirement accounts use margin?

never

The following also can automatically disqualify an applicant for registration:

■ misstatements willfully made in an application for membership or registration as an associated person ■ any felony conviction, either domestic or foreign, or a misdemeanor conviction involving securities or money within the past 10 years ■ court injunctions prohibiting the individual from acting as an investment adviser, an underwriter, or a broker/dealer or in other capacities aligned with the securities and financial services industry.

An issuer has issued bonds with a call feature. It is likely that these bonds have

-higher coupon than similar bonds without the feature -When bonds are issued with features that benefit the issuer, such as a call feature, the issuer generally will need to pay a slightly higher coupon rate of interest to make the bond attractive to new investors.

to tighten money supply, Fed

-sells US gov securities -raises reserve requirements -raises discount rates

Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit? 1. If the customer signs and returns a proxy statement but does not indicate how to the shares are to be voted 2. If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting 3. If the matters to be voted on are of major importance 4. If the matters to be voted on are of minor importance

2 & 4 A member firm holding stock in street name may vote the shares as it sees fit if the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting, and if the matters to be voted on are of minor importance. If the matters are of major importance (such as a change in the direction of the business or a merger or acquisition), the shares are simply not voted. LO 21.g

Of the following stocks, which would be defined as penny stocks? 1. Nasdaq-listed stock trading at $4 per share 2. Bulletin Board stock trading at $4 per share 3. Exchange-listed stock trading at $4 per share 4. OTC Pink stock trading at $4 per share

2 & 4 A penny stock is a non-Nasdaq listed (therefore, Bulletin Board or OTC Pink) stock trading under $5 per share. If a stock is listed on an exchange or listed on Nasdaq, it is not a penny stock, regardless of price. LO 1.c

A surplus in the U.S. balance of payments can occur if 1. interest rates in foreign countries are higher than U.S. domestic rates. 2. interest rates in foreign countries are lower than U.S. domestic rates. 3. U.S. consumers are purchasing (importing) foreign goods. 4. foreign consumers are purchasing (importing) U.S. goods.

2 & 4 Anything that brings money into our domestic economy leads to a surplus (more money coming in than going out). When interest rates abroad are comparatively lower, money flows into the United States to earn a better rate. When foreign consumers are purchasing more U.S. domestic goods and services, money flows into the United States as well. LO 14.d

After terminating from a securities firm and leaving the industry, regulators retain jurisdiction for a former representative for a period of

2 yrs

he sales charge for Class A shares may not exceed

8.5% of the total investment

Which of the following is true regarding currency risk? A) It is a nonsystematic risk and, therefore, can be reduced by diversification. B) It is a nonsystematic risk and, therefore, cannot be reduced by diversification. C) It is a systematic risk and, therefore, can be reduced by diversification. D) It is a systematic risk and, therefore, cannot be reduced by diversification.

A Currency risk is the possibility that an investment denominated in one currency could decline if the value of that currency declines in its exchange rate with the U.S. dollar. This is one of the severable nonsystematic risks that can be mitigated by utilizing diversification. LO 6.d

A broker-dealer has engaged in a reverse repurchase (repo) agreement. How was this done? A) An initial purchase is followed by a sale later, at a higher price. B) An initial purchase is followed by a sale later, at a lower price. C) An initial sale is followed by a purchase later, at a higher price. D) An initial sale is followed by a purchase later, at a lower price.

A In a reverse repurchase (repo) agreement a dealer agrees to buy securities from an investor and sell them back later at a higher price. In other words, the reverse of a repo agreement. LO 2.m

*****What's the best way to deal with an elderly customer whom you believe is being financially exploited? A) contact the beneficiary of the account who lives in town and is also the account holders daughter B) go through with the transaction C) notify principal and investigate the transaction D) refuse the transaction

A -contact the trusted contact -put a hold on the account

Which of the following is true for exchange-traded funds (ETFs)? A) The Securities and Exchange Commission (SEC) has classified them as a type of open-end fund, and they have operating costs and expenses that are lower than most mutual funds. B) The SEC has classified them as a type of open-end fund, and they have operating costs and expenses that are higher than most mutual funds. C) The SEC has classified them as mutual funds, and they have operating costs and expenses that are lower than most mutual funds. D) The SEC has classified them as mutual funds, and they have operating costs and expenses that are higher than most mutual funds.

A the SEC has classified ETFs as a type of open-end fund but not a mutual fund. ETFs traditionally have operating costs and expenses that are lower than most mutual funds because they do not have to purchase and sell holdings within the portfolio to accommodate investors purchasing shares or redeeming shares, as is the case with mutual funds. LO 5.k

direct participation program (DPP)

A business organized so as to pass all income, gains, losses, and tax benefits to its owners, the investors; the business is usually structured as a limited partnership. Examples include oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, and Subchapter S corporate offerings.

issuer transaction

A corporation sells shares to the investing public in order to raise capital -issuer receives proceeds

*treasury stock

A corporation's own stock that it has reacquired

Joint tenants with right of survivorship (JTWROS)

A form of joint ownership of an account whereby a deceased tenant's fractional interest in the account passes to the surviving tenant(s). It is used almost exclusively by husbands and wives.

403(b) plan

A tax-deferred retirement plan for teachers, universities, college, hospital workers, ministers, and some other public employees

All of the following can take advantage of breakpoints except A. an individual B. an investment club C. a trust D. a corporation

B

The last transaction in XYVF 5.50s was 103 this bond is trading at A. par B. premium C discount D. asset value

B

What are the two basic types of return on an investment? A) Interest and principal B) Capital gains and income C) Short term and long term D) Dividends and interest

B Upon the purchase of a security, the investors may receive dividends or interest, which are forms of income, or they may sell the security for a different price than was paid for it, which represents a capital gain or loss. LO 20.f

^Limited partnership programs are categorized as direct participation programs. The term direct participation refers to the A) general partners directly participating in the day-to-day management of the partnership. B) flow through of profits and losses of the partnership to the individual limited partners. C) ability for each partner to have her vote flow through to the general partner. D) ability of any partner, limited or general, to participate in the running of the partnership.

B flow through of profits and losses of the partnership to the individual limited partners.

A Financial Industry Regulatory Authority (FINRA) maintenance call will occur in a long margin account if the equity drops below A) 35% or $2,500. B) 25% or $2,000. C) 30% or $2,000. D) 50% or $2,500.

B in a long margin account, equity must be maintained at 25% or $2,000, whichever is greater. LO 24.d IN SHORT 30%

Restricted shares, those that are unregistered, meaning that they were not attained in a public offering, may be sold by a nonaffiliate A) after holding them for six months but then subject to volume restrictions. B) after holding them for six months and freely thereafter. C) at any time but with volume restrictions. D) freely, with no holding period or volume restrictions.

B nonaffiliates holding unregistered shares must wait six months before divesting of those shares, but because they are nonaffiliates, they may sell freely (without volume restrictions) thereafter. LO 1.g

Correspondent firms would be likely to have relationships with which of the following types of broker-dealers? A) Market maker B) Introducing C) Self-clearing D) Fully disclosed

C A self-clearing (or carrying) firm holds funds and securities of the fully disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms for whom the carrying firm performs these services are known as their correspondents. LO 8.c

T-bonds and T-notes A) have interest that accrues until paid at maturity. B) are both priced at a discount to par. C) are both priced as a percentage of par. D) have interest paid on an annual basis.

C Both Treasury notes and bonds are priced as a percentage of par. Interest on these is paid semiannually. Comparatively, T-bills are priced at a discount to par with the interest not paid until maturity (the difference between the discount paid and par value received). LO 2.j

the economy appears to be moving into a recession. which of the following will likely deliver the best returns if the recessions dears to prove accurate? A. utah gas and electric B. seabird airlines C. hawkins gold and silver D. butterfly heavy equipment

C countercyclical stocks tend to go up during the recessions. the most common countercyclical stock deals with silver and gold

Securities issued by the U.S. government are backed by A) its full faith and credit, based on the value of real assets owned by the government. B) only the value of real assets owned by the government. C) its full faith and credit, based on its power to tax the people. D) the assets of government agencies.

C securities issued by the U.S. government are backed by its full faith and credit. The promise to pay is based on the federal government's power to tax the people, as well as to print currency when it needs to. LO 2.j

Which of the following expressions describes the current yield of a bond? A) Yield to maturity divided by par value B) Yield to maturity divided by current market price C) Annual interest (coupon) payment divided by current market price D) Annual interest (coupon) payment divided by par value

C the current yield on a bond is calculated by dividing the annual interest (coupon) payment by the current market price of the bond: Annual coupon payment ÷ market price = current yield. LO 2.b

All the following are leading indicators except A) stock prices. B) the money supply. C) personal income. D) new orders.

C the money supply, new orders, and stock prices are all leading indicators. These increase in advance to an increase in economic activity. Personal income, however, is a coincident indicator moving along with economic activity. LO 11.b

An order is entered by a customer to sell at 30 stop limit. Once the order is entered, the stock trades in the following sequence: 32, 29, 31, and 33. The order would be executed and the investor would receive a price of A) 32. B) 29. C) 31. D) 30.

C this is a sell stop order with a limit of 30. Once the stock trades at 30 or lower, the order is elected (triggered) and becomes a live working order. This occurs at 29. The order will then be executed at its limit (30) or better. This occurs at 31. LO 16.c

When the Federal Reserve Board (FRB) wants to expand (loosen) the money supply, it will A) sell Treasury securities to banks in the open market. B) buy corporate securities from banks in the open market. C) buy Treasury securities from banks in the open market. D) sell corporate securities to banks in the open market.

C when the FRB wants to expand (loosen) the money supply, it will buy Treasury securities from banks in the open market. The securities come out of the economy, and the money goes into the economy. LO 13.c

A clearing corporation agent or depository for securities transactions A) must be a broker-dealer. B) can be a bank or corporation only if they are also a broker-dealer. C) can never be a corporation. D) can be a commercial bank.

D A clearing agent can be a broker-dealer but doesn't have to be. In addition to broker-dealers, commercial banks can act as clearing agencies and depositories, as can corporations that are set up specifically to clearing securities transactions and taking custody of funds and securities. LO 8.c

Your client James Thomas is an active trader and wants to invest in a managed equity portfolio that he can trade intraday. Which of the following should you recommend? A) An exchange-traded fund (ETF) B) A mutual fund C) An exchange-traded note (ETN) D) A closed-end fund

D A closed-end fund is actively traded and most of them are equity funds and they trade on the exchanges like stocks. Mutual Funds can be equity funds and can be actively managed, but because they only trade once per day, they are not good for active trading. ETFs are actively traded but are not actively managed, ETNs are debt securities not equities. LO 26.c

A municipal finance professional (MFP) is A) an employee of the Municipal Securities Rule Board (MSRB) specializing in seeing that broker-dealers adhere to the MSRB rules and regulations regarding the sales of municipal bonds. B) employed by a municipality (not elected) to oversee the issuance of municipal bonds. C) an elected official of a municipality having some decision-making authority regarding who will underwrite the municipality's bonds. D) an employee of a Financial Industry Regulatory Authority (FINRA) member engaged in municipal security representative activities such as underwriting and trading.

D as per the Municipal Securities Rulemaking Board (MSRB), a municipal finance professional (MFP) is an associated person of a member firm who is primarily engaged in municipal securities representative activities, including underwriting, sales and trading, or any other activity that involves communications with the public regarding municipals. LO 32.g

under FINRA rules, noncash compensation connected with the sale of variable contracts includes all of the following except: A. gifts B. meals C. lodging D. commissions

D commissions is cash $$$

the FTY Growth fund sets a dividend with a record date of November 12th a Wednesday. The ex-dividend date will be A. Monday, November 10th B. Tuesday, November 11th C. Wednesday, November 12th D. Thursday, November 13th

D for mutual funds ex dividend date is after the record date

Your customer, Amelia, is excited about an investment she recently purchased from another firm. At maturity, in five years, she will receive her principal back plus an interest payment based upon the returns of five well-known technology companies. It pays no interest during the five years. She has likely invested in

ETN

*********Statutory Voting

Each share gets one vote in the election of each board nominee -100 shares owner A: 100 B: 100 C: 100

Immediate or Cancel (IOC)

Execute any portion available immediately Cancel any balance remaining -PARTIAL EXECUTION IS OKAY

T of F: a bond mutual find may issue bonds

F

T of F: limited partnerships are exempt from the Securities Act of 1933

F

largest self-regulating organization (SRO)

Finra

IRA rollovers must be completed within ____ days and can do so

IRA rollovers must be completed within 60 days and can do so once every 12mo.

Matched Orders

Simultaneously entering identical (or nearly identical) buy and sell orders for a security to create the appearance of active trading in that security. This violates the antifraud provisions of the Securities Exchange Act of 1934 and the USA.

T or F: a closed ended company may issue preferred stock

T

T or F: a proxy is automatically revoked if the shareholder attends the shareholder meeting

T

corporate bonds settle

T+2

Which of the following are true of both qualified plans and nonqualified plans?

The accounts grow tax deferred

*******annuitization

The election to receive payments from the annuity for life, or for a specified period depending on the settlement option selected. -one time decision cannot be reversed

intangible drilling costs

The expenses associated with drilling an oil or gas well, that have no salavage value when program ends. Most of these costs are tax-deductible in the year they are incurred

selling away

The failure to provide a member firm with written notice of involvement in a private securities transaction by a person associated with the member.

breakpoint sale

The sale of mutual fund shares in an amount just below the level at which the purchaser would qualify for REDUCED sales charges. This violates the Conduct Rules.

Straight/Noncumulative Preferred Stock

The straight preferred stock has no additional features. The holder is entitled to the stated dividend rate and nothing else. If the corporation is unable to pay the dividend, it is not owed to the investor.

forward pricing

The valuation process for mutual fund shares, whereby an order to purchase or redeem shares is executed at the price determined by the portfolio valuation calculated after the order is received. Portfolio valuations occur at least once per business day.

Limited partnerships sold publicly via a prospectus offering would be expected to have

a large group of investors, each contributing a small sum

Registered Representative

an associated person of an investment banking or securities business. -an individual who supervises solicits, conduct business in securities

Regulation S-P requires that financial institutions provide information to customers and consumers concerning A) the categories of nonpublic personal information that a broker-dealer, fund, or registered investment adviser may collect and disclose. B) all of these. C) a consumer's right to opt out of the disclosure of nonpublic personal information to nonaffiliated third parties. D) their policies on the protection of nonpublic personal information.

b

Which of the following need not be included in the annual reports a mutual fund provides to its shareholders? A) Names and titles of those responsible for portfolio management B) A list of the most poorly performing portfolio securities C) Factors and strategies that materially affected performance D) A graph comparing fund performance to an appropriate index

b Aside from the basic financial data a mutual fund must provide at least semiannually, additional disclosures specific to mutual fund companies - investment strategies, comparative performance, personnel managing the portfolio - are intended to enhance and align with full disclosure. A separate list of either good or poorly performing investments is not among the required disclosures. LO 4.i

If after a registered representative terminates the firm learns of something that should have been reported to the Central Registration Depository, how long does the firm have to make an amendment if that information would cause statutory disqualification? A) 45 days B) 10 days C) 20 days D) 30 days

b STATUTORY DISQUALIFICATION =10 DAYS

Stop Limit Order

buy or sell, this order has a stop price and does not become a live working order until stock trades at or through the stop price. Once triggered it becomes a limit order

market timing

buying and selling stocks based on what the market is expected to do

When a client of a broker-dealer purchases stock on margin, in order to finance the loan, the broker-dealer A) must comply with the requirements of Regulation T. B) lends a portion of the stock to a bank. C) rehypothecates the stock to a bank. D) maintains possession of the stock.

c Stock in a client's margin account is hypothecated (pledged) to the broker-dealer. In order to obtain funds to carry the margin loan, the broker-dealer rehypothecates a portion of the stock to a bank. The shares pledged to the bank serve as collateral for the bank's loan to the broker-dealer, which is made in accordance with Regulation U (not T). LO 24.b

The allowable deduction for equipment used in an oil and gas direct participation program is taken as A) depletion applied when the equipment is sold. B) a one-time expense applied at the end of the program. C) depreciation over the life of the program. D) a credit applied at the end of the program.

c Tangibles such as equipment that will have some salvage value at the end of the program can be depreciated. The depreciation is an allowable deduction taken over the life of the program. LO 5.e

All of the following actions would cause the NAV per share of the mutual fund to increase except A) the liabilities of the fund decline. B) the fund receives interest. C) a large number of investors making deposits in the fund. D) the fund receives dividends.

c When investors deposit money into the fund they buy more shares, so the assets and number of shares increase proportionately and the NAV per share is unchanged. In a similar way, when shareholders redeem shares the assets in the fund go down but the number of shares also decrease proportionally, so the NAV per share is unchanged. In the other responses the assets increase with no proportional increase in the number of shares, so NAV would increase. LO 4.g

index and currency options are settled in

cash

upon expiration, in the money S&P 100 index call options are settled by the delivery of

cash

A representative of a dealer who solicits municipal securities business from an official of an issuer contributes $275 to the official's city council reelection campaign during the general election. Under what circumstance would the contribution invoke a ban on the dealer's municipal securities business with that issuer? A) The dealer seeks to engage in a competitive underwriting with the issuer. B) The representative resides in the official's city. C) The representative contributed $250 during the primary election. D) The dealer seeks to engage in a negotiated underwriting with the issuer.

d A representative of a dealer firm who gave any amount to the election campaign and then solicits a negotiated underwriting would likely cause a two-year ban on performing any work for that municipality. There are some exceptions. For example, if the representative lives in the municipality and is eligible to vote there, he may give up to $250 per election without triggering a ban. LO 32.f

A client has established a long put position. The contract will have intrinsic value when the price of the underlying stock is A) greater than the exercise price. B) anywhere near the exercise price, above or below. C) equal to the exercise price. D) less than the exercise price.

d Put buyers are bearish and want the underlying stock to fall in value. Puts give the owner the right to sell at the contract's exercise (strike) price. Therefore, the put contract will pick up intrinsic value if the price of the underlying stock falls below the contract's strike price. The long put position will become profitable if the stock falls below the strike by more than the amount of the premium paid. LO 3.g

If large money center commercial banks begin to lower their prime rates, which of the following is most likely to occur? A) Smaller banks will follow by lowering the discount rate. B) Smaller banks will need to offset the lower prime rate by increasing the broker call loan rate. C) Smaller banks will need to increase their lending rates for creditworthy corporate customers. D) Smaller banks will lower lending rates for creditworthy corporate customers as well.

d When large money center commercial bank lower the prime rate, the rate charged to their most creditworthy corporate customers, smaller banks will generally follow in order to stay competitive. The discount rate is set by the Federal Reserve Board (FRB) (not banks), and if the broker call loan rate banks charge is impacted, it would also be lowered (not increased). LO 13.d

The Investment Company Act of 1940 classified all the following as investment companies

face-amount certificates, unit investment trusts, and management companies (open and closed-end funds) NOT HEDGE FUNDS

Class A mutual fund shares are also known as

front-end load shares

supply-side economic theory

gov should allow market forces to determine the prices of all goods -gov should lessen spending along with taxes

large interest rate changes

have the most significant effect on a low coupon bond

ETN, hedge funds, and oil and gas limited partnerships require a

heightened suitability requirement form

An investor who relies heavily on fixed interest payments from long-term (25-30 years) bonds should be most concerned with

inflation risk

T-bonds are most exposed to _______

inflationary risk since it has a long time period

annuity

insurance contract designed to provide retirement income (stream of payments)

SIPC protects

investors when BD fails

Class C shares are best for

investors who have a shorter time horizon (under 5yrs)

Class B shares are best for

investors who have smaller investments and longer time horizons

mortgage REIT

invests in loans secured by real estate

closed ended management company

issues a fixed number of shares in a actively managed portfolio -can also issue bonds and preferred stock -anyone can buy or sell shares in the secondary market

callable preferred stock

issuing corporation can "call" or buy back issued shares at predetermined price

equity prices is a

leading indicator

housing starts is a

leading indicator

noncyclical industries (defensive) are

least affected by normal business cycles

Class C

level-load -1 yr, 1% CDSC, 0.75% 12b-1 fee, & a 0.25%shareholder services fee -fees never go away -appropriate for investors who have a short time horizon

leasing partnership program

loans taken to purchase equipment equipment is leased to companies process allows loan interest/equipment depreciation to be taken as deductions (deductions shelter income from lease payments)

if the customer doesn't return the proxy by the 10th day before annual shareholder meeting, the

member must vote as they seem fit if its a minor issue -major issue-cannot vote for so

FINRA and SEC establish

membership req investigating complaints testing standards for associate BD

Lock up provision

minimum holding requirement

market rumors

misleading information about a security for the sole purpose of manipulating the stock price

*****straight preferred stock

missed payments arent paid

Carrying firms may not

mix customer funds and securities with their own

in long margin accounts customers borrow

monet

capital gains wouldn't be included in

ordinary income

interest is taxed at

ordinary income

institutional investor

organization that pools contributions from investors, clients, or depositors and uses these funds to buy stocks and other securities

Business Continuity Planning

outlines procedures for keeping an organization operational -data backup -communication with customers and employees -alternative work location -communication with regulators -prompt customer access -points senior management to review annually -2 emergency contact persons

Individual retirement accounts allow a catch-up contribution of $1,000 to be made into the account for those who are

over 49 years old

regulation U

oversees hypothecation of BDs and banks

a preferred stock dividend is stated as a % of

par value

LLC

pass through the results of the business to the owners and protect the owners from the liabilities of the compan

when a u4 is completed registration is not in effect until the person

passes the registration exams

ordinary income=

passive, earned and investment income

****REIT payment

pays dividends and passes gains through to the investors but no losses

what will have no effect on the NAV of a mutual fund?

portfolio securities sold for a big capital gain/loss

a call is out of the money when

price<strike price

a put is in the money when

price<strike price

the OCC assigns exercise notice to short BD on a

random basis

after the OCC assigns a short BD on a random basis. The BD can then assign exercise notice to their customers on a

random, LIFO, FIFO or etc.

prime rate

rate of interest that banks charge on loans to their most creditworthy-best business customers

To contract the overall economy, the Federal Reserve Board (FRB), acting as agent for the U.S. Treasury department, will

sell securities via open-market operations, pushing interest rates up.

secondary offering proceeds go to

sellers of the stock not the issuers

naked short selling

selling a stock without first borrowing the shares or confirming a locations where the shares can be borrowed from

painting the tape/matching orders

selling stock to another party with understanding that stock will be repurchased later at the same price

investment company financial statements are sent out

semiannually

Treasury bonds and notes pay interest

semiannually and mature at par value

which IRA is qualified

TIRA

T bill maturities

4, 13, 26, 52

***which yield has the most conservative outlook? A) YTC B) YTM C) YTW

C

The rate on an adjustable preferred stock would most likely be indexed to

T-bill rate

An officer of a public company buys 1,000 shares of the company's registered stock in the open market. Regarding the sale of these shares, the officer may sell A) under Rule 144 only after a six-month holding period. B) immediately, subject to Rule 144 volume limitations. C) immediately, with no volume restrictions. D) only after leaving (becoming unaffiliated with) the company.

b Because the shares were purchased in the open market (already registered), the transaction is not a private placement and there is no required holding period. The officer, however, is an affiliate and is therefore subject to the reporting and volume limitations imposed when selling under Rule 144. LO 1.g

a market marker ____ at bid and ____ at ask

buys; sells same as BD

how are index and foreign currency options settled?

by cash

Which of the following is true for exchange-traded funds (ETFs)? A) The SEC has classified them as mutual funds, and they have operating costs and expenses that are lower than most mutual funds. B) The SEC has classified them as a type of open-end fund, and they have operating costs and expenses that are higher than most mutual funds. C) The Securities and Exchange Commission (SEC) has classified them as a type of open-end fund, and they have operating costs and expenses that are lower than most mutual funds. D) The SEC has classified them as mutual funds, and they have operating costs and expenses that are higher than most mutual funds.

c

Which of the following best describes how a buy stop at 39 would fill? A) The next price above 39 after the market price rises to 39 B) The next available price after the market price falls to 39 C) The next available price after the market price rises to 39 D) The next price below 39 after the market price falls to 39

c A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.

An open-end management investment company only issues

common stock

****ADR is subjected to _____

currency risk -also political risk if held in country that is unstable

FDIC covers

customers depository accounts of a member bank up to $250,000 for each depository ownership in each bank

Long Margin Account

customers purchase securities and pay interest on the money borrowed until the loan is repaid

which type of industry benefits most from an expansion?

cyclical -steal auto, heavy equip

Which is the most common way investors pay a mutual fund's sales charge?

front end load

when securities are sold to the investing public in what are known as issuer transaction are being done in the

primary market

bank call loan rate

-banks charge BD on money they borrow to lend to margin account customerd -terminates in 24 hours

disadvantages of ETFs

-commissions: purchases and sales are commissionable -overtrading: easy to get in and out so there's a temptation to do so -market influences on price: share price can be influenced by market forces

A gift can only be made from a BD to an employee of other member firms if

-compensation isn't conditional on sales or promise of sales -has employing member firm approval -gift value cannot exceed $100

strategies employed by hedge funds

-highly leveraged positions -short positions -derivative products -currency speculation -commodity speculation -investment in politically unstable international markets

advantages of ETF

-price and ease of trading-on the exchange bought intraday -margin-can be sold short and bought on margin -operating costs-cheaper than mutual funds -tax efficiency-ETFs distributing capital gains is unlikely therefore no futher tax consequences until sold

A common stockholder's voting rights apply to which of the following? 1. Election of the board of directors (BOD) 2. Declaration of dividends 3. Authorization or issue of more common shares 4. Changing suppliers for raw material or parts used in production

1 & 3

Which of the following regarding established customers of a broker-dealer and the purchase of penny stocks are true? 1. They are exempt from the suitability statement requirement. 2. They are not exempt from suitability statement requirement. 3. They are exempt from the disclosure rules. 4. They are not exempt from the disclosure rules.

1 & 4 ESTABLISHED CUSTOMERS An established customer is one who has effected a non-penny securities transaction or made a deposit of funds or securities into the account at least one year before the proposed penny stock trade or has made three purchases of penny stocks on three separate days involving three separate issues. Established customers are exempt from the suitability statement required but are subject to the disclosure rules. LO 1.c

Which of the following choices would a registered representative be able to make for a customer in a nondiscretionary account? 1. The time of execution of the trade 2. Which security to buy 3. How much of the security to buy 4. At what price to execute the trade

1 & 4 NONDISCRETIONARY

he spread a dealer makes is best described as A) the ask plus the bid. B) the total commission. C) the ask minus the bid. D) none of these.

C The spread is what a dealer makes as a markup when he sells from his inventory if he buys at the bid and sells at the ask. A commission is charged in an agency transaction. LO 17.a

Which of the following would not be considered ordinary income for tax purposes? A) Dividends on common stock B) Salary and commissions C) Gains gotten from the sale of securities D) Rents from income properties

C Gains gotten from the sale of securities is an example of capital gains for tax purposes. All the others are considered ordinary income. LO 20.f

Regarding primary and secondary offerings, which of the following are true? 1. An offering can only be either a primary or secondary. 2. An offering can be a combination of primary and secondary. 3. An initial public offering (IPO) is a secondary offering. 4. An additional primary offerings (APO) is a primary offering.

2 & 4 An offering can be a combination of primary and secondary. These are known as split offerings. Both IPOs and APOs are primary offerings, where the issuer receives the sale proceeds. LO 7.d 3 automatic no

With money market securities, the risks are 1. lack of liquidity. 2. a lower return than with longer-term instruments. 3. relative safety compared with other longer-term debt instruments. 4. the potential reinvestment of principal at different rates over short periods of time.

2 & 4 Because of their short-term maturities, money market instruments are relatively liquid and safe compared with other debt securities. These are considered advantages. The risks, however, would be lower returns (a trade-off for the safety) and potentially having to reinvest one's funds at a different rate each time the instrument matures (short intervals). In this light, not only is income minimal, but it will fluctuate with each new instrument purchased. LO 2.m

Which of the following statements regarding real estate investment trusts (REITs) are true? 1. Hybrid REITs invest in both commercial property and residential property. 2. Some REITs hold no real property but hold mortgages on commercial property instead. 3. Hybrid REITs can hold only residential property and mortgages on residential property. 4. REITs can pay dividends to shareholders and make capital gains distributions.

2 & 4 Equity REITs typically hold commercial property rather than residential property. Mortgage REITs hold mortgages on commercial property, and hybrid REITs do both. Dividend disbursements, as well as capital gains distributions, can be made to shareholders. LO 5.h

At a shareholders' meeting, a mutual fund investor might be called upon to vote on any of the following except 1. changes in membership in the board of directors (BOD). 2. whether to sell a certain company's stock out of the portfolio. 3. approval of the investment adviser's contract. 4. changing to a new landscaper for the fund's headquarters.

2 & 4 Like other shareholders, mutual fund investors vote their shares on crucial corporate decisions, such as membership of the board, and approval or ratification of an investment adviser's contract. Which stocks to sell out of the portfolio is up the investment adviser. Day-to-day business decisions, such as those regarding contractors to employ, is up to those who report to the BOD. LO 4.d

An applicant for registration was convicted of a misdemeanor within the past five years having to do with a motor vehicle driving infraction. For purposes of filing Form U4 for registration with a member firm, the applicant 1. must list the conviction. 2. need not list the conviction. 3. would be automatically subject to statutory disqualification, whether the conviction was listed or not. 4. would not be subject to statutory disqualification.

2 & 4 Non-securities-related misdemeanor convictions (such as a driving infraction) do not have to be reported on an applicant's Form U-4 when applying for registration. Securities- or money-related misdemeanors and felony convictions within the past 10 years must be reported. These disqualifies an applicant from registering (statutory disqualification). LO 30.a

Which of the following would cause a change in the net asset value (NAV) of a mutual fund share? 1. Many shares are redeemed. 2. Securities in the portfolio are sold for a capital gain. 3. The fund pays a small dividend. 4. The market value of the portfolio declines.

3 & 4 Paying a dividend would reduce the net assets of the fund without reducing the number of shares outstanding, which would reduce the NAV per share. A decline in the market value of the portfolio would have the same effect. Sales and redemptions of shares change the net assets but also change the number of shares outstanding to the same degree, leaving the NAV per share unchanged. Selling securities for a capital gain simply replaces securities in the portfolio with an equivalent amount of cash, leaving the NAV unchanged. LO 4.d

Who is responsible for meeting the desired returns on a defined benefit plan? A) The employee B) The custodian C) The sponsor D) The Pension Benefit Guaranty Corporation

C The sponsor is the employer who has promised the defined benefit plan to the employee. LO 23.b

Noncash compensation exceeding the $100 annual limit to another member firm's employee is A) permitted if occasional. B) permitted only if it is an ongoing occurrence such as season tickets. C) permitted because it excludes cash. D) never permitted.

A The rules regarding gifts, gratuities, and compensation to another firm's employees permit occasional noncash expenditures that exceed the $100 limit. These might include dinners, seminars, tickets to entertainment events, or reminder advertising items. However, vacations or season tickets to cultural or sporting events are always violations. LO 32.f

Two years ago John Henry sold short 100 shares at $50 per share, and two years later bought them back for $55 per share. The stock paid a $2.50 dividend each year. How much did John gain or lose per share for tax purposes? A) A $5 loss B) No gain or loss C) A $10 gain D) A $5 gain

A TAX PURPOSES lost $5 per share DIVIDENDS AREN'T INCLUDED

which of the following is true about all US gov. agency securities? A. all are exempt from federal taxes B. they all are exempt from registration under Securities Act of 1933 C. They are issued in bearer form only D. they are general obligations of the federal governemnt

B

Which of the following contracts have intrinsic value if the strike price is 30 and the market price is 40? A) Shot call and long put B) Long call and short call C) Long call and long put D) Short call and short put Explanation

B All calls are in the money when the market price is above the strike price. Contracts that are in the money have intrinsic value. LO 3.d

In a limited partnership, which of the following best describes who is responsible for tax consequences of the business? A) The limited partners B) The investors C) The general partners D) The business

B All tax consequences of the business flow through proportionality to the investors. All partners will have some tax impact, not just the general or just the limited partners. LO 5.f

The requirement for a supplemental prospectus to be filed before each sale is applicable to A) additional issues. B) shelf registration sales. C) sales of shares in the secondary market. D) initial public offering sales.

B Through a shelf offering, an issuer who is already a publically traded company can register new securities without selling any of the shares until later or waiting to sell a portion of the shares. For securities offered via a shelf registration, a supplemental prospectus must be filed with the Securities and Exchange Commission (SEC) before each sale. LO 7.f

If an officer of a bank with the authority to purchase and sell securities on behalf of the bank wants to purchase new issues, which of the following statements is true? A) The officer may purchase a new issue because anyone is allowed to purchase new issues. B) The officer may not purchase a new issue because he is considered a restricted person. C) The officer may purchase a new issue because no banking rules prohibit it. D) The officer may not purchase a new issue unless the amount he wishes to purchase is considered small in relation to the total offering.

B Under the rules regarding the purchase of new issues, bank officers would generally be characterized as restricted persons. They may not, therefore, purchase new issues. LO 7.b

All of the following would require that updated account information be sent to the customer for confirmation within 30 days except A) 36 months have passed since the account was opened. B) the account records system has been changed to a new format. C) the account is a newly opened one. D) the customer informs the firm of a change in investment objectives.

B Updated account information must be sent to the customer with 30 days for confirmation upon the opening of the account, at least once every 36 months thereafter, and in the event of the customer notifying the firm of changes in any information shown or listed on the account form. LO 29.g

All of the following ratios measures of liquidity of a corporation except A. acid ratio B. debt to equity C. current ratio D. quick ratio

B debt to equity measures long term solvency of a corporation

A barometer of short-term interest rates and one that is therefore considered the most volatile interest rate in the U.S. economy is A) the prime rate. B) the federal funds rate. C) the broker call loan rate. D) the discount rate.

B the federal funds rate is the rate commercial money center banks charge each other for overnight loans of $1 million or more. A barometer of the direction of short-term interest rates, which fluctuate constantly, the federal funds rate is considered the most volatile rate in the U.S. economy. LO 13.d

A guaranteed bond is usually guaranteed by which of the following entities? A) The U.S. Guarantee Association B) The U.S. government C) A parent company D) The broker-dealer who sold it

C A guaranteed bond is back by a third party, normally a parent company backing the debt of a subsidiary company. LO 2.g

A municipal securities dealer has just made a contribution to the mayor's reelection campaign. How long must the firm wait before it can enter competitive bids on proposed bond issues by the city? A) Can never underwrite a bond for the city again B) Six months C) No waiting period D) Two years

C if a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a two-year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not. LO 32.g

Regarding registration for the sale of securities, those registered under the Investment Company Act of 1940, such as mutual funds, would be considered A) securities that are exempt from registration at all levels. B) securities required to register at both the federal and the state level. C) federal covered securities and not required to register at the state level. D) federal covered securities required to register at the state level only.

C investment companies registered under the Investment Company Act of 1940 offer securities that are deemed to be federally covered. The effect of this designation is that states do not have jurisdiction over the registration requirements of these securities; no state registration can be required. Therefore federally covered securities are required to register at the federal level only. LO 9.f

All of the following are components of ordinary income except A. a bonus from their employer B. interest payments from a bond portfolio C. profit made from the sale of a long-held security D. consultation fees from a client

C long held profits from a security are long term capital gains and are therefore not a part of ordinary income

Your customer would like a very safe investment that pays monthly income, which do you recommend? A. T-bonds B. FNMA C. GNMA D. T-notes

C pays monthly certificates backed by the US gov

It would be expected that a repurchase (repo) agreement contract would include A) the maturity date only. B) the repurchase price and the rate of return. C) the repurchase price and the maturity date. D) the rate of return and maturity date.

C repurchase (repo) agreement contract would include the repurchase price (the price that the securities initially sold would be bought back at) and the maturity date (the date that the initial sale would be reversed). The return would be the difference between the initial sale price and the repurchase price. LO 2.m

Which of the following investment companies terminates business on a predetermined date? A) Hedge fund B) Nonfixed unit investment trust (UIT) C) Mutual fund D) Fixed unit investment trust (UIT)

D A fixed UIT typically has bonds in its portfolio that mature on a specific date. Before that date, the trust buys and redeems units of beneficial ownership in the portfolio. When the bonds mature and pay off, the trust distributes the remaining interest and principal to the current unit holders and dissolves. LO 4.a

^The growth potential in the price of preferred shares is generally considered to be A) greater than that of the issuer's common shares. B) no different than that of the issuer's common shares. C) less than that of the issuer's common shares. D) unrelated to the financial well-being of the issuer.

D while the growth potential of both common and preferred shares can be tied to a company's financial well-being, preferred share growth is generally less than that of the common shares. The trade-off is that the preferred shares have preference with dividends received, enjoy a fixed rate of return via those dividends, and have a priority claim over common shareholders in the event of bankruptcy and the dissolution of assets. LO 1.i

For revenue bonds issued by a state or municipality, which of the following is true? A) Interest and principal payment is backed by the full faith and credit of the issuer. B) Interest and principal payment is guaranteed. C) The bonds carry an unqualified promise to pay interest and principal backed by the power of the issuer to levy taxes. D) Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve.

D Revenue bonds are not backed by the full faith and credit of the municipality that issues them. Instead, they are backed by the revenue produced by the project or facility that they support. In that light, the revenue must be large enough to cover the interest and principal payments if those obligations are to be met. LO 2.h

Failure to complete the regulatory element continuing education (CE) requirement within the allotted time period will result in

FINRA deactivating that person's registration until the CE regulatory element is met.

****Regulation SP

SEC Regulation SP (Statement of Privacy) requires that customers be informed of the firm's policies and procedures regarding privacy of account information; and the customer must be given the opportunity to "opt out" of any disclosures that the firm might make Any information collected from the customer directly or by observing the customer is deemed to be "private" -provides consumers with privacy notice Any information collected about a customer from public sources is not subject to the rule; nor is aggregated information about customer accounts

single account

an account that has just one owner who is able to make account transactions

If the portfolio of a variable annuity separate account is directly and actively managed by the insurance company, the separate account must be registered as

an open-end management investment company.

pegging

attempting to keep the stock price from moving -involves buy or sell order

if you are an exporter concerned with the value of foreign currency dropping

buy put EPIC export buy put

your customer, Ivan, owns a diversified portfolio of large cap stocks. He would like to find a way to hedge the market risk in his portfolio. Which of these actions might you recommend to accomplish his goal?

buy s&p puts

A customer has a short-term investment time horizon and a fairly certain need for funds she wishes to invest. Which of the following might meet those two investment objectives? A) Corporate bonds B) Common stock C) Money market instruments D) Government bonds

c need for funds=need to use the money With a short-term time horizon and an already identified need for the funds, the only choice of those listed here would be money market instruments with a fixed rate of return. Bonds are generally long-term instruments, and equity investments, such as common stock, do not offer a fixed rate of return and can be volatile. LO 2.m

****working capital equation

current assets - current liabilities

4 Year Record Retention

customer complaints quarterly filings

Free riding penalty

free riding - securities that are bought and sold before making payment for the purchase like a margin transaction the account is frozen for 90 days no new transactions unless there are cash/marginable securities in the account before purchase

does a manager buying and selling securities change NAV?

no

is a passive investment considered an outside investment?

no

is an investor required by law to meet the terms of the letter of intent?

no

when a call is at the money will a buyer exercise the call?

no -sellers want at the money to keep the premium

in a arbitration hearing

no appeals can be made

***Are all REITs on the exchange?

no can be listed or unlisted

selling control stock who is an affiliated

no hold volume limits apply

a call is at the money when

price=strike price

a call is in the money when

price>strike price

no-load

priced at NAV

warrants

security that gives the holder the right to purchase securities from the issuer at a stipulated subscription price -usually a high price than current market value -longest period of expiration (years)