SIE

An investor is short 1 December 15 put at 6. The investor's maximum loss on this position is

$900

Automatic exercise will occur at expiration for any equity option contract that is in the money by at least

0.01

An investor is long a January 30 call at 2. Breakeven is

32

An affiliate holding unregistered shares can sell under Rule 144

4 times a year

With CCD stock at 40, a September 45 call trading at 3 is out of the money by

5 points and has no intrinsic value

A customer purchased 1 MNO Jan 50 call at 2. What is the breakeven point for both the purchaser and the seller?

52

Which of the following would most closely match the meaning of a "red herring"?

A preliminary prospectus

Mortgage bonds (secured bonds)

Are senior securities. Those who hold them expect to receive any assets from the dissolution of a bankrupt company before the holders of junior securities such as debentures and equity securities.

The repayment or maturity date of a banker's acceptance is normally

As short as 1 day or as long as 270 days

Which of the following would be the interest rate charged for overnight, uncollateralized loans negotiated between two money center banks?

Federal funds rate

Underwriters acting as principals and committing to purchase any unsold shares for the syndicate account would BEST be described as being engaged in a(n)

Firm commitment

An investor makes several statements regarding what they know about exchange-traded funds. All of them are correct EXCEPT

I can't buy them on margin because they represent an entire basket of stocks like mutual funds do

The law that provides the legal framework for state registration of securities is the

Uniform Securities Act

T-bills are issued (auctioned) by the U.S. Treasury Department how often?

Weekly

Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities)

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.

Final prospectus

You will not find the SEC's verification of accuracy

A put feature attached to a bond allows

a bondholder to put a bond back to the issuer for redemption at times that will benefit the bondholder

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.

Hedge funds are considered

a form of private investment company and, therefore, unregulated

An investor has purchased bonds having a put feature attached. With this put feature, it is likely that these bonds were issued with

a lower coupon than similar bonds without the feature

An unsecured promissory note issued by a bank that can be traded in the secondary market is known as

a negotiable CD

The Securities Act of 1933 requires that

a new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale

An offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time is known as

a secondary offering

A shareholder owns preferred shares that allow for the possibility of receiving more than the stated dividend. This type of preferred share would be known as

adjustable

In explaining hedge funds to an investor, a registered representative might correctly characterize them as utilizing

advanced and complicated strategies entailing high risk

Treasury bills pay

all interest at maturity

An oil and gas DPP that invests in wells that are already producing is known as

an income program

A corporation sells shares to the investing public in order to raise capital. This is known as

an issuer transaction

REITs (Real Estate Investment Trusts)

are nonexempt securities which must be registered with the SEC.

Transactions where the penny stock rules are applicable would be those that

are solicited

When interest rates in the open market move up or down, a bond's coupon rate will

be unaffected by the open-market interest rates

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.

Securities issued by the U.S. federal government are classified as

bills, notes, and bonds

A corporation wanting to raise cash to finance accounts receivable and seasonal inventory needs is likely to issue any of the following EXCEPT

bonds

All of the following are nonsystematic risks EXCEPT

call risk

Of the following, reinvestment risk is most closely associated with

call risk

An investor would expect which type of preferred stock to pay the highest stated dividend rate?

callable

A clearing corporation agent or depository for securities transactions

can be a commercial bank

Which of the following is TRUE regarding a member firm operating under FINRA membership or the membership of another self-regulatory organization (SRO)?

can offer all types of investment products, such as stocks, bonds, mutual funds, options and others, or limit the products they offer to only a few.

All corporations will issue

common stock

Regarding registration for the sale of securities, those registered under the Investment Company Act of 1940, such as mutual funds, would be considered

federal covered securities and not required to register at the state level

A company that is extensively overleveraged using debt financing whenever available would be exposing its investors to

financial risk

Subordinated debt (debentures)

have a junior claim to all other debt issues but, like all debt, is senior to the claims of all equity holders, both preferred and common.

Treasury bills

have the highest interest-rate risk of all Treasury securities

Nonaffiliate

holding unregistered shares must wait 6 months before divesting of those shares, but because they are nonaffiliates, they may sell freely (without volume restrictions) thereafter.

Bondholders should expect that interest payments would always be forthcoming for all of the following EXCEPT

income bonds

When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market

increase interest rates on loans to consumers

Rising employment due to an increase in demand for goods and services would be associated with periods of

inflation

An investor who relies heavily on fixed interest payments from long-term (25-30 years) bonds should be most concerned with

inflation risk

Private placements are primarily sold to

institutional investors

a bond mutual fund may not

issue bonds

An investor holds a 6% callable bond purchased at 105. If the issuer calls the bond before maturity, the yield to call realized by the investor would be

less than the coupon

The risk that an investor might not be able to sell an investment quickly and at a fair market price is known as

liquidity or marketability risk

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(n)

market maker

Government intervention in the economy is a significant force in creating prosperity by engaging in activities that affect aggregate demand.

Keynesian Theory

at the money

MOS stock is trading at 55. A March 55 call contract would therefore be trading

Which of the following regulatory authorities relies exclusively upon other examining authorities to enforce its rules?

Municipal Securities Rulemaking Board, (MSRB)

Just as markets can be influenced by many factors, so can the market price of a single company's stock. While all of the following could impact a company's stock price to some extent, which would be the least likely to have a direct and immediate impact?

Political elections

Broker-dealers that transact securities business with customers or other broker-dealers must apply and be approved for registration with

SEC

A corporation has issued a single bond having successive maturity dates set from 2020 through 2030. This is known as what type of bond?

Serial

Regarding transferability for common shares, which of the following is TRUE?

Shares can be sold or given away without the permission of the corporation.

What does the mortality guarantee of a variable annuity insure?

That payments will continue for the life of the annuitant

T-bills (treasury bills)

The investor's time frame for needing the funds (within 12 months) and low-risk objective are the key factors to consider. With such a short time horizon, any equity investment involves too much risk, as does an investment in a high-yield bond fund (higher the yield, greater the risk to attain it).

Regarding municipal general obligation (GO) bonds, which of the following is TRUE?

The lower the statutory debt limit, the safer for bondholders

In an LP, which of the following is TRUE?

The partnership entity is not responsible for paying taxes on gains.

A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would BEST be described as a(n)

municipal advisor

Section 529 plans are considered municipal fund securities. They must therefore be sold by

offering circular

State registration is not required if the transaction is exempt. An example of an exempt transaction would be

one that is unsolicited

A mutual fund has been in existence for 25 years. The prospectus must disclose the fund's performance

over the last 1, 5, and 10 years

An investor owns a bond purchased several years ago yielding 3%, which at the time was considered a fair return. However, these fixed 3% interest payments have not kept up with the inflation rate. This situation presents the investor with

purchasing power risk

The Securities Act of 1933 protects investors who buy new issues by doing all of the following EXCEPT

requiring the licensing of persons affiliated with broker-dealers

T-notes pay interest

semiannually

The Depository Trust Company (DTC)

serves the custody needs of securities industry participants

Individual Banks

sets the prime rate

The requirement for a supplemental prospectus to be filed before each sale is applicable to

shelf registration sales

Treasury bills (T-bills) are

short-term debt obligations issued weekly

Penny stock rules

specify that established customers of the firm need not sign a suitability statement; require that prospects be given a copy of a risk disclosure document before their initial penny stock transaction

Several months of slow economic growth and rising unemployment have characterized the economy. Market analysts would describe this as a period of

stagnation

The 3 types of maturities for debt instruments are

term, serial, and balloon.

Implementing monetary policy, and thereby undertaking the responsibility to maintain the stability of the U.S. financial system, is

the Federal Open Market Committee (FOMC)

Federal Reserve member banks needing to borrow money can borrow from

the Federal Reserve Bank at the discount rate.

The rate on an adjustable preferred stock would most likely be indexed to

the Treasury bill (T-bill) rate

Federal funds represent

the amount by which a bank exceeds its required deposits to be held on reserve at the FRB

The largest component of the U.S. balance of payments is

the balance of trade

The broker loan rate charged by banks is also known as

the call loan rate

While a branch office manager can initially approve an options account for trading, it must ultimately be approved by

the firm's ROP

With a balloon maturity,

the major portion of the principal debt is paid on the final maturity date

A preemptive right for existing shareholders is best described as

the right to purchase shares in an amount that would keep a shareholder's proportionate ownership in the corporation unchanged when a company issues additional shares.

Securities and Exchange Commission Rule 144 regulates

the sale of control and restricted securities

An investor in a direct participation program wishes to divest of a partnership interest purchased some time ago. You would correctly advise that

there is no secondary market making them highly illiquid

Firm Commitment

underwriters contract with the issuer to buy its securities, acting as principals rather than agents. They are committing to purchase any unsold shares for the syndicate account. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately all of the securities will be sold, and all of the capital needed will be raised.

An investor establishes the following position: Long 1 XYZ September 40 call at 2. Utilizing this position, the maximum potential gain for the investor is

unlimited

A penny stock is best described as an

unlisted stock valued at less than $5 per share

The transfer agent for a corporation is not responsible for

Acting as an intermediary between the buy and sell sides of a transaction

Debt instruments issued by the U.S. Treasury

All are issued in book-entry form

Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is TRUE?

All reduce investor returns because they reduce the amount of money available for the fund to invest.

Supply-side Economic Theory

An individual buying stock from another individual without using the services of a registered representative

Which of the following would be considered an isolated nonissuer transaction exempt from state registration under the Uniform Securities Act?

An individual buying stock from another individual without using the services of a registered representative

Money market securities can be associated with which of the following characteristics?

Being highly liquid

Underwriters who are assisting an issuer in bringing securities to the investing public can do which of the following between the time the registration was filed with the SEC and the effective date?

Distribute a preliminary prospectus to the investing public

Regarding exchange-traded funds (ETFs), as compared to open-end (mutual) funds, which of the following are TRUE?

ETF transactions are subject to commissions. ETFs may trade at a price that is less than the NAV per share.

Exchange Traded Notes (ETNs)

ETNs are senior, unsecured debt securities issued by a bank or financial institution.

Which regulatory body oversees trading in the over-the-counter (OTC) market?

FINRA

Federal Open Market Committee (FOMC)

Has the greatest influence on the money supply within the United States

In what order would claimants receive payment in the event of a corporate bankruptcy?

Holders of secured debt; General creditors; Holders of subordinate debt instruments; Preferred stock holders

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?

In the money

Treasury Receipts

Interest paid at maturity. They are sold at a discount

A broker-dealer's business model allows for only the purchase and sale of securities for retail customer accounts. It does not execute, settle, or clear its customer's transactions, nor does it tend to any back-office functions such as sending trade confirmations or forwarding proxies. This broker-dealer would best be described as what type of firm?

Introducing/fully disclosed

A customer of a broker-dealer makes it known that they would like to trade options in their account. The first step to accommodate the request is which of the following?

The registered representative should determine the suitability of options trading for the customer.

Which of the following statements best describes financial risk?

The risk that an issuer will be unable to meet interest and principal payments on debt obligations

What is the primary purpose of an issuer sponsoring an ADR?

These securities are created to attract a U.S investor base.

Municipal revenue bonds

They are not subject to statutory debt limits. They are backed by a facilities ability to generate revenue.

At Parity

This call contract is in the money by 5 points (45 - 40). It therefore has intrinsic value of 5 points. When a contracts premium (5) equals its intrinsic value (5), it is trading right at parity.

writers

Those who sell calls and puts, those who are short the contract