SIE Ch 4-7, 11-12 RV (Knopman)

Under required minimum distribution (RMD) rules, withdrawals from a Traditional IRA must begin by age ___

72 This is a rule change under the Secure Act passed in December 2019. Note that RMDs used to begin starting at age 70.5. Candidates should be familiar with both the new and the old rule. Any shortfall in taking RMDs will be subject to a 50% excise tax on the shortfall amount.

A mutual fund share report shows a NAV of $4.10 and POP of $4.20. The sales charge percent that applies to this transaction is A) 2.38% B) 2.44% C) 1.22% D) 1.19%

A) 2.38% Sales charge is a percentage of the POP. To calculate, find the amount of the sales charge ($4.20 - 4.10 = .10) and divide it by the POP. 0.10/4.20 = 2.38%.

An investor that purchases mutual funds receives a lower sales charge on a $200,000 investment than what would have applied to a $100,000 purchase. This mutual fund feature is called A) A breakpoint schedule B) An unrealized gain C) Contingent deferred sales charge D) Rights of accumulation

A) A breakpoint schedule A mutual fund breakpoint schedule offers a discount based on the amount of the investment. The larger the investment the lower the sales charge. The breakpoint schedule is published in the prospectus.

A client owns a portfolio of blue chip stocks that is to fund his retirement in 10 years. Although confident that the market will continue to advance, he is concerned that a market correction of more than 10% could wipe out significant value. Which of the following strategies might benefit this investor? A) Buy index puts B) Buy index calls C) Sell index calls D) Sell index puts

A) Buy index puts

Manufacturing sales is what kind of economic indicator? A) Coincident B) Lagging C) Coterminous D) Leading

A) Coincident

With respect to raising capital, closed-end funds may issue A) Common stock, bonds and preferred stock B) common and preferred stock only C) common stock only D) bonds only

A) Common stock, bonds and preferred stock Closed-end funds may issue 'senior securities', such as preferred stock and bonds, as opposed to open-end funds which may only issue common stock to raise capital.

A separate risk disclosure statement is required when all of the following types of accounts are opened for non-institutional investors EXCEPT A) Custodial accounts B) Margin accounts C) Options accounts D) Day trading accounts

A) Custodial accounts Separate account disclosure is required when the account risk may be relatively high, as in options accounts, margin accounts and day trading accounts. Custodial accounts require additional documentation but not additional disclosure.

Passive income is earned from which of the following? I. Partnership interests in which no active management role is assumed II. Portfolio income III. A part-time business performed outside of business hours which an individual manages AA) I onlyA) I only B) I, II, and III C) II and III only D) I and II only

A) I only The IRS defines three main categories of income: active income, passive income and portfolio income. Passive income does not include earnings from wages or active business participation, nor does it include income from dividends, interest or capital gains.

Which of the following statements regarding a REIT is true? A) It may be a publicly traded investment product that passes through income but not losses to investors. B) It is a mostly illiquid investment that pass through losses to investors. C) It is an investment vehicle that pass through income and losses to investors. D) It is a type of direct participation program (DPP) that gives investors access to a broad range of real estate assets.

A) It may be a publicly traded investment product that passes through income but not losses to investors. A Real Estate Investment Trust (REIT) is an investment vehicle legally structured as a trust, not a DPP. The trust passes through income to investors, but not losses. Many REITs are liquid investments, meaning they can be traded on securities exchanges. This is an important distinction to make when comparing an REIT to a DPP.

Which of the following statements regarding a REIT is true? A) It may be a publicly traded investment product that passes through income but not losses to investors. B) It is an investment vehicle that pass through income and losses to investors. C) It is a mostly illiquid investment that pass through losses to investors. D) It is a type of direct participation program (DPP) that gives investors access to a broad range of real estate assets.

A) It may be a publicly traded investment product that passes through income but not losses to investors. A Real Estate Investment Trust (REIT) is an investment vehicle legally structured as a trust, not a DPP. The trust passes through income to investors, but not losses. Many REITs are liquid investments, meaning they can be traded on securities exchanges. This is an important distinction to make when comparing an REIT to a DPP.

An investor makes a purchase of 100 call options on a Friday. This transaction will settle on A) Monday B) Tuesday C) Friday D) Wednesday

A) Monday Options transactions settle on the business day following the transaction.

An investment company that issues redeemable shares that cannot be traded in the secondary market is a(n) A) Open-end investment company B) Exchange traded fund C) Equity linked note D) Closed-end investment company

A) Open-end investment company An open-end investment company will issue redeemable shares to investors which cannot be subsequently traded in the secondary market. An investor who wants to liquidate their shares must place an order with the fund company itself and the order will be filled at the next computed net asset value (NAV).

A pre-packaged security that was created to meet specific investor needs that cannot be met from standardized financial instruments available in the market describes a(n) A) Structured Product B) Derivative C) Asset Allocation Ladder D) Investment Program

A) Structured Product There is no single uniform definition of structured products. They are simply a pre-packaged, often customized investment strategy. Structured products are based on derivatives, and can be linked to the performance of baskets of securities, options, indices, commodities, loans, debt issuances and/or foreign currencies, and swaps.

The securities lending unit of a broker-dealer borrows shares owned by a mutual fund and loans them to its customer, who then sells them short to another investor. Which entity has the least amount of price risk associated with these securities, under this arrangement? A) The broker-dealer B) The customer who sells short C) The mutual fund D)The investor who purchases the shares sold short

A) The broker-dealer The securities lending units of broker-dealers act as middle-man in these transactions, with no price risk. The mutual fund and the investor who purchases the short shares have price risk if shares decline in value. The customer who sells short has risk if shares rise in value.

An institutional account may be able to qualify for an exemption from A) The customer-specific aspect of the suitability rule B) The reasonable basis aspect of the suitability rule C) All components of the securities industry suitability rule D) The quantitative aspect of the suitability rule

A) The customer-specific aspect of the suitability rule An institutional account may qualify for an exemption from the customer-specific aspect of the suitability rule. The broker must believe the client is able to assess risks independently, and the client must confirm it is exercising independent judgement in evaluating the recommendation.

A registered representative wants to open a brokerage account with another firm. Which of the following is CORRECT? A) The registered representative must receive permission from their employer. B) The registered rep is not required to notify their employer firm. C) The registered representative is required to notify their employer, though permission is not required. D) It is the responsibility of the opening firm to notify the employer firm that the registered representative is opening a new account.

A) The registered representative must receive permission from their employer.

The strategy of buying calls on a particular stock is used by investors for all of the following reasons EXCEPT (NOTE: This is an "except" question) A) To protect a profit on stock by locking in a specified sales price B) To take advantage of an anticipated rise in the value of a particular stock without committing capital equal to the full stock price C) To profit from a bullish attitude on a particular stock D) To gain leverage with a limited dollar risk

A) To protect a profit on stock by locking in a specified sales price A call is a right to buy a stock at a specified price. Buying calls makes sense for investors who are bullish on a particular stock and anticipate a rise in its value. The purchase of calls allows an investor to profit from an upward move in the stock while having very little capital at risk compared to the amount needed to own the stock. An investor would purchase a put to protect a profit on a stock by locking in a specified sales price.

When completing a new account form, a customer did not provide information regarding her net worth and annual income. This account A) may be opened, but no recommendations may be offered to the customer B) may not be opened due to lack the lack of information disclosed. C) must be submitted to the compliance department for special review. D) may not engage in any transactions in speculative securities.

A) may be opened, but no recommendations may be offered to the customer This account may be opened, but no recommendation may be made. Only unsolicited orders may be accepted for this account.

Which of the following business structures allows for pass through of losses to investors? I. Limited partnerships II. Subchapter S corporations III. Limited liability corporations

All Limited partnerships, Subchapter S corporations, and limited liability corporations are all structures that allow for pass through of both gains and losses to investors. These structures allow "direct participation" by investors

The NAV of an open-end investment company is 14.25 and the public offer price is 14.75. The 12b - 1 fee of the investment company is 30 basis points. An investor order to redeem shares of this investment company will be filled at A) 14.75 B) 14.25 C) 14.55 D) 14.45

B) 14.25 An order to redeem shares of an open-end investment company (mutual fund) would be filled at the net asset value (NAV) of the fund. The NAV must be determined at least once each business day, typically done at the close of trading on the NYSE. The existence of a 12b-1 fee will have no bearing on this process.

An investor purchases 100 shares of XYZ stock at 72 and later buys 1 XYZ 69 put for 2.50 to protect the stock position. When the market price of XYZ is 68. What is the investor's breakeven on the combined purchase? A) 70.5 B) 74.5 C) 66.5 D) 65.5

B) 74.5 When an investor buys a put to protect a stock purchase, the investor will breakeven when the stock price is equal to the cost of the stock plus the put premium. 72 + 2.50 = $74.50.

Of the following, which investment choice is most appropriate for a high net worth investor with a primary objective of long-term safety of principal? A) A C rated general obligation bond B) An investment grade revenue bond C) A non-investment grade corporate bond D) A highly rated tax anticipation note

B) An investment grade revenue bond An investor that wants safety of principal wants to preserve the investment over its life. The higher the rating, the greater the likelihood the investor will achieve safety of principal. Investment-grade municipal revenue bonds will offer safety of principal and tax-exempt income. A highly rated note has a much shorter time horizon.

All of the following economic indicators are considered coincident indicators EXCEPT A) industrial production B) Housing starts C) personal income D) GDP

B) Housing starts While personal income, industrial production and GDP change at approximately the same time as the whole economy, housing starts are considered a leading indicator. Sustained declines in housing starts slow the economy, while increases in housing activity trigger economic growth.

Which of the following companies issue a fixed number of shares in their initial public offering? I. Closed end companies II. Open end companies III. REITS A) II and III only B) I and III only C) I, II and III D) I and II only

B) I and III only Closed end companies and REITS issue a fixed number of shares in their initial public offering. Open end companies issue shares continually through an ongoing primary offering.

All of the following statements about hedge fund investments are true EXCEPT A) They have highly aggressive trading strategies B) If a hedge fund goes bankrupt the investors have the potential to lose more than their investment C) They usually employ a high degree of leverage to magnify returns D) They are inappropriate for most retail investors

B) If a hedge fund goes bankrupt the investors have the potential to lose more than their investment The legal structure of a hedge fund protects investors from losing more than their investment in the event of bankruptcy. They are typically established as limited partnerships or limited liability companies or offshore corporations.

Which of the following is a lagging indicator? A) Consumer spending B) Interest rates C) Industrial production index D) Personal income

B) Interest rates Interest rates are a lagging indicator. The industrial production index, personal income and consumer spending are all coincident indicators.

The option strategy presenting the greatest potential risk to an investor is a A) Long call B) Short call C) Long put D) Short put

B) Short call The option strategy carrying the greatest potential risk is the short call. The risk on this trade could be unlimited.

A customer has a Roth IRA, and he wants to delay taking money out as long as possible. If he lives to be 100, at what age must he begin taking minimum distributions? A) 70 ½ B) There is no such requirement C) 10 years after retirement date D) 65

B) There is no such requirement There are no required minimum distributions from a Roth IRA, during the account owner's lifetime.

Which of the following instructions is NOT a recommendation that is addressed by Regulation Best Interest (BI)? A) Don't liquidate an existing stock position B) Use PDQ Commercial Bank for wiring trade payments C) Open a 529 plan rather than an UTMA D) Consolidate two former workplace retirement plans into one IRA

B) Use PDQ Commercial Bank for wiring trade payments Giving administrative instructions regarding trade payment procedures is NOT a call to action that would influence a client's investment behavior. The other three instructions meet Reg BI's definition of a recommendation to a retail customer.

The wife of a customer who has an individual IRA account calls the broker-dealer to request that the account statements be held by the firm while the family is vacationing in Europe over the summer. In this situation the firm is permitted to A) hold the statements for three months. B) continue to mail the statements to the customer's home unless the husband makes the request. C) ask the wife to put the request in writing and mail or email it to the firm as documentation for the account. D) hold the statements for two months.

B) continue to mail the statements to the customer's home unless the husband makes the request. Because this is an individual account, the firm may honor a request to hold mail from that individual only.

If suspicious activity is suspected in a customer's account, A) all trading activity may be suspended for 15 days to allow for a proper investigation. B) disbursements from the account may be withheld for up to 15 days. C) the chief financial officer of the firm must notify FINRA within 24 hours. D) the firm must notify the FBI promptly.

B) disbursements from the account may be withheld for up to 15 days.

All the following statements about the differences between hedge funds and mutual funds are true except A) investors enjoy more liquidity in mutual funds than in hedge funds. B) hedge funds have lower fees than mutual funds. C) mutual funds are open to a broader universe of investors than hedge funds. D) hedge funds are able to use more margin than mutual funds.

B) hedge funds have lower fees than mutual funds. Most mutual funds have expense ratios of about 1.0% or less. Hedge funds often charge 2.0% management fees plus a portion of profits, often 20%.

Upon signing a loan consent agreement, a customer of a broker-dealer is A) allowing their securities to be sold at a time of the broker-dealer's choosing. B) providing consent for their securities to be used to facilitate short sales. C) pledging their securities as collateral for other customers' margin calls. D) allowing their securities to be used for collateral at a bank in order to secure a margin loan.

B) providing consent for their securities to be used to facilitate short sales. A Loan Consent Form or agreement allows the firm to use the customer's securities to facilitate short selling by other clients of the firm.

Laura and Diego, a married couple, file a joint tax return, which reports wage compensation of $60,000 for both. They are in their 30s. Their maximum contributions to a Traditional IRA are determined by A) Their ages B) Their respective earnings C) A dollar limit D) A percentage of their combined earnings

C) A dollar limit For most individuals and couples, the maximum contribution is determined by a dollar limit, which is $6,000 plus a $1,000 catch-up for those aged 50 and over. The combined compensation of a married couple must equal or exceed their combined contributions. Note that the contribution limit was increased to $6,000 from $5,500 on January 1st, 2019.

An investor plans to purchase a home in the next 6 - 12 months and would like to invest funds for a down payment in a mutual fund. Which of the following choices is most suitable? A) A balanced fund B) A real estate fund C) A money market fund D)A U.S. government bond fund

C) A money market fund Money market funds are appropriate for investments that need to be liquidated for their full value in a short time frame. Although not guaranteed, the value of each share has been held constant at $1, so investors in money market funds do not lose principal and can liquidate their shares for their full value plus interest that was earned.

Which type of coin may be held in an IRA, by a trustee or custodian? A) An 80-year old rare gold eagle B) A 1949 proof set C) A silver eagle produced by the U.S. mint D) A 120-year old silver dollar

C) A silver eagle produced by the U.S. mint Gold and silver coins produced by the national mints of the U.S are allowed.

An investor would like to invest a lump sum inheritance she received for a three month period and will use the funds for a down payment on a home purchase at that time. All of the following may be appropriate EXCEPT A) A variable rate demand obligation B) A bond anticipation note C) An auction rate security D) A tax anticipation note

C) An auction rate security Tax anticipation notes and bond anticipation notes are short-term securities which meet this investor's objective. VRDOs are issued as long term securities but are puttable for their par value at interest reset dates, which provides short-term liquidity. Auction rate securities are long-term and do not include a put feature, so they do not meet this investor's objectives.

If a margin account customer has failed to meet the Reg T settlement date because of special circumstances, a broker-dealer may request an extension from A) the Federal Reserve Board. B) the SEC. C) FINRA. D) Securities Investor Protection Corporation.

C) FINRA. If a Reg T call has not been met due to special circumstances, a broker-dealer can request an extension from its SRO, which is typically FINRA.

LGIPs and firms which distribute them are exempt from which of the following regulations? I. Registration and prospectus requirements under the Securities Act of 1933 II. Anti-fraud Rules of the Securities Exchange Act of 1934 III. MSRB Rules IV. Investment Company Act of 1940 A) II and IV B) I and II C) I and IV D) II and III

C) I and IV Although Local Investment Government Pool Securities function very much like mutual funds, they are not subject to registration and prospectus requirements under the Securities Act of 1933 or the rules that define open end and closed end investment companies under the Investment Company Act of 1940. These securities and firms that sell them are subject to all rules of the MSRB and also to the anti-fraud requirements under the Securities Exchange Act of 1934.

An investment in a private equity fund A) Is highly liquid B) Is not subject to registration and disclosure requirements under the Securities Act of 1933 C) Is most likely owned by accredited and institutional investors and not retail investors D) Is considered a relatively low-risk investment

C) Is most likely owned by accredited and institutional investors and not retail investors Private equity is subject to registration and disclosure requirements of the Securities Act of 1933. Sold to mostly accredited investors and institutional investors, it is often not accessible to retail investors because of the high dollar investment minimums, lack of liquidity, and long-term time horizons. Private equity is considered relatively high risk because of the high underperformance risk of many startup companies.

Howard buys listed options with an expiration date that is more than two years in the future. What is this type of option called? A) LOMOS B) LIZRD C) LEAP D) LIFER

C) LEAP Long-term equity anticipation securities (LEAPs) are listed options with long-term expirations, of up to three years from the time of issuance. This is different from standard option contracts, which have an expiration of nine months.

A city wishes to take advantage of liquidity and professional management in the investment of excess funds. An investment that is appropriate for this purpose is A) BAB. B) COP. C) LGIP. D) VRDO.

C) LGIP. Local Government Investment Pools (LGIPS) are formed by states to give local governments a money market like option for investment of excess funds.

Joe is a registered rep currently employed by Windy City Broker-Dealer, a Chicago based firm. Joe has quite the sweettooth. To satisfy his sugary cravings, he decides to open Joe & Josette's Cupcakery, a small bakery in a hip part of town. Joe's business partner, Josette, also happens to be a client of the firm and recently borrowed $5,000 from Joe. Which of the following is true regarding this action? A) Opening the Cupcakery requires permission from the firm, since it is an outside business activity. B) Open the Cupcakery does not require permission, but lending money to Josette is prohibited. C) Lending money to Josette is permitted provided that the firm has written procedures permitting borrowing and lending with clients. D) Joe can open the Cupcakery and lend money to Josette provided that the firm is notified of both activities.

C) Lending money to Josette is permitted provided that the firm has written procedures permitting borrowing and lending with clients. Any outside business activity requires that the firm be notified of the full details of the activity. FINRA Rule 3240 permits a registered rep to borrow money from or lend money to a client provided that the firm has written supervisory procedures permitting such an activity. If the client happens to be a bank or family member, the firm may permit the activity without permission. If there is an outside personal or business relationship, the registered rep must receive permission from the firm to borrow or lend to a client.

Which of the following investments is an equity position? A) Right B) Exchange-traded note C) Limited partnership D) Warrant

C) Limited partnership An interest in any partnership, including general and limited partnerships, is ownership or equity. Warrants and rights are derivative securities. Exchanged-traded notes (ETNs) are illiquid, structured debt instruments.

Which of the following offers a leveraged alternative to a long position in stock? A) Short put B) Short call C) Long call D) Long put

C) Long call A long call gives the investor the right to buy the underlying stock and allows an investor to benefit on its gains without having paid in full for the shares. The investor benefits from leverage, receiving a higher return for a dollar invested.

Investors who indicate they are seeking current income from an investment would be mostly likely to consider which of the following products? A) Non-dividend paying preferred stock B) Exchange traded notes C) Real estate investment trusts D) Limited partnerships

C) Real estate investment trusts If the investment objective is current income, a real estate investment trust may be a suitable product, as these investments will pay dividends in many instances.

What usually serves as the collateral in a margin account? A) U.S. Treasuries B) No collateral is required for clients in good standing C) Securities held in the account D) Escrow receipt from a bank

C) Securities held in the account Margin accounts allow customers to purchase securities, in part, using collateralized loans made by the broker-dealer. Securities held in the account serve as the collateral.

Helen opened a Roth IRA last year and wants to know what part of this year's contributions she can deduct. The answer is A) She can deduct 100% B) It depends on her age C) She can't deduct any amount D) It depends on her income

C) She can't deduct any amount Roth contributions are always made with after-tax dollars and are never tax-deductible.

Last year a client opened a new account, giving discretion to his son for all trades. Last month the client was declared legally incompetent in court. What is the status of the power of attorney the client originally signed when the account was first opened? A) The power of attorney must be renewed by an officer of the court. B) The power of attorney remains in force until the client passes away. C) The power of attorney remains in force if it was a durable power of attorney. D) The power of attorney is no longer in effect.

C) The power of attorney remains in force if it was a durable power of attorney. A durable power of attorney will remain in force if a client is declared legally incompetent in a court; otherwise it will be cancelled. All powers of attorney will be terminated upon the death of the customer.

All of the following are characteristics of limited partners in a limited partnership EXCEPT A) Passive role in management of the partnership B) Right to receive a share of losses and income from the partnership C) The right to bind the partnership into legal contracts D) Limited liability

C) The right to bind the partnership into legal contracts Limited partners cannot execute or bind contracts on behalf of the partnership. That role belongs to the general partner. Limited partners have limited liability in return for their passive role in managements. They receive a proportionate share in the losses and gains of the partnership based on the units they own.

If suspicious activity is suspected in a customer's account, A) the chief financial officer of the firm must notify FINRA within 24 hours. B) the firm must notify the FBI promptly. C) disbursements from the account may be withheld for up to 15 days. D) all trading activity may be suspended for 15 days to allow for a proper investigation.

C) disbursements from the account may be withheld for up to 15 days. If suspicious activity is suspected in a client's account, the firm may suspend distributions from the account for up to 15 days.

In a cash account, if a customer has not met a Reg T call for $1,000, the broker-dealer A) must sell out securities in the account to meet the outstanding amount due. B) must freeze the account. C) may choose to disregard the payment shortage. D) must request an extension from its SRO.

C) may choose to disregard the payment shortage. A payment shortage of $1,000 or less may be disregarded at the discretion of the broker-dealer.

A Real Estate Investment Trust (REIT) is a security that is categorized as a(n) A) Investment company portfolio. B) Real estate limited partnership. C) neither an investment company nor a direct participation program (DPP). D) type of direct participation program (DPP).

C) neither an investment company nor a direct participation program (DPP). A Real Estate Investment Trust is legally structured as a trust; it is not a type of investment company or direct participation program.

An investor has a fee-based account at a broker-dealer. Under this system, the customer A) receives a fee for placing trades with the firm. B) can execute a maximum number of trades for a flat fee C) pays a flat fee regardless of the number of trades executed. D) must pay a fee for every trade.

C) pays a flat fee regardless of the number of trades executed. In a fee-based account, the customer pays a flat fee (typically assessed quarterly or annually) and is permitted to execute as many trades as they wish. This arrangement is not usually suitable for a "buy and hold investor".

An investor purchases 200 shares of STP stock for $64 per share and buys 2 STP 62 puts for 1.50 when the market price of STP is $65. What is the maximum loss? A) $350 B) unlimited C) $450 D) $700

D) $700 The investor loses money on the stock when the market price falls. But, the long put allows the investor to sell the stock at 62. Thus, the investor can lose $2 per share on the stock, plus the premium of $1.50 that was paid for a total of $3.50 per share. 200 shares x $3.50 = maximum loss of $700.

Regulation Best Interest (BI) mandates that each retail customer receive a Customer Relationship Summary (Form CRS) A) At or before account opening B) Within 15 days of account opening C) Within 10 days of making a recommendation to that customer D) At or prior to making a recommendation to that customer

D) At or prior to making a recommendation to that customer Form CRS must be given no later than at the time of making a recommendation. Form CRS contains disclosure about fees and costs and the relationship with the retail customer.

All of the following are considered leading economic indicators EXCEPT A) Money Supply B) Bond yields C) Building Permits D) GDP

D) GDP Leading indicators change before the economy starts to follow a particular pattern or trend. Leading economic indicators include: • Bond yields • building permits (new private housing) • industrial production rates • money supply • S&P 500 • average of weekly unemployment insurance claims • changes in business inventories GDP is a coincident indicator, meaning it varies simultaneously with changes in the economic cycle.

An investor who purchases an exchange-traded note may expect to receive an interest payment A) Whenever the underlying security pays a dividend. B) On a quarterly cycle. C) If the board of directors of the underlying security declares a dividend to holders of record. D) If there has been appreciation in the underlying security.

D) If there has been appreciation in the underlying security. An exchange-traded note may make an interest payment to an investor if there has been appreciation in the underlying security. If the underlying security has declined in value, the investor will only receive his principal returned at the instrument's maturity.

A customer sells short 200 shares of XYZ stock for 43 and buys 2 XYZ 47 calls for 2.50. The stock price rises to 50 and the option is exercised. The profit or loss to the investor is A) Profit of $1,300 B) Loss of $650 C) Profit of $650 D) Loss of $1,300

D) Loss of $1,300 The stock is sold short for $8,600. To protect the position the investor buys 2 calls for $500. The calls are exercised when the market price of the stock rises, so the investor buys the stock to cover the short position for $9,400. The customer received $8,600 from the short sale, but paid a total of $9,900 (premium + stock purchase price) for a loss of $1,300.

Pursuant to Regulation S-P, a broker-dealer must provide a privacy notice to a customer A) When a statement of account is sent. B) At the time a solicitation is made to purchase a security. C) When a confirmation of a trade is sent. D) Prior to engaging in any securities business with that customer.

D) Prior to engaging in any securities business with that customer.

An investor concerned about interest rate risk might be advised to A) Sell covered call options B) Purchase high grade corporate bonds C) Purchase preferred stock D) Purchase common stock

D) Purchase common stock An investor concerned about interest rate risk should purchase common stock or convertible bonds.

To establish a short position in one XYZ two-year 90 LEAP puts at $13, an investor will A) Pay $1,170 B) Pay $1,300 C) Receive $1,170 D) Receive $1,300

D) Receive $1,300 When establishing a short options position, an investor receives premium income. Like equity options, LEAP options are quoted in points. Each contract includes a $100 multiplier, so the premium is multiplied by $100 for each contract. In this example, the investor receives $1,300 to open the position ($13 x 100 x 1 contract).

All of the following statements regarding broad-based index options are true EXCEPT A) Like equity options, the premium is comprised of time value and intrinsic value B) Exercise settlement takes place in cash C) The multiplier is typically 100 D) They are usually more volatile than their individual stock components

D) They are usually more volatile than their individual stock components

Your customer owns ABC stock, but does not expect that the price will appreciate rapidly in the near future. To increase the income to his portfolio without adding significant risk, the customer should A) Establish a married put strategy B) Write ABC puts C) Buy ABC Leap calls D) Write calls on ABC stock

D) Write calls on ABC stock By writing calls on stock that is owned, an investor receives a premium and is not obligated to sell the stock if the call is not exercised. The call writer wants little or no movement in the price of the stock so the obligation to sell it is not exercised by the holder.

The party standing between the buyer and seller in a trade to ensure timely settlement of the trade is the A) market maker B) SEC C) transfer agent D) clearing house

D) clearing house The central role of the clearing house is to ensure the timely settlement of the transaction. The largest clearing house in the security industry is the National Securities Clearing Corporation, which is a subsidiary of the Depository Trust and Clearing Corporation.

The act of combining customer and broker-dealer securities together is A) integration B) aggregating C) combining D) commingling

D) commingling This is known as commingling, and is prohibited by securities industry regulations.

A customer's request to a brokerage firm to hold her mail must be A) in writing only if the customer is incapacitated. B) in writing, if the mail is to be held for up to two months. C) in writing, if the mail is to be held for more than one month. D) in writing, in all cases.

D) in writing, in all cases. All customer requests to hold mail must be made in writing. Normally, firms can hold customer mail for up to three months.

An investor is doing a 1035 exchange which will enable him to A) liquidate an IRA and reinvest the proceeds into another IRA within 60 days. B) transfer an existing 401(k) plan to another authorized vendor. C) transfer the assets of a securities account from one broker-dealer to another broker-dealer. D) make a tax-free transfer of one annuity contract for another.

D) make a tax-free transfer of one annuity contract for another.

A customer emails his broker-dealer requesting a return email with financial information about the firm. The broker-dealer may, in accordance with FINRA rules, A) send a paper copy of its most recent balance sheet by mail since financial requests cannot be answered electronically. B) send a copy of its annual statement by email. C) send a paper copy of its annual statement by mail since financial requests cannot be answered electronically. D) send a copy of its most recent balance sheet by email.

D) send a copy of its most recent balance sheet by email. A broker-dealer must respond to requests for financial information with its most recent balance sheet. Responses can be in electronic form only if the customer confirms, through electronic means, that electronic form is acceptable.

Mutual funds are typically prohibited from engaging in which two of the following activities? I. Short selling of securities II. Investing in senior equity and debt securities III. Distributing its own securities IV. Borrowing funds to purchase securities

I. Short selling of securities IV. Borrowing funds to purchase securities Typically, mutual funds are prohibited from purchasing securities on margin and short selling. Additionally, mutual funds cannot issue preferred stock or debt securities, but they are permitted to invest in them within their portfolios.

An investor purchases an index 452 call for a premium of 9. At expiration the index value is 471. Which two of the followings statements are TRUE? I. The call is in the money at expiration II. The breakeven of the contract is 463 III. The investor will receive $1,900 at exercise of the contract IV. The investor will receive $1,000 at exercise of the contract

I. The call is in the money at expiration III. The investor will receive $1,900 at exercise of the contract

Interest rates are likely to rise if I. The demand for money increases II. The supply for money increases III. The demand for money decreases IV. The supply for money decreases

I. The demand for money increases IV. The supply for money decreases

With the current level of the S&P 500 index at 1815.94, an investor buys a three-month SPX call option with a strike price of 1820 that is currently trading for 54.40. At expiration, the value of the index is 1850. Which two of the following statements are TRUE? I. The investor will receive cash at expiration II. The investor must pay cash at expiration III. The breakeven is 1761.54 IV. The contract is in the money at exercise

I. The investor will receive cash at expiration IV. The contract is in the money at exercise An SPX index call is in the money when the index value is above the strike price, as in this example. At expiration, the holder of the call receives cash equal to the intrinsic value. The breakeven is calculated by adding the premium to the index strike price. 1820 + 54.40 = BE of 1874.40. Although this contract was in the money, the investor did not profit because the index was not higher than the BE point at exercise.

Rule G-47, Time of Trade Disclosure, applies to (choose 2) I. Solicited transactions only II. Both solicited and unsolicited transactions III. Retail customers IV. Customers that are sophisticated municipal market professionals (SMMPs)

II. Both solicited and unsolicited transactions III. Retail customers Rule G-47 requires firms to disclose to customers in both primary and secondary market transactions all material information known about the security that is reasonably accessible to the market. The rule applies to both solicited and unsolicited transactions. Make a note that SMMPs are exempt from this rule.

Before trading in an options account can take place, which TWO of the following must occur? I. The account must be approved by a general securities principal. II. The account must be approved by a registered options principal. III. The customer must be given an options disclosure statement. IV. The customer must return the signed options agreement.

II. The account must be approved by a registered options principal. III. The customer must be given an options disclosure statement. When an options account is opened, the account must be approved for trading by a registered options principal, and an options disclosure document must be provided to the customer to identify the account risks. The customer can then begin trading options and has 15 days to sign and return the options agreement.

An investor writes an S&P 500 2020 call for 8.50. Just prior to expiration the S&P is 2004. Which two of the following statements are TRUE? I. The contract will be exercised II. The contract will expire III. The investor profits in this transaction IV. The investor has a loss in this transaction

II. The contract will expire III. The investor profits in this transaction The investor received $850 to write the index call. The call is not exercised because the index value is below the exercise price. The writer profits from the premium received at expiration as the contrast will expire unexercised.

A conflict of interest exists in a real estate limited partnership if the general partner I. receives compensation from the partnership II. borrows from the partnership III. owns or leases property adjacent to property of the partnership IV. is involved in more than one real estate limited partnership

II. borrows from the partnership III. owns or leases property adjacent to property of the partnership A general partner must avoid conflicts of interest with the partnership. The general partner cannot borrow from the partnership and, if it is a real estate limited partnership, cannot compete with the partnership by purchasing or leasing adjacent property.

Equity REITS offer the potential for all of the following EXCEPT A) Liquidity B) Market transparency C) Interest income paid on a monthly basis D) Inflation hedging

Interest income paid on a monthly basis Equity REITs do not produce interest income. They pay dividends to investors that represent their proportionate share of the rental income and capital appreciation earned by the portfolio. Because they trade on exchanges, they offer liquidity and transparency. Real estate is also a natural hedge against inflation, and has historically appreciated at a rate that exceeds the rate of inflation.

A face-amount certificate is a type of investment company that issues ___ securities, obligating the issuer to pay __

debt; a fixed amount at a specified date.

The child gains access and control over all UGMA or UTMA assets at ___ age and can use them for any purpose he/she chooses, whether or not they are college-related.

majority