SIE EXAM
In a municipal bond underwriting, who signs the agreement among underwriters? Syndicate members Bond counsel Trustee Issuer [A] I only [B] I and II only [C] II, III, and IV only [D] All of the above
A EXPLANATION Agreements among underwriters are signed only by the syndicate members.
Reg T governs the extension of credit for which of the following: Listed common stock NASDAQ national market system OTC securities Government securities [A] I and II [B] I and III [C] II and III [D] I, II, and III
A EXPLANATION III Government securities are exempt from Reg T.
When helping your customer select a mutual fund all of the following would be primary considerations EXCEPT [A] the NAV (Net Asset Value) of the fund [B] the fund's historical performance [C] sale charges [D] the fund's risk and volatility profile
A EXPLANATION Of the choices offered, the client and RR should be concerned with the investment risks, performance, and sales charges. The Net Asset Value is a factor but investors generally base investment decisions on objectives/risks, performance, and charges, and the NAV is not an overriding concern during the selection process. Of course, once the investor owns a fund the NAV is very important.
What is the obligation of a put writer upon exercise of the put? [A] The writer must purchase the underlying security at the strike price. [B] The writer must purchase the underlying security at the current market value. [C] The writer must sell the underlying security at the strike price. [D] The writer must sell the underlying security at the current market price.
A EXPLANATION Remember your action chart from Chapter 3, Section 2. When a put is exercised, the writer of the put is obligated to buy 100 shares of the underlying security at the strike price.
Changes to the investment objectives of a mutual fund must be approved by the [A] The fund's shareholders [B] The fund's board of directors [C] The fund's transfer agent [D] Any changes to investment objectives must be approved by FINRA.
A EXPLANATION The board of directors has the authority to establish and change the investment objective and policies of the fund ONLY with the approval of the shareholders. Neither FINRA nor the SEC approves investment policy changes.
The features of a Coverdell Education Savings Account include all of the following EXCEPT: [A] The contributions are deductible. [B] $2,000 is the maximum contribution in any one year. [C] Withdrawals are tax free. [D] Contributions are phased out for certain taxpayers who have adjusted gross income above a certain level.
A EXPLANATION The contributions are not deductible.
In the Secondary Market, Dealers in Bankers Acceptances: [A] profit from the spread between the prices at which they buy and sell these drafts. [B] profit from the discount made by the bank. [C] profit from the sales load. [D] profit from the rediscount.
A EXPLANATION The spread on a Bankers Acceptance provides the profit to dealers handling transactions in Bankers Acceptances.
Which of the following could be used to meet a Reg T call on an initial transaction in a customer's margin account? I. A cash deposit equal to the amount of the call II. An escrow receipt with a value that is equal to the amount of the call III. Listed securities which have a loan value that is equal to the amount of the call IV. Listed securities which have a market value that is equal to the amount of the call [A] I & III [B] II & III [C] II & IV [D] I & IV
A EXPLANATION If securities are to be deposited they would have to have a LOAN VALUE equal to the margin purchase specified or two times (2x) the Reg T Cash Requirement. Remember that securities have a loan value of 50% of their market value. A Cash deposit equal to call would also work, but not an escrow receipt.
Which of the following is CORRECT about a JTWROS Account (Joint Tenants with Rights of Survivorship)? [A] Securities transactions may be placed by any individual listed on the account. [B] The account must be limited to two individuals only. [C] These accounts are generally taxed at a higher rate than individual accounts. [D] If one of the account owners dies, the surviving member(s) of the account will receive all of the assets of the account unless the deceased individual's will states otherwise.
A EXPLANATION "Joint tenancy with a right of survivorship" registration means that upon the death of any one of the tenants (there may be more than two), his or her interest passes automatically to the surviving tenants. The transfer avoids probate. Although it is frequently used by married couples, its use is not limited to married couples or family members. This form of ownership overrides provisions in the decedent's will. As with any joint account, any individual member of the account may place trades in the account.
When considering a possible investment in a Roth IRA, which of the following would NOT be an advantage? [A] Until the funds are withdrawn during retirement, all contributions and earnings are tax-deferred. [B] Contributions to the account can continue to be made after the account owner reaches age 70 1/2. [C] Qualified distributions of principal and earnings are tax-free when they are withdrawn. [D] If individuals are actively enrolled in an employer's retirement plan, this fact alone does not place restriction on the eligibility of the individual to contribute to a Roth IRA.
A EXPLANATION All choices are advantages except for "A" because contributions to a Roth IRA are made with AFTER-TAX dollars. Earnings grow tax-deferred and if withdrawals are qualified, they will be tax-free.
As inflation increases over time, the best hedge against it has historically been provided by which of the following types of securities? [A] Common stocks [B] Preferred stocks [C] Government Securities (T-Bonds, etc.) [D] Convertible bonds
A EXPLANATION Choices B, C, and D are fixed income instruments which are vulnerable to inflation and/or purchasing power risk. Common stock carries the greatest risk as well as the greatest reward potential. Historically, common stock has outperformed the other choices and has been the best hedge against inflation.
An underwriting syndicate is formed using a western agreement. Firm A has 25% participation of the $100 million issue. Firm A sells $25 million. At the end of the offering, $10 million remains unsold. Firm A's liability for the unsold portion will be: [A] 0 [B] $2.5 million [C] $10 million [D] $100 million
A EXPLANATION In a western agreement, the syndicate members are not responsible for selling any other syndicate members' unsold shares. They are not "jointly" liable with the other syndicate members.
An individual comes in and wishes to open an options account. At what time must such an account be approved? [A] Before the acceptance of the first options trade [B] Before the first options trade settlement [C] Within 15 days after the first options trade [D] Within 15 days after the Option Account Agreement is signed
A EXPLANATION The Option Account Agreement must be received by the member firm within 15 days from the time that the account is approved, but the account must be approved before the first options trade.
Which of the following is responsible for the issuing of exchange traded option contracts? [A] Options Clearing Corporation [B] Member Firm [C] Securities and Exchange Commission [D] Chicago Board Options Exchange
A EXPLANATION The Options Clearing Corporation (OCC) is the issuer and guarantor of all listed option contracts.
When a member firm receives a sell long order for a customer account the member must have reasonable assurance that the customer will deliver the securities within [A] 2 business days. [B] 2 calendar days. [C] 4 business days. [D] 4 calendar days.
A EXPLANATION The member must have a reasonable assurance that the customer will deliver by settlement date, which is trade date plus 2 business days for regular-way trades (T+2).
A mutual fund's purchase price is determined by the [A] net asset value at the previous day's close [B] net asset value calculated at the close after the order is received [C] price that reflects the current supply-demand for the security [D] intraday net asset value
B EXPLANATION Forward pricing is always required when purchasing an open-end mutual fund, which means you will pay the next calculated price (less any sales load discount) after your order is entered. "C" is how a closed-end fund generally trades.
An investor is considered "uncovered" in which of the following scenarios involving option contracts? The investor: [A] buys 1 XYZ Call option with no other stock positions [B] buys 100 shares of ABC common stock and sells 1 ABC put option [C] buys 100 shares of XYZ common stock and sells 1 XYZ call option [D] buys 1 ABC put option with no other stock positions
B EXPLANATION Long stock positions do not cover a short put contract. The most common way that the seller of a put contract is covered is by having funds on hand in their account that are equal to the total exercise value of the contract in the event that the seller of the put receives an exercise notice. Buyers of options are not considered "covered" or "uncovered", because the buyer decides whether or not the option is exercised. If an investor owns 100 shares of a stock and sells a call against that stock, the investor is considered covered. Selling a call by itself with no stock position would be considered "uncovered" (not listed as an answer choice).
When a bond is trading at a discount, the current yield on the bond is: [A] unrelated to its yield to maturity [B] less than its yield to maturity [C] equal to its yield to maturity [D] more than its yield to maturity
B EXPLANATION On a discounted bond, current yield is always going to be less than yield to maturity (YTM) because YTM includes the value of the future cash flows from the interest payments and principal, while current yield only focuses on the current year's coupon payment and the current market price.
When an individual passes a licensing examination required by FINRA, that individual will then be required to complete the Regulatory Element of Continuing Education [A] within 1 year of initial registration and every year thereafter. [B] within 2 years of initial registration and every 3 years thereafter. [C] within 3 years of initial registration and every 3 years thereafter. [D] within 4 years of initial registration and every 4 years thereafter.
B EXPLANATION Registered Persons must complete the Regulatory Element of their Continuing Education requirement within 120 days after the anniversary of either: - The second anniversary date of their initial registration and - Every three years thereafter as long as the person remains registered
An investor is looking over several retirement plans for pros and cons. The investor wishes to invest funds that they are not required to withdraw at any given time, since they intend to continue working well into their 70's. Which of the following would be inappropriate for this investor? [A] A Roth IRA [B] A Traditional IRA [C] A defined-benefit plan [D] A deferred compensation plan that is not qualified
B EXPLANATION The question clearly indicates that the investor does not want to have to take mandatory distributions and will work into their 70's. The Traditional IRA requires distributions by April 1st of the year in which the individual reaches 70 ½ . This makes the Traditional IRA inappropriate.
Which of the following indicates if the yield of a zero-coupon bond is currently trading at a premium or at a discount to its compound accreted value? [A] Original dollar price [B] Original yield [C] Maturity date [D] Dated date
B EXPLANATION To determine if a zero coupon bond is trading at a premium or discount to its accreted value you would always have to work from its original yield.
Dividends are paid by all of the following types of securities EXCEPT: [A] American Depository Receipts [B] Unit Investment Trusts [C] Money Market Funds [D] Preferred Stock
B EXPLANATION Unit Investment Trusts pay investors interest - not dividends.
A common stockholder has all of the following rights except: [A] voting [B] demand dissolution of the company's assets [C] residual claim on the company's assets [D] to examine certain books and records
B A common stockholder cannot demand the company to sell off its assets.
When an investor is deciding whether to buy puts or sell the stock short, buying the puts offers all of the following advantages EXCEPT? [A] The same or greater profit potential versus selling the stock short [B] Time value dissipates [C] Smaller capital required [D] Limited loss potential
B EXPLANATION Advantages to buying puts over selling the stock short include the fact that there is a smaller capital commitment but the same or greater profit potential. Your only risk is the premium paid to buy the option and therefore the premium is your maximum loss potential. The fact that Time value decreases is a true fact but it would NOT be considered to be an advantage.
Which of the following are TRUE concerning a money market fund? I. The rate of return is generally two points under the prime rate. II. The owners are shareholders. III. The client is subject to substantial penalties for early withdrawal. IV. A prospectus must precede or accompany an original purchase. [A] I and III [B] II and IV [C] II and III [D] I and IV
B EXPLANATION I is incorrect because it is untrue. II is correct. III is incorrect because there are no penalties for early withdrawals. IV is correct.
Which of the following statements are true regarding an order entered to buy 600 shares of ABC at 45? I. The floor broker must remain at the trading post until the order is executed II. The order is left with the designated market maker, and will be entered in the designated market maker's book III. The order must be executed at the exact price specified in the order IV. The order may be partially executed [A] I and III [B] II and IV [C] III and IV [D] I, II, III and IV
B EXPLANATION Limit orders are entered into the designated market maker's book, who will then fill them in the order received at the price specified or better. Limit orders can be partially executed, since it is not entered as a Fill or Kill.
Which of the following bonds currently trading at an 8% basis would most likely be refunded? [A] 5 1/2% of 2020, callable at 100. [B] 8 1/2% of 2030, callable at 100. [C] 8% of 2030, callable at 103. [D] 6 1/2% of 2020, callable at 103.
B EXPLANATION The bonds callable at par, with the highest coupon would most likely be called by the issuer. The highest coupon callable at par would be the best situation for the issuer since it would eliminate the high coupon payment and are callable at par rather than at a premium.
A customer buys 100 shares of ABC at 35 in a cash account and writes 1 ABC Oct 30 call at 7. How much must be deposited by the customer into the account? [A] $700 [B] $2,800 [C] $3,500 [D] $4,200
B EXPLANATION The customer must pay for the stock in full because it is in the cash account. The $700 dollars received for the option written can be used to offset the cost of the stock. Therefore, the customer must deposit $2,800. (3,500 - 700)
An elderly person has an account with a member firm. The account has $50,000 average net equity. The RR has generated $15,000 in commissions so far from 45 trades. Which of the following should the RR's supervisor do? [A] Send the client an active trading letter and allow trading to continue. [B] Require that the trading activity be reduced immediately. [C] Review the account performance and contact the customer if the total account value has fallen. [D] No action is required as the customer has not filed a complaint.
B EXPLANATION The total trades and commissions are excessive for this account. The RR's supervisor must require that the RR execute fewer trades.
An RR who is also involved in outside business activities which have been approved by their firm is sued for fraud with regard to the outside business activity. Which of the following actions should be taken by the branch manager of the RR's firm? [A] No action is required since this involves an outside business activity. [B] This situation must reported by the branch manager. [C] This situation must reported by the branch manager if the lawsuit involves a claim for damages in the amount of $10,000 or more. [D] Await a subpoena from the party filing the lawsuit.
B EXPLANATION This must be immediately reported since the incident may involve improper business conduct and practices.
When a new bond issue begins to trade in the market following the underwriting it is then trading in the: [A] Primary market [B] Secondary market [C] Third market [D] Fourth market
B Secondary Market is the normal day to day trading which occurs on the exchanges and in the OTC market. Primary Market = New Issues Third Market = List stocks traded O.T.C. Fourth Market = Institutions trading directly with other institutions
A "hedge fund" is a form of investment that involves: [A] investment in landscaping companies. [B] pooled investment by multiple investors where no specific criteria must be met to participate. [C] pooled investment by multiple investors where, due to high levels of risk, only high net worth investors are permitted to participate. [D] investment in securities on both the upside and downside of the market with the goal of limiting risk and protecting an investor's assets.
C EXPLANATION A hedge fund is a form of pooled investment that is considered to be high risk. Hedge funds use derivatives such as options and engage in short selling in order to obtain high rates of return. Because of the high level of risk involved, only high net worth investors are permitted to participate. Pooled investments that have no specific criteria needed to participate would likely be investment companies of various type (mutual funds). The "hedge" in hedge fund does not apply to landscaping. Also, "hedge fund" is not a specific reference to the investment strategy of "hedging" investments (being on both sides of the market), though historically, hedge funds engage in more short selling as a means of protecting against losses. Hedge funds have a goal of high return, not limitation of risk and protection of investor assets.
Which of the following is TRUE of an open-end investment company? [A] The transfer agent selects the fund's Investment Advisor. [B] Shareholders of a given fund can vote to list on an exchange. [C] Capital gains must be distributed to shareholders on an annual basis. [D] Undistributed capital gains are taxable to the investment company.
C EXPLANATION All capital gains must be distributed to shareholders at least annually. Some funds choose to pay monthly or quarterly, but in any case, 100% of capital gains are distributed to shareholders.
According to anti-money laundering regulations, which of the following must be reported to federal authorities? [A] All personal checks [B] Wire transfers of $5000 or more [C] Cash deposits of more than $10,000 [D] Cash and wire transfer combined that total $7000
C EXPLANATION All cash deposits of more than $10,000 must be reported to the IRS (Financial Crimes Enforcement Network).
Which of the following are true about the over-the-counter market? I. FINRA regulates trading practices in the OTC market. II. The SEC directly regulates OTC transactions. III. The Federal Reserve Board regulates which OTC securities are marginable. [A] I only [B] II only [C] I and III [D] I, II, and III
C EXPLANATION Choices I and III are correct. II is incorrect because the SEC does not directly regulate OTC transactions. The SRO, FINRA, regulates OTC market transactions. The SEC oversees the entire brokerage industry.
All of the following are true regarding IRA contributions EXCEPT: [A] Although a tax return is filed prior to April 15th, the IRA contribution may be delayed until April 15th. [B] Contributions may be made at any time between January 1st and April 15th of the following year. [C] If an extension for a tax return is obtained, the IRA contribution may be delayed until the date the tax return is filed. [D] Persons not participating in any other type of retirement plan may deduct their IRA contributions up to certain limits.
C EXPLANATION If an extension is granted for the filing of a tax return, the IRA contribution must still be made no later than April 15th.
Regulation T Settlement for corporate securities such as common stocks, preferred stocks, and bonds is: [A] Trade date plus 2 business days [B] Trade date plus 3 business days [C] Trade date plus 4 business days [D] Trade date plus 5 business days
C EXPLANATION Reg T Settlement is trade date plus four business days, or T+4. Regular way settlement is T+2.
Mutual funds must send financial reports to their shareholders at least [A] with each trade confirmation which contains a link to the reports [B] Upon request by the customer [C] Semi-annually [D] Annually
C EXPLANATION Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 require funds to send financial reports to shareholders at least semi-annually (once every six months).
Which of the following happens when a company declares a stock split? [A] There is a reduction in the company's earned surplus account and an increase in its capital account. [B] The company's assets are frozen. [C] The proportionate share of ownership in the company by each stockholder does not change. [D] There is no effect on the par or stated value of the stock.
C EXPLANATION Since a stock split affects only the existing shareholders, the proportionate ownership of each shareholder would not change.
Under the SEC SHO rules, before a broker/dealer can execute a short sale order in an equity security for a customer, which of the following is true? [A] The broker/dealer must have a long position in the security in its inventory. [B] The broker/dealer must have a net short position in the security. [C] The broker/dealer must have reason to believe it either has or can borrow the security and deliver it on settlement date. [D] The broker/dealer must be certain the customer will repurchase the security within a reasonable period of time.
C EXPLANATION The SHO rules require short sellers of common stock to make sure they have the securities in inventory or can borrow the stock before they execute the short sale order for a customer.
An uncle is buying stock in his cash account which will be given to his nephew who is a minor. The gift is considered to be completed when: [A] The securities have been paid for. [B] Settlement date arrives. [C] The securities are registered. [D] The order is executed.
C EXPLANATION The registration of the securities completes the gift to a minor.
Which of the following statements is TRUE of a variable annuity contract written with a "10-year period certain" provision? [A] The accumulation period is limited to 10 years. [B] The payout amount will be equal to the 10-year payments paid. [C] The annuitant or the beneficiary will receive payments for a minimum of 10 years. [D] The annuitant is required to make payments for at least 10 years.
C EXPLANATION With a period certain variable annuity the investor receives payments for a designated period, and payments are then halted whether or not the investor is still living.
Interest rate movements may affect all of the following regarding CMOs EXCEPT [A] rate of payments. [B] price. [C] credit rating. [D] rate of return.
C Credit Rating is not affected by interest rates. For exam purposes keep in mind that the credit rating is determined by the safety of the mortgages in the portfolio not by the level of interest rates--although they ultimately do have an effect on CMOs.
Which of the following would utilize Federal Funds most frequently? [A] Savings Banks [B] Federal Reserve Banks [C] Commercial Banks [D] Investment Bankers
C EXPLANATION Commercial banks that are unable to meet their reserve requirement will borrow Federal Funds to avoid going to the discount window at the Federal Reserve. Therefore, commercial banks utilize Federal Funds most frequently.
All of the following are purposes of the 1933 Act, EXCEPT: [A] To require registration of securities with the SEC before distribution. [B] To disclose important information to prospective investors by means of a prospectus. [C] To authorize the SEC to determine which securities are offered to the public. [D] To prohibit fraud in the sale of securities in interstate commerce.
C EXPLANATION The SEC does not: Approve of issues Disapprove of issues Review merits Pass on accuracy of statements filed with it Pass on adequacy of statements filed with it
If an investor buys a call option contract on the S&P 500 Index, what will the investor receive when exercising the call? [A] 100 shares of the S&P 500 ETF at the strike price listed on the contract [B] The market price of the index at the close of trading on the day of exercise, in cash [C] The difference between the strike price on the contract and the market price of the index at the close of trading on the day of exercise, in cash [D] Proportionate shares of S&P 500 stocks to the value of the contract
C EXPLANATION Buyers of index options receive cash that is equal to the difference between the market price at the close of trading for the index and the exercise price on the contract. Index options settle in cash, not in ETF or actual common shares. Index options have a strike price, so investors would not receive the full market price of the index at close in cash, as the strike price will offset this amount for call contracts.
Which of the following types of investments would be the most suitable for a young working couple with a joint income of $40,000, who have just opened IRA accounts and are each depositing $4,000? [A] An exploratory oil and gas limited partnership [B] "Penny stocks" [C] Growth mutual fund shares [D] Long put or call options on a blue-chip portfolio
C EXPLANATION Growth mutual fund shares would be the most suitable investment of the choices offered.
A market maker is quoting ABCD common stock, a NASDAQ security. The spread in this security is best described as the difference between [A] the dealer's cost and the sale price with the mark-up [B] the dealer's cost and the quoted bid price [C] the dealer's quoted bid and ask price [D] the highest bid and the highest ask of all market makers
C EXPLANATION The spread in a market maker's quote is the difference between the quoted bid and ask price published by the market maker, which is based on the current value of the stock, not the market maker's cost.
Payment for a mutual fund purchase must be received [A] within 7 business days following the trade date. [B] no later than the close of business on the trade date. [C] within 2 business days following the trade date. [D] before settlement date.
C EXPLANATION When purchasing fund shares, payment must be received within 2 business days following trade date. After redemption of fund shares, customers must be paid by the fund within 7 calendar days.
Which of the following orders have priority at the opening of trading on the CBOE? [A] All market orders [B] Spread orders [C] Public market orders [D] Limit orders
C Market orders from the public would always have priority at opening of trading
Which of the following are true about a listed option? I. It may be exercised immediately upon purchase. II. It is a wasting asset. III. If it is out-of-the-money, it has no intrinsic value. IV. It belongs to one of two classes of options (Calls or Puts). [A] I and II [B] III and IV [C] I, II and IV [D] All
D
An open buy order entered above the current market price of a security would be a: [A] Limit order [B] Not held order [C] All or none order [D] Stop order
D EXPLANATION The only buy orders entered above the current market price are Buy Stops. Refer to the BLSS chart.
Which of the following statements are TRUE regarding Joint Tenant with Rights of Survivorship Accounts? I. Any correspondence may be mailed to either party. II. Either party may place orders. III. The checks must be drawn to all parties of the account. IV. If one party dies, ownership passes to the survivor. [A] I and II [B] III and IV [C] I, II and IV [D] I, II, III and IV
D EXPLANATION All are true. Note, however, that when funds are withdrawn from the account the check or wire transfer must be made out to both parties.
Which of the following would be considered "sales literature" under FINRA rules? I. Brochures made available at the branch office reception area II. A research report sent to customers regarding investing in certain industries III. Reprints of materials that were prepared independently [A] I only [B] II only [C] II and III only [D] I, II, III
D EXPLANATION All three choices are included in FINRA's definition of sales literature.
When is it permissible for a non-registered individual to receive commissions? [A] Only if the individual's supervising principal approves of the payment [B] Commissions paid to the non-registered person must represent no more than 10% of the total commissions paid. [C] The non-registered person can receive commissions only for accounts that he or she introduced to the RR. [D] Only if there is an employment contract in place which allows for commission payments to be made to the non-registered spouse of a registered representative
D EXPLANATION Continuing commissions may be paid to a non-registered individual if provided for in the written employment agreement of the RR.
Escrow receipts are used in connection with which of the following? [A] Hypothecating [B] Dollar cost averaging [C] Underwriting corporate securities [D] Writing call options
D EXPLANATION Escrow receipts are used to cover short call options.
The Investment Company Act of 1940 requires that certain transactions use "forward pricing" (the valuation of mutual fund share prices as of the next computation). Which of the following transactions require "forward pricing"? I. Shares are purchased directly from the principal underwriter by individual investors. II. Shares are sold on behalf of an investor by the investor's broker/dealer through a wire order. III. Shares are redeemed directly to the fund by a customer. [A] I only [B] I and II only [C] II and III only [D] I, II, and III only
D EXPLANATION Forward pricing is required for all purchases and redemptions of mutual fund shares.
Which of the following is correct regarding the FINRA 5% markup guideline: [A] A maximum markup of 5% [B] A minimum markup of 5% [C] A charge of 5% on any transaction [D] Charges that are fair and reasonable
D EXPLANATION The FINRA 5% markup policy is a guideline only. There are times when 5% would be excessive. All sales charges are to be fair and reasonable.
An investor wants to exchange shares of one fund with shares of another fund that is within the same family of funds. Which of the following is NOT an important consideration when making such an exchange? [A] The fund's investment objectives [B] The investment risk profile of the fund [C] Tax consequences [D] The sales load of the new fund
D EXPLANATION When doing a conversion or switching of shares within the same family there would generally not be any sales load imposed; therefore, sales load would not be a consideration.
You work at ABC Broker/Dealer. A corporation approaches you and wants to open a margin account with your firm. Which of the following documents would be required by your new accounts department to open such an account? I. Corporate resolution II. Customer's margin agreement III. Loan Consent Agreement IV. Certified copy of corporate by-laws [A] I and IV [B] II and III [C] I, II and III [D] I, II, III and IV
D EXPLANATION In addition to the typical customer margin agreement and loan consent agreement required when opening a new margin account, corporations must file their corporate resolution and a certified copy of their corporate by-laws when opening new accounts.
A client of yours wants to put additional funds into his retirement account. He has an annual income of $400,000 and two children to support. He is considered a qualified plan participant. The best form of retirement account for this individual is: [A] A Coverdell Education Savings Account would be the client's best decision. [B] The best form of retirement plan would be a Roth IRA. [C] This client is best suited for a Rollover IRA. [D] This client would be best served by a Traditional IRA.
D EXPLANATION In this situation, since the individual wishes to put additional funds away for retirement, the best answer of those given would be the Traditional IRA. A - Coverdell - For educational expenses. B - Roth IRA - Income of $400,000 exceeds the maximum income limit for a Roth, and therefore they cannot contribute. C - Rollover IRA - The individual doesn't want to roll over his qualified plan, he wants to put additional funds into a retirement account. D - Traditional IRA - Allows an employed participant to make contributions of up to $6,000 annually (2019) (even if the participant has a qualified plan). If the client has a large income, they are still permitted to make a contribution of up to $6,000 (2019), but that amount will not be tax-deductible.
Which of the following is not a type of settlement? [A] Regular Way [B] Cash [C] When, as and if [D] Designated
D EXPLANATION Designated deals with syndicate allocations, not settlements.
Mr. Jones has a conservative investing approach. He has a large portfolio of blue chip common stocks and wants to use options to receive additional income from the portfolio. Which of the following would be the MOST suitable recommendation for Mr. Jones? [A] Buy Puts options on the portfolio of securities [B] Write Put options on the portfolio of securities [C] Buy Call options on the portfolio of securities [D] Write Call options on the portfolio of securities
D EXPLANATION Since he has a conservative investment approach, he should only be advised to write covered call options as this is the MOST conservative of all the four choices.
With no other positions in her account, a customer buys 100 shares of XYZ at $45/share and simultaneously buys 1 XYZ Jan 45 put for a premium of 3.The customer's maximum profit potential would be: [A] $300 [B] $4,200 [C] $4,500 [D] Unlimited
D EXPLANATION Since the customer owns the underlying common stock, the profit potential is unlimited.
All of the following statements about a Spousal IRA are TRUE EXCEPT: [A] They can be used by a married couple with a non-working spouse. [B] They allow for a total higher contribution between two separate IRA accounts. [C] The contributions do not have to be equally divided between the two IRA accounts. [D] Rollovers are allowed at any time between the spouses' accounts.
D EXPLANATION Spousal IRAs provide for a spouse who does not have earned income because he/she is not working to have his or her own separate IRA account. The combined maximum contribution limit for a married couple into the two separate IRAs is $12,000 per year (2019, $6,000 per IRA) disregarding the catch-up contributions. The contribution amount does not have to be equally divided between the two IRAs. All of the other IRA rules apply equally to each IRA account. Therefore, a rollover is not permitted between different IRA account owners.
When converting accumulation units to annuity units when annuitizing a variable annuity contract, all of the following would be considered EXCEPT the [A] annuitant's age [B] annuitant's gender [C] assumed interest rate [D] beneficiary's choice of payout options
D EXPLANATION The choice of payout options is made by the annuitant, not the beneficiary. The annuitant's age and gender are important in calculating the number of years in the annuitant's life expectancy. The assumed interest rate is important in estimating the rate of return that the insurance company can expect to earn during the life expectancy of the annuitant.
The initial action a broker/dealer must take if a customer fails to promptly pay for a purchase of securities and no extension of time is obtained, is to [A] restrict the account for 90 days. [B] close the account permanently. [C] send an immediate notice to the NYSE of his failure to pay. [D] cancel or liquidate the transaction.
D EXPLANATION The key word in the question is "initial" - after the account is liquidated it would be frozen for 90 days - but initially the firm would cancel or liquidate the transaction.
The president of XYZ Corporation owns restricted stock. Under security industry regulations, the restricted shares could be sold in all of the following transactions EXCEPT: [A] A 144 offering. [B] A private placement. [C] A registered offering. [D] An exchange offering.
D EXPLANATION The stock cannot be "sold" through an exchange offering because an exchange swaps a security with value for different security which also has value and does not constitute a "sale".
A variable annuity contract is similar to a life insurance policy because it may contain all of the following EXCEPT [A] death benefits. [B] beneficiary designation. [C] loan provisions. [D] guaranteed cash values
D EXPLANATION Variable annuities do not have guaranteed cash values.
An investor, whose investment objective is speculation, would MOSTLY be concerned with which of the following? [A] Their exposure to reinvestment risk [B] Their exposure to currency risk [C] Their exposure to interest rate risk [D] Their exposure to capital risk
D EXPLANATION When purchasing speculative investments, your biggest risk is going to be capital risk. Capital risk is the risk that the investor may lose all or part of the principal invested. When investing in highly speculative companies, this risk is amplified because of the business risk of the underlying company
