SIE FINRA
Investor is long 1 January 15 put at 4. Calculate the Maximum Gain
$1,100 [market attitude for a long put is bearish; the stock can fall to zero leaving the investor with a gain from the BE point (11) down to 0]
Which of the following is added to M2 to arrive at M3?
$100,000 and larger time deposits
The FDIC provides insurance guaranteeing the safety of a depositor's accounts in FDIC member banks for each deposit up to:
$250,000
Investor is long 1 January 15 put at 4. Calculate the Maximum Loss
$400
An investor purchases 100 shares of XYZ stock at 67 and writes 1 covered call for a premium of $2.25 each. What is the investor's breakeven point?
$64.75 BE: 67 - 2.25 = 64.75
An open-end management company may charge what amount annually and still advertise itself as a no-load fund?
.25%
How long must a BD hold the record of a complaint?
4 years
Under Rule 144, how long must a restricted security be held before it can be sold?
6 months
Investor is long 1 January 30 call at 2. Calculate the Maximum Loss
= $200 (the most an investor can lose when purchasing options is the premium paid) (2 points = $200) Maximum Loss
Investor is long 1 January 15 put at 4. Calculate the Breakeven
= 11 For a put, BE = strike price - premium (15 - 4 = 11) Breakeven
An investor is long 1 January 30 call at 2: Calculate the breakeven:
= 32 (For a call, BE = Strike Price (30) + Premium (2) 30 + 2 = 32 Breakeven
Investor is long 1 January 30 call at 2. Calculate the Maximum Gain
= Unlimited The stock could theoretically go to infinity
Mark the following as true or false: A __ The final prospectus may be delivered via the internet before a sale B. __ A shelf registration is good for 5 years C. __ The access equals delivery rule is not applicable to the preliminary prospectus D. __ Additional public offerings (APOs) of listed securities do not require delivery of a prospectus E. __ Once the SEC approves a registration, the cooling-off period ends and an effective date is established
A: T B: F C: T D: T E: F
A stock is purchased on June 10th of this year and sold on January 10th of next year for a profit of $200. How will the $200 be taxed?
As a short-term capital gain, taxed at the ordinary income tax rate (holding period is less than one year, therefore, the gain is short term and is taxed at same rate as taxpayer's other ordinary income.)
Which of the following securities will settle regular way, T + 1? a. Corporate bond b. Revenue bond C. Treasury bond D. GNMA
C. Treasury bond regular way settlement for federal government securities (T-bills, notes, and bonds) and options is T+1
An individual opens an account with your firm. She tells you that upon her death, she wants any assets in the account to be divided equally among her 3 children. She also wants the ability to change the allovation in the event that conditions change and one of the children is in greater need than the others, but she does not want to incur any significant legal expense. You would suggest that the account be opened A. as a joint account with the right of survivorship B. as a joint account with tenants in common C. as an individual transfer on death (TOD) account D. under a discretionary power
C. as an individual transfer on death (TOD) account
An issuer wishing to raise additional capital engages the services of an under-writer who proposes limiting the sale to the 6 New England states. In doing so, it is most likely that the registration method to be used will be
Coordination
Miguel Reyes purchased $200,000 of ABC corporation common stock 5 years ago. At one point, the value of his investment doubled. However, as a result of a recent class action lawsuit, the company has been ordered to pay 50% more than the company's net worth, and ABC filed for bankruptcy. What is the maximum loss that Reyes can lose on his investment?
No more than his original investment of $200,000
Define Straight
No special privileges; dividends not paid are not recovered
Define Callable
Often redeemed by the issuer when interest rates fall
One of the concerns of a registered representative (RR) is complying with the anti-money laundering (AML) rules promulgated under the Bank Secrecy Act. There are several stages to money laundering, and it is generally agreed that the one where money laundering is most easily detected is:
Placement the first stage of laundering is when funds or assets are moved into the laundering system. This stage is recognized as the time when illegal funds are the most susceptible to detection.
Define Front Running
Placing orders to buy or sell stock ahead of orders that could move the market
Which two of the following preference items define preferred stock? I. Preferred dividends must be paid before paying common dividends II. Preferred dividends are guaranteed; common dividends are not III. Preferred stockholders are paid before common stockholders in the event of liquidation IV. Preferred stockholders voting rights exceed those of common stockholders
Preferred dividends must be paid before paying common dividends Preferred stockholders are paid before common stockholders in the event of liquidation
When the interest rate paid on a debt security is less than the current inflation rate, the investor suffers from which of the following risks?
Purchasing power risk also known as inflation risk, is the risk faced by investors in almost all debt securities. it is most prevalent in a time of rising inflation where the interest payments on the security are below the rate of inflation. This will have the effect of reducing the purchasing power of the interest payments received.
Which of the following actions of the Federal Reserve Board (FRB) would likely have the effect of causing interest rates to increase? I. The FOMC buying securities II. Raising the reserve requirements III. Raising the discount rate IV. Raising the prime rate
Raising the reserve requirements & Raising the discount rate
Which of the following would be a leading economic indicator? a. S&P 500 Index b. Industrial production c. Duration of unemployment d. GDP
S&P 500 Index
The Magnolia Steel Corporation needs to build a refinery plant. It is estimated to cost $750 million to complete. What market can be used to raise the money needed to build the new plant?
Secondary Market
A customer of a BD is opening a new options account. The customer must return the options agreement
Signed and not later than 15 days after the account approval
An economic environment with little or no economic growth, but where inflation is present, is best described as
Stagflation
Regarding assignment of exercises notices, which of the following are TRUE? I. The Options Clearing Corporation (OCC) assigns short BD's randomly II. The OCC assigns short BD's using the first in, first out (FIFO) accounting method III. Short BD's can assign their short customers randomly only IV. Short BD's can assign their short customers randomly, using the FIFO accounting method or by any other fair method.
The OCC assigns short BDs randomly Short BDs can assign their short customers randomly. using the FIFO accounting method or by any other fair method
The Federal regulatory body that governs the securities industry is:
The SEC
Which of the following is NOT true for trade confirmations? a. Commissions are added to the sales proceeds to arrive at the amount the seller is to receive b. Commissions are not shown when a markup or markdown is charged c. The firms acting capacity as agent or principal is shown d. They are received by both parties at or before the settlement date
a. Commissions are added to the sales proceeds to arrive at the amount the seller is to receive
An investor is long 1 August XYZ 30 put and XYZ is has a current market value of 25. Which of the following is true? a. The August 30 put is in the money by 5 points b. The August 30 put is at the money c. The August 30 put is out of the money by 30 points d. The August 30 put has no intrinsic value
a. The August 30 put is in the money by 5 points
When a client makes a trade, industry rules require that a confirmation be delivered no later than completion of the trade. Included on that confirmation would be all of the following information EXCEPT a. the number of bonds in the transaction b. the number of shares of stock in the transaction c. the CUSIP number d. the capacity in which the BD executing the trade acted
a. the number of bonds in the transaction (when securities transaction involves bonds, the par value is indicated, not the number of bonds)
An entity such as a corporation wishing to offer securities for sale to the public for the purpose of raising capital is
an issuer
An investor is long 1 XYZ May 40 call and XYZ stock has a current market value of 44. Which of the following is TRUE? a. The May 40 call is at the money b. The May 40 call is in the money c. The May 40 call is out of the money d. The May 40 call has no intrinsic value
b. The May 40 call is in the money
Which of the following is a taxable event for an investor when it occurs? a. stock dividend distribution b. cash dividend distribution c. forward split d. reverse split
b. cash dividend distribution there is no economic benefit for investors when a stock splits or when a stock dividend occurs. In each of these cases, the investor's cost basis in the investment is adjusted based on the resulting stock the investor owns after the split or additional stock received from a stock dividend. Only cash dividends are taxable (in the year they are distributed).
For the Depository Trust and Clearing Corporation (DTCC), all of the following are true EXCEPT: a. it is a member of the Federal Reserve System b. It acts as a retail bank servicing savings and checking accounts c. it serves for the purpose of providing custody of securities d. it is a worldwide clearing agent
b. it acts as a retail bank servicing savings and checking accounts
Listed options transactions settle regular way a. on the third Friday of the expiration month b. on the next business day after trade date (t + 1) c. on the third business day after trade date (t + 3) d. when the option finally expires
b. on the next business day after trade date (T + 1)
Your BD acts as a prime broker for an institutional account. In this arrangement, your BD is likely to be providing which of the following services?
clearing and transaction settlement services for executing brokers
All of the following could be found in the money market EXCEPT: a. T-bonds maturing in 12 months b. T-bills c. Commercial paper d. Equities such as common and preferred shares
d. Equities such as common and preferred shares
Under the Securities Act of 1933, a corporation may qualify for an exemption from the registration statement and prospectus requirements under all of the following exclusionary provisions EXCEPT: a. Regulation A+ b. Regulation B c. Rule 147 d. The Investment Advisers Act
d. The Investment Advisers Act
An investor writes (sells) a July 25 ABC call. Which of the following is true? a. The investor has the right to purchase ABC stock at 25 b. The investor has the right to sell ABC stock at 25 c. The investor will be obligated to purchase ABC stock at 25 if the call is executed by the owner (buyer) d. The investor will be obligated to sell the ABC stock at 25 if the call is exercised by the owner (buyer)
d. The investor will be obligated to sell the ABC stock at 25 if the call is exercised by the owner (buyer)
A wealthy individual has established a trust and wishes to establish an account with your BD that permits the trust to engage in margin transactions. Which of the following statements regarding margin trading in trust accounts is TRUE? a. it is not permitted b. it is permitted if the trustee observes the prudent investor rule c. it is permitted with the written approval of the beneficiary of the trust d. it is permitted if provided for in the trust's documentation
d. it is permitted if provided for in the trust's documentation (margin trading is not a common practice, however, margin trading in a trust account is permitted if it is specifically provided for in the trust agreement)
Customer account statements are required to be sent quarterly unless the account contains a. bonds b. NYSE-listed stocks c. options d. penny stocks
d. penny stocks the minimum frequency for sending customer statements is once per quarter. If there is any activity in the account, then a statement must be sent the following month in which that activity took place. However, if the account contains any securities meeting the SEC's definition of penny stock, statements must be sent monthly.
Assuming all other factors to remain constant, an increase in imports would most likely cause GDP to
decrease
A fully disclosed BD:
is an inducing firm clearing its transactions through a carrying firm
One of the advantages of a security being traded on a listed stock exchange is the ready availability of buyers and sellers. This has the tendency to reduce or even eliminate:
liquidity risk
Account statements provided to customers would reflect I. year-to-date activity in the account II. long positions, short positions, or both III. whether the account was discretionary or non-discretionary IV. debt or credit balances
long positions, short positions, or both debt or credit balances
A major distinction of secondary offering is
proceeds are not received by the issuer of the securities
Twenty years ago, an investor purchased an AAA rated corporate bond with a coupon rate of 6%. The bond is about to mature and when searching for a new bond, it seems that the rates being paid on 20-year AAA bonds is about 4%. This would be an example of
reinvestment risk the risk that occurs when an investor is unable to reinvest the proceeds from the redemption of a security at the same rate previously earned.
All of the following would be considered a defensive industry security EXCEPT: A. Tobacco stock B. Food chain stock C. Steel company stock D. Utility company stock
steel company stock
If 3 individuals have a tenants in common (TIC) account with your firm and one individual dies, then
the 2 survivors continue as co-tenants with the decedent's estate
Determining monetary policy and taking actions to implement those policies is the responsibility of
the Federal Reserve Board (FRB)
A nonprofit organization requiring members to pay assessments into a general insurance fund used to meet customer claims in the event of a BD bankruptcy is
the Securities Investors Protection Corporation (SIPC)
If an investment company bought stock directly from a bank, bypassing any intermediary or broker, this trade took place in
the fourth market
Before making an investment, it is wise to evaluate the potential risk involved. It is safe to assume that I. The greater the risk, the greater the potential reward II. The greater the risk, the lower the potential reward
the greater the risk, the lower the potential reward
When an investor is long a stock:
the investor is bullish
When securities are sold to the investing public in what are known as issuer transactions, the transactions are being done in:
the primary market
A tombstone advertisement includes all of the following information EXCEPT a. the offering price b. the name of the issuer c. the risks associated with the offering d. the number of shares to be sold
the risks associated with the offering
An investor enters an order to purchase shares of XYZ stock. Another investor enters an order to sell XYZ stock. These two orders meet on the floor of a US Stock Exchange where they are executed. This transaction too place in:
the secondary market
Zoe Smith wants to invest $100,000 in ABC common stock. Which of the following would be appropriate objectives when placing the order? I. A long-term hedge against inflation II. The limited liability of ABC's common stock III. The stock may appreciate in value and pay a consistent cash dividend IV. The need for monthly dividend checks
A long term hedge against inflation The stock may appreciate in value and pay a consistent cash dividend
ABC stock is currently trading at $63. Julia Miller would like to purchase ABC stock, but not at $63. If the price of ABC stock were to fall to $58 or less, then Miller wants to buy the stock. Which type of order should Miller place considering her objective.
Buy Limit
All of the following are true for exchange-traded funds (ETFs) EXCEPT A. ETFs can be bought or sold throughout the trading day B. ETFs are not marginal securities C. ETF share prices are subject to market forces like supply and demand D. ETF transactions are commissionable trades
B. ETFs are not marginal securities
An investor writes a September 65 ABC put. Which of the following is TRUE? A. The investor will be obligated to sell ABC stock at 65 if the put is exercised by the owner (buyer) B. The investor will be obligated to purchase ABC stock at 65 if the put is exercised by the owner (buyer) C. The investor has the right to sell ABC stock at 65 D. The investor has the right to purchase ABC stock at 65
B. The investor will be obligated to purchase ABC stock at 65 if the put is exercised by the owner (buyer)
Define Convertible
May be exchanged for shares of the corporation's common stock
Define Participating
May receive a higher-than-stated dividend in profitable years
Define Adjustable Rate
Dividend is tied to industry benchmarks such as the yield of Treasury Bills
Define Capping
Entering orders designed to keep a stock from rising
An investor has placed money in a debt-like instrument issued by a financial institution and linked to the performance of the S&P 500 Index. From the investment which has a stated maturity date but makes no interest payments, the investor anticipates receiving a cash payment minus any applicable management fees when the instrument matures. This describes which of the following investments?
Exchange-traded note (ETN)
Which state of the business cycle is characterized by rising interest rates and higher wages?
Expansion
Define Marking the Close
Falsely reporting trades that never occurred or entering orders to influence the closing price of a stock
It is generally agreed that the two primary policies impacting the U.S. economy are fiscal and monetary. Which of the following would be considered tools of fiscal policy? I. Government Spending II. Operations of the Federal Open Market Committee (FOMC) III. Changing the reserve requirements IV. Taxation
Government Spending and Taxation
Define Cumulative
Is entitled to dividend in arrears
When a government actively manipulates the economy through tax and spending policies, this is referred to as
Keynesian Economics
A company operating in State A has just been notified that the state legislature has passed a new law on permitted emissions, and several of the company's plants in that state do not comply. As a result, operations at those facilities must cease. This is an example of
Legislative risk results from a change in the law. Also referred to as political risk.
Which of the following are risks that are most likely to be faced by investors in domestic debt securities? I. Liquidity risk II. Currency risk III. Political risk IV. Inflation risk
Liquidity risk & Inflation risk because debt securities are rarely listed on an exchange, they tend to have greater liquidity risk than equity securities. one of the least avoidable risks encountered by investors in debt securities is inflation or purchasing power risk. With domestic issues, there is no currency risk, and although possible, political risk is less of a factor than the others.
An investment established by states to provide other government entities such as cities or counties a place to invest funds short term is:
Local government investment pools (LGIPs)
Economic data shows that the GDP has been declining steadily over the past two quarters. This would suggest
a recession
What federal law regulates the initial sale of securities to the public
The Securities Act of 1933
The current quote for DEF stock is 49.50 big - ask 49.75. If an investor wanted to buy or sell DEF stock, we can conclude which of the following? I. The best price anyone in the secondary market is willing to sell at is 49.50 II. The best price anyone in the secondary market is willing to sell at is 49.75 III. The best price anyone in the secondary market is willing to buy at is 49.50 IV. The best price anyone in the secondary market is willing to buy is at 49.75
The best price anyone in the secondary market is willing to sell is at 49.75 The best price anyone in the secondary market is willing to buy is at 49.50
A customer has returned a signed proxy statement for stock held in street name by a member firm. He did not indicate how he wanted to vote for any issues listed on his ballot. What action, if any, is required of the member firm?
The firm must vote in accordance with the recommendations made by the issuer of the stock
Define Matched Orders
Transactions designed to give the illusion of increased activity or volume in a stock
How many primary offerings can a corporation issue?
Unlimited A corporation can only have one initial public offering (IPO), but there is no limit on the number of subsequent public offerings (SPOs) or additional public offerings (APOs) issued.
Regarding annuity products offered by insurance companies, which of the following is TRUE? a. Variable annuities are securities; fixed annuities are not b. Fixed annuities are securities; variable annuities are not c. Neither variable nor fixed annuities are securities d. Both variable and fixed annuities are securities
Variable annuities are securities; fixed annuities are not Premiums paid into variable annuities are invested in the separate account, which is a portfolio of investments intended to keep pace with inflation. Investing the premiums this way, the returns in the separate account are not guaranteed, and therefore a loss of principal is possible for the investor. Because the investor is assuming the risk, variable annuities are considered securities. Fixed annuities, however, guarantee a fixed rate of return; therefore, the risk is shouldered by the insurance company instead of the investor.
An intermediary between the buy and sell sides of a transaction is known as
a clearing agent
A private, unregulated investment company organized in such a way so as to invest and achieve high returns utilizing debt leverage and derivative products such as options and margin is best described as:
a hedge fund
The most common type of direct participation program (DPP) in the securities industry is:
a limited partnership (LP)
An individual or institution willing to hold securities positions in its own proprietary account for the purpose of providing liquidity to the marketplace is
a market maker
Many years ago, a client purchased 100 shares of ABC common stock. Due to stock splits, the customer's account now holds 500 shares of ABC. If the customer had the BD send out certificates for 200 of those shares in the mail, then
a non-trade confirmation would have to be generated not every confirmation is trade related. When there is non-trade-related or third-party activity in a client's account, that activity will require a confirmation.
A pooled investment which is organized as a trust in which investors buy shares or certificates of beneficial interest, either on stock exchanges or in the over-the-counter market, is
a real estate investment trust (REIT)
The following statements regarding electronic delivery of customer confirmations and statements are true EXCEPT a. the firm must have procedures in place to show that the information sent has been delivered as intended b. once customers agreed to electronic delivery, they can no longer receive paper copies c. customers must provide written consent to electronic delivery d. the firm must have procedures in place to show that the confidentiality and security of personal information are protected
b. once customers agreed to electronic delivery, they can no longer receive paper copies customers are always permitted to ask for paper copies of their account activity, even when they have a signed agreement to have confirmations and statements delivered electronically.
All of the following would be legal investments in an IRA EXCEPT: a. annuities issued by the ABC Life Insurance Company b. whole life insurance issued by the ABC Life Insurance Company c. mutual funds d. gold coins made by the U.S. Treasury
b. whole life insurance issued by the ABC Life Insurance Company (any form of life insurance is a prohibited investment in an IRA, however, another insurance company product, an annuity, is permitted)
Which of the following statements regarding the third market is TRUE? a. it refers to trading of unlisted stocks directly between institutional investors b. the services of a broker acting as an agent or intermediary are not used c. It is composed of listed securities traded OTC d. it is composed only of unlisted securities
c. It is composed of listed securities traded OTC
The Uniform Securities Act (USA) is the template from which state securities laws are derived. Under the USA, a BD would have to register with the state under all of the following conditions EXCEPT: a. There was an office in the state b. Calls were directed to prospects in the state c. The BD made a market in municipal bonds issued by the state D. Calls were received from clients in the state
c. The BD made a market in municipal bonds issued by the state
All of the following is true about an investor who sells a stock short EXCEPT: a. the investor will close his position by purchasing the stock b. the price of the stock must go down in order to profit c. loss is limited to the amount of the investment d. the investor is bearish
c. loss limited to the amount of the investment
Rights of common stockholders include all of the following EXCEPT: a. voting for the board of directors (BOD) b. transferring ownership of the stock at any time c. receiving audited semiannual reports d. preemptive rights
c. receiving audited semiannual reports
A client of a brokerage firm opened an UTMA account for her granddaughter 5 years ago, naming the child's father as the custodian. Through appreciation as well as additional contributions, the account value has grown to $50,000 and generates interest and dividend income in excess of $3,000. Who bears the liability for the taxes on his income? a. the donor b. the custodian c. the granddaughter d. no one, because there are no taxes on an UTMA account until the beneficiary takes possession of the account.
c. the granddaughter the tax liability is that of the beneficiary of the account, the minor. In reality, the parents are responsible for making sure their child files the proper tax return; the legal obligation is that of the minor.
All of the following are true EXCEPT: a. breakeven (BE) is always the same number for both buyer and seller of an option contract b. the maximum loss for options buyers is the premium paid c. the maximum gain for options buyers is always unlimited d. BE is calculated using the same formula for both buyer and seller
c. the maximum gain for options buyers is always unlimited BE is calculated using the same formula for both buyer and seller. Therefore, BE is always the same number for both buyer and seller. the formula for calls is strike price plus premium and the formula for puts is strike price minus premium. The most any options buyer can lose (max loss, or ML) for a call or a put is the premium paid. However, max gain (MG), while unlimited for a call buyer (bullish), is limited for a put buyer. Remember that the market attitude of a put buyer is bearish, and the farthest the stock could fall is zero. Therefore, the put buyer's MG is limited to amount from BE point to zero.
All of the following are benefits for the limited partners in a direct participation program (DPP) EXCEPT: a. Passive losses b. Flow-through of income c. Unlimited liability D. An investment managed by the general partner (GP)
c. unlimited liability
