SIE missed
1: Which of the following describes developmental oil and gas drilling programs? A They combine exploratory and developmental drilling. B Drilling takes place in proven areas. C Depletion allowance is not available for this type of drilling. D Return potential is greater than that offered by exploratory drilling.
"Developmental" means drilling in areas that have proven oil and gas reserves; therefore, the risk of a dry hole is much less than drilling in totally unproven areas (called exploratory or wildcat drilling). But, because the drilling is being done in an area with less risk, the return potential is less than exploratory drilling. Depletion is just as allowable here as in any oil/gas program. A combination program combines both exploratory and developmental drilling.
8: The term for active stock that represents the number of shares owned by the public is A Issued stock. B Authorized stock. C Outstanding stock. D Treasury stock.
"Outstanding stock" is the term for issued stock less any treasury stock reacquired by the corporation.
12: Treasury bills are quoted A In 1/8 dollar amounts. B On a dollar cost averaging basis. C On a discount rate. D On a discount yield basis.
T-Bills are quoted in the marketplace on a discount yield basis.
5: A variable life insurance policyowner took a loan against his policy several years ago. Because of poor investment performance, his policy's cash value has dropped to a negative value of $500. What are the policyowner's options?
A He has defaulted on his loan and must pay back the loan in full or surrender his policy immediately. B He has 31 days to pay back enough of the loan to bring the cash value positive. C He can reduce his death benefit to make up for the short fall in his cash value. D Do nothing and hope the performance improves in the near future. If poor performance causes the cash value to go negative, the policyowner has 31 days to pay back enough of the loan to bring the cash value positive again.
4: All of the following statements refer to European style options EXCEPT
A Often apply to stock index options. B Can be exercised at any time. C Can only be exercised during a specific time period. D Are less risky than American style options. Unlike American style options, European style options can only be exercised during a specific time period, usually the last trading day before expiration, making them less risky. Options on stock indexes are generally European style.
13: A Series 6 registered representative may take a customer order for all of the following investments EXCEPT A A closed-end bond fund in the primary market. B A no-load mutual fund. C A sector mutual fund. D A closed-end bond fund in the secondary market.
A Series 6 representative is not licensed to take orders for secondary market securities.
2: XYZ stock is selling at $50 on September 30. All of the following options contracts are in the money EXCEPT
A XYZ December call with a strike price of $40. B XYZ December put with a strike price of $45. C XYZ December call with a strike price of $45. D XYZ December put with a strike price of $55. Remember that this is an EXCEPT question. We are looking for the options contract that is out of the money. A put is out of the money if the price of the underlying security is greater than the strike price.
9: Which of the following applies to a call option contract? A The call holder has the obligation to buy at the strike price. B The call writer has the right to sell at the strike price. C The call holder has the right to buy at the strike price. D The call writer has the obligation to buy at the strike price.
A call option is a contract that gives the call holder the right to purchase 100 shares of the underlying security, at the strike price (also called the exercise price), until expiration. The call writer has the obligation to sell 100 shares of the underlying security at the strike price. Long call - right to buy. Short call - obligation to sell.
14: A corporation pays a stock dividend to A Reduce the price of its stock. B Reduce accounts payable. C Conserve cash. D Promote its stock.
A corporation pays a stock dividend to reward the shareholders while saving cash.
9: A heavily leveraged corporation has which of the following? A High bond ratio B Low rate risk C Low debt/equity ratio D High debt/equity ratio
A corporation with more debt has a higher debt/equity ratio and is more vulnerable to interest rate increases.
6: A client wants to open a UTMA account for her 12-year-old son. Whose tax ID is used? A Father B Mother C Son D Custodian
A custodial account, such as a Uniform Transfers to Minors Act (UTMA) account, must be opened with the tax ID (Social Security number) of the minor. All securities are registered in the name of the custodian for the benefit of the minor.
9: The highest price a dealer is willing to pay for a security is known as the A Net asset value. B Offering price. C Asked price. D Bid price.
A customer selling a secondary market security will receive the bid price, which is the highest price a dealer is willing to pay.
13: A guaranteed bond is one that is guaranteed by another company or entity. We would typically see a guaranteed bond used in which of the following situations? A Registered secondary offering B Competitive bid underwriting C Merger D Spinoff
A spinoff occurs when a division of the company is separated into a new entity. Often this new entity will issue bonds that are guaranteed by the company it was formerly associated with to reduce interest costs. The spinoff entity is sometimes held as a subsidiary. In other instances, it is sold to another company.
3: What is a firm required to do when it receives a cash deposit in excess of $10,000 from one customer in a single business day? A Keep a record of the transaction on file for 3 years. B File a Currency Transaction Report (CTR). C Freeze the account immediately. D File a Suspicious Activity Report (SAR).
A firm must file a Currency Transaction Report (CTR) within 15 days if it receives more than $10,000 in currency from a customer within a 24-hour period. A record of this activity must be kept on file for 5 years.
10: Which of the following statements is NOT correct concerning an IRA? A Married individuals can contribute into two separate accounts, up to a specified amount for each person. B Anyone with earned income can have an IRA. C An individual can contribute 100% of earned income up to a specified limit. D Married individuals must contribute into one account for both spouses, up to a specified amount for each person.
A married couple, under age 50, who file a joint tax return can contribute the maximum amount (currently $12,000) into two separate accounts, even if only one spouse had earned income. Each account contribution cannot exceed a specified amount for individuals (currently $6,000) in any 1 year.
7: A private securities transaction exists when a representative A Has a joint account with a family member. B Is selling away. C Makes a trade for his personal account. D Is engaged in any outside business activity.
A private securities transaction, or selling away, exists when a representative is involved in the sale of securities that are not sponsored by the firm.
11: A redeemable security is A Traded on an exchange or OTC market. B A security with no secondary trading. C A negotiable security. D A marketable security.
A redeemable security is non-negotiable (i.e., nonmarketable) and must be redeemed by the issuer. Unit Investment Trusts (UITs), face amount certificates (FACs) and open-end mutual funds are all examples of redeemable securities.
12: Which of the following describes a tender offer? A A tender offer must remain open for a minimum of 45 days. B Usually offered at a discount to current market price. C Investors selling into the tender offer may receive different prices. D Shareholders selling into the tender must deliver the shares net long.
A shareholder selling shares into the tender offering must deliver the shares net long. In other words, the investor must deliver the shares, not a warrant to purchase the shares or an option to buy the shares. A tender offer is usually at a premium to the current market price of the shares. All investors who sell into the tender offer must receive the same price; if a company increases the tender offer price, it must pay all shareholders the higher price, even if they initially sold at a lower price. A tender offer must remain open for at least 20 days; and if the tender price is changed, it must remain open for an additional 10 days.
10: A company has been in arrears on dividend payments for three quarters. Which of the following must get paid before common shareholders can receive a dividend? A Convertible preferred B Cumulative preferred C Callable preferred and Convertible preferred D Callable preferred, convertible preferred, and cumulative preferred
All dividend payments must be made to owners of all classes of preferred stock before common shareholders may receive a dividend. The cumulative feature entitles the owner to all dividends that were also in arrears.
8: An issuer can avoid registration by engaging in a private placement of securities under Regulation D if certain requirements are met. Which of the following statements is CORRECT? A No more than 35 non-accredited investors may be involved in the sale. B The buyer must be given access to the financial information that would be found in a prospectus of a public offering. C The issuer needs assurance that the buyer has no intentions of making a quick sale of the investment. D All of the above are correct statements.
All of the statements are correct regarding Regulation D conditions.
12: ADRs are used to facilitate which of the following? A Foreign trading of domestic securities B Domestic trading of foreign securities C Domestic trading of U.S. government securities D Foreign trading of U.S. government securities
American depositary receipts (ADRs) are certificates issued by a bank in the United States to represent a certain amount of shares of a foreign company. Since ADR transactions are regulated under the U.S. securities regulations, they also enjoy the same protection as domestic transactions.
15: Which of the following entities manages federal finances? A Congress B FINRA C Internal Revenue Service D Treasury Department
Among other functions, the Department of the Treasury is responsible for managing federal finances, collecting taxes, issuing currency and coinage, and managing government accounts and public debt.
2: A municipal dealer has bonds "out firm" to another dealer. Which of the following statements applies to this situation? A The time period is not specified. B This is a type of AON. C The price can be re-negotiated. D The dealer is locked into a quote.
An "out firm" quote is a bid price guaranteed to a dealer by another dealer for a specified period of time.
14: An Emerging Market Currency ETN may be an appropriate investment for which of the following persons? A A sophisticated investor seeking to invest in a portfolio of emerging market equities B An experienced investor who is building a long-term portfolio of debt securities. C A sophisticated investor seeking current income D An experienced investor looking for a simple way to gain exposure to a portfolio of emerging market currencies
An Emerging Market Currency ETN may be a simple and cost-effective way for this investor to gain exposure to a basket of emerging market currencies.
14: Which of the following activities is an associated person who is not a registered representative permitted to perform? A Prequalify a prospective customer B Make an investment recommendation C Provide account opening forms to a new customer D Take an unsolicited order from a customer
An associated person who is not a registered representative may provide account opening forms to a new customer. However, an unregistered person is prohibited from prequalifying and profiling a prospective customer, discussing, and recommending investment options, soliciting business and placing orders (both solicited and unsolicited).
4: A natural person may be considered an accredited investor if, in each of the past 2 years, his or her income exceeded A $10,000 B $50,000 C $100,000 D $200,000
An individual natural person is an accredited investor if his or her income in each of the past 2 years exceeded $200,000 and it is reasonable to expect the same income level in the current year.
13: Under the Uniform Securities Act, the definition of an investment adviser includes A A trust company. B A lawyer advising clients on pension plan investments without accepting a fee. C The publisher of an investment newsletter that promotes specific investments for a fee. D A general circulation newspaper that has an investment column.
An investment adviser advises clients on investment selections for compensation. The lawyer's advice and the general circulation newspaper column are examples of incidental business practices; they are not compensated for the advice and therefore do not fall under the Act's definition of investment advisers. Trust companies are also excluded from the definition of an investment adviser.
10: An investor who writes a covered call option is subject to A Limited profit and unlimited loss. B Unlimited profit and unlimited loss. C Unlimited profit and limited loss. D Limited profit and limited loss.
An investor who is long stock establishes a covered write by writing calls on a stock position. The calls are "covered" because the investor owns the underlying security. Writing calls provides income to the investor and creates a partial downside hedge, but limits the investor's potential profit on the stock.
15: If a municipal financial professional (MFP) gives $300 to the campaign of the mayor in the city where the MFP lives, for what period of time is the MFP's employing municipal firm prohibited from doing a negotiated underwriting with the municipal issuer? A 6 months B 1 year C 18 months D 2 years
Any MFP who violates the contribution rules would trigger a 2-year prohibition for the firm in which the firm would not be able to be involved in a negotiated underwriting with the municipal issuer.
5: The amount of stock that a corporation is allowed to issue is called A Treasury stock. B Authorized stock. C Outstanding stock. D Issued stock.
Authorized stock is specified in the corporate charter and is the total number of shares that the corporation may ultimately issue to the public.
3: If the prime interest rate increases, bond prices will generally A Move in parity with the prime rate. B Increase. C Decrease. D Remain the same.
Bond prices are inversely related to interest rates; therefore, a rise in the prime rate will generally cause high-grade bond prices to fall.
12: When are broker/dealers required to file a Currency Transaction Report? A Multiple transmittals of currency by one customer B Any transmittal of funds of at least $2,000 C A single currency transaction in excess of $10,000 D Any transmittal of currency outside the U.S.
Broker/dealers are required to file a Currency Transaction Report (CTR) for single transactions involving currency that exceed $10,000, or multiple transactions during any single business day that total more than $10,000.
11: Business Continuity Plans are required to address all of the following EXCEPT A Customer communications. B Data backup and recovery. C Regulatory reporting. D Protecting member profitability.
Business Continuity Plans are intended to help members meet obligations to customers during emergencies or significant business disruptions. They are not intended to protect member profitability.
9: An investor purchased 100 shares of an investment company and paid the market price plus a commission. What did the investor purchase? A Open-end investment company shares B Closed-end investment company shares C No-load funds D Any of the above is correct
Closed-end shares are purchased at market price plus a sales commission, which differs from open-end shares, which are purchased at the NAV plus a sales charge.
8: Recommending the exchange of a deferred variable annuity is subject to suitability standards and to all of the following additional considerations EXCEPT A Loss of benefits of the existing annuity. B Commissions for the firm and sales representative. C Features and enhancements of the new annuity that would benefit the customer. D Surrender charges on the existing annuity.
Commissions should not be a factor in considering the exchange of a deferred variable annuity. An exchange must benefit the customer.
11: According to MSRB rules, if a control relationship exists between an issuer and a municipal securities dealer, the nature of that relationship must be disclosed when A The broker/dealer is acting as a principal, but not as an agent. B The transaction occurs in the primary market, but not the secondary market. C The transaction occurs in the secondary market, but not the primary market. D The broker/dealer is acting as a principal or an agent.
Control relationships must be disclosed when the broker/dealer is a principal or an agent. This is true for both new issues in the primary market or secondary trades. In addition, control relationships must be disclosed in the official statement and on the confirmation.
15: Which of the following is FALSE regarding ETNs? A An ETN's return is based on a market index. B The investor may hold until maturity or trade on an exchange. C Principal and interest are not guaranteed. D ETNs pay periodic interest.
ETNs do not pay periodic interest. At maturity, the investor receives a principal amount based on an underlying market index.
12: Triple witching involves the expiration four times a year of all of the following EXCEPT A Equity options. B Equity index options. C Equity index futures. D Equities.
Equities do not expire. "Triple witching" is the expiration of options on equities, equity index options, and equity index futures. This occurs four times a year in March, June, September, and December.
1: All of the following are characteristics of an Exchange-Traded Fund (ETF) EXCEPT A ETFs usually trade near their NAV. B ETFs sell directly to investors. C ETFs can be purchased on margin 30 days after the IPO. D ETFs provide intraday liquidity.
Exchange-Traded Funds (ETFs) allow intraday liquidity and have a very low, or no, minimum investment requirement. ETFs do not sell individual shares directly to investors; investors buy and sell shares on an exchange.
11: FINRA's main functions include all of the following EXCEPTA Monitoring compliance with rules of ethical practice. B Writing rules enforcing broker/dealer behavior. C Approving SEC rules and violations. D Governing broker/dealer and registered representative trading activity.
FINRA regulates only the over-the-counter and national exchanges, monitoring compliance with ethical practices and writing rules enforcing broker/dealer behavior. The SEC monitors FINRA, not the other way around.
1: The maximum value of a gift allowed by FINRA Rules is A $25 per gift. B $50 per person per year. C $100 per gift. D $100 per person per year.
FINRA's Gift Rule, which prohibits FINRA members and associated persons from giving anything of value in excess of $100 per year to any person if the payment is related to the business of the recipient's employer, does not prohibit ordinary and usual business entertainment.
4: FinCEN requires banks and broker/dealers to adhere to anti-money laundering (AML) rules, including A SRO reporting procedures. B A designated independent party to test the procedures. C Perpetrator forfeiture rules. D Blue sky laws.
Firms are required to establish anti-money laundering (AML) policies and procedures, provide employee training, appoint an AML compliance officer and schedule independent testing of the program. In addition, the procedures must contain features to detect suspicious activity and money laundering activity as well as confirm customer identification.
1: When a customer adds another owner to their account, the Customer Relationship Summary (Form CRS) must be updated within A 15 days. B 30 days. C 45 days. D 6 months.
Form CRS (Customer Relationship Summary) must be updated within 30 days of any material changes in customer information. Changing the account registration is significant.
6: Any changes to information on Form U4 must be updated within how many days? A 10 days B 20 days C 30 days D 90 days
Form U4 information is stored in FINRA's Central Registration Depository (CRD) database. Any changes to Form U4 information must be updated within 30 days.
11: Which of the following industries is most cyclical? A Natural gas B Home appliances C Retail D Tobacco
Home appliances are big-ticket consumer items, and their purchases and sales rise and fall with the economic cycle.
A Buys XYZ Monday, March 23 in a regular way trade B Buys XYZ Wednesday, March 25, for cash settlement C Buys XYZ Friday, March 27, for cash settlement D Buys XYZ Friday, March 20 in a regular way trade
If Monday, March 23 is the ex-date, then Tuesday, March 24 is the record date. Therefore, a regular-way purchase on Friday, March 20 would buy (or receive) the dividend because settlement occurs on Tuesday, March 24 (or T+2) meeting the requirement that settlement must occur on or before the record date.
7: Which of the following IPO-related activities is prohibited because it is fraudulent and manipulative? A Broker/dealers and registered persons refuse to buy the IPO from the syndicate. B A restricted person owns 5% of an established portfolio and that portfolio purchases the IPO. C IPO purchasers sign a positive affirmation that they are not restricted persons. D A firm that is participating in an IPO, that is trying to sell a substantial number of shares to its customers, makes an agreement to repurchase the shares at no less than the original sales price.
If a firm is a participant in an IPO, it is prohibited from making an agreement to repurchase the shares at no less than the original sales price.
4: A registered representative (RR) has failed to complete her Regulatory Element on time. Which of the following is TRUE? A The RR's registration will be revoked, and the RR will have to submit a new Form U4 and retake a qualification exam. B The RR may continue to perform all duties as a registered person while completing the Regulatory Element, but must pay a penalty fee. C The RR's registration will be inactive, so the RR must cease all activities as a registered person until the requirement has been met. D The RR will automatically be given a 120-day extension period to complete the required training.
If a registered person has not completed the Regulatory Element within the prescribed time frames, that person's registration will be inactive until the requirements have been met. Any person whose registration becomes inactive under this rule must cease all activities as a registered person and is prohibited from performing any duties and functioning in any capacity requiring registration.
10: An investor and her spouse's joint income was over $300,000 for the last 2 years, and they expect to earn about the same in the current year. What type of an investor does this describe? A Qualified investor B Accredited investor C Qualified institutional buyer D Institutional investor
If an investor has joint income with the spouse that exceeds $300,000 in the prior 2 years and reasonably expects to earn about the same in the current year, that investor is considered to be an accredited investor.
4: Which of the following would increase U.S. exports? A Balance of payment credits B Exchange rate increases C Strengthening dollar D Weakening dollar
If the dollar is weak (lower-priced than the foreign currency) and the balance of payments is in deficit, then U.S. exports should suffer less.
2: An individual who has been previously registered with another firm is applying for registration with a new member firm. The new member firm has requested the Form U5 from the applicant. Within how many days must the applicant provide the Form U5 from his previous registration? A 24 hours B 2 business days C 5 business days D 10 calendar days
If the member requests the Form U5 from the applicant, it must be provided within 2 business days.
14: If an option contract is covered, this means that A The option holder is long the underlying security. B The option holder is short the underlying security. C The option writer is long the underlying security. D The option writer is short the underlying security.
In a covered option contract, the option writer is long or owns the underlying shares. If the option holder exercises the option contract, the option writer is obligated to deliver the security or cash and is protected by owning the underlying security or having cash available equal to the exercise price. Remember that the terms naked and covered apply to the options writer.
13: Which of the following statements is true with regard to ABLE accounts? A Accounts are available to individuals with any type of disability. B An individual is limited to $2,000 in an ABLE in order to maintain eligibility for Medicaid. C Individuals must establish an account in their state of residence. D The onset of the disability must have begun before age 26 in order to be eligible to establish an account.
In order to establish an ABLE account, the onset of the disability must have begun prior to age 26. ABLE accounts are limited to individuals living with significant disabilities. Funds in an ABLE account are disregarded when determining eligibility for certain means-tested benefit programs. An individual can have up to $100,000 in an ABLE account and still be eligible for SSI. Medical assistance through Medicaid is available even if the individual has in excess of $100,000 in an ABLE account.
5: According to FINRA rules on private securities transactions, an associated person entering into a series of private transactions without compensation must provide the member firm with all of the following EXCEPT A A statement of possible compensation. B A description of each proposed transaction. C The person's proposed role in the transactions. D A written notice on each transaction in a series.
In the case where a series of related transactions without compensation are involved, an associated person needs to provide only a single written notice.
6: Which oil and gas program has the least capital risk? A Developmental B Exploratory C Drilling D Income
Income programs are the safest type of oil and gas program because they are based on producing wells where production is already established and quantifiable.
5: According to FINRA rules, which of the following falls under the definition of an independently prepared reprint? A A copy of an investment company ranking prepared by the research department of the broker/dealer B A copy of a magazine article on retirement planning issued by a publisher that is not affiliated with the member C An excerpt from a monthly market letter prepared by the broker/dealer and previously approved by FINRA D A copy of a newspaper display ad listing the broker/dealer's services
Independently prepared reprint means any reprint of an article or its excerpt issued by a publisher not affiliated with the member using the reprint.
7: A registered representative (RR) has acquired a new customer with an existing portfolio that has five holdings that are equally weighted in the portfolio: technology, pharmaceuticals, energy, S&P 500 index fund, and money market fund. The RR notes that in addition to market risk, this portfolio is subject to which of the following risks? A Political B Liquidity C Credit D Nonsystematic
Inherent in this portfolio is nonsystematic risk. Nonsystematic risks affect particular companies or sectors of the economy and can be reduced through further diversification. In other words, the registered representative could further reduce the risk in this portfolio by adding stocks that are in other industry sectors or investing in other asset classes, like bonds.
15: Which of the following is TRUE regarding the review or approval of institutional communications? A Institutional communications must be reviewed or approved by the financial regulatory branch of each state government prior to use. B Institutional communications do not need to be reviewed or approved. C Institutional communications must be reviewed or approved by a registered principal. D Institutional communications must be reviewed or approved by FINRA prior to use.
Institutional communications must be reviewed or approved by a registered principal. This review or approval may be executed after the first use of the material as long as the firm has training in place for their associated persons
3: Which of the following would be included in the definition of an investment adviser? A An attorney who works with his client on a Chapter 11 re-organization B A business professor who teaches a class in portfolio management C A broker/dealer who charges a fee for analyzing client portfolios D An individual who publishes a quarterly newsletter with a model portfolio that includes buy/sell recommendations.
Investment advisers are paid for providing customer-specific investment advice. This does not include professionals, such as lawyers or accountants, whose advice is incidental to their primary profession and who are not paid specifically for such advice. Attorneys may work with their clients on Chapter 11 reorganization and are not considered investment advisers in this capacity. Publishers are not considered investment advisers if they do not provide investment advice specific to the needs of a particular client.
7: A letter of intent to allow an investor to qualify for sales discounts may be backdated how many days? A 30 days B 90 days C 180 days D Backdating is not allowed for sales discounts.
Letters of intent may be backdated up to 90 days to qualify for sales discounts.
1: Variable life policy provisions allow for A Converting the policy to a term policy at certain intervals. B Changing among investment alternatives within the separate account subject to current capital gain/loss consequences. C Loans against a percentage of the policy's cash value. D The payment of a death benefit in the event of suicide within the first year of the policy.
Loans are permitted against a minimum of 75% of the cash value after the policy has been in place for 3 years.
15: Mortgage-backed issues are considered to be safe instruments. Which statement is INCORRECT concerning these securities? A Interest received is subject to federal, state and local taxation. B GNMA (Ginnie Mae) is a government-owned corporation. C GNMA, FNMA (Fannie Mae), and FHLMC (Freddie Mac) will all hold FHA and VA loans in their portfolios. D GNMA, FNMA, and FHLMC are all fully backed by the federal government.
Only GNMA is fully backed by the full faith and credit of the U.S government guaranteed agency. FNMA and FHLMC are government-sponsored enterprises that may borrow from the Treasury.
10: Which of the following needs voter approval? A Special assessment bond B IDB C GO D Sewer revenue bond
Only GO bonds (general obligation) require voter referendums.
5: Registered investment companies are required to have directors on their board that are independent of the management company. What is the required minimum percentage of unaffiliated directors? A 50% B 60% C 25% D 40%
On a registered investment company's board, 40% of the directors are required to be unaffiliated with the company.
11: All of the following are grounds for statutory disqualification EXCEPT A Any felony in the last 10 years. B Lying on the Form U4. C Being barred by another SRO. D Any misdemeanor in the last 5 years.
Only securities-related or theft-related misdemeanors are grounds for statutory disqualification. All the other activities are grounds for statutory disqualification from membership or association.
6: Which one of the following statements describes the market manipulation practice of painting the tape? A Purchasing a large enough number of shares of a security to be able to control the supply of stock B Spreading false or misleading information about a company to impact the price of a security C Buying and selling a security among traders to create a high level of activity to influence the price of a stock D Trading ahead of customer orders
Painting the tape is defined as traders buying and selling a security among themselves to create a high level of activity that does not exist in order to influence the price of a stock.
8: How often must broker/dealers report political contributions of their municipal finance professional to the SRO? A Monthly B Quarterly C Biannually D Annually
Political contributions must be reported quarterly. The report is due at the end of the month following the calendar quarter.
13: Which of the following has the greatest risk in the event of a company liquidation? A Debentures B Zero-coupon bonds C Common stock D Preferred stock
Preferred stock and debt, whether unsecured or zero coupon, has priority over common stock in a liquidation. Therefore, stock has the greatest risk if a company is liquidated.
10: Which of the following factors will most likely create reinvestment risk? A Opportunity cost B Falling interest rates C Short-term investments D Decreasing asset values
Reinvestment risk is the risk that, upon maturity, if interest rates have fallen, the income produced by the currently available bond yields may be much less.
3: In the event of a company's liquidation, who has the most senior claim over the other assets? A The preferred stockholders B The bondholders C The common stockholders D None of the above
Preferred stockholders have a senior claim to assets when compared to common stockholders in the event of a company's liquidation; however, they are subordinate to those holding debt securities (bondholders). In other words, they have preference over common.
14: Prepaid tuition plans allow the purchase of units or credits at participating colleges or universities. Which of the following statements is TRUE? A Residency is never required. B Future tuition can be secured at current prices. C Room and board are covered. D Tuition for elementary and secondary schools can be prepaid.
Prepaid tuition plans allow the purchase of units or credits at participating colleges/universities for future tuition at current prices. They offer a significant benefit considering the escalating costs associated with college tuition. Room and board are not covered , nor is tuition for elementary and secondary schools. Most prepaid tuition plans are sponsored by state governments and have residency requirements.
8: Which of the following accurately describes an ETN? A Interest payments fluctuate based on the underlying index. B Principal at maturity is based on an index. C ETNs are senior secured debt instruments. D ETNs have principal protection.
Principal at maturity is based on the underlying index at that time, minus fees. ETNs are unsecured debt; they are backed by the credit of the issuing bank. ETNs have no principal protection. They do not pay periodic interest.
8: Participation in seminars, radio or television interviews would be best described as A Correspondence. B Institutional communications. C Public appearances. D Sales presentation.
Public appearances refer to participation in seminars, radio or television interviews, or other public speaking activities and are included in the definition of retail communications.
15: What type of risk deals with the possibility of earning a lower yield on a new bond after an existing bond matures? A Market risk B Inflation risk C Reinvestment risk D Interest risk
Reinvestment risk occurs when interest rates have fallen and the proceeds from a bond that has just matured must be reinvested at a lower rate. This would reduce the investor's stream of interest income.
10: REITs are traded A At net asset value. B Both in the over-the-counter market and on exchanges. C In the over-the-counter market only. D On exchanges only.
REITs are closed-end or publicly traded. Many are listed, and some are on NASDAQ. Some REITs are non-traded and are redeemable after a certain time or event.
5: The ABC European Bond Fund invests in the debt of European corporations and other companies doing business in Europe. Investors in this fund are subject to all of the following risks EXCEPT A Inflation risk. B Interest rate risk. C Currency exchange risk. D Liquidity risk.
Redeemable securities, such as mutual funds, are liquid investments. Bonds are subject to both inflation and interest rate risk, and foreign investments are subject to currency exchange risk.
3: An associated person was originally registered in 2014 and it is now 2020. When is the next time the individual would be required to take Regulatory Element training? A 2020 B 2021 C 2022 D 2024
Regulatory Element training is due on the second anniversary of original registration and then every 3 years thereafter. The next time this associated person would be required to complete the training is 2022 (2014 + 2 + 3 + 3).
9: Which of the following is FALSE regarding a client's risk tolerance? A The risk tolerance associated with the investment is a non-financial consideration of an investment risk. B A 65-year-old retiree will have a higher risk tolerance than a 40-year-old professional. C It determines the investor's degree of tolerance for negative changes in the portfolio. D A person who is planning to buy a house within the next year likely has a low risk tolerance.
Risk tolerance might be defined as the degree of uncertainty that investors can tolerate with regard to a negative change in the value of their portfolio. An investor's risk tolerance typically varies according to age, investment experience, income requirements, and financial goals, among other factors. It is unlikely that a person of retirement age would have a greater degree of risk tolerance because their investment time frame is shorter.
13: Which of the following is NOT a feature of a Roth IRA? A Distributions may be deferred beyond the attainment of age 72. B Qualified distributions at the time of retirement are not taxed as income. C Contributions are tax deductible. D Contributions may continue, regardless of age, if there is earned income.
Roth IRA contributions are NOT tax-deductible. Because the contributions are made with after-tax dollars, qualified distributions are not income taxable. In order to contribute to an IRA, the individual must be working and must have earned income. Distributions (RMD) do not have to begin at age 72.
15: Which of the following must be sold by prospectus? A LMN County 4% bond B Illinois 5% bond ABC Bank 6% debenture D ABC Bank Corp 6% debenture
Securities issued by bank holding companies are not exempt
14: A municipal finance professional (MFP) works for a broker/dealer seeking to underwrite a municipal securities offering by a local town. The mayor of the town is seeking re-election. The MFP, who lives in the town, contributed $100 to the mayor's re-election campaign 13 months ago. How much more can the MFP contribute without jeopardizing the broker/dealer's business? A $250 B $200 C $150 D $50
Since the MFP lives in the town and can therefore vote for the mayor, he may contribute an additional $150 to the re-election campaign (for a total of $250).
3: Once a red herring (preliminary prospectus) has been issued to a customer, each of the following activities is permissible EXCEPT A Discussing the information in the preliminary prospectus with the customer. B Sending the final prospectus to the customer once the registration is effective. C Obtaining an indication of interest in the issue from the customer. D Guaranteeing the offering price of the issue to the customer.
Since the offering price has not yet been determined, it cannot be guaranteed. The word "guarantee" should always be treated cautiously on the exam.
7: A corporation uses the statutory voting method. The shareholder owns 200 shares and there are five vacancies up for re-election. What is the maximum number of votes the shareholder may cast for any one vacancy? A 1 B 5 C 200 D 1,000
Statutory voting rights allow for one vote per share per vacancy. No matter what the number of vacancies is, the maximum limit of votes per vacancy is one per share. In this case, 200 shares owned = 200 votes per vacancy.
15: A corporation has issued 10 million shares of common stock that are currently trading for $5 per share. There are 2 million shares of treasury stock. What is the total value of outstanding common stock shares? A $8 million B $10 million C $40 million D $60 million
Ten million issued shares minus 2 million treasury shares equals 8 million shares outstanding. Eight million outstanding shares x $5 / share = $40 million. Remember: Outstanding Stock = Issued Shares - Treasury Stock
4: Which of the following is a characteristic of term bonds? A Maturities at regular intervals B Same date maturities C Varying maturities D Different borrowers
Term bonds are issued all at once and they all mature on the same date.
A Acting as the managing underwriter of the offering of partnership units. B Acting as general manager of partnership functions and works. C Acting as property manager. D Acting as the organizer of the partnership.
The "syndicator" is the organizer who handles securities registration.
5: The largest options exchange in the U.S. is the A OCC. B ODD. C NYSE. D CBOE.
The Chicago Board Options Exchange (CBOE) is the largest U.S. options exchange. OCC is the Options Clearing Corporation. ODD is the options disclosure document. NYSE is the New York Stock Exchange.
2: Under FINRA by-laws, which of the following relates to trade practice violations and enforcement? A The Code of Arbitration B The Uniform Practice Code C The Rules of Conduct D The Code of Procedure
The Code of Procedures deals with trade practice violations. One easy way to remember this is "COP." FINRA, under the Code of Procedures, will conduct investigations and hearings. If a member is found guilty, FINRA can fine, suspend, bar, expel, or impose any other penalty deemed appropriate.
8: Which entity is responsible for providing a guarantee for bank savings accounts? A SEC B FRB C FDIC D SIPC
The Federal Deposit Insurance Corporation (FDCI) insures deposits of member banks up to $250,000 for each separate customer.
6: Which of the following is considered a coincident economic indicator? A Capital goods expenditures B Index of industrial production C Housing starts D The yield curve
The Index of Industrial Production (GDP) is a coincident indicator. The rest are leading indicators.
11: The Act that requires financial institutions to develop, implement and monitor procedures that prevent its agents and associates from misusing nonpublic information is the A Securities Act of 1933. B Securities and Exchange Act of 1934. C Investment Company Act of 1940. D Investor Fraud Act of 1970.
The Securities Exchange Act of 1934 requires that broker/dealers establish, maintain, and enforce procedures to prevent the misuse of nonpublic information by any person associated with the firm.
12: Which of the following organizations enforces federal securities laws? A SIPC B SEC C U.S. Treasury D Congress
The Securities and Exchange Commission (SEC) supervises the capital markets. It writes and enforces the laws that govern the financial markets.
10: If the Federal Reserve Board through the FOMC (Federal Open Market Committee) lowers the discount rate, which of the following will decline? A Lending levels at banks B Inflation rate C T-Bill rate D Prime rate
The T-Bill and the fed funds rates will decline. The prime rate may not, and lending levels increase when rates are lower.
4: The announcement that must be filed in connection with a Regulation D offering is A An offering circular. B An official statement. C An official notice. D An offering memorandum.
The announcement that must be filed in connection with a Regulation D offering is an offering memorandum.
9: In order for a corporation to qualify for the 50% corporate dividend exclusion when they own stock of another corporation, they must own less than what percentage of that corporation's outstanding stock? A 5% B 10% C 15% D 20%
To qualify for the corporate dividend exclusion, the shareholding corporation must own less than 20% of the dividend-paying corporation's outstanding stock.
11: Jack owns a small manufacturing company in the Northeast. The company is publicly traded; however, its capitalization is very small. Jack would like to expand his operations over the next 2 years. Which of the following types of offerings will best suit the manufacturing company's needs? A A registered secondary offering B An immediate offering at the market C An initial public offering, or IPO D A shelf offering
The best answer is a shelf offering, since the issuer will need the money in stages over the next 2 years. Because the issuer is small, it only qualifies for a 2-year offering period. IPO is not the answer because an issuer only has one initial public offering. In a registered secondary offering, the offering proceeds go to a party other than the issuer. An immediate offering at the market is a possible choice. However, since the issuer will need the capital in stages, shelf offering is the better answer.
5: Which of the following correctly describes a bond's interest accrual period? A The last settlement date up to but not including trade date. B The last payment date up to but not including settlement date. C The last settlement date up to but not including interest payment date. D The dated date up to but not including trade date.
The bond purchaser owes part of the next semiannual interest payment (accrued interest) to the bond seller. The seller is entitled to the first portion of the interest payment (from the last payment date up to but not including settlement date) and the buyer will earn the second portion (from settlement date until the next semiannual payment date).
3: A mutual fund's custodian A Safeguards portfolio records. B Disburses dividends C Issues new shares and redeems old shares. D Safeguards fund cash and securities.
The custodian safeguards the mutual fund's portfolio assets. The transfer agent processes shares and disburses dividends. The investment adviser maintains portfolio records.
3: Which of the following statements is true about a municipal dealer who has an out firm quote from another municipal dealer? A The dealer may renegotiate the price prior to the sale. B The dealer has the right to buy the bonds at a fixed price for a certain period of time. C The dealer must buy the bonds before the stated time period expires. D The dealer cannot sell the bonds before buying them.
The dealer has received an out firm bid, which is a stated price for a fixed time subject to fill or kill recall. The dealer can sell the bonds prior to buying them. No renegotiation is available, and the dealer is not obligated to buy.
8: What is the name of the rate that the Federal Reserve charges member banks for overnight loans? A Money market rate B LIBOR C Prime rate D Discount rate
The discount rate is the rate that the Federal Reserve charges member banks for overnight loans.
12: The rate that the Federal Reserve Bank charges member banks for overnight loans to meet their reserve requirements is called the A Fed Funds rate. B Broker call loan rate. C Discount rate. D Prime rate.
The discount rate is the rate that the main Federal Reserve Bank charges member banks for overnight loans to meet their reserve requirements. Borrowing at the discount window is an indication that the member bank is having financial difficulties. The Federal Reserve Bank is considered to be the lender of last resort when borrowing to meet reserve requirements.
13: Which best describes the federal funds rate? A Daily average of largest central banks B Daily average of reserve member banks C Weekly average of reserve banks D Weekly average of yield auctions of member banks
The fed funds rate is the rate at which banks lend money to each other overnight to meet their reserve requirements.
2: ABC Corporation originally authorized 1 million shares and has issued 600,000 shares. ABC Corporation has decided to buy 50,000 of their shares back and place them in treasury. How many shares are currently outstanding? A 400,000 shares B 550,000 shares C 600,000 shares D 1 million shares
The formula to calculate the number of outstanding shares is as follows: Total issued shares - Treasury stock = Number of outstanding shares (or in this scenario, 600,000 - 50,000 = 550,000 outstanding shares).
2: Which of the following is considered a conflict of interest in a limited partnership? A The sponsor receiving a disproportionate share of program revenues. B The limited partners competing with the program by having interest in other similar partnerships C The general partner self-dealing to insure profits without regard to the limited partners D The limited partners self-dealing to insure their profits without regard to other limited partners
The general partner (GP) has a fiduciary responsibility to the limited partner (LP) and cannot act without considering the LP's interests.
7: A subscription for a limited partnership (LP) is deemed to be accepted when A The certificate is filed with the state. B The limited partner signs the subscription agreement. C The limited partner's check clears. D The general partner reviews, approves, and signs the subscription agreement.
The general partner (GP) must approve the limited partner as suitable for net worth and annual income standards.
13: When a customer sells a security in the secondary market, he or she will receive the A Net asset value. B Offering price. C Bid price. D Ask price.
The highest price a dealer will pay for a security is the bid price, which is the price the seller (customer) will receive.
12: All of the following are true regarding private securities transactions for compensation EXCEPT A A person acts on behalf of the member firm. B They must be approved by a person's member firm. C They must be recorded on the member firm's books. D The member firm does not have the authority to disapprove transactions.
The member firm must approve the transaction, record it on their books, and supervise the person's participation in the transaction as if it is executed on behalf of the member. If the member does not approve a person's participation in a private transaction, the person may not participate in the transaction in any manner, directly or indirectly.
2: Which type of investment companies do NOT charge a management fee? A Face amount certificates B Unit Investment Trusts C Open-end investment companies D Closed-end investment companies
The portfolio of a Unit Investment Trust (UIT) is fixed and does not require an investment adviser. The portfolio is supervised, not managed.
9: All of the following statements about the Form U4 predispute arbitration clause are correct EXCEPT A The Form U4 predispute arbitration clause appears on U4 amendments. B By signing a Form U4, applicants are agreeing to settle discrimination cases against their employer through arbitration. C By signing a Form U4, applicants are consenting to settle customer disputes through arbitration. D Member firms are required by FINRA to disclose to applicants that Form U4 contains a predispute arbitration clause.
The predispute arbitration clause does not affect employees' rights to sue for discrimination, sexual harassment, or claims arising under the whistleblower statute. Claims involving employment discrimination are not required to be arbitrated under FINRA rules.
3: The quick ratio is A Less accurate than the current ratio because it does not consider the time value of money. B An inferior measure because it fails to consider inventory. C A more stringent measure than the current ratio. D A more lenient measure than the current ratio.
The quick ratio (acid test ratio) is a more stringent measure because it uses only cash equivalents (inventory is deducted), which are divided by current liabilities.
2: In the over the counter market, the difference between the bid price and the ask price is referred to as the A Best execution. B Public offering price. C Spread. D New asset value.
The spread is the difference between the bid and ask prices. The bid is always lower than the offer or ask price. The customer sells at the bid and buys at the ask.
10: When can a statutory prospectus be presented to an existing client of the brokerage firm? A As soon as the syndicate wins the bid for the sale and marketing of the new issue B After the underwriter submits registration documentation to the SEC and the cooling-off period begins C After the cooling-off period and after the issue is designated as within compliance D Never; they are exempt from the requirement to review the statutory prospectus.
The statutory prospectus is another name for the final prospectus and is created after the cooling-off period and after the issue is determined to be in compliance. That is when the offering becomes effective and the security is available for sale to the public. (Issue date and issue price are added to the preliminary prospectus to make up the statutory prospectus.)
1: The last transaction in ABC 6.00s 2025 was 103. This bond is selling at A Net asset value. B Par. C A premium. D A discount
This bond is quoted at 103, which is equal to a price of $1,030. (Remember to multiply 103 x 10 to arrive at the price of the bond). The bond is selling at a premium because the price of $1,030 is greater than its par value (or $1,000).
7: A customer's account would be frozen for 90 days if the customer A Failed to deliver stock within 10 business days following sale. B Failed to deliver payment within 4 business days of purchase. C Bought and sold the same stock in the same account. D Bought and sold the same stock in different accounts.
This is a Reg T violation. Not paying within 4 business days involves a 90-day account freeze. During this 90-day period, the customer must have cash in the account before making a purchase.
15: All of the following are benefits of direct-sold 529 plans EXCEPT A Possible reduced administrative and maintenance charges for residents. B Ease of enrolling online and electronic document delivery. C Fees related to sales charges. D Lower fees in general.
This is an EXCEPT question. An advantage of investing directly in a 529 plan (direct-sold), as opposed to purchasing an advisor-sold plan, is the lower fees. Advisor-sold plans are purchased through a broker and are more expensive because of additional fees related to sales loads, charges at purchase and redemption, and ongoing distribution fees.
12: A parent has been using distributions from a 529 plan to pay for her son's college education. In his spare time and unrelated to his college curriculum, the son decides to start a business and needs $15,000 in seed money. If $15,000 is withdrawn from the 529 plan to cover this business venture, what are the implications? A 10% penalty, but no tax implications B No penalty, no tax implications C No penalty, but ordinary income taxes on earnings D 10% penalty and ordinary income taxes on earnings
This is not a qualified higher education expense. Therefore, there would be a 10% penalty on the earnings portion of the withdrawal, which would also be subject to ordinary income taxes at the state and federal levels.
4: Individuals holding shares of common stock have the right to participate in the underlying corporation's earnings. Which of the following statements is true? A Shareholders pay dividends in order to receive the payouts. B Earnings do not affect the payouts. C Lower earnings yield lower dividends. D Higher dividends result in higher earnings.
Those holding shares of common stock have the right to participate in the earnings of the issuing company in the form of stock dividends. Dividends are usually paid quarterly by the issuing company, and as earnings fluctuate, so does the amount of payout per share issued by the company.
12: Under Reg D rule 504, how much money may be raised within 12 months? A $3 million B $5 million C $10 million D An unlimited amount
Under Reg D rule 504, the maximum amount that can be raised in any 12 months would equal $5 million. Additionally, all investors must be accredited investors.
6: All of the following are characteristics of Unit Investment Trusts EXCEPT A Units are redeemable by the issuer. B A fixed portfolio. C No secondary market trading. D Actively managed portfolio.
Unit Investment Trusts (UITs) are not actively managed. UITs consist of a fixed portfolio that, in most cases, remains unchanged for the life of the trust.
14: Most restricted stock is acquired through which of the following types of offerings? A Direct participation program B Registered secondary C Regulation A+ D Private placement
Unregistered securities purchased through a private placement are governed by Reg D. These securities are restricted from resale for 6 months for SEC-reporting companies, or for 1 year for nonreporting companies. Securities accumulated through Reg A are not restricted securities.
13: The cash value of a variable life policy A Must be calculated at least quarterly. B Is guaranteed. C Decreases as premiums are paid. D Fluctuates based on the performance of the securities in the separate account.
Variable life policies have guaranteed minimum death benefits, but the cash values are not guaranteed. Cash values increase as premiums are paid and must be calculated at least monthly.
11: When a general partner is organizing and establishing a limited partnership, the general partner is acting as a A Underwriter. B Syndicator. C Property manager. D Partnership manager.
When a general partner in a limited partnership is organizing and establishing a partnership itself, the term that applies is "syndicator."
1: A customer wants to give her daughter all of the shares in her growth mutual fund. Since the initial purchase of the shares, the value of the shares has increased steadily over the life of the investment. When the shares are gifted, the daughter's cost basis will be A The NAV of the shares on the day they are "gifted" to her. B The same cost basis that Rhonda had for the shares. C The difference between the initial purchase price for the shares and the current NAV of the shares. D The initial NAV price Rhonda paid for the shares originally.
When a security is received as a gift, the cost basis depends on the relationship of the market value of the securities to the donor's cost basis. If the market value is higher than the donor's basis, the recipient's cost basis is equal to the donor's. If the market value is lower than the donor's cost basis, the recipient's basis is equal to the market value of the securities at the time of the gift.
8: What should an investor consider before establishing a 529 plan in a neighboring state? A Which university the child would have to attend based on this particular 529 plan B Whether or not the child will attend college as the plan cannot be transferred after it is established C Tax consequences for establishing the plan while the child is so young D The possible tax consequences of investing in an out-of-state plan
When an investor establishes a 529 plan outside of his or her state, there could be tax consequences that would make the plan less attractive, including the loss of state income tax deductions. 529 plans do not limit a student's choice of universities. If the child for whom a 529 plan is established decides not to attend college, the beneficiary can be changed to another person in the same family. Tax consequences are of no concern since earnings grow tax-deferred and withdrawals are tax-free when used for qualified education expenses. In fact, establishing a plan when a child is very young allows funds to grow for a longer period of time.
5: Which of the following distributions is a registered secondary offering? A A corporation giving stock to shareholders in lieu of a cash dividend B A corporation separates one of its divisions into its own entity C A corporation issuing additional authorized stock to expand operations D A family member selling founder's stock along with an add-on offering
When an officer of a corporation sells unregistered stock, this is called a registered secondary offering.
8: When computing dollar prices and accrued interest on municipal bonds, the calculation is based on a certain number of days per month/days per year? What is the correct number of days to use for this calculation? A Actual number of days in a specific month / 360 days per year B Actual number of days in a specific month / 365 days per year C 30 days per month / 360 days per year D 30 days per month / 365 days per year
When computing dollar prices and accrued interest for municipal bonds, use 30 days per month / 360 days per year.
2: NASDAQ market makers are required to report each trade within how many seconds of execution? A 3 B 10 C 30 D There is no reporting requirement for the market makers.
While many regulations also state immediately, the required deadline is stated as 10 seconds. It is a reasonable time after the trade.
1: Which measures a corporation's solvency? A Profit margin B Cash flow C Debt/equity ratio D Working capital
Working capital = current assets - current liabilities. It measures a corporation's ability to meet current debt obligations.
15: Which of the following best describes GNP? A Total value of all exports, minus the total value of all imports in the U.S. B Total money supply divided by the number of transactions in the U.S. C Current cost of representative goods and services in the U.S., as compared to a base year D GDP, plus income earned by residents from overseas, minus income earned within the domestic economy by overseas
residents
