Simulated Exam #3 and #4

What is the penalty, if any, for overcontribution to an IRA? A) 6% B) 50% C) 10% D) No penalty

A) 6% There is a 10% penalty is for early withdrawal. There is a 50% penalty is for failure to make the minimum required distribution for the year. Contribution of more than the maximum amount in a year carries a 6% penalty.

Regarding different types of debt security maturities available to issuers, which of the following is accurate? A) A balloon maturity uses elements of both serial and term maturities. B) A serial maturity uses elements of both term and balloon maturities. C) A term maturity uses elements of both serial and balloon maturities. D) No maturity types incorporate the elements of any other.

A) A balloon maturity uses elements of both serial and term maturities. An issuer can schedule its bond's maturity using elements of both serial and term maturities. This is known as a balloon maturity. The issuer repays part of the bond's principal before the final maturity date, as with a serial maturity, but pays off the major portion of the bond at maturity.

Which of the following sets of FINRA rules focuses on disputes in the industry and with customers who have filed a predispute agreement? A) Code of Arbitration B) Conduct Rules C) Code of Procedures D) Uniform Practice Code

A) Code of Arbitration The Code of Arbitration covers disputes over money between representatives, member firms, banks, and customers.

A deficit in the U.S. balance of payments can occur if interest rates in foreign countries are higher than U.S. domestic rates. interest rates in foreign countries are lower than U.S. domestic rates. U.S. consumers are purchasing (importing) foreign goods. foreign consumers are purchasing (importing) U.S. goods. A) I and III B) I and IV C) II and III D) II and IV

A) I and III

A buy stop order @ 39 could fill at which of the following prices? 38 39 40 41 A) I, II, III, & IV B) III & IV C) II & III D) I & II

A) I, II, III, & IV A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.

Which of the following is not a type of real estate direct participation program? A) Income B) New construction C) Raw land D) Existing properties

A) Income

Which of the following is a leading indicator? A) New orders for consumer goods B) Wages C) Corporate profits D) Gross domestic product

A) New orders for consumer goods New orders for consumer goods is a leading indicator, foretelling future economic activity (the actual purchase of those goods). Wages and gross domestic product are coincident indicators. Corporate profits are lagging indicators.

Which of the following must be kept for the life of the firm? A) Stock certificate book B) Customer account records C) Written customer complaints D) General ledger

A) Stock certificate book The stock certificate book, also known as the stock book or stock ledger, is a permanent record of a corporation's capital stock and is to be held for the life of the corporation. The general ledger and customer account records are kept for six years; written customer complaints are kept for four years.

What does the mortality guarantee of a variable annuity insure? A) That payments will continue for the life of the annuitant B) That total payments over the annuitant's life will meet a specific minimum C) That each monthly payment will meet a specific minimum D) That payments will continue for the annuitant's life expectancy

A) That payments will continue for the life of the annuitant

Which of the following are true of both qualified plans and nonqualified plans? A) The accounts grow tax deferred B) Contributions are not tax deductible C) Tax on interest and dividends are deferred, but not on capital gains D) Contributions are tax deductible

A) The accounts grow tax deferred With qualified plans, deposits go in before taxes and grow tax deferred. All withdrawals are taxable. With nonqualified plans, deposits are made after tax, and distributions above the cost basis are taxable.

Which of the following best describes how a sell stop at 39 order would be filled? A) The next available price after the market price falls to 39 B) The next available price after the market price rises to 39 C) The next price above 39 after the market rises to 39 D) The next price below 39 after the market falls to 39

A) The next available price after the market price falls to 39 Sell stop orders are placed below the current market price and become market orders once the price touches or passes through the stop price.

In the event that a liquidation needs to occur, subordinated debtholders A) agree to be paid back last of all debtholders. B) will be paid back before all senior debtholders. C) will be paid back specifically before all mortgage bondholders. D) agree to paid back after all shareholders.

A) agree to be paid back last of all debtholders. In the event that a liquidation needs to occur, though they are still senior to all equity holders, subordinated debtholders agree to be paid back last of (subordinate or junior to) all debtholders.

A customer who is short against the box may close the position by all the following except A) depositing the fair market value of the shorted stock into his account. B) purchasing twice the stock in the open market. C) combining purchases of stock with stock already owned by the customer. D) covering the short with the stock in his account.

A) depositing the fair market value of the shorted stock into his account. A customer who is short against the box owns the stock he shorted. As a result, the customer may use his owned stock to cover the short position, buy back the short position in the open market, or any combination of the two. The customer cannot simply deposit funds into his account.

All of the following terms and phrases are associated with the sell side of the contract except A) owns the contract. B) has an obligation. C) receives the premium. D) writes the contract.

A) owns the contract. The buyer of the contract pays the premium and loses it if the contract expires. The seller receives the premium and keeps it if the contract expires. The buyer has a right to exercise the contract. The seller has an obligation if the buyer decides to exercise. Buyer, holder, owner, and long all mean the same thing. Seller, short, and writer all mean the same thing.

All the following are lagging indicators except A) personal income. B) outstanding commercial loans. C) labor cost per unit of output. D) corporate profits.

A) personal income. Personal income is a coincident indicator. Corporate profits, labor cost per unit of output, and outstanding commercial loans are lagging indicators.

To the benefit of the bondholder, a puttable bond is likely to be put back to the issuer when interest rates A) rise. B) are volatile, moving both up and down over short periods of time. C) remain stable for long periods of time. D) fall.

A) rise. Bonds with put features are most likely to be put back to the issuer when interest rates rise. For example, if a bondholder has a bond paying 4% and interest rates have risen to 6%, why settle for a 4% return when prevailing market rates are now up to 6%? Better to put the 4% bond back to the issuer for redemption and then purchase a new bond paying the prevailing higher rate. In this way, put features benefit the bondholder.

A U-5 form should be filed with the Central Registration Depository within how many days after termination of a registered representative? A) Next business day B) 30 days C) 15 business days D) 10 business days

B) 30 days

A bond with 10 years to maturity and callable in five years at par is sold at a discount. Rank the following yields from lowest to highest. Nominal yield Current yield Yield to call (YTC) Yield to maturity (YTM) A) IV, II, III, I B) I, II, IV, III C) I, II, III, IV D) II, I, IV, III

B) I, II, IV, III The bond is trading at a discount. The lowest of all yields for a discount bond is the nominal or stated yield (coupon rate), which is a fixed percentage of par. Next would be the current yield and then YTM. The highest possible return to the owner of a bond purchased at a discount would occur if the bond were called before maturity, because less time must elapse for the investor to receive the discount.

Which of the following is true regarding a registered person who wishes to move her registration from one broker-dealer to another? A) A person who has been registered more than 25 years is grandfathered in and no filings need to be made. B) In no circumstances can a registration be transferred from one firm to another. C) If the registered person has taken and passed the Series 24 General Securities Principal Exam, no filings need be made. D) Only Form U-5 need be filed, separating the registered person from the existing employer.

B) In no circumstances can a registration be transferred from one firm to another.

Which of the following would be required in discretionary accounts? A) Financial Industry Regulatory Authority (FINRA) approval to open the account B) Prompt approval by a principal following each discretionary trade C) Securities and Exchange Commission (SEC) approval to open the account D) Prior approval by a principal before each discretionary trade is placed

B) Prompt approval by a principal following each discretionary trade The SEC and FINRA do not approve accounts approval of the trade is required promptly afterwards by a principal not before.

Political risk is more associated with A) emerging economies and can never occur in highly developed ones. B) emerging economies, but could occur even in highly developed ones. C) developed economies and not with emerging economies. D) developed economies but could occur even in emerging economies.

B) emerging economies, but could occur even in highly developed ones.

A company very concerned about liquidity would want A) low current ratio. B) high current ratio. C) high price-to-earnings ratio. D) low price-to-earnings ratio.

B) high current ratio. The current ratio is a measure of liquidity. The higher the ratio, the more liquid the company. This has no bearing on whether high or low price-to-earnings ratios are desirable.

While an associated person may work for an entity other than the member firm, the employing member firm's permission is A) not requested. B) not required. C) required. D) requested.

B) not required.

All of the following are investment income except A) dividends from an American depository receipt (ADR). B) running a business. C) interest from a bond. D) dividends from a mutual fund.

B) running a business. Earnings from running a business is considered earned income.

Secondary market transactions would include all of the following except A) sale of $10 million of municipal bonds by a broker-dealer acting as a market maker. B) sale of $10 million of corporate bond by a broker-dealer acting as an underwriter. C) sale of $10 million of corporate stock by a broker-dealer acting as a market maker. D) sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker.

B) sale of $10 million of corporate bond by a broker-dealer acting as an underwriter. Market makers are broker-dealer who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market.

Registered representatives must complete or satisfy each of the following except A) the firm element. B) the Form U-5. C) state registration requirements. D) the regulatory element.

B) the Form U-5.

All of the following must be on the cover page or beginning of the summary prospectus of a mutual fund except A) the website where a full prospectus may be downloaded. B) the name of the investment advisor. C) the fund share class or classes ticker symbols. D) the share class or classes offered by the fund.

B) the name of the investment advisor.

What is the intrinsic value of an XYZ 30 call sold at a premium of 3 when the current market value of XYZ is at 40? A) $7 B) -$7 C) $10 D) -$10

C) $10 Intrinsic value is the amount that a contract is in the money. The premium of the contract is not a factor. All calls are in the money when the market value of the stock is above the strike price.

Commercial paper issued by corporations can have maturities as short or as long as A) 1 month or 3 months. B) 1 month or 6 months. C) 1 day or 270 days. D) 30 days or 360 days.

C) 1 day or 270 days.

If after a registered representative terminates the firm learns of something that should have been reported to the Central Registration Depository, how long does the firm have to make an amendment if that information would cause statutory disqualification? A) 20 days B) 30 days C) 10 days D) 45 days

C) 10 days The rule requires notification within 10 days if the information involves statutory disqualification.

Your customer, Betsy, is considering purchasing a 6% corporate bond at $1,200. If she does, what will be the current yield (CY) on the bond? A) 2% B) 6% C) 5% D) 3%

C) 5% The formula for CY is the stated rate (coupon rate) divided by the current market price—$60 divided by $1,200 equals 5%.

Which of the following records must be kept for only three years? ICustomer statements II Customer new account forms IIICustomer confirmations IVCustomer order tickets A) I and II B) II and III C) III and IV D) I and IV

C) III and IV

Which of the following is true regarding a registered person who wishes to move her registration from one broker-dealer to another? A) A person who has been registered more than 25 years is grandfathered in and no filings need to be made. B) If the registered person has taken and passed the Series 24 General Securities Principal Exam, no filings need be made. C) In no circumstances can a registration be transferred from one firm to another. D) Only Form U-5 need be filed, separating the registered person from the existing employer.

C) In no circumstances can a registration be transferred from one firm to another.

Where can demand deposits, checking accounts, paper currency and coins be found in the money supply? A) M1 only B) M1 and M3 only C) M1, M2, and M3 D) M2 only

C) M1, M2, and M3

Your customer opens a position at 45 and then closes it later at 47. This represents A) a 2-point loss. B) a 47-point gain. C) a 2-point gain or loss. D) a 2-point gain.

C) a 2-point gain or loss. Because we do not know if the opening transaction was a buy or a sell from what we are told, this could be either a 2-point gain or loss. If the opening transaction was a buy, this represents a gain (bought at 45, sold at 47). But if the opening transaction was a sell, this represents a 2-point loss (sold at 45, bought back at 47).

The economy is showing that employment is low, there is little consumer demand, and loans for expansion and retooling are way down, showing a lack of business activity. Yet prices for consumer goods are still rising. Economists would call this a period of A) inflation. B) deflation. C) stagflation. D) stagnation.

C) stagflation. Inflation is characterized by a rise in prices for goods and services. Stagnation is characterized by high unemployment and lack of growth and business activity. When these occur simultaneously, economists refer to these times as periods of stagflation

Common stockholders of a publicly traded corporation have which of the following rights and privileges? Residual claim to assets at dissolution Right to a vote for stock dividends to be paid Right to receive an audited financial report on an annual basis Claim against dividends in default

Common stockholders of publicly traded companies have a residual claim to assets of a corporation at dissolution and are entitled to receive an annual report containing audited financial statements. The board of directors (BOD) would vote to pay a dividend.

Unless otherwise specified, the size of a firm quote is A) 1,000 shares. B) 500 shares. C) 10,000 shares. D) 100 shares.

D) 100 shares.

Mr. Jackson bought 100 shares of XYZ two years ago at $10 per share. The stock paid a $.50 dividend each year and he sold the stock for $11. What percent was his total return? A) 5% B) 15% C) 10% D) 20%

D) 20%

Your client, Mary Quinn, wants to place an order to sell a stock in her portfolio when the current price is 45, but she is only willing to sell if she can sell for at least 47. Which order should she place? A) A market order B) A sell stop order C) A sell stop limit order D) A sell limit order

D) A sell limit order Sell limit orders are placed above the current market price and fill at the stated price or higher. Market orders fill at the next available price. Sell stop and sell stop limit orders are not triggered until the market drops to or through the stop price.

Under the Investment Company Act of 1940, which of the following is not considered and investment company? A) Face-amount certificate company B) Management company C) Unit investment trust D) Hedge fund

D) Hedge fund Investment companies include face-amount certificates, unit investment trusts, and management companies (both open- and closed-end). Hedge funds are organized as private investment companies, which are excluded under the definition of investment company und the Act of 1940.

For revenue bonds issued by a state or municipality, which of the following is true? A) Interest and principal payment is guaranteed. B) Interest and principal payment is backed by the full faith and credit of the issuer. C) The bonds carry an unqualified promise to pay interest and principal backed by the power of the issuer to levy taxes. D) Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve.

D) Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve.

Regarding primary offerings, which of the following is true? A) A corporation can have only one primary offering—the initial public offering (IPO). B) After its initial public offering (IPO), a corporation can have only one more primary offering—its subsequent primary offering (SPO). C) A corporation can have two primary offerings—the initial public offering (IPO) and an additional public offering (APO). D) There is no limit to the number of primary offerings a corporation can issue.

D) There is no limit to the number of primary offerings a corporation can issue.

A corporation sells shares to the investing public in order to raise capital. This is known as A) a primary, or investor-to-investor, transaction. B) a secondary market transaction. C) an exchange market execution. D) an issuer transaction.

D) an issuer transaction. The primary market is where securities are sold to the investing public by the issuer wishing to raise capital. These are known as primary market or issuer transactions.

Regarding options, it should be recognized that the maximum movement for any underlying stocks price could be A) as low as its breakeven or as high as its maximum gain point. B) as low as zero or as high as its breakeven point. C) its breakeven. D) as low as zero or as high as infinity.

D) as low as zero or as high as infinity. Any stock's price could move as low as zero or as high as infinity. That movement toward either of those points, and the market attitude of the option position employed (bullish or bearish), determines what the maximum gain, loss, or breakeven point is.

The potential that inflation will devalue the fixed dividend income payments received by preferred shareholders is known as A) decreased dividend risk. B) interest-rate risk. C) market risk. D) purchasing power risk.

D) purchasing power risk.

List the following Treasury securities from the longest to the shortest maturities. A) T-bills, T-notes, T-bonds B) T-bonds, T-bills, T-notes C) T-bills, T-bonds, T-notes D) T-bonds, T-notes, T-bills

D) T-bonds, T-notes, T-bills

A company that is extensively overleveraged using debt financing whenever available would be exposing its investors to A) financial risk. B) liquidity risk. C) business risk. D) call risk.

Debt financing or utilizing debt leverage too much can lead to the inability to meet principal and interest payments on a company's debt obligations. This is the definition of financial risk.

The Investment Company Act of 1940 classified all the following as investment companies except A) face-amount certificates. B) private investment companies. C) management companies. D) unit investment trusts.

private investment companies. C)

Registered representatives must complete or satisfy each of the following except A) the firm element. B) the regulatory element. C) state registration requirements. D) the Form U-5.

the Form U-5.