STC series 7 Closed book (missed/marked)

For the following size transactions, ABC mutual fund has a bid price of $8.50 and an asked price of $9.26. Which of the following sales is allowed under the Conduct Rules? A member sells 250 shares of ABC fund at $9.10 to a nonmember firm A member sells 250 shares of ABC fund at $9.10 to another firm through a nonmember firm A member sells 250 shares of ABC fund at $9.10 to one of the firm's customers A member sells 250 shares of ABC fund at $9.26 to one of the firm's clients

A FINRA member firm may not sell the fund at a discount ($9.10) to a nonmember firm or to one of the firm's customers (the public). According to the Conduct Rules, a member firm can only give a discount from the public offering price to another member firm. The discounts and selling concessions member firms give to each other are inducements for firms to be members of FINRA (the self-regulatory organization of over-the-counter broker-dealers) and to abide by its rules and regulations.

Which of the following persons may contribute to a 457 plan? A computer programmer employed by IBM A federal government employee A local government employee A self-employed IT consultant

A Section 457 plan is a type of retirement plan used by many public sector workers (state and local, not federal). These plans grow tax-deferred and are generally subject to the same contribution limits as 401(k) and 403(b) plans. Each has similar tax features and contribution allowances. The difference is in who may use them. 401(k) plans are used by for-profit employees, 403(b) plans by nonprofit and public school employees, while 457 plans are designed for the benefit of some local government workers.

A call premium is best described as the amount the: Investor pays above the par value Investor will receive if the bond is sold above the par value Issuer pays above 100 to retire bonds prior to maturity Bondholder receives at maturity

A bond issue's indenture will usually require that, if an issuer calls bonds (redeems prior to maturity), it must pay the bondholder a premium (above par value). For example, a bond that matures in 30 years is callable at 103.5 in 10 years. The issuer must pay a premium of $35 per bond (103.5% of $1,000 is $1,035) above par to retire the bonds prior to maturity.

A client expresses an interest in purchasing a mutual fund. The client already has a joint account with her spouse and a UTMA account for her son that has assets in the same fund family held at another broker-dealer. Which of the following statements is TRUE? The client is not entitled to a reduced sales charge based on the value of the UTMA and joint accounts under any circumstances The client is entitled to a reduced sales charge based on the other two accounts The client is entitled to a reduced sales charge based on the value of the other two accounts only if the account is held at the same broker-dealer The client is entitled to a reduced sales charge based only on the value of the joint account

A client is entitled to a reduced sales charge (breakpoint) based up the value of the accounts of other family members within the same fund family. Examples include joint accounts, minors' accounts, and certain retirement accounts. The accounts can be held at multiple broker-dealers.

Which TWO of the following statements are TRUE under the Uniform Transfers to Minors Act (UTMA) regarding a custodian account in which an individual is custodian for her son? The securities purchased must be suitable for the minor The mother's Social Security number is used for purposes of reporting and paying taxes The custodial relationship is terminated when the son reaches majority The securities will be registered in the mother's name until the son reaches the age of majority I and III I and IV II and III II and IV

A custodian under the Uniform Transfers to Minors Act is required to act under the Prudent Man Rule in the handling of the account. The custodian may make any transactions that a prudent man or woman would make for her own account. The transaction, however, must be suitable for the minor. All stock in the account must be registered in the name of the custodian as custodian for the minor. The account would be registered, for example, as "Mary Jones as custodian for Robert Jones under the New York Uniform Transfers to Minors Act." The custodial relationship is terminated when the minor reaches the age of majority.

Buyers of municipal bonds would normally NOT include: Insurance companies Banks Defined benefit plans Mutual funds

A defined benefit plan is a type of pension fund. Pension funds and other tax-deferred accounts would not benefit from the tax exemption provided by municipal bonds. As a result, unless the bonds are taxable and offer yields equivalent to other taxable bonds, pension funds would not include municipal bonds in their portfolio. The exception would be Build America Bonds (BABs), which are taxable municipal bonds.

Which of the following sources of revenue is NOT used to pay the debt service on general obligation bonds? Income taxes Property taxes Licensing fees and traffic fines Tolls collected at a tunnel located in the municipality

A general obligation (GO) bond is backed by the full faith and credit of the municipality. Items that may be used to pay the debt service on GO bonds include fines, sales taxes, property taxes, income taxes, and licensing fees. Items such as tolls, concessions, and lease rental payments would be used to back a revenue bond.

Which TWO of the following types of municipal securities does NOT require voter approval? A general obligation bond backed by income taxes A special tax bond A bond backed by ad valorem taxes A certificate of participation I and III I and IV II and III II and IV

A general obligation bond would require voter approval since it is backed by the full faith and credit of the issuing municipality. A bond backed by ad valorem or real estate taxes is a type of general obligation bond. A special tax bond is financed by a tax other than an ad valorem tax, such as a tax on cigarettes, liquor, or gasoline, and would not require voter approval. A certificate of participation (COP) is a revenue bond backed by a lease payment that does not require voter approval.

Which of the following choices is NOT a factor in secondary-market municipal joint accounts? Members may not publish different offering prices They require a good faith deposit There may be an order period There may be a takedown

A good faith deposit is a sum of money given to the issuer of a new municipal bond issue along with a syndicate's bid and is not a factor in secondary-market transactions. A secondary-market joint account exists when two or more dealers form an account to jointly offer a block of bonds in the secondary market. As with a new issue, there may be an order period as well as a takedown (member's discount). MSRB rules prohibit members of the account from offering the bonds at different prices.

A high net worth investor seeking safety of principal would MOST likely invest in: Corporate convertible bonds Non-investment-grade corporate bonds An investment-grade corporate bond fund A variable annuity

A high net worth investor seeking safety of principal would MOST likely invest in: Corporate convertible bonds Non-investment-grade corporate bonds An investment-grade corporate bond fund A variable annuity

A husband or wife may give a lifetime tax-free gift to a spouse of: $14,000 $70,000 $140,000 An unlimited amount

A husband or wife may give a lifetime tax-free gift of an unlimited amount to a spouse. Any person may give a gift or $14,000 per person, per year without incurring a gift tax.

A 65-year-old individual is in need of immediate cash to pay for repairs on his house and takes a lump-sum distribution from a nonqualified variable annuity. This withdrawal will be: Partially treated as ordinary income Partially treated as capital gain Taxed at the investor's tax bracket Taxed at a reduced tax rate I and III only I and IV only II and III only II and IV only

A nonqualified variable annuity is not used in conjunction with a qualified retirement plan (such as an IRA). Any contribution is made with after-tax dollars. Therefore, the appreciated value portion of withdrawals would be taxed as ordinary income and the remainder would be considered as return of capital (amount invested), which is not taxed. If a withdrawal is made prior to age 59 1/2, the ordinary income portion of the withdrawal is assessed a 10% penalty.

The penny stock rules would apply under which of the following circumstances? The stock is listed on the NYSE The broker-dealer is not a market maker in the stock The transaction is recommended by the broker-dealer The customer is an active trader in penny stocks

A penny stock, according to SEC rules, is a stock that sells for less than $5.00 that is not listed on Nasdaq or the NYSE. A stock quoted on the OTC Bulletin Board or OTC Pink Market (Pink Sheets) that has a bid price of less than $5.00 is defined as a penny stock. Penny stock rules would not apply under the following conditions. The customer is defined as an existing customer, which is a person who has maintained an account with a broker-dealer for more than one year, or has previously engaged in 3 or more transactions involving penny stocks (i.e., an active trader of penny stocks) In nonrecommended or unsolicited transactions In transactions by a broker-dealer that is not a market maker in that security In transactions by an institutional accredited investor

Which of the following funds is the least suitable for investors mainly seeking income? A mortgage-backed securities fund A municipal bond fund A balanced fund A sector fund

A sector fund invests in securities of a specific industry or specific geographic location and typically does not have income as a primary objective.

A customer sells short 1,000 shares of DT at $60 a share on Monday, October 14 and deposits the Regulation T margin requirement. If on October 23 the stock is trading at $75 a share, which of the following statements is TRUE? The account will be closed by the broker-dealer The account will be adjusted on October 23 and no margin maintenance call will be issued The account will be adjusted on October 23 and a margin maintenance call will be issued The account will be adjusted on October 24 and a margin maintenance call will be issued

A short margin account is marked to the market once a day (daily) to make sure the account is above the maintenance requirement. The initial Regulation T margin requirement is 50% of $60,000, or $30,000. If the market value increases to $75 a share, the equity in the account will decline to $15,000. The current equity in the account is 20% of the short market value ($15,000 / $75,000), which is below the required 30% and, therefore, a margin maintenance call will be issued.

If a customer is short 1,000 shares of RST stock, the customer: Must cover the position within six months Can use a buy stop order to limit losses if the stock advances May use the entire credit balance in the account to buy more stock Is entitled to receive dividends and vote at the annual meeting

A short position will be profitable if the market price of the security decreases. If the stock increases, the investor will have a loss. A buy stop order is placed above the market. If executed, stock will be purchased preventing further loss. There is no limit to the length of time that a short position may remain open. A portion of the short credit balance must always remain in the account to be used eventually to cover the short position. An investor who is short the stock does not receive dividends and does not have the right to vote.

Which of the following statements is NOT TRUE regarding a SEP IRA? An employer makes contributions to an employee's IRA An employer is not required to make annual contributions Employees are permitted to make contributions to the account Employees are immediately vested for any contributions made to the account

A simplified employee pension plan (SEP IRA) does not allow the employee to make contributions. SEPs are funded by employer contributions only. This is different than for Keogh plans, which do allow for employees to make nondeductible contributions to their own account.

An investor purchases a Canadian dollar September 80 call and writes a Canadian dollar September 82 call. This position is a: Bullish spread Bearish spread Long straddle Credit combination

A spread is the simultaneous purchase and sale of options of the same class (both calls or puts), on the same underlying security, with different strike prices and/or expiration months. A debit spread is created when the premium of the option purchased is greater than the premium of the option sold. The September 80 call, which is the right to buy the Canadian dollar at 80, is more valuable than an option that provides the right to buy at 82. Therefore, the call purchase will be the controlling factor in the spread. Since buying calls is bullish, a call debit spread is a bullish strategy.

Which of the following persons establishes positions in secondary market municipal bonds for a broker-dealer? Underwriter Trader Agent Principal

A trader is responsible for positioning (carrying inventory) secondary market municipal bonds. An underwriter is involved in the distribution of new issues.

A type of order that becomes a market order when a round-lot trades at or through a particular price is called a: Market order Limit order Stop order Stop-limit order

A type of order that becomes a market order when a round-lot trades at or through a particular price is called a stop order. A variation of a stop order is a stop-limit order, which is activated when a round-lot trades at or through a particular price, along with the requirement that the limit price be satisfied.

In a rights offering, an underwriter offers to purchase all the shares the issuing corporation may not be able to sell. This is known as a(n): Firm-commitment underwriting Best-efforts underwriting Standby underwriting All-or-none underwriting

A type of underwriting in which the underwriter agrees to buy all the shares not subscribed to in a rights offering is a standby underwriting. The issuing corporation realizes that many shareholders will not participate in the rights offering. This may amount to a large number of the shares being offered. The corporation will not receive the money for the shares that are not subscribed to. The underwriter that is standing by to buy all the unsubscribed shares will either buy them at a discount or will receive a fee. This type of an arrangement assures the issuing corporation it will be able to raise the amount of capital it requires.

According to industry regulations, a writer of an ABC March 50 put is considered covered for margin purposes if the writer is long an ABC: March 60 put March 30 put March 50 call March 60 call

A writer of a put option is covered if he is long another put on the same underlying stock, with an equal or greater exercise price, having the same or later expiration date. The writer is short a put with a $50 strike price. The writer is covered if he is long an ABC March 60 put. The strike price is higher and the expiration date is the same. This satisfies the requirements for the writer to be covered for margin purposes. If the put option that the writer sold is exercised, he is required to purchase 100 shares of the stock at the strike price of 50. In turn, the writer can exercise the put he purchased and sell the 100 shares at the 60 strike price.

All of the following municipal bond transactions take place in the secondary market, EXCEPT: Submitting an offer to sell bonds to a sinking fund A tax swap Two municipal securities broker-dealers purchasing a block of bonds jointly The placing of a designated order

All of the choices listed take place in the secondary market except the placing of a designated order. A designated order is an order directed to a syndicate manager by an institutional account designating two or more members of the underwriting account to receive credit for that order. This order is placed directly with the syndicate manager during the order period prior to the release of the bonds for secondary trading.

Which of following investments would be the BEST recommendation for a customer with a medium or moderate risk tolerance? 10% large-cap equity funds, 5% international equity mutual funds, 55% bond funds, and 30% cash 15% large-cap equity funds, 5% small-cap equity funds, 10% international equity funds, 45% bond funds, and 25% cash 35% large-cap equity funds, 15% small-cap equity funds, 15% international equity funds, 30% bond funds, and 5% cash 50% large-cap equity funds, 20% small-cap equity funds, 20% international equity funds, 5% bond funds, and 5% cash

An investment risk tolerance in which the customer is willing to accept some risk to her initial principal, with some volatility and a possible loss of the funds invested in exchange for higher returns, is best defined as moderate. Choices (a) and (b) offer too small of an allocation in equities, and choice (d) is too heavily weighted in equities.

A customer contacts a registered representative and indicates her risk tolerance is to accept some risk to her initial principal in exchange for higher returns. The RR asks the customer if she understands that the account may lose value but may keep pace with or exceed inflation, and the customer agrees to these conditions. This customer's risk tolerance would BEST be defined as: Conservative Moderate Moderate conservative Moderate aggressive

An investment risk tolerance in which the customer is willing to accept some risk to her initial principal, with some volatility and a possible loss of the funds invested in exchange for higher returns, is best defined as moderate. Moderate conservative includes low risk with an understanding there may be some volatility in exchange for a small amount of portfolio returns. Moderate or medium aggressive is a situation where the customer is willing to accept high risk and high volatility with a possible loss to her initial principal in exchange for high returns.

Lindsay Depaul is a client seeking a balance between income and capital growth. Which of the following investment strategies MOST closely achieves this goal? 30% corporate bond fund, 30% municipal bond fund, and 40% in a U.S. government bond fund 20% in a blue-chip fund, 20% in a technology fund, 20% in an emerging markets fund, 20% in a municipal bond fund, and 20% in a U.S. government bond fund 50% in an ETF that follows the S&P 500 and 50% in an equity foreign index fund 30% in an ETF that follows the S&P 500, 20% in an emerging markets fund, 15% in a REIT fund, 15% in a biotechnology fund, and 20% in a U.S. government bond fund

An investor seeking income and capital growth would want her assets allocated evenly between equity and fixed-income investments. Choice (b) has a 60%/40% mix of equity and fixed-income. Choice (a) is 100% fixed-income, choice (c) is 100% equity, and choice (d) is 80% equity and 20% in fixed-income.

An equity security that is distributed under Regulation S may be resold by: Immediate sale within the U.S. market Immediate sale in a designated offshore market Regulatory approval from SROs Waiting six months, then selling within the U.S. market

An overseas investor who acquires securities pursuant to Regulation S may sell the securities overseas immediately through a designated offshore securities market. There is a distribution compliance period (holding period) of 40 days for debt securities and a one-year period before an equity security sold pursuant to Regulation S may be resold in the U.S.

Blue-Sky laws apply to which TWO of the following choices? Registered representatives Securities issued by the City of Chicago Commercial paper Securities issued by a REIT I and III I and IV II and III II and IV

Blue-Sky laws are state securities laws. These laws apply to the registration of sales personnel (registered representatives), the registration and sale of nonexempt securities. REITs (real estate investment trusts) are considered nonexempt securities and are, therefore, regulated by state laws. Municipal securities and commercial paper are considered exempt securities.

The system used to report municipal securities transactions is called the: Trade Reporting and Compliance System Order Audit Trail System Trade Reporting and Compliance Engine Real-Time Transaction Reporting System

Broker-dealers are required to report transactions in municipal securities to the Real-Time Transaction Reporting System (RTRS), which is operated by the MSRB.

Which of the following descriptions regarding the Capital Asset Pricing Model (CAPM) is NOT TRUE? It predicts future values for the stock It was developed to explain the behavior of security prices It provides a mechanism to assess risk and return It is based on the efficient market theory and assumes investors act rationally

CAPM does not establish a price objective for the stock. All of the other descriptions listed are correct.

Which of the following securities will MOST likely be subject to a withholding tax? An initial public offering (IPO) A real estate investment trust (REIT) A bond issued by a U.S. company that earns income overseas Stock issued by a foreign company that earns income in the U.S.

Choice (d) is an example of an ADR, representing stock issued by a foreign corporation that is traded in the U.S. Dividends paid to a U.S. investor on foreign securities, such as an ADR, may be subject to a withholding tax by the country from which they were paid. If the investor has securities that paid dividends that were subject to a foreign tax, the broker-dealer will send the investor a form that will report the gross amount of the dividends or interest and the amount of tax withheld by the foreign government. The fact that the company earns income in the U.S. is not relevant.

A notice is published stating that RMO 5% convertible preferred stock will be called at $60 per share. The preferred is convertible into 1/2 share of common and is selling in the market at $56 per share. RMO common stock is selling in the market at $110 per share. After the notice appears, the price of the preferred stock will most likely trade in the market at: $28 $55 The same price as before the notice appeared A price near $60

Converting the preferred stock has a value of $55 ($110 per common share x 1/2 conversion ratio). Since the call price of $60 is more beneficial to the preferred stockholder, the market price of the preferred stock will most likely rise to near $60 (the call price).

Under MSRB rules, which of the following documents do NOT need to be retained for a specific period? Customer confirmations Written customer complaints Issuers' official statements Customer related correspondence

Copies of official statements need not be retained since the MSRB does not have the authority to regulate issuers and, therefore, may not require the preparation of an official statement.

Cash dividends received from which of the following securities will be taxed as ordinary income? Preferred stock issued by a bank Common stock issued by an oil company A real estate investment trust Convertible preferred stock issued by a software company

Currently, dividends paid on both common and preferred stock are taxed at a maximum rate of 20% if the stock is held for more than 60 days. Dividends from a REIT are still taxed at the same rate as ordinary income since a REIT does not pay corporate income tax if it distributes a minimum percentage of its income. The type of company that issued the shares is not relevant to the tax status of the cash dividend.

An airport deducts all of the following expenditures before arriving at its net revenues, EXCEPT: Runway maintenance expenses Debt service expenses Hangar expenses Salaries of airport personnel

Debt service expenses are paid first only in gross revenue pledges. It is assumed that the airport is using a net revenue pledge that results in all maintenance and operation expenses being deducted before arriving at net revenues

Which TWO of the following choices can be calculated by examining the income statement of a company? The earnings before interest and tax (EBIT) The debt-to-equity ratio The operating profit margin The amount of working capital I and III I and IV II and III II and IV

EBIT may be found by subtracting the operating expenses from the sales or revenue of a company, and the operating profit margin is found by dividing the sales by the operating expenses. All of this information can be found in the income statement. The debt-to-equity ratio and amount of working capital can be calculated by examining a company's balance sheet.

An individual considering the purchase of an equity-indexed annuity should understand that: The return over long periods of time will equal the underlying index These products tend to outperform the stock market over long periods of time These products do not have sales charges or surrender fees like mutual funds and should only be purchased by seniors who want a death benefit and life payout The return over long periods of time will equal the greater of the participation rate of the underlying index (adjusted rate of return) or the guaranteed minimum

Equity indexed annuities (EIAs) are a hybrid product that combines the elements of fixed and variable annuities. They provide a guaranteed minimum rate of return, but their performance is linked to a securities stock market index. Participation in the return found in the index is usually less than 100% and the calculation excludes dividends, which are normally based solely on appreciation. These products typically have surrender charges, fees based upon the riders selected, generally making these unsuitable for senior citizens or those needing access to their money.

Which of the following statements does NOT describe an equity-indexed annuity? It offer a guaranteed minimum rate of return It provides a return based on the performance of a stock market index It is considered a security It provides tax-deferred growth

Equity-indexed annuities (EIAs) are annuities that provide a guaranteed minimum rate of return (unlike variable annuities), but can yield a greater rate of return based on the performance of a linked stock market index. They also provide tax-deferred growth. Currently, EIAs are not considered securities.

A registered representative is sending an e-mail to all her customers in anticipation of a new product being offered by the firm. If her customers consist of a large group of individual investors with assets from $100,000 to $100,000,000, which of the following statements is TRUE? This would be defined as a correspondence This would be defined as an institutional communication This would be defined as both a retail and an institutional communication This would be defined only as a retail communication

FINRA's Communications with the Public Rule defines different types of communication. Correspondence, which is defined as any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. Institutional communication, which is defined as any written or electronic communication that is distributed or made available only to institutional investors. This would not include any internal communication by the broker-dealer. Retail communication, which is defined as any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30 calendar-day period. Public appearances are situations where employees associated with a broker-dealer or sponsor participate in a television or radio interview, seminar, or forum, or make a public appearance, or engage in speaking activities that are unscripted and are not otherwise considered retail communication. Social media sites, which permit real-time communication or interactive, electronic forums, fall under the guidelines of a public appearance (e.g., Facebook, Twitter, and LinkedIn). An institutional investor under this rule is any bank, S&L, insurance company, registered investment adviser or investment company (mutual fund), any person with total assets of at least $50 million, government entity, employee benefit plan, any member firm or registered person of the firm, and any person acting solely for any institutional investor. Since the e-mail is being sent to both retail and institutional investors, it is defined as a retail communication. If the communication is made available only to customers with total assets of at least $50 million, then it would be defined as an institutional communication.

Your firm is the managing underwriter of an initial public offering. How many days must the firm's research analyst wait before issuing a research report on this IPO? There is no waiting period and research may begin anytime after the effective date 10 days 40 days 90 days

If a firm is involved in an underwriting of an initial public offering and is the manager or comanager, it must maintain a quiet period of 40 days following an IPO or 10 days following a secondary offering. During this time, the firm may not issue research reports on its investment banking clients' stock. If the firm was a syndicate member or selling group member, the firm would need to wait 25 days.

During a period of stable interest rates, which bond has the most potential to show a significant change in price? A 7%, 30-year U.S. Treasury Bond An 8%, 5-year high-grade corporate bond A 6%, 6-month Revenue Anticipation Note A 7 1/2%, 10-year convertible subordinated debenture

If interest rates are stable, most bond prices will have little movement. However, a convertible debenture could show significant price appreciation or depreciation if the underlying equity changes in value because of the potential to convert. This keeps the bond price in the vicinity of conversion parity. Parity is achieved when the value of the bond equals the value of the common stock derived from conversion.

A corporation has the following capital structure: 5% Convertible Bonds (conversion price is $20) $100,000 5% Preferred Stock $100,000 $1 Par Value Common Stock (5,000 shares outstanding) $ 5,000 Tax Rate is 34% Find the earnings per share after dilution, assuming earnings before interest and taxes is $50,000. $2.47 $2.80 $2.97 $3.30

If the bonds are converted, there will be an additional 5,000 shares outstanding ($100,000 face value bonds divided by the conversion price of $20 equals 5,000 shares). The company will not need to pay the interest on the bonds since they were converted. The calculation is as follows. Taxable Income $50,000 - Taxes (34%) 17,000 Net Income $33,000 EPS = Net Income - Preferred Dividends Number of Common Shares Outstanding EPS = $33,000 - $5,000 5,000 shares of Common Stock plus 5,000 additional shares (fr/ conversion) EPS = $28,000 = $2.80 EPS 10,000 shares (72463)

Which TWO of the following choices would be the most suitable purchasers of municipal zero-coupon bonds? An investor who does not seek present additional cash flow An investor who seeks the tax benefits of long-term capital gains An investor who needs cash for living expenses A custodian account where the parent of the minor child is in the highest tax bracket I and III I and IV II and III II and IV

In a custodian account, the minor is technically liable for taxes. Depending on the amount of income generated in the account and the age of the minor, taxes are calculated at the parents' rate. Therefore, parents may consider the purchase of municipal bonds in the custodian account for tax advantages. The zero-coupon bond will not produce cash flow during the holding period. This would be desirable for those who do not need cash income. (Funds are needed at a later date in the custodian account.) The zero-coupon municipal bond would be suitable for other accounts besides the custodian account, such as upper tax bracket earners during their peak earning years. Zero-coupon bonds are subject to annual accretion of the investor's cost basis. As such, at maturity, the investor's cost basis equals the par value of the bond. (There are no capital gains.) The accretion of the municipal bond is treated as interest income which, in the case of the municipal bond, is federally tax-free. This is a tax advantage, but it is not a long-term capital gain.

Which of the following choices would be found in the subscription agreement for a direct participation program (DPP)? The sharing arrangement between the limited and general partners The amount of money that the general partner will contribute to the program The provisions for dissolving the partnership Who is required to sign this document

In order to purchase an interest in a direct participation program, the investor must complete the subscription agreement. It will specify who is required to sign the agreement. The other choices given are found in the offering documents.

Junius Arbor purchased stock in 2002 for $24,000. In April 20XX, Mr. Arbor passed away. His estate valued the stock at $82,000. The stock was willed in equal amounts to his daughter Cathy and his son Bob. Cathy sold her stock on September 2, 20XX for $48,000. Bob sold his stock on May 8, 20XX for $56,000. Which of the following statements is TRUE? Cathy has a short-term gain of $7,000 and Bob has a short-term gain of $15,000 Cathy has a long-term gain of $7,000 and Bob has long-term gain of $15,000 Cathy has a short-term gain of $36,000 and Bob has a short-term gain of $44,000 Cathy has a long-term gain of $36,000 and Bob has a long-term gain of $44,000

In the case of inherited securities, the value of the securities is determined at the time of death. The heirs are always considered to have long-term holding periods. The capital gains or losses for Bob and Cathy are found as follows: The securities at the time of death were valued at $82,000. Bob and Cathy were willed equal amounts of $41,000 each, establishing a cost basis for both of $41,000. To determine the gain, compare the cost basis to the sales proceeds. Cathy sold her stock for $48,000, creating a $7,000 gain, while Bob sold his stock for $56,000, creating a $15,000 gain.

Which of the following choices may write calls covered by XYZ stock? The president of XYZ Corporation The trustee of XYZ Corporation's pension fund XYZ Corporation ABC Corporation II and IV only I, II, and III only I, II, and IV only I, III, and IV only

Individual stockholders may write calls on stock they own, regardless of their position as an insider. Trustees of pension funds are permitted by ERISA to write covered calls provided the strategy meets the objectives of the fund. Corporations may write calls covered by stock of other companies. However, a corporation may not write calls covered by its own stock.

According to CAPM, all of the following choices are examples of diversifiable, nonsystematic risk, EXCEPT: Credit risk Interest-rate risk Business risk Industry risk

Interest-rate risk is the systematic risk for bonds just as beta measures the systematic risk for stocks. Systematic risk is market risk, which persists despite diversification.

Which TWO of the following persons may be permitted to purchase issuer-directed shares of an equity IPO? An employee of a FINRA member whose spouse is a director of the issuer A portfolio manager of a mutual fund purchasing for his personal account Employees of the issuer if the issuer is a FINRA member An outside attorney assisting in the IPO I and III I and IV II and III II and IV

Issuer-directed securities provide an exemption for certain individuals under the New Issue Rule. Under this provision, issuers may direct securities to the parent company of the issuer, the subsidiary of an issuer, and employees and directors of an issuer. The issuer-directed provision also permits immediate family members of employees and directors to participate in the offering. Registered representatives are also allowed to purchase shares of an equity IPO if the issuer is that person's employing broker-dealer or is the parent or subsidiary of the broker-dealer.

An investor is expecting a sharp decline in interest rates in the near future. To capitalize on this situation, the investor should buy: Premium bonds with short maturities Premium bonds with long maturities Discount bonds with short maturities Discount bonds with long maturities

Long-term bond prices are more volatile than short-term bond prices. Discount bond prices are more volatile than premium bond prices. If the investor expects interest rates (yields) to decline, she is anticipating rising bond prices. The bonds that will rise (fluctuate) the most are long-term, discount bonds.

Private label mortgage-backed securities are issued by which of the following entities? The Federal National Mortgage Association Real estate investment trusts The Government National Mortgage Association Financial institutions

Mortgage-backed securities (MBS) may be issued by a U.S. government agency, such as the Government National Mortgage Association (GNMA or Ginne Mae), or a government-sponsored enterprise (GSE), such as the Federal National Mortgage Association (FNMA or Fannie Mae) or the Federal Home Loan Mortgage Association (FHLMC or Freddie Mac). The securities issued by these three entities are commonly referred to as agency securities and receive high ratings (e.g., AAA). A collateralized mortgage obligation (CMO) is an example of this form of MBS. Mortgage-backed securities are also issued by financial institutions such as commercial banks, investment banks, and home builders. These securities are referred to as private label MBS and may contain some agency securities, however, they typically contain other types of mortgage loans that are not agency securities. A private label MBS is not an obligation of the U.S. government or any GSE and its credit rating is assigned by an independent credit agency. A private label MBS has a higher degree of credit risk and is generally not given a AAA rating.

Which of the following securities are guaranteed by the federal government? Fannie Mae securities Ginnie Mae securities Freddie Mac securities Federal Home Loan Bank securities

Of the choices given, only Ginnie Mae securities or the Government National Mortgage Association securities (GNMAs) are fully guaranteed as to principal and interest by the federal government.

The term all-or-none, in trading municipal bonds, applies to: Agency transactions Premium bonds Discount bonds Sellers' offering terms

Offerings are sometimes made on an all-or-none basis (an AON offering), which is a situation where the offerer agrees to sell the bonds only if all that he has available will be bought.

XYZ corporation has 7,000,000 shares of common stock ($1 par value) authorized, of which 5,000,000 shares have been issued. There are 500,000 shares of treasury stock. The current market price of XYZ is 20. The market capitalization of the outstanding common stock is: $90,000,000 $7,000,000 $5,000,000 $4,500,000

Outstanding shares are issued shares minus treasury stock (shares repurchased by the company). There are 4,500,000 shares outstanding with a market value of $20.00 per share. Therefore, the market capitalization is $90,000,000.

A customer purchases 1,000 shares of an OTC equity in a cash account through an online brokerage firm on Wednesday, March 11th. The transaction will settle: By the close of business on March 11th On March 14th On March 18th On March 16th

Regular way settlement of corporate securities is three business days. The transaction would settle on Monday, March 16th.

An investor who sells 1 GE Dec 50 call and sells 1 GE Dec 40 put has: Created a vertical spread Created a horizontal spread Sold a straddle Sold a combination

Selling a call and put on the same security with different strike prices, or different expiration dates, is a short combination.

An investor enters an order to buy 400 shares of HRJ @ 56 on the NYSE. Which of the following statements are TRUE regarding this order? The designated market maker may hold this order in his book The order may only be executed at 56 A portion of the 400 shares may be purchased The order must be executed immediately I and III only II and III only II and IV only I, II, III, and IV

Since a price is specified, it is a limit order. A limit order may be executed at the limit price or better (lower for a buy order). It does not need to be executed at exactly the limit price. A designated market maker is permitted to hold a stop, limit, and stop-limit order. A portion of the order may be executed since the order was not marked AON (all or none). It does not need to be executed immediately since it was not marked IOC (immediate-or-cancel).

ABC Corporation intends to make an initial public offering of 10,000,000 shares of common stock, 7,500,000 shares of which will be new stock being issued by ABC Corporation and 2,500,000 shares will be for selling stockholders. Which TWO of the following statements regarding this offering are TRUE? It is a primary distribution It is a primary and secondary distribution The proceeds of the sale will be shared by the corporation and the selling stockholders The corporation will receive all of the proceeds of the sale I and III I and IV II and III II and IV

Since both the corporation and existing shareholders are selling stock, it is both a primary and secondary distribution. In a primary distribution, proceeds go to the corporation. In a secondary distribution, proceeds go to the selling shareholders.

An investor buys an 8% municipal bond in the secondary market at a 10.00 basis. If the bond is held to maturity, the investor's after-tax return will be: 8% Between 8% and 10% 10% Greater than 10%

Since the yield (10%) is higher than the coupon (8%), the bond was purchased at a discount. Since the bond was purchased in the secondary market at a discount, the interest on the bond is exempt from federal taxation but the discount will represent ordinary income at maturity. Since the investor must pay federal income tax on the ordinary income, the after-tax return will be between 8% and 10%

Which of the following positions/strategies is NOT bullish? A married put A short put A long 40 call and a short 50 call Writing a straddle

Straddle writers expect a neutral market and obtain the maximum gain if each option expires. Each of the other choices has an opportunity for a profit if the underlying security rises in value.

Which of the following statements concerning a tax-qualified annuity is TRUE? It has a zero cost basis and grows tax-free It is not subject to contribution limits It has a zero cost basis and grows tax-deferred It may be subject to tax-free distributions, if qualified

Tax-qualified annuities are employer-sponsored plans that are available to certain nonprofit organizations, public school, and/or state/city university/college employees. These annuities, sometimes referred to as TSAs may be placed into a 403(b) or a 501(c)(3) plan. Since these plans are funded on a pretax basis, contributions are deducted from an individual's taxable income. An investor's cost basis is considered to be zero since none of the contributions have been recognized for tax purposes. Income grows tax-deferred not tax-free. Upon distribution, every dollar is taxable as unearned ordinary income. Tax-free growth means that none of the distributions will be subject to taxation. This is not the case with these types of plans.

Which of the following choices BEST defines the Municipal Bond Index? The average yield on 25 general obligation bonds with 30-year maturities The average price on 20 selected municipal revenue bonds with 20-year maturities An estimate of the prices of 40 long-term municipal bonds adjusted to a 6% coupon The average yield on 11 selected municipal revenue bonds with 20-year maturities

The Bond Buyer Municipal Bond Index is based on the prices of 40 recently issued, long-term general obligation and revenue bonds. The index is calculated by taking the price estimates and adjusting them to a 6.00% coupon. The index is published daily and serves as the basis for a futures contract (which is no longer traded). Three other Bond Buyer indices are the average yield on 25 revenue bonds with 30-year maturities, the average yield on 20 municipal general obligation bonds with 20-year maturities, and the average yield on 11 municipal general obligation bonds with 20-year maturities.

Which TWO of the following statements are TRUE relating to the notes issued by the Federal Farm Credit Banks Consolidated System? They are issued at a discount They are issued at par They are interest-bearing They are non-interest-bearing I and III I and IV II and III II and IV

The Federal Farm Credit Banks issue consolidated systemwide notes that are issued at a discount (as with T-bills) and are non-interest-bearing. Bonds are also issued that are interest bearing (have a stated interest rate). Interest is subject to federal taxation but is exempt from state and local taxation.

The Federal Intermediate Credit Bank (FICB) makes: Agricultural loans to farmers Loans to finance residential mortgages Business loans to veterans Loans to utility companies

The Federal Intermediate Credit Bank (FICB) makes agricultural loans to farmers

The Securities Exchange Act of 1934: Created the SEC Provided for the regulation of credit Provided for the regulation of exchanges Provided for the regulation of new issues I and III only I and IV only I, II, and III only II, III, and IV only

The Securities Exchange Act of 1934 created the SEC and provided for the regulation of credit and exchanges. The Securities Act of 1933 provided for the regulation of new issues

To determine what would happen to the coverage of revenue bonds when more bonds are going to be issued in the future, one should examine: The rate covenants of the bond Feasibility studies The refunding procedure of the bond The additional bonds test

The additional bonds test sets a minimum level of coverage of debt service for interest and principal for all outstanding bonds and for future debt. The additional bonds test protects original bondholders against the dilution of the debt service coverage. Rate covenants insure that rates will increase in line with costs to insure proper revenues for the maintenance of the facility or project and payment of the debt service. Feasibility studies are conducted to insure the proper need of the project being developed. Refunding is used to lower interest expense on bonds through the issuance of new bonds at lower coupon rates. The proceeds of the new bond sale would be used to repurchase the already outstanding high-coupon bonds.

A customer contacts her registered representative concerning the bid and offer prices of mutual funds listed in various financial publications and Web sites. Which TWO of the following statements are TRUE? The bid price is equal to the net asset value The bid price is equal to the net asset value minus the redemption fee The offer price is equal to the net asset value plus a commission The offer price is equal to the net asset value plus the sales charge I and III I and IV II and III II and IV

The bid price of a mutual fund is also equal to the net asset value (NAV) and is the price a customer will receive if shares are sold. It does not include the redemption fee, which may be charged when the customer sells her shares. The offer price is equal to the NAV plus the sales charge, if any, and is the price a customer pays to purchase shares of a mutual fund. The term commission is not used in the mutual fund industry as the term sales charge or sales load is used, and is built into the price the customer pays for the fund.

A 6% bond is selling at a 6.25% basis. The bond will mature in 25 years and has 3 call dates. Which of the following bonds will give the investor the best return? The bond is called after 10 years at 103 The bond is called after 15 years at 102 The bond is called after 20 years at 101 The bond is held to maturity

The bond is selling at a discount. The first call in 10 years at 103 will give the investor the best return. The investor receives the highest call price in the shortest number of years.

The Barge Towing Corporation has announced in a tombstone ad that it will issue $5,000,000 of 10% convertible subordinated debenture bonds convertible into common stock at $10.50. The bonds will mature in November 2030 and are being issued at their $1,000 par value. Which of the following statements is TRUE? The bonds are being issued at a premium The bonds are being issued at a discount The bonds can be redeemed by holders before November 2030 If the company should go bankrupt, the subordinated debenture holders would be paid after all other bondholders and general creditors but before common stockholders

The bonds are subordinated debenture bonds and are issued at par value. If the company should go bankrupt, the subordinated debenture holders will be paid after all other bondholders and general creditors, but before common stockholders.

A research analyst at a broker-dealer is preparing a research report recommending ABC common stock. Which of the following situations need not be disclosed? ABC Corp is an investment banking client of the broker-dealer The broker-dealer has a 1% or greater beneficial ownership in ABC common stock The broker-dealer has a 1% or greater beneficial ownership in ABC nonconvertible bonds The broker-dealer makes a market in ABC common stock

The broker-dealer is required to make certain disclosures in its research reports, such as whether the firm has an investment banking relationship or makes a market in the common stock of ABC. It must also disclose its ownership in a subject security if the ownership is equal to or greater than 1% beneficial ownership in common equity. Since nonconvertible debt is not considered common equity, disclosure is not required.

A client buys 100 shares of SAR at $58 a share and writes 2 SAR October 60 calls at 3. Which of the following statements is TRUE? The breakeven point is $56 The maximum profit is $600 The maximum loss is $5,200 The maximum loss is unlimited

The client's maximum loss is unlimited since two calls were written against 100 shares of stock. This client is writing a covered call and an uncovered call and the maximum loss on an uncovered call is unlimited. This position is referred to as ratio writing or a variable hedge, and the objective is to increase the income from writing more calls than stock owned. If the market price trades at or below $60, the client will have a $600 versus a $300 profit since two calls were written. The breakeven point is found by taking the purchase price of $58 and subtracting the total premiums of 6, which equals $52. The maximum profit is $800, which is found by taking the difference between the purchase price and the strike price and adding the premiums received from writing the call options (60 - 58 + 3 + 3).

A customer's initial trade in a margin account is the short sale of 500 shares of DEF stock at $20. After making the required deposit, the credit balance in the account is: $5,000 $10,000 $15,000 $20,000

The credit balance in a short margin account is determined by adding the short sale proceeds and the Reg T deposit. In this example, the short sale proceeds are $10,000 (500 shares x $20). The Reg T requirement is $5,000 ($10,000 x 50%). The credit balance is $15,000.

A customer writes an XYZ June 60 straddle for a 5-point premium. At expiration, the market price of XYZ is 50 and the put side is exercised. The customer then sells the stock that was put to her at the current market price. The customer has realized a: $500 profit $500 loss $1,000 profit $1,000 loss

The customer has received a total of $5 in premiums or $500 for the straddle. The call side of the straddle expires, but the put is exercised. The writer must buy the stock at $60 per share (the exercise price). The stock is then sold at the $50 market price, which results in a $1,000 loss ([$60 - $50] x 100 shares). However, since the customer initially received a premium when she wrote the straddle, the loss is only $500 ($1,000 loss from exercising the put - $500 premium).

The marketability of a municipal bond would NOT be affected by the: Rating Block size Maturity date Dated date

The dated date of a municipal bond is the date that interest begins to accrue and will not affect its marketability. The marketability of a municipal bond will be affected by the rating it received by either Moody's or Standard and Poor's. The marketability of a municipal bond will also be affected by the block size. A block is considered to be a large quantity of municipal bonds (minimum of $100,000 par value). The maturity of the bond will also affect the marketability of the bond. The closer the bond is to maturity, the more liquid it becomes.

Which TWO of the following statements are TRUE concerning the death benefit on a variable annuity? The benefit skips the probate process The benefit must go through probate prior to distribution The beneficiary receives the proceeds tax-free The beneficiary may have a tax liability when receiving the proceeds I and III I and IV II and III II and IV

The death benefit on a variable annuity skips the probate process. Probate is a lengthy legal process in which the decedent's bills are paid and remaining assets distributed based on instructions generally left in a will. The recipient of a death benefit from a variable annuity may need to pay taxes on any amount above the contract's cost basis. For example, if a client invested $100,000 and died when the contract was worth $150,000, a nonspouse beneficiary may be required to pay taxes on the $50,000 above the decedent's contributions.

A registered representative is provided with the following financial information concerning a company: Debt of $225 million, par value of the common stock $40 million, paid-in capital of $70 million, and retained earnings of $750 million. The debt-to-equity ratio is: 21% 26% 74% 79%

The debt-to-equity is found by dividing the dollar amount of debt (bonds) by the dollar amount of shareholder equity (common stock + paid-in capital + retained earnings). The debt-to-equity ratio is 26% ($225 million / [the par value of the common stock is $40 million + paid-in capital of $70 million + retained earnings of $750 million = $860 million]). The debt-to-equity ratio is used to analyze the capital structure of a company.

ABC Corporation has net income of $10,000,000 and 5,000,000 common shares outstanding. ABC Corporation pays out $1,000,000 in dividends annually. ABC Corporation's dividend payout ratio is: 10% 20% 40% 50%

The dividend payout ratio is the percentage of earnings per share that is being paid in the form of dividends. The EPS is $2.00 ($10,000,000 divided by 5,000,000 shares). ABC pays a $0.20 dividend per share ($1,000,0000 dividends divided by 5,000,000 shares). The $0.20 dividend divided by the $2.00 EPS equals a 10% dividend payout ratio.

A portfolio's mix of investments and two potential investors are described below. 20% investment-grade corporate bonds 30% blue-chip common stock 20% variable annuity 20% equity mutual funds 10% money-market funds Investor A: A 35-year-old single individual, who earns a good salary, makes the maximum contribution to his employer's 401(k), and is willing to assume a moderate degree of risk. Investor B: A 40-year-old married female, who along with her spouse works and earns a good salary. She chooses not to contribute to her employer's 401(k). She is willing to assume a moderate degree of risk. The portfolio is MOST suitable for: Neither Investor A nor Investor B Both Investor A and Investor B Investor A only Investor B only

The fact that this portfolio includes an investment in variable annuities is the determining factor for which investor is the most suitable. Generally, an annuity should only be considered after a person contributes the maximum amount to the qualified plans that is sponsored by his employer since it provides for deductible contributions, tax-deferred growth, and the potential for a company match. Investor A has contributed the maximum amount to his employer's 401(k) plan and could use the variable annuity as an additional retirement vehicle. Since Investor B is not contributing to her employer's pension plan, she should probably not include a variable annuity in her portfolio.

Recently, the federal funds rate has been rising. This may indicate all of the following situations, EXCEPT: Rates for short-term loans have been increasing The Federal Reserve may be engaging in matched sales to absorb reserves from the banking system Banks will find it more expensive to obtain overnight loans to satisfy a minor deficit in their reserve accounts The Federal Reserve is easing credit

The federal funds rate is the rate that one bank charges another bank for overnight borrowing. This borrowing is done when a bank is in need of reserves. If the fed funds rate is steadily rising, it indicates that the Federal Reserve is tightening credit. Therefore, banks may find difficulty in obtaining overnight loans to meet reserve requirements.

On the day prior to the ex-dividend date for an ordinary cash dividend, a holder of a call tenders an exercise notice. The investor will be: Entitled to the dividend Required to pay the dividend to the writer only if the writer owns the underlying security Entitled to the dividend only if the holder owns the underlying stock Required to pay the dividend to the writer

The holder of a call will get a dividend only if the option is exercised prior to the ex-dividend date. This will result in the buyer being listed as holder of record on the books of the transfer agent.

An individual considering moving to the payout phase of a variable annuity should understand the payments will: Never be less than the cost basis in the separate account Be based on the performance of the subaccount products in the separate account Be based on the performance of the subaccount products in the separate account plus the AIR Be based on the performance of the subaccount products in the separate account minus the AIR

The investor assumes the risk when purchasing a variable annuity. Once annuitized, the number of annuity units remains the same and payments are based on the performance of the subaccount products in the separate account, and the chosen settlement option. Should the value of the separate account fall below the investor's cost basis, the payments may amount to less than the cost basis.

An investor purchases a zero-coupon municipal bond maturing in 15 years that is callable in five years at 102. If the bond is called, the investor will receive: Par value 102% of the par value 102% of the original cost 102% of the compound accreted value

The investor would receive 102% of the compound accreted value since the security is a zero-coupon bond or original issue discount (OID) bond. The compound accreted value is equal to the original value of the bond plus the annual accretion as of the call date. If the bond was not an OID bond and was called, the investor would receive 102% of par or $1,020.

A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per share. The manager of the underwriting syndicate receives $0.15 per share. The syndicate members' compensation is $0.65 per share for each share they sell. The selling group's concession is $0.40 per share for each share they sell. The syndicate is allocated 4,000,000 shares and the selling group is allocated 1,000,000 shares. Assuming that all of the shares are sold, what amount will the syndicate members receive for their risk on shares sold by the selling group? $0.25 per share for a total of $250,000 $0.25 per share for a total of $1,000,000 $0.40 per share for a total of $400,000 $0.65 per share for a total of $650,000

The members of the syndicate receive $0.25 per share for their risk. Since the selling group was allocated 1,000,000 shares, the syndicate will receive $0.25 per share on 1,000,000 shares for a total of $250,000.

Which TWO of the following statements are TRUE regarding mutual funds? The maximum sales charge is 7% Investors can receive a reduced sales charge if they sign a 10-month letter of intent to purchase a certain dollar amount of mutual fund shares Under the right of accumulation, investors can receive a reduced sales charge on new purchases when a breakpoint is reached No-load funds may charge a liquidation fee when an investor sells the fund I and II I and III II and III III and IV

The only true statements regarding mutual funds that are listed are that under the right of accumulation option, mutual fund investors can receive a reduced sales charge on new purchases when a breakpoint is reached, and no-load funds may charge a liquidation fee when an investor sells the fund. Under industry rules, the maximum sales charge for a mutual fund is 8 1/2%, not 7%. A letter of intent for a reduced sales charge is for 13 months, not 10 months.

A corporation calls for the redemption of 1,000,000 shares of convertible preferred stock. The corporation announces that the convertible preferred will be redeemed at a price of $20 plus an accumulated dividend of 12 cents. Each share of preferred can be converted into 1/2 share of common. The preferred stock is selling at $19. There are 2,000,000 shares of common outstanding. Earnings for the common stock are $2.50 per share. The common stock is selling at 35.75. What will the market price of the preferred stock be if it is selling at parity with the common stock? 17.88 19 20 71.50

The preferred stock is convertible into 1/2 share of common stock. The common stock is selling for 35.75. Parity (or equality in dollar value) for the preferred stock is 1/2 of 35.75 (17.88).

A municipal securities representative does an analysis of an official statement and prepares a summary report. The report must be approved by: A municipal securities principal FINRA The Issuer The MSRB I only I and III only II and IV only III and IV only

The preliminary and final official statements are not considered advertising since they are prepared by or for the issuer. However, a summary of an official statement is considered advertising since it is prepared by the municipal representative and, therefore, must be approved by a municipal principal.

Someone who wants to hedge a portfolio of preferred stocks will buy: Yield-based call options Yield-based put options S&P 500 call options S&P 500 put options

The prices of preferred stocks are inversely related to the movement of interest rates, as are bonds. If the investor is concerned that rising interest rates will erode the value of the preferred stock portfolio, the purchase of an option that does well when interest rates rise will provide an effective hedge. Yield-based call options increase in value when interest rates rise, creating a viable hedge.

A customer opens a new margin account and buys 100 shares of XYZ Corporation at $40 per share. She then writes a call option against the position and receives a $2 premium. The customer must deposit cash in the account of: $1,800 $1,900 $2,000 $2,100

The purchase of $4,000 worth of stock would require a $2,000 deposit (50% of $4,000 = $2,000). Since the call is covered, there is no margin requirement. The customer received $200 in premiums. This would be deducted from the $2,000 margin call, requiring a cash deposit of $1,800.

A tombstone ad states that Southern California Gas is issuing 8 3/4% first mortgage bonds at a price of 96.35% of their par value. Which TWO of the following statements are TRUE? The bonds are being sold to yield 9.635% annually The bonds will pay interest of $87.50 annually The bonds are subject to the Trust Indenture Act of 1939 An investor purchasing the bonds would not pay federal income tax on the interest received I and III I and IV II and III II and IV

The rate of interest stated in the tombstone is 8 3/4%. This means the company will pay 8 3/4% of $1,000 or $87.50 per year in interest. The bonds are corporate bonds being issued by Southern California Gas Company (not the state of California) and are subject to the Trust Indenture Act of 1939. In addition, the interest received on a corporate bond is subject to federal and state income tax.

The term fast market is characterized by which TWO of the following descriptions? An imbalance of orders A very low number of trades Highly volatile prices The quotes of market makers being updated very quickly I and III I and IV II and III II and IV

The term fast market is characterized by very heavy trading, fast moving prices, and high volatility. There also may be an imbalance in the number or shares clients are willing to buy or sell. For example, there are 500,000 shares to buy and only 100,000 shares to sell. Quotes may take a long time to update since prices and trades are moving so quickly. A client's order may take a longer time to execute, and if a market order is entered by a client, the price received may be significantly higher or lower then the quoted price.

In a new municipal issue, what is a group order? An order placed by three or more members An institution purchasing bonds from a syndicate An order allowing all members to benefit A dealer buying for a group of investors

There are four types of orders that can be placed with a syndicate. A presale order is any order placed before the syndicate that actually purchases the issue from the issuer A group order is a situation where all members of the syndicate share in the profit A designated order is usually placed by a large institution that designates two or more members to receive credit for the sale A member order is an order placed by members for their customers

An investor purchases an EPG Jan 40 put at 5 and writes an EPG Jan 50 put at 13. The investor would profit in all of the following situations, EXCEPT: The spread narrows Both options expire The Jan 50 put is closed out at 10 and the Jan 40 put is closed out at 4 The spread widens

This is an example of a credit spread (more premium received for the option sold than paid for the option purchased). In a credit spread, the investor will profit if the spread (difference in premium) narrows.

If ABC stock is currently trading at 35.25 and the October 35 put option has a premium of 2.25, what is the time value of this option? Zero $200 $225 $250

Time value is calculated by taking the difference between an option's premium and its intrinsic value. Since the market price of the stock is greater than the strike price of the put option, this option is out-of-the money and has no intrinsic value. The entire premium of this option, $225, is considered the time value

To apply for a securities registration, a previously unregistered individual must: Complete Form U5 Complete Form U4 File the necessary form with FINRA File the necessary form with the SEC I and III only I and IV only II and III only II and IV only

To apply for a securities registration, a person must file Form U4 with FINRA.

All of the following choices are requirements for a stock to be listed on the NYSE, EXCEPT: A minimum 25% dividend payout ratio An agreement to solicit proxies A national interest in the company A minimum number of round-lot shareholders

To be listed on the NYSE, a corporation must have a minimum number of round-lot shareholders, a minimum number of publicly held shares, a minimum aggregate market value of publicly held shares, a positive earnings history, national interest in the corporation, and agreement to solicit proxies. Dividend payout ratios are not a listing requirement.

Which of the following securities will probably have the greatest fluctuation in price when interest rates move up or down? Commercial paper Treasury bills Treasury notes Treasury bonds

Treasury bonds have the longest maturity of the choices listed and will have the greatest fluctuation in price. Since they have the longest maturity, they will be exposed to the risks of the marketplace for the longest period.

Which of the following choices is NOT considered a tax-preference item when calculating the alternative minimum tax (AMT)? Accelerated depreciation in excess of straight-line depreciation Straight-line depreciation Excess intangible drilling costs Excess mining, exploration, and development costs

Under AMT rules, taxpayers must compute their income taxes twice. An individual subject to the AMT must first calculate his taxes using the standard method, and then he must recalculate his tax liability using the AMT method. The taxes due are the greater of the two calculations. Tax-preference items are used in calculating the alternative minimum tax. Straight-line depreciation is not a tax-preference item.

When pricing a bond, what information is NOT required? The coupon rate The maturity date The settlement date The number of bond years

When pricing a bond (determining the yield when price is known or determining the price when yield is known), the coupon, settlement date, and maturity are required. The number of bond years is used to determine the net interest cost when an underwriting is bidding on a new issue of municipal bonds.

A customer sells $1,000 worth of stock in a restricted margin account. All of the following statements are TRUE, EXCEPT the: Market value of the account will be reduced SMA will be increased Debit balance will be decreased Equity will be increased

When securities are sold in a restricted account, the customer is permitted to withdraw an amount equal to the FRB initial margin requirement (currently 50%). This amount is first credited to the SMA and may then be withdrawn. The full amount of the sale is used to reduce the debit balance. The market value will decrease since securities were sold. The equity will remain the same since the market price and debit balance were reduced by the amount of the sale. If the customer withdraws the amount credited to the SMA, the debit balance will increase and the equity will decrease.

Which TWO of the following option strategies will be suitable recommendations for an investor who thinks interest rates will rise? Buying yield-based calls Buying yield-based puts Selling yield-based calls Selling yield-based puts I and II I and IV II and III III and IV

Yield-based options are cash-settled options based on a particular Treasury security's movement in yield. If an investor expects yields (interest rates) to rise, he will buy yield-based calls or sell yield-based puts

Calculate the SMA for the following margin account. Long Account Short Account $150,000 Market Value $45,000 Market Value $50,000 Debit Balance $75,000 Credit Balance $7,500 $25,000 $32,500 $130,000

he formula for calculating SMA is: Actual equity - Reg T Requirement = SMA The equity in the long account is $100,000 ($150,000 LMV - $50,000 DR). The equity in the short account is $30,000 ($75,000 CR - $45,000 SMV). Total equity is $130,000. The Reg T requirement for the long account is $75,000 ($150,000 LMV x 50%). The Reg T requirement for the short account is $22,500 ($45,000 SMV x 50%). The total Reg T requirement is $97,500. The combined SMA is, therefore, $32,500 ($130,000 Actual equity - $97,500 Reg T requirement).