Test 2

A customer writes 1 XYZ Sept 45 put at 6 and 1 XYZ Sept 35 call at 6 when XYZ is at 40. Prior to expiration, if XYZ is at 43 and the customer closes his positions at intrinsic value, the customer has a: A) $200 gain. B) $200 loss. C) $600 gain. D) $600 loss.

$200 gain.

A customer wishes to buy 1 XYZ Jan 40 call and write 1 XYZ Jan 45 call. At the time the order is placed, the options are trading as follows: Jan. 40 calls - 4.30 bid, 4.35 ask Jan. 45 calls - 2.25 bid, 2.30 ask If the transaction is effected at the market, the spread will be established at a:

2.10 debit.

Your broker/dealer has received a written complaint from a customer. FINRA rules require that a record of the written complaint be kept on file by the BD for how long? A) As long as the broker/dealer is in existence or a continues to be a FINRA member firm B) Until the complaint is resolved C) 3 years D) 4 years

4 years

Which of the following securities carries the greatest amount of risk? A) Corporate bonds. B) Common stock. C) Debentures. D) Preferred stock.

Common stock.

Under the 5% markup policy, which of the following determines the amount of markup in a principal transaction? A) Lowest ask. B) Lowest bid. C) Highest bid. D) Highest ask.

Lowest ask.

In discussing a direct participation program with your customer, rank the following items in order of importance from: most to least. Tax write-offs. Liquidity and marketability. Potential for economic gain.

Potential for economic gain. Tax write-offs. Liquidity and marketability.

Which of the following statements regarding the Code of Arbitration are TRUE? Simplified arbitration is available for claims of $50,000 or less. Simplified arbitration is available for claims of $25,000 or less. The statute of limitations for filing a claim is 3 years from the event. The statute of limitations for filing a claim is 6 years from the event.

Simplified arbitration is available for claims of $50,000 or less. The statute of limitations for filing a claim is 6 years from the event.

All US exchange listed foreign currency options are settled in the underlying foreign currency are settled in cash (US dollars) expire on the third Friday of the expiration month expire on the Saturday following the third Friday of the expiration month

are settled in cash (US dollars) expire on the Saturday following the third Friday of the expiration month

A customer has sold short 100 GM at 70. GM is selling for 81. The customer had previously placed a GTC buy stop order at 83. GM announces a stock split and an increase in the dividend. The stock starts to move up and the customer decides to cover the short sale at a loss and instructs his broker to buy 100 shares of GM at the market. The registered representative will: A) sell 100 GM at the market. B) sell 100 GM at 83. C) buy 100 GM at the market and cancel the order to buy 100 GM at 83 stop GTC. D) buy 100 GM at the market.

buy 100 GM at the market and cancel the order to buy 100 GM at 83 stop GTC.

Compensation paid to research analysts may: be tied to specific investment banking transactions. not be tied to specific investment banking transactions. be tied to the firm's investment banking revenue. not be tied to the firm's investment banking revenue.

not be tied to specific investment banking transactions. be tied to the firm's investment banking revenue.

The difference between the syndicate bid and the reoffering price on a competitive bid of a new municipal underwriting is the: A) selling concession. B) spread. C) discount. D) scale.

spread

Which of the following is NOT good delivery for 470 shares of stock? A) 4 100-share certificates and 1 70-share certificate . B) 2 100-share certificates and 3 90-share certificates. C) 47 10-share certificates. D) 8 50-share certificates, 1 40-share certificate, and 1 30-share certificate.

2 100-share certificates and 3 90-share certificates.

A distribution from a corporate pension plan to be rolled over into an IRA must be completed within how many days to maintain its tax-deferred status? A) 60. B) 45. C) 90. D) 30.

60

While looking at a stock listing in the financial section of your local newspaper, you notice that the dividend is indicated by the notation ".15q." If you owned 1,000 shares, you could anticipate annual dividends of: A) 60. B) 150. C) 15. D) 600.

600

In early September, a customer buys 100 shares of MCS stock for $83 per share and simultaneously writes 1 MCS Mar 90 call for $4 per share. The customer will break even when MCS stock is at: A) 79 B) 86 C) 87 D) 94

79

An affiliate of an issuer sells shares using a Form 144. This form is valid for: A) 60 days. B) 90 days. C) 180 days. D) 30 days.

90 days.

An investor buys 100 shares of QRS stock at 60, and writes 1 QRS 60 call at 4 and 1 QRS 60 put at 5. If QRS stock is trading at $74 on the expiration date, the investor realizes a profit of: A) 400. B) 100. C) 900. D) 500.

900

An example of a taxable bond issued by a municipal government is: A) A general obligation bond (GO). B) Series EE bonds. C) A tax anticipation note (TAN). D) A Build America Bond (BAB).

A Build America Bond (BAB).

Unregistered personnel making cold calls for your firm may be compensated by which of the following methods? A) A percentage of commissions generated from their leads. B) On the basis of the number of leads generated from their calls. C) An hourly rate plus overtime. D) A percentage of the total assets generated from their leads.

An hourly rate plus overtime.

The Sarbanes-Oxley Act legislation was established to enhance standards for Market makers in U.S. exchange listed securities. Boards of directors of U.S. publicly traded companies. Public accounting firms. Block traders in stocks of U.S. exchange listed securities.

Boards of directors of U.S. publicly traded companies. Public accounting firms.

Using yield-based options, which of the following hedging strategies offers a bond portfolio manager the greatest protection against rising long-term interest rates? A) Sell 30-year T-bond yield-based calls. B) Sell 30-year T-bond yield-based puts. C) Buy 30-year T-bond yield-based calls. D) Buy 30-year T-bond yield-based puts.

Buy 30-year T-bond yield-based calls.

Which of the following transactions in the same security will affect the holding period of a security held for 12 months or less? Buy a put. Buy a call. Sell short. Sell a put.

Buy a put. Sell short.

Which of the following responsibilities did the MSRB receive through the Securities Acts Amendments of 1975? Regulation of municipal issuers. Establishment of recordkeeping requirements for municipal broker/dealers. Enforcement of any municipal regulations it adopts. Creation of regulations for participants in the municipal securities secondary market.

Establishment of recordkeeping requirements for municipal broker/dealers. Creation of regulations for participants in the municipal securities secondary market

Your customer is asking if either exchange-traded funds (ETFs) or exchange-traded notes (ETNs) might be suitable investments for his portfolio. The customer makes several statements regarding his understanding of the products but only one of them is accurate. Which is it? A) Exchange-traded funds (ETFs) have a fixed coupon rate that I should expect to realize when they mature. B) Exchange-traded notes (ETNs) are issued by financial institutions and therefore I should be concerned about the credit worthiness of the issuer. C) If I want to sell my shares of an exchange-traded fund (ETF) I have to wait until the next price is calculated to value the portfolio of securities. D) Exchange-traded notes (ETNs) are equity securities because they trade on exchanges.

Exchange-traded notes (ETNs) are issued by financial institutions and therefore I should be concerned about the credit worthiness of the issuer.

Interest paid on I bonds is: A) Exempt from state and local taxation. B) Taxable at all levels. C) Exempt at the federal level only. D) Exempt at all levels.

Exempt from state and local taxation.

Which of the following statements regarding a municipal variable rate demand obligation are TRUE? Interest payments are tied to the movements of another specified interest rate. Interest payments are tied to the movements of an underlying stock or index. the coupon rate stays the same for the life of the demand obligation and the price fluctuates. the coupon rate of the bond changes and the price remains stable.

Interest payments are tied to the movements of another specified interest rate. the coupon rate of the bond changes and the price remains stable.

Which of the following is a leading indicator of the economic future? A) Machine tool orders. B) The Consumer Price Index. C) Unemployment statistics. D) The Gross National Product.

Machine tool orders.

Which of the following individuals are eligible to participate in a tax-sheltered annuity? Maintenance engineer at a state university. Student in a public school system. Minister. Office clerk at a small corporation.

Maintenance engineer at a state university. Minister

Which of the following projects is most likely to be financed by a general obligation rather than a revenue bond? A) New high school. B) Expansion of an airport. C) Municipal hospital. D) Public golf course.

New high school.

Your customer tells you that she sees the exchange rate for the British pound in the spot market is listed at 148.47. What do you tell her when she asks you what this means? A) $1 equals 14.847 pounds. B) $1 equals 1.4847 pounds. C) One pound equals 14.847 U.S. cents. D) One pound equals $1.4847.

One pound equals $1.4847.

Which of the following investors will sell stock if an option is exercised? Owner of a call. Owner of a put. Writer of a call. Writer of a put.

Owner of a put. Writer of a call.

Smith and Company, a FINRA member firm, is preparing to underwrite securities to be issued by KLC Corporation for a new business venture. For which of the following will Smith and Company be responsible? Filing the registration statement with the SEC and state regulatory bodies. Providing advice on the type of security to be issued. Distributing the security to the public. Providing advice on how KLC can best utilize the funds raised.

Providing advice on the type of security to be issued. Distributing the security to the public.

A certificate in the name of Smith & Company may be signed: A) Smith & Company. B) Smith & Company, "Smith & Co.," or "Smith and Company". C) Smith & Company, aka SmithCo. D) Smith & Company or "Smith & Co.".

Smith & Company, "Smith & Co.," or "Smith and Company".

A customer has his broker enter an order to buy GHI stock at the opening. Though transmitted promptly, the order does not reach GHI's trading post in time to be filled at the opening. How is the order handled? A) The order is executed in the day, at a price as close to the opening price as possible. B) The order is handled as a market order. C) The order automatically becomes an at-the-open order in the following trading session. D) The order is canceled.

The order is canceled.

An official statement has a dated date of March 1, but the first interest payment is October 15. This most likely reflects: A) a misprint in the official statement. B) a normal payment cycle on the bond of 7-½ months. C) a long coupon. D) a when-issued transaction.

a long coupon.

A hedge fund has contracted with your broker/dealer to handle all of its clearing functions and provide all back office support functions while it is executing transactions through numerous other broker/dealers whom your broker dealer will have agreements with. This type of account is known as A) a prime account B) a joint account C) a custodial account D) a numbered account

a prime account

The capital asset pricing model assumes A) that no type of risk can be diversified away B) investors are averse to risk and expect to be rewarded for taking risk C) that those who participate in smaller transactions are generally wrong in regards to timing purchases and sales D) that prices are influenced by supply and demand only

investors are averse to risk and expect to be rewarded for taking risk

The Securities Exchange Act of 1934 covers all of the following EXCEPT: A) issuance of financial reports by corporations. B) issuance of corporate securities. C) trading of corporate securities. D) trading on exchanges.

issuance of corporate securities.

A customer sells $5,000 worth of a security in a cash account and on the same day purchases $8,000 worth of a different security in the same account. At the close of the 5th business day following these transactions, no payment has been received from the customer and no extension has been obtained. Assuming no change in market value, the firm must: A) liquidate the $8,000 transaction and freeze the account for 90 days. B) liquidate $5,000 of securities and freeze the account for 90 days. C) liquidate $3,000 of securities and freeze the account for 90 days. D) cancel both the purchase and the sale and freeze the account for 90 days.

liquidate $3,000 of securities and freeze the account for 90 days.

DMF Company has $50 million of convertible bonds (convertible at $50) outstanding. The current market value of DMF's stock is $42. The bond indenture contains a nondilution feature. If DMF declares a 10% stock dividend, the new conversion price will be: A) $50. B) higher than $50. C) lower than $50. D) the stock's current market price.

lower than $50.

In a discretionary account where the investment objective is preservation of capital and growth, all of the following practices are unsuitable EXCEPT: A) maintaining a fixed asset allocation mix which includes under-performing sectors. B) marking order tickets solicited or unsolicited when discretion is used. C) frequent and profitable short-term trading in volatile stocks. D) marking the investment objective on the new account form as high risk.

maintaining a fixed asset allocation mix which includes under-performing sectors.

FINRA rules require broker/dealers to conduct anti-money laundering training: A) annually. B) quarterly. C) biannually. D) on an ongoing basis.

on an ongoing basis.

Dealer-to-dealer transactions in U.S. government securities settle: on trade date. on the business day following trade date. in fed funds. in clearing house funds.

on the business day following trade date. in fed funds.

The principal underwriter of an open-end investment company is also known as the: A) registrar. B) dealer. C) sponsor. D) trustee.

sponsor

Each of the following would be disclosed to potential municipal bond buyers in the official statement of a new municipal bond issue EXCEPT: A) the issues purpose. B) the disclosure that it was prepared by the underwriters. C) the creditworthiness of the issue. D) the source from which interest and principal will be paid.

the disclosure that it was prepared by the underwriters.

Civil penalties under the Insider Trading and Securities Fraud Enforcement Act of 1988 may include: A) the greater of $5 million, or 300% of the profits made or losses avoided. B) no more than $1 million. C) any monetary penalty deemed appropriate and up to 20 years in jail. D) 200% of any profits realized.

the greater of $5 million, or 300% of the profits made or losses avoided.

A corporate profit-sharing plan must be set up under a(n): A) conservatorship. B) beneficial ownership. C) administrator. D) trust.

trust