General Securities Industry Exam Questions
To arrive at M3, one would add to M2 which of the following?
$100,000 and larger time deposits and repurchase agreements Included in M3 but not found in M2 are time deposits of more than $100,000 and repurchase agreements with terms longer than one day.
Which of the following may receive a commission from a FINRA member firm?
A foreign nonmember firm that agrees to abide by FINRA rules Domestically, nonmember firms, suspended firms, and retired representatives are not licensed or registered and may not receive commissions. The exception is a foreign nonmember firm that agrees to abide by FINRA rules, regulations, and standards.
Index and foreign currency options must be settled in
Cash
Which of the following is best describes the trade execution of ADRs?
Trades are executed domestically in US Dollars ADRs are often listed on a securities exchange such as the NYSE or Nasdaq and trade throughout the day. Trades in these securities are dollar denominated. ADRs trade and settle in the same fashion as a traditional U.S.-based common stock.
Each of the following investments and practices are deemed ineligible for an IRA or any other retirement plan EXCEPT
Variable Annuities Annuities, variable or fixed, are in most cases acceptable investments appropriate for IRAs.
Which of the following must precede the first trade in an account?
approval of the new account by a principal All accounts must be approved by a principal before the first trade. Neither the customer nor the registered representative need sign the new account form, and no self-regulatory organization (SRO)—requires the filing of new account information with them.
A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would BEST be described as a(n)
Municipal Advisor
Regarding CDs and negotiable CDs issued by banks,
Only negotiable CDs are considered money market instruments Banks issue and guarantee certificates of deposit (CDs) with fixed interest rates. Some that can be traded in the secondary market are known as negotiable CDs. Only these negotiable CDs are considered money market instruments.
A member of the Federal Reserve System wanting to increase its reserves could do so by borrowing money from
The Federal Reserve Board at the Discount Rate A Federal Reserve Board member bank can increase its reserves by borrowing from the Federal Reserve Bank directly, or it can borrow from another FRB member bank. When borrowing from the FRB directly, a bank will pay the discount rate. When borrowing from another member bank, a bank will pay the federal funds rate.
All of the following must be on the cover page or beginning of the summary prospectus of a mutual fund EXCEPT
The name of the investment advisor.
Listed options expire on
the third Friday of the expiration month Listed options contracts expire on the 3rd Friday of the expiration month at 11:59 pm.
Gifts and gratuities directed to those who work at another firm may not be made by a member or associated person for amounts greater than
$100 per individual per year No member or associated person (AP) may give anything of value in excess of $100 per individual per year to any person, principal, employee, or representative of another person where such payment is in relation to the business of the employer of the recipient of the payment or gratuity.
A client opens a new margin account and, as the initial trade, purchases 300 shares of MS Corporation common stock at $10 per share. The firm would send the client a margin call for
$2000 $2000 is the minimum equity required for a new trade. Usually it would be 50% so $1,500, but because $1,500 is less than the minimum the answer is $2,000.
An investor owning 500 shares of MES stock received notice that the stock had undergone a 2:1 forward split when the stock's market price was $10 per share. The investor now owns
1,000 shares worth $5 a share. A forward split increases the number of shares and reduces the price proportionately so that the stock's total value is the same before and after the split. A 2:1 split in this case doubles the number of shares to 1,000 (the investor receives 2 shares for every 1 owned) and halves the price to $5 per share.
Treasury bonds mature in
10 years or more Treasury bonds (T-bonds) are the U.S. government's long-term debt instrument having maturities of 10 years and up to 30 years.
An investor is short a January 30 call at 5. Breakeven is
35 Breakeven for a call (long or short) is premium (5) plus strike price (30). In this case 35 points. Because short calls are bearish, the investor who is short the call needs the stock to be below the BE (35), while the investor who is long the call wants it to be above the breakeven point (35) to make a profit. Always remember that BE for both parties to the contract is always the same number.
The securities industry is highly regulated, and as such, it is important for broker-dealers to keep detailed records. If a customer complaint has been received regarding the actions of a registered representative, it will be maintained at the office of supervisory jurisdiction for a period of
4 Years Copies of all customer complaints must be maintained in a file at the office of supervisory jurisdiction (OSJ) for a period of 4 years.
For restricted stock (unregistered) held by an affiliate (insider), which of the following applies?
6-month holding period with volume limits thereafter. For restricted stock (unregistered) held by an affiliate (insider), there is a 6-month holding period, with volume limits applicable thereafter. The volume limits would remain in effect for as long as the individual is an affiliate.
The sales charge for Class A shares may NOT exceed
8.5%
A broker-dealer has engaged in a reverse repurchase (repo) agreement. How was this done?
An initial purchase is followed by a sale later, at a higher price. In a reverse repurchase (repo) agreement a dealer agrees to buy securities from an investor and sell them back later at a higher price. In other words, the reverse of a repo agreement.
Regarding the purchase of new equity issues by restricted persons, which statements are TRUE? *An investment club is permitted to buy a new equity issue at the offering price. *An investment club is not permitted to buy a new equity issue at the offering price. *An investment club that has a registered representative as a member is permitted to buy a new equity issue at the offering price. *An investment club that has a registered representative as a member is not permitted to buy a new equity issue at the offering price.
An investment club is permitted to buy a new equity issue at the offering price but if it has an RR as a member, it is not permitted to buy a new equity issue at the offering price. As long as an investment club has no restricted persons as members, the club may purchase new equity issues at the public offering price. A registered representative is a restricted person under the rules regarding the purchase of new equity issues.
Which of the following is the best description of a limited partnership?
An investment that permits both gains and losses to pass through to the investors LPs are investment opportunities that permit the economic consequences of a business to flow or pass through to investors (limited partners). These would include the consequences of both income received and losses incurred.
Regarding primary and secondary offerings, which of the following are TRUE? An offering can only be either a primary or secondary. An offering can be a combination of primary and secondary. An IPO is a secondary offering. An APO is a primary offering.
An offering can be a combination of primary and secondary an APO is a primary offering An offering can be a combination of primary and secondary. These are known as split offerings. Both IPOs (initial primary offering) and APOs (additional primary offerings) are primary offerings, where the issuer receives the sale proceeds.
A broker-dealer's business continuity plan (BCP) should be reviewed
Annually by the principal of the firm Business continuity plans (BCPs) are required to be reviewed annually by a principal of the firm.
Which of the following prospectus delivery requirements for negotiable securities sold in the secondary markets is NOT accurate?
Answer: For an additional issue if the security is non-Nasdaq there is no delivery requirement For an additional issue, if the security is non-Nasdaq the delivery requirement is 40 days.
An investor has been putting aside funds for retirement in a nonqualified variable annuity for over five years. She is now age 66 and takes a lump-sum distribution. How are the earnings taxed?
As ordinary income With a NONQUALIFIED annuity, all distributions more than the cost basis will be taxed as ordinary income.
The U.S. balance of payments deficit would decrease in all of the following scenarios EXCEPT
a decrease in purchases of U.S. securities by foreign investors A deficit in the balance of payments occurs when more money is flowing out of the country than in. When foreign investors decrease their purchases of U.S. securities, the flow of money coming into the United States decreases, this adds to the deficit rather than decreasing it.
A customer has given permission for securities in an investment account to be used for the purpose of other customers who want to borrow them in order to sell those securities short. This would have entailed the customer signing
a loan consent agreement Allowing one's securities to be loaned to others who want to borrow them for the purpose of selling them short would entail signing a loan consent form. This is optional and need not be signed to open a margin account or any other.
When Options Clearing Corporation receives a notice to exercise, it will assign that notice to
a short broker dealer The exercise and assignment process is as follows: A long customer notifies its broker-dealer (long broker-deal). The long broker-dealer notifies OCOCC then assigns the short broker-dealer, who will then in turn assign its short customer.
Common shareholders have the right to receive an audited set of financial statements of the company's performance
annually it is only required an auditor report be received on an annual basis.
The repayment or maturity date of a banker's acceptance is normally which of the following?
as short as a day and as long as 9months Banker's acceptances are short-term time drafts, making them money market instruments. Maturity (payback) dates are normally between 1 day and 270 days (9 months).
In which of the following accounts would the use of margin always be prohibited?
IRAs Of those listed, only qualified retirement accounts, such as IRAs, prohibit the use of margin. As long as the use of margin is not listed as being restricted, it is allowed in both corporate and partnership accounts, and as long as the use of margin is specifically listed as being allowed, a fiduciary account may do so.
Having been told that a firm incorporates proprietary trading in its business model buying and selling securities into and out of its own inventory you would know that it is a
Market Maker BDs who incorporate proprietary trading into their business model are known as market makers. As a market maker the BD trades in their own account attempting to profit. A firm making markets may be a carrying firm or a fully disclosed firm. Commissionable transactions are those done by brokers for customer accounts, not proprietary trades.
Which of the following would cause a mutual fund's NAV per share to fall? *The fund purchases securities for the portfolio. *The fund pays a dividend to shareholders. *The market value of the portfolio declines. *A large number of shares are redeemed.
Market value of the portfolio declines and the fund pays a dividend to shareholders. Market value decreases net assets because it decreases shareholder's equity while paying dividends to shareholders are a decrease in current assets.
Which of the following require voter approval?
Muni General Obligation Bonds Municipal general obligation (GOs) bonds require voter approval because the debt service for these bonds (principal and interest payments) is funded by the taxes collected by the municipal issuer. Voters pay these taxes.
An associated person of a FINRA member firm would not be considered a municipal finance professional (MFP) if involved solely in which of the following?
Muni Securities Sales to Customers Associated persons whose activities are limited solely to sales or have only clerical or ministerial functions are not MFPs. All the other activities would be associated with an MFP.
Which of the following require voter approval?
Municipal General Obligation Bonds Municipal general obligation (GOs) bonds require voter approval because the debt service for these bonds (principal and interest payments) is funded by the taxes collected by the municipal issuer. Voters pay these taxes.
Limited Partnerships
Must end on a predetermined date or can be dissolved by vote Unlike with a corporate charter, which has corporate entities existing in perpetuity, limited partnerships are scheduled to end on a predetermined date. The exception to ending on that predetermined date would be when all partnership assets are sold earlier than anticipated and a vote to dissolve the partnership occurs.
Once a dividend is initially declared by the board of directors, any future dividend payments
No guarantee in any amount. While the potential to share in the company's profits by receiving dividends is considered one of the benefits of equity ownership, one of the risks is the possibility of dividend income decreasing or ceasing entirely. Dividends are not guaranteed in any way.
A municipal securities dealer has just made a contribution to the mayor's reelection campaign. How long must the firm wait before it can enter competitive bids on proposed bond issues by the city?
No waiting period If a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a 2-year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not.
Which of the following would be least likely to directly impact a bonds yield?
Number of Bonds issued A bond's yield expresses the cash interest payments in relation to the bond's value. Yield is determined by the issuer's credit quality, prevailing interest rates, time to maturity, and any features the bond may have. The number of bonds in a single issue is generally determined by how much capital the issuer needs to borrow at the time of issue, while its yield is something that will fluctuate as the bond trades in the secondary market and gets closer to maturity.
A partnership account wants to trade on margin. When would this be permitted?
Only if it is not banned in the partnership resolution A partnership account will be allowed to trade on margin as long as there are no restrictions against doing so in the partnership resolution. This is the same standard used for corporate accounts.
Which of the following would have no effect on the NAV per share of a mutual fund share?
Portfolio sells securities for large capital loss Selling securities out of the portfolio, whether for a gain or a loss, simply replaces the securities with an equivalent amount of cash, leaving the NAV per share unchanged. The other choices involve changes in net assets with no accompanying change in the number of shares outstanding, which would change the NAV per share.
A new registered representative receives a memo discussing the distribution of a "red herring." The RR knows that the memo is referencing
Preliminary Prospectus The term "red herring" is derived from the disclaimer printed in red on the cover page of a preliminary prospectus. Some key information that would be found in a final prospectus, such as price, is not found in the preliminary prospectus.
When choosing to issue additional bonds to the general public in order to raise more capital, a corporate issuer is engaging in
Primary Offering A primary corporate offering is one in which the proceeds raised go to the issuing corporation. Primary offerings of bonds may be made by an issuer to the general public as an initial public offering (IPO) or, as is the case here, in an additional public offering (APO). Both are primary offerings.
An investor owns a bond purchased several years ago yielding 3%, which at the time was considered a fair return. However, these fixed 3% interest payments have not kept up with the inflation rate. This situation presents the investor with
Purchasing Power risk Inflation can generally be associated with diminished purchasing power—purchasing power risk. During times of inflation, a dollar will not be able to purchase what it had previously in the way of goods and services. Investments such as bonds paying fixed rates of return are negatively impacted during these times.
Which of the following securities are nonexempt from registration under the Securities Act of 1933?
Real Estate Investment Trusts and corporate equity issues Real estate investment trusts (REITs) are nonexempt securities subject to the registration and new issue disclosure provisions of the Securities Act of 1933. Agency issues, U.S. government issues, and municipal securities are exempt.
For Treasury bills, which of the following are TRUE? T-bills are issued at a discount to par. T-bills have maturities of 1 to 10 years Most T-bill issues are callable and convertible. T-bills are a direct obligation of the U.S. government.
T-bills are issued at a discount to par and they are a direct obligation of the U.S. Government T-bills are issued at a discount to par, are 6 months or less to maturity, and are a direct obligation of the U.S. government. Callable and convertible features are those that should be associated with corporate issues not government issues.
To tighten its monetary policy, making it more difficult for consumers to borrow money, the Federal Reserve Board can
The Discount Rate Wanting to tighten its monetary policy, which would make it harder for consumers to borrow money, the Federal Reserve Board can raise the discount rate—the rate it charges its member banks for short-term loans. This lessens the availability of money its member banks have to lend to consumers. The federal funds rate isn't a rate charged by the FRB but instead by large commercial banks to one another.
A member of the Federal Reserve System wanting to increase its reserves could do so by borrowing money from
The FRB at the Discount Rate A Federal Reserve Board member bank can increase its reserves by borrowing from the Federal Reserve Bank directly, or it can borrow from another FRB member bank. When borrowing from the FRB directly, a bank will pay the discount rate. When borrowing from another member bank, a bank will pay the federal funds rate.
A barometer of short-term interest rates and one that is therefore considered the most volatile interest rate in the U.S. economy is
The Fed Funds rate The federal funds rate is the rate commercial money center banks charge each other for overnight loans of $1 million or more. A barometer of the direction of short-term interest rates, which fluctuate constantly, the federal funds rate is considered the most volatile rate in the U.S. economy.
Which of the following entities establishes the rules, regulations, and membership eligibility standards to be registered with the SEC?
The National Adjudicatory Council (NAC) The National Adjudicatory Council (NAC) establishes the rules, regulations, and membership eligibility standards for registration with the SEC.
A customer has been found in violation of freeriding. As a penalty which of the following will occur?
The account will be frozen for 90 days and no new transactions can occur unless there is cash or marginable securities in the account before any other purchase is made. As a penalty for freeriding, an account will be frozen for 90 days and no new transactions can occur unless there is cash or marginable securities in the account before any other purchase is made.
Which of the following statements regarding $1,000 par value 6.5% bond trading offered at 110 is TRUE?
The bond's current yield equals $65 / $1,100 or 5.9%. This bond is trading at a premium (110 or $1,100). Given the bond is trading at a premium, the current (stated) yield will be higher than its yield to maturity. A bond's current yield is calculated by dividing its annual interest ($65) by its current (market) price ($1,100), which in this case equals 5.9%
At the time of maturity, an investor realizes that the overall return on the investment was actually greater than the coupon rate stated on the bond when purchased. This most likely would have occurred because the bond had initially been purchased
at a discount Bonds are redeemed at par. When a bond is purchased at a discount (less than will be received at the time the bond matures), that discounted amount will increase the overall return of the bond, making it greater than the coupon rate. If the discount bond is called before it matures, the increased return due to the discount purchase would still occur but would now be accelerated.
A 40-year-old individual is not covered by a retirement plan at work. What is the maximum contribution this individual can make to an IRA this year?
The current maximum allowed by the IRS, which will all be deductible if the individual does not exceed the income limit. While the exact annual contribution limit numbers are not likely to be tested, students should know that for those not covered by a retirement plan at work, the maximum contribution allowed by the IRS would be permitted and can be deducted on one's tax return. The deduction, however, would be phased out above a certain income level. The catch-up provision only applies to those age 50 or older.
An underwriter is placing a tombstone advertisement for a company's new issue. A prospective investor might expect to see all of the following information on the advertisement EXCEPT
The names of the company's officers Information on a tombstone, those advertisements allowed to be placed prior to the effective date, is limited to; name of issuer, type of security, number of shares to be sold, public offering price or expected range, and names of the underwriters or group.
Underwriters who are assisting an issuer in bringing securities to the investing public can do which of the following between the time the registration was filed with the SEC and the effective date?
distribute a preliminary prospectus to the investing public The time between the registration filing date with the SEC and the effective date is known as the cooling-off period. During this time, a preliminary prospectus may be distributed to gauge investor interest but no offers to sell the securities can be made and no orders to purchase the securities can be taken. While a preliminary prospectus and tombstone ad can be used, sales and advertising literature specific to the securities cannot be.
All of the following information is required to be provided on the Form U-4 EXCEPT
education (degrees or designations) Although there is a place to disclose certain earned professional designations such as CPA and CFA, there is no requirement to disclose education (degrees or designations). Time spent as a full-time student however would be included in the 10-year employment history.
The rate that commercial money center banks charge each other for overnight loans is
fed funds rate The federal funds rate is the rate commercial money center banks charge each other for overnight loans of $1 million or more.
An investor is short 1 XYZ January 20 call at 3. This investor
has received $300 for writing the call contract An investor who is short 1 January 20 call at 3 has received $300 premium to write (sell) the call. Being short the call (sold), the investor will be obligated to sell 100 shares of XYZ stock if the contract is exercised at the strike price ($20). Remember that only the owner, the buyer or the party who is long can exercise the contract.
If long one equity call option, the owner
has the right to purchase 100 shares of the underlying stock Equity options buyers have the right to purchase shares of the underlying security. One equity option contract represents 100 shares of the underlying security; therefore, the call owner has the right to purchase 100 shares of the stock.
Direct participation programs (DPPs) are set up
having the owners of the business liable for any taxes due DPPs are not taxed directly as a corporation would be. Instead, the income or losses from the business are passed directly through to the owners of the partnership. These are the investors who are then individually responsible for any tax liability.
All of the following are possible actions of an investor who has received stock rights EXCEPT
hold the rights for a long term capital gain A long-term capital gain would require a holding period of more than 1 year. Rights expire 4 to 6 weeks after issue, so this would not be possible.
An officer of a public company buys 1,000 shares of the company's registered stock in the open market. Regarding the sale of these shares, the officer may sell
immediately, subject to Rule 144 volume limitations Because the shares were purchased in the open market (already registered), the transaction is not a private placement and there is no required holding period. The officer, however, is an affiliate and is therefore subject to the reporting and volume limitations imposed when selling under Rule 144.
The owner of a listed put equity option has the right to
sell the stock at the strike price The owner of a put (long) purchased the right to sell (to put) the stock at the strike price to those who are short the option. The exercise of their put is an instruction to assign the writer of the put, meaning the writer (short) must fulfill their obligation to buy the stock at the strike price.
T-notes pay interest
semiannually Treasury notes (T-notes) and bonds (T-bonds) pay interest on a semiannual basis.
Common shareholders have the right to
limited access to a company's books and records By virtue of owning the company's common stock, shareholders have a limited right to review the company's books and records. For example, they have the right to examine the minutes of meetings of the board of directors.
A registered representative is opening a new account for a senior citizen age 68. The RR must
make a reasonable effort to obtain the name and contact information for a trusted contact person When opening a new account or updating account information for a senior citizen firms must make a reasonable effort to obtain the name and contact information for a trusted contact person. It should be noted that if the customer refuses to tender such a name the account can still be opened.
All of the following are true regarding customer account statements EXCEPT
monthly statements need not be sent if the only account activity is the receipt of interest or dividends Any activity in an account—transactions, dividends and interest, stock splits or dividends—will trigger the requirement to send a monthly statement. In addition, in any month an account contains penny stocks, a statement is required to be sent. If there is no activity, statements are only required quarterly. All statements sent require notice that inaccurate information be reported promptly.
A corporation increases capitalization by selling shares of stock which can either come from a new issue or previously authorized but unissued shares. Total stock outstanding must
never exceed the number of shares authorized A corporation's bylaws state the maximum number of shares authorized to be issued. Therefore, issued shares, those in the hands of public shareholders (outstanding shares) can never exceed the number of shares that were authorized. While those outstanding shares can therefore never be greater than the number of shares issued they could equal the number of shares issued.
Risks that are unique to a specific industry, business type, or investment type are known as
nonsystematic risks Nonsystematic risks are those that are unique to a specific industry, business enterprise, or investment type.
A method of registering securities at the state level that is reserved only for federal covered securities is known as
notice filing The method known as notice filing exempted federal covered securities from state jurisdiction but still established a method by which the states could collect fees when issuers of those securities wished to have them sold in the state.
A broker-dealer's customer will be relocating for a position with a higher salary and bonus potential. This requires
notification to the broker dealer within 30 days When there are significant changes to the client's status, such as salary and bonus potential as well as change of address, the client should notify the member firm within 30 days.
A customer who has written an option contract receives an assignment notice. This customer is
now obligated to either buy or sell the underlying stock at the strike price Only the owners of options contracts can exercise them. When this occurs, the writers of the contracts are assigned and must fulfill their obligation to perform. Performance (buy or sell) is determined by whether they have written a call (short call - obligated to sell) or a put (short put - obligated to buy).
A mutual fund has been in existence for 25 years. The prospectus must disclose the fund's performance
over the last one, five, and ten years. The prospectus of a mutual fund must show the fund's performance over the last 10 years or the life of the fund, whichever is shorter. The data must be shown as the last year's performance, the performance over the last 5 years, and the performance over the last 10 years. With this fund, the 15-, 20-, and 25-year performances need not be shown.
Noncash compensation exceeding the $100 annual limit to another member firm's employee is
permitted if occasional The rules regarding gifts, gratuities, and compensation to another firm's employees permit occasional noncash expenditures that exceed the $100 limit. These might include dinners, seminars, tickets to entertainment events, or reminder advertising items. However, vacations or season tickets to cultural or sporting events are always violations.
An institutional investor selects a single FINRA/NYSE member firm to provide for financing and custody of securities, while orders to buy or sell are placed with executing brokers. This is an example of a(n)
prime brokerage A prime brokerage account is one in which a customer (an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers.
Broker/dealers who reserve the right to disclose nonpublic private information about their customers to unaffiliated third parties must
provide notice to customers at the time of the account opening and provide reasonable means for customers to opt out of such disclosures Regulation S-P requires that if a broker/dealer reserves the right to disclose nonpublic personal information to third nonaffiliated parties, it must notify the customer at the time of the account opening and annually thereafter. Means to opt out of the disclosures must be reasonable and easy. Requiring a written request to opt out would not be considered reasonable means under the regulation.
A REIT can avoid being taxed as a corporation would by
receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders Under the guidelines set by the Internal Revenue Code, a REIT can avoid being taxed as a corporation by receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders.
An investor looking to speculate in penny stocks would be exempt from the suitability statement requirement under which of the following circumstances?
the investor is already an established customer Established customers are exempt from the penny stock suitability statement requirement. An established customer is someone who has held an account with the broker-dealer for at least one year (and has made a deposit of funds or securities); or has made three purchases of qualifying penny stocks that occurred on separate days and involved different issuers. No one is exempt from the risk disclosure requirements.
A registered representative enters a discretionary order for her clients account. All of the following are required EXCEPT
the order must be approved by a principal prior to entry Each discretionary order must be identified as such at the time it is entered for execution, a principal, officer or a partner of the BD must approve each order promptly and in writing, but not necessarily before order entry, a record must be kept of all transactions including discretionary ones, and as with all trading activity, it is subject to frequent and systematic review by a designated supervisor or manager.
Shareholders who own the stock on a certain date receive a dividend when one has been declared. That date is known as the
the record date Shareholders must be owners of the stock on or before the record date in order to receive the current dividend.
The party who is short an option contract is known as
the writer and receives the premium The party who is short an option contract is the seller of the contract. This party is known as the writer of the contract and receives the premium when the contract is sold. Buyers have the right to exercise—that is what they are paying the premium for—and when exercise occurs, the sellers of the contract are obligated to fulfill the terms of the contract.
Which of the following are TRUE of municipal revenue bonds? They are secured by a specific pledge of property. They are a type of general obligation bond. They are not subject to statutory debt limits. They are backed by a facilities ability to generate revenue.
they aren't subject to statutory debt limits and they are backed by a facilities ability to generate revenue The 2 types of municipal bonds are GOs and revenue bonds. Revenue bonds are not secured by a specific pledge of property; instead they are backed by project revenue. Unlike GO bonds, they are not subject to any statutory debt limits.
A company is going public for the first time. Because it is already incorporated and has two key stockholders, the proceeds of the shares sold will go to those stockholders. This is *a secondary offering *a primary offering *an additional public offering *an initial primary offering
this is a secondary initial primary offering because the proceeds are going to the current shareholders and not the issuer. Secondly, this is the first time the shares are being offered to the investing public, therefore it is an initial public offering.
Listed Option transactions settle
trade date + 1 business day Listed options transaction settle on the next business day. Commonly referred to as T + 1 business day or simply T + 1.
At a shareholders' meeting, a mutual fund investor might be called upon to vote on any of the following EXCEPT *changes in membership in the board of directors *whether to sell a certain company's stock out of the portfolio *approval of the investment adviser's contract *changing to a new landscaper for the fund's headquarters
whether to sell a stock out of the portfolio and changing a landscaper. Investment advisors control mutual fund trading. The landscaper isn't voted on by the BOD.
Holders of subordinated debt instruments know that in the case of a corporate liquidation, they
will be paid last of all debtholders In the event of a corporate bankruptcy, subordinated debtholders, while having no guarantees of being paid, would come last of all bondholders in the liquidation priority—subordinate.
Rules to protect the public during initial public offerings (IPOs) include all of the following EXCEPT
shares may be held to reward others who can direct business to the member Designed to protect the integrity of the public offering process, the rules ensure that members make a bona fide public offering of securities at the public offering price, do not withhold securities in a public offering for their own benefit or use shares to reward others in a position to direct future business to the member and that members and their associated persons do not take advantage of their insider status to gain access to new issues for their own benefit at the expense of public customers.
Banker's acceptances are
short term drafts issued by banks to corporations Used by corporations to finance international (foreign) trade, BAs are issued by banks to corporations. They are considered money market instruments because of their short-term maturities, generally no longer than 270 days (9 months).
Rule 144 stipulates that after holding restricted stock fully paid for 6 months, an affiliate may begin selling shares
subject to the volume restrictions within any 90-day period. Rule 144 stipulates that after holding restricted stock fully paid for 6 months, an affiliate may begin selling shares but is subject to volume restrictions within any 90-day period.
Which of the following publishes and maintains a list of known terrorists and drug traffickers and those controlled by them or acting on their behalf?
the Office of Foreign Assets Control Such a list is maintained by OFAC and is available to broker-dealers and other companies in the financial industry. It must be consulted when a firm takes on a new customer and on other occasions. The FOMC carries out open-market operations for the Federal Reserve. FinCEN is concerned with detecting and preventing the various steps of money laundering, and FINRA, of course, is responsible for regulating trades at the New York Stock Exchange and in the over-the-counter market in the United States.
During a discussion with a customer about a potential investment opportunity involving securities, standing alone, all of the following would likely be permissible EXCEPT
the RR points out that a tech firm has a brilliant product and CEO with a good background. This has nothing to do with the success or risks associated with investment
The rate on an adjustable preferred stock would most likely be indexed to
the T-Bill rate The dividend on an adjustable-rate preferred stock is tied to a particular benchmark interest rate, and the Treasury bill rate is a common benchmark. The CPI, the PPI, and the DJIA are not interest rates.
If a customer's Regulation T margin deposit is late, which of the following is TRUE?
the broker dealer may apply to its designated examining authority (DEA) for an extension In the event of late margin deposit, requests for extensions are made by the broker-dealer to the firm's designated examining authority (DEA).
Generally before borrowing from or lending to a customer, a registered representative must advise the firm in writing and receive written permission. Which of the following would be an exception to the written notice and approval requirement?
the customer is an immediate family member of the RR. There are two exceptions to the written notice and approval requirement for permitted lending arrangements between customers and RR's. They are; when both are immediate family members or when the customer is a lending institution and the loan is a standard commercial lending transaction.
The term investment strategy applies to all of the following EXCEPT
the customer's position in real estate Investment strategy refers to information that can lead to suitable recommendations for a customer's investments in securities. Though many invest in assets that are not securities, such as real estate or art, not being securities, the term investment strategy does not apply to these assets.
An investor purchases a T-bill for $9,925 that will mature at $10,000. The difference between the $9,925 paid and the $10,000 that will be received is
the discount to par and will be considered interest received at maturity T-bills are purchased at a discount to par. In this case, it is bought at $9,925, which is a $75 discount to the $10,000 par value to be received at maturity. Debt instruments pay interest not dividends, and the $75 difference between what was paid and what will be received is considered the interest paid on the T-bill at maturity.
The access equals delivery rule applies to
the final prospectus and aftermarket delivery obligations The access equals delivery rule applies to the final prospectus and aftermarket prospectus delivery obligations. It does not apply to preliminary prospectuses. No prospectus can be delivered before the registration date.
Identify 2 trading strategies that a hedge fund could employ in its portfolio but a mutual fund cannot. *Limiting investments to a narrow group of securities within one industry *Trading on margin to purchase portfolio securities *Purchasing speculative or low rated securities *Selling short stocks
While there can be limited and rare exceptions, mutual funds are prohibited from purchasing securities on margin and selling securities short. Both strategies, however, are commonly employed by hedge funds.
Of the following strategies, which is considered most risky in a strong bull market?
Writing calls short (writing) calls are bearish and have unlimited loss potential.
A limited partnership (LP)
Has two types of partners: General and Limited
All of the following are issuer transactions where the proceeds of the offering go to the issuing company EXCEPT
A repurchase agreement APOs (additional public offerings), IPOs (initial public offerings), and SPOs (subsequent public offerings) all result in funds going to the issuer and are, therefore, issuer transactions. A REPO is a money market instrument where money changes hands between the buyer and the seller.
A registered representative is discussing fee-based and commission based accounts with a customer. All of the following are true EXCEPT
A fee-based account would benefit an investor who doesn't make a lot of trades over the course of the year. They would be better off with a trade based commission.
Which of the following is TRUE regarding accounts trading on margin?
A fiduciary account may only trade on margin if it is specifically permitted in the trust or custodial agreement. Both individual and joint accounts may trade on margin. While corporate and partnership accounts may trade on margin as long as they are not specifically restricted from doing so, a fiduciary account may only trade on margin if permission is specifically granted in the trust or custodial agreement.
Deflation occurs during
A recession, coinciding with an economic contraction
A company with previously issued shares outstanding wants to issue more shares to the public. These new shares are issued in what is known as
Additional Public Offering The first time that a company issues shares to the public, it engages in an IPO (initial public offering). Later offerings are known as SPOs (subsequent primary offerings) or APOs (additional public offerings). The IPO and any SPO or APO are all issuer transactions and are, therefore, done in the primary market.
Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is TRUE?
All sales loads reduce the amount an investor can invest. Sales loads go to the underwriters or broker-dealers selling the shares for the fund. Therefore, they are subtracted from the dollars invested and in that light reduce possible returns for investors. Management fees and operating expenses are ongoing costs to the fund and, therefore, reduce the dollars that can be invested, again reducing potential returns.
A registered representative provides financial support and housing at her home for her grandfather. Regarding the purchase of new issues,
Both are considered restricted Working for a BD, the RR is considered restricted. While grandparents of restricted persons are generally not considered restricted, anyone being provided financial support and/or living under the same roof as a restricted person (as is the case here) is also restricted.
Which of the following orders can be used to close a short position in CDT stock that consists of 1,000 shares?
Buy 1,000 Shares of CDT Buying the call options alone would not close the short position until the contracts are exercised.
What are the 2 basic types of return on an investment?
Capital Gains & Income Upon the purchase of a security, the investors may receive dividends or interest, which are forms of income, or they may sell the security for a different price than was paid for it, which represents a capital gain or loss.
Which of the following statements is TRUE regarding Exchange-traded notes?
ETNs are senior, unsecured debt issued by corporations or financial institutions. Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution. They are backed only by the good faith and credit of the issuer. The notes track the performance of a particular market index but do not represent ownership in a pool of securities the way share ownership of a fund does. ETNs are bond like with a stated maturity date but do not pay interest and offer no principal protection. ETN investors receive cash payments linked to the performance of its underlying index less management fees when the note matures.
Which segment of the business cycle would one expect to find rising interest rates and higher wages?
Expansion Expansions in the business cycle are characterized by increasing consumer demand for goods and services and increasing industrial production. One would expect these increases to lead to rising interest rates as demands for loans for purchases increases and higher wages for workers as production increases.
While the MSRB writes the rules and regulations regarding underwriting and trading for municipal securities, it does not enforce those rules. Who does?
FINRA While the MSRB has rulemaking authority, it has no authority to enforce those rules. The enforcement of the MSRB rules on broker-dealers has been primarily delegated to FINRA. Bank regulatory agencies, such as the FRB, enforce the MSRB rules on banks who act as municipal dealers.
Suspicious activity reports (SARs) are
Filed to FinCEN as required by the US PATRIOT ACT Suspicious activity reports (SARs) are filed to the Financial Crimes Enforcement Network (FinCEN) as required by the USA PATRIOT Act.
Financial institutions such as broker-dealers must report when there is an event, transaction, or series of events or transactions that appear to be questionable to
FinCEN Financial Crime Enforcement Network when there is questionable stuff going on.
Large time deposits of more than $100,000 are considered to be found in what part of the money supply?
M3 M3 is where time deposits of more than $100,000 and repurchase agreements with terms longer than one day are found.
Continuing education (CE) requirements are a part of the securities industry's ongoing commitment to furthering the knowledge base for registered representatives. Which of the following CE requirements are needed by a registered rep? *Blue-sky requirement *Registration requirement *Firm element training *Regulatory element training
Firm element training and regulatory element training. Registered persons are required to participate in continuing education (CE) programs. The CE requirement has 2 components: a regulatory element and a firm element. Regulatory element requires that all registered persons complete a computer-based training session within 120 days of the person's second registration anniversary and every 3 years thereafter. Firm element requires member firms to prepare an annual training plan that takes into account such factors as recent regulatory developments, the scope of the member's business activities, the performance of its personnel in the regulatory element, and its supervisory needs.
A customer has requested that your BD hold mail for them while they are traveling. Which of the following is TRUE?
Firms may choose or choose not to hold customer mail when requested to While holding mail is a courtesy that firms are permitted to extend to customers, the rule does not require them to. The request must be in writing, and the customer must be made aware of any other methods to keep track of account activity. And lastly, the firm must take actions reasonably designed to ensure that a customer's mail is not tampered with or used in a manner that would violate FINRA rules or federal securities laws.
Which of the following would NOT be considered violations? *As soon as a customer opens a margin account and signs the loan consent agreement, the BD lends all of the securities in the customer's account to other customers for the purpose of selling short. *A BD temporarily lends a customer's securities to another customer with no loan consent on file. *A registered representative transfers funds from Mr. Smith's account to the account of his spouse, Mrs. Smith, in order to meet a margin call she has received. The intent is to move the funds back to Mr. Smith once Mrs. Smith makes her required margin call deposit. *Mr. Smith makes a deposit into his spouse's account for the purpose of meeting a margin call.
First bullet point and making a deposit into a spouse's margin account are not violations. Lending a customer's securities with no loan consent on file is a violation. A loan consent, generally part of the margin agreement, must be signed for securities to be loaned to another customer. Generally, the loan is to accommodate the short sale of the securities. Once a loan consent is signed, any or all of the accounts securities can be loaned to others. Additionally, moving or transferring funds or utilizing funds or securities in any way not expressly intended by the customer is a violation. Anyone, however, can make a deposit into their own or another person's account, but once deposited it becomes the property of the account owner.
Which of the following would cause a change in the net asset value of a mutual fund share? *Many shares are redeemed. *Securities in the portfolio are sold for a capital gain. *The fund pays a small dividend. *The market value of the portfolio declines.
Fund pays dividend and the market value declines. The fund paying a dividend is a reduction of current assets.
Roth IRAs *have no minimum required distributions at any age *have higher contribution limits than those allowed for a traditional IRA *allow the withdrawal of earnings tax free as long as the account has been opened for 2 years *can be contributed to in the same year as a traditional IRA
Have no minimum required distribution at any age and can be contributed to in the same year as a traditional IRA Roth IRAs have no minimum required distributions at any age. All earnings grow and may be withdrawn tax free as long as there has been an open Roth IRA for at least 5 years and the participant is at least age 59½. One may contribute to both a Roth and a traditional IRA in the same year, but the combined contribution may not exceed the annual maximum for any plan.
Under regulation S-P nonpublic personal information would not include a customers
Home address The SEC, in Regulation S-P notes examples of nonpublic personal information to include a customer's Social Security number, account balances, transaction history, and any information collected through an internet cookie. A home address would not be considered nonpublic personal information.
SKRAM corporation is appealing directly to the shareholders of IDNIC corporation to acquire shares of IDNIC stock. This appeal is best described as
Hostile Takeover. Because they are directly going to their shareholders opposed to their BoD.
Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit? If the customer signs and returns a proxy statement but does not indicate how to the shares are to be voted If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting If the matters to be voted on are of major importance If the matters to be voted on are of minor importance
If the customer doesn't return the proxy statement by the 10th day before the shareholder meeting and the matters are of minor importance. A member firm holding stock in street name may vote the shares as it sees fit if the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting, and if the matters to be voted on are of minor importance. If the matters are of major importance (such as a change in the direction of the business or a merger or acquisition), the shares are simply not voted.
Which of the following describes the consequences of a stock split? * If the number of shares goes up, the price goes down. * If the number of shares goes up, the price goes up. * If the number of shares goes down, the price goes down. * If the number of shares goes down, the price goes up.
If the shares go up, the prices go down and vise versa. Inverse relationship.
With CDT stock at 42, a September 40 call trading at 3 is
In the money by two points Because the stock is trading at 42, a 40 call (prediction for the stock to rise) would be in the money by two dollars or two points.
Bondholders should expect that interest payments would always be forthcoming for all of the following EXCEPT
Income Bonds Income Bonds are only paid if the Board of Directors deem it right for them to be paid. They are subordinate to the other listed fixed income securities.
For a real estate DPP, which of the following is TRUE?
Income can be derived from rental payments. For real estate DPPs, both income and capital growth are possible. Income comes from the property rents received, and capital growth would come from the appreciation of the properties.
Holding a callable bond with call protection is least impactful for the investor when
Interest Rates are Rising Bonds are more likely to be called when interest rates are falling. Call protection, a length of time during which the bond cannot be called, protects the investor during these times. Therefore, the call protection is least impactful when interest rates are rising—in other words, least impactful during times when the bond wouldn't likely be called.
A surplus 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
Interest Rates lower in US compared to other countries and net exports. Low interest rates beget high investment.
Which of the following statements regarding Treasury receipts are TRUE? Interest is paid annually. Interest is paid at maturity They are sold at a discount. They are sold at par.
Interest is paid at maturity and they are sold at a discount Treasury receipts are issued at a discount and redeemed at par, and the difference represents the interest earned, which isn't received until maturity.
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
Interest rates are higher in US than foreign countries and we have an export deficit.
All of the following is TRUE about local government investment pools (LGIPs) EXCEPT
Investors must be provided a prospectus at or before they purchase shares in the investment portfolio The operating characteristics of LGIPs are similar to those of money market funds, and they keep a $1.00 NAV. They are not required to register with the SEC and therefore there is no prospectus but do provide information statements, which include details of the management fees.
A private securities transaction... is nonexempt and must be register under the Act of 1933 is exempt from registration under the Act of 1933 can be sold to individual accredited investors can be sold to institutional investors only
Is exempt from registration under the Act of 1933 and can be sold to individual accredited investors. A private securities offering, sometimes called a private placement, is exempt from registration. While securities offered in a private securities transaction are generally sold to institutional investors, they can also be sold to small groups of wealthy individuals who meet net worth and income criteria, known as accredited investors.
Which of the following statements about listed options is TRUE?
Listed options settle on the next business day (T+1)
Which of the following are methods of registering securities within a state? Registration by coordination Registration by qualification Registration by notification Registration by application
Registration by coordination and registration by qualification States have two ways to register (or blue sky) securities: coordination and qualification. Notice filing is used solely for those securities that are referred to as federal covered, such as those listed on the NYSE, NASDAQ, or any national securities exchange and investment companies registered under the Investment Company Act of 1940. In this case, the states do not have jurisdiction over the registration requirements of these securities. However, the Uniform Securities Act does provide for states requiring a filing of a notice along with a filing fee to sell securities in that state.
When a broker-dealer pledges customer securities to a bank as collateral for a margin loan, the pledge is known as
Rehypothecation By signing the margin agreement, a customer hypothecates (pledges) the securities to the BD who then rehypothecates (pledges) them to the bank as collateral for the margin loan.
Call risk is most closely associated with
Reinvestment risk
Broker-dealers that transact securities business with customers or other broker-dealers must apply and be approved for registration with
SEC The Securities and Exchange Commission (SEC) is the securities industry's primary regulatory body. Broker-dealers that transact securities business with customers or with other broker-dealers must apply and be approved for registration with the SEC.
For nonexempt securities being offered to the public for the first time by a corporate issuer, which of the following would be applicable?
Securities Act of 1933 regulating issues that must be offered by prospectus Nonexempt securities are those that must be registered with the SEC under the Securities Act of 1933. The Securities Act of 1933 mandates that offerings of these securities must be made by prospectus.
An investor and his mother own 20% and 10%, respectively, of a corporation's outstanding shares, and the mother wants to sell all of her holdings. According to Rule 144, which of the following statements are TRUE? *She must file Form 144 to sell the shares *She does not have to file Form 144 to sell the shares. *She is considered an affiliated person. *She is not considered an affiliated person.
She must file form 144 to sell the shares and is an affiliated person.
An issuer that is already a publically traded company wants to register new securities without selling any of the shares until later when it anticipates it will be retooling all of its existing manufacturing plants. Which of the following applies?
Shelf Offering: specifically designed to register shares presently to be sold later. A shelf offering (registration), allows an issuer that is already a publically traded company to register new securities without selling any of the shares until later or waiting to sell a portion of the shares later when the capital might be needed.
Several months of slow economic growth and rising unemployment have characterized the economy. Market analysts would describe this as a period of
Stagnation Stagnation is defined as prolonged periods of slow or little economic growth accompanied by high unemployment.
Which of the following records must be kept for the life of a broker-dealer firm?
Stock certificate books Certificate books on the stock issued by the firm must be kept as long as the firm is active. The general ledger and customer ledgers need only be kept for 6 years, and forms U-4 and U-5 regarding the firm's associated persons need only be kept for 3.
Distinguishing between a sell stop order and a sell stop limit order, which of the following are TRUE? *The sell stop limit order becomes a sell limit once triggered. *The sell stop order becomes a sell limit order once triggered. *The sell stop limit order becomes an order to sell at the market triggered. *The sell stop order becomes an order to sell at the market triggered.
Stop orders become market orders once triggered, and stop limit orders become orders to sell at the specified limit once triggered. Stop or stop limit orders can be either buys or sells.
Your client has a long-term investment time horizon and is willing to accept some risk to achieve a better rate of return. Of the following, which would be the least suitable recommendation?
T-Bills & Negotiable CDs Given the long-term investment time horizon and the willingness to accept some risk to earn better returns, the lease suitable recommendations would be short-term money market instruments, such as T-bills and negotiable CDs where the trade-off for safety is return.
Given bonds are interest-rate sensitive, which of the following statements regarding put and call features for bonds are TRUE? The put feature would likely be exercised if interest rates fall. The put feature would likely be exercised if interest rates rise. The issuer will likely call bonds if interest rates fall. The issuer will likely call bonds if interest rates rise.
The put feature will likely be used if interest rates rise and the call feature will be used if interest rates fall. A put feature on a bond benefits the bondholder. Once the bond becomes puttable, its holder has the right to put it back to the issuer at par. At this point, the bondholder is insulated from rate risk (the risk that rates will rise, putting downward pressure on bond prices). Once puttable, the bond will not trade below par. Issuers will likely call bonds if rates fall. The issuer can issue new bonds at a lower rate and use the proceeds to call in the original bond.
If a registered representative is sharing in profits and losses with a customer, all of the following statements apply EXCEPT
The representative's expertise must be considered part of the contributions to the account A registered representative may share in gains and losses with a customer, provided written permission is first obtained from the representative's principal, the investments take place in a joint account, and the representative's share of the gains and losses is proportional to the representative's share of the investment funds. The representative's knowledge and expertise may not be considered part of the representative's contribution, only what proportion of the investment funds the representative has contributed.
All of the following describe mutual funds EXCEPT
They are traded on OTC or Secondary Markets Mutual fund shares are redeemable securities. Hence, they do not trade in the secondary market either on exchanges or over the counter. Instead, they may be purchased and redeemed only through the mutual fund company itself.
XYZ Corporation is guaranteeing a debt issue for the IHG Company. Regarding these bonds, which of the following is TRUE?
They are unsecured and are backed by the strength of XYZ. These are guaranteed bonds where the value of the guarantee is only as good as the financial strength (good faith and credit) of the company making the guarantee—in this case, XYZ Corporation. Because these bonds are backed by the good faith and credit of XYZ and not by any tangible asset, they are unsecured debt instruments. Always remember that even though the word "guaranteed" is used to describe such issues, the bonds are unsecured debt.
A market in which exchange-listed securities are traded in the OTC market would BEST be described as the
Third Market Broker-dealers registered as OTC market makers in exchange-listed securities may execute transactions in the Third Market. All securities listed on the NYSE and most securities listed on the regional exchanges are eligible for OTC trading as long as the trades are reported to the Consolidated Tape within 10 seconds of execution.
FINRA has a continuing education requirement with the goal of making sure that all registered personnel are aware of industry changes. If a registered representative has just observed her second anniversary in the industry and did the required regulatory element CE, the next time she will be required to sit for the regulatory element is
Three years from now New registered representatives are required to sit for the regulatory element as of their second anniversary. Thereafter, they are scheduled each three years. Having just completed her second anniversary regulatory element CE, she will be next scheduled in three years.
A brokerage firm places U.S. Treasury notes and bonds in a trust at a bank and then issues securities collateralized by either the principal or interest payments those notes and bonds represent. These new securities the broker-dealer is offering are
Treasury Receipts Brokerage firms can create a type of bond known as a Treasury receipt from U.S. Treasury notes and bonds placed in trust at a bank. They then sell separate receipts against the principal and coupon payments the notes and bonds represent.
If a prospectus is being used to close a mutual fund sale, it must be given to the investor
always before the sales presentation begins The mutual fund purchaser must receive a prospectus before or during any sales solicitation or presentation. Additionally, sales literature sent out to prospective customers is considered a sales solicitation and must therefore be accompanied by a prospectus.
A broker-dealer firm managing an IPO wishes to give a gift to an associated person of one of the selling group members. Which of the following would be an unacceptable gift under the rules?
an $125 fountain pen and desk holder. FINRA member firms may not give business-related compensation to associated persons of other firms - compensation directly tied to sales or promises of sales - but may give an individual gifts whose value does not exceed $100 in a 12-month period. Tickets to a sporting event or dinner at an expensive restaurant may exceed the $100 limit if it is occasional, someone from the rewarding firm is present, and the employing firm has given its permission. Reminder advertising, items with the BD's name and /or logo, may also exceed the $100 limit, within reason, because it has a business purpose.
All of the following are examples of legislative risk EXCEPT
an environmental regulation enacted to require certain precautions be taken Legislative risk results from a change in the law. Changes to the tax code are the most common legislative risks. Regulatory risk comes from a change to regulations that might impact certain individuals or businesses. The imposition of environmental regulations is one such example.
If an investor purchases a mutual fund based solely on seeing the summary prospectus, the investor must
be able to access a full prospectus no later than confirmation of sale A mutual fund investor may base a decision to purchase solely upon studying the summary prospectus. If so, a full prospectus must be made available for delivery no later than receipt of confirmation of sale. In this case, online delivery of the full prospectus is permissible.
A registered representative provides financial support and housing at her home for her grandfather. Regarding the purchase of new issues,
both persons are restricted Working for a BD, the RR is considered restricted. While grandparents of restricted persons are generally not considered restricted, anyone being provided financial support and/or living under the same roof as a restricted person (as is the case here) is also restricted.
Which of the following BEST fits the description of a "growth" stock?
common shares in a company which retain earnings and pay little to no dividends Most every industry passes through phases; introduction, growth, maturity, and decline. An industry is in its growth phase if it is growing faster than the economy as a whole due to e.g. technological changes, new products, or changing consumer tastes. Because growth companies retain nearly all of their earnings to finance business expansion, growth stocks pay little or no dividends.
All of the following actions must be completed before a customer enters the first option order EXCEPT
completion of the options agreement Customers do not have to complete (sign) the options agreement before entering an order, although under the rules, the agreement must be signed and returned by the customer within 15 calendar days of account approval.
A hypothecation agreement would be best described as a
contract allowing securities to be pledged for the loan. A signed hypothecation agreement permits the pledging of customer securities as collateral for margin loans.
Which of the following must be signed by a customer wanting to open a margin account?
credit & hypothecation agreements Opening a margin account requires that the customer sign the credit agreement and the hypothecation agreement. The loan consent form (agreement) is optional. While the risk disclosure document must be received and attested to as read by signing the credit agreement, it need not be signed.
An investor has purchased Class A mutual fund shares. The NAV (net asset value) per share of the fund is the price the investor
will receive upon redemption of the shares The NAV per share of a mutual fund is calculated by dividing the net assets of the fund by the number of shares outstanding. When purchasing Class A shares, NAV plus a sales charge is paid. When redeeming the shares, the investor simply receives NAV. Remember that for purchases and redemptions of mutual fund shares, the next calculated NAV per share is used, a practice known as forward pricing. Therefore, when purchasing or redeeming shares, because mutual funds use forward pricing, the investor can never be certain of the exact price that will be paid or received when entering the order.
