Mastery Exam 3

The primary purpose of the trust indenture act of 39 is: A. protect the interests of holders of "non-exempt" bonds by appointment of a trustee B protect the interests of unit investment trust holders by appointment of a trustee C protect the interests of charitable trust beneficiaries by appointment of a trustee D regulate the securities activities of banks and trust companies

A protect interests of holders of non exempt bonds by appointment of a trustee

During a tender offer, which of the following activities are prohibited? I Purchase the stock in a cash account and tender 2 business days after trade date II Purchase a call option in a cash account and tender 2 business days after trade date III Tender shares held in an arbitrage account where the position is "short against the box" IV Exercise a call option held in a cash account and issue irrevocable instructions to deliver the acquired shares

II Purchase a call option in a cash account and tender 2 business days after trade date III Tender shares held in an arbitrage account where the position is "short against the box" can only tender to the extent of one's net long positions. Both of these have 0 net long position

A startup company looking to raise a small amount of seed capital would most likely use: a. reg crowd funding b. reg A c. Rule 147 d. reg D

A. reg crowd funding these are private placement securities exempt from SEC registration to help relieve burden of regulation on early stage business

Under MSRB rules for new issues, the dealer: I must disclose the underwriter's spread to customers in a competitive bid issue II does not have to disclose the underwriter's spread to customers in a competitive bid issue III must disclose the underwriter's spread to customers in a negotiated offering IV does not have to disclose the underwriter's spread to customers in a negotiated offering

II does not have to disclose the underwriter's spread to customers in a competitive bid issue III must disclose the underwriter's spread to customers in a negotiated offering

A customer buys an oil and gas limited partnership interest by contributing $20,000 and signing a $20,000 non recourse note. The customer's tax basis is: a. 0 b. $10000 c. $20000 d. $40000

c. $20000 Investors are not at risk for non-recourse financing (their tax basis would be full recourse note even if they didn't contribute all yet). Real estate programs are also exempt.

On June 12th, a customer buys 100 shares of DEF stock at $49 per share. On June 30th of the same year, the customer sells the stock at $39. On July 10th of the same year, the customer buys DEF stock at $42. The customer's cost basis in DEF stock is: a. $39 b. 49 c. 52 d. 59

c. $52 The best answer is C. Since the customer sold the stock at a loss, and then repurchased the position within 30 days, this is considered a "wash sale" and the loss is disallowed for tax purposes. Instead, the loss on the stock is added to the cost of the repurchased position. The customer originally bought the stock at $49 and sold it at $39, for a $10 loss per share. The customer repurchased the stock at $42. The adjusted cost basis on the stock is $42 + $10 loss = $52 per share.

All of the following statements regarding original issue bonds are true except: a. muni discount bonds MUST be accreted b. muni premium bonds MUST be amortized c. corporate discount bonds MUST be accreted d. corporate premium bonds must be amortized

d. corporate premium bonds must be amortized Discounts on original issues corp & muni bonds MUST be accreted annually. Premium on original issue premium bond MUST be amortized Premium on corp bonds MAY be amortized

The manager of a pension plan would most likely invest in which of the following debt issues? I Corporate Bonds II Municipal Bonds III Government Bonds

i & iii only pension plans are tax qualified, earning on sec held at tax deffered so there is no benefit of having muni's which have lower rates since there int inc is exempt from federal rates

An older female customer in the lowest tax bracket wants an investment that will provide asset growth for retirement. i. emerging market funds ii. single stock iii. muni bond iv. index fund

iv. index fund

A six month decline in the economy is a

recession

The SEC was created by

the securities act of 1934

What portfolio construction is most appropriate for a retired doctor who is age 75?

25% CS/75% bonds

Under reg D, how many non accredited investors are allowed to invest in the offering?

35

Customer Name:Jane DoeAge:41Marital Status:MarriedDependents:1 Child, Age 13Occupation:HomemakerHousehold Income:$140,000Net Worth:$240,000 (excluding residence)Own Home:YesInvestment Objectives:Total Return / Tax AdvantagedInvestment Experience:12 yearsCurrent Portfolio Composition:8% Common Stocks62% Corporate Bonds30% Money Market Fund In order to make an appropriate recommendation to this customer, the registered representative should be concerned about the customer's: I investment time horizon, with specific emphasis on whether the 13 year old child will go to college and how this expense will be funded II strategic asset allocation needs with specific emphasis on the fact that the customer's portfolio mix might be overly conservative for a person that is only 41 years old III retirement needs, with specific emphasis on whether the customer's spouse is covered by a pension plan or if the customer must fund her retirement on her own IV life insurance coverage, with specific emphasis on the fact that this non-working wife and child must be supported if the husband dies

All of the above

Which type of account does not grow tax deferred? a. UTMA b. 529 c. Coverdell d. HSA

a. UTMA

(shows balance sheet) Senior debentures 50k PS 100,000 Common Equity (313-100PS)= 213 What is PDQ's perferred stock ratio? a. 24% b. 28% c. 59% d. 85%

b. 28% PS ratio= preffered equity/Total LT Capital 100k/363k= 28% Total LT Debt: 50k senior debt, PS 100k, common equity 213k

A customer wishes to place a buy order for a security that has not been registered in the state. The security may be purchased if the security: I is exempt from state registration II falls under a "Blue Chip" exemption by being listed on a recognized national stock exchange III is traded by at least 2 market makers IV has been trading in the market for at least 1 year

I is exempt from state registration II falls under a "Blue Chip"

Diversification among multiple asset classes reduces the: I market risk of the portfolio II marketability risk of the portfolio III standard deviation of portfolio returns

I market risk of the portfolio III standard deviation of portfolio returns Diversification does not effect marketability risk (how difficult it is to sell)

Which of the following statements are TRUE about the Federal Funds rate? I The Federal Funds rate is set by the Federal Reserve and is the rate at which member banks can borrow reserves from the Fed II Federal Reserve actions taken by the FOMC will influence the Federal Funds rate III The Federal Funds Rate is lower than the discount rate IV The "Effective" Federal Funds rate is the daily compounded rate of interest paid by borrowers

II Federal Reserve actions taken by the FOMC will influence the Federal Funds rate III The Federal Funds Rate is lower than the discount rate

A non-MFP (non-Municipal Finance Professional) contributes $500 to an elected official's campaign in which he is entitled to vote. Which statement is TRUE about this?

This action will not result in a 2 year ban on muni BD conducting muni sec. business w that issuer by the MSRB rule only applies to the MFPs

A stock has been range bound, moving up to $50 and then falling back to $40. These price movements have been happening constantly over period of time. The $50 price is called

a resistance level

An investor in a high tax bracket is considering the purchase of a direct participation program. In order to recommend such an investment, consideration must be given to which of the following? I The investor's needs for benefits in future tax yearsII The risks inherent in the offeringIII The liquidity of the investor's current holdingsIV The investor's ability to commit funds for long time periods

all of the above are needed

A 13D notice would be filed when A. corporation has a change in its Board of Directors B investor accumulates a 5% or greater position in the common stock of an issuer C corporation reports its annual results to the Securities and Exchange Commission D investor wishes to sell shares of restricted stock in the public market

b. investor accumulates 5% or greater position in CS of an issuer done within 10 days, prevents sneak takeovers

A member firm prepares a piece of sales literature that compares 2 different mutual funds that have similar objectives. Comparisons of all of the following can be made in the sales literature EXCEPT: a. mgmt fees charged by the funds b. past performance of the funds c. projected earnings of the funds d. liquidity of the funds invstmt holdings

c. projected earnings of the funds can show past performance, cannot predit future performance

Which of the following statements is TRUE regarding a brokerage firm holding fully paid customer securities? Brokerage firms: Incorrect answer A. You did not choose this answer. A cannot hold fully paid customer securities under any circumstances Incorrect answer B. You did not choose this answer. B can hold fully paid customer securities without restriction Incorrect answer C. You did not choose this answer. C can hold fully paid customer securities if the dollar value of the positions is kept in a depository institution Correct answer D. You chose this answer D can hold fully paid customer securities if they are segregated from other marginable securities and are kept in safekeeping

d. can hold fully paid sec. if they are segregated from other marginable securites and are kept in safe keeping

Which statement is TRUE about a registered representative who wishes to take a second job under FINRA rules? Incorrect answer A. You did not choose this answer. A This action is prohibited Incorrect answer B. You did not choose this answer. B This action is permitted without restriction Incorrect answer C. You did not choose this answer. C This action requires the prior written approval of FINRA Correct answer D. You chose this answer D This action requires the prior written approval of the member organization employer

d. this action requires prior written approval of the member organization employer

A registered representative completes a standard options worksheet for a customer. Which of the following statements are TRUE? I The customer must have received an Options Disclosure Document at or prior to receiving the options worksheetII The customer must have received an Options Agreement at or prior to receiving the options worksheetIII Prior to its first use, the options worksheet must have been approved by the firm's designated Registered Options PrincipalIV Prior to its first use, the options worksheet must have been approved by the CBOE

i and iii

If FOMC directs the Federal Reserve to tighten credit i. the trading desk will engage in repurchase agreements with banks ii. the trading desk will engage in reverse repurchase agreements with banks iii. cash reserves will be injected into banks iv. cash reserves will be drained from banks

ii. the trading desk will engage in reverse repurchase agreements with banks iv. cash reserves will be drained from banks Repo- loosens credit, more money Reverse Repo- tightens credit, less money

Which of the following actions taken by a fiduciary would be consistent with obligations imposed by the prudent man rule? i. purchasing new issues of low price speculative stocks ii. writing naked calls to profit from anticipated downward market iii. selling covered calls to generate extra income during period of expected market stability iv. diversifying a debt portfolio with securities of varying maturities

iii. selling covered calls to generate extra income during period of expected market stability iv. diversifying a debt portfolio with securities of varying maturities

"Qualified Institutional Buyers" are permitted to buy and trade large blocks of unregistered securities among themselves under: a. rule 144 b. rule 144A c. rule 147 d. rule 415

rule 144A

A customer sells short 100 shares of ABC stock at $63, the stock falls to $47 at which point the customer writes 1 ABC Sept 45 Put at $2. The stock falls to $36 and the put is excercised, what's the customer's cost basis upon this? a. $43 b. $47 c. $69 d. $61

$43 The customer sold the stock short at $63 per share (sale proceeds). Later, the customer sold a Sept 45 Put @ $2 on this stock. If the short put is exercised, the customer is obligated to buy the stock at $45 per share. Since the customer received $2 in premiums when the put was sold, the net cost to the customer is $43 per share for the stock (this is the cost basis in the stock for tax purposes). The stock that has been purchased is delivered to cover the short sale, closing the transaction. The customer's gain is: $63 sale proceeds - $43 cost basis = 20 point gain.

(Document shown with prospectus of shares being offered, shows that they are already publicly traded) The selling SH's are required to offer their shares via prospectus because: - they are likely to be officers and large shareholders of the company who must sell their shares either under the provisions of Rule 144 or who must sell their shares in a managed offering so that the existing trading market for the stock is not distorted

- they are likely to be officers and large shareholders of the company who must sell their shares either under the provisions of Rule 144 or who must sell their shares in a managed offering so that the existing trading market for the stock is not distorted

A customer has purchased 1,000 shares of ABC stock at $30 per share, paying a commission of $1 per share for the transaction. ABC stock declares a 5% stock dividend. When the dividend is paid, the tax status of the investment is:

1050 shrs held at cost basis of 29.52 per shr

A company has reported earnings per share of $8.75. The company paid a $2.75 per share preferred dividend and a $1.00 per share common dividend. The company's dividend payout ratio is: a. 11%

11% common divids/earnings for common=divd payout ratio 1/8.75=11%

Currently, the yield curve is inverted. A customer believes that the Federal Reserve will start to loosen credit by lowering short-term interest rates; and also believes that long term yields will move upwards from current levels because of weak demand for long-term Treasury obligations by pension funds. To profit from this, the best recommendation would be to: A buy short term T-Bills and sell long term T-Bonds B sell short term T-Bills and buy long term T-Bonds C buy short term T-Bills and buy long term T-Bonds D sell short term T-Bills and sell long term T-Bonds

A buy short term T-Bills and sell long term T-Bonds If short term interest rates are expected to fall, then short-term fixed income security prices will rise, so the customer will want to buy these (establishing a long position). If long term interest rates are expected to rise, then long-term fixed income security prices will fall, so the customer will want to sell these (establishing a short position).

Customer Name:Charlie CustomerAge:69Marital Status:Single - WidowedDependents:NoneOccupation:RetiredHousehold Income:$31,000 (Social Security and Pension)Net Worth:$130,000 (excluding residence)Own Home:Yes $220,000 Value, No MortgageInvestment Objective:Current IncomeRisk Tolerance:LowInvestment Time Horizon:20 yearsInvestment Experience:0 yearsCurrent Portfolio Composition:Cash in Bank:$130,000 After reviewing this customer's profile sheet, which recommendation would be most appropriate? A The customer should take at least $100,000 of cash from the bank and invest the proceeds in 20-year TIPS to meet the customer's desire for current income and his low risk tolerance requirements B The customer should take at least $100,000 of cash from the bank and invest the proceeds in 20-year STRIPS to meet the customer's desire for current income and his low risk tolerance requirements C The customer should mortgage his house for $100,000 at current market interest rates and use the proceeds to buy 20 year income bonds to provide current income D The customer should take at least $100,000 of cash from the bank and invest the proceeds in 20-year Treasury Bonds to meet the customer's desire for current income and his low risk tolerance requirements

D The customer should take at least $100,000 of cash from the bank and invest the proceeds in 20-year Treasury Bonds to meet the customer's desire for current income and his low risk tolerance requirementsf

A registered representative employed by ABC broker/dealer is good friends with an independent venture capitalist. The venture capitalist asks the registered representative to obtain investors for a private placement that he is forming. Which statement is TRUE? A The registered representative can direct customers to the private placement since this is an exempt transaction B The registered representative cannot direct customers to the private placement since his broker-dealer is not the private placement sponsor C The registered representative can direct customers to the private placement only if the venture capitalist is a member of FINRA D The registered representative can direct customers to the private placement only with the prior written approval of his employer

D The registered representative can direct customers to the private placement only with the prior written approval of his employer FINRA allows an exemption from effecting private securities transactions if: -provides written notice to the member of the transaction -details in writing any comp to be received -obtains express approval in writing from member firm

Name:Jack/Jill MillerAges:57 and 59Marital Status:Married - 3 Adult ChildrenIncome:$80,000 per yearRetirement Plan:Yes - Vested Defined Benefit PlanLife Insurance:YesRisk Tolerance:LowHome Ownership:Yes Client Balance Sheet:AssetsCash on Hand:$22,000Marketable Securities:$96,000($15,000 in Money Market Fund; $25,000 in Treasury Notes; $56,000 in Blue Chips)Retirement Plans:$458,000(Defined Benefit Plan Valuation)Auto:$39,000Home Ownership:$404,000LiabilitiesCredit Cards Payable:$14,000Mortgage Payable:$104,000Net Worth: $901,000 The couple plans to retire in the next year, sell their home and move to a retirement community where a new home will cost $190,000. They wish to supplement their retirement income, which will be approximately $40,000 from their retirement plan and $8,000 from Social Security. The best recommendation to the couple is to take the $300,000 net proceeds from the sale of the home after paying off its mortgage and: A. put a $50,000 down payment on the new home, finance the balance of the purchase with a $140,000 mortgage, and invest the remaining cash proceeds of $250,000 in growth common stocks B. put a $50,000 down payment on the new home, finance the balance of the purchase with a $140,000 mortgage, and invest the remaining cash proceeds of $250,000 in Treasury STRIPs C. pay for the $190,000 new home in full and invest the extra $110,000 in high yield bonds to provide retirement income D. pay for the $190,000 new home in full and invest the extra $110,000 in high yielding blue chip preferred stocks to provide retirement income

D. pay for the $190,000 new home in full and invest the extra $110,000 in high yielding blue chip preferred stocks to provide retirement income

All of the following would be considered a control relationship to be disclosed to customers except: a. Muni BD always makes a market in the Muni's securities that are being recommended b. treasurer of the township, who's bonds the firm is offering on an agency basis, is on the BOD of the muni firm c. muni principal in muni securities firm is the supervisor of school board who's bonds the firm is trading d. treasurer of the township, who's bonds the firm is offering on a principal basis, is on the BOD of the muni firm

a. Muni BD always makes a market in the Muni's securities that are being recommended Control relationships is where person at muni firm is in position to influence muni issuer who's securities are being traded by that firm

In January, a customer buys 100 shares of ABC stock at $50. Eleven months later in December, the stock is trading at $60. The customer buys 1 ABC Feb 60 Put @ $3. In February, the stock is trading at $51 and the customer exercises the put. The tax consequence is: a. $700 ST capt gain b. $700 LT capt gain c. $300 ST capt loss d. $300 LT capt loss

a. $700 ST capt gain So if the put is purchased when the stock is held short-term, the IRS wipes out the holding period and it does not start counting again until the put expires (and it starts from day 1 at this point).

An investor's securities portfolio has depreciated by $6000 this year, how much of the loss can the investor deduct on this years tax return? a. 0 b. 2000 c. 3000 d. 6000

a. 0 one cannot deduct depreciation expense of an asset that is currently held. One must sell the security in order to do so, deducting up to $3000 of net realized capital loss per year

A customer has written 1 ABC Jan 50 Put @ $3. The contract is exercised. The tax consequence to the writer is a: A. cost basis of $4,700 B. sale proceeds of $4,700 C. cost basis of $5,300 D. sale proceeds of $5,300

a. cost basis of 4700 The best answer is A. When a put option is exercised by the holder, the Options Clearing Corporation "assigns" the contract to any one of the individuals or firms that sold that option on a random basis. The writer of a put who was assigned must buy the stock at the strike price. The premium received is a reduction of the cost of buying the stock. The writer of the put must buy 100 shares at $50 ($5,000), but he or she received $300 in premiums for writing the contract, so the adjusted cost basis is $4,700 for 100 shares.

A younger female customer, in the highest tax bracket, already has a substantial investment portfolio that is invested in a balance of quality stocks and bonds. She wants an investment that will provide rapid asset growth and is willing to assume risk. The BEST recommendation would be: a. emerging mkt fund b. single stock c. muni bond d. index fund

a. emerging markets fund

Speculators in foreign currencies would NOT be subject to which of the following risks? a. interest rate risk b. exchange rate risk c. market risk d. political risk

a. interest rate risk Interest rate risk only affects fixed income securities!

All of the following statements are true about listed securities except: a. listed securities trade in the second mkt b. under Reg T, all listed sec are marginable c. listed sec are subject to Reg SHO d. listed co's must be registered with and report their results to the SEC

a. listed securites trade in the second market Listed sec trade in the 1st (exchanges), 3rd (OTC), and 4th (ECNs). The 2nd market is trading of unlisted sec OTC (OTCBB and Pink Sheets)

A customer buys a $100,000 of a new issue 20 yr corporate bond at 95. At maturity, the customer will have: a. no capital gain/loss b. $500 capital gain c. $5000 capital gain d. $5000 capital loss

a. no capital gain/loss discount on original issue (on corporate/gov/munis) must be accreted over life of bond. Redeemed at par so no gain/loss

A customer viewing virtual trading floor information on the NYSE Website notices that he can see most, but not all, of the stocks included in the Dow Jones Industrial Average, trading on the floor. The customer asks his registered representative why this is the case. The customer should be told that: a. of the 30 stocks included in DIJA a handful do not trade on NYSE b. the NYSE only includes the most activly traded DIJA stocks in the display c. these are the companies that have not paid the NYSE to be included on the display d. the companies that are not displayed have just announced significant news/have been halted

a. of the 30 stocks included in DIJA a handful do not trade on NYSE (some others are only traded on NADAQ)

The portfolio management technique that uses a market index as a performance benchmark that the asset manager must meet is called: a. passive asset mgmt b. active asset mgmt c. strategic asset mgmt d. tactical asset mgmt

a. passive asset mgmt Active asset management is the management of a portfolio to exceed a benchmark return (say the return of a comparable index fund). The manager's "active" return is any incremental return achieved over the benchmark return. In contrast, passive asset management is simply the management of a portfolio to match the benchmark return (the "passive return"). Active managers believe that underpriced securities can be found in the market and that performance of the benchmark can be exceeded. Passive managers believe that the market is efficient at pricing securities and that one cannot do any better than the "market" return as measured by a relevant index.

Common shares of which of the following issuers are likely to have a beta coefficient much higher than +1? a. semi conductor manfucatuer b. pharmeceutical maf c. public utility d. food processor

a. semi conductor manf. beta measure market volatility, high tech companies typically have very high betas relative to mkt bc they're growth companies electirc/gas/railroads low betas food/pharmecuetials beta around 1

All of the following statements are true about margins on securities except: a. the FRB sets margin for exempt securities b. the FRB sets margin for non extempt securities c. FINRA sets margins for exempt securities d. FINRA sets margins for non exempt securities

a. the FRB sets margins for exempt securities -this is false since the FRB only has authority to set margin for non exempts

Which of the following options communications sent to more than 25 prospective customers must be approved by the ROP prior to use? a. advertising b. sales literature c. independently prepared reprints d. all of the above

all of the above (since its sent to more than 25>retail comm)

ABC corporation splits its stock 3:1, which will occur? i. the EPS of abc is reduced ii. the par value per shr is reduced iii. the RE of abc stays the same iv. the P/E ratio of ABC stays the same

all of the above are true

A control relationship is deemed to exist between a municipal broker-dealer and an issuer. Under MSRB rules, this must be disclosed to customers if the dealer is effecting which of the following transactions? I Primary Market transactions as an underwriter II Primary Market transactions as an agent (selling group member) III Secondary Market transactions as an agent IV Secondary Market transactions as a dealer

all of the above must disclose

A customer is short 100 shares of PDQ stock at $62 per share. The stock goes up to $67 and the customer covers the position. If, 30 days later, the customer decides to re-establish this short position when the market for PDQ is $65, what will the sale proceeds be? a. $57 per shr b. $60per shr c. $70per shr d. $72per shr

b. $60 per shr Stock sold short at $62 and repurchased at $67 = $5 loss (wash sale, so loss will be deducted from any future sales proceeds) Sells short at $65 so $5 taken from this, $60 sales proceeds

A $10,000 muni bond with 5 years to maturity is purchased on the secondary mkt at 105. he bond is sold after 2 years at 105, the taxable gain/loss is: a. 0 b. 2 point capt gain c. 2 point capt loss d. 5 point capt loss

b. 2 point capt gain All municipal premium bonds, whether original issue premium or trading market premium bonds, are subject to straight line amortization. The 5 point premium must be amortized over 5 years, so 1 point per year is amortized (with no tax deduction allowed for the annual amortization amount). After 2 years, the bond has an adjusted cost basis of 103 (105 purchase - 2 points total amortization). Since the bond is being sold at 105, the capital gain is 2 points.

A customer, age 69, has never invested in securities. She is retired with no dependents, living on a fixed pension of $35,000 per year. She has a savings account with $160,000 and her home is fully paid. She desires to supplement her retirement income, assuming minimal risk. The BEST recommendation would be for the customer to invest $100,000 of her cash savings into a(n): a. VA b. CMO PAC c. SPDR d. income (adj) bond

b. CMO PAC gives good yeild higher than equivalent maturities of treasuries and are very safe (due to companions) VA not good bc shes in low tax bracket (deff VA not attractice)

A customer buys $100,000 face amount of G.O. bonds in the secondary market at 90 and $100,000 face amount of Revenue bonds in the secondary market at 110. The investor opts not to accrete the G.O. bonds. If the bonds are held to maturity, the tax consequences are: a. captial gains tax on GO bond capital loss on revenue bond b. gain taxed as interest income on GO bonds, no gain or loss on Rev bonds c. captial loss on both GO and Rev bonds d. no gain or loss on either

b. gain taxed as interest income on GO bonds, no gain or loss on Rev bonds Investors that purchase municipal discount bonds in the secondary market have the option of accreting the bonds. If there is no accretion, the bonds are valued at cost. If they are held to maturity, there is a taxable gain at that point (with no accretion). The gain is taxed as interest income, though, and not as a capital gains. Municipal premium bonds purchased in the secondary market must be amortized. If they are held to maturity, the full premium has been amortized and the adjusted basis is par. Since the bonds are redeemed at par, there is no capital gain or loss.

If a RR solicits an order from a new customer to purchase a penny stock that is trading OTC, which procedure is required? a. send prospectus to customer b. have the customer sign a statement that they understand the risks involved prior to executing the order c. have the branch manager approve the order and then fill the customer's order in the same manner a w any other security d. send the customer a subscription agreement to be signed before filing the order

b. have the customer sign a statement that they understand the risks involved prior to executing the order

A trader maintains a position in small cap stock w low trading volume. The trader has a high level of which risk? a. market risk b. liquidity risk c. interest rate risk d. business risk

b. liquidity risk

A customer is in the highest tax bracket and not subject to AMT. Which of the following is the BEST investment recommendation? a. a muni bond yielding 2.5% not subject to AMT b. muni bond yeilding 2.7% subject to AMT c. treasury bond yeilding 3.5% d. corporate bond yielding 4%

b. muni bond yeilding 2.7% subject to AMT bc the customer is in the highest tax bracket, a tax fee muni bond will give the highest after tax return. Since customer is not subject to AMT he does not care about the fact that the higher yeilding bond is subject to this tax. He chose the higher yeilding bond that IS subject to AMT so B is correct.

A director of a publicly held company wants to sell 5,000 registered shares of that company's stock at $8 per share that she has held for 3 months. Does the Form 144 filing requirement apply to this sale? a. yes, because any sale of shares by a director requires the filing of form 144 b. no bc the shares are being sold under a de minimis exemption c. yes, bc she has not held the shares for 6 mo d. no bc the shares are not restricted

b. no bc the shares are being sold under a de minimis exemption (sale every 3mo of 5000 shrs or less, worth $50k or less allowed w/o having to file form 144) 5000*$8= $40,000

The interest rate that fluctuate the least is the: a. federal funds rate b. call loan rate c. passbook savings rate d. london interbank rate

c. passbook savings rate

An 80-year old client lives on his social security payments that total $25,000 per year. 3 years ago, on the advice of the broker, he invested in a technology fund where he lost most of his assets. The remaining balance in his brokerage account is $17,000. The client has annual living expenses of $30,000 and a net worth of $128,000. The customer approaches a new broker to take over management of his account. The representative that receives the account should: do nothing Correct answer B. You chose this answer B sell the holding in the account and invest the proceeds in a more conservative fund within the same family of funds Incorrect answer C. You did not choose this answer. C sell the holding in the account and invest the proceeds in a more conservative fund outside the family of funds Incorrect answer D. You did not choose this answer. D sell the holding in the account and invest the proceeds in a more conservative fund that has a deferred sales charge

b. sell the holding in the account and invest the proceeds in a more conservative fund within the same fund family

A RR who has passed the S63 exam wishes to sell managed accounts to customers in differing states. Which is true? a. the RR needs no further license to sell managed accounts b. the RR must pass either S65 or S66 to sell managed accounts c. the RR must post a surety bond prior to selling managed accounts d. the RR is prohibited from selling managed accounts

b. the RR must pass either S65 or S66 to sell managed accounts Managed or "wrap" accounts are defined as IA's in most sates, so 65/66 makes one an IAR

A customer has an account holding $310,000 of securities and $290,000 of cash. If the broker-dealer were to fail, which statement is TRUE regarding the status of the account in an SIPC liquidation? A. the customer will become a general creditor of the 40,000 owed b. the customer will become a general creditor of the 100,000 owed c. SIPC will provide coverage for 310,000 of sec. only d. SIPC will provide coverage of 250,000cash only

b. the customer will become a general creditor of the 100,000 owed SIPC- 250,000 cash max 500,000 total So there's 600,000 claim, 290 cash 310 sec. 250- cash leaves 40 in claim 250 in sec, leaves 60 so total claim after SIPC to be general creditor of 100k

Customer Name:Joey JonesAge:30Marital Status:SingleDependents:NoneOccupation:VP - Marketing - ACCO Corp.Household Income:$250,000Net Worth:$110,000 (excluding residence)Own Home:No - RentsInvestment Objectives:Aggressive Growth / Early RetirementInvestment Time Horizon:20 yearsInvestment Experience:0 yearsCurrent Portfolio Composition:401k:$70,000Cash in Bank:$40,000 The customer informs you that he just got married and that his wife intends to work for the next 5 years before they think about children. In order to make recommendations to the client due to these changed circumstances, the registered representative should:

b. update the account profile to include wifes financial info

The investment strategy that involves paying lower price for a security based on the expectation that the market is mispricing the issue is: a. growth investing b. value investing c. passive investing d. active investing

b. value investing uses fundamental factors like PE ratio and Price/Book value ratio

Customer Jane Jennings' suitability information is presented below: Age:39Marital Status:SingleDependents:1 Child - Age 10Annual Income:$80,000Tax Bracket:28%Net Worth:$510,000 excluding homeHome:$350,000 fully paidInvestment Portfolio:$422,000(60% equities; 20% long bonds; 20% money market) The customer wants to start a college fund for her child. The anticipated tuition, starting 8 years from now, is $50,000 per year ($200,000 total tuition). Which of the following recommendations is most appropriate for this customer? Incorrect answer A. You did not choose this answer. A liquidate $200,000 of common stock in the client's portfolio and invest the entire proceeds in 8-year Treasury Notes Incorrect answer B. You did not choose this answer. B take out a second mortgage on the customer's residence in the amount of $200,000 and invest the proceeds in a tax-deferred annuity funded by an income separate account Correct answer C. You chose this answer C liquidate $160,000 of the common stock and invest the proceeds in laddered Treasury Notes and Bonds of $40,000 amounts maturing 8, 9, 10 and 11 years from now Incorrect answer D. You did not choose this answer. D liquidate $100,000 of the bonds in the customer's portfolio and $100,000 of common stock in the customer's portfolio and invest the entire proceeds in 8-year Adjustment Bonds

c. Explanation The best answer is C. To fund this child's college education, payments of $50,000 per year are needed over a period of 4 years, starting 8 years from now. There is no reason to fund the entire $200,000 right now, since this amount will grow over the next 8 years - making Choices A, B and D incorrect. Also, please note that this customer is only 39 years old - a fairly young age. She should keep as much of her portfolio in growth stocks as possible.

Income received from partnership investments is characterized under the tax code as: a. earned income b. active income c. passive income d. portfolio income

c. passive income

Over the last 10 years, a client has bought 100 shares of ABC Mutual Fund each year in a taxable account and has elected to have dividends and capital gains automatically reinvested in additional fund shares. The aggregate cost of the 1,000 purchased shares is $21,300. In addition, over these 10 years, the customer has bought 400 additional shares through dividend reinvestment at an aggregate cost of $9,520. At the end of the 10th year, the client's statement shows that the customer owns 1,400 shares at an aggregate market value of $47,400. If the client redeems 100 of the shares, the average cost basis per share is: a. 15.21 b. 21.30 c. 22.01 d. 33.86

c. 22.01 When redeeming MF shares, IRS requires average cost basis be used, unless FIFO or specific ID are elected. $21300+$9520=$30820 (total cost) $30820/1400shrs= $22.01 cost per shr

A seller who has filed Form 144 can sell 1% of the outstanding shares or the weekly average of the last 4 week's trading volume. This amount may be sold: A. 1 time a year B. 2 times a year C. 4 times a year D. 12 times a year

c. 4 times a year

ABC Corporation has earned $1,275,000 after tax. Using the information below, what is ABC Corporation's Return on Common Equity? ABC Corporation Capitalization Debentures - $1,000 par, 11.75% Matures 2040, Convertible at $20 $20,000,000 Common at Par ($1) 350,000 shares outstanding350,000 Capital In Excess Of Par 3,650,000 Retained Earnings 15,000,000 a. 3.7% b. 6.3% c. 6.7% d. 63.7%

c. 6.7% Return on common equity= earnings for common/common stockholder equity 1,275,000/19,000,000 common stockholders equity= common at par, capt in excess of par, retainined earnings

To avoid application of the wash sale rules, securities sold October 30 can first be bought back on a. Nov 29 b. Nov 30 c. Dec 1 d. Dec 2

c. Dec 1 Under the wash sale rule, if a security is old at a loss and the same or similar security is purchased within 30 days, the loss deduction is disallowed. Purchase after 30 days okay (why its Dec1 and not Nov 30)

A customer calls her registered rep and says the following: "I'm looking for a safe investment for $100,000 that I have, that will give me a moderate level of income. I have 2 children, ages 12 and 13, and I will need to use these monies to pay for their college education, starting in 5 years." All of the following recommendations would be suitable EXCEPT: a. Treasury bond mutual fund Incorrect answer b. Treasury bonds with 5, 6, 7, 8, and 9 year maturities c. GNMA pass-through certificates with 5, 6, 7, 8, and 9 year maturities Incorrect answer d. FNMA debentures with 5, 6, 7, 8, and 9 year maturities

c. GNMA's w 5,6,7,8,9 yrs to maturity (not good due to pre payment risk)

Notification to FINRA is required for which of the following events? a. a written customer complaint is recieved about a reg. employee misappropriating customer funds b. RR is arrested for assault and battery c. RR is commited to mental inst. d. RR is indicted under Sec. ACt of 34 for insider trading

c. RR is commited to mental inst.

The monetary enviornment is: A the spending and taxation policies in current use by the U.S. Government Incorrect answer B. You did not choose this answer. B the dollar level of imports entering the United States versus the dollar level of exports leaving the United States Correct answer C. You chose this answer C current money supply levels, interest rate levels, and economic policies Incorrect answer D. You did not choose this answer. D the current rate of exchange of the U.S. Dollar against major foreign currencies

c. current money supply levels, int rate levels, and economic policies

A company's CS has a beta of +2, the market has declined over the last 3 years. During this period, the price of the stock would have: a. declined at the same rate as the market b. increased at the same rate as the market c. declined at a faster rate than market d. increased faster rate than the market

c. declined a faster rate than the market

Which of the following would be least important in determining the level of diversification in a corporate bond portfolio? a. bond ratings b. industries represented in portfolio c. domicile of issuers d. maturities of bonds in portfolio

c. domicile of issuers this is the state where the issuer legally reisdes, has no importance on this

A 45 year old investor has stated invstmt obj. of income and growth, which MF could be added to the customer's profile? a. gov income fund b. sector fund c. equity income fund d. high yeild fund

c. equity income fund

Which of the following stocks would be considered counter cyclical? a. automobile manf. b. pharmeceutical manf. c. gold mining co d. computer software developer

c. gold mining company counter cyclicals move opposite of the economic cycle (gold) cyclical stocks follow business cycle (home building, auto manf, durable goods producers) Defensive- not affected by business cycle (pharmeceuticals) Growth- software co's

A constant dollar investment plan is: a. invests a fixed dollar amt periodically in equity sec b. invests a fixed dollar amt periodically in debt sec c. maintains a fixed dollar amt of a portfolio's assets in equities d. maintains a dollar amt of portfolio's assets in debt

c. maintains a fixed dollar amt of a portfolio's assets in equities The best answer is C. Under a constant dollar plan, a portfolio manager sets a dollar level (say $200,000) to be maintained in equity securities. If the value rises to $230,000, the $30,000 excess is invested in debt securities. Conversely, if the equity market value drops below $200,000, bonds are liquidated and invested in equities to bring the equity balance to the constant $200,000.

A municipal bond dealer quotes an 8 year 4% bond trading in the secondary market on a 6% basis. After considering all taxes, the customer's yield will be: a. less than 4% b. 4% c. more than 4% but less than 6% d. 6%

c. more than 4% but less than 6% Even though the coupon rate earned from a municipal bond is free of federal income tax, any market discount is taxed as interest income earned. This is nothing more than a "tax grab" by the Federal government - the idea being that wealthy people buy municipal bonds, so if there is a way that they can be taxed without jeopardizing their basic Federal income tax-free status, why not? The discount can be accreted annually and tax paid, or the tax can be paid at maturity or sale date. There are two components to the yield earned on a discount security - the coupon rate and the annual earning of the discount. With this bond the customer is earning 4% per year in annual interest plus 2% per year in annual gain (which equals the 6% basis.) The 4% interest earned is not taxable, however, the annual 2% accretion of the discount is taxed at ordinary income tax rates. Therefore, the after tax yield will be more than 4% but less than 6%.

A registered representative is invited by a very satisfied customer to that customer's ski house in Vail, Colorado during Christmas. Which statement is TRUE about the representative accepting this invitation? a. if the RR accepts the invite, this is a violation of FINRA rules bc the value is more than $100 b. if the RR accepts the invite, this is a violation of FINRA rules bc conflicts of interst c. the rep can only accept the invite if they notify the firm and follow the firm's policies and procedures d. the rep can accept the invite w/o restriction

c. the rep can only accept the invite if they notify the firm and follow the firm's policies and procedures Business entertainment is not under the $100 gift rule, business entertainment is okay as long as it is not too excessive and must comply with firms policies/procedures (confrence at disney and other pays for the person and their family to come would be excessive)

Which statement is true about the use of red herrings? The premiliminary prospectus can only be sent to customers: a. once registration is effective b. who have paid for the issue c. who have expressed an indication of interest or who are likely purchaser, during the cooling off period d. who have expressed an indication of interest or who are likely purchaser, prior to the cooling off period

c. who have expressed an indication of interest or who are likely purchaser, during the cooling off period

An officer of MNO Corporation wishes to sell stock under Rule 144. MNO has 15,000,000 shares outstanding. The previous weeks' trading volumes are: Week EndingVolumeNov 21Nov 14Nov 7Oct 31Oct 24150,000 shares185,000 shares165,000 shares175,000 shares190,000 shares If the Form 144 had been filed one week prior to November 23rd, the maximum permitted sale would be: a. 147,500 shrs b. 150,000 shrs c. 168,750 shrs d. 178,750 shrs

d. 178,750 shrs Rule 144 allows the sale of the greater of 1% of OS shares or the weekly average of the preceding 4 weeks volume every 90 days (4x a year) 1% 15mil= 150,000 shrs Nov 14 185,000 Nov 7 165,000 Oct 31 175,000 Oct 24 190,000 _______________________ 715,000/4= 178,750 (started at Nov 14 in this example since from 144 had been filed one week prior to nov 23)

The best investment during a period of high inflation is: a. CS b. PS c. 30 yr bonds d. MM insturments

d. Money market inst. since int rate rise dramtically, PS and LT bond prices drop, equities will as well bc co's cannot increase there prices as fast as costs are rising. MM do well in ST rising rates bc they give increasing rate of return.

A registered representative is employed by a broker dealer that is a publicly traded company, listed on the NYSe. Which statement is true? The RR may: a. recommend a purchase of his employer's stock to existing customers b. solicit new customers to buy his employer's stock c. write and distribute a research report recommending the purchase of the employers stocks d. accept unsolicited orders for the employer's stock but cannot solicit orders for nor recommend the securities.

d. accept unsolicited orders for the employer's stock but cannot solicit orders for nor recommend the securities. This is not explicitly a rule, but has to do more with suitability. Must disclose control relationships prior to confirmation

A customer who earns $80,000 per year is 35 years old, married to a non-working spouse, has a 5-year-old child, has no retirement savings and does not have a will. This customer receives $250,000 in a single stock as an inheritance from her deceased aunt. What is the first thing that the customer should do? a. set up an IRA to begin funding retirement b. establish a will c. pay any captigal gains tax due on stock position if this cannot be avoided d. diversify stock position, bc it should not be single stock holding

d. diversify stock position, bc it should not be single stock holding

Which of the following is defined as options sale literature? a. ODD b. options billboard c. telephone recording of options investing d. lecture on options investing

d. lecture on options investing any written comm distributed to customers that contains analysis, performance reports, projection, or reccomendations. (option worksheets are considered this) Seminar texts for lecture must be accompanied or preceeded by ODD

All of the following are included in the 10k report except: a. income statement b. balance sheet c. retrained earnings stmt d. net captial computation

d. net capital computation these are only required for BD's registered with the SEC (not companies)

All of the following are progressive taxes except: a. gift tax b. income tax c. estate tax d. sales tax

d. sales tax

A customer has made the following purchases of XYZ stock: Year 1: 300 shares @ $62 Year 2: 400 shares @ $66 Year 3: 100 shares @ $63 Year 4: 500 shares @ $69 Year 5: 200 shares @ $68 It is now Year 6 and the stock is trading at $70. The customer wishes to sell 1,000 shares. To minimize tax liability, the customer should use which tax valuation method for the shares that are sold? a. LIFO b. FIFO c. average cost d. specific identification

d. specific ID Customer can choose which shares to be sold, so he'd lower his tax liability by choosing the highest cost shares. (Will reduce the capital gain) If the customer does not use specific ID. the IRS mandates use of FIFO (cannot use LIFO in this situation)

All of the following are true if SEC send deficiency letter to the issuer regarding an issue in registration except: a. disclosure in the registration doc is not complete b. the issueer must file an amendment w the SEC to cure the deficiency c. the 20 day cooling period starts again once amendt. is filed d. the effective date of the issue is unaffected by the deficiency note

d. the effective date of the issue is unaffected by the deficiency note effective date can't happen until SEC says theres adequate disclosures

An officer of a listed company calls his registered representative and tells him to sell the maximum amount of the company's CS in accordance with Rule 144. Prior to placing the order to sell, the RR calls five customers and tells them to sell the company stock. Which is true? a. there is no violation of FINRA rules b. there is no violation of SEC rules c. this actions violates the Sec Act of 33 d. this action violates the insider trading provisions of Sec Exchange act of 34

d. this action violates the insider trading provisions of Sec Exchange act of 34

Which statements are TRUE? I Strategic portfolio management is the determination of the asset allocation percentages among differing asset classes in the portfolioII Strategic portfolio management is the determination of the permitted variance within each asset allocation percentage assigned to a specific asset classIII Tactical portfolio management is the determination of the asset allocation percentages among differing asset classes in the portfolioIV Tactical portfolio management is the determination of the permitted variance within each asset allocation percentage assigned to a specific asset class

i and iv

When accreting a bond discount which is true? i the bond's cost basis is increased each year ii. the bond's cost basis is reduced each year iii. any potential gain of the sale of the bond increases each year iv. any potential gain of the sale of the bond decreases each year

i the bond's cost basis is increased each year iv. any potential gain of the sale of the bond decreases each year

Which statements are true? i. SHORT information is found within EMMA ii. EMMA information is found within SHORT iii. RTRS information is found within EMMA IV. EMMA information is found within RTRS

i. SHORT information is found within EMMA iii. RTRS information is found within EMMA EMMA is a web portal run by the MSRB and makes available: -official statements, prelim. OS, advance refunding docs, event notices -RTRS trades -SHORT trades

Under rule 144, the form 144 is filed: i. by the seller of the restricted shrs ii. by the buyer of the restricted shrs iii. 10 business days prior to placement of the order iv. at or prior to placement of the order

i. by the seller of the restricted shrs iv. at or prior to placement of the order

Regarding corporate discount bonds, which statements are true? i. corporate original issue disc bond must be accreted ii. corporate original issue discount bonds may be accreted iii. corporate market disc bonds must be accreted iv. corporate market discount bonds may be accreted

i. corporate original issue disc bond must be accreted iv. corporate market discount bonds may be accreted The discount on original issue discount corporate and government bonds must be accreted annually - with the accretion amount being taxable annual interest income. The premium on original issue premium corporate bonds may be amortized for tax purposes; this election is beneficial to the bondholder since the annual amortization amount reduces taxable annual interest income. Corporate bonds bought in the secondary market at a discount are termed "market discount bonds." There is an option of accreting the discount and paying tax annually on the accretion amount at full tax rates; or of waiting until the bond is redeemed or sold to pay the tax on the earned market discount at full tax rates. If the holder accretes the bond and holds it until maturity, there is no capital gain or loss, since the entire discount has been accreted and taxed over the bond's life. If the holder opts not to accrete the bond, the bond will be redeemed at par and the entire market discount is taxed as interest income received at maturity (not as capital gains).

A corporation issues convertible debentures at par. Which of the choices are affected? I Current Assets II Current Liabilities III Net Worth IV Net Working Capital

i. current assets iv. net working capital If convertible debentures are issued, long term debt increases as does cash, (a current asset) since the proceeds of the sale go to the issuer. If cash increases, working capital increases. There is no effect on net worth; nor on current liabilities.

An issuer is required to make an 8k filing with the SEC for which of the following events? i. election of new members of the BOD ii. declaration of bankruptcy iii. declaration of cash dividend iv. proposal of a merger

i. election of new members of the BOD ii. declaration of bankruptcy iv. proposal of a merger 8k filing is for major events that happen at the company. Must be filed no later than 4 days after the event

A registered IA has a retired customer who wishes to put aside funds for the purchase of a car in 5 years. Preservation of capital is important to him, he should recommend: i. money market instruments ii. bank CDs ii. 5 yr T bonds iv. 30 yr T STRIPS

i. money market instruments ii. bank CDs ii. 5 yr T bonds

RR's may be compensated based on which of the following: i. trading commissions paid by the brokerage firm to the rep ii. trading commissions paid by the customer to the rep iii. salary paid by the brokerage firm to the rep iv. salary paid by the customer to the rep

i. trading commissions paid by the brokerage firm to the rep iii. salary paid by the brokerage firm to the rep compensation cannot be paid by the customer to the rep, only the BD firm may

trading in the interbank market will directly affect: i. ADR prices in terms of USD ii. foreign currency pricies in terms of USD iii. future trade deficit or surplus figures iv. future economic growth

ii. foreign currency pricies in terms of USD iii. future trade deficit or surplus figures iv. future economic growth

Which of the following formations are bearish? i. saucer ii. head and shoulders iii. inverted saucer iv. inverted head and shoulders

ii. head and shoulders iii. inverted saucer

Which of the following are regressive taxes? i estate and gift tax ii. sales tax iii. excise tax iv. income tax

ii. sales tax iii. excise tax

When performing a muni bond tax swap, the investor is i. selling existing bonds at a gain ii. selling existing bonds at a loss iii. using the proceeds from the sale to buy the same bonds back iv. using the proceeds from the sale to buy similar but not identical bonds

ii. selling existing bonds at a loss iv. using the proceeds from the sale to buy similar but not identical bonds This is allowed under the wash sale rule

Text:Louise is a 63-year old widow who has just retired. Louise owns her home, has no debt, and lives on Social Security payments, a pension, interest from her Certificates of Deposit, and a passbook savings account at a local bank. Two of her CDs are due to mature, and interest rates have dropped. Louise would like an investment that will provide more in monthly income than her CDs will at the new lower interest rate. She is concerned about meeting her expenses if her income drops, and she is risk averse. Her representative recommends ABC Equity Asset Allocation Fund to Louise. The fund has had outstanding performance over the past 3 years and is managed by a well-known money manager. Is the representative's recommendation suitable for this client?

no, the fund will not meet the clients obj of monthly income

Rank the following interest rates from highest to lowest: i. discount rate ii. federal funds rate iii. broker loan rate iv. prime rate

prime broker loan discount federal funds