Practice Exam #2

Which of the following statements could legally appear in mutual fund advertising or sales literature?

-"Our managers are dedicated to giving you the very best service."

With regard to a variable annuity, all of the following may vary except?

-# of annuity units *During the accumulation phase, the number of accumulation units will increase as additional money is invested. When the contract is annuitized, the annuitant is credited with a fixed number of annuity units. Once annuitized, the number of annuity units does not vary. The value of accumulation and annuity units varies with the investment performance of the separate account.

An investor establishes a $5,000 position by purchasing 100 shares at $50 per share. She then sells all the shares six months later at $60 per share. Her taxable consequences are?

-$1,000 short-term gain

A customer purchases 200 shares of ABC Health Care at $60 per share and meets the initial margin requirement. If ABC announces an acquisition, and its stock appreciates on the news to $75, how much cash can the customer withdraw after this market move?

-$1,500 *The customer could withdraw cash equal to the SMA. A purchase of 200 shares at $60 per share would require an initial deposit of $6,000 on a market value of $12,000. The customer would have $6,000 in equity and a $6,000 debit. After a rise to $75 a share, the stock's market value would be $15,000. The customer's debit balance would remain unchanged at $6,000, but the equity would increase to $9,000 ($15,000 CMV − $6,000 DR). The customer needs to have 50% equity (50% × $15,000 = $7,500). Because the customer only needs $7,500 equity but now has $9,000, the excess equity of $1,500 is credited to SMA, which is the amount the customer can withdraw.

If a customer buys a municipal bond at 110, maturing in eight years, but sells the bond six years later at 103½, the customer will have?

-$10 per bond gain. *Municipal bonds that are purchased at a premium must be amortized. This bond has a premium of $100, which over 8 years amounts to $12.50 per year. The cost basis of the bond at the time of the sale is $1,100 − (6 × $12.50) or $1,025. If the bond is sold for $1,035, the customer has a gain of $10 per bond.

A customer of a member firm has just invested $100,000 into an equipment leasing DPP. Under FINRA rules, the maximum compensation allowable to the firm is?

-$10,000 *FINRA Rule 2310 limits compensation on the sale of a DPP to 10% of the offering price. That is the largest component of the offering expenses. Those are limited to 15% of the offering. DPPs are not covered by the 5% policy. If this question was about a DPP roll-up, then there is 2% maximum to the member if recommending the client vote in favor of the roll-up.

As the initial transaction in a new margin account, your customer shorts 100 shares of DMF at 30. With Regulation T at 50%, she will receive a margin call for?

-$2,000 *Because the total market value of the transaction is $3,000, the initial margin would be $1,500 (50% of $3,000). However, minimum initial margin is $2,000.

ABC Corporation is offering 500,000 units to the public at $5 per unit. Each unit consists of two shares of ABC preferred stock and one perpetual warrant for half of a common share of ABC, exercisable at $5. How much capital was raised by the initial sale of the issue?

-$2.5 million *Since the issuing corporation is offering 500,000 units to the public at $5 per unit, the total amount of capital to be raised by this sale will be $2.5 million (500,000 units x $5 per unit).

An investor purchased a new issue corporate zero-coupon bond for $600. The bond has a maturity of 20 years. Six years later, the investor sells the bond for $740. For tax purposes, this would result in?

-$20 capital gain. *A zero-coupon doesn't make periodic interest payments back to the investor. Instead, the investor buys the bond at a DEEP discount ($400 discount in this scenario) and receives $1,000 back in 20 years. $600 investment, and nothing back for 20 years until the $1,000 is received at maturity. For tax purposes, the $400 gain on the bond is accreted evenly over the life of the bond (400/20=$20 per year). In the IRS's eyes, the investor is making $20 per year, even though the investor doesn't realize that gain until maturity (or a sale). This is referred to as "phantom income".

A convertible bond callable at 101 is trading at 105. The bond is a 4% bond convertible at $25. The common stock is trading at $27. If an investor bought the bond and converted, her profit would be?

-$30 *First, calculate the number of shares each bond will convert to: $1,000 (par) / $25 per share = 40 shares per bond.With market value at 105, each bond costs $1,050. What is the stock parity price? $1,050 / 40 shares = $26.25 per share stock parity price.CMV of the stock minus stock parity price equals profit (or loss). $27.00 − $26.25 = $.75 per share × 40 shares = $30.

What is the breakeven point on the following position? -Buy 1 CDE Apr 30 put at 3.10. -Write 1 CDE Apr 35 put at 5.85.

-$32.25 *This is a put spread established at a credit of 2.75. To find the break even point on a put spread, subtract the net premium from the higher strike price (in this case, 35 − 2.75 = 32.25).

If an investor buys 1 TIP Jul 60 call at 4 and sells 1 TIP Jul 50 call at 8.50, what will be the investor's overall net profit or loss if both calls expire unexercised?

-$450 profit

Your client's position is -Long 1 CYR 120 call at 4 -Long 1 CYR 120 put at 3 -Long 100 CYR purchased at 120 If the current market price of CYR is 120, what is the client's maximum possible loss?

-$700 *If the CYR stock drops to $0, the customer loses $12,000 on the long stock position, but retains the right to put the stock to someone at $12,000, to prevent loss beyond the premium of $300. The call would expire out of the money, for a total loss of $700.

Registered Representative 1, employed by Member Firm 1, sells a new equity issue to Registered Representative 2, employed by Member Firm 2. Which of the following have violated the rules designed to protect the public and abide by restricted persons prohibitions?

-1, 2, 3 ,& 4. (RR1, RR2, BD1, & BD2) *All of the parties are responsible for violating FINRA Rule 5130. The member firms, as well as the designated supervisors, are included for failing to supervise.

An investor purchases $5,000 of the Quality Performance Balanced Fund, an open-end investment company, on a Thursday. The order is time-stamped at 10:45 am ET. The Thursday morning financial pages show the fund's NAV at $9.60 and the POP at $10.00. The Friday morning financial pages show the fund's NAV at 9.84 and the POP at $10.25 per share. Approximately how many shares did this investor acquire?

-487.805 -Open-Ended orders are computer with the following POP price. Therefore, $5,000 / $10.25= 487.805 shares.

Under Subchapter M of the IRC, a REIT can avoid taxation if it receives at least ____ of its taxable income from real estate and distributes at least ____ of that income to shareholders.

-75% & 90%

Which of the following quotes represents a municipal dollar bond quote?

-85½ *Dollar bond quotes are based on a percentage of face amount (Par $1,000). Therefore, a quote of 85½ is 85½% of $1,000, or $855. Dollar bonds are also called term bonds.

Under Municipal Securities Rulemaking Board rules, which of the following would indicate a control relationship between a municipal dealer and an issuer?

-A dealer's officer sits on the issuer's board of trustees. *A control relationship exists if someone represents both an issuer and municipal securities dealer.

If a business owner's goal is to establish an entity that features ease in raising capital and limits personal liability, which of these entities is the most appropriate?

-A limited liability company (LLC) *If a businessowner's goal is ease in raising capital, the limited liability company (LLC) is preferable because it has no restrictions on the number or nationality of investors. While the regular or C corporate form is also preferable, the S form of corporation is limited to a maximum of 100 potential shareholders, none of whom may be a nonresident alien.

You have a high-income client who wishes to maximize his after-tax interest income. Which of the following investments might not meet your client's objective?

-AA-rated industrial development bond

A call is in the money when the market price of the underlying stock is?

-ABOVE the strike price. *A call option is in the money if the stock's current market price is higher than the option's strike price. The amount that an option is in the money is called the intrinsic value meaning the option is at least worth that amount.

All of the following will affect special memorandum account (SMA) in a short account except?

-Appreciation of CMV

One of your clients maintains a traditional IRA with your firm. The individual was born July 20, 1949. This individual's initial required minimum distribution (RMD) from the IRA must be made no later than?

-April 1st, 2022. *The SECURE Act requires any individual born after June 30, 1949, to begin taking RMDs not later than April 1 of the year after turning 72. This client will turn 72 on July 20, 2021, and the next April 1 is in 2022.

Which of the following are exempt from the registration provisions of the Securities Act of 1933?

-Bonds issued by the State of Alaska -Commercial paper maturing in 90 days.

One of your customers notices that the short interest on the NYSE is high. When she asks you for an interpretation, you should tell her that this signals?

-Bullish Market *Even though short interest represents the number of shares sold short, many investors consider it a bullish indicator when this number is high. Each share that has been sold short must be replaced (covered) at some point. To replace the stock shorted, an investor must go into the market to buy that stock. When all of those short sellers have to buy back stock they shorted, it puts upward pressure on the prices of those stocks.

Which of the following listed option orders can be combined to form a spread order?

-Buy 1 XYZ Jul 30 PUT -Sell 1 XYZ Jul 35 PUT *Spreads are deemed to be of the same class; class is defined as the same underlying security and the same type of option. Choices II and III would be a short straddle. The ABC call cannot be combined with anything, since you'd be combining ABC stock with XYZ stock.

An investor purchases 200 shares of ABC common stock, but is concerned about market risk. While the investor cannot use diversification to reduce market risk by investing in the same asset class, they can hedge against the risk. Which of the following options positions would be used as such a hedge?

-Buy 2 ABC Puts

An investor who believes the U.S. dollar will strengthen against the Canadian dollar should profit from which of the following strategies?

-Buying PUTS on the Canadian $ -Establishing a call credit spread on the Canadian dollar *The investor who is bearish on the Canadian dollar should buy puts, write calls, and call spreads. Short straddles pay off when the market does not move either way.

Many businesses open brokerage accounts to invest surplus funds. For which of the following business forms would suitability information on the owners not be required?

-C corporation *A C corporation is the only business form where the tax and other consequences of the account do not accrue to the individual owners. Can you imagine a well-known publicly traded corporation with several million shareholders opening an account where the registered representative would have to obtain suitability information on all of them? Even when it is a small business, because the C corporation is its own taxable entity, the suitability requirements are not as critical as with the pass-through businesses (partnerships, LLCs, and S corporations). Of course, the sole proprietorship is the individual, so that is where the suitability is focused.

The interest on which of the following instruments is subject to taxation at the federal, state, and local levels?

-CMO: Collateralized Mortgage Obligations *The interest on corporate debt securities is subject to taxation at the federal, state, and local levels, and collateralized mortgage obligation (CMOs) are issued by corporations. Interest on Treasury instruments is taxable at the federal level only. Interest on municipal instruments is exempt from taxation at the federal level and possibly the state level if the holder is a resident of the state of issue. Public HOUSING AUTHORITY bonds and revenue bonds are types of municipal issues, which are tax free at the federal level.

When analyzing a direct participation program investment, a method that takes into account the revenues and expenses is?

-Cash Flow Analysis *Revenues and expenses are cash items and would be analyzed by cash flow analysis.

A registered representative was researching ABC, a technology stock. When looking at a graph of historical prices, the rep noticed that the variance in price movement has shrunk. This is an example of?

-Consolidation

A registered representative is explaining the characteristics of a Coverdell Education Savings Account (ESA) to a customer. Which of the following statements regarding this type of savings account is correct?

-Contributions are not tax deductible. -When used for qualified educational expenses, withdrawals are not taxable. *Contributions to a Coverdell Education Saving Account (ESA) are made with after- tax dollars. Distributions used for qualified educational expenses are tax free.

A customer, long 100 shares of ABC at 73, writes 1 ABC Apr 75 call at 2 to generate additional income. ABC stock subsequently moves higher, at which time, the customer is exercised. For tax purposes, which of the following statements are true?

-Cost Basis is $73 per share -Sales proceeds are $77 per share *If a covered call writer is exercised, cost basis (for tax purposes) is the cost of stock purchased. Sales proceeds are adjusted (strike price plus premium) to reflect the premium received.

An employer-sponsored retirement plan that pays a specific benefit to participants at their normal retirement age is?

-Defined Benefit

Regulation BI contains four key component obligations. Which two of them apply to registered representatives?

-Disclosure Obligation -Care Obligation *The obligation to disclose all material information and to exercise reasonable diligence, care, and skill in making any recommendation apply to both the member firm and the registered representative. The Conflict of Interest Obligation and the Compliance Obligation belong to the firm. That does not mean you do not have an obligation to disclose any conflicts of interest. That is part of the disclosure obligation. The specified Conflict of Interest Obligation includes the written supervisory procedures and training the firm must provide. *This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.

The CAST Corporation's first mortgage bond has a 5% coupon and a yield to maturity of 7%. The bond is callable in 10 years at 103. The bond is trading at?

-Discount

ABC Corporation's earnings have increased in price by 10%, and its shares outstanding has increased 5%. This has what impact on ABC's EPS?

-EPS has increased. (EPS= Earnings / # of Outstanding shares)

In the assessment of a company's stock, a technical analyst takes into consideration all of the following except?

-Earnings (does consider: price, volume and price momentum) *A market technician (technical analyst) deals primarily with timing of activity and market trends, while a fundamental analyst centers on a particular industry or company within an industry and its relative health and market potential.

In an IRA, a 6% penalty will be levied if the account owner?

-Excess contribution.

Which of the following types of oil and gas limited partnership programs is the most risky?

-Exploratory

Which of the following are not included in a preliminary prospectus?

-Final public offering price -Effective (release) date

Collateralized mortgage obligations (CMOs) are a type of asset-backed security. What type of securities are frequently the assets behind a CMO?

-Ginnie Mae, Fannie Mae, and Freddie Mac products.

Purchasers of municipal revenue bonds are interested in knowing the priority of their claim on the revenues generated by the project. In general, the most senior position is held by?

-Gross Net Revenue *The simplest way to think about this question is to look at our paycheck. What is the higher number - your gross pay or your net (take-home) pay? You could also say, "Who has the first claim on my earnings?" The government and that is why the taxes come out of your gross paycheck rather than your net check. The concept is the same here. In a gross revenue pledge, interest to the bondholders is paid out of the gross revenues before any other deductions. In a net revenue pledge, certain expenses are paid first, and then, from what remains, the bondholders receive their due.

Two customers in their 20s, married only a few years, should select which investment for their IRAs?

-Growth-oriented mutual funds.

An order to sell at 38.65 stop limit is entered before the opening. The subsequent trades are 38.85, 38.50, and 38.35. The order?

-Has not yet been executed. *A stop limit order is a stop order that becomes a limit order once the stop price has been triggered. When the limit price is the same as the stop price on a stop limit order, the order may be executed only at, or better than, the limit price. In this case, the order has not yet been executed because no transaction has occurred at, or above, 38.65 since the stop was triggered at 38.50.

A performance-based management fee is normally associated with which of the following pooled investments?

-Hedge Fund

The risk of a bond decreasing in value during periods of inflation is known as?

-Interest Rate Risk *

If a customer is long ABC Sep 30 calls, and the stock becomes subject to a trading halt on the floor of the NYSE, the customer is permitted to?

-Issue exercise instructions *If trading in the underlying security is halted, options trading on that security is also halted. However, the customer may still issue exercise instructions to the OCC because this is an off-floor transaction.

A municipal revenue bond has a catastrophe call feature, but otherwise, is not callable. Which of the following statements regarding the features of this bond that must be described on a customer's confirmation is true?

-It need not be designed as callable *Catastrophe call provisions associated with municipal revenue bond issues are not included on customer confirmations. Only call provisions with specific dates are included on confirmations.

Three brothers open a joint account instructing you that if one of them dies, they want the cash and securities in the account to go to the remaining parties to the account. The account should be opened?

-JTWROS

An investor who purchased 100 shares of PERD common stock on June 30, 2020, would receive long-term capital gain treatment if the stock is sold at a profit starting?

-July 1st, 2021. *Investors must own a security for more than 12 months before it becomes long term for tax purposes. The first day after June 30, 2020, is July 1, 2020. Twelve months later is July 1, 2021. Remember, there is no June 31

An investor in an equipment-leasing direct participation program (DPP) using straight-line depreciation would probably not be concerned about?

-Likelihood of recapture *Recapture of deductions is a concern when accelerated, but not when straight-line depreciation is used. In any business, there is always concern about the quality of the management. By and large, DPPs are not liquid investments, so an investor needing a quick sale may have problems. The nature of DPPs tends to make them more sensitive to legislative risk than most other securities.

Which of the following orders is reduced on the order book on the ex-dividend date for a cash dividend?

-Limit order to buy(SLoBS / BLiSS) *Orders placed below the market (buy limits and sell stops) are automatically reduced on the ex-date. The exception to this rule is for orders marked DNR (do not reduce).

Many investors diversify by adding foreign securities to their portfolios. Those who do so with ADRs are least likely to be concerned with?

-Liquidity Risk

Stop orders may be used for each of the following except?

-Lock in a specific price to close out a *position.Stop orders are contingent orders that are triggered when the stock trades at or through a stated price. When triggered, they become market orders to buy or sell. They are used by technical traders to establish positions above or below resistance and support levels, respectively. Stop orders never guarantee a specific execution price.

Which of the following would protect a short May 50 put?

-Long 55 June PUT *For a long put to cover a short put, it must have the same or higher strike price and the same or longer expiration. This ensures the investor may sell the stock without financial loss if the short put is exercised and he is forced to buy.

A wealthy client owns a large percentage of a thinly traded common stock. When this client wants to sell a major portion of her securities, she will immediately face?

-Marketability Risk

A registered representative with discretionary authority requires customer authorization before purchasing?

-Municipal Bonds where a control relationship exists. *Even though the representative has discretionary authority to trade the account, the MSRB requires that the representative receive customer permission prior to purchasing bonds where the firm has a control relationship with the issuer.

An investor in which of the following products may not receive dividends?

-Oil & Gas Limited Partnership Interest.

Last-sale information is always available for all of the following securities except?

-Over-the-Counter (OTC), non-NASDAQ *Last-sale information is available for listed (exchange traded) securities and for all Nasdaq securities. While there are a number of sources for last sale information in general, it may not always be available for a security that is OTC non-Nasdaq.

A customer is receiving annuitized payments from a variable annuity. The annuitized payments are viewed for tax purposes as?

-Part earnings & part cost basis. *a variable annuity does not guarantee an earnings rate of return. a variable annuity guarantees payments for life. ... Annuitized payments from a variable annuity are viewed for tax purposes as part earnings and part cost basis. The earnings are taxable but the cost basis is returned tax free.

Which of the following mutual funds should an investment adviser representative recommend to a corporate client whose objective is current income with moderate risk?

-Preferred Stock Funds *Preferred stock generates current income in the form of dividends. Aggressive growth funds strive for capital appreciation rather than current income. Money market funds have low yields, not the high yields that an income investor wants. While high-yield bonds provide current income, they entail a high, rather than a moderate, degree of risk.

If interest rates fall, which of the following statements regarding collateralized mortgage obligations are true?

-Prepayment risk will increase. -Prices of each tranche will rise.

Which type of risk is a mortgage-backed security most likely to experience?

-Reinvestment Risk *A mortgage-backed security, such as a collateralized mortgage obligation (CMO), is most likely to experience reinvestment rate risk. As mortgages pd off early and refinanced in the event of declining interest rates, the interim cash flows received from the obligation must be reinvested in lower yielding securities.

The FINRA rule on communications would consider communications that are posted on an online interactive electronic forum (i.e., a chat room) to be?

-Retail Communication *This type of communication is included in the definition of retail communications. Unlike most retail communications, these chat room appearances do not need approval of a principal (although the firm would be wise to monitor the activity).

Which of the following transactions must occur in a margin account?

-Short Sale of Stock -Purchase of stock to cover a short position *Short sales must always occur in a margin account because the investor is borrowing stock from the broker/dealer. Covering must take place in the same account.

A new customer has been approved for all levels of options trading and has signed the options disclosure document. Even though approved for all levels of options trades, she notes that she will not be employing, and the registered representative (RR) should not recommend, any strategies with unlimited maximum loss potential. Given this criteria, an RR could suitably recommend?

-Short or Long SPREADs

Given the current business climate, an investor believes that a number of industries will be going through a consolidation over the next two to three years. Willing to invest $30,000 in the opportunity to profit if the consolidation occurs, which of the following would be the most suitable recommendation?

-Special Situation Fund *A special situation fund can be specific to mergers and acquisitions within a particular industry or among many and would be a suitable choice given the investor's opinion that consolidation may occur. Sector funds focus on only one industry or area and corporate bond funds would have no advantages in cases of industry consolidation. Purchasing standard option contracts on select companies only would be extremely speculative and their nine month life cycle would require that the positions be reinstated over a 2- to 3-year period adding to commission costs.

Due to a sudden drop in earnings, the board of directors of Amalgamated Metal Industries (AMI) has voted to suspend all dividend payments this year. This would have the least effect on holders of AMI's?

-Subordinated Debenture *Regardless of the level of seniority of a preferred stock, it comes behind any debt security. More importantly, interest on a debenture, subordinated or not, is a contractual obligation. Unlike the dividends on stock, the decision to pay or not to pay interest is not an optional one. Failure to pay interest on a debt security can lead to foreclosure and bankruptcy proceedings.

Traders in stock index options are exposed to?

-Systematic Risk

Index options are frequently used to protect a portfolio against which of the following risk types?

-Systematic Risk *Index options protect investor portfolios from the risk of overall market movement, also known as systematic risk.

When a member firm receives a written complaint against one of its representatives, the person first informed about the complaint is?

-The designated principal

If a customer holds certificates of beneficial interest in a real estate investment trust (REIT), all of the following statements regarding this investment are true except?

-The issuer must redeem certificates at shareholder request. *REITs are not redeemed by the issuer. REITS are publicly traded units that represent either an interest in pooled capital for real estate financing or an interest in real property and that pass through income and capital gains distributions to investors. Investors who wish to liquidate their interests must sell them in the secondary market.

If a customer places an order to sell 500 ABC at 46 stop limit, which of the following statements are true?

-The order will be elected at 46 or lower. -The order can be executed at 46 or higher. *Sell stop limits are placed below the current market and will be elected when the stock trades at or through (lower than) the stop price. Once elected, the order becomes a limit order to sell at 46 or better (higher).

An individual with $100,000 to invest will require these funds in six months for the purchase of a house. In which of the following circumstances did the registered representative act correctly?

-The registered representative convinced the client to invest in a Treasury bill on the basis of its safety.

All of the following records must be retained for three years except?

-Trade Blotters *firms must retain blotters containing all purchases and sales of securities for at least six years

Your customer wishes to lock in a long-term yield with minimal risk and is not interested in regular income. Which of the following securities should you recommend?

-Treasury STRIPS *The Treasury STRIPS is long-term, no-interim income, and has a locked-in yield since it is purchased at a discount from par. The T-bill is short term, the T-bond provides semiannual interest, and the corporate zero is riskier than the STRIPS.

A customer requests information on a variable life insurance policy and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted...?

-Under NO circumstances. *The prospectus is a legal document and may not be altered OR marked on.

If a writer of an XYZ equity call option is assigned, which of the following should be delivered to the Options Clearing Corporation?

-Underlying XYZ security *When a call is exercised, that specific security must be delivered by the assigned writer. The option contract does not allow for exercise settlement in cash, securities of equivalent value, or securities exercisable to purchase the underlying securities such as rights or warrants.

All of the following sources of revenue could be used to service general obligation debt except?

-User charges.

When must a new options customer return a signed option agreement?

-Within 15 days of account approval. *The option agreement must be signed and returned within 15 days of account approval.

Which of the following investors are bearish?

-Writer of a Call -Buyer of a Put

An investment adviser representative may describe dollar cost averaging to a customer as?

-a funding technique that will cause the average cost per share to be less than the average price per share.

When an institution wishes to take a large position in a municipal bond issue but does not want its activities to be well known, it will generally make use of?

-a municipal securities broker's broker.

All U.S. exchange-listed foreign currency options?

-are settled in cash (U.S. dollars). -expire on the third Friday of the expiration month. *US exchange listed currency options are settled in cash (US dollars) and expire on the Saturday following the third Friday of the expiration month, just like equity options do.

Once a variable annuity has been annuitized...?

-each annuity unit's value varies with time, but the number of annuity units is fixed. *Once a variable annuity is annuitized, the accumulation units are converted into a fixed number of annuity units. The value of these units varies with the performance of the separate account.

The Investment Company Act of 1940 has certain requirements for the board of directors of a mutual fund. The members of the board are...?

-elected by a vote of the shareholders.

If another member broker-dealer has already received clearance from FINRA for a retail communication, filing the piece with FINRA so that your broker-dealer can now use it?

-is not necessary if unaltered and used as originally intended. *If unaltered and used as it was originally intended, re-filing with FINRA is not required. If the piece had been altered or was intended to be used in a manner inconsistent with how it had been originally intended to be used, filing with FINRA would be required.

A registered representative's recommendations to a customer?

-must match the customer's risk tolerance and investment objectives.

The locate requirement of Regulation SHO for short sales does not apply to?

-nonconvertible bonds traded on the NYSE. *The locate requirement is applicable to all short sales of equity securities. It is unlikely to be tested, but, just in case, for purposes of this rule, convertible bonds are considered equity securities.

A technical analyst is concerned with all of the following trends except?

-price-to-earnings (P/E) ratios. *A technical analyst is interested in statistics about market or price performance, not the fundamental factors, the market, or the company's dividend policy.

If a customer is long 10 ABC Jul 50 calls at 4.50, the contracts give the holder?

-right-to-buy the stock.

Your client has purchased shares of VACL at several different times. A view of the client's account ledger indicates the following: -100 shares @$50 on February 12 -100 shares @$52 on April 23 -200 shares @$49 on May 12 -100 shares @$55 on June 28 -The client decides to sell 200 shares of the VACL on November 14 of the same year when the price of the stock is $53 per share. Tax consequences would be minimized if the investor?

-sold the shares purchased in June at $55 and the shares purchased in April at $52. *By using the identified cost method, the investor would sell the highest cost purchases. This would result in the lowest taxable gain (or perhaps even a loss). Average cost is only available for mutual funds.

One of the most popular index options is the VIX. The VIX trades on?

-the Chicago Board Options Exchange (CBOE).

All of the following statements regarding over-the-counter (OTC) markets are true except?

-the OTC market is an auction market

A qualified legal opinion issued for a municipal bond underwriting means that?

-the legal opinion is qualified with restrictions and conditions.

A municipal bond transaction is labeled T+2. This means that?

-the trade is settled regular way in two business days.

An agent has recommended investments in the XYZ Fund family to her customers for 10 years. She is referred by one of her customers to a prospect who has inherited $500,000 as the beneficiary of a life insurance policy. The prospect tells the agent he has never invested in the market before, is risk averse, and wants safety of principal to be the first priority, with liquidity second. The agent recommends the following investments: -XYZ government bond fund, B shares: $200,000 -XYZ large-cap growth and Income B shares: $150,000 -XYZ liquid reserve money market: $150,000 The recommendation is?

-unsuitable because it does not address the customer's two primary objectives. *The customer's objectives of safety and liquidity are not satisfied by these recommendations. The government bond fund and large-cap growth and income fund are both subject to market risk and, as Class B shares, are subject to a contingent-deferred sales charge in the event the customer wishes to access the funds before the back-end load expires. The back-end load is not consistent with the customer's liquidity objective.

When a customer enters a sell order and is in possession of the certificates, a broker-dealer must determine all of the following except?

-whether the transfer agent has accepted the securities.