Practice Exam
As a registered representative, you know that discretionary authority is required to follow certain types of customer instructions. One such instance would be if the customer asks you to: buy 500 shares of any technology stock before the end of the day. buy 100 shares of XYZ when you think the price is right. sell $5,000 worth of the customer's ABC energy mutual fund. sell all LMN shares in the customer's account at the best price you can get today
buy 500 shares of any technology stock before the end of the day.
The manager of an equity fund wishes to hedge the fund's portfolio against a possible market decline. Of the strategies listed, to provide the best protection the manager would: buy broad-based index puts. buy narrow-based index puts. buy broad-based index calls. buy narrow-based index calls.
buy broad-based index puts.
A U.S. importer orders computer components from a Japanese manufacturer with payment to be made in yen upon delivery. To hedge against the dollar weakening against the yen before payment is due, the importer should: buy yen calls. buy yen puts. sell yen puts. sell yen calls.
buy yen calls.
You are listening to another registered representative speak about Rule 147 offerings and recognize that one of his statements is incorrect. The representative INCORRECTLY states that: buyers of stock issued under Rule 147 are subject to a 1-year holding period before selling to a nonresident stock sold under Rule 147 is sold in an exempt transaction Rule 147 applies to intrastate stock offerings under one Rule 147 provision that can be met, an issuer must derive 80% or more of it's revenue from the state in which its principal office is located
buyers of stock issued under Rule 147 are subject to a 1-year holding period before selling to a nonresident
Regulations regarding employee eligibility under tax-qualified plans fall under which ERISA requirement? Nondiscrimination. Vesting. Funding. Reporting and disclosure.
Nondiscrimination.
A customer opens a new margin account and immediately purchases 200 shares of XYZ stock, which is trading at $9 per share. The customer must deposit: $1,800. $450. $900. $2,000.
$1,800.
An investor's margin account has a short market value of $9,000 and a credit balance of $13,000. Assuming Regulation T is 50%, a maintenance call will be triggered if the short market value increases above: $10,000. $9,000. $11,000. $13,000.
$10,000.
An investor writes 1 XYZ 180 call at 6.65. If the investor makes a closing purchase at the call's intrinsic value when the stock is at 184.75, he realizes a gain of $190 $147.50 $180 $265.25
$190
With ABC stock trading at 33.10, a customer buys 2 ABC Jun 35 puts at 4.35. What is the time value of each contract? $2.45. $0. $1.90. $4.90.
$2.45.
An investor contributes $200,000 in cash to an oil and gas partnership. The partnership has entered into a nonrecourse loan for $500,000. The customer's cost basis in the program is: $200,000. $300,000. $500,000. $700,000.
$200,000.
A customer has $10,000 of capital losses and $2,000 of capital gains this year. The tax consequences would be a: $3,000 loss deduction with a $5,000 loss carried forward. $10,000 loss deduction in the current year. $8,000 loss deduction in the current year. $3,000 loss deduction with no loss carried forward.
$3,000 loss deduction with a $5,000 loss carried forward.
A customer is short 200 shares of ABC at 32 and simultaneously writes 2 ABC Jan 30 puts at 2.50. The customer will break even on this strategy if the underlying stock subsequently trades at: $34.50. $29.50. $32.50. $37.00.
$34.50.
Firms are required to file suspicious activity reports for any behavior that seems commercially illogical or serves no apparent purpose. The filing threshold is triggered at what dollar amount? $5,000 $1,000 $10,000 $25,000
$5,000
Your 66-year-old customer invested $35,000 in a nonqualified variable annuity. It now has a value of $55,000, and your customer wishes to make a lump-sum withdrawal of $30,000. What is the tax liability that results if the customer is in the 28% tax bracket? $5,600. $0. $2,800. $8,400.
$5,600.
A customer has made payments totaling $14,000 into a nonqualified deferred annuity through a payroll deduction plan offered by his employer. With the annuity contract currently valued at $20,000, the customer plans to retire and chooses a lump-sum withdrawal. On what amount will the customer be taxed? $6,000 $0 $14,000 $20,000
$6,000
An affiliate of the issuer has held 150,000 shares of restricted stock for 18 months. There are 12.5 million shares outstanding, and, on average, 30,000 shares have traded each week over the past 4 weeks. Under Rule 144, the maximum number of shares the affiliate may sell over the next 3 months is: 125,000. 0. 30,000. 150,000.
125,000.
A customer writes 2 ABC Jul 15 calls at $2. What is the customer's breakeven point? 17. 13. 19. 22.
17.
XYZ Corp. declares a 4-for-3 stock split. An investor long 600 shares will receive how many additional shares? 200. 100. 300. 400.
200
To meet the initial Regulation - T call in a margin account, a customer could deposit 200% of the call in fully paid-for marginable securities. 50% of the call in cash. 50% of the call in fully paid-for marginable securities. 100% of the call in fully paid-for marginable securities.
200% of the call in fully paid-for marginable securities.
Under SEC rules, you must provide a new customer with a copy of the account record so that the customer may verify the information on it within how many days of account opening? 30. 15. 45. 60.
30.
The following information has been reported for ABC stock: Annual Dividend = $2 PE ratio = 20 EPS = $5 Closing price = $100 What is the dividend payout ratio? 40%. 20%. 30%. 50%
40%
On the CBOE, exercise of equity options must take place no later than: 5:30 pm ET on the third Friday of the expiration month. 11:59 pm ET on the Saturday before the third Friday of the expiration month. 4:10 pm ET on the third Friday of the expiration month. 4:00 pm ET on the third Friday of the expiration month.
5:30 pm ET on the third Friday of the expiration month.
A corporate officer has purchased shares of his company in the open market. In order to sell the stock of his company at a profit, the corporate officer may do so only after a holding period of at least: 6 months. 1 year. 2 years. 3 years.
6 months.
XYZ County Sewer Revenue 6.5% municipal bonds mature in 20 years. If they are currently offered at 92, they have a yield to maturity of approximately: 7.19%. 5.96%. 6.23%. 6.5%.
7.19%.
A client interested in Treasury bills asks you to explain their features. You could correctly explain that I. they are issued at a discount to par II. they are usually callable III. they have maturities of two years or more IV. they are direct obligations of the U.S. government
I and IV
A customer has substantial passive income from a real estate investment. Which of the following limited partnership programs is most suitable for this customer if he wishes to offset this income? An oil and gas exploratory program. An oil and gas income program. A government-assisted housing program. An equipment leasing program.
An oil and gas exploratory program.
One of your clients is an executive with a corporation that covers him under a nonqualified deferred-compensation plan. He expects to start receiving the money from the plan in about 8 years. At payout, how will the proceeds be taxed? As ordinary income. As a short-term capital gain. As a long-term capital gain. There are no taxes on deferred compensation.
As ordinary income.
For margin purposes, valuing a short position by marking to market will occur how often? At the close of each business day At the end of business each week on Friday No more than once per month Only in months when margin activity in the account will generate a statement to the customer
At the close of each business day
Which of the following is NOT a characteristic associated with auction rate securities (ARS)? Backed by the full faith and credit of the US federal government. Are long term securities that reset the rate paid at predetermined short term intervals. Have the risk of failed auctions. Use a Dutch auction method to establish a new clearing rate.
Backed by the full faith and credit of the US federal government.
Your new customer directs you to open a cash account. He wants to give trading authorization to his brother but does not want his brother to have any other authority in the account. The two required documents needed by your firm to open the account as directed would be a: I. margin agreement. II. new account form. III. full power of attorney. IV. limited power of attorney.
II and IV
A registered representative (RR) is explaining characteristics of Equity Linked Notes (ELNs) and Exchange Traded Funds (ETFs) to a new client. All of the following statements are true EXCEPT: Equity Linked Notes (ELNs) are equity instruments. Equity Linked Notes (ELNs) can be traded OTC or on a listed exchange. Exchange Traded Funds (ETFs) trade on listed exchanges much like stocks. Exchange Traded Funds (ETFs) can hold assets like stocks, bonds, or commodities or can track an index.
Equity Linked Notes (ELNs) are equity instruments.
A broker/dealer that is a financial adviser to a municipal issuer: I. cannot act as an underwriter of the issuers bonds in a negotiated underwriting and receive compensation for both services. II. cannot act as an underwriter of the issuers bonds in a competitive bid underwriting and receive compensation for both services. III. may always act as an underwriter of the issuers bonds in a negotiated underwriting and receive compensation for both services. IV. may always act as an underwriter of the issuers bonds in a competitive bid underwriting and receive compensation for both service.
I and II
When one of the partners in a partnership account dies, which of the following should be done by the registered representative (RR)? I. Cancel any unexecuted orders. II. Freeze the account while waiting for an amended partnership agreement. III. Liquidate the account and hold all assets as cash until further instructions are received. IV. Automatically retitle the account in the names of the remaining partners.
I and II
Which of the following 2 statements are TRUE of a leveraged exchange-traded fund (ETF)? I. The leveraged ETF shares may be purchased on margin. II. Securities within the leveraged fund portfolio may be purchased on margin. III. The leveraged ETF shares may never be purchased on margin. IV. Securities within the leveraged fund portfolio may never be purchased on margin.
I and II
A broker/dealer secures indications of interest during the cooling-off period for a new issue. These indications are: I. nonbinding on the broker/dealer. II. binding on the broker/dealer. III. nonbinding on the customer. IV. binding on the customer.
I and III
A customer's confirmation of a municipal securities transaction must include: I. the lowest potential yield the customer may receive. II. information regarding the catastrophic call provision. III. whether the bond is taxable or subject to the alternative minimum tax. IV. the amount of markup or markdown in a principal transaction.
I and III
A prerecorded webcast used for a broker/dealer's annual compliance meeting is I. allowed for registered representatives II. prohibited for registered representatives III. allowed for principals IV. prohibited for principals
I and III
A registered representative recognizes that certain actions are prohibited regarding an open-end investment company. Some examples of prohibited actions would be I. purchasing shares of an open-end investment company on margin II. an open-end investment company taking a short-term loan from a bank III. an open-end investment company taking a short position in one of its fund portfolios IV. an open-end investment company selling covered call options in one of its fund portfolios
I and III
An hour ago you entered a sell limit order for your customer in XYZ stock. Looking at a current quote, you could expect the order to have been executed if: I. the bid price for XYZ is higher than your customer's sell limit. II. the offer or ask price for XYZ is lower than your customer's sell limit. III. the last reported price in the stock is above the sell limit price. IV. the last reported price in the stock is below the sell limit price.
I and III
As a registered representative (RR), you need to be aware of signs that a customer may be engaged in money laundering. Among the many signs might be: I. a lack of concern about risk, commissions, or other transaction costs. II. orders for stocks not recommended by you or your firm. III. frequent moving of money between unrelated accounts. orders for non-exchange traded stocks exclusively or ADRs representing ownership in foreign companies.
I and III
Delivery of a prospectus to a customer is required for the purchase of: I. a U.S. government bond mutual fund. II. a fixed annuity. III. a new issue of corporate bonds. IV. a T-bill at the weekly auction.
I and III
Regarding the Bond Buyer's visible supply and placement ratio, municipal bond underwriters know that: I. a high placement ratio means the market for municipal bonds is strong. II. a high placement ratio means the market for municipal bonds is weak. III. a large visible supply means interest rates are likely to rise (bond prices will fall). IV. a large visible supply means interest rates are likely to fall (bond prices will rise).
I and III
Under the Investment Company Act of 1940, the term investment company would include a: I. unit investment trust. II. holding company. III. management company. IV. variable annuity.
I and III
A young unmarried couple wants to open a new account as joint tenants with rights of survivorship (JTWROS). A registered representative should: I. discuss the resulting consequences regarding an account set up as JTWROS should one of them die. II. file a report regarding the couples preference as to how the account is to be set up with FINRA III. refuse to open the account. IV. open the account.
I and IV
An investor has purchased ADRs to achieve portfolio diversification. Holding the ADRs in a portfolio entitles the investor to: I. dividends paid in U.S. dollars. II. dividends paid in the foreign currency. III. the ability to trade the ADRs on foreign markets. IV. the ability to trade the ADRs on U.S. securities markets. II and IV.
I and IV
Balance sheet items affected by the issuance of new common stock would be: I. total assets. II. current liabilities. III. retained earnings. IV. net worth.
I and IV
You are asked to read the preliminary prospectus for a new issue of common stock for a client. You would expect the preliminary prospectus to include: I. an overview and history of the issuer's business. II. the public offering price. III. the effective date of the offering. IV. the risks associated with the offering.
I and IV
Shareholder approval is required for an open-end investment company to: I. sell a security in the fund portfolio. II. change its investment objective. III. change from a diversified to a nondiversified company. IV. initiate an advertising campaign.
II and III
Which of the following does the capital asset pricing model (CAPM) assume? I. Investors are comfortable with risk. II. Investors are averse to risk. III. Investors believe that diversification can be used to reduce risk. IV. Investors believe that no type of risk can be diversified away
II and III
Under the Securities Act of 1933, SEC registration is required for I. government securities II. an offering of $20 million of corporate bonds III. public offering of $60 million by a brokerage firm IV. sales of corporate bonds of $52 million
II and IV
Which of the following statements regarding REITs and limited partnerships is TRUE? I. They both trade on securities exchanges and OTC. II. They both pass through investment gains to the investor. III. They both pass through investment losses to the investor. IV. They both have third-party management.
II and IV
Your customer has established the following spread: Long 1 ABC Jan 60 call at 5 Short 1 ABC Jan 70 call at 2 The customer will realize a gain at expiration if: I. the spread narrows to less than 3 points. II. the spread widens to more than 3 points. III. ABC trades below 63. IV. ABC trades above 63.
II and IV
A municipal securities advertising piece intended to be distributed to retail customers must be approved by: I. the MSRB. II. a municipal securities principal. III. a general securities principal. IV. a branch manager.
II or III
Your customers, with two children going to college in 4 and 8 years are planning to use an investment account to save for their children's college education. Which of the following investment choices would be best suited to meet their objective? Investment-grade corporate bonds having maturity dates aligned with the time of each child's expected college entry Certificates of deposit maturing every 6 months High-yield junk bonds with maturities coinciding with the children's expected college entry Money-market funds due to their portfolio structure consisting of short term debt instruments
Investment-grade corporate bonds having maturity dates aligned with the time of each child's expected college entry
You overhear the phone conversation of another RR discussing the purchase of exchange traded fund shares as opposed to mutual fund shares with a customer. The RR makes several statements, but one of them is incorrect. Which of the following is the incorrect statement? Just like mutual funds, ETFs use forward pricing so when you place an order it will be executed at the next calculated NAV for the fund. Remember that you can't buy mutual fund shares on margin, but you can for ETF shares. I know that you like to sell short sometimes which you can do with ETF shares. Unless an ETF makes a capital gains distribution, you don't have to be concerned with tax consequences until you sell your shares.
Just like mutual funds, ETFs use forward pricing so when you place an order it will be executed at the next calculated NAV for the fund.
A registered representative opens a new account for a customer with a profile detailing the following: Age 26, annual income $38,000, current savings of $12,000. During the new account interview the customer indicates that purchasing their first home within the next 2 to 5 years is a goal they hope to achieve. Given the customer profile and objective, which of the following would be the least suitable recommendation? Municipal bonds Balance mutual fund Large-cap equity fund Utility company stocks
Municipal bonds
Which of the following statements regarding the sale of restricted stock under Rule 144 is TRUE? Nonaffiliates are not subject to volume restrictions on stock held for more than 6 months. Affiliates are not subject to volume restrictions on stock held for more than 6 months. Affiliates are never subject to holding periods or volume restrictions. Form 144 must be filed with the SEC within 10 days of the date of sale.
Nonaffiliates are not subject to volume restrictions on stock held for more than 6 months.
Your broker/dealer has received via the automated customer account transfer system (ACATS) form ACAT instructing that one of your customers would like to have existing positions in their account transferred to their new broker/dealer. How long does your BD have to validate the positions listed on the form? One business day Three business days No later than the end of business on the Friday of the week form ACAT was received Seven calendar days from the time form ACAT is received
One business day
An investor wishes to invest in a limited partnership participation. Listing an investment objective of capital appreciation without producing currently taxable income, which of the following choices would be most suitable regarding the investor's criteria? Raw Land Oil and Gas Income Program Low Income Housing Equipment Leasing
Raw Land
A registered representative has prepared a sales piece for one of his retail customers demonstrating a trading strategy. Regarding the piece which of the following statements is TRUE? The piece will be regulated as correspondence. All material sent to individual clients must be submitted to FINRA before use. The piece must be approved by a principal prior to being sent to the customer. The piece will be regulated as a retail communication with the public.
The piece will be regulated as correspondence.
You have noticed an increase in the U.S. balance of payments deficit. This increase could be caused by: a decrease in purchases of U.S. securities by foreign investors. a decrease in imports of foreign goods into the U.S.. an increase in exports of domestic goods from the U.S.. a decrease in dividend payments by U.S. companies to foreign investors.
a decrease in purchases of U.S. securities by foreign investors.
Which of the following regarding exchange-traded notes (ETNs) is true? Their value can be impacted by changes in the issuers credit rating. They can only be traded on exchanges in after-hours trading sessions. They may never be issued by financial institutions. They are secured debt securities backed by government-issued bonds.
Their value can be impacted by changes in the issuers credit rating.
Your customer contacts you proposing to invest a large sum of money in 5 different mutual fund families using A-class shares. Which of the following is accurate and important to disclose to your customer regarding suitability and their proposal? They may not be able to receive sales breakpoints if they divide the investment among 5 different fund families. They will not be able to switch between different funds within each family. They should consider B class shares only if investing a large sum in order to avoid paying the sales charge up front. They will not be able to achieve diversification this way.
They may not be able to receive sales breakpoints if they divide the investment among 5 different fund families.
A corporation has declared a dividend record date of Thursday, May 18. When is the last day an investor may purchase the stock regular way and receive the dividend? Tuesday, May 16 Monday, May 15 Wednesday, May 17 Thursday, May 18
Tuesday, May 16
An investor with low risk tolerance is interested in purchasing a corporate bond. Given the investor's risk profile, a registered representative might consider recommending a bond with a short-term maturity an income-adjustment bond with a medium-term maturity a high-yield bond with a long-term maturity a bond with a low credit rating
a bond with a short-term maturity
In what is commonly known as a proceeds transaction, one of your clients is using the proceeds from the liquidation of one stock to purchase another stock. In compliance with the 5% markup policy for these transactions, the markup will be computed based on a combination of both the buy side and the sell side compensation to the dealer the markdown or compensation to the dealer on the sale side of the transaction the markup or compensation to the dealer on the buy side of the transaction the compensation to the dealer for each side of the transaction separately
a combination of both the buy side and the sell side compensation to the dealer
Your customer has a discretionary trading account with your municipal firm. According to MSRB rules, customer authorization is required for a purchase of municipal securities in which there is a control relationship between the issuer and your firm a purchase of municipal securities rated lower than BBB a purchase or sale of a municipal bond fund containing no bonds issued by the customer's state of residence any transaction in newly issued municipal bonds
a purchase of municipal securities in which there is a control relationship between the issuer and your firm
A customer who is long 500 shares of XYZ writes 7 calls against the position. This is an example of: a ratio write. portfolio insurance. a vertical spread. a long straddle.
a ratio write.
A violation of MSRB rules would occur if: a representative gave a gift to an associated person of another broker/dealer that was valued just under $250. an associated person held a joint account with a spouse. a registered representative recommended geographic diversification to limit risk. a representative made a recommendation to a customer after gathering information about their financial status, tax status, investment objectives, and other holdings.
a representative gave a gift to an associated person of another broker/dealer that was valued just under $250.
Your customer wishes to exercise a long call. He will realize a profit on this transaction if the price of the underlying stock is: above the exercise price by more than the premium paid for the call. below the exercise price by less than the premium paid for the call. below the exercise price by more than the premium paid for the call. above the exercise price by less than the premium paid for the call.
above the exercise price by more than the premium paid for the call.
Your customer, age 46, has been investing money in a variable annuity for several years. He plans to stop the deposits in order to meet current financial obligations but does not intend to withdraw any of the funds already invested until retirement, which is still several years away. Until the withdrawals are made, the client will be holding: accumulation units. accumulation shares. mutual fund units. annuity units.
accumulation units.
With regard to convertible bonds, one characteristic of which your clients should be aware of is that: although they trade in line with the issuer's common stock, they are less volatile than the common shares. they generally pay a higher interest rate than nonconvertible bonds. the holder will always have the choice to convert to the issuer's preferred shares or the issuer's common shares, whichever suits them best. convertible bonds are classified as equity instruments.
although they trade in line with the issuer's common stock, they are less volatile than the common shares.
A mutual fund is required to inform shareholders of their right to reinvest dividends at net asset value (NAV) annually. at the time of the dividend distribution. with each account statement. quarterly.
annually.
A U.S. investor owns a bond issued by a foreign government. The net tax liability to the investor for any interest earned is: any U.S. income tax due, credited by any amount of foreign income tax withheld. zero, because there is no tax liability to U.S. investors who purchase foreign government issues. the total of both foreign and U.S. income tax due. any foreign income tax due, but not U.S. income tax.
any U.S. income tax due, credited by any amount of foreign income tax withheld.
A customer of a broker dealer has a portfolio of investments where expected cash flow from numerous small loans, leases or credit card debt via a process known as securitization back the securities. These securities are best described as asset-backed securities high yield bond options commodity options stock rights
asset-backed securities
After providing a firm quote to another broker/dealer, an OTC market maker then refuses to honor the bid price quoted. The market maker has committed a violation known as: backing away. freeriding. crossing quotes. interpositioning.
backing away.
A registered representative is the subject of a disciplinary action that results in a fine and a 60-day suspension of registration. During the 60-day suspension period, the registered representative may: be paid for business generated before the suspension date. only perform investment advisory services. only perform clerical or administrative functions for the member. be paid for business they refer to other registered representatives while serving the suspension.
be paid for business generated before the suspension date.
Comparing the year-end balance sheets from one year to the next for XYZ Corporation, you notice that shareholder equity has been diluted over the past year. A dilution of shareholder equity could occur because of a: conversion of convertible corporate bonds. stock split. stock dividend. corporate debt refunding.
conversion of convertible corporate bonds.
All of the following statements regarding corporate debt are true EXCEPT: corporate bonds generally have lower yields than municipal bonds. municipal bonds are generally considered safer than corporate bonds. interest income on corporate bonds is fully taxable. commercial paper is sold at a discount and pays all interest at maturity.
corporate bonds generally have lower yields than municipal bonds.
When investing in a DPP, an investor should know that some asset types cannot be depreciated or depleted. One example of such an asset would be: crops. oil. gas. buildings.
crops.
Your customer wants to buy 1,000 shares of XYZ stock and has entered a not-held order with instructions to you to purchase the stock when you feel the price looks right. Under the rules, this order will be treated as a(n): day order. GTC order. limit order. IOC order.
day order.
Upon assignment, the writer of an exchange listed equity call option must deliver the underlying stock within two business days deliver the underlying stock within one business day pay for the underlying stock within one business day pay for the underlying stock within three business days
deliver the underlying stock within two business days
Your customer has just purchased three State of Maine 4.8% new issue municipal bonds maturing in 2026. MSRB rules require a final official statement be: delivered to customers on or before the settlement date. sent to the customer before the order was placed. sent to customers on or before the trade date. delivered to customers only if the customer requests it to be.
delivered to customers on or before the settlement date.
A client, age 52, wants to know if there are any circumstances that will allow withdrawals from his IRA without penalty. One example you could give is: disability. debt reduction. unemployment. vacation home purchase.
disability.
A toll road authority issues a revenue bond that is backed by the revenue stream a roads toll produces and by the state. This bond is categorized as a(n) double-barreled bond. industrial revenue bond. overlapping debt issue. moral obligation bond.
double-barreled bond.
A third-market trade is best defined as: exchange listed stock that has traded over-the-counter. a trade in unlisted stock between institutional investors. a block trade of more than 100,000 shares that is not reported to the consolidated tape. a trade of a non-Nasdaq stock on the OTCBB.
exchange listed stock that has traded over-the-counter.
Your client asks you to explain a not-held order. You could correctly explain that a not-held order gives time and/or price discretion to the floor broker can only be done in a discretionary account must be executed immediately and in its entirety can be filled only on the last trade of the day
gives time and/or price discretion to the floor broker
You hear a registered representative speaking with a customer about hedge funds. He makes several statements, all of which are true EXCEPT hedge funds are suitable for most investors because their objective is to hedge against risk hedge funds are not regulated under the 1940 Investment Company Act hedge funds sometimes trade portfolio assets on margin and will short positions as well hedge funds often employ the use of derivative products in their portfolios such as options and futures contracts
hedge funds are suitable for most investors because their objective is to hedge against risk
An associate of a broker/dealer engaged in municipal securities activities such as soliciting municipal bond business but is not involved in retail sales is known as a municipal finance professional (MFP) is required to be employed by the Municipal Securities Rule Making Board (MSRB) is required to be an elected official of a municipality may sell municipal bonds to professional bond traders only
is known as a municipal finance professional (MFP)
A website maintained by a fund company shows that one of the company's mutual funds currently has an NAV of $9.50 and a POP of $10 per share. Your client sees this information and enters an order to make a $10,000 purchase. He asks you to calculate the number of shares he will be able to buy with today's investment. You would respond that it cannot be determined until after the order is processed by the fund at the next calculated (forward) price based on the $10 POP he will be receiving exactly 1,000 shares into his account immediately based on the $9.50 NAV he will be receiving exactly 1,052.63 shares into his account at the end of the day based on the 5% sales charge he will be receiving exactly 950 shares into his account immediately
it cannot be determined until after the order is processed by the fund at the next calculated (forward) price
With the underlying stock at $37, an ABC Jan 35 call is trading at $2. All of the following statements regarding the option are true EXCEPT: it has time value. it is in the money. it is at parity. it is trading at breakeven.
it has time value.
Short against the box is a strategy that can be used to lock in a capital gain and defer taxes arbitrage the price of a security trading in two different markets hedge short stock positions with options avoid the locate requirement when selling stock short
lock in a capital gain and defer taxes
You believe XYZ stock will be rising and want to recommend a spread position to your client that would be profitable if it does. Of the positions listed, you would recommend that the client go: long 1 XYZ Jan 30 put and short 1 XYZ Jan 40 put. long 1 XYZ Jan 40 call and short 1 XYZ Jan 30 call. short 1 XYZ Jan 30 call and long 1 XYZ Jan 50 call. short 1 XYZ Jan 40 put and long 1 XYZ Jan 50 put.
long 1 XYZ Jan 30 put and short 1 XYZ Jan 40 put.
Your customer wants you to recommend an option strategy that will prove profitable in a highly volatile stock, regardless of which direction the stock price moves. To suit the client's objective, you should recommend a: long straddle. debit put spread. credit call spread. short straddle.
long straddle.
It is determined just before an issuer's IPO that, for health reasons, their CEO will be unable to continue in that capacity and will resign. Under these circumstances, the clause in the underwriting agreement that may release the underwriters from their obligation to underwrite the new issue is the: market-out clause. hold-harmless clause. catastrophe clause. indemnification clause.
market-out clause.
While looking at a report of trades that had been executed for your customers in the secondary market, you would NOT see included mutual fund shares American depositary receipts agency securities municipal bonds
mutual fund shares
A customer purchases a corporate bond at a price of 105. The bond has a 7% coupon, matures in 10 years, and is callable at par in 5 years. The highest yield is nominal or coupon yield current yield yield to maturity (YTM) yield to call (YTC)
nominal or coupon yield
If a yield curve is moving from flat to one which has short-term interest rates lower than long-term interest rates, this new yield curve shape is considered to be: normal. inverted. adverse. parallel.
normal.
A registered representative (RR) recommends an AAA rated municipal GO bond for the investment account of one of his clients. The client profile shows the customer is 25 years old, is in a low income tax bracket, and has an aggressive long-term growth objective. This recommendation is not suitable because municipal bonds do not align with the client's objective and profile suitable because municipal bonds will pay this customer, who is in a low income bracket, tax-free interest payments suitable because municipal bonds provide portfolio diversification in any investment account not suitable because municipal bonds never belong in an investment account
not suitable because municipal bonds do not align with the client's objective and profile
One of your clients, age 42, wants to withdraw funds from a Keogh plan and wants to know the tax liability for the withdrawal. You explain that the withdrawal will be taxed as: ordinary income plus a 10% penalty. capital gains. ordinary income. capital gains plus a 10% penalty.
ordinary income plus a 10% penalty.
A bond is quoted as QRS Zr 09. This quote tells an investor that the bond: pays no interest until maturity. pays interest semiannually. pays interest annually. is backed by the U.S. government
pays no interest until maturity.
On the basis of a registered representative's (RR) recommendation, a customer buys shares of ABCD stock at $10 per share. Several months later, the stock is trading at $3.75 per share. The representative offers to buy the stock back from the customer for his own account at $9 per share. This action is: prohibited because it is a guarantee against loss, which is a violation of the Conduct Rules. permitted because the representative is purchasing the stock for his own account, not the account of the firm. permitted with prior permission of a principal. a violation of the Uniform Practice Code.
prohibited because it is a guarantee against loss, which is a violation of the Conduct Rules.
Your customer has purchased a fixed annuity as a way to supplement retirement income. With this type of contract, the customer is assuming: purchasing power risk. investment risk. mortality risk. selection risk.
purchasing power risk.
An investor who purchases Treasury STRIPS is least affected by: reinvestment risk. market risk. interest rate risk. inflation risk.
reinvestment risk.
Your customer is an officer of XYZ Corporation and casually mentions that XYZ plans to announce the takeover of a rival company next week. On the basis of your knowledge of this information, you should: report your knowledge of this information to your principal. purchase shares of XYZ for your discretionary accounts. recommend to existing customers who already have positions in XYZ that they purchase more shares. report the information to the Federal Communications Commission (FCC).
report your knowledge of this information to your principal.
In a discussion about different types of risks with a customer, you would describe credit risk as the: risk of loss due to an issuers default. danger of not being able to close a position quickly. unfavorable tax treatment of an investment due to tax law changes. risk that interest rates might fall.
risk of loss due to an issuers default
ABC stock is going ex-dividend today, and certain orders on the order book must be reduced prior to the opening. For a cash dividend of .12, which of the following orders would be reduced? sell 100 ABC at 45 stop. sell 100 ABC at 50. buy 100 ABC at the market. buy 100 ABC at 50 stop
sell 100 ABC at 45 stop.
The Federal Reserve wants to tighten credit to help prevent and slow down inflation. One way the Federal Reserve might accomplish this is to: sell U.S. government securities in open market operations. lower the discount rate. lower reserve requirements. buy U.S. government securities in open market operations.
sell U.S. government securities in open market operations.
Certain order types, when executed, tend to accelerate a bearish market. This is TRUE of: sell stops. buy limits. sell limits. buy stops.
sell stops.
A customer has entered a day order to buy XYZ at 31.50. An hour before the market closes she calls you and says that she is considering changing the order to a GTC order. You tell her that: she should consider leaving the day order entered for the remainder of the day, and if left unexecuted, should enter a GTC order in the morning so that her existing day order would not lose its priority before today's close. the mandatory service charge for canceling and replacing imposed by all exchanges makes this order replacement strategy too costly to be of benefit. this is a good strategy, but order replacements must be verified in writing by the customer. she should consider entering another day order tomorrow morning because day orders have preference in execution over GTC orders.
she should consider leaving the day order entered for the remainder of the day, and if left unexecuted, should enter a GTC order in the morning so that her existing day order would not lose its priority before today's close.
A mutual fund portfolio consists entirely of stocks of companies with either new products just released in the market place or companies holding patents pending. Of the choices below, this mutual fund is best described as a: special situation fund. dow theory fund. index fund. combination fund.
special situation fund.
Corporate interest and dividend distributions are required to be paid in a certain order. Of those listed below, the last to be paid would be: straight preferred stock dividends. interest on subordinated debt. cumulative preferred stock dividends. interest on convertible bonds.
straight preferred stock dividends
Regarding risk, traders in index options are most exposed to systematic (market) risk credit risk purchasing power risk business risk
systematic (market) risk
A customer wants to switch between two different mutual funds within the same fund family. Regarding the tax consequences of the switch, you should advise the customer that: tax will be due if the shares to be sold have appreciated above cost basis. taxes will be due on the entire amount of the transaction, both cost basis and any gains. there will be no tax liability if the fund purchased is held for more than 1 year. there will be no tax liability on the switch if the customer opts to have all distributions made by the new fund reinvested.
tax will be due if the shares to be sold have appreciated above cost basis.
A broker/dealer wants to reference its membership with FINRA on its website. Regarding the reference all of the following are true EXCEPT the FINRA reference is intended to demonstrate that the BD has the approval of FINRA in all of its business dealings if the FINRA reference is made a hyperlink to the FINRA website is mandated by FINRA the reference to FINRA or its logo may not appear in a typeface larger or more prominent than the BD's own logo or name there is no requirement that any FINRA member BD reference FINRA by name or logo on its website
the FINRA reference is intended to demonstrate that the BD has the approval of FINRA in all of its business dealings
Approval of a new options account by a principal may occur before: the customer has verified information on the new account form. the customer has provided essential suitability information. the customer has been furnished an options disclosure document. the new account form has been completed.
the customer has verified information on the new account form.
Your customer has just signed a limited partnership agreement. Regarding the signing of this agreement, it is important for the customer to know that: the customer will be considered a limited partner only after the agreement has been signed by the general partner. the representative, customer, and general partner are required to sign before the customer can become a limited partner. a new agreement is required anytime assets in the partnership are bought or sold. a copy of the agreement signed by all partners must be filed with the SEC.
the customer will be considered a limited partner only after the agreement has been signed by the general partner.
XYZ, Inc. has 5 million shares outstanding and will issue 1 million shares of new stock through an upcoming rights offering. Regarding the rights offering, a registered representative should know that: the exercise price is generally lower than the current market price at issuance. the value of the right after the ex-date can be found by using the cum rights formula. XYZ will issue 1 million rights. an investor will generally have 2 to 3 years to exercise the rights
the exercise price is generally lower than the current market price at issuance.
Your client is opening an UTMA account for his 8-year-old son. To complete the application to open the account, you ask your client for the Social Security number of: the minor (beneficial owner). the custodian. the donor. the custodian and the donor (if different).
the minor (beneficial owner).
One of the unique characteristics of a defined benefit pension plan is that: the services of an actuary are required. the distributions are tax free. this plan favors younger employees or those farther from retirement. contributions vary depending on corporate profits.
the services of an actuary are required.
All of the following are accurate statements regarding communications filing requirements with FINRA EXCEPT there are no requirements to file any sales or advertising piece with FINRA retail communications can be subject to filing with FINRA correspondence pieces are not subject to filing with FINRA pieces intended for institutional customers need not be filed with FINRA
there are no requirements to file any sales or advertising piece with FINRA
Your customer has purchased a 5.8 % LMN corporate bond in a regular way transaction. Settlement for this bond trade is trade date plus two business days trade date trade date plus one business day trade date plus five business days
trade date plus two business days
You use fundamental analysis to help make investment decisions. For this type of analysis, you would NOT be interested in: trading volume and price patterns. positioning of a company within its industry. current business conditions. corporate financial statements.
trading volume and price patterns.
A 2X leveraged inverse ETF tracks an index that has recently fallen 2%. If the ETF was priced at $25 per share before the drop in the indexes price, where should the ETF be priced now, assuming the ETF portfolio performed as intended? up $1 per share up $4 per share down $1 per share down $2 per share
up $1 per share
