Practice Test 3
A convertible corporate bond with a conversion price of $20 is trading at 115. The parity price of the common stock is: A) $23.00. B) $26.00. C) $20.00. D) $17.00.
A) $23.00. A conversion price of $20 means the conversion ratio is 50 (i.e., each bond can be converted into 50 shares of common stock). $1,150/50 = $23 parity price.
An investor owns $100,000 of convertible bonds with a conversion price of $50. By depositing these bonds into his account, how many covered calls could he write? A) 20. B) None. C) 2000. D) 50.
A) 20. These bonds are convertible into 20 shares for each $1,000, making a total of 2,000 shares. That's enough stock to cover 20 calls.
A customer entered an order to sell short 100 shares of ABC. The stock closed on Friday at 48.00. The stock will trade ex-dividend $.50 on Monday. At what price can the order be executed at the opening? A) Any price. B) 47.51. C) 47.49. D) 47.5.
A) Any price.
Which of the following provides a measurement of the volatility of a particular stock or portfolio as compared to the volatility of the market as a whole? A) Beta. B) Delta. C) Alpha. D) Duration.
A) Beta.
If a couple has a long-term growth objective and is willing to accept a reasonable amount of risk, which of the following mutual funds is most suitable for them? A) Common stock fund. B) Money market fund. C) Corporate bond fund. D) Municipal bond fund.
A) Common stock fund.
Which of the following balance sheet items is NOT a current liability? A) Mortgages. B) Long-term debt amount that is due within 1 year. C) Accounts payable. D) Accrued taxes.
A) Mortgages.
Which of the following choices does NOT influence the level of interest rates? A) New housing starts. B) Inflation expectations. C) Federal Reserve's monetary policy. D) Amount of loanable funds in the financial markets.
A) New housing starts.
Which of the following entities was created to protect investors who have money and/or securities on deposit at member firms? A) SIPC. B) AGA. C) ERISA. D) CU.S.IP.
A) SIPC.
All of the following are examples of short-term municipal obligations EXCEPT: A) SLGS. B) BAN. C) TAN. D) TRAN.
A) SLGS.
Regarding rules addressing acting in concert, each of the following must observe position and exercise limits EXCEPT: A) a registered representative accepting unsolicited orders to exercise options. B) two or more individuals who have an agreement to act together. C) an individual with accounts at several brokerage firms. D) an investment adviser placing exercise orders for his discretionary accounts.
A) a registered representative accepting unsolicited orders to exercise options.
Application for registration as a municipal securities registered representative must be accompanied by all of the following personal information EXCEPT: A) bank references. B) employment record for the previous 10 years. C) date of birth. D) residences over the past 5 years.
A) bank references.
The TIC method of evaluating municipal bids: A) considers the time value of cash flows. B) is required by the MSRB if a control relationship exists. C) is required by the MSRB if a financial advisory relationship exists. D) can only be used for term bonds.
A) considers the time value of cash flows.
An open-end investment company may do all of the following EXCEPT: A) issue bonds. B) redeem shares. C) borrow money. D) continuously offer shares.
A) issue bonds.
All of the following would flow through as a loss to limited partners EXCEPT: A) principal repayment on recourse debt. B) accelerated depreciation. C) depletion. D) interest payments on recourse debt.
A) principal repayment on recourse debt.
All of the following information must be disclosed on a municipal bond confirmation of sale EXCEPT: A) the dated date on a municipal bond that has been outstanding for two years. B) the source of revenue backing a municipal revenue bond. C) in-whole call dates. D) the name of the guaranteeing corporation in an industrial development revenue bond issue.
A) the dated date on a municipal bond that has been outstanding for two years.
An investor has researched XYZ Corporation and is convinced the company's stock will soon decline in value. If the investor wishes to act on that conviction, which investment strategy will allow the investor to take advantage of the anticipated decline in share value with the smallest cash investment? A) Purchase a call option B) Purchase a put option C) Sell the company's stock short D) Purchase a call spread
B) Purchase a put option
Level I Nasdaq service provides subscribers with all of the following information EXCEPT: A) last sale information. B) bid and ask quotes for each market maker. C) volume information. D) the inside market
B) bid and ask quotes for each market maker.
A member firm's customer is requesting that IRA contributions converted from a traditional IRA to a Roth IRA now be moved back to a traditional IRA. This is A) called a rollover and allowed by the IRS as long all requirements are met B) called a re-characterization and is allowed by the IRS so long as certain requirements are met C) called a re-characterization and is permitted under all circumstances and within any time frame D) never allowed under any circumstances
B) called a re-characterization and is allowed by the IRS so long as certain requirements are met
If interest rates are dropping, an investor with a maturing bond will be most concerned with: A) a negative yield curve. B) the difficulty in finding another investment with a like yield. C) a positive yield curve. D) the quality declining with the yield.
B) the difficulty in finding another investment with a like yield.
A corporation has a net income of $5.2 million after taxes. If 4 million shares of common stock are outstanding, the earnings per share is: A) $0.80. B) $5.20. C) $1.30. D) $1.78.
C) $1.30.
KLP Corporation has extensive investments in the stocks and bonds of other corporations. Its portfolio income this year amounts to $700,000 in interest income from bonds and $400,000 in dividend income from common and preferred stock. On how much of its portfolio income must it pay taxes this year? A) $300,000. B) $120,000. C) $820,000. D) $1.1 million.
C) $820,000. The corporate exclusion is 70% of dividend income; therefore, KLP must pay taxes on all $700,000 of its interest income, but only 30% (or $120,000) of its dividend income, for a total of $820,000.
If a customer has a restricted margin account with SMA of $2,500, how much must he deposit to purchase $10,000 worth of stock? A) 5000. B) 10000. C) 2500. D) 0.
C) 2500. The purchase of $10,000 requires a $5,000 deposit, which can be reduced dollar for dollar by the existing SMA.
An investor opens the following position: Write 1 CDE Oct 30 call at 3.30 Buy 1 CDE Oct 40 call at .10. The maximum gain is: A) unlimited. B) 1000. C) 320. D) 680.
C) 320. The maximum gain on a credit spread is the net credit received (3.30 − .10 = 3.20 × 100 shares = $320).
Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements? A) Reporting and disclosure. B) Vesting. C) Funding. D) Nondiscrimination.
C) Funding.
The holder of a variable annuity receives the largest monthly payments under which of the following payout options? A) Life annuity with period certain. B) Joint tenants annuity. C) Life annuity. D) Joint and last survivor annuity.
C) Life annuity.
A registered representative is preparing a power point slide presentation to be delivered in a live seminar for a group of invited institutional clients. To use the slides, they must be A) submitted to both FINRA and the SEC for pre-use approval B) submitted to the SEC for review and approval C) reviewed by a principal of the broker/dealer D) approved by FINRA in writing
C) reviewed by a principal of the broker/dealer
A customer buys a 20-year 7% bond on a 7.35 basis. The bond is callable in 6 years at 103, in 8 years at 102, in 10 years at 101, and at par beginning in the 12th year. The customer's confirm will show yield to the: A) 12-year put. B) 6-year call. C) 10-year call. D) 20-year maturity.
D) 20-year maturity.
A customer sells short 100 shares of XYZ Corporation at $78 per share. The support and resistance levels for XYZ are at $70 and $80, respectively. If he wishes to protect his position, which of the following is the best place to put in a buy stop order? A) 78.1. B) 70.1. C) 69.85. D) 80.1.
D) 80.1.
A customer has $150,000 in securities and $300,000 in cash with his brokerage firm. If the firm were forced to liquidate, how much of the account would be covered by SIPC? A) All of the securities and all of the cash. B) All of the cash and $250,000 of the securities. C) All of the cash and $300,000 of the securities. D) All of the securities and $250,000 of the cash.
D) All of the securities and $250,000 of the cash.
Which of the following strategies is intended to be profitable with either a significant upside or significant downside move in the underlying stock? A) Short straddle. B) Horizontal spread. C) Vertical spread. D) Long straddle.
D) Long straddle.
All of the following describe the price of a no-load mutual fund EXCEPT: A) NAV. B) bid. C) book value. D) POP.
D) POP.
The trust indenture of a revenue bond includes a statement explaining rates will be maintained at a level sufficient to cover the debt service and operating expenses. This statement would be found in that part of the indenture dealing with the: A) flow of funds. B) feasibility study. C) official statement. D) bond covenants.
D) bond covenants.
The largest portion of an underwriting spread is the: A) underwriting fee. B) stabilizing bid. C) manager's fee. D) concession.
D) concession.
Regulation T permits borrowing money for the purchase of each of the following EXCEPT: A) listed stocks and bonds. B) unlisted stocks and bonds. C) listed warrants. D) listed options with expirations of less than 9 months.
D) listed options with expirations of less than 9 months.
All of the following are types of oil and gas direct participation programs EXCEPT: A) developmental. B) income. C) combination. D) minimum guarantee wildcat.
D) minimum guarantee wildcat.
A client places a sell stop order good for the day only. Under NYSE rules, you must: A) partially write an order ticket and complete only upon execution. B) partially write an order ticket and complete the ticket before market close. C) write an order ticket only if the order is executed. D) write an order ticket upon receipt of the order.
D) write an order ticket upon receipt of the order.
In a municipal underwriting, the scale is I. used by the syndicate to determine the bid on a new issue. II. a list of the yield or prices at which the bonds will be offered to the public. III. used by the syndicate to determine the allocation priority of orders. IV. only used when underwriting term bonds.
I and II
Repurchase agreements, utilized by financial institutions to raise short term financing, include I. a clause stipulating no interest rate risk exists II. a clause stipulating no credit risk exists III. a repurchase price IV. a maturity date that may be fixed or left open
III and IV
A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client? A) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. B) Capital gains taxation on the earnings withdrawn in excess of the owner's basis. C) A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. D) A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis.
A) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis.
Which of the following occurs in a partnership account if one partner dies? A) The account is frozen until a new or amended partnership agreement is received. B) The surviving partners are considered joint tenants and receive the deceased partner's share. C) The surviving partners are considered joint tenants. D) The surviving partners receive the deceased partner's share.
A) The account is frozen until a new or amended partnership agreement is received.
Regular way settlement of the following transactions must settle on the third business day after the trade date EXCEPT: A) for a broker/dealer buying a Treasury bond for its own account. B) for a broker/dealer buying a corporate bond from another dealer. C) for a customer selling a municipal bond through a broker/dealer. D) for a customer buying closed-end fund shares through a broker/dealer.
A) for a broker/dealer buying a Treasury bond for its own account.
All of the following are characteristics of the Securities Investor Protection Corporation (SIPC) EXCEPT: A) it protects against losses produced by fluctuations in the market. B) it is not a regulatory authority. C) it is non-profit corporation funded by members. D) investors are insured up to $500,000 in assets, up to which only $250,000 may be for cash.
A) it protects against losses produced by fluctuations in the market. SIPC does not protect against losses produced by fluctuations in the market. SIPC a member funded corporation insures against broker default
The specialist (designated market maker) has all of the following responsibilities EXCEPT: A) preventing the stock price from falling. B) acting as broker for orders placed on the book. C) providing liquidity. D) handling odd-lot market orders.
A) preventing the stock price from falling.
Alpha Securities is the managing underwriter for a new issue of 1 million shares of ABC common on a firm-commitment basis. If part of the ABC issue remains unsold and results in a loss, the loss will be divided proportionately among the: A) underwriting firms. B) underwriting firms and the selling group firms. C) underwriting firms and the issuer. D) selling group firms.
A) underwriting firms.
A customer shorts 100 XYZ at 51 and buys 1 XYZ Aug 50 call at 4. The stock falls to 45, at which time the customer closes the options contract at 1 and covers his short position at the current market price for a: A) $400 loss. B) $300 gain. C) $400 gain. D) $300 loss.
B) $300 gain. The customer shorted stock at 51 and covered at 45 for a $600 gain, and then he bought a call at 4 and sold it at 1 for a $300 loss. Overall, the gain is $300.
As the initial transaction in a new margin account, your customer shorts 100 shares of DMF at 30. With Regulation T at 50%, he will receive a margin call for: A) 750. B) 2000. C) 3000. D) 1500.
B) 2000. 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.
If an investor opens a new margin account and sells short 100 shares of COD at 87.25, with Regulation T at 50%, what is the investor's required deposit? A) 2181.25. B) 4362.5. C) 8725. D) 2617.5.
B) 4362.5. The required deposit is calculated by multiplying the market value of $8,725 by the Regulation T requirement of 50% ($4,362.50).
Under the Uniform Gifts to Minors Act, how may stock subscription rights or warrants be handled in a custodial account? A) The rights may be exercised or sold only if the stock certificates are held in street name. B) The custodian may exercise or sell the rights as he deems prudent. C) The rights may be exercised or sold only if the donor is also the custodian. D) The custodian may not exercise or sell rights for a custodial account.
B) The custodian may exercise or sell the rights as he deems prudent.
How may a municipal firm retail customer gain access to an MSRB rule book? A) Only with the written permission of a principal. B) Upon request to the broker/dealer; no restrictions exist. C) Only with the verbal permission of a registered branch manager (sales supervisor). D) Only by writing the MSRB directly with a specific question involving an MSRB rule.
B) Upon request to the broker/dealer; no restrictions exist.
You and your spouse like to invest in option contracts. You each have separate individual accounts with different brokers for executing your trades. The current level of contract position limits for ABC stock is 75,000 contracts. Which of the following would be a violation of the contract limit? A) You are short 38,650 ABC calls; your spouse is short 36,345 ABC calls. B) You are long 37,650 ABC puts; your spouse is short 37,560 ABC calls. C) You are long 36,650 ABC calls; your spouse is long 38,350 ABC puts. D) You are long 37,950 ABC calls; your spouse is short 37,020 ABC calls.
B) You are long 37,650 ABC puts; your spouse is short 37,560 ABC calls.
Mutual fund Class B shares assess A) a front-end load B) a deferred sales load C) no load D) a level load
B) a deferred sales load
Client coverage under SIPC is $500,000 for: A) cash, commodities, and securities losses. B) cash and securities, with cash coverage not to exceed $250,000. C) securities losses and $500,000 for cash losses . D) securities losses only.
B) cash and securities, with cash coverage not to exceed $250,000.
All of the following MSRB Rules of Uniform Practice requirements may be altered by mutual agreement between dealers EXCEPT the: A) price and time of delivery. B) content of confirmations. C) terms of delivery. D) payment of shipping expenses.
B) content of confirmations
If a member firm suspends a registered representative, the member firm must report the suspension to the: A) SEC. B) designated examining authority. C) news media. D) state securities Commissioner.
B) designated examining authority.
When analyzing a company's balance sheet, you notice that it is using the first in, first out (FIFO) accounting method to value its inventory. This information is most likely shown A) at the end of the balance sheet in a summary statement required by the SEC B) in a footnote to the balance sheet C) next to the inventory listing in the current assets portion of the balance sheet D) on the cover of the balance sheet or at the top of the first page
B) in a footnote to the balance sheet
A registered representative has reproduced a research report prepared by an independent research analyst on his broker/dealer's letterhead, with no mention of the party who prepared the report. If this literature is forwarded to a select group of clients only, the registered representative's action is: A) allowed. B) not allowed. C) allowed with the written approval of a principal of the broker/dealer. D) allowed only if the research report has been filed with FINRA.
B) not allowed.
On the trading floor, the highest bid and offer receive first consideration. When several bids at the same price occur, the trade will be awarded based on: A) parity, precedence, then priority. B) priority, precedence, then parity. C) priority then precedence. D) priority then parity.
B) priority, precedence, then parity.
Qualified distributions from Roth IRAs are: A) 100% taxable. B) tax free. C) tax deferred. D) taxable only to the extent of earnings.
B) tax free.
If a customer submits a redemption order to her broker/dealer after the close of the New York Stock Exchange, she will receive a price based on the net asset value computed: A) the previous business day. B) the next time the fund computes it. C) within the next 2 business days. D) the same day regardless of when the order is received.
B) the next time the fund computes it.
All of the following can be advantages of buying an option contract EXCEPT A) leverage B) time value dissipation C) to position against a written option D) to limit risk
B) time value dissipation
Which of the following permits the highest annual contributions? A) A Coverdell Education Savings Account. B) A traditional nondeductible IRA. C) A SEP IRA. D) A traditional spousal IRA for which the contribution has been deducted.
C) A SEP IRA.
Which of the following would be the least considered factor in determining if a particular type of options trading is suitable for a customer? A) Understanding the strategy being employed B) Understanding maximum gain or loss potential C) Ability to meet margin calls D) Willingness to assume risk
C) Ability to meet margin calls
Which of the following plans is NOT required to meet the nondiscrimination provisions of ERISA? A) 403(b) plans. B) Keogh plans. C) Deferred compensation plans. D) 401(k) plans.
C) Deferred compensation plans.
Which of the following transactions is subject to the 5% markup policy on markups and markdowns? A) Mutual fund shares sold to the public. B) New issue corporate equity securities sold in a public offering. C) NYSE-listed stock traded in the third market. D) Municipal bond transactions.
C) NYSE-listed stock traded in the third market. The 5% policy applies to all exchange and OTC transactions in nonexempt securities. It does not apply to prospectus offerings (new issues and mutual funds). It does, however, apply to third-market trades.
Your customer has listed income and safety of principal as his primary investment objectives. Which of the following might be the least suitable recommendation? A) US government issued T-bonds B) GNMA securities C) Sovereign debt securities D) Preferred shares
C) Sovereign debt securities
Your customer is interested in up-to-the-minute price information and transparency of municipal securities transactions. This information is available through third-party data vendors with pricing information captured by: A) The National Quotation Bureau. B) Morningstar. C) The MSRB's RTRS (Real Time Transaction Reporting System). D) Thompson Muni Market Monitor
C) The MSRB's RTRS (Real Time Transaction Reporting System).
You have decided to open an UTMA account for your 10-year-old son. As you are completing the application to open the account, you are asked for a Social Security number. Whose Social Security number will be used to open the account? A) The parents' Social Security number. B) The custodian's. C) The beneficial minor's. D) The donor's.
C) The beneficial minor's.
When must a new options customer return a signed option agreement? A) At or before the customer receives the options disclosure document. B) Before the first order is entered. C) Within 15 days of the account approval. D) Before the account is approved by a registered options principal.
C) Within 15 days of the account approval.
A customer writes 1 XYZ Jul 70 call at 5 when XYZ is trading at 72. If the stock subsequently rises to 76 and the contract is exercised, the customer has: A) no gain or loss. B) a gain of $900. C) a loss of $100. D) a gain of $100.
C) a loss of $100. The customer was forced to sell stock at 70. To deliver the stock, the customer must buy it at the market for 76, for a $600 loss. However, the customer received a premium of $500 so the overall loss is $100. Alternatively, breakeven is 75 (strike price plus premium). Writers of calls, who are bearish, make money if the stock stays below the breakeven point. Above the breakeven point, writers of calls lose money. Because the contract was exercised when XYZ was 76 (1 point above the breakeven point), the customer has a $100 loss.
Your client informs you that a signed discretionary account form is in the mail. Before receiving the form and unable to contact the client, you notice that one of his stocks is dropping sharply on adverse news. You: A) can enter a discretionary order with instructions that the order is not held. B) can enter a discretionary order with written documentation of the situation. C) cannot enter a discretionary order. D) can enter a discretionary order with written permission of a principal of the broker/dealer.
C) cannot enter a discretionary order.
At 2PM ET a customer enters an order to buy GGZ at the close on the NYSE. GGZ traded between 70 and 71 all day. Then, after a last-minute rally, it closed up 4 points at 74. The customer should expect to pay the: A) average price calculated for the entire day. B) opening price the next morning. C) closing price. D) price as near to the close as possible, at the floor broker's discretion.
C) closing price.
An investor purchasing long-term AAA rated bonds should be concerned most with: A) reinvestment risk. B) marketability risk. C) inflation risk. D) no risk.
C) inflation risk.
A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has: A) greater exposure. B) a proportionately increased interest in the company. C) no effective change in the value of the position. D) a proportionately decreased interest in the company.
C) no effective change in the value of the position.
IRAs and Keogh plans are similar in each of the following ways EXCEPT: A) taxes on earnings are deferred. B) distributions without penalty may begin as early as age 59-½. C) the maximum allowable cash contribution is the same. D) rollovers are allowed once every 12 months and must be completed within 60 days.
C) the maximum allowable cash contribution is the same.
A customer buys a municipal bond regular way on Tuesday, December 23. The transaction will settle on the following: A) Tuesday. B) Friday. C) Thursday. D) Monday.
D) Monday. Municipal bonds, like corporate bonds, settle 3 business days after the trade date. December 25 (Christmas) is not a business day.
Which of the following is the largest component of a municipal underwriting spread? A) Management fee B) Additional takedown C) Concession D) Total takedown
D) Total takedown
A municipal bond is purchased in the secondary market at 102½. The bond has 5 years to maturity. Two years later, the bond is sold for 102. The tax consequence to the investor is: A) a capital loss of $20 per bond. B) no capital gain or loss. C) a capital loss of $5 per bond. D) a capital gain of $5 per bond.
D) a capital gain of $5 per bond.
Stockholders' preemptive rights include the right to: A) sell stock back to the issuing corporation. B) purchase treasury stock. C) serve as an officer on the board of directors. D) maintain proportionate ownership interest in the corporation.
D) maintain proportionate ownership interest in the corporation.
An insured municipal bond is purchased by your client in the secondary market. After the sale, MSRB rules would require you to: A) send a copy of the Official Statement. B) include a copy of the insurance policy with delivery of the certificates. C) indicate that the bonds are insured on the confirmation because this is the only requirement. D) make delivery of the certificates accompanied by evidence of insurance, either on the face of the certificates or in a separate document.
D) make delivery of the certificates accompanied by evidence of insurance, either on the face of the certificates or in a separate document.
T-bills are quoted: A) in 16ths. B) as a percentage of par. C) in 32nds. D) on an annualized discount yield basis.
D) on an annualized discount yield basis
Covered put writing is a strategy where an investor: A) sells a put and sells a call on the same stock. B) sells a put on a stock that he owns. C) sells a put and buys a call on the same stock. D) sells a put on a stock he has sold short.
D) sells a put on a stock he has sold short.
Under the Uniform Transfer to Minors Act, all of the following statements are true EXCEPT: A) only an adult may make a gift to a minor in a custodial account. B) an UTMA account may have only one custodian for only one minor. C) once a gift is given to a minor, it may not be reclaimed. D) the maximum amount of money an adult may give to a minor in any one year is an amount indexed for inflation.
D) the maximum amount of money an adult may give to a minor in any one year is an amount indexed for inflation.
Which of the following statements are accurate interpretations of FINRA rules governing the use of retail communications? I. Copies of all retail communications must be kept on file for 3 years. II. All retail communications must be approved by a principal. III. All retail communications must be filed with FINRA before first use. IV. Sales and product promotion materials distributed to registered representatives and other employees are retail communications and must be submitted for FINRA review, even though such materials are not intended for public distribution.
I and II
Which of the following two are NOT included in a preliminary prospectus? I. Final public offering price II. Effective (release) date. III. Intended purpose for the funds being raised. IV. Financial statements and history of the company.
I and II
In which of the following types of offerings does a brokerage firm have no financial obligation for unsold securities? I. All-or-none. II. Best efforts. III. Standby.
I and II In a best efforts underwriting, the underwriter serves as an agent with no financial obligation for unsold securities. In an all-or-none (AON) offering, the underwriter agrees to devote its best efforts to sell the issue, but the entire offering is canceled if all shares cannot be sold. In a standby underwriting, the underwriter agrees to purchase any unsold shares remaining after the expiration of a rights offering (firm commitment).
An underwriting bid for a municipal GO issue would include which of the following? I. The dollar amount. II. The coupon rate. III. The yield-to-maturity. IV. The underwriting spread.
I and II The only information the underwriter must furnish to the issuer is the dollar amount of the bid (the amount the issuer will receive) and the coupon rate (the amount of interest the issuer will pay). From this the issuer can determine the lowest net interest cost and award the bonds on that basis.
If an investment representative gave her retail customers copies of sales literature for a variable annuity she was recommending and promised to send the prospectus soon, which of the following statements are TRUE? I.She should not have distributed sales literature without the prospectus. II. It was okay to distribute the sales literature and send the prospectus later to those who were interested. III. She should not have recommended a specific variable annuity without having the prospectus available. IV. Because she only answered questions about the investment, she was not required to provide a prospectus.
I and III
The indenture of a revenue issue would ordinarily include which of the following covenants? I. Adequate insurance on the property II. An increase in property taxes if necessary to service the debt III. Proper maintenance of the property IV. Statutory debt limits
I and III
Which of the following statements regarding ADRs are TRUE? I. They are issued by large domestic commercial banks. II. They are issued by foreign banks. III. They facilitate U.S. trading in foreign securities. IV. They facilitate a foreign investor who wants to trade U.S. securities.
I and III
Which of the following statements regarding municipal revenue bond issues are generally TRUE? I. The bonds' feasibility is dependent on the earnings potential of the facility or project. II. The bonds are backed by unlimited taxing power of the issuer. III. User fees provide revenue for bondholders. IV. Revenue bonds are most suitable for investors with high risk tolerance.
I and III
Which of the following would NOT be examples of overlapping debt? I. Debt to build a state office building within city limits. II. Debt to maintain a county park district serving a municipality. III. Debt backed by two states cooperating in the construction of a bridge. IV. Debt for a high school district within city limits.
I and III
If a customer writes 1 ABC Jan 35 call at 13.50 and 1 ABC Jan 55 put at 12.50 when ABC is trading at 45, excluding commissions, this position will be profitable if ABC is: I. above 29. II. below 29. III. above 61. IV. below 61.
I and IV This is a short in-the-money combination. To compute the breakeven points, add the combined premiums (26) to the strike price of the call and subtract the combined premiums from the strike price of the put. The breakeven points are 61 (35 + 26) and 29 (55 − 26). With a short combination like a short straddle, the customer makes money if the stock stays inside the breakeven points.
A customer has realized a capital gain from the sale of a municipal bond. To reduce his tax liability, the capital gain can be offset against a capital loss in which of the following investments? I. GOs II. Equity securities. III. Corporate bonds. IV. Collateralized mortgage obligation.
I, II, III, and IV
Under SEC rules, a customer short sale on an exchange floor can be executed on which of the following? I. Plus tick. II. Zero-plus tick. III. Minus tick. IV. Zero-minus tick.
I, II, III, and IV
Which of the following applies to an open order to buy 600 WXYZ at 44? I. The order may be partially filled at the limit price or better. II. The order is entered in the order book. III. This is considered a market order. IV. It must be executed at the price specified or better.
I, II, and IV
A company may pay dividends in which of the following forms? I. Preemptive rights. II. Cash. III. Its own stock. IV. Its own bonds.
II and III
The Federal Reserve Board (FRB) has announced actions to increase the money supply. Which of the following would you expect to see increase first? I. Pass book savings account rate. II. Employment. III. Production. IV. Corporate profits.
II and III
The 5% markup policy applies to which of the following? I. Exempt transactions. II. Agency transactions. III. Principal secondary market trade. IV. New issues.
II and III The 5% markup policy applies to all secondary market transactions. It does not apply to exempt transactions, transactions requiring the delivery of a prospectus, or issues sold at a fixed offering price.
Collateralized mortgage obligation (CMO) tranche A has been created to have the most predictable near term principal pay off. A tranche set up in this way will have: I. the highest reinvestment risk. II. the least reinvestment risk. III. a higher yield. IV. a lower yield.
II and IV
Which of the following statements regarding recruiting advertising by FINRA member firms are TRUE? I. It must include the name of the broker/dealer. II. It may not contain exaggerated claims about opportunities in the securities business. III. Principal approval is not required. IV. During a firm's first year of business, it must be filed with FINRA.
II and IV
