S7 - Assessment MC Questions
The duration of a bond will be the same as its maturity when the bond is
zero coupon bond
Which of the following positions is referred to as a collar? A) short puts and long calls on the same security B) short stock and short puts on the same security C) long calls and short calls on the same security D) long stock, long puts, short out of the money calls on the same security
A collar is commonly used to protect profits earned from a long stock position. It is established by going long the stock, long a put, and going short a call. Both options are usually out-of-the-money when the position is opened
The value of the Dow Jones Averages would be most affected by a change in the value of which of the following stocks? A) Industrial B) Transportation C) Growth D) Utility
A) Industrial The Dow Jones Industrial Index consists of 30 stocks, the Transportation Index consists of 20 stocks, and the Utility Index consists of 15 stocks. The Industrial Index contains the greatest number of securities and therefore has the largest influence on the index as a whole.
n the process of collecting information about a new customer, the client asks you whether a particular security is right for him. Which of the following items is least relevant when making this determination? A) Age of dependents B) Liquidity needs C) Risk tolerance D) Investment experience
A) Age of dependents
A registered representative sees a posting online concerning one of her customers who, according to the post, has recently passed away. What is the first step the RR should take? A) Attempt to verify that the individual has passed away. B) Cancel any open orders attached to this account. C) Revoke the power of attorney on the account. D) Mark the account deceased.
A) Attempt to verify that the individual has passed away. Any information found online concerning a customer should always be verified for accuracy before any further action is taken.
Which of the following statements would constitute a valid reason for investing in Eurobonds? A) Eurobonds can provide diversification to a portfolio. B) Eurobonds are traded in an unregulated market free from government intervention C) Eurobonds can be purchased more inexpensively than comparable U.S. bonds. D) Eurobonds can provide an exchange rate hedge against a fall in the U.S. dollar.
A) Eurobonds can provide diversification to a portfolio.
With respect to a margin account, which of the following statements is correct? A) Interest charges and purchases using SMA will increase the debit balance B) Cash dividends and interest payments increase the debit balance C) Interest charges will reduce the debit balance, assuming they are paid before the next statement period D) Cash dividends will reduce the debit balance only if they are reinvested
A) Interest charges and purchases using SMA will increase the debit balance Payments of cash dividends or interest will reduce the debit balance, while interest charges and additional purchases will increase the debit balance.
Which of the following best describes the Alternative Minimum Tax (AMT)? A) It is a process that determines tax liability by including certain tax preference items into adjusted gross income. B) It is a provision in the tax code that establishes minimum income tax payments for those individuals earning at least $500,000 annually. C) It is assessed on all taxpayers with estates valued at least one million dollars. D) It is a standard in the tax code that eliminates all standard tax deductions for investors.
A) It is a process that determines tax liability by including certain tax preference items into adjusted gross income. The main purpose of AMT is to ensure that all taxpayers pay a minimum amount of taxes every year.
XYZ Securities is developing a new structured product which is being built with a "0% floor". In the event the underlying security declines in value post the launch of the structured product, the return of the new product A) may return 0%, but not a negative amount. B) can never fall below par value. C) could decline based on an algorithm built into the structured product. D) will increase at a slower rate based on the level of decline of the underlying security.
A) may return 0%, but not a negative amount
A 77-year-old client has historically adopted an aggressive investment attitude, but when the client recently called to place a trade, he seemed very confused. The RR should A) notify the trusted contact person on the account. B) ask a colleague what to do. C) receive principal approval prior to placing the trade. D) place a freeze on the account.
A) notify the trusted contact person on the account.
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) the name of the guaranteeing corporation in an industrial development revenue bond issue. D) in-whole call dates.
A)the dated date on a municipal bond that has been outstanding for two years.
A bond analyst checking a general obligation municipal bond will examine the I. Past performance of the payment of interest II. Per capita income of the citizens III. Population growth of the area IV. Industrial development of the area
ALL
ABC Company currently has earnings of $4 and pays a $.50 quarterly dividend. The market price of ABC is $40. What is the current yield? A) 10% B) 5% C) 1.25% D) 15%
Answer Explanation: Current yield = annual dividend/current market price. The annual dividend of ABC is $.50 quarterly dividend x 4 = $2.00. Current yield = $2.00/$40.00 = 5%
The city of Austin (population 10,000) has just issued $1 million in general obligation bonds and already has an outstanding GO debt of $2 million. The city is located in a municipal county with $1,500,000 in debt outstanding, most of which is funded from ad valorem taxes. Austin makes up 70% of the county. What is the net direct debt per capita of Austin? A) $150 B) $300 C) $450 D) $405
Answer Explanation: Net direct debt = Total debt - self-supporting debt - sinking fun d accumulations. Total debt = $3,000,000. There are no sinking fund accumulations or self-supporting debt. Net direct debt per capita = $3,000,000/10,000 = $300
A client's margin account has $650,000 across 3 different securities positions, a debit balance of $275,000, and an SMA balance of $125,000. In the event of the bankruptcy of the broker-dealer, SIPC will cover this client for
B) $375,000.00 In a margin account, SIPC will cover the net equity in the account. In this example, we subtract the debit balance of $275,000 from the market value of $650,000, to arrive at the net equity position of $375,000. SMA is not covered by SIPC.
An investor seeking a high degree of cash flow predictability while being willing to accept relatively lower yields would be most likely to purchase a A) Z-tranche. B) PAC tranche. C) TAC tranche. D) floating rate tranche
B) PAC tranche.
The price of a convertible bond will tend to be more volatile than other types of debt when A) interest rates are less stable. B) interest rates are more stable. C) the yield curve is flat. D) equity valuations are increasing.
B) interest rates are more stable.
A cash dividend received by a retail investor would be taxed at a preferred rate if the investor A) sells their shares no later than 60 days after receiving the dividend . B) has held the stock for greater than 60 days surrounding the exdividend date. C) owns at least 20% of the outstanding shares of the issuer. D) purchased the shares at least 30 days prior to the ex-dividend date.
B) has held the stock for greater than 60 days surrounding the exdividend date.
An individual has received a death benefit from the life insurance policy of his father. The payment of this benefit to the beneficiary A) increases the tax liability of the recipient. B) is not a taxable event to the recipient. C) is considered a long-term capital gain distribution to the recipient and is taxed at a preferential rate. D) may be claimed as a tax credit by the recipient.
B) is not a taxable event to the recipient. A life insurance benefit paid to a beneficiary is not a taxable event to that individual. However, if the benefit is paid to the estate of the deceased party, it then becomes a taxable event.
Prior to purchasing a new municipal offering, a client is inquiring as to the best resource available to help evaluate the credit quality of the issuer. The RR should direct this client to the A) legal opinion. B) official statement. C) prospectus. D) official notice of sale.
B) official statement. Answer Explanation: The official statement is the offering document used in conjunction with a new issue of municipal securities. It discusses the purpose of the issue, how the issue will be repaid, as well as financial and economic information about the issuer.
An individual who is subject to the Alternative Minimum Tax would be least likely to purchase a(n) A) in-state AA -rated municipal bond. B) private activity bond. C) moral obligation bond. D) Public Housing Authority bond
B) private activity bond. or an industrial development revenue bond
An investor purchased a $10,000 ABC 3% corporate bond, due 20XX. The bond was purchased at 98 and is callable beginning two years from issue date. The investors confirmation for this trade will show A) the YTC. B) the YTM. C) the current yield. D) the YTP
B) the YTM. The lower of the YTM or YTC will be shown on the confirmation. In this case the bond was purchased at a discount so the YTM would be reflected as it would be the lower of the two yields
An investor believes that bond prices will fall. This investor should sell A) yield based calls. B) yield based puts. C) yield based straddles. D) inverse floaters.
B) yield based puts. Answer Explanation: If an investor believes bond prices will fall, he should also believe interest rates will rise. The appropriate strategy in this case is to buy yield-based calls or sell yield based puts
Amy has a $200,000 equity portfolio. What would you suggest as an appropriate way to hedge her portfolio? A) Buy SPX calls B) Buy VIX puts C) Buy an inverse ETF D) Establish a put credit spread
C) Buy an inverse ETF Since Amy is long the market, she should buy an inverse ETF, which will move in the opposite direction of an index. Had Amy wanted to use options contracts to fully hedge her exposure, she could buy SPX puts or buy VIX calls (which are inverse to the S&P 500).
A registered representative spends substantial amounts of time out of the office and frequently uses her personal mobile phone to text her clients on business ideas. These text messages A) do not need to be monitored by her firm since she is using her personal device to send them. B) must be monitored by her firm as they relate to the business of her firm. C) should not be sent from a personal device as they relate to the business of the firm. D) must be approved by a supervisor as they relate to the business of her firm
Broker-dealers must have the ability to monitor all communications between their registered employees and clients of the firm, regardless of the platform that is used to send these messages.
A broker-dealer recently participated in a Regulation D offering, also known as a private placement. Records relating to this transaction must be A) filed with FINRA within 30 days following the closing of the offering. B) filed with the SEC within 10 days following the closing of the offering. C) retained for three years from date of final use. D) retained for one year from date of final use.
C) retained for three years from date of final use
All of the following are considered insiders under the Securities Exchange Act of 1934 except A) owners of 10% or more of the corporation's equity securities. B) nonaffiliated directors. C) owners of 10% or more of the corporation's debt securities. D) corporate officers.
C) owners of 10% or more of the corporation's debt securities. It is equity, not debt securities that makes one an insider. Officers, directors, and major shareholders (equity owners) are insiders.
John purchased 250 shares of ABC at $18 per share three years ago. John later became ill and passed away, and his shares were inherited by his nephew Steve. The shares were trading at 17.25 at the time of John's death. What is the cost basis of the shares that Steve inherits? A) 18 B) 17.5 C) 17.25 D) 25
C) 17.25 When securities are inherited, the cost basis is the market value at the time of death of the original owner, in this case $17.25
An investor anticipating that the Federal Reserve Board is likely to increase its target fed funds rate would likely take which of the following actions? A) Variable annuity B) Buy U.S. listed USD call options C) Buy U.S. listed EUR put options D) Buy U.S. listed EUR call options
C) Buy U.S. listed EUR put options
Which of the following is considered an accredited investor? A) an employee of the company B) An individual with a net worth of $1.5 million, of which $700,000 is their primary residence C) a board member of the company D) A married couple that has earned $250,000 in each of the past two years
C) a board member of the company Answer Explanation: Under Regulation D, accredited investors include officers and directors of the issuer, institutional investors with at least $5 million in assets, and individuals that have a net worth of at least $1 million excluding their primary residence or those that have earned at least $200,000 in each of the past two years ($300,000 for married couples
Real-time commentary posted to a broker-dealer social media page by a registered representative must be A) filed with FINRA if there are any recommendations made or opinions shared within these posts. B) reviewed by the firm's director of communications and retained in firm files until the post is removed from all social media platforms. C) retained in firm files for 3 years and are subject to ongoing review by the firm. D) approved by a principal of the firm and retained for at least 30 days following the most recent post.
C) retained in firm files for 3 years and are subject to ongoing review by the firm.
A client holding an individual account has requested that their spouse be added to the account, thereby enabling the spouse to place trades for the account. The registered representative handling this account A) must request a Power of Attorney from the person who is being added to the account. B) may not execute any orders for this account until the requested change is made. C) should inform the client that this change will need to be approved by a principal of the firm. D) must inform FINRA of the proposed name change and await FINRA approval.
C) should inform the client that this change will need to be approved by a principal of the firm. changes of account name or designation must be approved in writing by a registered principal of the firm
In order for a person associated with a FINRA member firm to open a securities account at a different FINRA member firm, A) prior written consent from FINRA is necessary in order to open an outside securities account. B) the person must provide prior written notice to their employer before opening such account. C) the person must receive written consent from their employer prior to opening such account. D) FINRA must be notified by the firm that will carry the account
C) the person must receive written consent from their employer prior to opening such account.
Your client Jim has received a dividend from his real estate investment trust. He asks you if this dividend is treated the same way as the dividend he receives from his XYZ common stock, which he has owned for several years. You should tell Jim that A) equity REIT dividends are taxed at a preferred rate, whereas Mortgage REIT dividends are taxed as ordinary income. B) dividends from REITs are taxed at a favorable rate if the investment has been held for at least 61 days. C) the tax rate that applies to his XYZ common stock investment does not apply to his REIT. D) after holding the REIT for one year, the dividends are taxed at a preferred rate.
C) the tax rate that applies to his XYZ common stock investment does not apply to his REIT. Dividends from REITs are taxed as ordinary income, not at a preferred rate, regardless of the holding period. This is in part because REITs pass through the gains without paying any corporate income tax. Cash dividends from common stock may receive a preferential rate if the investment has been held for at least 61 of the 121 days surrounding the ex-dividend date. These are called qualified cash dividends
Which of the following accounts allow ownership of real estate? A) A margin account B) An UGMA account C) A cash account D) An UTMA account
D) An UTMA account
Amy's father purchased 100 shares of ABC stock ten years ago for $40 per share. Amy's father dies when the stock is worth $65 per share and gifts it to Amy in his will. If Amy sells the shares a year later when they are worth $70 per share, her cost basis would be A) $100 per share. B) $70 per share. C) $40 per share. D) $65 per share
D) $65 per share When a person dies and leaves stock to their beneficiaries, the cost basis for their heir is the market value of the stock at the time of death.
A Treasury bond is quoted 101.12 - 101.20. If a client asks her RR what the spread is, the RR would respond by saying A) 8.00. B) 101 C) 25.00. D) 2.50.
D) 2.50. Treasury bonds are quoted in 32nds. 8/32nds is equal to ¼ of a point, and one point is equal to $10, so the spread here is 2.50.
The following positions are held in a customer account: Long XYZ May 50 call, short 2 XYZ May 60 calls, Long XYZ May 70 call. These options positions would be characterized as a A) call credit spread. B) short straddle. C) covered call. D) butterfly spread
D) butterfly spread Answer Explanation: A butterfly spread is an options strategy composed of four individual options contracts; they all have the same expiration month and there are three different strike prices.
The money contributed to a SEP vests A) beginning at the third year of establishment. B) after the employee retires. C) according to a preset schedule. D) immediately.
D) immediately.
In a variable life contract, the minimum death benefit A) will be paid once the policy holder reaches retirement age. B) will fluctuate based on the performance of the insurance company's separate account. C) must be included in the taxable estate of the named beneficiary. D) is guaranteed and will not change.
D) is guaranteed and will not change
In a custodial account, taxes are the responsibilities of the A) parent. B) custodian. C) guardian. D) minor.
D) minor.
Tranche A of a CMO offering has an average life of 2.5 years, Tranche B has an average life of 6 years, while Tranche C has an average life of 11 years. This type of CMO structure is characterized as A) companion. B) planned amortization. C) floating-rate. D) plain vanilla.
D) plain vanilla. The CMO structure that contains tranches that pay off in a defined sequence is known as a "plain vanilla" offering. Each tranche receives regular interest payments, while principal payments received are made to the first tranche only. As this first tranche is retired, principal payments are then applied to the second tranche until it is retired. This process continues until the last tranche is retired.
jim purchased five call options on XYZ and also wrote five put options on the same stock. Jim has created a A) vertical spread. B) synthetic short stock position. C) short straddle. D) synthetic long stock position
D) synthetic long stock position
A corporation has $12,000,000 net income after taxes, 5,000,000 common shares outstanding and $10,000,000 of 6% preferred stock ($100 par). What is the corporation's earnings per share? A) $2.40 B) $1.20 C) $2.15 D) $2.28
Earnings per share is calculated as Net Income / Shares Outstanding. In this question however, the corporation is also paying 6% dividends on its preferred stock. Therefore, the question is nudging to use a more accurate calculation of earnings per share to take into account that the corporation pays dividends. To calculate this company's earnings per share you would need to use the following: (Net Income - Dividends) / Shares Outstanding. ($12,000,000 - $600,000) / 5,000,000 = $2.28
With which of the following must variable annuities be registered? I. State banking commission II. State insurance commission III.SEC IV. FINRA
II. State insurance commission III. SEC (VA are securities)
The taxing power of an issuer of a limited-tax bond is limited to a specified I.minimum rate. II. maximum rate. III. tax source. IV. method of taxation. A) I and IV B) II and III C) II and IV D) I and III
II. maximum rate. III. tax source.
Which of the following covers a customer who sold 1 Jul 50 put at 4? A) Short the underlying stock B) Short 1 Jul 50 put C) Long 1 Jul 50 call D) Long 1 Jul 50 put
Short the underlying stock For an investor to cover a short put, the investor must either be short the stock or be long a put option that is in the money first (has a higher strike price).
While watching the financial news on TV, you hear an internationally recognized economist say that she expects a significant devaluation of the U.S. dollar. If she is correct, what would be the likely effect on foreign trade? The price of foreign goods would decrease, leading to an increase in imports. The price of foreign goods would increase, leading to a decrease in imports. The price of U.S.-made goods would decrease, leading to an increase in exports. The price of U.S.-made goods would increase, leading to a decrease in exports.
The price of foreign goods would increase, leading to a decrease in imports. The price of U.S.-made goods would decrease, leading to an increase in exports.
The main objective of Regulation SHO is to ensure that
broker-dealers will be able to borrow the security that a client wishes to sell short.
The OCC Options disclosure document must be received by a customer A) at or prior to account approval. B) at or prior to the initial option trade. C) at or prior to the settlement of the initial options trade. D) no later than the payment date for the initial options trade.
A) at or prior to account approval.
An order that is intended to be triggered at a particular price and executed at the next price is a A) stop order. B) limit order. C) stop limit order. D) market order
A) stop order. Orders that are triggered at a given price point and then executed at the very next price are stop orders.
An individual has experienced cash value growth in her life insurance contract. This growth is A) taxable if the policy is surrendered B) taxable at the federal level but not the state or local level. C) is taxable once retirement age is reached. D) is not currently taxable.
A) taxable if the policy is surrendered
Which of the following statements about variable annuities is false? A) The rate of return is determined by the value of the underlying portfolio B) The AIR guarantees a minimum rate of return C) The number of annuity units becomes fixed when the contract is annuitized D) These annuities are designed to combat inflation risk
B) The AIR guarantees a minimum rate of return Answer Explanation: The rate of return on a variable annuity is determined by the value of the underlying securities, generally mutual funds.
When a mutual fund's operating expenses are divided by the average assets under management, the result is the mutual fund's A) public offer price. B) expense ratio. C) net asset value. D) assets under management
B) expense ratio. operating expenses are divided by the average assets under management
Regarding premiums, they are A) fixed in all types of variable life insurance contracts. B) fixed in a variable life contract and flexible in a universal variable life contract. C) flexible in all types of variable life insurance contracts. D) flexible in a variable life contract and fixed in a universal variable life contract
B) fixed in a variable life contract and flexible in a universal variable life contract.
A synthetic long stock position may be created by A) purchasing call and put options on the same underlying stock. B) purchasing calls and writing puts on the same underlying security. C) purchasing the underlying stock and buying a put option to hedge. D) selling calls and buying puts on the same underlying stock.
B) purchasing calls and writing puts on the same underlying security.
An issuer is most likely to call which of the following bonds? A) 3% bond with 2-point call premium B) 3.5% bond with 3-point call premium C) 2.5% bond with 1.5-point call premium D) 3.5% bond with 1-point call premium
D) 3.5% bond with 1-point call premium An issuer is most likely to call in a bond with the highest coupon and lowest call premium.
A stockholder may hold her shares in electronic book-entry form with the transfer agent of an issuer through the facility of the A) Automated Customer Account Transfer System (ACATS). B) Transaction Reporting Facility (TRF). C) Central Registration Depository (CRD). D) Direct Registration System (DRS).
D) Direct Registration System (DRS).
A broker-dealer is preparing a private placement memorandum for an upcoming offering. The intended audience for this item will be A) non-accredited investors. B) qualified institutional buyers. C) accredited investors. D) high-net-worth investors
private placement memorandum (PPM) is the disclosure document that must be provided to non-accredited investors in a Regulation D offering. A) non-accredited investors.
Which of the following best describes the bond equivalent yield? A) It is the annual percentage yield for a bond which does not make annual payments. B) It is the coupon rate of interest multiplied by the number of coupon payments generated from a bond. C) It is the dollar value of all the expected cash flows generated from a bond. D) It is the yield on a bond if all coupon payments were reinvested and the bond were held to maturity.
A) It is the annual percentage yield for a bond which does not make annual payments.
All of the following are suitable objectives for a covered call writer EXCEPT A) buying stock below the market. B) increasing return on a long stock position. C) hedging a long stock position. D) speculating that a stock will not rise in price.
A) buying stock below the market . Selling a call option will never give an investor the opportunity to buy stock below the market
A client will be making a down payment on a new home in six months and seeks the advice of her registered representative on the best way to invest funds. The registered representative is most likely to recommend a(n) A) six-month CD. B) money market fund. C) hedge fund. D) exchange-traded note
A) six-month CD higher yield than a money market fund
Broker-dealer X is preparing a retail communication consisting of a comparison of two different mutual funds illustrating their differing performance rankings over a six-month period. This ranking data has been created by an affiliate of the broker-dealer. This information must be
Answer Explanation: Retail communication concerning investment companies that include or incorporate performance rankings or comparisons where the data is created by the investment company itself or one of its underwriters or affiliates must be filed with FINRA at least 10 business days prior to first use
A financial institution buys $90,000 of 8%, 20-year revenue bonds. For book purposes, the institution uses straight-line accretion, but for tax purposes the institution uses cost. The bonds are sold after three years for $99,000. What will be the taxable gain? A) 3000 B) 9000 C) 5000 D) 7500
B) 9000 For tax purposes, the institution uses the cost basis, which is the price at which it purchased the bonds - $90,000. Consequently, they sold the bonds for $99,000 with a $90,000 tax basis, yielding a taxable gain of $9,000.
Which of the following items would appear in the Notice of Sale? A) Identification of participating underwriters B) Bidding details C) Offering price of the issue D) Yield-to-maturity of the issue
B) Bidding details Notice of Sale is used by a municipality in a competitive offering to invite prospective underwriters to submit bids to the issuer. The deal is awarded to the firm that submits the lowest bid to the issuer
Which of these statements is true regarding equity-linked notes (ELNs)? A) They are issued as common or preferred shares and trade on exchanges B) They offer principal protection C) The value of the note is unaffected by the credit quality of the issuer D) Investors are guaranteed a minimum payout from the note
B) They offer principal protection Equity-linked notes (ELNs) are typically issued by an investment bank in the form of a debt security. While the note offers principal protection, any payouts will be based on the performance of an underlying security or index, as well as the credit quality of the issuer
HighTechInc wants to raise $100 million in capital via a private placement. Assuming that they plan to publicly advertise the transaction, how many accredited and non-accredited investors can participate in the deal? A) 35 accredited and 35 non-accredited B) Unlimited number of accredited and zero non-accredited C) Unlimited number of both accredited and non-accredited investors D) Unlimited number of accredited and a maximum of 35 nonaccredited investors
B) Unlimited number of accredited and zero non-accredited regulation 506 deal - If there was no public advertising, then there could have also been 35 non-accredited investors.
An individual has holdings in three different fund families. A purchase of shares in a fourth family may A) qualify for breakpoint consideration if the individual signs a backdated letter of intent. B) may not be combined with the holdings of the three existing funds for breakpoint considerations. C) only be executed under a 13-month letter of intent. D) be aggregated with the holdings of the three existing positions to qualify for breakpoints.
B) may not be combined with the holdings of the three existing funds for breakpoint considerations.
Kelsey owns 100 shares of two different stocks and believes that stock prices will be trending lower over the next few months and would like to deploy a trading strategy that will generate income for her. What would you recommend for Kelsey? A) Put debit spread B) Long put C) Covered calls D) Call debit spread
C) Covered calls will generate income during a bearish market is a covered call. The other choices involve the payment of cash to create the position.
Registered representatives may engage in which of the following activities? A) Telling a client that they will recover their losses when the current market correction ends B) Loaning money to a client to start a business C) Entering a client order based on their verbal instructions D) Rebalancing a client portfolio based on recent suggestions offered to the client
C) Entering a client order based on their verbal instructions
A client who is concerned with purchasing power risk would be least interested in which of the following investments? A) Variable annuity B) Common stock C) Fixed annuity D) Treasury inflation protected security (TIPS)
C) Fixed annuity
Which agency has the ultimate authority for determining the amount of the discount on original issue discount municipal bonds? A) MSRB B) SEC C) IRS D) FRB
C) IRS
To open a securities account for a corporation, which of the following items is not required? A) New account form B) Corporate charter C) Limited Power of Attorney D) Corporate resolution
C) Limited Power of Attorney
The cost basis of an investment would be impacted by which of the following events? A) The sale of a call option while owning the underlying shares B) The receipt of accrued interest from a corporate bond C) The amortization of the premium of a municipal bond D) The payment of a cash dividend on a participating preferred stock issue
C) The amortization of the premium of a municipal bond
Which of the following is NOT reasonable cause to believe that the seller can make delivery of securities? A) The customer is long the stock B) The customer has a written agreement to borrow the stock C) The securities are not on a "hard-to-borrow" list D) The securities are on the "available securities" list
C) The securities are not on a "hard-to-borrow" list If an investor sells stock short, Reg SHO requires the customer to locate the securities. The customer can locate by either borrowing the securities, or by relying on the available securities list. Absence from a "hard-to-borrow" list, is not sufficient to satisfy the locate requirement.
According to MSRB rules, all of the following are required customer account information EXCEPT the A) tax ID or Social Security number. B) signature of the municipal securities representative or general securities representative introducing the account and of a municipal securities principal or general securities principal indicating acceptance of the account. C) age and birth date. D) name and address of employer.
C) age and birth date. MSRB rules do not require the age or birth date for a new customer account. However, FINRA rules do require this information.
A municipal bond issued for the benefit of a corporation, backed by corporate lease payments is a(n) A) moral obligation bond. B) special assessment bond. C) industrial development revenue bond. D) double barreled bond.
C) industrial development revenue bond.
You are in the process of collecting information to open an options account for a client. Which of the following items is unnecessary for this purpose? A) Current employer B) Date of Birth C) Tax ID number D) Employment history
D) Employment history
Which of the following new bond issues would most probably be purchased through competitive bidding? A) Debentures B) Income bonds C) Corporate bonds D) General obligation bonds
D) General obligation bonds General obligation bonds are awarded through a competitive bidding process whereby the issuer awards the deal to the bank offering the lowest net interest costs. Revenue bonds are awarded on a negotiated bidding basis whereby the municipality chooses the investment bank it wants to structure the issue
An investor holding an equity linked CD may be least concerned with which of the following risks? A) Call risk B) Liquidity risk C) Market risk D) Inflation risk
D) Inflation risk
An investor who is bearish on the equity markets might deploy which of the following investment strategies? A) Short straddle B) Call debit spread C) Long S & P 500 call option D) Long VIX call option
D) Long VIX call option
Various types of call features may exist in the indenture of a bond. Which of the following is not a type of call feature? A) Mandatory call B) Sinking fund call C) Partial call D) Statutory call
D) Statutory call
Which of the following assets cannot be depreciated under IRS rules? A) A drill used in oil exploration B) A newly built manufacturing plant C) A company truck D) The five acres of land where the manufacturing company headquarters sits
D) The five acres of land where the manufacturing company headquarters sits Raw land cannot be depreciated under IRS rules
Ratings or guarantees of variable annuity and variable life products are typically based on the A) financial oversight committee of the insurance company. B) performance of the underlying assets in the insurance company separate account. C) independent assessments of financial auditors. D) claims paying ability of the issuing insurance company
D) claims paying ability of the issuing insurance company
An individual can open an IRA at a bank, keeping the funds in CDs, or at a broker-dealer, with the funds invested in securities. An IRA held at any financial institution is A) not covered by any insurance since IRAs are retirement accounts. B) covered by FDIC insurance. C) covered by SPIC insurance. D) covered by FDIC if held at a bank and by SIPC if held at a brokerdealer.
D) covered by FDIC if held at a bank and by SIPC if held at a brokerdealer.
A company has annual sales of $15,000,000, operating expenses of $9,000,000, interest expense of $2,000,000 and principal payments on bonds totaling $1,000,000. What is the company's debt service ratio? A) 4 to 1 B) 5 to 1 C) 3 to 1 D) 2 to 1
Debt service ratio = [Earnings before Interest & Taxes (aka EBIT)]/(Principal + Interest due). Net income = $15,000,000 in sales -$9,000,000 in expenses = $6,000,000. Total debt due = $2,000,000 + $1,000,000 = $3,000,000. Debt service ratio = $6.0mm/$3.0mm = 2 to 1
To fund debt services on a general obligation bond, a municipality may use I. Direct taxes. II. Special assessments. III. Fines. IV. Collection of delinquent funds. A) I, III and IV only B) III and IV only C) I and II D) I, II, III and IV
I. Direct taxes. III. Fines. IV. Collection of delinquent funds.
n the time before a registration statement becomes effective, which of the following statement is (are) true? I. No sales may be solicited II. Sales literature may not be used III. Unsolicited inquiries may be answered
I. No sales may be solicited II. Sales literature may not be used III. Unsolicited inquiries may be answered
Leveraged and inverse ETFs are designed to achieve their stated objectives
on a daily basis
Jim owns 1,000 shares of the XYZ mutual fund. This year Jim received $150 dividends and $200 in capital gains and elected to reinvest these distributions back into the fund. Which of the following statements is true? A) Jim's cost basis in this fund will increase, due to the reinvested distributions. B) The reinvested distributions will have no impact on Jim's cost basis in the mutual fund. C) Jim will need to file IRS Form 1099C at or prior to the tax filing deadline next year. D) Jim's cost basis in this fund will be reduced, due to the reinvested distributions.
A) Jim's cost basis in this fund will increase, due to the reinvested distributions. Jim is making an additional investment
A client expresses to you that various factors in the economy may cause more short-term widespread volatility than would otherwise be the case. What investment strategy would you suggest for this client? A) Long calls on the VIX B) Long calls on the S & P 500 Index C) Short calls on the VIX D) Short straddle
A) Long calls on the VIX An investor may purchase call options on the VIX if they believe that there will be significant volatility in the markets. The underlying asset for the VIX is S & P 500 index options.
Regarding a new options account recently opened: Date of ROP approval: April 1 Date of initial transaction: April 3. As of April 15th, client has not returned the options agreement with his signature. May the client continue to place trades in this account? A) The client may place closing trades only at this time. B) No further trades may be affected in this account at this time. C) The client may place unsolicited orders only. D) Yes, as long as full cash payment is made in advance of any additional trades.
A) The client may place closing trades only at this time. The signed options agreement must be returned to the firm within 15 daysof account approval. If this is not done, only closing trades may be made,until the options agreement is returned to the firm
When making a recommendation to an investor regarding a CMO, which of the following factors is least relevant? A) The taxable equivalent yield B) Impact of interest rate changes C) The quality of the underlying collateral D) Estimated average life and final maturity of the CMO
A) The taxable equivalent yield The focus of any recommendation would be on the nature of the investment and the impact of interest rate changes on the CMO.
The number of times by which the annual net revenues of a facility exceed the annual interest charges and principal payments is called the A) debt service coverage ratio B) working capital ratio. C) dividend payout ratio D) collection ratio
A) debt service coverage ratio Debt Service coverage ratio equals net revenues divided by the annual interest plus principal payments
A municipal syndicate account letter includes all of the following EXCEPT the A) final reoffering scale. B) participation of each member. C) designation of the manager as the agent for the new issue underwriting. D) duration of the account
A) final reoffering scale. Syndicate has not won the deal yet
A client phones her registered representative and requests that all correspondence concerning her account be sent to her sister, since she will be travelling for the next month. This request may be honored A) if the request is made in writing and the firm makes the appropriate notation on its books. B) under no circumstances, as all account correspondence must be sent exclusively to the client. C) if the sister is the trusted contact person on the account. D) if the request is made in writing and a duplicate set of correspondence is forwarded to the client.
A) if the request is made in writing and the firm makes the appropriate notation on its books.
A customer of the firm has recently become married and now wishes to change the name on the account. This change will be accomplished when A) it is authorized by the registered principal. B) the customer enters their new name in the account profile section on the firm's website. C) FINRA has been notified of the name change on an amended Form U-4. D) it is authorized by the registered representative handling the account
A) it is authorized by the registered principal.
An individual holding a variable life insurance policy is considering taking a loan against the policy. This loan A) may be taken against the cash value of the policy. B) may not be taken until the policy holder reaches the age of retirement. C) is prohibited under all circumstances. D) is permitted but would represent a taxable distribution to the policy holder.
A) may be taken against the cash value of the policy.
Bonds with longer maturities and lower coupons tend to be A) more interest rate sensitive than bonds with shorter maturities and higher coupons. B) more likely to be called due to the low coupons. C) less interest rate sensitive than bonds with shorter maturities and higher coupons. D) less vulnerable to credit rating changes due to changing economic conditions. Answer Explanation
A) more interest rate sensitive than bonds with shorter maturities and higher coupons.
The interest expense incurred from buying securities on margin can be offset with income from all of the following securities EXCEPT A) municipal bonds. B) corporate bonds. C) Treasury securities. D) common stocks
A) municipal bonds. interest expense from buying on margin cannot be offset with income from municipal bonds because the interest is not taxed, and therefore, it is not deductible
You receive an email from a client who recently purchased a security based on a recommendation you made and is very dissatisfied with its recent performance. If he were to sell that investment today he would lose a significant amount of money, which is not an option for him at this time. You would respond by saying A) that you understand how he feels, and he should hold on for now, as you are very optimistic, based on the firm's analysis, about the longterm prospects of this security. B) he can always sell something else if he needs access to cash. C) there are never any guarantees, but you will have the firm's chief risk officer reach out to him to discuss the situation. D) you will check with your supervisor and get back to him.
A) that you understand how he feels, and he should hold on for now, as you are very optimistic, based on the firm's analysis, about the longterm prospects of this security.
All of the following statements are true of industrial revenue bonds EXCEPT that A) the credit rating of the bonds is dependent on the credit rating of the municipality. B) they are issued by municipalities to provide local industries with funds to purchase plants and equipment. C) they are issued by municipalities to provide local industries with funds for pollution control equipment. D) interest is paid from rental payments received from corporations that lease the property or equipment from the municipality.
A) the credit rating of the bonds is dependent on the credit rating of the municipality. They are redeemed with revenue earned by the corporation, and therefore assume the credit rating of the specific corporation, not the municipality.
A client recently opened a new account with you and provided all the requested information. One month later, they receive a copy of the new account form in the mail and then call you to ask why you sent it. You will tell them that A) you are required to send this information to them for information verification purposes. B) it was sent in error, as other important information should have been sent and you will put that material in the mail today. C) your firm is implementing new information security procedures, to safeguard against identity theft. D) it is firm policy to send the client a copy of their supplied information one month later, so they can verify that all of the information is correct.
A) you are required to send this information to them for information verification purposes. 30 days
May a registered representative hold a second job while working full time for a FINRA member firm? A) Yes, provided prior written consent from a principal is requested and received. B) Yes, this would be acceptable, provided the RR provides advance written notice to their firm. C) No, as many FINRA member firms have policies which prohibit this activity. D) No, as this would violate FINRA rules on outside employment.
B) Yes, this would be acceptable, provided the RR provides advance written notice to their firm.
Which of the following securities is most similar to a 25-year zero coupon bond? A) Dealer issued commercial paper B) Z-tranche C) Private label CMO D) Newly issued Treasury note
B) Z-tranche Answer Explanation: A Z-tranche is a long-term CMO sold at a discount to investors. It is a complex product designed for investors who want exposure to real estate but not in need of annual interest income from the investment.
A registered representative might recommend a bond ladder to a client who is A) confident that short- term interest rates will remain stable but long term rates will increase B) attempting to minimize the impact of interest rate risk on his portfolio. C) uncomfortable investing in stocks and would rather allocate all of his investable capital in stable, interest paying bonds. D) concerned that interest rates will fall, and prepayments will rise.
B) attempting to minimize the impact of interest rate risk on his portfolio.
Your clients Judy and Irwin own a life-cycle fund. This investment is characterized by A) a heavy emphasis on tax-deferred investments to offset general tax liability. B) automatic adjustments to the fund's portfolio as an investor approaches retirement. C) regularly scheduled modifications to the fund's holdings based on recent returns in the S&P 500 Index. D) a general shift from conservative to speculative assets in the fund's portfolio as an investor ages.
B) automatic adjustments to the fund's portfolio as an investor approaches retirement. A life-cycle fund is a type of asset. Typically, the shift will be from more speculative assets to more conservative assets.
Jenny has purchased an XYZ June 30 call and sold an XYZ June 35 call. Jenny has created a A) bear put debit spread. B) bull call debit spread. C) bear call credit spread. D) bull put credit spread.
B) bull call debit spread Lower SP for call spreads are dominant position
With respect to a securities transaction, a procedure that may be used to ensure that delivery of securities is made only if proper payment is secured from the customer is A) seller's option delivery. B) delivery versus payment. C) delayed settlement. D) regular way settlement.
B) delivery versus payment.
It is necessary to have a margin account if an investor will be A) selling call options while holding the underlying equity. B) effecting short sales in corporate securities. C) buying put options without owning the underlying security. D) buying open-end mutual funds.
B) effecting short sales in corporate securities. It is necessary to have a margin account to sell any security short.
An issuer recently conducted a primary offering and provided a prospectus to all investors. Subsequently, the issuer provides an additional item of information, supplementing material that was outlined in the original prospectus. This additional material is a A) correspondence, and must be approved by a principal prior to first use. B) free-writing prospectus and must be filed with the SEC by the date of first use. C) retail communication and must be filed with FINRA at least 10 days prior to first use. D) Statement of Additional Information (SAI) and must be filed with the SEC by the date of first use.
B) free-writing prospectus and must be filed with the SEC by the date of first use.
An insurance company maintains an account at a broker-dealer. Recommendations made by the registered representative handling this account A) must be approved in advance by a principal or supervisor. B) need not adhere to FINRA customer- specific suitability standards. C) must be consistent with the investment policy statement of the insurance company. D) should be discussed with the trusted contact person for the insurance company.
B) need not adhere to FINRA customer- specific suitability standards. FINRA customer-specific suitability standards do not apply to recommendations made to various institutional customers, such as banks, investment advisors, and insurance companies.
Mark has a diversified equity portfolio. In order to hedge his portfolio, you would suggest that Mark A) sell calls on the SPX. B) buy calls on the SPX. C) buy a put on the SPX. D) buy a straddle on the SPX
C) buy a put on the SPX To protect his long portfolio, Mark should purchase put options. If the portfolio loses value, the put options would gain value. Buying puts is a better hedge than selling SPX calls, which only provides protection for the amount of the premiums earned.
Your client Henry wishes to engage in the day-trading strategy being promoted by your firm. In order for Henry to participate in this type of trading strategy, you would be least concerned having information about Henry's A) marital status. B) investment background. C) educational background. D) estimated liquid net worth.
C) educational background.
When purchasing a variable annuity, an investor asks if there is a way to receive a guaranteed minimum investment benefit regardless of market conditions. You should reply A) that paying a full years' premium up front will assure them of regular payments regardless of market conditions. B) long-term high-quality bonds would be a nice complement to their annuity. C) for an additional payment, a GMIB option can be added to the annuity contract. D) that insurance companies cannot make these guarantees to investors.
C) for an additional payment, a GMIB option can be added to the annuity contract.
A complaint has been received from a long-standing customer of the firm, and the matter has been escalated to the compliance department of the firm. The complaint must be kept on file for A) two years following the receipt of the complaint. B) four years following receipt of the complaint. C) four years following resolution of the complaint. D) six years following resolution of the complaint.
C) four years following resolution of the complaint.
Under Rule 144A, unregistered securities can be resold to qualified institutional buyers A) after a 6-month holding period. B) after a one-year holding period. C) immediately. D) after a 3-month holding period
C) immediately Rule 144A allows qualified institutional buyers (QIBs) to freely trade private placements. A QIB is an institution with at least $100 million in assets.
A six-month holding period is applicable to an investor who has purchased shares A) of control stock in the open market as a director of her company. B) as a participant in a Regulation A offering. C) in a Rule 147 offering. D) as an accredited investor in a Rule 144A transaction.
C) in a Rule 147 offering A six-month holding period would be applicable to the purchaser of a Rule 147 offering, for state residents selling their shares to out of state residents. Sales of these offerings to same state residents is allowed at any time.
A recommendation to a 75-year-old grandparent to purchase a 30- year zero coupon bond A) must be approved by a principal prior to being discussed with the client. B) is appropriate if the client is seeking tax-free income. C) is inappropriate given the age of the client. D) is appropriate if the grandchildren will be going to college
C) is inappropriate given the age of the client. Recommendations must be suitable and appropriate for the parties they are given to.
A client wants to sell $10,000 worth of Barnett Banks and use those funds to buy $10,000 worth of Bay Banks. Assuming that your firm acts as a dealer in both transactions, which of the following statements is(are) true? I. This set of trades is called a proceeds transaction. II. Your firm must consider each transaction separately in determining a fair markup. III.Your firm must consider the markdown on the liquidated securities in determining a fair markup on the securities purchased. IV. Your firm has acted illegally: it must act as a broker in one of the transactions only.
D) I and III I. This set of trades is called a proceeds transaction III.Your firm must consider the markdown on the liquidated securities in determining a fair markup
When a non-spouse inherits an IRA, which of the following is a permitted option? A) Transfer the assets into an inherited IRA, and distribute all proceeds within 20 years B) Transfer the assets into their personal IRA C) Transfer the assets into an inherited IRA, taking lifetime distributions over their life expectancy D) Transfer the assets into an inherited IRA, and distribute all proceeds within 10 years
D) Transfer the assets into an inherited IRA, and distribute all proceeds within 10 years
A client has purchased a market-linked investment. All the following are reasonable expectations of holding this investment except A) an enhanced income stream. B) exposure to a particular market. C) access to market sectors typically difficult to reach for retail investors. D) full recovery of original principal investment.
D) full recovery of original principal investment.
A registered representative would like to participate in a Q & A session that will be hosted on one of the firm's social media platforms. The individual's participation in this event A) must be approved by the social media division of the firm. B) must be supervised in real time by a member of the firm's supervisory staff. C) must be cleared through the compliance department of the firm. D) is not required to be approved by a principal of the firm, as the event would qualify as a public appearance.
D) is not required to be approved by a principal of the firm, as the event would qualify as a public appearance. these types of unscripted events are considered by FINRA to be "public appearances" and do not require principal approval.
An individual has received a death benefit from the life insurance policy of her mother. This death benefit A) must be declared to the State Insurance Dept upon receipt. B) would be taxable if the cash value of the policy exceeded the premiums paid. C) is included in the deceased's estate for probate purposes. D) is not taxable when paid to the named beneficiary.
D) is not taxable when paid to the named beneficiary.
A client wishes to place an order to sell an ABC May 60 call and buy an ABC May 50 call, for a net price of 4. This order A) may be entered as a market order marked 'GTC". B) must be entered as a market order on a single trade ticket. C) must be entered as two separate limit orders. D) must be entered as one trade at a limit price.
D) must be entered as one trade at a limit price
ABC Corp. will issue a $100 million debenture in the next two weeks. The bond A) will be insured by the SIPC. B) must be registered under the Securities Exchange Act of 1934. C) must be issued with a minimum of two years of call protection. D) must be issued with a trust indenture.
D) must be issued with a trust indenture. Answer Explanation: Corporate bond issuances of greater than $50 million must be issued with a trust indenture
An investor holding a variable rate demand obligation (VRDO) can A) exercise the option to purchase municipal bonds under a refunding covenant, as outlined in the indenture. B) acquire municipal bonds from the issuer at a discount to par. C) reset the interest rate on the security on a periodic basis. D) sell the security back to the issuer at par, using a put feature contained within the instrument.
D) sell the security back to the issuer at par, using a put feature contained within the instrument.
