SIE exam 8
In most cases, what's the maximum time an investor is given to meet a letter of intent on a mutual fund purchase?
13 months: Letters of intent may be offered as a way for investors to reduce the front-end sale charges on mutual fund share purchases. If an investor signs a letter of intent, he's committing to investing enough money over a 13-month period to meet a breakpoint. In exchange, the mutual fund will give the investor the breakpoint immediately (i.e., the sales charge is lowered). Letters of intent can also be backdated for up to 90 days, which allows the investor to use previous purchases to meet the breakpoint.
The market price of XYZ Corporation common stock is $55 and its quarterly dividend is $0.60. What is the stock's current yield?
4.36%: A stock's current yield is found by dividing the annual dividend by the current market price of the stock. In this example, the stock's annual dividend is found by multiplying the $0.60 quarterly dividend by 4, which is $2.40. Therefore, the current yield is 4.36% ($2.40 ÷ $55).
Which of the following bonds results in the highest real interest rate?
A bond yields 8% when inflation is at 3%: The real interest rate, also referred to as the real rate of return, refers to a bond's yield after its been adjusted for inflation (yield minus inflation rate). The highest real interest rate is realized on a bond that yields 8% when the rate of inflation is 3%. This bond provides a real interest rate of 5% (8% - 3%).
What's the definition of backing away?
A broker-dealer failing to honor a firm quote: Backing away is a prohibited practice in which a broker-dealer fails to honor a firm quote that it put into the market. Marking-the-close is prohibited and is an attempt to influence the closing price, either up or down. Interpositioning involves the insertion of a third party in a trade with a customer and is generally prohibited. Also, a broker-dealer must refrain from trading ahead of customer orders.
Which of the following limited partnerships is the least likely to generate income?
A raw land limited partnership: A limited partnership that invests in raw land is not designed to generate income. Instead, raw land investments are suitable for investors who are seeking appreciation in the value of the property. Partnerships that invest in existing properties and government-assisted housing properties are types of real estate programs that are more likely to generate income.
Which of the following registered representatives is NOT required to notify his employer of his outside activity?
A representative who volunteers to help the United Way: Registered representatives must provide written notice to their employing broker-dealer before participating in any business activities outside the scope of that person's normal relationship with the firm. This generally includes any type of outside employment. However, charitable work does not fall under the provisions of the rule.
The combination of two companies into one company is accomplished with all of the following, EXCEPT?
A spinoff: A merger, takeover, or acquisition is the combination of two companies into one. A merger is generally between companies of similar size. In an acquisition or takeover, a larger firm typically purchases a smaller firm. A spinoff is the separation of a division or subsidiary from its parent to create a new corporate entity.
Which of the following statements are TRUE regarding a margin account?
An extension of time cannot be granted to meet a maintenance call: Extensions of time to meet maintenance (margin calls) are not permitted. Customers can lose more than they deposited, they cannot choose which securities will be sold to meet margin calls, and a firm is not required to contact the customer when it sells securities from the account.
Which of the following statements is NOT TRUE regarding SEC insider trading rules?
Being in possession of material, non-public information is a violation of insider trading rules: Simply being in possession of inside information is not a violation of SEC insider trading rules. Instead, it's the trading while in possession of such information that's the violation. In addition, if a person (the tipper) passes along inside information to another person (the tippee) who then trades on the information, both the tipper and the tippee have committed insider trading violations.
If a customer purchases shares of one stock and sells short shares of another stock, how can she settle these transactions?
By executing both transactions in a margin account and depositing the required cash for both transactions: Payment must be made for both transactions. The purchase could be made in either a cash or margin account, but the short sale must be executed in a margin account. The proceeds of the short sale cannot be used to pay for the purchase of the stock. (17556)
A company has been struggling and has failed to make the most recent interest payment on the bonds that it has issued. This issuer's bondholders have experienced?
Credit risk: These bondholders have experienced credit risk of the issuer. Credit risk, also referred to as default risk, is the risk that a bond issuer will not make interest and/or principal payments on its bonds. Capital risk is the risk of losing all or a part of your investment. Reinvestment risk is the result of not being able to reinvest at the same rate after a bond matures or is called. Liquidity risk is realized when an investment cannot be disposed of quickly and at a price that's related to recent transactions.
A registered representative is NOT permitted to exercise discretion as it relates to which of the following investments?
DPPs: Registered representatives are not permitted to exercise discretion over DPP investments for their clients.
A corporate bond that's not backed by any specific asset is referred to as a?
Debenture: Corporate bonds that are not backed by specific assets of the corporation are referred to as debentures (i.e., unsecured corporate bonds).
A stock index call option is exercised. The writer must?
Deliver cash: When an index option is exercised, the writer must pay the buyer the in-the-money amount of the option in cash.
A company is offering $200,000,000 of 8 1/2% bonds due July 1, 2038 at 99 1/2% of par value. The yield-to-maturity on the bonds is?
Greater than 8 1/2%: The 8 1/2% bonds are being offered at a discounted price of 99 1/2% of their $1,000 par value. An investor who purchases the bonds at the offering price ($995) and holds the bonds to maturity will receive the par value of $1,000. Therefore, investor will have a yield-to-maturity that is greater than the coupon rate (nominal yield) of 8 1/2%. Remember, if a bond's price is low (below par), then its yield is high.
A 72-year-old grandfather wants to buy an annuity for his son (age 45) and his grandchild (age 15). Which payout option BEST satisfies the grandfather's intentions?
Joint and last survivor life annuity: A joint and last life survivor annuity will best satisfy the grandfather's intentions. In this payment option, benefit payments are made to the persons in the joint account, then to the survivor, as long as the survivor lives.
For variable annuities, which of the following payout options provide the highest payout?
Life annuity: Annuitants will receive the greatest cash flow from the life annuity payout option. This option allows an annuitant to receive payments for his lifetime. At death, the payments cease since no beneficiary is designated and, therefore, the insurance company is relieved of its obligation to make payments. The annuitant assumes the greatest degree of risk with this type of payout
A broker-dealer's privacy notice must include all the following information, EXCEPT the?
Names of any other financial institutions with which the firm is affiliated: A privacy notice is not required to include the names of any other financial institutions with which the firm is affiliated.
The 5% markup policy applies to?
Nonexempt securities: The 5% markup policy does not apply to transactions requiring a prospectus (new issues, mutual funds, and registered secondaries) or transactions in certain exempt securities (such as municipal securities).
Which of the following investments has the MOST capital risk?
Technology stock: Capital risk is the risk of losing an entire investment and is higher for common stock, especially stock in a technology company.
A registered representative (RR) has a customer who is a senior officer of a corporation. The customer wants to open an account in the name of the corporation. Which of the following statements is TRUE?
The RR may not open the account unless the customer provides a corporate resolution authorizing her to open the account: In order to open a corporate account, an individual must supply a corporate resolution authorizing one or more persons to open and operate the account. Orders accepted from anyone not named in the corporate resolution would be unauthorized.
When opening an account for a person who is age 65 or older, which of the following is TRUE?
The RR must request the trusted contact person's name and contact information: Although not required, a member firm should make a reasonable effort to obtain the name and contact information (e.g., mailing address, phone number, and email address) for the account owner's trusted contact person. Ideally, this information is obtained when the account is opened or updated. Acquiring this information should be included with all of the other customer-related information being obtained.
If the FRB engages in repurchase agreements, which of the following statements is TRUE?
The money supply has been increased: When the FRB conducts a repo, it is initially purchasing securities and the immediate result is an increase in money supply. This action tends to reduce short-term yields.
If an investor enters a redemption order for shares of an open-end investment company, what price will she receive?
The net asset value (NAV) of the shares as computed after the order is received: Open-end investment companies are also referred to as mutual funds. Investors can redeem (i.e., sell) their mutual fund shares and receive the next calculated NAV of the shares. When shares are purchased, investors typically pay the next calculated NAV of the shares plus any applicable sales charge (which is referred to as the public offering price).
In placing a stop-limit order, a customer should understand?
The order can be activated but may or may not be executed: With reference to stop-limit orders, the order can be activated but may or may not be executed. Unlike a stop order, a stop-limit order does not become a market order. Once it is activated, it must satisfy the limit price, which may never occur. All of the other choices are not true of a stop-limit order.
What are the requirements if a registered representative intends to contribute to and share in the profits in an account with an unrelated client?
The representative must share in profits that are in proportion to his contributions, but the contributions are not required to be equal: If an RR is sharing in a client's account, he must provide notice to and receive approval from his employer. In addition, the RR must only take profits in proportion to his contributions. For example, if he contributes 10% of the funds, he's only permitted to take 10% of the gains. The RR doesn't need to contribute an equal amount into the account. If the RR is sharing in a family member's account, the sharing is not required to be proportionate.
Which of the following choices is a violation of federal laws with regard to tender offers?
The tender of stock in a short margin account that has been borrowed by a customer: It is a violation of federal law for anyone to tender the stock that a customer borrowed in a short margin account. The stock has been temporarily borrowed and does not belong to the customer and may not be tendered.
Which one of the following statements concerning money-market funds is TRUE?
These investments are liquid: Money-market funds are investments in which investors park cash holdings to wait out dips in the market or to maintain a source of liquid funds. These mutual funds are not FDIC insured, and will not necessarily maintain a stable NAV. Rather than investing in long-term debt like T-bonds, money-market funds typically hold short-term investments (e.g., T-bills). (15647)
One of an RR's friends is the CEO of a publicly traded company. She tells the RR that the next quarter's profits are going to be lower than expected. If the RR sells his shares of the company based on this conversation, which of the following is TRUE?
This is an insider trading violation: The CEO has provided the RR with material, non-public information and this is a violation of the insider trading rules. In general, a person is prohibited from trading a security based on material, non-public information until it's been widely disseminated.
Which of the following represents the correct ranking of securities from longest to shortest life?
Warrants, options, rights: Rights usually last less than 60 days. Options usually last for nine months or less, although some can exist for three years. Warrants usually have a life span of several years and they can even be perpetual.
For a bond owner, in which of the follow situations is call protection most valuable?
When bond prices are rising: Call protection prevents an issuer from calling (i.e., buying back) their bonds. If bonds are ultimately called, investors must sell their bonds back to the issuer. Bonds are most often called when their prices have risen due to declining interest rates.
If a bond is called at 103.75, how much will an investor receive?
$1,037.50 plus accrued interest: Bond prices are quoted in percentages of par. A bond with a call price of 103.75 is callable at 103.75% of par value. Since the par value for most bonds is $1,000, when this bond is called, the issuer must pay $1,037.50 ($1,000 x 103.75%) to each investor. However, if a bond is called before it matures or is sold prior to maturity, the seller is also entitled to accrued interest.
The maximum criminal penalty for individuals who are convicted of insider trading violations is?
$5,000,000 fine and/or 20 years in prison: Maximum criminal penalties under the Securities Exchange Act of 1934, including violations of insider trading rules, are a $5,000,000 fine and/or 20 years in prison for each violation. The maximum civil penalty that can be assessed is three times the amount gained or loss avoided.
An individual received $500 in dividends from the common shares that she owns of an oil company. How much of this dividend income is subject to taxation?
$500: Under current tax law, all cash dividends that individuals receive are fully taxable.
A customer purchases 10 M Dade Co. Florida 7.50% G.O. bonds at a 9.50 basis. How much interest will she collect each year?
$750: 10 M equal's $10,000 par value of bonds (the symbol M refers to thousands). The coupon rate is 7.50%. Therefore, the annual interest is $750 ($10,000 x 7.50%).
Keystone Chocolate Co. plans to sell, only in the state of Pennsylvania, shares of a new issue. In order to qualify for a registration exemption under Rule 147, what percentage of the corporation's assets must be located in Pennsylvania, and what percentage of its revenues must be derived from Pennsylvania sources, at the time of the offering?
80%: Keystone is eligible to offer shares in Pennsylvania (PA) under the intrastate exemption (Rule 147) if 80% of its assets are located in PA, or 80% of its revenues are derived from PA sources, or 80% of the proceeds from the sale are used in PA. In addition, to qualify for the exemption, 100% of the purchasers of the offering must be residents of PA.
Which of the following entities is considered an eligible purchaser for a Rule 147 offering?
A corporation that has its principal office located in the state of the offering: SEC Rule 147 covers an exemption from registration for the sale of securities on an intrastate basis. The issuer under Rule 147 is not allowed to sell the securities to a nonresident of the state. 100% of the purchasers must be residents of the state where the issuer is located. The purchaser may be an individual (who is a resident of the state), or a corporation, partnership, trust, or other business organization that has its principal office in the state. The business organization may not be formed for the specific purpose of purchasing the securities sold under this exemption.
All of the following forms of communication with the public that are used by a member firm fall under the industry definition of retail communication, EXCEPT?
A seminar handout provided to 20 retail investors: Any written or electronic communication that is sent by a member firm to 25 or fewer retail investors is considered correspondence. For that reason, the seminar handout provided to 20 retail investors is not considered retail communication; it's considered correspondence. Retail communication is defined as any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30-calendar-day period. A retail investor is considered any person who does not meet the definition of an institutional investor. Retail communication is the broadest category of communication and includes both advertising and sales literature. All materials that are prepared for the public media in which the ultimate audience is unknown are considered retail communications including: Television, radio, and billboards Magazines and newspapers Certain websites and online interactive electronic forums, such as chat rooms, blogs, or social networking sites (assuming retail investors have access to these sites) Telemarketing and sales scripts Independently prepared reprints (e.g., newspaper or magazine articles) that are sent to more than 25 retail investors
Prior felony convictions must be disclosed on Form U4 if the conviction occurred?
At any time: Any person filing Form U4 is required to disclose all felony convictions regardless of when they occurred. The person seeking registration will be statutorily disqualified if the conviction was within the last 10 years. The person may be registered if she requests and receives permission at a special hearing.
Which of the following securities are generally used by importers and exporters to finance foreign trade?
Banker's acceptances: Bankers' acceptances are letters of credit that are issued by banks and often used to finance foreign trade. Eurodollar bonds are issued outside of the U.S., but denominated in U.S. dollars; however, they are not a means of financing foreign trade. Commercial paper is short-term corporate debt. ADRs are depository receipts for foreign equities.
A broker-dealer's stock is publicly traded. In order to purchase this stock in a customer's discretionary account, the registered representative?
Can make the purchase if the customer's written approval is received: A conflict of interest exists when a broker-dealer is placing its own stock in a client's discretionary account. Due to the conflict, the registered representative must obtain the client's prior written consent before making the purchase.
Which of the following outside business activities is a registered representative NOT required to report to their employing broker-dealer?
Contacting family and friends to donate funds to a local charity: FINRA rules require registered representatives to provide their firms with notification if they're involved in any outside business activities for which they earn compensation. However, participation in charitable activities for which no compensation is received is exempt from the rule.
An individual is interested in an investment that offers annual income, has the potential of appreciating in value if interest rates decline and, in the event that the issuer fails to make a payment, having the missing amount added to future distributions. For this investor, which of the following securities is the most suitable?
Cumulative preferred stock: Individuals generally purchase preferred stock for income. As with any security that pays a fixed rate, there is the potential for appreciation if interest rates decline. There are several types of preferred stock. Cumulative preferred stock will add all unpaid dividends to a future payment if a cash dividend is to be paid to common shareholders. Participating preferred stock allows the owners to share in the extraordinary earnings of a company. Essentially, participating preferred has a stated dividend, but these shareholders may receive more than that amount based on the profits of the issuing company. Convertible preferred stock allows the owner to convert the stock into a fixed number of common shares. Callable preferred stock allows the issuer to retire (call) the stock in at a predetermined price.
A U.S. company receives a significant amount of its revenue from international sales. This revenue is received in the currencies of various countries, exposing the company to?
Currency risk: Currency risk occurs when the value of foreign currencies change in relation to the value of the U.S. dollar. Falling foreign currency values or rising U.S. dollar values result in a strong dollar. If this happens, the return on foreign investments will fall since the foreign currencies will purchase fewer U.S. dollars on conversion.
In order for an individual to work in the employ of a broker-dealer where she will be involved in the investment banking or securities business, the broker-dealer must?
Ensure that the person has not been disqualified from securities industry employment and satisfies all necessary registration standards: FINRA bylaws mandate that any person who will work in the investment banking or securities business of a member firm must satisfy all requirements, and not be ineligible for employment in the securities industry.
How can an option writer cover an existing position?
Execute a closing purchase: A writer (i.e., seller) of an option can offset or cover the position by purchasing an option. Since the writer is seeking to close (eliminate) her short position, she must execute a closing purchase.
Which of the following securities is NOT backed by the credit of the U.S. government?
Federal National Mortgage Association (FNMA) bonds: Federal National Mortgage Association (FNMA) bonds are issued by a privately owned organization and are not backed by the U.S. government. All of the other choices are directly backed by the U.S. government.
Using options to limit losses on other investments is referred to as?
Hedging: Hedging refers to using options as a means of limiting losses on existing long or short stock positions. To hedge an existing position, an investor could buy an option contract.
The funds removed as a result of a qualified withdrawal from which of the following were tax-deferred?
IRA: Traditional IRAs provide investors with the tax-deferral of earnings. In other words, an investor is not required to pay taxes on their bond interest, cash dividends, or capital gains until he withdraws the funds from his IRA. Uniform Transfer to Minors Act (UTMA) accounts are set up for children, but don't offer tax-deferral of earnings. In both 529 plans and Roth 401(k) accounts, qualified withdrawals are tax-free, but contributions are made on a non-deductible (after-tax) basis.
Which of the following is TRUE regarding the tax treatment of municipal bonds?
Interest is tax-free, but capital gains are taxable: The interest paid on municipal bonds is federally tax-free; however, any resulting capital gains are taxable.
Which of the following types of risk would have the greatest impact on a 20-year corporate bond during the first year of the investment?
Interest-rate risk: A change in interest rates would most likely have the greatest impact on the bond in the first year of the investment. If interest rates were to go up or down, that could dramatically change the bond's price. The risk presented by inflation would be significant over a longer term. Liquidity risk is the risk that a security cannot be traded quickly enough in the market to prevent a loss (or make the required profit). Market (systematic) risk is the risk that a security's value may decline over a given period due to economic changes or other events that impact large portions of the market.
The department of a brokerage firm that advises a corporation regarding the structure and timing of a potential stock offering and also assists in the underwriting of securities is the?
Investment banking department: The investment banking department of a brokerage firm assists issuers that intend to sell new securities to the public. The sales department is involved buying and selling securities for customers of the firm. The research department makes recommendations to customers as to whether they should buy, hold, or sell a security. The operations department ensures that all of the paperwork, funds, and securities transfers which are associated with a trade (or processing) are handled efficiently and according to specific industry standards.
A country that has a trade surplus will have a currency that?
Is appreciating: When a country exports more than it imports, it has a trade surplus. Running a trade surplus creates demand for a currency, which causes the value to rise or appreciate. The rise is primarily caused by foreign consumers buying a currency in order to pay for the exports.
Which of the following statements is NOT TRUE regarding a private placement?
It is usually a very liquid investment: Private placements are exempt from registration requirements under the Securities Act of 1933. Generally, the number of nonaccredited investors permitted to purchase the securities is limited to 35. General solicitation (i.e., cold calling) of investors is normally not allowed. A disadvantage of buying securities issued in a private placement is that it is usually an illiquid investment.
The economic theory stating that government intervention in the marketplace is necessary for controlling economic growth is known as?
Keynesian theory: Keynesian economic theory looks at the demand side of the marketplace. It states that government intervention in the marketplace (by using such measures as expenditure programs) is necessary for controlling the economy. Supply-side economics states that the government should reduce marginal tax rates and the size of government to promote economic growth. Monetary theory looks to increase or decrease the money supply in order to control the economy. The Dow Theory, which is followed by some technical analysts, states that a major reversal in the market has occurred when both the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) break their trends.
Which type of account allows a broker-dealer to lend money?
Margin account: Broker-dealers are allowed to lend money to their customers in a margin account. Customers that open a cash account cannot borrow money to buy securities. Custodial accounts are typically opened for children. Discretionary accounts allow a broker-dealer to buy and sell securities in a client's account without the client's prior knowledge.
Under FINRA's New Issue Rule relating to the sale of equity IPOS, which of the following person(s), who is not materially supported by an associated person, is considered immediate family and restricted?
Mother-in-law and/or father-in-law: Under the New Issue Rule, FINRA considers in-laws of an employee to be restricted. According to the rule, aunts, uncles, cousins and grandparents of associated persons are not considered immediate family members.
Which of the following disclosure documents is used for a municipal bond offering?
Official statement: Disclosure documents are often required when selling newly issued stocks and bonds (i.e., in the primary market). For a municipal bond issuance, the offering's disclosure document is referred to as the official statement. Broker-dealers must provide investors with a prospectus when selling corporate stocks and/or bonds in a public offering. If securities are being sold privately (e.g., through a Reg. D offering), broker-dealers may provide investors with an offering memorandum or private placement memorandum.
Money received by a corporation when it sells its stock above its par value is called?
Paid-in capital: Money received by a corporation when it sells its stock above its par value is called capital surplus or paid-in capital. This is different from earned surplus (retained earnings), which is profits that have been retained by the company and have not been paid as dividends.
The original asset allocation of an investment portfolio was 10% cash, 40% bonds, and 50% stocks. However, a recent bear market altered this allocation to 10% cash, 50% bonds, and 40% stocks. Since the client's investment objectives and risk tolerance have not changed, which strategy would be used to adjust the asset allocation?
Portfolio rebalancing: Systematic (portfolio) rebalancing involves the process of buying and selling securities within a portfolio to restore its original asset allocation. Systematic rebalancing may be done either periodically (e.g., quarterly or annually) or whenever market forces or different rates of return cause a significant change in the original asset allocation. In this case, a bear market has caused the value of the stocks in the portfolio to shrink so that this asset class now represents only 40% of the total portfolio. The portfolio would likely be rebalanced by selling bonds and buying stocks with the proceeds.
If an investor wants to receive a dividend that's been declared on a stock, she must?
Purchase it prior to the ex-date: The ex-date is the first day that a stock trades without its dividend included in its price. In order to receive the dividend, an investor must purchase the stock (execute the trade) by no later than the business day prior to the ex-date.
FINRA's BrokerCheck shows investors?
Registrations for individuals and broker-dealers: BrokerCheck is a website on which investors can search for both registered broker-dealers and their registered representatives. BrokerCheck doesn't provide information on all employees; instead, it provides information on employees who are registered with FINRA.
If a registered representative does not meet the Regulatory Element requirements of continuing education?
She cannot perform the duties of a registered person: Failure to complete the Regulatory Element within 120 days of the registered person's anniversary date has negative consequences. In this case, a registered person may not perform the duties of a registered person regarding executing securities transactions or performing investment banking activities. FINRA refers to this situation as CE Inactive. The individual is permitted to be employed by the member firm, but only in a non-registered capacity until the CE requirement is satisfied.
A person is NOT subject to a statutory disqualification if he?
Stands accused of stock manipulation: A person is subject to statutory disqualification for all of the reasons given except for being accused of a criminal offense. Statutory disqualification is based on a person being convicted for any felony or securities-related misdemeanor, not based on being accused of an offense.
If there is a violation of securities laws, which of the following is responsible for taking criminal action?
The Department of Justice (DOJ): The SEC may investigate potential securities law violations through its Division of Enforcement, which prosecutes cases on behalf of the Commission. The SEC may also bring civil actions. However, if criminal activity is discovered by the Commission, the case falls under the jurisdiction of the Department of Justice (DOJ).
A registered representative's broker-dealer is an underwriter of an initial public offering of stock. The RR's father-in-law may purchase?
The IPO from a different broker-dealer: A restricted person is not permitted to purchase any shares of a new issue unless an exemption applies. There is no exemption for restricted persons to purchase limited quantities of an IPO. An immediate family member of an employee (an RR) of a member firm may be a restricted person. Immediate family members include a spouse, children, parents, siblings, in-laws, and any other person who is materially supported by an employee of a member firm. An exception exists if a nonsupported, immediate family member buys the IPO from a different broker-dealer. There is no requirement to purchase the shares only from a selling group member.
Which of the following BEST describes the purpose of a hypothecation agreement in a margin account?
The agreement gives the broker-dealer permission to pledge a customer's securities to a bank as collateral for a margin loan: Hypothecation agreements permit a broker-dealer to pledge a customer's securities to a bank as collateral against the customer's margin loan. Broker-dealer's require customers to sign these agreements when a margin account is opened.
A broker-dealer is clearing its trades through another broker-dealer but is not disclosing specific information regarding its clients. Who is responsible for maintaining the account records?
The introducing broker-dealer: When a firm clears trades for another firm but is not given specific information regarding the introducing firm's clients, the account is said to be an omnibus account. Introducing firms are required to establish and maintain records for omnibus accounts.
An investor has annuitized a variable annuity and has realized that the payments he's receiving are falling below market return. If the investor wants to reallocate a portion of the investment portfolio within the separate account, which of the following statements is TRUE regarding this situation?
The investor is permitted to change the allocation of the investments within the separate account: Although some limitations may apply, the investor is permitted to reallocate their investments within the separate account. Keep in mind, both the decision to annuitize and the chosen settlement option are final.
A registered representative has been indicted for theft, which was unrelated to his employment at the member firm. Which of the following statements is TRUE?
The registered person is permitted to remain employed by the member firm, but the event must be reported to FINRA: If a person who is associated with a FINRA member firm has been indicted or pleads guilty to any felony or any misdemeanor that involves the purchase or sale of a security, theft, robbery, burglary, extortion, forgery, or counterfeiting, the event must be reported to FINRA. This includes shoplifting and, in some states, driving under the influence (DUI). Since the person has not been convicted, he is not subject to statutory disqualification and may remain employed by the member firm.
A "breakpoint sale" is best defined as?
The sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions: A breakpoint sale is defined as the sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity purchases. Breakpoint sales are generally effected in order to assess higher sales charges on transactions and they are a violation of FINRA rules.
Which of the following statements is NOT TRUE about selling stock short?
The short seller will receive any dividends that are paid while she is short the stock: The short seller will NOT receive any dividends that are paid while she is short the stock. In fact, the short seller is required to pay the dividend to the lender of the stock. Each of the other statements are true. Shorting stock must be done in a margin account, the broker-dealer loans the stock to the customer, and there is no set time by which the shares must be repurchased (as long as the client maintains sufficient equity in the margin account).
Preemptive rights provide which of the following benefits to their holders?
Their proportionate ownership will not be diluted if additional shares are issued: If a company decides to issue additional shares, preemptive rights allow existing shareholders to maintain their proportionate interest in the company by exercising their rights.
All of the following statements are TRUE concerning both auction rate securities (ARSs) and variable-rate demand obligations (VRDOs), EXCEPT?
They have a put feature allowing the holder to redeem the security at par: Although they are both long-term securities with short-term trading features, only VRDOs have a put feature that permits the holder to sell the securities back to the issuer or third party. Auction rate securities (ARSs) do not have this feature and, if the auction fails, the investor may not have immediate access to her funds. In addition, ARSs use an auction process to reset the interest rate on the securities, whereas the interest rate on a VRDO is reset by the dealer at a rate that allows the securities to be sold at par value.
A broker-dealer's suitability obligation is?
To make sure the recommended security fits the customer investment objectives: Broker-dealers have a suitability obligation to all customers. For noninstitutional or retail customers, the broker-dealer (or registered person at the firm) must have a reasonable basis for recommending a transaction based on information obtained from the customer concerning his investment profile. This would include the customer's age, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance. A broker-dealer may assist a customer in limiting a loss but not guarantee a customer against a loss. Conflicts of interest must be disclosed, but do not need to be avoided. A firm may recommend that a small amount of a customer's portfolio be invested in riskier securities if they fit into an overall investment strategy.
A security with a low beta?
Underperforms the market when its gaining and outperforms the market when its losing: Beta measures a security's volatility in relation to the market. A security's beta is compared to the beta of the market (i.e., the S&P 500), which has a beta of 1. A stock with a low beta (less than 1) is less sensitive to market movements. In a rising market, a low-beta security will lag in performance. However, when prices are declining, this security will do better since it will generally fall less than the market. On the other hand, a stock with a high beta (greater than 1) will be more sensitive to market movements. A high-beta stock will rise and fall faster than the overall market.
An increase in which of the following will likely result in the Federal Reserve Board implementing an easy money policy?
Unemployment: In an attempt to stimulate both spending and the economy, the FRB will likely pursue an easy money policy when unemployment is increasing. Implementing a tight money policy is more likely in periods of high inflation, represented by an increase in the CPI and personal incomes.
If an associated person signs the arbitration clause that's included in Form U4, he is agreeing to?
Using arbitration as the process for resolving disputes: Form U4 contains a predispute arbitration clause. By signing this form a person agrees to using arbitration as the process for resolving disputes that involve his employer, other FINRA member firms and associated persons, and customers. Rule violations are resolved by FINRA hearing panels or SEC personnel, but not by arbitration.
On a confirmation to a customer, a FINRA member must disclose all of the following , EXCEPT?
Whether the broker-dealer is also an investment banker for the issuer of the security: The customer confirmation must disclose whether the brokerage firm acted as a principal or agent. If it acted as agent, the amount of the commission must be disclosed. Also, the broker-dealer must disclose or offer to disclose the time that the trade was executed. Whether the broker-dealer is also an investment banker for the issuer of the security is disclosed in a research report, but is not required on a confirmation.
A type of security that is issued in the U.S. by foreign governments and corporations, trades in U.S. markets, and is denominated in U.S. dollars is called a?
Yankee bond: Yankee bonds are issued in the U.S. by foreign corporations and governments, are dollar-denominated securities, and trade in U.S. markets. Yankee bonds are normally issued by foreign entities when conditions in the U.S. are better than in the foreign country. Eurodollar bonds are issued by U.S. companies and sold to investors overseas and pay their interest in Eurodollars (dollars on deposit in banks outside the U.S.). Since Eurodollar bonds are not initially offered to investors in the U.S., they are exempt from SEC registration.
Which of the following requires a limited partner to deposit additional funds?
An assessment: If a limited partner is subject to an assessment, it is a request by the partnership for additional funds. Failure to provide the funds may result in the limited partner's losing her investment interest in the program.
What is the market outlook for the sellers of put options?
Bullish: Writers (sellers) of put options are bullish (i.e., they want the value of the underlying stock to rise.
Cyclical stocks tend to be most influenced by?
Changes in economic trends: Cyclical stocks tend to follow changes in the economy. Examples of cyclical stocks include stocks of companies in basic industries (e.g., construction firms, machine tool companies, and transportation companies).
All of the following are likely to be found in the portfolio of a money-market fund, EXCEPT?
Common stock: For a money-market fund, the underlying securities are short-term debt securities. Therefore, common and preferred stock are not found in a money-market fund's portfolio.
On the ex-date of a cash dividend, the subject security would be?
Reduced by the amount of the dividend: On the ex-date of a cash dividend, the stock would be reduced by the amount of the dividend.
