SIE Progress Exams Questions
A person is NOT required to be fingerprinted if she performs which of the following for a broker-dealer?
Prepares marketing materials that are to be used by the firm's sales professionals An exception applies if the person does not sell or have access to securities or funds and doesn't have access to the firm's books and records.
To participate in the sale of securities through a private securities transaction, what step must a registered representative (RR) take?
Provide written notice to her principal which discloses her participation and expected compensation
A customer of a broker-dealer has not executed a trade in the past 18 months. If the customer's account currently shows $30,000 in cash and $250,000 of securities, how often does the firm need to send her an account statement?
Quarterly For accounts that are active, broker-dealers send account statements on a monthly basis; however, if the accounts are inactive, account statements are sent quarterly. An inactive account is one in which no transactions have been executed within the last 18 months.
The maximum political contribution from a municipal finance professional (MFP) to a candidate for whom she may not vote is:
$0
A municipal finance professional (MFP) of XYZ Brokerage has contributed $100 to a candidate running for mayor of the town in which the MFP resides. XYZ Brokerage wants to underwrite the municipal securities of the same town. If the MFP wants to provide additional support to the mayor's campaign without affecting the municipal securities business of XYZ Brokerage, what additional contribution is she allowed to make?
$150 Municipal finance professionals (MFPs) are allowed to contribute up to $250 per election to a candidate for whom they may vote.
If an investor buys $3,000 of ABC common stock in a margin account, what's the required initial deposit?
$2,000 If an investor's initial margin purchase is less than $4,000 of stock, his initial deposit requirement is $2,000, rather than 50%.
Shares of a closed-end fund are available on the NYSE at $21.50 per share. The customer will pay:
$21.50 + a commission The key to this question is in recognizing that the customer is buying shares of a closed-end fund. Closed-end fund shares are exchange-traded securities and are purchased with commissions or sold less a commission. On the other hand, shares of open-end companies (mutual funds) trade for their NAV plus any applicable sales charges. The NAV + sales charge is considered the mutual fund's public offering price (POP).
Premature withdrawals from an Individual Retirement Account (IRA) are subject to a penalty of:
10%
A customer enters a sell stop-limit order for 100 shares at 18.50. The last round-lot sale that took place before the order was entered was 18.88. Round-lot sales that took place after the order was entered were at 18.60, 18.25, 18.38, 18.50, and 18.63. The execution price is:
18.50 After the order was activated by the round-lot sale of 18.25 (which is at or lower than 18.50), the order became a limit order to sell 100 shares at 18.50 or better. 18.50 is the first price that meets this requirement and is the execution price.
AQL stock is currently quoted at 48.50 bid, offered at 48.70. A client purchasing this security will pay:
48.70 plus a commission A client purchasing a security pays the offer (ask) price plus a commission and, when selling a security, receives the bid price minus a commission.
An individual may roll over a lump-sum distribution from a corporate pension plan to an IRA without tax consequences if it is done within:
60 days Only one rollover is permitted each year.
Which of the following choices has the LEAST amount of interest-rate risk? Treasury bond maturing in 30 years A newly-issued GNMA security that's backed by 15-year mortgages A Treasury STRIP maturing in eight years A BB-rated corporate debenture maturing in two years
A BB-rated corporate debenture maturing in two years Interest-rate risk is primarily related to the maturity of a bond. The longer the bond's maturity, the more interest-rate risk it has. In this case, the two-year debenture has the least interest-rate risk because it has the shortest maturity. A bond's rating influences its credit risk, not its interest-rate risk.
What's disclosed on Form U4?
A bankruptcy filing made within the last 10 years and any felony conviction
Which of the following statements is TRUE concerning a client's trusted contact person? Each account must have a trusted contact person. A firm should make a reasonable attempt to obtain the trusted contact person's name and contact information. The client's spouse is assumed to be a trusted contact person. The client's closest relative is assumed to be a trusted contact person.
A firm should make a reasonable attempt to obtain the trusted contact person's name and contact information.
Which of the following sources of revenue is NOT used to pay the debt service on general obligation bonds?
A general obligation (GO) bond is backed by the full faith and credit of the municipality. Items that may be used to pay the debt service on GO bonds include fines, sales taxes, property taxes, income taxes, and licensing fees. Items such as tolls, concessions, and lease rental payments would be used to back a revenue bond.
Which of the following statements about orders is TRUE? A market order to buy is executed at a specified price or lower. A limit order to buy can only be executed at a specified price or higher. A limit order to sell is executed immediately at the best available price. A limit order to buy can only be executed at a specified price or lower.
A limit order to buy can only be executed at a specified price or lower.
Which of the following choices best describes a wrap account? A personal, joint, and IRA account with one account number A managed account in which advisory and transaction charges are included in one comprehensive fee A consolidated account in which the investor can buy or sell options, equities, or bonds An investment club account with no more than 99 investors
A managed account in which advisory and transaction charges are included in one comprehensive fee
If a client wants to buy 100 shares of stock immediately at the best available price, he should place:
A market order to buy
If a municipal bond is backed by the revenues of a facility and the income is insufficient to make the debt service payment, which of the following statements is TRUE?
A municipal bond that's backed by revenues of a project or facility is referred to as a revenue bond. When the income is insufficient to make the debt service payments (i.e., interest and/or principal payments), the issuer will default on that bond.
A fund which invests in companies that pay high dividends is:
A mutual fund investor who is most interested in current yield (i.e., regular dividend checks) as an investment objective will most likely purchase an equity income fund.
Which of the following choices best describes the price that a mutual fund investor receives when she redeems her shares? The bid price of the previous day's close The current offering price The next computed bid price on the day that the shares are redeemed The next computed asked price on the day that the shares are redeemed
A mutual fund investor who redeems her fund shares will receive the next computed bid price on the day that the shares are redeemed.
A 529A or ABLE account is permitted for which of the following persons?
A person who is disabled.
A brokerage account in which the name of a trusted person is required to be requested applies to an account for which of the following? A senior investor A minor A margin account An options account
A senior investor When opening a brokerage account for a customer who is considered a specified adult, the name of a trusted person should be requested. A specified adult is defined as a senior investor (age 65 or older) or a person who is age 18 or older and who the firm reasonably believes has a mental or physical impairment that renders him unable to protect his own interests.
What type of bond would MOST likely be secured by an excise tax, cigarette tax, or gasoline tax?
A special tax bond is a type of revenue bond and is usually financed by a tax on certain items such as cigarettes, liquor, or gasoline (excise taxes).
An individual purchased XYZ Corporation common stock at $30 per share. Today, the stock is paying an annual dividend of $1.10 and is selling for $25. The stock's current yield is:
A stock's current yield (also referred to as its dividend yield) is computed by dividing the current annual dividend by the stock's current market price. In this question, the current annual dividend of $1.10 is divided by the current price of $25, which results in a current yield of 4.4%.
The market price of ABC Corporation common stock is $56 and its quarterly dividend is $0.75. What is the stock's current yield?
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 $0.75 quarterly dividend by 4, which is $3.00. Therefore, the current yield is 5.3% ($3.00 ÷ $56).
Preemptive rights give a stockholder the right to:
A stockholder's preemptive right gives the stockholder the right to maintain his proportionate interest in the corporation. For example, if a shareholder owns 1% of the corporation's common stock, and the corporation intends to issue additional shares, preemptive rights would give that shareholder the option of purchasing 1% of the new shares.
A vote of the common shareholders is required for a corporation to declare a:
A vote of the common shareholders is required for a corporation to declare a stock split. Shareholder approval is not required for cash and stock dividends, which are decided by the board of directors. A stock buyback would also be decided by the board of directors.
A hedge fund would NOT be a suitable investment for an investor seeking to:
Access her funds
Nonpublic, personal information regarding a client may be given to a nonaffiliated third party:
After providing the client with a privacy notice and the client does not opt out of disclosing the information Firms must provide every customer with a privacy notice when the relationship is first established and annually thereafter. Nonpublic, personal information may only be used if the client does not opt out of disclosing it.
Which of the following arrangements by a registered representative (RR) is acceptable? A loan to a customer to help with the down payment on a new home Borrowing money from a customer to avoid bankruptcy Lending money to a client to avoid liquidation of the account Allowing the customer to deposit only 50% of the cost to purchase securities in a margin account
Allowing the customer to deposit only 50% of the cost to purchase securities in a margin account
If an investor wants to build a bond portfolio that maintains a stable value, she should purchase bonds with:
Although short-term bonds are influenced by changing interest rates, the effect is relatively minor due to their short-term nature. For that reason, investors who want stability in their bond portfolios should invest in short-term debt.
Compliance meetings must be attended by registered representatives no less frequently than:
Annually
How frequently is a firm required to notify customers regarding how to access BrokerCheck®?
Annually
Under MSRB rules, firms that transact business in municipal securities are required to notify customers of the availability of a investor brochure:
Annually
Which business is cyclical? Appliance manufacturer Packaged food Pharmaceuticals Utilities
Appliance manufacturer
Which of the following securities is subject to prepayment risk?
Asset-backed securities (ABS) are securities backed by different types of consumer loans (e.g., student loans, credit cards, home equity loans, etc.). As a result, asset backed securities are subject to prepayment risk if the loans backing the ABS are paid early.
According to Regulation S-P, when is a broker-dealer required to provide disclosures regarding their policies for protecting customer information?
At the time an account is opened and annually thereafter
Which of the following choices is a lagging economic indicator? Stock prices Money supply Index of Industrial Production Average prime rate
Average prime rate
What is the term that's used to refer to the state registration of securities?
Blue-skying
If a bond has a basis of 4.35 and a coupon rate of 4.95%, the bond is selling at:
Bonds may be quoted based on their yield-to-maturity, which in this example is 4.35 (basis and YTM are synonymous). Since the bond has a yield-to-maturity (basis) of 4.35%, which is lower than the 4.95% nominal yield (coupon rate), the bond is selling at a price that is above the par value of $1,000 (i.e., a premium). On the other hand, if the yield-to-maturity was higher than the nominal yield, the bond would be selling at a discount.
How often do Treasury notes pay interest to investors?
Both Treasury notes and Treasury bonds pay interest semiannually, just like corporate and municipal bonds. However, since Treasury bills are short-term instruments, they're issued as zero-coupon bonds and don't pay interest periodically. Instead, investors who buy Treasury bills receive their interest when the T-bills mature.
Which of the following statements is TRUE if interest rates rise? Both bond and bond fund prices will fall. Bond prices will rise, but bond fund prices will fall. Both bond and bond fund prices will rise. Bond prices will fall, but bond fund prices will rise.
Both bond and bond fund prices will fall.
A client is heavily invested in an exchange-listed security and decides to liquidate the investment to purchase shares of an S&P 500 Index fund. In doing so, the investor has protected against:
Business risk
A client has sold short XZY stock. Which of the following actions may be taken to offset the risk of the short position? Buy puts Buy calls Sell puts Sell calls
Buy calls
A customer invests a significant amount of money in a bond portfolio. What risk is the customer MOST concerned with if interest rates fall dramatically?
Call risk If interest rates fall, it may result in bond issuers calling their bonds back and refinancing to lower interest rates.
A not-held order:
Can be accepted with a client's verbal authorization A not-held order is not considered a discretionary order and can be executed by a registered representative on the day it's received. Since a not-held order specifies the asset, the action, and the amount of the security to be purchased or sold, written approval is not required. Instead, a not-held order can be accepted with simply the client's verbal authorization.
Which of the following choices is an exempt security? Commercial paper with a maturity of 30 days A closed-end investment company Corporate debt with a maturity of 30 years Preferred stock
Commercial paper with a maturity of 30 days Certain securities are exempt from the registration and prospectus requirements of the Securities Act of 1933 because of who the issuer is. Among the exempted securities are: U.S. government and U.S. government agency securities Municipal securities Securities issued by nonprofit organizations Short-term corporate debt instruments (such as commercial paper) that have a maturity not exceeding 270 days Securities issued by domestic banks and trust companies (but not bank holding companies) Securities issued by small business investment companies (exempted by federal legislation regarding small businesses)
Which of the following terms is NOT associated with a variable annuity? Surrender charge Death benefit Commission Sales charge
Commission The term commission is associated with buying and selling individual securities, not annuities.
Which of the following statements is TRUE regarding preemptive rights? Both common and preferred stockholders receive rights. Neither common nor preferred stockholders receive rights. Common stockholders receive rights. Preferred stockholders receive rights.
Common stockholders receive rights. A corporation's existing common stockholders are entitled to preemptive rights, not its preferred stockholders.
All of the following statements are TRUE of 529 plans, EXCEPT: Withdrawals that are used for educational purposes are not subject to federal taxation. There are no income limits placed on contributors. Contributions are unlimited. A married couple may make a lump-sum contribution of $150,000 without incurring federal gift taxes.
Contributions are unlimited. Although the contribution limits for a 529 plan are quite high, they are not unlimited.
An advantage a corporation receives when it issues a convertible bond is that:
Convertible bonds allow corporations to borrow money at a lower rate of interest (lower coupon) since the convertible feature is an attraction for investors. Investors are willing to accept the lower interest rate in exchange for the opportunity to convert the bonds into common stock. In addition, the investor has some downside protection because, even if the price of the stock falls, the convertible bond still has inherent value as a bond.
Although all of the following are reportable events on Form U4, which one results in statutory disqualification? Conviction of a felony charge for a driving under the influence (DUI) Receiving a written allegation of misappropriation of assets from a customer Being charged with a felony Filing for personal bankruptcy
Conviction of a felony charge for a driving under the influence (DUI)
Which of the following securities trades in fractional units of 1/32 of a point?
Corporate and municipal bonds trade in increments of 1/8 of a point, while Treasury notes and Treasury bonds trade in increments of 1/32 of a point. A convertible bond is a type of corporate bond.
The beneficial owner of stock held in street name is the:
Customer
Which of the following statements is TRUE concerning electronic communication networks (ECNs)?
Electronic communication networks (ECNs) are securities trading systems that are designed to anonymously match buyers with sellers. These systems can be used by both institutional and retail investors. One of the benefits of their use is immediate automatic execution if a matching buy or sell order can be found on the system. ECNs do not allow investors to trade directly with one another; however, they do allow subscribers (e.g., broker-dealers) to use these systems to execute orders that they receive from their clients.
Which of the following statements is TRUE regarding contributions to a 401(k) plan? Contributions are in after-tax dollars. Employee participants should be aware of the risk of investing too much in their employer's stock. The employer determines the investments into which the contributions are allocated. Contributions of an unlimited amount can be made by employees.
Employee participants should be aware of the risk of investing too much in their employer's stock.
A hurricane hit the hub of the U.S. financial system and caused a significant disruption in the stock market. This is an example of:
Event risk
What is the typical maturity for an ETN?
Exchange-traded notes (ETNs) are long-term securities which typically have maturities between 10 and 30 years.
If an investor expects a sharp increase in a stock's price, which of the following will be the most profitable? Sell puts Buy puts Sell calls Exercise rights
Exercise rights Exercising preemptive rights, similar to exercising long call options, will provide investors with an unlimited potential gain if the price of the underlying stock rises. If investors expect a stock's price to rise, selling puts will provide a profit, but maximum profit is limited to the premium received on the sale of the puts.
Which of the following organizations enforces municipal securities regulations for broker-dealers?
FINRA
If a written customer complaint is received by a FINRA member firm, it must be:
Forwarded to the appropriate supervisor or principal
Before executing a large block order, a trader recommends the same stock to many of the firm's clients who also purchase it. The trader's prohibited action is referred to as:
Front-running
The Gross Domestic Product (GDP) is the total value of:
Goods and services produced in the U.S.
Suspicious withdrawals have recently been taken from an account that's owned by a client who is 70-years-old. The registered representative suspects that the client is unaware of these withdrawals and that the customer's niece has been withdrawing money without the customer's knowledge. Which of the following is the best course of action for the RR to ensure that the account is not being exploited? Call the niece and schedule a meeting Halt suspicious withdrawals from the account Talk to his supervisor to obtain approval for power of attorney so that he can manage the client's account directly Halt all suspicious activity in the account
Halt suspicious withdrawals from the account Broker-dealers are permitted to place a hold on suspicious withdrawals from accounts that are owned by persons who are age 65 and older.
If a FINRA-registered person does not fulfill the continuing education requirements by the appropriate date:
He may stay employed, but is not permitted to function in a registered capacity Failure to complete the Regulatory Element within 120 days of the registered person's anniversary date has negative consequences.
A hedge fund is:
Hedge funds are private investment pools designed for wealthy, sophisticated investors. Accredited investors include wealthy, sophisticated individuals but hedge funds are not mutual funds.
An individual owns 100 shares of GHI stock. If GHI announces a 3-for-1 stock split, the individual: I - Will receive an additional stock certificate for 200 shares II - Must return his old stock certificate and will be issued a new certificate for 400 shares III - Will see the value of his investment in GHI stock increase due to the split IV - Will not see any increase in the value of his investment in GHI stock due to the split
I and IV
Which of the following objectives is the least suitable reason for investing in a mutual fund? Diversification Professional management Short-term trading Liquidity
Investors in mutual funds usually seek all of the objectives listed except short-term trading.
A bond with a 4% coupon is priced at a 3.20 basis. If the bond's yield-to-maturity decreased by 10 basis points, the yield would be:
If a bond is priced at a 3.20 basis, this means that it is priced to yield 3.20 or has a YTM of 3.20%. If the bond's basis decreased by 10 basis points, the new yield-to-maturity is 3.10%. The fact that the bond has a 4% coupon rate is relevant for determining whether the bond is trading at a premium or discount to par value. Since the bond's YTM is less than 4%, the bond is trading at a premium.
A bond with a 6% coupon is priced at a 7.20 basis. If the bond's yield-to-maturity increases by 40 basis points, the yield would be:
If a bond is priced at a 7.20 basis, this means that it is priced to yield 7.20 or has a YTM of 7.20%. If the bond's basis increased by 40 basis points, the new yield-to-maturity is 7.60%. The fact that the bond has a 6% coupon rate is relevant for determining whether the bond is trading at a premium or discount to par value. Since the YTM is greater than 6%, the bond is trading at a discount.
Which of the following statements is TRUE about the SEC Customer Protection Rule? A broker-dealer may only hold securities in its vault. The customer protection rule only applies to funds and/or securities in a cash account. If a client sells securities and fails to deliver them within 10 business days of the settlement date, the broker-dealer must buy-in the customer. A creditor of a broker-dealer is considered a customer of the broker-dealer.
If a client sells securities and fails to deliver them within 10 business days of the settlement date, the broker-dealer must buy-in the customer.
A REIT will receive preferential tax treatment if it distributes at least what percentage of its income to shareholders?
If an REIT distributes at least 90% of its ordinary income to shareholders, the income will only be taxed once (at the investors' level).
A registered representative is permitted to contact a person whose name is on the national Do Not Call List:
If the person has provided prior written consent to be contacted
Banks savings account are guaranteed and insured by the:
In the event that a bank is unable to pay its depositors, the Federal Deposit Insurance Corporation (FDIC) guarantees bank accounts up to $250,000. The Securities Investor Protection Corporation (SIPC) protects brokerage customers against broker-dealer bankruptcy.
A registered person fails to participate in the Regulatory Element Continuing Education (CE) program. The person's status is:
Inactive until she completes the program
How long is a broker-dealer required to keep a customer on its "Do-Not-Call" list?
Indefinitely If a customer requests that her name be placed on the firm's "Do-Not-Call" list, it must be completed within 30 days and must remain there indefinitely.
Which of the following choices is NOT considered to be a leading economic indicator? Plant and equipment orders Industrial production Building permits Index of consumer expectations
Industrial production Industrial production is a coincident business cycle indicator
A client is interested in determining the expense ratio of a mutual fund. Which of the following actions is the MOST appropriate for a registered person to take?
Inform the client that this information can be obtained by reviewing the front of the fund's prospectus
Interest on U.S. Treasury securities is:
Interest on U.S. Treasury securities is subject to federal income tax, but exempt from state income tax. This is the opposite of the tax treatment on municipal (state) bond interest, which may be subject to state tax, but is exempt from federal tax.
A customer contacts her registered representative to buy an OTC stock. Rather than buying the shares directly from a market maker, the broker-dealer contacts another broker-dealer and that firm buys the shares from a market maker. Since this creates two levels of transaction fees, it is referred to as:
Interpositioning
A financial services firm that charges customers based on a percentage of the assets under management is BEST defined as:
Investment advisers charge fees for providing advice to their clients. These fees are often based on a percentage of assets under management (AUM) and are charged regardless of whether any trades occurred in their clients' accounts. Broker-dealers earn compensation (e.g., commissions) for executing transactions and an exchange is a facility that brings together the buyers and sellers of securities.
Two sisters want to open a joint account which allows the surviving sister to receive the entire account in the event of one sister's death. Which type of account should be suggested?
Joint tenants with right of survivorship
The major disadvantage to a limited partner in a direct participation program (DPP) is:
Lack of liquidity The major disadvantage of a DPP is the lack of liquidity meaning that the investor cannot easily sell his portion of ownership.
Numerous states are considering the possibility of raising the legal driving age. If this occurs, the sale of vehicles is expected to decrease in these states. This is an example of:
Legislative risk
Which bonds are considered the most liquid?
Liquidity represents the ability to buy and sell a stock or bond quickly. Since the U.S. Treasury is one of the largest issuers in the world, T-Bonds are extremely liquid with a significant number of buyers and sellers. Corporate bonds and municipal bond issuers are smaller than the U.S. government and their bonds will have less liquidity.
An individual is short XYZ stock. Which of the following options will provide him with protection? Long an XYZ call Long an XYZ put Short an XYZ call Short an XYZ put
Long an XYZ call
Which term is used for a member of a stock exchange that's responsible for providing liquidity by buying and selling throughout the trading day?
Market makers are exchange members that provide liquidity on stock exchanges by always standing ready to buy or sell. Transfer agents work for an issuer and are responsible for issuing its stock, paying dividends, and distributing voting materials. Underwriters are broker-dealers that sell newly issued securities to investors in the primary market.
Immediately prior to the effective date of an underwriting, an adverse event occurs that causes a sharp decline in the price of the stock. Which of the following clauses permits the underwriter to withdraw without a penalty?
Market-out
An investor asks a registered representative to underline the most important facts found in a preliminary prospectus. The registered representative:
May not do this since it violates federal securities laws Once a prospectus is filed with the SEC, it may not be altered in any way.
The Bond Buyer Index is based on which of the following securities? Treasury bonds Municipal bonds Corporate bonds Mortgage bonds
Municipal bonds Municipal bond indices are created by The Bond Buyer. The Bond Buyer is a financial publication that specializes in the municipal market.
A customer wishes to open an account with a brokerage firm to trade options. The customer provides all the necessary new account information required but refuses to provide financial information. The brokerage firm:
Must record the customer's refusal on its records and use whatever information it can obtain on its own in determining whether it should accept the account for options trading
Which of the following investments is the MOST suitable for a person who is interested in aggressive growth?
Of the choices listed, common stock has historically provided the greatest potential for growth. Bonds and preferred stock are typically suitable for investors who are seeking income.
For an unregistered private placement of a real estate partnership, what document provides investors with the required disclosures?
Offering memorandum
The most detailed financial information regarding a municipal securities issuer is found in the:
Official statement
On Wednesday, March 11, a customer purchases 1,000 shares of an OTC equity security in a cash account through an online brokerage firm. The transaction will settle:
On March 13 For corporate securities, regular way settlement is two business days following the trade date.
In what capacity is a firm acting if it charges a markup or markdown on a bond transaction?
On a principal basis
When is a registered individual required to complete her continuing education?
On her second anniversary and every three years thereafter
A primary offering of securities is being made for a company listed on the NYSE. Prospectuses must be delivered:
Only on purchases made at the public offering price
An employee of a broker-dealer is required to obtain her firm's prior written consent to:
Open an account at an affiliate of a bank in order to trade securities
A listing of coincident economic indicators includes:
Personal income
Which of the following activities is prohibited for an unregistered employee of a broker-dealer? Asking a potential client whether he wants to receive additional information Recommending securities to existing clients Attending meetings with potential investors Inviting potential investors to a seminar
Recommending securities to existing clients Only registered employees of a broker-dealer are permitted to make investment recommendations. Unregistered employees are allowed to email clients, attend meetings, and invite investors to a seminar; however, in each of these situations, no advice may be given or recommendations made.
A corporation wants to offer its shareholders the ability to obtain shares at a fixed price. Which security should the corporation issue?
Rights (preemptive rights) are issued by corporations and offer existing shareholders the ability to purchase additional shares at a fixed price. Exchange-traded options (e.g., calls and puts) are not directly issued by an issuer as a means of raising capital.
A corporation intends to raise additional funds from its existing shareholders to avoid diluting their interest in the company. The corporation will be engaging in a:
Rights offering
Which of the following regulates the resale of restricted securities?
Rule 144 and 144A regulate the process by which restricted (unregistered) securities may be resold. Regulation D sets the regulations for raising capital through private placements. Rule 147/147A establish the requirements for intrastate offerings. Rule 145 establishes the registration requirements for the reclassification of securities.
What is the maximum coverage afforded to an investor under SIPC?
SIPC protects customers in the case of a brokerage firm's bankruptcy. The maximum coverage afforded to an investor under SIPC is $500,000 per separate customer of which $250,000 may be for cash.
What is the market outlook for the sellers of call options?
Sellers of call options are bearish (i.e., they want the value of the underlying stock to fall).
Which of the following activities is an unregistered employee of a brokerage firm allowed to perform? Accept an unsolicited order from an existing customer Send a prospective client an account opening form Explain the benefits and drawbacks of an exchange-traded fund (ETF) Ask a prospective customer about her investment objectives
Send a prospective client an account opening form
A common shareholder is not entitled to:
Shareholders have the right to vote for the board of directors, but not to appoint officers of the corporation.
Which of the following features applies to a variable annuity, but not to a mutual fund? Sales charge Management fees Administrative expenses Surrender charge
Surrender charge A person who invests in an annuity may cancel (surrender) his variable annuity at any time during the accumulation period and receive the annuity's current value. A disadvantage is that the person may be required to pay surrender charges that are determined by how long he has held the annuity.
State securities laws are also referred to as:
The Blue Sky laws
All of the following are considered a qualified institutional buyer (QIB), EXCEPT: A mutual fund which has $450 million of securities The CEO of a financial institution which has $150 million of securities An insurance company with $240 million of securities A bank which has a net worth of $40 million
The CEO of a financial institution which has $150 million of securities Individual investors, even if they have at least $100 million of investable securities, are not considered to be QIBs.
Which of the following choices does NOT hold customer cash or securities?
The Depository Trust Company (DTC) is a securities depository and national clearinghouse for the settlement of trades. The DTC holds broker-dealer (not customer) funds and securities in the name of member firms.
The purpose of a depository facility is to:
The Depository Trust Corporation (DTC) is a subsidiary of the Depository Trust & Clearing Corporation (DTCC) and its primary function is to hold securities in book-entry form. This allows broker-dealers to buy and sell securities on behalf of their customers without the costs and time associated with physical certificates. A change of ownership is made from the account of the selling broker-dealer to the account of the buying broker-dealer. The DTC is not a clearing facility.
The FDIC provides coverage for:
The Federal Deposit Insurance Corporation (FDIC) provides coverage for deposits at a bank, in the event the bank has financial troubles. FDIC will cover CDs, but not insurance, or fixed and variable annuities.
What organization acts as the counter-party in all option contracts and provides guarantees in option trading?
The Options Clearing Corporation removes counter-party risk by guaranteeing the exercise of all option contracts.
Who creates the Options Disclosure Document?
The Options Disclosure Document that's provided to options clients is created by the Options Clearing Corporation (OCC).
The federal securities regulation that provides rules for the secondary market is:
The Securities Exchange Act of 1934 establishes the rules for activities that are conducted in the secondary market.
The primary concern for investors who use a buy-and-hold strategy to maintain their portfolios is:
The allocation of assets
Which of the following items is NOT included in an income statement? The amount of goodwill Selling and administrative expenses Interest expense The amount of income taxes paid
The amount of goodwill The amount of goodwill is found on a company's balance sheet.
A bond is selling at a premium. This indicates that:
The amount that the market price exceeds the par value is known as a premium. One reason for selling at a premium is a decrease in interest rates after the bonds were issued. When looking at the yields for premium bonds, the nominal yield is the highest, followed by the current yield, with the yield to maturity being the lowest yield of the three.
An annuitant is receiving payments from a variable annuity and, at the time of his death, his beneficiary receives a lump-sum payment. The annuity payout option is:
The annuity payout option that provides the beneficiary with a lump-sum payment at the time of the annuitant's death (which reflects the value of the remaining annuity units) is referred to as a unit refund life annuity.
Which of the following measurements is a lagging economic indicator? Manufacturing and trade sales Personal income The Index of Industrial Production The average duration of unemployment
The average duration of unemployment
When a bond is called, the bondholder receives the:
The bondholder receives the call price (either at par or at a premium) plus accrued interest earned up to the call date.
A customer sells short 100 shares of XYZ at 34. The customer wishes to protect herself against a loss. Which of the following orders will prevent a loss on the short position? Enter a buy stop order at 34 Purchase an XYZ 30 call at 5 Enter a buy limit order at 32 The customer will be exposed to the possibility of loss no matter which of these additional positions or orders is used
The customer will be exposed to the possibility of loss no matter which of these additional positions or orders is used
Which of the following items is NOT found on a sell order ticket? If the account is discretionary, whether discretion was exercised The customer's original purchase price for the stock The location of the securities Whether the trade was solicited or unsolicited
The customer's original purchase price for the stock
A 5% $1,000 par value bond sells at $900 and is maturing in 10 years. What is the amount of interest per year?
The dollar amount of interest a bond pays is computed as a percentage of the par value. In this example, the coupon rate is 5%. The interest income per year is $50 (5% of $1,000 par value equals $50).
The earnings in Section 529 Savings Plans:
The earnings generated from the investments in a Section 529 Savings Plan accumulate on a tax-deferred basis as long as the money remains in the plan. Qualified withdrawals that are used for higher education expenses will not be subject to federal taxes.
An advantage of buying shares of an index mutual fund is that:
The fund is passively managed and has lower management fees compared to funds that are actively managed
A decrease in which of the following would cause the price of a bond to increase? The bond's rating The bond's liquidity The issuer's financial strength The general level of interest rates
The general level of interest rates
The member of a limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management is the:
The general partner is the member of the limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management.
What is the breakeven point for the buyer of a call option?
The holder (purchaser) of a call expects the market price of the underlying security to rise and therefore will profit from a rise in the security. The breakeven point for the buyer of a call option is the strike (exercise) price plus the premium.
An individual wishes to sell stock according to Rule 144 requirements. There are 3,500,000 shares outstanding. The individual decides to sell on January 30. The trading volume for the stock is as follows.
The individual may sell the greater of 1% of the outstanding shares or the average weekly trading volume for the preceding four weeks. The average is 38,500 [(40,000 + 36,000 + 30,000 + 48,000) divided by 4]. This is greater than 1% of the outstanding shares (1% of 3,500,000 equals 35,000).
If an options contract is exercised, which of the following statements is TRUE? The buyer of a call must deliver the underlying stock The buyer of a put will receive the underlying stock The seller of a put will be required to buy stock The seller of a call will lose the premium
The seller of a put will be required to buy stock
For T-bonds, regular way settlement is on:
The next business day after the trade date.
A registered representative (RR) wants to compensate an unregistered person who is employed by another broker-dealer for referrals that resulted in commissions. Which of the following statements is TRUE concerning such compensation? The person may be compensated based on a percentage of the commissions that are paid to the registered representative. The unregistered person may only be compensated if it's approved by a principal of the RR's firm. The person may not be compensated unless there is a written agreement between the RR and the unregistered person. The person is unregistered and may not be compensated for the referrals.
The person is unregistered and may not be compensated for the referrals.
A company has a noncumulative preferred stock outstanding that pays a $5 dividend per year. If dividends on the preferred stock were not paid last year, but will be paid this year, how much will the preferred stockholder receive?
The preferred stock is noncumulative, which means that if the dividend is not paid, it does not accumulate to the next year. Therefore, the preferred stockholder will receive only $5 for this year.
The shares of a closed-end fund that trades on the NYSE has a current price of $21.70. A customer who purchases the shares will pay:
The purchasing customer will pay $21.70 plus a commission. Shares of a closed-end fund are purchased and sold like any other stock that trades on the NYSE. The customer will pay the offer price plus a commission on purchases or receive the bid price less a commission on sales.
Two years ago, an investor bought mutual fund shares. Today, if the investor intends to purchase additional shares, she can obtain a reduced sales charge by using:
The rights of accumulation provision gives investors the ability to receive cumulative quantity discounts when purchasing additional mutual fund shares.
All of the following are reasons for the SEC to deny the effectiveness of an issuer's registration statement, EXCEPT: The securities are extremely risky and may result in losses for most investors The financial statements submitted in the registration statement did not conform to accepted accounting standards The issuer failed to discuss an obvious business risk in the registration statement The issuer failed to pay the required fee when the registration statement was submitted
The securities are extremely risky and may result in losses for most investors The SEC does not pass judgment on the investment merits of an offering
A customer purchased a premium bond which gives the issuer the ability to redeem the entire issue prior to maturity. Which yield is MOST relevant?
The yield-to-call (YTC) represents a bond's yield if it is called or redeemed prior to maturity; however, the yield-to-maturity (YTM) represents the bond's true yield if it is held to maturity. Since a premium bond's YTC is lower than its YTM, the YTC must be used when quoting the yield to a customer.
When purchasing Treasury notes, an investor should understand:
Treasury notes and bonds pay interest semi-annually. Treasury securities are only issued in book entry form. Treasury Inflation Protected Securities (TIPS) are adjusted for inflation. (17515)
The maximum civil penalty for insider trading violations is:
Three times the amount gained or loss avoided
Which of the following statements regarding telephone solicitations is TRUE? RRs may not make telephone solicitations between 9 a.m. and 8 p.m. local time If an RR calls a potential client and the prospect asks to be placed on the do-not-call list, their number must remain on the list for two years Time-of-day restrictions on telephone calls by RRs do not apply to calls to an existing customer for the purposes of servicing the account Each RR must set up and maintain a separate do-not-call list
Time-of-day restrictions on telephone calls by RRs do not apply to calls to an existing customer for the purposes of servicing the account
In an equity offering, what's the function of a syndicate desk?
To create an order book and allocate the stock to investors
A convertible bond has a conversion price of $40 and is currently selling in the market at $950. The conversion ratio is:
To find the conversion ratio of a convertible bond, the bond's par value ($1,000) is divided by the conversion price ($40). In this question, the conversion ratio is $25 ($1,000 ÷ $40). To calculate the conversion ratio, the market price of the bond is irrelevant.
If an associated person signs the arbitration clause in Form U4 they are agreeing to which of the following? To use arbitration as the process for resolving disputes only with customers To use arbitration as the process for resolving disputes that involve his employer, other member firms and associated persons, and customers To use arbitration as the process for resolving disputes that involve only his employer To use arbitration as the process for resolving disputes that involve only other FINRA member firms
To use arbitration as the process for resolving disputes that involve his employer, other member firms and associated persons, and customers
A U.S. government bond is selling in the market at 95.28. The dollar value of this bond is:
U.S. government bonds are quoted as a percentage of par with a fraction in 32nds of a point. Therefore, a T-bond quoted at 95.28 is equal to 95 28/32. By converting the fraction to a decimal, the quote becomes which is 95.875% of the par value of $1,000. $1,000 x 95.875% = $958.75.
A representative may guarantee a customer against a loss:
Under no circumstances
Which of the following is defined as an investment company? Hedge fund Private equity fund Unit investment trust (UIT) Real estate investment trust (REIT)
Unit investment trust (UIT) Unit investment trusts, face amount certificates, and management companies (open-end and closed-end) are defined as investment companies. Although hedge funds, private equity funds, and REITs have characteristics that are similar to investment companies, they are not investment companies.
As far as variable annuities are concerned, which of the following statements is TRUE?
Variable annuity nonqualified separate accounts are registered under the Investment Company Act of 1940
A type of bond in which the amount of interest paid to the investor may change is referred to as a:
Variable rate bond
While saving for her retirement, a variable annuity owner investing $1,000 per month will buy a:
Varying number of accumulation units When investors purchase a variable annuity contract, they are purchasing accumulation units. Once a contract has been annuitized, distributions are made by liquidating annuity units. Since the value of the subaccounts will fluctuate, a client investing $1,000 per month will purchase a different number of accumulation units with each purchase.
An issuer includes warrants with a bond offering that it's conducting. This is done to:
Warrants are generally considered a "sweetener," which gives holders the ability to purchase stock at a predetermined price for a long period. When issued with bonds, the issuer can typically lower the coupon rate and reduce its interest cost.
Which of the following securities has the longest period until expiration? Rights Options Warrants Repurchase Agreements
Warrants are typically created with long-term expirations; in fact, some warrants never expire (i.e., they're perpetual). On the other hand, rights are short-term and typically expire in a few weeks or months after they're issued. Exchange-traded options often have nine-month expirations. Repurchase agreements are short-term loans (often overnight).
A brokerage firm purchases 600 shares of stock from a customer and places the securities into its inventory. In this case, the firm likely acted as a(n):
When a broker-dealer buys a security from a customer by using its own funds and places the securities into its inventory, it has acted as a dealer (principal). In this situation, the customer is charged a markdown on the transaction. If the firm bought the security for a customer or sold a security to a customer without being the other side of the transaction, it would be acting as a broker (agent) and it would charge the customer a commission. An underwriter assists an issuer in raising capital in the primary market by purchasing the securities from the issuer and selling them to customers. The firm that controls trading on an exchange for a specific stock is referred to as a designated market maker (DMM).
When an investor sells her mutual fund shares back to the fund, she is assessed a fee which is returned to the fund. The fee is referred to as which of the following?
When mutual fund shares are redeemed, some funds deduct a small redemption fee from the amount that's paid to the investor. This fee is returned to the fund's portfolio and is not considered compensation to a salesperson. The purpose of the fee is to discourage investors from redeeming their shares too quickly.
When selling limited partnership interests, a registered representative is NOT required to:
When selling limited partnership interests, a registered representative is required to ensure that she informed the customer of all relevant facts relating to the investment's lack of marketability and liquidity. In addition, after obtaining information about the customer's investment objectives, financial and tax status, other investments, and future financial needs, the RR must have reasonable grounds to believe the customer has sufficient net worth and income to lose his entire investment, or has other liquid assets. The RR must certify that the customer is suitable and is in a financial position to be investing in limited partnership interests. However, there is no requirement to certify that the customer is an institutional investor.
If a stock is sold before the ex-dividend date, but delivered after the record date, it must be accompanied by:
When the selling party delivers a security after the date on which the new owner is entitled to receive a cash dividend, the seller must deliver the security with a due bill attached. The due bill recognizes that the buyer is owed the dividend.
A customer wants to establish a joint account at a brokerage firm with an individual who is employed by the same firm. Is this permitted?
Yes, with preapproval of the customer and the firm.
