SIE Quiz/Exam combo
Which arrangement is allowable on a UGMA account? A Several custodians and 1 minor B 1 custodian and several minors C Several custodians and several minors D 1 custodian and 1 minor
D Each account must have only 1 custodian and 1 minor. Several accounts for the same minor, with different custodians for each, could be established.
The FINRA 5% Markup Policy requires that consideration be given to all the following when determining markups, except: A Type of security involved in the transaction B Dollar amount of the transaction C Financial profile of the customer D Services provided in connection with doing business
C FINRA and SEC regulations state that commissions and fees charged to customers must be reasonable. The 5% Markup Policy is a guideline and it may be necessary and justified to charge higher amounts in certain circumstances, or 5% may be too high in other circumstances. A customer's ability to pay has no bearing on the amount of commission or markup that is charged. The dollar amount of the transaction, level of service provided by the firm, and the type of security involved are all considerations under the 5% Markup Policy when determining a fair and reasonable commission or markup.
Which of the following reportable events may result in statutory disqualification? A A felony conviction against the RR for assault B A felony drug charge against the RR C If the RR receives a written customer complaint D If the RR files chapter 13 bankruptcy
A FINRA has the authority to bar a person from becoming or remaining associated with a FINRA member if the person is or becomes subject to a statutory disqualification. Included in the list of disqualifying events are securities and theft-related misdemeanor convictions, and all felony convictions for a period of 10 years from the date of conviction. Note that a felony charge is not the same thing as a conviction.
The SYD Corporate Bond Fund currently offers Class A, B, and C shares. Which of the following statements concerning these different share classes is correct? A All share classes will have identical NAVs, POPs, and expense ratios B The share classes may have different NAVs, POPs, and expense ratios C All share classes will have identical NAVs and POPs, but different expense ratios D The share classes will have different NAVs and POPs, but identical expense ratios
B Most funds offer multiple classes of shares issued against the same underlying portfolio. While the portfolios of each class of shares contain the same holdings, their NAVs, POPs, and expense ratios may differ slightly due to the timing and amount of the different sales charge and cost deductions.
Which type of security must all corporations issue? A Cumulative preferred stock B Debentures C Common stock D Preferred stock
C All corporations issue common stock. Many also issue preferred stock and bonds, but these are optional.
All the following are characteristics of funds of hedge funds, except: A They are SEC registered B They are available to non-accredited investors C They are considered an inexpensive, liquid, aggressive type of an investment D They are regulated under the Investment Company Act of 1940
C Broker-dealers created funds of hedge funds so smaller investors could participate in these types of investments. These funds must be registered under the Investment Company Act of 1940 and usually have a minimum investment amount of $25,000. They are still considered very aggressive investments since the underlying investments are hedge funds. They are also more expensive than traditional investment company securities since they have two sets of fees.: one for the hedge fund managers and one for the investment manager of the fund. The composition of hedge funds also makes them more illiquid than traditional funds, and they cannot be redeemed any time. They usually have specific time frames where investors can liquidate all or a portion of their holdings.
It is unlawful for a registered representative to share in profits and losses in a customer account unless: A The customer is a financial institution B The broker-dealer receives permission from FINRA C It is approved by the RR's firm, and there is a written proportionate sharing agreement signed by the customer D The customer will receive a greater proportion of profits vs. their contribution
C For a representative and a customer to share profits and losses in an account, there must be a proportionate sharing agreement in writing, and profits and losses must be shared in proportion to each party's investment. The account must be approved by the broker-dealer, but not FINRA. The customer may be an individual or an institution.
Which of the following investors would be most interested in investing in municipal bonds? A A retired individual in a low tax bracket B A college student who is working part-time C A married couple that is in the 32% tax bracket D A married couple that is in the 15% tax bracket
C Interest on these securities may appear lower than other debt instruments in the market, but municipal bonds are not subject to federal (and in some cases state and local) taxation. These bonds are a popular choice with high-income investors because of the tax-exempt status of municipals.
Which of the following is not a characteristic of money market instruments? A Liquid B Short term C High yield D Investment grade
C Money market instruments are always short term (one-year maximum maturity), have a high degree of safety (investment grade), and are liquid (easily traded between investors). Money market securities are high quality which provides lower yields.
If a bond is issued with a put provision, under what circumstances would a bondholder exercise this provision? A If the investor's investment objective changed from income to growth B If the bonds were increasing in value due to higher credit ratings or falling interest rates in the market C If the bonds were declining in value due to lower credit ratings or rising interest rates in the market D If the corporate common stock was a better value overall to the investor
C Put provisions, found on some bond issues, allow the bondholder to sell the bond back to the issuer at par value on specific dates before maturity. This provision protects the bondholders from declining values of the bonds due to lower credit ratings or rising interest rates in the market.
Which of the following is normally an advantage of investing in a REIT over an investment in a real estate limited partnership? A Professional management of the property B Limitation on liability C Marketability D Favorable tax treatment of earnings
C REITs can be sold in secondary markets, such as the NYSE or OTC, while limited partnerships are less liquid.
Which of the following is considered retail communication? A A letter from the issuer to the underwriter giving points to be emphasized in promotions B Seminar for top 10 clients C Radio or television ad D Form letter to 25 prospective customers
C Retail communication includes written and electronic communication sent to more than 25 customers or prospective customers per 30 days (if sent to 25 or fewer, it is classified as correspondence). Communication directed to a larger retail audience is also considered retail communication. A letter from an issuer to an underwriter is considered institutional communication.
Retail communication is defined as: A Printed communication provided to 25 customers B Any communication directed to an individual C Communication which is directed to more than 25 customers or prospective customers in a 30-day period D A text sent to a customer
C Retail communication is directed toward more than 25 customers or prospective customers in a 30-day period. Communication directed at a smaller group is defined as correspondence.
A registered representative has spent most of the day discussing a large potential mutual fund purchase with an elderly couple in their early 80s looking to invest $200,000 that they received from the sale of their home. The RR advised the couple to spread their investment out among six different fund families to obtain maximum diversification. What potential violation of FINRA's conduct rules may have occurred? A The RR has violated the Know Your Customer rule B The RR has committed a freeriding and withholding violation C The RR may have committed a breakpoint sales violation D The RR has sold the couple an unsuitable investment. Mutual funds are not an appropriate investment for elderly investors.
C Splitting a customer's assets between different fund families for no valid reason may be construed as a breakpoint sales violation. It would appear that the RR was trying to maximize their commission at the expense of the customer.
In order to verify the identity of a corporation and open a margin account with your broker-dealer, what documentation must the registered representative obtain? A Driver's licenses of each corporate officer B Membership certificate from the Better Business Bureau C Corporate resolution and a corporate charter D Tax return from the corporation
C The corporate resolution specifies which individuals are authorized by the board of directors to enter orders in the account and act on behalf of the company, and it is usually notarized. It must be obtained when opening a corporate account. A corporate charter is the legal document filed in the state of incorporation that establishes the corporation's legal identity. The charter, also known as articles of incorporation, is needed along with the corporate resolution when a corporation opens an account at a broker-dealer that involves margin or options trading.
How is the underwriter compensated in an IPO? A The SEC sets a standard amount of compensation for underwriters, which is determined by the type of underwriting commitment B The issuer pays a flat underwriting fee C The compensation is included in the public offering price D FINRA determines an appropriate amount to be paid to the underwriter by the issuer
C The public offering price is determined by the underwriter and issuer and includes the total amount needed to compensate the underwriter in addition to the amount required by the issuer.
A common stock is selling at $14.90 per share. The issuer's new product line has increased profits the last 3 quarters. As a result, the issuer's board of directors has increased dividends each of the last 3 quarters even though the stock price has stayed the same. The common stock's yield will: A Not be affected by the increased dividends B Increase if the profits continue to increase 4 consecutive quarters C Increase D Decrease
C The yield on common stock is computed by dividing the market price of common stock into the annual dividend. If the common stock price has not changed, but the dividend continues to increase, the yield will increase. For example, if the stock costs $14.90 and the dividend is $1, the yield is 6.7% ($1 divided by $14.90). If the stock stays at $14.90 and the dividend increases to $1.50, the yield is 10% ($1.50 divided by $14.90).
Which of the following is false regarding economic policy? A Monetary policy is controlled by the Federal Reserve Board B Fiscal policy is controlled by the president and Congress C Monetary policy includes changes to taxation D Fiscal policy deals with government spending
C Fiscal policy is set by Congress (the legislative branch) and is the policy that determines the level of federal taxation and government spending. To spur growth in the economy, fiscal stimulus will normally come in the form of lower taxes and increased government spending. Monetary policy is set by the Federal Reserve Board (FRB) and is the policy that sets out to affect the level of the money supply in the U.S. economy. This change in the money supply will affect interest rates and ultimately savings and consumption.
Under the Securities Exchange Act of 1934, extension of credit by broker-dealers to their clients for purchasing securities is regulated. Which of the following is not true regarding margin accounts? A Opening a margin account requires the customer to sign a margin agreement B Regulation T sets initial margin requirements C Margined securities cannot be held in street name D New issues cannot be purchased on margin
C Initial margin requirements are established under Regulation T. New issues, including mutual funds, cannot be purchased on margin but may be used as collateral once they are held for at least 30 days. Margined securities must be held at the broker-dealer in street name. To open a margin account, the customer must sign a margin agreement document.
Which of the following may not be purchased on margin? A Securities admitted to trading privileges on a national exchange B U.S. government securities C Registered mutual fund shares D Nasdaq stocks
C Since mutual fund shares are a continuous new issue, they may not be purchased on margin. The other 3 types of securities may be purchased on margin.
If the portfolio manager removes dollars from the underperforming assets to the assets the manager believes will outperform in the next quarter, this is a form of what? A Passive portfolio managing B Asset allocation C Active portfolio managing D Hedging
C There are several ways to rebalance a portfolio. Active portfolio rebalancing requires the portfolio manager to remove dollars from the underperforming assets and to pick those assets the manager believes will outperform. Passive rebalancing is a type of automatic rebalancing that removes dollars from the overperforming assets and reallocates them to the underperforming assets. This can be done on an annual or quarterly basis.
What Social Security or tax identification number is used to open a partnership account? A All partners B The largest partner to the account C The partnership D The partner that will be handling the account
C To open a partnership account, each partner's Social Security number is not required. The partnership will have its own tax identification number which must be used to open the account.
To properly diversify a bond portfolio what would not be included? A Domestic and foreign growth and value stocks B U.S. government, government agencies, and corporate bond C Bonds of different credit quality D Bonds with different maturities
A Diversification is the process of allocating funds among different securities, industries, asset classes, and geographical locations to minimize risk in an investment portfolio. To diversify a bond portfolio, you could add bonds with various maturities such as, short-term, mid-term and long-term bonds. Selecting bonds from different issuers such as the United States government, municipal governments, government agencies, and corporate bonds can provide the portfolio with debt instruments that vary regarding credit quality. A bond portfolio would not contain stocks.
Which of the following best describes the way employee contributions to a TSA are made? A Salary reduced and pretax B At the employee's discretion from a checking account C Salary reduced and after tax D At the employer's discretion and after tax
A Employee contributions made into a TSA (403(b)) are made at the employee's discretion through salary reductions. These contributions are made before the employee pays income tax on that money (pretax). When the employee retires, none of the money in the plan has been taxed. Subsequently, all withdrawals from a TSA are fully taxable as ordinary income.
An investor has redeemed their ABC Growth Fund and used the proceeds to buy shares in the ABC High-Yield Fund. What are the tax implications of this exchange? A The exchange is a taxable event B The exchange is only a taxable event if a substantial profit was generated on the sale of their original holdings C The exchange is not taxable since both positions belong to the same family of funds D Under the conduit theory of taxation, mutual fund transactions are never taxable
A Even though an exchange is occurring within the same fund family, the liquidation of the original holding is a taxable event. The exchange privilege allows investors to redeem shares from one fund and purchase shares in another fund in the same fund family without a sales charge being assessed. For tax purposes, exchanges are treated as a redemption and new purchase. This will result in either a short-term or long-term capital gain or loss. On the date of the exchange, the investor will have a new cost basis on the purchase of the new fund, and a new holding period begins.
Owners of which of the following securities are generally given voting rights? A Mutual funds and common stock B Unit investment trusts and closed-end funds C Preferred and common stock D Debentures and mutual funds
A Voting rights are normally available to holders of common shares of companies. This is most widely recognized in the case of the holder of common stock of a company. Shareholders of mutual funds also hold common shares of an investment company. Mutual fund shareholders can vote on various issues including approval of the investment advisory contract. Mutual fund shareholders receive one vote for each full share, and fractional shares represent fractional votes.
If an account is frozen, which of the following statements is correct? A All purchases must be paid for within 24 hours B Money (or securities) must be in the account before a buy (sell) order may be placed C The customer is prohibited from establishing any new positions until the freeze is lifted D The customer is prohibited from establishing any new positions or liquidating existing positions until the freeze is lifted
B A customer who violates Regulation T will have their account restricted or frozen for 90 days. Customers can still trade in a frozen account, but they must have the cash in the account before making any purchases. This is called cash up front (CUF).
One advantage of buying mutual fund shares is that individuals can invest a specific dollar amount each time. This is possible because they may buy: A Divisible shares B Full and fractional shares C An accumulation D Specialty fund shares
B Mutual fund purchases are performed in dollar amounts. A mutual fund investor will purchase at the next calculated NAV. The invested amount is converted into full and fractional shares based on that price.
The local wholesaler for PDQ Funds is hosting a lunch for several of a firm's RRs and is looking to spur sales by offering a gold watch to the first broker who sells $500,000 of PDQ mutual funds. What is FINRA's stance on this offer? A This offer is prohibited unless the fund sponsor files for a compensation exemption with FINRA packaged products committee B This offer is prohibited under FINRA rules C The winning RR may accept the offer with the oral permission of their branch manager D The winning RR may accept the offer with the written permission of the firm's senior compliance officer
B One source of potential problems in the sale of investment company securities is non-cash compensation paid by offerors to RRs, including merchandise, gifts and prizes, travel expenses, meals, and lodging. Under current FINRA rules, members and their RRs may not accept non-cash compensation in connection with the sale of investment company securities in this situation.
Option contracts that can be exercised any time before expiration during the life of the contract are: A Canadian B American C British D European
B Option contracts that can be exercised any time before expiration during the life of the contract are American style. All equity options trade as American options. Option contracts that can only be exercised on the expiration or maturity date are European style. Both American and European options can trade at any time.
How does a corporation increase its capitalization over time? A Through paying dividends and interest on securities outstanding B Through retained earnings C Only through additional stock offerings D Only through additional bond offerings
B Over time, a profitable corporation increases its capitalization through retained earnings, such as cash savings and investments. It can also issue bonds and stock when and if necessary, but that is not the only way for a corporation to increase its capitalization.
The federal government has the moral obligation, but not the legal liability, to back the issue of: A Treasury STRIPS B FNMA securities C Treasury bills D GNMA pass-through certificates
B Securities issued by FNMA and FHLMC are not direct obligations of the federal government. Treasury bills, STRIPS, and GNMA pass-through certificates are direct obligations.
Which of the following is not a function of the Federal Reserve Board (FRB)? A To supervise the printing of currency B To enact fiscal policy C To determine monetary policy D To regulate and impact the money supply
B The FRB determines monetary policy (not fiscal) and takes actions to implement its policies, including but not limited to regulating the U.S. money supply and supervising the printing of currency.
Which statement about the differences between mutual funds and ETFs is false? A Most ETFs are passively managed and have lower management fees - Most mutual funds are actively managed and have higher fees B ETFs can be traded throughout the day - Mutual funds are redeemed based on pricing the shares at the end of each business day C ALL ETFs have higher management fees - Most mutual funds have lower fees D ETF investors are charged commission for purchases and sales - Mutual fund investors pay a sales charge for purchases and redemption
C ETFs trade on exchanges and investors pay commissions for purchases and sales. ETFs that track a benchmark index are passively managed and have lower ongoing expenses compared to actively managed portfolios. Investors may purchase ETFs on margin and sell them short. Mutual funds are actively managed portfolios, except for index funds, which mirror an index and are passively managed. Investors buy shares at the POP and redeem shares at NAV. Investors pay sales charges, as opposed to commissions. Investors cannot purchase mutual fund shares on margin and cannot sell shares short.
What is a characteristic of a CMO that makes it different from an asset-backed security? A Interest and principal payments flow through to the investor net of service fees B CMOs are traded over-the-counter C CMOs pool mortgages D CMOs can be issued by federally sponsored agencies
C .CMOs (collateralized mortgage obligations) are a form of mortgage-backed security in which the mortgage pools are separated into different maturity classes, known as tranches. Asset-backed securities are typically created from a pool non-mortgage debt which often pay higher interest than mortgage-backed securities. The other characteristics are true of both CMOs and ABS.
How long can a letter of intent be backdated? A 13 months B 30 days C 90 days D 12 months
C A letter of intent may be backdated up to 90 days. If the LOI is backdated 90 days, it will be valid for another 10 months. The maximum life of an LOI is 13 months.
An investor has an option to sell 100 shares of ABC stock at $50 per share until the expiration of the contract. The investor has a: A Short call option B Short put option C Long put option D Long call option
C A put option gives the buyer/holder the right to sell stock at a stated price, the strike price, until the option contract expires. A call option gives the buyer/holder the right to buy stock at a stated price, the strike price, until the option contract expires. The question states the investor has an option to sell, not an obligation, making this a long put option.
An individual owns 2 round lots of ABC Industries. The stock has moved up 3 points from yesterday's close. What is the increase in the individual's net worth based on this price change? A $300 B $30 C $600 D $60
C A round lot of stock contains 100 shares, so the individual owns 200 shares of ABC Industries. A 1-point move in a stock equates to a $1.00 increase in value per share, giving a total increase in net worth of $600 ($3 x 200).
Which of the following is an accurate representation of an UGMA registration? A Johnny Doe, UGMA B Johnny Doe, minor, with Jane Doe as custodian C Jane Doe, custodian for the benefit of Johnny Doe, UGMA - MI D Jane Doe, custodian, John Doe, legal guardian for Johnny Doe, under UGMA
C Accounts opened under the Uniform Gifts to Minors Act should be registered as a custodian for the benefit of the minor under UGMA and the state identified. In this case it is Michigan. Only 1 choice uses this convention. There is no need to mention the minor's legal guardian in the account registration.
Which of the following individuals would be exempt from registration? A A principal that oversees branch activity but does not meet with clients B A sales assistant taking an order to buy securities C A sales trainee that submits an occasional securities transaction D An individual who reports completed trades to customers
D A member firm must register its representatives and principals. Employees exempt from registration include any person whose functions are solely clerical or ministerial, or employees not actively engaged in the securities business. Taking an order to buy or sell a security requires that individual to be registered. The principal who does not meet with clients is supervising representatives, so registration is required.
Who is the primary audience for a prospectus? A Investment advisers B The SEC C Broker-dealers D Investors
D A prospectus is intended to help retail investors make informed decisions about whether to purchase shares. The other entities are not members of the retail public, they are members of the industry.
The "Red Flags Rule" was created to identify the possibility of which of the following: A Market manipulation B Insider trading C Unauthorized trading D Identity theft
D As a result of the Dodd-Frank Act, the SEC created Regulation S-ID, the "Red Flags Rule," which requires that firms have reasonable policies and procedures for identifying red flags of identity theft
Before engaging in any compensated outside business activity, a registered representative must: A Notify FINRA and receive written permission from the broker-dealer B Receive written permission from FINRA and the broker-dealer C Notify FINRA and the broker-dealer D Notify the broker-dealer in writing
D Before engaging in such activity, the RR must notify the employing broker-dealer in writing. The broker-dealer's permission is not required. However, the firm may prohibit the activity if it determines that the outside business activity could create a conflict of interest. Neither notification to nor permission from FINRA is required.
Interest rates have been on the rise over the past 2 years. An investor holding a portfolio of speculative grade bonds will see what effect on the holdings? A As interest rates increase, speculative grade bonds will increase in tandem B Bonds are long-term investments, interest rate fluctuation only effects short-term holdings, as the rate changes are temporary C The bond portfolio will have no impact, as they are fixed interest rate securities D The bond portfolio will have a decrease in value
D Bond pricing is affected by current interest rates in the market. When interest rates are increasing, bond prices are decreasing. There is an inverse relationship between interest rates and prices with fixed-income securities, such as bonds and preferred stock.
How much may be contributed to a Coverdell education savings account per year per beneficiary? A Up to $2,000 per contributor B Up to $15,000 in each ESA, with unlimited numbers of IRAs and contributors C Up to $500 in only 1 ESA, with funding limited to only 1 contributor D Up to $2,000 total per beneficiary with any number of contributors
D For any beneficiary, total contributions to ESAs must not exceed $2,000. The number of ESAs and contributors are not limited.
A mutual fund's operating expenses would not include which of the following? A Custodian fee B Underwriting fee C Management fee D Accounting fee
B Underwriting fees come from the sales charge. The other choices are operating expenses, which are components of the fund's expense ratio.
What is the primary difference between 529 savings plans that are direct sold and advisor sold? A Direct sold means the investor purchases the plan directly through their state's 529 plan website or through the mail, advisor sold plans are offered through broker-dealers B Direct sold means the investor has direct control over which investments are purchased in the plan, advisor sold means the advisor has control over which investments are purchased in the plan C Direct sold and advisor sold offer the same investment options but the direct sold is exclusively available for in-state residents and advisor sold may be offered to in-state or out of state investors D Direct sold means the investor purchases the plan directly through their broker-dealer, advisor sold plans are only offered by investment advisers
A 529 savings plans may be sold in two ways, direct sold or advisor sold. With plans that are sold direct, the investor purchases the plan directly through their state's 529 plan website or through the mail. These types of plans usually are offered as no-load but may have annual fees. Advisor sold plans are offered through broker-dealers in the state and often have different investment options. Individual states choose the advisor(s) that will offer the plans in their state. Usually, the direct sold option and the advisor sold option have different investment advisors.
An applicant has worked their way through the interview process at ABC Securities Inc. and is about to be hired as a registered representative. In doing its final background checks, a principal at ABC finds that 7 years ago this applicant was convicted of a misdemeanor charge of larceny after being caught shoplifting merchandise at a department store. Which of the following is true regarding this situation? A ABC cannot employ them since larceny is grounds for statutory disqualification B ABC cannot employ them because any misdemeanor is grounds for statutory disqualification C ABC can employ them on a probationary basis due to his larceny conviction D ABC can employ them without restriction
A A broker-dealer may not employ a person subject to a statutory disqualification, which includes securities and theft-related misdemeanor, and all felony criminal convictions for a period of 10 years from the date of conviction.
Which of the following statements about hedge funds is false? A They are structured like mutual funds and are regulated by the Investment Company Act of 1940 B They are private placement offerings and do not trade C The maximum number of investors is limited to 99 D They can only be liquidated on specific dates
A A hedge fund lacks transparency. Hedge funds are not registered investment companies and are not regulated by the Investment Company Act of 1940. They are private placement offerings, and they do not trade. The maximum number of investors is limited to 99, with a maximum of 35 investors being non-accredited or all investors being qualified purchasers. Hedge funds are structured like mutual funds because they pool investments to purchase a portfolio of securities, but they can only be liquidated on specific dates.
How often are mutual funds required to update their prospectus? A Every 16 months B Every 12 months C Every 18 months D Every 24 months
A A mutual fund's prospectus is good for a total of 16 months. A registered representative wanting to sell a mutual fund to an investor must have the most recent prospectus available for the customer.
Which of the following securities would have the greatest taxation risk? A Municipal bonds B Common stock C U.S. government bonds D Preferred stock
A A taxation risk exists when income tax laws change, causing unfavorable tax consequences to securities investors. Currently municipal bonds are not subject to federal (and in some cases state and local) taxation. A change in tax laws would have the greatest impact on municipal bonds.
Which of the following is correct regarding plotting yield curves? A Yield curves plot yields of the same credit quality bonds from lowest to highest maturity B Yield curves plot yields of different credit quality bonds from lowest to highest maturity C Yield curves plot yields of the same credit quality bonds from highest to lowest maturity D Yield curves plot the yields of different credit quality bonds from highest to lowest maturity
A A yield curve is a plot of the yields of all bonds of the same quality from lowest to highest available maturity.
Member firms can sell IPOs to: A The public B Broker-dealers and their associated persons C Industry insiders D An associated persons' immediate family members
A An IPO is an offering of shares to the public for the first time. It is prohibited for an underwriter to withhold part of that offering to keep for their own account. The SEC rules on IPOs also prohibit member firms from selling new issues to any account where a restricted person has a beneficial interest. This rule makes sure that the new issue is truly a public offering. A restricted person is a person to whom the underwriter may not sell shares of a new issue. Each share of a new issue must be offered to the investing public, and a restricted person is considered an "industry insider," rather than a member of the public. Restricted persons include: -- Broker-dealers and associated persons (registered representatives) -- Associated persons' immediate family members, including spouses, parents-, brothers- and sisters-in law, children, parents, and any person who is at least 25% financially supported by a restricted person -- Underwriters and their finders and fiduciaries -- Banks, savings and loans, and insurance companies
The fiscal policy viewpoint is that the: A The federal government can manipulate the economy to any desired level by changing its tax rates and spending practices B The federal government can manipulate the economy by controlling the money supply C The economy and the business cycle can be controlled by the money supply D The federal government can manipulate the economy to any desired level by purchasing or selling treasury securities
A Buying and selling of government securities is a monetary policy, not a fiscal policy. The monetary viewpoint is that the economy and business cycle can be controlled by the money supply via the actions of the Federal Reserve Board (FRB). The fiscal or Keynesian viewpoint is that the federal government can attempt to manipulate the economy by changing its tax rates and spending practices.
An investor paid the market price plus a commission for management company shares. What type of shares did they purchase? A Closed-end management company shares B Front-end load fund shares C Open-end management company shares D Class B mutual fund shares
A Closed-end fund shares trade like a stock according to secondary market supply and demand and the transaction cost is called a commission. Open-end fund shares are purchased at the POP and redeemed at NAV, and the transaction cost is called a sales charge or load.
All the following could allow an investor to profit in a declining market, except: A The investor can sell short mutual funds B The investor can buy put options on a broad-based stock index C The investor can sell short stocks in a margin account D The investor can buy inverse ETFs on broad-based stock index
A Hedging is the method used to reduce systematic risk. Options on broad-based indexes can be purchased to protect an investor from overall market decline. An investor could purchase puts on the S&P 500 for example. If the market drops, the investor exercises the put and reaps the benefits of the market drop and lessens their losses on their long stock positions. Investors can also hedge by short selling in a falling market. This can't be done with mutual funds but, could be done with ETFs that mirror an index. Again, if the market drops the investor will profit from the decline on their short ETF position and offset the losses on their long positions.
What tends to have a deflationary effect on the U.S. economy? A Higher taxes and less government spending B Lower taxes and less government spending C Higher taxes and more government spending D Lower taxes and more government spending
A Higher taxes reduce private spending. This, combined with less government spending, slows the economy down. Deflation is a symptom of a declining or slowing economy.
What is a required disclosure for back-end load or class B mutual fund shares? A Upon selling your shares, you may pay a sales charge. Details on charges and fees can be found in the prospectus B Additional deposits are prohibited C These shares are best for short-term holding periods D Not paying up-front sales charges will likely result in greater net investment performance
A If a CDSC will be applied to a customer transaction, a disclosure must be made prominently on the front of the trade confirmation that states, "Upon selling your shares, you may pay a sales charge. Details on charges and fees can be found in the prospectus."
Which of the following municipal bonds could be subject to federal income tax? A Industrial development revenue bond B General obligation bond C General revenue bond D Revenue obligation bond
A Industrial development revenue bonds (IDRs) are considered private activity bonds and unlike other municipals, the interest that directly benefits a corporation may be subject to federal income tax.
Which of the following is not permitted without client approval in a limited discretionary account? A Remove $300 B Redeem 300 shares of the XYZ Fund C Buy 200 shares of the ABC Fund D Purchase a speculative growth fund
A Limited discretion (limited POA) allows the RR to authorize transactions in the account without client approval. However, those transactions must be suitable based on the customer's financial situation, investment objectives, and risk tolerance. Limited discretion does not allow the RR to remove or add funds to the account without client approval. This activity is allowed in an account established under full discretion (full POA).
Which of the following is primarily concerned with state registration standards and laws at the state level? A NASAA B SEC C MSRB D IRS
A The NASAA is a representative body made up of securities regulators from the fifty states and the territories of the United States. The Uniform Securities Act is a set of securities laws used to establish uniform securities registration standards and laws at the state level. It serves as model law that provides State Administrators with a template or guide to create regulations for securities registrations and transactions in their own state.
If the expense ratio of a fund is decreasing, what has likely happened? A Fund expenses have decreased, and the average net assets have stayed the same B Fund expenses have stayed the same, and the average net assets have decreased C Fund expenses cannot change without approval of all shareholders, so shareholders must have voted to reduce the expenses D Fund expenses have increased at a faster rate than the average net assets
A The fund's annual operating expenses are divided by the average dollar value of its assets under management to calculate the ratio. If the expenses of the fund have decreased and the average net assets have remained the same that will result in a lower expense ratio. Conversely, if the fund expenses have increased at a faster rate than the average net assets, the ratio would increase.
If an investor purchases a security based on false information contained in a prospectus, what remedy can the investor seek? A Civil liabilities B Criminal penalties C Criminal liabilities D The investor may hold the SEC liable for approving the issue for sale
A The person who purchases a security has the right to pursue civil tort claims if the items in the filing statements include false statements regarding material facts or omit material facts required to be stated.
Which of the following statements is true regarding the statement of additional information? A The SAI must be supplied upon request B It must be delivered to customers only C The SAI must be supplied to all purchasers of mutual fund shares D It is always part of the propectus and must be delivered at or before the time of confirmation
A The statement of additional information contains supplementary information on fund holdings, transactions, and fees. There is no requirement for this to be provided to each customer. This document must be furnished upon request.
If a registered rep is terminated from a member firm, the firm must notify FINRA of the termination within: A 30 days B 10 days C 15 days D 60 days
A This is specified by FINRA and applies to a representative who voluntarily resigns or who is terminated by the firm.
Reasonable-basis suitability is defined as a security or investment strategy that is: A Suitable for some investors B Offered in the primary market C Offered in this state D Suitable for all investors
A To comply with reasonable-basis suitability, the RR must make sure the security or investment strategy is suitable for at least some investors. The RR must have reasonable basis to make the recommendation to a customer.
An investor purchased 100 units of the Connecticut Municipal Securities Trust. Which one of the following statements concerning this investment in the UIT is accurate? A The shares are redeemable but do not offer reinvestment provisions back into the trust B The shares must be liquidated in the open market and do not offer reinvestment provisions back into the trust C The shares must be liquidated in the open market and offer reinvestment provisions back into the trust D The shares are redeemable and offer reinvestment provisions back into the trust
A UIT holdings, referred to as shares of beneficial interest, can be liquidated via redemption to the issuer. UITs do not contain reinvestment provisions that allow the owner to purchase additional units.
For a registered representative to be able to trade in a customer's account without specific trade instructions for each trade, all the following must be in place, except: A Initial account acceptance by the broker-dealer B Profit-sharing agreement C Trades approved, and account reviewed by a principal D Customer provided written authorization
B A discretionary account gives an RR or broker-dealer trading authority in an account. A discretionary account can be established with either limited or full power of attorney (POA). No broker-dealer or registered representative will exercise any discretionary power in a customer's account unless that customer has given prior written authorization. The account must be accepted by the broker-dealer, as evidenced in writing by a qualified principal. A discretionary trade must be approved by the broker-dealer promptly after the trade is done. All discretionary accounts must be reviewed at frequent intervals to review suitability and to detect and prevent transactions that are excessive in size or frequency.
An investor shorts a stock at $100 per share. What kind of order can the investor place to liquidate the short position if the stock goes above $105? A Sell limit order at $105 B Buy stop order at $105 C Buy limit order at $105 D Sell stop order at $105
B A stop order is a type of order that is placed to stop losses that may occur. A buy stop order could be placed by an investor with a short stock position. Remember, when a customer is short in a stock, they don't own it and are hoping that the price drops. That customer could enter a buy stop order to limit their losses if the stock rose in price.
All the following about listed equity options are true, except: A The option writer sells the contract for a premium and is obligated to fulfill the terms of the contract (either buying or selling the specific stock) if exercised by the holder B FINRA regulates the Options Clearing Corporation (OCC) C An option is a legal financial contract between 2 parties, the option writer and the option holder D An options contract gives the option holder the right to buy or sell 100 shares of a specific stock at a predetermined price, the strike price, for a specified time period
B An option is a legal financial contract between 2 parties, the option writer, or seller, and the option holder, or buyer. Options exist on stock, bond yields, bond prices, stock market indexes, and foreign currency. An options contract gives the option holder the right to buy or sell 100 shares of a specific stock at a predetermined price, the strike price, for a specified time period. The option writer sells the contract to the option holder for a premium and is obligated to fulfill the terms of the contract (either buying or selling the specific stock) if exercised by the holder. Trading of listed equity options is handled by the Options Clearing Corporation or OCC. The SEC maintains jurisdiction over the OCC.
A registered representative is selling a mutual fund that has a contingent deferred sales charge. If the investor holds the shares for 7 years, there is no charge at redemption. All the following statements are permissible, except: A Contingent deferred sales charges are often called back-end loads B If you hold the shares for 7 years, it is a no-load fund C The contingent deferred fees are usually temporary D The customer pays a higher back-end sales charge if the shares are redeemed within the first couple of years
B Contingent deferred sales charges are also referred to as bank-end loads. It is a violation for a registered representative to state or imply to a prospective customer that a contingent deferred sales charge is the same as a no-load fund. The fee declines on a percentage basis and is usually reduced to 0 percent within 5 to 7 years. Shares with CDSCs are often referred to as Class B shares.
An event initiated by a public company that will bring an actual change to the securities issued by the company is called: A Corporate charter B Corporate action C Corporate response D Corporate resolution
B Corporate actions are actions that corporations take that have an effect on current shareholders. Most corporate actions are approved by the board of directors, and a few require a vote of the majority of shares to occur.
A customer with an income objective in a high tax bracket should consider which of the following? A Low dividend paying common stock B Municipal bond fund C AAA rated corporate bond fund D Low dividend paying preferred stock
B Customers in higher brackets may consider investments in municipal (tax-free) bonds or tax-deferred investments as opposed to currently taxable investments. Using the tax-free equivalent yield calculation will help in this determination.
How will a retail customer know what types of products/services the broker-dealer has available that the registered representative can offer? A Form BI B Form CRS C Firm prospectus D Conflicts disclosure form
B Form CRS is a form that briefly describes the firm's relationship with their clients, must be delivered to each retail customer, and is filed with the SEC. Firms that are registered as both broker-dealers and investment advisers are encouraged to create separate forms that pertain to their relationships under each entity. Firms must provide information on specific categories, presented in the following order, using specific headings for each category that are presented in question and answer format. The specific category headings are: -Introduction -Relationship and Services -Fees, Costs, Conflicts, and Standard of Conduct -Disciplinary History -Additional Information
Which of the following statements concerning a mutual fund investment advisory fee is correct? A Investment advisory fees are only paid if a fund outperforms its benchmark B Investment advisory fees are paid even if a fund's NAV declines C The fee is typically the largest portion of the sales charge D The fee is typically paid based on a percentage of realized capital gains in the account
B Investment advisers are paid a fee for their services. The compensation, called a management fee, is typically based on a percentage of assets under management. The adviser is paid whether the fund makes money. Investment advisory fees are not a percentage of earnings but, rather, a fee for services rendered. These fees are typically the largest ongoing expense borne by the fund but is not part of the sales charge.
When do large-cap stocks tend to outperform mid and small-cap stocks? A When the economy is expanding B When the economy is contracting C When the economy has peaked D When the economy in the trough
B Markets can favor a specific capitalization category at different times. Large-cap stocks tend to outperform the other 2 categories when the economy is contracting due to their size and established profile. When the economy is growing small-cap stocks can outperform the other 2. Therefore, a diverse portfolio will include these various classifications of stock in consideration of market fluctuations.
What is the maximum sales charge for an open-end investment company? A 9% B 8.5% C 6.25% D 7.25%
B Mutual fund companies are permitted to charge a maximum of 8.5% on purchases.
A registered representative for a boutique broker-dealer wants to recommend a non-NMS stock to one of their best clients. This stock is currently bid at $2.50 and offered at $3.00. This investor has been a customer for several years, and the registered representative remembers that on multiple occasions this client purchased similarly priced OTC stocks. The representative calls the client and recommends the purchase at the current offer price. Which of the following regarding this solicited order is true? A This order is prohibited because the spread between the buy price and the sell price is greater than 8.5% B The large spread between the bid and the ask prices indicates this security is likely has a low trading volume and is relatively illiquid C This security is not considered a "penny stock" under SEC regulations because it trades for more than $1 per share D The registered representative must complete a suitability analysis on the client prior to recommending an unlisted security that trades under $5 per share
B The SEC defines a "penny stock" as an unlisted security that is priced below $5 a share. Unlisted securities are those that do not qualify for listing on a stock exchange and are traded over-the-counter with their prices quoted on the OTC Markets Group. These securities typically have low trading volume and little competition for orders by market makers in these securities. Low competition for orders tends to cause the spread between the bid and ask prices to widen, in this case to 17%. Because of the additional risks associated with penny stocks, any recommendation must certainly be suitable to an investor both willing and able to accept such risks. However, the registered representative is not required to conduct a suitability requirement with the customer who is an establish customer. An established customer is one who has been a client with the firm for at least 1 year and has done at least 3 unsolicited trades from separate issuers on 3 separate occasions. There is no regulation that limits the spread on OTC-traded stocks to 8.5%; only the maximum sales charge on mutual funds is limited to 8.5%.
The U.S. government awards bids on what basis? A Lowest dollar amount, lowest yield B Highest dollar amount, lowest yield C Lowest dollar amount, highest yield D Highest dollar amount, highest yield
B The U.S. government sells their debt at weekly and monthly auctions, depending on the length of maturity. Weekly auctions are held for all T-bills except for the 52-week T-bill. All other government debt, which includes T-notes, T-bonds, TIPS, and the 52-week T-bills, are auctioned monthly. These auctions use a type of competitive bid system called a Dutch auction. Bids, which specify a dollar amount and the yield that is wanted, are submitted and filled from lowest to highest yield until the Treasury has sold the required dollar amount of securities. The last yield accepted will be the yield that all accepted bids are awarded, even if it's larger than the bid they entered. The government wants the lowest possible yields because that equals lower interest costs. The higher yield bids are not filled.
The board of managers of a separate account is most like: A Affiliated persons B A board of directors C An investment manager D The board of governors
B The investment manager is another name for investment adviser. A separate account has a board of managers. A mutual fund has a board of directors. An affiliated person owns 5% or more of the outstanding voting securities. The board of governors is part of the Federal Reserve Board's Federal Open Market Committee (FOMC).
A management company's ask price increased $0.42, but its NAV per share only increased $0.12. This indicates: A The fund's NAV increased since more investors bought shares in the management company B The increase in the public's demand for the shares is greater than the fund's increase in NAV per share C The company is open-end D Fewer people were interested in buying shares of the fund
B The market price of closed-end shares is determined by supply and demand for the shares. If the ask price increased $0.42, but the NAV per share only increased $0.12, then the company is closed end. This means more investors wanted to buy, so the price increased in the market, but the NAV per share only climbed $0.12 based on the fund's net asset value. A change in the NAV per share of an open-end company will change the public offering price proportionately. More investors purchasing shares of a fund will not affect the NAV. NAV is based on the value of the underlying portfolio.
This yield curve represents shorter maturities having higher yields than longer maturities and may occur right before a recession or during very extreme economic conditions when interest rates are very high in the market and the demand for money far exceeds the money supply: A Fluctuating B Negative C Flat D Positive
B The negative yield curve, also known as the inverted yield curve, flips the normal yield curve upside down and represents shorter maturities having higher yields than longer maturities. Inverted yields may occur right before a recession. This type of yield curve only occurs during very extreme economic conditions when interest rates are very high in the market and the demand for money far exceeds the money supply. The positive yield curve, also known as a normal ascending yield curve, is an upward and outward sloping curve. This yield curve is present during normal economic conditions. A normal yield curve indicates that bond issuers are willing to pay a higher coupon for the ability to use the money from the bond for a longer period. In turn, bond investors are willing to wait a longer period to get their principal back in return for the higher yield on the bond. A flat yield curve is a straight line on the graph and represents short- and long-term rates on bonds that are yielding similar results. This typically happens when the yield curve is on the way to inverting, or becoming a normal curve again, because investors are expecting a change in rates.
What is the Standard and Poor's highest "junk" bond rating? A C B BB C BBB D AA
B The top 4 ratings are for investment grade are AAA, AA, A, and BBB. Bonds below these ratings are speculative or junk. The best highest speculative rating is BB.
An investor has four different accounts at TWD Securities. The investor has a cash account with $200,000 of securities and $40,000 of cash, a joint account with their spouse which has $740,000 of securities and $335,000 of cash, a joint account with their brother which has only $175,000 of cash, and a margin account with a market value of $75,000 and a debit balance of $40,000. If TWD files for bankruptcy, what is the combined coverage that the investor will receive from SIPC? A $975,000 of securities and $350,000 in cash B $485,000 in securities and $465,000 in cash C $400,000 of securities and $250,000 in cash D $675,000 in securities and $315,000 in cash
B There are three customers: the investor, the investor and spouse, and the investor and brother. Each will be treated separately by SIPC. For the investor's individual accounts, cash, and margin, SIPC treats the 2 accounts as one customer and combines the values of both to determine coverage. The cash account has $200,000 in securities and $40,000 in cash. While the margin account has a net securities position of $35,000 (market value of $75,000 - the debit balance of $40,000). This "customer's" coverage for the 2 accounts is $40,000 of cash and $235,000 for securities. The joint account with their spouse has assets beyond the SIPC limits. This account will receive insurance coverage of $250,000 for securities and $250,000 for cash (since cash claims are settled first). The joint account with their brother has $175,000 in a cash account (which is fully covered). The total securities coverage ($235,000 + $250,000 = $485,000). The total cash coverage ($40,000 + $250,000 + 175,000 = $465,000).
The donor of a UTMA account has donated $30,000 over the last 5 years to the minor. The donor now has a financial hardship. What can the donor do? A A loan may be made from the UTMA account to the donor, providing a reasonable rate of interest is assessed B The $30,000 gift to the minor is irrevocable, so the assets may not be used in any way for the donor C The donor may liquidate a portion of the minor's assets, but they must be repaid D The donor may liquidate 20% of the account per year, providing the first 4-year average does not exceed 16%
B Under the Uniform Transfers to Minor's Act (UTMA), the gift to the minor is irrevocable. The assets may not be used for the donor. However, the assets may be used by the custodian for the benefit of the minor at any time.
Which statement is incorrect regarding a variable annuity? A Upon annuitization, the accumulation units are converted to annuity units. The income is paid based on the value of the units. B The number of annuity units received, and the unit value remain level C The contract owner bears the investment risk and receives the return earned on invested assets, less any charges assessed by the insurer. D Premiums paid during the accumulation period are invested in a separate account.
B With variable annuities, upon annuitization, the number of units redeemed remains level, but the unit values fluctuate based on the performance of the investment accounts selected.
Which of the following is false regarding all securities issued by the U.S. government? A They are exempt from state and local income tax B They are backed by the full faith and credit of the U.S. government C They are exempt from federal income tax D They are exempt from SEC registration
C U.S. government securities will earn interest income that is exempt from state and local taxation. The interest income is taxable in the year received at the investor's marginal tax rate on the federal level. Exempt securities do not need to be registered with the SEC. The exempt securities include U.S. government and agency issues, municipal issues, foreign government issues, bankers' acceptances and commercial paper maturing in 270 days or less, bank issues, common carrier issues, nonvariable insurance company issues, and nonprofit or charitable organization issues. U.S. government securities are backed by the full faith, credit, and taxing power of the U.S. government.
Updates and account information verification must be completed and sent to the client. What is the maximum amount of time allowed for this to be accomplished? A Every 48 months B Every 24 months C Every 36 months D Every 12 months
C Under FINRA's Know Your Customer rule, registered representatives and member firms must use due diligence to obtain essential information to service the customer's account, follow the customer's instructions, and comply with all laws and regulations. To verify that the correct information was collected, the RR must send a copy of the customer profile or account record to the customer within 30 days of opening the account or with the customer's next statement. Updates and account information verification must be sent to the client at least every 36 months.
How does an issuer ultimately determine which investment banker to proceed with? A They will contract with the one that charges the least amount of fees B They will hire the one that they have done business with in the past C The issuer will select the one with the most advantageous underwriting agreement D The issuer will choose the one that offers the greatest amount of capital to be raised
C When an underwriter sells stock to investors on behalf of an issuer, the specific role the underwriter plays will vary depending on the underwriter's agreement with the issuer. Some types of underwriting involve increased risk to the investment banker, but also bring higher rewards in the form of underwriting compensation. Methods involving a lower underwriting risk will result in less underwriting compensation. The type of underwriting method selected is subject to negotiation between the investment bankers and the issuer. Several investment bankers may submit an underwriting agreement to the issuer with the syndicate's specific underwriting terms, including the style of underwriting they will use. From there, the issuer will select the investment banker with the most advantageous underwriting agreement for the issue in the primary market.
An investor considers investing $25,000 in 20-year, 8% bonds of ABC Corporation. There is a call provision in 10 years. Which yield gives the investor the best indication of the return they will achieve over the lifetime of the investment? A Coupon rate B Current yield C Yield to call D Risk-adjusted yield
C Yield to call is the only measure listed that refers to a possible lifetime of the investment. Another such yield is the yield to maturity. Which of these the investor achieves by holding the bonds to the maximum time allowed depends on whether the bond issuer calls the bonds or lets the call option expire. Coupon rate is 8%, which may or may not relate to the yield the investor will receive. The current yield is the coupon divided by the current price of the bond. The risk-adjusted return is a theoretical return used to compare rates of return between assets in different risk classes.
All the following conditions must be met for a registered representative to share in the profits or losses in a customer account, except: A The representative must obtain prior written authorization from the member firm B There must be a written agreement with the customer C The sharing must be in direct proportion to the financial contributions made to the account D FINRA must approve the arrangement in writing
D Generally, no member firm or associated person can share directly or indirectly in the profits or losses in any account of a customer carried by the member firm or any other member. However, a member firm or associated person CAN share in the profits or losses in such an account if the member firm or associated person obtains prior written authorization from the customer, the associated person obtains prior written authorization from the member firm, and the member firm or associated person shares in the profits or losses only in direct proportion to the financial contributions made to the account.
Which one of the following will cause a corporate issuer to pay higher coupon rates than their competitors? A Consistent and growing earnings B Pledging of valuable collateral to support the bond offering C Strong balance sheet D Questionable future financial health
D If 2 companies are competing for funds in the capital market and one company is perceived to not have a bright financial future ahead of it, then this risk has to be paid for in terms of higher loan interest rates reflected in the bond's coupon.
SARs are filed with: A The Securities Exchange Commission (SEC) B The Federal Bureau of Investigations (FBI) C The Financial Industry Regulatory Authority (FINRA) D The Financial Crimes Enforcement Network (FinCEN)
D If an employee suspects red flag activity, a SARs must be filed with the broker-dealer, who will in turn file with the Financial Crimes Enforcement Network (FinCEN), a branch of the Treasury Department. SARs include detailed information about transactions that are or appear to be suspicious and must be filed with FinCEN within 30 calendar days if a broker-dealer suspects such activity involving $5,000 or more. Financial institutions and their employees face civil and criminal penalties for failing to properly file Suspicious Activity Reports. CTRs must be filed within 15 days of cash transactions, including layering, of $10,000 or more.
Under which of the following circumstances is it permissible for a registered representative to borrow from a customer? A The customer is a cousin of the representative B The customer has maintained an active account for at least 3 of the past 5 years C The lending arrangement is based on a business relationship that pertains to the representative-customer relationship D The customer and the representative are both registered persons of the same broker-dealer
D Loans are permissible if the customer is immediate family of the representative, but a cousin is not immediate family. The customer has maintained an active account for at least 3 of the past 5 years is a distractor as this information is not applicable to loans. Lending arrangements are permitted if they are based on a business relationship that is outside the representative-customer relationship, not a based on the representative-customer relationship.
Which of the following entities are not permitted to issue municipal bonds? A The Broward County FL school district B New York City C The state of New Jersey D The federal government
D Municipal bonds are issued by states and their political subdivisions, such as counties, cities, and taxing districts. Bonds issued by the federal government are not municipal bonds.
The cost of borrowing money for a corporation is measured by the: A CPI B GDP C Fed rate D Prime rate
D Prime interest rate is the rate at which corporations borrow money from banks. This rate is determined by the banks. The Fed rate is the rate banks charge each other for loans. The other 2 choices are not interest rates at all.
An investor purchases shares of ABC Corporation on Thursday, June 1. Under regular-way settlement, what is the settlement date for this transaction? A Friday, June 2 B Tuesday, June 6 C Thursday, June 1 D Monday, June 5
D Regular-way settlement is the most common method and is used for most securities trades, including corporate and municipal securities. Under regular-way settlement, the settlement date for corporate securities is the trade date plus 2 business days (T+2). A trade executed on Thursday, June 1st will settle on Monday, June 5th.
Which of the following cannot be a stabilizing bid for a new issue that has a POP of $20 per share? A 20.00 B 19.50 C 19.99 D 20.05
D Stabilizing bids can only be place at or below the public offering price
GDA Corporation issued $1,000 par convertible bond with a conversion price per share of $40. The current market price of the convertible bond is $1,120. If an investor purchases the convertible bond today, what is the parity price of the common stock? A $45.60 B $46.10 C $42.20 D $44.80
D The conversion price is $40. To find the conversion ratio divide par by the conversion price (1,000 ÷ $40 = 25). An investor will receive 25 shares of GDA common stock for each bond converted. The phrase to remember now is "with bonds we divide, but we still commonly multiply!" CMP of the bond ÷ conversion ratio ($1,120 ÷ 25 = $44.80).
All the following are true regarding variable annuities except: A The purchaser bears the investment risk B They may provide income that the holder cannot outlive C They are sold by prospectus D They are exempt securities
D Variable annuities are non-exempt securities that must be sold by prospectus and registered under the Investment Company Act of 1940. They contain a separate account that holds the investment choices of the purchaser. The purchaser bears the investment risk not the insurance company. If the holder chooses to annuitize, a variable annuity can provide a stream of income for the rest of the annuitant's life.
