SM Exam 8

The Securities Act of 1933 addresses: A)full and fair disclosure. B)the regulation of exchanges and the OTC market. C)Regulation T. D)the establishment of FINRA.

A: The Securities Act of 1933 requires a prospectus and registration statement disclosing the relevant facts concerning a new issue to be filed with the SEC. The act further requires a prospectus to be distributed before or during a solicitation for sale so that a prospective purchaser will be fully informed and fairly treated.

A registered representative with a FINRA member firm must complete the regulatory elements of CE within how many days of his registration anniversary date? A)120 days. B)90 days. C)60 days. D)30 days.

A: The regulatory elements must be completed within 120 days of a person's second registration anniversary date and every three years thereafter.

A prospect is heavily invested in the common stock of an employer's company, ABC, relative to other investments. The stock has performed well over the last 15 years and the prospect is very happy with the investment. After reviewing financial and nonfinancial criteria, you have determined that A)selling a portion of ABC and using the proceeds to purchase mutual funds will reduce his nonsystematic risk B)because ABC has performed well over a 15-year period, keep the stock but sell it if inside information indicates a fall in value is eminent C)he should begin to liquidate the ABC stock using the FIFO accounting method D)owning too much ABC stock has increased credit risk to an unacceptable level

A: This prospect is exposed to a significant amount of business (nonsystematic) risk as indicated by the large investment in ABC common stock. Business risk can be reduced by diversifying the portfolio; and therefore, recommending the sale of a portion of the ABC stock and using the proceeds to purchase mutual funds is suitable. There will be tax considerations but the use of FIFO accounting will likely expose the prospect to higher capital gains taxes than other accounting methods and may not be the best approach to liquidation.

A registered representative may arrange the purchase of an interest in a privately offered stock for a friend, for which she will receive no direct or indirect compensation, if the representative: I. gives written notification to her broker-dealer after the purchase has been paid for. II. gives written notification to her broker-dealer before the transaction. III. provides all documents and information requested by her broker-dealer. IV. obtains written permission from her broker-dealer before the transaction. A)III and IV. B)II and III. C)I and IV. D)I and III.

B: In a private securities transaction where there is no direct or indirect compensation to the registered representative, only written notification to the broker-dealer is required before the transaction. The employer may require certain documentation, and if requested, it must be furnished. Permission is only necessary when there is to be compensation.

ABC's stock has paid a regular dividend every quarter for the last several years. If the price of the stock has remained the same over the past year, but the dividend amount per share has increased, it may be concluded that ABC's: A)yield to maturity has gone up. B)current yield per share has increased. C)current yield per share has decreased. D) current yield per share has been unaffected current yield per share has been unaffected.

B: The current yield would have increased because current yield is the income (dividend) divided by price. A higher dividend divided by the same price results in a higher yield.

A no-load fund sells its shares to the public: A)through a dealer and its sales representatives. B)by underwriter only. C)by a direct sale from the fund to the investor. D)through a network of underwriters and dealers

C: Because there is no sales charge (load), there is no underwriter; the fund sells directly to the public.

If an elderly widower wants his investments to provide high current income, the representative should recommend: A)the ABC Widow Fund. B)a zero-coupon bond. C)a mutual fund that matches the investor's stated objective. D) a growth fund D) a growth fund.

C: Investors should be careful not to be misled by a mutual fund's name. Although the name of a fund should bear a resemblance to its objective, the investor and the representative should read the fund's prospectus carefully to be sure that the fund's objective matches the investor's objective. Growth funds and zero-coupon bonds are not designed to meet the requirement of providing maximum current income.

Which of the following statements describing Section 529 plans is TRUE? A)The fees associated with them are generally similar from state to state. B)Most state college savings plans require either the owner or the beneficiary of the plan to be a state resident. C)The maximum annual contribution varies from state to state. D)They can only be opened for children under the age of 18.

C: The features of Section 529 plans, including their contribution limits and fees, vary widely from state to state. Section 529 plans have no age limits as to participation; they are open to both children and adults who plan to attend college or graduate school. For college savings plans, there is no state residency requirement for either owners or beneficiaries of Section 529 plans.

All of the following statements regarding a transfer on death (TOD) account are correct EXCEPT: A)probate is avoided. B)only those assets held at the broker-dealer are transferred. C)the owner of the account may change beneficiaries at will. D)estate taxes are reduced.

D: A TOD account avoids probate, but not estate taxes. The owner of the account may change beneficiaries and their percentages as he wishes. The TOD account is an account at a specific broker-dealer and only relates to the assets in that account.

A registered representative is hosting a seminar to solicit sales of a specific mutual fund. He has highlighted features of the fund in the prospectuses he will hand out and has prepared summary sheets of the prospectus for distribution. Regarding this situation, which of the following statements are TRUE? I. It is acceptable to highlight the key points in the prospectus. II. A prospectus may not be highlighted. III. Distributing summary sheets of a prospectus is acceptable. IV. The representative may not distribute summary sheets of the prospectus. A)I and IV. B)I and III. C)II and III. D)II and IV.

D: The registered representative may neither highlight portions of the prospectus nor distribute a summary sheet