Understanding, Trading, Customer Accounts, and Prohibited Activities Part 4
A 72-year-old customer has a $30,000 required minimum distribution (RMD) calculated to be taken from an IRIf the customer is in the 20% income tax bracket and only withdraws $25,000 from the account, how much tax will be owed?
$7,500 Failure to meet the required minimum distribution (RMD) results in a 50% penalty tax on the shortfall. In this case, taking only $25,000 when $30,000 should have been taken leaves $5,000 exposed to the 50% penalty tax. $5,000 × 50% equals $2,500. In addition to the penalty tax, the ordinary income tax on the amount withdrawn must also be paid (20% × $25,000 = $5,000). Total tax liability on this withdrawal equals $7,500 ($2,500 penalty tax plus $5,000 ordinary income tax).
Interest on a 7% corporate bond would be paid to the investor as
2 semiannual checks for $35 each Interest on corporate bonds is paid twice per year, or semiannually. The interest rate reported, however, is an annual rate. Thus a 7% bond would pay 7% of par ($1,000), or $70, per year as 2 semiannual checks for $35 each.
A customer enters the following order: Sell 1,000 shares of XYZ at 23. Which of the following executions would the customer accept?
23.50 When selling at a limit price (23), the customer will accept that price or better (higher for sell orders). Given the customer is willing to accept 23, any price of 23 or higher (in this case 23.50) is an acceptable execution.
Which of the following is TRUE regarding accounts trading on margin?
A fiduciary account may only trade on margin if it is specifically permitted in the trust or custodial agreement.
Which of the following may receive a commission from a FINRA member firm?
A foreign nonmember firm that agrees to abide by FINRA rules
Which of the following is an acceptable investment for an IRA?
A mutual fund specializing in speculative bonds
The USA PATRIOT Act's required Customer Identification Program is designed chiefly to prevent real estate fraud funding of terrorist activities use of insider information money laundering
II and IV
Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit? If the customer signs and returns a proxy statement but does not indicate how to the shares are to be voted If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting If the matters to be voted on are of major importance If the matters to be voted on are of minor importance
II and IV
Which of the following activities constitute pegging? Immediate repurchase of a security, purchased some time ago and just sold at a loss Multiple purchases a security during a down market to keep it from falling Two investors trading a security back and forth several times within one day Protecting a short call option from being exercised by placing sell orders during the day in the underlying stock
II and IV
Which of the following are not 3-year or 6-year records? Compliance and Procedures Manual List of home, regional, and branch offices Minutes of directors' meetings Customer complaints
III and IV Minutes of directors' meetings (The Minute Book) is a lifetime record. Customer complaints must be kept on file for 4 years, not 3 or 6. The Compliance and Procedures Manual, which must frequently be updated, and the list of all offices where business is done are both 3-year records.
Which if the following may NOT be purchased on margin but can be used as collateral for a margin loan after being held for 30 days?
Mutual funds
An individual is solicited with a cold call made by a registered representative. He tells the representative he is not interested in this investment or in making any future investments. Which of the following actions is required by the Telephone Consumer Protection Act of 1991?
No calls may be made to the prospect by anyone at the firm.
A partnership account wants to trade on margin. When would this be permitted?
Only if it is not restricted from doing so in the partnership resolution
An investor has been putting aside funds for retirement in a nonqualified variable annuity for over five years. She is now age 66 and takes a lump-sum distribution. How are the earnings taxed?
As ordinary income
Which of the following retirement plans does not require minimum distributions once the participant has reached age 70½?
Roth IRA
By the SEC definition, when is the latest that payment in full for purchased securities may take place in a cash account?
T + 4 business days Regulation T, which applies to everyone who opens a brokerage account, specifies that payment in full for securities must take place no later than 2 business days after regular way settlement. Since regular way settlement is T + 2, it follows that T + 4 is the latest.
Which of the following publishes and maintains a list of known terrorists and drug traffickers and those controlled by them or acting on their behalf?
The Office of Foreign Assets Control (OFAC)
A customer has been found in violation of freeriding. As a penalty which of the following will occur?
The account will be frozen for 90 days and no new transactions can occur unless there is cash or marginable securities in the account before any other purchase is made.
A securities firm that is not a FINRA member wishes to do trades with a FINRA member firm. Which of the following statements is TRUE regarding this situation?
The nonmember firm will receive no concessions, but it will buy at the public offering price and sell at the public bid price.
If a shareholder does not wish to attend an annual stockholders' meeting, but still wishes to vote, the shareholder may confer a limited power of attorney on another party to vote the shares. This power is known as
a proxy
If a stock is at risk of failing to maintain the minimum price requirements to remain listed on the NYSE, the most likely corporate action taken to preserve the listing could be
a reverse split
Regarding the potential financial exploitation of seniors, impacted accounts would be those for individuals
age 65 and older, or age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.
An investor receives an unsolicited email about a startup company trading for pennies. The email notes that a patent for a new technology is forthcoming and investors need to get in now. The next day the investor sees lots of information on the same stock in an internet chat room. The hype seems to be similar to what was received in the email blast. Being cautious, the investor senses that this could be
an effort to spread market rumors in an attempt to manipulate the stock
All of the following may be purchased on margin EXCEPT
call and put contracts
A hypothecation agreement would be best described as a
contract allowing securities to be pledged for the loan
A closing transaction can be
either a buy or a sell
An opening transaction can be
either a buy or a sell An opening transaction can be either a buy or a sell. Which one will determine the investor's market attitude—bullish when buying to open a position and bearish when selling to open a position (selling short).
All of the following are possible actions of an investor who has received stock rights EXCEPT
hold the rights for a possible long-term capital gain
A broker-dealer is confronted with margin deposit due but not yet received. The BD can choose to take no action, neither selling out the securities nor requesting an extension, if the amount due is
less than $1,000 The required deposit will be 50% of the securities' value. If the deposit is late, the broker-dealer can either choose to sell out the securities or request an extension. However, for late deposits of less than $1,000, the broker-dealer can choose to take no action.
An investor is long 300 shares of MAS at 45. The stock has just undergone a 3:1 split. The investor's new position is
long 900 shares at 15 The split is a "forward" split, which means the number of shares increases, while the price decreases. At 3:1, the number of shares goes up by a factor of 3 and the price goes down by a factor of one-third (i.e., to one-third of its previous value). The rule is that the total value of the position must remain unchanged before and after the adjustment. In this case, the original position's value was 300 shares × $45, or $13,500. The new position is valued at 900 × $15, which is also $13,500.
A broker-dealer's customer will be relocating for a position with a higher salary and bonus potential. This requires
notification to the broker-dealer of the change within 30 days
Those who look to hide money from government agencies and law enforcement to avoid the payment of taxes or to fund criminal enterprises often look to launder money in the following order:
placement, layering, integration
Each of the following activities would be deemed by market regulators to be manipulative behavior EXCEPT
proxy solicitation
An investor has just received stock rights in the mail allowing the purchase of 250 shares of a stock offering at a discount. With these rights, the investor may take any of the following actions EXCEPT
purchase 125 shares at double the discount
When investors open a position by going long the security, they can close the position by
selling the security
All of the following are bullish positions EXCEPT
short stock Bullish, anticipating that the security's price will rise, is associated with owning the security—having a long position. Therefore, owning securities that can be converted into the stock, such as being long calls, rights, or warrants, would also be considered bullish positions.
Opening a margin account for a client requires the client to do all of the following EXCEPT
signing the loan consent
A broker-dealer firm has just rehypothecated a thousand shares of MMS stock. This means
the customer pledged the stock to the firm, which has now pledged it to a bank
A registered representative enters a discretionary order for her clients account. All of the following are required EXCEPT
the order must be approved by a principal prior to entry
All of the following would be included in a notice of corporate action regarding a stock dividend EXCEPT
the stock's issue date
A certificate issued by a company granting its owner the right to purchase securities from the issuer at some specified price years into the future would best be described as a
warrant
A customer receives a voting proxy from a broker-dealer for shares owned by the customer and held in street name. The customer returns the proxy but later decides to attend and vote at the shareholder meeting in person. The voting proxy
would be revoked, and only the vote at the meeting would count
Which of the following would be considered earned income?
Bonus received from employment
A customer's account has been frozen. Which of the following is TRUE if the customer wants to purchase more securities?
Funds to pay in full must be available in the account before the buy order is entered.
Which of the following would lead to a standardized cost-base adjustment for stockholders?
Dividend
A registered representative is discussing fee-based and commission based accounts with a customer. All of the following are true EXCEPT
Fee-based accounts are most suitable for those who do very little trading during the course of the year.
Roth IRAs have no minimum required distributions at any age have higher contribution limits than those allowed for a traditional IRA allow the withdrawal of earnings tax free as long as the account has been opened for 2 years can be contributed to in the same year as a traditional IRA
I and IV
Which of the following are associated with manipulative, deceptive, or fraudulent devices? Breakpoint sale Preemptive Fill-or-kill Capping
I and IV
Which of the following describes the consequences of a stock split? If the number of shares goes up, the price goes down. If the number of shares goes up, the price goes up. If the number of shares goes down, the price goes down. If the number of shares goes down, the price goes up.
I and IV
If a customer's Regulation T margin deposit is late, which of the following is TRUE?
The broker-dealer may apply to its designated examining authority (DEA) for an extension.