Unit 15 Test
Mr. Smith, a 60-year-old conservative investor, is planning to retire next year and would like to roll over his 401(k) assets to your firm. In recommending the appropriate asset mix for these funds, your advice would be to place A) 80% of the assets in various fixed income funds with the balance in equities and equity funds B) 50% of the assets in various corporate bond funds with the balance in a money-market fund C) 100% of the assets in a fixed annuity D) 100% of the assets in a money-market fund
A) 80% of the assets in various fixed income funds with the balance in equities and equity funds
Regarding research reports delivered to a member firm's clients, which of the following statements is CORRECT? A) A member firm may present, and base recommendations on, reports and analysis prepared by another member firm when its source is disclosed. B) A member firm need not disclose that a report or analysis was prepared by another member firm. C) A member firm may never base a recommendation on reports or analysis prepared by another member firm. D) A member firm may never present reports or analysis prepared by another member firm.
A) A member firm may present, and base recommendations on, reports and analysis prepared by another member firm when its source is disclosed.
Mr. and Mrs. Smith, both nearing retirement, want to reallocate $200,000 of their $500,000 portfolio of blue-chip stocks to an investment that would add to their monthly income after retirement. Of the possible investment choices below, which would be the most suitable recommendation given their investment objective? A) GNMA securities B) Exchange-traded notes C) Preferred shares of stock D) High-yield corporate bonds
A) GNMA securities
An investor owns 3 types of municipal bonds: (1) AA-rated City of New York 8% GOs due 2013; (2) AA-rated Ohio Turnpike Authority 7.9% revenue bond due 2012; and (3) AA-rated University of California 7.8% revenue bond due 2013. What type of diversification does this represent? A) Geographic B) Maturity C) Quality D) Price
A) Geographic
Your clients, Mr. and Mrs. Smith, tell you that they have their daughter's wedding to pay for. She will be married in 9 months, and Mr. and Mrs. Smith are anticipating a number of wedding-related expenses between now and then. Of the following choices, which recommendation for the $25,000 they have set aside for the wedding would be the most suitable? A) Money market fund B) An immediate annuity C) Utility stock mutual fund D) A single large-cap dividend paying stock
A) Money market fund
Under the Conduct Rules and the concept of "fair dealing" with customers which of the following is NOT prohibited? A) Short sales of securities in investment accounts B) Recommendations to hold existing positions that no longer align with the customers investment objectives C) Discretionary account transactions that are beyond the customer's financial means D) Short-term trading of mutual fund positions
A) Short sales of securities in investment accounts
A customer's portfolio has a beta coefficient of 1.1. If the overall market increases by 10%, the portfolio's value is likely to A) increase by 11% B) decrease by 11% C) increase by 10% D) decrease by 10%
A) increase by 11%
When a FINRA member places a third party between it and the best available market, it is a violation known as A) interpositioning B) commingling C) backing away D) locking markets
A) interpositioning
If a registered representative purchases a limited partnership unit without providing prior written notice to his employing firm, the representative A) is in compliance with FINRA rules because the partnership is a passive investment B) must have his firm's written approval before receiving any distributions C) has violated FINRA's rule against interpositioning D) has violated FINRA's rule prohibiting outside business activities
A) is in compliance with FINRA rules because the partnership is a passive investment
A customer buys 100 shares of RFTQ at $10 per share. Several months later, the stock is trading at 4.60 - 5, at which time the registered representative offers to buy back the stock from the customer for his own account at $9 per share. This action is A) prohibited because FINRA rules do not allow registered representatives to guarantee customers against loss B) permitted with the written permission of a principal C) prohibited because it violates the Uniform Practice Code D) permitted because it allows the customer to sell at a price higher than the current market
A) prohibited because FINRA rules do not allow registered representatives to guarantee customers against loss
If a registered representative perceives that unethical trading practices are occurring at his firm or another firm, the RR can report this information to A) the FINRA regulatory tip line in Washington DC B) the Investor Complaint Center operated by FINRA C) the FBI D) the Director of Arbitration of FINRA
A) the FINRA regulatory tip line in Washington DC
A registered representative is aware of 3 limited partnerships that might be suitable recommendations for a number of accounts within the firm's client base. Which account classifications would they be least suitable for? A) A corporate account B) A UTMA account C) A trust account D) An institutional account
B) A UTMA account
Diversification helps protect against which of the following types of risk? A) Systematic B) Nonsystematic C) Inflation D) Market
B) Nonsystematic
After knowing a customer for a short time a registered representative (RR) is able to discern that the customer's primary investment objective is to preserve his initial principal investment with minimal or no risk. The customer is aware of and comfortable knowing that the account value is not likely to generate current income or returns that will keep pace with inflation. The RR best characterizes the customer's investment profile as A) moderate B) conservative C) aggressive D) moderate conservative
B) conservative
Under FINRA rules, the annual limit for gifts received from customers or other firms is A) $25 B) $50 C) $100 D) $250
C) $100
A single investor, age 26, wants to begin a long-term saving plan for retirement by opening an IRA with your broker/dealer. Comfortable with mutual funds, an appropriate asset allocation/mix would be A) 40% equity funds, 60% bond funds B) 10% equity funds, 90% bond funds C) 80% equity funds, 20% bond funds D) 50% equity funds, 50% bond funds
C) 80% equity funds, 20% bond funds
A married couple in their early 40s is willing to accept some risk and wants to keep pace with inflation. Which of the following investment choices would be most suitable for them? A) A government bond portfolio B) Municipal bonds C) A diversified common stock portfolio D) Exchange-traded notes (ETNs)
C) A diversified common stock portfolio
Which of the following states that the pricing of a stock should take into account systematic risk as well as the expected return of a theoretical risk-free asset? A) Modern Portfolio Theory B) Random Walk Theory C) Capital asset pricing model (CAPM) D) The DOW Theory
C) Capital asset pricing model (CAPM)
Your client, age 62, single and just retired with no mortgage, currently owns some growth stocks and AAA rated corporate bonds. He would like to diversify in a way that might add to his current income in order to supplement his pension plan distributions. He tells you he is financially comfortable and willing to accept moderate risk. Of the following choices, which would be the most suitable recommendation for this individual? A) Corporate bonds with non-investment grade ratings and higher yields B) New property direct participation real estate program(DPP) C) Equity income fund D) Selling naked call options to generate income
C) Equity income fund
Your customer, a new investor, 24 years of age, earns $35,000 per year and has saved $10,000 to invest. She would like to purchase her first home in approximately 5 years. Which of the following would be the least suitable recommendation given her objective? A) A balanced fund B) Preferred stocks C) Tax-free municipal bonds D) Large-cap equity fund
C) Tax-free municipal bonds
If a registered representative wishes to open a joint account with his brother, who is a client of his, which of the following rules would NOT apply? A) The representative's principal must approve the opening of the account. B) Transactions in the account must meet suitability criteria based on the investment objectives noted on the new account form. C) The sharing in profits and losses in the account must be proportional to each party's investment in the account. D) The account may be opened as either tenants in common or as joint tenants with rights of survivorship.
C) The sharing in profits and losses in the account must be proportional to each party's investment in the account.
When interest rates are changing, an investor might expect which of the following to be the most volatile? A) Corporate bond with 20 years to maturity B) Treasury bill with 5 months to maturity C) Treasury STRIPS with 20 years to maturity D) Treasury note with 5 years to maturity
C) Treasury STRIPS with 20 years to maturity
A broker dealer has encouraged its registered representatives (RRs) to move all customers into fee-based accounts paying a single annual fee based on a percentage of assets rather than having them pay commissions for every transaction separately. This would be deemed A) inappropriate for those customers who engage in large institutional size transactions B) appropriate for both large and small clients giving both the equal advantage of paying one annual fee C) inappropriate for those customers who trade infrequently D) appropriate because it is considered the reverse of churning which is a prohibited activity
C) inappropriate for those customers who trade infrequently
ABC stock has a beta of 1.2. If the OEX index increases by 6%, ABC would be expected to A) decrease by 7.2% B) decrease by 6.0% C) increase by 7.2% D) increase by 6.0%
C) increase by 7.2%
Which of the following investments is least appropriate for a client who is primarily concerned with liquidity? A) Preferred stock B) Municipal bond mutual funds C) Bank savings accounts D) Direct participation programs
D) Direct participation programs
A registered representative knows that a large block trade to buy shares of XYZ stock for one of his institutional accounts will be executed shortly. The RR enters small orders to buy 100 shares of XYZ for each of his retail discretionary accounts prior to the block trade. This action is A) a violation known as capping B) a violation known as marking the market C) allowed D) a violation known as front-running
D) a violation known as front-running
A municipal securities registered representative may be allowed to share in a customer's account if which of the following is TRUE? I. He shares in the losses as well as the profits. II. The sharing is proportionate to his investment in the account. III. The customer is also a municipal securities registered representative. IV. The customer is employed by the same municipal securities dealer.
I and II
A new customer asks you to offer recommendations of investments that would provide current income. You would include in your list I. government and agency securities II. real estate investment trusts (REITs) III. exploratory oil and gas direct participation programs IV. new IPO issues
I and II
A foreign company made a private offering dealing with currency transactions and promised a 20% minimum return. A registered representative referred several of his customers to the company and received a $100 referral fee for each customer but no commissions. Because the representative did not execute any transactions, he did not inform his broker/dealer of the referrals. If the investment turned out to be fraudulent, which of the following statements are TRUE? I. The registered representative may be guilty of assisting in the perpetration of fraud. II. The investors will also be held liable for the fraud. III. The investors are victims rather than perpetrators. IV. Because the registered representative did no transactions, he cannot be held liable for the fraud.
I and III
A registered representative wishes to lend money to a customer. Under which of the following circumstances would written notice to the broker/dealer be required? I. The customer is the RRs' spouse II. The RR and the customer have been close friends since high school III. The customer is the RRs' mother IV. He and the customer have a business relationship outside the firm that necessitates occasional lending between them
II and IV
