65 10-12A stock traded infrequently would MOST likely have: QID: 2330269 Mark For Review A The frequency of trading in a stock has no bearing on its spread B A wide spread as the security might be difficult to acquire C A narrow spread as there is not muc

Ten years ago a client transferred her 401(k), worth $80,000, into an IRA. Her account has grown to $120,000 and she takes a distribution of $10,000 at age 52. The tax consequences of her actions would be: A$10,000 of taxable ordinary income plus a $1,000 penalty B$10,000 long-term capital gain plus a 10% penalty C$10,000 long-term capital gain plus a 15% penalty D$40,000 of taxable ordinary income

A$10,000 of taxable ordinary income plus a $1,000 penalty

A court has appointed a person to be the guardian for an incompetent individual. To open a guardianship account with a broker-dealer, which of the following court-issued documents is required? AA certificate of incumbency BA durable power of attorney CA guardianship agreement DA power of attorney

AA certificate of incumbency

ERISA prohibits a fiduciary from engaging in which of the following activities? AAll of the choices above are prohibited. BBorrowing funds for liquidity purposes CSelling investments to the pension fund like stock or property DBuying investments at prices below current market prices

AAll of the choices above are prohibited.

Which of the following statements is TRUE regarding the receipt of Social Security benefits? AAt age 62, a recipient receives a lower initial benefit, but he will receive benefits for more years. BA person must start receiving benefits at age 68 1/2. CIf a person starts receiving benefits at age 66, he forgoes cost of living increases. DA person can no longer work if he receives benefits at age 62.

AAt age 62, a recipient receives a lower initial benefit, but he will receive benefits for more years.

While meeting with a new client, an IAR is attempting to gauge the client's interest in investing funds in an IRA or buying a new car. This is the IAR's way of determining the client's: AAttitude toward money BApproach to risk management CUnderstanding of the Modern Portfolio Theory DRisk tolerance

AAttitude toward money

All of the following investments issued by commercial banks would potentially have the protection of FDIC insurance, EXCEPT: ABankers' acceptances BBrokered certificates of deposit CChecking accounts DDemand deposits

ABankers' acceptances

Which of the following choices will eliminate a short position in a listed option? AClosing purchase BOpening sale CClosing sale DOpening purchase

AClosing purchase

What's a benefit of establishing a general partnership compared to establishing an S-corporation? AGeneral partnerships don't require incorporation with the state BEfficient taxation CThe business can own property DLimited liability for owners

AGeneral partnerships don't require incorporation with the state

Rank the following investments from least to most risky: I Common stocks II Preferred stocks III U.S. government securities IV Limited partnerships AIII, II, I, and IV BII, III, IV, and I CII, III, I, and IV DIII, I, II, and IV

AIII, II, I, and IV

Manny is an active septuagenarian who would like to create a living trust. This trust is referred to as a(n): AInter vivos trust BPrewilled trust CTestamentary trust DIn vitro trust

AInter vivos trust

All of the following statements are TRUE about zero-coupon bonds, EXCEPT: \ AIt would be a suitable investment for a customer who needs cash flow BIt has no reinvestment risk CThe bondholder receives all interest at maturity DThe bondholder pays tax each year on the accretion

AIt would be a suitable investment for a customer who needs cash flow

Which of the following is TRUE of a structured note? AIt's a bond issued by a financial services company which offers a rate of return that's linked to other securities BIt's a bond issued by a municipality in order to raise funds for an infrastructure project CIt's a contract between an individual and insurance company which guarantees income for remainder of the individual's life DIt's a trust owned by a large number of small investors which contains a basket of equity securities

AIt's a bond issued by a financial services company which offers a rate of return that's linked to other securities

A client of a registered representative owns a small business. The business produces strong cash flow during the holiday season, but negative cash flow for the rest of the year. This may indicate a need for which of the following choices? ALiquidity BCapital preservation CZero coupon bonds DTax relief

ALiquidity

In comparison to forward contracts, futures contracts are: AReadily transferable BIndividually negotiated instruments CConsidered alternative investments DLargely unregulated

AReadily transferable

Common and preferred stock are similar in that: AThe dividends for both must be declared by the board of directors BBoth have an equal vote on corporate issues CBoth have a fixed dividend DBoth are guaranteed to receive an annual dividend

AThe dividends for both must be declared by the board of directors

For an investor in the 35% federal tax bracket who is looking to minimize tax liabilities, what would be of LEAST interest? AThe investment ideas and methodologies of a prospective mutual fund manager BWhether to invest in actively managed funds or index funds CThe benefits of taxable versus tax-free bonds DThe percentage of the fund's portfolio that is kept in cash

AThe investment ideas and methodologies of a prospective mutual fund manager

Which of the following is a characteristic of a Subchapter S corporation, but is not a characteristic of a limited partnership? AThe number of potential investors is limited. BManagement is centralized. CEarnings are not subject to double taxation. DLosses are passed through to investors.

AThe number of potential investors is limited.

Which of the following is TRUE if the price of a discount bond falls? AThe spread between the yield-to-maturity and yield-to-call will increase and the yield-to-call will rise. BThe spread between the yield-to-maturity and yield-to-call will decrease and the yield-to-maturity will rise. CThe spread between the yield-to-maturity and yield-to-call will increase and the yield-to-call will fall. DThe spread between the yield-to-maturity and yield-to-call will decrease and the yield-to-maturity will fall.

AThe spread between the yield-to-maturity and yield-to-call will increase and the yield-to-call will rise.

Which of the following statements is TRUE concerning family limited partnerships? AThey must have a legitimate business purpose in order to receive the full potential tax benefits BThey were recently disallowed by the IRS CUnlike other limited partnerships, the general and limited partners have equal authority to manage the partnership's assets DOnly intangible personal property such as stocks and bonds may be placed in a family limited partnership

AThey must have a legitimate business purpose in order to receive the full potential tax benefits

You have been approached by Steven to provide investment advice. Steven was recently named as executor of his uncle's estate and wants your assistance managing the investment portfolio pending disposition. Which of the following statements is TRUE? AYou may accept the assignment BYour appointment requires approval of the beneficiaries CYour appointment requires approval of the judge overseeing the estate DThe Uniform Securities Act prohibits executors from paying outside advisers

AYou may accept the assignment

One month ago, a client purchased a convertible debenture, which is convertible at $20. If the underlying common stock is currently trading at $22 per share, what is the parity price of the bond? APar value B$1,100 C$1,020 D$440

B$1,100

A company has declared a 7-for-5 stock split. If an investor owns 300 shares at $15, what will his position be after the split? A420 shares at $15 per share B420 shares at $10.71 per share C214 shares at $15 per share D214 shares at $21.03 per share

B420 shares at $10.71 per share

A stock traded infrequently would MOST likely have: AThe frequency of trading in a stock has no bearing on its spread BA wide spread as the security might be difficult to acquire CA narrow spread as there is not much demand for the security DA low P/E ratio

BA wide spread as the security might be difficult to acquire

Henry is a trustee for an account that has beneficiaries ranging in age from 2 through 17. Under the Uniform Prudent Investor Act (UPIA), how should the assets of the trust be managed? AThe investment profile of the oldest beneficiary is the determining factor, since she will need the money for college within one year BAll beneficiaries' interests should be weighed prior to making any investments CAll assets should be invested based on the investment recommendations of the grantor DThe trust should be managed based on the most conservative beneficiary profile

BAll beneficiaries' interests should be weighed prior to making any investments

All of the following will impact the value of a bond, EXCEPT: AA decrease in inflation BAn increase in the company's dividend payment CA decrease in the company's credit rating DRising interest rates

BAn increase in the company's dividend payment

A customer believes that a stock's price will increase in the near future. Which option position would be most appropriate? ABuy a put BBuy a call CBuy a put and a call DSell a call

BBuy a call

Under ERISA, all the following are prohibited between the plan and parties of interest, EXCEPT: AUsing plan assets for their own benefit BCharging the plan an advisory fee CSelling property to the plan DLending money to the plan

BCharging the plan an advisory fee

Which of the following investors typically are entitled to vote? AAll stockholders and convertible bondholders BCommon stockholders only CAll stockholders and senior debt holders DCommon and preferred stockholders only

BCommon stockholders only

All of the following statements are TRUE of a 529 plan, EXCEPT: QID:2330131 Mark For Review AWithdrawals that are used for educational purposes are not subject to federal taxation. BContributions are unlimited. CA married couple may give a lump-sum of $150,000 without incurring federal gift taxes. DThere are no income limits placed on contributors.

BContributions are unlimited.

During a period of stable interest rates, which type of preferred stock tends to be the most volatile? ACumulative BConvertible CNon-cumulative DParticipating

BConvertible

Which of the following statements is TRUE regarding a 403(b) plan? ADistributions from the plan will be taxed as long-term capital gains BDistributions from the plan will be subject to taxation at ordinary income tax rates because of the zero cost basis COnly earnings will be taxed at ordinary income tax rates DAll distributions in excess of contributions will be taxable at ordinary income tax rates

BDistributions from the plan will be subject to taxation at ordinary income tax rates because of the zero cost basis

In order to form a limited partnership, two or more people must: AAgree to operate a business together BFile a certificate with the appropriate state or local official CElect to be taxed under term-64Subchapter S DFile a registration statement with the SEC under Regulation A+

BFile a certificate with the appropriate state or local official

An individual expects the market price of XYZ to go down. This investor might: I Buy XYZ call options II Write XYZ call options III Buy XYZ put options IV Write XYZ put options AI and IV only BII and III only CII and IV only DI and III only

BII and III only

Regarding the taxation of an estate, which of the following statements is TRUE? AIf income from an estate is distributed, it's taxable to the beneficiary. BIn a revocable trust, assets are included in the estate for federal estate tax purposes. CIn an irrevocable trust, assets are included in the estate for federal estate tax purposes. DProperty that's inherited by a spouse is subject to estate taxes.

BIn a revocable trust, assets are included in the estate for federal estate tax purposes.

Which of the following is NOT a characteristic of preferred stock? AIt has a dividend that is not guaranteed BIt carries voting rights CIt has a fixed dividend DThe board of directors must declare the dividends

BIt carries voting rights

The advantages of investing in a limited partnership include: ATax losses that can reduce taxes on other portfolio income BLack of control CThe ability to limit risk DThe potential for assessments

BLack of control CThe ability to limit risk

In the past year, a client reported earnings of $3,000 in dividends, $6,000 in long-term capital gains, and salary of $190,000. The client also had a loss of $8,000 from a limited partnership investment. For tax purposes, how is the limited partnership loss treated? AThe partnership loss is only deductible against the $6,000 long-term capital gain BThe partnership loss is only deductible against passive income CThe partnership loss is only deductible against the salary of $190,000 DThe partnership loss is only deductible against other income, up to $3,000

BThe partnership loss is only deductible against passive income

Preemptive rights provide which of the following benefits to their holders? AThe ability to vote when they cannot attend the shareholders' meeting. BTheir proportionate ownership will not be diluted if additional shares are issued. CThat dividends will continue to be paid on their common stock. DA guarantee that bonds can be purchased at a predetermined price from the issuer.

BTheir proportionate ownership will not be diluted if additional shares are issued.

Which of the following options positions has the MOST risk? AWriting a covered call BWriting an uncovered call CBuying a put DBuying a call

BWriting an uncovered call

What is the spread in the following market? Bid: 9.85, 9.75, 9.80 Ask: 9.90, 9.89, 9.92 10 x 5, 3 x 7, 4 x 6 A12 cents B5 cents C4 cents D17 cents

C4 cents

Quotes for non-Nasdaq, over-the-counter (OTC) traded equities can be obtained from the: AThird market BThe Consolidated Quotation System (CQS) CThe OTC Bulletin Board (OTCBB) DThe National Securities Clearing Corporation (NSCC)

CThe OTC Bulletin Board (OTCBB)

Which of the following is TRUE of a Qualified Domestic Relations Order (QDRO)? AA QDRO is a court order that provides an alternative payee the right to receive all or a portion of the benefits that are payable to a participant under a non-qualified retirement plan BA QDRO is a court order that requires one person involved in a divorce to provide for the payment of alimony or child support CA QDRO is a court order that provides an alternative payee the right to receive all or a portion of the benefits that are payable to a participant under a qualified retirement plan DA QDRO is a court order that divides all jointly held property in the event of a divorce

CA QDRO is a court order that provides an alternative payee the right to receive all or a portion of the benefits that are payable to a participant under a qualified retirement plan

Which of the following statements best describes why an individual may choose to create a general partnership rather than a limited partnership? AThe owners of the business want to make sure it dissolves after a certain date BIn a general partnership, income is only taxed once CAll of the investors want to manage or operate the business DThe owners want to protect themselves from liability

CAll of the investors want to manage or operate the BUSINESS

A Japanese company would like to have its stock traded in the U.S. securities markets. This would most likely be accomplished through the issuance of: ABankers' acceptances BEurodollar bonds CAmerican Depositary Receipts DJapanese yen options

CAmerican Depositary Receipts

A customer believes that a stock's price will increase in the near future. Which option position would be most appropriate? QID:2330661 Mark For Review ABuy a put BSell a call CBuy a call DBuy a put and a call

CBuy a call

ll of the following financial instruments are derivatives, EXCEPT: QID:2330071 AFutures contracts BOptions CClosed-end fund shares DLEAPS

CClosed-end fund shares

Which of the following investors typically are entitled to vote? AAll stockholders and senior debt holders BAll stockholders and convertible bondholders CCommon stockholders only DCommon and preferred stockholders only

CCommon stockholders only

All of the following are characteristics of forward contracts, EXCEPT: AThe contracts are negotiated off of an exchange BThe amount and type of the delivered commodity are negotiable CDelivery and settlement of the contracts occurs immediately DThe contracts cannot be offset

CDelivery and settlement of the contracts occurs immediately

Which of the following products is NOT a derivative? ACMOs BLEAPS CETFs DSwaps

CETFs

On Tuesday, May 1, XYZ Corporation's Board of Directors announced a dividend that's payable on Friday, May 25 to stockholders of record on Monday, May 14. The ex-dividend date is: AThursday, May 24 BMonday, May 14 CFriday, May 11 DTuesday, May 1

CFriday, May 11

Manny is an active septuagenarian who would like to create a living trust. This trust is referred to as a(n): ATestamentary trust BIn vitro trust CInter vivos trust DPrewilled trust

CInter vivos trust

Which of the following is NOT included in a customer's adjusted gross income (AGI)? ADividends received from stock BInterest received from corporate bonds CInterest received from municipal bonds DSalary, tips, and bonus

CInterest received from municipal bonds

Which form of business would offer limited liability and the flow-through of profits and losses? AC Corporation BGeneral partnership CLimited partnership DSole proprietorship

CLimited partnership

One of the most common uses for a bypass trust is to: ABypass all tax obligations on income paid to the beneficiaries BBypass capital gains taxes but pay ordinary income taxes on the assets CPass assets from the second deceased parent to his children DProvide capital to pay estate taxes

CPass assets from the second deceased parent to his children

If an advisory client is most concerned with minimizing her tax liability, common stocks may provide a greater benefit than corporate bonds because: ACapital gains on stocks are taxed at a lower rate than the capital gains on corporate bonds to encourage investments in stocks BThe unrealized capital gains on some bonds is taxed each year as ordinary income CQualified cash dividends are taxed at a maximum rate that is less than the rate at which the interest on corporate bonds is taxed DStocks tend to offer a lower yield than corporate bonds

CQualified cash dividends are taxed at a maximum rate that is less than the rate at which the interest on corporate bonds is taxed

An IAR is meeting with a prospective client. The client is in his late 20s, has a higher-than-average income, has several valuable assets, and little debt other than his home mortgage. The client indicates that his main goal is to retire at age 55, but that the stock market makes him very nervous, and that he has never been comfortable investing in any assets other than CDs and money-market funds. Which of the following statements is TRUE regarding this situation? AOnce the client reveals his low-risk tolerance, the IAR may not attempt to convince him that assuming a moderate level of risk might be suitable for him. BSince the client is financially capable of bearing some risk, the IAR may not recommend conservative strategies to him. CRegardless of whether the client is capable of financially bearing some risk, the IAR must take his low-risk tolerance into account when making recommendations. DThe client's low risk tolerance is inappropriate for a person in his situation and the IAR should ignore it.

CRegardless of whether the client is capable of financially bearing some risk, the IAR must take his low-risk tolerance into account when making recommendations.

Which of the following customer accounts would be funded with pretax dollars? AUniversal life BNonqualified variable annuities CSection 457 plan D529 plan

CSection 457 plan

What type of order may a customer use to protect profits or limit losses in current positions? APrice/time order BLimit order CStop order DMarket order

CStop order

A customer believes a stock will have a wide fluctuation in price over a short period. If he wanted to engage in an option strategy that would be profitable from a sharp movement either on the upside or downside, he would buy a: ACall BPut CStraddle DSpread

CStraddle

Which of the following statements about testamentary trusts is NOT TRUE? AThe assets must go through probate before they're placed in the trust. BThe trust goes into effect after the creator dies. CThe donor manages the assets in the trust. DThe trustee manages the assets in the trust.

CThe donor manages the assets in the trust.

Which of the following statements is TRUE in relation to the buyer of a call option? AThe investor has a limited potential profit BThe investor must exercise the option if the underlying stock goes up CThe investor has limited risk DThe investor is entitled to all dividends paid on the underlying stock

CThe investor has limited risk

An annuitant has elected to annuitize using a 10-year period certain payout. His wife is the primary beneficiary and his brother is the contingent beneficiary. If the annuitant and his brother pass away three years after contract is annuitized, who will receive payments for the remaining seven years? AThe contingent beneficiary's estate BThe annuitant's estate CThe primary beneficiary DBoth the primary beneficiary and contingent beneficiary's estate will receive paymen

CThe primary beneficiary

All of the following items are considered earned income, EXCEPT: ANet earnings from self-employment BAlimony CTips DCommissions

CTips

An investor writes an uncovered RST May 25 put for a premium of 4. What is the maximum profit that the investor could realize? AAn unlimited amount B$2,500 C$2,100 D$400

D$400

When trading on margin, clients are required to deposit: A25% of the amount of money borrowed B25% of the market value of the security C50% of the amount of money borrowed D50% of the market value of the security

D50% of the market value of the security

An advisory client is interested in starting a small business. After getting details from the client, it's obvious that he will not be required to obtain a specific license for his business activities and that there will be very limited liabilities. If he's interested in the simplest business form, what's the best recommendation? AA C Corporation BA limited liability company (LLC) CA Subchapter S Corporation DA sole proprietorship

DA sole proprietorship

All of the following items are considered earned income, EXCEPT: ANet earnings from self-employment BCommissions CTips DAlimony

DAlimony

A company based in Europe with offices located in New Jersey would like to have its stock traded on the NYSE. This would most likely be accomplished through the issuance of: ABankers' Acceptances BEurodollar bonds CYankee bonds DAmerican Depositary Receipts

DAmerican Depositary Receipts

A common shareholder is not entitled to: AGive or sell shares to anyone she wishes BVote for the board of directors CReceive dividends if voted for by the board of directors DAppoint officers of the corporation

DAppoint officers of the corporation

Which of the following statements is TRUE regarding Roth IRAs and Coverdell Education Savings Accounts? ABoth allow a catch-up provision if the contribution is made by a person who is over a certain age. BBoth allow tax-deductible contributions. CBoth have the same maximum annual contribution amount. DBoth are only permitted for individuals whose income is below a certain amount.

DBoth are only permitted for individuals whose income is below a certain amount.

Which of the following is a benefit of forming a limited partnership? AEase of raising additional capital BContinuity of life CLiquidity DEase of establishment

DEase of establishment

A client of an IA owns his own home and the title is in his name. If he wants to avoid probate when the property is transferred upon his death, the adviser may recommend which of the following? ATransfer the title to his two children BTransfer the title to a named beneficiary CDo nothing since property is not subject to probate DFile a transfer on death (TOD) deed which identifies a specific beneficiary

DFile a transfer on death (TOD) deed which identifies a specific beneficiary

Which TWO of the following statements are TRUE of stop orders? I A stop order may be described as a suspended market order II A stop order may be executed only at the stop price or better III A stop order, when triggered, guarantees an execution IV A stop order, when triggered, becomes a limit order and needs its limit price to be satisfied for execution AII and III BI and IV CII and IV DI and III

DI and III

An investor has been consistently investing in Treasury bills over a long period. The investor will have:Stable principalUnstable principalStable interestUnstable interest AII and IV BI and III CII and III DI and IV

DI and IV

A group of investors is starting a business to explore and drill for oil. All want to be actively involved in the business, but none wants to be personally liable for the venture's debts. Which of the following business structures would meet their objectives? I A limited partnership II A general partnership III A limited liability company IV An S Corporation AI only BI, III, and IV only CI and II only DIII and IV only

DIII and IV only

Regarding the taxation of an estate, which of the following statements is TRUE? AProperty that's inherited by a spouse is subject to estate taxes. BIn an irrevocable trust, assets are included in the estate for federal estate tax purposes. CIf income from an estate is distributed, it's taxable to the beneficiary. DIn a revocable trust, assets are included in the estate for federal estate tax purposes.

DIn a revocable trust, assets are included in the estate for federal estate tax purposes.

he major advantage of an S Corporation versus a C Corporation is that an S Corporation: AHas greater access to the capital markets BProvides its owners with limited liability CIs exempt from state corporate income taxes DMay elect to be treated like partnerships for federal tax purposes

DMay elect to be treated like partnerships for federal tax purposes

A corporation that has filed for bankruptcy is to be liquidated. Which of the following securities issued by that corporation has seniority in the liquidation process? ADebenture bonds BCommon stock CParticipating preferred stock DMortgage bonds

DMortgage bonds

An IAR is meeting with a prospective client. The client is in his late 20s, has a higher-than-average income, has several valuable assets, and little debt other than his home mortgage. The client indicates that his main goal is to retire at age 55, but that the stock market makes him very nervous, and that he has never been comfortable investing in any assets other than CDs and money-market funds. Which of the following statements is TRUE regarding this situation? ASince the client is financially capable of bearing some risk, the IAR may not recommend conservative strategies to him. BThe client's low risk tolerance is inappropriate for a person in his situation and the IAR should ignore it. COnce the client reveals his low-risk tolerance, the IAR may not attempt to convince him that assuming a moderate level of risk might be suitable for him. DRegardless of whether the client is capable of financially bearing some risk, the IAR must take his low-risk tolerance into account when making recommendations.

DRegardless of whether the client is capable of financially bearing some risk, the IAR must take his low-risk tolerance into account when making recommendations.

An investor has written 3 XYZ May 40 calls. Which of the following is correct? AShe must deliver 40 shares of XYZ stock if exercised against. BShe may purchase 100 shares. CShe must deliver 120 shares of XYZ stock if exercised against. DShe must deliver 300 shares if exercised against.

DShe must deliver 300 shares if exercised against.

The advantages of investing in a limited partnership include: AThe potential for assessments BLack of control CTax losses that can reduce taxes on other portfolio income DThe ability to limit risk

DThe ability to limit risk

If an index option is exercised, what does the buyer of the contract receive? AOne share of each component of the index B500 shares of the index C100 shares of the index DThe cash differential between the option strike price and the index value

DThe cash differential between the option strike price and the index value

A client purchases a TIPS with a 2% coupon and, over the course of the year, the CPI increases by 1%. Which of the following statements is TRUE? AThe client will earn 3% on a fixed principal amount. BThe client will earn 3% on an adjusted principal amount. CThe client will earn 2% on a fixed principal amount. DThe client will earn 2% on an adjusted principal amount.

DThe client will earn 2% on an adjusted principal amount.

What is the liability for loss for an investor in a limited partnership? AA percentage of liabilities allocated by the general partner BThe initial investment requirements CThe amount determined by the general partner DThe investor's basis

DThe investor's basis

All of the following are characteristics of cash equivalents, EXCEPT: AThey are high quality money-market securities BThey are considered highly liquid securities CThey are considered safe investments DTheir returns depend on the performance of the bond market

DTheir returns depend on the performance of the bond market

All of the following are examples of derivatives, EXCEPT: AInterest-rate swaps BCBOE call options CXYZ common stock warrants DUIT municipal bond units

DUIT municipal bond units

All of the following are examples of derivatives, EXCEPT: AInterest-rate swaps BXYZ common stock warrants CCBOE call options DUIT municipal bond units

DUIT municipal bond units

Sources of risk for investors in limited partnerships include all of the following situations, EXCEPT: QID:2330350 Mark For Review APossible loss of capital BChanges in tax laws and government regulations CThe management ability of the general partners DUnlimited liability

DUnlimited liability