CH 3 Unit Test

FINRA will deny a person's registration in all of the following situations EXCEPT? A. when the applicant is not qualified because of lack of experience B. When the applicant was suspended by another SRO C. When the applicant was convicted of securities misdemeanor within the past 10 years D. When the applicant provided false information when filing the Form U4

A

Regulation T addresses the extension of credit from? A. Broker/dealers to customer B. banks to broker/dealers C. banks to customers D. both banks and broker/dealers to customers

A

Tax-free distributions from an Roth IRA may be taken? A. When the money has been in an account for 5 taxable years, and the owner is at least 591/2 B. When the owner buys rental property after holding the money in an account for 3 taxable years C. When an immediate family member becomes disabled D. only for medical emergencies

A

Which of the following is protected by the Securities Investor Protection Corporation (SIPC) A. Broker/dealer failure B. Fraudulent transaction C. Issuer default D. Market risk

A

Which of the following statements regarding taxable investment company distributions to investors is TRUE? A. Dividend distributions are reported on IRS Form 1099-DIV B. Dividends are distributed quarterly and capital gains are distributed semiannually C. Capital gains are generated from an investment company's net investment income D. Capital gains are generated when portfolio assets are sold at a profit but not when investor shares are redeemed

A

A company intends to issue 1 million shares of common stock. A tombstone advertisement for the company's stock? A. is considered advertising and must be filed with FINRA B. may be published during the cooling-off period C. is considered an offer to sell securities by the SEC D. may be used instead of a prospectus to provide disclosure to potential investors

B

A shareholder has has redeemed some mutual fund shares that were purchased over a period of 10 years. If the shareholder has not indicated on his tax return the specific dates of purchase and cost of the shares that were redeemed, the IRS will follow which of the following methods in determining the cost basis of shares redeemed? A. Average cost of purchased B. FIFO C. LIFO D. Step-up in basis

B

All of the following are true regarding capital gains taxation EXCEPT A. a mutual fund sells a security at a profit and reinvests the proceeds, including capital gains; this is a realized capital gain and is reportable tax event to the shareholder B. a mutual fund holds a security after it has appreciated; although it is not sold, the security's appreciation is a taxable event to the shareholder C. if the fund has realized long-term capital gains, they are typically distributed at year end and taxed as long-term capital gains to the shareholder D. realized profits on securities held for more than 12 months are taxed as long-term capital gains to the shareholder

B

An individual who holds a Series 6 license may sell all of the following EXCEPT A. unit investment trusts B. hedge funds C. open-end company shares D. face-amount certificates

B

An investor owns a variable life insurance policy on his wife. The policy names their daughter as the beneficiary. Presuming his wife dies, which of the following statements correctly describes the tax consequences associated with this policy? A. the death benefit will be taxable to the wife's estate upon distribution B. The death benefit will not be taxable to the daughter upon distribution C. The policy owner may deduct premiums paid into the policy in the year they are paid D. There will be no federal income tax on any distribution provided the variable life insurance separate account included only municipal bonds

B

The concepts of a mutual fund passing distributions through to shareholders without first paying a tax is known as A. the pass-through theory B. the conduit theory C. tax-free passage D. free distribution

B

What should be done when a registered representative is aware of a client trading on inside information? A. The registered representative should confront the client directly B. The principal should be informed immediately C. The FINRA Department of Market Regulation should receive written notification D. The issuer of the security should be contacted

B

When a member firm terminates a registered representative, the terminating firm must A. destroy the original Form U4 B. submit a Form U5 C. notify the SEC immediately D. publish a notice in the local newspaper

B

Which of the following brokerage firm employees is NOT required to be fingerprinting? A. Registered principal B. Telemarketing clerk C. Administrative assistant who handles customer funds D. Registered representative

B

Which of the following changes to a Form U4 must be communicated to the registered representative's broker/dealer and FINRA? A. Marital status B. Bankruptcy C. Birth of a child D. Purchase of property

B

While cold-calling, a registered representative encounters an individual interested in buying open-ended investment company shares. The representative and the client meet to discuss alternative investment choices. The individual then writes a check for the purchase of open-ended investment company shares without receiving a prospectus. The registered representative is in violation of which federal act? A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Investment Advisers Act of 1940 D. Investment Advisers Act of 1970

B

Which of the following IRAs are funded only with after-tax contributions and provide tax-free distributions? I. Traditional IRAs II. Roth IRAs III. Coverdell Education Savings Accounts IV. SEP IRAs A. I and III B. I and IV C. II and III D. III and IV

C

Which of the following is a corporate qualified retirement plan? A. Keogh plan B. Section 529 plan C. 401K plan D. Deferred compensations plan

C

Which of the following statements regarding dividend distributions are TRUE? I. Purchasing shares of a mutual fund immediately before its ex-dividend date is in the customer's interest because the dividend will be received II. Purchasing shares of a mutual fund immediately before before its ex-dividend date is in the customer's best interest because the dividend is typically taxable to the customer III. Selling dividends is permissible with mutual funds but not with common stock IV. Selling dividends is a violation of the Conduct Rules A. I and II B. I and III C. II and IV D. III and IV

C

All the statements below regarding the exchange of a cash value life insurance policy for an annuity under Internal Revenue Code Section 1035 are true EXCEPT? A. An annuity acquired under a Section 1035 exchange can be designed to provide income over one or more lifetimes B. Permanent life insurance can be exchanged for an annuity contract without generating the adverse tax consequences generally associated with surrendering a life insurance policy C. the exchange of a life insurance policy for an annuity may appeal to taxpayers who feel they have too much life insurance and too little retirement income D. Under Section 1035, a tax-free exchange may only occur if the original contract is exchanged for a contract issued by the same insurance company

D

An employee involved in the management of a member firm's business, particularly in the supervision of business solicitation or in training, would have to be registered as? A. a broker B. a dealer C. a partner D. a principal

D

Which of the following securities documents are NOT prepared by a broker/dealer? I. A research report on a new company II. A prospectus III. An ad for a company's stock IV. A preliminary prospectus A. I and III B. I and IV C. II and III D. II and IV

D

Your customer neglected to supply his tax ID number when purchasing some mutual fund shares. Of his next distribution, the fund will have to keep back how much as withholding tax A. 5% B. 10% C. 20% D. 28%

D

Your customer, a self-employed, incorporated small business owner, wishes to establish Keogh plan for herself and her 2 employees. According to IRS rules, which of the following is TRUE? A. She may contribute a maximum of 50% of gross earnings for herself and must contribute the same percentage for her eligible employees B. Her Keogh plan must be established as defined benefit plan C. Her Keogh plan is not subject to IRS approval D. She and her employees are not eligible for a Keogh plan

D

Your firm must make it known that it is a member of the Securities Investor Protection Corporation (SIPC). What limitations apply to how your firm may communicate its membership? I. It may not post a sign indicating its memberships II. It must post a sign indicating it membership III. The SIPC logo may not be placed on the firm's advertising IV. SIPC logos on advertising may be no larger than the firm's name A. I and III B. I and IV C. II and III D. II and IV

D