Financial Securities Practice Exam 2

Which of the following securities are exempt from registration under the Securities Act of 1933? Select one: a. Municipal bond b. Preferred stock c. Common stock d. Corporate bond

a. Municipal bond

_________ is the process of buying investment vehicles that have a high degree of uncertainty regarding their future value and expected earnings. Select one: a. Speculation b. Gambling c. Risk aversion d. Hedging

a. Speculation

What is the maximum taxable rate on a long-term gain if you are in the highest income tax bracket? Select one: a. 25% b. 20% c. 10% d. 15%

b. 20%

Unsystematic risk is also known as __________. Select one: a. Purchasing power risk b. Diversifiable risk c. Credit risk d. Market risk

b. Diversifiable risk

________ represents the debt of a company. Select one: a. Assets b. Liabilities c. Equity d. Cash flow

b. Liabilities

An order to buy a stock at a specific price or better is what type of order? Select one: a. Market order b. Limit order c. Stop order d. Stop limit order

b. Limit order

The risk that a security will be redeemed prior to its maturity is known as __________. Select one: a. Call risk b. Market risk c. Systematic risk d. Event risk

a. Call risk

What is the amount of the "catch-up" contribution to a traditional or Roth IRA that individuals aged 50 and over may make in 2020? Select one: a. $1,000 b. $1,500 c. $500 d. $2,000

a. $1,000

Net Profit after taxes: $18,000 Total revenues: $615,000 Total assets: $340,000 Current assets: $280,000 Earnings per share: $4.75 Stockholder's equity: $170,000 Preferred dividends: $5,000 # of common shares outstanding: 3,800 Current liabilities: $85,000 Market price: $49.50 What is the P/E ratio using the information above? Select one: a. 10.42% b. 3.29% c. 5.29% d. 10.59%

a. 10.42%

What is the current yield of a 5% bond that is priced at 80? Select one: a. 6.25% b. 4.00% c. 5.00% d. 8.00%

a. 6.25%

If an investor writes a covered call and wishes to close the transactions, he needs to enter which of the following trades: Select one: a. Both a sell to close and a buy to close b. Sell to open c. Sell to close d. Buy to close

a. Both a sell to close and a buy to close

Which of the following terms can be described as the day the decision is made by the corporation's board of directors to provide the common stockholder's with a dividend? Select one: a. Declaration date b. Payment date c. Ex-dividend date d. Record date

a. Declaration date

What are some characteristics of preferred stock? Select one: a. Ownership of these shares provides a means of fixed income for an investor through dividend payments. b. Maturity dates for these shares range from 1 to 25 years. c. Due to the fixed income nature of these shares, changes in interest rates have no effect on the price of these shares. d. Unless noted differently, par value for these shares is $1,000.

a. Ownership of these shares provides a means of fixed income for an investor through dividend payments.

Which of the following documents may be used to give a third party trading authorization on an account? Select one: a. POA b. Stock power c. TOD d. Account agreement

a. POA

What does security arbitrage involve? Select one: a. Simultaneously buying and selling both a stock and a security that may be converted into that same underlying stock b. Buying shares in a company that is being taken over or acquired while shorting shares in the company about to acquire them c. Simultaneously buying and selling the same security in two different markets to exploit the price difference between the two d. None of the other three choices are correct

a. Simultaneously buying and selling both a stock and a security that may be converted into that same underlying stock

What is the buying power in a margin account? Select one: a. The amount of available cash plus the amount able to be borrowed b. The amount of margin available to borrow c. The amount of available cash d. Margin accounts do not have buying power

a. The amount of available cash plus the amount able to be borrowed

If an option expires without hitting its strike price, what happens to the buyer and seller? Select one: a. The seller keeps the premium received and the buyer loses the premium paid. b. The buyer loses the premium paid, but receives the shares of the underlying security. c. The seller keeps the premium received and loses the shares of the underlying security. d. Nothing happens.

a. The seller keeps the premium received and the buyer loses the premium paid.

A specialist can handle all of the following types of orders except for Select one: a. market orders b. AON orders c. stop orders d. buy limit orders

a. market orders

A registered principal or registered representative must retake the qualifying exam if his or her registration has been revoked or terminated for a period of _________ or more. Select one: a. 2 years b. 3 years c. 5 years d. 1 year

a. 2 years

Any material for use in any newspaper, magazine, or other public medium, or by radio, television, or telephone recording is referred to as ____________. Select one: a. An advertisement b. A market letter c. Sales literature d. A research report

a. An advertisement

Which of the following written communications is considered a research report? Select one: a. An email that includes an analysis of equity securities of individual companies b. A discussion of broad-based indices c. A commentary on economic. political, or market conditions d. A technical analysis concerning the demand and supply for a sector, index, or industry based n trading volume and price

a. An email that includes an analysis of equity securities of individual companies

Excessive trading in a customer's account for no apparent reason other than to generate commission is _____________. Select one: a. Churning b. Front running c. Rebalancing d. Market timing

a. Churning

Which of the following investments would not be considered appropriate for an investor with an objective of current income? Select one: a. Growth stock b. Corporate bond c. Utility stock d. Municipal bond

a. Growth stock

What does a buy limit order do? Select one: a. Allows an investor to set a minimum price at which he or she is willing to sell a security b. Allows an investor to set a maximum price he or she is willing to pay for a security c. All of the other three choices are correct d. Guarantees execution

b. Allows an investor to set a maximum price he or she is willing to pay for a security

When considering the four stages of an economic business cycle, which of the following are characteristics of the expansion stage? I. Decline in savings II. Real estate prices on the rise III. An increase in gross domestic product (GDP) IV. Rise in inventories Select one: a. III only b. II and III c. II, III, and IV d. 1, II, and III

b. II and III

Of the different types of preferred stock, which one has the feature of enabling its owner to receive both the preferred and common dividend? Select one: a. Convertible preferred b. Participating preferred c. Callable preferred d. Cumulative preferred

b. Participating preferred

Which of the following statements is false regarding short selling? Select one: a. Money is made when prices fall. b. Short selling carries low risk and an unlimited return. c. Sort selling carries high risk and a limited return. d. Money is lost when prices rise.

b. Short selling carries low risk and an unlimited return.

A stop limit order to sell 1,000 shares of ABC Corporation stock at $35 is entered when the current market price of ABC stock is $45. The company announces lower-than-expected earnings and the stock price falls dramatically. Under which of the following scenarios will the order not execute? Select one: a. The market price immediately falls to $35 and continues to trade between $35 and $37. b. The market price immediately falls to $35 and continues to fall without rebounding. c. The market price immediately falls to $35 and then rebounds to trade between $35 and $36 before falling below $35 again. d. The market price immediately falls to $35 and continues to trade between $33 and $36.

b. The market price immediately falls to $35 and continues to fall without rebounding.

All of the following are true regarding a suspicious activity report (SAR) except: Select one: a. You are protected from civil liability when you report suspicious activity. b. You must tell the person involved in the transaction that a SAR has been filed. c. You are only required to file a SAR if you believe the activity is suspicious and involves $2,000 or more. d. The deadline to file a SAR is 30 calendar days after becoming aware of any suspicious transactions or pattern of suspicious transactions or activities.

b. You must tell the person involved in the transaction that a SAR has been filed.

All of the following are true of the transferability of securities except that Select one: a. a broker dealer may assist in the transferring process of securities between two parties. b. securities can be transferred between parties by physically exchanging stock certificates. c. a stock owner does not need the approval of the issuing organization of that stock to sell his or her shares. d. the secondary market is where the transferring of securities is executed.

b. securities can be transferred between parties by physically exchanging stock certificates.

Which of the following is false regarding collateralized mortgage obligation (CMO) advertisements? Select one: a. Advertisements that contain an anticipated yield must disclose the prepayment assumption used to calculate the yield. b. Advertisements may contain comparisons with CDs. c. Advertisements may not contain a comparison with any other investment vehicle. d. Advertisements must include a description of the initial issue tranche.

b. Advertisements may contain comparisons with CDs.

Which of the following items are required in a research report that contains ratings? Select one: a. The percentage of all securities rated by the member to which the member would assign a "buy", "hold/neutral", or "sell" rating must be disclosed. b. All of the other three choices are required in a research report that contains ratings? c. The meaning of each rating must be defined. d. The member must disclose the percentage of subject companies within the "buy", "hold/neutral", or "sell" ratings for whom the member has provided investment banking services within the previous 12 months.

b. All of the other three choices are required in a research report that contains ratings?

Which of the following item(s) can affect an investor's risk tolerance? Select one: a. Time frame b. All of the other three choices can affect an investor's risk tolerance? c. Age d. Personal experience

b. All of the other three choices can affect an investor's risk tolerance?

Which of the following items does not need to be reported on a U-4? Select one: a. Address change b. Medical condition c. Bankruptcy d. DUI

b. Medical condition

If a registered representative receives a customer complaint, what should he or she do first? Select one: a. Try to handle the customer by himself or herself b. Notify the branch manager or designated compliance individual c. Notify the Chief Compliance Officer of the broker-dealer d. Nothing

b. Notify the branch manager or designated compliance individual

What is the minimum time period that may be used in material promoting past records of research recommendations in connection with purchase or sales? Select one: a. Six months b. One year c. Five years d. Three years

b. One year

Which of the following scenarios would be considered an unsuitable recommendation? Select one: a. Recommending a common stock to a 30-year-old with a growth objective b. Recommending a speculative stock to a recently retired investor who is risk averse c. Recommending a CD purchase to an elderly risk-averse investor d. Recommending a growth stock mutual fund to a 30-year-old investor with a growth objective

b. Recommending a speculative stock to a recently retired investor who is risk averse

What are the three General Telemarketing Requirements? Select one: a.Time of Day Restriction, Firm-Specific-Do-Not-Call List, and State-Do-Not-Call List b.Time of Day Restriction, National- Do-Not-Call List, and Firm-Specific-Do-Not-Call List c.State-Do-Not-Call List, National- Do-Not-Call List, and Firm-Specific-Do-Not-Call List d.Time of Day Restriction, State-Do-Not-Call List, and National- Do-Not-Call List

b.Time of Day Restriction, National- Do-Not-Call List, and Firm-Specific-Do-Not-Call List

What is the dividend amount that a shareholder who owns 100 shares will receive from the following example? On Monday, December 5, after trading for that day ceased, ABC Corporation declared that it would pay a $0.25 dividend, payable on December 15. The December 5 closing price of ABC Corporation stock is $25.34. Select one: a. $0.25 b. $2.50 c. $25.00 d. $250.00

c. $25.00

Net Profit after taxes: $18,000 Total revenues: $615,000 Total assets: $340,000 Current assets: $280,000 Earnings per share: $4.75 Stockholder's equity: $170,000 Preferred dividends: $5,000 # of common shares outstanding: 3,800 Current liabilities: $85,000 Market price: $49.50 What is the net profit margin using the information above? Select one: a. 3.29% b. 10.59% c. 2.92% d. 10.42%

c. 2.92%

In a community property state, how are assets divided between a husband and wife in a divorce? Select one: a. 100% belongs to the wife b. 100% belongs to the husband c. 50% belongs to the husband and 50% belongs to the wife d. 100% of the assets must remain jointly owned

c. 50% belongs to the husband and 50% belongs to the wife

A corporate bond would be least suitable for which of the following investors? Select one: a. A retired individual with an investment objective of growth and income b. A 25-year-old with an investment objective of growth and income c. A 25-year-old interested in speculative investments d. A retired individual with an investment objective of income

c. A 25-year-old interested in speculative investments

Which of the following describe characteristics of a shareholder's preemptive right? Select one: a. Only after current shareholders have declined the offer to purchase shares from the corporation's new offering can the shares be offered for sale to the general investing public. b. In the event that the number of new shares proposed to be sold by the corporation causes the number of outstanding shares to outnumber the number of shares they are authorized to sell, the current shareholders must approve the increase to authorized shares before the sale can proceed. c. All of the other three choices are true. d. Current shareholders are given the first option to purchase any new shares sold by a corporation.

c. All of the other three choices are true.

What is the lowest rating a bond must receive to be considered investment grade? Select one: a. Aa/AA b. Aaa/AAA c. Baa/ BBB d. A/A

c. Baa/ BBB

Which financial statement provides a financial summary of the operating results of the company? Select one: a. Annual report b. Balance sheet c. Income statement d. Cash flow statement

c. Income statement

A type of mutual fund or unit investment trust (UIT) whose investment objective is to achieve approximately the same return as a specific market index, such as the S&P 500, is called a(n) __________. Select one: a. Balanced fund b. Value fund c. Index fund d. Growth fund

c. Index fund

Which of the following statements is true regarding a downward-sloping yield curve? Select one: a. It indicates that yields tend to increase with longer maturities. b. It indicates that intermediate terms rates are the highest. c. It indicates that short-term rates are higher than long-term rates. d. In indicates that rates for short- and long-term loans are essentially the same.

c. It indicates that short-term rates are higher than long-term rates.

What type of bonds are high-risk securities that have received low ratings and produce high yield? Select one: a. Preferred bonds b. Municipal bonds c. Junk bonds d. Junior bonds

c. Junk bonds

Which of the following information is not required as part of the requirement to know your customer? Select one: a. Legal address b. Occupation and employer c. Level of education d. Investment experience

c. Level of education

How often must customers receive account statement from a brokerage firm? Select one: a. Monthly, regardless of activity b. Monthly, if activity, otherwise semiannually c. Monthly, if activity, otherwise quarterly d. Quarterly, regardless of activity

c. Monthly, if activity, otherwise quarterly

Of the following, which is the least likely to be utilized by economists in analyzing the overall condition of the economy? Select one: a. Fluctuations on the country's business cycle b. Gross domestic product (GDP) c. Oil prices d. Supply and demand

c. Oil prices

__________ are municipal bonds backed by the revenue-generating capacity of the issuer. Select one: a. Agency bonds b. General obligation bonds c. Revenue bonds d. Treasury bonds

c. Revenue bonds

What is the tax consequence to an individual under the age of 59 ½ who withdraws a lump sum form his 401(k)? Select one: a. A lump sum withdrawal from a 401(k) for someone under the age of 59 ½ is not a taxable event. b. He must pay a 10% penalty. Otherwise, there are no tax consequences. c. The amount that is withdrawn is considered income and is subject to income taxes at the individuals marginal tax rate. Plus, he may be subject to a 10% penalty. d. The amount withdrawn is considered income and is subject to income taxes at the individual's marginal tax rate.

c. The amount that is withdrawn is considered income and is subject to income taxes at the individuals marginal tax rate. Plus, he may be subject to a 10% penalty.

After what event was the USA PATRIOT Act created? Select one: a. The bombing of the World Trade Center on February 26, 1993 b. The Boston Marathon attack on April 15, 2013 c. The attack on the World Trade Center on September 11, 2001 d. The attack on Pearl Harbor on December 7, 1941

c. The attack on the World Trade Center on September 11, 2001

What is the limit of SIPC protections if a brokerage firm fails? Select one: a. $100,000 b. $1,000,000 c. $500,000 d. $250,000

c. $500,000

An options contract that gives the holder the right to purchase the number of shares of the underlying securities is a _____________. Select one: a. Uncovered b. Put c. Call d. Covered

c. Call

Which of the following investments would be most suitable for a young investor who can only invest a small amount each month? Select one: a. Options b. Common stock c. Mutual fund d. Corporate bond

c. Mutual fund

Which of the following is not a prohibited activity? Select one: a. Spreading market rumors b. Commingling funds c. Rebalancing d. Guarantees against loss

c. Rebalancing

__________ has the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as SROs. Select one: a. NASD b. FINRA c. SEC d. MSRB

c. SEC

If a company declares a 3:2 stock split, how many additional shares will an investor with 200 shares receive? Select one: a. 400 shares b. 600 shares c. 200 shares d. 100 shares

d. 100 shares

If interest rates are expected to rise in the near future, which of the following statement is true regarding duration? Select one: a. A mid-term duration would be preferred. b. There would be no preference regarding duration. c. A longer duration would be preferred. d. A shorter duration would be preferred.

d. A shorter duration would be preferred.

When interest rate increase, what happens to bond prices? Select one: a. Bond prices may increase or decrease b. Bond prices increase c. Changes in interest rates have no effect on bond prices d. Bond prices decrease

d. Bond prices decrease

Which of the following types of stocks are considered defensive stock? Select one: a. Technology companies b. Public utilities c. Gold mining d. Both public utilities and gold mining

d. Both public utilities and gold mining

Contributions made to a traditional or Roth IRA may consist of _________. Select one: a. Cash, securities, or fine arts b. Securities only c. Cash or securities d. Cash only

d. Cash only

What is another name for an unrealized gain? Select one: a. Hypothetical gain b. Capital gain c. Capital loss d. Paper profit

d. Paper profit

Which of the following is an example of a company in the defensive sector? Select one: a. Automobile b. Computer c. Manufacturing d. Pharmaceutical

d. Pharmaceutical

An option to buy shares of a new issue of common stock at a specified price, over a specified, fairly short period of time, is a ________. Select one: a. Put b. Warrant c. Call d. Right

d. Right

What is the tax consequence to an individual who converts her traditional IRA into a Roth IRA? Select one: a. There are no tax consequences. b. The amount converted is subject to a flat tax of 25%. c. The amount converted is taxed at a flat rate of 15%. d. The amount converted is counted as income and is subject to her marginal tax rate.

d. The amount converted is counted as income and is subject to her marginal tax rate.

The stock market will be negatively impacted by all of the following except Select one: a. an increase in taxation b. a money supply reduction c. reduced government spending d. an interest rate reduction

d. an interest rate reduction

All of the following are true of an investor's rights in a right offering except that Select one: a. the investor chooses to purchase the shares. b. in the event the investor chooses to not purchase the shares offered, he or she may sell those rights to another investor. c. all of the other three choices are true. d. the investor's rights expires after 35 days due to the current market price dropping below the offering subscription price.

d. the investor's rights expires after 35 days due to the current market price dropping below the offering subscription price.

If a person has made lifetime gifts totaling $4,000,000 and dies in 2020, what is the amount that will be paid in taxes if the total remaining estate is $20,000,000? Select one: a. $2,400,000 b. $7,400,000 c. $5,600,000 d. $4,968,000

d. $4,968,000

Which of the following statements are true with respect to options communications that include historical performance? Select one: a. All relevant costs, including commission, fees, and daily margin obligations, are disclosed and reflected in the performance b. A Registered Options Principal determines that the records or statistics fairly present the status of the recommendations or transactions reported upon c. They must state that the results presented should not and cannot be viewed as an indicator of future performance d. All of the other three choices are true

d. All of the other three choices are true

Annual continuing education training provided by member firms is known as __________. Select one: a. Compliance Training b. Firm Regulatory Training c. Firm Continuing Education d. Firm Element Training

d. Firm Element Training

What is the tax advantage of owning municipal bonds? Select one: a. No state taxes if the municipality is in your state of residence b. No federal taxes c. No state taxes regardless of your state of residence d. No state or federal taxes

d. No state or federal taxes

What is the cost basis of securities received as an inheritance? Select one: a. The purchase price of the securities when they were originally bought b. The average of the high and the low prices on the date of death c. The current market price at the time the securities are received by the heir d. The average of the high and low prices on the date of the original purchase

d. The average of the high and low prices on the date of the original purchase