Practice Exam incorrect answers/ review

A customer buys a newly issued municipal zero-coupon original issue discount bond for 85. If the bond is held until maturity, the tax consequence A) is $0. B) is $150 gain. C) is $150 loss. D) cannot be calculated from the information given.

$0 Municipal original issue discount bonds must be accreted. At maturity, the entire discount will be accreted, and the cost basis will be equal to the par value. No gain or loss will occur at maturity.

If an investor has an established margin account with a short market value of $24,000 and a credit balance of $30,000, the maintenance call will be for A) $7,200. B) $6,000. C) $1,200. D) $2,000.

$1,200 Minimum maintenance requirement in a short margin account is 30% of the current market value. In this case, 30% of $24,000 is $7,200. The equity in the account is currently $6,000 ($30,000 − $24,000). Therefore, the amount of the maintenance call is $1,200.

A direct participation program shows the following operating results for the year: Revenues: $3 million Operating expense: $1 million Interest expense: $200,000 Management fees: $200,000 Depreciation: $3 million The cash flow from program operations is A) $1.4 million. B) a loss of $1.4 million. C) $1.6 million. D) $3 million.

$1.6M (-$1.4M - $3M depreciation) The cash flow for a direct participation program is the net income (or loss) plus the depreciation. In this question, there is a loss of $1.4 million. When the depreciation of $3 million is added to the negative $1.4 million, the cash flow is a positive $1.6 million. How did we get the loss of $1.4 million? The money that came in was the revenue of $3 million. From that, we subtract all of the expenses. Total operating expense of $1.2 million ($1 million plus $200,000 management fees) Interest expense of $200,000 Depreciation of $3 million Total expenses: $4.4 million Net loss of $1.4 million

Gargantuan Computers, Inc., (GCI) conducts a rights offering to its current shareholders at $50 per share, plus one right. If the current market price of GCI is $70, what is the value of one right before the stock trades ex-rights? A) 5 B) 3 C) 15 D) 10

$10 The stock is trading cum rights (before the ex-date). The formula to calculate the value of one right before the ex-date is follows: CMV minus subscription price divided by the number of rights to purchase one share plus 1. Therefore, one right is valued at $10, computed as ($70 − $50) / 2 = $10.

A 38-year-old investor places $25,000 into a qualified single premium deferred variable annuity. Twenty-two years later, with the account valued at $72,000, the investor surrenders the policy. If the investor is in the 25% marginal income tax bracket, the total tax liability is A) $16,450. B) $11,750. C) $25,200. D) $18,000

$18,000 Because this is a qualified annuity, the entire withdrawal is taxable. The surrender value of $72,000 has a cost basis of $0.00. That $72,000 is taxed at the marginal rate of 25%. Because the investor is older than 59½ (38 + 22 = 60), there is no additional 10% penalty tax. Effectively, this is a 25% tax on $72,000.

A convertible preferred stock issue (par value $100) is selling at $125 and is convertible into five shares of common stock. The conversion price of the common stock is A) $1,200. B) $25. C) $20. D) $100.

$20- $100 par value/ 5 shares Par value divided by conversion price equals the number of shares into which the security is convertible. If this security is convertible into five shares, we need to know what number goes into $100 five times. That number is $20. The current market value of the preferred stock is unnecessary information.

A schoolteacher has a 403(b) tax-qualified deferred retirement plan into which she has deposited $100,000 over a 12-year period. At retirement, if the teacher withdraws the total value of the account (now $220,000), how much of the withdrawal will be subject to taxation as ordinary income? A) $0 B) $100,000 C) $120,000 D) $220,000

$220k - 100% taxable The retirement plan is qualified, which means that contributions were made with pretax dollars. The teacher must pay taxes on the total value of the account when withdrawn.

In a margin account, if a client purchases $15,000 of LMN preferred shares, $15,000 of money market mutual fund shares, and $2,500 of call options, what is the Regulation T call? A) $32,500 B) $16,250 C) $17,500 D) $25,000

$25,000 The amounts that must be deposited are as follows: $7,500 for the preferred shares, $15,000 for the mutual fund, and $2,500 for the options. Mutual fund shares cannot be hypothecated for 30 days, and option purchases are never marginable.

A 7% convertible debenture is selling at 101. It is convertible into the common stock of the same corporation at $25. The common stock is currently trading at $23. If the stock were trading at parity with the debenture, the price of the stock would be A) $40.00. B) $25.25. C) $25.00. D) $43.91.

$25.25 To determine the parity price of the common, first find the number of shares the debenture is convertible into (conversion ratio) by dividing par value by the conversion price ($1,000 / $25 = 40 shares). Next, divide the current price of the bond by the conversion ratio. The result is the parity price of the common stock. (1,010 / 40 = $25.25).

The Class A shares of the GEMCO Balanced Fund carry a sales charge of 4.5%. If the next computed net asset value per share is $32.74, purchase orders will be filled at a price of A) $32.74 per share. B) $34.28 per share. C) $34.21 per share. D) $31.27 per share.

$34.28 Mutual funds sell at the public offering price (POP). That POP includes the sales charge—in this case, 4.5%. The sales charge is a percentage of the POP, not the NAV. The computation is the NAV divided by (100% - the sales charge). In our question, that is $32.74 ÷ 0.955, or $34.28 per share.

A customer wishes to redeem 1,000 shares of a mutual fund. The net assets value (NAV) and public offering price are $10, and a redemption fee of 0.5% will be charged. How much will the customer pay in redemption fees? A) $9,500 B) $500 C) $50 D) $9,950

$50 The question did not ask how much he would receive upon redemption, but how much he would pay in redemption fees. Mutual fund shares are redeemed at the NAV (bid): 1,000 shares times $10 each equal $10,000. $10,000 × 0.005 (0.5% redemption fee) = $50.

A customer invests $20,000 in a direct participation program and signs a recourse note for $50,000. During the first year of operation, the customer receives a cash distribution of $15,000 from the partnership. At year's end, the customer receives a K-1 statement reporting his share of partnership losses of $75,000. How much of the loss may the customer deduct from passive income? A) $55,000 B) $75,000 C) $0 D) $35,000

$55,000 ($20k + $50k - $15k) A limited partner can only deduct partnership losses to the extent of his basis. To determine basis, add the original investment ($20,000) to any recourse debt assumed by the investor ($50,000). Recourse debt adds to basis as the partner is liable for this amount. Cash distributions received reduce basis ($15,000). At year's end, the investor's basis and the amount he can deduct from passive income is $55,000.

In an initial transaction in a margin account, a customer sells short 200 ABC at $18 per share and makes the initial required deposit. The credit balance in the account is A) $5,600. B) $2,400. C) $5,400. D) $2,000.

$5600 The minimum equity requirement for short accounts is $2,000. The investor receives $3,600 from the proceeds of the sale and must deposit $2,000; therefore, the credit balance is $5,600 ($3,600 + $2,000 = $5,600).

If a customer buys 1 XYZ Aug 50 put at 1 and sells 1 XYZ Aug 65 put at 10 when XYZ is at 58, what is the maximum risk? A) $900 B) $100 C) $1,500 D) $600

$600 This is a credit spread. The maximum loss is the difference between the strike prices and the net credit. In this example, the strike price difference is 15 (65 - 50) and the net premium is 9 (10 − 1), or 15 − 9 = 6 × $100 = $600 maximum loss. The maximum gain is the net credit of $900. Credit put spreads are bullish (buy the low strike, sell the high strike). If the stock's price should rise above $65 per share, both options expire worthless (who wants to sell stock at $50 or $65 when the price is above that). If the investor is wrong and the stock price falls below $50, the short put will be exercised and the investor will have to buy the stock at $65 per share. Now that the stock is owned, it can be used to exercise the long put and be sold at $50 per share. That $15 difference between the 50 and 65 strikes is the largest spread possible. Comparing the loss of $1,500 to the initial credit of $900 proves that the maximum risk of loss is $600.

In early September, a customer buys 100 shares of MCS stock for $83 per share and simultaneously writes 1 MCS Mar 90 call for $4 per share. The customer will break even when MCS stock is at A) $79. B) $94. C) $87. D) $86.

$79 This is a covered call writer. If the stock rises above $90, the writer will be exercised and will make $700 on the stock (buy at $83, deliver at $90) and keep the $400 received in premiums. If the stock declines, the call expires unexercised. The writer can lose $400 on the stock (the premiums earned) and still break even. This occurs at $79 ($83 − $4). Breakeven is the cost of stock purchased minus premiums.

XYZ Corporation is preparing a registration statement for a new issue consisting of 300,000 new shares and 200,000 existing shares held by officers. The offering price is $30 per share, and the spread taken by the underwriters is $2 per share. After the offering is complete, XYZ will receive A) $8,400,000. B) $15,000,000. C) $14,000,000. D) $9,000,000

$8,400,000 XYZ Corporation will receive $28 per share for each of the 300,000 new shares being issued ($30 per share price less the $2 spread). The proceeds from the 200,000 shares sold by the officers will benefit the officers themselves, not XYZ Corporation.

A customer buys 200 XYZ at 39 and writes 2 XYZ Feb 40 calls at 3. When the stock rises to 44, the customer is exercised for a gain of A) $800. B) $200. C) $1,600. D) $400.

$800 The customer bought 200 shares at 39 and was forced to sell them at 40 for a $200 gain. In addition, the customer received $600 in premium income, so the overall gain is $800. Alternatively, the breakeven point for covered call writing is cost of shares purchased less premium received (39 − 3 = 36). As the customer is bullish, gain occurs above 36. However, for this customer, the stock can go no higher than 40 because she will be exercised (40 − 36 = 4 points × 200 shares = $800).

KLP Corporation has extensive investments in the stocks and bonds of other corporations. Its portfolio income this year amounts to $700,000 in interest income from bonds and $400,000 in dividend income from common and preferred stock. On how much of its portfolio income must it pay taxes this year? A) $120,000 B) $900,000 C) $300,000 D) $1,100,000

$900k- $700k + 50% dividend income ($200k) The corporate exclusion is 50% of dividend income; therefore, KLP must pay taxes on all $700,000 of its interest income, but only 50% (or $200,000) of its dividend income, for a total of $900,000.

A carrying member—after receiving account transfer instructions from the receiving member—must validate the positions in the account within how many business days of receipt? A) 1 day B) 7 days C) 4 days D) 5 days

1 day Within 1 business day following receipt of the transfer instruction form (TIF), the carrying firm must validate the positions in the account and return the transfer instruction to the receiving member with an attachment showing all securities positions eligible for transfer through the Automated Customer Account Transfer Service (ACATS).

What is the size of one LEAPS contract? A) No standard LEAPS contract size B) 1,000 shares C) More than 1,000 shares D) 100 shares

100 shares Like a standard options contract, the size of a LEAPs contract is 100 shares.

According to the Investment Company Act of 1940, a diversified mutual fund may hold, at most, what percentage of a corporation's voting securities? A) 50% B) 5% C) 100% D) 75%

100% To be considered a diversified investment company, the company must follow the 75-5-10 rule. That rule requires 75% of the fund's assets to be diversified, such that within that 75%, the mutual fund owns no more than 10% of a target company's voting securities. Additionally, within that 75% of assets, no diversified investment company may invest more than 5% of its portfolio in a single company's securities. However, there are no restrictions on the other 25%. That can all be in one stock, making 30% of the fund's assets in one company. While many mutual funds have total assets in excess of $1 billion, 30% of those assets ($300 million or more) can theoretically buy all of the outstanding voting shares of a company and control 100%.

An offering of securities to no more than 35 nonaccredited investors would be associated with A) Regulation A+. B) Rule 144. C) Regulation D. D) Rule 147.

35'd -- Regulation D Under Rule 506(b) of Regulation D of the Securities Act of 1933, a private placement transaction exemption applies if the offering is limited to a maximum of 35 nonaccredited investors. It is the Rule 506(c) provision that requires 100% of the investors to be accredited.

A May and November Treasury bond is traded the regular way on Wednesday, June 8. The number of days of accrued interest is A) 44. B) 38. C) 45. D) 39.

39 days government- based on actual days Accrued interest on government bonds is based on actual days in a year. Settlement occurs on the next business day. This bond pays interest in May and November, with the most recent payment on May 1. Interest has accrued on this bond for 31 days in May and 8 days in June, for a total of 39 days. The settlement date is Thursday, June 9.

Under the USA PATRIOT Act of 2001, member firms must maintain records of reports of currency transactions involving more than $10,000 for A) 5 years. B) 6 years. C) 1 year. D) 3 years.

5 years

A customer purchases a 6% municipal bond in the secondary market on a 7% basis. The effective after-tax yield is A) 6%. B) greater than 7%. C) 7%. D) 6 to 7%.

6% to 7% Because the interest on a municipal bond is tax-free on the federal level, the effective after-tax yield is generally the same as the coupon. That is, a bond paying 6% interest, with none of it taxable, will have an after-tax yield of 6%. This question deals with an exception. This bond is purchased in the secondary market on a 7% basis or yield to maturity (YTM). Whenever the YTM is higher than the coupon, the bond is priced at a discount from par. That means the investor is going to receive the difference between the discounted purchase price and the par value when the bond matures. When the bond is purchased in the secondary markets, that difference is accreted over the remaining life of the bond and is taxed each year as ordinary (taxable) income. Therefore with the annual accretion of the discount (that annual profit per se) being taxable, the effective after-tax return will be higher than the 6% coupon, but not equal to the 7% yield to maturity.

Many businesses open brokerage accounts to invest surplus funds. For which of the following business forms would suitability information on the owners not be required? A) An LLC B) A C corporation C) A sole proprietorship D) An S corporation

A C corporation A C corporation is the only business form where the tax and other consequences of the account do not accrue to the individual owners. Can you imagine a well-known publicly traded corporation with several million shareholders opening an account where the registered representative would have to obtain suitability information on all of them? Even when it is a small business, because the C corporation is its own taxable entity, the suitability requirements are not as critical as with the pass-through businesses (partnerships, LLCs, and S corporations). Of course, the sole proprietorship is the individual, so that is where the suitability is focused. LO 1.c

Your married customers, ages 48 and 50, have a combined annual income of more than $200,000. They are concerned about the effects of rising inflation, and because they are heavily invested in bonds, they seek to invest a portion of their portfolio in a fund that will provide additional diversification. Which of the following mutual funds is the most suitable for these customers? A) ATF Overseas Opportunities Fund B) NavCo Tax-Free Municipal Bond Fund C) XYZ Government Income Fund D) ABC Investment-Grade Bond Fund

ATF Overseas Opportunities Fund Investment in an overseas equity fund will provide diversification not necessarily subject to U.S. inflation. The tax-free fund will not provide additional diversification or the best hedge against inflation. A high-grade bond fund will not add diversification.

Accrued interest for U.S. government bonds is computed on the basis of A) 31-day months. B) actual days elapsed. C) 30-day months. D) SEC accrued interest guidelines.

Actual days elapsed

Which of the following is considered a double-barreled bond? A) Build America Bonds B) Dome stadium bonds with provisions for emergency ceiling support C) Moral obligation bonds D) Bridge authority revenue bonds guaranteed by the full faith and credit of a city

Bridge authority revenue bonds guaranteed by the full faith and credit of a city. Double-barreled bonds are backed not only by a specified source of revenues, but also by the full faith and credit of a municipal issuer with authority to levy taxes. Even though they are rated and traded as if they were general obligation bonds, it is proper to include them in the revenue category because the initial backing is from revenue. The additional backing of PHAs is the full faith and credit of the U.S. government—not the issuer. The additional backing of moral obligation bonds are legislative appropriations, which are not mandatory.

Which of the following strategies would most effectively protect an investor with a short stock position? A) Sell a put B) Sell a call C) Buy a call D) Buy a put

Buy a call Purchasing a call on the security protects the customer from a loss in excess of the strike price plus the cost of the call, should the security rise in price.

If your customer owns 100 shares of a volatile stock and wants to limit downside risk, you may recommend A) shorting the same stock. B) buying puts. C) writing calls and selling puts. D) buying calls.

Buying puts Downside risk is reduced by purchasing a put with a strike price at or close to the stock's purchase price. Should the stock decline below the strike price, the investor can exercise the put at the strike price. Selling put options will increase the downside risk. Buying calls is a bullish strategy that increases downside risk. Shorting stock will lock in the current price but will limit upside potential.

There are four corporate characteristics, more than two of which must not be in evidence for a direct participation program to avoid corporate taxation. Which of the four is virtually impossible to avoid? A) Limited liability B) Free transferability of interest C) Continuity of life D) Centralized management

Centralized management- direct participation program --> has general partners aka managers Centralization of management is almost impossible to avoid because the general partner(s) provide the management of the program. Continuity of life is the easiest to avoid because DPPs specify the event or time at which the program will terminate. Free transferability is avoided because most DPPs required the approval of the other limited partners or general partner for an investor's interest to be transferred to a new owner. Although the limited partners have limited liability, the general partner(s) have full personal liability.

Under SEC rules, soft dollars may be used to pay for all of the following except A) seminar registration fees. B) research reports. C) computer software. D) computer hardware.

Computer hardware (soft dollars can't pay for hardware!) Soft dollars is a term used to describe payments made by broker-dealers to investment advisers in return for research and other eligible services. The difference between soft dollars and hard dollars (cash) is that instead of paying a broker-dealer with cash, the fund will pay with brokerage business. Soft dollars may be used to pay for research, software, services for the benefit of clients, and seminar registration fees. Not permitted by the SEC are computer hardware, office equipment, and reimbursement of travel expenses to attend seminars.

A direct participation program (DPP), organized as a limited partnership, must avoid at least two characteristics of a corporation. Which two characteristics are the easiest to avoid? A) Continuity of life and freely transferable interests B) Freely transferable interests and centralized management C) Centralized management and continuity of life D) Continuity of life and decentralized management

Continuity of life and freely transferable interests - centralized management is impossible to avoid Continuity of life and freely transferable interests are the easiest to avoid. The limited partnership is formed to exist for a limited time, and general partner (GP) must approve any transfer of interests. Centralized management is the hardest characteristics to avoid because management of the program is the responsibility of the general partner (GP), so management is centralized.

When an outstanding bond issue is the subject of a refunding, the holders of those bonds have their claim on any pledged assets terminated. This is known as A) termination. B) replacement. C) defeasance. D) default.

Defeasance Defeasance occurs when an outstanding bond issue is paid off prior to maturity through a refunding. Once the creditors (the bondholders) have received their funds, any liens on assets or revenues are terminated. **This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.

Although there are general suitability rules that always apply, FINRA's Rule 2330 on variable annuity suitability specifies that, to be considered suitable, there is a reasonable basis to believe that the customer has been informed—in general terms—of various features of A) deferred annuities of all types. B) immediate variable annuities. C) deferred variable annuities. D) single premium variable annuities.

Deferred variable annuities FINRA's primary suitability concern is with deferred variable annuities. That does not mean there are no requirements for being careful with the others, it is just that most of the violations have involved the deferred VA.

A customer opens a margin account by purchasing 300 shares of XYZ at $60 and deposits the required margin. The stock rises to $70 on the following day. On the third day, after the release of a disappointing earnings report, the stock falls to $50. Which of the following describes the account after the changes in market value? A) Equity of $6,000; special memorandum account (SMA) of $0 B) Equity of $12,000; special memorandum account (SMA) of $1,500 C) Equity of $9,000; special memorandum account (SMA) of $0 D) Equity of $6,000; special memorandum account (SMA) of $1,500

Equity of $6,000; special memorandum account (SMA) of $1,500 The account starts out as follows: $18,000 − $9,000 = $9,000 (LMV − DB = EQ). After the stock rises to 70, the account looks like this: $21,000 − $9,000 = $12,000; SMA = $1,500. For every $1 increase in market value, 50 cents of SMA is created. After the stock falls to 50, the account looks like this: $15,000 − $9,000 = $6,000; SMA = $1,500. An increase in market value creates SMA but a subsequent decline has no effect

Municipal Securities Rulemaking Board (MSRB) rules for NYSE member firms are enforced by A) the NYSE. B) the MSRB. C) FINRA. D) the SEC.

FINRA

Which of the following mortgage-backed securities would be expected to carry the lowest credit risk? A) Fannie Maes B) CMOs C) Freddie Macs D) Ginnie Maes

Ginnie Maes

Which of the following affects the holding period of XYZ stock, a position that has been held for six months? Buying an in-the-money put Buy an out-of-the-money put Writing an in-the-money call Writing an out-of-the-money call

I and II- buying a put Buying a put (in or out of the money) on a stock held short term (one year or less) erases the holding period until the put is disposed of. At that time, the holding period starts over.

Which of the following would not be examples of overlapping debt? Debt to build a state office building within city limits Debt to maintain a county park district serving a municipality Debt backed by two states cooperating in the construction of a bridge Debt for a high school district within city limits

I and III State debt cannot overlap with any other municipal entity.

Which of the following regarding the Bond Buyer Revenue Bond Index (Revdex) are true? It includes 30-year bonds. It includes 20 bonds. It is compiled weekly. It is compiled monthly.

I and III The Bond Buyer Revdex is computed weekly just like The Bond Buyer's general obligation (GO) index. Revdex consists of 25 revenue bonds with 30-year maturities. The GO index includes 20 bonds, each with approximately 20 years to maturity.

Which of the following may be affected when a company declares a cash dividend? Shareholders' equity Total assets Total liabilities Current assets

I and III When a company declares a cash dividend, it will reduce retained earnings (part of shareholders' equity) and increase current liabilities (dividends payable), which will increase total liabilities. Assets are not affected until the cash is paid out several weeks later.

Which of the following factors will affect the special memorandum account (SMA) in a long account? Sale of securities in the account Decline in market value of securities Cash deposited by the customers Interest charged on debit balances

I and III Whenever stock is sold, half of the sales proceeds are credited to SMA. Nonrequired cash deposits are credited to SMA in full. SMA only declines when a customer uses it to borrow from the account or to purchase securities; it is not affected by declines in market value or by interest charges.

Which of the following statements regarding straddles are true? An investor who expects no change in a stock's price and wishes to generate income sells a straddle. An investor who expects no change in a stock's price buys a straddle. An investor who expects a substantial decline in a stock's price sells a straddle. An investor who expects substantial fluctuations in a stock's price and is unsure as to direction buys a straddle.

I and IV A long straddle is the purchase of a put and a call on the same stock when both options have the same terms. The long call is profitable if the market rises, while the long put is profitable if the market falls. An investor purchases a straddle if sharp market movement is expected, but the direction is uncertain. A short straddle is the sale of a put and a call on the same stock with both options having the same terms. If the market value remains stable, the options expire, and the seller keeps the premium, thereby generating income.

Which of the following statements regarding Government National Mortgage Association (GNMA) securities are true? Interest is subject to federal income tax. Interest is exempt from federal income tax. They are backed by farm mortgages. They are backed by residential mortgages.

I and IV GNMA securities are subject to both state and federal income tax and are backed by residential mortgages.

Which of the following statements regarding Section 529 education savings plans are true? Contributions are considered gifts under federal law. Contributions are tax deductible under federal law. Earnings generated are taxable each year. Earnings generated are tax deferred.

I and IV Under federal law, contributions made into Section 529 plans are considered gifts and are not deductible at the federal level. Furthermore, earnings generated each year are tax deferred and, on withdrawal, are tax free at the federal level—if used for qualified education expenses.

A company's changing from straight line to accelerated depreciation will increase income in the early years. decrease income in the early years. increase income in the later years. decrease income in the later years. A) II and IV B) I and IV C) II and III D) I and III

II and III Accelerated depreciation increases charged expenses during the early years of equipment life but decreases charged expenses during the later years.

Which of the following statements regarding oil and gas limited partnerships are true? Developmental programs are more risky than exploratory programs. Exploratory programs are more risky than developmental programs. Successful developmental programs provide higher returns than exploratory programs. Successful exploratory programs provide higher returns than developmental programs. A) I and III B) I and IV C) II and III D) II and IV

II and IV Exploratory oil and gas direct participation programs drill in areas where there are no proven oil reserves. While the chances of success are relatively small, successful exploratory wells provide large returns to investors. Developmental programs drill in areas adjacent to sites where proven oil reserves exist; while the probability of success is favorable, the returns will not be as great as a successful exploratory program.

An investor and his father own 8% and 5%, respectively, of a corporation's outstanding shares, and the father wants to sell his holding. According to Rule 144, which of the following statements are true? He must file Form 144 to sell the shares. He does not have to file Form 144 to sell the shares. He is considered an affiliated person. He is not considered an affiliated person.

II and IV- don't combine ownership so he is not an affiliated person Under Rule 144, an affiliate is a person in a control relationship with an issuer. Because neither of the investors own at least 10% of the stock, they are not control persons under Rule 144 and do not have to comply with the rule. Certain family members, such as a spouse or other immediate family member residing in the same home, are required to combine holdings. If the question indicated that the father and son share the same residence, then the filing requirements of the rule would apply because the 13% total would make them control persons.

Which of the following statements regarding Treasury receipts is not true? A) Treasury receipts pay interest at maturity. B) Treasury receipts are not backed by the faith and credit of the U.S. government. C) Treasury securities held in trust collateralize the receipts. D) Interest income is taxed at maturity.

Interest income is taxed at maturity. Unlike Treasury STRIPS, which are issued directly by the U.S. government, Treasury receipts are indirect obligations of the government. Treasury receipts are issued by investment bankers who buy Treasury securities, place them in trust at a bank, and sell separate receipts against the principal and interest payments. Like most zeroes, interest must be accreted and taxed annually even though it is not received until maturity.

FINRA's 5% markup policy does not apply to A) issues sold by prospectus. B) third-market trades. C) commissions. D) REITs.

Issues sold by prospectus- primary market FINRA's 5% markup policy applies to all secondary market trades, whether customers are charged markups, markdowns, or commissions. Issues sold by prospectus and municipal securities, however, are exempt from the policy.

Which of the following is least important to a municipal bond analyst? A) Tax collection ratio B) Revenue collection record C) Debt service to annual revenues D) Legality of the issue

Legality of the issue Municipal bond analysts are concerned with the financial aspects of municipal bonds to ensure that they do not default. Various financial ratios and collection records are critical to their analysis. The legality of the municipal issue, as determined by the legal opinion, is important to issuers.

An investor opens the following options position: Long 1 ABC Aug 50 call @ 5½; short 1 ABC Aug 55 call @ 3½. What is the investor's maximum gain, maximum loss, and breakeven point? A) Maximum gain is $200; maximum loss is $300; breakeven is $52. B) Maximum gain is $300; maximum loss is $200; breakeven is $53. C) Maximum gain is $300; maximum loss is $200; breakeven is $52. D) Maximum gain is $200; maximum loss is $300; breakeven is $53.

Maximum gain is $300; maximum loss is $200; breakeven is $52 The first step is to identify the position. This is a debit call spread. It is a debit spread because the option purchased costs more than the one sold. The investor purchased the 50 call for a premium of 5½ and sold the 55 call for a premium of 3½. That difference (5½ minus 3½), a debit of $200, is the most the investor can lose. This is a bullish spread (the investor bought the low strike price and sold the high strike price). If the investor is correct and the stock rises, the short call will be exercised. That means the writer will have to sell the stock at $55 per share. However, the investor will exercise the 50 call and deliver the stock purchased for $5,000 and receive proceeds of $5,500. The $500 profit is reduced by the $200 it cost to put on the spread (the debit). That means a net gain of $300. The fastest way to do a question like this is to subtract the debit from the strike price difference (5 points here) and you have your maximum gain. In this case, it is $5 minus $2 = $3. Breakeven follows the call-up rule; add the net premium (the debit of $2) to the lower strike price ($50) to arrive at $52.

Which of the following entities guarantees a listed yield-based option? A) Options Clearing Corporation (OCC) B) Federal Reserve Board (FRB) C) Broker-dealer D) U.S. government

Option Clearing Corporation (OCC)

Which of the following municipal securities are backed by the full faith and credit of the U.S. government? A) Industrial revenue bonds (IRBs) B) General obligation bonds (GOs) C) Tax assessment bonds (TAs) D) Public Housing Authority bonds (PHAs)

Public Housing Authority Bonds PHA bonds are backed by the full faith of the U.S. government, which guarantees rent payments on these low-income properties.

Which of the following activities can take place in a cash account? A) Uncovered option writing B) Short sale of stock C) Purchase of new issue common stock D) Borrowing money

Purchase of new issue common stock A customer may only borrow money or securities from a broker-dealer in a margin account. Uncovered call options must occur in a margin account, and uncovered put options can only occur in a cash account when certain criteria are met. Short sales must occur in a margin account.

For the purpose of reporting sales to the IRS, the method available to investors by the IRS that offers the most flexibility in anticipation of the investor's year-end tax needs is A) average cost basis. B) none of these. C) share identification. D) first in, first out.

Share identification Share identification is the most flexible of the three methods. The investor keeps track of the cost of each share purchased and specifies which shares to sell based on his anticipated year-end tax needs. For investors, the idea is to minimize tax liability, if possible, by limiting gains or maximizing loses in anticipation of what one's year-end tax liability might be.

Which of the following option strategies, besides going long a call, can be used to purchase stock below its current market value? A) Long put B) Short call C) Short put D) Short straddle

Short put If the put is exercised by the owner, the writer of the put will be obligated to purchase the stock. The cost of the stock is reduced by the amount of premium taken in when the put was written, allowing the investor to purchase the stock at a net cost lower than the stock's current market value.

An investor purchases 100 shares of a bond ETF at a price of $50 per share on September 5, 2019. On November 1, 2019, and February 1, 2020, the fund distributes a $0.50 per share dividend. On May 11, 2020, the investor sells all the shares at $57 per share. What are the 2020 tax consequences of the sale? A) Short-term capital gain of $700, interest income of $50 B) Short-term capital gain of $600 C) Short-term capital gain of $700, dividend income of $50 D) Short-term capital gain of $700

Short term capital gain of $700 Taxation of the sale of an ETF is similar to that of a mutual fund. The question asks about the tax consequences of the sale, so we ignore the dividend distributions. Buying at $50 per share in September and selling at $57 per share the next May is a $700 capital gain over a period of less than one year.

Index options are frequently used to protect a portfolio against which of the following risk types? A) Credit B) Systematic C) Inflation D) Business

Systematic

When a broker-dealer specializing in new issue municipal bonds needs current information, the usual choice is to consult A) The Thomson Municipal Market Monitor. B) the MSRB. C) The Bond Buyer. D) EMMA.

The Bond Buyer The Bond Buyer, sometimes called the Daily Bond Buyer because it is published daily, is generally considered the "go to" source for information on the primary market for municipal issues. The Thomson Municipal Market Monitor (TM3) offers greater coverage of the secondary market and general news. EMMA contains information for retail, nonprofessional investors, not broker-dealers. The MSRB does contain information on its website, but it does not include the information on new issues that a broker-dealer will find in The Bond Buyer.

Which of the following may not lead to an industrial development bond being called? A) Interest rates are falling. B) The facility is destroyed by a storm. C) Funds are available in the surplus account to call the bond. D) The municipality is approaching a statutory debt limit.

The municipality is approaching a statutory debt limit. An issuer of industrial development revenue bonds is likely to call bonds to reduce interest costs when interest rates are falling, discontinue interest payments if the facility is destroyed by a natural disaster, or reduce debt if funds are available in a surplus account. Industrial development revenue bonds are not affected by the issuer's statutory debt limits, as they affect the issuance of general obligation bonds only.

Which of the following statements regarding a member firm's handling of a discretionary account is true? A) A principal must approve each discretionary order before execution. B) The registered representative may not effect transactions excessive in size or frequency in view of the customer's resources. C) Margin may not be used in a discretionary account. D) The registered representative must obtain written authorization from the customer before placing each order.

The registered representative may not effect transactions excessive in size or frequency in view of the customer's resources. A discretionary account allows the registered representative to place orders without consulting the customer. It does not relieve him of the obligation to execute only suitable orders.

Your client purchases 100 shares of XYZ common stock at $50 and sells two XYZ Oct 55 calls for a premium of $2 each. This investor's maximum potential loss is A) $600. B) $4,800. C) $4,600. D) unlimited.

Unlimited- uncovered call This is a ratio write. The client is writing more calls than he has stock to cover. The first call is covered by the 100 shares of stock owned, but the second call is uncovered, or naked. A short naked call has unlimited loss exposure.

When does pension payment liability affect the credit rating of a municipality? A) Never B) When funds are invested presently to meet future pension needs C) When the return on funds invested to meet future needs exceeds anticipated payments D) When funds needed to make payments exceed funds available

When funds needed to make payments exceed funds available The credit rating for a municipality's debt would be adversely affected if funds needed to make payments exceeded funds available. This is an unfunded pension liability and can result if monies set aside to make future payments are not enough or if poor investment decisions deplete the funds.

An investor purchased a municipal bond at par to yield 5.5% to maturity. If, two years later, she sold the bond at a price equivalent to a 5% yield to maturity, the investor incurred A) taxable interest income. B) a capital loss. C) no taxable result at this time. D) a capital gain.

a capital gain Because the investor sold the bond at a price that will yield less than the yield when she purchased the bond, the bond must have been sold for more than the investor paid for it. Therefore, the investor profited by that difference. Remember, the higher the price, the lower the yield.

An investor purchases investment company shares paying an ask price that is a 5% premium to the company's net asset value (NAV). Two years later, the investor liquidates the position at a bid price that is 10% below the NAV. This investment was in A) a unit investment trust (UIT) B) a closed-end investment company C) an open-end investment company D) a face amount certificate (FAC)

a closed-end investment company Pricing of closed-end investment company shares is based on supply and demand. That is because they trade in the secondary markets. Therefore, the investor's buying price and selling price could be a premium or discount to the net asset value per share (NAV). All the other investments here are redeemable at the NAV. As a consequence, the ask price would not be a discount to the NAV nor could the redemption price (the bid) be at a discount to the net asset value.

When a securities professional refers to a bond as a full faith and credit issue, it is A) a revenue bond. B) a general obligation bond. C) a moral obligation bond. D) a special tax bond.

a general obligation bond

A technical analyst would find which of the following to be a bullish indicator? A) A decrease in the short interest B) More odd-lot purchases than sales C) A head and shoulders bottom D) A breakout through the support level

a head and shoulders bottom A head and shoulders bottom is a bullish sign to the technician because it indicates that the market has bottomed. From the bottom, the only direction is up. It is an increase to the short interest that is bullish, not a decrease. Because odd-lot traders are generally unsophisticated, the technician believes they are always doing the wrong thing. When they are buying, (more purchases than sales), everyone else should be selling (bearish). The support level is where the stock or index seems to stop declining. It receives buying support. That causes the price to begin to rise. When there is a breakout, it means the stock has fallen below the support level. Falling through the support level is a bearish signal.

A corporate bond with a nominal yield of 6% is currently trading at a yield to maturity (YTM) of 5.8%. It would be accurate to state that this bond is trading at A) parity. B) par. C) a discount. D) a premium.

a premium If YTM is less than the nominal or coupon yield, the bond is trading at a premium.

Which of the following investments would likely have a lock-up period? A) Class B shares B) A unit investment trust C) A target date fund D) A principal-protected fund

a principal protected fund Principal-protected funds guarantee that the investor's return will never be less than the original investment, less any sales load. In order to honor the guarantee, the investor must agree to maintain the investment for the guarantee period. If not, the guarantee will generally be void. In essence, this means the investment is "locked-up" for that period.

The Trust Indenture Act of 1939 covers all of the following securities transactions except A) a sale of an equipment trust bond issue worth $62 million. B) a corporate bond issue worth $55 million sold interstate. C) a sale of an issue of $5 billion worth of Treasury bonds maturing in 2025. D) a public issue of debentures worth $60 million sold by a single member firm throughout the United States.

a sale of an issue of $5 billion worth of Treasury bonds maturing in 2025. The Trust Indenture Act of 1939 requires all corporate debt issues of $50 million or more sold interstate to have a trust indenture. U.S. governments are exempt.

A firm underwriting of a municipal bond issue usually has a number of different broker-dealers involved. Those who earn a commission on each sale they make are performing in the role of A) a selling syndicate member. B) a selling group member. C) a registered representative. D) the syndicate manager.

a selling group member Selling syndicate members use selling group members to expand their reach. These selling group members receive a selling concession (a commission) on each sale they make. They have no financial commitment and return any unsold bonds to the syndicate member. Although registered representatives will typically earn a commission on the bonds they sell, the question asks about the broker-dealers involved in the underwriting. Be sure to answer the specific question asked.

A customer is choosing a payout option for a variable annuity. Maximizing monthly income for the rest of his life is the customer's key objective. This annuitant has no living relatives, so beneficiaries are not a concern. Which of the following options available would best meet the needs of this annuitant? A) A straight life payout option B) Take random withdrawals from the contract C) A life with a 5-year period certain payout option D) A life with a 20-year period certain payout option

a straight life payout option The largest monthly check an annuitant can receive for the rest of his life is generated by a straight life (life income or life only) payout option. Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. Life with period certain will produce a smaller check for life because the insurance company will guarantee payments to a beneficiary for a certain time designated in the contract, should the annuitant die within that period. But again, the need to designate beneficiaries is not an issue for this annuitant. Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies.

To calculate a capital gain or loss on the sale of an original issue discount municipal bond, the discount must be A) depleted. B) depreciated. C) accreted. D) amortized.

accreted. The IRS term for adjusting the cost basis of a discount bond upward is accretion. Amortization is the means of adjusting a premium bond's cost basis.

One of your customers has asked you about trading penny stocks. After discussing the risks, the customer decides to go ahead. The firm sends the individual a copy of the special penny stock risk disclosure document. The firm needs the customer's signed and dated acknowledgment of receipt of the document. Trading in penny stocks may not begin in that account until A) at least two business days after sending the statement. B) the day the signed acknowledgment has been received. C) at least two business days after receiving the statement. D) at least $25,000 in equity is in the account.

at least two business days after sending the statement.

A registered representative has a customer looking to invest in stock for income. The customer is looking for the highest fixed rate of return available based on her risk profile. Which of the following would be least suitable? A) Callable preferred B) Straight preferred C) Cumulative preferred D) Convertible preferred

convertible preferred Convertible preferred stock is convertible into the issuer's common stock. This conversion feature has value if the market price of the underlying stock should increase. Because of that feature, issuers are able to attract investor interest with a lower dividend on this preferred stock compared with preferred stock that has no conversion feature. Therefore, it would be the least suitable investment for this client.

When calculating net investment income, an investment company includes A) only dividends. B) only interest. C) dividends plus interest minus operating expenses. D) just dividends plus interest.

dividends plus interest minus operating expenses Net investment income equals gross investment income minus operating expenses. Gross investment income is interest and dividends received from securities in the investment company's portfolio.

The result of declining inflation on outstanding bonds would be A) lower prices and lower yields. B) lower prices and higher yields. C) higher prices and lower yields. D) higher prices and higher yields.

higher prices and lower yields. (the higher the price, the less you get) Declining inflation means declining interest rates. If interest rates decline, bond prices rise.

Interest and principal on a Eurodollar bond issued in Germany are paid A) in German deutsche marks. B) in U.S. dollars. C) in German euros. D) in European Union euros.

in U.S. dollars It is always the final part of the word that describes the currency of a eurobond. A Eurodollar bond pays in U.S. dollars, while a Euroyen bond would pay in Japanese yen.

An investor who is bearish on the outlook for Fernweh Travel Services (FTS) sells 100 shares short at $52 per share. Three months later, the market price of FTS shares is $58. Under FINRA rules, a maintenance call will be issued when the per share price of FTS A) increases by more than $17.40. B) increases by more than $2. C) decreases by more than $2. D) increases by more than $9.60.

increase by more than $2 A short margin account reaches the maintenance level when the equity in the account reaches 30% of the market value of the short stock. To find that level, divide the credit balance by 130% (or 1.3). The credit balance is the sum of the sale proceeds plus the Regulation T initial margin requirement. In our question, sale proceeds are $5,200 ($100 shares times $52 per share). To that we add the 50% Regulation T requirement ($2,600) resulting in a credit balance of $7,800. Dividing that $7,800 by 1.3 = $6,000. That tells us that the highest the price of FTS shares can be is $60 per share. Anything above that will trigger the maintenance call. With the current market price of $58, anything in excess of a $2 per share increase will result in a maintenance call. Remember, when an investor sells short, losses occur as the market price rises.

All of the following statements regarding commercial paper are correct except A) it is quoted on a discount yield basis. B) interest is received at maturity. C) it is quoted as a percentage of par. D) it is unsecured.

it is quoted as a percentage of par Commercial paper is short-term, unsecured corporate debt. It is issued and traded at a discount of face value and does not pay periodic interest. Like all zeroes, it is quoted on a discounted yield basis.

Underwriters that reserve the right to stabilize the price of securities distributed to the public under an SEC registration statement may do so A) only if notice is given in the prospectus. B) under no circumstances. C) without restriction. D) only if the securities being distributed will be immediately listed for trading on the NYSE or other exchange.

only if notice is given in the prospectus Stabilizing transactions are permitted if the SEC is notified in the registration statement and the investing public is notified in the prospectus.

A municipality is allocating the revenues from an industrial revenue bond under a net revenue pledge. The first priority is A) bond interest. B) reserve funds. C) sinking fund payment. D) operation and maintenance.

operations and maintenance Under a net revenue pledge, operations and maintenance are paid first, with debt service following. In a gross revenue pledge, debt service is paid before operations and maintenance.

Nickelplate Manufacturing Corporation (NMC) is capitalized with 1 million shares of a 6% $50 par callable preferred stock and 10 million shares of $1 par common stock. NMC has not paid any dividends at all for the past five quarters. The current quarter's earnings are excellent and the company would like to pay a dividend to its common shareholders. Doing so would require A) paying the preferred shareholders a dividend of $4.50 per share. B) paying the preferred shareholders a dividend of $0.75 per share. C) an affirmative vote of the common shareholders. D) paying the preferred shareholders a dividend of $3.75 per share.

paying the preferred shareholders a dividend of $0.75 per share. - look at the wording A corporation cannot pay a dividend to its common shareholders without satisfying the dividend requirements of any outstanding preferred stock. NMC has a 6% $50 par preferred. The annual dividend requirement (if declared) is $3 per share. That is $0.75 per quarter. On the exam, all dividends are paid quarterly unless stated otherwise. Once that dividend is paid to the preferred, the declared dividend can be paid to the common. But, the question tells us that NMC has not paid preferred dividends for more than one year (five quarters). What about those skipped dividends? This preferred stock is callable, not cumulative. Be careful to read the question. Shareholders do not vote on cash dividend payments. That decision is made by the company's board of directors.

When an individual associated with another FINRA member firm wishes to open up an investment account at another member firm, the executing member must A) notify the employer member of the associated person's intent to open the account. B) obtain a copy of the individual's Form U4 to verify registration status. C) receive permission from the employer member before the initial transaction may take place. D) provide duplicate statements and confirmations if requested by the employer member.

provide duplicate statements and confirmations if requested by the employer member. FINRA Rule 3210 requires that an executing member shall, upon written request by an employer member, transmit duplicate copies of confirmations and statements. The associated person is the one who must notify the employer member of the intent to open the account and receive written consent to do so. Furthermore, the associated person is required to give written notice to the executing member that the individual is associated with the employer member.

For both U.S. Treasury notes and Ginnie Maes, A) interest income is taxed at the federal level only. B) interest is computed on an actual-day basis. C) settlement is next business day. D) quotes are as a percentage of par in 32nds.

quotes are as a percentage of par in 32nds Interest from U.S. T-notes is taxed at the federal level only, while interest on Ginnie Maes is taxed at all levels. GNMA bonds are treated like corporate bonds in many ways. T-notes settle next day, while Ginnie Maes normally settle T+2. Interest on T-notes is computed on an actual-day basis, and Ginnie Mae interest is computed on a 30-day month/360-day year basis. Both Ginnie Maes and T-notes are quoted in 32nds.

Each of the following are generally used to service state general obligation bond issues except A) real estate taxes. B) sales taxes. C) motor vehicle license fees. D) income taxes.

real estate taxes State-issued municipals are backed by state revenues, including sales and income taxes, as well as fees for state-issued licenses and permits. States do not normally levy property (real estate) taxes. Real estate taxes—known as ad valorem taxes—are typically levied by local municipalities such as cities and counties.

Covered put writing is a strategy where an investor A) sells a put and sells a call on the same stock. B) sells a put and buys a call on the same stock. C) sells a put on a stock that he owns. D) sells a put on a stock he has sold short.

sells a put on a stock he has sold short. The first thing to remember is that option sellers have an obligation. In the case of a call writer, the obligation is to deliver the underlying stock while in the case of a put (our question), the obligation is to pay for stock delivered. A seller of an option would be "covered" if they have whatever it is they are obligated for. If you sell a put and the option is exercised by the holder, meeting the obligation requires having sufficient cash to purchase the stock being "put" to you. Owning the shares would not help you meet your obligation; you need cash. You would be "covered" if you have cash available to cover the purchase. One way is a deposit of cash at the time the put is written. Alternatively, if you sell 100 shares short for each put sold, you would have cash from the short sale that could be used to cover the obligation to buy the stock at the strike price. Notice that selling a put is bullish; the short stock position is bearish. An easy way to eliminate answer choices is to remember that hedging involves a stock position and an option position that are opposite in sentiment. Notice that the sentiments associated with the answer choice "sell a put on a stock that he owns" doesn't work because a long stock position is bullish, and selling a put is bullish. Therefore, this answer can be eliminated. To prove the point, let's look at the other side. If you sell a call, you are obligated to sell shares of stock. You would be "covered" if you already owned the shares. Notice that selling a call is bearish, owning the stock is bullish.

All of the following positions have limited loss potential except A) short stock/long call. B) long stock/short call. C) short stock/short put. D) long stock/long put.

short stock/ short put If the stock rises, the put will expire, leaving the customer short stock with an unlimited loss potential.

The term for the annual reduction of a municipal bond's cost basis purchased at a premium is A) compound accretion. B) straight-line accretion. C) straight-line amortization. D) compound amortization.

straight-line amortization. Amortization is the process by which the cost basis of a bond bought at a premium is decreased during the holding period. Because the cost basis is reduced by equal amounts every year, amortization is done on a straight-line basis. At maturity, the cost basis has been reduced to par.

The document attesting to the formation of a limited partnership, filed with designated authorities, is called A) the subscription agreement. B) the certificate of limited partnership. C) the offering memorandum. D) the registration statement.

the certificate of limited partnership

The bond placement ratio, as shown in The Bond Buyer, is computed by taking A) the number of new issues unsold divided by the number of new issues offered. B) the dollar value of new issues sold divided by the dollar amount of the new issues offered. C) the number of new issues divided by the 30-day visible supply. D) the dollar amount of new issues sold divided by the dollar amount of new issues unsold.

the dollar value of new issues sold divided by the dollar amount of the new issues offered. The bond placement ratio is the percentage of new municipal bonds offered last week that were sold last week. Although not a term you'll see on the exam, think of this as the success ratio. It reports how well the underwriters did in moving the week's new issues. For example, if $1 billion of bonds were offered during the week, and $700 million were placed (sold), that is a 70% placement ratio.

It would be correct to describe a warrant in all of the following ways except A) it may be used as a sweetener for a bond issue. B) the exercise price is generally slightly below the current market price. C) it has a longer life than a stock right. D) warrants do not have voting rights.

the exercise price is generally slightly below the current market price. Warrants always carry an exercise price that is above the current market price of the underlying security. The upside potential is viewed as a sweetener for other issues, particularly bonds. This results in the issuer borrowing at a lower interest cost. Unlike preemptive (stock) rights that have a short life, warrants do not expire for a long time, sometimes five years or longer.

When recommending industrial development revenue bonds, registered representatives would be remiss if they did not discuss A) the tax bracket of the individual and the alternative minimum tax. B) the guarantees offered by the issuing municipality. C) the speculative nature of the bonds. D) the potential for taxable capital gains.

the tax bracket of the individual and the alternative minimum tax Industrial development revenue bonds (IDRs) are municipal bonds generally backed by a lease or similar obligation entered into by a corporation. That is the backing and defines the risk level. The IRS defines interest received from industrial development revenue bonds (IDRs) as a tax preference item. As such, the income received might be subject to taxation under the alternative minimum tax. This tax usually applies to individuals who are in the higher tax brackets and would be an important determinant when evaluating the suitability of the investment.

Yield quotes on collateralized mortgage obligations (CMOs) are based on A) the tranche's expected life. B) the underlying mortgage's average life. C) the underlying mortgage's maturity. D) the underlying mortgage's interest rate.

the tranche's expected life. Yield quotes on CMOs are based on the tranche's expected life, not the average life of the mortgages in the pool backing all of the tranches.

All of the following statements about SEP IRAs are true except A) the retirement account is usually set up at a bank or other financial institution. B) SEP IRAs are established for small-business owners and their employees. C) SEP IRAs allow employers to make contributions. D) there are no minimum earning requirements to be an eligible participant.

there are no minimum earning requirements to be an eligible participant. Eligibility to participate in a SEP IRA is limited to employees who have earned a minimum of $600 for the year in question.

One of the first steps in applying for registration as a representative with a FINRA member firm is completing the Form U4. All of the following information is included in the representative's application except A) whether the individual will maintain a "dual registration" status. B) whether previous employment was in an investment-related business. C) whether the individual is currently engaged in any other business either as a proprietor, partner, officer, director, employee, trustee, agent or otherwise. D) whether the individual graduated from a degree-granting institution.

whether the individual graduated from a degree-granting institution. The only mention of education on the Form U4 is when completing employment for the previous 10 years. If, during part of that period, the individual was a student, that information is required. However, there is nothing asking about graduation or degrees earned. A dual registration means registered with two nonaffiliated broker-dealers. Some states permit dual registration, while others prohibit it. When describing the previous employment, the Form U4 has a box to check if the business was investment-related. With the exception of charitable work, any concurrent employment must be listed on the Form U4.

A bond analyst plots the yields of AAA corporate bonds and compares them to the yields of U.S. Treasury bonds with similar maturities. This is known as A) yield plot analysis. B) yield comparison analysis. C) inverse yield analysis. D) yield curve analysis.

yield curve analysis The plotting of bond yields results in a curve, usually one where the longer the time to maturity, the higher the yield. The term yield curve analysis is the proper way to describe comparing the yields of highly-rated corporate bonds to those of Treasury bonds. When the spread between the yields is narrow, economic conditions in the United States are generally favorable. If the spread (sometimes called the credit spread) widens, it is generally a sign of a worsening economy