Practice Exam
XYZ Corp. declares a 4-for-3 stock split. An investor long 600 shares will receive how many additional shares? A) 100. B) 300. C) 400. D) 200.
200
Upon assignment, the writer of an exchange listed equity call option must A) deliver the underlying stock to sell within 1 business day B) pay for the underlying stock to buy within 1 business day C) pay for the underlying stock to buy within 2 business days D) deliver the underlying stock to sell within 2 business days
deliver the underlying stock to sell within 1 business day
An investor with very little risk tolerance is interested in investing $20,000 that she anticipates needing access to in the next year. Given the investor's risk profile, a registered representative might consider recommending A) a money market security B) a high-yield bond with a long-term maturity C) a bond with a low credit rating D) an income-adjustment bond with a medium-term maturity
a money market security
A customer opens a new margin account and immediately purchases 200 shares of XYZ stock, which is trading at $9 per share. The customer must deposit: A) $2,000. B) $1,800. C) $900. D) $450.
$1,800.
Which of the following is NOT a characteristic associated with auction rate securities (ARS)? A) Backed by the full faith and credit of the US federal government. B) Use a Dutch auction method to establish a new clearing rate. C) Are long term securities that reset the rate paid at predetermined short term intervals. D) Have the risk of failed auctions.
Backed by the full faith and credit of the US federal government.
A corporation has issued debt securities backed by the securities of other companies that it holds in its corporate investment portfolio. These debt securities are known as A) subordinated debentures B) mortgage bonds C) collateral trust bonds D) equipment trust certificates
collateral trust bonds
Your customer has purchased a fixed annuity as a way to supplement retirement income. With this type of contract, the customer is assuming: A) investment risk. B) purchasing power risk. C) selection risk. D) mortality risk.
purchasing power risk.
An investor's margin account has a short market value of $9,000 and a credit balance of $13,000. Assuming Regulation T is 50%, a maintenance call will be triggered if the short market value increases above: A) $11,000. B) $13,000. C) $10,000. D) $9,000.
$10,000.
An investor writes 1 XYZ 180 call at 6.65. If the investor makes a closing purchase at the call's intrinsic value when the stock is at 184.75, he realizes a gain of A) $180 B) $147.50 C) $190 D) $265.25
$190
With ABC stock trading at 33.10, a customer buys 2 ABC Jun 35 puts at 4.35. What is the time value of each contract? A) $2.45. B) $1.90. C) $0. D) $4.90.
$2.45.
An investor contributes $200,000 in cash to an oil and gas partnership. The partnership has entered into a nonrecourse loan for $500,000. The customer's cost basis in the program is: A) $700,000. B) $300,000. C) $200,000. D) $500,000.
$200,000.
A customer has $10,000 of capital losses and $2,000 of capital gains in mutual funds this year. The tax consequences would be a A) $8,000 loss deduction in the current year B) $3,000 loss deduction with a $5,000 loss carried forward C) $3,000 loss deduction with no loss carried forward D) $10,000 loss deduction in the current year
$3,000 loss deduction with a $5,000 loss carried forward
Your 66-year-old customer invested $35,000 in a nonqualified variable annuity. It now has a value of $55,000, and your customer wishes to make a random withdrawal of $30,000. What is the tax liability that results if the customer is in the 28% tax bracket? A) $8,400. B) $0. C) $2,800. D) $5,600.
$5,600.
For margin purposes, valuing a short position by marking to market will occur how often? A) At the end of business each week on Friday B) Only in months when margin activity in the account will generate a statement to the customer C) No more than once per month D) At the close of each business day
At the close of each business day
A 2X leveraged inverse ETF tracks an index that has recently fallen 2%. If the ETF was priced at $25 per share before the drop in the indexes price, where should the ETF be priced now, assuming the ETF portfolio performed as intended? A) up $4 per share B) up $1 per share C) down $2 per share D) down $1 per share
down $2 per share
While looking at a report of trades that had been executed for your customers in the secondary market, you would NOT see included A) municipal bonds B) agency securities C) mutual fund shares D) American depositary receipts
mutual fund shares
An affiliate of the issuer has held 150,000 shares of restricted stock for 18 months. There are 12.5 million shares outstanding, and, on average, 30,000 shares have traded each week over the past 4 weeks. Under Rule 144, the maximum number of shares the affiliate may sell over the next 3 months is: A) 150,000. B) 125,000. C) 30,000. D) 0.
150,000
In order to be eligible to participate in a tax-sheltered annuity, one must be A) 21 years of age and have completed 1 year of service B) 18 years of age and have completed 1 year of service C) 21 years of age and have completed 2 years of service D) the legal age of majority in the state of the qualifying institution and have completed 1 year of service
21 years of age and have completed 1 year of service
The ABLE Act limits eligibility to individuals with significant disabilities where the age of onset of the disability occurred before turning age A) 26 B) 21 C) 50½ D) 18
26
Under SEC rules, you must provide a new customer with a copy of the account record so that the customer may verify the information on it within how many days of account opening? A) 30. B) 15. C) 45. D) 60.
30
The following information has been reported for ABC stock: Annual Dividend = $2 PE ratio = 20 EPS = $5 Closing price = $100 What is the dividend payout ratio? A) 20%. B) 50%. C) 30%. D) 40%.
40%. dividend payout ratio = annual dividend / EPS DP Ratio = 2 /5 = 0.40
OCC must receive exercise instructions for equity options no later than A) 4:00 pm ET on the third Friday of the expiration month B) 5:30 pm ET on the third Friday of the expiration month C) 4:10 pm ET on the third Friday of the expiration month D) 11:59 pm ET on the Saturday before the third Friday of the expiration month
4:00 pm ET on the third Friday of the expiration month
XYZ County Sewer Revenue 6.5% municipal bonds mature in 20 years. If they are currently offered at 92, they have a yield to maturity of approximately: A) 6.23%. B) 6.5%. C) 7.19%. D) 5.96%.
7.19%.
A customer has substantial passive income from a real estate investment. Which of the following limited partnership programs is most suitable for this customer if he wishes to offset this income? A) An oil and gas income program. B) An equipment leasing program. C) An oil and gas exploratory program. D) A government-assisted housing program.
An oil and gas exploratory program.
One of your clients is an executive with a corporation that covers him under a nonqualified deferred-compensation annuity retirement plan. He expects to start receiving the money from the plan in about 8 years. At payout, how will the proceeds be taxed? A) As a long-term capital gain. B) As a short-term capital gain. C) There are no taxes on deferred compensation. D) As ordinary income.
As ordinary income.
A technical trader tells you that while looking at a chart he sees a primary trend of higher highs and higher lows. What would this be an indication of and according to what theory? A) Bullish market according to the Dow theory B) Bullish market according to the odd-lot theory C) Bearish market according to the short interest theory D) Stagnant market according to the trend line theory
Bullish market according to the Dow theory
Your customer has purchased a 5.8 % LMN corporate bond in a regular way transaction. Settlement for this bond trade is A) trade date plus five business days B) trade date C) trade date plus two business days D) trade date plus one business day
trade date plus two business days
You use fundamental analysis to help make investment decisions. For this type of analysis, you would NOT be interested in: A) corporate financial statements. B) trading volume and price patterns. C) positioning of a company within its industry. D) current business conditions.
trading volume and price patterns.
Your customer having just received approval to open an options account wants to clarify that she recognizes which options positions entail the most risk. She recalls three that have unlimited loss potential but the fourth one she mentions has a limited loss potential and is not as risky. Which is it? A) Short stock/short put hedge B) Short straddle C) Credit put spread D) Short calls
Credit put spread
A registered representative (RR) is explaining characteristics of Equity Linked Notes (ELNs) and Exchange Traded Funds (ETFs) to a new client. All of the following statements are true EXCEPT: A) Equity Linked Notes (ELNs) can be traded OTC or on a listed exchange. B) Exchange Traded Funds (ETFs) can hold assets like stocks, bonds, or commodities or can track an index. C) Exchange Traded Funds (ETFs) trade on listed exchanges much like stocks. D) Equity Linked Notes (ELNs) are equity instruments.
Equity Linked Notes (ELNs) are equity instrument
A customer asks if there are any debt instruments providing income that might at least keep pace with inflation and offer some tax advantages. What suitable recommendation could be made that would meet the customer's criteria? A) GNMAs B) TIPS C) ADRs D) U.S. T-bills
GNMAs
A new registered representative makes several statements about corporate debt securities. Which of the following statements is NOT true? A) Debentures are unsecured debt instruments. B) Equipment trust certificates are secured debt instruments. C) Guaranteed bonds are secured debt instruments. D) Income bonds are unsecured debt instruments.
Guaranteed bonds are secured debt instruments.
Which of the following does the capital asset pricing model (CAPM) assume? A) Investors are averse to risk and believe that no type of risk can be diversified away. B) Investors are comfortable with risk and believe that diversification can be used to reduce risk. C) Investors are comfortable with risk because they do not believe that it can be diversified away. D) Investors are averse to risk and believe that diversification can be used to reduce risk.
Investors are averse to risk and believe that diversification can be used to reduce risk.
You overhear the phone conversation of another RR discussing the purchase of exchange traded fund shares as opposed to mutual fund shares with a customer. The RR makes several statements, but one of them is incorrect. Which of the following is the incorrect statement? A) Just like mutual funds, ETFs use forward pricing so when you place an order it will be executed at the next calculated NAV for the fund. B) Remember that you can't buy mutual fund shares on margin, but you can for ETF shares. C) Unless an ETF makes a capital gains distribution, you don't have to be concerned with tax consequences until you sell your shares. D) I know that you like to sell short sometimes which you can do with ETF shares.
Just like mutual funds, ETFs use forward pricing so when you place an order it will be executed at the next calculated NAV for the fund.
A registered representative at a broker-dealer mentions "continuity of life" as it pertains to limited partnerships. The reference can best be explained by which of the following statements? A) Limited partnerships have continuity of life which means they will exist in perpetuity. B) Continuity of life is a characteristic of limited partnerships because they are scheduled to end on a predetermined date. C) Limited partnerships will exist until the last partner is deceased. D) Limited partnerships do not have continuity of life because unlike corporations a limited partnership will end on a predetermined date.
Limited partnerships do not have continuity of life because unlike corporations a limited partnership will end on a predetermined date.
A registered representative opens a new account for a customer with a profile detailing the following: Age 26, annual income $38,000, current savings of $12,000. During the new account interview the customer indicates that purchasing their first home within the next 2 to 5 years is a goal they hope to achieve. Given the customer profile and objective, which of the following would be the least suitable recommendation? A) Municipal bonds B) Utility company stocks C) Large-cap equity fund D) Balance mutual fund
Municipal bonds
Which of the following statements regarding the sale of restricted stock under Rule 144 is TRUE? A) Affiliates are never subject to holding periods or volume restrictions. B) Affiliates are not subject to volume restrictions on stock held for more than 6 months. C) Form 144 must be filed with the SEC within 10 days of the date of sale. D) Nonaffiliates are not subject to volume restrictions on stock held for more than 6 months.
Nonaffiliates are not subject to volume restrictions on stock held for more than 6 months.
Regulations regarding employee eligibility under tax-qualified plans fall under which ERISA requirement? A) Funding. B) Nondiscrimination. C) Vesting. D) Reporting and disclosure.
Nondiscrimination
Your broker/dealer has received via the automated customer account transfer system (ACATS) form ACAT instructing that one of your customers would like to have existing positions in their account transferred to their new broker/dealer. How long does your BD have to validate the positions listed on the form? A) Three business days B) One business day C) Seven calendar days from the time form ACAT is received D) No later than the end of business on the Friday of the week form ACAT was received
One business day
An investor wishes to invest in a limited partnership participation. Listing an investment objective of capital appreciation without producing currently taxable income, which of the following choices would be most suitable regarding the investor's criteria? A) Low Income Housing B) Raw Land C) Equipment Leasing D) Oil and Gas Income Program
Raw Land
A mutual fund portfolio consists entirely of stocks of companies with either new products just released in the market place or companies holding patents pending. Of the choices below, this mutual fund is best described as a: A) dow theory fund. B) special situation fund. C) index fund. D) combination fund.
Special Situation Funds
The item that is not true when you read a bond quote of 6.5s of 19 at 990 is: A) The bond matures in 2025 B) If traded the Yield-to-Call would be on the confirmation of the trade. C) The bond is trading at a 1 point discount. D) If the price quote was changed to a basis quote, the yield would be less than 6.5%.
The bond matures in 2025
Which of the following statements regarding REITs and limited partnerships is TRUE? A) They both trade on securities exchanges and OTC and have third-party management. B) They both pass through investment gains to the investor and have third-party management. C) Neither have third-party management, but both pass through investment losses to the investor. D) They both pass through investment gains and losses to the investor.
They both pass through investment gains to the investor and have third-party management.
Your customer has established the following spread: Long 1 ABC Jan 60 call at 5 Short 1 ABC Jan 70 call at 2 The customer will realize a gain at expiration if the spread A) widens to more than 3 points and ABC trades above 63 B) narrows to less than 3 points and ABC trades below 63 C) widens to more than 3 points and ABC trades below 63 D) narrows to less than 3 points and ABC trades above 63
widens to more than 3 points and ABC trades above 63
A municipality wants to issue industrial revenue bonds to benefit a local company who employs hundreds of the municipality's residents. Regarding these bonds, which of the following is TRUE? A) Because these bonds are used for a nonpublic purpose, the interest income will not be subject to the alternative minimum tax (AMT). B) The credit rating of the bonds is dependent on the credit rating of the company, not the municipality. C) The issuance of these bonds would require voter approval. D) Interest is paid from revenues collected through property assessments and taxes.
The credit rating of the bonds is dependent on the credit rating of the company, not the municipality.
Which of the following statements regarding a leveraged exchange-traded fund (ETF) are TRUE? A) The leveraged ETF shares may be purchased on margin, but securities within the leveraged fund portfolio may never be purchased on margin. B) The leveraged ETF shares may be purchased on margin and securities within the leveraged fund portfolio may be purchased on margin. C) The leveraged ETF shares may never be purchased on margin, but securities within the leveraged fund portfolio may be purchased on margin. D) The leveraged ETF shares may never be purchased on margin nor can securities within the leveraged fund portfolio.
The leveraged ETF shares may be purchased on margin and securities within the leveraged fund portfolio may be purchased on margin.
A registered representative has prepared a sales piece for one of his retail customers demonstrating a trading strategy. Regarding the piece which of the following statements is TRUE? A) The piece will be regulated as a retail communication with the public. B) The piece must be approved by a principal prior to being sent to the customer. C) All material sent to individual clients must be submitted to FINRA before use. D) The piece will be regulated as correspondence.
The piece must be approved by a principal prior to being sent to the customer.
Your customer contacts you proposing to invest a large sum of money in 5 different mutual fund families using A-class shares. Which of the following is accurate and important to disclose to your customer regarding suitability and their proposal? A) They will not be able to achieve diversification this way. B) They should consider B class shares only if investing a large sum in order to avoid paying the sales charge up front. C) They will not be able to switch between different funds within each family. D) They may not be able to receive sales breakpoints if they divide the investment among 5 different fund families.
They may not be able to receive sales breakpoints if they divide the investment among 5 different fund families.
An investor has the following spread position: Long 1 July 40 call Short I July 50 call Regarding the position, which of the following is TRUE? A) This is a credit spread and loss is limited to the net premium received. B) This is a debit spread and loss is limited to the net premium paid. C) This is a debit spread and loss is limited to the net premium received. D) This is a credit spread and maximum loss potential is unlimited.
This is a debit spread and loss is limited to the net premium paid.
Your customer wrote a September 918 index call at 4.15 5 months ago. The option expired and the customer received no assignment notice. For tax purposes, it should be taxed and reported as A) a $415 short-term capital gain B) ordinary income of $415 C) ordinary income of $9,180 D) a $41.50 short-term capital loss
a $415 short-term capital gain
In what is commonly known as a proceeds transaction, one of your clients is using the proceeds from the liquidation of one stock to purchase another stock. In compliance with the 5% markup policy for these transactions, the markup will be computed based on A) the compensation to the dealer for each side of the transaction separately B) a combination of both the buy side and the sell side compensation to the dealer C) the markup or compensation to the dealer on the buy side of the transaction D) the markdown or compensation to the dealer on the sale side of the transaction
a combination of both the buy side and the sell side compensation to the dealer
A registered representative is recommending to his client a new issue security backed by the federal government of the U.S. and maturing in 8 years. This security is most likely A) an equity instrument known as an American Depositary Receipt B) an equity instrument known as a bankers' acceptance C) a debt instrument known as a Treasury note D) a debt instrument known as a Treasury bond
a debt instrument known as a Treasury note
A municipal securities advertising piece intended to be distributed to retail customers must be approved by A) a general securities principal or a branch manager B) a municipal securities principal or a general securities principal C) a municipal securities principal and the MSRB D) a branch manager and the MSRB
a municipal securities principal or a general securities principal
A customer who is long 500 shares of XYZ writes 7 calls against the position. This is an example of: A) a long straddle. B) a vertical spread. C) portfolio insurance. D) a ratio write.
a ratio write.
A violation of MSRB rules would occur if: A) a representative made a recommendation to a customer after gathering information about their financial status, tax status, investment objectives, and other holdings. B) a registered representative recommended geographic diversification to limit risk. C) a representative gave a gift to an associated person of another broker/dealer that was valued just under $250. D) an associated person held a joint account with a spouse.
a representative gave a gift to an associated person of another broker/dealer that was valued just under $250.
A customer is trying to understand any differences between a rollover and a trustee to trustee transfer as they relate to his qualified retirement plans. An accurate explanation would be that A) a rollover can occur as often as one wishes, but a trustee to trustee transfer can occur only once every 365-day period B) both rollovers and trustee to trustee transfers can occur only once every 365-day period C) both rollovers and trustee to trustee transfers can occur as often as one wishes D) a rollover can occur only once every 365-day period, but a trustee to trustee transfer can occur as often as one wishes
a rollover can occur only once every 365-day period, but a trustee to trustee transfer can occur as often as one wishes
Under the Investment Company Act of 1940, the term investment company would include A) a variable annuity and a closed-end management company B) a unit investment trust and a management company C) a holding company and a management company D) a unit investment trust and a holding company
a unit investment trust and a management company
An investor has purchased ADRs to achieve portfolio diversification. Holding the ADRs in a portfolio entitles the investor to A) dividends paid in U.S. dollars and the ability to trade the ADRs on foreign markets B) dividends paid in U.S. dollars and the ability to trade ADRs on U.S. securities markets C) dividends paid in the foreign currency and the ability to trade the ADRs on foreign markets D) dividends paid in the foreign currency and the ability to trade ADRs on U.S. securities markets
dividends paid in U.S. dollars and the ability to trade ADRs on U.S. securities markets
Which of the following customer information should a registered representative be most concerned about if opening a margin account? A) participates in a 401(k) plan at work B) has a high risk tolerance C) does not have a savings account D) wants to leverage the investment
does not have a savings account
Your customer, age 46, has been investing money in a variable annuity for several years. He plans to stop the deposits in order to meet current financial obligations but does not intend to withdraw any of the funds already invested until retirement, which is still several years away. Until the withdrawals are made, the client will be holding: A) mutual fund units. B) accumulation units. C) accumulation shares. D) annuity units.
accumulation units.
With regard to convertible bonds, one characteristic of which your clients should be aware of is that: A) they generally pay a higher interest rate than nonconvertible bonds. B) although they trade in line with the issuer's common stock, they are less volatile than the common shares. C) the holder will always have the choice to convert to the issuer's preferred shares or the issuer's common shares, whichever suits them best. D) convertible bonds are classified as equity instruments.
although they trade in line with the issuer's common stock, they are less volatile than the common shares.
One of your clients has the opportunity to participate in his employer's stock purchase program commonly known as ESPPs. Before enrolling, he should be aware that funds will come out of his paycheck on A) a pretax basis and those contributions are deductible on his tax return B) an after-tax basis and those contributions are not deductible on his tax return C) a pretax basis and those contributions are not deductible on his tax return D) an after-tax basis and those contributions will be deductible on his tax return
an after-tax basis and those contributions are not deductible on his tax return
Under the Securities Act of 1933, SEC registration is required for A) a private placement offering of $60 million by a brokerage firm B) a municipal revenue note offering of $4 million C) a commercial paper offering of $30 million maturing in 180 days D) an offering of $25 million of a corporate bank holding company
an offering of $25 million of a corporate bank holding company
You are asked to read the preliminary prospectus for a new issue of common stock for a client. You would expect the preliminary prospectus to include A) the effective date of the offering the risks associated with the offering B) an overview and history of the issuer's business and the final offering price C) the effective date of the offering and the final offering price D) an overview and history of the issuer's business and any risks associated with the offering
an overview and history of the issuer's business and any risks associated with the offering
A U.S. investor owns an American Depository Receipt. The net tax liability to the investor for any dividends received is A) any U.S. income tax due, credited by any amount of foreign income tax withheld B) zero, because there is no tax liability to U.S. investors who purchase foreign government issues C) the total of both foreign and U.S. income tax due D) any foreign income tax due, but not U.S. income tax
any U.S. income tax due, credited by any amount of foreign income tax withheld
A registered representative correctly explains to a new customer who wants to learn about the tax and risk characteristics of collateralized mortgage obligations that the securities A) are taxable only in the state where the mortgages originated from and are backed by the federal government B) are tax-exempt in the states where the mortgages originated from and subject holders to prepayment risk C) are taxable at all levels and subject the holders to prepayment risk D) are tax-exempt at the federal level and do not have fixed maturity dates
are taxable at all levels and subject the holders to prepayment risk
A customer of a broker-dealer has a portfolio of investments where expected payments from mortgages back the securities via a process known as securitization. These securities are best described as A) stock rights B) high yield bond options C) asset-backed securities D) commodity options
asset-backed securities
After providing a firm quote to another broker/dealer, an OTC market maker then refuses to honor the bid price quoted. The market maker has committed a violation known as: A) freeriding. B) backing away. C) interpositioning. D) crossing quotes.
backing away.
A website maintained by a fund company shows that one of the company's mutual funds currently has an NAV of $9.50 and a POP of $10 per share. Your client sees this information and enters an order to make a $10,000 purchase. He asks you to calculate the number of shares he will be able to buy with today's investment. You would respond that A) based on the $10 POP he will be receiving exactly 1,000 shares into his account immediately B) it cannot be determined until after the order is processed by the fund at the next calculated (forward) price C) based on the 5% sales charge he will be receiving exactly 950 shares into his account immediately D) based on the $9.50 NAV he will be receiving exactly 1,052.63 shares into his account at the end of the day
based on the 5% sales charge he will be receiving exactly 950 shares into his account immediately
A registered representative is the subject of a disciplinary action that results in a fine and a 60-day suspension of registration. During the 60-day suspension period, the registered representative may: A) be paid for business they refer to other registered representatives while serving the suspension. B) only perform investment advisory services. C) only perform clerical or administrative functions for the member. D) be paid for business generated before the suspension date.
be paid for business generated before the suspension date.
One of your customers asks you to interpret her observation that the short interest in a stock she owns has been rapidly increasing over the past 4 months. Aligning with the short interest theory, you would tell her that this is a A) bearish indicator B) indication of predictable stability in the stock C) indication of predictable volatility in the stock D) bullish indicator
bearish indicator
The manager of an equity fund wishes to hedge the fund's portfolio against a possible market decline. Of the strategies listed, to provide the best protection the manager would: A) buy narrow-based index calls. B) buy broad-based index puts. C) buy narrow-based index puts. D) buy broad-based index calls.
buy broad-based index puts.
A U.S. importer orders computer components from a Japanese manufacturer with payment to be made in yen upon delivery. To hedge against the dollar weakening against the yen before payment is due, the importer should: A) buy yen puts. B) sell yen calls. C) sell yen puts. D) buy yen calls.
buy yen calls.
A broker-dealer that is a financial adviser to a municipal issuer A) cannot act as an underwriter of the issuer's bonds in a negotiated or competitive bid underwriting and receive compensation for both services B) can act as an underwriter of the issuer's bonds in a negotiated underwriting or competitive bid underwriting and receive compensation for both services C) can act as an underwriter of the issuer's bonds in a competitive bid underwriting only if they want to receive compensation for both services D) can act as an underwriter of the issuer's bonds in a negotiated underwriting only if they want to receive compensation for both services
cannot act as an underwriter of the issuer's bonds in a negotiated or competitive bid underwriting and receive compensation for both services
Comparing the year-end balance sheets from one year to the next for XYZ Corporation, you notice that shareholder equity has been diluted over the past year. A dilution of shareholder equity could occur because of a: A) corporate debt refunding. B) stock split. C) conversion of convertible corporate bonds. D) stock dividend.
conversion of convertible corporate bonds.
When investing in a DPP, an investor should know that some asset types cannot be depreciated or depleted. One example of such an asset would be: A) buildings. B) crops. C) oil. D) gas.
crops
Certain account types must be opened as cash accounts including IRAs and A) partnership accounts. B) corporate investment accounts. C) custodial accounts. D) individual investment accounts.
custodial accounts.
Your customer wants to buy 1,000 shares of XYZ stock and has entered a not-held order with instructions to you to purchase the stock when you feel the price looks right. Under the rules, this order will be treated as a(n): A) limit order. B) GTC order. C) day order. D) IOC order.
day order.
Your customer has just purchased three State of Maine 4.8% new issue municipal bonds maturing in 2026. MSRB rules require a final official statement be: A) delivered to customers on or before the settlement date. B) sent to the customer before the order was placed. C) sent to customers on or before the trade date. D) delivered to customers only if the customer requests it to be.
delivered to customers on or before the settlement date.
A client, age 52, wants to know if there are any circumstances that will allow withdrawals from his IRA without having to pay the 10% penalty. One example you could give is: A) disability. B) debt reduction. C) unemployment. D) vacation home purchase.
disability
A young unmarried couple wants to open a new account as joint tenants with rights of survivorship (JTWROS). A registered representative should A) file a report regarding the couple's preference as to how the account is to be set up with FINRA and open the account B) file a report regarding the couple's preference as to how the account is to be set up with FINRA and refuse to open the account C) discuss the resulting consequences regarding an account set up as JTWROS should one of them die and open the account D) discuss the resulting consequences regarding an account set up as JTWROS should one of them die and refuse to open the account until witness of signatures can be verified by a notary
discuss the resulting consequences regarding an account set up as JTWROS should one of them die and open the account
Your client, age 52, is considering taking distributions from her qualified retirement plan. You correctly explain that A) distributions of earnings are tax-free, but a 10% penalty will be applied to the distributions B) distributions of cost basis is 100% taxable and a 10% penalty will be applied to the distributions C) distributions of earnings are tax-free and there will not be a penalty applied to the distributions D) distributions of earnings are 100% taxable, and a 10% penalty will be applied to the distributions
distributions of earnings are 100% taxable, and a 10% penalty will be applied to the distributions
Having been a customer of a broker-dealer for over 10 years, currently holding equity positions and cash in his account, Mr. Smith wants to purchase 1,000 shares of a penny stock. Mr. Smith is A) exempt from both the requirement to receive a suitability statement and the disclosure requirement B) exempt from the requirement to receive a suitability statement but subject to the disclosure requirement C) exempt from the disclosure requirement but must receive a suitability statement D) required to receive both the suitability statement and the disclosure
exempt from the requirement to receive a suitability statement but subject to the disclosure requirement
Your client asks you to explain a not-held order. You could correctly explain that a not-held order A) can only be done in a discretionary account B) can be filled only on the last trade of the day C) gives time and/or price discretion to the floor broker D) must be executed immediately and in its entirety
gives time and/or price discretion to the floor broker
A client interested in Treasury bills asks you to explain their features. You could correctly explain that they are direct obligations of A) the U.S. government issued at a discount to par B) municipal governments and are generally not callable C) municipal governments with 2 or more years to maturity D) the U.S. government and are generally callable
he U.S. government issued at a discount to par
You hear a registered representative speaking with a customer about hedge funds. He makes several statements, all of which are true EXCEPT A) hedge funds sometimes trade portfolio assets on margin and will short positions as well B) hedge funds often employ the use of derivative products in their portfolios such as options and futures contracts C) hedge funds are not regulated under the 1940 Investment Company Act D) hedge funds are suitable for most investors because their objective is to hedge against risk
hedge funds are suitable for most investors because their objective is to hedge against risk
A broker/dealer wants to reference its membership with FINRA on its website. Regarding the reference all of the following are true EXCEPT A) if the FINRA reference is made, a hyperlink to FINRA's website is mandated by FINRA B) the FINRA reference is intended to demonstrate that the BD has the approval of FINRA in all of its business dealings C) there is no requirement that any FINRA member BD reference FINRA by name or logo on its website D) if the FINRA reference is made, a hyperlink to FINRA's website must be in close proximity to the reference
if the FINRA reference is made, a hyperlink to FINRA's website must be in close proximity to the reference
An investor who purchases Treasury STRIPS is least affected by: A) market risk. B) reinvestment risk. C) inflation risk. D) interest rate risk.
inflation risk.
An investor wanting to purchase municipal bonds should be aware that in most instances if she buys the bond and then later sells it for a profit A) both interest received and capital gains will be exempt from taxation B) neither interest received or capital gains will be exempt from taxation C) interest received will be exempt from taxation but not the capital gains D) interest received will be taxable, but the capital gains are exempt from taxation
interest received will be exempt from taxation but not the capital gains
An associate of a broker/dealer engaged in municipal securities activities such as soliciting municipal bond business but is not involved in retail sales A) is required to be an elected official of a municipality B) is required to be employed by the Municipal Securities Rule Making Board (MSRB) C) may sell municipal bonds to professional bond traders only D) is known as a municipal finance professional (MFP)
is known as a municipal finance professional (MFP)
A debt securities analyst is examining a municipality's statutory debt limit which he knows can limit the issuer from A) raising property taxes B) issuing revenue bonds C) issuing general obligation bonds D) limiting or capping property taxes
issuing general obligation bonds
With the underlying stock at $37, an ABC Jan 35 call is trading at $2. All of the following statements regarding the option are true EXCEPT: A) it is at parity. B) it has time value. C) it is in the money. D) it is trading at breakeven.
it is in the money.
One of your customers is exploring the possibility of investing in a limited partnership. To start the conversation, you think it wise to caution about what is generally considered to be one of the biggest disadvantages which is A) the flow through of income B) lack of liquidity C) having an investment managed by general partners D) the flow through of certain expenses and losses
lack of liquidity
An investor is long 300 shares of CTS stock and short 30 CTS May calls. This position and can best be described as a A) ratio spread with an unlimited loss potential B) debit spread with no gain potential C) long stock, short call hedge with a limited loss potential D) credit spread with a limited gain potential
long stock, short call hedge with a limited loss potential
Your customer wants you to recommend an option strategy that will prove profitable in a highly volatile stock, regardless of which direction the stock price moves. To suit the client's objective, you should recommend a: A) long straddle. B) debit put spread. C) credit call spread. D) short straddle.
long straddle.
Your customer is in a high tax bracket and is considering purchasing municipal bonds for his portfolio. You correctly explain that municipalities generally pay A) lower interest rates than corporate issuers and, therefore, these bonds are less desirable for those in higher tax brackets B) higher interest rates than corporate issuers and the taxable interest makes these bonds less suitable for those in higher tax brackets C) lower interest rates than corporate issuers, but the tax-free interest makes these bonds more suitable for those in higher tax brackets D) higher interest rates than corporate issuers, but, because of the tax-free interest, these bonds are more desirable for those in higher tax brackets
lower interest rates than corporate issuers, but the tax-free interest makes these bonds more suitable for those in higher tax brackets
The Securities Act of 1933 does not regulate A) municipalities registering a revenue bond prior to building an airport terminal. B) review of a registration form submitted to the SEC prior to a public sale of stock. C) that no sales of a proposed security can take place during the cooling-off period. D) the delivery of a prospectus when selling a municipal bond fund.
municipalities registering a revenue bond prior to building an airport terminal.
Your new customer directs you to open a cash account. He wants to give trading authorization to his brother but does not want his brother to have any other authority in the account. The 2 required documents needed by your firm to open the account as directed would be a A) new account form and a limited power of attorney B) new account form and a full power of attorney C) margin agreement and a limited power of attorney D) margin agreement and a full power of attorney
new account form and a limited power of attorney
A broker-dealer secures indications of interest during the cooling-off period for a new issue. These indications are A) binding on the broker-dealer who must sell to the customer the number of shares the customer committed to purchasing B) binding on the customer who must purchase the number of shares they indicated they would C) binding on the broker-dealer and the customer D) nonbinding on the broker-dealer or the customer
nonbinding on the broker-dealer or the customer
A registered representative (RR) recommends an AAA rated municipal GO bond for the investment account of one of his clients. The client profile shows the customer is 25 years old, is in a low income tax bracket, and has an aggressive long-term growth objective. This recommendation is A) suitable because municipal bonds provide portfolio diversification in any investment account B) not suitable because municipal bonds do not align with the client's objective and profile C) suitable because municipal bonds will pay this customer, who is in a low income bracket, tax-free interest payments D) not suitable because municipal bonds never belong in an investment account
not suitable because municipal bonds do not align with the client's objective and profile
A bond is quoted as QRS Zr 09. This quote tells an investor that the bond: A) pays interest annually. B) pays interest semiannually. C) pays no interest until maturity. D) is backed by the U.S. government.
pays no interest until maturity.
A bond is being issued to build a toll road. It has been identified that the State does not own all of the property that the road is going to be built upon. Which of the following documents would disclose this information? A) trust indenture B) bond resolution C) qualified legal opinion D) prospectus
prospectus
A customer of your broker-dealer wants to grant his registered representative the right to make investment decisions for his account. This would be done by A) providing a limited power of attorney giving discretionary powers B) granting a full power of attorney to anyone capable of instructing the representative as to investment decisions C) providing a letter from an attorney witnessed by a notary giving the instruction D) placing the instruction to do so either verbally or in writing each time the RR wants to enter an order
providing a limited power of attorney giving discretionary powers
In a discussion about different types of risks with a customer, you would describe credit risk as the A) unfavorable tax treatment of an investment due to tax law changes B) risk that interest rates might fall C) danger of not being able to close a position quickly D) risk of loss due to an issuer's default or failure
risk of loss due to an issuer's default or failure
ABC stock is going ex-dividend today, and certain orders on the order book must be reduced prior to the opening. For a cash dividend of .12, which of the following orders would be reduced? A) sell 100 ABC at 45 stop. B) buy 100 ABC at the market. C) buy 100 ABC at 50 stop. D) sell 100 ABC at 50.
sell 100 ABC at 45 stop.
An investor is long stock at 80. The current market price of the stock is 93, it is anticipated the stock will continue to rise. If the investor would like to generate income, but limit how much can be made if the stock continues to rise, which of the following contracts would do that? A) sell a 95 call B) sell a 90 put C) buy a 95 call D) buy a 90 put
sell a 95 call
Certain order types, when executed, tend to accelerate a bearish market. This is TRUE of: A) sell stops. B) buy limits. C) sell limits. D) buy stops.
sell stops.
A customer has entered a day order to buy XYZ at 31.50. An hour before the market closes she calls you and says that she is considering changing the order to a GTC order. You tell her that: A) she should consider leaving the day order entered for the remainder of the day, and if left unexecuted, should enter a GTC order in the morning so that her existing day order would not lose its priority before today's close. B) the mandatory service charge for canceling and replacing imposed by all exchanges makes this order replacement strategy too costly to be of benefit. C) she should consider entering another day order tomorrow morning because day orders have preference in execution over GTC orders. D) this is a good strategy, but order replacements must be verified in writing by the customer.
she should consider leaving the day order entered for the remainder of the day, and if left unexecuted, should enter a GTC order in the morning so that her existing day order would not lose its priority before today's close.
One of your customers is speaking to you about spread strategies for equity options and makes several statements about spreads. Which of the following statements should you correct her on because it is NOT true? A) With a time or horizontal spread, both options expire at the same time which means the position expires completely. B) No spread can ever have an unlimited maximum loss potential. C) If a position, whether long or short, begins to move against me, I can always close it out in the market. D) With spreads, I always know exactly how much I can lose or gain once the position is established.
she should consider leaving the day order entered for the remainder of the day, and if left unexecuted, should enter a GTC order in the morning so that her existing day order would not lose its priority before today's close.
You believe XYZ stock will be rising and want to recommend a spread position to your client that would be profitable if it does. Of the positions listed, you would recommend that the client go: A) long 1 XYZ Jan 30 put and short 1 XYZ Jan 40 put. B) long 1 XYZ Jan 40 call and short 1 XYZ Jan 30 call. C) short 1 XYZ Jan 40 put and long 1 XYZ Jan 50 put. D) short 1 XYZ Jan 30 call and long 1 XYZ Jan 50 call.
short 1 XYZ Jan 40 put and long 1 XYZ Jan 50 put.
You are listening to another registered representative speak about Rule 147 offerings and recognize that one of his statements is incorrect. The representative INCORRECTLY states that A) Rule 147 applies to intrastate stock offerings B) buyers of stock issued under Rule 147 are subject to a 1-year holding period before selling to a nonresident C) under one Rule 147 provision that can be met, an issuer must derive 80% or more of it's revenue from the state in which its principal office is located D) stock sold under Rule 147 is sold in an exempt transaction
stock sold under Rule 147 is sold in an exempt transaction
Regarding the bond buyer's visible supply and placement ratio, municipal bond underwriters know that a high placement ratio means the market for municipal bonds is A) weak and a large visible supply means interest rates are likely to fall (bond prices will rise) B) weak and a large visible supply means interest rates are likely to rise (bond prices will fall) C) strong and a large visible supply means interest rates are likely to fall (bond prices will rise) D) strong and a large visible supply means interest rates are likely to rise (bond prices will fall)
strong and a large visible supply means interest rates are likely to rise (bond prices will fall)
Regarding risk, traders in broad index options are most exposed to A) business risk B) systematic (market) risk C) purchasing power risk D) credit risk
systematic (market) risk
For an oil and gas limited partnership, allowances in the form of deductions are allowed by the IRS to be taken to compensate for a depleting resource. The allowance can be taken based on A) the condition or grade of the natural resource B) the amount of the natural resource sold C) the cost of moving the natural resource to refiners and distributors D) the amount of the natural resource extracted
the amount of the natural resource sold
An hour ago, you entered a sell limit order for your customer in XYZ stock. Looking at a current quote, you could expect the order to have been executed if A) the offer or ask price for XYZ is lower than your customer's sell limit and the last reported price in the stock is below the sell limit price B) the bid price for XYZ is higher than your customer's sell limit and the last reported price in the stock is below the sell limit price C) the offer or ask price for XYZ is lower than your customer's sell limit and the last reported price in the stock is above the sell limit price D) the bid price for XYZ is higher than your customer's sell limit and the last reported price in the stock is above the sell limit price
the bid price for XYZ is higher than your customer's sell limit and the last reported price in the stock is above the sell limit price
Approval of a new options account by a principal may occur before: A) the customer has been furnished an options disclosure document. B) the customer has verified information on the new account form. C) the new account form has been completed. D) the customer has provided essential suitability information.
the customer has verified information on the new account form.
Your customer has just signed a limited partnership subscription agreement. Regarding the signing of this agreement, it is important for the customer to know that A) a new agreement is required anytime assets in the partnership are bought or sold B) the registered representative and general partner are required to sign before the customer can become a limited partner C) the customer will be considered a limited partner only after the subscription agreement has been signed by the general partner D) a copy of the agreement signed by all partners must be filed with the SEC
the customer will be considered a limited partner only after the subscription agreement has been signed by the general partner
XYZ, Inc. has 5 million shares outstanding and will issue 1 million shares of new stock through an upcoming rights offering. Regarding the rights offering, a registered representative should know that: A) the value of the right after the ex-date can be found by using the cum rights formula. B) XYZ will issue 1 million rights. C) an investor will generally have 2 to 3 years to exercise the rights. D) the exercise price is generally lower than the current market price at issuance.
the exercise price is generally lower than the current market price at issuance.
A customer's confirmation of a municipal securities transaction must include A) the lowest potential yield the customer may receive and information regarding the catastrophic call provision B) the lowest potential yield the customer may receive and whether the bond is taxable or subject to the alternative minimum tax C) the highest potential yield the customer may receive and information regarding the catastrophic call provision D) the highest potential yield the customer may receive and the amount of markup or markdown in a principal transaction
the lowest potential yield the customer may receive and information regarding the catastrophic call provision
A toll road authority issues a revenue bond that is backed by the revenue stream a roads toll produces and by the state. This bond is categorized as a(n) A) overlapping debt issue. B) industrial revenue bond. C) moral obligation bond. D) double-barreled bond.
the lowest potential yield the customer may receive and information regarding the catastrophic call provision
All of the following are accurate statements regarding communications filing requirements with FINRA EXCEPT A) there are no requirements to file any sales or advertising piece with FINRA B) correspondence pieces are not subject to filing with FINRA C) pieces intended for institutional customers need not be filed with FINRA D) retail communications can be subject to filing with FINRA
there are no requirements to file any sales or advertising piece with FINRA
The Internal Revenue Service has determined that the NYNY real estate existing property limited partnership is abusive. The most likely reason would be because A) all of the assets were found to be rental properties B) there was no viable profit motive C) no net profit was generated after losses were taken D) each partner received enough in losses to shelter all income
there was no viable profit motive
In describing warrants to an investor who has just received them, you could characterize them in all of the following ways EXCEPT A) they do not represent ownership so they do not offer voting rights to the holder B) they can be sold in the secondary market instead of being exercised C) they are short-term securities with a strike price less than the current market value of the stock D) they are issued by the same corporation that issued the debt instrument they are attached to
they are short-term securities with a strike price less than the current market value of the stock
