Progress Exam 1B
The balancing of asset classes according to an investor's financial objectives in order to maximize returns for a given level of risk is known as: ADollar cost averaging BAsset allocation CBeta balancing DAlpha adjustment
Asset allocation is the distribution of investments among asset classes according to an investor's objectives in order to produce the maximum expected return for a given level of risk. Examples of classes used in asset allocation models include large-capitalization stocks, small-capitalization stocks, international stocks, domestic bonds, international bonds, money-market securities, and real estate-related investments.
Common and preferred stock are similar in that: ABoth have a fixed dividend BThe dividends for both must be declared by the board of directors CBoth are guaranteed to receive an annual dividend DBoth have an equal vote on corporate issues
Dividends for both common and preferred stock must be declared by the board of directors. While preferred stock normally has a fixed dividend, neither common nor preferred stockholders are guaranteed a dividend.
When describing accounts for customers, all of the following are TRUE, EXCEPT: ASocial Security numbers are not required for non-United States residents BThe Uniform Gifts to Minors Act does not provide for joint accounts CJoint account information will be reported for both Social Security numbers on Form 1099 DA notarized copy of a death certificate is acceptable documentation of a customer's passing
Joint account information is reported on one Social Security number.
A municipal tombstone advertisement must be approved by: AThe MSRB BA municipal securities principal CA municipal securities principal and the branch manager DA municipal securities financial and operations principal
MSRB rules require that an advertisement must be approved prior to its first use by a municipal securities principal.
Which of the following choices, if included in an investment company retail communication, is likely to be considered misleading? AA statement that past performance is a good guide to future performance BA comparison of a fund's returns to an index CA mention of the risks of a fund along with its potential benefits DA disclosure of only the maximum sales charge assessed by the fund
Stating or implying that past performance predicts future performance is considered misleading. Such statements may not appear in investment company retail communications.
An investor is considering whether to buy the common or preferred stock of XYZ Corporation. When comparing these two types of securities, which of the following statements are TRUE? Preferred stock is more likely to receive a dividend than common stock Common stock has more potential for capital appreciation than preferred stock Preferred stockholders have greater control over the corporation compared to common stockholders Common stock is generally more liquid than preferred stock AI and II only BI, II, and III only CI, II, and IV only DI, II, III, and IV
Preferred stock, unlike common stock, generally does NOT have voting rights. Common stockholders, therefore, control the corporation through the board of directors. Common stock generally provides an opportunity for an investment to appreciate, whereas preferred shares are more likely to receive income in the form of a dividend.
Warrants are most likely issued to: AReplace outstanding common shares Create an incentive to purchase a bond which is offering a lower interest rate CCompensate the underwriting syndicate Reduce the issue price of securities
Warrants are generally issued in connection with an offering of stock or bonds as an incentive to purchase that security. When issued with (attached to) bonds, it may allow the issuer to reduce the interest rate on the bond. Warrants are generally long-term instruments and allow the holder to purchase stock at a price that is higher than the current market price at the time the warrant is issued. For that reason, warrants have no intrinsic value at the time of issuance
An employee wants to invest funds into a 401(k) that is sponsored by his employer. Assuming the employee waits until he reaches the age of 60 to begin taking distributions from the plan, what is the tax treatment of these funds? A100% is taxable since the plan has a zero cost basis B100% is tax-free depending on the client's age CContributions are able to be withdrawn tax-free and the earnings portion is taxed as ordinary income DA portion of the distribution is taxable at ordinary income rates and the remainder is taxed at a maximum rate of 20%
A 401(k) plan is generally funded with pre-tax dollars, which means that the contributed funds have not yet been taxed. Another benefit of a 401(k) plan is that it offers tax-deferred growth. Therefore, 100% of both the original contributions and the earnings are taxed at ordinary income rates when the funds are distributed in the future. For this reason, a 401(k) has a zero cost basis.
A Form 4 must be filed: AWithin two business days of becoming a director BWithin two business days of the date on which a director buys or sells securities CWithin 10 days of becoming a director DWithin 10 days of the date on which a director buys or sells securities
A person must file Form 4 with the SEC within two business days of the date on which an insider changes her ownership position (i.e., buys or sells). An insider is defined as any director or officer of a corporation or any person with beneficial ownership of more than 10% of issuer's equity securities. Form 3 must be filed with the SEC within 10 days of the date on which a person becomes an insider.
A broker-dealer is NOT required to maintain a record of which of the following items? AThe first research report issued after the firm managed an issuer's IPO BInstant messages CRed herrings DOrder tickets
According to FINRA rules, all retail communications, institutional communications, research reports, and correspondence (including e-mail and instant messages) that are used by a member firm must be kept on file for a minimum of three years. SEC registration statements (i.e., Form S-1 or S-3), prospectuses (which includes red herrings or preliminary prospectuses), and other documents that are written by an issuer are not required to be kept on file by member firms. (17025)
A broker-dealer is NOT required to maintain a record of which of the following items? AInstitutional communication BFinal prospectuses CCustomer complaints DResearch reports
According to FINRA rules, all retail communications, institutional communications, research reports, and correspondence (including e-mail and instant messages) that are used by a member firm must be kept on file for a minimum of three years. SEC registration statements (i.e., Form S-1 or S-3), prospectuses, and other documents that are written by an issuer are not required to be kept on file by member firms. (17024)
A registered representative wants to use a social networking site that permits real-time communication. Which of the following statements is TRUE? AThe website must be approved by FINRA. BThe website must be approved by the SEC. CThis falls under the definition of a public appearance. DThis falls under the definition of a correspondence.
According to FINRA, social media sites that permit real-time communication or interactive, electronic forums fall under the guidelines of a public appearance. Examples include Facebook, Twitter, and LinkedIn. Most firms don't permit their RRs to use these types of systems to communicate with customers in the conduct of business because they're unable to monitor the sites. A correspondence is any written or electronic communication that's distributed or made available to 25 or fewer retail investors.
Required minimum distributions (RMDs) from a traditional IRA account must: ABegin within one year of when the individual retires BBe completed within a 10-year period CBegin by April 1 of the year following the one in which the individual turns 59 1/2 DBegin by April 1 of the year following the one in which the individual turns 70 1/2
Required minimum distributions from a traditional IRA must begin by the year following the calendar year in which the individual turns 70 1/2.
An RR has a potential customer who is interested in international investing and sends the person a prospectus for an international equity fund. The customer then visits the RR's office to ask some questions about the types of risks that are associated with the fund. In order to help the client understand the risks of the fund, which of the following actions may the RR perform? AHighlight the relevant sections of the prospectus BCreate a summary of the fund's risks and provide it to the client CProvide the client with supplemental sales literature regarding the fund DTell the client to ignore the prospectus and read the statement of additional information instead
RRs may not alter a prospectus in any way and they may not tell clients to disregard its contents. However, a client may be given supplemental sales literature provided it is properly approved and accompanied with or preceded by a prospectus. Materials that are directly created by RRs (e.g., summaries) may be considered sales literature and should not be used unless they have been approved by a principal.
Series K preferred stock has which TWO of the following characteristics? The dividend payable begins at a fixed rate and switches to a floating rate The dividend payable begins at a floating rate and switches to a fixed rate The dividend is cumulative The dividend is non-cumulative
Series K preferred stock has the following characteristics: It is issued by a financial service company It has no maturity date It pays a fixed rate for a period and switches to a floating rate (usually based on LIBOR) It's dividend is non-cumulative and it may not carry voting rights It is callable at the option of the issuer
The primary purpose of an exchange is for: AEstablishing rules and procedures for trading securities BCreating a marketplace where short sellers may borrow securities CCreating a marketplace that brings buyers and sellers together DEstablishing a marketplace that lowers transactions costs
The SEC definition of an exchange is a marketplace that brings buyers and sellers together. An exchange may be a physical location such as the NYSE or a purely electronic system such as Nasdaq.
When liquidating a corporation's assets, in which order are claims satisfied? ASecured bondholders, preferred stockholders, common stockholders, general creditors BSecured bondholders, general creditors, preferred stockholders, common stockholders CGeneral creditors, secured bondholders, common stockholders, preferred stockholders DCommon stockholders, preferred stockholders, secured bondholders, general creditors
The order in which claims are satisfied when liquidating a corporation's assets is: Secured bondholders General creditors Preferred stockholders Common stockholders
Which of the following statements is NOT TRUE regarding discretionary accounts? AAll discretionary orders must be marked discretionary BA written power of attorney must be updated every three years COrders need not be verbally approved by the customer prior to execution DOrders must not be excessive in terms of size or frequency
When transacting business for a discretionary account, the registered representative must have written power of attorney (POA) authorizing him to act for the customer. It does not need to be updated. A POA may only be revoked by either the death of the customer or in writing by the customer. Each order in which the registered representative exercises discretion must be marked discretionary. The registered representative should not enter orders that are excessive in size or frequency in order to churn the account to generate commissions. The registered representative makes the investment decisions and does not need to receive the customer's approval for each order being executed.
Which of the following factors is the most important to consider when deciding to recommend a municipal bond unit investment trust to a client? AAge Tax bracket Ability to tolerate risk DAmount in retirement accounts
While it is useful to know all of these things about a client, the tax advantages of municipal bonds are most important to clients in higher tax brackets. For clients in low tax brackets, a taxable investment is often more appropriate than a tax-exempt security.