Progress Exams 3A & 3B

A customer is currently long an XYZ May 40 Put option. A straddle is created if she: a. Buys an XYZ May 40 Call b. Buys any XYZ May Call c. Sells an XYZ May 40 Put d. Sells an XYZ May 40 Call

a

A mutual fund that invests primarily in small-cap and microcap stocks is most likely to have a beta that is: a. Greater than 1 b. Equal to 1 c. Less than 1 d. Negative

a

Abigail is long 500 shares of GHI at $18 per share. In November, GHI is trading at $24 per share, but is expected to decrease in value over the next few months. Abigail wants to protect as much of her gain as possible and is willing to sacrifice upside potential to reduce her cost. Which of the following positions would you recommend to her to accomplish her goal? a. Purchase 5 GHI Jan 25 puts and sell 5 GHI Jan 30 calls b. Sell 5 GHI Jan 25 puts and sell 5 GHI Jan 25 calls c. Purchase 5 GHI Jan 25 puts and purchase 5 GHI Jan 30 calls d. Sell 5 GHI Jan 25 puts and purchase 5 GHI Jan 25 calls

a

An investor is short 2,000 XYZ calls. In determining position limits, which of the following choices will be totaled with the short calls? a. Long XYZ puts b. Short ABC puts c. Long XYZ calls d. Short XYZ puts

a

An investor purchased 100 shares of ABC at 62.25 and on the same day purchased an ABC Jan 60 put at 2.50. After the put expired, the investor sold the ABC stock at 68.75. The investor should report a profit of: a. $400 b. $650 c. $875 d. $1,125

a

An investor writes an uncovered RST May 25 put for a premium of 4. The maximum profit the investor can realize is: a. $400 b. $2,100 c. $2,500 d. An unlimited amount

a

In June, a client buys 100 shares of XYZ Corporation at $27 per share and writes an XYZ October 30 call at a $3 premium. The trade is executed in a cash account. What is the breakeven point for the writer? a. $24 b. $27 c. $30 d. $33

a

In which the following situations would the NAV per share of a fund decline? a. The fund pays a dividend and all shareholders choose to reinvest b. The investment adviser liquidates some portfolio positions c. Fund shareholders liquidate or add to their holdings d. The investment advisor uses the funds cash positions to buy more common shares of a company

a

Which annuity settlement option would provide the greatest monthly return for an individual? a. Life annuity with a 5-year certain b. Life annuity with a 10-year certain c. Life annuity with a 20-year certain d. Unit refund life annuity

a

Which of the following factors is NOT used in determining the value of an annuity unit? a. The assumed interest rate b. The value of the separate account c. Income distributions from securities held in the separate account that are reinvested d. Capital gain distributions from securities held in the separate account that are reinvested

a

Which of the following statements is NOT TRUE about exchange-traded notes (ETNs)? a. ETNs generally pay a fixed coupon rate b. ETNs may be sold at any time in the secondary markets or held until maturity c. ETNs carry issuer risk that is tied to the creditworthiness of the financial institution backing the note d. If the issuer's financial condition deteriorates, it could negatively impact the value of the ETN, regardless of how its underlying index performs

a

A customer is considering writing an XYZ June 70 call for a $4 premium but is concerned about the risk of an unlimited loss. Which of the following positions, when added, provides the BEST protection? a. Buying an XYZ June 70 put for a premium of 4 b. Buying an XYZ June 75 call for a premium of 1 c. Selling an XYZ June 65 put for a premium of 2 d. Selling an XYZ June 75 call for a premium of 3

b

A limited partner would be in jeopardy of losing her limited liability if the partner: a. Received a portion of the project's income and deductions b. Assisted in the decision of which properties to acquire c. Insisted on examining the partnership's financial records d. Made a loan to the partnership

b

A mutual fund has a bid price of $13.00 and an offer price of $14.20. The sales charge, when computed as a percentage of the offering price, is approximately: a. 8.1% b. 8.5% c. 8.7% d. 9.1%

b

According to FINRA rules, a breakpoint sale is: a. A sale of mutual fund shares at a dollar level above the point at which a sales charge reduction is available and is acceptable b. A sale of mutual fund shares at a dollar level that's below the point at which a sales charge reduction is available and is a violation c. The sale of investment company shares in anticipation of a distribution soon to be paid d. Payment to a registered representative after retirement and is acceptable if a contract is established prior to retirement

b

An individual annuitizes his variable annuity contract and begins receiving payments using a straight life settlement option; however, she later decides that a joint and last survivor life annuity settlement option is more appropriate. Which of the following is TRUE concerning this situation? a. The individual is permitted to change the settlement option without restriction. b. The individual is not permitted to change the settlement option. c. The individual could change the settlement option with an additional fee. d. The individual is limited to changing to a settlement option with a fixed period payout.

b

An individual is in the third year of accumulating an interest in a variable annuity with a deferred sales charge. A registered representative recommends a switch to a newly created variable annuity with a larger number of subaccount choices, also offered with a deferred sales charge. Which TWO of the following statements would be considered TRUE of this switch: I. FINRA would probably consider the switch unsuitable II. FINRA would probably not consider the switch unsuitable, since both annuities are offered with a deferred sales charge III. The switch would be taxable if it qualifies as a 1035 exchange IV. The switch would not be taxable if it qualifies as a 1035 exchange a. I and III b. I and IV c. II and III d. II and IV

b

Concerning hedge funds, all of the following statements are TRUE, EXCEPT that the funds: a. May engage in short selling b. Must register under the '40 Act if they are offered to U.S. residents c. May borrow funds in an attempt to increase returns d. May concentrate assets into a few positions

b

If an individual withdrawals money from an annuity during the accumulation period, what's the tax implication? a. The withdrawal is tax-free b. The withdrawal is considered income and taxable c. Taxes on the withdrawal are deferred until the annuity period d. The withdrawal is considered a capital gain and taxable

b

In April, a customer purchased 1 ABC July 85 call for 5 and purchased 1 ABC July 90 put for 8. ABC stock is currently trading at $87. If both options are sold for the amount each is in-the-money, the investor will realize a(n): a. $500 profit b. $800 loss c. $1,000 loss d. $1,100 loss

b

Mrs. Ima Holder purchased 10 RFQ July 60 calls. RFQ declares a 50% stock dividend. After the dividend has been distributed, Mrs. Holder now owns: a. 10 contracts for 100 shares each b. 10 contracts for 150 shares each c. 15 contracts for 100 shares each d. 15 contracts for 150 shares each

b

Suitability in variable annuity transactions does not apply in which of the following situations? a. A purchase of a new variable annuity b. An employee's contribution to his 403(b) plan c. A 1035 exchange from one variable annuity to another d. The allocation of funds to the subaccount products within a variable annuity

b

The major disadvantage to a limited partner in a direct participation program (DPP) is: a. Lack of control b. Lack of liquidity c. Flow through of income and expense d. Limited liability

b

The subscription agreement for a limited partnership does NOT specify: a. Suitability standards b. Priority provisions upon liquidation c. To whom the check must be made payable d. Who must sign the agreement

b

When engaging in a 1035 exchange an individual should be aware that: a. The exchange is a taxable event b. The exchange is not a taxable event but the new annuity may come with additional restrictions c. The exchange is not a taxable event and the policies of the old annuity are remain in place d. The exchange is only permitted if it is unsolicited

b

Which TWO of the following option recommendations are suitable for a sophisticated investor who expects the overall market to fall but is bullish on mining stocks? I. Buying narrow-based index calls II. Buying narrow-based index puts III. Buying broad-based index calls IV. Buying broad-based index puts a. I and III b. I and IV c. II and III d. II and IV

b

Which of the following investments will permit a customer to purchase publicly traded shares of a company that is MOST similar to a private equity fund? a. An exchange-traded fund b. A business development company c. An exchange-traded note d. A real estate investment trust

b

A client purchased 300 shares of Emily Airlines common stock at $28 a share in July of 2011. In June of 2012, the client writes 2 October 35 calls at 5 against the stock position. If the market price of Emily Airlines is trading at $39 at expiration, what is the client's realized gain? a. $1,000 b. $1,700 c. $2,400 d. $4,300

c

A customer makes an initial $3,000 contribution into a variable annuity with his application, but decides five days later that he does not want the investment. The client surrenders the annuity. Under FINRA rules, the member firm must: a. Return the full amount of the initial payment to the client b. Return any commissions it earned to the client within seven business days c. Return any commissions it earned to the insurance company within seven business days d. Obtain a signed statement from the customer that he understands he will lose part of his investment

c

A customer writes an ABCD October 220 call, receiving an $11 premium, and buys an ABCD October 235 call, paying a $3 premium. If both calls expire, the customer will realize a(n): a. $700 loss b. $700 profit c. $800 profit d. $800 loss

c

A real estate limited partnership that does not specify the actual properties to be purchased is known as a: a. Staged program b. Private placement c. Blind pool d. Section 8 housing program

c

All of the following statements are TRUE about closed-end investment companies, EXCEPT that the: a. Number of outstanding shares is constant b. Shares are sold at the current market price c. Shares may not sell below the current net asset value d. Shares may be listed on the NYSE

c

An investor might take advantage of a Section 1035 exchange if: a. The new contract carries a new or longer surrender period b. The enhanced features do not apply to her c. Her investment objectives have changed and she is unable to obtain new benefits by switching to another subaccount in the same contract d. The total cost of the exchange outweighs the benefits of the exchange

c

An investor owns stock that has increased in value. Which of the following is the most suitable recommendation for an RR to make if the investor wants to protect her profit? a. A sell stop order that's entered above the current market price or a short call position b. A sell limit order that's placed above the market or a long call position c. A sell stop order that's placed below the current market price or a long put position d. A sell limit order that's placed above the market or a short put option

c

An investor purchased a fixed annuity twenty years ago from a top-rated insurance company. The investor is now considering whether to annuitize on a straight life basis, or to take a lump-sum settlement and invest it elsewhere. If economists are now forecasting an extended period of significant inflation, which of the following is the greatest risk facing the investor if she chooses to annuitize? a. Credit risk b. Market risk c. Purchasing-power risk d. Exchange-rate risk

c

An investor purchases euros in the spot market at 131. As a hedge, the investor buys a euro October 130 put at 0.60. This strategy will be profitable if which TWO of the following situations occur? I. The U.S. dollar strengthens II. The U.S. dollar weakens III. The spot price for the euro is 131.9 IV. The spot price for the euro is 129.2 a. I and III b. I and IV c. II and III d. II and IV

c

Cash dividends received from which of the following securities will be taxed as ordinary income? a. Preferred stock issued by a bank b. Common stock issued by an oil company c. A real estate investment trust d. Convertible preferred stock issued by a software company

c

How long does a client have to convert a variable life contract into a whole life policy? a. 48 hours b. 90 days c. Up to 2 years d. Up to her 60th birthday, assuming she is in sound health

c

The Investment Company Act of 1940 regulates: a. Hedge funds b. REITs c. ETFs d. The level of commissions paid on mutual fund trades

c

When buying listed put options compared to selling the underlying stock short, which of the following choices is NOT an advantage? a. Buying a put requires a smaller capital commitment b. Buying a put has a smaller dollar loss potential than selling the stock short c. The put has a time value beyond any intrinsic value that gradually dissipates d. Buying a put is not subject to Regulation SHO

c

Which of the following choices would be the MOST advantageous tax benefit that an investor will receive from an oil and gas direct participation income program? a. Liquidity b. Depreciation of equipment c. Depletion d. Depreciation of land

c

Which of the following positions would be considered a covered option? a. Long the stock, short a put b. Long the stock, long a call c. Short the stock, short a put d. Short the stock, long a put

c

Which of the following statements is TRUE regarding separate accounts and general accounts? a. Both types of accounts are registered under the Investment Company Act of 1940. b. Both types of accounts pay a guaranteed minimum return. c. The subaccounts of a variable annuity may include both types of accounts. d. General accounts hold bonds, while separate accounts hold equities.

c

A 65-year old individual invested $240,000 into a variable annuity, which has since grown to $400,000. If she wants to withdraw $150,000, what's the tax implication of taking the withdrawal? a. She will be taxed on $60,000 as a capital gain. b. She will be taxed on $60,000 as ordinary income. c. She will be taxed on $150,000 as a capital gain. d. She will be taxed on $150,000 as ordinary income.

d

A customer writes an IBM October 120 call and receives a $4 premium and buys an IBM October 100 call and pays a $12 premium. IBM is currently selling at $108. Assume the customer later sells the IBM October 100 call for $20. The IBM October 120 call, which he initially sold expires. The customer will realize a: a. $400 loss b. $400 profit c. $1,200 loss d. $1,200 profit

d

A mutual fund has the following breakpoints: Dollar AmountsBreakpoints $0 to $24,999 = 5.50% $25,000 to $49,999 = 4.50% $50,000 to $74,999 = 3.50% $75,000 to $99,999 = 2.50% $100,000 and above = 1.50% A customer has signed a letter of intent for $100,000 and makes the following three investments: $35,000 in April$52,000 in June$24,000 in September What's the sales charge percentage on each purchase? a. April 4.50%, June 3.50%, September 5.50% b. April 4.50%, June 2.50%, September 1.50% c. April 3.50%, June 2.50%, September 1.50% d. April 1.50%, June 1.50%, September 1.50%

d

All of the following trades may be executed in a cash account, EXCEPT the sale of a(n): a. Common stock b. Preferred stock c. Covered call option d. Uncovered call option

d

An investor purchases 200 shares of STC at $35 and subsequently purchases 2 STC Jan 35 puts at 2. At what market price must STC trade for the investor to have a profit? a. 32 b. 34 c. 36 d. 38

d

Equity options expire on: a. The last Friday of the expiration month at 5:30 p.m. Eastern Time b. The last Friday of the expiration month at 11:59 p.m. Eastern Time c. The third Friday of the expiration month at 5:30 p.m. Eastern Time d. The third Friday of the expiration month at 11:59 p.m. Eastern Time

d

If the NAV of the Greenwich Fund is 90% of its offer price, this must be a(n): a. Management company b. Unit investment trust c. Open-end fund d. Closed-end fund

d

If the purchaser of a non-qualified annuity dies at the age of 56, which of the following BEST describes the tax impact? a. There is a 10% penalty assessed and the difference between the amount invested and the death benefit is considered a non-taxable return of capital b. There is no penalty assessed and the difference between the amount invested and the death benefit is considered a non-taxable return of capital c. There is a 10% penalty assessed and the difference between the amount invested and the death benefit is taxable at ordinary income tax rates d. There is no penalty assessed and the difference between the amount invested and the death benefit is taxable at ordinary income tax rates

d

In reviewing prices for a mutual fund, an investor notices that the Beacon Fund has two listings, one for Class A shares and the other for Class B shares. The distinction between the two classes of shares would most likely be: a. Class A shares are oriented toward short-term trading, while Class B shares have a long-term perspective b. Class A shares should be purchased by income-oriented investors while Class B shares are for those seeking capital appreciation c. Class A shares can be purchased directly from the fund, while Class B shares are offered through broker-dealers d. Class A shares have a front-end sales charge, while Class B shares have a contingent deferred sales charge

d

SLK Corporation has approved a 1-for-10 reverse stock split. Which of the following statements is TRUE for all SLK equity options immediately after the split? a. All SLK options will be closed out b. Investors who previously owned 1 contract will now own 10 c. Investors who previously owned 10 contracts will now own 1 d. Outstanding SLK contracts will now have a contract size of 10 shares and an increase in the strike price

d

The Statement of Additional Information is supplied to a client: a. When the account is opened b. When the customer purchases shares c. When the semiannual report is mailed d. When a customer requests it

d

The spot prices of foreign currencies are determined: a. On the New York Stock Exchange b. On the Philadelphia Stock Exchange c. In the third market d. In the Interbank market

d

What is a client's maximum loss if he is short KNP stock and short a KNP put? a. The difference between the market price and the strike price plus the premium b. The market price plus the premium c. The market price minus the premium d. Unlimited

d

Which TWO of the following choices would be included in a subscription agreement for a direct participation program (DPP)? I. The priority provisions if the partnership is liquidated II. A statement indicating the purchaser understands the risks of this investment III. A statement listing the amount of tax credits or deductions the investor will receive IV. A statement that attests to the investor's ability to meet the financial requirements of this investment a. I and III b. I and IV c. II and III d. II and IV

d

Which of the following funds would typically have the LEAST amount of stability in NAV? a. A money-market mutual fund b. A short-term bond fund c. An S&P 500 Index fund d. A sector fund

d

Your client is considering purchasing a fund of hedge funds. Which of the following statements concerning this investment is TRUE? a. These securities may be purchased only by investors who meet accreditation standards established by the SEC. b. These securities may be redeemed at the conclusion of each trading day. c. These securities will outperform traditional mutual funds. d. These securities are not liquid investments.

d