second Simulated Test 10/21/2013

If a registered representative is found to have engaged in insider trading, the member firm can be fined up to 3 times the profit gained, loss avoided, or: A) $5 million, whichever is greater. B) $1 million, whichever is greater. C) $2.5 million, whichever is greater. D) $500,000, whichever is greater.

Your answer, $5 million, whichever is greater., was correct!. The member firm, which must have procedures in place to prevent insider trading, can be fined up to 3 times the profit gained or loss avoided, or $5 million, whichever is greater. Reference: 16.1.8.3 in the License Exam Manual.

Which of the following is a NOT a leading economic indicator? A) New housing permits. B) Orders for durable goods. C) Money supply. D) Duration of unemployment.

Your answer, Duration of unemployment., was correct!. The average amount of time it takes for an unemployed person to find a new job is a lagging indicator, not a leading one. Employment is usually one of the last things to pick up as the economy enters a period of expansion. Layoffs are one of the last resorts for companies when the economy turns down. Reference: 14.1.1.3.1 in the License Exam Manual.

Which of the following is TRUE about a sales agreement between a principal underwriter and a member, which enables the member to receive a discount from the public offering price? It must be in writing. It must provide for a 45-day right of refusal. It must provide that the member will sell at NAV only when selling to the public. It must provide for a refund of the concession by the member to the underwriter if the shares are redeemed within 7 business days of the sale. A) I and IV. B) II and IV. C) I and III. D) II and III.

Your answer, I and III., was incorrect. The correct answer was: I and IV. All sales agreements must be in writing, provide for a 7-day refund of the concession, and include a stipulation that the member will maintain the public offering price, not the NAV. Reference: 10.7.6.1 in the License Exam Manual.

Your client owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will he own? 125 shares. 100 shares. Cost of $25. Cost of $20. A) II and IV. B) II and III. C) I and II. D) I and IV.

Your answer, I and IV., was correct!. Stock dividends make the number of shares owned increase and the cost per share decrease. The overall value should remain unchanged before and after the adjustment: 125 shares × $20 = $2,500, and 100 shares × $25 = $2,500. Reference: 1.4.1.2 in the License Exam Manual.

Universal variable life policies: have investment risk that is assumed by the investor. do not have a separate account. can be sold by someone with an insurance license only. are purchased primarily for their insurance features. A) I and II. B) II and III. C) I and IV. D) III and IV.

Your answer, I and IV., was correct!. Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. Reference: 12.1.4.1 in the License Exam Manual.

A customer has realized a capital gain from the sale of a municipal bond. To reduce his tax liability, the capital gain can be offset against a capital loss in which of the following investments? GOs Equity securities. Corporate bonds. Collateralized mortgage obligation. A) I and III. B) I and II. C) II and III. D) I, II, III and IV.

Your answer, I, II, III and IV., was correct!. Any capital loss will offset a capital gain. Reference: 15.5.6.1.3 in the License Exam Manual.

Which of the following money rates are set by banks in competition with one another for borrowers? Federal Funds Rate. Discount Rate. Broker Call Loan Rate. Prime Rate. A) I and III. B) II and III. C) I and II. D) III and IV.

Your answer, III and IV., was correct!. The Federal Funds Rate is charged by banks to one another. The Discount Rate is set by the Federal Reserve Board. The remaining two rates are charged by banks competing for borrowers. Reference: 2.10.3.2 in the License Exam Manual.

Which of the following retirement plans permit individuals to make contributions to the plan, after the plan participant reaches age 70-½, as long as they have earned income? A) Keogh (HR-10) plan B) Roth IRA C) Traditional spousal IRA D) Traditional IRA

Your answer, Roth IRA, was correct!. Roth IRAs are not subject to minimum distributions at age 70-½ and therefore allow contributions to be made after age 70-½, provided the participant has earned income. Reference: 11.2.4 in the License Exam Manual.

Which of the following positions exposes a customer to unlimited risk? A) All of these. B) Short 200 shares of XYZ and short 2 XYZ puts. C) Short 2 XYZ uncovered calls. D) Short 200 shares of XYZ.

Your answer, Short 2 XYZ uncovered calls., was incorrect. The correct answer was: All of these. All of the positions expose the client to unlimited risk because a loss will occur if the stock price rises. Reference: 4.2.2 in the License Exam Manual.

A statutory disqualification applies to an employee or an officer of a broker/dealer who, within the past 10 years, has: A) been charged with driving under the influence (DUI). B) been sued in civil court. C) been convicted of securities-related fraud. D) been convicted of a minor traffic violation.

Your answer, been convicted of securities-related fraud., was correct!. Anyone who has been convicted within the past 10 years of any felony or any securities- or money-related misdemeanor is subject to statutory disqualification. A mere charge is not enough. Reference: 17.2.6.1 in the License Exam Manual.

A purchase or redemption order for investment company shares must be executed at a price based on the: A) net asset value computed at the close of trading on the NYSE the day before the fund receives the order. B) net asset value last computed before the fund receives the order. C) net asset value next computed after the fund receives the order. D) best net asset value computed the same day the fund receives the order.

Your answer, best net asset value computed the same day the fund receives the order., was incorrect. The correct answer was: net asset value next computed after the fund receives the order. Purchase or redemption of mutual fund shares occurs at the net asset value next calculated after the fund receives the order; this is known as forward pricing. Reference: 10.7.3.1 in the License Exam Manual.

The market attitude of an investor with no other position who writes an at-the-money put is: A) bearish. B) bullish. C) bearish/neutral. D) bullish/neutral.

Your answer, bullish/neutral., was correct!. Writers of puts are bullish. However, an investor who writes an at-the-money put profits even if the market price of the stock does not move (neutral) because the option will expire worthless. The customer also profits if the stock rises out-of-the-money. Reference: 4.2.4 in the License Exam Manual.

If a customer wishes to open a custodial UGMA or UTMA account for his nephew (a minor), the uncle: A) can open the account and name himself custodian. B) needs a legal document evidencing the nephew's parents' approval of the account. C) can open the account provided the proper trust arrangements are filed first. D) can be custodian for the account only if he is also the minor's legal guardian.

Your answer, can open the account and name himself custodian., was correct!. The donor may name himself the custodian of an UGMA or UTMA account. No documentation of custodial status is required to open an UGMA or UTMA account. The custodian is not required to be the minor's legal guardian. Reference: 5.3.1.2 in the License Exam Manual.

ABC's stock has paid a regular dividend every quarter for the last several years. If the price of the stock has remained the same over the past year, but the dividend amount per share has increased, it may be concluded that ABC's: A) current yield per share has increased. B) current yield per share has decreased. C) yield to maturity has gone up. D) current yield per share has been unaffected.

Your answer, current yield per share has increased., was correct!. The current yield would have increased because current yield is the income (dividend) divided by price. A higher dividend divided by the same price results in a higher yield. Stocks do not have a yield to maturity. Reference: 1.4.1.3 in the License Exam Manual.

Employees of a FINRA member firm must be fingerprinted if involved in any of the following EXCEPT: A) the transfer of securities. B) customer account processing. C) cashiering. D) sales.

Your answer, customer account processing., was correct!. Under SEC Rule 17f-2, persons registered with FINRA, persons involved in handling customer funds or securities (including employees of transfer agents), and persons involved in preparing the firm's original books and records must be fingerprinted. Mere processing of customer accounts does not involve any of these. Reference: 17.1.1.1.2 in the License Exam Manual.

On exercise of the option, the holder of a put will realize a profit if the price of the underlying stock: A) falls below the exercise price. B) exceeds the exercise price plus the premium paid. C) falls below the exercise price minus the premium paid. D) exceeds the exercise price.

Your answer, falls below the exercise price minus the premium paid., was correct!. Breakeven for the buyer of a put is the strike price of the option minus the premium paid for the option. Reference: 4.1.5.1 in the License Exam Manual.

Yield-based options expire on the Saturday: A) preceding the third Wednesday of the month. B) following the third Friday of the month. C) preceding the third Friday of the month. D) following the third Wednesday of the month.

Your answer, following the third Friday of the month., was correct!. Yield-based options expire like stock options; on the Saturday following the third Friday of the month. Reference: 4.5.2 in the License Exam Manual.

Municipal brokers' brokers deal with all of the following EXCEPT: A) municipal dealers. B) institutions. C) individuals. D) bank dealers.

Your answer, individuals., was correct!. As the term suggests, a municipal broker's broker deals with other dealers and institutions, not with the general public. Reference: 3.4.2.1 in the License Exam Manual.

All of the following are true of negotiable commercial paper EXCEPT: A) it is considered a money market instrument. B) it trades with accrued interest. C) it is discounted on a 360-day year. D) it has a maximum 270-day maturity.

Your answer, it trades with accrued interest., was correct!. The only money market instruments that trade with accrued interest are CDs. Reference: 2.10.2.4 in the License Exam Manual.

A customer enters an order to buy GGZ at the close. GGZ traded between 70 and 71 all day. Then, after a last-minute rally, it closed up 4 points at 74. The customer pays the: A) opening price the next morning. B) price as near to the close as possible, at the floor broker's discretion. C) average price calculated for the entire day. D) closing price.

Your answer, price as near to the close as possible, at the floor broker's discretion., was incorrect. The correct answer was: closing price. When an order is placed market at the close, it is executed at the closing price. Reference: 8.4.3.3 in the License Exam Manual.

Under FINRA rules, the annual limit for gifts received from customers or other firms is: A) $50. B) $75. C) $25. D) $100.

Your answer, $100., was correct!. The annual gift limit is $100. This limit applies to gifts given to, or received from, either your customers or employees of other member firms. Reference: 15.1.3.2 in the License Exam Manual.

An investor writes 1 IBS 280 put for 16.60. The position is closed and the put is bought for its intrinsic value when IBS is trading at 265.25. The investor realizes a: A) $145 profit. B) $185 loss. C) $185 profit. D) $235 loss.

Your answer, $185 profit., was correct!. The opening sale of the IBS put was made for 16.60, and the closing purchase was made for the intrinsic value of 14.75. The put's intrinsic value is determined by how far the stock's market price is below the strike price. (In this case, 280 minus 265.25.) 16.60 − 14.75 = 1.85 × 100 shares = $185.00. The investor profits because the sale's proceeds exceed the purchase price. Reference: 4.1.5.4 in the License Exam Manual.

An investor with no other positions buys 1 CDE May 65 put at 3.50. If the investor buys the stock at 63.50 and exercises the put, what is the investor's profit or loss? A) $350 loss. B) $350 profit. C) $200 loss. D) $200 profit.

Your answer, $200 loss., was correct!. The investor has the right to sell the stock for 65 when it is currently worth 63.50 for a gain of 1.50. The investor paid a premium of 3.50 minus the gain of 1.50 for a loss of 2 (2 × 100 = $200). Reference: 4.3.1 in the License Exam Manual.

A syndicate has won the bid for a general obligation bond of $1 million issued by a city. The syndicate has received the following orders: $500,000 net designated, $500,000 presale, and $1 million member at takedown. The orders would be filled as A) $500,000 presale, $500,000 net designated, none to members. B) $500,000 presale, $250,000 net designated, $250,000 to members. C) $250,000 presale, $500,000 net designated, $250,000 to members. D) None to presale, none to net designated, $1 million to members.

Your answer, $500,000 presale, $500,000 net designated, none to members., was correct!. Municipal syndicate customs dictate that presale orders have first priority, with group orders, net designated orders and member orders following in that order. Reference: 3.2.7.2 in the License Exam Manual.

Under the Uniform Practice Code, regular way transactions for common stock settle on the: A) same day as the trade date . B) 2nd business day following the trade date. C) 3rd business day following the trade date. D) 5th business day following the trade date.

Your answer, 3rd business day following the trade date., was correct!. Under the Uniform Practice Code, regular way trades settle 3 business days after the trade date (T+3). Cash settlement for a trade occurs on the same day as the trade date, and Regulation T settlement is T+5. Reference: 9.1.2.1 in the License Exam Manual.

ABC, a publicly held Corporation, decides to issue shares in an additional public offering. If the APO is for an additional 1 million shares and 60% of the shares are subscribed to in the preemptive rights offering, how many shares will the standby underwriter for this offering have available to sell to the public? A) 110,000. B) 600,000. C) 100,000. D) 400,000.

Your answer, 400,000., was correct!. If 60% of the additional shares are subscribed to by existing shareholders, then 40% of the additional shares will be available to be sold to the public through a standby (firm commitment) underwriting (1,000,000 × 40% = 400,000). Reference: 1.7.1.4 in the License Exam Manual.

If an investor opens a new margin account and sells short 100 shares of COD at 87.25, with Regulation T at 50%, what is the investor's required deposit? A) 8725. B) 4362.5. C) 2617.5. D) 2181.25.

Your answer, 4362.5., was correct!. The required deposit is calculated by multiplying the market value of $8,725 by the Regulation T requirement of 50% ($4,362.50). Reference: 6.2.3.3 in the License Exam Manual.

A customer establishes the following positions: Buy 100 ABC for 63 Write 1 ABC Jan 70 call for 1 What is the customer's maximum gain? A) 600. B) 800. C) Unlimited. D) 700.

Your answer, 600., was incorrect. The correct answer was: 800. Maximum gain on the covered call position occurs when the stock's market value rises. The short call is exercised when the stock is above 70, so the stock bought for 63 will be sold for 70-a profit of $7 per share. In addition, the customer receives the premium of $1, so the total profit is $800 ($700 + $100). Reference: 4.3.2 in the License Exam Manual.

An example of a taxable bond issued by a municipal government is: A) A tax anticipation note (TAN). B) A general obligation bond (GO). C) A Build America Bond (BAB). D) Series EE bonds.

Your answer, A tax anticipation note (TAN)., was incorrect. The correct answer was: A Build America Bond (BAB). Build America Bonds (BABs) are municipal issues created under the Economic Recovery and Reinvestment Act of 2009 to assist in reducing costs to issuing municipalities and stimulate the economy. Bonds to fund municipal projects have traditionally been sold in the tax-exempt arena, but BABs are taxable obligations. Reference: 3.1.2.5 in the License Exam Manual.

Which of the following would NOT be considered institutional communications with the public? A) A communication with an individual designated to act on behalf of your institutional customer B) An internal memo promoting a new product that will be offered to your firm's institutional customers only C) A letter to a municipality offering your firm's services as an underwriter D) A letter to another broker/dealer

Your answer, An internal memo promoting a new product that will be offered to your firm's institutional customers only, was correct!. Institution communications specifically exclude internal communications. Communications with another member firm, a government entity, such as a municipality or with someone designated to act on behalf of one of your firm's institutional customers, would all fall within the definition of institutional communications. Reference: 17.5 in the License Exam Manual.

As the result of a conversation with an officer of a publicly traded company, a registered representative comes into possession of material, nonpublic information indicating a high probability that the company's stock will increase substantially in value. If the following morning the registered representative buys call options on the stock, which of the following statements is TRUE? A) Both the officer and the registered representative violated insider trading rules. B) The registered representative violated insider trading rules. C) Neither the officer nor the registered representative violated insider trading rules. D) The officer violated insider trading rules.

Your answer, Both the officer and the registered representative violated insider trading rules., was correct!. A violation occurs if insider information is used to trade for profit or to avoid a loss. In such cases, both the tipper and the tippee are liable. Reference: 16.1.8.2 in the License Exam Manual.

A U.S. company that sells stereo equipment places an order for Japanese stereo components for its inventory. Payment must be made in Japanese yen in 3 months. The U.S. company thinks that the U.S. dollar may weaken against the yen. Which of the following foreign currency option transactions would best protect the U.S. company from a weakening of the U.S. dollar against the yen? A) Buy calls on Japanese yen. B) Sell puts on Japanese yen. C) Sell calls on Japanese yen. D) Buy puts on Japanese yen.

Your answer, Buy calls on Japanese yen., was correct!. The U.S. company is concerned that the value of the Japanese yen will rise. Therefore, the company should buy calls on the yen to lock in the lowest possible price to buy yen for payment of the contract. Importers buy calls to hedge. Reference: 4.5.3.1.8 in the License Exam Manual.

If an investor sells 1 TCB Jul 40 put and buys 1 TCB Jul 50 put, and subsequently sells the Jul 50 put, what is the consequence? A) Short-term capital gain if he sells at a profit, or long-term capital loss if he sells at a loss. B) Long-term capital gain if he sells at a profit, or short-term capital loss if he sells at a loss. C) Capital gain or loss. D) Passive income or loss.

Your answer, Capital gain or loss., was correct!. The investor opens with a vertical (price) spread. If he closes out one of the legs of the spread, he has a capital gain or loss for tax purposes as of the closing trade date. Reference: 4.7.0.2 in the License Exam Manual.

A customer wishes to invest $800,000 in the Ajax Fund, an open-end company with a long-term growth objective. In order to take advantage of breakpoints, you recommend that the customer purchase: A) Class B shares. B) Class A shares. C) Class C shares. D) Class A or Class C shares.

Your answer, Class A shares., was correct!. Class A shares come with a front-end load that can be reduced or eliminated by breakpoints. Class B shares come with a back-end load combined with 12b-1 fees. Class C shares assess 12b-1 fees. Class B or C shares cannot take advantage of breakpoint reductions. Reference: 10.7.5.5 in the License Exam Manual.

A customer purchased 10 9% convertible debentures at 98. The bonds are callable at 101. The conversion ratio is 40. The bonds are called while the common is trading at $24 and the debenture is trading at 98. Which of the following options would be most beneficial to the customer? A) Tender the bonds to the corporation. B) Wait for a better offer from the corporation. C) Convert the bonds and sell the common stock. D) Sell the bonds.

Your answer, Convert the bonds and sell the common stock., was incorrect. The correct answer was: Tender the bonds to the corporation. The option most beneficial to the investor is tendering the bond to the corporation for $10,100. If the bond were sold on the market, the investor would receive $9,800. If the bond were converted into common, the investor would receive 400 common shares that could be sold for their current price of $24 for a total of $9,600. Reference: 2.5.2.4 in the License Exam Manual.

Your customer is interested in a product that offers part principal protection like a debt instrument but has return that is partly based on the return of a single stock or a basket of stocks like an index. Such products are known as: A) Real estate investment trusts (REITs). B) Treasury bonds. C) Equity-linked notes (ELNs). D) Direct participation programs (DPPs).

Your answer, Equity-linked notes (ELNs)., was correct!. Equity-linked notes (ELNs) or Index-linked notes are debt instruments that in one variation can offer some principal protection (known as principal-protected) as well as a final payment that is based on the return of a single stock or a basket of stocks. Some ELNs are exchange traded but not all. Reference: 5.2.2.3 in the License Exam Manual.

If an investor buys 1 DWQ Apr 70 call at 5, giving him the right to buy 100 shares of DWQ at $70 per share, which aspect of the transaction is NOT set or standardized by the OCC? A) Premium of 5. B) Expiration date in April. C) Exercise price of 70. D) Contract size of 100 shares.

Your answer, Exercise price of 70., was incorrect. The correct answer was: Premium of 5. The OCC sets standard exercise prices and expiration dates for all listed options, but the options premiums that buyers pay are determined by the market. Reference: 4.6.3 in the License Exam Manual.

The overnight repo interest rate is usually lower than bank rates and just below or comparable to the: A) discount rate. B) T-bill rate. C) prime rate. D) Fed funds rate.

Your answer, Fed funds rate., was correct!. From a duration standpoint, usually overnight, the repo rate is closest to the Fed funds rate, which is also overnight. Reference: 2.10.2.1 in the License Exam Manual.

A customer buys a municipal bond regular way on Tuesday, December 23. The transaction will settle on the following: A) Thursday. B) Friday. C) Monday. D) Tuesday.

Your answer, Friday., was incorrect. The correct answer was: Monday. Municipal bonds, like corporate bonds, settle 3 business days after the trade date. December 25 (Christmas) is not a business day. Reference: 9.1.2.1 in the License Exam Manual.

Which of the following orders may be left with a designated market maker on the New York Stock Exchange? A) Good-for-a-month. B) Good-for-a-week. C) Good-till-canceled. D) Not-held.

Your answer, Good-till-canceled., was correct!. The designated market maker on the NYSE will accept GTC (good-till-canceled orders) and hold them on the order display book until they are executed or are canceled. Reference: 8.4.2.5 in the License Exam Manual

Which of the following would be the usual use of a stop order? To protect the profit on a long position To prevent loss on a short position To buy at a specific price only To guarantee execution at or near the close. A) I and III. B) II and IV. C) II and III. D) I and II.

Your answer, I and II., was correct!. A buy stop could be used to protect an investor who is short, and a sell stop could be used to protect an investor who is long. Stop orders never guarantee execution price. Reference: 8.4.2.4 in the License Exam Manual.

Which of the following would be considered in analyzing the credit worthiness of a revenue bond issuer? Per capita debt. Debt service coverage. Management. Debt to assessed valuation. A) I and II. B) I and IV. C) II and III. D) III and IV.

Your answer, I and II., was incorrect. The correct answer was: II and III. Revenue bonds are paid out of revenues from a particular project or facility, not from tax revenue. Therefore, debt service coverage and the personnel in charge of managing the facility are important. Overall debt of the issuer would be important in analyzing a general obligation bond backed by the issuer's full faith and credit. Reference: 3.3.2 in the License Exam Manual.

On the same day in a new margin account, a customer buys 1,000 XYZ at $80 and sells short 1,000 ABC at $20. Which statements are TRUE? The margin deposit is $50,000. The margin deposit is $60,000. The minimum maintenance margin requirement is $25,000. The minimum maintenance margin requirement is $26,000. A) II and IV. B) I and III. C) II and III. D) I and IV.

Your answer, I and III., was incorrect. The correct answer was: I and IV. The customer must put up 50% on both the purchase and short sale, which results in a deposit of $50,000. The maintenance requirement on the long position is 25% of the current market value (25% × $80,000 = $20,000) while the maintenance requirement on the short position is 30% of the current market value (30% × $20,000 = $6,000). Reference: 6.2.4 in the License Exam Manual.

An all-or-none order (AON): must be executed in its entirety. may be executed in part or in full. must be executed in one attempt. may be executed after several attempts. A) II and III. B) I and III. C) II and IV. D) I and IV.

Your answer, I and IV., was correct!. In an all-or-none order, the firm handling the order can make multiple attempts to fill the order in its entirety. Reference: 8.4.3.7 in the License Exam Manual.

A customer purchases 2 QRS Jul 30 calls at 2 and 2 QRS Jul 30 puts at 2.50. She will break even when the price of the underlying stock is: 25.50. 27.50. 32. 34.50. A) I and IV. B) II and III. C) I and II. D) III and IV.

Your answer, I and IV., was correct!. The customer has bought calls and puts with the same strike price and expiration date, so the position is a long straddle. Straddles have two breakeven points: the strike price plus, and minus, the sum of the two premiums. The customer profits in a long straddle when the stock price is outside the breakeven points (i.e., higher than 34.50 or lower than 25.50). Reference: 4.4.2.1 in the License Exam Manual.

A final prospectus must include which of the following? The effective date of the registration. Intended use of the proceeds. A statement indicating that the SEC has neither approved nor disapproved the issue. Disclosure of material information concerning the issuer's financial condition. A) I and IV. B) II and III. C) I and II. D) I, II, III and IV.

Your answer, I, II, III and IV., was correct!. Every prospectus must state the intended use of the proceeds and contain material financial information. The SEC disclaimer must appear on every prospectus and state that the SEC has neither approved nor disapproved the issue. The effective date must be printed on the final prospectus. Reference: 7.2.2.4 in the License Exam Manual.

The MSRB rule titled Quotations Relating to Municipal Securities applies to the distribution or publication of which of the following? Quotations. Requests for offers. Bids or offers. Indications of bids wanted. A) I and II. B) I, III and IV. C) II and IV. D) I, II, III and IV.

Your answer, I, II, III and IV., was correct!. MSRB Rule G-13 requires municipal brokers and dealers to give bona fide bids and offers for municipal securities and allows requests for bids (BW = bids wanted) and requests for offers (OW = offers wanted). Reference: 3.4.1 in the License Exam Manual.

Which of the following are considerations when a registered representative recommends a municipal bond purchase to a customer? Customer's state of residence. Customer's tax bracket. Bond's rating. Bond's maturity date. A) II and IV. B) II and III. C) I, II, III and IV. D) I and II.

Your answer, I, II, III and IV., was correct!. The customer's state of residence and tax bracket are important because these factors help establish the tax benefits offered by the municipal bond. The bond's maturity and rating are important in evaluating the interest rate and credit risk assumed by the investor. Reference: 3.4.3.2 in the License Exam Manual.

Which of the following must be considered in evaluating the suitability of a DPP investment for a customer? Risk tolerance. Other holdings. Financial situation. Age. A) I and II. B) I and IV. C) I, II, III and IV. D) II and III.

Your answer, I, II, III and IV., was correct!. The key here is to recognize that with DPPs, the customer's age is a relevant consideration in determining suitability. DPPs are long-term, illiquid, and high-risk investments. It is unlikely that DPPs would be suitable for a customer near retirement age, regardless of the customer's financial situation. Reference: 15.3.2.9 in the License Exam Manual.

Under the rules regarding the sales of new equity issues, which of the following are restricted purchasers? Aunts and uncles. In-laws. Supported persons. Grandparents. A) I and IV. B) II and III. C) I and III. D) II and IV.

Your answer, II and III., was correct!. Restricted purchasers include spouses, parents, children, siblings, and in-laws. Aunts and uncles, as well as grandparents, are excluded. A person supported by an employee of a member can never buy a new equity issue. Reference: 7.6.3.1 in the License Exam Manual.

Which of the following orders would NOT be reduced on the order book on the ex-dividend date for a cash dividend? Buy limit order. Open sell stop order. Buy stop order. Sell limit order. A) II and III. B) I and II. C) I and IV. D) III and IV.

Your answer, II and III., was incorrect. The correct answer was: III and IV. Open sell limit orders and open buy stop orders, which are placed above the current market will not be reduced on the order book when a stock goes exdividend for a cash dividend. Reference: 8.4.2.6 in the License Exam Manual.

Which of the following terms are associated with over-the-counter trading? Market maker. Specialist. Auction market. Negotiated market. A) II and IV. B) I and III. C) I and IV. D) II and III.

Your answer, II and IV., was incorrect. The correct answer was: I and IV. The over-the-counter market is a negotiated market. Within it, market makers are broker/dealer firms that provide a source for stock that customers wish to buy and a repository for stock that customers wish to sell. Reference: 8.2.1.2 in the License Exam Manual.

The value of the Dow Jones Composite average would be most affected by a change in the value of which of the following market sectors? A) Transportation. B) Growth. C) Utility. D) Industrial.

Your answer, Industrial., was correct!. The Dow Jones Composite Average consists of 65 stocks: 30 industrial, 20 transportation, and 15 utilities issues. Because industrials are the largest component, changes in their prices have the greatest effect on the averages. Reference: 14.4.3.5 in the License Exam Manual.

Which of the following statements regarding revenue bonds issued by a state or municipality is TRUE? A) The bonds carry an unqualified promise to pay interest and principal backed by the power of the issuer to levy taxes. B) Interest and principal payment is backed by the full faith and credit of the issuer. C) Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve. D) Interest and principal payment is guaranteed. .

Your answer, Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve., was correct!. Because revenue bonds are not backed by the full faith and credit of the municipality that issues them, the earnings of the revenue-producing project must be large enough to cover the interest and principal payments. Reference: 3.1.2.2.2 in the License Exam Manual.

Which of the following materials is subject to FINRA's filing requirements? A) Prospectus for a face amount certificate company. B) Internal memo describing the benefits of an investment in a certain unit investment trust. C) Retail communications for an open-end management investment company. D) Prospectus for a closed-end management investment company.

Your answer, Internal memo describing the benefits of an investment in a certain unit investment trust., was incorrect. The correct answer was: Retail communications for an open-end management investment company. Retail communications for investment companies are subject to filing requirements with FINRA. Those that include a performance ranking that is either created by the investment company or from a source that is not regularly published require pre-filing. Those that do not include such a performance ranking can be filed within 10 business days of first use. Prospectuses and internal memos need not be filed with FINRA. Reference: 17.5.2. in the License Exam Manual.

Proponents of which of the following technical theories assume that small investors are usually wrong? A) Odd lot. B) Short interest. C) Volume of trading. D) Breadth of market.

Your answer, Odd lot., was correct!. Odd lots are usually traded by small investors; some analysts believe small investors are generally wrong. Reference: 14.4.3.2 in the License Exam Manual.

If an investor expects to have a large amount of passive income over the next 2 years, which of the following programs will most likely lead to the largest amount of shelter? A) Undeveloped land purchasing. B) Oil and gas drilling. C) Equipment leasing. D) Real estate income.

Your answer, Oil and gas drilling., was correct!. Passive income can only be sheltered by passive loss. Oil and gas drilling programs allocate the majority of investment dollars to drilling. These are intangible drilling costs (IDCs), which are 100% deductible when drilling occurs. Reference: 13.2.2.1 in the License Exam Manual.

Under a Keogh plan, which of the following is NOT an acceptable investment? A) Rare oil painting. B) Unit investment trust. C) U.S. government bond. D) International bond fund.

Your answer, Rare oil painting., was correct!. Investments not permitted in Keogh plans are commodities, collectibles and antiques, precious metals (other than U.S. government-issued gold and silver coins), and uncovered options. Reference: 11.2.1.1 in the License Exam Manual.

Which of the following terms or phrases does NOT apply to REITs? A) Redeemable. B) Managed. C) Dividends taxed at full ordinary income rates. D) Secondary market.

Your answer, Redeemable., was correct!. REITs trade in the secondary market and are not redeemable. The real estate portfolio is actively managed, and dividends paid by REITs do not meet the requirements to be taxed as qualified dividends and are, therefore, taxed as ordinary income. Reference: 1.9 in the License Exam Manual.

Planned amortization class (PAC) CMOs were designed to provide which of the following benefits compared to plain vanilla tranches? A) Increase prepayments to tranche holders. B) Eliminate prepayment risk for tranche holders. C) Reduce prepayment risk for tranche holders. D) Match the prepayment risk of plain vanilla tranches.

Your answer, Reduce prepayment risk for tranche holders., was correct!. PACs reduce but cannot eliminate prepayment risk for tranche holders. The companion tranches will have higher prepayment risk than the PAC, as they were designed to absorb the bulk of the prepayment risk. Reference: 2.8.1.3 in the License Exam Manual.

The Conference Board releases information about the economy on a monthly basis. Included are a number of different indicators. Economic indicators can be leading, lagging, or coincidental, which indicates the timing of their changes relative to how the economy as a whole changes. Which of the following is a lagging economic indicator? A) Hours worked. B) Corporate profits. C) S&P 500. D) Housing permits issued.

Your answer, S&P 500., was incorrect. The correct answer was: Corporate profits. Both the S&P 500 and housing permits are leading economic indicators, as is the measure of hours worked because it reflects changes in the average workweek during the current period of time. Corporate profits are a lagging indicator. Reference: 14.1.1.3.3 in the License Exam Manual.

All of the following are examples of short-term municipal obligations EXCEPT: A) BAN. B) TAN. C) TRAN. D) SLGS.

Your answer, SLGS., was correct!. State and local government securities (SLGS) are issued not by a municipality but by the U.S. Treasury Department to assist local governments in complying with arbitrage restrictions imposed by the IRS. The other choices are examples of short-term funding used by municipalities. Reference: 3.1.2.4 in the License Exam Manual.

Which of the following acts requires full disclosure of all material information about securities offered for the first time to the public? A) Securities Exchange Act of 1934. B) Securities Act of 1933. C) Trust Indenture Act of 1939. D) Securities Investor Protection Act of 1970.

Your answer, Securities Act of 1933., was correct!. The Securities Act of 1933 regulates new issues of corporate securities sold to the public. Reference: 16.1.1 in the License Exam Manual.

Which of the following acts requires full and fair disclosure of all material information about equity and debt securities offered for the first time to the public? A) Securities Exchange Act of 1934. B) Trust Indenture Act of 1939. C) Securities Investor Protection Act of 1970. D) Securities Act of 1933.

Your answer, Securities Act of 1933., was correct!. The Securities Act of 1933 regulates new issues of nonexempt securities sold to the public. Reference: 7.2.1 in the License Exam Manual.

A client is trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are equal and your client is in a 28% marginal income tax bracket, which bond do you tell the client to purchase and why? A) The corporate bond because the after-tax yield is 6.25%. B) The municipal bond because its equivalent taxable yield is 6.3%. C) The corporate bond because the after-tax yield is 4.5%. D) The municipal bond because its equivalent taxable yield is 6.6%.

Your answer, The municipal bond because its equivalent taxable yield is 6.6%., was correct!. This is calculated using the tax-equivalent yield formula; Corporate yield × (100% − investors tax bracket) 6.25 × (1 − .28) = 4.5%. Therefore a client in the 28% tax bracket will be left with an after-tax return of 4.5% if he purchases the corporate bond. This is not as high as the tax-free 4.75% return offered by the municipal bond. Reference: 3.4.8.1.1 in the License Exam Manual.

A customer invests $18,000 in a mutual fund and signs a letter of intent for $25,000 in order to qualify for a breakpoint. One year later, the shares are valued at $25,100 even though he has made no new investments. Which of the following statements regarding the above situation is TRUE? A) The representative should remind the customer that he signed a letter of intent 12 months ago. B) Shares held in escrow will be liquidated at the appreciated value. C) The letter of intent is considered to be fulfilled. D) The investment no longer qualifies for a breakpoint.

Your answer, The representative should remind the customer that he signed a letter of intent 12 months ago., was correct!. A letter of intent must be met with dollars invested within 13 months. The customer needs to invest an additional $7,000 to fulfill his letter of intent. The representative should remind the customer of his intention to qualify for the reduced sales charge. Reference: 10.7.5.1.1 in the License Exam Manual.

Which of the following would be the least appropriate investment in a traditional IRA for a 67-year-old client? A) Variable annuities. B) Common stock. C) Treasury notes. D) Corporate bonds.

Your answer, Variable annuities., was correct!. Why buy a tax-deferred product in a tax-deferred account? A variable annuity will provide no additional tax savings and will likely increase the expense of the IRA. In addition to sales and surrender charges, variable annuities may impose other charges such as mortality and expense risk charges, administrative fees, etc. In less than 4 years, your client will have to begin making withdrawals regardless of any surrender charges the annuity may impose. Reference: 11.2.1.1 in the License Exam Manual.

All of the following statements regarding 529 plans are true EXCEPT: A) a beneficiary of a 529 plan may also be the beneficiary of a Coverdell Education Savings Account. B) contributions are made with pretax dollars at the federal level. C) earnings accumulate tax free if the money is used for qualified educational purposes. D) anyone can make a contribution on behalf of a beneficiary.

Your answer, a beneficiary of a 529 plan may also be the beneficiary of a Coverdell Education Savings Account., was incorrect. The correct answer was: contributions are made with pretax dollars at the federal level. Contributions are made with after-tax dollars. Withdrawals are tax free at the federal level if used for qualified higher education expenses. Reference: 11.2.5.2 in the License Exam Manual.

An instrument that illustrates the transfer of title to any dividend, interest, or right that pertains to securities contracted for is called: A) a right. B) a power of attorney. C) a warrant. D) a due bill.

Your answer, a right., was incorrect. The correct answer was: a due bill. A due bill is an assignment of a forthcoming distribution from the seller to the new owner. Reference: 9.1.4.1 in the License Exam Manual.

The writer of an in-the-money put will receive the upcoming dividend from the underlying issuer if the contract is exercised: A) after the ex-date. B) on the ex-date. C) before the ex-date. D) on or after the ex-date.

Your answer, after the ex-date., was incorrect. The correct answer was: before the ex-date. Provided the stock is purchased before the ex-date, its buyer becomes the owner of record on or before the record date, and is therefore entitled to the dividend. Reference: 4.6.1.3 in the License Exam Manual.

An underwriter should consider all of the following factors when determining the spread on a new issue EXCEPT: A) amount of the good faith check. B) amount bid on the issue. C) type and size of the issue. D) prevailing interest rates in the marketplace.

Your answer, amount of the good faith check., was correct!. The spread is the difference between the reoffering price and the amount bid on an issue in competitive bidding. MSRB rules state that an underwriter is entitled to make a profit in an underwriting. Therefore, the underwriter can take into account such factors as market conditions, the type and size of the issue, the dollar volume of the transaction, and any extraordinary costs incurred by the syndicate. The amount of the good faith check deposited before bidding on the issue has no relevance to the bid or to the reoffering prices. Reference: 3.2.5 in the License Exam Manual.

A municipal bond has a coupon of 6.25% and at the present time, its yield to maturity is 6.75%. From this information, it can be determined that the municipal bond is trading: A) at a discount. B) at a premium. C) flat. D) at par.

Your answer, at a discount., was correct!. The YTM is greater than the nominal yield, or coupon yield. Therefore, the bond is trading at a discount. Reference: 2.2.7.2 in the License Exam Manual.

The placement ratio, as shown in the "Bond Buyer", is: A) bonds issued/bonds sold. B) bonds sold/bonds unsold. C) bonds sold/bonds issued. D) bonds issued/bonds unsold.

Your answer, bonds sold/bonds issued., was correct!. The placement ratio is a measure of investor demand for new issue municipal bonds. It is computed by dividing the amount of bonds sold each week by the amount issued that week. Reference: 3.2.3.1 in the License Exam Manual.

A quote on Nasdaq is as follows: Bid Ask 10 10.50, 1300 x 1500 The market maker is obligated to execute all of the following customer transactions in their entirety EXCEPT: A) sell 1,300 shares at 10. B) buy 1,400 shares at 10.50. C) buy 1,500 shares at 10.50. D) sell 1,500 shares at 10.

Your answer, buy 1,400 shares at 10.50., was incorrect. The correct answer was: sell 1,500 shares at 10. This market maker has quoted a size of market of 1,300 − 1,500, which means it stands ready to buy a maximum of 1,300 shares at $10 and sell a maximum of 1,500 shares at 10.50. A sale of 1,500 shares at 10 is outside the size of this quote. Reference: 8.9.1 in the License Exam Manual.

An example of overlapping debt would be a school district and: A) corporate debt of the county's largest employer. B) county general debt. C) a local power plant. D) a water pollution control facility.

Your answer, county general debt., was correct!. Do not combine revenue bonds with GOs to determine overlapping debt. Overlapping debt occurs in real estate taxing situations. Only GOs are backed by real estate taxes. Reference: 3.1.2.1.2 in the License Exam Manual.

All of the following will affect the working capital of a corporation EXCEPT: A) payment of a cash dividend. B) that portion of long-term debt currently payable. C) issuance of convertible preferred stock. D) declaration of a cash dividend.

Your answer, declaration of a cash dividend., was incorrect. The correct answer was: payment of a cash dividend. Working capital is defined as current assets minus current liabilities. Payment of a cash dividend will reduce current assets (cash) and current liabilities (dividend payable) by the same amount, leaving working capital unchanged. Reference: 14.6.1.3.5 in the License Exam Manual.

Securities options may be best described as: A) roll ups. B) futures. C) forwards. D) derivatives.

Your answer, derivatives., was correct!. Options are a derivative because they get their values from the underlying instrument. Reference: 4.1.0.5.1 in the License Exam Manual.

All of the following are minimum requirements for listing on the NYSE EXCEPT: A) market value of publicly held shares. B) number of shareholders. C) earnings per share. D) number of publicly held shares.

Your answer, earnings per share., was correct!. While the numerical values are not tested, it is important to know that there is no minimum earnings per share requirement. However, there is a minimum earnings requirement. Reference: 8.3.1 in the License Exam Manual.

If an investor is anticipating that the yield spread between U.S. government and BBB-rated corporate bonds will widen, the investor is expecting the U.S. economy to: A) expand over the coming months. B) enter a recession over the coming months. C) experience volatility over the coming months. D) remain flat over the coming months.

Your answer, enter a recession over the coming months., was correct!. If investors anticipate a recession, they tend to flee to quality. In this case, they would likely sell lower quality corporate bonds (forcing prices down and yields up) and use the proceeds to buy higher quality U.S. government bonds (forcing prices up and yields down). Thus, the yield spread would widen between corporate and government bonds. Yields on corporate bonds are higher than yields on U.S. government bonds to begin with. If yields on corporate bonds go up and yields on government bonds decline, the spread will widen. Reference: 2.2.7.5 in the License Exam Manual.

A client of your broker/dealer is interested in collateralized mortgage obligations (CMOs). While determining suitability for the client all of the following should be discussed EXCEPT A) how changing interest rates may affect the prepayment rates B) the tax consequences of CMOs C) how currency exchange rates may affect the value of the securities D) the relationship between mortgage loans and mortgage securities

Your answer, how currency exchange rates may affect the value of the securities, was correct!. Currency exchange rates are not applicable to the risks associated with CMOs. However, when determining suitability, a discussion of all of the characteristics and risks of CMOs, should occur. This would include how changing interest rates may affect prepayment rates and therefore the average life of the security, tax considerations (CMOs are taxable at all levels), and the relationship between actual mortgage loans and mortgage-backed securities. Reference: 2.8.2 in the License Exam Manual.

Losses from direct participation programs can be used to offset: A) none of these. B) earned income from salary or commissions. C) income from limited partnerships. D) portfolio income.

Your answer, income from limited partnerships., was correct!. Passive losses can be used only to offset passive income, which is earned from direct participation programs and rental real estate. Reference: 13.1.1 in the License Exam Manual.

If a buyer cannot pay for a trade within five business days from the trade date, the broker/dealer may request an extension from its designated examining authority (DEA). Regarding extensions, all of the following are TRUE EXCEPT: A) if the broker/dealer chooses to close out the position the account will be frozen for 90 days. B) the broker/dealer has the option of ignoring amounts due of $1,000 or less without violating Regulation T requirements. C) if the customer cannot pay by the end of the extension, the broker/dealer has the option to either request an additional extension from its DEA or sell the securities to close the position. D) introducing broker/dealers who do not clear their own trades may request extensions for their customers directly from the DEA.

Your answer, introducing broker/dealers who do not clear their own trades may request extensions for their customers directly from the DEA., was correct!. Introducing broker/dealers, those not clearing their own trades, may not request extensions directly from their DEA. Such requests must be made by the clearing firm. Reference: 9.1.2.5.1 in the License Exam Manual.

The best time for an investor seeking returns to purchase long-term, fixed-interest-rate bonds is when: A) long-term interest rates are high and beginning to decline. B) long-term interest rates are low and beginning to rise. C) short-term interest rates are high and beginning to decline. D) short-term interest rates are low and beginning to rise.

Your answer, long-term interest rates are high and beginning to decline., was correct!. The best time to buy long-term bonds is when interest rates have peaked. In addition to providing a high initial return, as interest rates fall, the bonds will rise in value. Reference: 2.2.7.6 in the License Exam Manual.

If you are advised that the yield curve is currently inverted, this means that: A) long-term and short-term rates move inversely. B) short-term rates are lower than long-term rates. C) long-term rates are lower than short-term rates. D) long-term rates are significantly higher than short-term rates.

Your answer, long-term rates are lower than short-term rates., was correct!. An inverted yield curve is negatively sloped, which means that long-term yields are lower than short-term yields. When short-term rates are lower than long-term rates, the yield curve is positively sloped or normal. Reference: 2.2.7.5 in the License Exam Manual.

A customer is short 10 ABC Dec 50 calls at 2.50 and short 10 ABC Dec 50 puts at 3.50. Prior to expiration, ABC declines to 40.50 and the customer is assigned on his put position while his short calls expire worthless. A month later, he liquidates his long position at 45 for a: A) gain of $1,000. B) gain of $7,500. C) loss of $7,500. D) loss of $1,500.

Your answer, loss of $7,500., was incorrect. The correct answer was: gain of $1,000. The customer opens two short positions on 10 contracts each, so his account is credited with premiums of $2,500 for the calls and $3,500 for the puts. The calls expire worthless, but the short puts are exercised, so the investor is required to buy the stock at the strike price. This results in a debit of $50,000 ($5,000 per contract × 10 contracts), and the stock is then sold at a credit of $45,000. Reference: 4.4.2.2 in the License Exam Manual.

Variable rate municipal bonds are subject to all of the following risks EXCEPT: A) default. B) liquidity. C) interest rate. D) market.

Your answer, market., was incorrect. The correct answer was: interest rate. A variable rate bond is one whose coupon is adjusted periodically (semiannually or annually) to reflect current interest rates. Therefore, if rates rise, forcing prices down, the coupon on a variable rate bond will be adjusted upward, thereby tending to keep the bond's price at or near par. Therefore, no interest rate risk is associated with these bonds. However, if rates fall, the coupon will be adjusted downward, keeping the bond's price at or around par. Normally, a fall in rates will force prices up, but not with variable rate bonds. Reference: 3.1.2.3.1 in the License Exam Manual

If a person wishes to enter orders in his spouse's account, he: A) is free to do so. B) needs written permission from his spouse via a power of attorney. C) could never be permitted to do so as there is no provision that would allow for it to occur. D) needs verbal permission from his spouse.

Your answer, needs written permission from his spouse via a power of attorney., was correct!. The only persons permitted to enter orders in an account are the account owners. For a person to enter orders in his spouse's account, the spouse who's name is on the account must sign a power of attorney. Reference: 5.2.1.5 in the License Exam Manual.

All of the following are characteristics of unlisted options EXCEPT: A) negotiated expiration dates. B) active secondary trading. C) premiums determined by participants. D) negotiated exercise prices.

Your answer, negotiated expiration dates., was incorrect. The correct answer was: active secondary trading. Unlike listed options, unlisted options do not trade continuously in an organized secondary market; trades are negotiated between individuals. Reference: 4.6 in the License Exam Manual.

If two customers wish to combine their purchases of a mutual fund to take advantage of the fund's breakpoints, you should advise them that they may: A) do so, provided that they have no business connection with the fund sponsor. B) not do so, because they both have accounts with the same broker/dealer. C) not do so, because two unrelated buyers may not receive a breakpoint. D) do so, provided that they indicate the proportion that goes into each separate account.

Your answer, not do so, because two unrelated buyers may not receive a breakpoint., was correct!. Two customers cannot combine their purchases to take advantage of a fund's breakpoints. Breakpoints are never allowed for investment clubs. Reference: 10.7.5.1 in the License Exam Manual.

The current market in XYZZ stock is 6.12 bid, offered at 6.18. A customer wants to bid 6.125 for 100 shares. How should the buy order ticket read? A) offer at 6.12 B) 6.12 bid C) offer at 6.125 D) 6.125 bid

Your answer, offer at 6.125, was incorrect. The correct answer was: 6.12 bid Because the order is to "buy" the ticket reflects a bid, not an offer. Under the minimum increments pricing rule of Regulation NMS (National Market System) only stocks priced below $1 can trade in sub-penny prices. Therefore the order ticket for this buy limit order must reflect a price in increments of no less than $.01, in this instance 6.12. Reference: 16.1.12 in the License Exam Manual.

All of the following may be used to service special tax bond issues EXCEPT: A) business license taxes. B) gasoline taxes. C) excise taxes. D) real estate taxes.

Your answer, real estate taxes., was correct!. Special tax bonds are sometimes included in the larger and more general category of revenue bonds. Bonds supported from the proceeds of specified income generators, such as gasoline, cigarettes, liquor, and business licenses are special tax bonds. Ad valorem (real estate) taxes never service special tax bonds. Reference: 3.1.2.2.5 in the License Exam Manual.

All of the following statements regarding corporate insiders are true EXCEPT: A) purchases may not be made through the exercise of options. B) reports of changes in holdings must be filed with the SEC. C) only public information may be used to make transactions. D) short selling is prohibited.

Your answer, reports of changes in holdings must be filed with the SEC., was incorrect. The correct answer was: purchases may not be made through the exercise of options. A corporate insider is defined as an officer, director, 10% stockholder, or family member of an insider. Insiders are required to report any changes in their holdings to the SEC within two business days. The Securities Exchange Act of 1934 also prohibits short selling of company shares by company insiders. They cannot use inside (nonpublic) information for their own benefit. Reference: 7.6.2.4 in the License Exam Manual.

Shortly before the end of the cooling-off period, the underwriters and representatives of the issuer have a meeting to review the status of the new issue. This is called a: A) syndicate meeting. B) due diligence meeting. C) negotiation meeting. D) pre-sales meeting.

Your answer, syndicate meeting., was incorrect. The correct answer was: due diligence meeting. The final meeting before the end of the cooling-off period is known as a due diligence meeting and is always held before the effective date of the new offering. Reference: 7.2.2.3 in the License Exam Manual.

In an undivided syndicate, liability for unsold securities rests with the: A) syndicate manager. B) syndicate members that failed to sell their allotment. C) issuer. D) syndicate members on a pro rata basis.

Your answer, syndicate members that failed to sell their allotment., was incorrect. The correct answer was: syndicate members on a pro rata basis. In an undivided (Eastern) account, liability for unsold securities rests with each syndicate member based on its participation percentage. For example, if a syndicate member has a 10% participation, that member would be responsible for 10% of any unsold securities (even if that member sold all of its participation). Sales do not affect undivided accounts. Reference: 3.2.4.1.2 in the License Exam Manual.

An official notice of sale publicizes each of the following EXCEPT: A) the bond's rating. B) the bond counsel's name. C) the issuer's name. D) the amount of good faith deposit required.

Your answer, the bond's rating., was correct!. The notice of sale is the advertisement placed by a municipality soliciting bids from underwriters for an issue it wishes to sell. It does not include the bond's rating. Reference: 3.2.2.1 in the License Exam Manual.

All of the following statements are true with respect to a limited partnership subscription agreement EXCEPT: A) the investor's registered representative must verify that the investor has provided accurate information. B) the general partner's signature grants the limited partners power of attorney to conduct the partnership's affairs. C) the investor's signature indicates that he has read the offering document. D) the general partner endorses the subscription agreement, signifying that a limited partner is acceptable.

Your answer, the general partner's signature grants the limited partners power of attorney to conduct the partnership's affairs., was correct!. A limited partner's signature on the subscription agreement grants the general partner power of attorney to conduct the partnership's affairs. The subscription agreement for a limited partnership is deemed accepted when the general partner signs the subscription agreement. Reference: 13.1.2.1.3 in the License Exam Manual.

If a customer submits a redemption order to her broker/dealer after the close of the New York Stock Exchange, she will receive a price based on the net asset value computed: A) the next time the fund computes it. B) the same day regardless of when the order is received. C) the previous business day. D) within the next 2 business days.

Your answer, the next time the fund computes it., was correct!. Orders to redeem shares are executed at the next computed price. Reference: 10.7.3.1 in the License Exam Manual.

Variable annuity salespeople must register with all of the following EXCEPT: A) the SEC. B) FINRA. C) the state banking commission. D) the state insurance department.

Your answer, the state banking commission., was correct!. Variable annuity salespeople must be registered with FINRA and the state insurance department. Registration with FINRA is de facto registration with the SEC; no registration is required by the state banking commission. Reference: 12.1.2 in the License Exam Manual.

Holders of common shares may generally vote on: A) whether an administrative assistant should be promoted to management. B) which member of the board of directors should be chairman. C) whether a cash dividend is to be declared. D) whether the company should issue additional preferred stock.

Your answer, which member of the board of directors should be chairman., was incorrect. The correct answer was: whether the company should issue additional preferred stock. Common shareholders must vote to approve the issuance of additional preferred stock because additional preferred shares dilutes the common shares' residual assets under a liquidation. Common shareholders do not vote to declare dividends. Board members select the chairman of the board. Shareholders do not get involved in the daily operational activity of the corporation. Reference: 1.2.3.1 in the License Exam Manual.

The reoffering yield on a new municipal bond issue is the: A) interest rate minus any premiums that underwriters are willing to pay. B) coupon rate on the new issue. C) tax-equivalent yield of the new issue. D) yield at which the bonds are offered to the public.

Your answer, yield at which the bonds are offered to the public., was correct!. In a competitive bidding situation, each underwriter submits a sealed written bid. Once the bid has been awarded, the bonds are repriced to give the underwriters a profit when selling them to the public. The yield at which the bonds are sold is called the reoffering yield. Reference: 3.2.5 in the License Exam Manual.