Series 6: Checkpoint Exams
All of the following are exempt securities EXCEPT: A) municipal bond funds. B) commercial paper. C) bankers' acceptances. D) T-bills.
A
Arbitration and mediation are two services provided by FINRA to settle disputes between members. Regarding these services, which of the following statements are NOT true? I. Mediation is mandatory; arbitration is not. II. Arbitration always results in a binding decision; mediation may not. III. If arbitration is unsuccessful, the dispute moves on to mediation. IV. A mediator in a dispute may not serve as an arbitrator in the same dispute. A) I and III. B) II and III. C) II and IV. D) I and IV.
A
Each firm must retain copies of its registered representatives' correspondence and retail communication according to the recordkeeping rules (FINRA Rule 3110) and (SEC Rules 17a-3 and 17a-4). Therefore, which of the following are TRUE? I. A file for correspondence must show the name(s) of the person(s) who approved then used the correspondence II. All retail communications and independently prepared reprints, must be maintained for three years from the date of last use III. Approved correspondence must be kept for at least five years from the date of first use IV. Outgoing electronic securities business correspondence is subject to a three-year record-keeping requirement A) II and IV only B) II and III only C) I, III, and IV D) I and IV only
A
You are reviewing an investor's balance sheet. Which of the following items would be found on a balance sheet and help you determine the client's net worth? I. 401(k) balance II. Credit card balance III. Monthly income IV. Electric bill A) I and II. B) III and IV. C) II and III. D) I and IV.
A
A prospect is heavily invested in the common stock of an employer's company, ABC, relative to other investments. The stock has performed well over the last 15 years and the prospect is very happy with the investment. After reviewing financial and nonfinancial criteria, you have determined that A) selling a portion of ABC and using the proceeds to purchase mutual funds will reduce his nonsystematic risk B) owning too much ABC stock has increased credit risk to an unacceptable level C) because ABC has performed well over a 15-year period, keep the stock but sell it if inside information indicates a fall in value is eminent D) he should begin to liquidate the ABC stock using the FIFO accounting method
A
According to the Conduct Rules, a FINRA member must do which of the following? A) Authorize a registered representative to share in a client's profits or losses only in writing. B) Repurchase any securities the client offers for sale. C) Quote a quantity discount on blocks consisting of more than 100 shares. D) Grant an extension of the settlement date for a purchase made in a cash account.
A
Registered representatives may use a preliminary prospectus to A) obtain indications of interest from investors B) solicit orders from investors for the purchase of a new issue C) obtain FINRA's authorization to sell the issue D) solicit an approval of the offering from the SEC
A
Under the Insider Trading and Securities Fraud Enforcement Act of 1988, which of the following are insiders for purposes of insider trading? I. Attorney who writes an offering circular for a company. II. An investor holding 4% of the company's stock. III. The next-door neighbor of a board member of a company. IV. Brother of a company's president. A) I and IV. B) II and III. C) II and IV. D) I and III.
A
Under which of the following terms does the underwriter act in a dealer capacity? A) Firm Commitment B) Syndicate C) Best Efforts D) Selling Group
A
Which of the following disputes must be resolved using the Code of Arbitration? I. Dispute between two FINRA members. II. Dispute between two banks. III. Dispute between a member and an associated person. IV. Dispute between two customers. A) I and IV. B) II and IV. C) II and III. D) I and III.
D
Which of the following statements regarding joint accounts is NOT true? A) Customers 1 and 2 have a JTWROS account. If Customer 1 were to die, his shares would be assumed by the survivor. B) If an account has a joint registration, distributions must be made payable to all. C) Two customers have a TIC account. Customer 1 deposits $5,000 and Customer 2 deposits $10,000 into the account. If one joint owner dies, her assets will go to her estate. Both parties may place a trade. D) Customers 1, 2, and 3 have a TIC account. Each deposits funds into the account. One of the 3 tenants must be designated to make trades for the account.
D
A brokerage order ticket must contain all the following EXCEPT A) Account name and number B) Date the account was opened C) Price and time limits if any D) Discretionary authority exercised
B
A complete customer profile includes both financial and nonfinancial investment considerations. Which of the following is considered financial investment information? A) Risk tolerance B) Discretionary income C) Save for a vacation home D) Age of retirement
B
Regarding the antifraud provisions of the Securities Acts of 1933 and 1934, which of the following statements is TRUE? A) Exempt securities, like those issued by municipalities, are exempt from the provisions. B) No securities, issuers, or transactions are exempt from the antifraud provisions of these acts. C) Exempt issuers, like the federal government, are exempt from the provisions. D) Exempt transactions, like those offered under Regulation A+, are exempt from the provisions.
B
TCB wants to offer $57 million worth of common stock in its home state and in three other states. To clear the offer for sale, TCB must file a(n): A) letter of notification. B) registration statement. C) preliminary prospectus. D) offering circular.
B
Under the conduit theory of taxation, which of the following statements are TRUE? I. A fund is not taxed on earnings it distributes if it distributes at least 90% of its net investment income. II. Investors are not taxed on earnings they reinvest. III. A fund is only taxed on interest income. IV. Investors are taxed on earnings they receive in cash. A) III and IV. B) I and IV. C) I and II. D) II and III.
B
All of the following must be sold with a prospectus EXCEPT A) an IPO of common stock B) closed-end funds in the secondary market C) open-end funds in the primary market D) closed-end funds in the primary market
B
A customer of yours wants to buy 1000 shares of a little known oil company based in Texas but drilling for oil in Israel. The shares trade on NASDAQ but instead of securing them in that market from several different firms, your trading department contacts a different firm they know have the stock as a market maker for the oil company. The price to your customer is slightly more than the NASDAQ system but all 1000 shares are purchased in one lot. In this case, which of the following is true? A) This is a violation referred to as front running B) This is a violation of insider trading C) This is a violation called interpositioning D) This is not a violation.
C
FINRA Rule 2210 treats interactive electronic forum posts, such as social media status updates, as A) Institutional communication B) correspondence C) retail communications D) public appearances
C
In recommending securities to customers, a FINRA member firm must do which of the following? I. Guarantee that future performance will match or exceed past performance. II. Have a suitable basis for recommendations. III. Disclose or offer to disclose supporting documentation. IV. Offer to reimburse execution costs associated with recommendations. A) I and IV. B) II and IV. C) II and III. D) I and III.
C
Institutional communication is defined as A) sales material sent to an institutional investor for forwarding to its public clients B) sales material sent to both institutional investors and the general public C) sales material sent only to an institutional investor D) sales material received from a mutual fund or other institutional investor
C
The ABC Corporation would like to raise capital via a Regulation D private placement. In order to qualify for an exemption from registering with the SEC under Rule 506, which of the following is true? I. Advertising is allowed if only accredited investors may purchase the securities. II. Advertising is not allowed if selling to a minimum of 35 nonaccredited investors. III. If selling to a minimum of 35 accredited investors, general solicitation is allowed. IV. If selling to nonaccredited investors, general solicitation is not allowed. A) I and II B) II and III C) I and IV D) III and IV
C
Which of the following must be registered as investment companies under the Investment Company Act of 1940? I. Closed-end investment companies. II. Separate accounts of insurance companies offering variable products. III. Variable annuity contracts. IV. Variable life insurance policies. A) III and IV. B) I and IV. C) II and III. D) I and II.
D
Your client wishes to invest $50,000 into shares of the ACE Mutual Fund. This morning's financial news indicated that the POP for ACE was $10.86 while the NAV was $10 per share. The client's order is placed at 2:00 pm ET. On the basis of this information, you could confirm to the client a purchase of: A) 5,000 shares. B) more than 4,604.052 shares, but fewer than 5,000 shares. C) 4,604.052 shares. D) nothing yet, as you must wait for the POP to be computed based on the day's close.
D
The Securities and Exchange Commission regulates all of the following EXCEPT: A) investment adviser and client relationships. B) the secondary market. C) initial public stock offerings. D) intrastate securities offerings.
D The Securities and Exchange Commission was created by the Securities Exchange Act of 1934 as a federal commission with the power to enforce the Securities Act of 1933 and all subsequent federal securities acts. If a security is being offered in only a single state, however, it need not register with the SEC but, according to Rule 147, only in the one state (intrastate) where it is being offered.
Each of the following is a characteristic of money market funds EXCEPT: A) A NAV of $1.00 per share. B) Offered without a sales load. C) A beta of 1.00. D) Portfolio of short-term debt instruments.
C
If RMDs do not begin by April 1 of the year after the individual turns 70½, which of the following is applicable? A) A 50% insufficient distribution penalty applies to the amount that should have been withdrawn. B) In addition to any insufficient distribution penalty, capital gain taxes could also be apply to the amount not withdrawn. C) Both a 50% insufficient distribution penalty will be assessed to the amount that should have been withdrawn and ordinary income taxes will be applied to the full amount D) A 50% insufficient distribution penalty applies to the remaining balance.
C
A copy of trade confirmations must be maintained by the firm for: A) Three years from the date of the first trade. B) Six years. C) Three years. D) Five years.
c
A unit investment trust has 90% of its portfolio invested in high-grade bonds with an average maturity of almost 25 years. If the industry consensus were that long-term interest rates were about to increase sharply, which of the following actions would most likely be taken by the UIT? A) No action would be taken. B) Switch to short-term bonds. C) Ladder the maturities. D) Liquidate and begin to move into cash or cash equivalents.
A
If an investment representative hosts an investment seminar and intends to discuss general investment concepts and a specific mutual fund for which he has performance charts, which of the following are TRUE? I. He may discuss the investment returns of the mutual fund in general, provided he does not use a specific time frame. II. He may discuss the investment returns of the mutual fund using a specific time frame. III. He must disclose all material facts regarding the mutual fund to the audience. IV. He may emphasize the positive aspects of the mutual fund and refer prospective investors to the prospectus for further details. A) II and III. B) I and IV. C) II and IV. D) I and III.
A
If an investor wishes to open a cash account in her name only and allow her husband to make trading decisions as well as withdraw cash and securities, she must instruct her broker-dealer to open a: A) cash account with full power of attorney. B) cash account. C) margin account. D) cash account with limited power of attorney.
A
Under FINRA filing requirements and review procedures, which of the following statements are TRUE? I. A new member firm must file advertising with FINRA at least 10 days before use for the first year. II. An established firm must file investment company communications that include a ranking not independently prepared with FINRA within 10 days of first use. III. Retail communications must be kept on file for 2 years. IV. Retail communications must be kept on file for 3 years. A) I and IV B) I and III C) II and III D) II and IV
A
Under the Employee Retirement Income Security Act of 1974 (ERISA), all of the following guidelines for the regulation of retirement plans are true EXCEPT A) a corporation in business for three years is required to establish a retirement plan for employees B) all qualified plans require a written plan document C) fully vested employees are entitled to the accumulated retirement accounts if they leave the employer D) funds contributed to a retirement plan are required to be segregated from corporate assets
A
When a customer, who is at least 59½, withdraws money from a traditional IRA that has been funded totally with deductible contributions: A) the entire amount withdrawn is subject to taxation at ordinary income tax rates. B) the basis is taxed as ordinary income, the gains are taxed at the capital gains rate. C) unless qualifying for an exception, the entire amount withdrawn is subject to taxation at ordinary income tax rates with an additional 10% penalty. D) the withdrawal causes the entire IRA balance to be subject to taxation at ordinary income tax rates.
A
When the registration statement for corporate securities becomes effective, which of the following are TRUE?The issuer amends the preliminary prospectusThe final offering price is added to the red herringThe SEC changes the underwriting spreadThe underwriter resubmits the final prospectus A) I and II B) III and IV C) II and III D) I and IV
A
Which of the following is NOT a money market instrument? A) Newly issued Treasury notes issued to meet a specific government-funding requirement. B) Commercial paper issued by a finance corporation of a major automobile manufacturer. C) Municipal Construction Loan Note (CLN). D) Federal Farm Credit Bank note maturing in one year.
A
Which of the following statements describing Section 529 plans is TRUE? A) The maximum annual contribution varies from state to state. B) They can only be opened for children under the age of 18. C) The fees associated with them are generally the same from state to state. D) Most state college savings plans require either the owner or the beneficiary of the plan to be a state resident.
A
Your customer has contributed $1,000 annually into her Roth IRA for seven years. Which of the following statements concerning her Roth IRA distributions is TRUE? A) Your customer will not be taxed on the distributions if she is over the age of 59½ and the money has been held in the account for five years beginning with the first tax year for which a contribution was made to any Roth IRA established for the individual. B) The distributions are taxed as ordinary income. C) Your customer will pay ordinary income taxes on the part of the distribution that represents earnings. D) The distributions are taxed as capital gains.
A
A fund seeks maximum capital appreciation by investing in common stocks of companies located outside the United States. The management selects well-established companies that are listed on their national stock exchanges and that have demonstrated high earnings potential. This information describes which of the following mutual funds? A) ATF Biotechnology Fund. B) ATF Overseas Opportunities Fund. C) ATF Capital Appreciation Fund. D) ABC Stock Index Fund.
B
An investor who has purchased a variable annuity has the right to: I. vote on proposed changes in investment policy. II. approve changes in the plan portfolio. III. vote for the investment adviser. IV. withdraw principal without any tax consequences. A) II and IV. B) I and III. C) II and III. D) I and IV.
B
If two customers are tenants in common in a joint account, which of the following statements are TRUE of this arrangement? I. If one of the tenants dies, the survivor will automatically assume full ownership. II. They need not make equal investments in the account. III. They need not have equal interests in the property in the account. IV. If one of the tenants dies, the account need not be frozen. A) I and IV. B) II and III. C) I and III. D) II and IV.
B
Under the rules governing the activities of broker-dealer firms, prior consent of the employing firm would NOT be required in order for a registered representative of the firm to A) open a margin account at another broker-dealer B) discuss investment strategies with their brother whose account is at another broker-dealer C) have trading authority in a spouse's account at another broker-dealer D) open a cash account at another broker-dealer
B
Under the rules on communication with the public, review of which of the following by a principal may take place either before or after distribution? A) Independently prepared reprints B) Correspondence to 25 or fewer retail investors within any 30 calendar-day period C) Advertising in the newspaper D) Seminar scripts
B
Which of the following forms of written communication must a principal approve before use? A) A Preliminary prospectus B) A Letter sent this month to 50 prospective customers offering advice about a stock C) A Letter to a customer confirming an annual account review appointment D) An Interoffice memorandum
B
Which of the following have no liability in an underwriting for unsold shares in a firm commitment? A) The Issuer B) The Selling Group member C) The Managing Underwriter D) The Syndicate member
B
Which of the following statements regarding traditional IRAs and Roth IRAs is TRUE? A) To avoid penalty, distributions must begin the year after the year the owner reaches age 72. B) Earnings on investments are not taxed immediately. C) Withdrawals at retirement are tax free. D) Contributions are deductible.
B
While cold-calling, a registered representative encounters an individual interested in buying open ended investment company shares. The representative and the client meet to discuss alternative investment choices. The individual then writes a check for the purchase of open-ended investment company shares without receiving a prospectus. The registered representative is in violation of which federal act? A) Securities Exchange Act of 1934 B) Securities Act of 1933 C) Investment Advisers Act of 1940 D) Investment Advisers Act of 1970
B
Your established firm wishes to promote a mutual fund it markets to the public. What approval and filing requirements apply to this communication? I. It must be filed with FINRA at least 10 days before first use. II. It must be filed with FINRA within 10 days of first use. III. It must be approved by an experienced registered representative. IV. It must be approved by a registered principal. A) II and III B) II and IV C) I and III D) I and IV
B
Your customer, age 60, is retired and living at home with a fully paid-off mortgage. Her portfolio contains growth stocks and high-quality bonds, and she is a long-time investor and comfortable with moderate risk. Her objective is a moderate level of current income to supplement her corporate pension plan distributions and the earnings from her IRA. Which of the following mutual funds is the most suitable for this customer? A) XYZ Biotechnology Fund. B) ABC Equity Income Fund. C) LMN Stock Index Fund. D) QRS Capital Appreciation Fund.
B An equity fund that aims to achieve both current income and growth of income best suits the objectives and investment profile of the client. A stock index fund does not offer the current income that the client requires. The capital appreciation and biotechnology funds not only fail to provide income; they are too risky for this retired person.
A prospectus must accompany or precede which of the following? A) A television advertisement explaining the benefits of investing in mutual funds to accumulate retirement savings B) A mutual fund seminar invitation mailed to the home of a prospective customer C) A general information brochure given to a customer to explain the basic features of mutual fund ownership D) A sales presentation held in person at the representative's office
D
A registered representative places an ad in her church newsletter promoting her services as an expert retirement planner. Does this advertisement need to be pre-approved by a principal? A) Yes, but only if the newsletter is mailed as opposed to handed out on church property. B) No, because the ad only promotes a service, not a specific product. C) No, the church is a non-profit organization, and as such, the ad is exempt from pre-approval requirements. D) Yes, the ad will be defined as retail communication requiring pre-approval of a principal.
D
All of the following actions are potential violations EXCEPT: A) assuring customers that an investment will outperform a market index over the next year. B) avoiding mention of recent negative publicity regarding an investment being offered to customers. C) comparing a bond fund to an equity fund, for a customer whose objective is growth. D) sending a copy of a newspaper article (with supervisory approval) about a company whose stock is being solicited.
D
An investor has unexpectedly received $30,000 from an old debt he had written off. This money will come in handy for a business venture planned for three years from now. Meanwhile, he would like to generate some income on the money with as little risk and as little expense as possible. Which of the following recommendations is likely to be the most suitable for this customer? A) Class B shares of the ABC Investment-Grade Bond Fund. B) Class A shares of the MNO High-Yield Bond Fund. C) Class B shares of the XYZ Growth Fund. D) Class C shares of the ABC Investment-Grade Bond Fund.
D
Corporate debt securities (such as commercial paper) are exempt from registration under the Securities Act of 1933 if their maturities do not exceed how many days? A) 30 days. B) 90 days. C) 13 months. D) 270 days.
D
During the time an S-1 filing was being reviewed, an omission was found which could affect the amount of listed debt obligations of the issuer. In determining the course of action, which of the following would most likely be responsible to correct the omission? A) The syndicate B) The underwriter C) The SEC D) The issuer
D
If a customer does not pay for a trade regular way, how much additional time does Regulation T give the broker-dealer to deal with the problem? A) None B) Four calendar days C) Five business days D) Two business days
D
In July, a customer invested $10,000 in the ABC Mutual Fund. In December of the same year, ABC announced a long-term capital gains distribution. In May of the next year, the customer decided to redeem his shares for a capital gain. How are both of the capital gains treated for tax purposes: I. The capital gain distribution is treated as long term. II. The capital gain from redemption is treated as long term. III. The capital gain from redemption is treated as short term. IV. The capital gain distribution is treated as short term. A) III and IV. B) II and IV. C) I and II. D) I and II.
D
SEC regulations for securities issued by investment companies prohibit which of the following? I. Closed-end funds from issuing preferred stock. II. Open-end funds from issuing preferred stock. III. Closed-end funds from issuing bonds. IV. Open-end funds from issuing bonds. A) I and III. B) II and III. C) I and IV. D) II and IV.
D
A customer who seeks to supplement his retirement income and has a high risk tolerance would find which of the following securities most suitable? A) High-yield bond funds B) Treasury STRIPS C) Municipal GOs D) Investment-grade bond funds
a
Disputes between FINRA members regarding such issues as delivery and payment for securities transactions are settled through: A) the Code of Arbitration. B) the SEC. C) the Department of Enforcement. D) the National Adjudicatory Council.
a
As written in the Investment Company Act of 1940, investment companies must do all of the following EXCEPT: A) have a minimum of $100,000 in net capital before embarking on a public offering. B) state and adhere to their investment objectives. C) maintain adequate debt/equity diversification in the fund's investments. D) limit the membership of their board of directors to a maximum of 60% interested persons.
c
A busy customer has just opened a new account at your firm. She has given her lawyer limited power of attorney over the account to pursue a trading strategy for her while she makes an extended business trip. Which of the following statements regarding this customer's communications are TRUE? I. Confirmations of trades may be sent to the lawyer with power of attorney over the account only if the customer requests it in writing and if duplicates are also sent to the customer. II. The firm must always send confirmations to the person who holds power of attorney over an account. III. The firm may hold mail for the customer while she is traveling, but only for specific periods of time. IV. The firm must hold mail for the customer without restriction for as long as she requires the service. A) I and IV B) II and IV C) I and III D) II and III
C
A registered representative may open all of the following customer accounts EXCEPT A) a partnership account opened by the designated partner B) a corporate account opened by the designated officer C) an individual account opened by the individual's spouse D) a minor's account opened by a custodian
C
All of the following securities would be suitable investments for a traditional IRA EXCEPT: A) AAA U.S. government agency bonds. B) Blue chip common stocks. C) AAA municipal bonds. D) A corporate bonds.
C
If still employed beyond age 72, which of the following is TRUE? A) The required beginning date for distributions from a 401(k) is April 1st of the year following the year in which one turns 72. B) Contributions to a Roth IRA are not permitted. C) Contributions to the company 401(k) are permitted, and the required beginning date for distributions from the 401(k) may be delayed. D) Contributions to a traditional IRA are not permitted.
C
In connection with an investigation of a customer complaint, the association may require an associated person to agree to all the following EXCEPT: A) provide information orally B) give testimony under oath C) Be represented by council D) provide copies of any books
C
Regulation D mandates all of the following EXCEPT A) a special inscription or legend on the stock certificate indicates that its transfer is restricted B) if the offering is advertised, all purchasers must be accredited C) under no circumstances can more than 20 nonaccredited investors participate in the purchase of shares D) investors agree to terms by signing an investment letter
C
To comply with the regulations regarding customer identification programs, the minimum identifying information that must be obtained from each customer before opening an account includes: I. name II. verbal assurance that the customer is of legal age III. a street address, unless the primary mailing address is a post office box located in the state of residence IV. a taxpayer identification number. A) I and II. B) II and III. C) I and IV. D) III and IV.
C
Under the intrastate offering rule (Rule 147), when may a resident purchaser of these securities resell them to a nonresident? A) At least 9 months from the end of the distribution B) Six months after the last sale made in that state C) Six months after the investor's purchase date D) Three months after the first sale made in that state
C
A generic ad for an investment company placed by a broker-dealer would contain: A) neither the name of the investment company nor the broker-dealer. B) both the name of the investment company and the broker-dealer. C) the name of the broker-dealer placing the ad, but not the name of the investment company. D) the name of the investment company, but not the name of the broker-dealer.
C Generic advertising of investment companies presents a nonspecific introduction to investment company shares. A specific fund or investment company is not mentioned in generic advertising, but the broker-dealer who is placing the ad must be named.
