Series 6: QBank Quiz One
The minimum face amount of a negotiable CD is
$100,000 Negotiable CDs are issued in the minimum face amount of $100,000. These are called jumbo CDs and are typically traded in blocks of $1 million
To qualify for an exemption under Regulation A Tier 2, an offering may be no larger than
$75 million in a 12-month period A Tier 2 offering may be no larger than $75 million in 12 months of which not more than $22.5 million may be from existing shareholders
Your customer purchased the common stock of GEM Corporation for $30 a share. The stock pays $1 in dividends annually. After the year the stock is trading at $35 a share. What is the total return for the holding period?
20% The formula for calculating capital gains is income received plus gains (or minus losses) divided by cost basis equals total return. In this example, (1 + 5) / 30 = 20%
Corporations issue commercial paper with maturities ranging from as little as one day to as long as how many days?
270 days Commercial paper has a maximum maturity of 270 days
Your customer purchases a 6% corporate bond at 101. After one year the bond matures. What is the total return on this position?
5.0% The formula for calculating capital gains is income received plus gains (or minus losses) divided by cost basis equals total return. In this example the bond paid $60 in interest. The bond cost $1,010 and matures at par ($1,000). (60 - 10) / 1010
Your 70-year-old client with $400,000 wishes to assemble a portfolio that will provide her with a consistent cash flow for her projected life expectancy. She would like to maximize her return but is not willing to assume a high degree of risk. Which of the following securities might you suggest for this portfolio?
ABC Corporation debenture, S&P rating AAA Common stock will not provide her with a consistent cash flow because the dividends are not fixed or guaranteed. Although the convertible bond will provide income, this type of security pays a lower rate of interest than a nonconvertible security of the same quality. Therefore, the convertible bond will not help her maximize her return. A BB-rated bond is considered speculative
Money market instruments would include which of the following? - Banker's acceptances - Commercial paper - Nonnegotiable certificates of deposit - Treasury STRIPS
Banker's acceptances Commercial paper Money market instruments are high-quality debt securities issued with a maturity of one year or less. Negotiable CDs and Treasury bills are money market instruments, but nonnegotiable CDs and Treasury STRIPS are not
An offering of a new issue in which the underwriters act as agents for the issuer is called what?
Best efforts In a best efforts underwriting the underwriters act as an agent selling the securities to the customer directly from the issuer. In a best efforts underwriting the underwriter takes no responsibility for any unsold shares
Which of the following are exempt from the registration provisions of the Securities Act of 1933? - Variable annuities - Bonds issued by the State of Alaska - Mutual funds - Commercial paper maturing in 90 days
Bonds issued by the State of Alaska Commercial paper maturing in 90 days Municipal bonds are always exempt from registration under federal law, as is commercial paper with a maturity of 270 days or less
ABC Corporation is selling shares of the company in a private placement under Regulation D. All of the following investors would be accredited investors except
Chris, who owns 4% of ABC Corporation Chris does not own a large enough percentage of the shares of ABC Corporation to be considered an accredited investor for this offer. The others all meet at least one of the criteria
Which of the following activities may take place during the cooling-off period?
Distribute the red herring Distributing the preliminary prospectus is one of the allowed activities during the cooling-off period. No monies may be collected during the cooling-off period. The final prospectus is not available until the close of the cooling-off period
Listed securities primarily trade in which of the following venues?
Exchanges Listed securities trade primarily on exchanges. They are also called exchange-listed securities
An offering of a new issue in which the underwriters act as principals is called what?
Firm commitment When the underwriters purchase the entire offer and then resell the security to the public is called a firm commitment underwriting. The underwriters commit to buy the entire offer from the issuers and bring the securities into inventory and act as principals
Which of the following is an exempt issuer under the Securities Act of 1933?
First National Bank of Arizona National and state banks are exempt issuers under the act. Corporations and bank holding companies or bank subsidiaries like a broker dealer are not exempt issuers
Under the Securities Act of 1933, which of the following actions may a broker-dealer take before the effective date of a new offering?
Give a client a preliminary prospectus During the cooling-off period, the broker-dealer may not accept orders for, or provide sales literature about, the new issue. However, the broker-dealer may provide a preliminary prospectus
A client could be assured of federal government backing for an investment issued by which of the following entities?
Government National Mortgage Association Only the Government National Mortgage Association issues securities that are backed by the full faith and credit of the U.S. government. The other entities listed are agency organizations, and although their securities are considered low risk, they do not have direct U.S. government backing
Which of the following terms are associated with over-the-counter trading? - Market maker - Floor broker - Auction market - Negotiated market
Market maker Negotiated market 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
Which of the following is not a money market instrument?
Newly issued Treasury notes issued to meet a specific government-funding requirement A newly issued Treasury note would have a maturity of at least two years and would not be considered a money market instrument
Which of the following would be found in the final prospectus but not the preliminary prospectus?
Public offering price The public offering price (POP) may be adjusted during the cooling-off period and so will not appear in the preliminary prospectus. However, the red herring may include an estimated range for the POP
An exchange is part of what market?
Secondary market Exchanges provide a central trading location for investors to purchase and sell securities as part of the secondary market. The OTC and third market are other portions of the secondary market
A holder of the following certifications would qualify as an accredited investor based on certain professional designations except - Series 82 - Series 65 - Series 7 - Series 6
Series 6 The limited securities representative (Series 6) is not on the list of certifications that meet the criteria. The Series 7, 65, and 82 licenses are
Which of the following describe a securities exchange? - Prices are set by negotiation between interested parties - The highest bid and the lowest offer prevail - Only listed securities can be traded - Minimum prices are established at the beginning of the day
The highest bid and the lowest offer prevail Only listed securities can be traded An exchange is not a negotiated market but an auction market in which securities listed on that exchange are traded. No minimum price is set for securities. Rather, the highest bid and the lowest offer prevail
If the SEC has cleared an issue, which of the following statements is true?
The issuer has filed a standard registration statement The SEC does not approve, disapprove, endorse, or guarantee a registration statement's accuracy
Which of the following is not found in the final prospectus?
The issuers future earnings You can't provide future earnings because they are in the future. The other items listed are all requirements of both the preliminary and the final prospectus
Which type of marketable security pays semiannual interest?
Treasury bond Marketable securities are traded in the secondary market. T-bonds are marketable debt and pay interest semiannually. Series HH and EE bonds are not marketable. Treasury bills issue at a discount and mature at par
When do secondary market trades of corporate securities settle?
Two business days after the trade Corporate securities settle on the second business day following the trade (T+2)
Which of the following entities does not issue municipal bonds?
U.S. government Municipal securities are issued by governments other than the federal government. States, counties, cities, school districts, agencies, and authorities are all examples of municipal issuers
An investor would like to make a long-term investment in a debt security whose duration is equal to its maturity. Which of the following AAA-rated bonds should his registered representative recommend?
XYZ zero-coupon bond maturing in 15 years The simplest definition of duration is that it is the time it takes for a bond's cash flow (interest payments) to equal the maturity value. Because there is no cash flow from a zero-coupon bond, its duration is equal to its maturity. Because the question says "long-term," we're not going to choose an 8-month maturity over a 15-year one
When a brokerage firm acts as a principal in a transaction with a customer it is acting as
a dealer When acting as a principal in a transaction, a BD is acting as a dealer, buying or selling out of its own inventory
As a registered representative you know that red herring is another term for
a preliminary prospectus The term red herring is derived from the disclaimer printed in red on the cover page of a preliminary prospectus. Some key information that would be found in a final prospectus, such as price, is not found in the preliminary prospectus
Commercial paper is
a promissory note issued by a corporation A corporation issues commercial paper as a short-term, unsecured promissory note
Offerings of a security through a private placement requires that the customer receive
an offering circular Private placements, Regulation A offerings, and many other exempt securities must still provide a disclosure document commonly called an offering circular
Sales of exempt securities under Regulation A require the distribution of
an offering circular Regulation A requires the use of an offering circular
Although municipal securities are exempt from SEC registration, disclosure must still be provided through
an official statement The disclosure document for a new municipal bond issue is the official statement (OS). It is the equivalent of a prospectus for a registered issue. A preliminary official statement (POS), equivalent to the red herring for a new stock issue, may have preceded the OS
Money market instruments guaranteed by a bank that are used to provide capital for exporters to foreign countries are called
banker's acceptances BAs provide short-term financing for importers and exporters
The Conduct Rules apply to a transaction
between member firms and members of the public The Conduct Rules apply directly to all transactions between FINRA member firms and members of the public
If the RST Corporation has issued several different debt securities, an investor would expect the lowest income stream from RST's
convertible debentures Although convertible debentures have many positive features for the investor, the major negative is that, in exchange for those benefits, the investor accepts a lower rate of interest
A customer requests information on a variable life insurance policy and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is
not permitted The prospectus is a legal document and may not be altered
Under the Conduct Rules, all of the following actions violate fair and ethical treatment of customers except
recommending that a customer set up a scheduled investment program, depositing the same amount each period regardless of market value Encouraging a customer to invest according to a schedule is perfectly lawful
If a customer fails to pay for XYZ mutual fund shares within the required amount of time, the broker-dealer may
sell the securities and charge the customer for any loss If the customer fails to pay for the shares, the broker-dealer may liquidate them to pay transaction costs. Any gain or loss is settled between the broker-dealer and the customer because the order has been executed and cannot be canceled
If your firm is in the process of underwriting a new issue, sales literature, including a record of past performance, may be included in a mailing of
the final prospectus No literature may accompany a preliminary prospectus or red herring. All such information may only be used with a final or statutory prospectus
Under the Uniform Practice Code, regular way transactions for common stock settle on
the second business day following the trade date Under the Uniform Practice Code, regular way trades settle two business days after the trade date (T+2). Cash settlement for a trade occurs on the same day as the trade date
All of the following are characteristics of an investment in Treasury notes except - they are issued in various denominations - they are issued with a variety of maturities - they are short-term issues - interest is paid semiannually
they are short-term issues Treasury notes sell at par and pay semiannual interest. Their maturities vary from 2 to 10 years and are, therefore, intermediate term, not short term
A customer purchases $50,000 worth of 10% corporate bonds at par. At the end of the day, the bonds close down a half point. The customer has a loss of
$250 The customer holds fifty $1,000 bonds. One bond point equals $10. Therefore, if each bond decreases by a half point, the loss is $5 per bond; multiplied by 50 bonds, this equals $250
Under which of the following circumstances is an investor in a position to acquire stock? - Buy a call - Buy a put - Sell a call - Sell a put
- Buy a call - Buy a put - Sell a call - Sell a put The holder of a call has the right to buy stock at the strike price if exercised. The seller of a put is obligated to buy stock at the strike price if exercised
Which of the following statements regarding the differences between Rule 506(b) and Rule 506(c) of Regulation D of the Securities Act of 1933 are true? - Rule 506(c) offerings can be advertised, while Rule 506(b) offerings cannot - Rule 506(c) offerings are limited to 35 nonaccredited investors, while Rule 506(b) offerings do not have a limit - The bad actor provisions only apply to Rule 506(c) offerings - Rule 506(c) offerings are limited exclusively to accredited investors, while nonaccredited investors can participate in Rule 506(b) offerings
- Rule 506(c) offerings can be advertised, while Rule 506(b) offerings cannot - Rule 506(c) offerings are limited exclusively to accredited investors, while nonaccredited investors can participate in Rule 506(b) offerings As long as the offering is limited exclusively to accredited investors, Rule 506(c) offerings may be publicly advertised. Rule 506(b) offerings can never be advertised. The limit of 35 nonaccredited investors applies to Rule 506(b). There is no limit on the number of accredited investors for either rule. This is an example of a question that draws on your knowledge from the Securities Industry Essentials Exam. There are few such questions on the Series 6 exam, but they do exist
Which of the following securities are exempt from registration under the Securities Act of 1933? - Short term notes with maturities of less than 270 days - Banker's acceptance for use in import/export trading - Commercial paper issued by a listed corporation - All of these
- Short term notes with maturities of less than 270 days - Banker's acceptance for use in import/export trading - Commercial paper issued by a listed corporation All of these are examples of exempt securities under the act
Mr. Garcia purchased 100 shares of the Sierra Verde Coffee Company at $37 a share. Over the course of a year the stock paid a $0.10 a share dividend and the shares dropped to $35 a share. What is the total return for this transaction?
-4.3% The formula for calculating capital gains is income received plus gains (or minus losses) divided by cost basis equals total return. In this example, (0.4 - 2) / 37 = -1.6/37 = -4.3%
Which of the following bond prices would fluctuate the most if the interest rates fell?
20-year mortgage bond with duration of 16 Generally speaking, the rule of thumb is that bonds with long-term maturities will have greater fluctuations in price than will short-term maturities, given the same move in interest rates. What we need to pay attention to here is not the original maturity of the bond but how much time is left. The truest measure of sensitivity (volatility) is the bonds' duration and the greater the duration, the greater the fluctuation in price when interest rates move
Which of the following is allowed during the cooling-off period?
A preliminary prospectus may be given to prospective investors During the minimum 20-day cooling-off period, tombstone ads may be published, and a preliminary prospectus, also known as a red herring, may be distributed to prospective investors. Sales literature may not be distributed and indications of interest are not binding on either the investor or broker-dealer. No money may be brought in
A registered representative is hosting a seminar to solicit sales of a specific mutual fund. He has highlighted features of the fund in the prospectuses he will hand out and has prepared summary sheets of the prospectus for distribution. Regarding this situation, which of the following statements are true? - It is acceptable to highlight the key points in the prospectus - A prospectus may not be highlighted - Distributing summary sheets of a prospectus is acceptable - The representative may not distribute summary sheets of the prospectus
A prospectus may not be highlighted The representative may not distribute summary sheets of the prospectus The registered representative may neither highlight portions of the prospectus nor distribute a summary sheet
In order for an individual to meet the requirements to be an accredited investor they must meet how many of the criteria listed in Regulation D?
One of the criteria An investor only needs to meet one of the criteria for individual investors listed in the regulation
A best efforts underwriting in which the entire issue must be sold or the entire offer is cancelled is called what?
All-or-none In a best efforts underwriting where the entire offer must sell or be cancelled is called an all-or-none underwriting
Which of the following is permitted during the cooling-off period?
Obtain indications of interest A preliminary prospectus may be used to gather indication of interest. No orders may be taken and the SEC never approves an offer
Your customer is interested in a soon-to-be-issued revenue bond sold by the Piute County municipal water district. Which of the following would you send to the customer?
Official statement The standard disclosure document in a municipal offering is called an official statement
The managing underwriter has indicated that it is unlikely the issuer can sell $100 million of common stock to the public. In which of the following types of offerings does a syndicate have no financial obligation for unsold securities?
Best efforts In a best efforts underwriting, the underwriter serves as an agent with no financial obligation for unsold securities. In a standby underwriting, the underwriter agrees to purchase any unsold shares remaining after the expiration of a rights offering (firm commitment)
All of the following are exempt issuers under the Securities Act except - South Utah Community Charitable Foundation - Camping Superstore, Inc - City of Salt Lick - First National Bank of Arizona
Camping Superstore, Inc Corporations are not exempt issuers. Banks, municipalities, and charities are examples of exempt issuers
Duration would not be a consideration when evaluating which of the following investments?
Common stock Duration measures the time in years it takes for a bond or other debt instrument to repay its cost through internal cash flows (basically the interest). Common stocks don't have an interest payment and duration is not applicable
Which of the following is not a term associated with securities issued as part of a Regulation D offering?
Cooling-off period A normal registration process includes a cooling-off period; Regulation D private placements do not have a cooling-off period. Private placement, lettered, and legend stock are all terms used for these issues
Which of the following must be filed with the SEC to raise capital in a private placement?
Form D Private placements are exempt transactions under Regulation D of the 1933 Act. The regulation requires an issuer to file Form D for the exemption. An S-1 registration statement is required for non-exempt offerings. Letters of intent are between an issuer and an underwriter. Form 1-A is filed for Regulation A offerings
Which of the following actions are the responsibility of an investment bank? - Distributing large blocks of stock to the public and to institutions - Selling previously unissued securities to an issuer and buying them from the public - Raising long-term capital for corporations by underwriting new issues of securities - Lending money to corporate customers that require debt financing
Distributing large blocks of stock to the public and to institutions Raising long-term capital for corporations by underwriting new issues of securities An investment banker buys previously unissued securities from an issuer and sells them to the public. It does not lend money to corporate customers that require debt financing. Commercial bankers lend money; investment bankers help issuers raise money through securities offerings
Your customer feels overburdened with taxes and would like relief. After you discuss the ABC Municipal Bond Fund with her and advise her of the tax treatment of the distributions, which of the following statements would be the correct advice?
Dividends are federally tax exempt, but capital gains are subject to taxation Dividends from municipal bond funds are tax exempt because they represent tax-exempt interest paid to the portfolio; capital gains distributions are taxable
All of the following statements regarding Government National Mortgage Association (GNMA) pass-through securities are true except - GNMAs are considered to be the riskiest of the agency issues - investors receive a monthly check representing both interest and a return of principal - investors own an undivided interest in a pool of mortgages - interest is taxed at all levels—federal, state, and local
GNMAs are considered to be the riskiest of the agency issues GNMA securities, which are backed by the full faith and credit of the U.S. government, are considered to be the safest of the agency issues
Which of the following activities may take place during the cooling-off period?
Gather indications of interest Gathering indications of interest is one of the allowed activities during the cooling-off period. No monies may be collected during the cooling-off period. The final prospectus is not available until the close of the cooling-off period
If a customer expressed interest in a revenue bond issued by the City of Junction, Utah, a representative would provide the customer with which of the following?
Official statement The standard disclosure document in a municipal offering is called an official statement. In corporate issues it is normally called a prospectus (preliminary or final). For other exempt offerings the most common term is offering circular
Which of the following statements describe the Securities Exchange Act of 1934? - It created the SEC - It requires registration of broker-dealers with the SEC - It provides for registration of new issues - It regulates the activities of investment advisers
It created the SEC It requires registration of broker-dealers with the SEC The Securities Exchange Act of 1934 (the people act) requires registration of people and exchanges transacting securities business in order to prevent manipulative and deceptive practices. The Act of 1934 also created the SEC and mandated the creation of SROs
Which of the following is never found in a preliminary prospectus?
One year price targets Nothing that looks like an investment prediction will be in a disclosure document like a prospectus. The preliminary prospectus may include a projected range for the POP. This projected POP range may change during the cooling-off period. The planned use of the funds and the company's financials will always be in the preliminary prospectus
Which of the following certifications would qualify an individual as an accredited investor?
Series 7 Holders in good standing of the Series 7, Series 65, and Series 82 licenses are considered accredited investors. It is expected that FINRA will add to this list in the future but has not yet done so
Regarding settlement of a customer's trade through a broker-dealer, which of the following statements are true? - Standard settlement is regular way - The customer is requested to meet Regulation T requirements - Standard settlement is cash settlement - The customer is required to meet Regulation T requirements
Standard settlement is regular way The customer is required to meet Regulation T requirements Standard settlement of a trade is regular way. Cash settlement is a settlement that would need to be requested from the broker-dealer and granted by the broker-dealer. The customer is required to meet Regulation T requirements (S+2)
All of the investors below are interested in purchasing a stock offered in a private placement. Which one would not be considered an accredited investor? - Chris, who has had an annual income of $200,000 for the past two years, and is expecting that to continue this year - The Cucamonga Community Foundation, a local charitable foundation - The Langfords, a married couple, who have had a combined annual income of $250,000 over the past few years - The Garcias, a married couple with a liquid net worth of $1,200,000
The Langfords, a married couple, who have had a combined annual income of $250,000 over the past few years Institutions are normally considered accredited investors. Individuals are accredited if they have a net worth of greater than $1,000,000 (not including equity in a primary residence) or an income of $200,000 for the past two years and expect the same in the current year. If the customer is a joint purchaser, the income must be $300,000
Three 3% bonds are listed in the newspaper. One bond will mature in one year, another bond will mature in 10 years, and the third bond will mature in 20 years. If interest rates are going up, which bond will have the greatest decrease in value?
The bond with the 20-year maturity Long-term bonds have the greatest interest rate risk. A bond with only 1 year to maturity will trade very close to par
To which securities market does the Securities Act of 1933 apply?
The new issue market The Securities Act of 1933 covers the registration and disclosure requirements regarding new issues. The new issue market is also known as the primary market
If a customer expressed interest in a GO bond issued by the Piute County School District, a representative could provide the customer with which of the following?
The official statement The standard disclosure document in a municipal offering is called an official statement. In corporate issues it is normally called a prospectus (preliminary or final). For other exempt offerings the most common term is the offering circular
A registered representative tells a customer that by investing in government bonds, he is guaranteed to make money. Under the Conduct Rules, which of the following statements is true?
This is a violation because it constitutes a guarantee against market risk Government bonds are guaranteed to pay interest and principal, but they do carry market risk. It is fraudulent to indicate to a client that he is guaranteed against loss
A popular asset found in the portfolio of money market mutual funds is commercial paper. The most common issuer of commercial paper is
corporations Commercial paper, a money market instrument, is issued by corporations
Each of the following situations represents a potential violation by a registered representative except
disclosing material information about an investment to a client Disclosing material information about an investment is a registered representative's responsibility. Beyond that, recommendations must be tailored to meet the needs of individual customers
One of the most important functions of a banker's acceptance is its use as a means of
facilitating trades in foreign goods A banker's acceptance is a time draft typically used to facilitate an overseas trading venture. It is guaranteed by a bank on behalf of a corporation in payment for goods or services
All of the following may be found in a red herring except
final offering price The final offering price is not available until the effective date, though the preliminary prospectus may include a projected range for the POP. This projected POP range may change during the cooling-off period. The planned use of the funds and the company's financials will always be in the preliminary prospectus
The Securities Act of 1933 addresses
full and fair disclosure The Securities Act of 1933 requires a prospectus and registration statement disclosing the relevant facts concerning a new issue to be filed with the SEC. The act further requires a prospectus to be distributed before or during a solicitation for sale so that a prospective purchaser will be fully informed and fairly treated
A preliminary prospectus is used to solicit
indications of interest before the effective date A preliminary prospectus cannot be distributed before the registration date. Between the registration and effective dates, it is used to solicit or gauge indications of interest. After the effective date, sales can be solicited and a final prospectus would be available and must be used to do so
The record date
is set by the issuing corporation to determine which stockholders will receive a declared dividend The record date is set by the corporation, at which time a list of stockholders who will receive a dividend is compiled. Ex-date rules are heavily covered in the SIE. Keep that SIE material handy for these basic industry questions
DMF Company has convertible bonds (convertible at $50) outstanding. The current market value of DMF's stock is $42. The bond indenture contains an antidilution feature. If DMF declares a 10% stock dividend, the new conversion price will be
lower than $50 With an antidilution feature, the issuer will increase the number of shares available upon conversion if the company declares a stock split or stock dividend. This is done to keep the bondholder whole. Originally, the bond converts to 20 shares ($1,000 ÷ 50). Because of the 10% stock dividend, the bond needs to convert to 22 shares, which means that the conversion price is reduced to $45.45 ($1,000 ÷ 22 = $45.45)
A preliminary prospectus
may be used to gather indications of interest A preliminary prospectus, or red herring, is prepared after the filing of a registration statement with the SEC. It is the only item allowed to be given to prospective investors while gathering indications of interest during the cooling-off period. Sales literature may accompany a final prospectus but may not accompany a red herring
A preliminary prospectus (red herring)
may be used to gather indications of interest The preliminary prospectus (red herring) can be used as a prospecting tool, allowing issuers and underwriters to gather nonbinding indications of interest. It must be made available and is intended to be distributed to any customer who expresses interest in the securities during the cooling-off period. There is no final price shown in a preliminary prospectus
During the cooling-off period of a securities registration, the underwriters will generally distribute a preliminary prospectus. This document - may contain incomplete information - will not contain the effective date - may be used to solicit indications of interest, as long as payment of postdated checks only is accepted - may be accompanied by a special report on the security, prepared for the occasion by the underwriter's research department
may contain incomplete information will not contain the effective date A preliminary prospectus is frequently called a red herring. This is due to the statement, printed in red ink, that information contained therein may undergo change, completion, or amendment. The effective date is found in the final prospectus only. No payment of any kind may be accepted from potential investors, and special research reports or other promotional material on the new issue are prohibited
When an order is accepted to purchase mutual fund shares, that order
must be reviewed by a principal All orders received by a registered representative must be reviewed by a principal of that firm. Once executed, an order cannot be canceled
All of the following are money market instruments except
newly issued Treasury bonds Money market securities are high-quality debt instruments with a maximum maturity of 1 year. Treasury bonds are high quality but issued with maturities of more than 10 years. All the other securities listed are both high quality and issued with maturities of 1 year or less
The disclaimer stating that the SEC does not approve or disapprove of a securities issue must appear
on the cover of the prospectus The SEC disclaimer, which states that the SEC does not approve or disapprove an issue of securities, must appear on the cover of a prospectus in bold print. This disclaimer is not required on public communications
State securities laws allow for the sale of securities under all of the following methods except
protestation The three methods of legally selling a security in a given state are qualification, coordination, and a notice filing. No amount of protestation will change this fact
An investor has secured bonds maturing in two weeks. He plans to purchase some unsecured bonds he has identified on the secondary market that have a 6% coupon rate. If interest rates decline before the investor can purchase the new bonds, he can expect the income he will receive from the new bonds to
remain at $60 per year Fluctuations in interest rates will affect a bond's price but will not affect the bond's payable interest. The percentage interest payable for use of money is stated on the face of a bond and is part of the bond indenture, a legal obligation on the part of the issuing company
All of the following activities may occur while a security is in registration except
send advertising information "In registration" is another term for the cooling-off period. Gathering indications of interest, distribute the preliminary prospectus (red herring), and publish a tombstone are allowed activities during the cooling-off period. Disseminating advertising is not allowed
During the cooling-off period a registered representative may
solicit indications of interest before the effective date A preliminary prospectus (red herring) cannot be distributed before the registration date. Between the registration and effective dates, it is used to solicit or gauge indications of interest. After the effective date, sales can be solicited and a final prospectus would be available and must be used
All of the following would be found in a final prospectus except
the SEC approval date The SEC does not approve a new issue, though they do release it for sale. The other items listed are requirements for the final prospectus
The Securities Act of 1933 requires securities issued by all of the following to register and be subject to prospectus provisions except - the U.S. government - investment companies - corporations involved in interstate commerce - foreign governments with which the United States maintains diplomatic relations
the U.S. government The Securities Act of 1933 does not require U.S. government securities to be issued by prospectus. The act covers the issuance of securities by companies engaged in interstate commerce. Investment company shares must be sold by prospectus. The exemption for securities issued by foreign governments is found in the Uniform Securities Act, not federal law
In describing GNMAs to a potential investor, you could correctly tell him that
the certificates are backed by the full faith and credit of the U.S. government The certificates issued by the GNMA represent interests in government-insured mortgages pooled by mortgage brokers who guarantee the monthly cash flow, but it is the U.S. government that actually backs GNMA pass-through certificates. GNMA pass-through securities are issued in minimum denominations of $25,000, and all interest earned is subject to federal income tax, as well as state and local taxes
All of the following statements regarding Treasury STRIPs are true except
the interest is taxed as a capital gain The interest on the bond is paid at maturity, but it is taxed as interest income over the life of the bond, not as a capital gain
An investor in a private placement must sign a letter stating that
the investor intends to hold the stock for investment purposes only Regulation D requires that the investor sign a letter stating that they intend to hold the securities for investment purposes. The stock may not be transferred for a period of at least six months
Under Rule 506(c) of Regulation D, advertising is permitted when
the issue is limited to accredited investors Rule 506 of Regulation D of the Securities Act of 1933 has two parts. Rule 506(b) prohibits any advertising of the private placement, while Rule 506(c) permits it. The primary condition to be met is that the issue is offered solely to accredited investors. It is Rule 506(b) that has a limit of 35 nonaccredited investors, but that has nothing to do with the advertising restriction. Regulation D applies to issuers, not broker-dealers, so there is no principal to go to for approval. In the same vein, because issuers are not FINRA members, filing with FINRA is irrelevant
T-bills are direct obligations of the U.S. government and - are issued at par - trade in the secondary market - are redeemable - are issued at a discount
trade in the secondary market are issued at a discount T-bills are short-term obligations and, unlike most other debt securities, are issued at a discount from par. Once they are issued, T-bills trade in the secondary market
An agent may deliver a preliminary prospectus for an IPO
while the issue is in registration A preliminary prospectus, or red herring, may be distributed during the registration period for a new security. It is only for the purpose of obtaining indications of interest, not soliciting sales. It is not a final sale document
