Series 7 - Final 1
A customer buys 5M of 3 1/2% Treasury Bonds at 101-16 The customer will pay how much for the bonds?
$5,075 The purchase price is 101-16 = 101 16/32nds = 101.5% of $5,000 = $5,075
100 basis points equals:
1% One basis point equals .01%, so 100 basis points equals 1%
The maximum amount of a customers securities that can be rehypothecated by a broker is:
140% of the debit balance
A customer, age 30, has an investment objective of capital appreciation; but does not need current income. The BEST asset allocation mix to recommend to this customer is: A. 100% common stocks B. 50% common stocks; 50% bonds C. 10% common stocks; 90% bonds D. 100% bonds
A. 100% common stocks A customer who has an objective of growth; and is not concerned with current income; would invest the majority of funds in common stocks; principally growth stocks. The risk associated with such a strategy is that either the stock market takes a dive; taking these stocks with it; or that some of these companies "lose their way" and perform poorly.
Common shares of which of the following issuers are likely to have a Beta coefficient much higher than +1? A. Semi-conductor manufacturer B. Pharmaceutical manufacturer C. Public utility D. Food processor
A. Semi-conductor manufacturer
Establishing the structure of a portfolio to meet specific financial goals is called: A. Strategic allocation B. Tactical allocation C. Rebalancing D. Risk adjustment
A. Strategic allocation
In order to open a new account for a customer that wishes to buy IPOs, the: A. customer must sign a representation letter B. registered representative must sign a representation letter C. Branch manager must sign a representation letter D. all of the above
A. customer must sign a representation letter
Fidelity bonds are maintained by brokerage firms to protect loss due to: A. embezzlement by employees B. catastrophic events C. severe market volatility D. regulatory changes
A. embezzlement by employees FINRA requires brokerage firms to maintain fidelity bond coverage to protect against loss due to securities loss, employee theft, or embezzlement of funds.
An investor has a broadly diversified portfolio of blue chip stocks. The use of index options to hedge the portfolio reduces: A. systematic risk B. non-systematic risk C. interest rate risk D. timing risk
A. systematic risk Index options can be used to hedge a portfolio. If index puts are bought, then a drop in the market lowering the portfolio's value will be offset by a gain in the value of the index puts. This strategy hedges against market risk, also known as systematic risk. Non systematic risk is the risk that any one security will perform poorly. The larger the portfolio, the lower the effect of non-systematic risk. Timing risk is the risk that trades will not be performed at the best market prices; interest rate risk is the risk that interest rates rise, forcing bond prices and stock prices down.
The designated Registered Options Principal is responsible for all of the following functions EXCEPT: A. approval of options advertising B. approval of options accounts C. writing of procedures for supervision of options accounts D. review of procedures for supervision of options accounts
B. approval of options accounts
The Bank of England is concerned that the British Pound is weakening against the U.S. Dollar. A method for the bank of England to strengthen its currency would be to: A. raise British interest rate levels B. lower British interest rate levels C. raise U.S. interest rate levels D. lower U.S. interest rate levels
B. lower British interest rate levels It can do nothing about U.S. interest rate levels.
A registered representative at a municipal securities firm receives a written complaint from a customer regarding a purchase of municipal bonds. The registered representative should: A. attempt to resolve the complaint prior to taking any other action. B. notify the municipal securities principal prior to taking any action. C.notify the municipal securities rulemaking board prior to taking any action. D. notify the SEC prior to taking any action
B. notify the municipal securities principal prior to taking any action. Written customer complaints should be resolved. The MSRB requires that every customer complaint be given to the principal for review and resolution.
In a firm commitment underwriting, the underwriter is acting as a(n): A. agent B. principal C. intermediary D. specialist (DMM)
B. principal
The "right of reclamation" in a municipal bond sale refers to the: A. refusal by municipal dealer to accept the delivery of bonds tendered to that firm by another municipal securities dealer. B. return of municipal securities that have been previously accepted on a delivery C. procedure where a municipal dealer that bought securities, but has not yet received them, can close-out the trade D. if the dealer does not have the monies, the delivery may be rejected
B. return of municipal securities that have been previously accepted on a delivery
The lowest investment grade rating is:
Baa A bond's rating becomes speculative when it falls BELOW BBB or Baa rating, so these are the lowest investment grades.
The interest rate that fluctuates the least is the: A. Federal Funds Rate B. Call loan rate C. Passbook savings rate D. London Interbank rate
C. Passbook savings rate The federal funds rate changes day to day, as does the London Interbank rate. Call loan rates also vary with the current level of interest rates.
All of the following must be registered under state blue sky laws EXCEPT: A. Sales Representatives B. Broker-Dealers C. U.S. Government Issues D. Real Estate Investment Trust Issues
C. U.S. Government Issues Issues that are exempt from registration under Federal laws are also exempt under state laws, so U.S. Governments do not have to be registered with the state. However, sales reps, broker-dealers, and non-exempt issues (REITS) must be registered.
A limited partnership account is being opened at your firm. The general partner has provided the partnership tax ID number and has signed the appropriate paperwork. What other documentation is needed to open the account? A. social security numbers of each limited partner B. signature of each limited partner C. certificate of limited partnership D. authorizing resolution
C. certification of limited partnership
Which of the following annuity payment options will continue payments to another person for their life after the annuitant dies? A. life annuity B. life annuity with period certain C. joint and last survivor annuity D. unit refund annuity
C. joint and last survivor annuity
Which statement is TRUE when a short sale is effected for a client? A. the broker-dealer can require the short seller to provide the stock to the lender within 3 business days. B. the broker-dealer can require the short seller to provide the stock to the lender within 5 business days. C. the broker-dealer can require the short seller to provide the stock to the lender at any time. D. the broker-dealer can require the short seller to provide the stock to the lender only when the client has a loss.
C. the broker-dealer can require the short seller to provide the stock to the lender at any time.
A new client with no other investment assets has just come into an inheritance of $500,000 of ABCD stock, a blue chip company listed on the NYSE. As the adviser to this customer, your IMMEDIATE concern should be: A. whether the company is a candidate for delisting B. the possibility that the value of the stock may decline C. the lack of diversification of the customer's investment D. whether the customer paid any estate tax liability due
C. the lack of diversification of the customer's investment
Customers A, B, C and D have their portfolio assets allocated as follows: A B C D Money Markets 15% 5% 5% 0% Treasury Bonds 40% 10% 20% 20% Speculative Bonds 10% 30% 10% 30% Blue Chip Equities 15% 15% 20% 10% Small Cap. Equities 10% 10% 30% 5% Emerging Markets 10% 20% 10% 30% REITs 0% 10% 5% 5% Which customer's portfolio is MOST susceptible to political risk?
Customer D Political risk is only associated with making foreign investments in developing Third World countries where the political and legal systems are not strong. These weak governments can be overthrown, and the new governments can "nationalize" private industry, giving the shareholders essentially "nothing" for their investment. Since Customer D has the greatest percentage of assets invested in Emerging Markets stocks, this investor is most susceptible to political risk.
Which index is the narrowest measure of the market? A. Wilshire Index B. Value Line Index C. NYSE Composite Index D. Dow Jones Industrial Average
D. Dow Jones Industrial Average the DJIA consists of 30 stocks. This is the narrowest measure of the market. Value Line = 1700 issues NYSE = 2500 issues Wilshire = 3500 issues
All of the following investment company terms are synonymous EXCEPT: A. Bid B. Redemption Price C. Net Asset Value D. Offering Price
D. Offering price Bid, redemption price, and net asset value are all the same terms for mutual fund shares.
Which of the following is NOT required to be disclosed when a brokerage firm makes a securities recommendation? A. whether the firm is an investment banker for that issuer B. whether the firm is a market maker for that issuer C. whether the firm's officers own that issuer's securities D. Whether the issuer's employees own that issuer's securities
D. Whether the issuer's employees own that issuer's securities
All of the following are terms that describe economic indicators EXCEPT: A. leading B. lagging C. coincident D. convergent
D. convergent Economic indicators either lag the economy, lead the economy; or are coincident with the economy. There is no such thing as a convergent indicator.
A head and shoulders "bottom" formation is a(n): A. uptrend B. downtrend C. reverse upward trend D. reverse downward trend
D. reverse downward trend A head and shoulders bottom formation is bullish since the market has bottomed out and is now moving back upwards. It is a downtrend that has reversed itself.
A corporate issuer declares a reverse stock split. After the split is effected, which of the following statements are TRUE? I. the market price of the corporation's shares will increase II. the market price of the corporation's shares will decrease III. the reported earnings per share will increase IV. the reported earnings per share will decrease
I and III
Which statements are TRUE about banks that have customer accounts holding both exempt and non-exempt securities? I. The bank must be registered under Securities Exchange Act of 1934 II. The bank does not need to be registered under Securities Exchange Act of 1934 III. The bank must be a member of the Securities Protection Corporation IV. The bank does not need to be a member of the Securities Investor Protection Corporation
I and III
Which statements are TRUE? I. Short information is found within EMMA II. EMMA information is found within SHORT III. RTRS information is found within EMMA IV. EMMA information is found within RTRS
I and III EMMA stands for Electronic Municipal Market Access. The EMMA web portal, makes available to the investing public: -Official statements -Real time reporting of muni bond trades -Real time reporting of muni note trades
Which statements are TRUE about stabilizing bids? I. A stabilizing bid is placed by the syndicate manager II. A stabilizing bid is placed by each syndicate member III. Only 1 stabilizing bid is permitted at a time IV. Any number of stabilizing bids can be placed at a time
I and III Only 1 stabilizing bid is permitted at a time. The manager of the syndicate places the stabilizing bid on behalf of the syndicate.
The Vice President of ACME Corporation, an NYSE listed firm, places an order to buy 10,000 shares of ACME common at the market. 3 months later, ACME stock's price has increased by 20% and the officer places an order to sell. Which statements are TRUE? I. the sale of the stock is subject to rule 144 II. the stock cannot be sold unless it's been held and fully paid for 6 months. III. the sale is prohibited IV. the officer must forfeit the profit on the sale
I and IV only
An officer of a company has been invited by a large mutual fund company to give a talk to the fund company's analysts about its business plans and prospects. At the talk, the officer inadvertently discloses material information that could affect the stock's price. Which statements are TRUE? I. A public announcement of the news must be made within 24 hours. II. A public announcement of the news must be made within 10 business days. III. The company must file an 8K with the SEC disclosing the information IV. The company must file an 10K with the SEC disclosing the information
I or III
Federal Reserve actions can directly influence which of the following? I. Discount Rate II. Federal Funds Rate III. Money Multiplier IV. Money Velocity
I, II, III, IV
Which of the following economic events would have a negative long term impact on common stock prices? I. Rising interest rates II. Rising capital gains tax rates III. Rising employment rates IV. Rising inflation rates
I, II, IV
An elderly customer seeking extra income who has $100,000 to invest could be recommended which of the following? I. The $100,000 purchase of a variable annuity II. The $100,000 purchase of dividend paying blue chip stocks in a cash account against which calls are sold III. The $200,000 purchase of dividend paying blue chip stocks at 50% margin in a margin account IV. The $100,000 purchase of Treasury bonds
II and IV
A company's common stock is selling in the market at a "multiple" of 15. If the market price of the common stock is currently $15, what is the earnings per share?
$1.00 When a stock is selling at a "multiple" of 15, this means that the market price is 15 times the current earnings per share. Since the market price is at $15, and the P/E ratio is 15, earnings per share is $1.00.
In 2017, a customer earns $400,000 as a self-employed doctor, and contributes the maximum permitted amount to a Keogh plan. The doctor has a full-time nurse earning $40,000 per year. The contribution to be made for the nurse is: A. $0 B. $2,500 C. $3,000 D. $10,000
$10,000 If an employer earns $270,000 or more and contributes the maximum amount of $54,000 to a Keogh for 2017, then 25% of "after Keogh earnings" is used to compute the percentage to be contributed for employees. $270,000 - $54,000 = $216,000 $54,000/$216,000 = 25%, thus $40,000 x 25% = $10,000
A customer buys 100 shares of ABC stock at $58 and buys 1 ABC Jul 55 Put @ 2.50 on the same day. The breakeven point is:
$60.50 Long Stock/Long Put Breakeven = Stock Cost + Premium
A customer buys 10M of Allied Corporation 12% debentures, M '29, at 90 on Monday, Oct 8th. The interest payment dates are Feb 1 and Aug 1. The trade settled on Tuesday, Oct 11th. The amount of the next interest payment will be:
$600 10M stands for 10 - $1,000 bonds (M is latin for $1,000) = $10,000 face amount of bonds. The bonds pay 12% interest annually. 12% of the $10,000 is $1,200. However, the question asks how much will be received in the next payment. Since bonds pay interest semi-annually, the amount received per payment is $600.
In November, a customer sells 1 ABC Jan 60 Call @ 7 when the market price of ABC is $61. The breakeven point for the position is: A. $63 B. $64 C. $67 D. $68
$67 Short call breakeven = Strike Price + Premium
ABC Jan 50 call contracts are trading in the market at 3.40. What is the dollar price that a customer would pay for 2 contracts at this price?
$680 The premium of 3.40 x 2 = 680
A customer sells 1 ABC Jan 50 Call @4 and sells 1 ABC Jan 50 Put @3 when the market price of ABC = $51. The maximum potential gain is:
$700 The customer has sold a put and a call on the same stock with the same price and same expiration. This is a short straddle. If the market does not move from $50, both the call and put expire "at the money" and the $700 premium is paid.
A customer sells 1 ABC Jul 45 Put at $9 when the market price of ABC is $38. The market falls to $28 and the customer is assigned. The customer then sells the stock in the market. The loss is:
$800 When exercised, the writer must buy the stock for $45. He then sells the stock at $28 for a loss of 17 points. Since 9 points was collected as premiums, the net loss is 8 or $800.
A customer sells short 100 shares of DEF stock at $82 per share. The stock falls to $71, at which point the customer writes 1 DEF Sep 70 Put @4. The stock falls to $62 and the put is exercised. The customer has a gain per share of:
16 points. The customer sold the stock short at $82 per share (sale proceeds). Later, the customer sold a Sept 70 Put @ 4 on this stock. If the short put is exercised, the customer is obligated to buy the stock at $70 per share. Since the customer received $4 in premiums when the put was sold, the net cost to the customer is $66 per share for the stock (this is the cost basis in the stock for tax purposes). The stock that has been purchased is delivered to cover the short sale, closing the transaction. The customer's gain is: $82 sale proceeds - $66 cost basis = 16 points.
Contributions to a Coverdell Education Savings Account must cease when the beneficiary reaches the age of :
18
Under FINRA rules to find the best available market in an OTC security, over-the-counter trades are obligated to obtain at least:
3 quotes
A company has 1,000,000 shares outstanding. It plans to issue 2,000,000 additional common shares to raise funds to build a new manufacturing facility. Your client owns 50,000 shares of this company. How many rights will the customer receive?
50,000 The customer receives 1 right per shares, so he or she receives 50,000 rights.
The regular hours of operation of the NASDAQ system are:
9:30 AM - 4:00 PM ET
Which of the following are types of underwriting commitments? A. Best Efforts B. All or None C. Not Held D. Immediate or cancel
A and B Best efforts and all-or-none are types of underwriting commitments where the underwriter acts as an agent, taking no liability. "not held" is a type of order where a floor trader can exercise discretion as to price and time of execution. "immediate or cancel" is a type of order to be filled immediately in full or in part, with any unfilled balance cancelled.
Which of the following are types of Fiduciary accounts? A. custodian account B. partnership account C. joint account D. trust account
A and B only
A customer buys 1 ABC Jul 55 Call @6 and 1 ABC Jul 65 Put @6 on the same day. Just prior to expiration, the stock is trading at $63 and the customer closes the positions at intrinsic value. The customer has a net loss of: A. $200 B. $400 C. $800 D. $1,200
A. $200 The customer purchased a long combination, for a combined premium of $1,200. When the stock is at $63, the long 65 put is 2 points "in the money", resulting in a 2 point gain to the shareholder while the long 55 call is 8 points "in the money", resulting in an 8 point gain to the holder. $1,200 paid in premiums minus a net of $1,000 received = $200 loss.
On the same day in a cash account, a customer buys 100 shares of PDQ stock at $49 and sells 1 PDQ Jan 50 Call @2. The breakeven point is: A. $47 B. $48 C. $51 D. $52
A. $47 Long stock/short call breakeven: Stock cost - premium
Which statement is TRUE about selling short against the box? A. it "locks-in" a gain on the stock B. it defers taxation of a gain C. it stretches short term capital gain to long term D. it coverts ordinary income into a long term capital gain
A. it "locks-in" a gain on the stock
A customer, age 60, is looking for an investment that will provide life-long income at retirement. The BEST recommendation would be for the customer to: A. purchase a variable annuity and annuitize the separate account at retirement. B. purchase a variable annuity and take installments of a designated amount at retirement. C. invest in an income mutual fund and elect not to automatically reinvest distributions D. invest in a GNMA fund since GNMAs make monthly payments.
A. purchase a variable annuity and annuitize the separate account at retirement. The benefit of an annuity contract to an older person is the assurance of receiving income for life - however, this only happens if the customer annuitizes the contract. If the customer chooses installments, there is no guarantee of payments for life - when the money in the account is depleted, payments stop.
Authorized Stock
Authorized stock is the total number of shares that the company is "authorized" to sell.
A customer purchases $100,000 of corporate bonds at 80% in a margin account. The customer must deposit: A. $7,000 B. $16,000 C. $20,000 D. $40,000
B. $16,000 FINRA requirement is the greater 7% of face amount OR 20% of market value. The bonds are purchased at 80% of $100,000 par = $80,000. 20% of $80,000 = $16,000. 7% of $100,000 is $7,000. The greater amount is $16,000.
A waste disposal revenue bond issue is being underwritten on a negotiated basis. The offering consists of $10,000,000 par value of term bonds. The underwriter has agreed to a spread of $40.00 for each $5,000 bond. The manager has set the additional takedown at $15.00 per bond and the selling concession at $20.00 per bond. If a selling group member sells a $5,000 par value bond directly to the public, the selling group member earns: A. $5.00 B. $20.00 C. $35.00 D. $40.00
B. $20.00 When selling a bond directly to the public, a selling group member earns the selling concession of $20.00
A customer margin account shows: 100 shares of ABC @ 50 200 shares of DEF @ 60 200 shares of PDQ @ 75 Debit = $17,000 SMA = $5,000 Reg. T= 50% If the customer takes the SMA as cash, the account will be at which margin percentage? A. 25% B. 31% C. 40% D. 45%
B. 31% Long Market Value - Debit Balance = Equity 32,000 - 22,000 = 10,000
A customer wishes to open an account to fund payment of private middle school tuition. If the customer does not wish to deposit more than $2,000 per year and wishes to get a tax benefit, the best advice is for the customer to open a: A. 529 Plan B. Coverdell ESA C. Trust account D. UTMA account
B. Coverdell ESA
Prior to the opening of the options exchange, an investor wishes to place an order to sell an option contract at a premium that is higher than the previous day's close. The order type to be placed is a(n): A. at the open order B. Limit order C. stop order D. Not held order
B. Limit order The orders that are placed higher than the current market are "OSLOBS" - open sell limits open buy stops. Thus, to sell at a higher price than the current market, an open sell limit would be placed.
There is no real benefit for the manager of a pension plan to invest in which of the following securities? A. Corporate Bonds B. Municipal Bonds C. Government Bonds D. Government Agency Bonds
B. Municipal bonds Pension plans are "tax qualified" retirement plans. Earnings on securities held are tax deferred; so there is no benefit to investing in municipals, which have lower rates because their interest income is exempt from Federal corporate tax.
Which of the following is NOT defined as an "Investment Company" under the Investment Company Act of 1940? A. Face Amount Certificate Company B. Real Estate Investment Trust C. Management Company D. Unit Investment Trust
B. Real Estate Investment Trust
A customer sells stock out of his account receiving net proceeds of $28,000. The customer wishes to use the proceeds to buy ACME mutual fund shares. The fund has breakpoints of $5,000 intervals. The customer has no additional funds available for investment. You should recommend that the customer: A. reinvest $25,000 to ACME fund, and use the remaining $3,000 to buy common stocks. B. Sign a letter of intent to buy $30,000 of ACME fund C. invest an additional $2,000 in ACME fund in addition to the proceeds from the stock sale. D. refrain from investing in ACME fund until $30,000 has been accumulated
B. Sign a letter of intent to buy $30,000 of ACME fund
To handle increased trading volume in its stocks, NYSE introduced the: A. NASDAQ system B. Super Display Book system C. Order Support System D. Specialist System
B. Super Display book system
All of the following are required to sell "144" stock EXCEPT: A. seller's representation letter B. buyer's representation letter C. issuer's representation letter D. broker's representation letter
B. buyer's representation letter
At which Standard and Poor's rating is a bond considered to be speculative ("junk bond")?
BB The top 4 ratings are "investment grade" - AAA, AA, A, and BBB. Bonds below these ratings are speculative. The best speculative rating is, therefore, BB.
A customer buys 1 Swiss Fran Jan 80 Call @ 7 when the Swiss Franc is trading at 78. The contract is: I. trading at parity II. "in the money" III. "out the money" IV. "at the money"
C. "out the money" Calls go "out the money" when the market price falls below the strike price.
A customer buys a $100,000 - 30 year U.S. Government bond with 10 years left to maturity in the secondary market at 80. The customer does not elect to accrete the discount annually. At maturity, the customer will have: A. no capital gain or loss B. a $20,000 taxable capital gain C. $20,000 of taxable interest income D. $a 20,000 capital loss
C. $20,000 of taxable interest income Treasury bonds bought in the secondary market at a discount are termed "market discount bonds". There is an OPTION to accrete the discount and paying tax annually on the accretion amount at full tax rates; OR of waiting until the bond is redeemed or sold to pay the tax on the earned income.
An investor sells short 200 shares of ABC stock at $60 and sells 2 ABC Jan 60 Puts @ 4 on the same day in a margin account. The customer must deposit: A. $800 B. $2,400 C. $5,200 D. $6,000
C. $5,200 To sell stock short, initial margin is 50%. 50% of $12,000 is $6,000. No margin is required on the short puts since they are covered by the short stock position. The $800 premiums received from writing the puts is applied against the margin requirement of $6,000 for a deposit of $5,200.
A customer buys 100 shares of ABC stock at $58 and buys 1 ABC Jul 55 Put @ 2.50 on the same day. If the stock falls to $50 and the put is exercised, the customer will have a: A. $250 loss B. $300 loss C. $550 loss D. $750 loss
C. $550 loss If the stock price drops below $55, the customer will exercise the put and sell the stock (purchased at $58) at the $55 strike price. The customer will lose 3 points ($300) on the stock in addition to the $250 paid in premiums, for a total loss of $550.
All of the following securities delivers are "good' EXCEPT: A. trust securities with an assignment performed by the Trustee B. Guardian securities with an assignment performed by the legal guardian C. Custodian securities with an assignment performed by the recipient of the gift D. Partnership securities with an assignment performed by a partner designated in the Partnership Agreement
C. Custodian securities with an assignment performed by the recipient of the gift
An officer of a company has acquired shares of that issuer in the open market. If the officer wishes to sell the shares, the officer must meet all of the following requirements EXCEPT: A. filing the form 144 with the SEC B. a maximum of 4 sales per year are permitted C. the stock must be held for 6 months, fully paid D. each sale is limited to the greater of 1% of the outstanding shares; or the weekly average of the prior 4 weeks' trading volume
C. the stock must be held for 6 months, fully paid
All of the following paperwork is required for trades to be effected in an account for a deceased person who held an individual account at a brokerage firm EXCEPT: A. Executor's authorization certificate B. Copy of the death certificate C. Affidavit of domicile D. Third party trading authorization
D.
All of the following would be purchasers of Eurodollar bonds EXCEPT: A. British investors B. French investors C. Japanese investors D. United States investors
D. Eurodollar bonds are not registered with the SEC, and they are not exempt from these registration requirements, they cannot be offered within the U.S.
Which of the following municipal bonds would MOST likely be refunded by the issuer? A. 5% G.O., M '37, callable in 2017 at par B. 6% G.O., M '37, callable in 2017 at 102 C. 7% G.O., M '37, callable in 2017 at 102 D. 8% G.O., M '37, callable in 2017 at par
D. In a refunding, an issuer refinances an outstanding debt by issuing new bonds. The bonds most likely to be refunded are those with the highest interest rates (to be replaced by lower interest rate bonds) and low call premiums (so it will not be too expensive to the issuer to call in the debt for refunding).
Which statement is FALSE about OATS? A. Orders for NASDAQ-listed issues are entered into OATS B. Orders for OTCBB issues are entered into OATS C. Order for pink sheet issues are entered into OATS D. Orders for CBOE-listed options are entered into OATS
D. Orders for CBOE-listed options are entered into OATS. This is FALSE.
Under NYSE rules, every "responsible broker or dealer" who communicates bids and offers on the exchange floor (also known as "addressing the crowd") must comply with all of the following rules EXCEPT: A. any bid or offer for less than the normal trading unit has no standing in the trading crowd. B. the highest bid and lowest offer have precedence in all cases. C. bids and offers must be publicly announced D. bids and offers are set by floor officials during unusual situations
D. bids and offers are set by floor officials during unusual situations.
All of the following are true statements about variable annuities EXCEPT: A. the portfolio funding the separate account is professionally managed. B. the portfolio is invested in other management company shares. C. dividends and capital gains must be reinvested until annuitization occurs. D. investors get an interest rate guarantee
D. investors get an interest rate guarantee Variable annuity holders do not get an interest rate guarantee.
All of the following statements are true regarding the Order Book Official EXCEPT the OBO: A. is an exchange employee B. runs the book of public orders C. makes a market in options contracts D. does not maintain an options inventory
D. makes a market in options contracts The OBO is an employee of the CBOE who runs the book of public orders. The "OBO" does not make a market in the option contracts and does not maintain inventory - this function is performed by the MM (market maker).
What does a BDC invest in? A. hedge funds B. small cap stocks C. large cap stocks D. privately-held companies
D. privately-held companies A BDC is a business development company. It is a registered investment company under the 1940 Act that is listed and trades like any other stock.
A municipal bond dealer buys 100M of 30 year non-callable 9% General Obligation bonds at par less 1 point. After holding the bonds in inventory for a week, the dealer re-offers the bonds on an 8.90 basis. The dealer's approximate profit or loss per bond on this transaction is:
Gain of $21 The dealer purchases these bonds at par less 1 point, so the bonds were purchased at 99. Since these 9% coupon bonds were re-offered on an 8.90 basis, they must have been re-offered at a premium price. Since these are long term bonds (30 years), we can approximate the re-offering price by dividing 9% (nominal yield) by the 8.90 re-offering yield. 9/8.90 = 1.011. Thus, the bonds were re0offered at an approximate price of 1.011% of par. The bonds were re-offered at a price that is .021% higher than the cost to the dealer (.99 cost versus 1.011 re-offer price) .021% x $100,000 face amount = $21 gain on the transaction.
A "qualified" legal opinion is one in which:
Gives a conditional affirmation of the legality of the securities
Which of the following are defined as products offered by investment advisers? I. Non-managed fee based accounts II. Managed fee based accounts (wrap accounts) III. Per trade commission charge accounts
I and II only
When a stock and a put option on that stock are purchased on the same day, which of the following statements are TRUE? I. the put option is said to be "married" to the stock II. the put option is said to be "covered" by the stock III. the premium paid is treated as part of the cost basis IV. the premium paid is treated independently
I and III
Industrial development bonds: I. Are backed by rental revenues paid by corporate lessee II. Are backed by the municipality's ad valorem taxes III. Take on the credit rating of the corporate lessee IV. Take on the credit rating of the municipal lessor
I and III Industrial development bonds are backed by the rental revenues paid by the corporate lessee as well as the guarantee of the corporate lessee. These bonds, therefore, take on the credit rating of the corporation leasing the facility.
A customer has 1,000 shares of stock and wishes to sell 100 of the shares. He places a limit order to sell 100 shares at $52. The order is placed, but is erroneously executed as "sell 1,000 shares at $52". The confirmation to the customer states that 1,000 shares were sold at $52. Which statements are TRUE? I. Any loss due to the firm's error must be absorbed by the firm. II. Any loss due to the firm's error must be absorbed by the customer. III. The firm must replace the shares that were erroneously sold. IV. The customer must accept the mistake
I and III.
Rule 105 of Regulation M, covering transactions that occur in the secondary market during the 20-day cooling off period for "add on" securities offerings, requires that any short sales of the issue: I. that occur 5 business days prior to effective date II. that occur 20 business days prior to the effective date III. can only be effected on an upbid IV. cannot be covered by purchasing the issue from the syndicate
I and IV
A market maker that compensates a retail member firm for sending its customer orders to that market maker is: I. Paying for order flow II. Inter positioning III. Engaging in a prohibited practice under SEC rules IV. Permitted to do so, subject to best execution requirements
I and IV If a member firm chooses a market maker to execute its orders in return for compensation from that market maker, then the retail firm is earning so-called "payment for order flow". The SEC permits this practice, subject to the retail member firm always executing its trades at the best available price.
The "death benefit" associated with a variable annuity contract: I. applies prior to annuitization II. applies after annuitization III. means that, upon death, the insurance company will make a lump sum payment to complete the terms of the contract. IV. means that, upon death, the insurance company will pay a beneficiary at least the amount invested in the contract.
I and IV The "death benefit" of a variable annuity contract is not really much of one. If the contract holder died prior to annuitization, the insurance company pays the greater of current NAV or the amount invested to a beneficiary. If the contract holder dies after annuitization, there is no more "death benefit".
A customer that wishes to effect a securities trade through an ECN in the "after hours" market should be advised that the market is: I. subject to high volatility II. subject to low volatility III. highly liquid IV. highly illiquid
I and IV (high volatility highly illiquid) ECNS are Electronic Communications Networks - which match trades for institutional customers at low cost. Trades that are effected through ECNs "after hours" are only filled if there is a "match". There is no specialist/DMM that must take the opposite side to the trade and that will "smooth" price movements. Thus, the market is not nearly as liquid as an exchange, and price movements will be volatile.
If a person under the age of 59 1/2 becomes disables and wishes to withdraw money from her IRA, which statements are TRUE? I. the withdrawal is subject to income tax II. the withdrawal is not subject to income tax III. the withdrawal is subject to a 10% penalty IV. the withdrawal is not subject to a 10% penalty
I and IV (subject to income tax and not subject to 10% penalty)
Eurodollar deposits are: I. Denominated in U.S. currency II. Denominated in foreign currency III. Held in banks in the U.S. IV. Held in banks in foreign countries
I and IV. U.S. Currency and hold in banks in foreign countries.
Information regarding new issue municipal offerings can be obtained from which of the following sources? I. EMMA II. Munifacts Wire III. Bond Buyer IV. Best's Ratings
I, II, III
The FINRA suitability rule requires which of the following? I. Before a product or strategy can be recommended, a reasonable basis suitability determination must be completed, evaluating the investment's features, returns, costs, and risks. II. Before a product or strategy can be recommended, a customer, it must be determined that the investment is suitable, based on the clients new account profile. III. Before a product or strategy can be recommended to a customer, it must be determined that the customer has the ability to meet the financial commitment required by the recommendation. IV. Before a product or strategy can be recommended to a customer, the registered representative must understand, and be able to communicate the investment's features, returns, costs, and risks
I, II, III, IV
Which of the following recommendations are "red-flags" that are usually unsuitable for seniors? I. Variable annuities II. Structured products III. Mortgaging home equity for investment purposes IV. Using retirement savings to invest in high-risk stock
I, II, III, IV "No-no'" recommendations to seniors include: -purchase of variable annuities -purchase of equity indexed annuities -purchase variable life settlements -purchase complex structured products -mortgage their residence to obtain funds -use retirement savings, including early withdrawals to invest in high-risk stock
Limited partnership investors are subject to which of the following risks? I. Tax audit risk II. Marketability risk III. Legislative risk IV. management risk
I, II, III, IV Limited partnerships often suffer from marketability risk, since such securities are illiquid. They also suffer from the risk of further tax law changes, and increased chances of tax audits; and the risk of poor management by the general partner.
Which of the following characteristics of Fannie Mae and Ginnie Mae pass-through certificates are the same? I. Certificates are issued in $25,000 denominations II. Certificates are backed by FHA and VA insured mortgages III. Certificates are backed by the direct guarantee of the U.S. Government IV. Certificate holders receive monthly payments for combined interest and principal
I, II, IV Both issues in $25,000 denominations Backed by FHA and VA insured mortgages Receive monthly payments for interest/principal **ONLY GINNIE-MAE IS BACKED BY U.S. GOV'T
A pension fund manager has a large holding of 30-year Treasury Bonds, to fund a corporation's defined pension plan liability. The manager is concerned that market interest rates are going to rise, causing Treasury Bond prices to fall. To hedge the position, the manager should: I. Buy TYX Calls II. Buy TYX Puts III. Sell TYX Calls IV. Sell TYX Puts
I. Buy TYX Calls If the market interest rates rise, bond prices drop. To hedge, the contract must offer an offsetting profit during a period of rising interest rates -so buy TYX calls.
Which statement is TRUE? I. Regular way trades of listed stock settle on the business day after the trade. II. Regular way trades of listed stocks settle 3 business days after the trade date. III. Regular way trades of listed stock options settle on the business day after trade date. IV. Regular way trades of listed stock options settle 3 business days after the trade date
II and III Regular way trades of listed stocks settle 3 business days later, and stock options settle 1 business day after.
If the market price is much higher than the strike price at the time of expiration, which of the following open options positions is likely to result in a gain? I. Long Put II. Short Put III. Long straddle IV. Short straddle
II and III (short put, long straddle) If the market price is higher than the strike price, the long put contract would expire "out the money", so the buyer will lose the premium paid for the position. Conversely, if a customer sells a put, and the market goes up, the contract will expire "out the money" and the customer earns the premium.
An income fund would likely invest in which of the following securities? I. Common stocks II. Preferred stocks III. Debentures IV. Income bonds
II and III only
The issuer of a variable annuity bears which of the following risks: I. Interest rate risk II. Expense risk III. mortality risk IV. Investment risk
II and III only
During the accumulation phase of a variable annuity: I. funds can be distributed to unit holders II. funds cannot be distributed to unit holders III. as interest, dividends, and capital gains are received, the investor has the option of reinvesting in more shares IV. as interest, dividends, and capital gains are received, these must be reinvested in more accumulation units.
II and IV
Regarding an investor's basis in a limited partnership investment which of the following statements are TRUE? I. recourse financing is not included in the tax basis II. non-recourse financing is not included in the tax basis III. the investor is not "at risk" for any recourse financing IV. the investor is not "at risk" for any non-recourse financing
II and IV
Which of the following statements are TRUE regarding fixed unit investment trusts (UITs)? I. Fixed UITs are managed II. Fixed UITs are unmanaged III. The composition of the portfolio can be changed IV. The composition of the portfolio cannot be changed
II and IV Fixed UITs are unmanaged and CANNOT be changed.
A 200% Leveraged Dow Jones Industrial Average Index ETF would be expected to move: I. up 50% in price when the DJIA moves up 100% II. up 100% in price when the DJIA moves up 50% III. down 50% in price when the DJIA moves down 100% IV. down 100% in price when the DJIA moves down 50%
II and IV A leveraged ETF uses borrowing (margin) and options to magnify price movement as compared to the reference index. A 200% leveraged ETF can be expected to move 2 times as fast as the reference index, either up or down. A 300% leveraged ETF can be expected to move 3 times as fast as the reference index, either up or down.
New U.S. Government Agency Securities are: I. underwritten via competitive bid II. underwritten via negotiated offering III. offered through the Federal Reserve IV. offered through selling groups
II and IV (negotiated offering, selling groups)
When ABC is at $49 per share, a customer makes the following trades: Buy 1 ABC Jan 50 Put @ 4 Sell I ABC Jan 65 Put @ 11 The customer will profit if : I. The spread between the premiums widen II. The spread between the premiums narrow III. Both contracts are exercised IV. Both contracts expire
II and IV (spread narrows and contracts expire) Since this is a credit spread, the position would be profitable if both contracts expire allowing the customer to keep the net credit.
Under the short sale tender rule, a customer is prohibited from tendering common shares unless the customer is long a: I. call option for that security and intends to exercise the call. II. call option for that security and has exercised the call. III. warrant for that security and intends to exercise. IV. warrant for that security and has exercised the warrant
II and IV only Under the "short tender" rule, a customer is prohibited from tendering unless he has a net long position in the stock. The customer is not considered to be long the common stock until the call option, warrant, rights to buy that security are exercised.
Which statements are TRUE about CMBs? I. CMBs are sold at par II. CMBs are sold at a discount to par III. CMBs are sold at a regular weekly auction IV. CMBs are sold on an "as needed" basis
II and IV. Sold at a discount to par and sold on an "as needed" basis. CMBs are sold in $100 minimums at a discount to par value, just like Treasury Bills.
As the initial transaction in a new margin account, a customer buys 1,000 shares of XYZ stock at $30. The market value increases to $50. Which statements are TRUE? I. Equity increases by $10,000 II. Equity increases by $20,000 III. SMA increases by $5,000 IV. SMA increases by $10,000
II and IV. (Equity by $20,000, SMA by $10,000) In a long margin account, for every $1 rise in market value, equity will increase by $1. Since initial margin is set at 50%, for every $1 rise in market value, SMA increases by 0.50 (that is, 50% of the market value increase). The account's equity went up $20,000; so the SMA would go up by 1/2 the amount, or by $10,000. Initially: LMV - Debit = Equity 30,000 - 15,000 = 15,000 (50%) 0 SMA LMV - Debit = Equity 50,000 - 15,000 = 35,000 (70%) 10,000 SMA
Which of the following Moody's MIG ratings are considered non-investment grade? I. MIG 1 II. MIG 2 111. MIG 3 IV. SG
III AND IV (MIG 3 and SG) Moody's rates municipal anticipation notes under the "MIG" (Moody's Investment Grade) ratings scale, with MIG 1 and MIG 2 being the investment grades; and the non-investment grades being MIG 3 and SG (speculative grade).
Which of the following are non-exempt securities under the Securities Act of 1933? I. Government National Mortgage Association Mortgage Pass Through Certificates II. Small Business Investment Company Shares III. Commercial paper maturing over 270 days IV. Variable annuity contracts
III and IV Government National Mortgage Association is owned by U.S. Government. Its issues are exempt from the provisions of the Securities Act of 1933. Small business Investment companies are also exempt. For commercial paper to be exempt, its maturity must be over 270 days or less. Variable annuity contracts are also a non-exempt security that must be registered under the 1933 Act.
Which of the following are characteristics of Defined Benefit Plans? I. annual contribution amounts are fixed II. if the corporation has an unprofitable year, the contribution may be omitted III. the annual benefit amount is fixed at retirement IV. the adoption of this type of plan benefits key employees who are nearing retirement
III and IV only
Regulation NMS required market centers to do all of the following EXCEPT: I. electronically link quotes accessible in real time II. provide for automated execution at best price within 1 second III. execute all short sales on stocks that are declining in price on an up bid IV. put procedures in place to prevent trade-throughs
III. They do not require market centers to execute all short sales on stocks that are declining in price on an up-bid.
Passive losses from an investment in a limited partnership can be offset by which of the following? I. Earned Income II. Interest Income III. Capital Gains Income IV. Passive Income
IV only. Passive losses can only be offset against other passive income - they cannot be offset against earned income; nor can they be offset against portfolio income such as interest.
What term would apply to Authorized Stock?
Par value
A proxy given to a caretaker to vote a stockholder's shares is a:
Power of attorney
Size of the current market:
Refers to the highest bid and lowest ask currently on the book.
A tender offer has been made for PDQ common shares. The brokerage firm department that would handle the tendering of shares is the:
Reorganization department
Which of the following is an overlapping debt?
Sewer district debt An "overlapping" debt is the debt of another issuer, that is the ultimate responsibility of property taxpayer.
A middle-aged widow customer has an investment objective of stable income and wants minimal market risk and liquidity risk. What type of preferred stock would be the best recommendation?
Variable rate preferred Variable rate preferred has a dividend rate that is tied to the market rate of interest, and the dividend rate varies as the rate varies. When market interest rates rise, the dividend rate rises, and vice versa. All preferred stock has minimal liquidity risk. Preferred shares are listed and trade, so the shares can be sold readily at a low cost.
The requirement for independent verification of a customer's identity when opening an account CANNOT be satisfied by examining a copy of the customer's:
birth certificate
A "blue chip" corporation experiencing a short term cash flow shortage could issue:
commercial paper
An analyst is reviewing the demographics of a municipality as part of a credit review for a G.O. bond issue. The analyst is reviewing:
population trends
