Series 7 QBank Review Set 16

C) A mini-max agreement is a firm underwriting setting a maximum amount the underwriters are willing to purchase from the issuer in the event all shares cannot be sold and a minimum dollar amount of securities the issuer is willing to sell. D) A mini-max agreement is a best efforts underwriting, setting a maximum amount the underwriters are willing to purchase from the issuer in the event all shares cannot be sold and a maximum on the dollar amount of securities the issuer is willing to sell.

A) A mini-max agreement is a best efforts underwriting setting a minimum, which is the least amount the issuer needs to raise to move forward with the underwriting, and a maximum on the dollar amount of securities the issuer is willing to sell. A mini-max agreement is a type of best efforts underwriting agreement. In a best efforts agreement, the underwriters do not purchase unsold shares from the issuer. There are two components to a mini-max agreement. The first sets a minimum amount the issuer needs to raise to move forward with the underwriting, and the other sets a maximum dollar amount of securities the issuer is willing to sell.

Customer account statements must include the per-share estimated value of a direct participation program (DPP) or unlisted real estate investment trust (REIT) security held in the account. Which of the following does FINRA accept as an estimated value methodology? A) Net investment B) Market value C) Tax basis D) Gross investment

A) Net investment For these securities, where a ready market does not exist, the estimated value must be based on one of two valuation methods. One of those is net, not gross investment. The more common method is an independent appraisal. Tax basis is irrelevant to the current value.

An investor wishes to invest in a limited partnership participation. Listing an investment objective of capital appreciation without producing currently taxable income, which of the following choices would be most suitable regarding the investor's criteria? A) Raw land B) Equipment leasing C) Oil and gas income program D) Low-income housing

A) Raw land Of the program choices listed, raw land will satisfy an investor's criteria for potential capital appreciation without producing currently taxable income.

A municipal securities advertising piece intended to be distributed to retail customers must be approved by A) a municipal securities principal or a general securities principal. B) a municipal securities principal and the MSRB. C) a general securities principal or a branch manager. D) a branch manager and the MSRB.

A) a municipal securities principal or a general securities principal. Municipal securities advertising intended to be distributed to retail customers must be approved by a municipal securities principal (Series 53) or a general securities principal (Series 24).

Certain account types must be opened as cash accounts, including IRAs and A) custodial accounts. B) partnership accounts. C) corporate investment accounts. D) individual investment accounts.

A) custodial accounts. Included in the types of accounts that must be opened as cash accounts are personal retirement accounts (IRAs and tax-sheltered annuities), corporate retirement accounts, and custodial accounts (Uniform Gift to Minors Act [UGMA] and Uniform Transfers to Minors Act [UTMA] accounts).

Your customer just purchased three State of Maine 4.8% new issue municipal bonds maturing in 2040. MSRB rules require a final official statement be A) delivered to customers on or before the settlement date. B) sent to customers on or before the trade date. C) delivered to customers only if the customer requests it to be. D) sent to the customer before the order was placed.

A) delivered to customers on or before the settlement date. MSRB rules require a final official statement be delivered to the buyer of the new issue on or before the settlement date.

A client, age 52, wants to know if there are any circumstances that will allow withdrawals from her IRA without having to pay the 10% penalty. One example you could give is A) education expenses for one of her grandchildren. B) up to $10,000 annually for the first-time purchase of a principal residence. C) housing expenses while she is unemployed. D) premiums for medical insurance in excess of defined adjusted gross income (AGI) limits.

A) education expenses for one of her grandchildren. Distributions before age 59½ are subject to a 10% penalty, as well as regular income tax. The 10% penalty is not applied in the event of the following: death; disability; purchase of a principal residence by a first-time homebuyer (up to $10,000—lifetime); education expenses for the taxpayer, a spouse, a child, or a grandchild; medical premiums for unemployed individuals; medical expenses in excess of defined AGI limits; and Rule 72(t): substantially equal periodic payments.

A customer wishing to open a numbered account must be informed that A) he must supply a written statement attesting to his ownership of the account. B) numbered accounts are restricted to cash accounts. C) the account may only be opened with prior permission from the SEC. D) he must supply proof of U.S. citizenship and reside permanently in the United States.

A) he must supply a written statement attesting to his ownership of the account. Numbered (or symbol) accounts require that a written statement that is signed by the client and acknowledges ownership be kept on file.

FINRA's 5% markup policy does not apply to A) issues sold by prospectus. B) commissions. C) REITs. D) third-market trades.

A) issues sold by prospectus. FINRA's 5% markup policy applies to all secondary market trades, whether customers are charged markups, markdowns, or commissions. Issues sold by prospectus and municipal securities, however, are exempt from the policy.

An immediate dilution to earnings per share (EPS) would be least likely to occur from A) refunding a bond at par. B) a 2:1 stock split. C) conversion of debentures. D) a 10% stock dividend.

A) refunding a bond at par. When a bond is refunded at par, the cash used is equal to the reduction in the liability resulting in no immediate corporate EPS (the number of shares remains the same). A stock split, a stock dividend, and conversion of a debenture increase the number of shares outstanding. Because the earnings haven't changed and there are more shares, the EPS is lower (diluted).

A customer entered a day order to buy XYZ at 31.50. An hour before the market closes, she calls you and says that she is considering changing the order to a good-til-canceled (GTC) order. You tell her that A) she should consider leaving the day order entered for the remainder of the day, and if left unexecuted, should enter a GTC order in the morning so that her existing day order would not lose its priority before today's close. B) the mandatory service charge for canceling and replacing imposed by all exchanges makes this order replacement strategy too costly to be of benefit. C) she should consider entering another day order tomorrow morning because day orders have preference in execution over GTC orders. D) this is a good strategy, but order replacements must be verified in writing by the customer.

A) she should consider leaving the day order entered for the remainder of the day, and if left unexecuted, should enter a GTC order in the morning so that her existing day order would not lose its priority before today's close. Orders maintain priority on the order book on the basis of the time of entry. Canceling and reentry loses the existing priority. Leaving the day order for the remainder of the day, and if it is still unexecuted, entering a GTC the next day is the best order replacement strategy in this situation.

An hour ago, you entered a sell limit order for your customer in XYZ stock. Looking at a current quote, after XYZ has been recently trading, you could expect the order to have been executed if A) the bid price for XYZ is higher than your customer's sell limit, or the last reported price in the stock is above the sell limit price. B) the offer or ask price for XYZ is at your customer's sell limit, and the highest reported price in the stock is below the sell limit price. C) the offer or ask price for XYZ is lower than your customer's sell limit, and the last reported price in the stock is above the sell limit price. D) the offer or ask price for XYZ is lower than your customer's sell limit, and the last reported price in the stock is below the sell limit price.

A) the bid price for XYZ is higher than your customer's sell limit, or the last reported price in the stock is above the sell limit price. A sell limit order sets the minimum price an investor will accept. The order should have been executed if the current bid price is higher than the sell limit or the last reported price in the stock is higher than the sell limit.

Your customer purchased a 5.8 % LMN corporate bond in a regular way transaction. Settlement for this bond trade is A) trade date plus two business days. B) trade date plus four business days. C) trade date plus one business day. D) trade date.

A) trade date plus two business days. Regular way settlement on corporate security and municipal bond security trades is T + 2.

XYZ County Sewer Revenue 6.5% municipal bonds mature in 20 years. If they are currently offered at 92, they have a yield to maturity of approximately A) 6.23%. B) 7.19%. C) 6.50%. D) 5.96%.

B) 7.19%. Because this bond has a nominal yield of 6.5% and is selling at a discount (92), the yield to maturity has to be greater than 6.5%. Remember: price down, yield up.

Which of the following statements regarding credit risk is not true? A) Credit risk is the probability of the issuer defaulting on their payment obligations. B) An A-rated mortgage bond has less credit risk than an AA-rated debenture. C) A rating downgrade may or may not result in a lower market price for a bond. D) Credit risk can be assessed by referring to the independent credit rating agencies.

B) An A-rated mortgage bond has less credit risk than an AA-rated debenture. The rating agencies split bonds into two distinct classes: investment-grade and noninvestment-grade. The highest investment-grade rating is AAA (Aaa) and the lowest is BBB (Baa). The more As the bond has, the lower the credit risk. That is why the AA debenture has less credit risk than the A-rated mortgage bond. The rating agencies take into consideration any collateral, such as a mortgage, when giving the rating.

A technical trader tells you that while looking at a chart, he sees a primary trend of higher highs and higher lows. What would this be an indication of, and according to what theory? A) Bullish market according to the odd-lot theory B) Bullish market according to the Dow theory C) Bearish market according to the short interest theory D) Stagnant market according to the trendline theory

B) Bullish market according to the Dow theory According to the Dow theory, the primary trend in a bull market is a series of higher highs and higher lows. Conversely, in a bear market, the primary trend is a series of lower highs and lower lows.

Which of the following is an interest-bearing instrument? A) Commercial paper B) Jumbo CD C) Treasury bill D) Zero-coupon bond

B) Jumbo CD Jumbo (negotiable) CDs are one of the few money market instruments issued at face value. Unlike those issued at a discount, they are interest bearing.

ABC stock, trading at $47, is going ex-dividend today, and certain orders on the order book must be reduced prior to the opening. For a cash dividend of 0.12, which of the following orders would be reduced? A) Sell 100 ABC at 50. B) Sell 100 ABC at 45 stop. C) Buy 100 ABC at 50 stop. D) Buy 100 ABC at the market.

B) Sell 100 ABC at 45 stop. Orders that are entered below current market value would be reduced unless do not reduce (DNR) instructions are received. Those orders are buy limits, sell stops orders. These orders are reduced by the amount of the dividend on the ex-dividend date for a cash dividend distribution.

A) The earnings will be taxed as capital gains and will be withdrawn first using LIFO. B) The earnings will be taxed as ordinary income and will be withdrawn first using LIFO. C) There is a combination of ordinary income and return of principal based on the exclusion allowance. D) A portion of each payment will be taxed as ordinary income with the balance considered a return of principal.

B) The earnings will be taxed as ordinary income and will be withdrawn first using LIFO. Because this is a nonqualified annuity, there are no contribution limits and, once the earnings have been received, the balance is a tax-free return of the original principal. Annuities never receive capital gains treatment.

Your new customer directs you to open a cash account. He wants to give trading authorization to his brother but does not want his brother to have any other authority in the account. The two required documents needed by your firm to open the account as directed would be a new account form and A) a tenants in common agreement. B) a limited power of attorney. C) a full power of attorney. D) a durable power of attorney.

B) a limited power of attorney. A new account form is required to open the new account, and a limited power of attorney is needed if the customer wishes to give trading authorization to someone else. Although the limited power of attorney gives the third party trading authority, it prohibits that party from withdrawing assets from the account as a full power of attorney would.

A mutual fund portfolio consists primarily of shares of companies considered to be prime candidates for a takeover attempt. Of these choices, this mutual fund is best described as A) an aggressive growth fund. B) a special situation fund. C) a specialized (sector) fund. D) a leveraged fund.

B) a special situation fund. Special situation funds buy securities of companies that are considered to be in a position to benefit from special, nonrecurring situations. Those could be new management, new products, patents pending, takeover, or turnaround situations.

One of your clients has the opportunity to participate in his employer's employee stock purchase plan (ESPP). Before enrolling, he should be aware that funds will come out of his paycheck on A) a pretax basis, and those contributions are deductible on his tax return. B) an after-tax basis, and those contributions are not deductible on his tax return. C) a pretax basis, and those contributions are not deductible on his tax return. D) an after-tax basis, and those contributions will be deductible on his tax return.

B) an after-tax basis, and those contributions are not deductible on his tax return. Contributions to an ESPP are payroll deductions. Though the contribution percentage is calculated on one's pretax salary, they are taken after tax. Contributions to ESPPs are not deductible on one's tax return.

Electronic communications with the public requiring preapproval include all of the following except A) the websites sponsored by the broker-dealer. B) an unscripted webinar. C) an interactive bulletin board. D) a website of an individual registered representative.

B) an unscripted webinar. An unscripted webinar is categorized as participation in a public appearance. It could also be a seminar, public-speaking activity, or radio or television interview. Websites, whether sponsored by the company itself or set up by an individual registered representative, are considered retail communications and are subject to applicable filing and recordkeeping rules. Electronic bulletin boards are also considered retail communications.

A U.S. investor owns an American depositary receipt (ADR). The net tax liability to the investor for any dividends received is A) any foreign income tax due, but not U.S. income tax. B) any U.S. income tax due, credited by any amount of foreign income tax withheld. C) zero, because there is no tax liability to U.S. investors who purchase foreign government issues. D) the total of both foreign and U.S. income tax due.

B) any U.S. income tax due, credited by any amount of foreign income tax withheld. Any income to a U.S. investor is always subject to U.S. income tax. If foreign income tax is withheld in the country of origin, then that tax may be taken as a credit against the U.S. tax due.

Because of their unlimited potential loss, short positions A) must be approved by a designated principal before execution. B) are marked to the market at the close of each day. C) can only be taken by those who are accredited investors. D) require a higher initial margin deposit.

B) are marked to the market at the close of each day. Although most securities positions are marked to the marked on a daily basis, it is more important that this be done with short positions because of how quickly they can reach the maintenance margin level. The initial margin is the same as long purchases, and the term accredited investors applies principally to private placements. Short sales, just as with any transaction, must be approved by a principal but not in advance.

Upon assignment, the seller of an exchange-listed equity call option must A) deliver the underlying stock within one business day. B) deliver the underlying stock within two business days. C) pay for the underlying stock within one business day. D) pay for the underlying stock within two business days.

B) deliver the underlying stock within two business days. Assignment of an equity call option requires the assigned party to deliver the underlying stock. This is treated the same as any other delivery or sale of stock. Regular way delivery is two business days after the trade date. In the case of assignment, the trade date is the assignment date.

To achieve its goals, an inverse ETF uses A) arbitrage. B) derivatives and debt. C) short selling. D) preemptive rights.

B) derivatives and debt. An inverse ETF will almost always use derivatives (such as options). A leveraged ETF will use derivative products such as options, futures, and swaps to enable them to achieve the stated goal. Inverse ETFs do not engage in short selling; they are an alternative to selling short a specific index without the unlimited risk potential of the short sale. Arbitrage is used, typically by institutional investors, to the advantage of temporary imbalances between the ETF's net asset value and market price.

The Investment Company Act of 1940 has certain requirements for the board of directors of a mutual fund. The members of the board are A) appointed by the fund's investment adviser. B) elected by a vote of the shareholders. C) appointed by the fund's custodian bank. D) elected by a vote of the management.

B) elected by a vote of the shareholders. One of the rights of investors in mutual funds is the same right offered to shareholders in regular corporations. That right is a vote on certain business matters, such as the election of members to the fund's board of directors. Investors also have the right to vote on the selection of the fund's investment adviser(s).

An investor wanting to purchase municipal bonds should be aware that in most instances, if she buys the bond and then later sells it for a profit, A) neither interest received nor capital gains will be exempt from taxation. B) interest received will be exempt from taxation, but capital gains will not. C) both interest received and capital gains will be exempt from taxation. D) interest received will be taxable, but the capital gains are exempt from taxation.

B) interest received will be exempt from taxation, but capital gains will not. The interest on municipal debt is largely exempt from taxation, but the capital gains are not.

You believe XYZ stock will be rising and want to recommend a spread position to your client that would be profitable if it does. Of the positions listed, you would recommend that the client go A) long 1 XYZ Jan 40 call and short 1 XYZ Jan 30 call. B) long 1 XYZ Jan 30 put and short 1 XYZ Jan 40 put. C) short 1 XYZ Jan 40 put and long 1 XYZ Jan 50 put. D) short 1 XYZ Jan 30 call and long 1 XYZ Jan 50 call.

B) long 1 XYZ Jan 30 put and short 1 XYZ Jan 40 put. Of the choices given, the correct answer is the credit put spread. Credit put spreads are bullish. Anytime the long option in a spread has a lower strike price than the short position, the spread is known as a bullish spread. We refer to that strategy as buy low, sell high (BLSH).

A 50-year-old investor purchases a single payment deferred variable annuity with a premium of $50,000. Five years later, the value of the account is $45,000, and the investor makes a $10,000 withdrawal. The tax consequences of this action would be A) ordinary income on the $5,000 difference between the purchase price and the current value plus a penalty of 10% because the investor is only 55 years old. B) no tax is due. C) ordinary income on the $5,000 difference between the purchase price and the current value. D) ordinary income on the entire $10,000 withdrawn plus a penalty of 10% because the investor is only 55 years old.

B) no tax is due. Investors in variable annuities are only taxed on the earnings of the account. This account lost money, so there were no earnings to be taxed.

Nickelplate Manufacturing Corporation (NMC) is capitalized with 1 million shares of a 6% $50 par callable, cumulative preferred stock and 10 million shares of $1 par common stock. NMC has not paid any dividends at all for the past five quarters. The current quarter's earnings are excellent, and the company would like to pay a dividend to its common shareholders. Doing so would require A) paying the preferred shareholders a dividend of $3.75 per share. B) paying the preferred shareholders a dividend of $4.50 per share. C) paying the preferred shareholders a dividend of $0.75 per share. D) an affirmative vote of the common shareholders.

B) paying the preferred shareholders a dividend of $4.50 per share. A corporation cannot pay a dividend to its common shareholders without satisfying the dividend requirements of any outstanding preferred stock. NMC has a 6% $50 par preferred. The annual dividend requirement (if declared) is $3 per share. That is $0.75 per quarter. On the exam, all dividends are paid quarterly unless stated otherwise. Once that dividend is paid to the preferred shareholders, the declared dividend can be paid to the common shareholders. But, the question tells us that NMC has not paid preferred dividends for more than one year (five quarters). What about those skipped dividends? This preferred stock is cumulative. That means the five skipped quarters ($0.75 × 5 = $3.75) plus the current quarter ($0.75) must be paid. Be careful to read the question. Shareholders do not vote on cash dividend payments. That decision is made by the company's board of directors.

A broker-dealer wants to reference its membership with FINRA on its website. Regarding the reference, all of the following are true except A) if the FINRA reference is made, a link to FINRA's website must be in close proximity to the reference. B) the FINRA reference is intended to demonstrate that the broker-dealer has the approval of FINRA in all of its business dealings. C) if the FINRA reference is made, a link to FINRA's website is mandated by FINRA. D) there is no requirement that any FINRA member broker-dealer shall reference FINRA by name or logo on its website.

B) the FINRA reference is intended to demonstrate that the broker-dealer has the approval of FINRA in all of its business dealings. There is no requirement to list or mention FINRA membership or any other self-regulatory organization (SRO) membership on a broker-dealer website. If, however, a broker-dealer chooses to have the FINRA name or logo on its website, it should never be displayed in such a way as to imply—or mean to imply—approval of FINRA. If FINRA or its logo is used, a link to the FINRA website is required, and it must be placed in close proximity to the reference.

Approval of a new options account by a principal may occur before A) the new account form is completed. B) the customer verifies information on the new account form. C) the customer is furnished with an options disclosure document. D) the customer provides essential suitability information.

B) the customer verifies information on the new account form. For the account to be opened, it would need to be approved by a principal first. To do so, a new account form would have to be completed, suitability information would have to have been supplied by the customer, and an options disclosure document would have to have been provided to the customer. The new options customer must verify information on the new account form within 15 days of opening the account.

Many mutual fund investors elect to reinvest their dividends into additional shares of the fund. When an investor does this with dividends paid by a common stock fund, A) the additional shares are purchased at the public offering price. B) the dividends are taxable in the year received. C) the dividends are tax free until the shares are sold. D) the investor's cost basis is reduced by the amount of the dividend.

B) the dividends are taxable in the year received. Unlike dividends from a municipal bond fund or UIT, which are exempt from federal income tax, dividends from stock funds (or taxable bond funds) are taxable in the year paid, regardless of whether they are reinvested or taken in cash. The exam wants you to know that there is no tax advantage to reinvesting distributions. There are other benefits, such as reinvestment at NAV instead of POP, but tax breaks is not one of them. As it happens, when dividends are reinvested, the investor's tax basis increases by the amount of the dividend.

Your 66-year-old customer invested $35,000 in a nonqualified variable annuity. It now has a value of $55,000, and your customer wishes to make a random withdrawal of $30,000. What is the tax liability that results if the customer is in the 28% tax bracket? A) $7,600 B) $2,800 C) $5,600 D) $8,400

C) $5,600 Partial or random liquidations of a variable annuity are taxed on a last-in, first-out (LIFO) basis, which means that the last dollars into the account, the earnings, are withdrawn first. Of the $30,000 withdrawn, $20,000 represents deferred earnings or income that is now taxable at the 28% rate (0.28 × $20,000 = $5,600). No penalty applies because the investor is older than age 59½.

To meet the initial Regulation T call in a margin account, a customer could deposit A) 50% of the call in fully paid-for marginable securities. B) 50% of the call in cash. C) 200% of the call in fully paid-for marginable securities. D) 100% of the call in fully paid-for marginable securities.

C) 200% of the call in fully paid-for marginable securities. With a loan value of 50%, delivering fully paid-for marginable securities in an amount twice the required cash call enables the brokerage firm to lend the client cash sufficient to meet the required call.

The following information was reported for MNO stock: Annual dividend = $2 PE ratio = 20 Closing price = $100 What is the dividend payout ratio? A) 20% B) 2% C) 40% D) 30%

C) 40% The dividend payout ratio is computed by dividing the dividend by the earnings per share ($2 ÷ $5 = 0.4, or 40%).

You are listening to another registered representative (RR) speak about Rule 147 offerings and recognize that one of his statements is incorrect. Which of these is not correct? A) Rule 147 applies to intrastate stock offerings. B) Under one Rule 147 provision that can be met, an issuer must derive 80% or more of its revenue from the state in which its principal office is located. C) Buyers of stock issued under Rule 147 are subject to a one-year holding period before selling to a nonresident of that state. D) Stock sold under Rule 147 is sold in an exempt transaction.

C) Buyers of stock issued under Rule 147 are subject to a one-year holding period before selling to a nonresident of that state. Holders of shares issued under Rule 147, the intrastate offering exemption, cannot resell their shares to nonresidents of the state for a period of six months from the date of purchase.

IJK 5% debentures are convertible into shares of IJK common stock at $50 per share. The debentures are currently trading at 110. Later, when the IJK stock is trading at $54 per share, the debentures are called at 105. Which of the following would result in the most money to a holder of the debentures? A) Tender the debentures for the call. B) Sell the bonds in the market. C) Convert the debentures into the common stock while simultaneously selling the stock. D) Continue to hold the debentures and receive $50 per year in interest for each.

C) Convert the debentures into the common stock while simultaneously selling the stock. When a debenture is convertible at $50 per share, the investor will receive 20 shares upon conversion. With the market price of the stock at $54 per share, that represents $1,080 in value. The call at 105 is only $1,050, and that is less than the converted value. Why not sell the debentures in the market for 110 ($1,100)? Once the call is announced, the debentures would trade at a price no higher than the call price.

A bond quote of 6.5s of 29 is at 99, which of the following statements is not true? A) The bond is trading at a 1-point discount. B) If traded at this price, the yield to maturity rather than the yield to call would be shown on the confirmation. C) If the price quote was changed to a basis quote, the yield would be less than 6.5%. D) The bond matures in 2029.

C) If the price quote was changed to a basis quote, the yield would be less than 6.5%. This bond is trading at a discount of 1 point ($10). Therefore, a basis quote, which is the bond's yield to maturity, will be greater than the 6.5% coupon, not less than 6.5%. YTC is only shown when it produces the lowest yield. That would never be the case with a bond traded at a discount.

Your broker-dealer has received from the Automated Customer Account Transfer System (ACATS) a Transfer Initiation Form (TIF) instructing that one of your customers would like to have existing positions in her account transferred to her new broker-dealer. How long does your broker-dealer have to validate the positions listed on the form? A) Seven calendar days from the time the TIF is received B) No later than the end of business on the Friday of the week the TIF was received C) One business day D) Three business days

C) One business day When transferring a customer's positions to another broker-dealer via the TIF under the Uniform Practice Code, the carrying broker-dealer has one business day to validate positions and three business days to transfer the positions to the receiving broker-dealer after validation.

An individual is covered under his employer's 401(k) plan. The plan provides for 100% employer matching of the first 3% of the employee's contribution. The employee decides to contribute 7% of his pay to the plan. Under ERISA, which of the following statements is correct? A) Only the 3% employer contribution is immediately vested. B) Only the 3% employee contribution being matched by the employer is immediately vested. C) Only the 7% contributed by the employee is immediately vested. D) Only the 4% employee contribution in excess of the employer's match is immediately vested.

C) Only the 7% contributed by the employee is immediately vested. Under ERISA rules, any contribution by an employee is immediately vested. It is only employer contributions that may subject to a vesting schedule.

A broker-dealer needing up-to-the-minute pricing information on eligible municipal bonds would find it on A) TRACE. B) OATS. C) RTRS. D) ADF.

C) RTRS. The MSRB's Real-Time Reporting System (RTRS) requires municipal securities dealers to report information about most trades in municipal securities within 15 minutes. Before it was replaced in 2021, OATS reported on Nasdaq equities. ADF is a display-only facilty but not for municipal securities. TRACE reports transactions in government and corporate bonds.

An investor is long stock at 80. The current market price of the stock is 93, and it is anticipated the stock will continue to rise. If the investor would like to generate income and is not overly concerned with further appreciation, which of the following contracts would do that? A) Buy a 90 put B) Sell a 90 put C) Write a 95 call D) Buy a 95 call

C) Write a 95 call If the investor writes a 95 call and collects the premium, income would be generated. However, if the price continues to rise, the call will be exercised, obligating the investor to sell the stock (at a profit).

Your customer sold a September 918 index call at 4.15 five months ago. The option expired, and the customer received no assignment notice. For tax purposes, it should be taxed and reported as A) ordinary income of $9,180. B) ordinary income of $415. C) a $415 short-term capital gain. D) a $41.50 short-term capital loss.

C) a $415 short-term capital gain. When options contracts expire, sellers or writers report a capital gain equal to the premium amount received; in this case, the amount is $415. Because options only have a nine-month life cycle, all capital gains and losses are short term.

All of the following statements regarding municipal advertising are true except A) it must not be misleading. B) copies must be kept for four years. C) copies must be sent to the Municipal Securities Rulemaking Board (MSRB). D) it must be approved by a principal.

C) copies must be sent to the Municipal Securities Rulemaking Board (MSRB). All municipal advertising must be approved, in writing, by an appropriate principal before the first use and must be kept on file for four years. It need not be filed with the MSRB because the MSRB has no enforcement authority.

Daryl Smith, a customer of a broker-dealer for over 10 years who often holds low-priced equity positions and cash in his account, wants to purchase 1,000 shares of a penny stock. Smith is A) exempt from the disclosure requirement but must receive a suitability statement. B) exempt from both the requirement to receive a suitability statement and the disclosure requirement. C) exempt from the requirement to receive a suitability statement but is subject to the disclosure requirement. D) required to receive both the suitability statement and the disclosure.

C) exempt from the requirement to receive a suitability statement but is subject to the disclosure requirement. Smith meets the criteria for an established customer under the penny stock rules. Established customers are exempt from the suitability statement requirement but not from the disclosure requirements.

As a new registered representative, you have much industry jargon to learn. If you overheard your manager discussing a power of substitution, it would be in reference to A) substituting one stock for another in a margin account. B) substituting an incorrect name on an order ticket. C) good delivery of a stock certificate. D) a voting proxy.

C) good delivery of a stock certificate. To be a good delivery, any registered security must be accompanied by an assignment and a power of substitution (if required). The power of substitution provides for the appointment of a party other than the certificate owner to substitute in making the transfer. In most cases, the substitution is the broker-dealer's name.

When a corporation issues a debt security, the terms of the loan are expressed in a document known as the bond's indenture. The indenture is sometimes referred to as A) the bond resolution. B) the loan agreement. C) the deed of trust. D) the debenture.

C) the deed of trust. The indenture, sometimes also referred to as the deed of trust, states the issuer's obligation to pay back a specific amount of money on a specific date. A debenture is a debt security containing an indenture. The bond resolution is a term used for municipal bonds not corporate debt.

An investor's margin account has a short market value of $9,000 and a credit balance of $13,000. Assuming Regulation T is 50%, a maintenance call will be triggered if the short market value increases above A) $9,000. B) $13,000. C) $11,000. D) $10,000.

D) $10,000. Minimum maintenance rules require a minimum maintenance of 30% for a short margin account. The maintenance level is determined by dividing the credit balance by 1.3 ($13,000 ÷ 1.3 = $10,000).

An investor sells 1 XYZ 180 call at 6.65. If the investor makes a closing purchase at the call's intrinsic value when the stock is at $184.75, he realizes a gain of A) $180.00. B) $265.25. C) $147.50. D) $190.00.

D) $190.00. The investor received a premium of $665. The position was closed with a purchase at intrinsic value: $475. The net profit is the difference or $190. The math is as follows: $6.65 − $4.75 = $1.90 $1.90 × 100 shares = $190

A customer buys 200 XYZ at 39 and writes 2 XYZ Feb 40 calls at 3. When the stock rises to 44, the customer is exercised for a gain of A) $200. B) $400. C) $1,600. D) $800.

D) $800. The customer bought 200 shares at 39 and was forced to sell them at 40 for a $200 gain. In addition, the customer received $600 in premium income, so the overall gain is $800. Alternatively, the breakeven point for covered call writing is cost of shares purchased less premium received (39 − 3 = 36). As the customer is bullish, gain occurs above 36. However, for this customer, the stock can go no higher than 40 because she will be exercised (40 − 36 = 4 points × 200 shares = $800).

An affiliate of the issuer has held 150,000 shares of restricted stock for 18 months. There are 12.5 million shares outstanding, and, on average, 30,000 shares have traded each week over the past four weeks. Under Rule 144, the maximum number of shares the affiliate may sell over the next three months is A) 0. B) 150,000. C) 30,000. D) 125,000.

D) 125,000. The affiliate who has held the restricted shares beyond the six-month holding period may sell the greater of 1% of the shares outstanding or the average weekly trading volume over the four weeks before the sale in any 90-day period. In this instance, 1% of the outstanding shares (125,000) is greater than the last four weeks' average trading volume (30,000).

FINRA requires a member firm to develop, implement, and monitor anti-money laundering programs designed to achieve compliance the Bank Secrecy Act and related regulations. Which of the following is required of a broker-dealer's anti-money laundering program? A) Updating the program every 36 months B) Filing of the firm's AML program with FINRA C) Approval of the firm's AML program by the SEC D) Designating to FINRA an anti-money laundering compliance officer

D) Designating to FINRA an anti-money laundering compliance officer FINRA's Rule 3130 on anti-money laundering requires members to designate to FINRA an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program. The AML program is neither filed with nor approved by the SEC or FINRA. However, when an examiner from either of these bodies pays a surprise visit to the firm, there had better be a well-detailed program available to show. There is no specific schedule for updating. Updating and training of personnel is an ongoing project.

A registered representative (RR) prepared a sales piece for one of his retail customers demonstrating a trading strategy. Regarding the piece, which of the following statements is true? A) The piece must be approved by a principal before being sent to the customer. B) All material sent to individual clients must be submitted to FINRA before use. C) The piece will be regulated as a retail communication with the public. D) The piece will be regulated as correspondence.

D) The piece will be regulated as correspondence. A sales piece that is being sent to one customer will be regulated as correspondence (25 or fewer recipients = correspondence). While it must be reviewed and approved by a principal in accordance with the firms rules and procedures, there is no requirement to be approved in advance by a principal or FINRA.

Whereas fundamental analysis primarily focuses on stock selection, technical analysis is a tool to determine timing. One technical analysis tool used is support and resistance levels. A stock can trade in its support and resistance range for some time. If the price of the stock penetrates its resistance level, a technician would view this as A) a consolidation. B) confirming the Dow theory. C) a bearish breakout. D) a bullish breakout.

D) a bullish breakout. It is a bullish breakout when penetrating the resistance price. The resistance level is that point where the stock's price runs into selling pressure and declines. A technician believes in buying on a bullish breakout because the stock's price is heading for new highs. A breakout is bearish when the support price is penetrated. Therefore, the technician will advise a short sale on a bearish breakout because the stock's price is heading for new lows. Although consolidation and the Dow theory are terms included in technical analysis, they are not part of support and resistance.

One of your customers asks you to interpret her observation that the short interest in a stock she owns has been rapidly increasing over the past four months. Aligning with the short interest theory, you would tell her that this is A) an indication of predictable volatility in the stock. B) a bearish indicator. C) an indication of predictable stability in the stock. D) a bullish indicator.

D) a bullish indicator. While short interest in a stock represents the number of shares sold short, the short interest theory considers rising short interest a bullish indicator. Each share that has been sold short must be replaced (covered) at some point. To replace the stock shorted, an investor must go into the market to buy that stock. When all of those short sellers have to buy back stock they shorted, it puts upward pressure on the prices of those stocks.

In what is commonly known as a proceeds transaction, one of your clients is using the proceeds from the liquidation of one stock to purchase another stock. In compliance with the 5% markup policy for these transactions, the markup will be computed based on A) the compensation to the dealer for each side of the transaction separately. B) the markup or compensation to the dealer on the buy side of the transaction. C) the markdown or compensation to the dealer on the sale side of the transaction. D) a combination of both the buy side and the sell side compensation to the dealer.

D) a combination of both the buy side and the sell side compensation to the dealer. This is known as a proceeds transaction, which is the sale of one position and the purchase of another with the proceeds of the sale. The 5% markup policy is applicable to proceeds transactions. In compliance with the policy, the markup is computed by adding the compensation made by the dealer on the sell side to that made by the dealer on the buy side, and applying the total to the inside market on the buy side.

A bond is being issued to build a toll road. The state does not own all of the property that the road is going to be built upon. This would most likely be disclosed in A) the prospectus. B) the bond resolution. C) the trust indenture. D) a qualified legal opinion.

D) a qualified legal opinion. Any legal uncertainty of which bondholders should be informed is first identified by the legal opinion obtained by the municipality issuing the bond. Municipal bonds are exempt from registration with the SEC, and therefore, do not have a prospectus requirement. The full and fair disclosure document for municipal bonds is called the official statement (which would disclose this information as well).

A customer who is long 500 shares of XYZ writes 7 calls against the position. This is an example of A) portfolio insurance. B) a vertical spread. C) a long straddle. D) a ratio write.

D) a ratio write. The term ratio write describes a position in which more call options are written than there are shares of stock available to cover the call. In this case, the customer has 5 covered and 2 uncovered calls. It should also be recognized that the two uncovered calls represent an unlimited maximum loss potential.

The effect of using the first in, first out (FIFO) method for a sale of some of the securities that were purchased separately during a period of rising prices will be A) a decrease in the tax liabilities of the investor. B) a decrease in the profits of the investor. C) an increase in the cost basis of the securities. D) an increase in the taxable profits of the investor.

D) an increase in the taxable profits of the investor. FIFO is an inventory accounting term used to standardize the determination of which items are sold first. In this case, if different purchases are made of the same stock, and the per-share price is higher each time, then if a portion (but not the entire inventory) is sold at one price, the taxable gain will be maximized. If last in, first out were used, the taxable gain would be minimized, and the lower cost basis securities would remain in the portfolio.

When investing in a direct participation program (DPP), an investor should know that some asset types cannot be depreciated or depleted. One example of such an asset would be A) gas. B) buildings. C) oil. D) crops.

D) crops. Natural resources like oil and gas can be depleted and buildings are a depreciable asset, but farm crops are considered to be renewable assets. Another real estate asset that cannot be depleted or depreciated is raw land.

Your customer, who lives in State A, is in the highest federal and state income tax bracket. She is considering purchasing some State B municipal bonds with an Aa rating for her portfolio. You correctly explain that municipal bonds generally pay A) lower interest rates than corporate issuers of the same quality and maturity because the interest is tax free on a state, local, and federal level. B) higher interest rates than corporate issuers of the same quality and maturity, but this is offset by the more favorable tax treatment of the interest. C) lower interest rates than corporate issuers of the same quality and maturity because of the tax treatment of their capital gains. D) lower interest rates than corporate issuers of the same quality and maturity because of the tax treatment of their interest.

D) lower interest rates than corporate issuers of the same quality and maturity because of the tax treatment of their interest. As a result of the tax-advantaged status of municipal bond interest (tax free on the federal basis; sometimes tax free on the state and local basis), municipalities generally pay lower interest rates than corporate issuers when the bonds are of similar quality and maturity. The interest on State B bonds will not be free of taxation on the state and local level in State A, because the exemption only applies to residents of State B. Because the interest is tax free, these bonds are more suitable for those in higher tax brackets.

For both U.S. Treasury notes and Ginnie Maes, A) interest is computed on an actual-day basis. B) interest income is taxed at the federal level only. C) settlement is next business day. D) quotes are as a percentage of par in 32nds.

D) quotes are as a percentage of par in 32nds. Interest from U.S. T-notes is taxed at the federal level only, while interest on Ginnie Maes is taxed at all levels. GNMA bonds are treated like corporate bonds in many ways. T-notes settle next day, while Ginnie Maes normally settle T+2. Interest on T-notes is computed on an actual-day basis, and Ginnie Mae interest is computed on a 30-day month/360-day year basis. Both Ginnie Maes and T-notes are quoted in 32nds.

In all cases on the exam, the interest paid by corporations on their debt securities is A) treated the same as dividends. B) treated the same as capital gains and capital losses. C) taxable on a federal level but exempt from state and local taxes. D) treated the same as ordinary income.

D) treated the same as ordinary income. In addition to federal income tax, interest paid by corporations on their debt securities is treated the same as ordinary income. In addition, interest paid by corporations is taxable on the federal, state, and local level.

Your customer established the following spread: Long 1 ABC Jan 60 call at 5 Short 1 ABC Jan 70 call at 2 The customer will realize a gain at expiration if the spread A) narrows to less than 3 points and ABC trades above 63. B) widens to more than 3 points and ABC trades below 63. C) narrows to less than 3 points and ABC trades below 63. D) widens to more than 3 points and ABC trades above 63.

D) widens to more than 3 points and ABC trades above 63. This is a bull call spread (established at a net debit), so the customer wants the spread to widen and the stock price to rise above the breakeven, which is 63.

A group of underwriters agreed with the issuer of those securities to engage in a mini-max underwriting for a new issue of equity securities. Which of the following best describes this underwriting agreement? A) A mini-max agreement is a best efforts underwriting setting a minimum, which is the least amount the issuer needs to raise to move forward with the underwriting, and a maximum on the dollar amount of securities the issuer is willing to sell. B) A mini-max agreement is a firm underwriting setting a minimum, which is the least amount the issuer needs to raise to move forward with the underwriting, and a maximum on the dollar amount of securities the issuer is willing to sell.

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One of your clients is an executive with a corporation that provides a qualified defined benefit pension plan. In addition, the client maxed out his IRA contributions. With retirement coming up in about a decade, he decides to make a $100,000 lump sum deposit to a single premium deferred annuity. Then, he will begin monthly investments of $5,000 into a periodic payment deferred annuity. He does not plan to annuitize. Instead, he will withdraw funds from the annuities as needed. When those withdrawals are made, how will they be taxed?

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