SIE missed questions pt 5
In a limited partnership, a general partner's minimum participation in profits and losses is: A. 1% B. 5% C. 10% D. 15%
A. 1% According to tax law, a general partner must have at least a 1% participation in profits and losses for a business to maintain limited partnership status.
Which of the following is reportable on Form U4? A. A misdemeanor charge related to stolen property, but the charge was later dismissed B. An arrest warrant C. A misdemeanor charge for a DUI D. A bench warrant issued by a judge for failure to appear in court
A. A misdemeanor charge related to stolen property, but the charge was later dismissed An individual must report a misdemeanor charge related to stolen property even if the charge is later dismissed. A bench warrant that's issued by a judge for failure to appear in court is only reported on Form U4 if it's issued based on a felony. Since the answer related to the bench warrant doesn't specify that it was related to a felony, reporting is not required. Similarly, only felony DUI or DWI charges are reported to FINRA. By themselves, arrest warrants are not reported; instead, FINRA only requires an update to Form U4 if formal charges are filed.
Regarding communications, which of the following statements is TRUE concerning the responsibilities of a principal of a broker-dealer? A. A principal must approve retail communications prior to use. B. A principal must approve all institutional communications prior to use. C. A principal must approve all correspondence prior to use. D. A principal must approve all retail communications and correspondence prior to use.
A. A principal must approve retail communications prior to use. A principal must approve retail communications prior to use. However, institutional communications and correspondence are subject to review and supervision by a principal, but not pre-approval.
A registered person has received a gift that's valued at $150 from the FINRA member firm through which her firm clears trades. This gift is considered: A. Excessive B. Acceptable, but only if it's documented by the gifting firm C. Acceptable, but only if it's documented by the receiving firm D. Acceptable
A. Excessive If an associated person of a member firm provides a gift that exceeds $100 from another FINRA member firm, it's unacceptable and a violation of FINRA rules.
Banks savings account are guaranteed and insured by the: A. FDIC B. SIPC C. Federal Reserve Board D. Department of the Treasury
A. FDIC In the event that a bank is unable to pay its depositors, the Federal Deposit Insurance Corporation (FDIC) guarantees bank accounts up to $250,000. The Securities Investor Protection Corporation (SIPC) protects brokerage customers against broker-dealer bankruptcy.
The purpose of a depository facility is to: A. Hold securities in book-entry form B. Clear transactions in equity securities C. Clear transactions in fixed-income securities D. Ensure that dividend payments are sent to investors by the issuers of the securities
A. Hold securities in book-entry form The Depository Trust Corporation (DTC) is a subsidiary of the Depository Trust & Clearing Corporation (DTCC) and its primary function is to hold securities in book-entry form. This allows broker-dealers to buy and sell securities on behalf of their customers without the costs and time associated with physical certificates. A change of ownership is made from the account of the selling broker-dealer to the account of the buying broker-dealer. The DTC is not a clearing facility.
A broker-dealer's anti-money laundering (AML) compliance program must be approved: A. In writing by a member of senior management B. By FINRA and a member of senior management of the broker-dealer C. By the SEC and the head of compliance for the broker-dealer D. In writing by both the CEO and the CFO
A. In writing by a member of senior management Each member's AML program must be approved in writing by a member of senior management.
Which of the following is a characteristic of a subscription warrant? A. Lower fixed interest expense on the issuer's bonds B. Immediate dilution of the corporation's shares C. Immediate forfeit of control over the company D. A shareholder's ability to maintain ownership during an issuance of stock
A. Lower fixed interest expense on the issuer's bonds Warrants represent the right to buy shares of stock at a pre-determined price. Warrants are typically attached to bonds or preferred stock. The issuer attaches warrants to these securities in order to lower the interest or dividend rate on the new security being issued.
The Bond Buyer Index is based on which of the following securities? A. Municipal bonds B. Treasury bonds C. Corporate bonds D. Mortgage bonds
A. Municipal bonds Municipal bond indices are created by The Bond Buyer. The Bond Buyer is a financial publication that specializes in the municipal market.
A town has started the construction of public sewers. This project is likely paid by a(n): A. Special assessment bond B. Industrial development bond C. Moral obligation bond D. Equipment trust certificate
A. Special assessment bond Public sewers are often built with the proceeds of a special assessment bond. A special assessment is a charge against property that receives a benefit from the improvement.
If an investor inherits mutual fund shares, what's her cost basis? A. The NAV of the shares on the date of the owner's death B. The NAV as calculated 90 days after the owner's death C. The same cost basis as the deceased owner's D. The same cost basis as the deceased owner's plus any capital gains distributions
A. The NAV of the shares on the date of the owner's death When an investor inherits securities, the cost basis is typically the market value on the date of the original owner's death. For mutual funds, this represents the net asset value (NAV) on the date of the owner's death. The deceased's cost basis represents the original purchase price. By receiving the market value at the time of death, the inheritor typically has a higher (i.e., stepped up) cost basis, which reduces her capital gains.
A customer has a variable annuity and wants to transfer from the XYZ growth separate account to the ABC growth separate account. To do this, who should the customer contact? A. The insurance company that sponsors her account B. A broker-dealer C. Either the ABC Fund or the XYZ Fund D. The state insurance Commissioner
A. The insurance company that sponsors her account A customer who wants to change subaccounts within a variable annuity can contact the insurance company that sponsors the variable annuity. It's not unusual for a variable annuity to have many different subaccounts which could have different names, objectives, and portfolio managers.
A brokerage firm will generally distribute which of the following to employees of the firm? A. The restricted list B. The watch list C. A list of the mutual funds it recommends to customers D. A list of the stocks in which it makes a market
A. The restricted list Restricted and watch lists include securities that employees are either restricted or prohibited from trading, or issues that are subject to closer scrutiny by the brokerage firm. The restrictions or limitations associated with the lists apply to employee transactions and to solicited transactions with customers. The restricted list must be distributed to employees; however, the content of the watch list is generally known only to selected members of the legal and compliance departments.
A quote of 5.90 - 5.75 is a quote for which of the following securities? A. Treasury bills B. Treasury notes C. Treasury bonds D. A mortgage-backed security
A. Treasury bills Treasury bills are quoted on a discount yield basis while the other choices are quoted at a price. Since yield is inversely related (moves opposite) to price, the higher yield (5.90) represents the lower price and is the bid. The lower yield (5.75) represents the higher price and is the ask (offer). The other securities are all quoted as a percentage of par in 32nds.
A customer wants to give money to her daughter, but does not want her child to have immediate access to the funds. Which type of account is the MOST suitable? A. Trust account B. UGMA/UTMA C. 529 D. JTWRS
A. Trust account Trust accounts restrict the beneficiary's (i.e., child's) access to funds and assets. Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) accounts are legally the property of the child at the time the accounts are established. Similarly, joint tenants with right of survivorship (JTWRS) accounts make the child the immediate legal owner of assets in the account.
A corporation has a 7% cumulative preferred stock issue outstanding. The company paid a $5 dividend three years ago, $6 two years ago, and $7 last year. If the company wants to pay a common stock dividend in the current year, the cumulative preferred stockholders must first receive a dividend of: A. $17 B. $10 C. $7 D. $3
B. $10 The cumulative preferred stockholders should receive a yearly dividend of 7%. Since it's a cumulative issue, any dividend that's not paid (in arrears) must be made up prior to a common dividend being paid. If a common dividend is to be paid in the current year, the cumulative preferred stockholders must first receive $10 ($7 for the current year plus $2 missed from three years ago plus $1 missed from two years ago). Since the cumulative preferred stockholders received the full dividend last year, there are no further dividend payments in arrears to consider.
A customer sells short 1,000 shares of ABC stock and ABC declares a 3-for-2 stock split. The customer is now short: A. 666 shares B. 1,500 shares C. 1,000 shares D. 3,000 shares
B. 1,500 shares If a customer is short 1,000 shares and the company declares a 3-for-2 stock split, the customer will be short 1,500 shares (1,000 x 3/2) after the split.
A stock closes at $37. The next day the stock sells ex-dividend $0.68 per share. At what price will the stock open the next day if it opens at the same level it closed the day before? A. 36.66 B. 36.32 C. 37.00 D. 37.68
B. 36.32 The price of a stock is reduced by an amount sufficient to cover the dividend. The price will be reduced by 68 cents. Therefore, $37 - .68 = $36.32.
Which of the following statements is TRUE of 529 plans? A. The beneficiary must be under the age of 25. B. Any person can contribute. C. The beneficiary cannot contribute. D. Their assets may be rolled into an IRA.
B. Any person can contribute. Any person who's of legal age may contribute to 529 plans. Beneficiaries may be of any age, may be the owner and the beneficiary, but the plan cannot be rolled into an IRA. Beginning in 2024, excess amounts in 529 plans can be rolled into Roth IRAs, but there will be strict limitations.
A limited partner would be in jeopardy of losing her limited liability if the partner: A. Received a portion of the project's income and deductions B. Assisted in the decision of which properties to acquire C. Insisted on examining the partnership's financial records D. Made a loan to the partnership
B. Assisted in the decision of which properties to acquire Limited partners have the right to receive their portion of income and losses, examine books and records, and make loans to the partnership. If they get involved in the management of the program, such as deciding which properties to acquire, they could be considered general partners and lose their limited liability.
A person who passes the Securities Industry Essentials (SIE) Exam is permitted to: A. Accept unsolicited orders B. Be qualified as a registered representative after passing a FINRA qualification examination C. Be qualified as a registered representative without passing a FINRA qualification examination D. Put the term "SIE" on her business card
B. Be qualified as a registered representative after passing a FINRA qualification examination Passing the SIE Exam alone doesn't qualify a person for registration with a broker-dealer. In order to become registered to engage in securities business, an individual must pass the SIE Exam and a qualification exam that's appropriate for the type of business in which the individual will engage (e.g., Series 6, 7, 79). A person needs to be registered to accept any type of order, regardless of whether it's solicited or unsolicited.
How can a client minimize principal risk in bonds due to fluctuating interest rates? A. Buy long-term maturities B. Buy short-term maturities C. Buy discount bonds D. Do periodic trading to lock in maturities
B. Buy short-term maturities If an investor buys bonds that have short-term maturities, this will minimize loss in principal due to fluctuating interest rates. The prices of short-term bonds will fluctuate in response to interest rate swings less than the prices of long-term bonds. In addition, premium bonds (those priced above par) are less volatile than discount bonds (those priced below par).
If an investor expects a sharp increase in a stock's price, which of the following will be the most profitable? A. Sell puts B. Exercise rights C. Sell calls D. Buy puts
B. Exercise rights Exercising preemptive rights, similar to exercising long call options, will provide investors with an unlimited potential gain if the price of the underlying stock rises. If investors expect a stock's price to rise, selling puts will provide a profit, but maximum profit is limited to the premium received on the sale of the puts. Buying puts and selling calls are both bearish positions and are only profitable if the underlying stock's price falls.
A broker-dealer is underwriting an initial public offering (IPO) for a company that will be exchange-listed. The broker-dealer continues to deliver prospectuses: A. Only on purchases made, at the public offering price B. For 25 days after the deal has closed C. For 40 days after the deal has closed D. For 90 days after the deal has closed
B. For 25 days after the deal has closed In many cases, broker-dealers are required to continue to deliver prospectuses to purchasers, post the issue's effective date. For IPOs which will be listed, the requirement is 25 days (there is no after-market delivery requirement for listed follow-on offerings). For unlisted follow-on offerings, the requirement is 40 days, and for unlisted IPOs it is 90 days.
A retail salesperson has helped his firm win the role as the lead underwriter for a local municipal bond issue. If the underwriting is being conducted on a negotiated basis, which of the following statements is TRUE? A. The retail salesperson is not permitted to make a political contribution of any amount to an elected official of this issuer B. It is a violation of MSRB rules if the retail salesperson had made a $300 political contribution to a local elected official of this issuer within the past two years C. The retail salesperson is required to register as a Municipal Securities Principal D. The action by the retail salesperson is a violation of MSRB rules
B. It is a violation of MSRB rules if the retail salesperson had made a $300 political contribution to a local elected official of this issuer within the past two years Since the retail salesperson has helped his firm obtain negotiated municipal bond business, he is defined as a municipal finance professional (MFP). A two-year look-back period applies to any political contributions that are made by municipal finance professionals. If a person has made contributions to a political candidate that would have resulted in a violation of MSRB Rule G-37 (contributing more than $250 to a candidate for whom he is entitled to vote), the firm that employs the person is subject to the underwriting ban, but only if the person was employed in the role of an MFP within two years of the contribution. A retail salesperson is not required to register as a Municipal Securities Principal and is permitted to solicit elected officials of municipal bond issuers as long as the person does not contribute more than $250 to the official for whom he is entitled to vote.
A client has been watching a thinly traded stock and has noticed that it has not had any trading activity today. What type of risk is the MOST significant for this type of investment? A. Business risk B. Liquidity risk C. Inflation risk D. Market risk
B. Liquidity risk If a security is thinly traded, it indicates that the market for that investment is illiquid. If an investment has a wide spread, it means the difference between the bid and ask prices is larger than normal. Market risk, or the risk that the market will affect a security's value, is a real risk, but not the most significant one for a thinly traded stock. Even if the stock market increases, the stock itself may still be illiquid.
For the buyer of an option, the premium paid is considered the: A. Leveraged price B. Maximum risk C. Maximum reward D. Breakeven point
B. Maximum risk For the buyer of an option, the premium paid represents the maximum loss (risk). On the other hand, for the seller of an option, the premium received represents the maximum gain.
A project financed through revenue bonds is experiencing difficulty in that revenues are not sufficient to meet debt service payments. If, through legislative approval, the state pays interest and principal in a timely manner, the issue is MOST LIKELY: A. Double-barreled bonds B. Moral obligation bonds C. Bond anticipation notes D. Limited tax bonds
B. Moral obligation bonds Moral obligation bonds are municipal revenue bonds that are payable by the state if revenues from the project do not satisfy debt service payments. However, in order for the state to service the debt, approval of the state legislature is required. Double-barreled bonds are issued as revenue bonds that are additionally backed by the general obligation of the full faith and credit of the issuing municipality.
The U.S. government agency that is responsible for regulating the process by which issuers raise capital is: A. The Federal Deposit Insurance Corporation (FDIC) B. The Securities Exchange Commission (SEC) C. The Internal Revenue Service (IRS) D. The Financial Industry Regulatory Authority (FINRA)
B. The Securities Exchange Commission (SEC) The Securities and Exchange Commission is an independent federal government agency that's responsible for protecting investors, maintaining fair and orderly securities trading markets, and regulating the process by which issuers raise capital in the primary market. (37510)
When can a European style option be exercised? A. At any time up until the expiration date B. The day of expiration only C. The day after expiration only D. The day before expiration only
B. The day of expiration only European style options can only be exercised on an option's expiration date (day of expiration). On the other hand, American style options can be exercised at any time up until the expiration date.
The Investment Advisers Act of 1940 regulates which of the following? A. The markup charged by a financial services firm on a securities transaction B. The fee charged by an accountant for providing advice concerning securities C. The fee charged by a bank to hold securities D. The fee charge by an accountant when he files a client's tax return
B. The fee charged by an accountant for providing advice concerning securities The Investment Advisers Act of 1940 regulates firms that are established as investment advisers (IAs). The Act both defines the term investment adviser and provides a number of exclusions from the IA definition. Examples of investment advisers include firms that manage mutual fund portfolios as well as firms that manage wrap accounts and collect a single fee to cover the costs related to investment advice along with the costs of transactions. Exclusions from the IA definition are available to broker-dealers, specific types of professionals (lawyers, accountants, teachers, engineers), and publishers. However, for the professionals to be excluded, the investment advice being provided must be incidental to their actual profession. For example, if an accountant decides to hold himself out to the public as an investment adviser and charge a separate fee for that service, the exclusion will not apply. On the other hand, if an account collects a fee for completing and filing a client's tax return, he is not considered to be acting as an investment adviser.
A corporation declares a 5% stock dividend that's payable on Thursday, October 18. If the record date is Wednesday, October 3, the ex-date for this distribution is: A. Monday, October 1 B. Tuesday, October 2 C. Wednesday, October 17 D. Friday, October 19
B. Tuesday, October 2 The ex-date for small stock dividends (less than 25%) is one business day before the record date. In this case, the determination of the ex-date is the same as if it was a cash dividend. (17528)
May a brokerage firm place a temporary hold on the transfer of securities? A. Yes, for the account of any investor. B. Yes, for the account of a senior investor. C. No, since this is beyond the scope of SRO rules. D. Yes, if the customer has a margin account.
B. Yes, for the account of a senior investor. FINRA rules permit a brokerage firm to place a temporary hold on the disbursements or transfers of funds and securities, as well as the execution of securities transactions. The temporary hold only applies to the account of a specified adult. A specified adult is a person who's age 65 or older or a person who's age 18 or older and who the firm reasonably believes has a mental or physical impairment that renders her unable to protect her own interests.
After a registered person resigns or is terminated from a member firm, the firm is required to notify FINRA within: A. 30 days on Form U4 B. 180 days on Form U4 C. 30 days on Form U5 D. 180 days on Form U5
C. 30 days on Form U5 After a registered person resigns or is terminated from a member firm, the firm is required to notify FINRA within 30 days by filing Form U5. Form U5 will provide the applicable details of the termination.
A reverse repurchase agreement is sometimes referred to as: A. Federal funds B. Arbitrage C. A matched sale D. A treasury sale
C. A matched sale A reverse repurchase agreement is also referred to as a matched sale and is created when the Federal Open Market Committee (FOMC) sells securities to dealers with the intention of buying the securities back at a future date. This activity has the short-term effect of absorbing (removing) funds from the money supply. Federal funds or fed funds are the monies that are borrowed overnight on a bank-to-bank basis.
If an individual purchases $50,000 of shares of a mutual fund family, which of the following could be added to reach a breakpoint? A. All family members investing in different funds at the same broker-dealer B. All family members investing in the same funds at different broker-dealers C. A spouse's investments in the same fund family at the same broker-dealer D. A spouse's investments in different funds at different broker-dealers
C. A spouse's investments in the same fund family at the same broker-dealer Sales charge breakpoints are available for quantity mutual fund share purchases of the same family of funds at the same broker-dealer. Additionally, purchases of shares of the same family of funds at the same broker-dealer by a spouse can be added together to reach a breakpoint. (13509)
ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a customer's buy order. ABC has acted as a(n): A. Dealer B. Designated market maker C. Agent D. Underwriter
C. Agent When a broker-dealer buys a security from a market maker (dealer) on behalf of its customer, it's acting as a broker (agent). For agency trades, the client is charged a commission on the transaction. On the other hand, if the firm bought the security for its own account, or sold the security to a client from its inventory, it's acting as a dealer (principal). For principal trades, the client is charged a markup or markdown.
Under Regulation S-P, when must a firm make the required disclosures? A. Quarterly and also when changes are made B. Only when the account is opened C. Annually and also when changes are made D. Upon the delivery of every trade confirmation
C. Annually and also when changes are made Under Regulation S-P, broker-dealers must enact policies to protect the privacy of their customers' information. In addition, broker-dealers must deliver a privacy notice at the opening of a customer account and annually thereafter. If any changes are made to the privacy notice, customers must be provided with a copy of the new version.
An uncle would like to invest for his nephew's college education. Which of the following factors is a benefit of a 529 plan? A. Uniformity of state taxation B. Pretax contributions C. Change of beneficiaries allowed D. No limits on contributions
C. Change of beneficiaries allowed The owner of a 529 plan may change beneficiaries. Contributions are made on an after-tax basis, and are based on state rules, which vary from state to state. Contributions are limited, and vary by state.
Funds collected from 12b-1 fees cannot be used to pay for which of the following fund expenses? A. Sales concessions paid to registered representatives B. Printing the fund's prospectus C. Commissions paid for executing trades in the fund's portfolio D. Costs associated with creating the fund's website
C. Commissions paid for executing trades in the fund's portfolio For mutual funds, 12b-1 fees are charged to cover the costs of distributing the shares. This includes sales concessions that are paid to registered representatives (also referred to as trailers), printing the fund's prospectus, and expenses related to creating the fund's website. However, 12b-1 fees are not used to cover the cost of executing trades in the fund's portfolio. (17534)
The Federal Reserve has been buying bonds in the marketplace. This is in response to: A. Inflation B. Stagflation C. Increasing unemployment D. Increasing employment
C. Increasing unemployment When the economy experiences increasing unemployment, the Fed typically increases the money supply by buying U.S. Treasury bonds (injecting money into the economy). The increased money in the economy will lower interest rates and encourage more economic activity, such as increased hiring. Stagflation is an economic situation in which there's high inflation, high unemployment, and slow or negative economic growth. When this situation occurs, monetary policy may not be effective.
If interest rates decline, which of the following securities is likely to have the greatest increase in market value? A. Short-term bonds B. Intermediate-term bonds C. Long-term bonds D. All bonds will experience the same change in market value
C. Long-term bonds When interest rates decline, the bonds with the longest maturities will have the greatest price increase.
Which of the following activities is NOT performed by a transfer agent? A. Handling lost, destroyed, or stolen certificates B. Acting as proxy agent C. Maintaining the issuer's ownership register for each issuance of securities D. Acting as the company's paying agent for interest payments on bonds and for cash or stock dividends on equities
C. Maintaining the issuer's ownership register for each issuance of securities The transfer agent is responsible for the issuance and cancellation of certificates to reflect changes in ownership, acting as the company's paying agent for interest payments on bonds and for cash or stock dividends on equities, acting as proxy agent (sending voting materials) and mailing agent (mailing the company's financial reports to shareholders), as well as handling lost, destroyed, or stolen certificates. However, maintaining the issuer's ownership register for each issuance of securities is the role of the registrar.
A registered representative purchased two tickets to a concert for which he paid $175 per ticket. If the face value of the tickets is $95 per ticket, the RR may: A. Give both tickets to a customer B. Give one ticket to a customer C. Not give any tickets to a customer D. Give two tickets to two different customers
C. Not give any tickets to a customer Member firm personnel may not give, or permit to be given, a gift of material value exceeding $100 per recipient per year to personnel employed by another member firm. The gifts should be valued at the higher of the cost or market value. If tickets to the concert have a face value of $95, but the tickets were purchased at a value of $175, the higher value would be used. Since the value of each ticket exceeds $100, none of the tickets may be given to the customer. If the RR attended the event with the customer, it would be a business expense and not a gift.
The 5% Markup Policy applies to: A. A primary distribution (new issue) B. A registered secondary distribution requiring a prospectus C. Securities quoted on Nasdaq D. Municipal securities
C. Securities quoted on Nasdaq The 5% Markup Policy does not apply when a security is being issued with a prospectus or for municipal securities. In this example, a prospectus would be required for a primary distribution as well as a registered secondary distribution. Securities quoted on Nasdaq would be the only choice given for which the 5% guideline would apply.
Blue Sky laws are established under which of the following? A. The Securities Act of 1933 B. The Securities Exchange Act of 1934 C. The Uniform Securities Act D. The Code of Procedure
C. The Uniform Securities Act Blue Sky laws (state regulations) are established under the Uniform Securities Act (USA). The USA is a model law that individual states use as a template for their specific laws.
The main difference between a registered exchange-traded REIT and a registered nontraded REIT is: A. The type of assets in which they are permitted to invest B. The types of disclosures they are required to make to investors C. The amount of liquidity each of the securities has D. The tax treatment of each of the securities
C. The amount of liquidity each of the securities has Most REITs are traded on an exchange, such as the NYSE, and offer investors a high degree of liquidity. Nontraded REITs do not have their shares listed on an exchange and offer very limited liquidity, similar to limited partnerships. Many nontraded REITs may be redeemed only by selling the shares directly back to the REIT, subject to many limitations set by the REIT. Both invest in various types of real estate and are subject to the same tax consequences (90% distribution on taxable income). Since they are both registered, they are required to make the same disclosures to investors.
A portfolio of debt instruments will be the most stable when: A. Interest rates are decreasing B. Interest rates are increasing C. The bonds have short maturities D. The bonds have long maturities
C. The bonds have short maturities When compared to long-term bonds, short-term bonds are less volatile, tend to have more stable prices, and are one of the safest investments. Based on the inverse relationship between bond prices and interest rates, if interest rates rise, all bond prices will fall and, when interest rates fall, all bond prices will rise. However, long-term bonds will increase or decrease more (i.e., are more volatile) than short-term bonds.
According to FinCEN, which of the following is considered a control person? A. An independent director B. A limited partner C. The chief financial officer D. Any owner in the business
C. The chief financial officer According to the Financial Crimes Enforcement Network (FinCEN), the definition of a control person is an individual with significant responsibility to control, manage, or direct a legal entity. This includes the chief executive officer (CEO), president, chief operating officer (COO), chief financial officer (CFO), managing partner, general partner, managing member, and managing director. A control person may (or may not) be a beneficial owner. (13479)
Within a brokerage firm, a registered representative solicits customers to purchase securities, another person works in the firm's cashier's department as a clerk, a managing director supervises the research department, and a consultant has been brought in to work on an accounting project. Which of these persons is NOT required to be fingerprinted? A. The registered representative B. The clerk C. The consultant D. The managing director
C. The consultant Fingerprints are required of any securities industry person who is engaged in the sale, recommendations, or transactions of securities, or any person who regularly has access to the keeping, handling, or processing of securities, monies, or the original books and records relating to securities or monies. In addition, any person who has direct supervisory responsibility over any persons who are engaged in these activities is required to comply with these regulations. The consultant is neither engaged in the sale or handling of securities nor responsible for the firm's books and records and is therefore not required to be fingerprinted.
Which of the following stipulations is NOT included in a letter of intent? A. The maximum time limit for the letter of intent is 13 months. B. The letter of intent may be backdated for up to 90 days. C. The fund may stop redemptions during the duration of the letter of intent. D. The fund may place some of the initially purchased shares in an escrow account to protect against the failure to fulfill the letter of intent.
C. The fund may stop redemptions during the duration of the letter of intent. A letter of intent (LOI) has a maximum duration of 13 months and may be backdated for up to 90 days to include previous purchases. Also, to protect against the client's failure to fulfill the letter of intent, a certain amount of the initially purchased shares may be placed in an escrow account by the customer's broker-dealer. If the terms of the letter are not met, the shares in the escrow account will be liquidated and used to cover any additional sales charges that are due. The letter of intent will not contain a clause which stipulates that redemptions are prohibited during the 13-month period.
What's included in the red herring preliminary prospectus for an offering that's being registered with the Securities Exchange Commission (SEC)? A. The effective date B. The offering price C. The issuer's audited financials D. The date on which the SEC approved the registration
C. The issuer's audited financials The preliminary prospectus is also referred to as a red herring and may be used before the SEC has granted an effective date for registration. The red herring cannot include either the public offering price (POP) or the effective date. Preliminary prospectuses do include audited financial statements so that potential investors are able to perform their own due diligence. The SEC does not approve securities under any circumstances.
May a brokerage firm place a temporary hold on a securities transaction? A. Yes, for the account of any investor. B. No, temporary holds may only be placed on disbursements or transfers of funds and securities. C. Yes, for the account of a specified adult. DYes, if the customer has a margin account.
C. Yes, for the account of a specified adult. FINRA rules permit a brokerage firm to put a temporary hold on the disbursements or transfers of funds and securities, as well as the execution of securities transactions. The temporary hold only applies to the account of a specified adult. A specified adult is a person who's age 65 or older or a person who's age 18 or older and who the firm reasonably believes has a mental or physical impairment that renders her unable to protect her own interests.
The net asset value (NAV) of an open-end investment company is $22.20 and its sales charge is 8%. What is the public offering price? A. $20.42 B. $22.20 C. $23.98 D. $24.13
D. $24.13 The public offering price (POP) or asked price is $24.13. To find the POP, the net asset value is divided by the complement of the sales charge, as follows: NAV / (100% - sales charge) $22.20 / (100% - 8%) $22.20 / 92% $22.20 / 92% = $24.13 Remember, a mutual fund's sales charge is always expressed as a percentage of the POP. For this reason, it is incorrect to multiply the sales charge (8%) by the NAV ($22.20).
According to FINRA's rules regarding communication with the public, which communication is subject to principal approval and filing with FINRA? A. An e-mail that a member firm is distributing to 10 prospective retail investors. B. An e-mail that a member firm is distributing to 10 prospective retail investors and 10 existing retail investors. C. An e-mail that a member firm is distributing to 30 investment advisers in hopes of generating institutional business. D. An independently prepared reprint of an article regarding mutual funds that a member firm is distributing to 30 existing retail investors.
D. An independently prepared reprint of an article regarding mutual funds that a member firm is distributing to 30 existing retail investors. Unless an exception applies, retail communication must be approved by a qualified principal (supervisor) of the firm. In addition, certain types of retail communication (e.g., those related to options and mutual funds) must also be filed with FINRA. Since the article relates to mutual funds and is being distributed to more than 25 retail investors, it's considered retail communication and must be approved by a principal and filed with FINRA. Written or electronic communication that's made available to 25 or fewer retail investors (prospective and/or existing) is considered correspondence and is only subject to review and supervision. Written or electronic communication that's only distributed to investment advisers (or other institutional investors) is considered institutional communication and is also only subject to review and supervision.
The FDIC provides coverage for: A. Fixed annuities B. Life insurance C. Variable annuities D. Certificates of deposit (CDs)
D. Certificates of deposit (CDs) The Federal Deposit Insurance Corporation (FDIC) provides coverage for deposits at a bank, in the event the bank has financial troubles. FDIC will cover CDs, but not insurance, or fixed and variable annuities.
The U.S. Department of the Treasury is responsible for: A. Fighting stagnation B. Fiscal policy C. Fighting inflation D. Collecting taxes
D. Collecting taxes The U.S. Department of the Treasury is responsible for managing the government's finances, including the collection of taxes. Although most Americans think of the Internal Revenue Service (IRS) when it comes to taxes, the IRS is actually a department within the Treasury. Fiscal policy is enacted by Congress and can be used to fight inflation and stagnation. The Federal Reserve Board focuses on inflation and stagflation through the management of the money supply.
An individual wants a real estate investment that offers tax benefits and provides the ability to share directly in the earnings of the business. Which of the following BEST meets those objectives? A. ETN B. REIT C. ETF D. DPP
D. DPP Direct participation programs (DPPs) can be businesses that invest directly in real estate programs. Investors in these programs are considered owners of the business. These owners benefit from various tax benefits (tax deductions and credits) and also from the ability to share directly in the revenues. REITs invest in real estate properties and/or debt, but deductions and revenues don't flow through the trust. ETNs and ETFs are products that trade like debt or equity investments. (17545)
Which of the following statements is NOT TRUE of a Coverdell Education Savings Account? A. The maximum contribution is $2,000 per year. B. Contributions are permitted until the beneficiary turns age 18. C. Transfers are permitted to other family members who are under the age of 30. D. Distributions can only be made for higher education expenses.
D. Distributions can only be made for higher education expenses. The statement, "Distributions can only be made for higher education expenses" is NOT TRUE. Remember, distributions from Coverdell Education Savings Accounts are permitted for elementary and/or higher education expenses.
Which of the following statements describes the greatest risk associated with mortgage-backed securities? A. Borrowers might default on their mortgage payments B. The market for mortgage-backed securities is illiquid C. The market price of the bonds might fall due to a rating downgrade D. Falling interest rates might accelerate early repayment of principal
D. Falling interest rates might accelerate early repayment of principal Mortgage-backed securities are subject to prepayment risk. The early return of principal would then need to be reinvested when rates are low. Many mortgages that underlie mortgage-backed securities are backed by government guarantees or private mortgage insurance, which insulates many holders from defaults on the underlying mortgages.
The interest rate that fluctuates the most is the: A. Prime rate B. Broker loan rate C. Discount rate D. Federal funds rate
D. Federal funds rate Short-term rates fluctuate more than long-term rates. The federal funds rate, which is the rate of interest one bank charges another bank for the use of excess reserves for short-term periods (usually overnight), fluctuates the most since it has the shortest maturity. Although long-term bond prices fluctuate more than short-term bond prices, the yields of short-term securities fluctuate more than those for long-term securities.
A registered representative is aware of a large order sitting on the firm's institutional trading desk. He decides to execute an order for his own account before the institutional order is entered. This practice is known as: A. Insider trading B. Interpositioning C. Pegging D. Frontrunning
D. Frontrunning Each of these practices are considered prohibited. Although knowledge of this order may not be public, the execution of an order ahead of a customer order in an effort to make a profit or protect against a loss is known as frontrunning—not insider trading. Insider trading is based on material non-public information concerning an issue of securities. Interpositioning is placing another broker-dealer between yourself and the customer, which generally results in an increase in execution costs and a detriment to the customer. Pegging is setting a floor on how low a security can go and unless it involves stabilization, this practice is considered manipulative.
A person hears sensitive news regarding a publicly traded company before it's disseminated to the public. If this person sold his stock, the prohibited practice that he has engaged in is referred to as: A. Front-running B. Freeriding C. Wash sale D. Insider trading
D. Insider trading Any person, not just employees of brokerage firms, who uses material, non-public information to make a profit or avoid a loss is subject to insider trading sanctions. This also includes any person who acquires and passes the information along (tippers), as well as any person who receives and uses the information (tippees).
Which of the following is NOT a characteristic of preferred stock? A. It has a fixed dividend B. The board of directors must declare the dividends C. It has a dividend that is not guaranteed D. It carries voting rights
D. It carries voting rights The board of directors must declare dividends for both common and preferred stock. Neither common nor preferred stockholders are guaranteed a dividend. Preferred stock normally has a fixed dividend. Preferred stock does not have voting rights, only common shares may vote.
Which of the following is NOT a type of unsystematic risk? A. Political risk B. Business risk C. Credit risk D. Market risk
D. Market risk Market risk is a form of systematic risk and cannot be avoided by securities investors. For example, if the overall stock market is declining, it will negatively affect all of the stocks in the market. Conversely, unsystematic risk is able to be reduced through appropriate diversification.
Why do no-load mutual funds have lower expense ratios than mutual funds with a sales load? A. No-load funds cannot assess 12b-1 fees. B. Fees for managing no-load funds are always lower when compared to mutual funds with sales loads. C. Sales loads on mutual funds will increase the annual expense ratio of the mutual fund. D. No-load funds cannot assess a 12b-1 fee that exceeds 25 basis points.
D. No-load funds cannot assess a 12b-1 fee that exceeds 25 basis points. A mutual fund's expense ratio only includes fees, charges, and expenses that are paid directly by the fund. Front-end and back-end sales loads are paid by the investor, rather than the fund. On the other hand, 12b-1 fees are paid for out of the fund's assets. Since no-load funds cannot assess a 12b-1 fee that exceeds 0.25% of the funds average net assets, their expense ratios will typically be lower than funds that charge a higher 12b-1 fee. Although no-load funds typically have lower management fees, that's not always the case.
Which of the following is found in an open-end mutual fund's summary prospectus? A. Number of shares issued B. The net asset value C. Structure of the organization D. Performance table
D. Performance table Summary prospectuses can only be used by mutual funds and are used to summarize the full or statutory prospectus. The summary prospectus will contain information concerning the investment objectives, fees and expense tables, the principal investment strategy and risks, the fund's performance table and management information, purchase and sale information, as well as tax information. Since the summary prospectus is primarily a static document, up-to-date information (e.g., the number of shares issued, the net asset value, or the public offering price) is NOT included and neither is the structure of the mutual fund organization (board of directors).
If an investor's portfolio is significantly weighted with mortgage-backed securities, she is MOST concerned with: A. Credit risk B. Political risk C. Legislative risk D. Prepayment risk
D. Prepayment risk Like most debt instruments, mortgage-backed securities (MBSs) are subject to interest-rate risk (i.e., the risk that a debt security's value will fall as interest rates rise). However, MBSs are also subject to risk when interest rates fall. Falling rates cause an increase in prepayments on the underlying mortgages, and this money must thereafter be reinvested in new, lower coupon securities. This risk is referred to as prepayment risk. During a period of rising interest rates, prepayment risk is less of a factor and opportunity risk becomes more important. Since the existing investments will be earning less than new MBSs, the existing securities could be liquidated at a loss and new MBSs could be purchased to take advantage of their higher return.
A person has had a brokerage account with an online securities trading firm, but has just been hired by a broker-dealer. Which of the following statements is TRUE? A. The person is not permitted to maintain the account. B. The person is only permitted to maintain the account if a principal of the employing firm provides written approval for each order prior to the order being entered. C. The person is permitted to maintain the account if his employer provides written consent within three months of being hired. D. The person is permitted to maintain the account if his employer provides written consent within 30 days of being hired.
D. The person is permitted to maintain the account if his employer provides written consent within 30 days of being hired. If an employee had opened an account prior to the time that he became associated with a broker-dealer, the account may be maintained if he obtain his employer's written consent within 30 days of the beginning of his employment. Additionally, the employee is required to provide written notification to the executing firm of his employment with another broker-dealer.
An RR must attempt to obtain all of the following information about customers, EXCEPT: A. Their occupation B. Their tax ID number C. Their legal residence D. Their educational background
D. Their educational background There is no requirement to attempt to obtain a client's educational background.
The main difference between a Treasury note and Treasury bond is: A. Treasury notes have longer maturities B. The minimum denomination of a Treasury note is $5,000 C. Treasury bonds are issued at a discount D. Treasury bonds have maturities exceeding 10 years
D. Treasury bonds have maturities exceeding 10 years Treasury bonds have maturities exceeding 10 years. In fact, currently the maturities are 20 and 30 years. The minimum denomination for both securities is $100, and neither security is issued at a discount. Treasury bills are issued at a discount. (13477)
