SIE Practice Exams

Question ID: 10815 3) Louis turns age 72 on November 1, 2021. By which date must he begin taking Required Minimum Distributions? A) 1-Apr-22 B) 31-Dec-21 C) 15-Apr-22 D) 31-Dec-22

A) 1-Apr-22

1) Ted inherits a Traditional IRA from his father, after the father's death. It is worth $75,000 and he takes a full immediate withdrawal. No part of it is non-deductible contributions. Ted is 45 years old. What tax will he pay on the withdrawal? A) Ordinary income tax + 10% penalty. B) No tax or penalty C) Ordinary income tax but no penalty D) 10% penalty but no ordinary income tax

C) Ordinary income tax but no penalty Beneficiaries pay ordinary income tax on withdrawals from Traditional IRAs. But withdrawals by a beneficiary after the account owner's death is one exception to the 10% penalty. The exception is not available to a spouse beneficiary who elects to treat the IRA as his/her ownTextbook Reference: Please see textbook section 12.2.1.3

leading indicators

- bond yields - building permits (new private housing) - manufacturing activity - stock market - producer price index

lagging indicators

- interest rates, particularly prime rate - unemployment rate - corporate profits - balance of trade - inventory/sales ratio - labor cost per unit of output - commercial and industrial loans outstanding

coincident indicators

-GDP -industrial production index and capacity utilization index - employees on non-agricultural payrolls - personal income - consumer spending - retail and manufacturing sales

6) Which of the following orders must be adjusted accordingly on the ex-dividend date? A) "Buy 2,000 shares of ABC at 15.75 AON" B) "Buy 3,000 shares of JKL at 18.25 Do Not Reduce" C) "Sell 1,000 shares of XYX at 22.50 GTC"

A) "Buy 2,000 shares of ABC at 15.75 AON" GTC-- good til cancelled AON-- all or none Answer Explanation: Buy limit and sell stop orders must be adjusted based on the distribution terms on the ex-dividend date. A client may also provide specific instructions to indicate that their order should not be reduced. Textbook Reference: See textbook section 9.4.5

28) What is the deadline for making an IRA contribution for calendar year 2018? A) 15-Apr-19 B) 1-Mar-19 C) 31-Dec-18 D) 30-Sep-19

A) 15-Apr-19 Answer Explanation: All IRA contributions must be made by the due date of the individual's federal income tax return, which usually is the next April 15. Textbook Reference: Please see textbook section 12.2.1

31) An investor holding a Collateralized Mortgage Obligation (CMO) owns A) A type of MBS designed by a broker-dealer B) A bond portfolio secured by a pool of housing stocks C) A stock portfolio secured by a pool of mortgages D) A US Government guaranteed bond

A) A type of MBS designed by a broker-dealer A CMO is mortgage-backed security, structured by a broker-dealer, divided into individual components called 'tranches'. Textbook Reference: Please see textbook section 3.3.2

40) To protect an existing short position, an investor would place a A) Buy-stop order B) Buy limit order C) Market order D) Sell-stop order

A) Buy-stop order Answer Explanation: A buy-stop order would be used to protect a short stock position. A sell- stop order would be used to protect a long stock position.Textbook Reference: Please see textbook section 9.4.4

53) Which two of the following statements are true about traditional IRAs? I. The catch-up provision begins at age 55 II. The maximum contribution is $6000 per year III. Withdrawals can begin at age 59 1⁄2 IV. Withdrawals can begin at age 59 1⁄2, with a minimum of 5 years of contributions

A) II and III Answer Explanation: The maximum contribution to an IRA is $6,000. The IRS allows catch-up contributions of $1,000 for individuals age 50 or above. Additionally, withdrawals can begin after the investor reaches the age of 59 1⁄2. Note that the contribution limit was increased to $6,000 from $5,500 on January 1st, 2019. The five year requirement only applies to Roth IRAs. Textbook Reference: See textbook section 12.2.1

48) If a representative comes into contact with suspicious activity involving currency transactions, the representative should A) Report the activity to his supervisor B) File an SAR C) Contact the FBI D) File a CTR

A) Report the activity to his supervisor Answer Explanation: If representatives come into contact with suspicious activity or transactions involving potential money laundering activity, they are to report the activity to their supervisor. The representative does not file CTRs or SARs. These are filed if necessary by the firm's Anti-Money Laundering officer on behalf of the firm. Textbook Reference: Please see textbook section 14.3.2

5) Rules against anti-manipulation in the primary market sale of exempt securities are addressed in A) The Securities Act of 1933 B) The Glass Steagall Act C) The Investment Company Act of 1940 D) The Securities Exchange Act of 1934

A) The Securities Act of 1933 Answer Explanation: The Securities Act of 1933 includes anti-fraud and anti-manipulation rules that apply to primary market transactions. Neither exempt nor non-exempt securities are excluded from the anti-fraud provisions of the Acts of 1933 or 1934. Textbook Reference: Please see textbook section 8.1

16) A refunding occurs when A) The issuer replaces a high coupon bond with a low coupon bonds in the wake of falling interest rates. B) Interest rates have increased since the issuer's last bond offering was made. C) An investor sells his bond prior to its maturity date. D) The issuer of the bond repays the principal prior to its maturity date.

A) The issuer replaces a high coupon bond with a low coupon bonds in the wake of falling interest rates. Answer Explanation: An issuer might engage in a refunding when interest rates have declined. The issuer will sell a bond with a lower coupon now that rates have fallen, and redeem the bond with the higher coupon. Textbook Reference: Please see textbook section 2.1.9

3) Hedge fund managers generally employ lock up periods for all of the following reasons EXCEPT A) To close the fund to new investors B) To provide greater investment flexibility C) To keep lower amounts of cash on hand D) To commit to investments that are not liquid

A) To close the fund to new investors Answer Explanation: A lock up period is not used to prohibit new investment into a hedge fund. Instead, it limits liquidity by imposing a time frame during which investors cannot withdraw assets. This allows the fund to pursue higher returns by limiting the amount of cash on hand, facilitating investment in illiquid assets, and permitting greater overall investment flexibility. Textbook Reference: Please see textbook section 5.3.3.1

25) All of the following may be used to pay the debt service on general obligation bonds EXCEPT: A) Tolls collected for the use of a bridge B) Income taxes C) Traffic fines D) Property taxes

A) Tolls collected for the use of a bridge Answer Explanation: General obligation (GO) bonds are backed by the full faith and credit of the municipality, which means its taxing authority. Taxes that back GOs include property taxes, income taxes, sales taxes, traffic fines and license fees. Tolls, concessions and lease rental payments usually back revenue bonds. Textbook Reference: Please see textbook section 3.4.1

12) The date on which the interest on a new municipal issue will begin accruing is the A) dated date B) closing date C) delivery date D) filing date

A) dated date Please see textbook section 2.4

47) The immediate effect of the Federal Reserve's Open Market Committee is to A) make credit more or less available B) stop a recession C) check inflation D) do all of these

A) make credit more or less available Answer Explanation: The Fed buys and sells securities in the marketplace to increase or decrease the money supply, making credit more or less available. When the Fed buys securities it is putting money into circulation, increasing the money supply and making credit more available. When the Fed sells securities it is taking money out of circulation, decreasing the money supply and making credit less available. Long term, these actions may check inflation or stop a recession. Textbook Reference: See textbook section 10.3.3.2

17) All of the following statements regarding variable rate bonds are true EXCEPT A) they typically have greater price volatility than fixed rate bonds B) the amount of interest paid varies over the life of the loan C) the lender assumes interest rate risk D) an index or other common base rate such as LIBOR is usually used to determine the rate payable for each period

A) they typically have greater price volatility than fixed rate bonds Answer Explanation: The price of a variable rate bond remains relatively stable because the interest rate adjusts to prevailing conditions. As the name implies, the rate of interest paid will vary over the life of the bond. The amount of interest is tied to an underlying index; LIBOR + a spread is frequently used as the base rate. Lenders take on the interest rate risk because the interest payments they receive are subject to fluctuation. Textbook Reference: Please see textbook section 2.1.4.1

69) The Securities Exchange Act of 1934 concerns A) trading activities such as short sales, stabilization and the registration of over-the-counter brokers and dealers B) the regulation of investment companies C) the form and content of the prospectus that must be given to all prospective purchasers of a security D) the registration of persons engaged in the business of advising others about investment company transactions

A) trading activities such as short sales, stabilization and the registration of over-the-counter brokers and dealers Answer Explanation: The Securities Exchange Act of 1934 regulates secondary market activity, including short sales, stabilization and the registration of OTC broker/dealers. Prospectus are regulated by the Securities Act of 1933, and investment companies are regulated by the Investment Company Act of 1940. Textbook Reference: See textbook section 9.1

35) Karen is the 76-year-old owner of a Traditional IRA. What is the last day of the calendar year on which she can take a Required Minimum Distribution (RMD)? A) 15-Apr B) 31-Dec C) 30-Sep D) 1-Apr

B) 31-Dec Answer Explanation: After the first RMD, which must be taken by April 1 of the year following the year in which the IRA owner turns age 72, subsequent RMDs must be taken annually, by the last day (December 31) of each calendar year, as long as the owner remains alive.Textbook Reference: Please see textbook section 12.2.1.4

19) All of the following types of securities may be quoted on the OTC Bulletin Board except A) Direct Participation Programs B) Corporate bonds C) Domestic stocks D) ADRs

B) Corporate bonds Answer Explanation: The OTCBB is used for quoting domestic equities, ADRs and Direct Participation Programs that are not listed on stock exchanges and do not qualify for transaction reports on the Consolidated Tape. It does not report bonds.

24) Tim is a single person covered by a retirement plan at work. He is told by his accountant that only part of his Traditional IRA contribution is deductible this year. Why is this true? A) He contributed more than the maximum allowed B) His income level falls in a particular range C) He did not earn enough taxable income D) His IRA is over-funded

B) His income level falls in a particular range For those covered by a retirement plan at work, their income level determines whether a Traditional IRA contribution is fully deductible, partially deductible or non-deductible. If their income level falls in a certain range, the contribution is partially deductible. Textbook Reference: Please see textbook section 12.2.1.2

29) Which of the following two statements are TRUE regarding information that is required on a confirmation? I. If the firm acted as agent, commission is requiredII. If the firm acted as agent commission is not requiredIII. If the firm acted as principal mark up or mark down is required IV. If the firm acted as principal mark up or mark down is not required A) I and IV B) I and III C) II and III D) II and IV

B) I and III Answer Explanation: A firm is required to include its capacity in the transaction on a customer confirmation. If the firm acted as agent, it is compensated by a commission that must be disclosed. If it acted as principal, the mark up or mark down must be disclosed. Textbook Reference: Please see textbook section 11.5.2

34) If a representative fails to complete Regulatory Element when required I. Registration status is inactiveII. Registration is terminatedIII. All business activities must ceaseIV. All business activities that require registration must cease A) I and III B) I and IV C) II and IV D) II and III

B) I and IV When a representative fails to complete Regulatory Element when required, his registration status is inactive, and the representative cannot perform, or be compensated for, activities that require registration. Textbook Reference: Please see textbook section 13.3.8.1

18) The calculation of accrued interest for government bonds A) Is not included on the confirmation B) Includes the last interest payment date C) Is based on 360 day years D) Is subtracted from the price owed to the seller

B) Includes the last interest payment date Answer Explanation: The accrued interest calculation for a government bond is based on actual day years and months. It is added to the price the seller receives at settlement and included in the total price. The calculation includes interest on the prior coupon date up to, but not including, the settlement date. Textbook Reference: Please see textbook section 2.4

84) Which of the following statements is true? A) Contributions to a traditional IRA are never tax deductible but they may be for Roth IRAs B) Investors may withdraw more than the required minimum from their IRA, but will be taxed on these distributions accordingly C) Required minimum distributions must be made from all types of IRAs D) Distributions must be taken from traditional IRAs in the year in which an individual turn 59 1⁄2; otherwise, a penalty will be assessed

B) Investors may withdraw more than the required minimum from their IRA, but will be taxed on these distributions accordingly Answer Explanation: Investors are permitted to withdraw more than the required minimum amount from their traditional IRA in any given year. Any withdrawals made will be subject to appropriate income taxes. There are no required minimum distributions from a Roth IRA. Distributions from traditional IRAs must begin upon the individual reaching the age of 72. Failure to take the required minimum distribution from a traditional IRA may result in a penalty. Textbook Reference: See textbook section 12.2.1.4

45) The Bank Secrecy Act A) Prevents commercial banks from sharing consumer loan information with other lenders B) Is used by a broker-dealer when designing its anti-money laundering compliance program C) Requires depository institutions to remind clients that their loan information may be shared with other banks D) Authorizes savings banks to report their capital positions to depositors in writing on an annual basis

B) Is used by a broker-dealer when designing its anti-money laundering compliance program Answer Explanation: The Bank Secrecy Act is the blueprint under which broker-dealers develop and implement anti-money laundering training to their personnel. Textbook Reference: Please see textbook section 14.3

1) Which of the following best describes duration? A) It is the length of time between call dates or interest payment dates on a bond. B) It is a measure of how much a bond's price will change when interest rates fluctuate. C) It is a measure of how the Treasury yield curve will adjust when general interest rates change D) It is the length of time that a bond remains outstanding prior to it being called or redeemed by the issuer.

B) It is a measure of how much a bond's price will change when interest rates fluctuate. Answer Explanation: Duration is a commonly used method of gauging a bond's sensitivity to changing interest rates.Textbook Reference: Please see textbook section 2.3.1

54) What types of contributions may employers make to a 401(k)? A) Defined benefit only B) Matching or profit-sharing C) Profit-sharing only D) Matching only

B) Matching or profit-sharing Answer Explanation: Employers have the option of matching all or part of each employee's deferrals, in addition to any profit-sharing contributions they might make. Textbook Reference: Please see textbook section 12.1.1.3

52) A stock price is reduced by the amount of a dividend on the A) Morning of the record date B) Morning of the ex-dividend date C) Evening of the record date D) Evening of the ex-dividend date

B) Morning of the ex-dividend date Answer Explanation: The stock price is reduced on the morning of the ex-dividend date. Textbook Reference: Please see textbook section 9.4.5

33) A registered representative of a broker-dealer is interested in taking a part-time job on the weekend to supplement his full-time income. The representative would be required to A) Notify and receive permission from his broker-dealer B) Notify his broker-dealer prior to starting the part-time job C) Notify and receive permission from FINRA D) Notify his broker-dealer within a reasonable time of starting the part- time job

B) Notify his broker-dealer prior to starting the part-time job Textbook Reference: Please see textbook section 14.4.4

13) On what basis are deductible contributions to a Traditional IRA made? A) Tax-deferred B) Pre-tax C) Tax-free D) Post-tax

B) Pre-tax Answer Explanation: One benefit of a Traditional IRA is the opportunity to contribute pre-tax money. Pre-tax contributions are also called "deductible."Textbook Reference: Please see textbook section 12.2.1.2

46) What standard must members meet in reviewing their procedures for meeting the best execution obligation? A) As defined in FINRA's Green Book B) Regular and rigorous C) Prudent man D) Thorough and consistent

B) Regular and rigorous Members are required to regularly and rigorously review their procedures for meeting the best execution duty. If a firm chooses not to conduct an order-by-order review, regular means at least quarterly. Textbook Reference: Please see textbook section 9.5.1

41) A 62- year-old investor who does not participate in a qualified retirement plan would like to open an account and continue making contributions after reaching age 70, and not be required to take distributions at any time. This individual should consider a A) 403 B B) Roth IRA C) Traditional IRA D) SEP IRA

B) Roth IRA Answer Explanation: This investor would be best served by considering a Roth IRA. Contributions may be made beyond the age of 70 and there are no required minimum distributions.

40) Which of the following statements best describes an exchange- traded note (ETN)? A) Mutual fund B) Senior unsecured debt C) Common stock D) Senior secured debt

B) Senior unsecured debt Answer Explanation: ETNs are senior unsecured debt often issued by an investment banking firm. Textbook Reference: See textbook section 5.5.1

38) Which of the following is a permitted investment in an IRA brokerage account? A) Antiques B) Specified gold coins minted by the Treasury C) Life insurance D) Most collectibles

B) Specified gold coins minted by the Treasury Answer Explanation: Investments that can't be held in an IRA include most collectible - art works, antiques and precious metals - other than specified U.S. gold or silver coins minted by the U.S. Treasury and certain gold, silver, platinum or palladium bullion bars. Textbook Reference: Please see textbook section 12.2.1.1

44) Non-interest-bearing U.S. government securities issued with maturities of 1 month, 3 months, 6 months, and 12 months at a discount to face value are known as which of the following? A) T-bonds B) T-bills C) T-notes D) STRIPS

B) T-bills Answer Explanation: T-bills are non-interest-bearing securities issued with maturities of 1 month, 3 months, 6 months, and 12 months at a discount to face value. T- notes and T-bonds, by contrast, have a stated coupon and pay semiannual interest. T-notes are issued with maturities of between two and ten years, while T-bonds are issued with maturities of more than ten years. Textbook Reference: Please see textbook section 3.2.1.1

26) All of the following enforce MSRB Rules EXCEPT A) The Federal Deposit Insurance Corporation B) The MSRB C) The Financial Industry Regulatory Authority D) The Comptroller of the Currency

B) The MSRB The Federal Reserve Board, Comptroller of the Currency, and Federal Deposit Insurance Corporation are all enforcers of MSRB rules within bank dealers. The MSRB has no enforcement power over the rules it establishes. Textbook Reference: Please see textbook section 13.1.2

8) A broker-dealer has just received the new account paperwork for an UGMA account. Which of the following parties' names appears on the account form? A) The beneficiary of the account B) The custodian of the account C) The primary donor to the account D) A principal of the firm

B) The custodian of the account In an UGMA, the name of the custodian would appear on the new account registration form. The name of the donor would not appear on the paperwork, unless the donor was also the custodian.

6) All of the following information must be included on a customer confirmation EXCEPT A) Whether payment was made for order flow B) The identity of the SROs that regulate the broker-dealer and its businesses C) Whether there is a control relationship between the broker-dealer and the issuer of the securities D) Whether the broker-dealer is a market maker in the security

B) The identity of the SROs that regulate the broker-dealer and its businesses Answer Explanation: The confirmation is not required to disclose the identity of the SROs that regulate the firm. It must, however, disclose potential conflicts of interest, such as whether the firm makes market in the security, receives payment for order flow, or is in a control relationship with the issuer. Textbook Reference: Please see textbook section 11.5.2

78) Interest rates have risen rapidly in the current economic environment. The price of stock of companies in which industry below would be most impacted by this change? A) Pharmaceutical B) Utility C) Construction D) Beverage

B) Utility Answer Explanation: Utility stocks are most affected by interest rates, as these are the most highly leveraged companies among these choices. Textbook Reference: See textbook section 10.2.5.1

The wife of a customer who has an individual IRA account calls the broker-dealer to request that the account statements be held by the firm while the family is vacationing in Europe over the summer. In this situation the firm is permitted to A) hold the statements for two months. B) continue to mail the statements to the customer's home unless the husband makes the request. C) hold the statements for three months. D) ask the wife to put the request in writing and mail or email it to the firm as documentation for the account.

B) continue to mail the statements to the customer's home unless the husband makes the request. Because this is an individual account, the firm may honor a request to hold mail from that individual only.

19) A representative's personal account has been identified for review because of account activity in which securities were bought and quickly sold, often on the following day. This may be evidence of the prohibited practice called A) commingling. B) freeriding. C) front-running. D) selling away

B) freeriding Freeriding is the prohibited practice of entering a trade to buy securities, then selling them the following day without having had sufficient funds in the account to pay for the trade.

17) A registered rep has violated an SEC rule, resulting in termination of employment. This individual is now the subject of a statutory disqualification and A) may work in any role that does not require registration B) is ineligible for registration C) must wait 30 days before applying for a new registration. D) must pay a fine in order to be able to regain eligible employment status

B) is ineligible for registration Answer Explanation: Violating SEC rules is grounds for statutory disqualification. The individual will likely be terminated and is now ineligible for registration. Textbook Reference: Please see textbook section 13.3.7

23) Which of the following criteria applies to a hedge fund? A) abundant public information B) lock-up provision C) liquid market D) limited investment style

B) lock-up provision Answer Explanation: Many hedge funds will contain lock up provisions, which restrict the time period during which investors may liquidate their shares in the fund. None of the other choices are true concerning hedge funds. Textbook Reference: See textbook section 5.3.3.1

42) The value of the conversion privilege of a convertible bond is based on the A) conversion ratio of the bond B) market value of the underlying stock C) parity price of the underlying stock D) par value of the bond

B) market value of the underlying stock Answer Explanation: The value of the conversion privilege of a convertible bond is based on the value of the underlying common stock, as the investor can exchange the bond for the shares. The parity price is where investors are indifferent to owing the bond versus the common shares. Textbook Reference: Please see textbook section 3.1.3

7) For the purpose of FINRA rules regarding sharing in customer accounts, an immediate family member is a A) grandparent B) mother-in-law C) brother D) cousin

B) mother-in-law Answer Explanation: FINRA rules regarding sharing in customer accounts define immediate family members as parents, mother-in-law or father-in-law, husband or wife, children or any relative to whose financial support the member or person associated with a member otherwise contributes directly or indirectly. Textbook Reference: Please see textbook section 14.4.8

43) If the FBI requests that a broker-dealer provide private customer information in support of an ongoing anti-money laundering investigation, the broker-dealer is obligated to A) provide the information with the customer's written permission B) provide the information to support the investigation C) provide the information with FINRA's permission. D) protect the privacy of the customer by not providing the requested

B) provide the information to support the investigation Answer Explanation: The USA PATRIOT Act makes it mandatory for broker-dealers to support federal law enforcement agencies by providing requested information. Textbook Reference: Please see textbook section 11.6.1

12) What legal agreement between bond issuers (borrowers) and investors (lenders) defines the terms of the loan? A) Deed of trust B) Indenture C) Prospectus D) Term sheet

B. Indenture

60) ABC stock is trading at 25.75. ABC Jul 25 calls are trading at a premium of 2. What is the intrinsic value of these calls? A) $0 B) $200 C) $75 D) $125

C) $75 Answer Explanation: The intrinsic value of an option is the in-the-money amount. These calls have intrinsic value because the market price is greater than the strike price. Intrinsic value = 25.75-25 x 100 (shares/contract) = $75. Textbook Reference: See textbook section 6.5.1

31) Which of the following is not an example of a municipal note? A) BAN B) TAN C) AON D) RAN

C) AON Answer Explanation: TAN- tax anticipation note RAN- revenue anticipation note BAN- bond anticipation note AON (all or none) represents a type of underwriting, not a type of municipal note. Textbook Reference: Please see textbook section 3.4.4.1

23) A broker dealer's restricted list, which is a list of securities that its employees cannot trade, will generally include all of the following EXCEPT A) The date and time the security was added to the list B) The date and time the security was deleted from the list C) An explanation of why the security was added to or deleted from the list D) The name of a contact person who could answer questions about additions or deletions from the list

C) An explanation of why the security was added to or deleted from the list Answer Explanation: A broker-dealer's watch list and restricted list should each include:the date and time the security was added to or deleted from the list; the name of a contact person who could answer questions about the addition or deletion. Textbook Reference: Please see textbook section 14.2.3

64) What is a major difference between a retail bank certificate of deposit (CD) and a banker's acceptance (BA)? A) BAs are not money market instruments B) BAs are not backed by banks C) BAs are not FDIC-insured D) BAs have longer maturities

C) BAs are not FDIC-insured Answer Explanation: Although the bank deposits on which BAs are drawn generally are FDIC- insured, BAs themselves are not FDIC-insured. If both the issuer and bank file bankruptcy, the BA could default. Textbook Reference: Please see textbook section 3.6.3

14) In a book-entry format, ownership of the security is recorded by A) The issuer B) Clearing house C) Central depository D) Corporate counsel

C) Centraldepository When a book-entry format is used, ownership is recorded by a central depository, rather than by the issuer. This has become the most common method of tracking ownership.Textbook Reference: Please see textbook section 2.1.1

44) Nonagricultural employment is what kind of economic indicator? A) Leading B) Coterminous C) Coincident D) Lagging

C) Coincident Answer Explanation: Nonagricultural employment is a coincident indicator as it gives a snapshot of the rate of employment at a specific point in time. Note that average duration of unemployment is a lagging indicator as it must be calculated after an individual has successfully found a new job. Textbook Reference: See textbook section 10.1.4.3

56) In administering Regulatory Element Continuing Education, a broker-dealer is required by FINRA to do all of the following EXCEPT A) Restrict CE inactive persons from performing prohibited activities B) Review quarterly Regulatory Element performance reports to determine topics where additional training may be needed C) Develop an annual needs analysis and training program D) Designate a contact person to receive Regulatory Element email notifications

C) Develop an annual needs analysis and training program Answer Explanation: FINRA does not require firms to develop their own Regulatory Element programs. Regulatory Element CE is administered and delivered by FINRA. This requirement applies to Firm Element. On an annual basis, a broker-dealer is required to conduct a needs analysis and training plan for the delivery of Firm Element training. Textbook Reference: Please see textbook section 13.3.8.1

49) A broker dealer learns that one of its employees has been using insider information on a recurring basis. What is the best way that the firm can protect itself from liability? A) Handle the matter internally without notifying authorities. B) Review its fidelity bond coverage with its insurer. C) Ensure that the firm had adequate policies in place to prevent insider trading. D) Sue the employee in civil court.

C) Ensure that the firm had adequate policies in place to prevent insider trading. Answer Explanation: In order to protect itself from liability for insider trading, broker dealers are required to implement appropriate supervisory procedures, conduct annual compliance reviews, and have information barriers in place to prevent the flow of sensitive information between departments. If the firm can prove that it followed protocol, it would not necessarily be held liable for insider trading by an employee. Textbook Reference: Please see textbook section 14.2.3

69) Nonqualified withdrawals from Section 529 College Savings Plans are subject to which of the following? A) Full federal and state income taxation on the entire amount of the distribution that is attributable to earnings B) Full federal and state income taxation on the entire amount of the distribution C) Full federal and state income taxation on the entire amount of the distribution that is attributable to earnings, plus a 10% penalty tax on this amount D) Full federal and state income taxation on the entire amount of the distribution plus a 10% penalty tax

C) Full federal and state income taxation on the entire amount of the distribution that is attributable to earnings, plus a 10% penalty tax on this amount Answer Explanation: Nonqualified withdrawals from Section 529 College Savings Plans are subject to full federal and state income taxation on the entire amount of the distribution that is attributable to earnings, plus a 10% penalty tax on this amount. Because the contributions to these accounts are made with after tax dollars, only the earning are subject to taxation and the penalty. Textbook Reference: Please see textbook section 12.4.1.5

14) No-par value stock is characterized as stock which A) Is authorized but not issued B) Will always be worth less than stock that has a par value C) Has not been assigned a par value by the corporation D) Is not permitted to trade

C) Has not been assigned a par value by the corporation Answer Explanation: No-par value stock is simply shares that have not been assigned a par value by the corporation. Some states permit this to occur.Textbook Reference: Please see textbook section 1.1

2) Which of the following statements are true regarding the OTC market? I. It facilitates the trading of stock not listed on an exchange II. It is a connection of broker-dealers via computers III. There can be more than one market maker in a security A) I and II only B) II and III only C) I, II and III D) I and III only

C) I, II and III

31) The FINRA Conduct Rules state that I. the member or designated person must approve in writing each discretionary order entered and must frequently review all discretionary accounts to detect excessive trading II. a registered representative must have the client's prior written authorization before exercising any discretionary power III. transactions in discretionary accounts cannot be excessive in size A) II and III only B) I and II only C) I, II and III D) I and III only

C) I, II and III Answer Explanation: FINRA Conduct Rules state that a registered rep must receive written authorization from a customer before exercising any discretionary authority. Additionally, all trades in discretionary accounts must be approved by a supervisor in writing (but not before the execution of the trade), and must be supervised diligently to detect any excessive trades or churning Textbook Reference: See textbook section 11.2.4

85) Which of the following statements are true concerning stop orders? I. They can limit a loss in a declining stock. II. They become market orders when there is a trade at, or the market passes through, a specific price. III. They are the same as limit orders. IV. They can affect the price of the stock when the specific stop price is reached. A) I and II B) II and III C) I, II and IV D) I, III and IV

C) I, II and IV Answer Explanation: Stop orders are primarily used to limit a loss in an open stock position. Additionally, when the stop price is reached, a stop order becomes a market order. Stop orders can affect the price of the stock if there are many orders on the books at the same price. Limit orders are used to make a transaction at a limit price or better. Therefore choices I, II and IV are correct. Textbook Reference: See textbook section 9.4.4

20) Which of the following statements regarding statutory disqualification are TRUE? I. An individual or firm may be subject to a statutory disqualification II. Certain persons may re-enter or continue in the securities industry following a statutory disqualification III. Disqualifying events can include bars, injunctions suspensions and expulsions from certain activities, SROs and exchanges IV. Once it becomes aware of a statutory disqualifying event a member is obligated to report the event to FINRA A) I and IV only B) I and III only C) I, II, III and IV D) II and III only

C) I, II, III and IV Answer Explanation: A statutory disqualification occurs when an individual or member firm has violated securities regulations and has been barred, suspended, expelled, enjoined, fined or possibly jailed for the activity for a period of time. Whenever a member firm becomes aware of a statutory disqualification it is required to report the event to FINRA. Certain persons or firms may be allowed to continue in the securities industry following a statutory disqualification but only with written approval from FINRA and heightened supervision.

17) Which two of the following statements are true about the OCC? I. It is the largest U.S. options exchange II. It guarantees the performance of options contracts III. It creates listed equity options and makes them available for trading IV. It is a clearinghouse for equity options and derivatives A) II and III B) I and III C) II and IV D) I and IV

C) II and IV Answer Explanation: The Options Clearing Corporation clears transactions in equity options and other derivative contracts. It guarantees the performance of options contracts that are assigned and executed by its clearing members Textbook Reference: Please see textbook section 6.6.1

62) A broker-dealer is acting as a trustee for an issuer, holding ownership information of that issuer's common stock. The broker- dealer may use this ownership information to solicit additional business for itself A) If the security owners are notified in writing of this relationship. B) If the issuer monitors how the information is used. C) If the issuer specifically consents to this. D) Under no circumstances

C) If the issuer specifically consents to this. Answer Explanation: Issuer consent would be required in this type of situation. Textbook Reference: Please see textbook section 14.4.11

49) When a put option is out of the money its premium A) Is zero B) Cannot be determined C) Is time value only D) Is intrinsic value only

C) Is time value only Answer Explanation: When an option contract is out of the money, the premium of the contract consists of time value only. When an option contract is in the money, the premium will consist of both intrinsic value and time value. Textbook Reference: See textbook section 6.5.2

66) Which of the following is a correspondence according to MSRB rules? A) Summary of the Official Statement B) Television commercial C) Letter to a client D) Newsletter

C) Letter to a client Answer Explanation: A letter to a client would be considered a correspondence rather than an advertisement. A correspondence is any written or electronic message distributed to less than 25 persons within a 90 day period. Unlike an advertisement, a correspondence does not require principal approval prior to first use. Textbook Reference: Please see textbook section 14.5.4

42) Abby is a registered representative at a FINRA member firm and is interested in working part time for her uncle in his law firm. Abby A) Is prohibited from working at the law firm during securities trading hours B) Must receive permission from her employer before engaging in this activity C) Must notify her employer of this activity D) Does not need to notify her firm since the outside work does not involve securities

C) Must notify her employer of this activity Answer Explanation: This is an example of an outside business activity and Abby must notify her employer. Under FINRA rules, she does not need permission from the firm.Textbook Reference: See textbook section 14.4.4

47) Walter, age 40, wants to sell his home and buy a new one right away, using his Traditional IRA to make the down payment. As a homebuyer, can he qualify for an exception to the 10% penalty on Traditional IRA withdrawals before age 59 1⁄2? A) Yes, in any case B) No, because he is too young C) No, because he is not a first-time homebuyer D) Only if the new home costs more than his current home

C) No, because he is not a first-time homebuyer Answer Explanation: This exception is only available to a first-time homebuyer. The new home is considered a first home if neither the IRA owner nor a spouse had an interest in a main home in the two years before the home's purchase. He would have to wait at least two years between transactions to qualify. Textbook Reference: Please see textbook section 12.2.1.3

10) What is the tax treatment of non-deductible IRA contributions when they are withdrawn by an individual aged 65? A) Taxable, but no 10% penalty B) Not taxable but a 10% penalty may apply C) Not taxable, no 10% penalty D) Taxable with a 10% penalty

C) Not taxable, no 10% penalty Answer Explanation: Non-deductible contributions are withdrawn tax-free, with no 10% penalty assuming the individual is at least 59.5.Textbook Reference: Please see textbook section 12.2.1.2

19) Who can make a catch-up contribution to a Traditional IRA? A) Social Security recipients B) People age 59 1⁄2 or over C) People age 50 or over D) Non-working spouses

C) People age 50 or over Answer Explanation: Individuals age 50 or over may add a catch-up contribution to their regular Traditional IRA contribution. Textbook Reference: Please see textbook section 12.2.1

43) All client orders must be approved by a supervisor A) Within a reasonable time following execution B) Promptly before execution C) Promptly after execution D) Promptly upon receipt

C) Promptly after execution Answer Explanation: All customer orders must be approved by a supervisor promptly after execution. Textbook Reference: See textbook section 9.4.1

57) A Keogh plan is available for A) Any employee of a small business B) Any full-time employee of a public company C) Self-employed individuals only D) Employees of for-profit businesses

C) Self-employed individuals only Answer Explanation: Keogh plans, also known as HR-10 plans, are available for self-employed persons only. Textbook Reference: Please see textbook section 12.1.1.3

20) Helen opened a Roth IRA last year and wants to know what part of this year's contributions she can deduct. The answer is A) It depends on her income B) It depends on her age C) She can't deduct any amount D) She can deduct 100%

C) She can't deduct any amount Answer Explanation: Roth contributions are always made with after-tax dollars and are never tax-deductible.Textbook Reference: Please see textbook section 12.2.2.1

49) Who is the owner of a bearer bond? A) The underwriter B) The purchaser C) The bearer of the bond certificate D) The registered principal

C) The bearer of the bond certificate Answer Explanation: Question ID: 11244 Bearer bonds, which were issued in the U.S. for many decades, functioned much like cash in that the bearer of the bond certificate was considered the rightful owner. Unlike other investment securities, the ownership and transactions involving ownership of bearer bonds are not formally recorded. In 1982, Congress passed legislation that eliminated new bearer bonds. Now, there is only one form of note issued in the U.S. in bearer form  a Federal Reserve Note  i.e., the cash or currency in your wallet. Textbook Reference: Please see textbook section 2.1.1

11) If a registered representative is arrested for theft, but claims innocence and has witnesses to corroborate his/her alibi, which of the following would be the most likely to happen? A) The incident would be reported to FINRA and the representative would be subject to a statutory disqualification. B) The incident would not be reported to anyone until a legal resolution is reached. C) The incident would be reported to compliance and the firm can choose to delay action until the legal process has run its course. D) The incident would be reported to FINRA and the representative would not be subject to a statutory disqualification.

C) The incident would be reported to compliance and the firm can choose to delay action until the legal process has run its course. section 13.3.7

8) In times of moderate inflation, all of the following are likely to occur except A) an increase in interest rates. B) an increase in the value of the US dollar. C) an increase bond prices. D) an increase in the CPI.

C) an increase bond prices. Answer Explanation: Inflation is measured by the Consumer Price Index (CPI). The value of the US dollar and interest rates generally move in conjunction with inflation. Therefore, as inflation increases, so will interest rates and the value of the US dollar. Remember, that as interest rates increase, bond prices will decrease. Textbook Reference: Please see textbook section 10.4.2

60) After a company has met the listing standards of the NYSE and has started trading A) it must send a quarterly shareholders' report B) it will be suspended from trading if the stock falls below a price of $5 per share C) it must continue to meet standards for maintaining its listing, which are typically less stringent than the original standards D) it may choose to delist at any time by notifying NYSE Regulation

C) it must continue to meet standards for maintaining its listing, which are typically less stringent than the original standards Answer Explanation: Companies that trade on the NYSE must meet standards for continued listing. These standards are somewhat less strict than those required for initial listing. A company cannot delist its stock without notification to the NYSE and approval from the SEC. The NYSE, however, can delist a company's stock if it determines it has not met listing standards, or if its continued listing is not in the best interest of shareholders. A company's share price cannot fall below $1 to maintain NYSE listing. NYSE listed companies must provide annual reports to shareholders. See Textbook Reference: Please see textbook section 9.3.1

37) A married couple has set up an account designated as JTWROS. Trading instructions for this account A) must be provided and confirmed by both parties. B) must be established at the time the account is opened. C) may be provided by either party, with any disbursements payable to both parties D) must be established prior to the placement of the first order in the account.

C) may be provided by either party, with any disbursements payable to both parties Answer Explanation: Accounts opened under the designation of JTWROS or JTIC permit any party to provide trading instructions, with any disbursements (checks) payable to all parties on the account.Textbook Reference: Please see textbook section 11.3.2

67) An investor purchasing a Treasury bond A) must open an account with the US Treasury department and adhere to their credit rules. B) must make full payment for the bond through a broker-dealer C) may do so on margin through a broker-dealer D) may not do so on margin

C) may do so on margin through a broker-dealer Answer Explanation: Treasury bonds and other fixed-income securities may be purchased on margin through a broker-dealer. Textbook Reference: Please see textbook section 11.2.2.4

9) If no exception applies, how much penalty must Howard pay on a $2,000 withdrawal from a Traditional IRA that he makes at age 42? A) $500 B) $400 C) $200 D) $100

C. $200 If a withdrawal is made from a Traditional IRA prior to age 59 1/2 a 10% penalty is due, unless an exception applies. The 10% is assessed on the amount withdrawn.Textbook Reference: Please see textbook section 12.2.1.3

12) Commercial paper that is exempt from registration requirements has a maximum maturity of how many days? A) 360 B) 90 C) 180 D) 270

D) 270 Answer Explanation: Commercial paper with a maximum maturity of 270 days is exempt from registration. Municipal bonds, government bonds, and domestic bank securities are also exempt from registration.Textbook Reference: See textbook section 8.2.1

73) A J&J Treasury bond with a 10 1/4% coupon due July 1, 2032, is purchased in a cash transaction with a settlement date of February 24th. What is the number of days of accrued interest? A) 55 B) 63 C) 53 D) 54

D) 54 Answer Explanation: Treasury bonds trade with accrued interest using actual day months, a 365-day year, and settle T+1. If the trade settles on Feb 24th and interest is paid every January 1st and July 1st, the number of days of accrued interest between January 1st:

13) The type of tax that most commonly backs the municipal bond issues of cities and counties is A) Special tax B) Income Tax C) Sales tax D) Ad Valorem tax

D) Ad Valorem tax Counties, cities, towns, and villages rely on ad valorem taxes to back their GO bond issues. These taxes are assessed on property owned by individuals or businesses that is within the municipality. Textbook Reference: Please see textbook section 3.4.1

33) Anti-fraud provisions of the Securities Exchange Act of 1934 apply to which of the following? A) Manipulation of the price of a municipal security B) Participation in an all-or-none offering and reporting the offering as firm to the client C) Short sale of municipal security serial bonds D) All of the above cases and for all types of securities

D) All of the above cases and for all types of securities Answer Explanation: The fraud provisions of the act of 1934 apply to all persons and for all types of securities. No person or transaction is ever exempt from the antifraud provisions of the Securities Act of 1934. Textbook Reference: See textbook section 9.1

16) An investor would like to invest a lump sum inheritance she received for a three month period and will use the funds for a down payment on a home purchase at that time. All of the following may be appropriate EXCEPT A) A tax anticipation note B) A variable rate demand obligation C) A bond anticipation note D) An auction rate security

D) An auction rate security Answer Explanation: Tax anticipation notes and bond anticipation notes are short-term securities which meet this investor's objective. VRDOs are issued as long term securities but are puttable for their par value at interest reset dates, which provides short-term liquidity. Auction rate securities are long-term and do not include a put feature, so they do not meet this investor's objectives. Textbook Reference: Please see textbook section 7.3.5

70) A representative that does not complete Regulatory Element is subject to A) Termination B) Censure C) Statutory disqualification D) CE Inactive status

D) CE Inactive status Answer Explanation: A representative that fails to complete Regulatory Element when required is considered CE Inactive, and cannot perform, or be compensated for, activities that require registration. Textbook Reference: Please see textbook section 13.3.8.1

15) Variable annuities are most appropriate for A) Retired individuals who wish to make annual gifts to the college savings plans of their grandchildren. B) Senior investors who wish to supplement their social security income for health care needs C) Individuals just beginning their work careers and making elections on contribution amounts to the company retirement plan. D) Individuals who have maximized contributions to their other retirement plans and want to allocate additional funds for retirement.

D) Individuals who have maximized contributions to their other retirement plans and want to allocate additional funds for retirement. Variable annuities are most appropriate for individuals who have maximized their contribution to other plans they are funding, and wish to set aside additional funds for the future. Textbook Reference: Please see textbook section 12.3.3.6

28) John has three Traditional IRAs that he wishes to consolidate into one. They are called A, B and C. He completes a rollover from A to C on March 31. If he wishes to move the money in B to C in June, how may he do so without paying income taxes A) This is not allowed in any case B) Make another rollover C) Make either a rollover or direct transfer D) Make a direct transfer

D) Make a direct transfer Answer Explanation: Only one rollover from one IRA to another is allowed during any 12-month period. However, there is no limit on direct transfers between IRAs. He can complete a direct transfer from IRA B to C. Textbook Reference: Please see textbook section 12.2.1.3

14) Distributions from a CMO are made A) Monthly and are taxed at the federal level only B) Quarterly and are taxed at the federal level only C) Quarterly and are taxed at all levels D) Monthly and are taxed at all levels

D) Monthly and are taxed at all levels Answer Explanation: Distributions from a CMO are made on monthly basis and are taxed at the federal, state, and local level. Their monthly distributions make them appropriate for investors who are seeking income on a monthly basis. Textbook Reference: Please see textbook section 3.3.1

59) When an index option is exercised A) The owner receives securities from the seller B) The holder delivers cash to the writer C) The writer receives securities from the owner D) The writer delivers cash to the buyer

D) The writer delivers cash to the buyer When an index option is exercised, the writer delivers cash to the buyer (otherwise known as the owner or holder). The amount of cash is the difference between the strike price and the index's closing value on the day of exercise. Textbook Reference: See textbook section 6.4

33) If a customer requests financial information about the broker-dealer, the broker-dealer is required to give the customer A) its most recent annual statement. B) a profit and loss statement. C) its last quarterly income statement. D) its most recent balance sheet.

D) its most recent balance sheet. Textbook Reference: Please see textbook section 11.6.6

16) The most significant expense of a mutual fund is the A) 12b-1 fee B) overhead C) sales charge D) management fee

D) management fee Answer Explanation: The largest portion of the operating expenses of a mutual fund is the fee paid to its investment manager or advisor. Other less significant fees include recordkeeping, custodial services, legal expenses, and accounting fees. 12b-1 fees are deducted from the assets of the portfolio to cover various administrative costs, such as printing and postage, and certain shareholder services. Textbook Reference: See textbook section 4.2.2.2

43) A firm has approved a representative's participation in a private securities transaction. In this situation, the firm is required to A) receive monthly updates from the representative of sales activity and compensation the representative receives from the activity. B) report involvement of the representative in this activity to FINRA within 10 business days of granting approval. C) pre-approve in writing any transactions that involve the purchase or sale of the securities. D) review and supervise the transaction as if it were part of the firm's business.

D) review and supervise the transaction as if it were part of the firm's business. Textbook Reference: Please see textbook section 14.4.5

16) Key suitability information must be obtained from a customer A) Immediately following the execution of a recommended transaction B) At the time of account opening C) Before the settlement of a recommended transaction D)Before the execution of a recommended transaction

D)Before the execution of a recommended transaction Suitability information must be obtained from the customer prior to the execution of any recommended transaction. Textbook Reference: Please see textbook section 11.1.3

2) Variable annuity contracts must be registered with which of the following regulatory organizations? I. SECII. State insurance departments III. FDIC A) I, II and III B) I and III only C) I and II only D) II and III only

I and II only Variable annuity contracts must be registered with the SEC and with the insurance department of each state in which they are to be offered. They are not registered with banking regulators like the FDIC.Textbook Reference: Please see textbook section 12.3.3

4) Which TWO of the following are TRUE of a broker-dealer's obligation to provide notice to customers of its Customer Identification Program? I. Notice must be given when the account is opened. II. Notice must be given at account opening and annually thereafter. III. Individual copies of the notice must be delivered to the customer. IV. The notice must be provided by any means that ensures the customer will be able to view it.

I and IV Answer Explanation: A CIP must include account opening procedures for providing customers with adequate notice that their identities will be verified by the broker- dealer. Financial institutions may either give customers copies of the notice individually or in a manner reasonably designed to ensure that the customer is able to view it (such as a lobby sign). Textbook Reference: Please see textbook section 14.3.3.2

39) A customer who has an individual IRA account calls his broker- dealer to request that the account statements be held by the firm while the family is vacationing in Europe. The firm will take which two of the following actions? I. Honor the request over the phone II. Ask the customer to put request in writing III. Hold the mail for a maximum two months IV. Hold the mail for a maximum of three months

II and IV Answer Explanation: A firm will hold customer mail upon written request. Mail can be held for up to three months. Textbook Reference: Please see textbook section 11.5.4

10) A discount bond issued by a broker-dealer, secured by interest and principal payments from Treasury securities, is known as a(n)

treasury receipt

20) Mary has resigned from her broker-dealer. Her firm must submit the Form U-5 to FINRA

w/in 30 days of resignation