SIE Practice Questions

C

A measure of a nation's citizen's economic activity is A) S&P 500 Index. B) gross domestic product. C) gross national product. D) Consumer Price Index.

C

What happens to the contents of a custodial account in the event of the death of the beneficial owner (the minor child)? The account's contents are returned to the donor(s). The custodian's fiduciary responsibility ceases. The account passes to the minor's estate. The custodian remains fiduciary. A) I and II B) III and IV C) II and III D) I and IV

C (The coupon rate, the stated rate, the fixed rate, and the nominal rate all mean the same thing. It is the amount the bond will pay each year. On a discount bond the current yield is always higher than the coupon rate.)

When a bond is purchased at a discount the current yield will be A) the same as the nominal rate. B) lower that the stated rate. C) higher than the coupon rate. D) lower than the fixed rate.

B

Which of the following are exempt from the requirement to maintain a business continuity plan? A) Clearing broker-dealers B) None of these C) Introducing broker-dealers D) Investment Advisers

C (With qualified plans, deposits go in before taxes and grow tax deferred. All withdrawals are taxable. With nonqualified plans, deposits are made after tax, and distributions above the cost basis are taxable.)

Which of the following are true of both qualified plans and nonqualified plans? A) Tax on interest and dividends are deferred, but not on capital gains B) Contributions are tax deductible C) The accounts grow tax deferred D) Contributions are not tax deductible

D

Which of the following regulatory authorities relies exclusively upon other examining authorities to enforce its rules? A) New York Stock Exchange (NYSE) B) Chicago Board Options Exchange (CBOE) C) Financial Industry Regulatory Authority (FINRA) D) Municipal Securities Rule Board (MSRB)

B (UITs are not managed; once the portfolios are composed, they do not change. There is no manager, not even a passive one. Mutual funds are managed and do not have a fixed portfolio, therefore a portfolio of funds is not fixed.)

A debt-based unit investment trust (UIT) will feature which of the following? A) A passively managed portfolio of bonds B) A fixed portfolio of bonds C) An actively managed portfolio of bonds D) A fixed portfolio of corporate bond mutual funds

D

A feature of direct participation programs is A) the ability of any partner, limited or general, to participate in the running of the partnership. B) general partners directly participating in the day-to-day management of the partnership. C) the ability for each partner to have her vote flow through to the general partner. D) flow through of profits and losses of the partnership to the individual limited partners.

C

A hypothecation agreement would be best described as A) a written disclosure of the terms of the credit extended by the broker-dealer, including the method of interest computation and situations under which interest rates may change. B) a partnership agreement stating which of the partners can make transactions for a partnership account. C) a contract allowing securities to be pledged for the loan. D) a loan consent form which gives permission to the firm to loan the customers margin securities to other customers or broker-dealers.

D

A margin account allows a customer to borrow a portion of the funds needed to complete a trade. Currently, the required minimum is 50%. Which regulator sets the requirement? A) FINRA B) The SEC C) The OCC D) The FRB

A

An American depositary receipt is a A) domestic security representing a foreign security in U.S. markets. B) foreign security representing a domestic security in foreign markets. C) domestic security trading in foreign markets. D) foreign security trading in U.S. markets.

B (Associated persons whose activities are limited solely to sales or have only clerical or ministerial functions are not MFPs. All the other activities would be associated with an MFP.)

An associated person of a Financial Industry Regulatory Authority (FINRA) member firm would not be considered a municipal finance professional (MFP) if involved solely in which of the following? A) Underwriting municipal securities for the firm B) Municipal securities sales to customers C) Research involving municipal securities for the firm D) Municipal securities communications with customers

A (BigCo pays a $0.30 quarterly dividend. Dividend yield is an annual figure. To calculate the current dividend yield, you would multiply the quarterly dividend by four, and then divide the result by the current market value. (0.30 × 4)/30 = 1.2/30 = .04 (4%))

BigCo corporation common stock currently trades at $30 per share and pays a $0.30 dividend. What is BigCo's dividend yield? A) 4% B) 1% C) 2% D) 3%

A

BigCo, Inc., issues a collateral trust bond. Which of the following statements about this bond is true? A) This is a secured bond backed by marketable securities owned by the issuer. B) This is a secured bond backed by real estate owned by the issuer. C) This is an unsecured bond backed by marketable securities owned by a third party. D) This is a secured bond backed by rolling stock owned by the issuer.

D (Stockholders as owners can benefit from an increase in the price of the shares (capital appreciation) and by sharing in earnings through the receipt of dividends (distributed profits). Both are potential benefits, but neither are guaranteed.)

By purchasing shares of stock in a company, investors can benefit from which of the following? An increase in the price of the shares An increase in price of the company's debt securities An increase in the yield of the company's outstanding debt securities The receipt of profits to be distributed A) II and IV B) II and III C) I and III D) I and IV

A (Stock in a client's margin account is hypothecated (pledged) to the broker-dealer. In order to obtain funds to carry the margin loan, the broker-dealer rehypothecates a portion of the stock to a bank. The shares pledged to the bank serve as collateral for the bank's loan to the broker-dealer, which is made in accordance with Regulation U (not T).)

When a client of a broker-dealer purchases stock on margin, in order to finance the loan, the broker-dealer A) rehypothecates the stock to a bank. B) lends a portion of the stock to a bank. C) maintains possession of the stock. D) must comply with the requirements of Regulation T.

C

When a company wants to issue additional shares of stock, the preemptive right given to existing shareholders allows those shareholders to A) increase their proportionate ownership in the corporation. B) decrease their proportionate ownership in the corporation. C) maintain their proportionate ownership in the corporation. D) pass on their proportionate ownership in the corporation to an heir.

B

Which of the following is true regarding retail communications? A) They must be filed with the SEC within 10 days of use. B) They must be approved prior to use or filing. C) They may be reviewed after the fact. D) They must be approved if they are only sent to prospective, not current, customers.

C

Which of the following must be kept for the life of the firm? A) Written customer complaints B) Customer account records C) Stock certificate book D) General ledger

B (Exploratory programs, also called wildcatting programs, are those that look for resources near existing producing wells in the hopes of finding more deposits. These are considered riskiest of the oil and gas programs—exploratory, income or a combination of the two. Raw land is a type of real estate program, not an oil and gas program.)

Which of the following oil and gas direct participation programs might be considered the riskiest? A) Income B) Exploratory C) Raw land D) Combined exploratory and income

D

Which of the following records must be kept for only three years? Customer statements Customer new account forms Customer confirmations Customer order tickets A) I and IV B) II and III C) I and II D) III and IV

D

Your client, Sophia, retired from her job five years ago and placed all of the proceeds of her 401(k) distribution into a rollover IRA at a local bank. If Sophia wishes to transfer the funds to an IRA at your broker-dealer, which of the following statements would be true? A) A transfer of this type is not permitted. B) Mandatory tax withholding applies to trustee-to-trustee transfers. C) A transfer of this type will incur a 10% penalty. D) There is no limit to the number of transfers per year between custodians.

A

Your customer asks to buy a bond that carries a very attractive yield. When checking the bond, you see that it has a B rating from the major credit rating agencies. When communicating such information to a customer, all of the following terms are commonly used in describing a B-rated bond except A) lower grade. B) junk bond. C) noninvestment grade. D) high-yield.

D (They bought 200 at 40 for $8,000; then 400 at 50 for $20,000; then sold 600 at 55 for $33,000. $33k - $28k = profit of $5,000.)

Your customer has performed the following trades Bought 200 shares of ABC at $40 Bought 400 shares of ABC at 50 Sold 600 shares of ABC at 55 What is the result of these trades? A) A $6,000 loss B) A $6,000 gain C) A $5,000 loss D) A $5,000 gain

C

Your customer is a resident of a state with no income tax. They want an income-producing investment that produces tax-free income for them. Which of the following meets the customer's needs? A) A Treasury bond B) A GNMA certificate C) A municipal bond issued from any state D) Only a municipal bond issued by the customer's home state Explanation

A (GNMA certificates pay monthly principal and interest. The others listed here pay semi-annually. Treasury issues and GNMA issues are backed by the full faith and credit of the United States government.)

Your customer is interested in receiving monthly income from a security that is guaranteed for principal and interest by the federal government of the United States. Which of the following securities best meets this request? A) GNMA certificate B) Freddie Mac certificate C) 10-year T-note D) FNMA Certificate

A For long option contracts (puts or calls), the maximum loss is always the premium initially paid—in this case, 4 points ($400). This happens if the price of the underlying is at or above the put strike price at the option's expiration—in other words, at, or out of the money.

Your customer is long 1 October 55 put at 4. The customer's maximum loss potential is A) 4 points ($400). B) 51 points ($5,100). C) 59 points ($5,900). D) 40 points ($4,000).

C

Your customer owns 2,200 shares of LMN common stock. LMN Corporation issues stock rights related to an additional offer of shares that will increase the company's common shares by 20%. How many rights will your customer receive? A) 220 rights B) The number cannot be determined. C) 2,200 rights D) 440 rights

D (The formula for capital gains is sales proceeds - cost basis = gain (or loss). For this problem $8,000 - $7500 = $500 gain. The position was held for more than one year so it is a long-term gain.)

Your customer purchases 100 shares of JIM, Inc., common stock at $75 per share on January 17, 2020. The customer sells the shares for $80 per share on February 2, 2021. The result of the sale is A) a $500 short-term capital gain. B) a $500 long-term capital loss. C) a $1,000 long-term capital gain. D) a $500 long-term capital gain.

C

Your customer purchases 200 shares of Seabird Airlines (the ticker is SBRD) at $30 a share in a cash account. Under Regulation T, the Federal Reserve has set the initial margin requirement at 50%. How much does your customer need to deposit for this trade? A) $1,500 B) $2,000 C) $6,000 D) $3,000

C

Your customer purchases 5 JIM 50 calls at 3. Funds must be deposited in the account to pay for the trade no later than A) in two business days. B) the same day. C) the next business day. D) no funds are required for this trade.

D (The formula for calculating total return is (income + gains or - losses) / cost basis. For this question ($0 + $10) / 40 = 10 / 40 = 0.25 (25%).)

Your customer sells 100 shares of Small Co., Inc., common stock at $50 per share. After six months, they close the short position at $40 per share. Small Co. does not pay a dividend. What is the total return? A) 20% B) 10% C) 15% D) 25%

C (You do not have to calculate YTM for this problem. You could if you really wanted to, but it is not necessary for the question. You do need to recall the bond inverse relationship chart. The bond is trading at a discount so the YTM must be higher than the coupon of 5%; that eliminates two responses. Note that YTM is higher than current yield, and that you do need to calculate CY. The bond's annual interest divided by the price (50/940) is 5.32% (the CY). Only one response is higher than 5.32%.)

Your customer, Eleanor, purchased an InDebt, Inc., 5% debenture at a price of 94. It matures in 12 years. What is the yield to maturity? A) 5 B) 4.69 C) 5.73 D) 5.32

C

Your customer, MJ, has a strong preference for investing in equity securities; however, she is hoping to increase the amount of current income her portfolio generates. Which of these is the least suitable for her? A) BuyMore, Inc., a big-box retailer with a long history of healthy dividend payments B) Long Beach Electric, a utility C) Duratech common stock, an exciting new tech manufacturer D) Generic Motors, Inc., 4 ¾% preferred stock

A (U.S. exports should increase when foreigners have greater purchasing power. That occurs when their currency is stronger than the dollar.)

Exports from the United States would likely increase if the Japanese yen strengthened against the dollar. the U.S. dollar strengthened against the euro. the U.S. dollar weakened against the British pound. the Swiss franc weakened against the dollar. A) I and III B) II and III C) II and IV D) I and IV

D (A sell stop order is an instruction to sell at the market when a trade occurs at or below the stop price. If ABC stock's price drifted down and trades at 38, the stop is triggered. Even if it leaps over 38 to 37.95, for example, the stop would trigger. Remember that a stop, when triggered, becomes a market order. Market orders may fill at any price.)

If your client, Marvin Blackwell, places a sell stop order at 38 when ABC is trading at 40, at which of the following prices could the order be filled? 38 39 40 41 A) II and III B) III and IV C) I and II D) I, II, III, and IV

B

In a 20% stock dividend, what happens to the number of shares and the share price? A) The share price goes up, and the number of shares goes down. B) The share price goes down, and the number of shares goes up. C) The share price goes down, and the number of shares goes down. D) The share price goes up, and the number of shares goes up.

D

In a stock rights offering, which of the following statements is true? A) The exercise period is typically long term, five years or more. B) The rights allow the holder to exercise and purchase the stock at a price higher than the market. C) The number of rights issued is based on the number of new shares to be issued. D) The subscription period is typically 30 to 45 days.

C

In regards to the rights of a common stockholder, freely transferable is best described by which of the following statements? A) A holder of common stock may transfer the shares for value. B) A holder of common stock may transfer the shares for value with the transfer agent's permission. C) A holder of common stock may dispose of the shares in whatever way they choose. D) A holder of common stock may transfer the shares with the issuer's permission.

C (Although hedge funds are unregulated (no Securities and Exchange Commission registration is required), there are laws requiring that those who purchase shares of hedge funds be accredited investors. That is, they must meet minimum annual income and net worth criteria, as well as have considerable investment knowledge.)

Investors in hedge funds are generally what type of investor? A) Retail investors B) Income investors C) Accredited investors D) Equity investors

D

It would be reasonable to expect an increase in exports from the United States if which of these occurred? The dollar strengthened against the euro The yen strengthened against the dollar The Swiss franc weakened against the dollar The dollar weakened against the British pound

B

Jon owns 100 shares of the Bayside Fishing Company. Bayside has 1 million shares outstanding and operates under a statutory voting system. At the next election for the board, there are two open seats. All of these are true except A) Jon has control of 200 votes, and he can cast up to 100 of those votes for each open seat. B) Jon has control of 200 votes, which he can cast any way he likes among the two open seats. C) Jon owns 1/10,000 of the Bayside Fishing Company. D) Jon has a right to freely transfer his shares.

C

Jones bought an American depositary receipt (ADR) in a South Korean company at $22.00 and recently sold the shares for $36.88. What are the tax consequences of this transaction? A) The profit is taxed as income in the United States. B) The profit is taxed as income of $14.88 by the government of South Korea. C) The profit is taxed as a capital gain of $14.88 in the United States. D) The profit is not taxed because ADRs are tax-exempt securities.

B (Options settle the next business day (T + 1). Regular way settlement is T + 2 for everything else except treasuries and money market securities.)

Josie Reese, one of your clients with an option account, calls and asks you to remind her when she is required to settle if she bought a call today. You would tell her A) trade date plus 2 business days. B) trade date plus 1 business day. C) trade date. D) trade date plus 3 business days.

B (A secured bond backed by real estate is called a mortgage bond. Collateral trust bonds hold other securities in trust as collateral. A guaranteed bond is an unsecured bond backed by a third party. A headquarters debenture is a fictional thing.)

Lando Entertainment, Inc., issues a bond collateralized by a trust holding the company's Las Vegas headquarters. This type of bond is called a A) guaranteed bond. B) mortgage bond. C) headquarters debenture. D) collateral trust bond.

D (Income and losses in an LP are always treated as passive and are reported to the investor via the K-1. The tax results for the year are included in that document.)

Last year Brownstone Properties, LP distributed $200 per unit to investors and reported a $500 business loss per unit on the K-1. For tax purposes the investors received A) a $500 reduction in ordinary income. B) a net $300 loss. C) $200 per unit of passive income. D) a $500 per unit passive loss.

C

M1 is a measure of the value of A) M2 plus retail CDs and money markets. B) retail CDs and money markets. C) cash and funds held in DDAs. D) cash, cash equivalents, and DDAs.

C

MJS Corporation has called in its 6% preferred shares. Owners of these shares should expect that A) the shares will be resold to new investors. B) the shares will continue to trade in the open market. C) dividend payments will cease on the call date. D) dividend payments will continue until the owner chooses to turn in the shares.

C (The MSRB has no authority over municipal governments. They do make rules for underwriters (investment bankers) bringing municipal bonds to market, and municipal bond trading for both dealers and brokers acting on a customer's behalf.)

MSRB rules apply to all of the following except A) FINRA member firms performing trades with municipal bonds. B) municipal dealers. C) municipalities. D) investment bankers.

D

Modulux, Inc., a NYSE listed manufacturer, is offering 5 million shares to the public, which will raise capital to build a new plant. The new technology and design should allow Modulux to increase market share significantly in the modular home business. This offer is A) a venture offering. B) an IPO. C) a secondary offering. D) an APO.

A

Narcissus, Inc., a social media company, has shares selling at $52. Your customer likes the company but thinks it is currently a bit too high and would like to buy the stock if the price declines to $50 per share. Which of the following orders meets this customer's request? A) Buy limit @ 50 B) Buy puts with a 50 strike C) Buy stop at 50 D) Buy stop at 55, limit 50

B (Gains are derived from opening and closing trades buy and sell in this example). She bought at $20 and sold for $21, so there is $1 in gain. She collected four quarterly dividends for $0.25 each, so a total in $1 in investment income.)

Skye purchased 100 shares of Moreno, Inc., for $20 a share. One year later, she sold the shares for $21 dollars. Over the year, Moreno paid a $0.25 quarterly dividend. What was Skye's gain or loss and how much investment income did she earn? A) $2 total gain B) $1 gain and $1 in income C) Cannot be determined from this information D) $2 in income

C (This offer would be exempt from registration with the SEC because it meets the criteria under the Intrastate Offer Rule, but would still need to be registered with the state. MSRB makes rules for municipal securities.)

The Hoffman Equipment Company of Anaheim, California is preparing to sell shares to the public in an IPO. They plan to sell exclusively to residents of the state of California and use the proceeds to build a new showroom in Long Beach, California. This offer would need to be registered with A) no one; this is an exempt transaction. B) the SEC. C) the administrator of the state. D) MSRB.

B

The TCPA only restricts solicitations that are delivered via A) facsimile. B) the telephone lines. C) email. D) voice telephone calls.

A

The Telephone Consumer Protection Act of 1991 exempts all of these entities except A) booking services for commercial enterprises. B) debt collectors. C) not-for-profit companies. D) survey takers.

B

The aftermarket prospectus requirement for the IPO of nonlisted securities is A) 40 days. B) 90 days. C) not specified in the Securities Act of 1933. D) 25 days.

C

The common stock of a U.S. corporation and an American depositary receipt (ADR) issued in the United States share all of the following types of risk except A) business risk. B) regulatory risk. C) currency risk. D) market risk.

B

The following records must be kept for how many years? A list of the offices where registered representatives conduct business Compensation records for registered representatives The firm's compliance manuals A) For the life of the firm B) Three years C) Four years D) Six years

D

The market price of a company's common stock could be affected by the company's earnings. changes in the business cycle. Federal Reserve Board (FRB) policies. International conflicts. A) II and III B) I and II C) I and III D) I, II, III, and IV

D

The securities industry is highly regulated, and as such, it is important for broker-dealers to keep detailed records. If a customer complaint has been received regarding the actions of a registered representative, it will be maintained at the office of supervisory jurisdiction for a period of A) ten years. B) the term of employment for the registered representative at the broker-dealer. C) one year. D) four years.

C (The spread is what a dealer makes as a markup when he sells from his inventory if he buys at the bid and sells at the ask. A commission is charged in an agency transaction.)

The spread a dealer makes is best described as A) the ask plus the bid. B) none of these. C) the ask minus the bid. D) the total commission.

B (Under the Securities Exchange Act of 1934, broker-dealers and domestic exchanges are required to register with the Securities and Exchange Commission (SEC). Registration of securities and IPOs is a requirement of the Securities Act of 1933, sometimes called the Paper or New Issues Act. The SEC does not have authority over foreign exchanges.)

Under the Securities Exchange Act of 1934, registration is required for A) foreign securities exchanges. B) broker-dealers. C) securities. D) initial public offerings (IPOs).

D (One of the provisions of the USA is that each state have a state securities administrator (the administrator). We made up the State Securities Rulemaking Board.)

Under the Uniform Securities Act of 1956, who is responsible for enforcement of state securities regulations? A) The Securities Exchange Commission B) The Financial Industry Regulatory Authority C) The State Securities Rulemaking Board D) The Administrator

D (Upon the purchase of a security, the investors may receive dividends or interest, which are forms of income, or they may sell the security for a different price than was paid for it, which represents a capital gain or loss.)

What are the two basic types of return on an investment? A) Dividends and interest B) Interest and principal C) Short term and long term D) Capital gains and income

A (The coupon rate, the stated rate, the fixed rate, and the nominal rate all mean the same thing. It is the amount the bond will pay each year. On a premium bond the coupon rate is always higher than the current yield.)

When a bond is purchased at a premium, the current yield will be A) lower than the coupon rate. B) higher than the stated rate. C) the same as the nominal rate. D) higher than the fixed rate.

A

Which of the following is not part of the secondary markets? A) Mutual fund market B) Third market C) Over-the-counter market D) The exchanges

A

A stock trade took place on Tuesday, July 2. When would regular way settlement normally take place? A) Friday, July 5 B) Wednesday, July 3 C) Monday, July 8 D) Tuesday, July 2

C

All of the following are associated with a market maker except A) maintaining an inventory. B) acting as a principal. C) charging a commission. D) charging a mark-up.

A

Which of the following terms is not associated with the exchanges? A) Negotiated pricing B) Physical location C) Auction D) Listed security

C (A corporate charter is granted by a government entity, usually the state. An exchange can not revoke it. However, a firm whose corporate charter has been revoked will likely see a delisting shortly thereafter.)

All of these are rules set down by an exchange except A) order priority. B) capital requirements for members. C) revoking a corporate charter. D) listing and delisting of a security.

A (Failure to meet the required minimum distribution results in a 50% penalty on the shortfall. In this case, she took $20,000 when she should have taken $30,000 so there will be a 50% tax on the $10,000 difference ($5,000 penalty). In addition to that $5,000 penalty, the ordinary income tax on the total amount that should have been withdrawn must also be paid (25% × $30,000 = $7,500). Total tax liability on the withdrawal equals $12,500 ($5,000 penalty tax plus $7,500 ordinary income tax).)

A 73-year old client in the 25% income tax bracket withdraws $20,000 from her traditional IRA. Based on her life expectancy, the withdrawal should have been $30,000. How much tax will she owe? A) $12,500 B) $5,000 C) $7,500 D) $10,000

C

A bearish sentiment means that a person believes A) the firm appears to be slow and lumbering. B) the company will devour its competition. C) the security will decline in value. D) the security will increase in value.

C

A broker-dealer that concentrated its business efforts on proprietary trading would most likely be functioning as A) an underwriter. B) an investment adviser. C) a market maker. D) an investment banker.

B

A clearing corporation agent or depository for securities transactions A) must be a broker-dealer. B) can be a commercial bank. C) can never be a corporation. D) can be a bank or corporation only if they are also a broker-dealer. Explanation

A (A primary offering is one in which the proceeds raised go to the issuing corporation, municipality, or government. The corporation in this case looks to increase its liquid capital by offering bonds. Primary offerings of bonds may be made by an issuer publicly, as is the case, or privately. This question points to an additional public offering (APO) of securities, not an initial public offering.)

A company is looking to raise additional capital to fund an expansion plan. The company's senior management chooses to issue additional bonds to the general public. The best expression to explain this type of offering would be A) a primary offering. B) an initial public offering (IPO). C) a private securities offering. D) a secondary offering.

B (Debt financing or utilizing debt leverage too much can lead to the inability to meet principal and interest payments on a company's debt obligations. This is the definition of financial risk.)

A company that is extensively overleveraged using debt financing whenever available would be exposing its investors to A) business risk. B) financial risk. C) liquidity risk. D) call risk.

C (The FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each deposit ownership category in each insured bank. Each account listed (savings, checking, and custodial) is a separate ownership category under FDIC rules, so all the money in each of them is covered.)

A customer has a significant amount of money in bank deposit accounts: $225,000 in a savings account titled in the customer's name; $240,000 in a checking account titled jointly with a spouse; and $100,000 in an account where the customer is custodian for a grandchild. Should that bank fail, the Federal Deposit Insurance Corporation (FDIC) insurance would cover A) $250,000 for the savings and checking accounts and $100,000 for the custodial account. B) $225,000 for the savings account, $100,000 for the custodial account, and nothing for the checking account. C) the entire $565,000. D) a total of $250,000, divided proportionately among the three accounts.

A (The SIPC covers customer accounts in broker-dealers to a maximum of $500,000, of which no more than $250,000 may be cash. In this case, the full $175,000 of the cash balance and all of the $125,000 securities holdings are covered for a total of $300,000.)

A customer of a broker-dealer has a cash balance in an account of $175,000 and securities holdings of $125,000. The customer asks about SIPC coverage, and you explain that the current coverage is A) $175,000 cash and $125,000 securities for total coverage of $300,000. B) the cash balance only, up to $250,000. C) $100,000 securities and $100,000 cash for total coverage of $200,000. D) all of the securities and none of the cash for total coverage of $125,000.

D

A customer placed an order to purchase 100 shares of Sierra Verde Corp. common stock. The broker-dealer sourced the shares from another broker-dealer that maintains an inventory in the stock. The customer's firm acted as A) a dealer. B) an underwriter. C) a market maker. D) an agent.

D (Explanation The formula for calculating total return is (income + gains or - losses) / cost basis. For this question ($1 + $3) / 20 = 4 / 20 = 0.20 (20%). Note that the position was held for only one year.)

A customer purchased 100 shares of GHI common stock two years ago for $20 per share. After a year, they sell the shares for $23 per share. Over the past two years, GHI has paid a $0.25 quarterly dividend. What is the total return? A) 25% B) 15% C) 10% D) 20%

D

A customer receives a voting proxy from a broker-dealer for shares owned by the customer and held in street name. The customer returns the proxy but later decides to attend and vote at the shareholder meeting in person. The voting proxy A) once signed could not be replaced by a vote made in person or by another proxy executed later. B) would need to be rescinded in writing by the broker-dealer in order for the shareholder to vote in person. C) would be deemed the shareholders vote because it would have already been counted. D) would be revoked, and only the vote at the meeting would count.

A

All of these are true regarding no-load shares except A) they have sales charges associated with sales and redemptions. B) they are redeemed with no charges or fees of any kind. C) they offer more return per dollar invested than load funds if investing results are the same. D) they are sold by the fund with no sales charges or fees of any kind.

A (Each discretionary order must be identified as such at the time it is entered for execution, a principal, officer or a partner of the BROKER-DEALER must approve each order promptly and in writing, but not necessarily before order entry, a record must be kept of all transactions including discretionary ones, and as with all trading activity, it is subject to frequent and systematic review by a designated supervisor or manager.)

A registered representative enters a discretionary order for her clients account. All of the following are required except A) the order must be approved by a principal prior to entry. B) the order must be identified as or marked discretionary. C) the order should be included in those required to be reviewed frequently. D) a record of the order must be maintained.

B (An amended U5 form must be filed and a copy sent to the affected former employee within 30 days of discovery of the inaccuracy. It does not matter how long it has been since the employee's termination.)

A registered representative has left one firm to join another. Sometime later, the former employer discovers that some information on Form U5 filed at the time of termination was inaccurate. The firm need not file an amended U5 if at least how much time has gone by? A) 30 days B) No stated time limit C) 5 years D) 2 years

D

A registered representative provides financial support and housing at her home for her grandfather. Regarding the purchase of new issues, A) the grandfather is restricted, but the registered representative is not. B) neither are considered restricted. C) the registered representative is restricted, but her grandfather is not. D) both persons are considered restricted.

B (If an owner of shares held in street name has not returned proxy statements earlier than 10 days before a shareholders' meeting, the member firm holding the shares may vote them as it sees fit, provided the matters voted on are minor. If they are major—for example, changing the direction of the business, offering additional stock, effecting a merger—the member firm may not vote the shares at all.)

A shareholders' meeting for ABC Corporation will take place in eight days. A customer whose stock is being held in street name has not returned the proxy statements. Which of the following is true? A) The member firm votes the shares as recommended by the issuer's management. B) The member firm may vote the shares as it wishes on minor matters. C) The member firm must ascertain how the investor wishes to vote the shares. D) The member firm may not vote the shares under any circumstances.

B (A municipality may be limited by statute regarding the amount of GO debt it may incur, thus limiting the GO bonds it can issue.)

A statutory debt limitation imposed on a municipality restricts its authority regarding A) raising tax rates. B) issuing general obligation (GO) bonds. C) insuring municipal bond issues. D) selling municipal revenue bonds.

B

A sudden increase in U.S. exports would most likely cause which of the following? A) No effect on the balance of trade B) The trade deficit to decrease, or surplus to increase C) Something, but the impact is unpredictable D) The trade surplus to decrease, or deficit to increase

B (The ex-date for a corporation will be one business day prior to the record date. The record date is July 5. The day before is July 4, which is a holiday and not a business day. The days before that are Sunday and Saturday. The first business day before the ex-date is Friday, July 1. The last day to purchase the stock and qualify for the dividend is the day before the ex-date (June 30). The only holidays we have heard of appearing on the exam are July 4 and December 25.)

ABC Corporation's board of directors declared a $0.25 per share dividend on Wednesday, June 15. The dividend will be paid to shareholders of record on Tuesday, July 5. The dividend will be sent to shareholders on Tuesday, July 26. What is the last day to purchase the stock and receive the dividend, assuming a regular way settlement? A) July 1 B) June 30 C) July 3 D) July 2

C (NAV is calculated by dividing the net assets of the fund by the number of outstanding shares. In this question the net assets are given; the liabilities are already in the figure. The math is 120 million / 5 million = $24 per share.)

ABC Growth Fund has net assets of $120 million and liabilities of $5 million. The fund has 5 million outstanding shares. What is the fund's current net asset value (NAV) per share? A) $25 B) $22 C) $24 D) $23

B (The administrator handles state securities laws. NASAA is an association of state administrators. The SEC and FINRA are both national level organizations.)

According to the Uniform Securities Act, who is charged with enforcing state securities laws and regulations? A) The SEC B) The administrator C) NASAA D) FINRA

C

All of the following are benefits of Coverdell Education Saving Accounts except A) withdrawals are tax free if used for qualified education expenses. B) they can be transferred to a sibling if not used by the original beneficiary. C) no income restrictions. D) they are available for use for K-12.

A

All of the following are taxable to the investor except A) stock dividends. B) cash dividends. C) capital gains distributions. D) semiannual interest payments.

C (There is no standardized industry mandated breakpoint schedule. Offering breakpoints and where they occur is at the discretion of the investment company. In accordance with a breakpoint schedule, the greater the investment, the lower the sales charge will be. A breakpoint sale occurs when a sale is made just below a breakpoint with the intent of the registered representative to be the recipient of a higher sales commission. In this light, disclosure of breakpoints when they are offered is required.)

All of the following are true regarding breakpoints for mutual funds except A) a breakpoint sale is considered to be a sale just below a breakpoint. B) breakpoints must be disclosed to potential investors. C) the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold. D) the greater the investment, the lower the sales charge.

D (The special penny stock rules only apply to solicited transactions. Because of the greater perceived risk of investing in penny stocks, it is required that the penny stock disclosure document fully describing the risks associated with penny stock investments be provided before any transactions in those securities may take place. However, a signed suitability statement (different than the risk disclosure) is not required for established customers. Statements of account activity must be provided monthly when an account holds penny stocks.)

All of the following statements regarding penny stocks are true except A) the SEC rules require that prospects, before their initial transaction in a penny stock, be given a copy of a risk disclosure document. B) if an account holds penny stocks, broker-dealers must provide a monthly account statement to the customer. C) established customers of the firm need not sign a suitability statement. D) penny stock rules apply to both solicited and unsolicited transactions.

A (Nontraded REITs are taxed the same way as public (traded) REITs. There are concerns about the private REITs lack of liquidity, transparency in operations, and the difficulty of valuing the programs.)

All of these are potential risks of private, nontraded, REITS except A) tax treatment. B) liquidity. C) reliability of valuations. D) transparency.

D (Securities that have an agreed rate of return, such as bonds, notes, money market instruments, and other debt instruments, are deemed fixed-income securities. Preferred stock acts in many ways like a bond in that it has a fixed dividend rate, making it a fixed-income security. Common stock may or may not pay a dividend depending on the board of directors. Common stock is not deemed a fixed-income security.(

An example of a fixed-income security would include all of the following except A) common stock that has historically paid dividends. B) a municipal bond that has historically made late interest payments. C) a money market instrument that has historically made timely interest payments. D) preferred stock that has historically paid dividends.

C (Growth industries do just that, grow. The business cycle has less impact on these growing businesses.)

An industry whose products stay in high demand, and whose companies grow, without regard to the business cycle are called A) emerging industries. B) defense industries. C) growth industries. D) cycling industries.

B

An institutional investor selects a single Financial Industry Regulatory Authority (FINRA)/NYSE member firm to provide for financing and custody of securities while orders to buy or sell are placed with executing brokers. This is an example of A) a managed account. B) a prime brokerage account. C) an omnibus clearing arrangement. D) an investment advisory account.

A (The OCC sets standard exercise prices and expiration dates for all listed options, but the options premiums that buyers pay are determined by the market.)

An investor buys 1 DWQ May 70 call at 2, giving the investor the right to buy 100 shares of DWQ at $70 per share. All the specifications of the transaction are set or standardized by the Options Clearing Corporation (OCC) except A) premium of 2. B) contract size of 100 shares. C) exercise price of 70. D) expiration date in May.

B (Coverage under SIPC may not exceed $500,000 in cash and securities, of which up to $250,000 may be cash. In the cash account, his coverage is $300,000 in securities plus $40,000 in cash. In the long margin account, the coverage is only the equity, which is $60,000. Total: $300,000 + $40,000 + $60,000 = $400,000.)

An investor has a cash account with $300,000 in securities and $40,000 in cash. The investor also has a restricted long margin account containing securities with a market value of $220,000 and equity of $60,000. What is the extent of this investor's Securities Investor Protection Corporation (SIPC) coverage? A) $620,000 B) $400,000 C) $280,000 D) $100,000

D

An investor interested in quarterly income should invest in A) a variable annuity. B) Treasury notes. C) a corporate bond. D) a common stock paying a high dividend.

A

An investor is interested in supplementing retirement income, is comfortable with market risk, and is concerned about the effects of inflation on their retirement cash flow. Which of the following securities is suitable for this investor? A) A variable annuity B) A fixed annuity C) A Treasury bond fund D) An international bond fund

D (A put writer's maximum loss is the put's strike price (15) less the premium received (6)—in this case, 9 points. Note that this is the same as the breakeven. This maximum loss occurs when the stock price drops to zero. The investor is forced to buy the worthless stock at the option's strike price of 15 and, therefore, has lost 15 points. The investor's total loss (15), however, is reduced by the premium (6) received, making the ML 9 points ($900).)

An investor is short 1 December 15 put at 6. The investor's maximum loss on this position is A) $60. B) $2,100. C) $1,500. D) $900.

D

An investor owns 1 November 15 put at 5. The 15 in this contract represents A) the premium, the price the investor can purchase stock at. B) the strike price, the price the investor has paid for the contract. C) the premium, the price the investor has paid for the contract. D) the strike price, the price the investor can sell stock at. Explanation

C (When a company declares a stock dividend, the cost basis per share is always reduced. The customer will receive 25 new shares (100 shares × 0.25 = 25). The computation is the original total cost $4,000 (100 × $40) divided by the new number of shares 125 (100 + 25). Four-thousand dollars divided by 125 shares equals a new cost basis per share of $32. The holding period for capital gain or loss (short or long term) is always from the original purchase date. In this case, because the shares were sold three years later at 50, the gains are long term.)

An investor purchased 100 shares of LMN stock in 2013 at a price of $40 per share. Soon after, LMN declared a 25% stock dividend. Three years after the shares were purchased, they were sold at $50. Which of the following statements are correct? The adjusted cost basis of the shares is $30. The adjusted cost basis of the shares is $32. There is a short-term capital gain on all the shares sold. There is a long-term capital gain on all the shares sold. A) II and III B) I and III C) II and IV D) I and IV

B

An investor purchased 100 shares of MJS on June 19, 2015 at a price of $40 per share. On June 1, 2016, MJS declared a 25% stock dividend. On July 1, 2016, the investor sold 50 shares of the MJS at $50 per share. Which of these statements is correct? The adjusted cost basis of the shares is $30. The adjusted cost basis of the shares is $32. There is a short-term capital gain on 25 shares and long-term gain on the other 25 shares. There is a long-term capital gain on all of the shares sold. A) I and III B) II and IV C) I and IV D) II and III

D

An issuer files a registration statement with the SEC for the sale of new securities on May 1. While reviewing the registration statement, the SEC determines that it has not been filed properly and issues a deficiency letter on May 5. The issuer submits a corrected registration statement on May 8. Which of the following is true regarding the 20-day cooling-off period? A) It is halted on the day the deficiency letter is issued and must begin anew from that same date once the corrected registration is received. B) It is halted and does not resume until 20 days following the corrected registration is received. C) It continues and is not impacted by the issuance of the deficiency letter by the SE. D) It is halted on the day the deficiency letter is issued and resumes where it left off on the day the corrected registration is received.

C

Andrea recently began working for the Seabird Coffee Company as a barista. She tells you that her company has two retirement plans she can participate in. In one plan, she contributes a portion of her salary into an account where she can choose from a set of investments. The contributions reduce her taxable income. The money grows and when she retires, or leaves the company, she can take the balance. In the other program, she does not contribute to the plan; the company pays into the plan and invests the money. When she retires, and if she qualifies, she will receive a retirement income for life from the plan based on her working income. You explain that Seabird Coffee has A) two different defined contribution plans. B) a defined benefit and a nonqualified-deferred compensation plan. C) a defined contribution and a defined benefit plan. D) two different defined benefit plans.

C

Callable preferred stock is advantageous to the issuing company because it allows the company to A) call in the stock at less than par value and capture the difference as income. B) take advantage of higher interest rates. C) replace a higher, fixed-rate issue with a lower issue after the call date. D) issue fixed-rate securities at a yield lower than usual.

A (It appears that the customer is structuring deposits to avoid attention being drawn to the amount of cash he is depositing. This activity is called structuring. As the transactions exceed $10,000 in a day of currency, your firm would file a currency transaction report with FinCEN.)

During the course of a day a customer makes six separate cash deposits at six different branches totaling over $11,000. This may be an example of A) structuring, and a CTR should be filed. B) structuring, and an SAR should be filed. C) integration, and an SAR should be filed. D) extraction, and a CTR should be filed.

C

Each of the following activities would be deemed by market regulators to be manipulative behavior except A) marking the open or the close. B) capping. C) proxy solicitation. D) front running.

C

Each of the following investments and practices are deemed ineligible for an IRA or any other retirement plan except A) life insurance. B) collectible fine art. C) variable annuities. D) margin account trading.

C (When a bank needs to borrow money to increase its reserves, it can borrow from the Federal Reserve Bank or it can borrow from another member bank like itself. When borrowing from the FRB, the banks pay the discount rate. When borrowing from another member bank, the banks pay the federal funds rate.)

First Amalgamated Bank of Buffalo, a large commercial bank, is a member of the Federal Reserve System. Should the bank need to increase its reserves, it could do which of these? Borrow from the FRB and pay the discount rate. Borrow from the FRB and pay the federal funds rate. Borrow from another member bank and pay the discount rate. Borrow from another member bank and pay the federal funds rate. A) II and III B) I and III C) I and IV D) II and IV

A (Fiscal policy is the use of government spending and taxation to smooth out the business cycle. Interest rates and money supply are elements of monetary policy.)

Fiscal policy seeks to encourage or discourage economic activity through the A) use of government spending and taxation. B) management of money supply and government spending. C) management of money supply and taxation. D) use of government spending and interest rate controls.

D

For nonlisted and non-Nasdaq securities, a prospectus must be provided to all those who purchase securities as part of an APO for how many days after the effective date? A) 10 days B) 30 days C) 60 days D) 40 days

B

For registered shares held by an affiliate (known as control stock), which of the following applies? A) No holding period or any volume restrictions B) No holding period, but volume limits always apply C) Six-month holding period, with sales allowed freely thereafter D) Six-month holding period, with volume limits thereafter

D

For restricted stock (unregistered) held by an affiliate (insider), which of the following applies? A) No holding period or any volume restrictions B) Six-month holding period, with sales allowed freely thereafter C) No holding period, but volume limits always apply D) Six-month holding period, with volume limits thereafter

A (These shares are held in the company's treasury. Most companies do this with the intention to eventually redistribute the shares by selling them or to distribute the shares into retirement plans or employee-purchase or option plans.)

From time to time, a corporation may purchase its own issued shares. These shares are then held by the corporation, but they may not vote, do not receive dividends, and are not used in most calculations of value and profitability. What are these shares called? A) Treasury shares B) Outstanding shares C) Issued shares D) Authorized shares

B (EBITDA is an acronym referring to earnings before interest, taxes, depreciation, and amortization.)

GHI Corporation reported the following financial results for the prior quarter: Earnings: $50 million Interest: $5 million Taxes: $15 million Depreciation: $1 million Amortization: $1 million What is GHI's EBITDA? A) $28 million B) $50 million C) $30 million D) $45 million

D

Harry's Burgers has announced a tender offer for 20 million shares of Jim's Junkfood Corner at $30 a share. If Harry's secures all the shares then they will control Jim's. The shareholders of Jim's, that submit their shares to the tender offer, will realize which of these? A capital loss occurs if their cost basis is greater than the tender price. There is no effect. A capital gain occurs if their cost basis is less than the tender offer. Investment income is received equal to the value increase of the new shares. A) I, III, and IV B) IV only C) II only D) I and III

B

How long do blotters, general ledgers, and stock records need to be maintained? A) Three years B) Six years C) Four years D) Five years

C (If the stock declines in value and the short put options are exercised, the customer will buy the stock at a price lower than where the market is at this moment. The short calls would force him to sell the shares if exercised. Buying out-of-the-money calls costs money, and the strike price would be higher than the market. Buy stop orders are entered above the current market value of a stock.)

If a customer had a large cash position and was interested in purchasing stock at prices below where they are today, an option strategy would be to A) place a buy stop order below the market. B) buy out-of-the-money calls. C) write covered puts that are currently out of the money. D) write uncovered calls that are currently out of the money.

C (A joint account has a maximum coverage of $500,000; however, in a margin account only the equity is covered, so the debit balance is subtracted from the market value, leaving $400,000 equity.)

If a married couple have a joint account with a market value of $1 million and a debit balance of $600,000, all of which is in securities, how much coverage would this account have? A) $600,000 B) $500,000 C) $400,000 D) $1 million

D (Institutional communications specifically exclude internal communications such as memos. Communications with another member firm, a government entity, such as a municipality or with someone designated to act on behalf of one of your firm's institutional customers, would all fall within the definition of institutional communications.)

Of the following, which would not be considered institutional communications with the public? A) A letter to a municipality offering your firm's services as an underwriter B) A communication with an individual designated to act on behalf of your institutional customer C) A letter to another broker-dealer regarding potential business together D) An internal memo promoting a new product that will be offered to your firm's institutional customers only

C

On Friday, July 1 your customer purchased 10 3% T-bonds maturing in 15 years. This trade will settle on A) July 2 B) July 3 C) July 5 D) July 6

A (The formula is (quarterly dividend x 4) / current market value. (0.2 x 4) / 40 = (.8) / 40 = .02 (2%))

On March 3, the board of directors of Seabird Airlines declares a $0.20 per share dividend payable to holders of record as of March 30. Seabird stock jumped from $35 per share to $40 per share on the news. The current yield of Seabird stock is A) 2.00%. B) 5.00%. C) 0.50%. D) 2.25%.

A (Minimum maintenance for long margin is 25%. In a short account, the minimum maintenance requirement is 30%. Initial requirement under Regulation T is 50%.)

Per FINRA regulations, the minimum equity in a long margin account must be at least A) 25%. B) 50%. C) 30%. D) 75%.

A (Investment companies registered under the Investment Company Act of 1940 offer securities that are deemed to be federally covered. The effect of this designation is that states do not have jurisdiction over the registration requirements of these securities; no state registration can be required. Therefore federally covered securities are required to register at the federal level only.)

Regarding registration for the sale of securities, those registered under the Investment Company Act of 1940, such as mutual funds, would be considered A) federal covered securities and not required to register at the state level. B) federal covered securities required to register at the state level only. C) securities that are exempt from registration at all levels. D) securities required to register at both the federal and the state level.

D (Sales loads go to the underwriters or broker-dealers selling the shares for the fund. Therefore, they are subtracted from the dollars invested and in that light reduce possible returns for investors. Management fees and operating expenses are ongoing costs to the fund and, therefore, reduce the dollars that can be invested, again reducing potential returns.)

Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is true? A) Only management fees and operating expenses reduce investor returns by reducing the amount of money available for the fund to invest. B) Sales loads increase investor returns because they are received by the fund increasing the amount they have to invest. C) All increase investor returns because each is received by the fund increasing the amount they have to invest. D) All reduce investor returns because they reduce the amount of money available for the fund to invest.

A

Regular way settlement for the purchase of an equity option occurs A) one business day after the trade date. B) the same business day as the trade date. C) three business days after the trade date. D) two business days after the trade date.

C

Restricted shares, those that are unregistered, meaning that they were not attained in a public offering, may be sold by a nonaffiliate A) freely, with no holding period or volume restrictions. B) at any time but with volume restrictions. C) after holding them for six months and freely thereafter. D) after holding them for six months but then subject to volume restrictions.

D (The Securities Investors Protection Corporation (SIPC) covers broker-dealers, not banks. The Federal Deposit Insurance Corporation covers banks. In this example, the couple would be covered to $400,000, split between the two persons.)

Robert and Annie, a married couple, have $400,000 on deposit in a savings account at the First National Bank of Richfield. What is their protection from SIPC if the banks fails? A) $500,000—the total maximum coverage per separate customer B) $250,000 total for the account C) $400,000—split evenly between them D) There is no coverage

B

Ron buys 522 shares of Narcissus, Inc., common stock in a cash account on Monday, March 19. He deposits cash in the account sufficient to cover the trade on March 20. How soon would he be able to withdraw those shares? A) Tuesday, March 20 B) Wednesday, March 21 C) Friday, March 23 D) Thursday, March 22 Explanation

C

SIPC coverage is best described by which of the following? A) Covers $500,000 in cash and securities B) Covers up to $500,000 in cash and $500,000 in securities C) Covers up to $500,000 in cash and securities but no more than $250,000 in cash D) Covers up to $500,000 in cash and securities but no more than $250,000 in securities

C (A revocable living trust will accomplish his goals for his estate. An irrevocable trust takes away his control of his assets. The business cannot be placed in a transfer on death account. A will must go through probate.)

Sam Malloy owns a small business and has built a substantial estate both with his business success and his early career as a pro athlete. He wants to set up his estate in a way that he will control the assets until he passes away or becomes incapacitated. Once that time comes, he wants control to transfer easily and he wants to avoid probate. Sam should A) create a last will and testament. B) place his assets in a transfer on death account. C) establish a revocable living trust. D) establish an irrevocable living trust.

A (An irrevocable living trust will accomplish his goals. The assets in a revocable trust remain part of his estate as do the assets in a TOD account and a will. Also, a will must be probated.)

Sam Malloy owns a small business and has built a substantial estate both with his business success and his early career as a pro athlete. He would like to begin to move assets out of his estate in a way that will allow him to benefit from the assets, but also allows for an easy transfer to his heirs when he dies. He needs to lower the size of his estate before he passes and hates the idea of a public hearing that is part of probate. Sam should A) establish an irrevocable living trust. B) establish a revocable living trust. C) place his assets in a transfer on death account. D) create a last will and testament.

A

Seacoast Securities, a FINRA member firm and a large corporation, needs to secure funds to cover customers' margin purchases. Seacoast reaches an agreement to borrow from a large money-center bank for a loan that the bank can terminate with 24 hours' notice. The rate that the bank charges Seacoast for this loans is called A) the broker call loan rate. B) the prime rate. C) the federal funds rate. D) the discount rate.

C

Seacoast Securities, a broker-dealer member firm, maintains an inventory of SFT common stock. The firm assists a customer with a purchase of SFT common stock and charges a commission for the service. Seacoast is acting in what capacity? A) As a market maker B) As a principal C) As a broker D) As an underwriter

D (For both the broker-dealer list and the national Do-Not-Call list, names are not to be called unless the customers request that their name be removed from the list. There was a prior law that only required the broker-dealer list to hold names for five years, but that has changed and names remain on the list indefinitely.)

There are two types of do not call list. What are they and how long do names stay on the list? A) Broker-dealer list and names remain until removed by the customer, and national list and names remain for five years B) Broker-dealer list and name remain on list for five years, and national list and names remain on the list for 10 years C) National list and names remain on list for five years, and broker-dealer list and names remain on list for 10 years D) Broker-dealer list and a national list; names remain on list until removed by customer

A (The formula to calculate a gain or loss for tax purposes is the proceeds minus the cost basis. He bought the shares for $60, and then there was a 2:1 split so the cost basis was adjusted to $30 per share. He sold at $40 so he had a $10 gain. Dividends are not part of the calculation for gain or loss.)

Two years ago Joshua Ryan bought 100 shares of XYZ at $60 per share. While he held the stock, it paid dividends of $1 the first year and $1.50 the second year. Joshua sold the shares at $40 per share after a 2:1 stock split. How much gain or loss did he incur per share for tax purposes? A) $10 gain per share B) $12.50 gain per share C) $17.50 loss per share D) $20 loss per share

A (The Securities and Exchange Commission (SEC) in Regulation S-P notes examples of nonpublic personal information to include a customer's Social Security number, account balances, transaction history, and any information collected through an internet cookie. A home address would not be considered nonpublic personal information.)

Under regulation S-P, nonpublic personal information would not include a customer's A) home address. B) social security number. C) account balance. D) information collected through an internet cookie.

C (Unit investment trusts are investment companies, but not management companies under the act. Closed-end funds, ETFs, and separate accounts are all types of management companies.)

Under the Investment Company Act of 1940, all of these are examples of management companies except A) a growth fund option for a VA. B) an S&P 500 Index Trust ETF. C) a Windmill Income UIT. D) a Windmill Income Fund, an exchange-listed:closed-end fund.

C

Under the Investment Company Act of 1940, which of the following is not considered an investment company? A) Face-amount certificate company B) Unit investment trust C) Hedge fund D) Separate account within a variable annuity

A (European contracts may only be exercised on the last day the contract trades before expiration. American-style options may be exercised by the owners at any time. American options are much more common.)

Which of the following is true of a European option? A) It may only be exercised on the last day of trading before expiration. B) It will exercise at expiration. C) It may be exercised in the last week before expiration. D) It may be exercised at any time.

B (The potential tax consequences of owning an ETF can be different than those experienced when owning mutual funds. While an ETF can make a capital gains distribution, they generally do not—unlike a mutual fund, which generally would make such distributions on an annual basis. ETFs can be traded like other exchange products using traditional stock-trading techniques and order types and are priced by supply and demand. Customers pay commissions, not sales charges.)

When speaking to a customer about exchange-traded funds (ETFs), a registered representative could make which of the following correct statements? A) ETFs cannot be bought on margin. B) ETFs have different potential tax consequences than mutual funds. C) ETFs cannot be purchased using traditional limit or stop orders. D) ETFs can be purchased only by paying a sales charge added to the NAV.

B

When the Federal Reserve Board (FRB) wants to contract (tighten) the money supply, it will A) sell corporate securities to banks in the open market. B) sell Treasury securities to banks in the open market. C) buy Treasury securities from banks in the open market. D) buy corporate securities from banks in the open market.

A (Demand deposits, checking accounts, paper currency, and coins are a part of M1 in the money supply. However, consider that M2 contains all of M1, and M3 contains all of M2 and M1; therefore, one should recognize that these components are found in each of them: M1, M2, and M3)

Where can demand deposits, checking accounts, paper currency and coins be found in the money supply? A) M1, M2, and M3 B) M1 and M3 only C) M1 only D) M2 only

D

Which of the following activities would be handled by a carrying firm and not an introducing firm? A) Soliciting trades B) Answering customer inquiries C) Issuing statements for customer accounts D) Holding custody of a customer's securities

A (Interest payment dates are established when the bond is issued.)

Which of the following are not requirements for corporate actions? A) Notify the customer prior to the payment of the semiannual interest payment B) Notify the customer of the payment or distribution date C) Notify the customer of the declaration date D) Notify the customer of the title of the security

B (With qualified plans, all withdrawals are taxable and the plan cannot discriminate; it has to be offered to all qualified employees. A nonqualified plan does not need to be offered to all qualified employees, and distributions above the cost basis are taxable.)

Which of the following are true of nonqualified plans but not true of qualified plans? A) All withdrawals are tax free B) The plan may discriminate C) All withdrawals are taxable D) The plan cannot discriminate

C (Proceeds minus cost basis equals capital gains. The dividends are not part of the calculation for capital gains. Apparently "for tax purposes" is interchangeable with "capital gains".)

Which of the following best describes the calculation for gains or losses for tax purposes? A) Proceeds plus dividends, minus cost basis B) Proceeds plus cost basis C) Proceeds minus cost basis D) Proceeds minus dividend, plus cost basis

A

Which of the following best fits the description of a growth stock? A) Common shares in companies that retain earnings and pays little or no dividends B) Preferred shares in companies that back stated dividends with investments in pharmaceutical companies C) Common or preferred shares in companies, which experience growth in unusual, nonrecurring profitable circumstances D) Common shares in companies that pay a high dividend on rapid growth experience

C (Fixed-dollar investments, such as bonds and preferred stock, are subject to inflation risk, which is the risk that the fixed interest or dividend payments will be worth less over time in terms of purchasing power. The ability to convert to common stock, which tends to keep pace with inflation, offsets this risk.)

Which of the following features of preferred stock allows the holder to reduce the risk of inflation? A) Cumulative B) Noncumulative C) Convertible D) Callable

D (Stocks generally have had performance that outpaces inflation. Lower quality bonds with shorter maturities would pay a higher rate than government bonds and have the potential to keep up with inflation. Treasuries have very low yields and do not keep pace with inflation.)

Which of the following investments would be most susceptible to inflation risk? A) Growth stock B) 10-year corporate bond rated BBB C) Value stock D) 30-year Treasury bond

B

Which of the following is an example of an equity security? A) Mortgage bonds B) Preferred shares C) Equipment trust certificates D) Debentures

D (All of the others here might hurt some, but default means you aren't getting paid and might lose your investment.)

Which of the following is considered the primary risk of owning a corporate bond? A) Interest rate risk B) Purchasing power risk C) Market risk D) Default risk

B

Which of the following is not an investment company? A) A variable annuity B) A hedge fund C) A closed-end management company D) An open-end management company

C (A rights offering allows stockholders to purchase common stock below the current market price. The rights are valued separately from the stock and trade in the secondary market during the subscription period, which is typically 30 to 45 days. Existing shareholders receive one right per share owned. The number of rights required to purchase one share of the new issue depends on the number of outstanding shares and the number of new shares offered.)

Which of the following is not correct regarding a rights offering? A) The rights offering allows the holder to exercise and purchase the stock at a price lower than the market B) Rights are issued to existing shareholders on a one-right-for-one-existing-share basis. C) The rights offering allows the holder to exercise and purchase the stock at a price higher than the market. D) The subscription period is typically 30 to 45 days.

B

Which of the following is not correct regarding a rights offering? A) The rights offering allows the holder to exercise and purchase the stock at a price lower than the market. B) The number of rights issued is based on the number of new shares to be issued. C) Rights are issued to existing shareholders on a one-right-for-one-existing-share basis. D) The subscription period is typically 30 to 45 days.

D (The holding period rule applies only to unregistered stock, which may or may not be control stock. Unregistered stock results from either private placements or the exercise of a corporate stock option. Because this question asked which securities were not subject to the Rule 144 holding period, only stock acquired in the OTC market by a corporate affiliate is the correct answer. However, the affiliated person is subject to volume restrictions.)

Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144? A) Stock acquired by a corporate affiliate in a private placement B) Unregistered stock acquired by a nonaffiliate under an investment letter C) Unregistered stock acquired by a corporate affiliate in a stock option program D) Stock acquired in the OTC market by a corporate affiliate

D (Capital gains are associated with the sale or exchange of property including securities. The category of capital gain taxation is broken down into long- and short-term capital gains. If an asset is sold within one year (12 months or less) of its purchase, the gain is considered to be short term and is taxed at the same rate as the taxpayer's ordinary income. Therefore, for short-term capital gains, the tax rates are the same as the taxpayer's ordinary income. However, if the asset is held for more than one year, the gain is considered to be a long term and is taxed at a favorable rate.)

Which of the following would be true with regard to capital gains? If an asset is sold within one year (12 months or less) of its purchase, the gain is considered to be short term and is taxed at the same rate as the taxpayer's ordinary income. If the asset is held for more than a year, the gain is considered to be long term and is taxed at a favorable rate. Capital gains are usually associated with the distribution of dividends including stock splits. Capital gains can be defined as the income earned from interest, wages, rents, royalties, and similar income streams. A) III and IV B) I and III C) II and III D) I and II

C (Scheduled, common events such as dividend declarations, issuance of rights and warrants, and forward and reverse stock splits are accompanied by standardized adjustment of the stock's cost base.)

Which of the following would lead to a standardized cost-base adjustment for stockholders? A) Takeover B) Merger C) Dividend D) Spin-off

A (The Conduct Rules permit the following five types of lending arrangements: 1. There is an immediate family relationship between the representative and the customer (no notice or approval is needed). 2. The customer is in the business of lending money (e.g., a bank) (no approval is needed). 3. The customer and the representative are both registered persons with the same firm (firm approval required). 4. The customer and the representative have a personal relationship outside the broker-customer relationship (firm approval required). 5. The customer and the representative have a business relationship outside the broker-customer relationship (firm approval required).)

Which of the following would not be allowed under the Conduct Rules without firm approval? A) Borrowing from a customer who lives on the same block B) Borrowing from a customer who is also a parent C) Borrowing from a customer that is a bank D) Borrowing from a customer who is also the representative's sibling

A (Gains gotten from the sale of securities is an example of capital gains for tax purposes. All the others are considered ordinary income.)

Which of the following would not be considered ordinary income for tax purposes? A) Gains gotten from the sale of securities B) Dividends on common stock C) Rents from income properties D) Salary and commissions

B

Which of these broker-dealers would most likely have correspondent firms? A) An introducing broker-dealer B) A self-clearing firm C) A market maker D) A fully disclosed broker-dealer

A

Which of these statements regarding a 529 plan is correct? A) One person can be both the beneficiary and owner. B) The beneficiary must be below age 18. C) The assets in the plan belong to the beneficiary. D) Contributions are limited to $2,000 annually.

B

Which of these would be unlawful regarding the use of a mutual fund prospectus? A) Failing to highlight a small section the customer has specifically asked about B) Calling an investor's attention to a section that may be interesting C) Sending a prospectus to someone who has shown no interest in the fund D) Leaving a typographical error in the text unmarked

C (Costs to maintain shareholder records, costs to provide services to shareholders, and the investment adviser's fees are all expenses to the fund. The costs paid in the form of sales charges (loads) to an underwriter, or broker-dealers selling mutual funds to the public may never be treated as an expense to the fund. These are expenses to the investor.)

Which of these would not be included in a mutual fund's list of expenses? Shareholder records and service Investment adviser's fee Broker-dealer sales charges Underwriter's sales loads A) I and II B) II and IV C) III and IV D) I and III

C

Which type of DPP would be most likely to enable the investor to claim a deduction for depletion? A) Real estate limited partnership B) Oil and gas exploratory program C) Oil and gas income program D) Equipment leasing

A

Who can contribute to an IRA? A) Anyone with earned income B) Anyone with earned income not covered by an employer-sponsored plan C) Anyone with earned income under the age of 59½ D) Anyone with earned income under the age of 72

D (XYZ pays a $0.30 quarterly dividend. Current (dividend) yield is an annual figure. To calculate the current dividend yield you would multiply the quarterly dividend by four and then divide the result by the current market value. (0.30 × 4)/30 = 1.2/60 = .02 (2%))

XYZ Technology Corporation common stock currently trades at $60 per share and pays a $0.30 dividend. What is XYZ's current dividend yield? A) 1% B) 1.5% C) 0.5% D) 2%