SIE Quiz ?'s

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

A) A prospectus for any security, not just one for a mutual fund, may not be marked, highlighted, or otherwise altered in any way, nor may steps be taken to call an investor's attention to some passage or section that might be of special interest, even if the potential customer asked that it be done.

A prospectus displays which of the following? A) Description of how the proceeds will be used B) Performance predictions for a minimum of three years C) A guarantee insuring against loss D) The SEC endorsement

A) A prospectus will not contain performance predictions, may not imply endorsement of the SEC, nor will it contain guarantees of gains or guarantees against loss.

Which of the following securities is most often used to fund international trade? A) Banker's acceptance (BAs) B) REIT C) Negotiable certificate of deposit D) Federal funds

A) BAs are widely used in international trade for payments that are due for a future shipment and delivery of goods. For example, a Brazilian shoe manufacturer would receive a BA from a U.S. retailer for a guaranteed future payment when the shoes arrive in the United States. The manufacturer may ship its product knowing that the BA is guaranteed by a commercial bank. BAs are negotiable and freely traded in the money markets at a discount.

Which of the following must be opened as a cash account?. Custodial accounts Individual retirement accounts Joint accounts Partnership accounts A) I and II B) II and IV C) I and III D) III and IV

A) Certain accounts, such as IRAs, corporate retirement accounts, and custodial accounts, must be opened as cash accounts as opposed to margin accounts. For individual accounts, joint accounts, and corporate and partnership accounts, there is no such requirement, though the final decision on them is up to the broker-dealer carrying the account.

An investor is long MJS stock. For this investor, which of the following is TRUE? A) The risk is that the stock falls in price. B) The risk is that the stock goes up in price. C) The risk is that the stock remains stable in price. D) Maximum loss can be unlimited.

A) For an investor with a long stock position, the risk is that the stock falls in value. Maximum loss occurs at zero and is therefore limited to the amount paid for the stock when purchased.

For the risk disclosures found in the options disclosure document (ODD), all of the following would be accurate disclosures EXCEPT A) if a maintenance call is not met, the customer must direct which securities to sell B) customers can lose more money than initially deposited C) firms can increase their in-house margin requirements without advance notice D) customers are not entitled to an extension of time to meet a margin call

A) If a maintenance call is not met it is the BD who determines which securities to sell, not the customer. The others are all accurate disclosures found in the ODD.

Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal? A) Best efforts underwriting B) Firm commitment underwriting C) Follow-on offering D) Initial public offering

A) In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement.

Interest on a 7% corporate bond would be paid to the investor as A) 2 semiannual checks for $35 each B) 2 semiannual checks for $70 each C) several checks totaling $70 each year D) 1 annual $70 check

A) Interest on corporate bonds is paid twice per year, or semiannually. The interest rate reported, however, is an annual rate. Thus a 7% bond would pay 7% of par ($1,000), or $70, per year as 2 semiannual checks for $35 each.

Large time deposits of more than $100,000 are considered to be found in what part of the money supply? A) M3 B) M1 C) M2 D) M1 and M2

A) M3 is where time deposits of more than $100,000 and repurchase agreements with terms longer than one day are found.

All of the following regarding a trust set up for the purpose of holding commercial property, or mortgages on commercial property, are true EXCEPT A) investors may never purchase shares in these trusts on an exchange or OTC B) these investments could not be considered open- or closed-end funds C) gains can pass through to the owners of these shares D) ownership of these shares may provide for the receipt of dividends

A) This is a REIT. REIT shares can trade on exchanges or over the counter (OTC). Owners of these shares may receive dividend distributions and have capital gains pass through to them for tax purposes as well. REITS, organized as trusts, are not investment companies (open- or closed-end funds). Shares in REITs are equity securities.

Priority at dissolution for preferred shareholders means that they are paid: I. before all creditors II. after all creditors III. before common shareholders IV. after common shareholders A) II and III B) I and IV C) II and IV D) I and III

A) While preferred shareholders would not be paid until all creditors debts have been satisfied, they are paid first of the equity securities, which means they are paid before common shareholders.

A market maker provides a firm quote to another broker/dealer then refuses to buy or sell at the price quoted. This is a violation where the market maker is said to be A) pegging B) backing away. C) marking the open D) freeriding.

B) A market maker that does not honor its firm quote is said to be "backing away".

Your customer is a limited partner in a real estate partnership. This partner has the right to do all of the following EXCEPT A) vote with the limited partners to remove the general partner B) choose which properties the partnership should buy or sell C) inspect and obtain copies of all partnership records D) sue the general partner for damages resulting from any business decisions made

B) All of these are rights of the LP, except choosing the assets to be purchased for the partnership. This is a function of the general partner (GP).

If a preferred shareholder received a $3.50 annual dividend each year, it could be assumed that A) these shares are trading at $35 B) this is a 3.5% preferred class C) the common shareholders receive the same $3.50 annual dividend D) the shares had increased by 3.5% each year

B) An annual dividend of $3.50 simply tells you that this is a 3.5% preferred class of stock (3.5% × par ($100) = $3.50) or ($3.50 / par ($100) = 0.035). The current market value is not used to calculate the fixed dividend, nor does this dividend amount tell us what common shareholders received.

Which of the following are the most likely to make monthly or quarterly payments for the life the investor? I. Fixed annuity II. UIT III. Mutual fund IV. Variable annuity A) III and IV B) I and IV C) II and III D) I and II

B) Both a fixed and variable annuity is an insurance contract designed to provide retirement income. The term annuity refers to a stream of payments guaranteed for a certain period including the life of the annuitant. In the case of a variable annuity, the actual amount to be paid out may or may not be guaranteed, but the stream of payments itself is. Because an annuity can provide an income for life, the contract has a mortality guarantee. Mutual funds and UITs have no such guarantee.

Those holding the securities of a company where rules might change that impact or upset the way the company does business are exposed to A) financial risk B) regulatory risk C) currency risk D) liquidity risk

B) Changes in the overall regulatory climate or specific rule changes that impact an individual company's business model can have an effect on the company's performance or ability to operate profitably. Those holding the securities of such companies are exposed to regulatory risk.

A new customer opens a margin account and, upon account approval, does an initial transaction purchasing 100 shares of MJS common stock at $25. How much will the customer need to deposit? A) $1,000 B) $2,000 C) $5,000 D) $2,500

B) For the first trade in a newly opened margin account, there must be at least $2,000 in equity. The rule is as follows: transaction greater than $4,000, deposit 50%; between $2,000 and $4,000, deposit $2,000; and if the transaction is less than $2,000, deposit 100% of the purchase price. In this case, the transaction was between $2,000 and $4,000, and so a deposit of $2,000 is required.

A shareholders' meeting for ABC Corporation will take place in 8 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 may not vote the shares under any circumstances. D) The member firm must ascertain how the investor wishes to vote the shares.

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.

Treasury note (T-note) interest is stated as A) a percentage of the purchase price B) a percentage of par value C) a discount to the face value D) a premium over the price paid

B) Like Treasury bonds (T-bonds), Treasury notes (T-notes) have interest stated as a percentage of par value. Example: Par value $1,000, with 8% interest, equals $80 interest per year (0.08 × $1,000 = $80).

A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is BEST described as a(n) A) holding company B) market maker C) direct participation program D) clearing corporation

B) Market makers are broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to FINRA that they can manage the operational and financial risk.

When the supply for money exceeds the demand, A) interest rates rise, making consumer borrowing easier B) interest rates fall, making consumer borrowing easier C) interest rates rise, making consumer borrowing more difficult D) interest rates fall, making consumer borrowing more difficult

B) Money available to lend is like all commodities in that its cost (interest) is impacted by supply and demand. When the supply is greater than the demand for money, interest rates fall, making consumer borrowing easier.

The holder of an in-the-money option contract gives a "do not exercise" instruction (notice) to your broker-dealer. This notice A) is used to notify the writer that the contract will not be assigned to them B) is used to avoid automatic exercise at expiration C) can only be given at the time the contract is purchased D) is standard, and given for all in-the-money contracts at expiration

B) Options that are at least $0.01 in-the-money at expiration will be automatically exercised unless a "do not exercise" instruction or notice is given. If the holder of such a contract does not want the automatic exercise to occur, this notice must be given before expiration.

Restricted securities may not be sold until they have been held fully paid for A) 1 month B) 6 months C) 1 year D) 2 years

B) Restricted securities may not be sold until they have been held fully paid for a period of 6 months. This applies to both affiliates and nonaffiliates, but affiliates would be subject to volume restrictions.

Shareholders who own the stock on a certain date receive a dividend when one has been declared. That date is known as the A) ex-dividend date B) record date C) declaration date D) payable date

B) Shareholders must be owners of the stock on or before the record date in order to receive the current dividend.

Sovereign risk is the risk A) that interest rates decline in several countries simultaneously B) that a country will default on its commercial debt obligations C) that a dollar earned today will not be able to purchase the same goods or services it can now in the future D) of losing all one's investment due to a change in tax laws

B) Sovereign risk is when a country is at risk of defaulting on its commercial debt obligations. When this occurs, the impact is felt on financial markets worldwide.

An individual has been a registered representative with a national firm for the past three years. Another member firm makes an attractive offer in an attempt to lure this individual to join them. In order to do so, the paperwork necessary would be A) a transfer of registration on FINRA form TRF. B) both a Form U-5 from the previous employer and a Form U-4 from the new one. C) a Form U-5 from the previous employer D) completing a new Form U-4 with the new employer

B) Termination, for whatever reason, requires that the "old" firm file a Form U-5. Registration, whether for the initial or any subsequent one, requires filing of a Form U-4.

The rate that commercial money center banks charge each other for overnight loans is A) the prime rate B) the federal funds rate C) the broker call loan rate D) the discount rate

B) The federal funds rate is the rate commercial money center banks charge each other for overnight loans of $1 million or more.

Investors who sell call and put options are known as A) long B) writers C) covered D) uncovered

B) Those who sell calls and puts, those who are short the contract, are known as writers.

A provision for filing securities at the state level used solely for securities that are considered to be federal covered securities is known as A) qualification B) notice filing C) registration D) coordination

B) When securities are deemed to be federally covered, the states have no jurisdiction over the registration requirements. However, the National Securities Markets Improvement Act did provide that states could require the filing of a notice (notice filing) to sell securities in that state, along with the payment of a filing fee.

Passive investments do not fall under the definition of an outside business activity. Which of the following investments would be considered a passive investment? A) A partial ownership in a car dealership B) A partnership interest in a real estate brokerage firm C) limited partnership unit D) A partnership interest in a local credit union

C) A passive investment, such as the purchase of a limited partnership unit, is not considered an outside business activity. An associated person may make a passive investment for his own account without providing written notice to the employing broker-dealer.

A preferred shareholder's priority claim on assets is the preferred shareholder's priority standing A) over bondholders B) over employees of the corporation C) over common shareholders D) over creditors of the corporation

C) A preferred shareholders priority claim on assets is the preferred shareholders priority standing over common shareholders only. Employees of the corporation, debt (bond) holders and other creditors would all have claims on assets settled before preferred shareholders.

A financial institution, in order to raise cash on a short-term basis, sells some of the securities it owns, with an agreement to buy them back at a later date at a slightly higher price. This is known as A) a promissory note B) a banker's acceptance C) a repurchase agreement D) a reverse transaction

C) A repurchase (repo) agreement is one where a financial institution, such as a bank or a broker-dealer, raises cash by temporarily selling some of the securities it holds with an agreement to buy back the securities at a later date at a slightly higher price. Hence, agreement to do a transaction and then reverse the transaction in the future.

An associated person is unable to work for any business other than his member firm without having the employing broker-dealer's A) authorization by a principal B) permission in writing C) knowledge of the activity D) assuming liability for that business

C) An associated person cannot work for any business (independent activity) other than his member firm without his employing broker-dealer's knowledge.

While preferred shares tend to be less volatile than common shares, one type of preferred is noted as being even more stable in price than the others. This would be A) convertible B) callable C) adjustable rate D) participating

C) Because the dividend payment adjusts to current interest rates, the price of the stock remains relatively stable. In other words, it is the return that fluctuates rather than the price.

Which of the following would you expect to have the lowest expense ratio? A) The XYZ Aggressive Growth Fund B) The MNO Small Cap Growth Fund C) The ABC Corporate Bond Fund D) The QRS Stock Income Fund

C) Bond mutual funds typically have lower expense ratios than stock funds, which tend to be riskier and require more sophisticated investment strategies. The ABC Bond fund is the only bond mutual fund listed. Growth funds involve equities (stock), and of course, the stock income fund specifies equities as well.

Someone who purchases shares of a corporation's common stock has A) neither liability nor voting rights B) unlimited liability and voting rights C) limited liability and voting rights D) no liability and no voting rights

C) Common stockholders enjoy limited liability in that they can only lose what was invested. They are in no way responsible for any debt of the corporation. Voting rights are one of the key benefits for common shareholders.

Broker-dealers and registered representatives may be subject to each of the following administrative and regulatory bodies EXCEPT? A) NYSE B) FINRA C) SIPC D) State securities administrator

C) Depending on their lines of business, broker-dealers are subject to a variety of regulatory bodies, such as FINRA, the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (CBOE), state administrators, and others. Those broker-dealers that have a municipal securities line of business must comply with MSRB rules which are enforced by FINRA. However, SIPC is not a regulatory body; rather it provides insurance protection for investors of failed broker-dealers.

All member firm communications are held to certain standards by FINRA. All of the following characterize those standards EXCEPT: A) professional designations and degrees may be noted but not used to imply expertise in areas where none exists B) charts and graphs must be balanced in showing both opportunities for gains and possible losses C) the nature of the audience (age, investment experience) need not be a consideration at an open seminar D) recruitment advertising must be fair and balanced in nature when expressing potential income

C) FINRA mandates that members must consider the nature of the audience to which the communication will be directed and should provide details and explanations appropriate to the audience.

On behalf of a customer, a broker-dealer requested an extension for payment that was not granted. The broker-dealer must A) for 90 days sell out the securities purchased with no other action required B) freeze the account for 30 days with no other action required C) sell out the securities purchased and freeze the account for 90 days D) sell out the securities purchased and close the margin account

C) If the extension request was not granted (denied), the broker-dealer must sell out the securities purchased and freeze the account for 90 days.

Preferred shares have A) only the characteristics matching those of debt securities B) characteristics of neither equity nor debt securities C) characteristics of both equity and debt securities D) only the characteristics matching those of equity securities

C) Preferred shares are equity securities, but not only do they have the characteristics of equity securities, they share some of the characteristics of debt securities as well. The most notable characteristic is that a preferred stock's annual dividend represents its fixed rate of return, like the fixed rate of return for a bond (debt security).

For municipal debt issues, which of the following is TRUE? A) Both revenue bonds and GO bonds are backed by the municipality's good faith and credit. B) GO bonds are self-supporting, while revenue bonds are backed by the municipality's good faith and credit. C) Revenue bonds are self-supporting, while GO bonds are backed by the municipality's good faith and credit. D) Neither GO nor revenue municipal issues are backed by the municipality's good faith credit.

C) Revenue bonds are self-supporting. The project or facilities revenue supports the debt service of the bond. GO bonds are backed by the municipality's good faith and credit, namely the municipality's authority to tax.

Straight preferred shares are noncumulative are cumulative allow for missed dividends to be paid later have no provision for paying missed dividends later A) I and III B) II and III C) I and IV D) II and IV

C) Straight preferred shares have no special features beyond the stated dividend payment. Any missed dividends are not paid to the holder, thus they are noncumulative; missed dividend payments do not accumulate.

Suspicious activity reports (SARs) are A) filed with the SEC as required by the Securities Exchange Act of 1933 B) filed with FINRA as required by FINRA's code of conduct C) filed to the Financial Crimes Enforcement Network (FinCEN) as required by the USA PATRIOT Act D) filed internally only for analysis involving potential problematic patters

C) Suspicious activity reports (SARs) are filed to the Financial Crimes Enforcement Network (FinCEN) as required by the USA PATRIOT Act.

There are 2 distinctive types of policies implemented to shape and mold the U.S. economy. They are A) supply and demand B) corporate and governmental C) monetary and fiscal D) federal and municipal

C) The 2 distinctive types of policies that impact our economy are monetary and fiscal. Monetary policy is what the Federal Reserve Board (FRB) engages in when it attempts to influence the money supply via the Federal Open Market Committee (FOMC). Fiscal policy refers to governmental budget decisions enacted by the president and Congress, including increases or decreases in federal spending and money raised through taxation.

The ATOP Company is planning to offer shares of both common and preferred stock to the investing public in order to raise operating capital intended to be used for expansion. Which of the following laws enacted by Congress would be the most relevant when issuing these equity securities to the public? A) The Securities Investors Protection Act of 1970 B) The Trust Indenture Act of 1939 C) The Securities Act of 1933 D) The Investment Company Act of 1940

C) The Securities Act of 1933, is also known as the Paper Act, Prospectus Act, or New Issues Act. This federal law requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered.

Raising funds is generally accomplished by corporations through the issuance of stock (equity) or bonds (debt). This is done in A) the funding market B) the currency market C) the capital market D) the secondary market

C) The issuance of stock or bonds by corporations to raise new funds takes place in the capital market.

A method of registering securities at the state level that is reserved only for federal covered securities is known as A) coordination B) federal covered application C) notice filing D) qualification

C) The method known as notice filing exempted federal covered securities from state jurisdiction but still established a method by which the states could collect fees when issuers of those securities wished to have them sold in the state.

The party who is short an option contract is known as A) the party with the right to exercise and receives the premium B) the writer and pays the premium C) the writer and receives the premium D) the party with the right to exercise and pays the premium

C) The party who is short an option contract is the seller of the contract. This party is known as the writer of the contract and receives the premium when the contract is sold. Buyers have the right to exercise—that is what they are paying the premium for—and when exercise occurs, the sellers of the contract are obligated to fulfill the terms of the contract.

If the U.S. dollar is relatively strong against the Japanese yen, it can be assumed that A) the U.S. dollar will buy more goods produced in Japan and the Japanese yen will also buy more goods produced in the United States B) the U.S. dollar will buy fewer goods produced in Japan, while the Japanese yen buys more goods produced in the United States C) the U.S. dollar will buy more goods produced in Japan, while the Japanese yen buys fewer goods produced in the United States D) the U.S. dollar will buy fewer goods produced in Japan and the Japanese yen will also buy fewer goods produced in the United States

C) The strength of one country's currency against another impacts trade in between the two. The stronger currency (in this case the U.S. dollar) will buy more foreign goods, and the weaker currency (in this case the JY) will buy fewer goods produced in other countries.

To tighten its monetary policy, making it more difficult for consumers to borrow money, the Federal Reserve Board can A) raise the federal funds rate B) lower the discount rate C) raise the discount rate D) lower the federal funds rate

C) Wanting to tighten its monetary policy, which would make it harder for consumers to borrow money, the Federal Reserve Board can raise the discount rate—the rate it charges its member banks for short-term loans. This lessens the availability of money its member banks have to lend to consumers. The federal funds rate isn't a rate charged by the FRB but instead by large commercial banks to one another.

A bond certificate represents A) the lender's obligation to repay the amount it borrowed plus interest B) the borrower's right to receive interest on the amount it received C) the borrower's obligation to repay the amount it borrowed plus interest D) the lender's right to receive an ownership share in the entity it leant the funds to

C) When an investor lends money to an entity, the certificate evidencing the loan is known as a bond. This certificate represents the borrower's obligation to pay the investor back the amount it borrowed plus interest.

A hedge fund portfolio has been characterized as being highly leveraged. This means that A) commodities and currencies are included in the portfolio B) there are substantial investments in international markets C) there is substantial borrowing or purchasing on margin D) derivative products such as options are utilized

C) While hedge funds can employ all these investment types and strategies, being highly leveraged means borrowing to purchase. Borrowing to purchase securities is typically known as buying on margin.

A variable annuity's investment return each month is based on A) the performance of the separate account B) the performance of the insurance company's general account C) the assumed interest rate stated in the contract D) the contracts stated guaranteed monthly return

A) A key feature of the variable annuity is that the premium is invested into the insurance company's separate account rather than the general account. It is the performance of the separate account that provides the annuity's investment return each month. There are no guarantees as to the separate account performance or return each month.

Correspondent firms would be likely to have relationships with which of the following types of broker-dealers? A) Self-clearing B) Introducing C) Market maker D) Fully disclosed

A) A self-clearing (or carrying) firm holds funds and securities of the fully disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms for whom the carrying firm performs these services are known as their correspondents.

Which of the following must precede the first trade in an account? A) Approval of the new account by a principal B) Customer's notarized signature on the new account form C) Registered representative's signature on the new account form D) Filing of the account information with the applicable SRO

A) All accounts must be approved by a principal before the first trade. Neither the customer nor the registered representative need sign the new account form, and no self-regulatory organization (SRO)—requires the filing of new account information with them.

A surplus in the U.S. balance of payments can occur if I. interest rates in foreign countries are higher than U.S. domestic rates II. interest rates in foreign countries are lower than U.S. domestic rates III. U.S. consumers are purchasing (importing) foreign goods IV. foreign consumers are purchasing (importing) U.S. goods A) II and IV B) II and III C) I and IV D) I and III

A) Anything that brings money into our domestic economy leads to a surplus (more money coming in than going out). When interest rates abroad are comparatively lower, money flows into the United States to earn a better rate. When foreign consumers are purchasing more U.S. domestic goods and services, money flows into the United States as well.

A company is going public for the first time. Because it is already incorporated and has two key stockholders, the proceeds of the shares sold will go to those stockholders. This is I. a secondary offering II. a primary offering III. an additional public offering IV. an initial primary offering A) I and IV B) I and III C) II and III D) II and IV

A) Anytime proceeds are going to the selling shareholders rather than the issuer, it is a secondary offering. In this example, the shares are being offered to the investing public for the first time, which makes the offering an IPO (initial public offering).

An application for FINRA membership carries the applying firm's specific agreement to do which of the following? A) Comply with the association's rules and regulations B) Attend FINRA's annual regulatory conference C) Pay a fixed yearly sum to the Securities and Exchange Commission D) Provide FINRA with periodic financial reports

A) Application for FINRA membership carries the applying firm's specific agreement to comply with the association's rules and regulations, comply with federal securities law, and pay dues and assessments to FINRA.

Regarding exchange-traded funds (ETFs), as compared to open-end (mutual) funds, which of the following are TRUE? I. ETF transactions are subject to commissions. II. Expenses for ETFs tend to be very high compared to mutual funds. III. ETFs may trade at a price that is less than the NAV per share. IV. ETFs cannot be purchased on margin while mutual funds can be. A) I and III B) II and IV C) I and IV D) II and III

A) Because ETFs usually track an index, the operating expense ratios are generally lower than that of open-end companies. But that advantage can be canceled out by the commission charges when purchasing and selling an ETF. An open-end investment company must redeem shares at the NAV per share; with ETFs, pricing is based on supply and demand, making it possible to receive less than NAV. One cannot purchase open-end shares on margin, but ETFs can be.

Carrying firms may NOT A) mix customer funds and securities with their own B) execute transactions for their customers C) send trade confirmations and statements to customers D) clear and settle transactions for their customers

A) Carrying firms can do trade executions, clear and settle transactions, and handle all back-office tasks, such as sending trade confirmations and statements. While they can take custody of customer funds and securities, they may not commingle them with those belonging to the firm. Abiding by the rule is known as segregating customer funds and securities.

Common stockholders of a publicly traded corporation have which of the following rights and privileges? I. Residual claim to assets at dissolution II. Right to a vote for stock dividends to be paid III. Right to receive an audited financial report on an annual basis IV. Claim against dividends in default A) I and III B) II and III C) II and IV D) I and IV

A) Common stockholders of publicly traded companies have a residual claim to assets of a corporation at dissolution and are entitled to receive an annual report containing audited financial statements. The board of directors would vote to pay a dividend.

An unsecured promissory note issued by a bank that can be traded in the secondary market is known as A) a negotiable CD B) prime paper C) mortgage bond D) commercial paper

A) Corporations issue unsecured promissory notes known as commercial or prime paper. When a bank issues an unsecured promissory note, it is known as a negotiable certificate of deposit (CD).

Which of the following is TRUE regarding currency risk? A) It is a nonsystematic risk and, therefore, can be reduced by diversification. B) It is a nonsystematic risk and, therefore, cannot be reduced by diversification. C) It is a systematic risk and, therefore, cannot be reduced by diversification. D) It is a systematic risk and, therefore, can be reduced by diversification.

A) Currency risk is the possibility that an investment denominated in one currency could decline if the value of that currency declines in its exchange rate with the U.S. dollar. This is one of the severable nonsystematic risks that can be mitigated by utilizing diversification.

Firms applying for FINRA membership are required to agree to I. be in compliance with all federal securities laws II. pay dues, assessments, and other charges the association levies III. pass the appropriate qualification exam(s) IV. attend a FINRA annual conference no less frequently that once every 3 years A) I and II B) II and IV C) I and III D) II and III

A) Firms must agree in their membership application that they will comply with all federal securities laws and make payment of dues and assessments when requested. Although qualification exams must be passed by individuals representing the firm, there is nothing requiring the firm itself to do so, nor is attendance at FINRA conferences required.

For a callable bond priced at a discount, A) YTM will be lower than the YTC B) YTC will be lower than the coupon C) YTM will equal YTC D) YTC will be lower than the CY

A) For callable bonds trading at a discount, YTC will be the highest possible yield, higher than YTM, CY, and the coupon (stated or nominal) yield.

Which of the following is TRUE regarding general partners (GPs) in a limited partnership? A) They should participate in the day-to-day management of the partnership. B) Their management decisions are not legally binding on the partnership. C) They may borrow money from the partnership. D) They may compete with the partnership.

A) General partners have a fiduciary responsibility to manage the partnership in the best interest of the investors (partners). In doing so, they make decisions regarding all day-to-day management of the business. These decisions are, therefore, legally binding on the business. GPs may not, however, borrow money from or compete with the partnership.

For hedge funds organized as private investment partnerships, which of the following is TRUE? A) They can limit the number of investors and require large or minimum initial investments. B) They can limit the number of investors and typically have no minimum initial investment requirement. C) They will allow unlimited numbers of investors and require large or minimum initial investments. D) They will allow unlimited numbers of investors and allow small initial investments.

A) Hedge funds organized as private investment partnerships typically limit the number of investors and require large minimum initial investments. This would be the opposite of a regulated investment company, such as an open- or closed-end fund company.

A married couple have equal 50% ownership interests in a tenants in common account (TIC). If one party to the account dies, what happens to the shares in the account? A) Half, or 50% of the shares, would belong to the remaining party and the balance would be distributed to the estate of the deceased party. B) Ownership and distribution of all shares would be determined by probate court. C) The deceased party's interest is transferred to the remaining party. D) All the shares are distributed to the heirs named in the estate of the deceased party.

A) In a tenants in common (TIC) account, securities owned by the decedent pass to the decedent's estate—in this case, 50% of the assets. The other 50% is retained by any remaining living parties to the account.

Which of the following are NOT covered by the Federal Deposit Insurance Corporation (FDIC)? A) Mutual funds and annuities B) Certificates of deposit and mutual funds C) Certificates of deposit and self-directed IRAs D) Self-directed IRAs and annuities

A) Investment products that are not deposits are not covered by the FDIC. This would include life insurance policies, mutual funds, annuities, and individual securities such as stocks and bonds.

An accredited investor is one who meets A) income or net worth criteria with substantial investment experience B) net worth criteria only with substantial investment experience C) annual net income criteria only D) only requirements to prove the adequacy of investment experience

A) Investors in limited partnerships offered in private placements as opposed to those being offered publicly must be accredited investors. The generally accepted definition of an accredited investor is one who meets designated annual income or net worth criteria, and has substantial investment experience.

At a shareholders' meeting, a mutual fund investor might be called upon to vote on any of the following EXCEPT I. changes in membership in the board of directors II. whether to sell a certain company's stock out of the portfolio III. approval of the investment adviser's contract IV. changing to a new landscaper for the fund's headquarters A) II and IV B) I and IV C) I and III D) II and III

A) Like other shareholders, mutual fund investors vote their shares on crucial corporate decisions, such as membership of the board, and approval or ratification of an investment adviser's contract. Which stocks to sell out of the portfolio is up the investment adviser. Day-to-day business decisions, such as those regarding contractors to employ, is up to those who report to the board of directors.

A mutual fund's public offering price is $15.23. An investor who wishes to invest $1,000 in the fund will purchase how many shares? A) 65.66 shares B) Must purchase some multiple of 100 shares C) 66 shares and be billed for an additional $5.18 D) 65 shares and receive $10.05 in change

A) Mutual funds can issue fractional shares. This is an advantage for those who invest in mutual funds because they can think in terms of the dollars they want to invest rather than in the numbers of shares they want to purchase. Wanting to invest $1,000 at the current price of $15.23 allows 65.66 shares to be purchased ($1,000 / $15.23 = 65.66 shares).

Considering a customer's nonfinancial considerations is as important as considering the customer's financial concerns. Included in the category of nonfinancial considerations are I. salary II. marital status III. credit card debt IV. number and ages of dependents A) II and IV B) I and III C) I and IV D) II and III

A) Nonfinancial considerations are those that are not generally monetized. Even so, they can sometimes be more important than the financial ones. Things like marital status and the number and ages of the customer's dependents play a critical role in determining the appropriate investment strategies. Of course, knowing the salary and debt is important, but those are financial considerations, not the subject of this question.

The regulation enacted by the SEC to protect the privacy of customer information is known as A) Regulation S-P B) The bank secrecy act C) The trust indenture act D) Regulation D

A) Privacy Requirements are mandated in Regulation S-P enacted by the SEC to protect the privacy of customer information. In particular, the regulation deals with nonpublic personal information

Broker/dealers who reserve the right to disclose nonpublic private information about their customers to unaffiliated third parties must A) provide notice to customers at the time of the account opening and provide reasonable means for customers to opt out of such disclosures B) provide notice to customers each time a transaction occurs within the account and provide reasonable means for customers to opt out of such disclosures C) require that customers wishing to opt out send a written request with signature witnessed by a notary D) provide reasonable means for customers to opt out of such disclosures only at the time of the account is opened

A) Regulation S-P requires that if a broker/dealer reserves the right to disclose nonpublic personal information to third nonaffiliated parties, it must notify the customer at the time of the account opening and annually thereafter. Means to opt out of the disclosures must be reasonable and easy. Requiring a written request to opt out would not be considered reasonable means under the regulation.

Which of the following are TRUE of municipal revenue bonds? I. They are secured by a specific pledge of property. II. They are a type of general obligation bond. III. They are not subject to statutory debt limits. IV. They are backed by a facilities ability to generate revenue. A) III and IV B) II and III C) I and II D) I and IV

A) The 2 types of municipal bonds are GOs and revenue bonds. Revenue bonds are not secured by a specific pledge of property; instead they are backed by project revenue. Unlike GO bonds, they are not subject to any statutory debt limits.

Which of the following organizations was created to protect investors financially from a bank failure? A) FDIC B) OFAC C) FRB D) SIPC

A) 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.

A customer wants to save some money for his grandson's college education in an IRA account. Which of the following regarding a Coverdell Education Savings Account (ESA) is TRUE? A) The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over. B) The customer may make annual contributions until the grandson graduates from college. C) The customer may take a deduction for the amount contributed. D) The maximum contribution permitted is $3,000 annually.

A) The maximum annual contribution to an ESA is $2,000. Contributions are not deductible and must cease when the beneficiary reaches age 18. Any unused balance must be rolled over or distributed by the time the beneficiary attains age 30. Amounts not used for one child may be rolled over tax free to the account of another child of the same family only once during any 12-month period.

An investor makes several statements regarding what they know about exchange-traded funds. All of them are correct EXCEPT A) I can't buy them on margin because they represent an entire basket of stocks like mutual funds do B) I can expect them to have lower expense and operating costs than mutual funds C) I won't have to pay any sales charges as I do with mutual funds, but I will have to pay commissions D) I'll be able to buy or sell them throughout the trading day like stocks trading on an exchange

A) Though mutual funds cannot be purchased on margin, ETFs can be. They can be traded throughout the trading day with purchases and sales commissionable transactions. They tend to have low expense ratios.

Limited partnerships sold publicly via a prospectus offering would be expected to have A) a large group of investors, each contributing a small sum B) a large group of investors, each contributing a large sum C) a small group of investors, each contributing a large sum D) a small group of investors, each contributing a small sum

A) Unlike partnerships sold as private placements, those limited partnerships sold through a public offering via a prospectus would consist of a large group of investors (partners), each contributing a small investment sum to the partnership.

A violation known as "churning" refers to A) excessive transactions done solely for the purpose of generating commissions. B) purchasing calls on a particular stock for your own account before entering a large customer order to purchase the stock. C) repeatedly purchasing stock in order to keep the price supported. D) repeatedly selling a stock short in order to prevent a price rise.

A) Unnecessary transactions entered into for the purpose of generating commissions with no regard for profitability constitute churning. A charge of churning can result from both excessive number and excessive size of transactions.

An investor has purchased bonds having a put feature attached. With this put feature, it is likely that these bonds were issued with A) a lower coupon than similar bonds without the feature B) a coupon that will be called away by the issuer before maturity C) a coupon that need not reflect the impact of the call feature D) a higher coupon than similar bonds without the feature

A) When bonds are issued with features that benefit the bondholder, such as a put feature, the issuer can generally pay a slightly lower coupon rate of interest. This is because the put feature compensates the holder in another way, aside from the coupon rate.

A customer receives a Regulation T margin call for $3,200. To meet the deposit requirement, which of the following can be deposited? A) Fully paid for marginable securities totaling $6,400 in market value B) Cash in the amount of $1,600 C) Fully paid for marginable securities totaling $3,200 in market value D) Fully paid for marginable securities totaling $1,600 in market value

A) When meeting a Regulation T margin call with cash, 100% of the call must be deposited—in this case, $3,200. If using fully paid for marginable securities to meet the call, a deposit totaling twice the amount of the call must be made—in this case, $6,400. This is because securities are only marginable to 50% of their value.

Partners in direct participation leasing programs can receive write-offs for all the following EXCEPT A) depletion B) operating expenses C) depreciation D) interest expenses

A) Write-offs (deductions) associated with leasing programs are those taken for operating expenses, depreciation of the equipment owned and leased, and interest costs on the loans to purchase the equipment. Depletion, however, is a deduction associated with natural resources programs, such as oil and gas.

SKRAM corporation is appealing directly to the shareholders of IDNIC corporation to acquire shares of IDNIC stock. This appeal is best described as A) a sell-off with IDNIC the target company B) a hostile takeover with IDNIC the target company C) an acquisition D) a buy-back with SKRAM the bidder company

B) A hostile takeover is accomplished when the buyer (SKRAM) goes directly to the target (IDNIC) company's shareholders bypassing the board of directors or management.

A registered representative has a customer who is interested in utilizing options strategies such as spreads and straddles. The RR's firm does not offer options transactions as part of their existing business model. As such, the RR directs the customer to open an account through another broker-dealer. This would be known in the securities industry as A) placing away B) selling away C) investing away D) trading away

B) A private securities transaction is any sale of securities outside an associated person's regular business and his employing member. Private securities transactions are also known as selling away. If an associated person wishes to enter into a private securities transaction, that person must provide prior written notice to his employer, describe in detail the proposed transaction, describe in detail the RR's proposed role in the transaction, and disclose whether they have or may receive compensation for the transaction.

WRJ stock is quoted as 21 bid, 21.15 offer. Which of the following is TRUE? I. A purchase can be made at $21 per share if buying at the market. II. A purchase can be made at $21.15 per share if buying at the market. III. The spread is $0.15. IV. A sale can be made at $21.15 per share if selling at the market. A) I and IV B) II and III C) I and III D) III and IV

B) A quote always represents the bid and an ask (offer) price. Investors pay the current ask price when purchasing (21.15) and receive the current bid price when selling (21). The spread is the difference between the bid and the ask price—in this quote, 0.15.

Recent reports indicate that the gross domestic product (GDP) has been declining steadily over the past 2 quarters. This would suggest A) an inflationary period B) a recession C) an economic expansion D) a depression

B) A recession is defined as 6 consecutive months (2 quarters) or more of economic decline. By contrast, a depression is 6 consecutive quarters of economic decline.

Which of the following corporate actions are designed to allow investors to buy shares of stock under specific, defined conditions? I. A rights offering II. A forward split III. Issuing warrants IV. A stock dividend A) II and III B) I and III C) I and IV D) II and IV

B) A rights offering allows current shareholders to purchase enough additional stock to maintain their proportionate ownership of the corporation, in the event more shares are sold to the public. The shareholders may purchase the stock before the public has access and will purchase the stock at a discount from its market price. Warrants allow the owner to purchase a certain number of shares of stock at a specified price at a specified time later. Splits and stock dividends, the other choices, do not involve the purchase of stock but instead are adjustments to existing stock positions.

Options investors who are I. bullish on a stock should buy calls II. bullish on a stock should buy puts III. bearish on a stock should buy calls IV. bearish on a stock should buy puts A) I and III B) I and IV C) II and III D) II and IV

B) Buying calls is bullish, and buying puts is bearish. Conversely, selling calls is bearish and selling puts is bullish.

Electronic delivery of documents requires all of the following EXCEPT A) procedures to show that delivery took place as intended B) a recording of the customer verbally agreeing to such receipt C) procedures to deliver the information in paper form upon request D) assurance of confidentiality of the documents and personal information

B) Consent to receive documents such as confirmations and account statements by electronic means must be in writing.

Deflation occurs during A) a depression, coinciding with economic expansion in the business cycle B) a recession, coinciding with an economic contraction C) a depression, coinciding with an economic trough in the business cycle D) a recession, coinciding with economic peaks

B) Deflationary periods in the economy are most associated with severe recessions. Recessions occur during periods of economic contraction in the business cycle.

Economists refer to longer, more severe contractions in the economy as A) declines B) depressions C) depletions D) recessions

B) Economists call mild, short-term contractions recessions while longer, more severe contractions are called depressions.

Which of the following prospectus delivery requirements for negotiable securities sold in the secondary markets is NOT accurate? A) For an additional issue listed on an exchange or Nasdaq there is no delivery requirement. B) For an additional issue if the security is non-Nasdaq there is no delivery requirement. C) For an IPO if non-Nasdaq the delivery requirement is 90 days. D) For an IPO if listed on an exchange or Nasdaq the delivery requirement is 25 days.

B) For an additional issue, if the security is non-Nasdaq the delivery requirement is 40 days.

Mr. Smith purchases 2% of MES Corporation's common stock. Four years later Mrs. Smith purchases 9% for her own account. Which of the following is TRUE? A) Neither Mr. or Mrs. Smith is considered a control person. B) Both Mr. and Mrs. Smith are considered control persons. C) Only Mr. Smith, as the initial shareholder, would be considered a control person. D) Because she owns more shares, only Mrs. Smith is considered a control person.

B) If a 10% or more interest is held by immediate family members, then all those family members owning voting stock are control persons. In this instance the combined ownership is more than 10% (2% + 9% = 11%).

A member firm suspects financial exploitation of a senior customer. Which of the following is true regarding actions that can be taken? A) The SEC must be notified immediately and no disbursements can be made until an investigation by the SEC has been concluded B) A trusted contact person if one was named can be contacted and a temporary hold on disbursements from the account can be administered. C) Anyone who knows the customer can be contacted and a permanent hold on disbursements from the account is mandated. D) No one can be contacted even if a trusted contact person was named until a regulatory body has investigated.

B) If the member firm reasonably believes that financial exploitation has occurred, is occurring, has been attempted or will be attempted, it can place a temporary hold on disbursements of funds or securities and contact a trusted contact person if one was named.

Restricted persons are not allowed to purchase an IPO of common stock. All of the following are restricted persons EXCEPT A) Any person owning 10% or more of a member firm B) The grandparent of a restricted person C) Broker-dealers D) Registered representatives

B) Immediate family to a restricted person is a restricted person. This includes parents, in-laws, spouses, siblings, children, or any other individual to whom the person provides material support. Aunts and uncles as well as grandparents are not considered immediate family. If, however, one of these individuals lives in the same household as a restricted person, that individual would be a restricted person.

To arrive at M3, one would add to M2 which of the following? A) Savings and checking accounts B) $100,000 and larger time deposits and repurchase agreements C) All currency in circulation, including coins D) Gold and silver bars held on reserve at the FR

B) Included in M3 but not found in M2 are time deposits of more than $100,000 and repurchase agreements with terms longer than one day.

Regarding the taxation of gains on securities, all of the following are true EXCEPT A) long-term gains are taxed at more favorable long-term rates B) gains on securities for a position held at least 12 months are not taxable C) short-term gains are taxed at less favorable ordinary income tax rates D) capital gains are associated with the sale of securities and other real assets

B) Investment income, which includes capital gains realized on securities positons, is taxable. Depending on how long a security was held, the gains might be taxable at the investor's ordinary income tax rate (for short-term gains) or at a more favorable long-term rate if the position was held for longer than 12 months.

Which of the following is a nonfinancial investment consideration? A) The customer's net worth, excluding his home and property B) The customer's place of employment and status C) The customer's total credit card debt D) The amount of the customer's monthly income available for investment

B) Nonfinancial investment considerations are anything that can't be preceded by a dollar sign. The customer's place of employment and status is the only choice that affects the customer's investment characteristics but doesn't directly represent either a lump sum of money or a cash flow.

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 EXCEPT A) exercise price of 70 B) premium of 2 C) contract size of 100 shares D) expiration date in May

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

Regulation T, the initial margin requirement, is set by A) the comptroller of the currency B) the Federal Reserve Board (FRB) C) the Securities and Exchange Commission (SEC) D) the president and Congress

B) Regulation T, the initial margin requirement currently at 50%, is set by the Federal Reserve Board (FRB).

Which of the following is a debt instrument that pays no periodic interest? A) Treasury bond B) Treasury STRIP C) Corporate bond D) Treasury note

B) STRIPS are Treasury bonds with the coupons removed. With no coupons, STRIPS do not make regular interest payments. Instead, they are sold at a deep discount and mature at par value.

Investors face many different risks. Which of the following would be factors of systematic risk? I. War II. Global security threats III. Call risk IV. Interest rate fluctuation A) II and IV B) I and II C) II and III D) III and IV

B) Systematic risk points to changes in the overall economy. It has an adverse effect on individual securities apart from the company's circumstances. It is generally caused by factors that affect all businesses, such as war, global security threats, or rampant inflation. No matter how diversified a portfolio is, it remains subject to systematic risk. An investor cannot diversify systematic risk away.

FINRA's Conduct Rules are designed to promote A) uniform trade practices for firms to follow when dealing with other member firms. B) fair and ethical trade practices when dealing with the public. C) efficient and just handling of trade practice violations. D) settlement of disputes between member firms without resorting to the courts.

B) The Conduct Rules specify trade practices that are fair and ethical when dealing with the public. Events that must be reported are also described.

An investor holds a Treasury note with a stated interest of 6%. The investor will receive A) one $60 interest payment per year B) two $30 interest payments per year C) two $60 interest payments per year D) one $6 interest payment per year

B) Treasury note (T-note) annual interest is stated as a percentage of par value ($1,000) and is paid in semiannual payments. Therefore, a 6% T-note pays $60 per year in 2 payments of $30 each.

All of the following securities are backed by the full faith and credit of the U.S. government EXCEPT A) Treasury bonds B) Treasury receipts C) Treasury notes D) Treasury STRIPS

B) Treasury receipts are issued by broker-dealers, and they are backed by the good faith and credit of those that issue them. Treasury STRIPS are the U.S. Treasury Department's version of these, and therefore they are backed in full by the U.S. government. Treasury bills, notes, and bonds are backed in full by the U.S. government.

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

B) Understanding the flow-through concept is critical with DPPs. Only DPPs allow flow-through of losses.

A tombstone advertisement would be expected to include all of the following information EXCEPT A) an advisory that the advertisement is neither an offer to sell nor a solicitation of an offer for any of these securities B) any inherent risks associated with the offering or the issuer offering the securities C) the price or price range at which the securities are expected to be offered D) the name of the issuer and underwriters if they are being used to assist in the offering

B) While any inherent risks associated with the issuer or the securities the issuer is offering would be expected to be shown in a prospectus, they would not be expected to be found nor is it required that they be shown in a tombstone advertisement. Each of the remaining answer choices shows information expected to be shown in these ads.

A fully disclosed broker-dealer A) clears all of its retail customer transactions and those of other BDs B) is like a clearing agent in that it can take custody of funds and securities C) is one that introduces its business to a carrying firm to clear transactions D) is also known as a full-service clearing agent able to process and clear transactions

C) A fully disclosed broker-dealer is also known as an introducing BD because it introduces its business to a carrying firm that can clear and process transactions for it. Unable to clear transactions themselves, they are not a clearing agent or carrying firm and therefore cannot take custody of funds and securities.

When an issuer schedules portions of a bond issue's principal to mature at predetermined intervals over a period of years until the entire balance has been repaid, the issuer has issued what type of bond? A) Predetermined B) Term C) Serial D) Balloon

C) A serial bond issue schedules portions of the principal to mature at intervals over a period of years until the entire principal balance has been repaid.

Under the Telephone Consumer Protection Act of 1991 (TCPA), administered by the Federal Communications Commission (FCC), a telephone solicitation is defined as a telephone call A) made to anyone within the same state as the originator of the call B) initiated for the purpose of encouraging the purchase of investment products only such as securities C) initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services D) made only to those who have expressed an interest in purchasing the products offered by BDs

C) Administered by the Federal Communications Commission (FCC) the Telephone Consumer Protection Act of 1991 (TCPA) defines a telephone solicitation as any telephone call initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services. This would include products and services offered in the securities industry by BDs.

All of the following associated persons engaged in the investment banking and securities business are considered registered representatives, EXCEPT A) an assistant officer who does not function as a principal B) someone who trains others to supervise, solicit, or conduct business in securities C) the chairman of the board D) someone who supervises, solicits, or conducts business in securities

C) All associated persons engaged in the investment banking and securities business are considered registered representatives, including any assistant officer who does not function as a principal; any individual who supervises, solicits, or conducts business in securities; and any individual who trains people to perform functions in those capacities.

All of the following are required when completing Form U-4 EXCEPT A) date of birth B) legal name and any aliases used C) educational degrees D) employment history for the past 10 years

C) Among the extensive information required on Form U-4, residence history for the past 5 years, employment history for the past 10 years, legal name and any aliases and date of birth would all be listed. Educational degrees and marital status are not required, but full-time education is included in the 10-year employment history.

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

C) An amended U-5 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 wants to place advertisements in his daughters youth athletic league quarterly sponsorship booklet. He wants to convey in the weekly bulletin at his church that he specializes in retirement planning and 529 plans. Which of the following statements regarding these advertisements is TRUE? A) No approval is required because both the youth athletic league and the church would be recognized as bona-fide non-profits. B) The advertisement is considered institutional communications and therefore no principal pre-approval is required. C) Pre-approval by a principal of the broker dealer is required. D) The piece will be regulated as correspondence because it is only being forwarded to two organizations.

C) Any piece promoting securities services and / or products intended to be received by more than 25 retail customers within any 30 calendar-day period must be pre-approved by a principal before use. Given the intended placements of the piece there is no way to determine the exact number of retail customers who will be exposed to it and within what time frames and therefore it must be regulated as retail communications. It fits neither the definition of correspondence or institutional communications.

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

C) Both common and preferred shares are equity securities. Each of the other choices represents a debt instrument.

Regarding options positions, which of the following statements is TRUE? A) Call writers have the right to sell the underlying, and put writers are obligated to sell the underlying. B) Call buyers have the right to purchase the underlying, and put buyers have the right to purchase the underlying. C) Call buyers have the right to purchase the underlying, and put writers may be obligated to purchase underlying. D) Call writers may be obligated to purchase the underlying, and put writers are obligated to sell the underlying.

C) Buyers of options have rights, and writers (sellers) of options may be in an obligatory positon if the buyer exercises the contract. Call buyers have the right to purchase stock, and put buyers have the right to sell stock. Call writers may be obligated to sell the stock, while put writers may be obligated to buy the stock.

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) 6-month holding period, with volume limits thereafter C) No holding period, but volume limits always apply D) 6-month holding period, with sales allowed freely thereafter

C) Control stock would be registered shares held by an affiliate. There is no holding period, but there will always be volume limits for as long as the individual is an affiliate.

An expansion in the business cycle would be characterized by A) higher consumer debt, rising inventories B) increasing college enrollments and enlistment in military service C) increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values D) increase in want ads in newspapers, decrease in nonfarm jobs

C) Expansions in the business cycle are characterized by increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values. Each of the remaining characterizations would more likely be associated with periods of contraction in the economic business cycle.

A registered representative is discussing fee-based and commission based accounts with a customer. All of the following are true EXCEPT A) A commission based account bills for each transaction separately. B) Disclosure of what services the fees cover in in a fee-based account must be made to the customer before the account is opened. C) Fee-based accounts are most suitable for those who do very little trading during the course of the year. D) A fee-based account charges a single annual fee that can be a fixed dollar amount or a percentage of assets under management.

C) Fee-based accounts charging a fixed dollar amount or a percentage of assets under management are more suitable for those doing at least a moderate amount of trading. Commission based accounts charging for each transaction on the other hand are better suited for those who do fewer transactions each year. For fee-based accounts full disclosure of what is covered by the annual fee must be made before the account can be opened.

Which of the following are considered money market securities at the time of issue? A) Municipal bonds B) T-bills C) T-notes D) T-bonds

C) Money market securities are short-term (1 year or less) securities at the time of issue. Of the choices listed, only Treasury bills meet the short-term criteria at the time of issue.

Section 529 plans are considered municipal fund securities. They must therefore be sold by A) investment letter B) security memo C) offering circular D) prospectus

C) Municipal bonds are sold by offering circular, a document similar to a prospectus used in the sale of municipal securities. Because Section 529 plans are state sponsored, they must be sold by offering circular.

Which of the following securities is exempt from the Securities Act of 1933 A) Preferred stock B) Debenture C) Municipal note D) Common stock

C) Municipal debt securities including short term notes are exempt from the Securities Act of 1933.

In safety of principal, municipal bonds are considered second only to: A) corporate common stock issues B) AAA-rated corporate debt issues C) U.S. government and agency bonds D) corporate preferred stock issues

C) Municipal securities are considered second in safety of principal only to U.S. government and agency issues.

FINRA has a continuing education requirement with the goal of making sure that all registered personnel are aware of industry changes. If a registered representative has just observed her second anniversary in the industry and did the required regulatory element CE, the next time she will be required to sit for the regulatory element is A) two years from now B) three years from now C) next year D) within 120 days

C) New registered representatives are required to sit for the regulatory element as of their second anniversary. Thereafter, they are scheduled each three years. Having just completed her second anniversary regulatory element CE, she will be next scheduled in three years.

The buyer of an option contract can be known as all of the following EXCEPT A) holder B) long party C) writer D) owner

C) Options buyers (purchasers) can be referred to as the owner, holder, or the party who is long the contract. Writers are those who sell the contract.

In an effort to safeguard customer information which regulation specifies securing desktop and laptop computers and encrypting email? A) Regulation T B) Regulation A C) Regulation S-P D) The Securities Exchange Act

C) Safeguard requirements such as securing desktop and laptop computers and encrypting email to protect customer information is an obligation of financial institutions under Regulation S-P.

For Treasury bills, which of the following are TRUE? I. T-bills are issued at a discount to par. II. T-bills have maturities of 1 to 10 years III. Most T-bill issues are callable and convertible. IV. T-bills are a direct obligation of the U.S. government. A) II and IV B) II and III C) I and IV D) I and III

C) T-bills are issued at a discount to par, are 6 months or less to maturity, and are a direct obligation of the U.S. government. Callable and convertible features are those that should be associated with corporate issues not government issues.

In general, the first industry form that a new applicant for registration sees is the Form U-4. This lengthy form requests information about the applicant's name including any aliases residency history back through the previous two years 10-year employment history convictions, but not arrests, dealing with any securities related violations A) III and IV B) II and IV C) I and III D) I and II

C) The Form U-4 contains the applicant's name as well as any aliases used. Residence history is shown for the past 5 years and employment history for the past 10 years. Charges, arrests, and convictions for securities related violations must be disclosed.

The coupon on a bond can be described as its A) yield to call B) current yield C) nominal yield D) basis yield

C) The coupon on a bond is also known as the "nominal or stated yield" and indicates the annual interest paid. For example, a 4% bond pays $40 of interest per year (4% × $1,000 par value).

A broker-dealer is confronted with margin deposit due but not yet received. The BD can choose to take no action, neither selling out the securities nor requesting an extension, if the amount due is A) $1,000 or more B) less than the value of the securities purchased C) less than $1,000 D) less than $4,000

C) The required deposit will be 50% of the securities' value. If the deposit is late, the broker-dealer can either choose to sell out the securities or request an extension. However, for late deposits of less than $1,000, the broker-dealer can choose to take no action.

An investor discovers that exactly 2 years and 9 months ago, the investor was given fraudulent information on a security that prompted the investor to sell it. As a result, the investor lost money. How long does the investor have to bring action? A) 1 year B) 3 years C) 3 months D) 9 months

C) The statute of limitations on fraudulent practices, under the Securities Exchange Act of 1934, is 3 years from the event itself, or 1 year from its discovery, whichever comes sooner. In this case, the event took place 2 years and 9 months ago, therefore action would need to be taken within the next 3 months (3 years total), as that would be sooner than 1 year from the current discovery.

Common shareholders have the right to receive an audited set of financial statements of the company's performance A) monthly B) biannually C) annually D) each quarter

C) While a company can supply this information as often as they want to shareholders, it is only required that an audited report be received on an annual basis.

The growth potential in the price of preferred shares is generally considered to be A) greater than that of the issuer's common shares B) no different than that of the issuer's common shares C) less than that of the issuer's common shares D) unrelated to the financial well-being of the issuer

C) While the growth potential of both common and preferred shares can be tied to a company's financial well-being, preferred share growth is generally less than that of the common shares. The trade-off is that the preferred shares have preference with dividends received, enjoy a fixed rate of return via those dividends, and have a priority claim over common shareholders in the event of bankruptcy and the dissolution of assets.

Once a dividend is initially declared by the board of directors, any future dividend payments A) are guaranteed to be paid, but no amount is stipulated B) are not guaranteed to be paid, but if they are paid, they must be at least equal to the initial declaration C) carry no guarantee of payment in any amount D) are guaranteed to be paid in at least the same amount as the initial declaration

C) While the potential to share in the company's profits by receiving dividends is considered one of the benefits of equity ownership, one of the risks is the possibility of dividend income decreasing or ceasing entirely. Dividends are not guaranteed in any way.

Which of the following are included in the semiannual financial reports a mutual fund must provide to its shareholders? Balance sheet showing assets, liabilities, and net assets Separate listing of physical property held by the fund Income statement detailing profit and loss for the period Personnel list detailing any changes in staff or position titles A) II and IV B) I and IV C) II and III D) I and III

D) A mutual fund must provide 2 reports per year to shareholders: an annual audited report and a semiannual unaudited report. The reports must include among other things, the balance sheet and profit and loss statement, a list of portfolio securities as of the date of the balance sheet, compensation paid to the board of directors and advisory board, and total dollar amount of securities bought and sold during the period.

For preferred shares, the annual dividend payment is A) fixed and stated as a percentage of its current market value (CMV) B) subject to variation and stated as a percentage of its current market value (CMV) C) subject to variation and stated as a percentage of its par value D) fixed and stated as a percentage of its par value

D) A preferred stock's annual dividend payment is its fixed rate of return, unlike that of common shares where the dividend is subject to variation.

Industry rules regarding political contributions intended to preserve investor confidence and market integrity apply to contributions made to A) political parties and third parties with connections to them only B) political parties only C) elected officials and political candidates only D) political parties, candidates for office, and elected officials

D) All business should be awarded on the basis of merit only and not political favor gotten via contributions to political parties, elected individuals or candidates, or third parties with connections to those with political affiliations.

A call or put that can be exercised before expiration is a(n) A) Western-style options B) European-style options C) Eastern-style options D) American-style option

D) Call or put buyers can exercise a contract any time before expiration if the contract is an American-style option. European-style options can be exercised on expiration day (last day of trading) only. Nearly all equity options are American style. Foreign currency options may be either American style or European style.

Call risk is most closely associated with A) financial risk B) currency risk C) market risk D) reinvestment risk

D) Call risk is the risk that a bond might be called before maturity. Often when this occurs, investors who receive their principal back sooner than anticipated are left to find ways to reinvest that will achieve the same returns—reinvestment risk.

Which of the following statements best describes the term "churning"? A) Manipulation of market prices by a firm. B) Making false or misleading statements to a customer for the purpose of inducing the customer to purchase or sell a security. C) Purchasing the same security in more than one customer account at a time. D) Trading in a customer's account considered excessive, and for which no discernible investment purpose is detected.

D) Churning is excessive trading for a particular customer's circumstances or exceeding what would normally be considered suitable. This is equally true for both discretionary and nondiscretionary accounts.

The two classifications of chapters for corporate bankruptcies are I. liquidations II. reorganizations III. bankruptcy IV. failures A) I and IV B) II and III C) III and IV D) I and II

D) Corporate bankruptcies can be either liquidations, where assets are sold off and proceeds are distributed based on the priority of the claim, or reorganizations, where the company continues to operate under a plan to repay creditors.

A bank trustee holds the titles to assets a corporation has purchased and utilizes in its day-to-day business. The corporation issues debt securities backed by these assets. These securities are A) debentures B) collateral trust bonds C) mortgage bonds D) equipment trust certificates

D) Debt securities issued by corporations backed by the assets the corporation owns and uses in its daily business are known as equipment trust certificates.

For real estate program partners, tax deductions will be derived from A) government-assisted housing allowances B) income received for rents C) historic rehabilitation credits received D) mortgage interest paid and depreciation

D) Deductions for real estate programs come primarily from mortgage interest paid on the properties and the depreciation allowable for the properties.

Which of the following is NOT a type of real estate direct participation program? A) Existing properties B) New construction C) Raw land D) Income

D) Direct participation real estate programs come in 3 types: raw land, new construction, and existing properties. Income is a type of oil and gas program.

Failure to complete the regulatory element continuing education requirement within the allotted time period will result in A) suspension of the individual until all CE requirements are met B) an automatic bar from the industry for 3 years C) an automatic extension request, which FINRA will normally be grant D) the registration being deactivated until the requirements are met

D) Failure to complete the regulatory element within the allowable time frame will lead to FINRA's deactivating that person's registration until the CE regulatory element is met.

When investors open a position by going long the security, they can close the position by A) selling the security short B) buying the security C) opening a new position in the security D) selling the security

D) Going long a security means that it was purchased. If a position was opened by purchasing the security, it would be closed by selling it.

Regarding a corporate bankruptcy and the liquidation priority, which of the following is accurate? A) Wages due employees are satisfied after all debt and equity claims. B) Subordinated debt claims are satisfied before all other debt claims. C) Claims for taxes due are satisfied after all shareholder equity claims. D) Debt securities claims are satisfied before equity securities claims.

D) In the event of a corporate liquidation, the order of claims priority would be as follows: taxes (IRS) and wages, all debt instruments next (secured first, then unsecured with subordinated debt last), and then equity securities with preferred shareholders paid first, before common shareholders, who are last of all claimants to be satisfied.

Issuance and trading of securities are regulated at more than one governmental level. These would include regulations at which of the following? I. County level II. City level III. Federal level IV. State level A) I and II B) II and III C) I and IV D) III and IV

D) Issuance and trading of securities are regulated at the federal level by the SEC and the various SROs in the securities industry. They are also regulated at the state level through the Uniform Securities Act and state laws regulating securities.

A limited partnership (LP) A) has one type of partner B) is run by investors who are the limited partners C) is limited and can have only investors and no partners D) has 2 types of partners

D) LPs have 2 types of partners: general and limited. There must be at least one of each. It is the general partner who is responsible for running the partnership entity.

Which of the following regarding monetary or fiscal policy is TRUE? A) Fiscal policies are the actions taken by the president and Congress to regulate the amount of money consumers will be able to borrow. B) Monetary policy refers to the actions that Congress takes when it attempts to influence the money supply. C) Fiscal policies are governmental budget decisions enacted by the Federal Reserve Board. D) Monetary policy is what the FRB engages in when it attempts to influence the money supply.

D) Monetary policy is what the FRB engages in when it attempts to influence the money supply. Fiscal policy refers to governmental budget decisions enacted by the president and Congress to regulate federal spending and taxation, and those decisions impacting deficits and surpluses.

When a bank lends money to a broker-dealer for the purpose of lending to margin account customers, the bank is lending at which of the following rates? A) Prime B) Federal funds C) Discount D) Broker call loan

D) Money lent to broker-dealers by banks for the purpose of making loans to margin account customers, the money is borrowed at the broker call loan rate (broker loan rate or call rate).

All of the following describe mutual funds EXCEPT A) funds simplify tax calculations for investors by supplying Form 1099 B) various withdrawal plans may be offered for redemption of shares C) the portfolio is professionally managed D) shares may be sold either on an exchange or over the counter

D) Mutual fund shares are redeemable securities. Hence, they do not trade in the secondary market either on exchanges or over the counter. Instead, they may be purchased and redeemed only through the mutual fund company itself.

Restricted shares, those that are unregistered, meaning that they were not attained in a public offering, may be sold by a nonaffiliate: A) after holding them for 6 months but then subject to volume restrictions B) freely, with no holding period or volume restrictions C) at any time but with volume restrictions D) after holding them for 6 months and freely thereafter

D) Nonaffiliates holding unregistered shares must wait 6 months before divesting of those shares, but because they are nonaffiliates, they may sell freely (without volume restrictions) thereafter.

In which of the following accounts would the use of margin always be prohibited? A) Partnership accounts B) Corporate accounts C) Fiduciary accounts D) Individual retirement accounts

D) Of those listed, only qualified retirement accounts, such as IRAs, prohibit the use of margin. As long as the use of margin is not listed as being restricted, it is allowed in both corporate and partnership accounts, and as long as the use of margin is specifically listed as being allowed, a fiduciary account may do so.

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

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.

Laws increasing or decreasing taxation would be best associated with A) fiscal policy enacted by the Federal Reserve Board B) monetary policy enacted by the president and Congress C) monetary policy enacted by the Federal Reserve Board D) fiscal policy enacted by the president and Congress

D) Tax laws are fiscal (not monetary) policy and are enacted by the president and Congress.

Which of the following entities establishes the rules, regulations, and membership eligibility standards to be registered with the SEC? A) Municipal Securities Regulatory Board (MSRB) B) Federal Reserve Board (FRB) C) Federal Bureau of Investigation (FBI) D) The National Adjudicatory Council (NAC)

D) The National Adjudicatory Council (NAC) establishes the rules, regulations, and membership eligibility standards for registration with the SEC.

The point at which an investor neither makes a profit nor loses money is known as A) the maximum loss B) the maximum gain C) the minimum return D) the breakeven point

D) The breakeven is that point at which an investor neither makes nor loses money on the investment.

Which of the following is not a category of communications with the public designated by FINRA? A) institutional B) correspondence C) retail D) market letters

D) The three categories of communications with the public designated by FINRA are retail, correspondence, and institutional. Market letters, as all sales or advertising pieces would, can fall under any of the three communications categories depending on to whom they are sent or made available to, and the number of recipients.

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

D) Under the Securities Exchange Act of 1934, broker-dealers and exchanges are required to register with the SEC. Registration of securities and IPOs is a requirement of the Securities Act of 1933, sometimes called the Paper or New Issues Act.

A REIT can avoid being taxed as a corporation would by A) receiving 100% of its income from real estate and distributing 90% or more of its net investment income to its shareholders B) receiving less than 50% of its income from real estate and distributing 50% or more of its net investment income to its shareholders C) receiving less than 75% of its income from real estate and distributing 100% of its net investment income to its shareholders D) receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders

D) Under the guidelines set by the Internal Revenue Code, a REIT can avoid being taxed as a corporation by receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders.

What are the 2 basic types of return on an investment? A) Interest and principal B) Dividends and interest C) Short term and long term D) Capital gains and income

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.

An investor purchased 100 shares of LMN in 2013 at a price of $40 per share. Soon after, the 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) I and IV B) I and III C) II and III D) II and IV

D) 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). $4,000 / 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 3 years later at 50, the gains are long term.

A strong U.S. dollar leads to more A) U.S. exports and a balance of payments deficit B) U.S. exports and a balance of payments surplus C) U.S. imports and a balance of payments surplus D) U.S. imports and a balance of payments deficit

D) When the dollar is strong, it is more affordable for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit.

All of the following would generally be associated with a limited partnership (LP) EXCEPT A) partners responsible for reporting to the IRS B) the pass-through of gains and losses C) tax credits for specific programs D) freely transferrable interests

D) With no secondary market trading, one of the greatest disadvantages of a limited partnership is that an investor's partnership interest in one is generally not considered to be freely transferrable. The pass-through of gains and losses, all tax consequences, and the individual partners being responsible for reporting to the IRS are all characteristics of LPs.

Which of the following would be considered earned income? A) Bonus received from employment B) The premium kept from an unexercised short put C) Dividends received from a stock investment D) Interest received from a bond investment

Earned income is received as the result of participating in trade or business, the generation and/or sale of goods and/or services—in other words, from "work." The other choices are earnings from investments and are known as portfolio income

A company has distributed profits to its shareholders. This type of distribution would most likely be in the form of A) warrants B) options C) bonds D) dividends

The distribution of profits to shareholders would generally be in the form of dividends to be received at the discretion of the board of directors (BOD). Bonds and warrants are other types of securities a company might issue, while options are a derivative product that would not be issued by the company.

A March 25 put purchased at 1.5 has expired without being exercised. The owner of the put A) keeps the $150 paid B) keeps the $25 paid C) loses the $150 premium paid D) losses the $25 paid

The owner (buyer) of the put would have paid 1.5 ($150) for the contract. When option contracts expire unexercised, the buyer (owner, holder, party who is long) loses the premium paid—in this case, $150.

Which of the following is a characteristic shared by both corporate debentures and income bonds? A) Both are secured by assets of the corporation. B) Both are a type of mortgage bond. C) Neither pay interest. D) Both must pay principal as it comes due.

D) All bonds must pay principal when due. Income bonds, however, are not required to pay interest when due unless the earnings of the issuer are deemed to be sufficient and the board of directors declares that interest payments be made.

All of the following are true regarding customer account statements EXCEPT A) customer statements containing penny stocks must be sent monthly, even if no activity occurred in the account B) customer statements must be sent at least quarterly, activity or not C) customers must be alerted to report any inaccuracies or discrepancies promptly D) monthly statements need not be sent if the only account activity is the receipt of interest or dividends

D) Any activity in an account—transactions, dividends and interest, stock splits or dividends—will trigger the requirement to send a monthly statement. In addition, in any month an account contains penny stocks, a statement is required to be sent. If there is no activity, statements are only required quarterly. All statements sent require notice that inaccurate information be reported promptly.

Which of the following scenarios would NOT violate general standards regarding member firm communications? A) A graph exclusively showing penny stocks that have advanced in price more than 75% during each of the past 3 years is distributed to retail customers. B) A customer is shown a brochure outlining how the use of stop orders completely prevents a customer from losing any money. C) An RR with a master's degree in astronomy notes that this is a benefit when choosing securities in the aerospace industry sector. D) A recruitment advertisement promises substantial training to be delivered to incoming employees.

D) FINRA holds broker-dealers to certain general standards regarding all member firm communications, including recruitment advertising. Promises of training in recruitment pieces would not be considered exaggerated or misleading. None of the other scenarios would be acceptable and all would be deemed misleading, unbalanced regarding risk, or simply untrue.

In explaining hedge funds to an investor, a registered representative might correctly characterize them as utilizing A) advanced and complicated strategies for the purpose of mitigating risk B) basic and conservative investment strategies entailing low risk C) basic investment strategies for the purpose of mitigating risk D) advanced and complicated strategies entailing high risk

D) Hedge fund portfolios are aggressively managed in an attempt to achieve high returns. To do so they utilize advanced and complicated strategies generally associated with high risk.

Which of the following are available to participants in a 401(k) plan that are not available to IRA holders? I. Tax deferral on the earnings II. Hardship withdrawals III. The catch-up provision for those who are age 50 and older IV. Loans against the vested balance A) II and III B) I and III C) I and IV D) II and IV

D) IRAs have no provisions for either hardship withdrawals or loans. Both IRAs and 401(k) plans offer tax deferral on the earnings, and although the amount is larger with the 401(k), they both offer the catch-up provision for those who are age 50 or older.

While an associated person may work for an entity other than the member firm, the employing member firm's permission is A) requested B) not requested C) required D) not required

D) If a registered person wants to be employed by or accept compensation from an entity other than the member firm, that person must provide prior written notice to the member. Note that notice must be made, but the employing member's permission is not being requested nor is it required.

If the beneficiary of a custodian account dies, the securities in the account pass to the A) SIPC trustee's account B) custodian's estate C) parents D) minor's estate

D) If the beneficiary of a custodial account (minor) dies, the securities in the account must pass to the minor's estate, not to the parents' or custodian's estate.

Which of the following orders need NOT be immediately filled in their entirety? Immediate or cancel (IOC) Fill or kill (FOK) Market at open All or none (AON) A) II and IV B) I and III C) II and III D) I and IV

D) Immediate or cancel (IOK) orders allow partial execution, with the unexecuted portion of the order being canceled. All or none (AON) orders may be executed piecemeal, until the end of the day (for day orders) or until they can be filled in their entirety (for good til canceled, or GTC) orders. Both FOK and market at open orders are expected to be filled immediately and in their entirety. If unable, a FOK order would be canceled (killed).

Income from an investment in debt securities is known as A) dividends B) total return C) capital gains D) interest

D) Income from debt securities is known as interest. Income from common stock is known as dividends. Sale of a security for a price different from that originally paid is known as a capital gain or loss. The total return on an investment is the sum of income received and capital gain or loss upon sale.

Which of the following is TRUE regarding a member firm operating under FINRA membership or the membership of another self-regulatory organization (SRO)? A) Member firms are required to be full-service broker-dealers. B) Member firms may never incorporate proprietary trading into their business model. C) Member firms must always accommodate dealing with retail investors and not limit business to that done with other industry professionals. D) Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options and others, or limit the products they offer to only a few.

D) Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, and derivatives like options and others (be full service), or limit the products they offer to only a few. They need not adopt proprietary trading into their business model but can if they wish to. Likewise, they need not accommodate doing business with retail customers if they wish to deal only with other industry professionals, such as institutional investors.

Which of the following securities are nonexempt from registration under the Securities Act of 1933? A) Corporate debt issues and U.S. government agency issues B) U.S. government Treasury issues and real estate investment trusts C) Municipal securities and U.S. government agency issues D) Real estate investment trusts and corporate equity issues

D) Real estate investment trusts (REITs) are nonexempt securities subject to the registration and new issue disclosure provisions of the Securities Act of 1933. Agency issues, U.S. government issues, and municipal securities are exempt.

An investor who relies heavily on fixed interest payments from long-term (25-30 years) bonds should be most concerned with A) reinvestment risk B) legislative risk C) financial risk D) inflation risk

D) Sometimes referred to as purchasing power risk, inflation risk is the effect of rising prices over a long period while an investor is collecting fixed interest payments. For example, if a bond's yield is lower than the inflation rate, the purchasing power of the interest payments received diminishes over time.

The allowable deduction for equipment used in an oil and gas direct participation program is taken as A) depletion applied when the equipment is sold B) a credit applied at the end of the program C) a one-time expense applied at the end of the program D) depreciation over the life of the program

D) Tangibles such as equipment that will have some salvage value at the end of the program can be depreciated. The depreciation is an allowable deduction taken over the life of the program.

The interest rate negotiated for an uncollateralized overnight loan between 2 money center banks is known as A) the prime rate B) the discount rate C) the repo rate D) the federal funds rate

D) The federal funds rate is the rate commercial money center banks charge each other for an overnight, unsecured (no collateral) loan

An investor purchased 100 shares of Acme Shoelace stock for $20 per share. Four years later, the investor sold the stock for $28 per share. This investor would report these transactions, on a per share basis, as A) $20 return of capital, $28 return on investment B) $28 capital gain C) $28 return on investment D) $20 cost base, $8 capital gain

D) The price paid for a security is known as the cost base for the transaction. If the security is later sold for more than the cost base, the difference is a capital gain; if for less, it is a capital loss. This investor paid $20 per share, the cost base. Later, selling the stock for $28, the investor made an $8 capital gain per share. Of the total $28 price of the security, upon sale, $20 could also be called return of capital.

An August 15 call is written at 4. The call expires without being exercised by the owner. The writer of the call A) loses the $400 paid when the call was written B) keeps the $150 received when the call was written C) loses the $150 paid when the call was written D) keeps the $400 received when the call was written

D) The writer (seller) of the call would have received 4 ($400) for the contract when it was written. If the contract expires unexercised, the writer keeps the $400 premium received.

Reporting requirements for representatives and principals who are to be registered with FINRA include filling out a Form U-4 when the individual is hired. All of the following are required to make the registration effective EXCEPT A) providing a 10-year employment history and 5-year residency history B) providing names and all aliases used C) disclosure of convictions of a spouse employed by a financial institution D) passing the appropriate qualification exam(s)

D) To register an associated person of a member firm with FINRA, the member fills out and submits Form U-4. Information required on Form U-4 is extensive and includes name, address, any aliases, 5-year residency history, 10-year employment history, and information on any charges, arrests, or convictions relating to the investment business for that individual (not spouses). Finally, registration cannot be effective until the person passes the appropriate qualification exam(s).

An investor holds a 6% callable bond purchased at 105. If the issuer calls the bond before maturity, the yield to call realized by the investor would be A) greater the CY B) greater than the YTM C) equal to the YTM D) less than the coupon

D) When a bond purchased at a premium (105) is called before it matures, the accelerated premium loss is reflected in the calculated YTIn this light, remember that the YTC is always the lowest of all possible yields for premium bonds, less than the coupon, CY, and YTM.