6-2
tenants in common
They need not make equal investments in the account. They need not have equal interests in the property in the account. If one of the tenants dies, their assets are passed to their estate, not to the surviving joint tenant. The account must be frozen until this is carried out.
All of the following debt instruments pay interest semiannually?
industrial development bonds. municipal revenue bonds. municipal General Obligation bonds. Ginnie Maes pay interest on a monthly basis, not semiannually.
If a client were said to be holding a position in a security, that would mean that the client?
was either long or short the security.
If your customer has two bonds, and one has a coupon of 5.1% and the other has a coupon of 5.3%, what is the difference in annual interest payments between the bonds?
$1,000 × .053 = $53 $1,000 × .051 = $51 $53 − $51 = $2
If an investor pays 95.08 for a Treasury bond, how much did the bond cost?
$952.50. $950 plus 8/32
Which of the following statements is NOT true of Regulation S-P?
- Customers must be given annual privacy disclosures on a separate piece of paper. - A customer with an ongoing relationship with a member must receive both an initial and an annual privacy notice. It may be included in other documents but must be clear and conspicuous.
UTMA
- Exercise warrants in the account rather than sell them. Withdraw funds to meet a medical expense of the beneficial owner. - not sell uncovered options, sell securities short, or make securities purchases on margin. Any withdrawals he makes must be specifically for the benefit of the minor, not for his own business. If there are warrants in the account, he may exercise them or sell them; he may not allow them to expire unexercised.
12b-1 charges?
- They may be charged by open-end management companies. FINRA permits members to charge .25% as a shareholder servicing fee which is not included in the 12b-1 limits. - cover distribution costs, it would be inappropriate (an illegal) for a closed-end fund to assess the charge. The .75% maximum is set by FINRA, not the SEC and FINRA does permit the additional .25% for shareholder servicing.
12(b)-1 fees
- are based on the fund's annual average daily net assets. - must be reviewed at least quarterly by the fund's board of directors.
Directed Brokerage Arrangements provisions
- members favoring sales of investment company shares. - member execution of investment company portfolio transactions.
If interest rates are dropping, an investor with a maturing bond will be most concerned with?
- the difficulty in finding another investment with a like yield. - When interest rates decrease, investors with maturing bonds will have to accept lesser yields to replace their investments. This is often referred to as a form of reinvestment risk.
A variable annuity characteristic that contractually guarantees payments for life is:
the mortality guarantee.
Which investment is exposed to the greatest risk when interest rates increase?
20 year bond with a 4% coupon
CMO
A CMO makes an interest-only payment to an investor. This payment will be taxed as ordinary income.
Which of the following features of preferred stock allows the holder to reduce the risk of inflation?
Convertible.
If a corporation's investment account received $100,000 in dividends and $20,000 in interest; how much of the $120,000 received would be subject to taxation?
Corporations that receive dividends from investments have a 70% dividend exclusion. This means that out of the $100,000 received, only 30%, or $30,000 is subject to taxation. No such exclusion exists for interest received. Therefore, $30,000 plus $20,000 equals $50,000 subject to taxation.
A stockholder owns 200 shares of common stock in a corporation that features statutory voting. If an election is being held in which six candidates are running for three seats on the board, the stockholder could cast the votes in which of the following ways?
－ Two hundred votes for each of three directors. － A stockholder has one vote per seat for each share of stock he owns. Thus, in this case, the stockholder has a total of 600 votes. Under the statutory voting method, he must allocate an equal number to each seat, or 200 for each of three seats.
During a period of suspension, a member must？
－ be treated as a nonmember by other members. － A suspended member is considered a nonmember firm while the suspension is in effect. Any firm that is not a member (for any reason) must not be granted any of the rights or privileges of FINRA membership.
Your client owns shares of the RAN Fund, an open-end investment company with an objective of aggressive growth. If the client wished to redeem a portion of her holdings?
- the mutual fund would send her a check within seven days of her redemption request. - any fees or concessions earned by the firm would be returned to the underwriter if the redemption occurs within seven days of the original sale
You are using beta as an analytical tool to compare several diversified mutual funds to help a client choose one for his portfolio. If your client's risk tolerance regarding principal is relatively low, you would probably recommend the fund with a beta of?
.50
A grandparent is interested in making a contribution to an ESA. Contributions may be made until the beneficiary's birthday at age
18 years
You are reviewing an investor's balance sheet. Which of the following items would be found on a balance sheet and help you determine the client's net worth?
401(k) balance Credit card balance
If a member firm is notified by FINRA that it must begin tape-recording the phone calls of its assistant representatives and registered representatives to existing and potential customers, it must do so within how many days of notification?
60
A policy loan provision must be offered by the insurer after three years, allowing the variable life policy contract holder to borrow at least what percentage of cash value?
75%
FINRA allows sales charges up to a maximum of?
8.5% on mutual funds. Contractual plans are 9%.
discretionary orders?
A customer sends a check for $25,000 to an agent and instructs the agent to purchase bank and insurance company stocks when the price appears favorable. A customer instructs an agent to purchase as many shares of XYZ as the agent considers appropriate. Discretion authorizes a representative to choose the security, the amount of shares, or whether to buy or sell. Time and/or price alone are not discretionary decisions.
An investor has been found guilty of making a stock sale on the basis of insider information. Which of the following persons could make a claim against him as a contemporaneous trader?
A person who bought the same stock at about the same time. The guilty investor presumably used the insider information to get an artificially high price on his stock sale. Thus, only a person buying the stock at about the same time would have bought for an artificially high price. To make a recovery, a contemporaneous trader must be on the opposite side of the trade, at a time when the price might have been adversely affected.
A preliminary prospectus?
A preliminary prospectus
safest from default risk?
AAA unsecured bond, AAA-rated bonds are safer than AA-rated bonds, whether secured or not.
Rank the following from first to last in order of payment at liquidation of a corporation
Accrued taxes General creditors. Subordinated debentures. Preferred stock.
Exchange
Action market, listed security
Upon making an acceptable offer of settlement to the Department of Enforcement, a FINRA member firm gives up its right to appeal the decision to
An offer of settlement is the broker/dealer's choice. Once the Department of Enforcement accepts the offer, the member may not appeal to the National Adjudicatory Council, the SEC, or the U.S. appellate court system. There would be no appeal to the NAIC or the state courts in any event.
Under the Investment Company Act of 1940, which of the following would be considered interested persons?
An officer of an investment company. A shareholder who owns 5% or more of the investment company's shares.
interested persons, Under the Investment Company Act of 1940?
An officer of an investment company. A shareholder who owns 5% or more of the investment company's shares. - A company in which the investment company owns stock is not an interested person. A director with no other job with the fund than just sitting on the board is not an interested person.
Your firm has determined that a person seeking to open an account is on the Office of Foreign Asset Control's (OFAC) list of individuals who are viewed as threats to the United States. Who must oversee your firm's dealings, if any, with this individual?
An officer of the firm previously given responsibility in this area. Financial institutions, including broker/dealer firms, must designate an officer of the firm as having responsibility for monitoring OFAC regulations and overseeing the blocking of transactions or declining of business with certain customers.
Which of the following services are available to FINRA member firms that have a securities dispute?
Arbitration to reach a settlement with a formal hearing. Mediation to reach a settlement informally.
FACC
Are classified as investment companies. Pay a fixed dollar amount of return Do not trade in the secondary market but are redeemed by the issuer.
When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed?
As ordinary income based on an exclusion ratio. cost basis / expected return = how much of the distribution is a return of cost basis and NOT subject to income taxes).
When a customer opens an account with a financial institution, the institution is required to give a clear and conspicuous disclosure to the new customer regarding its policies and procedures for customer privacy. How often must the customer receive an updated notice containing the same information?
At least on an annual basis.
According to the Conduct Rules, a FINRA member must do which of the following?
Authorize a registered representative to share in a client's profits or losses only in writing.
The ABC fund offers breakpoints and letters of intent, and one of your customers would like to add some of his past investments in that fund to his current investments to reach a breakpoint. If the date is June 1, which of his past investments may be included?
April 10 of this year. A letter of intent may be backdated by 90 calendar days.
Arbitration
Arbitration is a method for settling disputes between member firms that is less costly than litigation. In addition, all decisions are final and binding on all parties.
Your customer has heard about precious metals funds. He asks about the types and amounts of various precious metals these funds might own. You tell him he has mistaken the focus of these funds. A gold fund, for example, might own?
Barrack Gold Corporation common stock.
noncumulative preferred stock
Because this is noncumulative preferred stock, the company must pay only this year's full stated dividend of $10 per share before paying dividends to the common shares.
both growth and value investing?
Blend/core.
Bonus variable annuities
Bonus variable annuities tend to have higher annual fees. Bonus variable annuities generally have longer surrender charge periods.
ETFs
Both are designed to track a particular index. - ETFs have a NAV, calculated at the end of the trading day, that serves as the trading price until the next NAV is calculated. - track an index but trade at market value during the day and are suitable for arbitrage, short-selling, and purchases on margin, all of which are not available for mutual funds.
Which of the following interest rates is charged by banks to securities dealers for margin loans?
Broker call loan rate.
Shares of which of the following classes may eventually convert to another share class?
Class B.
closed-end investment companies differ from open-end investment companies?
Closed-end companies, shares are sold with prospectus only in IPOs; open-end shares solicitations must always be accompanied by a prospectus. Closed-end companies issue a fixed number of shares, whereas open-end companies do not specify the number of shares to be issued. Both types of company register issues with the SEC, and any investor may invest in either type of company. Open-end shares must always be sold with a prospectus because each is a newly issued share. Closed-end companies issue a fixed number of shares; there is no limit on the number of shares issued by an open-end company.
An investor wishes to start a dollar cost averaging program by investing $100 per month. Which two of the following would be the least appropriate investment vehicles for this plan?
Closed-end investment company. Exchange traded fund. commission can be quite steep on an investment as small as $100
To which of the following instruments, in terms of risk and reward, is variable life insurance most nearly analogous?
Combination annuity.
Net worth in a corporation includes?
Common and preferred stock are considered evidence of ownership in a corporation and thus are part of net worth, or shareholders' equity.
Regulation S-P?
Consumers must be given an initial privacy notice. Firms must establish procedures to protect customers' nonpublic personal information member must receive both an initial and an annual privacy notice. Customers may be provided privacy information on internet web pages.
traditional and Roth IRAs
Contribution limits are the same.
When interest rates are declining, which of the following funds is most directly affected?
Corporate bond fund.
Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements?
Funding. covers how an employer contributes to, or funds, a retirement plan.
Given the following choices, the most suitable investment recommendation for a customer that wants monthly income is?
GNMAs
A client could be assured of federal government backing for an investment issued by which of the following entities?
Government National Mortgage Association.
Which of the following retirement plans would be advantageous for an older employee whose skills are essential to the operation of a corporation's business?
Defined benefit plan permit larger contributions on behalf of older employees than any other type of arrangement..
Code of Arbitration?
Dispute between two FINRA members. Dispute between a member and an associated person. - FINRA has no jurisdiction over banks or over disputes between nonmembers such as customers.
Municipal Bond Fund
Dividends are federally tax exempt, but capital gains are subject to taxation.
nonqualified retirement plan
Employee contributions grow tax deferred if they are invested in an annuity. -Earnings accumulate tax deferred if the plan is funded by an investment vehicle that offers tax deferral, such as an annuity contract. Tax has been paid on all amounts the employees and the employer contribute to the plan. Nonqualified plans need not comply with all ERISA requirements.
The Department of Enforcement is an arm of?
FINRA.
To qualify for the quantity discount, which of the following could NOT be defined as a person?
Father and his 35-year-old son investing in separate accounts. - For the purpose of qualifying for breakpoints, the definition of a person includes family units, but only spouses and minor children, not a relative of legal age.
Financial considerations VS. nonfinancial
Financial considerations involve real assets or debts, whether part of total income, debt, or net worth. The amount of money the customer is willing to risk involves attitude, not something that can be placed on a balance sheet or income statement, and is thus nonfinancial.
Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements?
Funding. Funding covers how an employer contributes to, or funds, a retirement plan.
Which of the following statements about an established FINRA member firm's handling of a mutual fund's sale literature are TRUE?
If the mutual fund sponsor has had the literature reviewed by FINRA in advance, other firms need not submit it. The FINRA review requirement is within 10 days of first use. The material used to solicit the sale of mutual fund shares requires prior approval by a principal of the firm.
testimonials used in a public communication?
If the person giving the testimonial received compensation in excess of $100, this must be indicated. It must be clearly stated that the listener's experience may be different from that described in the testimonial.
increase in NAV?
Investment income is received by the fund. The securities in the portfolio appreciate.
3nd market transaction?
Listed securities Trading OTC
Which of the following statements regarding interest rate fluctuations resulting from recent Federal Reserve Board actions are TRUE?
Long-term prices fluctuate more than short-term prices. Short-term rates fluctuate more than long-term rates.
interest rate fluctuations resulting
Long-term prices fluctuate more than short-term prices. Short-term rates fluctuate more than long-term rates.
from lowest to potentially highest yield, the safer the lower the yield.
Municipal bond fund. Government bond fund. Investment-grade corporate bond fund. Speculative income fund.
pop
NAV / (100% − SL%) = public offering price
A unit investment trust has 90% of its portfolio invested in high-grade bonds with an average maturity of almost 25 years. If the industry consensus were that long-term interest rates were about to increase sharply, which of the following actions would most likely be taken?
No action would be taken.
When a customer receives payment during the annuity period of a variable annuity, which of the following is TRUE?
Only the amount that represents investment income is subject to tax. The payment is divided into investment income and the client's original investment. Tax is owed on the investment income only, which is taxed at an ordinary income rate.
The rules regarding who may be covered in a retirement plan are stated within which of the following sections?
Participation. The description of who qualifies to participate in a company's retirement plan is stated in the plan's participation requirements. A company may exclude certain employees through eligibility standards; however, any such eligibility limitations may not discriminate in favor of a select group of employees.
Which of the following actions could the custodian of a Uniform Transfers to Minors Act account NOT take?
Purchase securities on margin. Withdraw funds from the account to meet a business expense. - The custodian of an UTMA account may not sell uncovered options, sell securities short, or make securities purchases on margin. Any withdrawals he makes must be specifically for the benefit of the minor, not for his own business. If there are warrants in the account, he may exercise them or sell them; he may not allow them to expire unexercised.
Under the Uniform Gifts to Minors Act, Ralph wants to give some stock to his brother's son, Jose. His nephew's father, Bob, is the legal guardian. If Ralph wants to name himself as custodian, which of the following needs to be done?
Ralph must open the account and name himself as the custodian.
SEP IRAs?
SEP IRAs are established for small-businessowners and their employees. the retirement account is usually set up at a bank or other financial institution. SEP IRAs allow employers to make contributions. The account is usually set up at a bank or other financial institution.
backed by its taxing authority?
School bond. General obligation bond. Courthouse bond.
A customer purchases 1,000 ABC mutual fund Class A shares and wishes to redeem the shares 30 days later. Which of the following will occur?
Shares will be redeemed at a price equal to the next calculated net asset value.
A customer has filed a serious complaint against your firm and is threatening to take the firm to court. When informed that he has signed a predispute arbitration agreement, he demands to see a copy of it. How many days does your firm have to supply the customer with a copy of the signed agreement upon receipt of his request?
Ten business days
only debt instruments in their portfolios?
The Excelsior High-Yield Fund. The KPL Money Market Fund.
A registered representative is preparing a profile on one of his customers. Which of the following should he list as a nonfinancial consideration?
The amount of money the customer is willing to risk. - Financial considerations involve real assets or debts, whether part of total income, debt, or net worth. The amount of money the customer is willing to risk involves attitude, not something that can be placed on a balance sheet or income statement, and is thus nonfinancial.
Mutual funds
The board of directors makes policy decisions. Shareholders have ownership rights. may only issue redeemable common stock, no preferred stock or bonds. Like corporate stockholders, mutual fund shareholders have a number of rights, including the right to elect the board of directors, which sets policies for the fund. However, the shares can only be purchased in the primary market and then redeemed with the fund.
n July, a customer invested $10,000 in the ABC Mutual Fund. In December of the same year, ABC announced a long-term capital gains distribution. In May of the next year, the customer decided to redeem his shares for a capital gain. How are both of the capital gains treated for tax purposes?
The capital gain distribution is treated as long term. The capital gain from redemption is treated as short term.
Roth IRA?
The contributions are nondeductible. Withdrawals after age 59½ can be tax free., provided the money has been in the account for at least five years beginning with the first tax year for which a contribution was made to any Roth IRA established for the individual. There is no age at which withdrawals must begin or contributions must cease.
Under the Uniform Gifts to Minors Act, how may stock subscription rights or warrants be handled in a custodial account?
The custodian may exercise or sell the rights as he deems prudent. An UGMA or UTMA account custodian must either sell or exercise rights and warrants. He may not let them expire unexercised. Any proceeds or securities go into the account for the benefit of the minor.
Coverdell Education Savings Account
Withdrawals are tax free only if the money is used solely for qualified educational expenses. the maximum contribution applies on a per-child basis the beneficiary may be the contributor's child or grandchild, or child of a friend of the contributor a beneficiary's unused balance may be rolled over to a Coverdell ESA account for another child
An investor owns $10,000 of shares in ABC bond fund. Due to a change in his financial situation, he wishes to exchange the bond fund shares for shares in ABC's aggressive growth fund. Which of the statements below correctly describes the tax consequences of this action?
The exchange is considered a taxable event that must be recognized in the current year. The IRS considers this exchange to be a sale and repurchase. Any gain or loss on the bond fund shares must be recognized in the current year. Any share appreciation is classified as a capital gain and subject to taxation at capital gains rates. Because the exchange is made within the same family of funds, no new sales charge is applicable.
Minor Rule Violation (MRV)
The maximum fine he can expect is $2,500. He may not appeal the decision.
In determining the suitability of a particular mutual fund for a particular customer, which of the following criteria should a registered representative NOT consider?
The number of shares outstanding.
John is the annuitant in a variable plan, and Sue is the beneficiary. Upon John's death during the accumulation period, Sue takes a lump-sum payment. What is her total tax liability?
The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate.
Securities Act of 1933?
The purpose of the requirements for registration and a prospectus is to provide full disclosure of pertinent information to the public. The act is designed to prevent fraud in the sale of newly issued securities.
A registered representative with a FINRA member firm must complete the regulatory elements of CE within how many days of his registration anniversary date?
The regulatory elements must be completed within 120 days of a person's second registration anniversary date and every three years thereafter.
A registered representative was recently involved in a Code of Arbitration dispute with a customer and would like the resulting decision removed from FINRA's CRD system. In order for this to happen, what must occur?
The representative must submit a court order directing an expungement.
A customer calls his registered representative and asks that the firm hold his mail as he will be traveling for an extended period of time. Under the rules governing requests to hold mail which of the following statements are TRUE?
The request must be made in writing with a specific time period designated. During the time that mail is being held the broker dealer must still be able to communicate with the customer.
An investor purchased a corporate bond for 97. If the bond is sold for 99, the investor has a profit of?
This investor has a profit of two points, or $20. Bond points are worth $10 each. The actual dollar prices of the bonds are computed as follows: 97 = 97 % of par (or 97 points) = $970, 99 = 99% of par (or 99 points) = $990
marketable security pays semiannual interest?
Treasury bond.Marketable securities are traded in the secondary market Series HH and EE bonds are not marketable. Treasury bills issue at a discount and mature at par.
An investor desiring safety of principal, modest returns, and having a three-to five-year investment horizon should choose which of the following?
Treasury notes.
subject to federal income tax?
Treasury notes. FNMA.
If a customer does not pay for a trade regular way, how much additional time does Regulation T give the broker/dealer to deal with the problem?
Two business days.
A contractual plan company is what type of investment company?
Unit investment trust.
independently prepared reprint (IPR)?
Wall Street Journal article on investing
An investor would like to make a long-term investment in a debt security whose duration is equal to its maturity. Which of the following AAA rated bonds should his registered representative recommend?
XYZ zero coupon bond maturing in 15 years. Since there is no cash flow from a zero coupon bond, its duration is equal to its maturity. Since the question says, "long-term", we're not going to choose an 8 month maturity over a 15 year one.
A prospect is interested in a specific mutual fund and has requested information. The registered representative responds by mailing a current research report produced by his firm and scheduling an appointment next week when he will bring an application and prospectus and will answer any additional questions prior to the sale. Is there a violation?
Yes, the research report is a form of sales literature and must be preceded or accompanied by a prospectus.
A client purchasing a single premium deferred variable annuity would expect to see that the contract called for?
a contingent deferred sales charge.
Conduct Rules
a member firm may give certain selling concessions to other FINRA member firms.
Your 75-year-old customer has read many articles about variable annuities and would like you to choose one that would be appropriate for his $100,000 investment. Your customer has a well-diversified investment portfolio and is not currently in need of additional income. The most appropriate response to your customer's request in this situation is?
a variable annuity is probably not a suitable investment choice because of your investor's age and the contingent deferred sales charges that apply on withdrawals.
If a broker/dealer decides to give a $300 bonus to the registered representative that obtains the most new clients in a firm sponsored sales contest, this arrangement is?
acceptable. A sales contest for employees of the member firm is strictly up to the firm itself and is not a violation of FINRA rules. If the contest was specific to a particular fund or fund family, that would be a problem as suitability may take a back seat to winning the contest.
If a variable annuity has an assumed interest rate of 5% and the annualized return of the separate account is 4%, the value of the?
accumulation unit will rise. annuity unit will fall.
regulated investment company?
acts as a conduit for dividend distributions.
Each of the following persons would be eligible under a Keogh plan EXCEPT？
an advertising executive who informally advises the board of his corporation on the company's investments.
Under FINRA rules, carrying firms must advise their customers of the BrokerCheck phone number or Web address?
annually
The rules on communications with the public apply to a registered representative?
appearing on a TV show to discuss market trends. writing a seminar script to be used by the firm's vice president of sales. -The rules on communications with the public deal with public appearances, such as a TV program and seminar scripts, as long as the topic is related to the investment business. Making a presentation dealing with religious studies or a school reunion is not covered by public communications rules.
The Bellner Fund has 60% of its assets invested in bonds rated BB or higher and 40% invested in the common stock of blue-chip companies. Last year, the mix was 65% bonds and 35% stock, but the investment adviser felt that market conditions warranted a change for this year. The Bellner fund is a(n)?
balanced fund.
Money market instruments guaranteed by a bank that are used to provide capital for exporters to foreign countries are called?
banker's acceptances.
When discussing the purchase of a scheduled premium variable life insurance policy with a client, it would be CORRECT to state that?
by surrendering the policy its cash value may be obtained. Surrender of the contract requires the insurance company to pay out its cash value. Death benefit is adjusted annually.
If an investor has received dividends and capital gains distributions on mutual fund shares she has held for four months, the investor will pay?
capital gains rates on capital gains distributions and ordinary income rates on dividends.
operating expenses?
compensation to members of the fund's board of directors. custodian bank charges. investment management fee.
open-end investment company share price quoted in the newspaper is the?
confirmed price.
529 plans ？
contributions to a 529 plan may be subject to gift taxation. states impose very high maximum contribution limits. income level of the contributor will not affect annual contributions under a Section 529 plan. the assets in the account are controlled by the account owner, not the child.
If a client invests the same amount of money into a mutual fund at regular intervals over a long period of time, the result is a lower?
cost per share than the average price per share.
The voting method for board of directors elections that offers a greater benefit to shareholders representing a minority interest is?
cumulative.
To open a new account, it is necessary to complete a new account form. That form must include the client's?
date of birth. No required signature.
The difference between par and a lower market price on a bond ?
discount.
You would like to support a recommendation to a customer by discussing some of your past recommendations. If you do this, you must be sure to do all of the following EXCEPT?
discuss recommendations you made in the type of securities you are most experienced with, not necessarily those now under discussion.
nonqualified deferred compensation plan?
does not guarantee that the employer will fulfill the obligation. Nonqualified deferred compensation plans are agreements between an employer and an employee in which the employee agrees to defer receipt of part of their salary. Nonqualified deferred compensation plans do not require IRS approval and may discriminate (need not be offered to all employees). In fact, they are generally offered only to officers and other high-ranking executives. In the event of a business failure, there is no guarantee that deferred amounts will be paid.
Keogh plan, the employer must make contributions for all?
full-time employees who have been employed for at least one year, aged 21 years and over.
quantitative measures to compare mutual funds regarding which of the following?
fund performance. Quantitative measurements are those using numbers. For comparison purposes, the most important numbers to compare are those dealing with fund performance.
combination annuity ？
has the advantage of providing both a fixed monthly payout (which would apply to the investor's fixed expenses) and a variable payout (which would provide inflation protection).
GNMA
investors own an undivided interest in a pool of mortgages. investors receive a monthly check representing both interest and a return of principal. interest is taxed at all levels—federal, state, and local.
nonfinancial considerations
involve goals and risk and do not represent items on a balance sheet or income statement
Discretionary income
involves a concrete sum of money and cash flow and, thus, is financial information.
Your customer has heard that the price differential between low-risk and high-risk debt instruments is wider than expected?
is a bad economic indicator. means investors will be more insistent on safety.
letter of intent LOI
is a nonbinding contract entered into by an investor for the purpose of obtaining reduced sales charges. If the client were to redeem the entire account before fulfilling the terms of the letter, or if the 13 months elapsed without the full amount being invested, the escrowed shares would be redeemed and the proceeds used to pay the additional sales charge.
Deferred compensation
is a promise made by an employer to defer a certain amount of an employee's salary (that he or she will receive) upon retirement. The employee has no rights to the money until retirement, death, or disability, and thus cannot use it as collateral.
An open-end investment company that does not distribute at least 90% of its net income?
is liable for federal taxes on its net investment income. By distributing 90% of investment income, open-end companies can avoid double taxation.
transfer agent?
issuing new, redeeming, canceling shares, handling name changes for the fund, maintaining customer records sending customer confirmation and fund distributions, recording outstanding shares for proper distribution, paid a fee from the income of the fund.
Variable annuity payout options may include?
life only. joint life with last survivor
A 54-year-old client is in the highest tax bracket and seeks a conservative investment for retirement. If his investment adviser representative recommends a general obligation municipal bond for the client's IRA, the IAR has?
made an unsuitable recommendation based on the client's needs and objectives. - IRAs are taxed as ordinary income. Therefore, there is no benefit to the tax-exempt income municipal bonds generate.
tombstone advertisement
may be published during the cooling-off period.
tombstone advertisement for the company's stock?
may be published during the cooling-off period.
A preliminary prospectus
may be used to gather indications of interest. - A preliminary prospectus, or red herring, is prepared after the filing of a registration statement with the SEC. It is the only item allowed to be given to prospective investors while gathering indications of interest during the cooling off period. Sales literature may accompany a final prospectus but may not accompany a red herring.
Institutional communication
may not be complied with if your firm wishes to continue to treat the material as institutional communications.
Investment company-directed brokerage arrangements are applicable to?
members favoring sales of investment company shares. member execution of investment company portfolio transactions.
monetary penalty?
minor rule violation (MRV) is $2,500 Simplified arbitration high as $50,000 Insider trading millions Acceptance, waiver, and consent AWC-.no limit to the size
fee-based accounts？
must disclose fee schedule, services provided, and the fact that a fee-based program may cost more than paying for the services separately.
To comply with the regulations regarding customer identification programs, the minimum identifying information that must be obtained from each customer before opening an account includes?
name. a taxpayer identification number.
Section 529 plans
no income limitations restricting the ability to make contributions set by the states not Fed.
branch offices ？
not have a resident principal; they may use a qualified registered representative to serve as branch manager. the branch offices will be registered with FINRA activities will be reviewed by an office of supervisory jurisdiction retail orders are accepted there
institutional communications
not required to have prior principal approval, however each member shall establish written procedures for the review of institutional communications used by the member and its associated persons by an appropriately qualified, registered principal. supervisory procedures regarding institutional communications must be readily available to FINRA it includes communication to any entity with $50 million or more of total assets it may never be used with a retail investor
variable annuities
partial withdrawals from nonqualified plans are taxed on a LIFO basis. if she is dissatisfied with one company, Section 1035 of the Internal Revenue Code will permit her to liquidate one variable annuity and place the funds into a different one without being taxed.
Municipal bonds
pay tax-exempt interest. When the portfolio of the mutual fund is comprised of municipal bonds, the fund's dividend is also tax-exempt.
Market conditions have been very difficult, and a registered representative is at risk of losing his home to foreclosure. One of his customers, a former college roommate, has a substantial net worth and has offered to lend the representative $100,000 at below-market interest rates until things improve. This arrangement is?
permitted if the firm has written procedures authorizing loans from clients and the lending arrangement has been preapproved in writing. The Conduct Rules permit registered personnel to borrow from clients with whom they have a personal relationship outside of the broker-customer one (and the college roommate certainly meets that requirement), and if the member firm has written procedures allowing for such borrowing and the loan meets certain requirements.
A broker/dealer member firm of FINRA would like to conduct business under another name. The use of a DBA is?
permitted if the name is filed with both FINRA and the SEC.
To comply with Regulation SP, a brokerage firm is required to do all of the following EXCEPT?
post its privacy policy on its Internet site and in its lobby for public display. - Regulation SP does not require a firm to post its privacy policy on the Internet or in its lobby. It does, however, require that firms distribute annual notices to all current customers and initial notices to new customers that cover its policies regarding collecting and sharing of financial information. Further, firms are required to allow customers to opt out of information sharing to nonaffiliated firms by signing and returning a privacy notice form.
As a result of a complaint brought by the Department of Enforcement, FINRA does not have the authority to
prohibit a person from associating with a regional exchange.
A member broker/dealer sells shares of an investment company that it knows directs brokerage for its portfolio to them and to other broker/dealers based on share sales by those members. For the member, this would be?
prohibited under all circumstances. Selling shares of the fund when the member is aware that a policy exists to direct brokerage to broker/dealers based on shares sold is prohibited. This is also known as the antireciprocal rule.
In a mutual fund, the amount of increases and decreases in the NAV over past years can be reviewed in the?
prospectus. Assuming the fund has existed for that long, changes in NAV for the past ten years will be found in the prospectus.
Diversification helps protect against which of the following types of risk?
reduces nonsystematic risk such as business risk, which is associated with the decline of an individual security's value. Systematic risk, such as market risk, affects all securities and therefore is not significantly reduced by diversification.
Archie has just been informed that the AA 7% bonds he purchased 5 years ago are being called next month as the issuer would like to take advantage of lower interest rates. If Archie wants to purchase 7% AA bonds after the call, he will experience
reinvestment risk If interest rates have dropped significantly, Archie will find that if he wishes to maintain his current yield, he will have to reinvest the principal in riskier bonds. If he wishes to keep his risk comparable, he will have to settle for lower returns
A corporation with a single outstanding bond issue chooses to refund this debt?
replaces one debt with another.
If a corporation wanted to raise capital and offer stock at a given price for the next 30 days, it would issue?
rights.
A transfer agent is responsible for all of the following EXCEPT:
safeguarding the physical assets of the investment company.
12b-1 fees
sales literature. advertising. cost of prospectus mailings to prospective shareholders . not portfolio management fee.
How long must an economic decline continue before it is classified as a depression?
six quarters.
inherited IRA?
subject to income taxes to the beneficiary at time of withdrawal, on the same terms as if it had been distributed to the original owner.
growth stock and a growth stock mutual fund
supply and demand on the open market value of a mutual fund share is its net asset value, which is simply calculated.
The price of closed-end investment company shares is determined by?
supply and demand.
403b
tax-sheltered annuity, allows employees to set up retirement plans directly with mutual fund companies.
Mutual fund tombstone advertisements complying with SEC Rule 482 may include all of the following information EXCEPT?
the address where a check to purchase shares is to be mailed.
A customer of yours owns a corporate bond fund with a long duration. Mortgage rates are going up. What impact will this have on the investment?
the current yield will increase since the price of the shares can be expected to fall.
Open-end investment company shares normally go ex-dividend?
the day after the record date.
STRIPs
the rate of return is locked in. there are no semiannual interest payments. the interest is realized at maturity The interest on the bond is paid at maturity but it is taxed as interest income over the life of the bond, not as a capital gain.
assumed interest rate (AIR)?
the rate of return needed to maintain the annuity payments at a constant level.
An individual is deciding between a flexible premium variable life contract and a scheduled premium variable life contract. If she is concerned about maintaining a minimum death benefit for estate liquidity needs, she should choose?
the scheduled premium policy because the contract is issued with a minimum guaranteed face amount.
UGMA accounts differ from UTMA accounts is ?
the transfer of assets in a UTMA account can be deferred until the beneficial owner reaches as late as age 25; in a UGMA account, assets are transferred when the minor reaches the age of majority.
standby underwriting
the underwriter agrees to purchase any unsold shares remaining after the expiration of a rights offering (firm commitment).
529 plans
there are no income limitations restricting the ability to make contributions
alternative minimum tax (AMT)
to ensure that high-income taxpayers do not escape federal income taxes. Certain tax-preferenced items that receive favorable tax treatment such as private purpose municipal bonds (also known as Industrial Development Revenue Bonds) must be added back into taxable income for the AMT. if the tax liability computed under the AMT computation is greater than the taxpayer's regular tax computation, the taxpayer must pay the AMT amount
suspicious activity reports (SARs)
transactions of $5,000 or more when financial behavior appears commercially illogical and serves no apparent reasonable business or legal purpose.
403(b)(7) plan is a？
type of tax-sheltered annuity available through mutual fund companies. allows employees to set up retirement plans directly with mutual fund companies.
over-the-counter market
unlisted securities, dealer market.
The contribution in a defined benefit plan will
vary with the actual requirements to fund a certain benefit. These requirements are determined actuarially based upon a number of factors. Older, highly compensated employees benefit most from this type of plan.
Rank the following from first to last？
wages, taxes, secured debt, debentures and general creditors, subordinated debentures, preferred stock, common stock