Comprehensive Exam

JKM Corporation issues convertible preferred stock with a par of $100. The shares have a conversion price of $20. The current market price of the common stock is $22. What is the parity price of the preferred?

$110

General Microsystem's 9% bonds mature in 10 years and are trading at 92. What is the approximate yield to maturity?

10.20%

XYZ Corporation has issued 8% cumulative preferred stock. Two years ago, XYZ paid a 5% preferred dividend. Last year, XYZ paid a 6% preferred dividend. This year, XYZ wishes to pay a common dividend. The cumulative preferred shareholders must receive:

13%

Regular-way settlement for corporate securities is how many business days after the trade date?

2

Which of the following is NOT associated with retirement planning for public school teachers?

401(k)s

Qualified distributions from a Roth IRA are not subject to income tax if the account has been held at least:

5 years or more

An investment company must send reports to shareholders at least every:

6 months

An investor that is aged 65 is seeking capital preservation and has a low risk tolerance. This investor is seeking advice on an appropriate asset allocation mix for his portfolio. What is the most appropriate allocation mix to recommend to this client?

70% bonds, 20% large-cap equities, 10% money market securities

How long can a letter of intent be backdated?

90 Days

A charge deducted from proceeds when an investor redeems shares is which of the following?

A contingent deferred sales charge

Your customer purchased an 8% bond when it had a yield to maturity of 9%. Several years later, your customer sold the bond to someone else whose yield to maturity on the bond would be 7%. Your customer will have:

A gain on sale

A client opened an account 3 years ago with the main investment goal of aggressive growth. Now the client is looking to purchase her first home in about 18 months. Which of the following investments would currently be suitable for the majority of the client's savings?

A money market fund

All the following information broker-dealers must supply customers with at account opening and least once per calendar year except:

A registered representative's history of residence and social security number which is not included on FINRA's BrokerCheck

If an investor places a higher percentage of their assets in equities rather than in debt securities, they are:

Aggressive

Which of the following is an accurate representation of an UGMA registration?

Alice Crow, custodian for the benefit of Louis Doe, UGMA - MI

Contributions that exceed the allowable amount into qualified retirement plans:

Are subject to a 6% excess contribution penalty tax until the excess is withdrawn

The net asset value of all open-end management company shares is computed:

At least once daily

A dealer purchases a security at its:

Bid

Which of the following securities is positively affected if the bond rating agencies upgraded the issuer's credit rating?

Bonds

How can an investor hedge against a stock market decline?

Buy puts on the S&P 500

What is the name of the options disclosure document?

Characteristics and risks of standardized options

Who among the following is not eligible for membership in FINRA?

Commercial banks

For an investor that intends to initiate a small number of securities transactions annually, what type of account is best suited for this investor?

Commission-based account

Mutual fund managers are:

Compensated based on a percentage of assets under management

The final prospectus for a new registered issue of securities:

Contains the public offering price and must be given to the customer at, or prior to, confirmation of sale

A regulated management investment company just declared a dividend for the quarter. On the ex-dividend date, the fund's NAV will:

Decrease, the investment company will pay no tax, but the investor must treat it as income

What is the primary difference between 529 Savings Plans that are direct sold, or advisor sold?

Direct sold means the investor purchases the plan directly through their state's 529 Plan website or through mail, advisor sold plans are offered through broker-dealers

The last transaction recorded in DEF 4s 2028 was at 95. This bond is selling at:

Discount

The amount of money a client has available for investing based on the client's earnings in a year would be based on:

Discretionary income

In reviewing prospectuses and registration statements, the SEC:

Does not approve securities registered with it and offered for sale

All the following information must be taken into consideration when building the client profile, except:

Education level

ERISA is a federal law that sets standards to protect:

Employee retirement funds from employer mismanagement

Which of the following Oil and Gas Program has the most capital risk and is only be suitable for an aggressive investor with a high-risk tolerance?

Exploratory

A registered representative meets with a potential client and inquires about the client's feelings on risk and potential returns. The client states their goal is to potentially increase the portfolio's value as quickly as possible, seeking maximum long-term returns, while accepting maximum risk. Based just on this information, this client:

Has a high-risk tolerance

What documents are required to open an options account for a customer? I. Options Disclosure Document (ODD) II. An options agreement III. A hypothecation agreement

I & II

Which of the following are direct expenses of an open-end investment company?​ I Transfer agent fees II Advisory fees III Accounting expenses

I, II & III

Which statements are correct regarding filing requirements for retail communication? I Retail communication regarding investment companies must be filed within 10 days of first use or publication II All firms must file all advertisements within 10 days of first use or publication III Firms in their first year of operation must file at least 10 days prior to first use or publication IV Firms must maintain a copy of all advertisements along with a record of which principal approved its use

I, II, III & IV

A broker-dealer is considering registering as an investment adviser. Which of the following activities would mandate that the firm register as an IA under the Uniform Securities Act? I Payment of underwriting fees to the firm by an issuer II Payment of investment advisory fees to the firm by a retail customer III Payment of a wrap fee to the firm by an institutional customer IV Payment of sales charges to the firm on mutual fund sales

II & III

What is required on all new account forms by FINRA? I The customer's maiden name II The customer's residential address III The customer's highest level of education IV The approving principal's signature

II & IV

Which of the following statements concerning a variable annuity's assumed interest rate (AIR) are correct? I The AIR is based on the projected performance of the assets held in the general account II The AIR is based on the projected performance of the assets held in the separate account III The AIR is a guaranteed minimum rate of return IV The AIR is an arbitrary rate of return used to determine the basis for projecting payments in a variable policy

II & IV

Which of the following may be purchased on margin? I Registered mutual fund shares II U.S. government securities III Securities admitted to trading privileges on a national exchange IV All Nasdaq stocks

II, III & IV

Which of the following must be registered under the Securities Exchange Act of 1934? I A common stock IPO II A variable annuity subaccount III Broker-dealers IV A universal life policy

III

Owners of which of the following securities are generally given voting rights? I Debentures II Preferred stock III Mutual funds IV Common stock

III & IV

Which two of the following may contribute a portion of their income to a Keogh plan? I Charley, a full-time employee of Crossword Inc. II Lars, the founder and President of Pollen Be Gone, a non-profit hay fever research firm III Alicia, a part-time employee of Tower Records, who also earns $13,000/year as a contract record producer IV Nancy, an orthodontist who has her own practice

III & IV

If a put option has a strike price of $50 and the current market value of the underlying stock is $40 the option is:

In-the-money

What is a general rise in the level of prices at the consumer level called?

Inflation

All the following are Rule 144A restrictions, except:

Initial purchases by a QIB must equal $1 million or more

What is the cost of borrowing money?

Interest

While an exempt security need not be registered it still:

Is subject to the anti-fraud provisions of the Securities Act of 1933

Which of the following does not characterize an open-end fund?

Issues common stock and maybe preferred stock

A corporate president, while speaking to his neighbor, mentions that his company has had a very profitable year and that the stock should appreciate when earning figures are announced. The neighbor buys some of the company stock and later sells it at a profit. Is this a violation and, if so, who is liable?

It is a violation; both are liable

Which one of the following best describes a company's book value?

It is the company's theoretical liquidation value

Which of the following is known as a writing a covered call?

Long stock short call

Which of the following is considered the narrowest monetary measure?

M1

A registered representative opening an account for a new customer will be making a penny stock recommendation based on the customer's investment objectives and risk tolerance. All the following are needed to open this account, except:

Margin agreement

What is the most common type of order?

Market

All the following product recommendations are considered potential red flags when working with a senior citizen except:

Money market and short-term bond funds

Which of the following is NOT a characteristic of a securities exchange?

Negotiated pricing

John has 40% of his 401k invested in his company's stock. He has no other savings. To what risk has John subjected himself?

Non-Systematic risk

Diversification protects an investor from what type of risk?

Non-systematic

A trade confirmation must be provided to the customer:

On or before the settlement date

All the following statements are true regarding a penalty bid, except:

Penalty bids are put in place to discourage selected dealers from selling to customers who will flip the shares, which may cause a new issue's price to increase

Pete is a large producer with Blue Chip Investments. In the first 10 months of the year, he has already sold over $9 million of the Excelsior Family of Funds. Bob, Excelsior's regional distributor, tells Pete that if he cracks the $10 million mark he will personally send him on an all expenses paid trip to Rome. According to FINRA rules, which of the following is correct?

Pete may not accept this offer, it is in violation of FINRA rules

All the following statements regarding preferred stock are true, except:

Preferred stock has a fixed guaranteed dividend

A registered representative is meeting with a client who has expressed a desire to save for college education for their children. Which of the following statements can the registered representative make in describing a 529 Prepaid Tuition Plan?

Prepaid tuition plans will allow you to lock-in today's tuition prices for the future and are based on in-state public tuition averages

A registered representative is out to lunch with a college friend, during which the friend says, "I heard that ABC Fund has taken a large position in XYZ stock". Based on this conversation, the representative calls clients and recommends they immediately purchase XYZ stock. This would be:

Prohibited and unethical as this recommendation is based on a rumor

The Federal Reserve Board is responsible for all the following functions, except:

Protecting bank account deposits in U.S. banks from bankruptcy

Which of the following prohibited practices is best described as selling dividends?

Recommending the purchase of a fund just prior to the ex-date

A corporate bond has a nominal yield of 5%, the nominal yield will:

Remain unchanged as bond prices fall

Which of the following would probably be considered the riskiest investment?

Revenue bonds issued by a state

Which of the following statements regarding SIMPLE plans is false?

SIMPLE plans are available to small businesses with 250 or fewer employees

If a broker-dealer files for bankruptcy, who will provide insurance protection for its customers in the event there are customer securities that cannot be located?

SIPC ($500K per customer, $250 can be cash claims)

Which of the following is the primary federal law governing the sale of new issues of securities?

Securities Act of 1933

Which of the following statements is false regarding corporate voting rights?

Statutory voting benefits small stockholders

According to CIP rules, a broker-dealer must establish, document, and maintain its own written CIP rules. The CIP rules must contain procedures on all the following, except:

Suitability

When opening an account for a customer, the customer wants to name a person into whose name securities in the account will be registered to upon their death. What type of account registration will best accommodate this customer?

TOD (Transfer of Death or Payable on Death (POD)

These are issued with the expectation of a combination of expected future taxes and revenues:

Tax and revenue anticipation notes (TRANs)

Which of the following is not considered to be a good delivery for a 400-share purchase of stock?

Ten 40 share certificates

What is the name of the agency under the treasury department that is responsible for collecting taxes and enforcing tax laws?

The Internal Revenue Service (IRS)

Regulation Best Interest (BI) was created by:

The SEC

The CPI is an indicator of:

The average cost of specific goods and services

What is the main reason a corporation would issue bonds rather than stock?

The corporation can borrow money from the public instead of having the public own part of the company

Which of the following statements concerning an individual e-mail is correct?

The e-mail is considered correspondence and subject to spot checks based on the firm's procedures

The SEC no-approval clause states that:

The fact that a new offering has been reviewed by the SEC does not mean the Commission approves of the offering or vouches for the truthfulness of the registration statement

What are the disclosure requirements for a new issue of municipal securities?

The offering is exempt from prospectus requirements, however most issuers prepare and deliver Offering Documents to purchasers

Who would not be eligible for a Keogh or HR-10 plan?

The president of his own small C corporation

In response to the Dodd-Frank Act, the SEC created Regulation S-ID. What is the purpose of this regulation?

The regulation requires member firms to create a written Identity Theft Prevention Program

An investor calls stating she was overcharged for the mutual fund shares she purchased. She invested $4,000 in a fund with a 5% sales charge. The NAV for the shares purchased was $85.50 per share. The customer believes that she should have paid $89.78 per share, but sees that she was charged $90 a share. What is the correct explanation for why she was charged $90 per share?

The sales charge is a percentage of the POP of a fund, not the NAV

The Board of Directors oversees the professionals hired by the fund. Which of the following statements is true regarding the duties carried out by these professionals?

The transfer agent performs all record-keeping functions for the fund

What must a registered representative demonstrate when meeting the care obligation of Regulation Best Interest (BI)?

The use of reasonable diligence, care, and skill

A closed-end investment company is NOT described by which of the following statements?

There is a continuous public offering of the shares

What happens if the participant fails to take their Required Minimum Distributions (RMD)?

They are subject to a 50% penalty on the amount that should have been taken

What can happen to a broker-dealer employee who fails to properly file suspicious activity reports?

They can face civil and criminal penalties

Why would an investor be interested in a zero-coupon bond?

They provide a specific dollar amount at a specific future date

A wholesaler is hosting a lunch for several of a firm's RRs and is looking to spur sales by offering a vacation in Hawaii to the first broker who sells $1,000,000 of her mutual funds. What is FINRA's stance on this offer?

This offer is unacceptable under FINRA rules

Why would an investor buy T-STRIPS?

To have a guaranteed amount of money at a specified time in the future

All the following are forms of market manipulation, except:

Twisting

When an investor does not own specific securities in a portfolio, but they do own a specific number of shares of the mutual fund portfolio, it is referred to as:

Undivided interest

When do large-cap stocks tend to outperform mid and small-cap stocks?

When the economy is contracting

Under FINRA rules, account statements sent to customers must describe all of the following, EXCEPT:

Year-to-date net capital gain or loss