Final 5

A customer, age 30, has an investment objective of capital appreciation; but does not need current income. The BEST asset allocation mix to recommend to this customer is: A. 100% common stocks B. 50% common stocks; 50% bonds C. 10% common stocks; 90% bonds D. 100% bonds

The best answer is A. A customer who has an objective of growth; and is not concerned with current income; would invest the majority of funds in common stocks; principally growth stocks. The risk associated with such a strategy is that either the stock market takes a dive; taking these stocks with it; or that some of these companies "lose their way" and perform poorly. You can always use the guideline that the customer should invest his or her "age" in bonds, with the balance in equities. This would give 30% bonds; 70% equities, which is not a choice here! Because the investment objective is "capital appreciation" - as long as the customer is risk-tolerant, Choice A best meets the customer's needs.

In 2019, a customer buys 5 GE 10% debentures, M '39 at 150. The interest payment dates are Feb 1st and Aug 1st. The bonds are callable as of 2029 at 103. The current yield on the bonds is: A. 6.7% B. 8.7% C. 10% D. 11.4%

The best answer is A. The formula for current yield is: $100$1,500= 6.7%

What paperwork is required for trades to be effected in an account for a deceased person who held an individual account at a brokerage firm? A. Court order or executor's authorization certificate B. Names of the beneficiaries of the estate C. Social security number and date of death of the decedent D. Approval of the attorney for the estate

The best answer is A. When the holder of an individual account dies, the account is frozen and no more trading can occur. The account assets go to that individual's estate, which must go through probate. A probate court clerk issues an "executor's letter," signed by a judge, which authorizes the named individual to act on behalf of the estate as the executor. Another name for this document is "letters testamentary." This letter must be presented to the brokerage firm by the executor so that the assets can be transferred into an account for the estate, which is controlled by the executor. Also note that the executor's letter is used to obtain a Tax Identification Number for the account.

The MSRB online system that gives non-professional investors key information about municipal securities, including issuer financial disclosures, notices of material events, real-time prices, and market statistics is called: A. EMMA B. SHORT C. RTRS D. MSIL

The best answer is A."EMMA" - the Electronic Municipal Market Access system - is an MSRB-created website established specifically for retail customer use. It gives municipal investors access to municipal disclosure documents and municipal price reporting at no charge. The information that the investing public can find on EMMA is: New municipal issue offering documents (Official Statements) for most municipal bond issues, notes, and 529 plans; Details of bonds that have been pre-refunded; Ongoing disclosures by municipal issuers about their finances, including material event notices and annual financial information; Real-time prices and yields for municipal bond trades, as reported through RTRS (Real Time Reporting System) and SHORT (Short-Term Obligation Rate Transparency System).

The portfolio management technique that uses a market index as a performance benchmark that the asset manager must meet is called: A. Passive asset management B. Active asset management C. Strategic asset management D. Tactical asset management

The best answer is A.Active asset management is the management of a portfolio to exceed a benchmark return (say the return of a comparable index fund). The manager's "active" return is any incremental return achieved over the benchmark return. In contrast, passive asset management is simply the management of a portfolio to match the benchmark return (the "passive return"). Active managers believe that underpriced securities can be found in the market and that performance of the benchmark can be exceeded. Passive managers believe that the market is efficient at pricing securities and that one cannot do any better than the "market" return as measured by a relevant index.

Which of the following investment portfolios is LEAST liquid? A. An aggressive growth fund B. A U.S. Government securities fund C. A money market fund D. An income fund

The best answer is A.Aggressive growth stocks are usually too small to be NYSE listed; they might be found on NASDAQ, which has lower listing standards than the NYSE; or on the OTCBB - the Over-the-Counter Bulletin Board - which has no listing standards. The OTCBB is a much less liquid market than NASDAQ; and NASDAQ's liquidity is not as good as the NYSE's. Thus, aggressive growth stocks would be the least liquid securities of the choices offered. Government securities and money market securities are actively traded and are extremely liquid. Income funds are composed of high yielding preferred stocks and bonds. These are more liquid than aggressive growth stocks, though not as liquid as NYSE listed issues.

Which statement is TRUE about Coverdell ESAs? A. Assets grow tax-deferred and distributions are not taxable if used for qualified educational purposes B. Contributions into the account are tax deductible to the donor C. Any adult, regardless of income level, can open or contribute into the account D. Distributions are taxable at long term capital gains rates

The best answer is A.Contributions to Coverdell ESAs are limited to $2,000 per child per year and are not tax deductible. Earnings build tax-deferred and when distributions are taken to pay for qualifying educational expenses, the amount distributed is not taxed. If the distribution is not used to pay for qualifying educational expenses, then it is taxable at ordinary income tax rates. High earning adults are prohibited from opening Coverdell ESAs.

Gross Domestic Product is measured in: A. constant dollarsB. inflated dollars C. dollars deflated by the gold standard D. dollars deflated by the sterling standard

The best answer is A.Gross Domestic Product is the sum of all goods and services produced in this country. To make GDP comparisons valid, GDP is measured in constant dollars, using a GDP deflator.

In 2019, a self-employed individual has an adjusted gross income of $100,000 per year. This person has no other retirement plan and contributes $6,000 to an Individual Retirement Account. Which statement is TRUE? A. The contribution is fully tax deductible B. The contribution is partially tax deductible C. The contribution is not tax deductible D. The contribution is prohibited because income limitations are exceeded

The best answer is A.If a person is not covered by another retirement plan, contributions to an IRA are tax deductible, without any income limitation. If the person is covered by another plan, as that person's income rises, the tax deduction for the IRA contribution phases out.

A corporation has issued $100 par, 4% cumulative convertible preferred stock, callable at par. The preferred is convertible into 4 shares of common stock. Currently, the preferred stock is trading at $103 while the common stock is trading at $26. If a customer buys 100 preferred shares, converts, and then sells the common stock in the market, the profit or loss is (ignoring commissions): A. $100 gainB. $100 loss C. $7,400 gain D. $7,400 loss

The best answer is A.If the customer buys 100 shares of the preferred stock, he or she will pay 100 x $103 per share = $10,300. Since each share of preferred is convertible into 4 common shares, the 100 preferred shares will be converted into 4 x 100 = 400 common shares. The sale of 400 common shares at the current market price of $26 will yield $10,400. The net gain is: $10,400 - $10,300 = $100.

Which of the following statements are TRUE regarding a joint account with tenancy in common? I A specific percentage ownership is assigned to each partyII Each party owns an undivided interest in the accountIII If one party dies, that person's interest goes to his beneficiary or estateIV If one party dies, the other party wholly owns the account A. I and III B. I and IV C. II and III D. II and IV

The best answer is A.In a joint account with tenancy in common, each owner has a divided interest in the account. A specific percentage ownership is assigned to each participant. If one party should die, that person's percentage interest goes to his beneficiary or estate.

Which statements are TRUE about mutual fund "Class A" shares? I Class A shares impose a front-end sales chargeII Class A shares impose a contingent deferred sales chargeIII Class A shares impose no, or a very low, 12b-1 feeIV Class A shares impose a high 12b-1 fee A. I and III B. I and IV C. II and III D. II and IV

The best answer is A.Mutual funds offer various share classes to investors. The investor can choose to buy the same fund either as a Class A, B, C, or D share. Class A shares typically charge an up-front sales charge, but have no, or very low, annual 12b-1 fees. Class B shares have no up-front sales charge; instead, they have a contingent deferred sales charge, and impose higher annual 12b-1 fees than A shares. Class C shares have a lower contingent deferred sales charge than B shares, but impose the highest 12b-1 fees. Class D shares are typically sold by investment advisers. There is no sales charge, but they impose annual 12b-1 fees and service fees.

Which of the following statements are TRUE regarding new issues of U.S. Government agency securities? I The securities are sold through a selling group appointed by the AgencyII The securities are sold through a selling group appointed by the Federal ReserveIII The securities are sold at parIV The securities are sold at a par plus a mark-up A. I and III B. I and IV C. II and III D. II and IV

The best answer is A.New issues of agency securities are sold through a selling group that is appointed by the Agency. The group typically consists of large banks and broker-dealers. The group sells the issue at par to the public.

A client of a registered representative refers a new potential customer. This customer is interested in purchasing an oil and gas limited partnership unit. What percentage of the purchase amount can the representative share with the referring client as a finder's fee? A. 0%B. 5% C. 10% D. 15%

The best answer is A.Registered representatives cannot share commissions, sales charges, or pay referral fees, to anyone other than another registered person at the same member firm.

A new issue private placement offering is: I exempt under Regulation DII non-exempt under Regulation DIII allowed to be sold to a maximum of 35 non-accredited investorsIV allowed to be sold to a maximum of 35 accredited investors A. I and III B. I and IV C. II and III D. II and IV

The best answer is A.Regulation D allows a "private placement" exemption if an issue is sold to a maximum of 35 "non-accredited" investors. The issue can be sold to an unlimited number of "accredited" (wealthy and institutional) investors under this exemption and still be considered a private placement.

An assessment of an existing client's financial status shows the following: Name:Mack McCoolAge:41Marital Status:SingleIncome:$160,000 per yearRetirement Plan:Yes - 401(k) and IRALife Insurance:NoRisk Tolerance:HighHome Ownership:No - Currently rents at $3,000 per month Client Balance Sheet:AssetsCash on Hand:$20,000Marketable Securities:$220,000($10,000 in Money Market Fund; $40,000 in Treasury Notes; $70,000 in Blue Chips; $100,000 in Growth Stocks)Retirement Plans:$158,000(Invested in Equity Mutual Funds)Auto:$58,000Home Ownership:NoneLiabilitiesCredit Cards Payable:$10,000Auto Loan:$50,000Net Worth: $396,000 The customer has decided to purchase a home instead of renting. The price of the home is $750,000 and the customer intends to put down 20% and obtain a mortgage for the balance. The customer explains that he will need the $150,000 down payment in 30 days. The best recommendation to the customer is to liquidate his: A. growth stocks and blue chip stocks immediately in the amount of $150,000 to obtain the necessary cash down payment B. growth stocks and blue chip stocks in 30 days in the amount of $150,000 to obtain the necessary cash down payment C. retirement accounts in the amount of $150,000 to obtain the necessary cash down payment D. Net Worth in the amount of $150,000 to obtain the necessary cash down payment

The best answer is A.Since this customer needs $150,000 in cash within 30 days for the down payment on the house, the best thing to do is to liquidate his stock positions now (not in 30 days) to get the funds for the down payment. If the customer waited 30 days, these stock positions could suffer a market loss, making it hard to fund the down payment. Liquidation of the pension assets makes no sense, since the customer is 41 years old and must pay regular income tax plus a 10% penalty tax on the liquidation. Net Worth cannot be "liquidated" - it is simply the value left over when all assets are subtracted from all liabilities.

A customer owns 100 shares of an NYSE listed preferred stock and notices that the typical daily trading volume in the issue is less than 1,000 shares. The customer wants to sell the stock and asks his broker what will happen if there is no ready buyer for the stock. The broker should respond that the Specialist (DMM) on the NYSE floor: A. is obligated to buy the stock at the current market B. is obligated to buy the stock at the limit price, if one is specified by the customerC. must look for a buyer for the shares on the NYSE floor D. is not obligated to buy the stock at the market

The best answer is A.Specialist/DMMs (Designated Market Makers) are obligated, under NYSE rules, to make a continuous market in the assigned stock. Thus, on the NYSE floor, a customer is always assured that the trade will be executed - however the price at which the trade is executed is always subject to market conditions.

All of the following are considered to be coincident economic indicators EXCEPT: A. Stock market pricesB. Personal income levels C. Index of industrial production D. Gross Domestic Product

The best answer is A.Stock market prices (as measured by the Standard and Poor's 500 Index) are a leading indicator, since as stock prices rise, people spend more. Personal income, the index of industrial production, and the level of Gross Domestic Product show current levels of economic output and are all considered coincident indicators.

A customer has a margin account at a failed broker-dealer. The securities were purchased for $50,000. As of the date that SIPC filed in court to be the trustee in the bankruptcy, the securities were worth $30,000. The account has a debit balance of $10,000. SIPC coverage will be: A. $20,000 B. $30,000 C. $40,000 D. $50,000

The best answer is A.The "valuation date" for coverage purposes in an SIPC liquidation is the date that SIPC files in court to be the trustee in the bankruptcy of the failed broker-dealer. As of that date, the securities were valued at $30,000. However, because the customer had a $10,000 loan against the securities (debit balance), SIPC will cover the customer account only for $20,000 of equity.

Which of the following statements are TRUE regarding MSRB rules on gifts and gratuities? I The maximum business related gift that may be given by a municipal securities employee is $100 per person per yearII The maximum business related gift that may be given by a municipal securities employee is $200 per person per yearIII Business related entertainment is permitted under the rules, as long as it is not too excessive or frequentIV Business related entertainment is prohibited under the rules A. I and III B. I and IV C. II and III D. II and IV

The best answer is A.The MSRB limits gifts related to your activities as a registered representative to $100 value per person per year. The rules permit business related entertainment, as long as such entertainment would qualify for an IRS deduction; and as long as the entertainment is not too excessive or frequent.

A municipal variable rate demand note is a municipal: A. note that may be retired prior to maturity on any interest payment date at the demand of the issuerB. bond that gives the holder a tender option feature, usually at par, as of the reset dateC. note that requires the issuer to reset the interest rate to the market rate upon demand of the holder D. bond that allows the issuer to vary the repayment date, upon giving written notice to the holders

The best answer is B.A municipal variable rate demand note is a municipal bond that gives the holder the right to "put" the bond to the issuer at par, typically at the interest payment dates. The interest rate is reset, usually weekly, to an indexed rate, and thus, will vary. It is called a "note" because the actual maturity is unknown - the holder, in effect, can redeem at par whenever he or she wants. With any variable rate note, the interest rate varies as market rates move; therefore the market price remains at, or very close to, par. Thus, these instruments have almost no market risk.

Over the course of 10 years, a customer has accumulated a position of 5,000 shares of ABC stock, purchased in 100 and 200 share lots. The stock has appreciated greatly in the last year and the customer places an order to sell 1,000 shares. The customer would minimize any capital gains tax liability by using which method for determining the cost basis of the shares sold? A. "Specific identification" allowing the customer to select the shares with the highest cost basis B. LIFO (Last-In/First Out) accounting, requiring the customer to use the cost basis of the last shares acquired C. FIFO (First-In/First Out) accounting, requiring the customer to use the cost basis of the first shares acquired D. The average per share cost of all 5,000 ABC shares acquired by the custom

The best answer is A.The Tax Code allows the use of "specific identification" when selling securities. Thus, a customer with a large holding of appreciated stock can "choose" the more expensive shares as the ones that were sold, reducing any potential capital gain. If specific identification is not used, then the IRS requires FIFO (First In / First Out) accounting.

A customer is long 100 shares of ABC stock at $50 per share in a margin account. The customer wishes to sell 1 ABC Jan 50 Call @ $5. The customer must deposit: A. 0 B. $500 C. $2,000 D. $5,000

The best answer is A.The existing long stock position covers the sale of the call. The customer does not deposit anything to sell the call; as a matter of fact, he or she can take the $500 premium received for selling the call from the account. Please note, however, that the long stock position must be properly margined.

The margin required to buy an OEX option contract is: A. 100% of the premium B. 15% of the market value C. 100% of the premium + 15% of the market value D. 100% of the premium + 20% of the market value

The best answer is A.The margin required to buy any option, including index options, is 100% of the premium. This is full payment for the contract.

Under the "wash sale rule," a loss on the sale of a security is disallowed, if between 30 days prior to the sale until 30 days after the sale, the customer: I buys a security convertible into that which was soldII buys a call option on the security which was soldIII sells a call option on the security which was soldIV sells a put option on the security which was sold A. I and II B. III and IV C. II and III D. I and IV

The best answer is A.The wash sale rule states that if a security is sold at a loss, and from 30 days prior to the sale date until 30 days after the sale date, the same security is purchased; or an equivalent security such as a convertible is purchased; or a call option, warrants or rights are purchased; then the loss deduction is disallowed. All of these "equivalents" effectively restore long the position, "washing out" the sale.

The requirement for independent verification of a customer's identity when opening an account CANNOT be satisfied by examining a copy of the customer's: A. birth certificate B. driver's license C. passport D. military ID

The best answer is A.There are 4 critical pieces of information that must be collected to open a new account for an individual customer - Name, Address, Birthdate, and Social Security number. The member firm must independently verify the customer's identity - either by matching this information to a government issued identification such as a driver's license or passport; or by using a database service that allows computer matching of this information. A birth certificate does not have the required information needed for matching.

A U.S. investor has realized a $4,000 capital gain on Kingdom of Norway bonds. Which statement is TRUE regarding the taxation of the gain? A. The gain is 100% taxable within the United States at U.S. tax rates B. The gain is 100% taxable within Norway at Norwegian tax rates C. The gain is 100% taxable within the United States at Norwegian tax rates D. The gain is not taxed in the United States

The best answer is A.U.S. holders of foreign securities are subject to Federal (and State) taxation on these holdings. Both the interest income is taxable in the U.S., and any capital gains on these holdings are taxable in the U.S. as well. This is the same treatment as for corporate obligations.

A municipal term bond with 13 years remaining has been pre- refunded at 103 to a call date 3 years in the future. If a customer buys this bond, the yield shown on the confirmation will be computed to: A. the call date including the 3 point call premium B. the call date excluding the 3 point call premium C. maturity including the 3 point call premium D. maturity excluding the 3 point call premium

The best answer is A.When a municipal bond is pre-refunded, the issuer escrows sufficient government securities to pay the interest on the bonds until the earliest call date, at which point the bonds are called (with any applicable call premiums being paid) and paid off with the escrowed governments. A customer who buys advance refunded bonds knows they will be called. Any yield that is shown must be computed to the call date, including any call premiums - in essence, the call date becomes the new maturity date for the issue.

During the period when a new issue is "in registration," which of the following are permitted? I Obtaining an indication of interest from a customerII Accepting payment for the issueIII Distributing a preliminary prospectusIV Soliciting an order for the issue A. I and III B. II and IV C. I and IV D. II and III

The best answer is A.When an issue is "in registration," it is in the 20-day cooling off period. Registration is not yet "effective." During the cooling off period, a red herring preliminary prospectus may be distributed to obtain indications of interest from customers. These are not orders for the issue. Taking orders, soliciting orders to buy, accepting a check for the issue and recommending the purchase of the issue are all prohibited. Once the registration is effective, these items are allowed as long as the customer is making his decision from the final prospectus now available.

The formula for Net Worth is: A. (Total Assets - Inventory) / Total LiabilitiesB. Total Assets - Total Liabilities C. (Current Assets - Inventory) / Current Liabilities D. Current Assets - Current Liabilities

The best answer is B. (In contrast, the formula for Net Working Capital is: Current Assets minus Current Liabilities.)

New issues of short term municipal notes and bonds are available in which form? A. BearerB. Book Entry C. Registered to Principal only D. Registered to Principal and Interest

The best answer is B.New issues of municipal notes are available only in "book entry" form

Amortization of the premium on a municipal bond is an accounting process that decreases the security's: A. par valueB. book valueC. cost value D. appraised value

The best answer is B. Amortization of a premium on a municipal bond, by definition, is a process whereby the book value of a bond purchased at a premium is decreased over the holding period of that security. Amortization may occur for either of 2 reasons: If the municipal bond is issued at a premium ("an original issue premium bond"), the Internal Revenue Code mandates that the premium be amortized. Each year, the amortization amount is a reduction of the interest income earned on that bond (which is not taxable by the Federal Government), and the bond's cost basis (not cost value) for tax purposes is decreased. If the bond is held to maturity, the bond's adjusted cost basis at redemption will be par; and there will be no capital gain or loss. If the municipal bond is purchased at a premium in the secondary market, the market premium must be amortized under the tax code. By doing so, the purchaser shows a reduction of non-taxable interest income each year equal to the amortization amount, and reduces the bond's cost basis each year. If the bond is held to maturity, the bond's adjusted cost basis is par and there is no capital gain or loss.

The largest component of the Standard and Poor's 500 Average is the: A. utilitiesB. technology C. consumer staples D. industrials

The best answer is B. The S&P 500 Index was "recategorized" about 15 years ago into different sectors to allow the creation of "Sector SPDRs" - index funds based on these sectors. The new breakdown, by approximate size, is: Technology24%Financials15%Healthcare14%Consumer Discretionary12%Industrials10%Consumer Staples9%Energy6%Utilities3%Materials3%Real Estate3%Telecoms2%

The designated Registered Options Principal is responsible for all of the following functions EXCEPT: A. approval of options advertisingB. approval of options accountsC. writing of procedures for supervision of options accounts D. review of procedures for supervision of options accounts

The best answer is B. The designated Registered Options Principal resides in the main office of the firm and is responsible for creating and enforcing procedures for compliance with the rules of the O.C.C. and options exchanges. This person is also responsible for approving all options advertising and sales literature. Each branch must have a BOM - Branch Office Manager. This person is responsible for approving options accounts, options orders, options correspondence sent to 25 or fewer existing or prospective clients and for resolving options complaints

A customer wishes to open an account to fund payment of private middle school tuition. If the customer does not wish to deposit more than $2,000 per year and wishes to get a tax benefit, the best advice is for the customer to open a: A. 529 PlanB. Coverdell ESA C. Trust account D. UTMA account

The best answer is B. The question meets the definition for a Coverdell ESA. Any adult can open a Coverdell for a child (as long as the adult's income is not too high), and the maximum annual contribution of $2,000 is not tax deductible. The account builds tax-deferred. Funds can be withdrawn without tax due to pay for "qualifying" education expenses, which include the cost of elementary, middle school, high school, and vocational school, as well as college costs. 529 plans are typically used to fund college and the contribution amounts are much higher because college is expensive. This type of account would have deposits that are much higher than $2,000 per year. Trust accounts and UTMA accounts could be used to pay for middle school, but there is no tax-deferral on these accounts - earnings are taxable each year.

An investor has a long-term investment time horizon, no liquidity needs and is very risk averse. Your main concern when making a recommendation to this client is: A. preservation of capitalB. safety of principal C. continuing incomeD. adequate yield

The best answer is B. This client has no liquidity needs, so Choices C and D - continuing income and adequate yield, are not concerns. So it comes down to whether the main concern is preservation of capital or safety of principal. Preservation of capital is a concern for client who has no buffer if investment values decline. Such a client cannot afford to lose any money and should only be recommended CDs and money market funds as an investment. Because this client has "no liquidity needs," he or she is not in this situation. Safety of principal is the better answer as a "concern." This type of client doesn't want his or her principal put at risk - he or she is just averse to taking on risk, but can afford to do so. Such a client could be recommended CDs, money market funds, short term bonds and laddered bond portfolios.

Last sale reports are available for trades of all of the following securities EXCEPT: A. Municipal bondsB. Eurodollar bonds C. Stocks listed on a stock exchangeD. Stocks listed in the Pink Sheets

The best answer is B. Trades of exchange listed securities and all OTC equity issues (OTCBB and Pink Sheets) are reported on a real-time basis. Trades of corporate bonds and municipal bonds effected OTC are also reported on a real-time basis. Corporate and agency bond trades are reported via TRACE, while municipal bond trades are reported via RTRS. Note, however, that trades of Eurodollar bonds are not reported since the trades take place in Europe, not in the United States.

Alpha" is a measure of: A. systematic riskB. non-systematic risk C. credit risk D. liquidity risk

The best answer is B."Alpha" measures non-systematic risk - that is, stock specific risk.

A "short swing" profit is defined as a profit achieved by an insider who trades his or her company's stock within: A. 3 monthsB. 6 months C. 9 months D. 12 months

The best answer is B.A "short swing" profit is defined as one achieved by an insider (officer, director or 10% shareholder) trading that company's stock within a six month period. Short swing profits must be returned to the corporation under the Act.

What does a bond trading "flat" mean? A. No commission is added to the price of the tradeB. The bond is trading without accrued interest C. The dealer's bid and ask quote for the bond are the same D. The bond does have SIPC insurance

The best answer is B.A bond trades flat (without accrued interest) when the issuer has defaulted on the interest payments, or if the issue is an income bond or a zero coupon bond. Therefore, a current bondholder receives no interest on bonds that trade flat. When such a bond is traded, no accrued interest is paid from buyer to seller - so the trade is being done at a "flat" amount without any accrued interest added to the price.

The Revdex consists of: A. 20 revenue bonds with 25 years to maturity, rated A or better B. 25 revenue bonds with 25 years to maturity, rated A or betterC. 25 revenue bonds with 30 years to maturity, rated A or better D. 25 revenue bonds with 35 years to maturity, rated A or better

The best answer is C.The Revdex consists of 25 revenue bonds with 30 years to maturity, all rated A or better. questio

A stock portfolio with a Beta of "+1" indicates coincidence with: A. interest rate risk as represented by 30 year Treasury Bond price movementsB. market risk as represented by the Standard and Poor's 500 Average C. default risk as measured by Moody's Investors' Services D. non-systematic portfolio risk

The best answer is B.A stock portfolio with a Beta of "+1" exactly matches the volatility of the market as a whole. The broadest stock market measure listed is the Standard and Poor's 500 Average. A Beta of +1 represents the "market risk" (also known as systematic risk) of the portfolio. This is the risk that cannot be diversified away. As more and more stocks are added to a portfolio, the "non-systematic risk" (also known as "stock specific risk") is reduced. Once a portfolio is fully diversified, non-systematic risk has been "diversified away," and the only risk left is the portfolio's systematic or market risk.

All of the following are purchase and payout options for variable annuity contracts EXCEPT: A. Lump sum payment; Deferred annuityB. Periodic payments; Immediate annuity C. Periodic payments; Deferred annuity D. Lump sum payment; Immediate annuity

The best answer is B.An investor can buy a variable annuity contract with a lump sum payment. Once the moneys are used to purchase accumulation units, annuitization can occur immediately or can occur years in the future. An investor can also make periodic payments into a variable annuity contract, but cannot annuitize until payments stop. Thus, there is no option of periodic payments with an immediate annuity. The annuity must be deferred until the payments are completed.

All of the following investors are likely to trade foreign currency options EXCEPT: A. foreign corporations with multinational operationsB. individuals with large U.S. dollar holdings C. individuals with large foreign currency holdings D. U.S. corporations with multinational operations

The best answer is B.Any multinational corporation will trade foreign currencies, either to acquire currency for payment in a particular country or to hedge transactions against fluctuations in currency values. Similarly, individuals with large foreign currency holdings are likely to use the foreign currency markets to hedge their positions. Individuals with U.S. dollar holdings have no need for the foreign currency markets - since they are not exposed to currency exchange risk.

A client, age 35, is covered by a 401(k) plan at work and also has set up an IRA account. He has been contributing the maximum amount to each of these each year. He lives frugally and has excess income available for investment. He asks you, the registered representative, for an appropriate recommendation to add to his retirement savings. Which recommendation is appropriate? A. 529 PlanB. Variable Annuity C. Keogh Plan D. SEP IRA

The best answer is B.Anyone can contribute to a non-qualified variable annuity, with no contribution limits. It makes no difference if the customer is covered by another qualified plan. The contribution is not deductible, but the separate account builds tax deferred. Upon retirement, only the portion of any distribution representing the tax-deferred build up is taxable. 529 Plans can only be used to pay for higher education expenses; Keogh plans can only be set up by self-employed individuals; and SEP IRAs can only be established by businesses for their employees.

A customer in the highest tax bracket has $500,000 to invest. The customer is not subject to the AMT. The BEST recommendation would be an investment grade: A. Municipal bond yielding 2.50% that is not subject to the AMTB. Municipal bond yielding 2.70% that is subject to the AMT C. Treasury bond yielding 3.50% D. Corporate bond yielding 4.00%

The best answer is B.Because this customer is in the highest tax bracket, a tax-free municipal bond will give the highest "after-tax" return. Because this customer is not subject to the AMT (Alternative Minimum Tax) he does not care about the fact that the higher-yielding municipal bond is subject to this tax. He should choose the higher-yielding municipal bond that is subject to the AMT. The simplified math for this works out as: Choice A yield after federal tax is paid - 2.50% (none of yield is taxed) Choice B yield after federal tax is paid - 2.70% (none of the yield is taxed) Choice C yield after federal tax is paid - 2.21% (37% federal max. tax rate) Choice D yield after federal tax is paid - 2.52% (37% federal max. tax rate)

A customer, age 69, has never invested in securities. She is retired with no dependents, living on a fixed pension of $35,000 per year. She has a savings account with $160,000 and her home is fully paid. She desires to supplement her retirement income, assuming minimal risk. The BEST recommendation would be for the customer to invest $100,000 of her cash savings into a(n): A. variable annuity contractB. CMO planned amortization class tranche C. SPDR D. income (adjustment) bond

The best answer is B.CMO planned amortization classes give a good yield that is 50 or so basis points higher than equivalent maturity Treasuries and are extremely safe. These meet the customer's objective of additional income with low risk. Since this customer is only earning $35,000 per year, she is in a low tax bracket - making tax-deferred variable annuities unattractive. SPDRs - Standard and Poor's 500 Depository Receipts are an exchange traded fund that consists of equities - which don't provide much income. Income bonds only pay interest if the corporation has enough "income" - so these are not appropriate either.

Which of the following ratings applies to commercial paper? A. MIG 1B. P3C. Bb D. A+

The best answer is B.Commercial paper is rated P1, P2, P3, NP (highest to lowest) by Moody's. P stands for prime. NP means "not prime" and is the lowest rating. The "ABC" ratings are used for long term corporate and municipal bonds. The MIG ratings are used for municipal short term notes.

Distributions from variable annuity contracts at retirement age are: A. non-taxableB. taxable as ordinary income on any amount above the customer's cost basis C. taxable as long term capital gains on any amount above the customer's cost basisD. 100% taxable

The best answer is B.Contributions to variable annuity contracts are not tax deductible. Therefore, they go into the separate account as "after-tax" dollars and are considered to be the "cost basis" in the account for tax purposes. Any "build-up" (earnings) in the account is tax deferred. When distributions commence, only the "build-up" portion is taxed - this is the amount above the cost basis in the account.

The manager of a pension plan would invest in all of the following debt securities EXCEPT: A. Corporate bondsB. Municipal bonds C. U.S. government bondsD. Foreign government bonds

The best answer is B.Income from securities held in Pension Plans is tax deferred; so there is no benefit to investing in municipals, which have lower rates because their interest income is exempt from Federal income tax. Investments would be made in corporate and government bonds (both U.S. government obligations and foreign government obligations, such as Canadian government bonds), both of which have higher interest rates because their interest income is taxable by the Federal government.

ABC Corporation has declared a rights offering to stockholders of record on Friday, December 10th. Under the offer, shareholders need 10 rights to subscribe to 1 new share at a price of $19. Fractional shares can be rounded up to purchase 1 full share. As of Wednesday, December 1st, the stock is trading at $30. The value of the right is: A. $.90B. $1.00 C. $1.10 D. $1.25

The best answer is B.Since the record date is Friday, December 10th, a customer buying on Wednesday, December 1st would settle on Friday, December 3rd (2 business days later) and would be on the record books for the distribution. Therefore, the stock is trading cum rights. The value of a right "cum rights" is: $30 - $1910 + 1=$1111=$1 Value "Cum Rights"

Which of the following is an exempt security under the Securities Act of 1933? A. Unit Investment TrustB. Small Business Investment Company C. Open-End Investment Company D. Closed-End Investment Company

The best answer is B.Small business investment companies are an exempt security under the Securities Act of 1933. Other investment companies - whether they be open-end or closed-end management companies; or unit investment trusts; are non-exempt and must be registered with the SEC.

A customer in the 28% tax bracket has $5,000 of capital losses and $3,000 of capital gains. How much net capital loss is deductible from this year's tax return? A. $0B. $2,000C. $3,000 D. $5,000

The best answer is B.The customer has a capital gain of $3,000 and a capital loss of $5,000, for a net capital loss of $2,000. The entire net $2,000 loss is deductible since it does not exceed the maximum $3,000 per year net capital loss deduction.

The ultimate authority for determining the amount of the discount that must be accreted on municipal market discount bonds is (the): A. MSRB - Municipal Securities Rulemaking BoardB. IRS - Internal Revenue Service C. SEC - Securities and Exchange Commission D. FINRA - Financial Industry Regulatory Authority

The best answer is B.The final determination of the amount of discount that must be accreted on any (municipal, corporate, and Government) original issue discount bond is made by the Internal Revenue Service.

The nominal interest rate on a TIPS is: A. the same as the rate on an equivalent maturity Treasury BondB. less than the rate on an equivalent maturity Treasury Bond C. more than the rate on an equivalent maturity Treasury Bond D. unrelated to the rate on an equivalent maturity Treasury Bond

The best answer is B.The interest rate placed on a TIPS (Treasury Inflation Protection Security) is less than the rate on an equivalent maturity Treasury Bond. For example, a 30 year Treasury Bond might have a coupon rate of 4%; but a 30 year TIPS has a coupon rate of 2.75%. The "difference" between the two is the current market expectation for the inflation rate (1.25% in this example). The reason why the TIPS sells at a lower coupon rate is that, every year, the principal amount is adjusted upwards by that year's inflation rate. So there are really 2 components of return on a TIPS - the lower coupon rate plus the principal adjustment equal to that year's inflation rate.

A "consolidating market" is one where trading: A. volumes are stableB. prices are stable C. volumes are volatile D. prices are volatile

The best answer is B.The market is said to be "consolidating" when prices are flat - not moving in any direction for a long period after a previous price rise or fall.

The reorganization department of a brokerage firm would be responsible for handling the following: I Notifying customers of a takeoverII Notifying customers if a bond is being calledIII Preparing customer confirmationsIV Keeping a record of debit and credit balances in customer accounts A. I onlyB. I and II C. III and IV D. I, II, III, IV

The best answer is B.The reorganization department notifies customers of takeovers and tender offers. Also, they notify customers if bonds are being called. Essentially, the department is responsible for handling any unusual situation that would affect the customers' position in their securities holdings. The purchase and sales department prepares and mails customer confirmations. The margin department keeps a record of securities positions, and debit and credit balances in customer accounts.

The target allocation for a specific asset class has been set at 20% of total assets under an asset allocation scheme. The manager is permitted to reduce this percentage to 15%; and can increase it to 25%; as he or she sees fit. The setting of the 20% target allocation is called: A. portfolio rebalancingB. strategic asset managementC. tactical asset management D. active asset management

The best answer is B.The selection of the percentage of total assets to be allocated to a given asset class is called "strategic asset management" - that is, setting the investment strategy. The permitted variation from this percentage that is given to the asset manager, so that the manager can take advantage of market opportunities, is called "tactical asset management."

Which of the following describes a bank qualified municipal issue? I To be bank qualified, the issue must be a public purpose issueII To be bank qualified, the issue must be a private purpose issueIII The purchasing bank can deduct 20% of the interest expense it incurs on deposits used to fund the purchase of the bondsIV The purchasing bank can deduct 80% of the interest expense it incurs on deposits used to fund the purchase of the bonds A. I and IIIB. I and IV C. II and III D. II and IV

The best answer is B.To be a bank qualified municipal issue, the bonds must be a public purpose (not private purpose) issue. Any bank that buys the issue receives a tax benefit that is not available on all other municipal investments. The bank can deduct 80% of the interest expense it incurs on deposits used to fund the purchase of the bonds, while the interest income from the municipal issue is not taxable to the bank.

A 22-year old, unmarried, new customer contacts you, explaining that he just inherited $10,000,000 and wishes to invest the money aggressively to produce superior returns. He is risk-tolerant and understands the use of leverage and shorting as ways of enhancing returns. For this client, the best recommendation would be a: A. hedge fundB. fund of hedge funds C. growth fund D. value fund

The best answer is B.Well, you can get this one down to 50/50 pretty quickly. This guy is rich and is looking for a rich man's investment. So it's either the hedge fund or the fund of hedge funds. You can argue this one either way, but we go with the "fund of hedge funds." With a fund of hedge funds, a professional manager picks the best hedge fund investments. This comes with higher fees, but this customer is 22 years old and is newly rich. A little professional guidance would be helpful until this guy gets some experience. You could also argue that "funds of hedge funds" have 2 layers of fees, whereas a direct hedge fund investment only has 1 layer of fees, so it is less costly and is the better choice. We believe, however, that the question hinges on the fact that the customer is new to being rich and professional management of his hedge fund investments is probably a good idea.

Which retirement plan is corporate sponsored and permits employees to make the greatest pre-tax contribution? A. Roth IRA B. SIMPLE IRAC. 401(k) D. 403(b)

The best answer is C. 401(k) Plans are corporate-sponsored "salary reduction" plans that allow an individual to contribute a dollar amount annually that is tax deductible. $19,000 can be contributed for tax year 2019). In contrast, 403(b) Plans are salary reduction plans for the not-for-profit sector. Roth IRAs are established by individuals, not corporations, and only allow for a maximum non-deductible contribution of $6,000 for an individual (who is under age 50). SIMPLE IRAs are corporate-sponsored salary reduction plans for small companies, but the maximum contribution in 2019 is $13,000.

Which statements are TRUE about PO tranches? I Payments are larger in the early yearsII Payments are smaller in the early yearsIII Payments are larger in the later yearsIV Payments are smaller in the later years A. I and IIIB. I and IVC. II and III D. II and IV

The best answer is C. A PO is a Principal Only tranche. This is a tranche that only receives the principal payments from an underlying mortgage, and it is created with a corresponding IO (Interest Only) tranche that only receives the interest payments from that mortgage. The principal portion of a fixed rate mortgage makes smaller payments in the early years, and larger payments in the later years. Because of this payment structure, it is most similar to a long-term bond, which pays principal at the end of its life. These are issued at a deep discount to face. Its price moves just like a conventional long term deep discount bond. When market interest rates rise, the rate of prepayments falls (extension risk) and the maturity lenghtens. Because the principal is being paid back at a later date, the price falls. Conversely, when market interest rates fall, the rate of prepayments rises (prepayment risk) and the maturity shortens. Because the principal is being paid back at an earlier date, the price rises.

Which of the following statements are TRUE regarding options sales literature that includes a recommendation? I It must be approved prior to use by the designated Registered Options PrincipalII It must be accompanied or preceded by a copy of the latest Options Disclosure DocumentIII Showing past or projected performance is permittedIV It must be pre-filed with the exchange A. I and II only B. III and IV onlyC. I, II, III D. I, II, III, IV

The best answer is C. All options communications with the public must be approved by the designated ROP (main office compliance ROP) - not the Branch Manager. Any communication that shows past performance; makes a performance projection; or that makes a recommendation; must be accompanied or preceded by the ODD (Options Disclosure Document). Options sales literature usually falls under these rules. Only options communications that are NOT accompanied by the ODD must be filed with the Exchange 10 days in advance of use. These are basically advertisements seen by the general public.

A registered representative solicits an order from a new customer to purchase a "penny stock" that is trading over-the-counter. What must be disclosed to the customer on the trade confirmation? A. The percentage of outstanding shares held by institutional investors B. The company's earnings per share for each of the last 5 yearsC. The compensation received by the representative and the broker-dealer in the transactionD. The execution price of the 3 most recent transactions in that security

The best answer is C. Under the SEC's "penny stock rule" (Rules 15g-1 through 15g-6), if a registered representative solicits a new customer to buy a non-NASDAQ over-the-counter stock priced under $5 (translated, this is an OTCBB or Pink OTC Markets issue under $5), the registered representative must complete a detailed suitability statement for the customer, and the customer must sign this statement before the order can be confirmed. This rule was enacted to curb unethical sales practices of so-called "penny stocks." The rule also requires that the trade confirmation disclose the compensation earned by the representative and the broker-dealer in the transaction; and that account statements showing the position at market value be sent monthly, even if there is no activity in the account (as opposed to the regular quarterly statement requirement for inactive accounts).

Which statement is TRUE about the use of a "red herring" preliminary prospectus? The preliminary prospectus may only be sent to customers: A. once registration is effective B. who have paid for the issueC. who have expressed an indication of interest or who are likely purchasers, during the cooling off period D. who have expressed an indication of interest or who are likely purchasers, prior to the cooling off period

The best answer is C.A "red herring" preliminary prospectus may be sent to any prospective purchaser of that new issue once the issue has entered into the "20 day cooling off" period that commences upon filing of the registration statement with the SEC. Nothing may be sent to the customer prior to the start of the "20 day cooling off" period. The use of the "preliminary prospectus" does not constitute an "offer" under the 1933 Act, and the red ink statement on the cover of the preliminary prospectus states this (hence the name "red herring"). The red herring is used to obtain non-binding indications of interest in the issue, and may be sent to anyone during the cooling off period, whether or not that person has previously expressed any interest in the issue.

Which of the following positions is a long straddle? A. Long 1 ABC Jan 50 Call; Long 1 XYZ Jan 50 Put B. Long 1 ABC Jan 50 Call; Short 1 ABC Jan 60 CallC. Long 1 ABC Jan 50 Call; Long 1 ABC Jan 50 Put D. Long 1 ABC Jan 50 Put; Short 1 ABC Jan 60 Put

The best answer is C.A long straddle is created by purchasing a call and a put on the same stock, with the same strike price and expiration. Choice A has different stock positions. Choices B and D involve the purchase and sale of a call; or the purchase and sale of a put. These are spreads, which are covered in a later section.

A customer has a restricted margin account with $2,000 of SMA. If the customer wishes to buy $10,000 of marginable common stock, the customer must deposit? A. $2,000 B. $2,500C. $3,000 D. $6,000

The best answer is C.A restricted margin account is one that is below the 50% Regulation T initial margin requirement. Restriction has no effect on purchases in the account. To buy a marginable security, the customer must deposit the Regulation T requirement. To buy $10,000 of a marginable stock, the customer must deposit $5,000 (50% Regulation T requirement). The existing $2,000 of SMA can be used to meet part of this requirement and the customer must deposit the additional $3,000.

Which of the following are functions of the transfer agent? I Mailing dividend payments to shareholdersII Canceling old shares and issuing new sharesIII Preparing and mailing proxiesIV Setting the Declaration Date A. I and II B. III and IVC. I, II, III D. I, II, III, IV

The best answer is C.The declaration date is set by the Board of Directors of the company. The transfer agent cancels old shares and issues new shares; and mails voting materials (proxies), annual reports, and dividend payments to the shareholders.

Which of the following cover a short call contract? I Long a depository receipt for the stockII Long the cash value of the stockIII Long an escrow receipt for the stockIV Long the stock A. IV only B. I and III onlyC. I, III, IVD. I, II, III, IV

The best answer is C.A short call cannot be covered by the deposit of cash because the theoretical loss is unlimited. The only way to cover a short call is with the ownership of the stock or owning an option that allows for the purchase of the stock at a price not to exceed the strike price of the short call, good for the entire life of the short call. Being long the stock covers a short call; long an escrow receipt shows that the stock is on deposit at a bank; long a depository receipt shows that the stock is on deposit with a clearing corporation.

A new issue corporate bond with dated date of March 1st is bought from the underwriter with settlement occurring on Wednesday, March 28th. How many days of accrued interest is owed the underwriter? A. 0 B. 26C. 27 D. 28

The best answer is C.Accrued interest on a new issue is calculated from the dated date up until, but not including settlement date. This new issue is bought from the underwriter. The customer pays the underwriter the price of the bond plus any accrued interest. This interest accrues from March 1st (the dated date) until the 27th (up to, but not including, settlement date of the 28th), so there are 27 days of accrued interest owed to the underwriter.

In 2019, a customer buys a 3 3/4% U.S. Government bond maturing in 2028 at 104-16. The customer elects to amortize the bond premium for tax purposes. If the bond is sold after 2 years, its cost basis at that time is: A. 104-16 B. 104C. 103-16 D. 103

The best answer is C.Both Government and corporate bond market premiums may be amortized, if elected by the owner - and this is the best choice for the owner because the annual amortization reduces the taxable interest income received from the bond. This Government bond costs 104-16, for a premium of 4 and 16/32nds = 4 1/2 points. Since the bond has 9 years to maturity, the annual amortization amount is 4 1/2 points divided by 9 years = 1/2 point per year. If the bond is sold after 2 years, 1 point of the premium will have been amortized. Thus, the bond's adjusted cost basis is 104 1/2 - 1 = 103 1/2. Converting to Government bond quotes (in 32nds), this equals 103-16.

Common stockholders and preferred stockholders BOTH have: A. voting rights B. pre-emptive rightsC. dividend rights D. subscription rights

The best answer is C.Both common and preferred shareholders have the right to receive dividends, if declared by the Board of Directors. Common shareholders have both voting rights and preemptive/subscription rights (the right to maintain proportionate ownership if the issuer issues additional common shares). Preferred stockholders do not have voting rights and do not have preemptive/subscription rights.

The primary risk associated with investing in ETNs is: A. market risk B. liquidity riskC. credit risk D. legislative risk

The best answer is C.ETNs are "Exchange Traded Notes." They are an equity index linked structured product, that is listed and trades on an exchange. Because they trade, the liquidity risk aspect of structured products is eliminated. What is not eliminated, however, is credit risk. These products are only as good as the guarantee of the issuing bank. They typically have a 7 year life - and a lot can go wrong in 7 years (just ask anyone who purchased Lehman Brothers structured products or ETNs).

A 65-year old retired teacher living on a pension has $200,000 invested in 2 year certificates of deposit that are yielding 4%. $20,000 of the CDs are maturing and the customer wants to diversify into an investment that gives a higher return and a moderate level of risk. The BEST recommendation would be: A. High yield corporate bonds B. Treasury stripsC. Equity REITsD. Income bonds

The best answer is C.Equity REITs tend to pay a high dividend yield, since they are structured to generate net rental income. Because the underlying real estate investments are diversified, the risk level is moderate. This is the best of the choices offered. High yield bonds (junk bonds) have a very high risk of default and thus are unsuitable. Treasury Strips are zero-coupon Treasuries that do not provide current income and thus are unsuitable. Finally, Income bonds only pay interest if the issuer has high enough net income, so there may not be any "income."

Which statement is TRUE? A. Trades of listed equity options take place in the interbank market B. Trades of listed foreign currency options take place in the interbank marketC. Trades of foreign currencies take place in the interbank market D. Trades of bankers acceptances take place in the interbank market

The best answer is C.Foreign currencies trade in the "Interbank Market." Trading of foreign currency option contracts takes place on the Philadelphia Stock Exchange. Trading of listed equity options takes place on the CBOE, AMEX, PHLX, PAC, and ISE. Trading of bankers acceptances takes place in the "over-the-counter" market.

If a portfolio manager's market sentiment is bearish, then which of the following are appropriate actions? I Cash positions will be decreasedII Cash positions will be increasedIII Investments in stock positions will be decreasedIV Investments in stock positions will be increased A. I and III B. I and IVC. II and III D. II and IV

The best answer is C.From a "market sentiment" standpoint, a portfolio manager will increase his or her cash position; and decrease the portion of funds invested in securities, when he or she is bearish on the market. Conversely, if the manager is bullish, he or she will decrease the cash position and increase the invested portion of the portfolio.

Which of the following risks are applicable to Ginnie Mae Pass Through Certificates? I Purchasing power riskII Risk of early prepayment of mortgages if interest rates fallIII Risk of default if homeowners do not make their mortgage paymentsIV Risk of loss of principal if interest rates rise A. III onlyB. I, II, IIIC. I, II, IV D. I, II, III, IV

The best answer is C.Ginnie Maes are guaranteed by the U.S. Government so there is no risk of default. Ginnie Mae is authorized to raid the U.S. Treasury to make up any payment shortfalls, if required. The holder of a certificate is subject to potential loss of principal if interest rates rise, since the market value of the securities will fall. The holder is also subject to early prepayment risk if interest rates drop and the homeowners prepay their mortgages. Because rates have dropped, these prepayments are now reinvested at lower current market rates.

Which of the following are TRUE statements regarding revenue bonds? I Yields for revenue bond issues are generally higher than yields for comparable G.O. issuesII Revenue bonds are only suitable for investors willing to assume a high level of riskIII The bonds may be double barreled with backing by ad valorem taxesIV Issuance of the bonds is dependent on earnings requirements A. I and II only B. III and IV onlyC. I, III, IV D. I, II, III, IV

The best answer is C.In order to issue revenue bonds, a feasibility study must be prepared and it must show adequate net revenues ("earnings") to service the debt before the bonds can be floated. A revenue bond can be double barreled to improve its safety by additionally backing the issue with the ad valorem taxing power of the issuer. Yields on revenue bonds are higher than that of comparable G.O. bonds because of generally higher risk. Revenue bonds are suitable for investors willing to take on low, medium or high risk. To evaluate credit risk on these issues, look at Moody's or Standard and Poor's ratings.

A municipality is at its constitutional debt limit. Voter approval would be required for a municipality to float a(n): A. revenue bond B. industrial revenue bondC. general obligation bond D. moral obligation bond

The best answer is C.Municipalities impose debt ceilings on the dollar amount of bonds that can be issued backed by ad valorem taxing power (G.O. bonds). To raise this limit requires a public referendum. Debt limits do not apply to self supporting debt such as revenue bonds. They also do not apply to moral obligation bonds, which the issuer does not legally have to pay (though the issuer is "morally" obligated to pay).

Mutual fund shares are: I NegotiableII RedeemableIII ManagedIV Non-Managed A. I and III B. I and IVC. II and III D. II and IV

The best answer is C.Mutual fund shares represent an undivided interest in a portfolio of securities that is managed to meet an investment objective. Mutual fund shares do not trade - they are not negotiable. The shares are redeemed by the fund at Net Asset Value. The fund continuously issues and redeems its shares.

All of the following securities are redeemable EXCEPT: A. Common stock mutual funds B. Bond mutual fundsC. Corporate debentures D. Series HH bonds

The best answer is C.Mutual funds - common stock and bond funds - are redeemable securities which do not trade. Savings bonds (Series EE and HH) sold by the U.S. Government are redeemable securities. There is no trading in these issues. To "cash out," they are redeemed with an agent for the Government - a bank or savings and loan. Corporate debentures are negotiable (tradeable) - they cannot be redeemed with the issuer. They trade OTC and on exchanges.

Regulation NMS required market centers to do all of the following EXCEPT: A. electronically link and make quotes accessible in real time B. provide for automated execution at the best price within 1 secondC. execute all short sales on stocks that are declining in price on an up bid D. put procedures in place to prevent trade-throughs

The best answer is C.Regulation NMS requires all market centers to electronically link and provide automated execution at the best price of all markets within 1 second for orders that are executable. It mandates that market centers cannot discriminate against customers who access their quotes. It requires that markets have procedures in place to prevent trade-throughs - which is "trading through" another market's better priced quote (the same thing as executing an order at an inferior price in that market). The rules surrounding short sales are covered under Regulation SHO - not Regulation NMS.

An unaffiliated investor is permitted to sell "144" shares without being subject to the volume limitations: A. under no circumstances B. after holding the securities for 3 monthsC. after holding the securities for 6 months D. after holding the securities for 1 year

The best answer is C.Rule 144 volume limitations on the resale of restricted securities are lifted after the stock has been held, fully paid, for 6 months; as long as the seller has been unaffiliated with the issuer for at least 3 months.

Securities Investor Protection Corporation protects brokerage: A. firm employees from employer mismanagement B. accounts against investment mismanagementC. accounts against broker-dealer failure D. firms from employee theft and embezzlement

The best answer is C.SIPC insures customer accounts holding cash and/or securities against loss if a broker-dealer fails.

20 Basis points equals: A. .002% B. .02%C. .2%D. 2%

The best answer is C.Since 1 Basis Point = .01% = $.10, 20 Basis Points = .20% = $2.00.

At the market opening, a customer purchases 200 shares of an S&P 500 Inverse ETF (-1x) at $50 per share. At the end of that day, the S&P 500 Index declines by 10%. The next day, the index partially recovers and closes up 5%. What will be the market value of the 200 share position? A. $9,450 B. $9,500C. $10,450D. $10,500

The best answer is C.Since this ETF is "-1x," it is an inverse ETF that moves at the same rate (1x), but in the opposite direction (-), to the market. The customer starts with 200 shares at $50, or a $10,000 position. At the end of the first day, because the index falls by 10%, this position will rise by 10% to $11,000 value ($10,000 x 1.1). At the end of the second day, because the index goes up by 5%, the ETF value will decline by 5%. $11,000 x .95 = $10,450.

Which of the following statements are TRUE regarding tax sheltered annuities for employees of non-profit organizations? I These are known as 401(k) plansII These are known as 403(b) plansIII Monies contributed to this plan are excluded from taxable incomeIV Monies contributed to this plan are included in taxable income A. I and III B. I and IVC. II and III D. II and IV

The best answer is C.Tax deferred annuities for employees of non-profit organizations are 403(b) plans. These retirement plans allow employees of non-profit institutions such as hospitals and universities to establish their own retirement plans if none is provided by the employer. The monies contributed are excluded from taxable income, and must be used to purchase "tax sheltered" annuities or mutual funds; direct stock investments are prohibited.

On the CBOE, customer good-til-canceled orders are handled by the: A. Specialist (DMM) B. Market MakerC. Order Book OfficialD. Floor Broker

The best answer is C.The CBOE splits the specialist function into two. The order book official handles the book of customer limit orders. The market maker acts as the dealer in that option contract.

Super Display Book is the automated trading system for the: A. NASDAQ Stock Market B. American Stock Exchange (NYSE American)C. New York Stock Exchange D. Instinet Stock Market

The best answer is C.The NYSE automated trading system is called the Super Display Book. This replaced the previous DOT (Designated Order Turnaround) system in late 2009.

The person who acts as agent helping find customers for a new issue, but neither participates in selling responsibility nor liability in a new issue syndicate, is known as the: A. managing underwriter B. syndicate memberC. selling group member D. broker's broker

The best answer is C.The managing underwriter forms the syndicate and selling group, establishes the spread and the portions of the spread to be earned by each member of the underwriting group, and manages the offering of the securities. For this work, the manager earns the management fee out of the spread. The syndicate members share in the financial liability and profit potential for selling the issue. For selling his or her allotment, the syndicate member earns the "underwriter's concession." The selling group members help the syndicate find purchasers for the issue, but take no financial liability. For this work, the selling group members earn the "selling concession."

The maximum amount that can be raised by an issuer under Regulation Crowdfunding is: A. $100,000 B. $500,000C. $1,000,000 D. $5,000,000

The best answer is C.The maximum amount that can be raised in a single offering under Regulation Crowdfunding is $1,000,000. (Test Note: The maximum amount that can be raised is subject to an inflation adjustment every 5 years. In April 2017, it was adjusted to $1,070,000. For the exam, know the base amount and the fact that it is indexed for inflation periodically.)

The Network A Tape shows the following: Regarding the trade of RFQ stock, which statement is true? A. 100 shares were traded at $53 B. 1,000 shares were traded at $53C. 100 shares were traded at $53, but are reported late D. 1,000 shares were traded at $53, but are reported late

The best answer is C.The symbol SLD coming next to the stock symbol means that the shares were "sold" but are reported out of sequence. This is a late trade report, where the trade was not reported within the required 10 seconds of execution.

A customer owns a real estate limited partnership interest, with an adjusted cost basis of $22,000. This interest has generated unused passive losses totaling $10,000. The partnership interest is sold for $20,000. Regarding the cost basis and capital gain or loss, which of the following statements are TRUE? I The adjusted cost basis is $10,000II The adjusted cost basis is $32,000III The customer has a capital loss of $12,000IV The customer has a capital gain of $12,000 A. I and III B. I and IVC. II and III D. II and IV

The best answer is C.The tax treatment of unused passive losses when a partnership interest is sold, is to add them to the cost basis. In this example, the customer has a partnership basis of $22,000 and $10,000 of unused passive losses, for an adjusted cost basis of $32,000. Since the sale proceeds from disposing of the partnership interest are $20,000, the customer has a capital loss of $12,000 on this investment for tax purposes. The end result is that the unused passive loss is converted into a capital loss when the partnership unit is sold.

A young aggressive investor gets laid off from her job. She has a net worth of $80,000 and has received a 1-time severance payment of 3 times her annual salary ($240,000 payment). In addition, she gets medical coverage for 1 year. The appropriate action for the registered representative to take is to: A. change the account investment objective to income and safety and invest the $240,000 severance payment based on these objectives B. do nothing unless written instructions are received from the customerC. discuss the situation with the client to determine if it is appropriate to change the investment objective before making any further investments D. recommend a balanced mutual fund investment that will give this younger client moderate income in addition to growth

The best answer is C.There has been a change in the client's financial situation. Before doing anything in the account, the situation should be discussed with the client to see what her current needs are. Then an appropriate recommendation can be made. At this point, we don't know if Choices A and D might be appropriate for the client - they could be, but only after the representative has a talk with the client.

Customers who actively trade their listed stock portfolios should have a strong understanding of: A. liquidity risk B. inflation riskC. timing risk D. call risk

The best answer is C.Timing risk is the risk that trades will not be performed at the best market prices. Active traders are highly subject to this risk. Active traders will only trade securities in "deep" markets such as NYSE or NASDAQ common issues. They would not trade illiquid securities (e.g., OTCBB or Pink Sheet issues) since they would incur "liquidity risk." Liquidity risk is the risk that a security can only be sold by incurring large transaction costs. Inflation (purchasing power) risk is the risk that inflation will reduce an investor's real returns. Active traders are not concerned with inflation risk because they hold their investments for very short time periods. Since active traders are trading common stocks, call risk is not a consideration (common stocks are non-callable).

Which sources of REIT income are counted towards the 75% test required by Subchapter M? I Net rental incomeII Interest income from mortgagesIII Real estate tax refundsIV Dividend income A. I only B. II and III onlyC. I, II, IIID. I, II, III, IV

The best answer is C.To qualify as a regulated investment company, 75% of REIT income must be real estate related. This income includes rents, mortgage interest earned, and real estate tax refunds received (as a source of income, an REIT can buy a property and attempt to get its tax assessment lowered - any resulting tax refund is income to the REIT).

A customer sells short 1,000 shares of ABC stock at $2.75 per share in an initial transaction in a new margin account. The customer must deposit: A. $2,000 B. $2,500C. $2,750 D. $5,000

The best answer is C.Under the "cheap stock rule," if a customer sells a stock short under $5.00 per share, he or she must put up the greater of 100% or $2.50 margin per share. 100% of $2.75 per share x 1,000 shares = $2,750. $2.50 x 1,000 shares = $2,500. The greater amount is $2,750.

A floor broker enters the crowd around the Specialist's (DMM's) post to buy 20,000 shares of ABC at the market for a public customer. The Specialist (DMM) tells the trader "20,000 shares of ABC have been stopped at 25." This means that: A. trading in the stock has been completely stopped B. the stock can not trade higher than $25 per shareC. the Specialist/DMM has guaranteed a price of $25 to the trader D. the trader is prohibited from buying at any price other than $25

The best answer is C.When a Specialist (now renamed the DMM - Designated Market Maker) "stops stock," he guarantees a price to a floor broker for a short time period. The floor broker is free to try and get a better price in the "crowd," but if he is not successful, he can go back to the Specialist/DMM for the stock at the guaranteed price. Stopping stock is a courtesy function that is only allowed for public orders; stock cannot be stopped for a member's own account.

A hospital revenue bond issue is being underwritten on a negotiated basis. The offering consists of $20,000,000 par value of term bonds. The underwriter has agreed to a spread of $30 for each $5,000 bond. The manager has set the additional takedown at $12.00 per bond and the selling concession at $15.00 per bond. If a syndicate member sells a $5,000 par value bond directly to the public, the syndicate member earns: A. $12.00 B. $15.00C. $27.00 D. $30.00

The best answer is C.When selling a bond directly to the public, a syndicate member earns the "Total Takedown," which is the total of the additional takedown and the selling concession. The additional takedown is set at $12 and the selling concession is set at $15, so the syndicate member earns $27.

All of the following statements are true about CMOs EXCEPT: A. CMO issues have a serial structure B. CMO issues are rated AAA C. CMO issues are more accessible to individual investors than regular pass-through certificatesD. CMO issues have the same market risk as regular pass-through certificates

The best answer is D. CMOs have a lower level of market risk (risk of price volatility due to movements in market interest rates) than do mortgage backed pass-through certificates. Because CMO issues are divided into tranches, each specific tranche has a more certain repayment date, as compared to owning a mortgage backed pass-through certificate. Thus, the price movement of that specific tranche, in response to interest rate changes, more closely parallels that of a regular bond with a fixed repayment date. As interest rates rise, CMO values fall; as interest rates fall, CMO values rise. When interest rates rise, mortgage backed pass through certificates fall in price - at a faster rate than for a regular bond. This is true because when the certificate was purchased, assume that the average life of the underlying 15 year pool (for example) was 12 years. Thus, the certificate was priced as a 12 year maturity. If interest rates rise, then the average maturity will lengthen, due to a lower prepayment rate than expected. If the maturity lengthens, then for a given rise in interest rates, the price will fall faster. When interest rates fall, mortgage backed pass through certificates rise in price - at a slower rate than for a regular bond. This is true because when the certificate was purchased, assume that the average life of the underlying 15 year pool (for example) was 12 years. Thus, the certificate was priced as a 12 year maturity. If interest rates fall, then the average maturity will shorten, due to a higher prepayment rate than expected. If the maturity shortens, then for a given fall in interest rates, the price will rise slower. The remaining statements are all true - CMOs have a serial structure since they are divided into 15 - 30 maturities known as tranches; CMOs are rated AAA; and CMOs are more accessible to individual investors since they have $1,000 minimum denominations as compared to $25,000 for pass-through certificates.

Which of the following are entered into OATS? I Orders to buy NASDAQ issuesII Orders to sell NASDAQ issuesIII Orders to buy OTC issuesIV Orders to sell OTC issues A. I and II only B. III and IV only C. II and IV onlyD. I, II, III, IV

The best answer is D. OATS stands for "Order Audit Trail System." It electronically captures order information for equity securities (no more paper order tickets). OATS records of orders are now required for all U.S. equities markets - NYSE, NYSE American (AMEX), NASDAQ and also for OTCBB and Pink OTC Markets issues.The "idea" is to give FINRA an electronic order trail of each order from entry to execution to trade reporting and comparison. Since each order is entered independently, both buy and sell orders are entered.

DEF Corporation Income Statement Net Sales$30,000,000Cost of Goods Sold15,000,000Gross Margin15,000,000Operating Expenses5,000,000Operating Income10,000,000Bond Interest2,000,000Net Income Before Tax8,000,000Tax at 50%4,000,000Net Income After Tax$4,000,000 What is DEF's bond interest coverage ratio? A. 2:1 B. 3:1C. 4:1D. 5:1

The best answer is D. The formula for the Interest Coverage Ratio is: $10,000,000$2,000,000=5 x

Which of the following options strategies would be considered a covered put? A. Short 1 ABC Jan 50 Put; Long 1 ABC Jan 50 Call B. Short 1 ABC Jan 50 Put; Long 2 ABC Jan 50 Calls C. Short 1 ABC Jan 50 Put; Long 100 ABC stockD. Short 1 ABC Jan 50 Put; Short 100 ABC stock

The best answer is D.A covered put writer sells a put contract against the underlying short security position. The short put is covered, because if the market falls, and the put is exercised, the credit received from selling the stock "short" can be used to pay for the stock that must be bought by the exercised put writer.

A "saucer" formation is a(n): A. uptrend B. downtrend C. reverse upward trendD. reverse downward trend

The best answer is D.A saucer formation is bullish since the market has bottomed out and is now moving back upwards. It is a downtrend that has reversed itself.

If an event occurs which requires an issuer to make an 8K filing with the SEC, the filing must be made: A. promptly B. 1 business day after the event C. 2 business days after the eventD. 4 business days after the event

The best answer is D.An 8K filing with the SEC is required by a corporation if there is a change in the composition of the Board of Directors; if the company declares bankruptcy; if there is a major acquisition or divestiture of assets; if the company proposes a merger; or if any other major corporate event occurs. The notice must be filed no later than 4 business days after the event.

Which of the following statements about warrants are TRUE? I At issuance, warrants are "out of the money"II Warrant valuation is influenced by the life of the instrumentIII Warrant valuation is directly influenced by the valuation of the company's common stockIV Warrant valuation reflects market expectations for future earnings of the company A. I and IV only B. II and III only C. I, II, IVD. I, II, III, IV

The best answer is D.At issuance, warrants typically have exercise prices well above the current market price of the common stock, and therefore are "out of the money". The other statements are true. Warrant valuation is directly influenced by its life - the longer the warrant, the greater its value. It is also influenced by the valuation of the company's common stock price - the higher the market value of the common, the higher the warrant's value. Finally, it is influenced by market expectations for future corporate earnings, and hence the future price of the common stock.

Commercial paper with a maturity of 270 days or less: I must be registered under the Securities Act of 1933II does not have to be registered under the Securities Act of 1933III is a non-exempt securityIV is an exempt security A. I and III B. I and IV C. II and IIID. II and IV

The best answer is D.Commercial paper is an exempt security under the Securities Act of 1933. It does not have to be registered and sold with a prospectus if its maturity is 270 days or less. This makes it much less expensive for an issuer to market the securities, since the regulatory burden is much lower.

All of the following are included in the 10K report filed by corporate issuers with the SEC EXCEPT: A. income statement B. balance sheet C. retained earnings statementD. net capital computation

The best answer is D.Corporate annual reports contain the following audited financial statements - Income Statement; Balance Sheet; Statement of Changes to Retained Earnings (this shows earnings added for the year and dividends paid from retained earnings for that year); and Statement of Sources and Uses of Cash (this shows cash received that year from income earned; stock and bond offerings; and disposals of equipment; and cash paid that year for equipment purchases, pay-down of debt; dividends, etc.) Net capital computations are only required for broker-dealers registered with the SEC.

Which of the following statements are TRUE regarding Eurodollar bonds? I Eurodollar bonds are issued by both domestic and foreign corporationsII Eurodollar bonds are denominated in U.S. dollars onlyIII Trading does not take place in the United StatesIV The securities are not registered with the SEC A. I and III only B. II and IV only C. II, III, IVD. I, II, III, IV

The best answer is D.Eurodollar bonds are issued by both domestic and foreign corporations outside of the U.S. markets to take advantage of lower interest rates. These bonds are denominated only in dollars and are payable only in dollars. Since trading does not take place in the U.S., these securities are not registered with the SEC.

In order to open a discretionary margin account, which of the following procedures are required? I Completed Customer New Account FormII Signed Trading AuthorizationIII Signed Customer's AgreementIV Signature of Manager on New Account Form A. I and IV only B. II and III onlyC. I, II, IVD. I, II, III, IV

The best answer is D.Every new account must have a new account form, which is approved by the manager. A signed customer's agreement is required for a margin account, as this is the case with this account (the customer's agreement is the hypothecation agreement). To open a discretionary account, the customer must provide a signed trading authorization to the firm (first party trading authorization) allowing discretionary trades.

A registered individual leaves the industry, and is concerned that he might not reassociate with another member firm within 2 years. The individual approaches a friend at another member firm to hold his license during his absence. This action is: A. permitted without restriction B. permitted with the permission of the principal C. permitted with the permission of the self-regulatory organizationD. prohibited

The best answer is D.FINRA prohibits "parking" of licenses when an individual is not affiliated with a member firm. If that person remains unaffiliated for 2 years, all licenses lapse.

Which of the following are primary purchasers of Treasury securities? I Investment companiesII Broker-dealersIII Unit Investment TrustsIV Commercial banks A. I and II only B. III and IV only C. I and III onlyD. I, II, III, IV

The best answer is D.Investment companies such as government bond mutual funds, money market funds and unit investment trusts bid at auction to buy large blocks of Treasury securities directly, bypassing a dealer or broker and therefore saving commissions or markups. Commercial banks and broker-dealers that are primary dealers bid at Treasury auctions to buy securities for their inventories.

All of the following are considered to be advertising by the MSRB EXCEPT: A. seminar texts B. market letters C. form lettersD. Official Statements

The best answer is D.Official Statements are not considered to be advertising by the MSRB, requiring principal approval. This makes sense because they are generally prepared by the Bond Counsel, who has liability along with the issuer for intentional material misstatements under common law. Any material prepared by individuals in a firm, such as market letters, form letters, circulars, seminars, etc. are considered to be advertising requiring principal approval before use.

Under Regulation M, which statement is FALSE regarding stabilizing bids entered by market makers? A. Only the syndicate manager placed a stabilizing bid B. There is no time limitation on the period that a stabilizing bid can be maintained C. A stabilizing bid cannot be placed unless a "Notice of Stabilization" is included in the prospectusD. A stabilizing bid can be placed at any price that is reasonably related to the market

The best answer is D.Only 1 stabilizing bid, placed by the manager, is permitted at any time after registration becomes effective. The stabilizing bid is placed at, or just below the Public Offering Price. It can never be placed above the P.O.P. There is no time limitation on the period that a stabilizing bid can be maintained under Regulation M. However, stabilization must cease when the syndicate is broken by the manager. A "Notice of Stabilization" must be included in the prospectus (on the inside front cover) that details the fact that the manager can start and stop stabilizing at any time and that when stabilization stops, the price of the issue may drop.

Which of the following statements are TRUE regarding REITs? I The REIT issues common shares representing a proportional interest in the investment companyII The REIT issues shares of beneficial interest representing an undivided interest in a pool of real estate investmentsIII REITs are similar to open end investment company sharesIV REITs are similar to closed end investment company shares A. I and III B. I and IV C. II and IIID. II and IV

The best answer is D.REITs issue shares of beneficial interest with each certificate representing an undivided interest in the pool of real estate investments. Other than this difference, the trust is run in a similar fashion to a corporation. REITs are registered securities under the Securities Act of 1933 and trade on an exchange or OTC. Thus, they are similar to closed-end investment companies under the Investment Company Act of 1940, except that investments are made in real estate and mortgages, instead of in securities. question # 3-3-48-2Investment Companies: Fixed UITs / REITs / BDCs: REIT OverviewCopyright 1989-2019 Pass Perfect, LLC All Rights Reserved

All of the following are types of direct participation programs EXCEPT: A. Oil Drilling B. Agricultural Production C. Equipment LeasingD. Real Estate Investment Trust

The best answer is D.Real Estate Investment Trusts are not Direct Participation Programs. These are stock companies, similar to closed end investment companies, which invest in real estate, short term construction, and mortgages. As a stock company, they do not allow for flow through of gain and loss. Direct participation program types include oil drilling programs; agricultural production; and equipment leasing programs. When set up as partnerships, these ventures allow the partners to directly share in income and loss.

Which of the following statements are TRUE regarding the "AIR" stated in a variable annuity prospectus? I The AIR is an aggressive illustration of an interest rate for the annuityII The AIR is a conservative illustration of an interest rate for the annuityIII The AIR is the minimum guaranteed rate of returnIV The AIR is not a guaranteed rate of return A. I and III B. I and IV C. II and IIID. II and IV

The best answer is D.The AIR - Assumed Interest Rate - shown in a variable annuity prospectus illustrates the annuity that will be available if the separate account performs at that interest rate. It is conservatively estimated, but is no guarantee of a specific return.

To set the price for a new corporate stock issue, the syndicate manager will consider all of the following EXCEPT: A. expected demand for the security by investors B. expected earnings for the company over the coming years C. price/earnings ratios for similar companies already tradingD. expected spread to be earned by the syndicate

The best answer is D.The public offering price is set by the manager based on his expectations of the highest price the issue can get in the markets. To determine this, he examines expectations about earnings, demand for the issue and share prices of similar companies. The spread is not a determinant in setting the market price.

Which of the following MUST be disclosed on municipal bond trade confirmations? I For general obligation bonds, the source of income backing the issueII For revenue bonds, the source of revenue backing the issueIII For industrial revenue bonds, the name of the corporation guaranteeing the issueIV "In Whole" call dates A. I onlyB. II and III only C. I and IV onlyD. II, III, IV

The best answer is D.There is no requirement to disclose the source of income backing a general obligation issue because it must be taxing power. The MSRB does require that the type of revenue backing a revenue bond issue be disclosed, as well as the name of the corporate guarantor for industrial revenue bonds. "In Whole" call dates must also be disclosed on customer confirmations, since they can affect the pricing of the issue under MSRB rules (the MSRB requires that if a bond quoted on a yield basis is trading at a premium, and if it is callable "in whole" at preset dates and prices, then the dollar price must be computed to the call date rather than to the maturity date, since it will most likely be called).

A customer is long 100 shares of ABC stock purchased at $30. The stock is now trading at $42. The customer believes that the stock has the potential to move up to $55 a share, but no further. The customer would like to generate extra income and also enjoy the limited upside gain potential in the stock. To do this, the customer should: A. buy 1 ABC Jan 40 Call B. sell 1 ABC Jan 40 Call C. buy 1 ABC Jan 55 CallD. sell 1 ABC Jan 55 Call

The best answer is D.This customer bought the stock at $30, and it is now worth $42. The customer believes that the stock will rise to $55, so he does not want to sell a 40 call on that stock (since it will be called away if the price stays above $40). If the customer sells a 55 call, the customer will collect a smaller premium, but he or she will collect something - so this meets the requirement to generate income. As long as the stock price does not rise above $55, the customer will enjoy the price rise in the stock and the stock will not be called away.

A customer tells his broker "Sell my position in ABCD (a NASDAQ stock) and use the proceeds to buy EFGH (another NASDAQ stock)." Under the 5% Policy, the customer will be charged a commission or mark-up based on the: A. purchase of EFGH only B. sale of ABCD only C. purchase of EFGH separately; and the sale of ABCD separatelyD. purchase of EFGH and the sale of ABCD combined

The best answer is D.This is known as an over-the-counter "proceeds transaction." In such a transaction, the customer directs the firm to sell an existing position, and to use the proceeds to buy another position. Under the FINRA 5% Policy, proceeds transactions are subject to a "combined mark-up" that must be fair and reasonable. In a combined mark-up, the compensation earned for liquidating the existing position is added to the mark-up that the firm earns on the new purchase. This combined compensation must be "fair and reasonable."

An investor wishes to do a municipal bond tax swap. The investor can expect to pay extra funds for the swap if the newly purchased bonds have a: I lower couponII higher couponIII lower ratingIV higher rating A. I and IIIB. I and IV C. II and IIID. II and IV

The best answer is D.When doing a tax swap, an investor sells a bond at year end at a loss (for the capital loss tax deduction) and invests the proceeds in a different bond issue (to avoid the wash sale rule which applies if he buys back the same bond). The investor establishes a new cost basis in the new bond, but no tax is due until that position is sold. The new bond will cost more if it is of higher quality or pays a greater amount of interest.

All of the following fall under the definition of "immediate family" for purposes of FINRA Rule 5130 covering IPO allocations EXCEPT the: A. spouse of an associated person B. child of an associated personC. grandparent of an associated person D. individual who is financially dependent upon an associated person

`The best answer is C.The definition of "immediate family" for purposes of FINRA Rule 5130 covering IPO distributions includes spouses, children, parents, siblings, in-laws of these individuals, and anyone under a person's financial control. It does not include uncles, aunts, grandparents and grandchildren unless they are under one's financial control.