Questions missed from MOCK SERIES 7

Automatic exercise will occur for equity options at expiration that are in-the-money by at least:

0.01.

In a municipal underwriting, the scale is -used by the syndicate to determine the bid on a new issue. -a list of the yield or prices at which the bonds will be offered to the public. -used by the syndicate to determine the allocation priority of orders. -only used when underwriting term bonds.

1 & 2

Trading in expiring options series concludes the same day as expiration at

4:00 pm ET

When determining position limits for listed options contracts and LEAPS contracts on the same side of the market, which of the following statements is TRUE?

A) The contracts must be aggregated. LEAPS and listed options on the same side of the market, on the same underlying security, must be aggregated and remain within position limits.

Under the 5% markup policy, which of the following determines the amount of markup in a principal transaction? A) Lowest bid. B) Lowest ask. C) Highest bid. D) Highest ask.

B Markups are always based on the inside offer which is the lowest ask price in a particular security. Markdowns are based on the inside bid which is the highest bid price for a particular security.

The trust indenture of a revenue bond will show all of the following EXCEPT the: A) revenue pledge. B) rate covenant. C) reoffering yields. D) application of flow of funds.

C Reoffering yields are unrelated to trust indentures. However, the trust indenture for a revenue bond issue does include covenants (or promises) between the issuer and the trustee for the bondholders' benefit. Among these covenants are the flow of funds and the rate covenant.

The risk that time value may erode the premium of an equity option even while the underlying issuer remains financially sound is an example of:

Capital risk is generally associated with equity instruments, such as common stock, and equity-related derivatives, such as options. It is the risk that invested dollars can be lost as the result of circumstances unrelated to an issuer's financial strength.

Which organization or governmental unit sets fiscal policy?

Congress and the President.

Which of the following is required to be maintained by financial institutions such as banks and broker/dealers (BDs) by the USA PATRIOT Act to prevent the financing of terrorist operations and money laundering? A) Specially Designated Nationals list B) Privacy notices C) Customer identification programs (CIPs) D) Do-not-call lists

Customer identification programs (CIPs) - Office of Foreign Asset Control (OFAC) publishes and maintains the "Specially Designated Nationals" list

If a customer buys callable municipal bonds, MSRB rules state that the confirmation sent to the customer must disclose the: A) higher of either the yield to call or yield to maturity. B) nominal yield only. C) yield that would result if the bonds were called midway between the date they become eligible to be called and their maturity date. D) lower of either the yield to call or yield to maturity.

D

XYZ corporation divests itself of all of the shares of another company it owns. This is known as: A) an acquisition. B) a recapitalization. C) a merger. D) a spin-off.

D

Which of the following interest rates is NOT market driven? A) Prime rate. B) Discount rate. C) Broker call loan rate. D) Federal funds rate.

Discount Rate

Which organization or governmental unit sets monetary policy?

FRB

If a registered representative is opening a brokerage account for a partnership, in which order, from first to last, would the following events ordinarily take place? -Representative obtains the partnership agreement -Principal gives written acceptance of the account -Representative fills out a new account card -First trade is executed.

III, I, II, IV. When a registered representative opens a new account, the first step is to complete the new account form. In the case of a partnership account, a principal of the firm must see a copy of the partnership agreement before accepting the account. When the account has been accepted by the principal, trades may be entered.

Industrial production is what kind of economic indicator?

Industrial production is a coincident economic indicator.

An investor purchases 5 Mt. Vernon Port Authority J & J bonds in a regular way transaction on Wednesday, October 18. How many days of accrued interest are added to the bond's price?

Interest accrues on municipal bonds on a 360-day-year basis, with all months having 30 days. Therefore, July, August, and September each have 30 days of accrued interest and October has 19 days of accrued interest; this totals 109 days. Settlement date is Friday, October 20.

An inverted yield curve is the result of:

Investors buying long-term bonds and selling short-term bonds.

IN THE MONEY CALL

MV>SP

Accrued Interest Periods

Munis/Corporate 30/360 US Securities Actual/365

At which stage of the money-laundering process are illicit funds most susceptible to detection?

Placement, the first step in laundering money, when no attempt is made to hide its origins, is recognized as the step during which the illegal funds are most vulnerable to detection. There is no step called relocation.

All of the following are regulated by the MSRB EXCEPT: A) quotes. B) sales representatives. C) dealers. D) issuers.

Quotes, dealers, and sales representatives are regulated by the MSRB; issuers are not.

IN THE MONEY PUT

SP>MV

An investor long 100 shares of stock writes a call against the long stock position. If the call is exercised and the investor must deliver the stock, which of the following tax consequences will occur?

Sales proceeds are adjusted for the stock. When the call is exercised the owner of the stock will be obligated to sell the shares owned at the strike price. The sales proceeds for the stock will be adjusted upwards by the amount of the premium received when the call was sold.

Which of the following would NOT be examples of overlapping debt? -Debt to build a state office building within city limits. -Debt to maintain a county park district serving a municipality. -Debt backed by two states cooperating in the construction of a bridge. -Debt for a high school district within city limits.

State debt cannot overlap with any other municipal entity. Debt to build a state office building within city limits. Debt backed by two states cooperating in the construction of a bridge.

Within a firm commitment underwriting, which document details the responsibilities and liabilities of each firm?

The agreement among underwriters, also called the syndicate letter, is signed by representatives of all syndicate members and establishes a joint account to sell newly-issued securities.

On the same day in a new margin account, a customer buys 1,000 XYZ at $80 and sells short 1,000 ABC at $20. Which statements are TRUE? The margin deposit is $50,000. The margin deposit is $60,000. The minimum maintenance margin requirement is $25,000. The minimum maintenance margin requirement is $26,000.

The customer must put up 50% on both the purchase and short sale, which results in a deposit of $50,000. The maintenance requirement on the long position is 25% of the current market value (25% × $80,000 = $20,000) while the maintenance requirement on the short position is 30% of the current market value (30% × $20,000 = $6,000).

An options trader establishes the following positions: Long 10 ALF Apr 40 calls at 6 Short 10 ALF Apr 50 calls at 2 What is the client's maximum gain and loss per share?

The gain is 6 (between 44 and 50). If the stock declines, both options will expire for a loss of 4 (6 − 2).

If the rate of inflation has slowed down and the Federal Reserve Board (FRB) takes action to spur the economy forward, which of the following statements regarding outstanding fixed-income securities trading in the secondary market as a result of the FRB action is TRUE?

Their prices will rise To spur the economy forward, the Federal Reserve Board lowers interest rates. Lowering the interest rates causes the prices of outstanding bonds to rise in the secondary market.

In March, a customer sells 1 ABC Oct 50 put for 3 and buys 1 ABC Oct 60 put for 11. The customer will experience a pretax profit from these positions if: -the difference between the premiums narrows to less than $8 -the difference between the premiums widens to more than $8 -both puts are exercised at the same time -both puts expire unexercised.

This debit spread becomes profitable if the spread widens between the premiums. Credit spreads are profitable if the spread narrows between the premiums. If both puts are exercised, the spread is profitable. If the short 50 put is exercised, the customer buys the stock and sells it for 60 by exercising the long 60 put ($1,000 profit − $800 premiums = net $200 profit).

Broker/dealers must report cost basis and sales proceeds

To customers and the IRS annually

When must a new options customer return a signed option agreement?

Within 15 days of the account approval.

Which of the following is TRUE concerning yield-based (interest rate) debt options?

Yield-based debt options are European style contracts meaning that they can only be exercised on the last day of trading. All yield-based contracts when exercised are settled in cash. There is no delivery of debt instruments when these contracts are exercised. All strike prices reflect yield (35 strike price represents 3.5% yield).

When calculating net investment income, an investment company includes:

dividends plus interest, minus operating expenses.

Gross Investment Income

interest and dividends received from securities in the investment company's portfolio.

The first stage of money laundering is known as:

placement

A U.S. citizen owns stock in a Canadian company and receives dividends. The Canadian government withholds 15% of the dividends as a tax. As a result, the investor reports a: A) non-recoverable loss on the investor's U.S. tax return. B) tax credit on the investor's Canadian tax return. C) tax credit on the investor's U.S. tax return. D) reduction in the investor's ordinary income

tax credit on the investor's U.S. tax return.

If an investor opens a new margin account and sells short 100 shares of ABC at 32.50, with Regulation T at 50%, what is the investor's required deposit?

$2000 The Regulation T requirement is $1,625 ($3,250 × 50%). When selling stock short in a new account, an investor must meet the minimum requirement of $2,000 for any short sales of $4,000 or less. Above $4,000, the deposit is 50% of the short market value.

To determine the winning bid on an NIC (net interest cost) basis, an issuer will do which of the following? -Add any premium to total interest cost. -Subtract any premium from total interest cost. -Add any discount to total interest cost. -Subtract any discount from total interest cost.

2 & 3 Interest cost to the issuer is reduced by any premiums received by the issuer when the bonds are initially sold or is increased by any discounts the issuer must accept when the bonds are initially sold. Reducing interest cost by the amount of any premium received or increasing interest cost by the amount of the discount the bonds are sold at, is how the issuer will arrive at the net interest cost (NIC).

When investor confidence in the economy is increasing, a technical analyst would anticipate that: -yields on AAA-rated bonds will be higher than those on BBB-rated bonds. -yields on BBB-rated bonds will be higher than those on AAA-rated bonds. -the spread between yields on AAA-rated and BBB-rated bonds will increase. -the spread between yields on AAA-rated and BBB-rated bonds will decrease.

2 & 4

A member firm broker/dealer wishing to go public may sell a new equity issue of its own securities to all of the following EXCEPT: A) employees of other full-service member firms. B) owners, officers, and employees of the firm. C) family members of owners, officers, and employees of the firm. D) public customers.

A Rules regarding restricted persons generally prohibit member firms from selling new issue securities to employees of member firms including their own. However, when member firms sell their own securities, rules regarding restricted persons do not apply to the issuer's own employees but still apply to the employees of other full-service member firms.

An investor wants to invest $200,000 in the banking industry sector. The investor would like to utilize leverage and do this purchase in a margin account. Additionally, she stresses wanting to avoid year-end tax statements showing unrealized capital gains liabilities. You would suggest which of the following as suitable given the investor's criteria?

A bank sector exchange traded fund (ETF) The investor's criteria eliminate mutual funds as being suitable. Mutual funds make annual capital gains distributions for which the owner incurs a tax liability and mutual funds cannot be purchased on margin. Conversely, an ETF will rarely make a capital gains distribution and because they trade like all exchange traded products they can be purchased on margin making them more suitable for this investor. Buying only a few select bank stocks is not a good representation of the entire sector.

In which of the following types of offerings does a brokerage firm have no financial obligation for unsold securities? All-or-none. Best efforts. Standby.

All or None Best Efforts In a best efforts underwriting, the underwriter serves as an agent with no financial obligation for unsold securities. In an all-or-none (AON) offering, the underwriter agrees to devote its best efforts to sell the issue, but the entire offering is canceled if all shares cannot be sold. In a standby underwriting, the underwriter agrees to purchase any unsold shares remaining after the expiration of a rights offering (firm commitment).

A broker-dealer has asked a professional associate to give a testimonial on behalf of the member firm so that it can be distributed to potential clients. These types of testimonials require certain disclosures be made. Which of the following would NOT be required to be disclosed? A) That the returns and investment performance cited in the testimonial might not be duplicated B) Length of time covered by the testimonial C) Compensation if paid for the testimonial in cash or material value above a specified threshold D) Qualifications of the person giving the testimonial if a specialized or an expert opinion is implied

B

Regarding the topic of outside business activity for associated persons of a FINRA member firm, which of the following statements is NOT TRUE? A) An associated person cannot work for any business other than his member firm without his employing broker/dealer's knowledge. B) Member firms must grant permission in writing prior to any outside business activity on the part of the associated person. C) A passive investment such as the purchase of a limited partnership unit, is not considered an outside business activity. D) Prior written notice must be provided to the member before any outside business activity may occur.

B While the member firm has the right to reject or restrict any outside business affiliations if a conflict of interest exists, their prior written approval is not required before the business activity can begin.

An investor buys an ABC May 45 put at 4.25 when the stock is trading at $43. The put is in-the-money when the stock is: A) below 40.75. B) below 45. C) below 38.75. D) above 47.25.

B- BELOW 45 A put is in-the-money when the underlying stock trades below the exercise price of the put. The put is in the money by 2 points.

A small retail investor wants to invest in a growth development company. Which of the following should be of the most concern regarding suitability?

Whether the growth development company is traded or nontraded Growth development companies, also known as business development companies (BDCs), allow smaller, nonaccredited investors the opportunity to invest in startup ventures. Providing startup capital to companies and allowing smaller investors the opportunity to participate are simply characteristics of BDCs. Of course, the SEC does not approve or disapprove of any investment so this would not be a suitability concern. However, from a suitability perspective, a small retail investor should be most concerned with liquidity and being able to divest easily if they need to. In this light, whether the company is traded or nontraded would be very important as nontraded development companies are viewed as being illiquid and the opportunity to exit the investment may be limited and come at a discount to current market value.

When the SEC rules that an offering has become effective, the SEC has: A) cleared the offering for sale. B) approved the offering for registration. C) not verified the accuracy of each statement in the registration statement but has approved of the offering. D) verified the accuracy of the statements in the registration statement.

cleared the offering for sale.

Working capital is:

current assets - current liabilities

A municipality that has issued GANs, short-term municipal notes, does so in expectation that the debt service will be paid by the receipt of funds attained:

via grants from the federal government. Grant anticipation notes (GANs) are short-term municipal notes issued in anticipation of funds via grants that the municipality is expecting from the federal government.