S7-Final 1

The "crossing" of customer orders by a Floor Broker on the CBOE floor is: A. a prohibited practiceB. permitted only if the floor broker could not execute each of the orders with other market participants C. permitted only if a Floor Official approves D. permitted without restriction

. permitted only if the floor broker could not execute each of the orders with other market participants

If a customer sells securities and fails to deliver on settlement date, the position must be bought in how many business days later? A. 1B. 5C. 10 D. 90

10

At the beginning of the year, an investor buys 1,000 shares of XYZ stock, purchased at $33 per share. Subsequently, the stock rises to $40 by the end of the year and the stock pays a $4 dividend during the year. By the end of the following year, the stock has fallen to $25 and pays the same $4 dividend. What is the stock's dividend yield? A. 4% B. 10% C. 12%D. 16%

16%

A customer owns 400 shares of ABC stock. ABC is having a rights offering where 20 rights are needed to subscribe to 1 new share. How many new shares can the customer purchase through this rights offering? A. 1 shareB. 20 shares C. 100 shares D. 400 shares

20 shares

A customer has purchased $12,000 of a mutual fund. Over the past year, the fund has appreciated to $16,000. At this point, the customer wants to buy another $5,000 of the fund. In the prospectus, the breakpoint schedule is: Purchase AmountSales Charge$0-$5,000 8 ½%>$5,000-$10,000 7 ½%>$10,000-$15,000 6 ½%>$15,000-$20,000 5 ½%>$20,000 5 % For the $5,000 purchase, the customer will pay a sales charge of: A. 8½% B. 6½% C. 5½%D. 5%

5% Since this fund starts with the maximum sales charge of 8 ½%, it must offer rights of accumulation. Funds charging the maximum sales charge are required to do so under FINRA's Conduct Rules. To determine the breakpoint for the customer, the new purchase amount is added to the current value of the customer's holdings in the fund. $16,000 current value plus $5,000 purchase = $21,000 total holding after the new purchase. This places the customer over the $20,000 breakpoint, so the sales charge imposed on the $5,000 purchase is 5%.

The Consolidated Quotations Service is open during the hours of: A. 9:00 AM ET - 4:00 PM ET B. 9:30 AM ET - 4:00 PM ETC. 9:00 AM ET - 6:30 PM ET D. 9:30 AM ET - 6:30 PM ET

9-6:30

A customer has $7,000 of capital losses and $3,000 of capital gains in a tax year. On that year's tax return, the investor has a: A $3,000 capital loss deduction with no loss carryforward B $3,000 capital loss deduction and a $1,000 loss carryforward C $4,000 capital loss deduction with no loss carryforward D $7,000 capital loss deduction

A $3,000 capital loss deduction with no loss carryforward

An institutional customer places a marketable order to buy 10,000 shares of ABCD stock, a NASDAQ listed company. The customer directs that the trade be routed to an ECN for execution and not be sent to the NASDAQ. Which statement is TRUE about this? A. The customer's instructions are to be followed and the order must be sent to the designated ECN B. The order must be sent to the NASDAQ for execution C. The order must be sent to the market with the largest display size D. The order cannot be accepted from the customer

A. The customer's instructions are to be followed and the order must be sent to the designated ECN

A registered representative believes that municipal bonds may be an appropriate investment for her customer. In order to determine whether such a recommendation would be suitable, which of the following would be considered? I The state in which the customer residesII The components of the customer's existing portfolioIII The tax bracket of the customerIV Whether the customer is subject to the alternative minimum tax A. III only B. I, IVC. I, II, IIID. I, II, III, IV

ALL

The purchase price of which of the following can be negotiated? I Treasury BillII Certificate of depositIII Banker's acceptanceIV Commercial paper A. II, III, IV B. I, II, III C. I, III, IVD. I, II, III, IV

ALL becuase they ALL trade-thus are negotiable

ABC Corporation has declared a cash dividend to stockholders of record on Friday, December 10th. The last day to buy ABC shares BEFORE they go ex dividend is? A. Tuesday, December 7thB. Wednesday, December 8th C. Thursday, December 9th D. Friday, December 10th

B. Wednesday, December 8th

The bondholder of a municipal bond issue is the: A. borrower of the bond proceedsB. lender of the bond proceeds C. guarantor of the payment of debt service on the bond issue D. fiduciary acting for the benefit of the bondholders

B. lender of the bond proceeds

A corporation declares a cash dividend on Monday, November 8th, payable to holders of record on Monday, November 22nd. The local newspaper publishes the announcement on Tuesday, November 9th, while Standard and Poor's reports the dividend on Thursday, November 11th. The ex date for regular way trades will be set at: A. Wednesday, November 10th B. Thursday, November 18thC. Friday, November 19th D. Monday, November 22nd

C. Friday, November 19th

Which of the following statements describe Freddie Mac? I Freddie Mac buys conventional mortgages from financial institutionsII Freddie Mac is an issuer of mortgage backed pass-through certificatesIII Freddie Mac is a corporation that is publicly tradedIV Freddie Mac debt issues are directly guaranteed by the U.S. Government A. I and II only B. III and IV onlyC. I, II, IIID. I, II, III, IV

C. I, II, III

The yield to maturity for a premium bond is: A. stated interest rate - annual capital loss / bond par valueB. stated interest rate + annual capital gain / bond par valueC. stated interest rate - annual capital loss / bond average value D. stated interest rate + annual capital gain / bond average value

C. stated interest rate - annual capital loss / bond average value

Ford Motor Company has issued 8% convertible debentures, convertible at a 10:1 ratio. Currently the debenture is trading at 94. The stock is trading at $80. What is the conversion price of the stock? A. $10 B. $80C. $94D. $100

D. $100

The trust indenture of a bond would include which of the following information? I Interest rateII MaturityIII Collateral backing the issueIV Call provisions A. I and II only B. III and IV only C. I, II, IIID. I, II, III, IV

D. I, II, III, IV

A municipal variable rate demand note: I is considered to be a short term issue II is considered to be a long term issue III gives the issuer the right to call the bond from the holder on pre-set dates IV gives the holder the right to put the bond to the issuer on pre-set dates A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Which statement is FALSE about OATS? A. Orders for NASDAQ-listed issues are entered into OATS B. Orders for OTCBB issues are entered into OATSC. Orders for Pink Sheet issues are entered into OATSD. Orders for CBOE-listed options are entered into OATS

D. Orders for CBOE-listed options are entered into OATS The best answer is D. OATS stands for "Order Audit Trail System." It electronically captures order information for U.S equities 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. It does not apply to options orders because there is unique information on each options order (basically whether the transaction is an opening or closing transaction) that OATS does not capture.

Which of the following investments has the lowest level of reinvestment risk? A. Preferred Stock B. Municipal Bond C. Collateralized Mortgage ObligationD. Treasury Bill

D. Treasury Bill

Which of the following statements are TRUE regarding CMOs? I When interest rates rise, maturities will lengthenII When interest rates fall, maturities will shortenIII When interest rates rise, holders are subject to prepayment riskIV When interest rates fall, holders are subject to extension risk A. I and II only B. III and IV only C. I, II, IIID. I, II, III, IV

I and II

Which of the following statements are TRUE about investment companies? I An open end fund is a type of management companyII A closed end fund is a type of management companyIII An open end fund is a publicly traded fundIV A closed end fund is a mutual fund A. I and II only B. III and IV only C. I and IV onlyD. II and III only

I and II only Management companies are types of investment companies that are either open-end or closed-end. An open-end management company is a mutual fund. A closed-end management company is a publicly traded fund.

Which of the following can be distributed by an REIT to its shareholders? I DividendsII InterestIII Capital GainsIV Capital Losses A. I and III B. I and IV C. II and III D. II and IV

I and III

Which of the following statements are TRUE about the NYSE Super Display Book system? I Market and Limit orders are acceptedII There is no limitation on order sizeIII Execution reports are routed directly to the firm via computerIV Orders cannot be placed on the Specialist's book (DMM's book) through the system A. I and III B. II and IV C. I, III, IV D. II, III, IV

I and III

Which of the following statements are TRUE regarding American Depositary Receipts? I Exchange listed ADRs are sponsoredII Exchange listed ADRs are not sponsoredIII Sponsored ADRs provide quarterly and annual reports to shareholdersIV Sponsored ADRs do not provide quarterly and annual reports to shareholders A. I and III B. I and IV C. II and III D. II and IV

I and III

Preferred stock is issued with an "anti-dilutive" covenant. If the corporation declares a 5% stock dividend, which statements are TRUE? I The conversion ratio is increasedII The conversion price is increasedIII The conversion ratio is decreasedIV The conversion price is decreased A. I and IIB. I and IV C. II and III D. III and IV

I and IV

Which of the following funds MUST be a closed end fund? I Net Asset Value = $10 / Purchase Price = $9.50II Net Asset Value = $10 / Purchase Price = $10III Net Asset Value = $10 / Purchase Price = $10.50 A. I only B. I and II C. II and III D. I, II, III

I only A closed end fund is traded in the market like any other stock. Any purchaser would pay the prevailing market price (which can be below, at, or above Net Asset Value) and would have to pay a commission to have the trade executed. Thus, a closed end fund share is purchased at the prevailing market price plus a commission. This contrasts to mutual fund (open end management company) shares that are newly issued by the fund to any purchaser. The purchaser pays the next computed Net Asset Value plus a sales charge if the fund imposes a "sales load." Thus, the minimum price for a mutual fund is Net Asset value; while the only type of fund that can trade for less than Net Asset Value is a closed end fund.

The trade-through rule of Regulation NMS applies to: I NYSE listed issuesII NYSE American (AMEX) listed issuesIII NASDAQ listed issues A. I only B. I and II C. II and IIID. I, II, III

I, II, III

Which of the following individuals trades on the New York Stock Exchange Floor? I Specialist (DMM)II Floor BrokerIII Two Dollar BrokerIV Competitive Trader A. I and II only B. III and IV onlyC. I, II, IIID. I, II, III, IV

I, II, III, IV

Which of the following information MUST be shown on a municipal bond trade confirmation? I Name, address, and telephone number of the municipal dealerII Whether the trade was effected on an agency or principal basisIII Whether the bond was a General Obligation or a Revenue bondIV Trade date and Settlement date A. I and III only B. II and IV onlyC. I, II, IVD. I, II, III, IV

I, II., III, IV

The O.C.C. is responsible for which of the following? I Standardization of listed options contractsII Trading of listed options contractsIII Issuance of listed options contractsIV Assignment of exercises of listed options contracts A. I and II only B. III and IV onlyC. I, III, IV D. I, II, III, IV

I, III, IV

Under MSRB rules, to make a suitable recommendation, the registered representative must have sufficient knowledge of the customer. Regarding recommendations to a customer, which of the following statements are TRUE? I If the customer refuses to disclose sufficient financial information, recommendations are still allowedII If the customer refuses to disclose sufficient financial information, recommendations are not permittedIII If the customer insists upon executing an unsuitable trade, the registered representative should execute the trade, denote his exception to the trade in his book, and mark the order ticket as "unsolicited"IV If the customer insists upon executing an unsuitable trade, the registered representative must submit the issue to industry arbitration A. I and III B. I and IVC. II and III D. II and IV

II and III

Which statements are TRUE regarding DK notices? I They are sent to customersII They are sent to contra-brokersIII They are used to confirm the details of the tradeIV They are used to reconcile unmatched trades A. I and III B. I and IV C. II and IIID. II and IV

II and IV

Which statement is TRUE about agency transactions? A. In an agency transaction, a commission is charged B. In an agency transaction, a mark-up or mark-down is chargedC. In an agency transaction, both a commission and a mark-up or mark-down are charged D. In an agency transaction, neither a commission, nor a mark-up nor mark-down are charged

In an agency transactin, a comission is charged

All of the following investment company terms are synonymous EXCEPT: A. Bid B. Redemption PriceC. Net Asset ValueD. Offering Price

Offering price

A mortgage backed security's "PSA" stands for: A. Pass-through standardization assumption B. Projected standardized amortizationC. Prepayment speed assumptionD. Principal securitization amount

Prepayment speed assumption

SPDRs are based on the: A. Standard and Poor's 100 IndexB. Standard and Poor's 500 Index C. Standard and Poor's 1000 Index D. Standard and Poor's 5000 Index

S&P 500

A client wishes to open an individual account that provides for 50% of the account assets to go to the surviving spouse upon death, with the remaining 50% going to other heirs. The client should be advised to use a: A. Transfer On Death (TOD) accountB. Tenants in Common account C. Joint Tenants with Rights of Survivorship account D. Community Property account

TOD

As the initial transaction in a new margin account, a customer buys 1,000 shares of XYZ stock at $30. The market value increases to $45. Which statements are TRUE? I Equity increases by $15,000II Equity increases by $30,000III SMA increases by $7,500IV SMA increases by $15,000 A. I and III B. I and IVC. II and III D. II and IV

The best answer is A. In a long margin account for every $1 rise in market value, equity will increase by $1. Since initial margin is set at 50%, for every $1 rise in market value, SMA increases by $.50 (that is, 50% of the market value increase can be borrowed). This account's equity went up $15,000; so the SMA would go up by 1/2 that amount, or by $7,500. Initially, the account sets up as:

A Municipal Finance Professional (MFP) writes a check from an account that is held jointly with his non-working wife for $500 to an elected official's campaign in which he is entitled to vote. He provides his employing municipal securities firm with a letter stating that 50% of the contribution was for himself and the other $250 was for his wife. Will this result in a 2-year ban prohibiting the municipal securities firm from transacting municipal securities business with that issuer? A. Yes, because the entire $500 contribution is attributable to the MFP under MSRB rulesB. No, because only $250 of the contribution is attributable to the MFP under MSRB rules C. Yes, because a contribution of any dollar amount to an elected official's campaign triggers a ban under MSRB rules D. No, because a ban is only triggered when a non-MFP makes a contribution in excess of the de minimis amount

The best answer is A. The MSRB political contribution rule is intended to stop so-called "pay to play" practices, where a person associated with a municipal firm would give large dollar contributions to the campaign of an elected official, and in return, the elected official would steer that issuer's upcoming underwritings to that municipal firm. The maximum amount that can be given by an MFP to an elected official's campaign in which the MFP is entitled to vote is $250 without any problems. If more than $250 is contributed, then that firm is banned from engaging in municipal securities business with that issuer for the next 2 years. "If a municipal finance professional signs a check, whether the check was drawn on a joint account or not, and submits it as a contribution to an issuer official, then the municipal finance professional is deemed to have made the full contribution, regardless of any writing accompanying the check that provides or directs otherwise." Thus, all $500 is attributable to the MFP and this would result in a ban.

Which statements are TRUE regarding bids placed at the Treasury Auction? I Non-competitive bids are always filledII Non-competitive bids are not always filledIII Individuals may place non-competitive bidsIV Individuals may not place non-competitive bids A. I and III B. I and IV C. II and III D. II and IV

The best answer is A.At the weekly Treasury auction, non-competitive bids are always filled at the average winning yields of the competitive bids. Only the lowest interest rate competitive bids are filled; the higher rate competitive bids that exceed the amount of securities up for auction that week are rejected. Only primary government dealers place competitive bids; secondary dealers and individuals place non-competitive bids.

High earning individuals can make contributions to: I UGMA AccountsII Roth IRAsIII UTMA AccountsIV Coverdell ESAs A. I and III B. I and IV C. II and III D. II and IV

The best answer is A.Custodian accounts opened under either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) can be opened by any adult for any minor, with no limitation on the income of the donor in determining whether the account can be opened. On the other hand, high earning individuals are prohibited from opening either a Roth IRA or a Coverdell Education Savings Account.

In 2019, the maximum contribution that an individual who earns $1,000 can make to an IRA is: A. $1,000 B. $4,000 C. $5,000 D. $6,000

The best answer is A.For the year 2019, the maximum individual contribution to an IRA is the lesser of 100% of income or $6,000. Since this person earns $1,000, the maximum permitted contribution is $1,000. Of course, if someone only earns $1,000 per year, they probably don't have enough money to eat and the probably don't have any excess funds to put into an IRA - but that is not part of the question!

Which statements are TRUE about stabilizing bids? I A stabilizing bid is placed by the syndicate managerII A stabilizing bid is placed by each syndicate memberIII Only 1 stabilizing bid is permitted at any timeIV Any number of stabilizing bids can be placed at any time A. I and III B. I and IV C. II and III D. II and IV

The best answer is A.Only 1 stabilizing bid is permitted at any time. The manager of the syndicate places the stabilizing bid on behalf of the syndicate.

Securities Investor Protection Corporation protects against: A. broker-dealer failure B. credit risk C. fraudulent tradingD. loss of principal

The best answer is A.Securities Investor Protection Corporation protects customer accounts when a broker-dealer fails.

ABC Corporation stock is being sold in a primary offering. The total offering is $10,000,000, of which $7,000,000 is allocated to the syndicate and $3,000,000 is allocated to the selling group. The public offering price is set at $10.00 per share. The issuer received $9.00 per share from the underwriters. The management fee has been set at $.10 per share; the selling concession is $.30 per share. The manager will earn a total fee of: A. $100,000 B. $300,000 C. $700,000 D. $1,000,000

The best answer is A.The management fee is $.10 per share. The offering is for $10,000,000 of stock divided by $10 per share = 1,000,000 shares. The total management fee is 1,000,000 shares x $.10 = $100,000.

elling group members earn which of the following discounts for selling a new municipal offering directly to the public? A. Selling Concession B. Additional Takedown C. Total Takedown D. Reallowance

The best answer is A.The takedown (also called the "total takedown") is the discount given by the manager to the syndicate members. This amount is earned by the syndicate member when he or she sells a bond directly to the public. The takedown consists of 2 pieces: the selling concession and the additional takedown. When a syndicate member sells a bond to the public, both pieces are earned. If a selling group member found the customer for the bond, the syndicate member gives up the selling concession to the selling group member. Thus, the selling group member earns the selling concession, leaving the syndicate member with the additional takedown only on that sale.

A customer buys 1 ABC Jan 60 Call @ $5 and sells 1 ABC Jan 70 Call @ $1 when the market price of ABC is $62. The customer must deposit: A. $400 B. $500C. $1,000 D. $1,040

The best answer is A.This is a debit call spread (bull call spread). The maximum loss is the debit of $400, so this is the deposit amount.

An electronic communication that recommends securities that is sent by a registered representative to each of her 77 customers is defined as: A. AdvertisingB. Sales Literature C. Correspondence D. Educational Material

The best answer is B. FINRA defines communications with the public as either: Correspondence: A communication made available to 25 or fewer existing or prospective retail clients Retail Communication: A communication made available to more than 25 existing or prospective retail clients Retail communications must be approved by a principal prior to use and can be required to be filed with FINRA. In contrast, correspondence is only subject to "post use review and approval" (as long as the firm has appropriate supervisory procedures in place) and cannot be required to be filed with FINRA. A "Retail Communication" is a very broad definition that includes advertising (seen by the general public) and sales literature (seen by a specific audience). Advertising: TV, radio, newsprint, billboards, websites, internet bulletin boards Sales Literature: Research reports, market letters or form letters delivered to more than 25 existing or prospective retail clients, scripted speeches delivered to more than 25 existing or prospective retail clients, password-protected websites

When comparing fixed annuities to variable annuities, which statements are TRUE? I A fixed annuity account grows at a guaranteed rateII A variable annuity account grows at a guaranteed rateIII Fixed annuities are subject to investment riskIV Variable annuities are subject to investment risk A. I and IIIB. I and IV C. II and III D. II and IV

The best answer is B. Fixed annuity premiums are invested in an insurance company's general account and grow at a guaranteed rate (which is usually fairly low). There is no investment risk. At retirement, the customer receives a fixed periodic payment for life. Variable annuity premiums are invested in an insurance company "separate account" which buys shares of a designated mutual fund. The account grows based on the performance of the underlying mutual fund, so the investor is subject to investment risk.

Rule 103 of Regulation M requires that a market maker in a stock that is also a syndicate member in an "add-on" offering of that issue, during the 20-day cooling off period: A. must effect all trades in that stock on an upbidB. must resign as a market makerC. cannot fill any orders for that security D. can only sell the stock "long" and cannot sell "short"

The best answer is B. Rule 103 of Regulation M covers the situation where a firm in the underwriting group for an add-on securities offering also happens to be a market maker in the stock. The worry of the SEC is that the market maker, during the 20-day cooling off period, would be tempted to aggressively buy the stock to push up the market price. This, in turn, would push up the POP when it is set just prior to the effective date, which would increase the underwriters' spread. To stop this, the SEC requires that either the market maker stop making a market until the effective date; or alternatively, the market maker must act as a "passive" market maker - meaning that it cannot buy the stock at a price higher than the current high bid.

When comparing Section 529 plans to Coverdell Education Savings Accounts, which statement is FALSE? A. The account may be opened by any adultB. Annual contributions are limited to $2,000 per beneficiary C. Earnings build in the account tax deferred D. Distributions to pay for higher education expenses are not taxable

The best answer is B. There is a maximum $2,000 annual contribution into a Coverdell Education Savings Account; there is no maximum annual contribution into a Section 529 account - any contribution limits are set by the state (and are typically quite high). Any adult can open either type of account for a beneficiary; contributions to either are not tax deductible; earnings build tax-deferred in both; and distributions to pay for qualified higher education expenses are not taxable for both.

A customer margin account shows: 100 shares of ABC @ $50300 shares of DEF @ $80200 shares of PDQ @ $30Debit = $20,000SMA = $4,500Reg. T = 50% If the customer takes the SMA as cash, the account will be at which margin percentage? A. 25%B. 30% C. 35%D. 40%

The best answer is B.It is given that the account has $4,500 of SMA. If this amount is borrowed, the debit will increase by $4,500. The account will show: Long Market Value-Debit=Equity%$35,000 $24,500 $10,500 30%

For an investor who has a Keogh Plan, which of the following statements are TRUE? I The plan is a tax qualifiedII The plan is non-tax qualifiedIII Once distributions commence at age 59 1/2 or later, only the tax deferred build-up is taxedIV Once distributions commence at age 59 1/2 or later, both the original investment and the build-up are taxed A. I and IIIB. I and IV C. II and III D. II and IV

The best answer is B.Keoghs are tax qualified retirement plans for self employed individuals. The investment in a Keogh plan is tax deductible; and the earnings in the plan "build-up" tax deferred. Since none of the dollars were ever taxed, 100% of all distributions from Keoghs are taxable.

Credit can be extended on new issues: A. immediately after the offering is completeB. after 30 days have elapsed from the completion of the offering C. after 60 days have elapsed from the completion of the offering D. after 90 days have elapsed from the completion of the offering

The best answer is B.New issues are not eligible for margin until 30 days have elapsed from the completion of the offering.

Which of the following brokerage firm units would need to be separated under "Chinese Wall" requirements? I U.S. equities trading desk separated from Asian equities trading deskII U.S. equities trading desk separated from the firm's U.S. investment banking unitIII U.S. equities trading desk separated from the firm's U.S. research unitIV U.S. equities trading desk separated from the firm's foreign equities trading desk A. I and IVB. II and III C. I only D. I, II, III, IV

The best answer is B.The "Chinese Wall" as used in the securities industry, is the complete separation of a broker-dealer's investment banking unit or research unit from its trading unit. In its normal operations, an investment banking unit may advise on takeovers; or receive other confidential information that could influence the price of an issuer's securities once the information is public. Broker-dealers establish a "wall" between the investment banking unit and the trading unit, so that this information is not received by the firm's traders in advance of its release to the public. This is accomplished by referring to the issuer's name as a codeword only; by severely restricting the number of people that work on sensitive projects, etc. In this manner, the firm's traders cannot profit from the information in advance of its release to the public. This is critical, since to do so would be a violation of the "Insider Trading" provisions of the Securities Exchange Act of 1934. The same problem applies to the flow of information between a firm's research unit and trading unit, so a Chinese Wall must be established here as well.

Under Rule 144, a customer wishing to sell must file the 144 "Notice of Sale" with the SEC: A. 10 business days prior to the placement of the sell orderB. at, or prior to, the placement of the sell order C. 10 business days after the placement of the sell order D. 90 days after the placement of the sell order

The best answer is B.The Form 144 is simply a notification to the SEC that stock will be sold in compliance with the Rule - the SEC does not approve of the sale. The Form must be filed by the seller at, or prior to, with the placement of the sell order.

n a corporate new issue offering, the issuer's responsibilities include which of the following? I Managing the syndicate accountII Determining each syndicate member's participationIII Printing the certificatesIV Registering the certificates A. I and II onlyB. III and IV only C. I, II, III D. I, II, III, IV

The best answer is B.The manager runs the syndicate account and determines each member's participation in the syndicate. In a new issue offering, the issuer is responsible for originally printing and delivering the shares. These shares go to the transfer agent, who transfers the shares into the names of the purchasers of the new issue. Corporate new issues must be registered with the SEC under the Securities Act of 1933, unless an exemption is available. These securities must also be registered in each state under that state's "Blue Sky Laws." Both registrations are the responsibility of the issuer.

A preliminary Official Statement must be delivered to a customer if: A. the customer requests it in writingB. the final official statement is not ready at the time of settlement C. this is the customer's first purchase of bonds of that issuer D. the trade confirmation is not yet ready

The best answer is B.Under MSRB rules, if a Final Official Statement is being prepared but is not yet ready, at the time of settlement, the customer can be sent a typed summary or a Preliminary Official Statement copy.

A hospital revenue bond issue is being underwritten on a negotiated basis. The offering consists of $100,000,000 par value of term bonds. The underwriter has agreed to a spread of $50.00 for each $5,000 bond. The manager has set the additional takedown at $20.00 per bond and the selling concession at $22.00 per bond. If a selling group member sells a $5,000 par value bond, the syndicate member earns: A. $0.00B. $20.00 C. $22.00 D. $42.00

The best answer is B.When a municipal syndicate member sells to the public, he earns the "total takedown," which is the total of the selling concession plus the additional takedown. In this case, the syndicate member does not earn the total takedown because the bonds were sold through a selling group member. Out of the total takedown of $42, a selling concession of $22 is given up to the selling group member, leaving the syndicate with the additional takedown of $20.

Which of the following investors are likely to trade foreign currency options? I U.S. Corporations with multinational operationsII Foreign Corporations with multinational operationsIII Individuals with large foreign currency holdingsIV Individuals with large U.S. dollar holdings A. I and II only B. III and IV onlyC. I, II, III D. I, II, III, IV

The best answer is C.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.

If a person is convicted of insider trading: I the amount of any profit achieved or loss avoided must be paidII three times the amount of any profit achieved or loss avoided must be paidIII payments are made to the Department of TreasuryIV payments are made to the Securities and Exchange Commission

The best answer is C.Fines assessed for insider trading convictions are paid to the Department of Treasury. The fines are not paid to the SEC. If they were, then the SEC might be tempted to "go crazy" prosecuting insider trading cases to pump up its operating budget (raises for everyone!) The amount to be paid is 3 times (treble damages) the profit achieved or loss avoided.

A customer has a fully paid options position and is long marginable stock. Subsequently he receives a margin call on his long stock position. Which of the following statements are TRUE? I The customer can borrow against long options contracts to satisfy a portion of the margin callII The customer cannot borrow against the long options contracts to satisfy the margin callIII Long option contracts have a loan value of 0%IV Long option contracts have a loan value of 50% A. I and IIIB. I and IVC. II and III D. II and IV

The best answer is C.Fully paid long option contracts have a loan value of "0" - they cannot be borrowed against because they will expire in the near future. If a customer has a fully paid options position, he or she cannot borrow against it to satisfy a margin call.

Notification to FINRA is required for all of the following EXCEPT: A. a written customer complaint is received about a registered employee misappropriating customer fundsB. a registered representative is arrested for assault and batteryC. a registered representative is committed to a mental institution D. a registered representative is indicted under the Securities Exchange Act of 1934 for "insider trading" violations

The best answer is C.If one goes insane, notification to FINRA is not required. (After all, how would that person know to notify FINRA - he's insane).However, FINRA does require prompt notification for a variety of reasons. If one is the subject of a written customer complaint involving theft or embezzlement; if one is arrested, arraigned, indicted, convicted, or pleads guilty to any criminal offense (except for minor traffic violations); or if one is sued under the Securities Acts; notification to FINRA is required. In addition, notification to FINRA is required if the registered representative is suspended or expelled by any other self-regulatory organization; is denied registration by another self-regulatory organization; or is the subject of a customer complaint that is settled for more than $15,000; or is the subject of disciplinary action by the member firm involving suspension, termination, or the withholding of commissions in excess of $2,500. When FINRA gets the report, they review it to see if they should do nothing, suspend the person's registration, or expel the registered representative.

A customer buys 1 OEX Jan 550 Put @ $10 when the index is at 548.25. The maximum potential gain for the customer is: A. $1,000B. $53,825C. $54,000 D. $55,000

The best answer is C.If the index drops to "0," the writer must pay the holder 550 x 100 = $55,000. Since the holder paid 10 points ($1,000) in premiums, the maximum potential gain is $54,000.

A company has decided to terminate its retirement plan and is going to make lump sum distributions to its employees. In order to defer taxation on the distribution, the employee may: A. buy tax exempt municipal bonds B. buy a single premium deferred annuityC. roll over the funds into an Individual Retirement Account within 60 daysD. establish a UGMA account within 60 days

The best answer is C.Lump sum distributions from qualified plans can be "rolled over" into an IRA without dollar limit and remain tax deferred as long as the rollover is performed within 60 days of the distribution date.

A municipal bond dealer typically engages in which of the following activities? I Distributing bona-fide quotes to interested partiesII Participating in syndicates bidding on new issuesIII Acting as a market maker by taking long positionsIV Acting as a market maker by taking short positions A. I and II only B. III and IV onlyC. I, II, III D. I, II, III, IV

The best answer is C.Municipal dealers participate in bidding for new issues, distribute quotes, and take inventory positions (long positions) in municipal issues. Short positions are not taken due to the thin trading market for municipals, which makes short covering difficult.

A customer establishes a combined margin account by purchasing $30,000 of ABC stock and selling short $40,000 of XYZ stock, depositing the Regulation T requirement. Subsequently, the market value of the ABC position increases to $45,000, while the market value of the XYZ position decreases to $25,000. If no other activity occurs in the account, the account will show a current SMA balance of? A. $7,500 B. $15,000C. $30,000D. $45,000

The best answer is C.The customer established the following long position: Long Market Value Debit Equity SMA$30,000$15,000 $15,0000 If the market value rises to $45,000, the account will now show: Long Market Value Debit Equity SMA$45,000$15,000 $30,000 $7,500

Which statements are TRUE regarding the weekly Treasury Bill auction? I The minimum competitive bid has no dollar limitII The minimum competitive bid amount is $5,000,000III The maximum competitive bid has no dollar limitIV The maximum competitive bid amount is $5,000,000 A. I and III B. I and IVC. II and III D. II and IV

The best answer is C.The minimum competitive bid amount in the weekly Treasury Bill auction is $5,000,000. There is no dollar maximum for a competitive bid, although the Treasury imposes a maximum competitive bid limit per primary dealer of 35% of securities offered in any single auction.

To open a portfolio margin account: I the account must be approved for covered options writingII the account must be approved for naked options writingIII minimum equity of $100,000 must be maintainedIV minimum equity of $1,000,000 must be maintained A. I and III B. I and IVC. II and IIID. II and IV

The best answer is C.The minimum equity to open a portfolio margin account for an individual customer is $100,000. This compares to the minimum equity requirement of $2,000 for a regular margin account. Portfolio margin can only be used by institutional or wealthy sophisticated individual customers. To open a portfolio margin account, the account must be qualified for naked options writing, which requires a more-detailed suitability determination and requires not only branch manager approval, but also separate approval of a designated Registered Options Principal.

Under Regulation M, which statements are TRUE regarding stabilizing bids entered by market makers? I Stabilizing bids can only be maintained for 5 consecutive business daysII There is no time limitation on the period that a stabilizing bid can be maintainedIII A stabilizing bid cannot be placed unless a "Notice of Stabilization" is included in the prospectusIV A stabilizing bid cannot be placed unless an "Official Notice of Sale" is placed in the prospectus A. I and IIIB. I and IVC. II and III D. II and IV

The best answer is C.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. An Official Notice of Sale is used to solicit competitive bids for municipal new issues and has nothing to do with stabilization.

Which statements are TRUE about variable annuities? I Contributions are tax deductibleII Contributions are not tax deductibleIII Distributions are taxableIV Distributions are not taxable A. I and III B. I and IVC. II and IIID. II and IV

The best answer is C.Variable annuity contributions are not tax-deductible. Earnings in the account build tax-deferred. When distributions are taken, tax is due on the portion that represents the tax-deferred build-up. The portion that represents the original contribution (already taxed dollars) is returned without any further tax due.

A customer short margin account shows: 100 shares of ABC @ $45300 shares of DEF @ $50Credit = $45,000SMA = $15,750Reg. T = 50% What is the equity in the account? A. $5,850 B. $9,750 C. $19,500D. $25,500

The best answer is D. The account is set up as: Credits-Short Market Value=Equity%$45,000$19,500$25,500131% The account has $25,500 of equity.

A customer requests the preliminary prospectus for a new issue that a firm is underwriting. The registered representative "highlights" important information in the document with a red marking pen. This action is: A. permitted with written approval of the branch manager B. permitted if the registered representative sends the customer a letter acknowledging the alterations C. permitted if the altered document is filed with the SECD. not allowed under any circumstances

The best answer is D.Alterations to a preliminary prospectus or final prospectus are prohibited. These documents have been filed with the SEC; and it is expected that the public will receive them in the exact form as filed with the SEC. Any changes to the documents invalidate the filing.

Which of the following are prohibited from buying an IPO directly from an underwriter? I A registered investment companyII An officer of a registered investment companyIII An insurance companyIV An officer of an insurance company A. I and II only B. III and IV only C. I and III onlyD. II and IV only

The best answer is D.FINRA prohibits the purchase of equity IPOs (Initial Public Offerings) by industry "insiders." The list of prohibited purchasers includes FINRA member firms for their own accounts, officers and employees of member firms (and their immediate family members), fiduciaries to member firms (such as accountants and lawyers that are retained by FINRA member firms); and investment managers for investment companies, insurance companies, pension plans, etc. Note that investment companies, insurance companies and pension plans may buy IPOs - it is only their investment managers that are restricted from buying IPOs for their personal accounts.

All of the following statements are true regarding Regulation T EXCEPT: A. Regulation T requires payment for purchases within 4 business days B. Regulation T applies to non-exempt securities onlyC. Regulation T applies to both listed and unlisted securitiesD. Regulation T sets both initial and maintenance margins

The best answer is D.Regulation T requires payment promptly for purchases, but no later than "S + 2," which is 4 business days after trade date (regular way settlement of 2 days + 2 grace days). Regulation T only applies to non-exempt securities. It does not apply to exempt securities since it is part of the Securities Exchange Act of 1934, of which only the anti-fraud provisions apply to exempts. Regulation T margins apply to both listed and unlisted securities. The Federal Reserve only allows exchange listed and NASDAQ securities to be margined. OTCBB and Pink Sheet securities cannot be margined. Regulation T only sets initial margins; maintenance margins are set by FINRA.

A customer has an account with a brokerage firm that is in receivership. The account holds $90,000 of securities and has a $50,000 debit. Which statement is TRUE regarding SIPC coverage? A. The account is covered for $90,000 B. The customer must deposit $50,000 to receive the $90,000 of securities C. The account is covered for $50,000D. The account is covered for $40,000

The best answer is D.SIPC covers the equity in a customer's account, with coverage not to exceed $500,000 equity per account in securities. However, cash coverage is limited to $250,000. This account has $90,000 of securities and a $50,000 debit, so the equity is $40,000. The customer will receive $40,000 worth of securities in the liquidation.

A customer buys 1 XMI Feb 350 Put @ 6 when XMI closes at 346. The intrinsic value of the contract is: A. 1 point B. 2 points C. 3 pointsD. 4 points

The best answer is D.Since the put contract allows the holder to sell XMI at 350 when XMI is worth 346, the contract is "in the money" by 4 points. Remember, puts go "in the money" when the market drops. Of the total 6 point premium, 4 points are "intrinsic value." The balance of the premium (2 points) is "time premium."

The penalty tax applied for not taking required minimum distribution from a qualified retirement plan in a given year is: A. 6% of the shortfall B. 10% of the shortfall C. 15% of the shortfallD. 50% of the shortfall

The best answer is D.The penalty applied for not taking required minimum distributions from a qualified plan starting at age 70 1/2 is 50% of the under-distribution. There is an incentive to take the money out and pay tax on it, which is what the Treasury is really looking for!

A customer sells short 1,000 shares of ABC stock at $1.50 per share in an initial transaction in a new margin account. The customer must deposit: A. $750 B. $1,500C. $2,000D. $2,500

The best answer is D.Under the "cheap stock rule," if a customer sells a stock short under $5.00 per share, he must put up the greater of 100% or $2.50 margin per share. 100% of $1.50 per share x 1,000 shares = $1,500. $2.50 x 1,000 shares = $2,500. The greater amount is $2,500. More money can be required than the sale amount because the loss potential is unlimited.

A mutual fund has a net asset value per share of $10.45. The maximum offering price per share is: A. $10.60 B. $10.95C. $11.42 D. $11.50

The maximum sales charge on a mutual fund is 8.5% under FINRA rules. The formula to find the offering price is: Net Asset Value 100% - Sales Charge %= $10.45 100% - 8.5%=$10.45.915 =$11.42

Which of the following investments is issued with a stated coupon rate and with a maximum maturity of 30 years? A. Treasury Notes B. Treasury Stock C. Treasury StripsD. Treasury Bonds

Treasury bobds

REITs may be organized as: A. general partnerships B. management companiesC. trusts D. limited partnerships

Trsuts

All of the following would be purchasers of Eurodollar bonds EXCEPT: A. British investors B. French investors C. Japanese investorsD. United States investors

US Investors

Interest income from which municipal bond is LEAST likely to be included as a tax preference item under the Alternative Minimum Tax (AMT)? A. Airport revenue bond B. Convention center revenue bond C. Private utility revenue bondD. Water revenue bond

Water revenue bond The best answer is D.Private purpose revenue bonds are taxable municipal bonds. They can either be subject to regular income tax, or If they are "qualified private purpose bonds," they are subject to AMT. Choices A, B and C are private uses. Choice D is an essential public use and the interest income would be federally tax-free.

All of the following are evaluated in the feasibility study prepared prior to the issuance of revenue bonds EXCEPT: A. expected demand for the facilityB. effect of competing facilities C. expected operating costs of the facilityD. bond trust indenture

bond trust indenture

To loosen credit the Federal Reserve will: A. sell U.S. Government securities to bank dealers with an agreement to buy them back at a later dateB. buy U.S. Government securities from bank dealers with an agreement to sell them back at a later date C. sell Foreign Government securities to bank dealers with an agreement to buy them back at a later date D. buy Foreign Government securities from bank dealers with an agreement to sell them back at a later datebuy U.S. Government securities from bank dealers with an agreement to sell them back at a later date

buy U.S. Government securities from bank dealers with an agreement to sell them back at a later date

Real Estate Investment Trusts are not suitable as tax advantaged investments because they: A. have too many corporate characteristics B. do not qualify for conduit tax treatment under Subchapter MC. are not allowed to pass operating losses to shareholders D. are not allowed to pass capital gains to shareholders

dont p[ass through losses to shareholders

Rule 605 of Regulation NMS requires: A. each market center to prepare monthly electronic reports about its quality of executions and effective spreadsB. each broker-dealer to prepare quarterly reports on its routing of non-directed orders, including the 10 largest venues where orders were routed C. market makers in OTC stocks to display any customer limit orders that are better-priced than the dealer's own quote D. any order execution facility to execute the order at the NBBO, even if that execution facility is posting an inferior quote

each market center to prepare monthly electronic reports about its quality of executions and effective spreads

A corporation has issued $100 par, 8% cumulative convertible preferred stock, callable at par. The preferred is convertible into 1.4 shares of common stock. Currently, the preferred stock is trading at $102 while the common stock is trading at $75.50. The corporation calls the preferred stock at par plus accrued dividends of $2 per share. The corporation is making a(n): A. tender offerB. forced conversion C. advance refunding D. simultaneous transaction

forced conversion

For a qualified retirement plan contribution to be deductible from that year's tax return, the contribution must be made by no later than: A. April 15th of that year B. December 31st of that year C. April 15th of following yearD. the tax filing date of the following year

he best answer is D.Contributions to qualified retirement plans (other than IRAs) must be made no later than the date the tax return is filed (even if it is filed with an extension). On the other hand, IRA contributions must be made no later than April 15th of the tax year after the year for which the deduction is claimed.

`Which of the following investments is the most illiquid? A. Mutual fundB. Closed-End FundC. Hedge Fund D. Exchange Traded Fund

hedge fund

A bond contract contains the following information: Issue Date:July 1, 2009First Call Date:July 1, 2019 Date of CallPrice20191052020104202110320221022023 and after100 If the issuer calls the bonds at 105 in the year 2019, the issuer is making a(n): A. optional call B. extraordinary optional callC. mandatory call D. extraordinary mandatory call

optional call

A debt of a neighboring area that is the responsibility of the taxpayers in a municipality is a(n): A. overlapping debt B. double barreled debt C. industrial development debtD. moral obligation debt

overlapping debt

An annuitized account in a variable annuity is most similar to: A. a mutual fund B. a whole life insurance unitC. pension payments D. an individual retirement account

pension payments

On the same day in a margin account, a customer buys 5 ABC January 40 Calls @ $6 and sells 10 ABC January 50 Calls @ $1 when the market price of ABC is at $43. The customer has created a: A. short combination B. long combinationC. ratio spread D. back spread

ratio spread

A municipal bond which is secured by taxes OTHER than ad valorem taxes is a(n): A. Special tax bond B. Industrial revenue bondC. Moral obligation bond D. General obligation bond

special tax bond

All of the following statements are true regarding municipal bonds that have been called EXCEPT: A. interest ceases to accrue on the bonds B. the call price sets a ceiling on the market price of the bonds C. the holder may redeem the bonds at anytimeD. the bonds will continue to trade "and interest"

the bond will continue to trade "and interest"

If an issue listed on the NYSE stops trading, a holder of a listed call option on that can do all of the following EXCEPT: A. exercise the option B. let the option expire C. give the option as a gift to a relativeD. trade the option

trade the option

Third Market Makers must report their trades of exchange listed stocks to the Consolidated Tape: A. within 10 seconds of execution during all hours of the dayB. within 10 seconds of execution during the hours that the NYSE is open C. at the close of the trading day D. at the opening of the trading day

within 10 seconds of execution during the hours that the NYSE is open