S7TO Questions

Explain: 403(b) Plan

A 403 Tax-Sheltered Annuity Arrangement (TSA) is a type of plan for use by certain tax-exempt (non-profit) organizations to provide retirement benefits for their employees.

Explain: 457(b) Plan

A 457 plan is a type of deferred compensation plan for employees of a state of local government or a tax-exempt organization. Can contribute up to $19,500 with a man catch-up of $6,500.

Explain: Keogh Plan / HR-10 Plan

A Keogh Plan is a qualified, tax-deferred retirement plan for self-employed individuals that can be set up as a defined contribution plan or a defined benefit plan.

An option trader writes 5 June 255 calls at 3 and 5 June 245 puts at 2. If the trader later repurchases the calls at 4 and the puts expire worthless, the trader's profit or loss will be: [A]$100 profit [B]$100 loss [C]$500 profit [D]$500 loss

EXPLANATION writes 5 June 255 calls at 3. S + 1,500 writes 5 June 245 puts at 2. S + 1,000 repurchases the calls at 4. B - 2,000 the trader's profit or loss will be: + 500

You are talking to a client who is making a few changes to their account information. The client recently retired. The client has a need for taxable monthly income from investments and would like to keep their investments conservative in nature. Which of the following investments would NOT be appropriate for this client? [A]The client could invest in the bonds of several conservative Blue Chip companies. [B]The client could invest in several leveraged, closed-end funds made up entirely of bonds. [C]The client could invest in the preferred stocks of several conservative Blue Chip companies. [D]The client could invest in CDs (Certificates of Deposit).

Of the choices offered, the least appropriate would be "B", the leveraged bond fund because it would carry the greatest risk. All of the other choices would be appropriate for a conservative retired person. For the CD, we could own 12 CD's and have 1 CD maturing every month or something like that. For a bond, we could have one bond paying interest in Jan/July, and one bond paying interest in Feb/Aug, and one bond paying interest in March/Sept, etc.

A client sells a stock short in their portfolio. The client plans to cover the short sale but prior to covering, calls to ask the RR how to achieve long-term status for capital gains purposes on the short sale. How should the RR respond?

The RR should inform the client that short sales do not qualify for long-term capital gains treatment, regardless of how long the position was short in the client's account. Regardless of the time period during which the stock was sold short by the customer, the capital gains rate on short sales will always be short-term.

An investor buys a nonqualified deferred variable annuity and contributes $25,000. Ten years later, he surrenders it for $40,000. For federal income tax purposes, he should report [A]$15,000 ordinary income [B]$40,000 ordinary income [C]$15,000 long term capital gains [D]$40,000 long term capital gains

[A]$15,000 ordinary income The difference between the amount invested and the cash surrender value is considered interest and is taxed as ordinary income for federal income tax purposes.

In a Short Margin account, a customer has the following position: $30,000 Proceeds of the Short Sale + $15,000 Reg T Deposit $45,000 Credit Balance - $30,000 Current Market Value of Short Stock $15,000 Equity in the account Based on this information, how high could the market value of the short stock position appreciate before the customer will receive a minimum maintenance call? [A]$34,615.38 [B]$45,000.00 [C]$23,076.93 [D]$11,538.46

[A]$34,615.38 To determine how high the market value of a short stock position could rise before the customer receives a minimum maintenance call you need to take the: Credit balance divided by 1.30 = Appreciation allowed before MM Call ($45,000 divided by 1.30 = $34,615.38)

An RR performs a transaction via wire order in a customer's account. What is TRUE of such situations under FINRA rules? [A]A principal of the firm is required to review and approve such transactions. [B]This type of order is acceptable for discretionary accounts only.[C]Prior to execution, such transactions require a written request by the customer. [D]Wire orders under $10,000 do not require review and approval

[A]A principal of the firm is required to review and approve such transactions. Member firms have a duty to reasonably supervise their registered representatives. This includes the duty to review and approve all trades.

Under Federal Income Tax Law, which of the following is true concerning a "wash sale"? [A]A tax deduction is disallowed for the loss on the sale. [B]The gain is taxed at a minimum rate of 20%. [C]A tax deduction is allowed for the loss on the sale. [D]The gain is deferred until the next tax year.

[A]A tax deduction is disallowed for the loss on the sale. A loss will be disallowed if the same or similar security is purchased 30 days prior to or after the transaction which established the loss.

Which of the following would be the least relevant factor in determining if a municipal bond is suitable for a customer whose investment objectives are after-tax income, liquidity and marketability? [A]Age of the customer [B]Tax bracket of the customer [C]The maturity of the bond [D]The rating of the bond

[A]Age of the customer In determining the suitability of a municipal bond for a particular investor, the tax bracket of the investor, the maturity of the bond, and the rating of the bond would be relevant, but the age of the investor would be the least relevant. The tax bracket of the investor is the most important factor because the higher the tax bracket, the greater the value of tax exempt interest payments from the muni bonds.

An equity investor is primarily concerned with preservation of capital. Currently, interest rates have been rising and are forecasted to continue to rise. Which of the following stock recommendations is most appropriate for this investor? [A]Defensive stocks [B]Utility stocks [C]Cycllical stocks [D]Emerging growth stocks

[A]Defensive stocks Defensive (non-cyclical) stocks would be the most appropriate recommendation because they are the least affected (of the choices presented) by rising interest rates. Utility stock is also an appealing choice but not the best answer given the investor's primary objective: preservation of capital. Rising interest rates negatively impact utilities because utilities carry a large amount of debt and rising interest rates means higher interest payments for these companies.

When an RR is going to recommend a 529 Plan to a client for their child's future education all of the following are items that should be disclosed to the client except: [A]The costs of several plans vs. the one being recommended [B]There can only be one beneficiary per account [C]The possible sales charge discounts available in the plan [D]Tax benefits of choosing an in-state plan

[A]The costs of several plans vs. the one being recommended All choices except "A" should be disclosed to the client. Choices B, C & D must be disclosed. Even though an RR may compare different plans when making a recommendation to a client, they are NOT required to disclose the costs of other plans.

An RR has identified four investment options for a customer, who is a senior. Which investment option would be considered the most appropriate? [A]U.S. Government bonds [B]Deferred variable annuity [C]U.S. savings bonds [D]Zero-coupon bonds offered at a deep discount

[A]U.S. Government bonds A deferred variable annuity would not be appropriate for a senior investor because it is a "deferred" investment program designed for a younger or middle-aged investor. U.S. savings bonds would not be appropriate for senior investors because the owner will receive the interest at maturity only. Zero-coupon bonds are volatile and also provide an investment return at maturity only. Among the investment options, U.S. Government bonds would be the most appropriate investment for the senior investor because the bonds pay interest semi-annually and are low risk.

The negotiated underwriting of municipal securities usually involves all of the following EXCEPT: [A]a bid form [B]a legal opinion [C]an underwriters agreement [D]a bond purchase contract

[A]a bid form The bid form is used in a competitive bid underwriting rather than a negotiated underwriting. General obligation (G.O.) bonds are usually awarded by competitive bid. Revenue bonds are usually negotiated.

If a broker-dealer executes a short sale in its investment account, it may borrow the shares from all of the following EXCEPT [A]a customer's cash account. [B]another broker-dealer. [C]an insurance company. [D]its own stock inventory.

[A]a customer's cash account. Stock cannot be borrowed from cash accounts.

The record date of mutual fund distributions [A]is decided by the mutual fund itself [B]always falls on the third Friday of each month [C]is determined by the Investment Company Institute [D]is the business day after the ex-date

[A]is decided by the mutual fund itself Because mutual funds are not traded OTC or on an exchange, the record date and ex-date would always have to be set by the fund itself.

Who would benefit most from a par call on a high coupon municipal bond trading at a premium? [A]the issuer [B]the holder [C]the dealer [D]the trustee

[A]the issuer The issuer benefits from calling the bond at par without a redemption premium and from redeeming a high coupon bond. The seller clearly does not benefit.

A customer purchases a when-issued stock in a cash account for a total of $60,000. How much must the customer deposit in the cash account? [A]$2,000 [B]$15,000 [C]$30,000 [D]$60,000

[B]$15,000 Purchasing stock on a when issued (WI) basis in either a margin or cash account requires a deposit of cash equal to 25% of the issued cost or $2,000, whichever is greater. $60,000 x 25% = $15,000.

A client decides to buy 1 ABC March 50 call @ 4 when ABC is at 46. Later ABC declines to 40 and the call expires unexercised. The client would report which of the following on his tax return? [A]$400 capital gain on the transaction [B]$400 capital loss on the transaction [C]$400 ordinary income which would be fully taxable [D]$400 ordinary loss on the transaction

[B]$400 capital loss on the transaction Options are classified as capital assets and therefore any gain or loss would be treated as a capital gain or a capital loss. The customer bought a call for $400 which expired therefore the customer would end up with a capital loss of the $400 premium he paid.

A client wishes to roll over a qualified IRA into another qualified IRA. This can normally be performed on a tax-free basis without penalty, as long as a minimum of how many days have passed since the client's last rollover of the same type? [A]A minimum of 18 months must have passed since the last similar rollover. [B]A minimum of 12 months must have passed since the last similar rollover. [C]A minimum of 6 months must have passed since the last similar rollover. [D]A minimum of 60 days must have passed since the last similar rollover.

[B]A minimum of 12 months must have passed since the last similar rollover Tax-free rollovers from one qualified IRA to another can take place without penalty but can only be done once every 12 months.

An investor sells short 100 shares of ABC common stock at 50 on June 5th. On December 10th of the same year, the investor buys 100 shares of ABC common stock at 40 and delivers the stock to cover the short sale. The federal income tax treatment of this transaction is: [A]A long-term capital gain [B]A short-term capital gain [C]A long-term capital loss [D]A short-term capital loss

[B]A short-term capital gain A short-term capital gain is where the asset is held for 12 months or less. Short-term capital gains are taxed at the investor's ordinary income tax rate. In this case, it is a short-term gain because the first position put on by the customer is a "short" position and you CANNOT accumulate a holding period on a short position, even if the investor had a short position for more than one year. The holding period here is short-term because the investor was only "Long" the stock for 1 day.

Jimmy is a client of yours and he has some holdings in U.S. T-Bonds. Over the past year, he received $500 in interest from these bonds. His accountant has informed him that he is in the 28% tax bracket with all sources of income considered. He lives in the State of California, so his State Income Tax Rate is 9%. What kind of tax liability is Jimmy looking at in relation to the interest received from his U.S. T-Bonds? [A]Jimmy has a tax liability of $185.00 total on the interest received.[B]Jimmy has a tax liability of $140.00 total on the interest received.[C]Jimmy has a tax liability of $45.00 total on the interest received.[D]Jimmy has no tax liability on the interest received.

[B]Jimmy has a tax liability of $140.00 total on the interest received. Here, we are discussing U.S. Treasury Bonds. Remember that these bonds ARE subject to Federal Income Tax, but are NOT subject to State and Local Taxes. For this reason, the Federal Tax Rate of 28% will apply to the $500 in interest received. $500 x 0.28 (28%) = $140.00 There is no tax liability at the State level.

One of your clients is an options trader. In looking over the financials and news for Company X, this client feels that Company X common stock will not fluctuate much in price over the next several months. Which options position listed below will provide the MOST PROFIT for this client with this consideration in mind? [A]Putting on a bullish call spread [B]Putting on a short straddle [C]Buying a put option [D]Buying a call option

[B]Putting on a short straddle Since the client does not expect any significant move in the stock price, they would sell calls and sell puts, putting on a short straddle. This will be the most profitable of the options positions listed if the market price of Company X remains stable. It will allow the client to receive premiums from the sale of both options.

The factor listed below which would have a direct impact on the alpha of a particular stock would be: [A]Investors on a general scale have changed their minds from being pessimistic about the market to being optimistic. [B]The company whose stock is in question has made significant changes to the management strategy for the upcoming year. [C]With recent over-buying in the technology sector, the market has now corrected itself and technology stocks have come back to reasonable levels. [D]The index where the company is listed has been on a downward trend.

[B]The company whose stock is in question has made significant changes to the management strategy for the upcoming year. Alpha is that aspect of a company's stock which is directly affected by company-specific risks. The only item listed that is company-specific is the change to management strategy. Each of the other factors is a general market factor, rather than company-specific factor.

An investor has a large portfolio of Blue Chip common stocks and expects the market to remain stable or decline slightly. He'd like to increase the rate of return on his portfolio. Which of the following would be the best choice for this investor? [A]Buy Calls on the portfolio [B]Write Covered Calls on the portfolio [C]Establish a Call Spread [D]Write Covered Puts on the portfolio

[B]Write Covered Calls on the portfolio Covered Call writing would be the best choice for the investor, who wants to increase their rate of return on large portfolio of Blue Chip Stocks when they expect the market to remain neutral or decline slightly in value.

A married couple is interested in investing in fixed income securities primarily to save for their one-year-old's college education expenses. They are not interested in receiving current interest income. They ask their RR for recommendations. Which of the following would be the most appropriate recommendation given this objective? [A]High-yield bonds [B]Zero coupon bonds [C]Blue chip stocks [D]Equipment trust certificates

[B]Zero coupon bonds The couple stated several objectives: want to invest in fixed income securities and want college funds available in about 17 years (college-bound age of child). Of the choices presented, zero coupon bonds would be the most appropriate as they are fixed income securities, do not pay monthly interest, can be purchased for a deep discount now. When the zero coupon bonds reach maturity, the funds will be available to pay college tuition costs.

The disclosure requirements of the Securities Act of 1933 are intended to provide investors with [A]an objective third party review by the SEC of all new issues. [B]a basis for judging the merits of new issues of securities. [C]financial information on new issues, the accuracy of which has been verified by the SEC. [D]financial information on the broker-dealer offering the new issue.

[B]a basis for judging the merits of new issues of securities. The SEC requires full and fair disclosure to potential investors on new issues but does not take responsibility for anything concerning the new issue.

Of the clients listed below, which of them could establish a Keogh plan? [A]a former colonel in the military wanting tax relief on a pension he is receiving [B]a doctor in a partnership with another doctor [C]a small corporation with 25 full-time employees [D]a person employed by the government that wants to save more than the amount allowed in an IRA

[B]a doctor in a partnership with another doctor The self-employed doctor would be the only one of the four choices that would be allowed to establish a Keogh plan.

Which of the following would best describe the term "Mark to the Market"? The difference between the [A]market value of a security and the sale price of the security.[B]market value of a security and the contract value of a security.[C]market value of a security and the Reg T requirements of a margin account. [D]market value of a security and the minimum maintenance requirements in a margin account.

[B]market value of a security and the contract value of a security. "Mark to the Market" is adjusting the value of securities in customer accounts to reflect the current market value. According to the Finra definition, when an investor buys a security, it is referred to as a "contract" therefore "B" is the best answer offered - the difference between the market value of a security and the contract value of a security.

One of your elderly clients recently passed away. A family member is now attempting to open an account to invest the assets of the deceased. In order to open such an account, which of the following would be necessary? [A]The individual would need to verify the deceased individual's name, address, and tax id number. [B]The names of the beneficiaries of the deceased individual's estate would need to be presented by the individual. [C]A certificate or court order verifying the executor status of the individual would need to be presented .[D]The name of the deceased individual's attorney would need to be presented.

[C] A certificate or court order verifying the executor status of the individual would need to be presented. After a client has passed away, the executor of the client's estate is responsible for trading or distributing the client's assets. In order for an executor to invest the assets of a deceased individual, the executor would have to provide a court order or certificate verifying their executor status.

When a registered representative is trying to determine if a stock is a growth stock, public utility, or blue chip, they would most likely look at the: [A]Earnings per share [B]Current Ratio [C]Dividend Payout ratio [D]Advance/Decline ratio

[C] Dividend Payout Ration The dividend payout ratio would help the RR determine what type of company they were looking at since most Blue Chip stocks maintain a dividend payout ratio of approximately 50%, growth stocks 25%, and public utilities 75%.

The following is the current state of a customer's margin account: Market value: $50,000 Debit balance: $15,000 Equity value: $35,000 The customer sells $10,000 worth of securities. What is the equity value in the account after the sale? [A]$15,000 [B]$20,000 [C]$35,000 [D]$30,000

[C]$35,000 When shares are sold and no withdrawals are made, the equity value in the account remains unchanged. However, the market value and debit balance decline by the same amount because without additional instruction, the broker-dealer will apply the proceeds of the sale to the debit balance. In this example, the account after the sale of $10,000 of securities is: Market value: $40,000 Debit balance: $5,000 Equity value: $35,000

A customer's margin account appears as follows: $100,000 MV Long $ 40,000 DB $ 60,000 EQ The securities in this customer's account INCREASE in value by $25,000, and the debit balance is decreased by $5,000. After these changes, what is the buying power in the account? [A]$27,500 [B]$35,000 [C]$55,000 [D]$90,000

[C]$55,000 Take the market value ($125,000) divided in half ($62,500) minus the debit ($35,000) leaves you with Excess Equity of $27,500. Excess Equity times 2 = $55,000 Buying Power

Using the following financial information regarding Steele Co, calculate its dividend payout ratio: Total cash dividends paid to common shareholders: $10,000,000 Total outstanding common shares: 5,000,000 Earnings per share: $5.00 [A]50% [B]100% [C]40% [D]60%

[C]40% To calculate the dividend payout ratio first calculate dividends per share: Dividends paid to common shareholders / outstanding common shares $10,000,000 / 5,000,000 = $2.00 dividend per share. Using this information now calculate the dividend payout ratio: Dividends per share / earnings per share $2.00 / $5.00 = .40 or 40%.

Subscription warrants are usually issued as part of: [A]A common stock offering to obtain a higher par value [B]A preferred stock offering to obtain a lower par value [C]A debenture offering to obtain a lower interest rate [D]A convertible bond to obtain a higher interest rate

[C]A debenture offering to obtain a lower interest rate Warrants usually originate as part of a new bond issue. They are intended to be "sweeteners" to allow the issuer to pay a lower interest rate. They are separate securities from the bond. They could also be issued as part of a preferred stock offering, but not to obtain a lower par value.

A municipal bond has a provision for redeeming a certain number of bonds at par in ten semi-annual installments. This type of call feature is best described as: [A]An installment call [B]An optional call [C]A sinking call [D]A catastrophic call

[C]A sinking call A sinking fund is a separate custodial account where money is accumulated on a regular basis to redeem fixed income securities. Sinking fund provisions frequently require that a certain number of bonds be retired annually or in semi-annual installments.

In terms of features that would limit the credit risk that would apply to a municipal bond issue, which of the following would do so most effectively? [A]Being backed by general obligation [B]A legal opinion that is un-qualified or non-qualified [C]An issue which is escrowed to maturity [D]A putable bond feature at par value at one year

[C]An issue which is escrowed to maturity When a bond is pre-refunded it means that new bonds have been sold, the proceeds of which are invested in Government securities which can only be used to pay off the old outstanding bond issue. With this backing the outstanding bond issue is said to be "escrowed to maturity" because the money is set aside to pay off the bond issue either at its earliest call date or its finals maturity date if the bonds are not callable.

A Registered Representative notices that he executed a trade for an IPO in the wrong account and asks the branch manager to correct the error. When doing the cancel and rebill the manager notices that the account with the error trade in it had a change of address recently. The manager should [A]Not do the cancel and rebill because of the recent change in address [B]Move the trade to the firm's error account [C]Approve the cancel and rebill [D]Break the trade and have the RR start over

[C]Approve the cancel and rebill Regardless of whether the account that was used in error had an address change the BOM would still initiate the cancel and rebill so that the trades is put into the correct account.

A put writer would be "covered" by: [A]A long call [B]Another short put [C]Cash equal to the strike price multiplied by 100 shares [D]An escrow receipt for 100 shares of the underlying stock

[C]Cash equal to the strike price multiplied by 100 shares A covered put option gives the investors the obligation to Buy. The writer (short) needs to have sufficient cash on deposit, have long equivalent put, or have a bank guarantee letter to "cover" the put if exercised by the holder.

All of the following statements regarding non-qualified deferred compensation plans are false EXCEPT [A]Any deferred compensation must be held at a bank in escrow. [B]A special bank account must be opened in which the employee will deposit any taxes that would be due when the compensation is received. [C]Default on the deferred compensation plan could occur if the employer's business fails. [D]Proper documentation must be sent to the IRS for review and approval.

[C]Default on the deferred compensation plan could occur if the employer's business fails If a company goes out of business, there is no guarantee that any deferred compensation will be available for distribution.

During a discussion with a client, the client indicates that she feels interest rates will go lower soon. If the client wishes to invest according to this assumption, which of the following recommendations should the registered representative give to the client? I. The client should begin a pattern of swapping her existing bonds for bonds selling at a premium. II. The client should attempt to increase the overall level of call protection on her bond portfolio. III. The client should attempt to extend the overall maturity on her bond portfolio. IV. The client should attempt to shorten the overall maturity on her bond portfolio. [A]I and III [B]I and IV [C]II and III [D]II and IV

[C]II and III If the client feels that interest rates are going to go down, the client should attempt to lock in the longest maturities possible in her portfolio. This calls for extending the overall maturity of the bond portfolio. The client should also attempt to eliminate the possibility of early calls of her bonds, so she should increase the call protection for her portfolio. In order to achieve this, the client should make changes to her portfolio by selling bonds with the shortest maturities and buying bonds with longer maturities. Also, she should sell bonds that are callable now or soon to be callable and buy new ones with callable dates that are much further out.

All of the following are functions of the transfer agent of a mutual fund EXCEPT: [A]Sends interest payments to investors. [B]Maintains detailed records of account holders. [C]Maintain custody of the securities in the fund. [D]Sends annual tax documents to investors

[C]Maintain custody of the securities in the fund. The fund's securities are held by the custodian and not the transfer agent. Securities are held separately in order to protect the shareholders.

Which of the following is a factor that need NOT be known when computing a municipal bond's accreted value? [A]The date on which the bond was purchased. [B]The date of the bond's maturity. [C]The current price of the bond on the open market. [D]The price at which the bond was purchased.

[C]The current price of the bond on the open market. To find the accreted value of a municipal bond, you would have to know the purchase price and date, and the date of the bond's maturity. This gives you the information necessary to see what the accreted value of the bond is up until this point. The current market value of the bond would be irrelevant when computing the accreted value.

The separate account of a variable annuity has earned a return higher than the assumed interest rate (AIR) on the policy. What effect does this have on the account? [A]The Assumed Interest Rate will be reset [B]The cash value of the policy will fall. [C]The death benefit will increase. [D]The policy holder can elect to suspend payments for six months.

[C]The death benefit will increase. If the performance of a variable annuity or variable life insurance policy is more than the AIR, the death benefit would also be expected to increase due to increases in value of the separate account. The other choices are false.

What is covered by the federal government's guarantee of pass-through Ginnie Mae (GNMA) securities? [A]The federal government's guarantee applies only to the timely payment of interest on the securities. [B]The federal government's guarantee applies only to the timely repayment of principal on the securities. [C]The federal government's guarantee applies to both the timely payment of interest and the timely repayment of principal on the securities. [D]The federal government does not guarantee any GNMA securities.

[C]The federal government's guarantee applies to both the timely payment of interest and the timely repayment of principal on the securities GNMA pass-through securities are guaranteed as to the timely payment of principal and interest even if the underlying mortgages are not being paid on time.

Your customer asks you how income from investments and capital gains realized in a variable annuity separate account are handled. What should you tell the client? [A]The distributions will be given to the customer as profits are realized but taxes are deferred. [B]The income and gains will be reinvested into the annuity but the investor is fully liable for taxes as the gains are realized. [C]The income and gains are reinvested in the annuity to purchase additional securities. [D]The customer can suspend payments to the variable annuity when gains are realized.

[C]The income and gains are reinvested in the annuity to purchase additional securities. Investment income and capital gains on variable annuities are reinvested into additional securities. The reinvested income and gains are tax-deferred to the investor. Therefore, the investor is not fully liable for taxes on the income and gains in the year realized in the separate account.

MSRB Rules dictate that certain aspects of a trade may be modified with the agreement of both parties, while other aspects of a trade may not be modified. Which of the following is NOT permitted to be modified, even if all persons involved in the trade agree? [A]Determination of who will pay expenses related to shipping certificates, etc. [B]The various factors which will determine whether or not the delivery of the securities constituted a "good delivery" [C]The information which is provided on confirmations sent to both sides of the trade [D]Determination as to where and when the securities will be delivered

[C]The information which is provided on confirmations sent to both sides of the trade As long as both buyer and seller agree to modified terms, the factors associated with good delivery may be modified. These can include terms, location of delivery, time of delivery, and who pays for shipping. Confirmations are required to be uniform throughout the industry and the information contained on a confirmation is not permitted to be modified.

Of the following statements, which is FALSE about mutual fund information services? [A]Many services require a paid subscription to access the information. [B]The performance results listed by such services will not always follow SEC and FINRA guidelines. [C]The performance of funds is often reliably projected by these services. [D]The information services can be a resource for investors to research funds.

[C]The performance of funds is often reliably projected by these services. Predictions or projections on fund performance are prohibited. Thus, even services of this kind would not be allowed to predict fund performance. Guidelines of the SEC and FINRA on funds will apply to advertisements of performance results, etc. These types of services may not always follow such guideline

Which of the following BEST describes the money received by a corporation during an issue of equity securities that exceeds the face value of the securities being sold? [A]This would refer to the capital that the corporation must keep on hand. [B]This would refer to the capital that the corporation must use in relation to the intended use of funds specified with the sale of the new issue. [C]This would refer to the paid-in capital of the corporation. [D]This would refer to returns earned on funds invested in various securities in the corporation's portfolio.

[C]This would refer to the paid-in capital of the corporation. When looking at Shareholders Equity on a Corporate Balance Sheet we find both "Common Stock" and "Paid in Capital or Surplus" - generally "Common Stock" reflects the par value received when the common stock was sold to the public. Any excess over par that was received when the common stock was sold is carried as "Paid in Capital or Surplus".

All of the following are considered assets EXCEPT a [A]closed-end fund [B]negotiable certificate of deposit [C]line of credit that has yet to be used [D]convertible bond

[C]line of credit that has yet to be used A line of credit is not a legal commitment by the bank to make a loan to a customer. It is only a moral commitment. Therefore, it is not something owned by the customer like other assets. The other choices all have commercial value as assets.

Which of the following would NOT be considered to be advertisements under MSRB rules and regulations? [A]Market letters [B]a summary of an official statement [C]preliminary official statements [D]Research reports

[C]preliminary official statements Preliminary Official Statements and final Official statements are disclosure documents and are not considered to advertisements. Summaries of these documents would be considered to be ad's.

ABC Corporation has issued an 8% Cumulative Preferred Stock ($100 par). In 2002 ABC paid a 4% dividend, in 2003 ABC did not pay any dividend, and in 2004 ABC wants to pay a dividend to its common stockholders. ABC would first have to pay how much in dividends to its Preferred Stockholder first? [A]$4 [B]$8 [C]$12 [D]$20

[D]$20 ABC should be paying $8 per year, in 2002 they paid $4 and had $4 to make up. In 2003 they did not pay any dividend and therefore had $8 to make up, so ABC is behind (arrears) $12 BUT ABC must allocate the full $8 for the upcoming year as well as pay what is in arrears and would have to pay $20 ($12 in arrears + $8 for current year) = $20

A trade on the consolidated tape display that reads: ABC.SLD 52 means that: [A]5,200 shares were traded [B]ABC has been sold for $52 million [C]100 shares have just been traded for $52 per share [D]100 shares were traded earlier, but the report is delayed

[D]100 shares were traded earlier, but the report is delayed "SLD" indicates a transaction that is reported out-of-sequence. For example, a transaction that occurred earlier in the day may be reported later in the day. It is a delayed report.

All of the following are requirements to become a registered representative of a member firm EXCEPT: [A]Pass a qualification exam [B]Be covered under a fidelity bond [C]Agree in writing to allow a background check [D]Agree in writing to settle all disputes about securities by lawsuit in the federal courts

[D]Agree in writing to settle all disputes about securities by lawsuit in the federal courts A registered representative agrees to settle all securities disputes by arbitration, not by a lawsuit in federal court.

The balance sheet of a company will list all of the following items EXCEPT: [A]Current assets [B]Current liabilities [C]Deferred assets [D]Cash flow

[D]Cash flow A balance sheet will list the assets, liabilities and owner's equity as of a specific date. Cash flow is the amount of net cash generated by a business during a specific period. One means of cash flow is earnings which can be found on the income statement, not the balance sheet.

An individual is allowed to invest IRA funds in all of the following EXCEPT: [A]Common stocks. [B]Money market funds. [C]Savings account. [D]Diamonds.

[D]Diamonds. IRA funds cannot be invested in collectibles such as diamonds, paintings and rugs.

Which of the following situations would require an employer's consent?An officer at a bank wishes to open a margin accountAn employee of a member firm wishes to open a margin accountAn officer of a bank wishes to open a cash accountAn employee of a member firm wishes to open a cash account [A]I & II only [B]III & IV only [C]I & III only [D]II & IV only

[D]II & IV only If an Officer of a Financial Institution, like a bank, wants to open a margin account they would NOT be required to obtain employer consent but an employee of a member firm opening either a cash or margin account would have to obtain employer consent.

Which of the following is a characteristic of Treasury Bills? [A]T-Bills normally will trade at a premium to par. [B]For taxation purposes, proceeds received upon maturity that are greater than the price paid are considered capital gains. [C]T-Bills are medium-term securities. [D]Interest rates are not "stated" on T-Bills.

[D]Interest rates are not "stated" on T-Bills. There is no stated interest rate on T-Bills. T-Bills are short-term securities. They can be issued with 1,2,3,6, and 12 month maturities. T-Bills are sold at auction at a discount and the yield is determined at that time. The 1-month T-Bills are a relatively new addition to government securities (Be prepared for older questions that may use the previous 13-week minimum).

A municipal finance professional made a $200 contribution to a candidate for Comptroller of his town. The candidate lost the election. According to MSRB rules, which of the following is TRUE? [A]The member firm cannot underwrite an offering for that municipality for at least three years pending FINRA review. [B]There are no restrictions as the contribution was made to a candidate not to an elected official. [C]The MFP's member firm is prohibited from underwriting any issue for that municipality for two years. [D]No violation has occurred and the member firm can underwrite an offering for that municipality.

[D]No violation has occurred and the member firm can underwrite an offering for that municipality. Contributions cannot exceed $250; no violation has occurred. Note that contributions to candidates, regardless if he or she loses the election, are covered by MSRB Rule G-37.

Which of the following transactions conducted by a member firm for its customers must abide by the FINRA 5% Markup Policy? [A]Primary offerings of securities [B]Mutual fund shares [C]Secondary Offerings of securitie [D]Riskless transactions

[D]Riskless transactions The FINRA 5% Markup Policy is a guideline for spreads in dealer transactions and commissions in brokerage transactions, including purchasing OTC securities from a client and riskless transactions. It does not apply to any transaction were the public offering price is pre-determined and requires delivery of a prospectus to buyers (e.g., new issues, secondary offerings & mutual fund shares.)

Which of the following is an index which is comprised of 30 blue-chip stocks that are actively traded? [A]The Wilshire Index [B]The Standard & Poor's Index [C]The Dow Jones Composite Average [D]The Dow Jones Industrial Average

[D]The Dow Jones Industrial Average The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 actively traded Blue Chip stocks. It is the oldest and the most quoted market indicator.

An individual walks into your branch and wishes to open an account. In this account, the individual wishes to trade options and indicates that she would like to be approved for the sale of uncovered puts and calls. Industry regulations dictate that this customer must receive an Options Disclosure Document in what time frame? [A]The ODD must be provided when the margin agreement is provided and signed. [B]The ODD must be provided no later than when the confirmation of the first transaction in the account is delivered to the client. [C]The ODD must be provided to the new client no later than the third business day following their first transaction. [D]The ODD must be provided to the new client before the client is approved for options trading.

[D]The ODD must be provided to the new client before the client is approved for options trading. Options regulations dictate that an Options Disclosure Document must be provided to the customer prior to the account being approved for options transactions. This would especially be the case in relation to accounts where customers intend to perform uncovered options transactions.

When an RR is opening a new account for a client, which of the following would be the BEST indication of the new client's tolerance to risk? [A]The client's number of dependents [B]The client's net worth [C]The client's tax bracket [D]The client's experience with investing

[D]The client's experience with investing Of the choices listed, the client's previous experience with investing is the best indication of his risk tolerance. This will give the RR an idea of what investments the client has held in the past and the degree of risk taken historically. Note, however, all of the choices should be considerations when determining investment suitability.

Contributions to a Section 529 Education Savings Plan account may be subject to federal gift taxes. All of the following are true statements about the federal gift tax rules EXCEPT. [A]There is an annual tax exclusion for a donor. [B]A spouse of the donor may join in the contribution to the account increasing the exclusion. [C]Five years of future exclusions can be advanced into the current year thus permitting a larger initial exclusion as a joint gift. [D]The federal gift tax liability falls on the donee of the account, not the donor..

[D]The federal gift tax liability falls on the donee of the account, not the donor.. The federal gift tax liability falls on the donor, not the donee. All of the other choices are correct statements of the federal gift tax rules.

When a mutual fund is inherited, what is the cost basis used by the individual who inherits the fund? [A]When the owner dies, the cost basis is the average value of the fund over the past six months. [B]The new owner uses the cost basis of the deceased owner and pays capital gains on previous distributions of capital gains. [C]The new owner uses the cost basis of the deceased owner. [D]The new owner uses the NAV of the fund upon the previous owner's date of death.

[D]The new owner uses the NAV of the fund upon the previous owner's date of death. When securities are acquired by inheritance, the cost basis of such securities is the value on the date of death of the donor-decedent. In a rising market, this would result in a "step up" in basis.

How would the exercise price on a foreign currency option be displayed? [A]The price of the foreign currency per U.S. Dollar [B]The price of the Eurodollar per foreign currency unit [C]The spot price of the U.S. Dollar per foreign currency unit. [D]The price of the U.S. Dollar per foreign currency unit.

[D]The price of the U.S. Dollar per foreign currency unit Foreign currency option exercise prices are displayed showing the U.S. Dollar pricing per foreign currency unit. The spot price would not be valid as an exercise price, because the spot price changes daily. A US Dollar price would be listed as the exercise price, while the spot price would be the "market price" of the dollar in that particular currency pair.

All of the following are characteristics of REITs EXCEPT: [A]They are publicly-traded securities and can be traded on an exchange or OTC. [B]They generally own income-producing properties like apartment buildings. [C]They distribute 90% of their income to shareholders. [D]They must be registered under the Investment Company Act of 1940.

[D]They must be registered under the Investment Company Act of 1940. REITs are not investment companies and do not have to be registered under the Investment Company Act of 1940.

A married couple filing a joint tax return with combined income under $40,000 both contribute to their self-directed IRAs. Which of the following investments would be most suitable? [A]an oil and gas limited partnership [B]common stock of a blue chip corporation [C]options [D]growth mutual funds

[D]growth mutual funds Since the mutual fund would provide the most diversification for the amount invested and is considered to be a long-term investment, it would be the best choice of the answer given.

Using an annuity to fund a qualified retirement plan: [A]is unsuitable under any circumstances [B]is suitable if it is a fixed annuity but is unsuitable if it is a variable annuity [C]is unsuitable because the earnings in both the annuity and the qualified retirement plan are tax deferred and are therefore redundant [D]may be suitable because the annuity provides a guaranteed lifetime income during retirement and because of the death benefits provided.

[D]may be suitable because the annuity provides a guaranteed lifetime income during retirement and because of the death benefits provided. An annuity is a permitted investment in a qualified retirement plan, whether it be a fixed annuity or a variable annuity. The redundancy of the earnings tax deferral doesn't make an annuity unsuitable for a plan. The guaranteed lifetime income and the guaranteed death benefits may make annuities a suitable investment for the plan.

In a serial municipal bond issue, the yields and other vital data by maturity date are referred to as: [A]yield to maturity [B]redemption [C]coupons [D]scale

[D]scale A serial bond issue is one with staggered maturities. Each bond certificate in the series has an indicated redemption date. A "scale" provides vital data for each redemption date including yields, the coupon rate, and the number of bonds.

Explain: Safe Harbor 404(c) Provisions

A safe harbor provision in a qualified retirement plan refers to the protection from liability given to the employer/sponsor of a self-directed plan if the employee/participant makes imprudent investment decisions and loses money. Three requirements: (1) must have the ability to choose between at least three categories of investments. (2) Must provide education and disclosures. (3) Must be able to make changes.