Series 6 Closed Book Exam 3

A corporation has raised money that it needs to use within the next six months. In which of the following should the corporation invest the funds until they are needed? AAA-rated corporate bonds U.S. Treasury bills Index funds High-quality preferred stocks

B The corporation will need the money in six months and will want to minimize capital risk. Therefore, it should invest in the security with the least capital risk. Money-market instruments, such as T-bills, are an appropriate choice for investors with the objective of preservation of capital.

The redemption price of a mutual fund is synonymous with the: Net asset value plus a redemption fee Net asset value Offering price Offering price minus a redemption fee

B

Under the Securities Exchange Act of 1934, the maximum criminal penalty for insider trading violations against a broker-dealer is: $5,000,000 and/or 20 years in prison $25,000,000 $10,000 and/or 5 years in prison Three times the amount gained or loss avoided

B The maximum civil penalty for insider trading violations is three times the amount gained or loss avoided. The maximum criminal penalties per violation for individuals are a fine of $5,000,000, 20 years in prison, or both. Broker-dealers are subject to a maximum criminal penalty of $25,000,000 per violation.

All of the following would be sold with a prospectus, EXCEPT: Mutual fund shares IPOs Municipal general obligation bonds New shares of stock offered to the public

C Municipal bonds are exempt from the registration requirements of the Securities Act of 1933. Therefore, a municipal issuer does not file a registration statement and prospectus with the SEC.

Which of the following securities are exempt from the registration provisions of the Securities Act of 1933? Preferred stock Mutual fund shares U.S. government bonds None of the above

C Of the securities listed, only U.S. government bonds are considered exempt from the registration requirements of the Securities Act of 1933. However, no securities are exempt from the antifraud provisions of the Act.

Al Jackson has $20,000 to invest and would like to hold a diversified portfolio of stock, bonds, and money-market instruments. He would like to adjust the percentage invested in each of these categories as the financial markets change. However, he does not believe he will have ample time to monitor the markets. Which of the following types of mutual funds would be MOST suitable for Mr. Jackson? Asset allocation fund Stock index fund Bond index fund Option income fund

A Asset allocation funds hold diversified portfolios of stocks, bonds, and money-market instruments. The percentage of the portfolio invested in each of these categories is shifted by the fund manager from time to time, often according to computer models.

n which the following situations would the NAV of a fund decline? The fund pays a dividend and all shareholders choose to reinvest The investment adviser liquidates some portfolio positions Fund shareholders liquidate or add to their holdings All of the above

A Client deposits or redemptions do not affect the NAV per share. When a client deposits funds, there are more assets in the portfolio but additional shares are issued. When a client sells (redeems) shares, fewer assets are in the portfolio but the number of shares is reduced proportionally. A portfolio manager selling a position at a loss or gain does not affect the NAV since the position has been marked to market (adjusted to reflect current market value) each day and the profit or loss is already reflected in the fund's NAV long before the closing transaction takes place. Why would dividends reduce the NAV? If investors choose to take their dividends, it is easy to see why the NAV falls since the portfolio loses assets. If shareholders choose to reinvest the dividends, no assets are lost but additional shares are issued. The same amount of assets spread over a greater number of shares outstanding results in a reduced NAV per share.

A retired teacher had been participating in a nonqualified variable annuity. She deposited $10,000 into the annuity and now receives a lump-sum payment from the annuity of $16,000. How is the distribution taxed, and what is her cost basis? $6,000 is taxed as ordinary income and $10,000 is returned to her tax-free as it is her cost basis $6,000 is taxed as long-term capital gain and $10,000 is returned to her tax-free as it is her cost basis $16,000 is taxed as ordinary income and she has no cost basis $16,000 is taxed as long-term capital gain and she has no cost basis

A Contributions made into nonqualified variable annuities are made in after-tax dollars. When a contribution is made in after-tax dollars, it constitutes an individual's cost basis in the plan. Here, the retired teacher's $10,000 in contributions is her cost basis. Anything paid to her above her cost basis ($6,000 in this example) will be treated as ordinary income.

Which of the following statements is TRUE concerning periodic payment variable annuities? A client's number of annuity units never changes A client's number of accumulation units never changes Annuity contracts never have a beneficiary The monthly payout is fixed by the inflation index

A During the pay-in period of a variable annuity, the client is continually purchasing accumulation units. These accumulation units are then exchanged for a fixed number of annuity units when the payout period begins. The monthly payout is determined actuarially and is based on the performance of the separate account.

A registered representative notices a client has been making frequent deposits and withdrawals from his account which does not seem to have any business purpose. Which of the following is NOT TRUE regarding this activity? The registered representative can ignore it since it doesn't seem to involve any legitimate business activity This may be evidence of money laundering A suspicious activity report would likely be filed If this is found to be money laundering the firm and the registered representative could be held liable

A Evidence of money laundering includes frequent deposits and withdrawals of cash with no legitimate business purpose. A suspicious activity report should be filed and willful blindness of the activity by the firm and the representative would subject both to penalties similar to those the client faces.

Under FINRA's Investor Education and Protection Rule, which of the following need not be provided to a customer? Access to the Central Registration Depository (CRD) The BrokerCheck® hotline number FINRA's Web site address The availability of an investor brochure describing BrokerCheck®

A FINRA's Investor Education and Protection Rule requires firms to notify customers in writing at least once per year as to how to access BrokerCheck®, the BrokerCheck® hotline number, FINRA's Web site address and the availability of an investor brochure describing BrokerCheck®. Access to the CRD is not required.

In order to be characterized as a diversified company, an investment company must: Have at least 75% of its assets invested in a prescribed way Not hold securities of any one issuer in an amount greater than 10% of its total assets Not hold more than 5% of the outstanding voting securities of an issuer Comply with all of the above

A In order to qualify as a diversified company, an investment company must have 75% of assets diversified so that no more than 5% is held in any one issuer and no more than 10% of a company's voting stock is owned. In the question above, 5% and 10% are reversed.

You are reading the prospectus for the Adventurers Aggressive Growth Fund. Which of the following statements are you LEAST likely to encounter? The primary objective of the fund is income, with preservation of capital as a secondary objective There is no guarantee that the fund will meet its objectives The fund invests primarily in the stock of small-capitalization companies, some of which have a short or no operating history The securities in which the fund invests may be very illiquid

A Many of the stocks owned by an aggressive growth fund represent investments in small, relatively new companies. These companies rarely pay dividends, and such stocks tend to be very volatile. Therefore, income and preservation of capital are NOT objectives that one should expect from an aggressive growth fund.

An agent calls a customer to inform her of significant news that will influence the value of security held in her account. Her spouse answers the call and informs the agent that she is traveling and cannot be reached, but the security should be liquidated to prevent a loss. The agent: Cannot execute the trade without the customer's approval Cannot execute the trade without the spouse's written approval Can execute the trade with the spouse's approval The agent can execute the trade based on an understanding of suitability in order to protect the account from a loss

A Only individuals with trading authority can place orders for an account. This question does not indicate that the spouse has trading authority and as a result, the order cannot be accepted. Suitability is not a factor as the agent has not been granted discretionary authority.

A registered representative hears that one of her clients has won the lottery. Which of the following statements is TRUE regarding the updating of the client's information? The RR should update the paperwork promptly after speaking with the client The RR should update the paperwork within two business days of discovery of the information The RR must update the information promptly Upon speaking with the client, the RR has two business days to update the account information

A SRO rules require a registered representative to update his client's financial information promptly whenever a client informs him of a change in his status. There is no specific time requirement, such as the ones mentioned in choices (b) and (d). The reason choice (a) is a better answer than choice (c) is simply that choice (c) does not mention that the RR has spoken with the client. Choice (a) has confirmation of the news from the client directly. That is why choice (a) is the MOST correct answer.

A client deposits $8,000 into an open-end investment company which has a 5% standard load and the first breakpoint of 4% at $10,000. After 1 year, the client's holdings are worth $10,500 and she makes an additional deposit of $1,000. What sales load will the client be charged on this purchase? 4% 4.5% 5% since she has only contributed $9,000 5% unless she has signed a letter of intent

A Since the value of the client's shares (accumulated value) has increased above the breakpoint, the additional investment qualifies for the reduced sales charge of 4%.

A Suspicious Activity Report would be triggered if a client opens an account with: $11,000 in cash, and attempts to discourage your cashier from filing a CTR with $1,000 cash payment A cash deposit of $8,000 and then withdraws it to pay for his parents' funeral A cash deposit of $7,000 A personal check saying he is a long-term conservative investor and then starts day trading

A The Bank Secrecy Act (BSA) requires financial institutions such as broker-dealers to file reports and keep records concerning cash transactions. A Suspicious Activity Report (SAR) is also called a FinCEN Form 101. It is filed by a financial institution if a transaction involves at least $5,000, and the member firm knows or has reason to believe the funds are derived from an illegal activity, designed to avoid filing of other forms, or has no legitimate lawful purpose. The suspicious activity in choice (a) was cited on a U.S. government Web site. The cash deposit would trigger a Currency Transaction Report (CTR). The incentive payment, which amounts to a bribe of $1,000, triggers the SAR. Regarding the client who unexpectedly begins to day trade, a firm would want to verify the client's objectives because the activity conflicts with the information provided.

Which of the following securities is NOT considered a nontransferable asset under the customer account transfer contract rules? Common stock of an issuer that is quoted on the OTCBB A mutual fund that is only marketed to clients of one broker-dealer An annuity contract that is sold to a limited number of broker-dealers A limited partnership interest

A The customer account transfer contract rules govern the policies and procedures required when a client of a broker-dealer moves her account to another member firm. Certain assets are defined as nontransferable, and the receiving broker-dealer is not required to accept delivery of these assets. Examples include firm-specific or proprietary products, an asset of a third party (e.g., a mutual fund or annuity) with which the receiving firm does not have a relationship, an asset in bankruptcy, an asset that is an issue for which the proper documentation cannot be obtained (e.g., a foreign security), and limited partnership interests in retail accounts. Common stock of an issuer that is quoted on the OTCBB would not meet this definition.

An individual is considering opening a new account with a broker-dealer and provides some personal information in order to develop an investment profile. The dealer intends to share some of this client's non-public information with its affiliate. According the Regulation SP, the broker-dealer will: Do nothing Allow the consumer to opt out of sharing the information Provide a privacy notice when the account is being opened Provide a privacy notice when the account is opened and annually thereafter

A The individual in this question has yet to establish a relationship with the broker-dealer and would be defined as a consumer. If a broker-dealer plans to share the information with only affiliates, there is no requirement to provide the consumer with a privacy notice. If the broker-dealer intends to share the information with a non-affiliated third party, a privacy notice must be provided to the consumer before the information is disclosed. If the individual establishes a relationship as a customer of the broker-dealer, the privacy notice must be provided at that time and annually thereafter. This privacy notice would allow the customer to opt out of sharing this information with the non-affiliated third party.

The item that determines the amount of money that an individual is entitled to withdraw from a pension or profit-sharing plan once that person leaves the company is the: Vesting schedule Eligibility schedule Funding requirement Fiduciary requirement

A The item that determines the amount of the pension or profit-sharing plan that individuals leaving the company can take with them is the vesting schedule.

A FINRA member firm was fined $25,000 for mutual fund sales practice violations. When the firm appealed the decision to FINRA's National Adjudicatory Council (NAC), the fine was upheld. If the firm still believes that the fine was unjust and wants to continue its appeal, the next step is to: Appeal to the SEC Appeal to a federal court Appeal to the U.S. Supreme Court Pay the fine, since any decisions of the NAC cannot be appealed

A Under the Code of Procedure, disciplinary decisions are able to be appealed. The priority for filing an appeal begins with FINRA's National Adjudicatory Council, then to the SEC, and finally goes to the federal court system where the case could potentially reach the Supreme Court. On the other hand, arbitration decisions cannot be appealed.

A corporation that has filed for bankruptcy is to be liquidated. Which of the following securities issued by that corporation has seniority in the liquidation process? Mortgage bonds Debenture bonds Common stock Participating preferred stock

A When a corporation is liquidated, its assets are sold and the proceeds are distributed. Secured creditors are paid first (i.e., mortgage bondholders), then unsecured creditors (debenture holders), then preferred stockholders, and last the common stockholders. This would make mortgage bonds the senior security of those listed.

Which of the following investors typically are entitled to vote? Common stockholders only Common and preferred stockholders only All stockholders and convertible bondholders All stockholders and senior debt holders

A While both common and preferred stockholders are considered owners of the company, typically only the common stockholders may vote. Bondholders do not typically have voting rights.

The practice of selling dividends is considered misleading under industry rules because: The amount of the distribution is already included in the price the investor must pay for the fund Under Internal Revenue provisions, the investor must pay income tax on dividends distributed The dividend is tax-free Investors do not receive dividends until they have owned the fund for one month

A he practice of selling dividends is considered misleading under industry rules because the amount of the dividend distribution is already included in the price the investor must pay for the fund. All sales must be based on an investor's objectives and needs. The fact that a dividend has been declared may not be used as a sales gimmick by a registered representative in order to sell a fund.

A mortgage-backed security that is available in several tranches, each with different cash flow characteristics, is a: Government National Mortgage Association pass-through certificate Collateralized Mortgage Obligation Public Housing Authority bond Real Estate Investment Trust

B Collateralized mortgage obligations, or CMOs, are securities backed by pools of mortgages or pools of mortgage-backed securities, such as GNMA pass-throughs. However, unlike GNMA pass-throughs, a single issue of CMOs is divided into several classes, or tranches. When principal repayments are received by the CMO company or trust, the principal is paid to the various tranches according to a predetermined sequence of priority. Some tranches receive principal repayments immediately; others will not receive principal repayments for several years.

Which of the following descriptions best characterizes an index fund? High portfolio turnover and relatively numerous taxable events Low portfolio turnover and relatively numerous taxable events High portfolio turnover and relatively few taxable events Low portfolio turnover and relatively few taxable events

B Index funds mimic the index they are tracking and tend to make very few changes in the portfolio. As a result of this low turnover, there are few taxable events associated with an index fund.

A 72-year-old grandfather wishes to buy an annuity for his son (age 45) and his grandchild (age 15). Which type of annuity would be best suited for the grandfather's intentions? Life income with 10-year period certain A joint and last survivor annuity A joint annuity in the name of the grandchild and son None of the above

B A joint and last survivor annuity would best suit the grandfather's intentions. In this payment option, benefit payments are made to the people in the joint account, then to the survivor, as long as the survivor lives.

All of the following are TRUE regarding a broker-dealer acting as a market maker in an OTC stock, EXCEPT: It trades for its own account when buying and selling securities It makes money by charging commissions for executing transactions When making a market, it is acting as a principal It must be prepared to honor the prices it quotes unless it clearly qualifies them

B A market maker is a broker-dealer that stands ready to buy or sell a specific stock for its own inventory (its own account). The price it is willing to pay for the stock is its bid price, while its ask or offer price represents the price at which it is willing to sell stock (to other dealers). The difference between the bid and offer prices is the spread, the main source of market-maker profits. As principals in transactions, market makers do not charge commissions. Commissions are charged when firms act as brokers (agents). However, in transactions with retail customers, market makers might charge a markup when selling (an increase in price above its offer price) and a markdown when buying from customers (a decrease below its bid price).

A corporation wants to establish a pension plan but does not want to obligate itself to annual contributions because of the unsteady nature of its revenues. A plan that would offer flexibility and provide immediate vesting is a: Defined benefit plan Simplified employee pension plan Defined contribution plan Deferred compensation plan

B A simplified employee pension plan is suitable for a company that cannot make annual contributions because its profitability varies from year to year. When contributions are made, employees are immediately vested.

A registered representative has a 33-year-old client with a stable income with no foreseeable need to access money. The client is looking for a long-term investment that will offer a guaranteed rate of return, that can also share in the performance of the stock market, and offers some form of death benefit. Which of the following investments is MOST suitable for this client? A fixed annuity An equity-indexed annuity A variable annuity A varialble life insurance policy

B An equity-indexed annuity will satisfy the objectives of this client. It is a hybrid investment which offers the benefits of a fixed annuity—guaranteed rate of growth, as well as those of a variable annuity—growth potential in the market. These, like most annuities, are not designed as short-term investments. The variable life insurance policy is designed to provide death benefits that can increase because of growth in the market.

A breakpoint sale may have occurred if: An RR recommends that a client diversify between different funds within the same family An RR recommends that a client diversify between different fund families An RR recommends that a client not invest all of her money into a fund immediately but rather dollar cost average over the next 12 months An RR recommends the same fund in a client's IRA and individual account

B Breakpoints are investment levels at which an individual would qualify for reduced sales charges. These are available when investing in funds offered under the same complex or family of funds. A breakpoint can be reached with a lump sum investment, by rights of accumulation, or by signing a letter of intent. A breakpoint sale occurs when selling mutual fund shares just below the level at which an investor would receive reduced sales charges, in turn, increasing the commissions an agent would receive. By investing in funds offered by different companies, the investor loses the ability to reach breakpoints. If an RR recommends funds from different complexes or families, the investor may pay higher overall sales charges. A breakpoint sale is considered a violation of FINRA rules.

The Customer identification program (CIP) requires inquiry into the identity of which of the following persons, businesses, and institutions? Only natural persons are included in the procedures The CIP rules apply to all clients, regardless of the type of person/client Only domestic clients and nonresident citizens are subject to inquiry Only clients whose transactions appear suspicious are subject to inquiry

B Customer identification program (CIP) rules require firms to verify the identities of all clients, whether retail or institutional, foreign or domestic. This includes entities whose primary business is not investing.

The Gemstone Funds offers a retirement planning tutorial that is available to both clients of the firm and select prospects who have been granted access. This tutorial also contains a profiling tool that is found in a password-protected area of Gemstone's Web site. Under industry rules, this retirement tutorial/profiling section of the Web site is considered: Correspondence Retail communication Institutional communication None of the above, since FINRA considers a password-protected site a private internal domain that is not subject to SRO regulation

B FINRA categorizes communications as either correspondence, retail communication, or institutional communication. Correspondence is defined as written or electronic messages sent by a member firm to 25 or fewer retail investors within any 30-calendar-day period. The 25 or fewer investors may be any type of client—existing or prospective. Communication sent to more than 25 retail investors is defined as retail communication. Since the offer is being provided to all existing clients as well as a select number of prospective clients, it is assumed that the total exceeds 25 retail investors.

A mutual fund company is aggressively marketing a micro-cap fund that invests primarily in up-and-coming biotechnology stocks. A registered representative of a broker-dealer would like to send an email to 40 prospective customers profiling this investment opportunity. Under FINRA rules, this communication would be considered: Correspondence Retail communication Institutional communication None of the above, since FINRA does not currently have rules governing email communications, and these communications are governed by the FTC

B FINRA categorizes communications as either correspondence, retail communication, or institutional communication. Correspondence is defined as written or electronic messages sent by a member firm to 25 or fewer retail investors within any 30-calendar-day period. The 25 or fewer investors may be any type of client—existing or prospective. Since this communication is being sent to more than 25 retail investors, it is considered retail communication.

When a registered representative is meeting with a customer outside of the offices of the broker-dealer, the customer gives her RR a handwritten note that includes an objection to the price she received when she redeemed her mutual fund shares. The customer believes that she submitted her redemption request early enough to receive the NAV that was calculated on the same day. However, she instead received the lower NAV that was calculated on the next business day. Which of the following statements is TRUE? Since the note was received outside of the broker-dealer's office, it is not considered official business and the RR is able to ignore it The note is considered a complaint and the RR must provide it to his supervisor The note is considered a complaint about an action for which the mutual fund is responsible and it must be forwarded directly to the fund The RR is responsible for trying to satisfy the customer and should not attempt to make this the responsibility of his employing broker-dealer

B FINRA defines a complaint as any written statement by a customer that alleges a grievance involving the activities of a member firm or its employees in connection with any transaction involving that customer. The note is considered a complaint and the RR must forward it to his supervisor. The broker-dealer must keep the complaint in its records and also record the steps taken to resolve the complaint.

According to industry rules, which TWO of the following actions by a wholesaler would be considered acceptable gifts? A $99 gift certificate to a local restaurant Quarterly cash gifts of $50 to high producing RRs Season tickets to a professional sports team Taking 5 RRs out for dinner and drinks at an upscale seafood restaurant I and III I and IV II and III II and IV

B Gifts of greater than $100 per year would be considered a violation of FINRA rules. A quarterly gift of $50 ($200 for the year) would violate the rules as would the season tickets which would be much greater than $100. The $99 dollar gift would be acceptable and taking five RRs to dinner at an upscale restaurant would be acceptable as an entertainment expense.

A 60-year-old widow died and her brother found the paperwork regarding her variable life policy. After reviewing the policy, he discovered that it had a cash value of $190,000 and a current death benefit of $250,000. If the policyowner had taken out a $20,000 policy loan, how much would go to her stated beneficiary? $190,000 $230,000 $250,000 $440,000

B If a variable life insurance policyholder dies, the beneficiary will receive the current death benefit minus any loans that are outstanding.

Which of the following is most likely to cause the NAV of a bond mutual fund to decline? The Fed tightens the money supply Inflation decreases The S&P 500 index rises at a 6% annual rate The Treasury department decreases the amount of Treasury bills being issued

B If the FRB tightens the money supply, interest rates (the cost of money) will increase. Rising interest rates will cause bond prices and the net asset value (NAV) of bond funds to decline.

Which of the following statements is TRUE concerning Modern Portfolio Theory? Portfolio management should be based on the risk and return of individual securities Portfolio management should focus on diversification among different classes of assets Portfolio management should focus only on the best performing securities Portfolio management should always avoid securities with greater risk

B Modern Portfolio Theory creates optimal portfolios based on a client's risk tolerance and investment objectives, by allocating the portfolios among various classes of securities. It does not focus on individual securities or avoid risk. Instead, it focuses on diversifying investments across a wide spectrum of securities.

A registered representative with ABC Investment Company, is permitted to do which of the following? Take incoming calls at the customer service center during the 12:00 a.m. to 8:00 a.m. shift Inform current ABC Investment Company shareholders of the introduction of a new ABC mutual fund asking if they would like to receive a prospectus Make local calls between the hours of 6:00 p.m. and 10:00 p.m. from a list of prospective customers informing them of the types of mutual funds ABC has to offer Fax historical investment data concerning ABC mutual funds from a list of fax numbers she received in the mail in an attempt to attract new customers I only I and II only II, III, and IV only I, II, and III only

B Sarah could take unsolicited calls at any time during the day, and could inform current shareholders of a new fund, offering them a prospectus for review. According to the Telephone Consumer Protection Act of 1991, Sarah could not make outbound calls in her time zone after 9:00 p.m. (or before 8:00 a.m.), nor could she send sales literature concerning investments, that has not been requested, to fax numbers.

A Suspicious Activity Report (SAR) should be filed: Only in the event that the firm has actual knowledge that the client is laundering money For most types of suspicious activity depending on the facts and circumstances Only for transactions greater than $10,000 Only for transactions with parties on the OFAC list

B The Bank Secrecy Act (BSA) requires financial institutions such as broker-dealers to file reports and keep records concerning cash transactions. A Suspicious Activity Report (SAR) should be filed for most suspicious transactions, depending on the facts and circumstances surrounding the transaction.

Which of the following would NOT be found in a mutual fund prospectus? The method used to compute a contingent deferred sales load The annual payment to the custodian bank Per-share income and capital changes Exchange privileges within a family of funds

B The annual payment to the custodian bank would be disclosed in the income statement, which is included in the semiannual and annual reports to shareholders. The income statement is sometimes called the statement of operations.

The stock price of XYZ Corporation has remained stable despite the fact that the company has decreased the amount of its dividend. Under these conditions, what would happen to the stock's current yield? It would increase It would decrease It would remain the same The effect on current yield cannot be determined without knowing the investor's tax bracket

B The current yield of a stock is found by dividing the stock's annual dividend by its market price. If the dividend decreases while the market price remains the same, the stock's current yield will decrease.

The purpose of a prospectus for a variable life insurance policy is to: Show the superior returns available in comparison to whole life Allow the applicant to make an informed decision by presenting complete information about the policy Predict how economic conditions will affect the death benefit All of the above

B The purpose of a prospectus, whether the underlying security is a stock, bond, or variable contract, is to present all the material (relevant) information necessary so that the potential investor can make an informed decision.

The date when the firm representing the buyer must pay for the securities, and the firm representing the seller must deliver them and receive the proceeds from the sale, is called the: Trade date Settlement date Record date Due date

B The settlement date is the date by when the firm representing the buyer must pay for the securities, and the firm representing the seller must deliver them and receive the proceeds from the sale.

Jake and Louise are purchasing shares of a mutual fund through a contractual plan and have chosen the joint tenants with right of survivorship form of ownership. They also elect to purchase plan completion insurance. Should Jake die prior to the completion of the plan, which TWO of the following would occur? Louise would inherit the shares The custodian would inherit the shares Louise would receive the proceeds of the plan completion insurance The custodian would receive the proceeds of the plan completion insurance I and III I and IV II and III II and IV

B When a contractual plan has plan completion insurance, proceeds from the insurance would be paid to the plan's custodian. The beneficiary would then inherit the shares in the paid-up plan.

A customer's account is frozen for 90 days under Regulation T. Which of the following statements is TRUE? The customer may not make any transactions under any circumstances The customer may make purchase transactions only if the full purchase price is in the account before the order is executed The customer may make sales but not purchases The customer may make purchases but not sales

B When a customer's account is frozen for 90 days under Regulation T, the customer may make purchase transactions only if the full purchase price is in the account before the order is executed.

A custodian account generates substantial interest income through investments in corporate bonds. The minor is 12 years of age. How is the income taxed? All income is taxed at the parent's rate A portion is taxed at the minor's rate and a portion at the parent's rate The income is not taxable if used for college All income is tax-deferred until distributed

B When the minor in a UGMA/UTMA is age 18 or under, the income generated in the account is subject to special tax rules. If the income exceeds the threshold a portion is taxed at the minor's rate and the balance at the parent's highest marginal rate.

A student fresh out of school, receives an inheritance of $25,000. He is concerned about what this may mean to his financial situation. The student inquires about where he should park the money while he gets some help. Which of the following is the MOST appropriate recommendation? A short-term municipal bond fund A money-market mutual fund A municipal money-market mutual fund A U.S. government inflation-protected bond fund

B Whenever a person is looking to park his cash, the most viable option is some form of money-market account. Parking implies a very short-term time horizon (perhaps as little as a few weeks), so choices (a) and (d) are poor selections. In both cases, those choices involve a fund that purchases bonds and is subject to principal fluctuation based on interest rate risk. This would not suit his needs. However, this question also has an extra dimension to it. The person in this question is a recent graduate, which implies a low income level (and probably a high level of student loan debt). Furthermore, he expressly states he is worried about his financial situation. The fact that there is no mention of tax issues implies the student is not concerned about taxes. In this case, the money-market mutual fund, choice (b), is the BEST answer. It provides the safety of principal the student needs. The tax relief that the municipal money-market mutual fund, choice (c), provides is not needed here.

Which of the following factors is the most important to consider when deciding to recommend a municipal bond unit investment trust to a client? Age Tax bracket Ability to tolerate risk Amount in retirement accounts

B While it is useful to know all of these things about a client, the tax advantages of municipal bonds are most important to clients in higher tax brackets. For clients in low tax brackets, a taxable investment is often more appropriate than a tax-exempt security.

All of the following are typical characteristics of a 401(k) plan, EXCEPT: Employee contributions are fully and immediately vested Employers must match employee contributions An employee's taxable income is reduced by employee contributions Employee contributions grow on a tax-deferred basis

B n a 401(k) plan, an employee can usually make a pretax contribution into the plan and reduce taxable income. Employee contributions and growth in the account are tax-deferred. However, employers are not required to match contributions although they may do so.

A client's 60-year-old spouse passed away having named him the beneficiary on her IRA. He may receive the proceeds of the account: As if the proceeds were from the beneficiary's own account After the original owner would have reached 70 1/2 Over the life expectancy of the original owner Over the life expectancy of the beneficiary I only III only I and IV only II and III only

C If you inherited the IRA from your deceased spouse, you may choose either the special spousal option, which allows a spouse to treat the IRA as your own or, alternatively, follow the rules that are required for a person who inherits an IRA from someone other than his spouse. If you elect to be treated as the owner of the IRA account, all the normal rules apply to the IRA just as they would to an account you set up for yourself. This means distributions are subject to the required minimum distribution (RMD) as well as the ten percent penalty for early withdrawals—notwithstanding the normal exclusions for qualified medical and educational expenses and a first-time home purchase up to $10,000. If you elect alternatively to follow the rules for someone who inherits an IRA from a person other than his spouse, then, as with the original owner, you will not owe tax on the assets in the IRA until you receive distributions. Under this method, since the previous IRA owner died before distributions had begun under the RMD, the entire IRA must be distributed under one of the following two rules. Rule 1. By December 31 of the fifth year following the year of the owner's death Rule 2. Over the life of the designated beneficiary or over a period not extending beyond the life expectancy of the beneficiary

If an issuer has a small amount of leverage in its capital structure, this would mean the company has issued a large amount of: Debentures Secured debt Common and preferred stock Noncallable debt

C Leverage, in regard to a company's capital structure, refers to the amount of debt it has issued compared to equity. When a company issues a large amount of debt, it has committed itself to the payment of interest and principal which increases its leverage. If a company issues primarily equity, its leverage is reduced.

When illegal money has been successfully returned into the normal stream of commerce it is said to be: Transferred Layered Integrated Placed

C Money laundering involves three stages: placement, layering and integration. Placement is using illegal money to make an investment. Layering is executing trades in several layers; e.g., taking opposite positions in different accounts to hide the evidence of money laundering. Integration is the point at which the funds are placed back into the normal stream of commerce.

A registered representative has just read a positive article on using variable annuities as part of the estate planning process. He would like to photocopy this article and send it to his extensive client base. Which of the following statements concerning this activity is TRUE? Under FINRA and SEC rules, it is prohibited for an RR to send any written material produced by a third party The photocopies would be considered correspondence and subject to approval by the RR's branch manager The photocopies would be considered an independently prepared reprint and subject to approval by a principal The photocopies are considered advertising and must be filed with FINRA

C Once reproduced, articles are considered to be independently prepared reprints. These reprints were not written as sales tools but, if used as such, must be approved by a principal prior to use.

Which of the following statements concerning the review and retention rules for mutual fund retail communications is TRUE? The communication must be kept on file for at least one year The communication must be kept on file for at least two years The communication and a copy of the approval must be kept on file for at least three years The communication and a copy of the approval must be kept on file for at least six years

C Some examples of retail communications include advertisements, sales literature, Web sites, independently prepared reprints, as well as sales and telemarketing scripts. Retail communications related to mutual funds or variable products must be approved by a principal prior to use and filed with FINRA within 10 business days of first use. A copy of the signed or initialed approval document must be kept on file for a minimum of 3 years from the date of last use.

An investor is seeking a high current return with low default risk on the underlying securities. The MOST appropriate investment would be a: Money-market fund High-yield corporate bond fund U.S. government bond fund Zero-coupon Treasury bond

C The bonds in a U.S. government bond fund would have no default (credit) risk in that it is highly unlikely that the U.S. government would default on its obligations. The corporate bond fund would offer a higher yield but the individual fund holdings would carry a relatively high default risk. The zero-coupon Treasury would not provide current income.

An investor buys 1,000 shares of XYZ mutual fund on January 12 at $10 per share. He receives a long-term capital gain distribution of 25 cents a share on February 14 and sells XYZ for $12 on March 16. For tax purposes, he will report gains of: 0 short-term and 0 long-term $250 short-term and $2,000 long-term $2,000 short-term and $250 long-term $4,250 short-term

C The capital gain distribution of 25 cents would be a long-term capital gain of $250 (1,000 shares x 25 cents = $250) because the capital gain distribution from the fund to the shareholder was classified as long-term. This differs, however, from the tax status of the profit on the sale of the fund itself, which is $2,000 and was owned for a little more than two months. (For long-term status, the security has to be held for more than one year.) Therefore, the answer is a $2,000 short-term gain (on the sale of the fund) and a $250 long-term gain (on the capital gain distribution from the fund to the shareholder).

The custodian bank of a mutual fund: Manages the fund Acts as the distributor of the fund Holds the fund's cash and securities and performs essential clerical functions Guarantees investors against any loss that may be incurred if the fund should decline in value

C The custodian bank of a mutual fund only holds the fund's cash and securities and performs essential clerical functions. It does not manage the fund, distribute the fund, or guarantee investors against any loss that may be incurred if the fund should decline in value.

The prospectus for a bond fund states that its custodian bank is the Stronghold Trust Company. From this, a person is able to assume that Stronghold: Manages the fund Acts as the distributor of the fund's shares Holds the fund's cash and securities and performs essential clerical functions Guarantees investors against any losses that may be incurred if the fund declines in value

C The custodian bank of a mutual fund only holds the fund's cash and securities and performs essential clerical functions. This entity does not manage the fund, distribute the fund's shares, or guarantee investors against any losses that may be incurred if the fund's shares decline in value.

All of the following are TRUE regarding the taxation of income from a Uniform Gifts To Minors Act account, EXCEPT: If the minor is 18 or under, all income above the IRS ceiling is taxed at the parent's highest rate If the minor is over 18, all income is taxed to the minor as a separate taxpayer The custodian is obligated to pay taxes on earnings in the account If the income in the account is below the income filing threshold, the minor need not file a tax return

C The custodian is not the taxpayer for a Uniform Gifts to Minors Act account. The minor's Social Security number is used to open the account and income is reported in the minor's name. For minors under the age of 19, income in excess of the IRS ceiling is taxed at the parent's highest rate. For example, if the ceiling is $1,300, all income above this amount is taxed at the parent's rate. Minors who have reached the age of 19 are treated as separate taxpayers.

The first step taken when a registered representative is informed of a client's death is: Open orders are cancelled Assets are frozen Account is marked deceased Immediate family members are notified

C The first step taken is marking the account deceased. As a result, all open orders are cancelled and the assets are frozen until the necessary documents attesting to the death are received.

he ex-dividend date for a mutual fund is determined by: FINRA rules SEC rules The fund's board of directors A majority vote of the shareholders

C The fund's board of directors determines the ex-dividend date, which may be the record date or the day after the record date. This is different than other corporations where FINRA determines the ex-dividend date as two business days before the record date.

Which of the following statements concerning a firm's annual compliance meeting is TRUE? The distribution of a prerecorded CD at the end of the firm's annual sales outing would meet the standard The meeting must be held at a FINRA sanctioned site and recorded for SRO review The meeting may be prerecorded provided the participants have the ability to get their questions answered in a timely fashion Firms are permitted to hold the meeting biannually if they are selling only packaged products

C Under industry rules, all firms are required to hold an annual compliance meeting. The compliance meeting may be conducted in a physical setting such as an auditorium or through an electronic medium such as a video conference or Webcast. Firms that conduct a compliance conference through an electronic format must create safeguards that ensure that attendees understand the contents of the meeting. While a meeting may be prerecorded, participants must have the opportunity to ask questions and obtain answers in a timely fashion. A totally boxed presentation, such as a CD, would fail to meet the FINRA standard unless participants were given the opportunity to ask questions regarding the CD's contents. In this case, giving out the CD at the end of a meeting would not meet the standard.

According to FINRA's rules on account maintenance, all of the following are of special importance to keep up-to-date for a client, EXCEPT: Address Financial background Bank account information Investment objectives

C While any client information on the new account form could change, FINRA considers address, financial background and investment objectives of special importance. The client's bank account information is not considered amongst those that are especially important for maintaining an account.

In which of the following accounts is a customer charged a flat fee that covers all costs associated with the account? Discretionary accounts Corporate accounts Wrap accounts Margin accounts

C Wrap accounts are ones in which a customer is charged a flat fee covering all costs associated with the account. Margin accounts allow customers to borrow money when purchasing securities. Discretionary accounts allow an individual to make investment decisions for the account that granted the authority. Corporate accounts may allow for securities to be purchased on margin, but they must be approved to do so.

An investment company that is purchased in installments and that matures at a fixed-dollar amount is called a: Unit investment trust Management company Face-amount certificate company Variable annuity contract

C `Face-amount certificate companies issue certificates of the installment type. The investor makes periodic payments and receives a fixed sum at the end of the period. Lump-sum payment certificates are also available.

When describing accounts for customers, all of the following are TRUE, EXCEPT: Social Security numbers are not required for non-United States residents The Uniform Gifts to Minors Act does not provide for joint accounts Joint account information will be reported for both Social Security numbers on Form 1099 A notarized copy of a death certificate is acceptable documentation of a customer's passing

C Joint account information is reported on one Social Security number.

An investment contract that offers life insurance benefits plus participation in a portfolio of securities is called a: Variable annuity contract plan Insurance sector based index fund Spread load contractual plan Variable life insurance contract

D A variable life insurance contract offers life insurance benefits and participation in a separate portfolio of securities. A variable annuity offers a death benefit, but a death benefit is not considered life insurance.

An investment company that diversifies its portfolio among different investment classes based on computer modeling techniques and forecasts of changes in the economy is called a(n): Speculative fund Aggressive growth fund Hedge fund Asset allocation fund

D An asset allocation fund invests its portfolio among a variety of investment classes, such as equities, bonds, and cash (money-market investments). The fund manager might change the allocation based on computer modeling techniques and forecasts of economic changes.

A retired client of yours announces he is moving to Arizona. He wishes to keep his account with you. All of the following statements are TRUE, EXCEPT: The client should review any municipal securities he owns The RR needs to make sure he is registered in Arizona The RR's firm needs to be registered in Arizona FINRA should be notified promptly of the client's decision

D Clients moving to new states force a firm and an RR to think about blue sky issues. For example, can both the RR and the firm continue to conduct business with that client? Are both properly registered in the client's new home state? This is why choices (b) and (c) are good answers. So, why is the right answer choice (d) and not choice (a)? In truth, FINRA is not interested in where people choose to live, no matter how often they move. Choice (a) refers to the fact that some states tax the interest on municipal bonds issued by other states. In general, it is a smart idea to buy municipal securities from the state in which you live

Which of the following would probably be the result of persistent deflation? Lower interest rates Declining prices for precious metal funds A rise in U.S. government bond prices A decline in overall economic activity I and III only II and III only III and IV only I, II, III, and IV

D Deflation is a reduction in the general level of prices. It leads to lower interest rates, which results in higher bond prices. Deflation, however, leads to economic stagnation and reduced demand for hard assets, such as gold and silver.

An account is opened for an employee of another member firm. Which of the following need NOT be done? Notify the person's employer Send the employer duplicate confirmations and statements if requested Notify FINRA Complete Form U5 I and II only I and III only II and IV III and IV

D If a member firm intends to open an account for the employee of another member firm, the account's employer must be notified and duplicate statements and confirmations must be sent upon request. The employee must be notified that the employer will be apprised of the opening of the account. FINRA need not be notified. Form U5 need not be filed.

An investor using illegal money to purchase securities through a broker-dealer is referred to as: Transferring Layering Integration Placement

D Money laundering involves three stages: placement, layering and integration. Placement is using illegal money to make an investment. Layering is executing trades in several layers; e.g., taking opposite positions in different accounts to hide the evidence of money laundering. Integration is the point at which the funds are placed back into the normal stream of commerce.

A 25-year old son has assumed ownership of an account which was previously designated as an UTMA with his father as custodian. News has been released which will likely result in a significant loss in one of the securities held in the account. The father informs the registered representative servicing the account to liquidate the security since the son is traveling and cannot be reached. The RR: Can liquidate the securities based on the father's instructions since he was the custodian when the securities were held in the UTMA account Can liquidate the securities without the father's instructions to protect the account from loss Cannot liquidate the securities without notifying FINRA Cannot liquidate the securities without receiving instructions from the son

D Only individuals with trading authority can place orders for an account. This question does not indicate the father has trading authority in the account. The account is no longer under UTMA and the son has sole trading authority and instructions must be received from him. Notifying FINRA does not permit trading without authority to be performed in a customer's account.

Retail communication includes: A brochure sent to 20 high net worth investors Written promotional material that is mailed to insurance companies An electronic message sent to a prospective customer A copy of a presentation distributed to a large group of investors who attended a seminar

D Retail communication is defined as any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30-calendar-day period. A retail investor is considered any person who does not meet the definition of an institutional investor. Choices (a) and (c) would be considered correspondence, while choice (b) would be considered institutional communication.

Which of the following persons may contribute to a TSA? An accountant who is employed by a large corporation Any person who is above the age of 21 and has earned income Any adult who is under the age of 30 and plans on using the funds for higher education An employee of an elementary school

D Tax-sheltered annuities (TSAs) are employer sponsored plans that are available to employees of certain non-profit organizations and public education institutions. TSAs offer tax-deferred growth and are subject to the same contribution limits that apply to 401(k) plans. Since TSAs are funded on a pre-tax basis with contributions coming directly out of an employee's paycheck, they have a zero cost basis. In other words, at the time of distribution, every dollar removed is taxable as ordinary income. In this question, the accountant works at a for-profit corporation.

A corporation has a 9% cumulative preferred stock issue outstanding. The company paid a $7 dividend in 2012 and $8 in 2013. If the company paid common stock a cash dividend in 2014, the cumulative preferred stockholders must first receive a dividend of: 0 $3 $9 $12

D The cumulative preferred stockholder should receive a yearly dividend of $9. Since it is a cumulative issue, any dividend that is not paid must be made up prior to a common dividend being paid. If a common dividend is to be paid in 2014, the cumulative preferred stockholders must first receive $12 ($2 for 2012 plus $1 for 2013 plus $9 for 2014).

Your client owns a portfolio of blue-chip equity securities and would like to reduce his risk of a market downfall through the use of options. The most effective way to achieve this objective is to: Write covered calls Buy calls Write covered puts Buy puts

D The most effective way for the investor to achieve this objective is to buy puts. The buyer of a put pays a premium representing the price of the option. In exchange for the premium, the buyer has the right to sell stock at a preset price. This would give him protection against a downturn in the market.

The net investment income from an open-end investment company is: All after-tax profits from the investment company's operations Advisory fees minus administrative expenses Net capital gains on sales of portfolio securities plus interest earned Net income from dividends and interest paid on securities in the fund's portfolio

D The net investment income of a fund is the dividends and interest received from investments in the portfolio, less expenses. According to Subchapter M of the IRS Code, if the fund distributes at least 90% of the net investment income, the distributions pass to the shareholders without being taxed to the fund.

Which of the following transactions would not violate industry rules regarding the sale of an equity IPO to a restricted person? A registered representative involved in the distribution sells shares to her brother who she does not support The wife of a registered representative purchases shares from a broker-dealer that does not employ her spouse A registered representative sells shares to an uncle that she supports The mother of a registered representative purchases shares from a broker-dealer that does not employ her child

D The prohibition of IPO purchases by a restricted person includes the following people. Member firms and any associated person (i.e., an employee) of the member firm An immediate family member of an employee of a member firm. Immediate family members include a spouse, children, parents, siblings, in-laws, and any other person who is materially supported by an employee of a member firm. This restriction only applies if the IPO is purchased from the person employed by the member firm. Since the mother is not supported by her child and is purchasing the shares from a broker-dealer that does not employ her child, she is not restricted on this purchase.

A registered representative photocopied an article that was published in a national magazine and touted the return of a mutual fund sold by her firm. According to FINRA rules, if she plans to send it to potential customers, which of the following statements would be TRUE? Sending a photocopied article is considered a violation of industry rules If a principal approves the photocopied article within ten business days of use, the use would be acceptable A principal must approve the photocopied article ten business days prior to use If the photocopied article is approved by a principal prior to use, sending it to potential customers is acceptable

D This is an example of an independently prepared reprint and, if it is sent to more than 25 retail investors, it is considered retail communication. A registered principal at the firm must approve retail communication prior to use.

XYZ Fund, a diversified investment company, invested 5% of its total assets in ABC Company stock. Due to market appreciation of the stock, ABC Company now constitutes 8% of the total assets of the investment company. The investment company: Must sell enough of the ABC Company stock to reduce its holdings to 5% of the total assets Must sell out its ABC stock completely Must sell call options against the excess position None of the above are correct

D To be diversified, an investment company must invest 75% of its assets so that not more than 5% of its total assets are in any one company. However, if appreciation in market value causes holding to surpass this percentage, the investment company does not have to sell stock to bring it back to 5%.

A Treasury bond is quoted 105.04 - 105.24. The purchase price that a customer would expect to pay would be: $1,051.25 $1,052.40 $1,054.00 $1,057.50

D U.S. Treasury notes and bonds are quoted in 32nds of a point. When purchasing the bond, the customer would pay the offering price of 105.24. To convert 105.24 into a dollar price: Step 1: 105.24 is equal to 105 24/32 Step 2: convert 24/32 into a decimal, which is .75 Step 3: convert 105.75% into a dollar price (105.75% x $1,000 = 1.0575 x $1,000 = $1,057.50) The customer would pay $1,057.50.

A doctor receives an inheritance of $250,000. She is concerned how this may affect her tax situation. The doctor inquires about where she should park the money while she obtains professional tax advice. Which of the following recommendations is the MOST appropriate? A short-term municipal bond fund A money-market account A municipal money-market mutual fund A U.S. government inflation-protected bond fund

Whenever a person is looking to park her cash, the most viable option is some form of money-market account. Parking implies a very short-term time horizon (perhaps as little as a few weeks), so choices (a) and (d) are poor selections. In both cases, those choices involve a fund that purchases bonds and, therefore, is subject to principal fluctuation. This would not suit her needs. However, this question also has an extra dimension to it. The person in this question is a doctor, which implies a high income level. Furthermore, she is inheriting a large sum of money and expressly states she is worried about taxes. These are trigger phrases, which means you should be looking for something that provides some tax relief. In this case, the municipal money-market mutual fund is the BEST answer. It provides both the safety of principal and tax relief the doctor needs. The tax relief comes from the short-term municipal (federally tax-free) securities in the account. Choice (b), the money-market account, only offers principal safety.

While alternatives are available to a mutual fund issuer regarding the details of redemption procedures, the issuer must: Make payment for shares within seven calendar days of tender Make payment for shares within seven business days of tender Redeem shares at the net asset value minus the sales charge Inform the investor of any profit or loss on the transaction

A According to the Investment Company Act of 1940, a mutual fund must make payment within seven calendar days after the shares have been properly tendered for redemption.

Which of the following securities is exempt from registration under the Securities Act of 1933? Treasury bills only CMOs only One year commercial paper only All of the above

A Treasury and municipal securities are exempt from registration under the Securities Act of 1933. Although short-term corporate securities such as commercial paper are often exempt, the maximum maturity permitted under this exemption is 9 months (sometimes expressed as 270 days). A collateralized mortgage obligation (CMO) is considered a long-term corporate security and subject to registration requirements under the Act.

A supervisor notices that an RR's clients are buying the Siberian Growth Fund and liquidating other mutual fund investments to pay for the purchases. The supervisor should be most concerned with: Breakpoint sales Switching Timing risk Political risk

B The practice of selling one mutual fund and reinvesting the proceeds in another fund is called switching. A mutual fund switch is a supervisory red flag, since it is a taxable event and the client may incur additional sales charges. While there are valid reasons for altering a client's mutual fund holdings, such as a change in investor objectives or dissatisfaction with the fund's performance, the RR should be prepared to justify the transactions. Transactions that are initiated primarily to generate commissions for a representative are not permitted.

All of the following are TRUE of the death benefit of a variable life insurance policy, EXCEPT: It is included in the estate of the deceased It is not taxable to the beneficiary It may be reduced to zero by poor performance of the separate account The beneficiary may elect to receive the death benefit as an annuity

C Although the death benefit of a variable life policy may increase or decrease due to the performance of the separate account, it will not decrease below a minimum guaranteed amount (the face value of the policy).

A fund complex currently operates a Web site to provide details regarding the investment philosophy behind each of its funds and to provide general commentary on the state of the world's stock and bond markets. Under FINRA rules, this Web site is considered: Correspondence Institutional communication Retail communication A private domain not subject to SRO regulation

C If any electronic or written communication is sent to more than 25 retail investors, it is considered retail communication. The investors may be any type of client—existing or prospective. Some examples of retail communications include advertisements, sales literature, websites, independently prepared reprints, as well as telemarketing and sales scripts.

A new account is designated TOD: To allow for joint trading on the account To designate a pattern day trading account To avoid probate To prevent free-riding

C TOD (Transfer on Death) is a form of account ownership that allows for the transfer of the account to a beneficiary upon the death of the primary owner. Such an account enables the transfer of assets without probate.

ABC Corporation just filed for bankruptcy. Continental Trust will be in charge of liquidating the assets of ABC. What would be the priority, from highest to lowest, for the following holders? Debenture bondholders Preferred stockholders Mortgage bondholders Common stockholders IV, II, I, III I, III, II, IV III, I, II, IV III, I, IV, II

C The priority would be as follows: Mortgage bondholders Debenture bondholders Preferred stockholders Common stockholders Bondholders are first in the liquidation order, then come stockholders. Bondholders receive a promise from the issuer to be repaid, therefore, their claims are handled first. Secured debt (mortgage bondholders) is paid off before unsecured debt (debentures holders), and preferred stock is paid before common stock.

For a mutual fund holder, which of the following actions are currently taxable? A transfer within a fund family A liquidation and reallocation into a new fund family A reinvestment of dividends A transfer within a 401(k) II only II and III only I, II, and III only I, II, III, and IV

C Transfers within a fund family, liquidating and reinvesting in another fund, and reinvesting dividends are all taxable events. Making changes in a 401k plan, which is a qualified plan, are not taxable until the plan holder begins taking distributions.

Bob Crowley, a 40-year-old married man with two children, is interested in investing in the stock market. He calls his insurance agent with instructions to cash out his whole life insurance policy. Bob asks the insurance agent to find some suitable mutual funds given his objectives. The insurance agent can: Recommend and purchase mutual funds that are suitable in light of Bob's financial needs and earn a commission for the transaction Recommend and purchase mutual funds that are suitable in light of Bob's financial needs, but not earn a commission unless he is registered with FINRA Refer Bob to a FINRA registered representative for the mutual fund purchase and share in the commissions on the transaction Not be involved in the discussion regarding mutual funds, nor share in commissions on the trade, unless he is registered with FINRA

D Unless registered with FINRA, the insurance agent is not permitted to discuss, nor be compensated for transactions involving any securities.

If a client's account is frozen because of a failure to pay under Regulation T, the account must remain frozen for how many days? 15 30 60 90

D When a client fails to pay for a purchase of securities, the member firm is required to sell out the securities and freeze the customer's account for 90 days.

When selecting a settlement option on a variable annuity, the life expectancy table is used to calculate the: Number of accumulation units Cost basis of the annuity Total rate of return on the investment Amount of the first monthly payment

D When a variable annuity is annuitized, the first payment is calculated as if the contract was a fixed annuity with the AIR as the interest rate. The calculation also factors in the annuitant's life expectancy as determined by the standard life expectancy table, and the type of payout option selected. Subsequent payments will then depend on the performance of the separate account compared to the AIR.

A client has moved to another state. The most important reason to update the client's personal profile is that: The mail must be forwarded to the correct address A different tax rate may apply The client's investments must be on the new state's legal list Both the registered representative and the firm must be registered in the new state to continue doing business

D While there are numerous reasons the client's information must be updated for the new address, the most important is that both the firm and the registered representative must be registered in the new state to continue doing business with the customer.

If the NAV of the Greenwich Fund is 90% of its offer price, this must be a(n): Management company Unit investment trust Open-end fund Closed-end fund

DOpen- and closed-end funds are types of management companies. The NAV could be below the offer price for both of these funds, but the situation referred to could not occur in an open-end fund. For an open-end fund, the NAV must be at least 91.5% of the offer price, because the maximum sales charge is 8.5%.

Which of the following FINRA codes, deals with complaints involving the trade practices of FINRA members? The Code of Arbitration The Conduct Rules The Code of Procedure The Uniform Practice Code

c The FINRA Code of Procedure covers complaints involving the trade practices of members.