Series 7

Can a RR put a DPP into a client's discretionary account?

"No member shall execute any transaction in direct participation program in a discretionary account without prior written approval of the transaction by the customer."

On May 1, 2018 an investor buys 100 shares at 50/share. On Nov 1, 2018, the stock has risen to 54 and the investor bought 1 Aug 55 put @ 3. In Aug 2019, the put expires and the investor sells the shares in Dec 2019 at 55/share. The investor would be tax a short-term capital gain of

$200. When the investor bought the option, they had held the stock for less than 12 months. Come Aug, the holding period restarts to 0, so by Dec, the stock is considered to be held for only 4 months, and not 20 months. We determine the gain or loss by comparing the cost to the proceeds. The cost was $50+premium of 3 and the proceeds of 55, so 55-(50+3)=2.

Any errors must be reported to the person designated to receive such error reports by the firm. That person will be a principal who will determine how far to escalate the issue.

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Buying gold stocks is a way to "play" the movement of the commodity with the benefit of the liquidity of trading a stock. Gold stocks tend to have a low correlation with the stock market.

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The minimum tax rate on qualified dividends (or long-term capital gains) is _____%. That applies for couples earning no more than $80,000 or single filers earning no more than $40,000. For those earning above those limits, the tax rate is 15% and hits 20% for very high earners.

0%

Stock Dividend: 1 ALF 60 call become ___after a 20% stock dividend.

1 ALF 50 call with 120 shares after a 20% stock dividend. 100X60=6,000 120X50=6,000

An investor holds shares of the CTS Balanced Fund and wants to exchange them for shares of the CTS Growth Fund. One of the features the CTS fund family offers to shareholders is the conversion privilege. The exchange of one fund for another within the same fund family would have which of the following consequences? A) Shares of the CTS Growth Fund would be purchased at the net asset value (NAV) without a sales charge and any gains from the sale of the CTS Balanced Fund would be taxable. B) Shares of the CTS Growth Fund would be purchased at the public offering price (POP) and any gains from the sale of the CTS Balanced Fund would be non-taxable at this time. C) Shares of the CTS Growth Fund would be purchased at the POP and any gains from the sale of the CTS Balanced Fund would taxable. D) Shares of the CTS Growth Fund would be purchased at the NAV with a sales charge assessed and any gains from the sale of the CTS Balanced Fund would be taxable.

A) Shares of the CTS Growth Fund would be purchased at the net asset value (NAV) without a sales charge and any gains from the sale of the CTS Balanced Fund would be taxable. *Test topic: Must know that this is a taxable event. If there is a gain or loss, it must be reported. Unlike the conversion of a bond or preferred stock to common stock, which is not a taxable event, converting from one fund to another is considered a sale and new purchase. If the old shares have appreciated, there would be a taxable capital gain.

A customer wishes to transfer his account positions to another broker-dealer. After validating the positions, the carrying broker-dealer is required to complete the transfer within how many business days? A) Three B)Seven C)Five D)Four

A) Three

There are some actions taken by corporations that do not require shareholder approval. One such action would be A) the declaration of a stock dividend. B) the declaration of a stock split. C) the issuance of convertible corporate bonds. D) issuing additional common stock.

A) the declaration of a stock dividend.

A customer of a broker-dealer has opted to use share identification for tax reporting when selling shares of her mutual funds. With this method of tax reporting, she would want to identify the shares to be sold as those that have A) the highest cost basis generating the least gain. B) the highest cost basis generating the greatest gain. C) the lowest cost basis generating the least gain. D) the lowest cost basis generating the greatest gain.

A) the highest cost basis generating the least gain.

A customer who had invested in a Coverdell Education Savings Account (ESA) on behalf of her 10-year-old daughter for many years may A) make before-tax contributions on an annual basis. B make an investment into a Section 529 Plan in the same year for the same child. C) receive distributions that are taxable when the funds are withdrawn for qualified educational expenses. D) roll the accumulated funds into a traditional IRA set up for the custodian if funds are not used by age 30.

B make an investment into a Section 529 Plan in the same year for the same child. Coverdell: After tax contributions up to $2k per student per year for those under 18. Contributions limits reduced or eliminated for higher incomers. Growth and income is deferred and no tax deduction for contributions. Distributions are tax free for school expenses, non-qualified distributions have 10% penalty for amount in excess of principal, if funds not depleted by age 30, they are subject to income tax and 10% penalty or rolled into eduction IRA for another beneficiary.

An appeal of an adverse Code of Procedure decision may be made by either party within A 45 days of the decision date. B) 25 days of the decision date. C) 10 days of the decision date. D) 30 days of the decision date.

B) 25 days of the decision date.

customer writes 1 July 40 put at 6. The put is exercised when the market price is 30. For tax purposes, what is the effective cost basis of the stock put to the writer of the contract? A) 30 B) 34 C) 40 D) 46

B) 34

The dollar price used to compute the yield to call must be recorded on the confirmation of which of the following callable municipal bonds? A) 8s 28 quoted at 8.0. B) 9s 25 quoted at 7.0. C) 7s 25 quoted at 9.5. D) 6s 27 quoted at 7.5.

B) 9s 25 quoted at 7.0. For callable premium bonds quoted on a yield basis, the yield computed to the near term in-whole call is used. The confirmation shows the call date and call price as the expected maturity. The only bond shown quoted at a premium is 9s 15 quoted at 7.0.

Your customer tells you she is very bearish on the market and thinks she can capitalize on that view by purchasing an inverse exchange traded fund (ETF) that tracks the Dow Jones Industrial Average (DJIA). In a subsequent, discussion she explains her understanding of how the fund works and makes several comments that are all accurate except one. Which is the inaccurate statement that as her registered representative you would want to correct? A) The fund is managed to perform opposite of the DJIA, and because I'm bearish on the market owning, these fund shares align with my view. B) It's like any other fund regarding potential losses in that I can't possibly lose more than I invest. C) If I have a change of view I can pretty much expect to be able to sell these shares right away, not like mutual fund shares where I have to wait until they're priced again. D) If the DJIA decreases by 10%, this ETF is managed to increase by twice that amount.

B) It's like any other fund regarding potential losses in that I can't possibly lose more than I invest.

A registered representative intends to send the same email regarding an investment strategy and product this week to her 10 retail clients currently having the highest net worth. Which of the following accurately depicts how the email will be regulated under the Financial Industry Regulatory Authority's (FINRA's) communications with the public rule? A) The email can be reviewed by a principal before or after use in accordance with the firm's written procedures regarding correspondence as long as it has been pre-filed with FINRA. B) The email can be reviewed by a principal before or after use in accordance with the firm's written procedures regarding correspondence and need not be filed with FINRA. C) The email must be reviewed by a principal before use and the content must be filed with FINRA. D) The email must be reviewed by a principal before use, but need not be filed with FINRA.

B) The email can be reviewed by a principal before or after use in accordance with the firm's written procedures regarding correspondence and need not be filed with FINRA.

A firm has prepared a research report on the equity securities issued by the CDT Corporation. Regarding the report and its distribution from broker-dealers to clients, which of the following statements is not true? A) A broker-dealer presenting the report to a client must disclose that the report was prepared by a third-party and not the broker-dealer. B) The report must disclose whether, within the last five years, the firm has received fees for investment banking services from CDT Corporation. C) The report must disclose whether, within the last 12 months, the firm has received fees for managing or co-managing a public offering for CDT Corporation D) A broker-dealer can base a recommendation on a report prepared by another party.

B) The report must disclose whether, within the last five years, the firm has received fees for investment banking services from CDT Corporation.

When a limited partnership interest is sold, gain or loss to the partner is determined by the difference between the sales proceeds and the A) original investment minus any debt assumed by the general partner(s). B) adjusted cost basis. C) total of deductible losses. D) original cost basis.

B) adjusted cost basis. sales proceeds and adjusted basis at the time of sale. If, at the time of sale, the customer has unused losses, these losses may be added to the cost basis. The adjusted basis is a limited partner's cost basis at any point in time. Gain or loss on the sale of the partnership is determined by comparing the sales proceeds to the adjusted basis.

An investor is seeking tax advantages through an oil and gas direct participation program (DPP). With this type of partnership, he would expect to benefit most from A) depletion and tax credits. B depletion and intangible drilling costs. C) depletion and depreciation allowances. D) depreciation allowances and intangible drilling costs.

B) depletion and intangible drilling costs.

In a direct participation program limited partnership for tax purposes, A) income for the general partners and limited partners is considered passive income. B) income for the general partners is earned income, but for the limited partners it is passive income. C) income for the general partners is earned income, but for the limited partners it is tax credits. D) income for the general partners and limited partners is considered earned income.

B) income for the general partners is earned income, but for the limited partners it is passive income.

The 5% markup policy applies to each of the following transactions except A) agency trades occurring on a listed exchange. B) new issue transactions. C) agency transactions in nonexempt unlisted securities. D) principal transactions occurring in the OTC market.

B) new issue transactions. It does not apply to mutual funds, VA contracts, securities in IPO, or municipal securities. It applies to markups, markdowns, and commissions

The visible supply as shown in The Bond Buyer is the A) the total dollar volume of general obligation (GO) offerings expected to reach the market in the next 30 days. B) the total dollar volume of municipal offerings expected to reach the market in the next 30 days. C) the total dollar amount of new issues offered for sale divided by dollar amount of new issues sold. D) the percentage of new issues sold versus new issues offered for sale.

B) the total dollar volume of municipal offerings expected to reach the market in the next 30 days.

Sold as interim financing that will eventually be converted to long-term funding through a sale of bonds.

Bond Anticipation Notes (BAN)

The MSRB has no jurisdiction or authority to regulate.

Bond issuers

Fees can have a major impact on long-term performance of an investment. Your client interested in purchasing a periodic payment deferred annuity would not be concerned about A) M&E fees. B) death benefit fee. C) 12b-1 fees. D) surrender charges.

C) 12b-1 fees.

For tax purposes, a limited partner in a direct participation program will include in their cost basis, cash and property contributions to the partnership and any recourse and nonrecourse debt assumed for which of the following types of programs? A) Developmental oil and gas B) Exploratory oil and gas C) Raw land real estate D) Equipment leasing

C) Raw land real estate

A new registered representative is a member of your team and asks you about prospectus delivery requirements. It would be correct to state that delivery of a prospectus to a customer is not required for the purchase of A) a new issue of general obligation bonds. B a variable annuity. C) a new issue of AAA rated corporate bonds. D) a U.S. government bond mutual fund.

C) a new issue of AAA rated corporate bonds.

Your client wishes to sell XYZ short. You explain that this can be done A) only on the opening trade of the day. B) only on the last trade of the day. C) at any time during the trading day. D) only if the stock ticks up in price first.

C) at any time during the trading day.

When the holder (owner) of an index option exercises the contract, the account of the holder will be A) debited the in-the-money amount. B) credited the out-of-the-money amount. C) credited the in-the-money amount. D) debited the out-of-the money amount.

C) credited the in-the-money amount.

Savings incentive match plans for employees (SIMPLEs) are A) funded with after-tax contributions and allow catch-up contributions for those age 70½ and older. B) funded with pretax contributions but do not allow catch-up contributions for employees. C) funded with pretax contributions and allow catch-up contributions for those age 50 and older. D) funded with after-tax contributions but do not allow catch-up contributions for employees.

C) funded with pretax contributions and allow catch-up contributions for those age 50 and older.

A customer enters a market order to buy 100 shares of XYZ. The broker-dealer reports the purchase price of 100 shares of XYZ at 27.50 to the customer; shortly after, it is determined that the actual price paid when the order was filled was 28. The customer A) Can request the dispute go to arbitration. B) can reject the trade under the terms of the Uniform Practice Code. C) must accept the trade at the price of 28. D) can elect to accept or decline the trade.

C) must accept the trade at the price of 28.

A customer asks you for a quick, accurate definition of 12b-1 fees. A good reply would be that they are A) an additional sales charge added on to fund the compensation of registered representatives who receive commissions in the form of trailers. B) not asset-based, but are pure sales charges used to cover the costs of marketing and distributing the fund shares to investors. C) often referred to as asset-based distribution fees and are used to cover the costs of marketing and distributing the fund shares to investors. They can be used to compensate registered representatives with commissions for servicing an account (trailers), but are not sales charges. D) often referred to as asset-based distribution fees and are used to cover the costs of marketing and distributing the fund shares to investors. They can be used to compensate registered representatives with commissions for servicing an account (trailers) and therefore are considered to be a part of the sales charges.

C) often referred to as asset-based distribution fees and are used to cover the costs of marketing and distributing the fund shares to investors. They can be used to compensate registered representatives with commissions for servicing an account (trailers), but are not sales charges.

The flow of funds statement found within a municipal trust indenture relates to A) both general obligation and revenue bonds and is found within the bond resolutions. B both general obligation and revenue bonds and is found within the official notice of sale. C) revenue bonds only and is found within the bond resolutions. D) revenue bonds only and is found in the official notice of sale.

C) revenue bonds only and is found within the bond resolutions.

An investor is interested in a limited partnership and asks his registered representative to explain the "crossover point" referred to in discussions about the tax consequences of the program. The best definition would be A) the point at which the program begins to generate losses instead of taxable income, which generally does not occur until near the time the partnership is expected to be dissolved. B) the point at which the program begins to generate taxable income instead of losses, which generally occurs quickly if not in the very first year. C) the point at which the program begins to generate losses instead of taxable income, which generally occurs in later years. D) the point at which the program begins to generate taxable income instead of losses, which generally occurs in later years.

C) the point at which the program begins to generate losses instead of taxable income, which generally occurs in later years.

All of the following are characteristics associated with equity-linked exchange-linked notes except A) they have final payments at maturity linked to the return of an underlying stock or basket of stocks. B) they are considered to be nonconventional structured investments with unique risks. C) they can be linked to a single stock or basket of stocks and are, therefore, equity securities. D) they can be bought and sold throughout the trading day.

C) they can be linked to a single stock or basket of stocks and are, therefore, equity securities. They are NOT equity securities

Among the items shown on a customer confirmation for a bond transaction is the amount of accrued interest. The amount of accrued interest is A) subtracted on the buyer's confirmation and added to the seller's confirmation. B) subtracted on both the buyer's and the seller's confirmations. C)added on the buyer's confirmation and added on the seller's confirmation. D)added on the buyer's confirmation and subtracted on the seller's confirmation.

C)added on the buyer's confirmation and added on the seller's confirmation.

Flow-through is one of the characteristics of a direct participation program (DPP). In general, for tax purposes, losses cannot exceed a limited partner's cost basis. Which of the following would be a way to increase that cost basis? A) Receiving tax credits B Depreciation on the partnership's assets C) Using the depletion allowance D) Assumption of recourse debt

D) Assumption of recourse debt Cost basis for a limited partner is defined as investment made (cash contributions) + recourse debt (debt the LP is responsible for) - distributions. Nonrecourse debt would only be included for real estate programs. Real estate programs are the only types where LPs can be responsible for both recourse and nonrecourse debt.

A popular vehicle for saving for retirement is the variable annuity. A registered representative explaining the benefits of this product would probably be making an incorrect statement by claiming that variable annuities offer A) the choice of a large number of different subaccounts with varying objectives. B) tax deferral on earnings until withdrawn from the account. C) the ability to exchange funds between subaccounts without incurring a tax liability under IRS Code Section 1035. D) a less expensive way to invest in equities than a mutual fund with similar investment objectives.

D) a less expensive way to invest in equities than a mutual fund with similar investment objectives.

A statement of additional information (SAI) is available upon request to investors in each of the following investment companies except A) a closed-end investment company. B) an exchange traded fund. C) a mutual fund. D) a unit investment trust.

D) a unit investment trust.

An investor holding shares of several funds from the CDS fund family has opted for a fixed dollar withdrawal plan to supplement her income each month. With this type of withdrawal plan, the amount received each month A) must be at least equal to the account earnings that period in order to be distributed. B) will always be more than the account earnings that period. C) must be less than the account earnings that period in order to be distributed. D) could be less than, equal to, or more than the account earnings that period.

D) could be less than, equal to, or more than the account earnings that period.

The alternative minimum tax (AMT) would be least likely to affect taxpayers who A)receive incentive stock options with a grant price below the current market value. B)receive a large state income tax refund. C)take accelerated depreciation on investment property. D) earn interest from general obligation bonds.

D) earn interest from general obligation bonds.

An employee has enrolled in his company's nonqualified deferred compensation plan. The benefit paid at the time of the employee's retirement is A taxable as ordinary income to the employee with no benefit allowed to the employer. B) taxable as a capital gain to the employee and can be taken as a deduction by the employer. C) nontaxable to the employee and can be taken as a deduction by the employer. D) taxable as ordinary income to the employee and can be taken as a deduction by the employer

D) taxable as ordinary income to the employee and can be taken as a deduction by the employer

One of your clients interested in a hedge fund notes that the fund invests in blank-check companies. He seems uncertain what blank-check companies are, so you explain that they are sometimes known as special purpose acquisition companies (SPACS) and are unique in that A) they carry unique risks because in a blank-check company, shareholders have no vote on any business opportunity targeted for investment. B)they have no business operations but instead raise money for the sole purpose of seeking out a business to engage in. C)they carry high risk because the funds will always be invested in the best available opportunity even though it isn't immediately identified. D) they are synonymous with blind-pool companies that sell shares to investors without telling them what the specific use of the funds raised will be or what industry or sector might be targeted.

D) they are synonymous with blind-pool companies that sell shares to investors without telling them what the specific use of the funds raised will be or what industry or sector might be targeted.

One way in which real estate investment trusts (REITs) differ from direct participation programs (DPPs) is that a REIT A)must distribute all of its taxable income to shareholders annually in the form of dividends while a DPP must pass through at least 90% of its income. B) is generally traded on a stock exchange or the Nasdaq Stock Market while most DPPs trade in the over-the-counter market. C)must have at least 75% of its total assets in real estate assets and cash while it is unusual to find real estate in the portfolio of a DPP. D)must distribute at least 90% of its taxable income to shareholders annually in the form of dividends while all of a DPP's income flows through to the investors

D)must distribute at least 90% of its taxable income to shareholders annually in the form of dividends while all of a DPP's income flows through to the investors

Deposit of cash effect on SMA?

Increase

Deposit of marginable securities effect on SMA?

Increase

Rise in market value effect on SMA?

Increase

Sale of securities effect on SMA?

Increase

There is no such thing as a periodic payment immediate annuity

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An investor sells 1,000 shares of DEF short at 50 and meets the initial margin requirement. If DEF falls to 45, what is the equity in the account? A) $30,000 B $20,000 C) $35,000 D) $40,000

A) $30,000

All of the following municipal bonds are callable at par. Yield to call (YTC) must be displayed on which of the following confirmations? A) 5.5%, 5% YTM basis, maturing 2040 B) 5.5%, at par, maturing 2036 C) 6%, 6.5% YTM basis, maturing 2036 D) 6%, 6.5% YTM basis, maturing 2040

A) 5.5%, 5% YTM basis, maturing 2040

The resale restrictions of Securities and Exchange Commission (SEC) Rule 144 would apply to A) the niece of the company's CEO. B) a regional sales manager of the company who acquired the stock in the secondary market. C) an individual who owns 100 shares of the company's stock and is the daughter-in-law of the company's CFO. D) an individual who owns 100 shares of the company's stock and is a registered representative of the firm who did the underwriting of the company's initial public offering (IPO).

B) a regional sales manager of the company who acquired the stock in the secondary market.

An investor purchases a Treasury Inflation Protection Securities (TIPS) bond with a 4% coupon. If during the first year the inflation rate is 9%, the approximate principal value of the security will be A) $1,040. B) $1,045. C) $1,092. D) $1,090.

D) $1,090.

When the inside market (best bid and best offer) for XYZ stock was 17.30-17.60, a market maker sold 100 shares to a customer at 17.90. At the time of the trade, the market maker's quote was 17.25-17.70. What was the amount of the markup? A) 0.60 B) 0.30 C 0.65 D) 0.20

D) 0.20

______ take on financial liability and act in a principal capacity. Selling group members have no financial liability and act as agents b/c they have no commitment to buy securities from the issuer.

Syndicate members

Moving funds from an IRA at one brokerage firm to an IRA at another is a what? Moving funds from one 401k plan to an IRA is a what?

Transfer, direct rollover

3 primary systematic risks: 5 primary nonsystematic risks: political Business liquidity market financial interest rate inflation/purchasing power regulatory

market, interest rate, inflation/purchasing power Business, financial, liquidity, political, regulatory

The more active a security, the _____ the spread. The reverse would be true as well.

narrower. Wide spread indicated those that are thinly traded. OTC non-Nasdaq securities sometimes fall in this category b/c info can be difficult to find.

TOD only avoids___ but not taxes

probate

Which of the following is not a correct statement in respect to the at-risk provisions when investing in a direct participation program (DPP)? The at-risk provisions do not apply ______ programs.

to oil and gas exploration. The at-risk provisions (you can only deduct what you can lose) apply to all DPPs. Real estate has one unique feature in that nonrecourse financing is part of the investor's tax basis.

A BD can never charge a markup or markdown and a commission on the same _____. One or the other, but never both.

trade

The Investment Company Act of 1940 does not include ______ in its def. of investment companies. Although, the separate account is most often a UIT.

variable annuities

Two strategies that have the potential for an unlimited loss are ______

writing (selling) an uncovered call option and selling stock short

AIR is 3%. July the contract earned 4%, August was 6%, and Sept. was 3%. The payments for Oct. will be?

·The same as payments in September. The contract earned 3% in Sept. which is the same % as the AIR. Thus, the amount of payment in Oct. will not change from that of Sept.

Cash reporting requirements for Form 112 apply when the cash transaction exceeds _____. For wires of more than _____ must be reported

$10K, $3K

Purchase of a 5% bond with 10 YTM at 90 in the 2nd market. Sold 5 years later at 97. What is the gain or loss?

$20 gain/bond. The cost basis at the time of sale is 95 (90 + 5 for every year held) and that is subtracted from 97. This is a discount bond uses accretion

100 shares @ 22 purchased on Feb. 12, 2018. 10% stock dividend on May 18. 2019. Sold for $25 in June 2019. The result is

$550 long-term gain. 1. 100X22 = 2,200 2. 100X.1 = 10+100=110. 2200/110=20 3. 25-20=5X110= 550

A T-Note or T-Bond quoted as 98.24 or 98-24 equates to what?

$987.50. The 24 designates 24/32 of 1%. So 24/32 = 0.75. 98.75% of $1k= $987.50. Note that T-Bills are Issued at a discount; priced on a discount basis

When the bond is quoted as a price instead of a basis (yield), also called as being quoted as a percentage of par. Example: 7s 35 at 99.5. The difference from above is that 99.5 means ___ or trading at a ______.

$995, discount

10% coupon bond at 105 with 10 years to maturity. What is the YTM?

((annual interest - (premium / years to maturity)) / avg. price of the bond ((100 - (50 / 10)) / 1025 = 9.3% Note that avg. price of the bond is the midway point between the purchase price ($1050) and the par value ($1000)

Unless stated otherwise, firms quotes are good for _______ only

Round lot. A quote of 11 - 11. 50, 3x5 is firm between dealers for 300 shares at the bid price of 11 and 500 shares at the ask price of 11.50.

Calculation without rights

(Market price - subscription price) / # of rights to purchase 1 share

Calculation with rights

(Market price - subscription price) / # of rights to purchase 1 share + 1

100 OIDs bought at 95 are held to the maturity of 10 years. What are the investor's tax consequences?

- $5000 tax free income. When an investor purchases OID securities and then holds them to maturity, the appreciation or accretion is treated as interest income. On a municipal security, this interest income is tax-free. However, when purchasing a municipal security in the 2nd market at a discount, the accretion is taxed as ordinary income.

A client buys from an open-end investment company, shares have a POP of $15/share, a $100 investment buys how many shares?

- 6.67 ($100/$15=6.67)

1000 shares of ABC Growth Fund purchased when NAV is $8.75 and POP is $9.21. Gifted 3yr later when NAV is $9.50 and POP is $10.00. Sold 2yr later by the giftee when NAV is $14.25 and POP is $15. What are the tax consequences?

- Long-term capital gain of $5,040. The giftee's cost basis is the orginal cost basis which is POP of $9.21 or $9210. This is subtracted from the total sale price of $14250 (the NAV when sold). $14250-$9210=$5040.00 $10k worth of stock bought 20 years and currently valued at $50k. If inherited, the cost basis equal $50k. If gifted, the cost basis is $10k. The step up provision does not apply when inheriting an annuity.

A customer buys a 5-year municipal bond at 105. 2 years later, the bond is sold at 104. What is the gain or loss?

- There is a $10 gain. The premium of 5 points must be amortized (straight-line) over a 5-year period, so the annual amortization is one point, or $10 per bond. After 2 years, the bond's cost basis is 103. Therefore, s sale at 104 creates a 1-point capital gain per bond. This is a premium bond and uses amortization

Client invest $10k into DPP and signs a recourse of $40k. In 1st year, they receive $5k in cash distribution from partnership. At year-end that show losses in their share of $60k. How much of that $60k can they deduct on their tax return?

- They can deduct no more than $45k from the losses Investment in Partnership $10k +Recourse Debt $40k =$50k -cash distributions $5k =Year-end basis $45k Note that if a client has an adjusted cost basis of $22k and unused losses of $10k and sells their partnership interest for $20k, her loss on the sale would be $12k.

You need to know that the prospectus delivery requirements for a UIT are the same as a mutual fund ______

- prior to or concurrent with the sale.

An investor has a diversified portfolio of common stock with a market value of $1.7 million and a beta of 1.20. If the OEX (S&P 100) is currently quoted at 680, to protect the portfolio against a decline in value, the investor's best strategy is to buy 30 puts. Buying puts is the most effective strategy to hedge the risk of decline in a stock portfolio's market value. To determine the number of option contracts necessary to hedge, divide the portfolio value ($1.7 million) by the market value of the index (68,000). Multiply the result (25) by the beta of 1.20. The result is 30 contracts.

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Because Reg BI excludes recommendations to institutional customers, FINRA updated their definition. For purposes of this Rule, the term "institutional account" shall mean the account of: (1) a bank, savings and loan association, insurance company or registered investment company; (2) an investment adviser registered either with the SEC under Section 203 of the Investment Advisers Act or with a state securities commission (or any agency or office performing like functions); or (3) any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million.

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Bonds are not subject to reclamation if 1. Bond certificates subject to an in-whole call 2. Bonds where the issuer goes into default after the trade date. Reclamation: Occurs when the buying BD, after accepting the securities, later finds that they were not delivered good. The securities can be sent back to the selling BD with a Uniform Reclamation Form

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ETFs are close to NAV, mutual funds & UITs are redeemed at NAV, and CEF NAV are based off supply and demand

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Example of bad behavior is recommending a client take a home equity loan and use the proceeds to fund the purchase of a deferred VA

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Example: Buy 1 OEX Jan 460 call @ 3.20 when the OEX index is trading at 461 Premium = $320 (3.20x100) Breakeven = 463.20 (SP + Premium) Intrinsic value = $100 ((461-400)x100) Time value = $220 ($320 -100) A month later, the index is at 472 and the Jan 460 call is trading at 13.70. Profit at exercising = $880. $1200 from the intrinsic value (472-460 times the 100) and subtract the $320 premium paid. Profit at closing the position (trading it away) = $1050. 13.70x100= 1,370-320 premium of opening position=1,050. Note that as long as there is time value, the customer will always make more by closing an index option than exercising it. Lastly, note that 1 point is worth $100.

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Interest Rate (yield based) options are different than bond prices which fell as rates rose. Here, when rates rise, the call option also goes up. Yield-based options allow the investor to "bet" on the movement of interest rates, not prices.

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Someone long XYZ Oct 40 call sells the contract at a loss and then buys XYZ Nov 50 call, this is not a wash sale and the loss is deductible.

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Standard trading unit for equity securities is a round lot. A round lot is 100 shares. An odd-lot is something less than 100 shares. If a trade is made for 550 shares of common stock, the trade was for 5 round lots (500 shares) and one odd-lot (50 shares).

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The exam may relate a participant in a 401k plan regularly investing in an index mutual fund to doing dollar cost averaging

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Total debt (all bonds issued by the municipality) -Self-supporting debt -Sinking fund accumulations = net direct debt (GO and short-term notes issued in anticipation of taxes or for interim financing) + overlapping debt (city's proportionate share of the debts over the county and different districts = net total debt *Test topic: know what is in each category. Anything with net does not include self-supporting and sinking fund

...

With regard to settlement, there is one major difference between index options and equity. The exercise of an index option settles the next business day, whereas the exercise of an equity option settles the regular way (2 business days). With regard to trading (buying or selling), settlement is the next business day for both.

...

Even when the distribution is from a nonqualified annuity, if it is made before 59.5, it has the 10% penalty (said penalty only impacts earnings) unless it is b/c of death, disability, or part of a life income option plan with fixed payouts. Assume an annuity is nonqualified in all questions. Since contributions are made with after-tax dollars, the cost basis is not taxed at withdrawal, but the earnings in excess of the cost basis are. Any answer choice that mentions capital gains taxation on annuities or retirement plans is wrong. There is only ordinary income tax on distributions from annuities.

....

For a management company to be diversified, · 75% must be invest in that no more than 5% of the assets are invested in any one issuer, and no more than 10% of the outstanding voting securities of any one issuer is owned (by the 75%) Example: Open-end investment company's net assets are $1B. It has elected to be treated as a diversified company. It would be in noncompliance if it. - Had invested $350M into a single stock. Within the 75%, the fund can own $50M of a single stock (5% of 1B). Then, the other 25% can purchase the same single stock bringing that stock's total to 300M. That 300M could buy 100% of the voting shares of many publicly traded companies. *Test topic: The 5% and 10% limitations are part of the 75% investment. There are no conditions attached to the remaining 25%.

....

Options communications used prior to delivery of the options disclosure document must not contain recommendations or past or projected performance figures, including annualized rates of return or names of specific securities. As long as the communication contains contact information for obtaining a copy of the options disclosure document, it must be limited to general descriptions of the options being discussed, e.g., equity, index, or foreign currency. The communication may also contain a brief description of options, including a discussion of how an option is priced. The prohibition against past or projected performance applies only to communications used prior to delivery of the ODD. Once that has been delivered, as long as it meets FINRA's standards, those figures may be used.

....

Professionals add rev. and exp. That do not involve cash inflows or outflows (cost allocations, such as depreciation and amortization) back to the company's net income to determine the cash flow. The cash flow statement will also reflect money from operations, financing, and investing, but not accounting changes. Example: On the Income Statement, Net Income is $2.25M, but after adding back in depreciation that was deducted in expenses for $500k, the net income becomes $2.75M.

....

The exam will try to be tricky. The settlement date for equity options is the next business day. That is, when an option is bought or sold, that option trades settles T+1. If an equity option is exercised, what happens? Stock is either bought (call) or sold (put) and that is treated as any other equity transaction. That means T+2 settlement date.

....

DRS stands for Direct Registration System. It is a program that began in the mid-1990's as an alternative to "street name": registration for customer securities. Like street name, DRS is also based on electronic bookkeeping. In direct registration, a stock is registered in an investor's name but the company that issued the stock (or its transfer agent) is the one that holds the security in book-entry form, instead of a broker-dealer. One advantage over street name is that if the broker-dealer goes into a SIPC liquidation, your shares are not held there with the long wait it usually takes to get them.

.....

Uneven Split: 1 ALF 60 call becomes___ after a 3:2 split

1 ALF 40 call with 150 shares after a 3:2 split. 100X60=6,000 150X40=6,000

Exam may test avoidance of corp. characteristics for DPPs 1. Which of these characteristics is the most difficult to avoid? 2. Which of these characteristics is the easiest to avoid? 3. Which 2 corp. characteristics are most likely to be avoided by a DPP?

1. Centralized management - no business can function without it. 2. · Continuity of life - there is a predetermined time at which the partnership interest must be dissolved. 3. · Continuity of life and freely transferable interests - interest cannot be freely transferred; GP approval must transfer shares.

Largest monthly to smallest monthly payout in annuities

1. Life Annuity 2. Life annuity with period certain 3. Joint Life with Last survivor annuity 4. Unit refund option (This is the only option that guarantees all of the money in the contract will be distributed.)

If a customer requests to see the predispute arbitration agreement she has signed, a member firm must supply her with a copy within ____ business days of the request.

10

FINRA is concerned about abuses within ______ where the RR emphasizes the tax-free nature of the exchange without pointing out possible disadvantages such as. · Possible surrender charges on the old policy · A new surrender charge period on the new policy · Possible loss of a higher death benefit that existed on the old policy

1035 Exchanges

Used to cover the costs of marketing and distributing the fund to investors. Used to also compensates RR, but it is not a sales charge. Fee is deducted quarterly as a % of the fund's avg. total NAV. The max. is .75%. Note that FINRA allows an additional charge of .25% as a service fee, but the 12b-1 cannot exceed .75%.

12b-1 Asset Based Fees / Asset-based distribution fees

LOI are good for ___ months and may be backdated ___ days, If the LOI is not completed, the sales charge amount that applies is based on the total amount invested, and the share appreciation and income paid by the fund do not count toward completion of the letter.

13, 90

Stock Split: After a 2:1 split, 1 ALF 60 call becomes

2 ALF 30 calls. A 2:1 creates 200 shares instead of 100, so the owner has twice as many contracts as before, at half the exercise price. 100X60=6,000 200X30=6,000

Under negotiating underwriting, a firm is prohibits from engaging in municipal securities business with an issuer for ___ years after any political contribution is made to that issuer. The De Minimis contributions of up to $______/election are permitted by MFPs, as long as these individuals are eligible to vote for the issuer official. This exemption does not apply to firms.

2, $250

An investor who purchased a mutual fund using the Rule 498 summary prospectus can request the statutory (full) prospectus. If so, it must be sent within ______ business days

3

1. Intraday trading - investors do not have to wait until the end of a trading day to purchase or sell shares. ETF shares trade and are price continuously throughout the day, making it easier for investors to react to market changes. 2. Margin Eligibility - Index ETF shares can be purchased on margin, subject to the same terms that apply to common stock. 3. Short selling - Index ETFs can be sold short at any time during trading hours.

3 ways ETF differ from an index mutual fund

o Corporate, agencies, and municipals: use _______ o US Treasury securities: use _______ When counting days: o Go back and include the last interest payment date o Go up but not including the settlement date Example: Bond traded on Monday, March 5th. so there are 36 days of accrued interest (30 for Feb and 6 for March). If it had settled cash, it would have been 34 days (not 35 b/c it would have settled on the 5th)

30-day months & 360-day years, actual days & 365-day years

o $10k can be used for K-12 tuition purposes. o Contributions vary from $235k to $529k o Age limitations for contributions or distributions o No income limitations on making contributions o Contributions are limited to $15k/year/donor. There is a 5-year election that allows a donor to contribute 5x that amount in 1 year, but then no more contributions for 5 years. o If the beneficiary is redesignated, the new beneficiary must be a close family member of the first. o An OS must be delivered to prospective investors

529 Plans

Purchasers of an intrastate issue may not resell the stock to any resident of another state for at least ___ months after the purchase.

6

MSRB rules list customer complaints as a ___-year record & FINRA only requires __ years.

6, 4

Know that mutual fund redemption must be made within ____ days;

7

ABC has authorized 1 million shares of common stock. It issued 800,000 shares one year ago. It purchased 200,000 shares for its treasury. How many shares of ABC stock are outstanding?

= 600K. (800k-200k)

A syndicate is underwriting $200 million in municipal bonds and sets up a Western underwriting account with 10 syndicate members. Only one syndicate member, Atlas Municipal Securities (AMS), sells out its 10% commitment, amounting to a total of $20 million sold by them. At the syndicate settlement date, $18 million of bonds are still unsold. The financial obligation of AMS is A $0. B) $18 million divided by nine syndicate members. C) $2 million. D) $1.8 million.

A $0. If AMS had only sold $15M, then it would have to purchase the remaining $5M for its own inventory. For Eastern, that $18M still unsold would be divided by the 10 syndicate members, so AMS would be responsible for $1.8M. The responsibility for any unsold bonds continues until the entire bond issue is sold.

An investor buys a yield-based Sep 70 call on a 30-year T-bond for a premium of 2.50. At expiration, if the yield on the most recently issued T-bond is 7.95%, what is the investor's gain or loss?

A Sep 70 call means that the holder is buying a 7% yield. The investor can close the option at its intrinsic value (7.95 − 7.00 = 0.95; 0.95 × 10 × $100 = $950 received upon close). Subtract the $250 premium paid for a total profit of $700.

Which of the following statements regarding a bond ladder strategy is CORRECT? A. A bond ladder strategy involves the purchase of very long-term and very short-term bonds. B. A laddered portfolio of bonds will provide lower yields than a portfolio consisting entirely of short-term bonds. C. A bond ladder strategy is generally more aggressive than a bond barbell strategy. D. A bond ladder strategy is a relatively easy way to immunize a portfolio against interest rate risk.

A bond ladder strategy, choice D, is a relatively easy way to immunize a portfolio against interest rate risk. By holding many positions across the yield curve, the individual is diversified in the event that yields behave differently in one part of the curve than in another. The laddered portfolio will generally provide higher (not lower) yields than a portfolio consisting entirely of short-term bonds. Choice A describes the bond barbell strategy, not the bond ladder strategy.

Section 457 plans (deferred compensation plan for employees of state and local munis) differ from private tax-exempt organizations in

A government plan must hold its assets in trust or custodial accounts.

Although tax-exempt income from municipal securities is shown on Form 1040, it is not included in

AGI

One July 45 mini-option contract call is quoted at 3. A buyer will pay A) $45. B $30. C) $300. D) $450.

B $30.

Home valued at $400k. Tax is based on 50% of value. Mill is 7. What is the tax liability?

Answer is $1400. $400,000X.5=$200,000. $200,000X.007=$1,400

RST debenture is convertible to common at $50. If RST bond is currently trading at $1200, what is the parity price of the common?

Answer is $60. First solve the conversion ratio, so $1000/$50=20. Now, $1200/20=$60.00

JRP 6s of '31 currently selling at 120, were convertible at $40. How many shares would one get when one converted the bond?

Answer is 25 shares ($1000/$40). Note that the same concept applies to preferred stock ($100 preferred par @ $20 conversion price = conversion ratio of 5 shares.

Zero-coupon bond purchased at $510 matures in 7 years. 4yrs later it is sold for $690. What are the tax consequences?

Answer is a $100 loss. The math is $1000 - $510 = $490 / 7 = $70.00. Since it was held for 4yrs, we have to do 70X4=280. This 280 is accredited to the $510. Thus, the new cost basis is $790. $790 - 690=$100. Thus, the investor took a loss of $100.

Federal issues pay Federal taxes, municipal issues pay state and local taxes. An investor, age 49, that lives in Illinois, purchases a $10,000 20 year Treasury bond with a coupon of 6%. The investor's marginal tax bracket is 22% and the Illinois state tax is 5%. If the investor receives a full year of interest on the T-bond, what is the tax liability? A. $30 B. $132 C. $155 D. $162

Answer: B. $132. Treasury bonds are issued by the Federal government and interest is only taxed at the federal level. A $10,000 T-bond that has a 6% coupon will generate $600 for the year. If the investor has a 22% marginal tax bracket, the investor will owe $132 in taxes.

Might see a question like this, "An investor purchases shares of a mutual fund. 3 months later, the fund has a long-term capital gains distribution. This would be taxed to the investor as?"

As a long-term capital gain. It makes no difference how long the investor held the shares; this is a distribution of the fund's long-term gains being pass through to the investor. Therefore, when calculating the tax due on a capital gains distribution by a mutual fund, the answer is the length of time the fund held the shares and the investor's tax bracket. Shareholders can take these capital gains distributions in cash or reinvest them to purchase additional shares. In either case, these distributions are taxable as capital gains to shareholders.

An investor looking for income, but concerned about inflation should buy shares of a _______ investing in floating-rate notes

BDC (business development company)

Assuming a normal yield curve, the long-term end of the barbell contains bonds offering the higher long-term interest rates, while the short-term end provides you with soon to be realized cash (as they mature) that may be reinvested at higher rates if that is the direction the market takes. This is not a passive strategy like buy and hold—you will be actively buying new bonds as the old ones get closer to maturity.

Barbells Envision a barbell—what do you see? A thin bar with heavy weights of equal size on each end. That's what a bond portfolio using the barbell strategy looks like. The investor purchases bonds maturing in one or two years and an equal amount maturing in 10 (or more) years with no bonds in between.

A customer is long an ABC Apr 40 call and is short an ABC Jul 40 call. Which of the following best describe his position? Bearish or Bullish? Calendar or vertical?

Bearish & Calendar. The July call will have a higher premium than the April call because it has more time value. Because the customer is selling the call with the higher premium, he is counting on the July call to go unexercised, which would allow him to keep the premium as a profit. That means the market value of the underlying security must either stay the same or decline. Therefore, this customer's position is bearish. Because the options expire in different months, the trade is a calendar spread.

o Bonds pay interest; bond funds pay dividends if declared by the fund's BOD o Dividends are typically paid on a quarterly or semiannual basis, but there are income funds (both equity-and debt-oriented) that pay monthly dividends o When interest rates rise, the prices of bonds, and, therefore, bond funds, fall (and vice versa)

Bond Funds

This strategy would have the investor purchase bonds today that mature in 12 years (assuming college starting when the child is 18). Two years from now, the investor should purchase some more bonds, but those should have a 10-year maturity. In another two years, another purchase is made, this time of bonds that have eight years to go, and so forth. A picture of this active strategy would reveal bonds purchased at different times but all maturing at the same time. This tends to allow the investor to capture current interest rates as they change rather than having the entire portfolio locked into one rate.

Bullets For what do you use a bullet? You use it to hit a target, and that is the concept behind the bullet strategy. Let's say the target is funds for a child's college education, and the child is currently six years old.

Using yield-based options, which of the following hedging strategies offers a bond portfolio manager the greatest protection against rising long-term interest rates?

Buy 30-year T-bond yield-based calls. In this example, the options would increase in value, as the actual yield on the 30-year Treasury bonds rose above the yield value represented by the strike price of the option.

Business structure that distinguishes the company as a separate entity from its owners, thus subject to double taxation. Does not allow the flow-through of operating losses to the shareholders.

C Corp.

A technical analyst notices a head and shoulders top formation on a chart. The formation is generally an indicator of A) the reversal of a downtrend. B) a breakout below the support level. C) the reversal of an upward trend. D) a breakout above the resistance level.

C the reversal of an upward trend. Head and shoulders bottom is an indication of a bullish reversal of a downward trend

Securities exempt from regulation under the Trust Indenture Act of 1939 include A) short-term commercial paper and secured corporate bonds. B) U.S. Treasury and secured corporate bonds. C) U.S. Treasury and municipal bonds. D) corporate debentures and municipal bonds.

C) U.S. Treasury and municipal bonds.

The VIX trades on the ____ and tracks the _____.

CBOE, S&P500

o Not backed by US Gov't, corp. instruments o Interest paid is taxable at all levels o Backed by mortgage pools o Yield more than T-securities o Subject to interest-rate risk o Issued in $1k denominations and trade OTC o PACs have the least prepayment and extension risk. B/c of lower risk, have lower yield than TACs o TACs are protects against prepayment but not extension risk o Do not have a fixed maturity date. Note that GO bonds, T-Strips, and Subordinate debenture do.

CMOs

What are the two types of options

Calls and puts

The lower the SP, the higher the premium for _____ The opposite, the higher the SP, the higher the premium for ____

Calls, puts If you are buying the lower SP, you are a bull

3 basic steps when a client dies

Cancel open orders, freeze the account (mark it deceased), and await instructions from the executor of the estate

IRA, 401k, and custodial can only be opened in

Cash Accounts

Front-end sales loads are the charges included in a fund's POP. The charges are added to the NAV at the time an investor buys shares. Reminder that the term sales load most commonly refers to the fund's sale charge, expressed as a % of public offering price (POP). Example: $10k is invested with a 5% front-end load. $500 is deducted, thus only $9500 is actually invested in the portfolio.

Class A Shares

Back-end charge for early redemption of shares. Asset-based 12b-1 fee. Impose a contingent deferred sales charge (CDSC) also called a back-end load that declines and is eventually eliminated over time. Once eliminated, Class Bs convert into Class As and are now charges that same (lower) asset-based 12b-1 fee. Note that Bs do not have a sales charge at the time of purchase, so 100% of the initial investment is actually invested.

Class B Shares

Have a 1-year 1% CDSC, a .75% 12b-1 fee, and a .25% shareholder service fee. Fees never go away so are good for investors with short time horizons.

Class C Shares

All options of the same type on the same underlying security are considered as being the same _____

Class. all ALF calls make up one class of options; all ALF puts make up another class of options

Used to protect an unrealized gain on a long stock position. Example: Investor bought 1000 XYZ shares at $22 and it is now trading at $30. They could · Write 10 XYZ 32.50 calls · Buy 10 XYZ 27.50 puts

Collars

Call and put with different SP, expiration months, or both. example: Write 1 DOH Jan 30 call; write 1 DOH Jan 40 put

Combinations

There is a special tax break available to C corporations. When a C corporation owns stock in another corporation, 50% of the dividends received from that other corporation are excluded from the corporation's income. That is, if ABC Corporation receives $10,000 in dividends on stock it owns in XYZ Corporation, only $5,000 of that dividend is included in ABC's taxable income. As a result, if you have clients who own or are investing on behalf of a C corporation, investing in dividend-paying stocks carries a special bonus.

Corporate Dividend Exclusion

A client sends you a text message containing a complaint alleging mishandling of the account. One day later, that client sends you a text message rescinding the complaint. Which of the following would be the appropriate action? A. Thank the client for rescinding the complaint and, because it was not in writing, no report need be made B. Report the complaint to your manager/supervisor C. Ignore the incident because the complaint was rescinded D. Ignore the incident because the complaint was not in writing

Correct choice is B. It is important to note that complaints delivered electronically (text, email, IM, etc.) are considered written complaints. Even when the complaint is rescinded, a registered representative must report it to the appropriate supervisory person (who will then enter the complaint and its disposition into the company's complaint file).

Regarding the performance of a variable annuity's separate account and the assumed interest rate (AIR), which of the following is true? A) If separate account performance is more than the AIR, next month's payment is equal to this month's. B) If separate account performance is equal to the AIR, but less than last month's, the next month's payment is less than this month's. C) If separate account performance is less than the AIR, but greater than last month's, the next month's payment is more than this month's D) If separate account performance is less than the AIR, next month's payment is less than this month's.

D) If separate account performance is less than the AIR, next month's payment is less than this month's.

The IRS allows investors to minimize tax liability when reporting sales by limiting gains or maximizing loses in anticipation of what an investors year-end tax liability might be. Given year-end tax needs can only be anticipated when a sale occurs, which of the following reporting methods allows an investor the most flexibility? A) Last in, first out (LIFO) B) Average cost basis C) First in, first out (FIFO) D) Share identification

D) Share identification

SMA at maintenance for Long = SMV at maintenance =

DR / .75 CR / 1.3

A ____ is not a Form U4 updating requirement (unless it is a felony);

DUI

beneficial interests of restricted persons do not exceed 10% of an account, the account may purchase a new equity issue.

De minimis exemption

Purchase of securities effect on SMA?

Decrease

Withdrawal of cash effect on SMA?

Decrease

Interest and principal are paid by a facility's earnings, and are backed by the taxing power of said municipality. Rated and traded as GO.

Double-Barreled Bonds

This survives the physical or mental incompetence of the grantor but not the death of either party. Thus, orders entered after the time of death of the grantor, even if the purchase or sale was decided before death, are not accepted

Durable POA. A full or limited POA can be this.

The lower the coupon rate, the longer a bond's ____; the higher the coupon rate, the shorter the ___

Duration, which is Used to measure the sensitivity of a debt security when the interest rates change in the marketplace.

What Act is responsible for the catch-up provision?

EGTRRA

US to foreign country = _____ Foreign country to US = ____

EPIC (Exporters buy puts; importers buy calls) IPEC (Importers buy puts; exporters buy calls)

ERISA regulates _____ plans only

ERISA regulates private-sector plans only (Keogh, profit-sharing, and corporate pension plans). Note that ERISA is nondiscrimination

MMF is not insured or guaranteed by the _____ or other _____ agency. Although a money market fund seeks to preserve the value of the investment at $1/share, it is possible to lose money by investing in a MMF.

FDIC, gov't

Reinvestment risk is the chance that, after purchasing a bond, interest rates ____

Fall

Review points of 12b-1 fees

Fee is expressed as an annual amount but is charged and reviewed quarterly o Charges for the fee include advertising, sales literature, and prospectuses delivered to potential customers, not fund-management expenses o In order to be a no-load fund, the fund may not charge more than .25% of average net assets for the 12b-1 fees. o The max. 12b-1 charge under FINRA is .75% (75 basis points) o FINRA permits an additional .25% charge for shareholder services (25 basis points), but that is treated separate from the 12b-1 fee for marketing and promotion.

Payments made with after-tax $ Payments are invested in the general account Portfolio of fixed-income securities/real estate Insurer assumes investment risk Not a security Guaranteed rate of return Fixed admin. Expenses Income guaranteed for life Monthly payment never falls below guaranteed minimum Purchasing power risk Subject to insurance regulation

Fixed Annuity

occurs when securities are purchased and then sold without making payment for the purchase on settlement date. This is prohibited and results in a 90 day freeze

Freeriding

Most common oil and gas sharing arrangement. LPs receive the IDCs, so receive immediate deductions. GPs receives the tangible drilling costs, so depreciation over several years. Revenues are shared.

Functional Allocation

study broad-based economic trends; current business conditions within an industry; and the quality of a particular corp. business, finances, and management.

Fundamental Analysis:

What are the Initial Requirements?

Greater of Reg. T: 50% of market value. FINRA: $2,000 or paid in full if less than $2k. Note that for short margin accounts, the min. is always $2k even if the initial deposit equates to less. Securities exempt from Reg. T are US Treasuries, gov't agency issues, and municipal securities

______ managers expect to see high P/E ratios or high price-to-book ratios with little or no dividends. ______ managers expect to see low P/E ratios or low price-to-book ratio and dividends offering a reasonable yield.

Growth, Value

What are the 3 primary objectives?

Growth, income, and stability (capital preservation)

organized as LPs with portfolio managers investing, along with the investors. The partnership is the issuer of the ownership units. Not considered an investment company

Hedge Funds

Dividends or interest effect on SMA?

Increase

______ is allowed if it results in a lower price than the inside offer or a higher price than the inside bid for the client.

Interpositioning Interpositioning: When acting in an agency capacity for a client, a firm cannot place a 3rd party between itself and the best available market.

Close-end investment companies that do not trade in the 2nd market. Investors can sell their shares back to the fund at NAV in certain intervals which can anything from monthly to annually. Also, the fund manager can take certain illiquid positions a mutual fund manager might not take because there is no need for daily liquidity. Lastly, these are suitable for investors with long time horizons.

Interval Fund

1. These are closed-end investment companies, registered as such under the Investment Company Act of 1940 2. Unlike other closed-end funds, interval funds do not trade in the secondary market. 3. They are called interval funds because at certain intervals, which may be anything from monthly to annually, investors are allowed to sell a portion of their shares back to the fund at net asset value (NAV). 4. One benefit of these funds is that the portfolio manager can take certain illiquid positions a mutual fund manager might not take because there is no need for daily liquidity with an interval fund. 5. In general, these would be more suitable for an investor with a longer time horizon.

Interval Funds

Attempt to deliver returns that are the opposite of the benchmark index they are tracking. Example: If the benchmark is down 2%, they hope to be up 2%.

Inverse Fund

an investor buys 300 shares of FLB, and one month, later buys 1 FLB Jul 50 put, how does this affect the holding period on his stock?

It erases the holding period on 100 shares. Because the stock has not been held more than 12 months, the put purchase erases the holding period for any shares the put subsequently allows the holder to sell. Because the holder owns one put, this erases the holding period on 100 shares owned. The other 200 shares are unaffected.

The only FCO (Foreign Currency Options) with a contract size other than 10k unit is the _____

Japanese yen

What is it called when 2 or more issuers are taxing the same property?

Know coterminous and how 2 or more issuers are taxing the same property. Only occurs in property tax and never at the state level. An example is a city taxing property for GO and the county taxing property for their own GO.

The formula for combined equity in a mixed margin account is:

LMV + CR - DR - SMV = EQ.

the bonds are all purchased at the same time but mature at different times (like the steps on the ladder). As the shorter maturities come due, they are reinvested, and now become the long-term ones. This has also been a very common strategy with those purchasing CDs at their local bank.

Ladders Picture a ladder. You see rungs at set intervals going from bottom to top. That is the concept behind a laddered portfolio. Unlike the bullet strategy described previously where the bonds are bought at different times but all mature together, in a laddered strategy,

Know that a __________ is a bank guarantee of payment and is like bankers' acceptances;

Letter of credit (LOC)

Attempt to deliver a multiple of return of the benchmark index they are designed to track. Example: 2x leveraged fund would try to deliver two times the return of whatever index it is tracking, but that comes at greater risk and a potential for a massive loss

Leveraged ETFs

The ____ a bond's maturity, the ______ the bond's duration

Longer

On a qualified dividend, the tax rate is _____ than the ordinary income rate applied to a nonqualified dividends.

Lower

Practice of recalculation to check the status of the equity in account, typically on the closing price of the stock each day.

Marking to the market:

On the same day, a client buys 100 shares at 52 and 1 long Jan 50 put @ 2, the cost basis is 54.

Married Put

Local bond backed by the state. The state's backing is not a legal obligation, so if a default occurs, the only way bondholders will be repaid is through legislative apportionment, or the apportion of money to satisfy the debt by the issuer's legislature.

Moral Obligation Bonds

Since CFE is determined by supply and demand, and can be at, below, or above _______

NAV it's NAV is generally only done once per week and not each day in comparison to open-end.

Remember D+I-E and know that capital gains are not part of ____.

NII

Informs clients of an impending action and requires them to respond within a specific time to rejected. If no response, they accept. Contains a tabular comparison of fees charged, a comparative description of the investment objectives, and not be activated until at least 30 days after it was mailed. Note that if a customer opts out after the 30 days, they can be charged a fee.

Negative Response Letter

An investor purchased a single premium deferred variable annuity 20 years ago. The premium deposit was $50,000. The account is now worth $200,000 and the investor is still working. When does the investor have to begin taking required minimum distributions?

Never with a nonqualified annuity. On the exam, unless stated to the contrary, every annuity is nonqualified. One of the benefits of nonqualified annuities is that there is no age at withdrawals must commence. In general, earnings withdrawn prior to age 59½ are subject to the additional 10% penalty on top of tax at ordinary rates.

Only municipal bond backed by the US Gov't. Most secure municipal bond. Rental income fuels the bonds, but the US gov't makes up any difference. Note that these are not double-barreled, b/c a double-barreled must be back by more than one municipal revenue source, NHAs only have 1 (rental income).

New Housing Authority Bonds (NHAs) / Public Housing Authority Bonds (PHAs) / Section 8

Is a convertible bond suitable for an investor needing income?

No

Fall in long account market value effect on SMA?

No effect

Interest charges to account effect on SMA?

No effect

Stock dividend or split effect on SMA?

No effect

Is the customers signature required to open a new account?

No, but prinicpal must sign

Fund does not charge any type of sales load. Can charge redemption fees, and is permitted to pay its annual operating expenses. The combined amount of the fund's 12b-1 fees or separate shareholder service fees cannot exceed .25% of the avg. annual net assets.

No-Load Funds Misuse of No-Load Terminology: A fund that has a deferred sales charge or an asset-based 12b-1 fee of more than .25% of avg. net assets may not be described as a no-load fund, nor can the fund have any front-end load.

_____ quotes can be given for informational purposes and can be printed only if clearly labeled as such

Nominal

Debt incurred for a partnership that does not hold the LPs personally liable. _____ Debt incurred for the purchase of an asset and that which holds the borrower personally liable for the debt. _______

Nonrecourse Financing: Recourse Financing (Loan): *Test topic: LPs are liable for a proportionate share of recourse loans assumed by partnerships. LPs have no liability for nonrecourse loans and only in real estate DPPs does the nonrecourse loan add to the investor's basis.

Customer does not hold the BD to a particular time or price of execution, thus the BD decides the best time and price to execute the trade

Not Held Orders

If traditional IRA is converted to Roth, the entire amount is converted and added to the investor's____

Ordinary income

A security representing an interest in a pool of mortgages (conventional, VA, etc.). The pool receives the principal and interest payments, which it passes through to each certificate holder.

Pass-Through Certificates

Complied by the Bond Buyer indicating the number of new municipal issues amounting to $10M par value or more that have sold within the past week.

Placement Ratio

· A min. of 75% of the cash value must be available for policy loan after the policy has been in force 3 years. · The insurer is never required to loan 100% of the cash value. Full cash value is obtained by surrendering the policy to the insurer. · If the insured dies with a loan outstanding, the death benefit is reduced by the amount of the loan · If the insured surrenders the contract with a loan outstanding, cash value is reduced by the amount of the loan.

Policy Loans on VA Insurance

Approval for Correspondence? Approval for Retail? Approval for Institutional?

Pre or post required Pre required None

TV =

Prem. - IV XYZ NOV 40 put at 1.25. Market is selling at 41. Thus, the option is out of the money and no intrinsic value. The entire premium ($1.25/share or $125 total) is time value. DEF NOV 60 call @ 2 with DEF at 62. This option has no time value since it is trading at a parity.

Which is more likely to be called, premium or discount?

Premium

Restricted, unregistered, letter stock, and legend stock are all recognized as what?

Private placement stock

Just as with mutual funds, the ______ is paid by investors and includes the syndicate spread.

Public offering price Example of Syndicate spread: POP ($20) - manager fee ($.25) - underwriting fee ($.40) - selling concession ($.5) = the amount the issuer will receive, so $18.85 per share. Generally will be asked in terms of points, not dollar. One bond points = $10. Question may ask for ranking: manager fee is smallest and total takedown is the largest. Question may ask under what circumstances a syndicate member can receive the full spread when a bond is sold. The answer is that the syndicate member receives the full spread if the member is also a syndicate manager. Question may ask to define total takedown, it is the concession plus the additional takedown.

Professional manages a portfolio of real estate investments to earn profit and/or income for their shareholders. Publicly traded. Organized as trusts. Prices based on supply and demand which can be more, less, or the same as NAV. Not a DPP

Real Estate Investment Trusts (REITS) o Owner of REIT holds an undivided interest in a pool of real estate investments o REITS are liquid b/c they trade on exchanges and OTC o REITS are not investment companies o Offer dividends and gains to investors but do not of offer flow-through losses like limited partnerships, and therefore are not considered DPP o Must distribute 90% or more of income to shareholders to avoid taxation as a corp. o Dividends from REITS are not qualified, they are taxed as ordinary income

Small and Medium Offerings · Tier 1: Securities offerings up to $20M in a 12-month period. · Tier 2: Securities offerings up to $50M in a 12-month period. Only for qualified/accredited investors.

Regulation A+: Reg. D is private placement for accredited investors

If an investor purchases Class A shares of a mutual fund and liquidates within seven days of the purchase, FINRA Rule 2341(h) requires that any member who received part of the sales charge, including the fund's underwriter, must _____ it to the fund. The investor receives the next computed NAV, but no refund of the sales charge.

Return

Offered periodically to finance current operations in anticipation of future revenues from revenue-producing projects or facilities.

Revenue Anticipation Notes (RAN)

Taxed like a partnership, investors have limited liability, gains and losses pass to investors, no more than 100 shareholders.

S Corp.

o Traditional and Roths have no upper age limit for contributions o RMDS begin at 72 o Two new early withdrawal exceptions 1. Up to $5000 1st year child is born 2. Up to $5000 1st year an eligible person (someone under 18 or non-self-supporting) is adopted (If married, each spouse can make $5K.) o RMDs must be completed in 10 years of death of owner's death in inherited retirement account o Rule 529 - amounts paid (max $10K per lifetime) on student loan is now qualified expense for a beneficiary and any siblings. o ERISA eligibility for 401k plans, but not 403b and 457. Employees working 500hr/year for 3 years are now eligible.

SECURE Act

401K plans are considered _____ reduction plans, not _____ deduction plans.

Salary, payroll 401k are qualified, payroll plans are not

· The max sales charge over the life of the contract is 9% · A policy owner who wants a refund within 45 days receives all money paid · From 45 days to 2 years, there is a partial refund of sale charge · After a variable life policy has been in effect for 2 years, the surrender value of the policy is the cash value; there is no sales charge refund.

Sales Charges & Refund Provisions for VA Insurance

When a stock gets to the resistance (upper) level, it attracts ______. When at the support (lower) level, it attracts ________

Sellers, buyers

All options of the same class, exercise price, and expiration month are in the same _____

Series All Jan 45 ACM puts make up one series; all Jan 50 ACM puts make up another series

Unlike an annuity payout or life insurance premium, contributions to a defined benefit plan are not affected by the participant's ___

Sex

o Increasing Returns - Keep premium is call expires o Speculation - most common strat. o Locking in a Sale Price - Exercise price can try to lock in profit o Protection of a Long Position o Ratio Call writing - involves selling more calls than the long stock position covers. This generates more premium, but also entails unlimited risk b/c of the short uncovered calls.

Short Call Option Strats

_____ selling municipal bonds is almost never done.

Short. Also, insiders of a company cannot short their own stock. Regulation SHO deals with short stock.

$10K loss in 2018, no transactions in 2019, 2020 had 2k short-term gain and 3k long-term gain. What are the taxes for this?

So 3K deduction in 2018. 2019 had no transactions, so 3k deduction in 2019. Thus 4k left. 2020 had 2k short-term gain and 3k long-term gain. The 4k is first used against the 2k short-term, knocking it out. The remaining 2k is used on the 3k long-term gain. Leaving only 1k as long-term gain.

Practice of allocating highly sought after IPO shares to individuals who are in a position to direct securities business to the firm.

Spinning

________ Refers to the proportion of various types of investments composing a long-term portfolio. ______ Refers to short-term portfolio adjustments that adjust the portfolio mix to current market conditions. An active strategy.

Strategic Asset Allocation Tactical Asset Allocation Tactical asset allocation (buying & selling to try and time the market) is more appropriate for fee-based accounts. Whereas, it would be unsuitable to use a fee-based account on one using strategic asset allocation.

if you receive IRA payments at least annually based on your life expectancy (or the joint life expectancies of you and your beneficiary), the withdrawals are not subject to the 10% penalty.

Substantially equal periodic payment exception Note about traditional: An IRA owner who reaches age 72 on Jan.1 2020, must begin withdrawals by April 1, 2021. However, if this individual is covered by an employer-sponsored plan, there are no RMDs from that plan (but there are from any traditional IRAs) until after retirement.

Finance current operations in anticipation of future tax receipts. Helps to even out cash flow between tax collection periods.

Tax Anticipation notes (TAN)

· Interest on corporate bonds is taxable on all levels · Interest on municipal securities may be taxed by the municipal level (state & local) but not federal · T-bill, notes, and bonds are taxed at the federal level but not state and local · Interest on mortgage-backed securities is taxed at all levels · Interest on nonmortgage-backed securities is taxed at the federal level only · Interest on issues of US territories is exempt at all levels.

Tax Recap

What is the tax-equivalent yield

Tax-equivalent yield = municipal coupon / (100% - investor's tax bracket). = 4.2 % annual coupon / (100% - 40% tax bracket) = 7%. Thus, to receive the same after-tax benefit of a municipal bond, this investor would have to purchase a taxable bond (corporate or gov't) with a coupon of 7%. The tax-equivalent yield for a municipal bond issued by an entity within a state with a state income tax will have a higher tax-equivalent yield to a resident of that state b/c of double tax exemption.

attempts to predict the direction of prices on the basis of historic price and trading volume patterns when laid out graphically on charts.

Technical Analysis:

If a mutual fund acts as a conduit (pipeline) for the distribution of NII, the fund may qualify as a regulated investment company (RIC). Thus, it is subject to tax only on the amount of NII the fund retains. The portion of the NII distributed to shareholders escapes taxation at the mutual fund level. To avoid taxation under Subchapter M, a fund must distribute at least 90% of its NII to shareholders. The fund then pays taxes only on the undistributed amount. Example: 89% distributed, so 100% of NII is taxed. 98% is distributed so only 2% of retained earnings is taxed. Note that most closed-end companies and BDC qualify as RICs for their investors.

The Conduit Theory

Know what FDIC coverage is

The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category.

ABC has issued $100M of convertible debentures having a nondilutive covenant. Each debenture is convertible into 40 shares. If ABC declares a 2:1 stock split, then what happens.

The answer is that the conversion price of each debenture will be $12.50/ share. $1000/$40=$25.00. After a 2:1 stock split, the conversion price is now halved. The math is $1000/80shares=$12.50/share.

The _________ of the security and the client's _______ would not be on the order ticket.

The current market price of the security and the client's name & address would not be on the order ticket.

An investor in debt securities might elect to use any one of the following techniques to limit interest rate risk EXCEPT A. barbells B. bullets C. increasing the duration D. laddering

The longer the duration, the greater the interest rate risk (choice C), so the investor would not want to do that. The others are useful strategies for reducing interest rate risk.

Test questions sometimes ask you to contrast Eurobonds and Eurodollar bonds. The name of the instrument tells you how principal and interest is paid. Eurodollar bonds pays in ____; Eurobonds pay in _____. Note that these instruments must be issued outside of the US.

USD, foreign currency

Unmanaged investment company organized under a trust indenture. They are not actively managed, nor have a BOD or investment adviser. Their shares (units) must be redeemed by the trust. The money manager initially selects the securities to be included in the portfolio and then holds those securities until they mature or the ____ terminates.

Unit Investment Trusts (UITs)

What are the 5 types of investment constraints?

Time Horizon, Liquidity, Taxes, laws & regulations, and unique circumstances or preferences

________ are a daily record of all activity, including cash receives and disbursed, securities received and delivered, and identification of securities bought and sold that day. The daily blotter would not contain client info. or settlement dates. Blotters must be posted no later than the 1st business day following the activity.

Trade blotters

· The contract exchange provision must be available for a min. of 2 years · No medical underwriting (evidence of insurability) is required for the exchange · The new policy is issued as if everything were retroactive. That is, the age of the insured as of the original date is the age used for premium calculations for the new policy.

Variable Life Insurance Contract Exchange

Payments made with after-tax $ Payments are invested in the separate account Portfolio of equity, debt, or mutual funds Annuitant assumes investment risk Is a security Return depends on separate account performance Fixed admin. Expenses Income guaranteed for life Monthly payments may fluctuate up or down Protects against purchasing power risk Subject to registration with the state insurance commission and SEC

Variable annuity

What is the coverage ratio for revenue bonds?

When analyzing revenue bonds, one should look at the debt coverage ratio. The higher the ratio, the better. Coverage = Available Revenues / Debt Service Requirement Coverage = $10M available revenues / $4M debt service requirement Coverage = 2.5 to 1

The _____ is the broadest market index

Wilshire 5000

If a bond is sold to a customer at par, under Municipal Securities Rulemaking Board rules, all of the following must be disclosed to the customer on his confirmation except ____

YTM

Can assets in an account or property held jointly with another person who is not the purchaser's spouse be included in determing whether the purchaser satisfies the net worth test in Rule 501?

Yes. assets in an account or property held jointly with a person who is not the purchaser's spouse may be included in the calculation for the net worth test, but only to the extent of her percentage ownership of the account or property.

______CMOs would not be suitable for an investor needing funds in a specified amount of time, b/c of the unpredictable nature of when payment will be received.

Z-tranche

An issuer interested in reducing its interest cost can use the call provision to call in outstanding bond issues. The issuer is most likely to call bonds with A) a high coupon and high call premium. B) a high coupon and low call premium. C) a low coupon and low call premium. D) a low coupon and high call premium.

a high coupon and low call premium.

Features of an employee stock purchase program (ESPP) include all of the following except contributions are made with ___-tax dollars

after

One of the features of using a broker's broker is ______. Your firm does not disclose the identity of your customer and the broker's broker does not disclose the identity of the buyer of your client's bonds.

anonymity

Concerning breakpoint sales, Married couples, parents with minor children, and corporations _____ eligible. Parents combined with adults children, other family members combining together such as siblings, and investment club ____ eligible.

are, are not

A family balance sheet only includes _______, not income like salary, dividends, or interest, or amounts paid for expenses.

assets and liabilities (net worth is assets - liabilities)

Jumbo CDs are insured (up to the FDIC limit of $250k), but they are not secured by any ______ .

bank asset

If justified, a supervisory person with the BD, but not a RR, may correct a _________. A rep of a BD cannot do this b/c of concern that any such payment may conceal individual misconduct.

bona fide error

Interest paid by margin customers on money borrowed is a variable rate based on the ______

broker call rate.

A stock going through its resistance level is ____ while going through the support level is _____

bullish, bearish

High short interest is a _____ indicator, and low short interest is a ______ indicator.

bullish, bearish

Only ______ are placed below the market price and are reduced for cash dividends. All orders are adjusted for stock dividends and stock splits, whether placed above or below the market.

buy limits and sell stop Example 2: A company is about to pay a dividend of $0.70. On the ex-dividend date, an open order to sell at 46 stop would be automatically adjusted to 45.30.

If the signed option agreement is not returned within 15 days of account approval, the firm can only permit ____

closing transactions

Municipal bonds that are priced using YTM. Example: 7s 35 at 7.5. Means a 7% ______, maturing in ______, and a 7.5% _____. Since YTM is higher than the coupon in this example, the bond is at a discount. Note that each basis point is _________ cents.

coupon, 2035, YTM. 1/100 of 1% or 10

Regulation T controls the extension of _____ from broker-dealer to customer, with customer securities providing the collateral for such loans.

credit

FINRA warns investors that most leveraged and inverse ETFs reset ______ , meaning that they are designed to achieve their stated objectives on a daily basis. Their performance over longer periods of time can differ significantly from the performance (or inverse of the performance) of their underlying index or benchmark during the same period. Therefore, in most cases, these would not be suitable for buy & hold investors or those with other than a very short time horizon.

daily

Regarding callable municipal bonds, call premiums ____ over time, and call prices are stated as a ____

decrease, percentage of the principal amount to be called (example: 103 means $1,030.)

Know that when a bond is ______, it is paid off, usually from a refunding;

defeased

Time or price are not considered _____

discretion. Activity, amount, and asset are

Duration for a zero coupon bond is always _____ to its maturity

equal

OTC trading of securities with little or no activity, typically because of regulatory issues;

grey market

a _____ company is not part of the definition of an investment company.

holding

The term variable, as in variable annuity or variable life, two licenses are required for the sale. One needs an _______ license. Suitability must be determined and a prospectus delivered before or with solicitation of the sale.

insurance and securities

Commons shares of public utility companies have _____risk due to being highly leveraged and liberal dividend policies.

interest-rate

For coupon bonds, duration is always _____ the bond's maturity

less than

Employer contributions to defined benefit or defined contribution (money purchase) pension plan are _______

mandatory. Profit-sharing & 401kare not mandatory. Employer contributions are 100% deductible to the corporation. There is no tax obligation to the employee until withdrawal.

Designated Market Makers (DMMs) on the floor of the NYSE cannot handle.

market not-held orders.

The _______ fee covers the risk that the insured may live for a period shorter than assumed. The_______ fee covers the risk that the costs of administering and issuing the policy may be greater than assumed. The _______ fee is the cost of the management of the chosen separate account subaccounts. Options: investment management, expense risk, mortality risk,

mortality risk, expense risk, investment management

OTC market is a ______ market

negotiated. meaning that prices on the OTC are determined by negotiating/bargaining between BDs.

When it comes to interest rate risk, insured bank insured CDs have ____. Treasury bills do not have much, but do have more than the CDs.

none

What is the Liquidation Priority?

o Administrative claims (attorneys, property appraisers, the courts) o Secured creditors (mortgage bonds, equipment trust certificates, collateral trust bonds) o Wages o Taxes o Unsecured creditors (general creditors, including debenture holders) o Subordinated debt holders o Preferred Stock o Common Stock

From greatest to least, what is Coupon, CY, YTM, and YTC for premium and discount bonds?

o Premium: Coupon, CY, YTM, YTC o Par: Same for all o Discount: YTC, YTM, CY, Coupon

Dissolving an LP occurs in this order

o Secured Lenders o Other Lenders o LPs o GPs

A taxable distribution from an retirement plan is taxed as

ordinary income Note: In a qualified plan, if all funds were contributed by the employer, the employee's tax basis is zero. If the employee's contribution was pretax, the basis is also zero.

Markups and markdowns are charged when a market maker is acting as a ______

principal (dealing from inventory with financial risk)

The 5% policy applies to both principal (dealer) and agency (broker) transactions. It applies to markups, markdowns, and commissions, but not to securities sold by ______

prospectus. Municipal securites are exempt.

Under MSRB rules, any indication of interest or solicitation by a municipal dealer (such as bid wanted or offer wanted) would be considered a ______ request.

quotation (means any bid for or offer of municipal securities)

MBS (Mortgage Backed Securities) are susceptible to ________ risk.

reinvestment Reasoning - when interest rates fall, mortgage holders typically refinance at lower rates. Thus, they pay off their mortgage early, which causes a prepayment of principal to holders of MBS. The early principal payments cannot be reinvested at a comparable return. Sometimes the test asks which instruments are not subject to reinvestment risk, the best answer is zero-coupon bond. No interest is paid on a current basis, so the investor has no reinvestment risk.

A broker-dealer's website is considered _____ communications

retail

The 3 primary components of an income statement:

revenue, COGS, and pretax income

The coverage ratio is specific to ______ bonds.

revenue. It only and tells how many times annual revenue from that issue will cover the debt service of the issue. It is not a factor of suitability to be considered when recommending a GO bond, but more of a factor to consider when comparing two municipal revenue bonds

A revenue bond backed by gasoline taxes is a _____ tax bond.

special

the investor enters orders and then, before they can be executed, the orders are canceled (no execution actually takes place). FINRA calls this unethical practice _____

spoofing

inside quotes

the highest bid quotes and the lowest ask quotes for a security