Series 7
A constant dollar investment plan requires
that the same aggregate dollar amount be kept invested in equities
statements are true about margin on securities
the FRB sets margins for non-exempt securities FINRA sets margins for exempt securities FINRA sets margins for non-exempt securities
monetarist theory states t hat economy is stimulated by
the action of the federal reserve
A small investor with $2,200 of available funds wishes to make a crowdfunding investment. Which statement is TRUE about this
the client can make the investment without resitriction
statements are true about a company that is highly leveraged
the company has the greatest portion of its capitalization as debt if the company's operating earnings are highly variable, it may default in an economic downturn they "trade on the equity," producing a disproportionate increase in earnings per share once earnings cover debt service
interest received from older "tax free" IDBs issues is taxable if the holder of these bonds
the corporate lessee
Strategic asset allocation
the determination of the percentage of assets to be placed in each asset class under an asset allocation scheme
official statement
the disclosure document for a new municipal bond offering which details the material information necessary for the investor to judge the creditworthiness of an issue and to determine whether or not to invest.
concession
the discount from the public price given to the member of a selling group that is participating in a new issue underwriting
bond buyer worksheet
the form used by an underwriter in a competitive bid municipal bond offering to formulate a bid - i.e., write the scale.
spread
the gross compensation that an underwriter receives for distributing a new issue
federal funds rate
the interest rate charged on borrowings between Federal Reserve System member banks for overnight loans of reserves. Because this rate changes daily in response to the need for borrowing, it is considered an indicator of future interest rate changes. Also note that this is the lowest interest rate in the economy.
discount rate
the interest rate which the Federal Reserve charges member banks for making direct loans of reserves. This rate is typically set at 50 basis points (.50%) higher than the Fed Funds rate. Making changes to the discount rate is a monetary policy tool employed by the Fed to tighten or loosen the money supply.
Which statements are TRUE about a tender offer for common shares
the offer must remain open for at least 20 days each "sweetening" of the offer must extend the offer for an additional 10 days
dow jones average
the oldest measure of the activity and movement of the overall market, which consists of 30 industrial stocks, 20 transportation stocks and 15 utility stocks.
A parent opens a custodial account for a 10-year old child. The grandparents then donate into the account. If the total investment income in the account exceeds $2,300 in 2022, the income is taxed at the
the parents tax rate
Tactical asset allocation
the permitted variation from the fixed percentage of assets to be placed in each asset class given to the asset manager under an asset allocation scheme
Active asset management
the pursuit of investment returns in excess of the specific benchmark return. Active asset managers believe that undervalued stocks exist in the marketplace, and that by investing in them, they can surpass the performance of a similar index fund
Portfolio Rebalancing
the reallocation of funds in an asset allocation model from overperforming asset classes to those that have underperformed. In this manner, the percentage allocations to each asset class are kept within the desired range
prime rate
the short-term interest rate that commercial banks charge their most credit-worthy business customers.
Under MSRB rules, confirmation disclosure for bonds sold at a discount or premium must include
the yield at which the transaction was effected and the resulting dollar price whether the securities are callable capacity in which the broker-dealer acted
Under MSRB rules, which of the following records must be kept for specified time periods
trade comparisons customer account statements customer complaints
A customer buys $10,000 of 30 year corporate bonds with 10 years left to maturity at 92. The customer elects not to accrete the discount annually. At maturity, the customer will have
$800 of taxable interest income
exchange rate risk is a factor to consider when investing in foreign debt issues
- U.S. dollar appreciates in value - foreign currency depreciates in value
resistance level is
- above current market price of the stock - a point through which the stock's price tends not to rise
adjustment income bonds
- any interest payment made is predictable in amount - timing of interest payments made is not predictable
regarding warrants
- are typically issued with an exercise price that is higher that the stocks current market price - would be exercised when the stocks market price id above the warrants strike price
used to protect a gain on a short sale stock position
- buy a call - sell a put - place a buy stop order
Gross domestic product consists of
- consumer spending - U.S. government spending - fixed investment
mutual funds
- continuously issued -redeemable - non-negotiable
European style foreign currency options
- contracts can only be exercised at expiration - contacts can be traded at any time
Roth IRAs
- contributions are not tax deductable - distributions are after age 59 1/2 are not taxed
Coverdell Educations savings accounts
- contributions are not taxable deductible - distributions are not taxable
when recommending municipal securities disclosure must be made to customers of
- control relationships - existence of financial advisory relationships
needed to determine the annual accretion amount on an original issue municipal discount bond
- dated date - maturity date - acquisition cost
amortization of a municipal bond premium for tax purposes result in
- decrease in the bond's cost basis - no change in the amount of interest income recevied
included in the taxable income of a corporation
- dividends received from foreign investments - gain on the sale of a capital asset
regulation NMS required market centers to do
- electronically link and make quotes accessible in real time - provide an automated execution at the best price within 1 second - put procedures in place to prevent trade-throughs
ABC declares and pays a stock dividend...after distributions received in the amount
- equity in the account remains the same - market value of the ABC stock in the account in the account will be the same
items included on a company's income statement
- installment sales - interest income revenues - sales fixed assets
Treasury STRIPS
- interest is accreted annually - interest is subject to tax annually
Functions of the transfer agent
- mailing dividend payments to shareholders - canceling old shares and issuing new shares - preparing and mailing proxies
individuals who make a secondary market in the corporate bonds
- market makers -traders - dealers
Fidelity bonds
- member firms are required by FINRA to maintain fidelity bond coverage - is insurance against loss due to employee theft
can be sold with a series 6 license
- municipal investment trusts - municipal bond funds
Reg. SHO requires that if stock falls by 10% or more
- only be sold short on an up bid - short sales of that security are subject to the "bid test" rule for the remainder of that trading day and the entire next trading day
An investor in a limited partnership generating passive losses can offset these against:
- passive income generated from other limited partnership investments - income generated from direct investment in real estate
a market maker that compensates a retail member firm for sending its customer orders to the market maker
- paying for order flow - permitted to do so, subject to best execution requirements
the manager of an unregistered hedge fund is typically compensated by a fee based on a
- percentage of assets under management - performance fee based on profits
activities of municipal broker's broker
- perform trades on an agency basis only - do not carry inventory positions
variable life policy
- policy builds cash value that can be borrowed - it is a form of permanent insurance - sale of the product requires the delivery of a prospectus to the purchaser
in a corporate new issue offering, the issuer's responsibilities include
- printing the certificates - registering the certificates
U.S. government agency securities
- quoted in 1/32nds - traded with accrued interest computed on a 30 day month/360 day year basis
types of complex products
- reverse convertible note - asset-backed note - structured note
defined benefit plan
- smallest contributions are for those far away from retirement - largest benefits will be paid to high salaried employees nearing retirement
intrastate offerings are subject to
- state registration - FINRA regulation
securities sold through auction
- treasury bills - treasury TIPS - general obligation bonds
generally trade OTC
- treasury issues - municipal issues - corporate debt issues
the standard and poors 100 option contract is
-traded on the CBOE - broad based
Under FINRA rules, copies of order tickets must be kept for
3 years
Under FINRA rules, research reports approved by a supervisory analyst must be kept by member firms for:
3 years
Which asset allocation is BEST for a 35-year old single risk tolerant investor looking to achieve the highest returns
95% stocks / 5% money markets
Under FINRA Rule 5130, which of the following are prohibited from buying a new issue directly from an underwriter
A FINRA registered representative A person who is financially dependent on a FINRA registered representative A financially independent sibling of a FINRA registered representative
rights agent
A corporation is attempting to sell additional shares to its existing shareholders through a rights distribution. A shareholder who wishes to subscribe must send the purchase amount with the rights certificate to the
Deferred Compensation Plan
A nonqualified retirement plan whereby the employee defers receiving current compensation in favor of a larger payout at retirement (or in the case of disability or death).
following would be considered a "control" relationship to be disclosed to customers?
A principal in a municipal firm is the supervisor of the school board whose bonds the firm is underwriting A principal in a municipal firm is the supervisor of the school board whose bonds the firm is trading The Treasurer of the township, whose bonds the firm is offering on a principal basis, is on the Board of Directors of the municipal firm The Treasurer of the township, whose bonds the firm is offering on an agency basis, is on the Board of Directors of the municipal firm
Regulation D offering can be advertised
An offering made to an unlimited number of accredited investors and no non-accredited investors
quotes found on pink sheets
BW, OW, and AON
The Federal Reserve Bank has made a policy decision to devalue the U.S. Dollar versus the Japanese Yen. Which of the following intervention actions would decrease the U.S. Dollar's exchange value?
Buy Japanese Yens and sell U.S. dollars
A customer has just received a $100,000 inheritance and wants to know what to do with the money until he decides how to use it. He thinks that he will make his decisions on what to do with the funds within 3 months. The BEST recommendation is for the customer to buy
treasury bills
offering memorandum
under regulation d, purchasers of private placement offerings must be given full disclosure through
synonymous when talking about open-end funds
underwriter/sponsor pop/ask price
long call
unlimited upside potential gain
There is no real benefit for the manager of a pension plan to invest in which of the following securities?
muicipal bonds
sales literature distributed by a member firm connection with the promotion of a BDC offering
must be filed with FINRA 10 business days after distribution
Rule 103 of Regulation M requires that a market maker in a stock that is also a syndicate member in an "add-on" offering of that issue, during the 20-day cooling off period
must resign as a market maker can act as a passive market maker
On Wednesday, May 15th, a registered representative receives an order to sell 100 shares of ABC stock that has been "transferred and shipped" to the customer. Before executing the order, the registered representative must make sure the securities can be delivered by
Friday May 17th
Which of the following are appropriate investment strategies for a client with a 20-year time horizon
Holding less cash Holding more stock Holding less bonds
A balance of payments deficit would be narrowed by which of the following
Decreased levels of U.S. imports Increased sales of U.S. securities to foreign holders Increased levels of foreign tourists visiting the United States
are "preference" items included in the alternative minimum tax computation
Excess intangible drilling costs Excess depletion
Margins on government and municipal securities are set by (the)
FINRA
If the federal reserve tightens credit via open market operations, which of the following interest rates will increase?
Federal funds rate discount rate broke loan rate prime rate
who sets Regulation T initial margin requirements
Federal reserve board
A customer has made multiple purchases of a stock at different dates. If the customer sells a portion of the position, the customer's cost basis is reported by the broker-dealer on:
Form 1099-B and FIFO
takedown
In a new issue municipal bond offering, the discount from the public price given to a member of the syndicate.
Which asset classes are subject to currency risk (exchange rate risk)?
International stock and emerging markets
technical indicators that are bearish
Inverted Saucer formation Breakout through a support level Head and shoulders top formation Odd lot purchases
Under MSRB rules, advertising relating to municipal securities must be approved by the
Municipal Securities Principal General Securities Principal
A prospective options customer must receive which of the following at, or before, the time that sales literature that includes recommendations is sent to the client
Options disclosure document
Which of the following are defined as "portfolio income" under IRS guidelines
Proceeds from the sale of securities in excess of the tax basis of those securities Interest income received from bond holdings Dividends received from preferred stock holdings
Corporate officers who wish to trade their own company's stock must comply with which of the following rules?
Prohibitions on short sales of that company's stock Trading is restricted to decisions based on publicly available information Filing change of holding reports with the SEC
The Securities and Exchange Commission is empowered to administrate which of the following Acts
Securities Act of 1933 Trust Indenture Act of 1939 Investment Company Act of 1940
The overall economic performance of developing countries is expected to outpace that of the United States over the coming years. A customer that wishes to profit from this should receive which recommendation and accompanying risk disclosures?
The customer should be recommended an emerging markets fund, as long as the customer is willing to assume political risk and exchange rate risk
activities of the registrar
The registrar accounts for the number of shares issued The registrar keeps the integrity of the shareholder record
A corporation would repurchase its debt for which of the following reasons
To increase the market value of its equity issues To reduce its sensitivity to earnings fluctuations due to cyclical conditions To decrease its capitalization
Which of the following are defined as "accredited investors" under Regulation D
Trust with assets in excess of $5,000,000 whose purchase is directed by a sophisticated person A bank or savings and loan institution
Which of the following MUST be disclosed in a research report recommending the purchase of a specific security?
Whether the firm or its affiliates own 1% or more of the issuer's securities Whether the employees of the firm have a financial interest in the security Whether the firm has been a manager or co-manager in an underwriting of any of the issuer's securities within the past year
non-convertible preferred stock
Which security of the same issuer is likely to give the highest current yield?
an oil & gas limited partnership investment would be least suitable for
a custodial account
value line index
a geometrically weighted index consisting of some 1,700 selected issues that are on the NYSE, NYSE American (AMEX), and NASDAQ markets.
defined benefit plan
a pension plan in which the amount an employee is to receive on retirement is specifically set forth distributions upon retirement are 100% taxable employees with the highest salaries and fewest years to retirement benefit the most contributions made to the plan can vary from year to year
competitive trader
a registered New York Stock Exchange member who trades solely for his or her own account on the floor of the exchange. The presence of such persons on the exchange floor added liquidity to the market (another person willing to buy or sell always helps!)
floor trader
a registered exchange member, only on the CBOE floor, who trades for his or her own account, at his or her own risk.
reallowance
a small portion of the underwriting spread which the managing underwriter allocates to a non-syndicate, non-selling group broker-dealer who sells part of a new issue.
S&P 500
a weighted index that overwhelmingly includes the largest issues that trade on the New York Stock Exchange and NASDAQ. The largest weighting in the index is technology stocks
A customer is short 1 ABC Jan 90 Call @ $5. The call is assigned when the market price of ABC is $100. The sales proceeds of the shares is:
strike price plus premiums
The transfer agent is typically responsible for all of the following functions
acting as disbursement agent for the corporation issuing new stock certificates canceling old stock certificates
The President of PDQ Corporation donates restricted PDQ shares to the United Way after holding them for 3 months fully paid. United Way can sell the stock without restriction
after holding securities for 3 months
market maker
synonymous with an OTC dealer, a FINRA member firm that disseminates bid and ask prices at which it stands ready to buy stock into, and sell stock from, its inventory at its own risk in the over-the-counter market
trust indenture
also called the indenture, a series of covenants or protective promises made by the issuer of a debt security to the purchasers of a debt security.
broker call loan rate
also known as the call loan rate, the interest rate that banks charge brokerage firms for loans collateralized by marketable securities (margin loans). This rate is lower than the prime rate (the rate that banks charge their best business customers for unsecured loans) because marketable securities are placed with the bank as collateral
floor broker
an employee of an exchange member firm who executes orders for the company's public customers on the exchange floor.
major market index option
an index option that mimics the Dow Jones Industrial Average, it consists of 20 stocks in different industries, and is traded on the American Stock Exchange under the symbol XMI
The designated Registered Options Principal is responsible for all of the following functions
approval of options advertising writing of procedures for supervision of options accounts review of procedures for supervision of options accounts
Under Rule 144, a customer wishing to sell must file the 144 "Notice of Sale" with the SEC
at, or prior to, the placement of the sell order
Cyclical stock
automobile manufactur
Strategic portfolio management is the selection of the
target asset allocation for each asset class selected for investment
Regarding the notification of a broker-dealer's financial condition to customers, a brokerage firm must send semi-annual statements which include the firm's
balance sheet and net capital compution
Institutional portfolio managers have been allocating an increasing percentage of their funds to cash and cash equivalent positions. This is an indication that their market sentiment is:
bearish
A support level is:
below the current market price of the stock a point through which the stock's price tends not to fall
contract between an issuer and a bidder to buy a municipal issue
bid form
best describes a stock that moves with the market?
blue chip stock
AMBAC insurance guarantees the timely payment of
both interest and principal from the time of default
Which of the following technical indicators would be considered to be bullish?
breakout through the resistance level head and shoulders bottom formation
All of the following must be registered under state blue sky laws
broker dealers limited partnership offerings sales representatives
A head and shoulders "bottom" formation is
bullish and a reverse downward trend
how the customer buy and sells
buys at ask and sells at bid
how the dealer buys and sells
buys at the bid and sells at ask
Which item would be found on a corporation's income statement
taxes
a restricted margin account is one
that is below 50% initial regulation T margin
An investment strategy where a higher price is paid for a stock based upon expected returns is
growth investing
offer the greatest protection from "interest rate risk"
high coupon bonds with long maturities
primary benefit of a municipal zero-coupon bond
capital appreciation
how can custodial accounts be open?
cash account
Which ratio is the most stringent test of liquidity?
cash assets ratio
If a portfolio manager's market sentiment is bearish, then which of the following are appropriate actions?
cash positions will be increased investments in stock positions will be decreased
corporate characteristics most difficult for a limited partnership
centralization of management
All of the following income received by a corporate investor is partially excluded from income tax
common dividends received preferred dividends received convertible bond interest received
in a delationary period, which security would be most negatively affected
common stock
example of a double barreled bond
convention center bond backed by user fees and unlimited ad valorem taxing power
A communication sent to fewer than 25 existing or prospective retail clients is defined as (a)
correspondese
A customer buys 1 ABC Jan 35 Call @ $5 and exercises the contract. The tax consequence is a
cost basis of $40 per share
A customer has written 1 ABC Jan 50 Put @ $3. The contract is assigned. The tax consequence to the writer is a:
cost basis of $4700
An investor is considering a municipal bond tax swap. All of the following should be considered when determining whether a municipal bond tax swap will result in a "wash sale"
coupon rate maturity issuer
considering a municipal bond tax swap. What should be considered when determining whether a municipal bond tax swap will result in a wash sale
coupon rate maturity issuer
When making a recommendation of corporate commercial paper to a customer, which risk is the MOST important consideration
credit risk
an investor wishes to do a municipal bond tax swap, the investor can expect to pay extra funds for the swap if the newly purchased bonds have
higher coupon and higher rating
The "effective" Federal Funds Rate is the
daily average rate of member banks of the Reserve System
Under the flow of funds in a revenue bond trust indenture, the first use of NET revenues is to pay: A. operation and maintenance B. debt service C. debt service reserve D. reserve maintenance fund
debt service
A recession is defined as a(n)
decrease in GDP for at least 6 consecutive months
The principal tax benefit of an oil and gas "income" program is
depletion
The use of index funds as investment vehicles for asset classes increases
diversification
can be distributed by an REIT to its shareholders
dividends and capital gains
A change in each of the following is a leading economic indicator
durable goods orders initial claims for unemployment index of industrial production
John Jones has an individual cash account; a joint margin account with his wife; a custodian account for his minor daughter; and a custodial account for his minor son; all at the same brokerage firm. If the firm should fail, Securities Investor Protection Corporation will cover
each account separately
529 plan
education plan that permits an adult donor to be the beneficiary
A younger female customer, in the highest tax bracket, already has a substantial investment portfolio that is invested in a balance of quality stocks and bonds. She wants an investment that will provide rapid asset growth and is willing to assume risk. The BEST recommendation would be
emerging market funds
A 45-year old investor has stated investment objectives of income and growth. Which mutual fund could be added to the customer's portfolio?
equity income fund
usual order of the economic cycle
expansion prosperity recession recovery
Intrastate offerings are exempt from
federal registration
who sets minimum maintenance margin requirements
financial industry regulatory authority
In order to sell restricted stock under the provisions of Rule 144, the stock must be
fully paid for and held for 6 months
constitutional debt limits are imposed on the issuance of
general obligation bonds
Types of progressive taxes
gift, income, and estate
Rule 105 of Regulation M, covering transactions that occur in the secondary market during the 20-day cooling off period for "add on" securities offerings, requires that any short sales of the issue
that occur 5 business days prior to the effective date cannot be covered by purchasing the issue from the syndicate
bid form
in a competitive bid underwriting of a new issue municipal bond, the form on which an underwriting syndicate submits its bid to the issuing municipality. The form includes the coupon rates proposed by the underwriter and the price at which the underwriter proposes to purchase the new bonds from the issuer
reinvestment risk occurs...
in falling markets
A balance of payments deficit would be widened by which of the following
increased levels of U.S. imports Decreased sales of U.S. securities to foreign Decreased levels of foreign tourists visiting the United States
An older female customer, in the lowest tax bracket, wants an investment that will provide asset growth for retirement. The best recommendation would be
index fund
A registered representative receives an order from a corporate issuer to buy 500,000 shares of that issuer's stock in the market, 5 minutes prior to market close. The registered representative should
inform the company that this is a possible market manipulation under the Securities Exchange Act of 1934
During prolonged periods of economic expansion all of the following will occur
interest rates can be expected to rise the Federal Reserve will begin to tighten credit business activity will increase
Information barriers are required between which brokerage firm departments?
investment banking and research and trading and investment banking
payment for U.S. government securities that are sold through auction is made on
issue date
To make a public offering of a Direct Participation Program
issue must be registered with the SEC
A customer, age 51, has a 20 year investment time horizon, a moderate risk tolerance, and is looking for investments that provide both income and growth. The best recommendation would be
large capitalization growth stocks
defined as options "sales literature"
lecture on options investing
short leg of a bear put spread
limits potential gain
Historically, which of the following investments has provided the highest return over time
listed common stocks
Selling short against the box
locks in a gain and is taxable that year
to determine if position limits have been violared, the O.C.C. would combine
long call and short puts
Gain or loss on all of the following options positions will be short term
long equity options short equity options short equity LEAP options
An investor believes that interest rates will be flat or falling into the future; and that prices may deflate. The MOST appropriate investment is
long term U.S. government bonds
Federal Reserve enters into a repurchase agreement
loosens credit
A constant dollar investment plan is one which
maintains a fixed dollar amount of a portfolio's assets in equities
has the greatest impact on the company's "alpha" coefficient
major change in a corporation's capital structure
10 year treasury notes most important risk
market risk
Defensive stocks included in a portfolio's construction will minimize exposure to
market risk
What risk is the greatest concern in a Rule 144A transaction?
market risk
The Self Regulatory Organizations (SROs) are
membership organizations
an indicator of "market sentiment"
number of bullish investors vs number of bearish investors
if an index option is exercise, the writer is...
obligated to deliver cash
call loans made by banks to broker dealers are secured by
partially paid securities held in margin accounts for customers of the broker-dealer
The portfolio management technique that uses a performance benchmark such as a market index that any investments must match is called
passive management
Pre-arranged trades by insiders are
permitted under Rule 10b-5-1
are coincident economic indicators
personal income employment levels industrial production
Under MSRB rules, all of the following may be changed by mutual agreement between municipal dealers
place of delivery time of delivery form of delivery
Speculators in foreign currencies would be subject to all of the following risks
political risk market risk exchange rate risk
The "Efficient Market Theory" states that securities markets are efficient if
prices instantaneously and fully reflect all relevant available information
highest interest rate
prime rate
investment is LEAST liquid
private placements
A sharp rise in interest rates would have the greatest effect on the market price of
public utility stocks
option position would be used to hedge a 2x leveraged ETF
purchase 1 put option on the ETF
A municipal bond "tax swap" is the
purchase and sale of similar, but not identical bonds, to incur a tax deductible loss for that year
to evaluate investor sentiment, a technical analyst would examine
put/call ratio short interest figures odd lot transactions
diversification of a portfolio among asset classes
reduces the variability of the rate of return over the investment time horizon
Corporate earnings that are not paid to shareholders as a dividend are credited to:
retained earnings
defined contribution plan
retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account
A head and shoulders "bottom" formation is a(n)
reverse downward trend
What is a type of regressive tax?
sales tax
Which of the following technical indicators would be considered to be bullish
saucer formation odd lot sales
A retired customer that has a portfolio of blue chip stocks is looking to supplement his retirement income. An appropriate recommendation would be to:
sell covered calls
"Selling short against the box" is
selling stock short (borrowed shares) that the customer owns
All of the following are considered to be advertising by the MSRB
seminar texts market letters form letters
Under IRS rules, if a customer selling shares of stock wishes to use specific identification instead of FIFO for cost basis reporting, the broker-dealer effecting the trade must be notified of this no later than
settlement date
will cause an issue to be a "designated security" under the penny stock rule
share price under $5 per share Non-NASDAQ OTC issue
trades for foreign currencies settle
sport and forward
Under SEC Rule 145, all of the following corporate distributions by an issuer are exempt from the requirement to file a registration statement
stock dividend fractional stock split whole stock split
Buy ABC at $55 stop GTC
stock has been fluctuating in prince between $40 and $54 per share over the last 3 months. If the analyst expects a break through the resistance level. What should be placed?
