Series 7 Mock Exam 1

A broker who transacts an order for a customer must send a confirmation disclosing all of the following information, EXCEPT: AIf it acted as principal and that it prepares research on the security BThe yield computation employed CIf it acted as an agent for the customer and as an agent for another person DIf it acted as a principal for its own account

A If the broker-dealer acted as an agent for both the customer and for a third party, it must disclose this fact. A broker is not required to disclose on a confirmation whether it prepares research on the security. The yield computation employed (YTM or YTC) must be disclosed to the client.

Windsor Corporation has 7,000,000 shares of common stock ($.01 par value) authorized, of which 5,000,000 shares have been issued. There are 500,000 shares of treasury stock. The current market price is $20. The market capitalization of Windsor Corporation's common stock is: A$90,000,000 B$4,500,000 C$5,000,000 D$7,000,000

A Market capitalization is determined by multiplying the number of outstanding shares by the current market price per share. Outstanding shares include those held by institutions, retail investors, and restricted shares held by insiders, but does not include treasury stock (shares repurchased by the company). Therefore, there are 4,500,000 shares outstanding at a $20.00 market price for a total of $90,000,000.

An employee of a broker-dealer owns shares of XYZ in his personal account. His spouse is a director of XYZ Corporation. If XYZ is engaged in a secondary offering of stock, can shares be purchased in a joint account that's owned by the employee and his spouse? AYes, because secondary offerings are permitted to be sold to restricted persons. BYes, but only in the personal account of the spouse who's not a director of the issuer. CNo, unless there are unsold portions of the secondary offering. DNo, because both are considered associated persons of the firm.

A Only the sale of initial public offerings (IPOs) of equity securities are prohibited to restricted persons. Since secondary offerings are not considered new issues, they can be sold to associated persons of broker-dealers. Since the spouse is a director of the issuer, the sale would be permitted even if it was an IPO. (17066)

Which of the following municipal entities would NOT issue overlapping debt? AA turnpike authority BA library district CA park district DA school district

A Overlapping debt involves only general obligation borrowing. A turnpike authority would typically issue only revenue bonds.

Ms. Jones reads in the newspaper that XYZ Corporation intends to issue new shares through a rights offering. The terms of the rights offering are as follows: 10 rights plus $10.50 are required to subscribe to one new share of stock Fractional shares become whole shares The record date is Friday, October 17 JPMorgan Chase and Bank of America are the transfer agents Goldman Sachs and Morgan Stanley are the standby underwriters If Ms. Jones currently owns 87 shares of the preferred stock of the XYZ Corporation, how many additional shares can she subscribe to and at what cost? APreferred stockholders are not permitted to participate in a rights offering B8.7 shares plus $91.35 C9 shares plus $94.50 D9 shares plus $91.35

A Preferred stockholders are not permitted to participate in a rights offering. Pre-emptive rights are only made available to common stockholders. By participating in rights offerings, common stockholders are able to maintain their percentage of ownership.

Which of the following statements is TRUE regarding separate accounts and general accounts? ABoth types of accounts pay a guaranteed minimum return. BBoth types of accounts are registered under the Investment Company Act of 1940. CThe subaccounts of a variable annuity may include both types of accounts. DGeneral accounts hold bonds, while separate accounts hold equities.

C A variable annuity may allow an investor to allocate funds between several subaccounts. One of these accounts may be the general account of the insurance company, which offers a minimum guaranteed rate of return. The other subaccounts may consist of various accounts, each with a different portfolio and investment objective. Some subaccounts hold equities, some hold bonds, and some actually may hold both. The return on a subaccount is not guaranteed; therefore, the purchaser assumes the investment risk. Only separate accounts are registered under the Investment Company Act of 1940.

Prior to the maturity of a variable-rate demand obligation, an investor has the right to receive the: ACurrent market value BPar value less accrued interest CPar value plus accrued interest DPar value

C A variable-rate demand obligation (VRDO) can be redeemed prior to maturity on any date the interest rate on the obligation is reset. Rates can be reset on a monthly, weekly, or daily basis. The obligation will be redeemed at par value plus accrued interest.

In regard to recruitment advertising by member firms, which of the following statements is TRUE? ARecruitment advertising is subject to FINRA filing rules BRecruitment advertising may be published only once per month CRecruitment advertising may not contain exaggerated claims about opportunities in the securities business DRecruitment advertising is not permitted

C Advertising by a member firm falls under the definition of retail communication. A member firm's recruitment advertisements may not contain exaggerated claims about opportunities in the securities business. The advertisement is not required to be filed with FINRA since it does not promote a product or service by the broker-dealer.

An investor purchases a fund that has a contingent deferred sales charge. The customer has traditionally purchased load funds in which the sales charge is deducted up front. In order to clarify the sales charge procedure, the customer should be told: A"You pay when you exit" BThe fund meets the definition of a no-load fund CBy means of a written disclosure: "On selling your shares you may pay a sales charge. For the charge and other fees, see the prospectus" DTo contact the fund distributor for more details

C Conduct Rules require the written disclosure on confirmations for purchases of investment company shares that assess a contingent deferred sales charge.

Two similar companies issue bonds at the same time. One company issues convertible bonds and the other issues nonconvertible bonds. Which two of the following statements are TRUE? The convertible bonds will probably offer a higher coupon rate. The convertible bonds will probably offer a lower coupon rate. The convertible bonds will probably have a higher current yield. The nonconvertible bonds will probably have a higher yield to maturity. AI and IV BI and III CII and IV DII and III

C Convertible bonds normally have a lower coupon rate than nonconvertible securities. The convertible bonds pay less interest and offer lower yields because the convertible feature gives individuals the ability to become stockholders at their discretion. Since the issuer is giving bondholders this advantage, it can offer a lower coupon rate.

Government-sponsored enterprise securities are comparable to direct government obligations with regard to all of the following statements, EXCEPT: AShort-term securities are quoted on a discount yield BThey trade in the over-the-counter market CAll are government guaranteed DLong-term securities are quoted as a percentage of par

C Government-sponsored enterprise securities are not guaranteed by the government. The other statements are true.

A customer buys two bonds, both have a par value of $1,000, and she pays 103 5/8 for each bond. The bonds are callable at 105. If the customer's bonds are called, she will receive: A$1,050 B$2,000 C$2,100 D$2,072.50

C If the bonds are called the investor will receive 105% of the par value for each bond. $1,000 x 105% = $1,050; however, this is multiplied by two bonds for a total of $2,100.

Which of the following statements is TRUE regarding the disclosure of back-end sales charges to customers? AAs long as the back-end charges are clearly disclosed, the fund may be represented as "no load". BA statement in the prospectus is sufficient. CA confirmation should be sent disclosing that a sales charge may have to be paid upon redemption. DDisclosure is required in addition to that in the prospectus only if the broker-dealer and mutual fund are affiliated through common ownership.

C In addition to the disclosure in the prospectus, a confirmation sent by a member firm selling a fund with a back-end load (CDSC) must include a statement that a sales charge may be assessed upon redemption.

In a Delivery Versus Payment (DVP) and Receive Versus Payment (RVP) account, which of the following is required? AApproval by FINRA to open the account BPhysical delivery of securities CA form identifying the third-party agent for the client DSettlement to occur on a regular-way basis

C In order to use DVP or RVP as a means of settlement, the broker-dealer must be notified of the identity of the third-party bank or institution that's being used to provide delivery of securities or funds. These forms of settlement are generally used by institutions through book-entry settlement. Delivery and payment can be made as late as 35 days after the trade date.

Accrued interest on new municipal bonds is calculated from the: APurchase date BSettlement date CDated date DLast interest payment

C Interest on new municipal bonds is calculated from the dated date, which is the date from which interest starts to accrue on a municipal bond.

All of the following factors are of importance with regard to debt structure when analyzing a municipal bond, EXCEPT: AOverlapping debt BTotal bonded debt CMatured debt DTotal direct debt

C Matured debt is debt of the municipality that is no longer outstanding and, therefore, is not included in analyzing the debt structure of a municipal bond. Total bonded debt is all of the general obligation debt issued by a municipality, regardless of its purpose. Total direct debt is the sum of the total debt and any unfunded debt (i.e., short-term notes) of a municipality. Overlapping debt is that portion of the debt of other government units for which residents of a particular municipality are responsible, such as services or facilities shared by several municipalities.

Which of the following is NOT TRUE of private label CMOs? AThey typically do not carry a AAA rating BThey may be issued by investment banking firms CThey are subject to less credit risk than agency CMOs DThey are not considered obligations of the U.S. government

C Private label mortgage-backed securities are issued by financial institutions such as commercial banks, investment banks, and home builders and they contain some agency securities. However, a private label MBS typically contains other types of mortgage loans that are not agency securities. A private label MBS is not an obligation of the U.S. government or any GSE and its credit rating is assigned by an independent credit agency. A private label MBS has higher credit risk and is generally not given a AAA rating.

A fundamental analyst is NOT interested in which TWO of the following metrics? - Short interest - The P/E ratio -trading volume - EPS AII and IV BII and III CI and III DI and IV

C Short interest and trading volume are technical indicators. EPS and the P/E ratio are fundamental indicators.

A woman with a low income has saved $5,000 to invest for her young son's college education. Which of the following investments would be the MOST appropriate? AA real estate limited partnership BMunicipal bonds CZero-coupon bonds DT-bills

C Since the woman has a low income, municipal bonds and limited partnerships would not be of benefit. Since the son is young, a long-term investment would be most appropriate. (72276)

Python Industries has previously issued 5.0% bonds ($1,000 par value). The bonds mature in 12 years and are selling at a 20% discount to par. What is the current yield on the Python bonds? A5.00% B8.50% C6.25% D5.60%

C The current yield is found by dividing the annual interest payment by the current market price. The bonds pay interest of $50 per year. The bonds are currently trading at a 20% discount to par; therefore, the bonds are priced at 80% of par, or $800 ($1,000 x .8). The current yield is 6.25% ($50 / $800). The fact that the bond will mature in 12 years is not necessary to find the current yield, although it is needed to find the yield to maturity.

To compute equity in a margin account with both short and long positions, the formula is: AThe long market value minus the credit balance minus the short market value minus the debit balance BThe long market value plus the credit balance plus the debit balance minus the short market value CThe long market value plus the credit balance minus the short market value minus the debit balance DThe long market value plus the debit balance minus the short market value minus the credit balance

C The long market value plus the credit balance minus the short market value minus the debit balance equals the equity in both a long and short margin account.

A client's wife calls and wants to purchase 200 shares of XYZ in her husband's personal account. The registered representative handling the account knows that a favorable earnings report is about to be issued. The registered representative: AMay not enter the order because the earnings report has not been released BMay enter the order because the husband had previously mentioned he would like to establish a position in XYZ CMay not accept the order because the wife does not have trading authorization to enter orders for the husband's personal account DMay enter the order in the husband's account if the wife also has a joint account with her husband

C The registered representative may not accept the order because the wife does not have trading authorization to enter orders for her husband's personal account.

A customer is seeking a high risk, high reward investment. Given this objective, which of the following is the MOST appropriate? AA stock with no dividend and a beta between 1.5 and 2.0 BA stock with a high dividend yield and a beta of less than 1.0 CA stock with a low dividend yield and a beta of 1.5 DA stock with no dividend and a beta of greater than 2.0

D Beta is a measure of a stock's (or portfolio's) volatility in relation to the market as a whole. The market is typically represented by the S&P 500 Index and is assigned a beta of 1. If a portfolio's beta is 1.5, this means that the portfolio's price will change 1 1/2 times as much as the market. The term high beta is usually associated with a beta of greater than 2.0 and offers a customer a high risk, high reward investment.

When determining whether a CMO is suitable, an RR must offer to a client all of the following information, EXCEPT a: ADiscussion on the relationship between mortgage loans and mortgage securities BDiscussion on how changing interest rates may affect the prepayment rates CGlossary of terms DDiscussion on how changing currency rates may affect the value of the securities

D Broker-dealers must offer customers educational material about the features of CMOs. This material must include: A discussion of the characteristics and risks of CMOs. This includes: how changing interest rates may affect prepayment rates and the average life of the security, tax considerations, credit risk, minimum investments, liquidity, and transactions costs. A discussion of the structure of a CMO. This includes the different types of structures, tranches, and risks associated with each type of security. It is also important to explain to a client that two CMOs with the same underlying collateral may have different prepayment risk and different interest-rate risk. A discussion that explains the relationship between mortgage loans and mortgage securities A glossary of terms applicable to mortgage-backed securities Changing currency rates are not applicable to the risks associated with CMOs.

If a firm places a temporary hold on a customer's account: AIt only applies to specific disbursements BIt is required to obtain the prior approval of FINRA CIt applies to the entire account DIt applies to either the entire account or specific disbursements

D If a firm places a temporary hold on a customer's account, it can apply to either the entire account or specific disbursements. If the firm places the temporary hold, it must permit disbursements from the account if there is no reasonable belief that financial exploitation is occurring (e.g., paying normal bills).

Junius Arbor purchased stock in 2002 for $24,000. In April 20XX, Mr. Arbor passed away. His estate valued the stock at $82,000. The stock was willed in equal amounts to his daughter Cathy and his son Bob. Cathy sold her stock on September 2, 20XX for $48,000. Bob sold his stock on May 8, 20XX for $56,000. Which of the following statements is TRUE? ACathy has a long-term gain of $36,000 and Bob has a long-term gain of $44,000 BCathy has a short-term gain of $36,000 and Bob has a short-term gain of $44,000 CCathy has a short-term gain of $7,000 and Bob has a short-term gain of $15,000 DCathy has a long-term gain of $7,000 and Bob has long-term gain of $15,000

D In the case of inherited securities, the value of the securities is determined at the time of death. The heirs are always considered to have long-term holding periods. The capital gains or losses for Bob and Cathy are found as follows: The securities at the time of death were valued at $82,000. Bob and Cathy were willed equal amounts of $41,000 each, establishing a cost basis for both of $41,000. To determine the gain, compare the cost basis to the sales proceeds. Cathy sold her stock for $48,000, creating a $7,000 gain, while Bob sold his stock for $56,000, creating a $15,000 gain. (72340)

An MIG rating applies to a(n): AADR BConvertible bond CPrerefunded utility bond DBAN

D MIG (Moody's Investment Grade) ratings apply to municipal notes. A BAN (bond anticipation note) is the only municipal note listed.

Which inventory evaluation method shows the greater profit in a period of rising costs? ADepletion BDepreciation CLIFO DFIFO

D The first-in, first-out (FIFO) method of valuing inventories uses the cost of the first item purchased. The last-in, first-out (LIFO) method uses the cost of the last item purchased. In a period of rising prices, the FIFO method, because of the lower cost basis, results in an increase in inventory profits.

Four municipal bonds maturing in 2039 are all selling at a 7.00 basis. Which of the following bonds is most likely to be refunded? A7% callable in 2024 @ 103 B6 1/2% callable in 2023 @ 100 C5 1/2% callable in 2024 @ 103 D7 1/2% callable in 2023 @ 100

D The most common reason for a municipality to refund an outstanding issue is to save interest costs. If a municipality can borrow money at a lower rate than the outstanding issue, it can use this money to refund the outstanding issue and thus save interest cost. The bonds are selling at a 7.00% yield. The municipality can then expect to borrow new monies at a 7.00% interest rate. The municipality can only save money by refunding an issue with a higher interest rate, 7 1/2%.

XYZ Corporation earned $4 per share and paid out $2 per share in dividends. XYZ Corporation is selling at $56 in the market. The price/earnings ratio of XYZ Corporation is: A28 to 1 B2 to 1 C9.3 to 1 D14 to 1

D The price/earnings ratio is computed by dividing the market price of $56 by the earnings per share of $4. This equals a price/earnings ratio of 14 to 1 ($56 divided by $4 equals 14).

XYZ Corporation has a 6 1/2% convertible bond outstanding that is convertible into 40 shares of common stock. The bond is currently selling in the market at 85 ($850) and the common stock is selling at 21. The XYZ Corporation is offering its existing bondholders a new straight (nonconvertible) bond paying 6 1/2% that matures at the same time as the convertible bond. The effect of the successful completion of the proposal would be to: - Reduce interest costs - Reduce potential dilution - Have no effect on interest costs - Increase dilution AII and III BI and IV CI and III DIII and IV

A Prior to the refunding, if all of the bonds were converted into common stock, outstanding shares would increase causing earnings per share to decrease (dilute). The effect of the successful completion of the proposal (refunding) would be to reduce potential dilution because the conversion provision is being eliminated. There would be no reduction in interest costs since the new bonds are paying the same rate of interest as the old bonds (6 1/2%).

Of the following broad-based indexes, the one with the narrowest measure of the market is the: ADow Jones Industrial Average BStandard and Poor's 500 Index CThe New York Stock Exchange Composite Index DThe Wilshire Associates Equity Index

A The Dow Jones Industrial Average contains only 30 stocks. The Wilshire Index represents the dollar value of all the stocks and is considered the broadest of all indexes and averages. The S&P 500 Index contains 500 stocks, while the NYSE Composite Index consists of all of the common stocks that are listed on the NYSE.

Which of the following factors is NOT used in determining the value of an annuity unit? AThe assumed interest rate BIncome distributions from securities held in the separate account that are reinvested CThe value of the separate account DCapital gain distributions from securities held in the separate account that are reinvested

A The assumed interest rate (AIR) is used to determine the subsequent payments made to the annuitant. The value of the annuity unit is determined by the value of the separate account, including all reinvested distributions.

A research analyst at a broker-dealer is preparing a research report recommending ABC common stock. Which of the following situations need not be disclosed? AThe broker-dealer has a 1% or greater beneficial ownership in ABC nonconvertible bonds BThe broker-dealer has a 1% or greater beneficial ownership in ABC common stock CThe broker-dealer makes a market in ABC common stock DABC Corp is an investment banking client of the broker-dealer

A The broker-dealer is required to make certain disclosures in its research reports, such as whether the firm has an investment banking relationship or makes a market in the common stock of ABC. It must also disclose its ownership in a subject security if the ownership is equal to or greater than 1% beneficial ownership in common equity. Since nonconvertible debt is not considered common equity, disclosure is not required.

On October 25, Mr. Smith purchased 5 listed XYZ Corporation July 50 calls and paid a $3 premium on each call. The current market price of XYZ Corporation is $48 per share. What is the breakeven point for Mr. Smith per option? A$53 B$58 C$48 D$45

A The strike price plus the premium equals the breakeven point for the buyer of a call. The breakeven point is $53 ($50 strike price + the $3 premium = $53).

Mr. Jones purchases 100 shares of IBM at $116 per share and writes an IBM June 115 call option at 5. Mr. Jones' breakeven point is: A111 B121 C110 D120

A The writer of a covered call will have a breakeven point equal to the purchase price of the stock (116) less the premium received (5). Therefore, his breakeven point is $111 ($116 - $5 = $111).

A margin account with 50% equity has a long market value of $15,000. If $80 of interest is charged on the debit balance and $110 is credited in dividends, what's the revised debit balance? A$7,470 B$7,390 C$7,580 D$7,500

A This account has equity of $7,500 ($15,000 x 50%) and, as a result, has a $7,500 debit balance ($15,000 LMV - $7,500 equity). After the interest charge of $80, the debit balance is increased to $7,580. However, when the $110 of dividends is credited, the debit balance is reduced by this full amount and is now $7,470.

When comparing long-term bonds and short-term bonds, all of the following statements are TRUE, EXCEPT: ALong-term bonds generally provide greater liquidity than short-term bonds BFluctuations in the dollar price of long-term bonds are usually greater than for short-term bonds when the general level of interest rates change CLong-term bonds generally have higher yields DThere is more purchasing power risk with long-term bonds when compared to short-term bonds

A When comparing long-term bonds and short-term bonds, all of the choices listed are true except long-term bonds generally provide greater liquidity than short-term bonds. Short-term bonds do not suffer from as large a price movement as long-term bonds when interest rates are changing. Long-term bonds are open to greater market risk, interest-rate risk, and purchasing-power risk. Both individual and institutional investors alike are more willing to accept a lower return (yield) in favor of more stable principal (less severe price swings).

While saving for her retirement, a variable annuity owner investing $1,000 per month will buy a: AVarying number of accumulation units BFixed number of annuity units CFixed number of accumulation units DVarying number of annuity units

A When investors purchase a variable annuity contract, they are purchasing accumulation units. Once a contract has been annuitized, distributions are made by liquidating annuity units. Since the value of the subaccounts will fluctuate, a client investing $1,000 per month will purchase a different number of accumulation units with each purchase.

An investment banking principal has received a letter from a customer complaining about a recent new issue that declined substantially on its first day of trading. The client purchased the shares based on a recommendation by an associated person of the firm. The customer contends that the recommendation was unsuitable. Which of the following statements is TRUE? AThe principal must review the complaint and submit a written response to the customer BA memo must be prepared describing any action taken in response to the complaint CThe firm must enter promptly into arbitration (or mediation) with the customer to determine whether a reimbursement is warranted DThe firm must keep a copy of the complaint for six years

B All written complaints must be reviewed by a principal and must be kept in a file, along with a memo describing any action taken in response to the complaint. There is no requirement to respond to the client in writing or to enter into arbitration or mediation. Under FINRA rules, records of complaints must be kept for a minimum of four years. (66219)

An investor purchased stock at $50 per share and the stock is now trading between $75 and $77. The investor doesn't want to eliminate the position unless the stock drops significantly. Which of the following orders is the MOST suitable for her to place? ABuy limit at $70 BSell stop at $70 CSell limit at $70 DSell stop at $75

B Although the customer has a significant unrealized gain, there's still the possibility that it could trend higher. If the investor wants to protect a portion of the gain, he should enter a sell stop order, which will become a market order if the stop price is hit or traded through. Entering a sell stop at $70 will serve this purpose. If he enters the sell stop at $75, it may very easily be triggered by a small decrease in the stock's price, thereby eliminating his position. For that reason, the sell stop at $70 is a better choice. A sell limit order is one that's entered above the market price (i.e., not at $70). The customer is looking for an order that will result in selling his stock in the event that it declines significantly; therefore, a buy order is of no benefit.

If an at-the-opening order is not executed: AIt is handled as a market order BIt will be cancelled CIt will be put in the designated market maker's book for later execution DIt will be executed off the floor

B An at-the-opening order is an order placed for execution at the opening price of the day. If it is not executed, it will be cancelled. Do not confuse this type of order with an opening transaction, which is a trade to establish or add to an option position.

Which of the following transactions would NOT take place on an exchange? AThe purchase of an exchange-traded fund BThe purchase of a municipal bond CThe short selling of an equity security DThe sale of an options contract

B The SEC definition of an exchange is a marketplace that brings buyers and sellers together. An exchange may be a physical location such as the NYSE or a purely electronic system such as Nasdaq. Most exchanges trade equities (common and preferred stock, closed-end or exchange-traded funds), equity derivatives (options, rights, and warrants). Some exchanges will also trade corporate debt. Most corporate debt and other types of fixed-income or debt securities (i.e., municipal bonds) are not traded on an exchange, but traded directly between broker-dealers.

Which of the following agencies would NOT be used to back a CMO? AGNMA BSLMA CFNMA DFHLMC

B The Student Loan Marketing Association (SLMA), also known as Sallie Mae, provides liquidity to student loan makers and financing for state student loan agencies. Securities issued by SLMA are not backed by the U.S. government. Interest earned on Sallie Mae securities is subject to federal tax, but state and local taxes vary by state. Since SLMA does not deal in mortgages, it would not be used to fund a collateralized mortgage obligation (CMO). CMOs contain mortgage-backed securities issued by GNMA, FNMA, and FHLMC.

The prospectus for a variable annuity contract:Must be filed with the SECMay be delivered electronicallyMust provide full and fair disclosureMust detail all sales charges and ongoing expenses of the contract AI and II only BI, II, III, and IV CI, III, and IV only DI, II, and III only

B Variable annuity products are subject to the provisions of the Securities Act of 1933 which requires delivery of a prospectus. The prospectus details all material facts of the contract and can be delivered electronically. However, if a person requests a printed copy one must be delivered.

Which of the following is a benefit of purchasing variable life insurance? AThe premiums paid to purchase a variable life insurance policy are tax deductible. BThe death benefit can exceed the guaranteed minimum based on the value of the subaccount products. CThe entire premium paid is invested in subaccount products. DThe minimum death benefit is based on the value of the subaccount products.

B Variable life insurance policies provide a guaranteed minimum death benefit. However, the death benefit may be increased based on the performance of the subaccount products into which the owner directs the excess premiums. When an individual purchases a variable life insurance policy, a portion of the premium is used to pay for the minimum death benefit, with much of the balance directed to purchasing subaccount products. The premiums payments are not tax-deductible.

Which of the following actions should be taken if a registered representative (RR) receives a written complaint from a customer? AThe firm should immediately respond to the customer. BThe RR should forward the complaint to her principal. CThe RR should respond to the complaint within 10 business days. DFINRA should receive a copy of the complaint within 10 business days.

B When an RR receives a written complaint, it should immediately be forwarded to a principal who must place a copy in a complaint file. (15617)

An investor must pay accrued interest for a secondary market purchase of: ATreasury bills BTax anticipation notes CSeries EE savings bonds DZero-coupon bonds

B Zero-coupon bonds and Treasury bills are original issue discount securities and trade without accrued interest. While Series EE bonds are also OID securities, they do not trade in the secondary market. Tax anticipation notes (TANs) are typically interest-bearing securities and trade with accrued interest.

A customer would like to open an account designated by number. The registered representative should: ANot open the account because it is a violation of industry rules BOpen the account COpen the account if the customer signs a written statement acknowledging the account is the customer's DNot open the account because it is a violation of SEC rules

C A customer may open a numbered account for reasons of confidentiality. However, the registered representative should open the account only if the customer signs a written statement acknowledging the fact that the account is the customer's. This must be kept on file at the brokerage firm.

A company, which has investors with registration rights, has recently conducted an initial public offering. Typically, how long must these investors wait to sell their shares after the IPO? ATwo years BOne year C180 days DThree years

C A lock-up agreement dictates the amount of time that pre-IPO investors, such as private placement buyers (private equity investors) and other insiders, typically must wait to sell their shares once the company has gone public. Although a lock-up agreement will generally expire six months (180 days) following the closing of the company's IPO, there's no statutory time limit. The lock-up is designed to prohibit management and venture capitalists that initially funded the company from immediately liquidating their shares once the issue goes public. The shares will then be sold under a Rule 144 exemption. Registration rights allow, but don't require, these holders to sell their shares along with the company when it conducts the IPO. (17063)

A broker-dealer's privacy notice must include all the following information, EXCEPT the: ATypes of third parties to which the firm may disclose information BType of personal information that the firm collects CNames of any other financial institutions with which the firm is affiliated DFact that clients may opt out of having their information shared with non-affiliates

C A privacy notice is not required to include the names of any other financial institutions with which the firm is affiliated.

Which of the following Moody's ratings is the most speculative in the investment-grade category? ABaa BAa CA DBa

A

A customer wants to purchase a security that invests primarily in private companies that have difficulty raising capital in public markets. Which of of the following investments would you recommend? AA business development company (BDC) BA real estate investment trust (REIT) CA collateralized mortgage obligation (CMO) DA direct participation program (DPP)

A A business development company (BDC) raises capital by selling securities to investors and is similar in structure to a closed-end investment company. A BDC will use the money it raises to invest mostly in private companies, small and developing businesses, and financially troubled companies that have difficulty raising capital in public markets. The objective is to help these companies by providing funding when they may not be able to raise capital for themselves. Most BDCs trade on an exchange and, therefore, provide an investor with liquidity and, since they are structured as regulated investment companies, they are not taxed if they distribute at least 90% of their income to investors. Most have an investment objective of providing current income and capital appreciation, and will invest their funds in both debt (e.g., loans, subordinated and mezzanine financing) and equity of private small and middle-market companies. Since some of the funds are invested in the equity of nonpublic companies, a customer purchase of a BDC is similar to buying a publicly traded investment in a private equity firm. (73994)

What type of bond would MOST likely be secured by an excise tax, cigarette tax, or gasoline tax? ASpecial tax bond BGO bond CDouble-barreled bond DSpecial assessment bond

A A special tax bond is a type of revenue bond and is usually financed by a tax on certain items such as cigarettes, liquor, or gasoline (excise taxes).

A firm is not permitted to accept an exercise notice from a customer for a listed equity option after: A5:30 p.m. Eastern Time on the expiration date of the option B3:30 p.m. Eastern Time on the expiration date of the option C4:30 p.m. Eastern Time on the expiration date of the option D2:30 p.m. Eastern Time on the expiration date of the option

A According to SRO rules a firm is permitted to accept from a customer, an exercise notice for a listed equity option no later than 5:30 p.m. Eastern Time on the expiration date of the option (the third Friday of the expiration month). Brokerage firms, however, may set an earlier deadline for notification of an option holder's intention to exercise.

A customer sells 1,000 shares of stock and asks for the actual time of the execution. For a branch office manager, what is the appropriate action? ATo state that the firm is able to provide this information on written request BTo send the customer a copy of the order ticket CTo state that it is impossible to know the time of the trade DTo indicate that the customer should contact the equity trading desk

A According to the SEC's confirmation rules, a broker-dealer must automatically disclose the time of execution or indicate that the time of execution is able to be furnished on written request by a customer.

Which of the following factors is not taken into consideration when determining the markup on a municipal securities transaction? AThe financial condition of the customer BThe dollar amount of the trade CThe best judgement of the dealer DThe fact that the dealer is entitled to make a profit

A All of the choices given must be taken into consideration except the financial condition of the customer.

An accumulation unit in a variable annuity contract is: AAn accounting measure that's used to determine the contract owner's interest in the separate account BAn accounting measure that's used to determine payments to the owner of the variable annuity CThe same as a shareholder's ownership interest in a mutual fund DThe same as the insurance company's profit from the separate account

A An accumulation unit in a variable annuity contract is an accounting measure that's used to determine the contract owner's interest in the separate account. The separate account is the portfolio in which the customer's contributions are invested. Some separate accounts consist of several subaccounts that each have different objectives and portfolios.

Which of the following choices is NOT a type of overlapping debt? ADebt issued between two states BThe issuance of debt for an adjoining road district CDebt issued between two counties DThe issuance of debt for an adjoining school district

A Debt issued between two states is not considered overlapping debt. Overlapping debt is general obligation debt of other governmental units for which residents of a particular municipality are responsible. It is the debt shared by residents of a municipality for services or facilities shared by several municipalities. Examples of overlapping debt include debt for an adjoining road district or school district, or debt issued between two counties.

Which of the following statements is TRUE concerning electronic communication networks (ECNs)? AThey can be used by investors who want to trade anonymously. BThey can be used by clients who don't want to use a broker-dealer. CThey can be used only by retail investors. DThey can be used only by institutional investors.

A Electronic communication networks (ECNs) are securities trading systems that are designed to anonymously match buyers with sellers. These systems can be used by both institutional and retail investors. One of the benefits of their use is immediate automatic execution if a matching buy or sell order can be found on the system. ECNs do not allow investors to trade directly with one another; however, they do allow subscribers (e.g., broker-dealers) to use these systems to execute orders that they receive from their clients.

Eurodollars are primarily used in: AFinancing investments outside of the United States BFunding investments in the United States CArbitrage DInternational payments

A Eurodollars are defined as U.S. dollars on deposit in foreign banks, not just in Europe. Although they can be used for various purposes, Eurodollars are primarily used for financing investments outside of the United States. (17047)

Which of the following is included on an income statement? AGross revenues BCurrent liabilities CCurrent assets DStockholders' equity

A Gross revenues (also referred to as gross sales) is found on an income statement. On the other hand, current assets, current liabilities, and stockholders' equity are all found on a balance sheet.

A corporation has issued a bond with a 5% coupon that is convertible into common stock at $40. The bond is selling currently trading at par and the stock is selling at $39.00. If the bond increased in value by 20 points, what is parity of the stock? A$48.00 B$40.60 C$30.00 D$25.00

A If the bond increased by 20 points over its par value of $1,000, it would be selling for $1,200. The parity price for the stock is found by dividing the market value of the bond ($1,200) by the conversion ratio of 25 ($1,000 or par value ÷ $40). This is equal to $48 ($1,200 ÷ 25 = $48). The current price of the stock is not relevant.

A broker-dealer receives a confirmation for a trade that does not appear on its records. The broker-dealer should send a DK notice to: AFINRA BThe contrabroker CThe SEC DThe customer represented in the transaction

B A DK notice is sent to the contrabroker upon receipt of the confirmation for an uncompared trade. The broker-dealer sending the DK notice states that the trade does not appear on its records and, therefore, denies any responsibility for the settlement of the trade unless the contraparty can prove that the trade did indeed take place.

When a carrying firm receives a transfer request from the Automated Customer Account Transfer Service (ACATS) system, it must validate or protest the transfer within: AThree business days BOne business day CTwo business days DA reasonable period

B A broker-dealer must cooperate in the transfer of a customer's account. If notified of a customer's intent to transfer an account through ACATS, the carrying firm must either validate or reject the request for a valid reason within one business day.

A customer sells 500 shares of stock to a broker-dealer, a registered market maker in this stock. The broker-dealer acted in a(n): AAgency capacity and charged the customer a commission BPrincipal capacity and charged the customer a markdown CPrincipal capacity and charged the customer a commission DAgency capacity and charged the customer a markup

B A broker-dealer that is always willing to buy and/or sell shares of stock is considered a market maker. A market maker will normally act in a principal capacity and charge the customer a markdown when buying stock from a customer and a markup when selling stock to a customer. When acting in an agency capacity, the broker-dealer will normally charge the customer a commission.

Which of the following municipal bonds requires a feasibility study to determine the issuer's ability to pay interest when due? AA revenue anticipation note BA revenue bond CA general obligation bond DA special tax bond

B A feasibility study is made by a qualified expert to determine if revenues of a project will be sufficient to pay interest when due. A revenue bond, which is backed by the earning power of a specific project, such as tolls from bridges, tunnels, or turnpikes, requires a feasibility study by qualified experts to determine if the revenue generated will be sufficient to pay the interest on the bonds. A special tax bond is secured by a special tax, such as a gasoline tax, and would not require a feasibility study. A general obligation bond is backed by the full faith, credit, and taxing power of the issuing municipality and would not require a feasibility study. A revenue anticipation note (short-term security) is considered a general obligation security.

Which of the following indicators is bullish? AA decrease in the amount of short interest BThe bottom of a saucer pattern CA breakout below a support level DThe top of an inverse saucer pattern

B A saucer is a chart pattern used by technical analysts that indicates that a stock has formed a bottom in its trading cycle and is ready to rise. The bottom of the saucer pattern is a bullish indicator for the stock. The reverse of the saucer pattern is the inverse saucer, where the stock forms a top in its pattern and is expected to fall. Following the logic used in the saucer, this is a bearish indicator. A breakout below the support level is a bearish signal. The term short interest refers to the amount of a company's shares of common stock that have been sold short and have not yet been covered (closed out). An increase (not decrease) in short interest has historically been considered a bullish indicator by a technical analyst.

The subscription agreement for a limited partnership does NOT specify: ATo whom the check must be made payable BPriority provisions upon liquidation CWho must sign the agreement DSuitability standards

B All sales for limited partnership interests are conditioned upon acceptance by the general partner. Typically, a limited partner is considered accepted into the program once the general partner signs the subscription agreement. The subscription agreement will normally state the suitability standards for the program, specify who must sign the agreement, specify to whom the check must be made payable, and make inquiries of the purchaser to make sure that he understands the ramifications of the investment. Priority provisions for liquidating a limited partnership are found in the Certificate of Limited Partnership.

When a firm's customer exercises a call option, the firm will submit an exercise notice to the Options Clearing Corporation. The Options Clearing Corporation, in turn, will select a firm to receive the exercise notice based on: AAny method that is fair and equitable BA random selection basis CA first-in, first-out (FIFO) basis DThe largest short position

B The Options Clearing Corporation selects a member firm on a random selection basis only. Member firms can select customers with open short positions on a first-in, first-out basis, a random selection basis, or any method that is fair and equitable.

Which of the following statements is TRUE regarding interval funds? AThey're closed-end funds that are traded on the NYSE. BThey offer limited liquidity due to the fact that clients are only able to redeem their shares at specified times. CThey're considered a relatively safe investment due to the type of securities that are purchased by the funds. DThey can offer an above market interest rate to clients who have liquidity needs.

B An interval fund is classified as a type of closed-end fund that continuously offers shares to investors. However, unlike most closed-end funds, interval fund shares don't trade above or below their NAV and they don't trade in the secondary market on an exchange. Instead, investors are allowed to sell a portion of their shares back to the fund at the current net asset value only at preset interval (e.g., monthly, quarterly, semiannually). Since shareholders are only able to exit these funds at certain intervals that are stated in the fund's prospectus, interval funds are illiquid investments. Due to their limited liquidity, interval funds are suitable for long-term investors, those seeking income-producing investments, and those seeking to diversify their portfolios. In fact, these funds can provide individual investors with access to the types of exotic or alternative investments (e.g., private equity and commercial real estate investments) that are typically limited to hedge funds and institutional investors. Interval funds' fees and expenses tend to be much higher than other closed-end funds and mutual funds.

A municipal bond that was issued at par is purchased by an individual in the secondary market at a price of 90. What is the tax consequence if the bond is held to maturity? A$100 capital gain B$100 ordinary income C$100 capital loss D$100 tax-free interest

B An investor purchasing a secondary market discount municipal bond will have ordinary income if the bond is held to maturity. Since the bond was purchased at 90 ($900) and held to maturity when the investor receives par ($1,000), the investor will have a $100 gain, which is reported as ordinary income.

When determining whether a recommended transaction is suitable, which of the following factors is LEAST important? AThe customer's age BThe level of education the customer achieved CThe customer's liquidity needs DThe tax status of the customer

B Broker-dealers have a suitability obligation to all customers. For noninstitutional or retail customers, the broker-dealer (or registered person at the firm) must have a reasonable basis for recommending a transaction based on information obtained from the customer concerning her investment profile. This would include the customer's age, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance. The educational level of the customer or what type of degree she has would be the least important factor listed.

Dennis, Al, and Dan have opened a securities account with your firm as tenants in common. All of the following are TRUE, EXCEPT: AWhen opening the account, you should obtain Social Security numbers from all three co- owners BIf Dennis dies, his interest in the account will pass to Al and Dan CChecks issued by your firm from the account will be in the name of all three co-owners DYou may accept an order from either Dennis, Al, or Dan

B In a tenants-in-common account, the interest of a deceased owner passes to the estate of the deceased. The surviving owners of the account (Al and Dan) would receive the securities if the account was a joint tenants with rights of survivorship account.

A customer who purchases shares of an exchange-traded fund (ETF) may be extended credit by a broker-dealer: AIf the position has been held for at least 30 days BImmediately CUnder no circumstances DIf the position has been held for at least 10 days

B In this question, the client is purchasing shares of an ETF. ETF shares trade on an exchange and are not considered new issues; therefore, credit may be extended immediately. Some investment company securities, such as mutual fund shares, are marginable under Reg. T. However, since mutual fund shares are considered new issues, the Securities Exchange Act of 1934 prevents a broker-dealer from extending credit on them for at least 30 days. Once the mutual fund shares have been held for 30 days, they may be used as collateral for a loan in a margin account.

Which of the following statements is NOT TRUE of industrial development revenue bonds? AThey may be used to finance the construction of commercial property that will be used by private corporations BTheir credit rating is determined by an analysis of the municipal government issuing the bonds CInterest is paid from rents received from private corporations DThey are issued by local municipal governments

B Industrial development revenue bonds are issued by local municipal governments to build factories or other commercial properties. The plant or property is leased by the municipality to a corporation. The interest on the bonds is paid from the lease rental payments made by the corporation. The credit rating of the bond is based on the credit rating of the corporation and not on an analysis of the credit rating of the municipal government issuing the bonds.

An increase in which of the following will cause the price of an existing bond to decline? AThe issuer's financial strength BThe general level of interest rates CThe bond's rating DThe bond's liquidity

B Interest rates and existing bond prices are inversely related. When interest rates rise, bond prices will fall. Conversely, when interest rates fall, bond prices will rise. All other choices will usually have a positive effect on a bond's price.

A municipal dealer has a customer's order to purchase bonds on an agency basis. According to MSRB rules, the customer's order must be executed at: AThe first price obtained BA price that is fair and reasonable CA price that does not exceed 5% of the last reported transaction DThe average price obtained from all dealers contacted

B MSRB rules require that transactions be executed at a price that is fair and reasonable.

An investor wants to buy a foreign stock that's trading at $540 per share and paying a $12.50 annual dividend. The investor's registered representative instead suggests purchasing an ADR which represents 10% of the value of the foreign stock. If the customer commits to buying 500 shares, what's his cost basis and his first semiannual dividend from the ADR? ACost basis of $270,000 and $3,125 in semiannual dividends BCost basis of $27,000 and $312.50 in semiannual dividends CCost basis of $27,000 and $625 in semiannual dividends DCost basis of $270,000 and $6,250 in semiannual dividends

B The ADR represents 10% of the foreign stock's value. As a result, the ADR per share value is $54 ($540 x 10%) and the annual dividend is $1.25 ($12.50 x 10%). If the customer purchases 500 shares of the ADR, the total investment will equal $27,000 (500 x $54) and the total annual dividend will be $625 (500 x $1.25). However, since the question asks about the semiannual dividend, the customer will receive $312.50 of dividends ($625 ÷ 2). Many foreign stocks and ADRs pay semiannual dividends rather than quarterly dividends.

A client with an options account takes the following position: Long GHI Nov 65 puts and Short GHI Nov 55 puts. Which of the following statements is TRUE regarding this position? AThis position will only be profitable if the market price of the stock is trading between 55 and 65. BThis position will be profitable if the market price of the security increases in value. CThis position will be profitable if the market price of the security declines. DThis position subjects the client to unlimited risk.

C This position is referred to as a debit put spread. It's a debit because the cost to purchase a put with a higher strike price will be more than the amount received for selling a put with a lower strike price. The investor will make money if the stock declines (bearish) in value since the long put will be exercised first (it has a higher strike price and thereby more intrinsic value). The fact that the premiums are not given is irrelevant since the cost of a put with the higher strike price will always be more valuable that a put with a lower strike price (if given the same expiration month). The position may be profitable if the stock price was trading between 65 and 55, but will also be profitable if the stock is trading below 55.

A company has $50,000,000 par value convertible bonds outstanding. The coupon rate is 8%. The bonds are currently selling at 96. What is the current yield? A7.0% B7.5% C8.3% D8.0%

C To find the current yield of the bonds, divide the yearly interest paid on the bonds by the current market value of the bonds. Since each bond has a par value of $1,000 the yearly interest is $80 ( $1,000 x 8%). The market value of a bond is $960. Therefore, the current yield equals 8.3% ($80 divided by $960 equals 8.3%).

An individual purchased stock for $10,000 and has written calls against the stock over a two-year period. She received premiums totaling $1,500 in the first year and $2,000 in the second year, with all of the options expiring. What's her total cost basis on the stock after the second year? A$8,500 B$3,500 C$10,000 D$6,500

C When covered calls expire (as in this question), the premium will be realized as a short-term capital gain and the cost basis for the stock will generally remain the same. If the options were closed out prior to expiration, the result is either a capital gain or loss based on the difference in premiums. If an option was exercised, the premium would be added to the option's strike price to determine the sales proceeds and the gain/loss would be either short-term or long-term based on how long the stock had been held prior to its sale. Keep in mind, to find the breakeven point on a covered call, the premium received is subtracted from the cost to purchase the stock. (21559)

Under what circumstances will the payout from a variable annuity increase? AThe performance of the separate account exceeds the rate of inflation BThe performance of the separate account for the current period exceeds the performance of the separate account for the previous period CThe performance of the separate account exceeds the AIR DThe rate of inflation exceeds the AIR

C Whether the payment from a variable annuity changes depends on the relationship between the performance of the separate account and the assumed interest rate (AIR) in the contract. If the account performance exceeds the AIR, the payment will be greater than the last payment. If the account performance equals the AIR, the payment will be unchanged from the last payment. If the account performance is less than the AIR, the payment will decline from the last payment.

Which of the following circumstances is NOT a reason for rejecting a municipal bond delivery? AA missing coupon BThe lack of a legal opinion CA mutilated certificate DA sudden change in market value

D A municipal bond can be rejected if it is missing a legal opinion, has missing or mutilated coupons, or the certificate is mutilated. It may not be rejected because of a sudden change in market price.

XYZ Corporation has issued $50 million 7% bonds at a premium. The bonds have a current yield of 6% and a yield to maturity of 5%. An investor purchasing $1,000,000 face value of bonds at the offering will receive a yearly income of: A$60,000 B$50,000 C$35,000 D$70,000

D An owner of the bonds will receive 7% of the par value yearly regardless of the cost. In this example, the investor purchased $1,000,000 face value of bonds and will, therefore, receive $70,000 (7% of $1,000,000 = $70,000) in yearly income.

A customer's niece has third party authorization and has recently been appointed to be the customer's trusted contact person. Although the customer seemed disoriented when she appointed her niece, the paperwork was still signed. The niece begins making cash withdrawals and changing investments in the account. When the registered representative contacts the customer to confirm the transactions, the customer sounds surprised; however, she states, "since it's my niece, just go along with it." What action should the registered representative take? AFollow the niece's instructions since she's the customer's trusted contact person. BContact the customer to suggest that she appoint a different trusted contact person. CImmediately place a temporary hold on the account. DContact a principal of the firm to discuss the niece's withdrawals.

D Of the choices listed, the best course of action is for the RR to contact a principal to discuss the situation. If an RR suspects financial exploitation, the firm can place a temporary hold, but that action should not be taken until the firm conducts an investigation. FINRA encourages firms to attempt to resolve a matter with a customer before placing a temporary hold. Prior to following up with the customer or following the niece's instructions, the RR should discuss this situation with a principal and the firm's compliance department. If a firm places a temporary hold on disbursements of funds or securities from the account, it's required to notify the trusted contact person, unless the firm believes that the trusted contact person is engaged (or will engage) in financial exploitation of the specified adult.

The securities that are deposited in an escrow account for an advance refunding of a municipal bond are: AGeneral obligation bonds BRevenue bonds CFederal agency bonds DTreasury bonds

D Only Treasury obligations are acceptable securities as escrow when a municipal bond is being advance refunded.

As it relates to convertible bonds, which of the following provides an arbitrage opportunity? AStock trading at a discount to parity. BBond trading at a premium to parity. CStock trading at parity. DStock trading at a premium to parity.

D Parity exists when a convertible security is trading at a price that's equal to the total value of the stock into which it's convertible. If the stock is trading at a premium to the parity price, the bond can be converted into the stock and then sold at the higher price. This results in an arbitrage opportunity. Conversely, if the stock is trading at or below the parity price, nothing can be gained through conversion. Finally, if the convertible bond is trading at a premium to parity, there's no reason to convert it into the stock.

Compared to selling short, buying a put option: ARequires a margin account BHas a larger loss potential CRequires a larger capital commitment DDoes not require the client to arrange to borrow the stock

D Short selling requires the deposit of margin, whereas the premium on a put is usually substantially less than the Regulation T margin requirement. On a short sale, the seller's risk is unlimited, whereas on a put purchase, the risk is limited to the premium. Although a short sale may be effected only if the stock can be borrowed under Regulation SHO, a put may be purchased at any time. Puts can be purchased in a cash account, while selling short requires a margin account.

A registered representative is meeting with a new client who's 92 years old. The client receives Social Security, a monthly pension, and has a $1.2 million portfolio which has a current allocation of 35% in bonds and 65% in equities. What should the RR recommend? AMake no changes to the portfolio's allocation BSell all of the equities and invest the proceeds in bonds CLeave the bond allocation the same, liquidate the equity portion, and invest the proceeds a fixed annuity DRebalance the portfolio to 10% equities and 90% bonds

D Since the client is in her early 90s, approximately 90% of the portfolio should be invested in bonds and 10% should be invested in equity securities. As a rough estimate, a client's age (e.g., 92) is the percentage of the portfolio that should be in bonds and 100% minus the customer's age is the percentage to be invested in equity (e.g., 100% - 92% = 8%). It's unnecessary for 100% of the portfolio to be invested in bonds since the client is receiving income from Social Security and her pension (i.e., safe sources of income).

An investor has recently rolled over his 401(k) into an IRA at your firm. Which of the following securities will be MOST suitable if the investor wanted diversification and a higher return? AA Treasury note BA municipal revenue bond CAn equity REIT DA hybrid REIT

D Since this is a tax-deferred (retirement) account, the municipal security would not be suitable and, since the investor wants a higher return, the Treasury note would not be the best choice. Although either REIT may be suitable, the hybrid REIT is a better choice since the investor wants diversification. There are three types of REITs: mortgage REITs which provide funds to real estate owners in the form of lending them funds (i.e., a mortgage), equity REITs which own and operate income producing real estate (for example, apartment buildings, commercial property, shopping malls and other types of retail property, and vacation resorts), and hybrid REITs, which invest in both of these ventures. By purchasing a hybrid REIT, the investor can take advantage of buying a security that invests in actual equity ownership of real estate as well as investing in an interest-rate-sensitive security such as a mortgage REIT. (73282)

The Dow Jones Industrial Average is considered an index of: AGrowth stocks BValue stocks CNYSE stocks only DLarge-capitalized stocks

D The Dow Jones Industrial Average (DJIA) is considered one of the most widely quoted measurements of the U.S. equity market. The 30 stocks that comprise the Index are among the largest and most widely held companies in the U.S. The DJIA as well as the S&P 500 Index include companies that are referred to as large-cap. Most, but not all of the stocks, are listed on the NYSE.

Which of the following indexes is the broadest equity market indicator? AThe NYSE Index BThe Major Market Index CThe Nasdaq Composite Index DThe Wilshire Index

D The Wilshire 5000 Equity Index consists of approximately 3,500 stocks that trade on the New York Stock Exchange and Nasdaq. The Index is referred to as the Wilshire 5,000 because, when created, it contained approximately 5,000 stocks. The Wilshire Index still is considered the broadest of all indexes and averages.

Mr. Jones purchases a Canadian dollar September 85 call option for a premium of .82. At what price (spot rate) would the Canadian dollar need to be trading in order for Mr. Jones to exercise the option and break even? (Assume 10,000 Canadian dollars per contract.) A$858.20 B$0.8500 C$0.8418 D$0.8582

D The breakeven formula for call buyers is the strike price plus the premium. The strike price is 85 (0.8500) and the premium is .82 ($0.0082). Therefore, the spot rate for the Canadian dollar would need to be $0.8582 for Mr. Jones to break even.

A registered representative is sending out electronic communication that has been prepared by her firm to 75 of her existing retail customers. The communication explains to the customers that their account statements are now available online. Which TWO of the following statements are TRUE? This is considered correspondence This is considered retail communication This activity requires principal approval prior to use This activity should be reviewed AI and IV BI and III CII and III DII and IV

D This electronic communication is considered retail communication since the registered representative is distributing it to more than 25 retail customers. Retail communication is considered any written or electronic communication that is distributed or made available to more than 25 retail investors within any 30-calendar-day period. If the communication is directed to 25 or fewer individuals, it is considered correspondence. If the retail communication does not make a financial recommendation or does not promote a product or service of the firm (which the electronic communication in this question does not), prior principal approval is not required. In other words, FINRA does not consider announcing the availability of online account statements as promoting a product or service of the firm. However, this activity should be reviewed and supervised by the broker-dealer.

A client has established the following position: Long 1 DEF May 50 call at 2 Short 1 DEF May 40 call at 6 In which of the following situations will the client have the maximum potential profit? AIf both option contracts are exercised BIf the market price of the stock is trading above 48 CIf the market price of the stock is trading below 52 DIf both options contracts expired unexercised

D This position is referred to as a credit call spread. It's a credit because the client received more for the short call with the lower strike price than what was paid for the call with the higher strike price. If both calls expire unexercised, the client will keep the net premium (the maximum gain). This will occur If DEF remains at or below $40 per share, since neither call will be exercised. If the stock price is trading below 44 (the breakeven point), the client may have a profit, but the maximum profit is realized if both options expired unexercised. (17058)

XYZ convertible debentures are convertible into 20 shares of XYZ Corporation common stock. If the bonds were selling in the market at $960, what would the common stock need to be selling for to be on parity? A$20 B$19.20 C$50 D$48

D To find the stock's parity price, divide the current market price of the bond ($960) by the conversion rate (ratio) which is given as 20 shares. This equals $48.

An individual received $500 in dividends from the common shares that she owns of an oil company. How much of this dividend income is subject to taxation? A0 B$400 C$350 D$500

D Under current tax law, all cash dividends that individuals receive are fully taxable.

Lyle, Molly, and Seena have a joint account registered as Tenants in Common. In the event that Seena dies, which of the following statements is TRUE? ASeena's share of the assets in the account are automatically transferred to Lyle and Molly BThe account would be liquidated as soon as the brokerage firm learns of Seena's death CLyle and Molly must change the arrangement to a Joint Tenants with Right of Survivorship DSeena's estate has a claim on her portion of the account's assets

D Upon learning of Seena's death, the brokerage firm will freeze the account. Seena's executor will then provide documentation to establish authority to act on behalf of the estate. Typically, Seena's estate will become the third joint owner in the existing Tenants in Common arrangement.

All of the following information should be obtained by a registered representative when opening a new account for a customer, EXCEPT the: AStreet address BOccupation CTax identification number DEducation

D When opening a new account for a customer, education is not required information.