SIMULATED EXAMS - MISSED QUESTIONS
Gifts and gratuities directed to those who work at another firm may not be made by a member or associated person for amounts greater than A) $100 per individual per year. B) $250 per year. C) $100 per year. D) $250 per lifetime.
A) $100 per individual per year
A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year and was missed in the two previous years. If the company wants to pay a dividend to common shareholders, how much must the company pay this customer per share first? A) $24 B) $8 C) $0 D) $16
A) $24
The sales charge for Class A shares may not exceed A) 8.5% of the total investment. B) 8.5% of the NAV of the shares purchased. C) 6.25% of the total investment. D) 6.25% of the NAV of the shares purchased.
A) 8.5% of the total investment.
Your client Dana McCarthy has no investment experience. She just retired and won't be in a high tax bracket. She also is concerned about volatility of her investments. She is more concerned about preserving her principal than getting a high rate of return. Which of the follow would you recommend? A) A money market mutual fund investing in short-term corporate debt B) A newly issued U.S. Treasury Bond C) A long-term U.S. Government Bond Mutual Fund D) A money market mutual fund investing in short-term debt from city and county governments in her state
A) A money market mutual fund investing in short-term corporate debt
Which of the following statements regarding real estate investment trusts (REITs) are true? I. Hybrid REITs typically invest in both commercial property and residential property. II. Some REITs hold no real property but hold mortgages on commercial property instead. III. Hybrid REITs can hold only residential property and mortgages on residential property. IV. REITs can pay dividends to shareholders and make capital gains distributions. A) II and IV B) II and III C) I and III D) I and IV
A) II and IV
Just as markets can be influenced by many factors, so can the market price of a single company's stock. While all of the following could impact a company's stock price to some extent, which would be the least likely to have a direct and immediate impact? A) Political elections B) Changes in the business cycle C) Federal Reserve Board (FRB) policies D) The company's earnings
A) Political elections
Broker-dealers and registered representatives may be subject to each of the following administrative and regulatory bodies except A) Securities Investor Protection Corporation (SIPC). B) state securities administrator. C) Financial Industry Regulatory Authority (FINRA). D) NYSE.
A) Securities Investor Protection Corporation (SIPC)
Which of the following transactions has the most risk? A) Selling short B) Selling to close C) Buying to open D) Short against the box
A) Selling short selling short has unlimited loss potential.
Which of the following would you expect to have the lowest expense ratio? A) The ABC Corporate Bond Fund B) The QRS Stock Income Fund C) The MNO Small Cap Growth Fund D) The XYZ Aggressive Growth Fund
A) The ABC Corporate Bond Fund Bond mutual funds typically have lower expense ratios than stock funds, which tend to be riskier and require more sophisticated investment strategies. The ABC Bond fund is the only bond mutual fund listed. Growth funds involve equities (stock), and of course, the stock income fund specifies equities as well
A diversified growth fund charging 0.4% of net assets per year as a 12b-1 fee may not make which of the following statements? A) The fund is a no-load fund. B) The fund will have a diversified portfolio with a stated investment objective. C) The fund will pay its investment adviser a specified percentage of funds under management. D) The fund will have a calculated fully disclosed expense ratio.
A) The fund is a no-load fund. The fund would be expected and required to make statements regarding its diversification status, its expense ratio, and the rate at which it pays its adviser. It definitely may not, however, claim to be a no-load fund if it charges a 12b-1 fee, fees charged to market the fund's shares, of more than 0.25% of net assets.
If an associated person is barred from the securities industry, which of the following is true? A) The individual may associate with another member firm with SEC permission. B) The individual may still serve as an officer or director of a member firm but have no sales function. C) The individual may still be employed as a paid adviser to a member firm. D) The individual may never associate with another member for life.
A) The individual may associate with another member firm with SEC permission.
Each of the following activities would require prior written notification by an associated person to the employing broker-dealer except A) becoming a limited partner in an oil and gas drilling program. B) acting as a real estate sales agent, limited to the sales of individual homes only. C) part-time work parking cars on the weekend at a local racetrack. D) offering to sell a limited partnership interest in an oil and gas drilling program.
A) becoming a limited partner in an oil and gas drilling program. Passive investments, such as the purchase of a limited partnership interest, are not considered outside business activity. An associated person may make a passive investment for his own account without providing written notice to the employing broker-dealer.
A convertible feature for preferred shares allows the owner to exchange the shares A) for a fixed number of shares of the issuing corporation's common stock. B) for as many bonds as the issuer is willing to issue at that point in time. C) for a fixed number of bonds issued by the corporation. D) for the preferred shares of another issuer.
A) for a fixed number of shares of the issuing corporation's common stock.
All of the following regarding the firm element of a broker-dealer's continuing education (CE) requirement are true EXCEPT A) it is prepared by Financial Industry Regulatory Authority (FINRA) for the member firm to administer. B) it must take into account the scope of the member firm's business. C) it comprises training for those who have direct contact with the public. D) it is applicable to both registered representatives and registered principals.
A) it is prepared by Financial Industry Regulatory Authority (FINRA) for the member firm to administer. *ITS PREPARED BY THE MEMBER FIRM
A broker-dealer designated as a carrying firm would be expected to do all of the following except A) maintain a lower net capital than noncarrying broker-dealers. B) clear transactions for customer accounts. C) perform back-office functions, such as sending trade confirmations to customers. D) take custody of customer funds and securities.
A) maintain a lower net capital than noncarrying broker-dealers.
Short-term purchases and sales of a mutual fund to take advantage of price fluctuation is known as A) market timing. B) front running. C) price-spotting. D) time spotting.
A) market timing.
For real estate program partners, tax deductions will be derived from A) mortgage interest paid and depreciation. B) historic rehabilitation credits received. C) income received for rents. D) government-assisted housing allowances.
A) mortgage interest paid and depreciation.
Interest on a 7% corporate bond would be paid to the investor as A) two semiannual checks for $35 each. B) two semiannual checks for $70 each. C) several checks totaling $70 each year. D) one annual $70 check.
A) two semiannual checks for $35 each.
Who benefits most from a defined benefit plan? A) Younger employees B) Older employees C) Employees with more years until retirement D) All benefit the same
B) Older employees Because the older employee has fewer years left to work, the contribution made by the company will be higher.
A guaranteed bond is usually guaranteed by which of the following entities? A) The broker-dealer who sold it B) A parent company C) The U.S. Guarantee Association D) The U.S. government
B) A parent company
Which of the following is a lagging indicator? A) Increase in hours worked B) Increase in the consumer loans to personal income ratio C) Decrease in industrial production D) Raw materials orders
B) Increase in the consumer loans to personal income ratio
Deposits received in currency for amounts over $10,000 in a day would require the firm to report the transaction in how many days on what form? A) SAR within 30 days B) CTR within 15 days C) SAR within 15 days D) CTR within 30 days
B) CTR within 15 days The Bank Secrecy Act requires firms to report on a CTR any currency received in the amount of more than $10,000 on a single day, within 15 days.
Financial risk is most attributed to which of the following investments? A) Municipal general obligation bonds B) Corporate bonds C) Value stock D) U.S. government bonds
B) Corporate bonds *Financial risk is the risk that an issuer would not be able to make principal and interest payments. This rules out government bonds and stocks don't pay principal and interest
An officer of a financial firm has identified what might represent suspicious behavior on the part of a customer, involving more than $5,000. When must the firm file a suspicious activity report (SAR)? A) Within 180 calendar days B) Within 30 calendar days C) Within 5 business days D) By the end of the business day
B) Within 30 calendar days A SAR must be filed with FinCEN within 30 calendar days of the firm becoming aware of the suspicious activity. The suspected parties may not be informed that they are the subject of an SAR.
In order for a registered representative of a member firm to receive any form of compensation, such as commissions, after terminating employment, all of the following statements are correct EXCEPT A) it would be permissible to pay continuing commissions to a surviving spouse. B) earnings from referred business from existing clients would be eligible for payment. C) the agreement must be entered into before the termination of employment. D) there must be a contract in effect calling for these continuing commissions.
B) earnings from referred business from existing clients would be eligible for payment
A company is about to introduce a new product. While confident in the product's appeal and market, it is still an unknown factor until sales results are viewed later. Investors holding stock in the company are at this time specifically exposed to A) call risk. B) financial risk. C) reinvestment risk. D) business risk.
B) financial risk. PICKED BUSINESS RISK ON TEST... Business risk is an operating risk related to poor or untimely management decisions. Decisions regarding if and when to introduce new products are one example of those that might expose investors specifically to business risk.
A client has established a long put position. The contract will have intrinsic value when the price of the underlying stock is A) equal to the exercise price. B) less than the exercise price. C) greater than the exercise price. D) anywhere near the exercise price, above or below.
B) less than the exercise price.
All of the following are benefits of a traditional IRA except A) earnings accumulate on a tax-deferred basis. B) no penalty is charged for failing to withdraw funds after age 72. C) contributions may be tax deductible. D) funds may be withdrawn without penalty for certain exemptions.
B) no penalty is charged for failing to withdraw funds after age 72.
Securities and Exchange Commission Rule 144 regulates A) the sale of new issue securities in the primary market. B) the sale of control and restricted securities. C) state-level (blue-sky) registration of securities. D) communications with public retail investors.
B) the sale of control and restricted securities. Securities and Exchange Commission Rule 144 regulates the sale of control and restricted securities in the secondary market. The rule stipulates the holding period, quantity limitations, manner of sale, and filing procedures when divesting of control or restricted shares.
After receiving a written complaint letter from a client, a registered representative should A) employ a thorough investigation and provide a report to the Securities and Exchange Commission (SEC). B) turn the complaint over to the appropriate supervisor or principal. C) contact the client immediately to attempt reaching a resolution to the issue. D) forward copies immediately to Financial Industry Regulatory Authority (FINRA) or the appropriate self-regulatory organization (SRO).
B) turn the complaint over to the appropriate supervisor or principal
DEF Corporation has 4% noncumulative preferred stock outstanding. The company eliminated its dividend payments for the past three years but now is in a position to resume paying them again. Before paying common shareholders a dividend, the company would be required to pay the preferred shareholders A) $2.50. B) $1.00. C) $4.00. D) nothing.
C) $4.00. in order to pay common shareholders in any year, preferred shareholders must receive their full dividend for that year. While it can be paid in one annual payment, quarterly, or however the board approves it to be paid, the total in this case would be $4.00. 4% × $100 par value = $4.00
Firms must file a SAR within how many days of becoming aware of a suspicious transaction? A) 10 days, and they are prohibited from notifying the customer involved that a report has been filed B) 10 days, and they are required to notify the customer involved that a report has been filed C) 30 days, and they are prohibited from notifying the customer involved that a report has been filed D) 30 days, and they are required to notify the customer involved that a report has been filed
C) 30 days, and they are prohibited from notifying the customer involved that a report has been filed
Which of the following need not be included in the annual reports a mutual fund provides to its shareholders? A) Names and titles of those responsible for portfolio management B) Factors and strategies that materially affected performance C) A list of the most poorly performing portfolio securities D) A graph comparing fund performance to an appropriate index
C) A list of the most poorly performing portfolio securities
Your client, Mary Quinn, wants to place an order to sell a stock in her portfolio when the current price is 45, but she is only willing to sell if she can sell for at least 47. Which order should she place? A) A market order B) A sell stop limit order C) A sell limit order D) A sell stop order
C) A sell limit order
Which of the following preferred issues is most likely to fluctuate in line with the issuer's common shares? A) Callable B) Adjustable rate C) Convertible D) Participating
C) Convertible Convertible preferred shares can be converted into shares of the issuer's common stock. In this light, the value of a convertible preferred stock is linked to the value of the common stock and the convertible preferred share price tends to fluctuate in line with the common.
Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit? I. If the customer signs and returns a proxy statement but does not indicate how to the shares are to be voted II. If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting III. If the matters to be voted on are of major importance IV. If the matters to be voted on are of minor importance A) I and III B) II and III C) II and IV D) I and IV
C) II and IV II. If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting IV. If the matters to be voted on are of minor importance
Each of the following makes regular interest payments except A) Treasury notes. B) Treasury bonds. C) Treasury STRIPS. D) corporate bonds.
C) Treasury STRIPS. Treasury STRIPS have the coupons removed and therefore do not make regular interest payments. Each of the remaining answer choices pays interest on a semiannual basis.
When purchasing a bond, the investor is taking on A) an equity position. B) a debtor position. C) a creditor position. D) an obligation.
C) a creditor position. When an investor is purchasing a bond, he is lending money to the issuer and becomes a creditor of the issuer.
An affiliate has held restricted shares fully paid for six months. In anticipation of the desire to divest the shares, the affiliate should know that A) no limit on the number of shares that can be sold will be imposed. B) the shares are no longer restricted, having been held fully paid for six months. C) any shares sold will be subject to volume restrictions if still an affiliate. D) while no longer restricted, all sales of these shares must be approved by the issuer's board of directors (BOD).
C) any shares sold will be subject to volume restrictions if still an affiliate.
If an investor purchases a mutual fund based solely on seeing the summary prospectus, the investor must A) receive a refund, because shares may only be sold on the basis of the full prospectus. B) receive a paper copy of the full prospectus no later than confirmation of sale. C) be able to access a full prospectus no later than confirmation of sale. D) be given a full prospectus before the check is signed.
C) be able to access a full prospectus no later than confirmation of sale.
The risk when investing, where one has the potential to lose all or part of the investment due to circumstances that are unrelated to the issuer's financial strength or well-being, is known as A) call risk. B) financial risk. C) capital risk. D) business risk.
C) capital risk This is the definition of capital risk. For example, capital risk might be least when investing in securities backed by the federal government but much more prevalent when investing in derivative products.
Stagnation in the economy can be associated with A) plentiful employment opportunities. B) prolonged periods of healthy economic growth. C) high unemployment. D) robust production.
C) high unemployment. Economic stagnation refers to prolonged periods of slow or little economic growth, unusually accompanied by high unemployment
All of the following would be secondary market transactions EXCEPT A) securities sold on both the OTC and NYSE. B) securities bought and sold on the OTC. C) securities sold to the public by the issuer. D) securities bought and sold on the NYSE.
C) securities sold to the public by the issuer. Exchanges (like the NYSE and the OTC market) are part of the secondary market. The primary market is the issuer selling to the public.
To contract the overall economy, the Federal Reserve Board (FRB), acting as agent for the U.S. Treasury department, will A) buy securities via open-market operations, pushing interest rates down. B) sell securities via open-market operations, pushing interest rates down. C) sell securities via open-market operations, pushing interest rates up. D) buy securities via open-market operations, pushing interest rates up.
C) sell securities via open-market operations, pushing interest rates up. WHY? To decrease the money supply, the Federal Reserve Board (FRB) will sell securities via open-market operations, putting securities into the banking system and taking money out of the banking system
All of the following are provisions of Regulation S-P except A) the firm must give the customer the opportunity to opt-out at the opening of the account. B) the firm must provide the customer with a privacy notice initially when opening the account and annually thereafter. C) the firm must give the customer the opportunity to opt-out semiannually. D) the firm has an obligation to protect the privacy of customer information.
C) the firm must give the customer the opportunity to opt-out semiannually.
Which type of underwriting is characterized by the broker-dealer buying the entire issue from the issuer and then reoffering it to the public? A) Mini max B) Best efforts C) Firm commitment D) All-or-none
C. Firm commitment
Which of the following regulatory bodies regulates but has no enforcement powers? A) Chicago Board Options Exchange (CBOE) B) Financial Industry Regulatory Authority (FINRA) C) Securities and Exchange Commission (SEC) D) Municipal Securities Rule Board (MSRB)
D) Municipal Securities Rule Board (MSRB)
Your client, Janice Thomas, is an active trader and wants to invest in a managed equity portfolio that he can trade intraday. Which of the following should you recommend? A) A mutual fund B) An exchange-traded note (ETN) C) An exchange-traded fund (ETF) D) A closed end fund
D) A closed end fund A closed end fund is actively traded and most of them are equity funds. They trade on the exchanges like stocks. Mutual funds can be equity funds and can be actively managed, but because they only trade once per day, they are not good for active trading. ETF are actively traded but are not actively managed. ETNs are debt securities, not equities.
Written customer complaints must be kept for how many years? A) Five years by the SEC B) Two years by the member firms C) Six years by the SEC D) Four years by the broker-dealer
D) Four years by the broker-dealer
Which is the most common way investors pay a mutual fund's sales charge? A) Back-end load B) Variable load C) Level load D) Front-end load
D) Front-end load
A registered representative has left one firm to join another. Sometime later, the former employer discovers that some information on Form U-5 filed at the time of termination was inaccurate. The firm need not file an amended U-5 if at least how much time has gone by? A) 30 days B) 5 years C) 2 years D) No stated time limit
D) No stated time limit
A bank issues and guarantees certificates of deposit, and those that are negotiable are considered money market instruments. What makes a CD negotiable? A) Short-term maturity B) Backing by the banks good faith and credit C) A fixed interest rate D) Secondary market trading
D) Secondary market trading While all of these are characteristics of negotiable certificates of deposit issued by banks, it is the ability to trade the CDs in the secondary market that makes them negotiable.
For restricted stock (unregistered) held by a nonaffiliated, which of the following applies? A) No holding period, but volume limits always apply B) No holding period or any volume restrictions C) Six-month holding period, with volume limits thereafter D) Six-month holding period, with sales allowed freely thereafter
D) Six-month holding period, with sales allowed freely thereafter
Which of the following are TRUE of nonqualified plans but NOT TRUE of qualified plans? A) All withdrawals are taxable B) All withdrawals are tax free C) The plan cannot discriminate D) The plan may discriminate
D) The plan may discriminate
During the cooling-off period of a new registration filed with the Securities and Exchange Commission (SEC) A) sales literature may be distributed with the preliminary prospectus. B) tombstone advertisements may not be published. C) indications of interest received are binding on the broker-dealers. D) a red herring may be given to prospective investors.
D) a red herring may be given to prospective investors. During the minimum 20-day cooling-off period, tombstone ads may be published, and a preliminary prospectus, also known as a red herring
An investor with no existing positions in MMS stock sells 100 shares. This is A) a long bullish position. B) a short bullish position. C) a long bearish position. D) a short bearish position.
D) a short bearish position. With no other existing positions, this sale transaction would have to be opening a position. Sell to open a position = short = bearish.
If the portfolio of a variable annuity separate account is directly and actively managed by the insurance company, the separate account must be registered as A) a face-amount certificate company. B) an equity unit investment trust. C) a closed-end management investment company. D) an open-end management investment company.
D) an open-end management investment company. **If managed by the insurance company's own investment advisor, a separate account must register as an open-end company. If it is managed by a third party, it must register as a unit investment trust.
Regarding open-end and closed-end investment companies, all of the following are true EXCEPT A) both may avoid taxation by distributing all of their net investment income to shareholders. B) both may be either diversified or non-diversified portfolios. C) both may offer numerous investment objectives to select from. D) both offer an unlimited number of shares in a continuous public offering.
D) both offer an unlimited number of shares in a continuous public offering.
Caleb Wilson receives an email from his client, Shelby Bogdin, requesting the year-to-date performance on several of her mutual funds. Wilson immediately looks up the performance and emails her a response. This type of communication would be classified as under FINRA rules as A) respondence. B) retail communication. C) prohibited. D) correspondence.
D) correspondence. FINRA has three classifications of communication with the public. Correspondence is communication to 25 or fewer retail investors in a 30-day period. Retail communications is to more than 25 retail investors in a 30-day period. Institutional communication is going to banks, insurance companies, mutual funds, et cetera. Responding to an email is not prohibited as long as the rep follows his company policies. Respondence is a word, however, it has nothing to do with FINRA communication rules.
An allowable deduction to compensate for decreasing natural resources in an oil and gas DPP are known as A) tax credits. B) deductions for IDCs. C) depreciation deductions. D) depletion allowances.
D) depletion allowances.
A term indicating that a security is tradable and all of the requirements of the contract to sell the security have been met and the security is ready to be transferred is A) buyer's options. B) seller's option. C) regular way settlement. D) good delivery.
D) good delivery.
An officer of a public company buys 1,000 shares of the company's registered stock in the open market. Regarding the sale of these shares, the officer may sell A) under Rule 144 only after a six-month holding period. B) only after leaving (becoming unaffiliated with) the company. C) immediately, with no volume restrictions. D) immediately, subject to Rule 144 volume limitations.
D) immediately, subject to Rule 144 volume limitations. Because the shares were purchased in the open market (already registered), the transaction is not a private placement and there is no required holding period. The officer, however, is an affiliate and is therefore subject to the reporting and volume limitations imposed when selling under Rule 144.
Secured corporate debt includes A) debt owed to the federal government. B) preferred shareholder stock. C) debt owed to suppliers. D) mortgage debt.
D) mortgage debt.
A corporation enlists the services of a transfer agent, who would be expected to handle all of the following functions EXCEPT A) replacing lost or destroyed stock certificates. B) canceling old certificates and issuing new ones. C) maintaining records of shareholder ownership. D) registering the corporation's securities with the state.
D) registering the corporation's securities with the state. **this would be handle by the registrar not the transfer agent
A customer writes (sells) a call. This customer will realize the maximum gain if A) the customer is assigned on the contract. B) the price of the option contract rises. C) the price of the underlying stock rises. D) the option contract expires without being exercised.
D) the option contract expires without being exercised. Those who write options contracts realize the maximum gain if the contract goes unexercised at expiation