Wrong Questions

Which of the following statements about variable annuities is false? A) The rate of return is determined by the value of the underlying portfolio B) The AIR guarantees a minimum rate of return C) These annuities are designed to combat inflation risk D) The number of annuity units becomes fixed when the contract is annuitized

B) the AIR guarantees a minimum rate of return The rate of return on a variable annuity is determined by the value of the underlying securities, generally mutual funds. The assumed interest rate is the expected interest rate for a specific annuity but does not guarantee a minimum return as the portfolio may perform below the AIR, thus lowering the monthly distribution.

Two weeks ago, Ethan closed a short position in ABC Inc. common stock that he'd been carrying for a few months. He realized a five- point loss on the transaction. Today, Ethan tells you he is considering another short sale, this time of ABC Inc. convertible bonds. You should tell Ethan that A) you first need to check with your stock. B) there may be an adverse tax consequence connected to the common stock position that he closed two weeks ago if he chooses to proceed with this trade. C) he may incur a substantial loss if interest rates rise. D) selling convertible bonds short is never a good idea since they are always more challenging to borrow than the common stock.

B) there may be an adverse tax consequence connected to the common stock position that he closed two weeks ago if he chooses to proceed with this trade If Ethan proceeds with his short sale, this may be considered a wash sale, which would disallow the loss Ethan realized when he covered his short position. A wash sale occurs when a securities position is closed for a loss and that same, or substantially similar, security position is re- established within 30 days.

An attorney friend of a registered representative offers to introduce one of her legal clients to the RR for participation in an upcoming equity offering the RR's firm will be engaged in. The attorney is requesting a fee to introduce her client, as well as a portion of the commission that the RR would earn if the deal is successful. Payment of fees to the attorney A) are prohibited by FINRA rules because of the inherent conflict of interest. B) would be acceptable provided they are not transaction- based if the attorney is not a FINRA registered individual. C) must be documented on a firm consent form which must be signed by the compliance department of the broker-dealer and retained for six years following the payment of the fees. D) may not exceed $100, in compliance with the FINRA gift rule.

B) would be acceptable provided they are not transaction based if the attorney is not a FINRA registered individual Payments of finders' fees to parties who are not FINRA registered is acceptable if made in the form of a flat or hourly cash fee, and not tied to the success of the deal

Sally Smith sells 1 XYZ Oct 60 call at 3 when the market value is 50. Assuming the market value increases to 75 and the option is exercised, what are her proceeds from the sale for tax purposes? A) 6300 B) 5000 C) 6000 D) 7500

A) 6300 For an investor who sells a call option, the proceeds is the strike price plus the premium. Therefore, her cost basis is $63 per share x 100 shares

A six-month holding period is applicable to an investor who has purchased shares A) in a Rule 147 offering. B) as an accredited investor in a Rule 144A transaction. C) as a participant in a Regulation A offering. D) of control stock in the open market as a director of her company.

A) in a Rule 147 offering A six-month holding period would be applicable to the purchaser of a Rule 147 offering, for state residents selling their shares to out of state residents. Sales of these offerings to same state residents is allowed at any time.

A company has been experiencing increased earnings but has kept its dividend payments constant. Due solely to this, the company's balance sheet would reflect A) increased shareholder's equity. B) decreased retained earnings. C) decreased net worth. D) decreased net working capital.

A) increased shareholders equity When a company experiences increased earnings while keeping dividend payments constant, it is retaining more of its income, which will increase retained earnings, a component of shareholders' equity, which would also increase

Betty has a margin account with the following: XYZ long position: $175,000 ABC short position: 65,000 Debit balance: 70,000 Credit balance: 90,000 The total equity balance in Betty's account is A) 80000 B) 130000 C) 50000 D) 90000

B) 130,000 The total equity position in Betty's account is $130,000. This is found by taking the long market value ($175,000) and adding the credit balance ($90,000), then subtracting the short market value ($65,000) and the debit balance ($70,000).

An investor purchasing 1,000 shares of a certain mutual fund that has a maximum sales charge of 81⁄2 % and a NAV of $10.30 at the time of purchase will pay a total sales charge of (rounding to the nearest dollar) A) 88 B) 957 C) 875 D) 96

B) 957 POP = (NAV/ 100% - SC%) = $10.30/.915 = $11.26 SC = POP - NAV = .957 Total Sales Charge = .957 x 1000 shares = $957

Which of the following best represents the total takedown in a municipal underwriting? A) Manager's fee plus additional takedown B) Additional takedown plus selling concession C)Additional takedown plus underwriting fee D) Manager's fee plus selling concession

B) Additional takedown plus selling concession In a municipal underwriting, the total takedown is the additional takedown plus the selling concession.

An analysis of a revenue bond would include all of the following items except the A) debt service coverage ratio. B) study of overlapping debt. C) engineer's report. D) feasibility study.

B) study of overlapping debt Overlapping debt is a metric used in the evaluation of a general obligation (GO) bond, not a revenue bond. Note that this is an "except" question.

Susan Jones buys one ABC Oct 50 call at 3. She exercises the option to buy 100 shares when the market is at 60. What is the cost basis of the 100 shares? A) 6000 B) 6300 C) 5300 D) 5000

C) 5300 When exercising a call option, the cost basis for the shares equals the strike price at which the shares were purchased, plus the premium paid per share to buy the call option. Cost basis = 50 + 3 = 53 x 100 shares purchased = $5,300.

A financial institution buys $90,000 of 8%, 20-year revenue bonds. For book purposes, the institution uses straight-line accretion, but for tax purposes the institution uses cost. The bonds are sold after three years for $99,000. What will be the taxable gain? A) 7500 B) 3000 C) 9000 D) 5000

C) 9000 For tax purposes, the institution uses the cost basis, which is the price at which it purchased the bonds - $90,000. Consequently, they sold the bonds for $99,000 with a $90,000 tax basis, yielding a taxable gain of $9,000.

On January 1st, an investor buys 1 XYZ Apr 50 call at 4 and 1 XYZ Apr 50 put at 2 1/2. Both options expire unexercised. What are the tax consequences for the investor? A) $400 loss on the call, $250 loss on the put B) $400 gain on the call, $250 gain on the put C) $150 net capital gain D) $150 net capital loss

A) $400 loss on the call, $250 loss on the put When an investor purchases an option and it expires unexercised the investor loses the premiums. Therefore, there is a $400 loss on the call and a $250 loss on the put.

A company has annual sales of $15,000,000, operating expenses of $9,000,000, interest expense of $2,000,000 and principal payments on bonds totaling $1,000,000. What is the company's debt service ratio? A) 2 to 1 B) 5 to 1 C) 4 to 1 D) 3 to 1

A) 2 to 1 Debt service ratio = [Earnings before Interest & Taxes (aka EBIT)]/(Principal + Interest due). Net income = $15,000,000 in sales -$9,000,000 in expenses = $6,000,000. Total debt due = $2,000,000 + $1,000,000 = $3,000,000. Debt service ratio = $6.0mm/$3.0mm = 2 to 1

A bond analyst checking a general obligation municipal bond will examine the I. Past performance of the payment of interest II. Per capita income of the citizens III. Population growth of the area IV. Industrial development of the area A) I, II III and IV B) I, II and IV only C) II, III and IV only D) I, II and III only

A) I, II, III and IV A bond analyst would look at all the listed factors with regard to a general obligation bond, the interest payment history, the per capita income, industrial development and the population growth in the area to determine the credit of the bond and how likely it would be that the municipality would repay the interest and principal on time.

Sally considers herself a buy- and-hold investor with an intermediate term time horizon. Which of the following securities would be least suitable for Sally? A) A leveraged ETF B) 200 shares of XYZ Inc., a blue-chip stock C) A 20-year zero coupon bond D) A 15-year general obligation bond

A) a leveraged ETF An individual with these goals would not be interested in a leveraged ETF, which has very short-term trading objectives.

In an Eastern account, the broker-dealer is underwriting 200 bonds. If the firm sells its 200 bonds but other bonds remain unsold, it is liable for A) a percentage of the unsold bonds equal to its percentage participation in the original allotment. B) a maximum of 200 additional bonds. C) none of the unsold bonds. D) all of the unsold bonds.

A) a percentage of the unsold bonds equal to its percentage participation in the original allotment According to an Eastern account, a syndicate member is responsible for an amount of unsold bonds equal to its participation in the original allotment. This applies to any unsold bonds, regardless of the underwriter that failed to sell them in the first place. Note that if any bonds again go unsold, the process is repeated.

Upon the execution of the subscription agreement, an individual will be A) accepted as a limited partner in a limited partnership. B) qualified to subscribe to units of a unit investment trust. C) eligible to purchase shares in a master limited partnership (MLP). D) authorized to execute partnership democracy provisions.

A) accepted as a limited partner in a limited partnership The subscription agreement is the document an individual must sign and have approved in order to be granted status as a limited partner in a limited partnership

All of the following are suitable objectives for a covered call writer EXCEPT A) buying stock below the market. B) increasing return on a long stock position. C) speculating that a stock will not rise in price. D) hedging a long stock position.

A) buying stock below the market When an investor sells a call and it is exercised, the investor will have the stock called away i.e. the investor will be forced to sell the stock. Selling a call option will never give an investor the opportunity to buy stock below the market.

An individual can open an IRA at a bank, keeping the funds in CDs, or at a broker-dealer, with the funds invested in securities. An IRA held at any financial institution is A) covered by FDIC if held at a bank and by SIPC if held at a broker- dealer. B) covered by SPIC insurance. C) covered by FDIC insurance. D) not covered by any insurance since IRAs are retirement accounts

A) covered by FDIC if held at a bank and by SPIC if held at a broker-dealer An IRA would be covered by the appropriate insurance, depending on where the account is held. FDIC covers bank accounts, and SIPC covers brokerage accounts

An issuer recently conducted a primary offering and provided a prospectus to all investors. Subsequently, the issuer provides an additional item of information, supplementing material that was outlined in the original prospectus. This additional material is a A) free-writing prospectus and must be filed with the SEC by the date of first use. B) Statement of Additional Information (SAI) and must be filed with the SEC by the date of first use. C) retail communication and must be filed with FINRA at least 10 days prior to first use. D) correspondence, and must be approved by a principal prior to first use.

A) free writing prospectus and must be filed with the SEC by the date of first use This is an example of a free-writing prospectus (FWP), which must be filed with the SEC by the date of first use. An FWP allows an issuer to provide ongoing information to investors without having to refile its registration statement or prospectus.

You have been asked to write a brief summary of collateralized mortgage obligations, which will be distributed to some of your firm's clients. Which of the following statements is not true about this item? A) It should state that any interest payments are subject to state and local taxes but not federal taxes B) It must disclose that a CMO's yield and average life will fluctuate depending on the actual rate at which mortgage holders prepay the mortgages underlying the CMO C) It may not compare these products to any other investment vehicle D) It must include the term "Collateralized Mortgage Obligation" within its name

A) it should state that any interest payments are subject to state and local taxes but not federal taxes The only incorrect statement here is that distributions are not subject to federal income taxes. Payouts from a collateralized mortgage obligation (CMO) are subject to federal, state, and local taxes

An investor is seeking to purchase shares of a company via a tender offer. During the tender period, the investor A) may not purchase shares of the company in the open market. B) may not purchase non-convertible bonds of the company in the open market. C) may purchase call options of the same issuer but not put options. D) is prohibited from purchasing any securities of the same issuer in the open market.

A) may not purchase shares of the company in the open market If an investor is participating in a tender offer for the common stock of a company, the investor may not purchase common shares of the same issuer in the open market during the tender period. Note that the investor would be allowed to purchase non-convertible securities of the issuer.

Steve has written 20 JKL June 25 puts. To complete the combination, Steve should also A) sell 20 JKL July 25 calls. B) purchase 20 JKL July 25 puts. C) purchase 20 JKL June 25 puts. D) sell 20 JKL June 25 calls.

A) sell 20 JKL July 25 calls To create a combination, Steve must sell both puts and calls on the same security. Options of a different series must be used, thus either the strike price and/ or expiration month of the two contracts must be different.

Which of the following options positions is not a bullish strategy? A) Short RST Oct 30 Call, Long RST Oct 40 Call B) Long XYX May 50 Put, Short XYX May 60 Put C) Short MNO June 80 Call, Long MNO June 70 Call D) Long ABC Dec 45 Call, Short ABC Dec 45 Put

A) short RST OCT 30 Call, Long RST Oct 40 Call Since the lower strike price is being sold and the higher strike price is being purchased, this is an example of a bear call credit spread. The other positions will benefit when the market rises.

Following a period of extraordinary volatility, markets have returned to a more conservative posture, with equities now trading in a very narrow range, a trend expected to continue for the next few months. An investor seeking to enhance the yield of his portfolio at this time might enter into a A) short Straddle. B) debit spread. C) long straddle. D) short Put.

A) short straddle This investor might benefit from selling a straddle. If markets now remain stable, this would be a beneficial position to have as the two option contracts would be more likely to expire, resulting in a gain to the investor.

Which of the following is NOT reasonable cause to believe that the seller can make delivery of securities? A) The securities are not on a "hard-to-borrow" list B) The securities are on the "available securities" list C) The customer has a written agreement to borrow the stock D) The customer is long the stock

A) the securities are not on a "hard to borrow" list If an investor sells stock short, Reg SHO requires the customer to locate the securities. The customer can locate by either borrowing the securities, or by relying on the available securities list. Absence from a "hard-to-borrow" list, is not sufficient to satisfy the locate requirement.

Which of the following securities are quoted on a discounted yield basis? A) Treasury bill B) 25-year convertible debenture C) 20-year public purpose municipal bond D) Treasury bond

A) treasury bill Treasury bills are a type of short-term zero-coupon security and make their only payment to investors at the time of maturity. For this reason, they are quoted on a discount yield basis, meaning the percentage discount they are trading off of face value.

HighTechInc wants to raise $100 million in capital via a private placement. Assuming that they plan to publicly advertise the transaction, how many accredited and non-accredited investors can participate in the deal? A) Unlimited number of accredited and zero non-accredited B) Unlimited number of accredited and a maximum of 35 non-accredited investors C) 35 accredited and 35 non-accredited D) Unlimited number of both accredited and non-accredited investors

A) unlimited number of accredited and zero non-accredited In a Regulation D 506 deal in which the securities are publicly advertised, there can be an unlimited number of accredited, but zero non-accredited investors. If there was no public advertising, then there could have also been 35 non-accredited investors.

In general, you should never place a trade for a client unless A) you have explicit directions from your client to enter the order. B) the client or their advisor has instructed you to enter the order. C) your supervisor has instructed you to do so. D) it is obvious to you that the trade is appropriate for the client.

A) you have explicit directions from your client to enter the order You must have the explicit permission from your client to place any orders for their account, unless you have discretionary authority to execute orders on their behalf

In the time before a registration statement becomes effective, which of the following statement is (are) true? I. No sales may be solicited II. Sales literature may not be used III. Unsolicited inquiries may be answered A) I and III only B) I, II and III C) III only D) I and II only

B) I, II and III During the cooling off period an underwriter may not solicit any sales, nor can the underwriter issue any sales literature or advertisements other than a tombstone ad. An underwriter may answer any unsolicited indications of interest expressed by potential investors.

Ken has sold 1 EUR May 145 call and purchased 1 EUR May 135 call. Which of the following statements is correct? A) Ken has sold a straddle and is expecting little change in the value of the EUR B) Ken has executed a debit spread and is bullish on the EUR C) Ken has executed a credit spread and is bearish on the EUR D) Ken has executed a long straddle and is seeking volatility in the EUR

B) Ken has executed a debit spread and is bullish on the EUR Ken has executed a debit spread on the EUR and thus is taking a bullish position on the EUR.

An investor who is bearish on the equity markets might deploy which of the following investment strategies? A) Call debit spread B) Long VIX call option C) Long S & P 500 call option D) Short straddle

B) Long VIC call option The VIX is a tool used to measure market expectations of near-term volatility, based on S&P 500 Index option prices. Investors who are bearish generally believe there will be an increased level of volatility and would be likely to buy call options on the VIX.

A registered representative has a client who is a CPA, and this client is offering, for a fee, to direct some of her accounting clients to the registered representative for potential participation in an upcoming IPO the firm will be a managing underwriter on. May the broker- dealer compensate the CPA for these leads? A) No, the broker-dealer cannot make any compensation arrangements with the CPA, as such relationships are considered conflicts of interest. B) Yes, but any compensation must be in the form of cash (not securities), and it should only be a flat or hourly fee, and not tied to the success of any deals. C) No, these types of compensation arrangements are prohibited by FINRA rules. D) Yes, but the CPA would need to be a FINRA registered person in order to receive any such compensation, often called a finder's fee.

B) Yes, but any compensation must be in the form of cash (not securities) and I should only be a flat or hourly fee, and not tied to the success of any deals These types of compensation arrangements are known as "finders fees", and are permitted, even if the individual (the CPA in this case) is not FINRA registered. Any fees paid should be in cash only, and represent a flat or hourly fee, and not tied to the success of any deals or transactions. If the individual is FINRA registered, the fees may be commission based.

A FINRA member firm must retain customer complaints A) for six years, the last three years in an easily accessible location. B) for four years, the first two years in an easily accessible location. C) at the main office of the firm for three years. D) in an easily accessible location for four years.

B) for four years, the first two years in an easily accessible location Customer complaints must be maintained by a FINRA member firm for four years, the first two years in an easily accessible location.

Mr. Jones buys 200 shares of ABC at 34.50. Later the same day his broker tells him that the report he received was in error and, in fact, the shares were bought for 34.75. Mr. Jones A) may cancel the order. B) must pay 34.75 per share. C) may require that his broker pay the difference. D) must pay 34.50 per share.

B) must pay 34.75 per share When a registered rep quotes a client the incorrect price at which a transaction is made, the client is still responsible for the actual price where the trade was executed.

HMK Industries is paying a cash dividend to stockholders of record on May 20. Which of the following is not true? A) Retained earnings are unchanged B) Net worth declines C) Current assets decline D) Current liabilities decline

B) net worth declines When a corporation pays a cash dividend, both assets & liabilities decline, meaning there is no change to net worth. Dividends payable is a current liability that will decline once the dividend is paid. Cash is a current asset, and upon paying the dividend, cash and therefore, current assets, will also decline. The firm's net worth is unchanged.

An investor who purchases 200 shares of XYZ at "18.50 net" A) paid 18.50 plus a commission of up to 5%, per the FINRA policy. B) paid 18.50 for the stock which included all transactions costs. C) paid 18.50 less appropriate transaction costs. D) received 18.50 as the final net sales proceeds for their trade.

B) paid 18.50 for the stock which included all transactions costs Trades effected on a "net basis" include all commissions/fees in the final "net" price

Regulation NMS is intended to assure that investors A) have long positions in the securities they place orders to sell. B) receive the best price executions for their orders by encouraging market competition. C) receive audited financial statements from their broker-dealers each year. D) do not trade on material non-public information.

B) receive the best price executions for their orders by encouraging market competition This is the primary objective of Regulation NMS. NMS means National Market System. It was established in 2005 to foster competition among markets and among individual client orders.

A maximum of $3,000 of net capital losses may be used by an investor each year to A) reduce capital gains. B) reduce ordinary income. C) increase tax deductions. D) offset tax deductions

B) reduce ordinary income An investor may use up to $3,000 per year of net capital losses to reduce ordinary income. Note that there is no limit to the amount of capital losses than can be used to offset capital gains.

Leveraged and inverse ETFs are designed to achieve their stated objectives A) every 30 days. B) every calendar quarter. C) on a daily basis. D) on a weekly basis.

C) on a daily basis Inverse and leveraged exchange funds are designed to achieve their stated investment objectives on a daily basis, making them suitable for investors who have very short- term trading objectives. These products would not be appropriate for a buy- and -hold investor.

Preferential tax treatment does not apply in which of these instances? A) Ben took a distribution of $12,500 from his Section 529 Plan to cover his daughter's next tuition payment at her community college B) Company X owns the preferred shares of Company Y and receives a $35,000 cash dividend from Y C) Abagail received a distribution of $2,500 from her real estate investment trust which she has owned for three years D) Jerry purchased 2,000 shares of Company K on May 1, 75 days prior to the ex-dividend date for the next common share distribution for which Jerry received $.20 per share

C) Abigail received a distribution of $2,500 from her real estate investment trust which she has owned for three years Distributions from a Real Estate Investment Trust are subject to regular income tax, unlike ordinary cash dividends from common or preferred shares, which may be subject to regular tax liability depending on the length of time the shares were held surrounding the ex-dividend date. If the shares were held for at least 61 of the 121- day period surrounding the ex-dividend date, any dividends received would be taxable at a preferred rate. Distributions from a Section 529 plan are not taxed if used for qualified educational expenses. Dividends paid to a corporation are taxed at a preferred rate depending on the level of ownership the company has in the business.

To fund debt services on a general obligation bond, a municipality may use I. Direct taxes. II. Special assessments. III. Fines. IV. Collection of delinquent funds. A) I, II, III and IV B) III and IV only C) I, III and IV only D) I and II

C) I, III and IV only Debt service on GO bonds is an obligation of the municipality and is paid with taxes, fines and other collection of funds. This is in contrast to a revenue bond which is paid with revenues from the facility constructed as a result of the bond. A special assessment is a type of tax used to redeem a special assessment bond, in which the beneficiaries from the proceeds of the bond pay the debt service.

Miss Jones is bullish on the market. In December she buys 1 Jul 490 call on the XMI. Which of the following options might she write to create a debit spread? I. Jan 485 call II. Jan 490 call III. July 500 call IV. July 505 call A) I B) III or IV C) II or III or IV D) I and II

C) II or III or IV To create a debit spread the long call must be the dominant position, meaning it will have the higher premium. The Jul 490 call would have a higher premium than the Jan 490 call because there is more time value, and it would have a higher premium than both the July 500 and the July 505 because of the lower strike price. It will have a lower premium than the Jan 485 call because the Jan 485 call would come into the money first due to the lower strike price

During the course of one year, a husband and wife have exchanged cash gifts with each other, in excess of the federal gifting limit. These gifts A) are violations of the federal gift tax and must be reported to the IRS using conventional methods. B) must be reported to the IRS but are exempt from the penalties applicable to violations of the gift rule. C) are exempt from the gift tax imposed by IRS rules. D) are subject to the federal gift tax on the amounts in excess of the gift limit.

C) are exempt from the gift tax imposed by the IRS rule Gifts between spouses are exempt from the federal gift tax, regardless of the amount of the gifts. Spouses can exchange cash gifts with each other without any gift tax implications.

Broker-dealer A is a participant in an Eastern syndicate. It was originally given an allocation of 5% on a new municipal bond deal. They were successful in selling their portion of the offering but a few other broker-dealers in the syndicate were not. According to the terms of the syndicate agreement, broker-dealer A A) has no further sales obligation on this offering. B) should consult the syndicate manager to determine if there are any additional bonds in the deal available for sale. C) is responsible for 5% of the unsold bonds. D) may sell additional bonds to their clients since there are unsold bonds within the syndicate account.

C) is responsible for 5% of the unsold bond In an Eastern, or undivided syndicate account, an underwriter is responsible for the unsold allocations of the other syndicate members. The amount of liability is the same as the firm's original participation level.

Upon receiving transfer instructions, a broker-dealer has A) three business days to verify the account and one business day to transfer and ship the securities to the new broker-dealer. B) three business days to verify the account and four business days to transfer and ship the securities to the new broker-dealer. C) one business day to verify the account and then three additional business days to transfer and ship the securities to the new broker-dealer. D) one business day to verify the account and then one additional business day to transfer and ship the securities to the new broker-dealer.

C) one business day to verify the account and then three business days to transfer and ship the securities to the new broker-dealer Upon receipt of a transfer instruction, the carrying firm has one business day to validate the account and then three more business days to transfer and ship the securities to the new broker-dealer.

A customer has requested that her market order to buy ABC stock be routed to an exchange which is not currently publishing the best national price. The firm receiving this instruction must A) reject the order. B) advise the customer that they are unable to route an order to any exchange not currently publishing the best national price. C) route the order to the exchange specified by the customer. D) first attempt to execute the order in house prior to making any routing decisions.

C) route the order to the exchange specified by the customer In general, broker-dealers are required to route customer orders to the market center providing the best price, but a customer may specify that they want their order routed to a particular exchange. The firm must honor such a request.

Mary sold 10 ABC May 40 puts @ 5. Upon expiration of these puts, Mary will have a A) long term capital gain of $5,000. B) long term capital loss of $500. C) short term capital gain of $5,000. D) short term capital loss of $500.

C) short term capital gain of $5,000 When a regular option contract expires, the result is a short-term capital loss to the buyer and a short-term capital gain to the writer.

Which of the following is not a characteristic of a business development company (BDC)? A) Typically organized as a closed-end investment company B) They provide the platform for non-accredited investors to invest in emerging businesses C) They must pay out at least 50% of their taxable income to investors to avoid federal taxation. D) They take equity positions in financially troubled businesses

C) they must pay out at least 50% of their taxable income to investors to avoid federal taxation Business development companies are required to pay out at least 90% of their taxable income to investors in order to avoid paying federal income taxes. Note that this question is asking for which statement is "not" accurate.

The private placement rule states that the person to whom the offer of securities is made must be an informed person A) but the person need not have access to the same type of information contained in a registration statement. B) or a person who signs a statement testifying that he will not hold the broker-dealer responsible for any losses. C) who either has access to the same type of information contained in a registration statement or is furnished such information. D) who has a net worth of $2 million.

C) who either has access to the same type of information contained in a registration statement or is furnished such information For private placement transactions, any potential investor must have access to, or must be furnished with, the information about the issuer that would normally be available in a registration statement.

Fred has a significant net worth and a long history of making speculative investments. He now seems confused and disoriented and shows signs of dementia. When he places an order for a large quantity of penny stocks, you should A) contact his family before placing the trade. B) suggest that he purchase a blue- chip stock to provide some safety to his portfolio. C) follow his instructions, as this type of trade is consistent with his investment history. D) ask to meet with Fred and another family member.

D) ask to meet with Fred and another family member In this situation, you should tell Fred that you'd like to meet with him in person and ask him to bring along an adult member of his family.

A company that is highly leveraged has as the smallest portion of its capitalization A) convertible debentures. B) debentures. C) preferred stock. D) common stock.

D) common stock A highly leveraged company means that the company has taken on lots of debt and raises the smallest portion of capital from its equity, or common stock.

Tim has expressed concerns to you regarding issuer credit quality, liquidity, and interest rate fluctuations. In attempting to address Tim's concerns, you might suggest that he A) choose an asset allocation fund with a prominent emphasis on emerging growth stocks. B) diversify his portfolio with a significant investment in a small cap fund. C) take a position in Eurodollar bonds and ADRs for international exposure. D) consider creating a bond ladder.

D) consider creating a bond ladder Tim's concerns can be addressed by creating a bond ladder. A laddered portfolio is one containing a group of bonds having different maturity dates, thereby providing a continuous stream of funds from maturing bonds. The cash received from these maturing bonds can then be reinvested in a new bond on the back end of the ladder, at the current interest rate level. This structure also alleviates Tim's concerns regarding credit risk, as only a portion of the overall portfolio is exposed to the risk of default of an issuer.

Under Rule 144A, unregistered securities can be resold to qualified institutional buyers A) after a 3-month holding period. B) after a 6-month holding period. C) after a one-year holding period. D) immediately.

D) immediately Rule 144A allows qualified institutional buyers (QIBs) to freely trade private placements. A QIB is an institution with at least $100 million in assets.

The value of a REIT will increase if A) Millage rates increase, and assessments decrease B) Property values rise, and occupancy rates fall C) Assessed values increase, and mortgage applications decline D) Property values rise, and occupancy rates increase

D) property values rise and occupancy rates increase REIT values will increase when property values rise, and occupancy rates increase.

A client will be making a down payment on a new home in six months and seeks the advice of her registered representative on the best way to invest funds. The registered representative is most likely to recommend a(n) A) exchange-traded note. B) hedge fund. C) money market fund. D) six-month CD

D) six- month CD The registered representative would likely recommend the six-month certificate of deposit (CD), which would return a higher yield than the money market fund. The hedge fund and exchange-traded note are not liquid investments and would not be appropriate choices for this client.

An investor holds an equity position that outperforms the market when the overall market advances but underperforms the market when the overall market declines. Which of the following statements are true? A) The equity position has an alpha less than 1. B) The equity position has an alpha greater than 1. C) The equity position has a beta less than 1. D) The equity position has a beta greater than 1.

D) the equity position has a beta greater than 1 A security, or portfolio with a beta greater than 1 will likely experience higher highs (outperform the market) and lower lows (underperform the market). Beta is a measurement of the volatility of an asset relative to the general market.

Which of these statements is true regarding equity-linked notes (ELNs)? A) They are issued as common or preferred shares and trade on exchanges B) The value of the note is unaffected by the credit quality of the issuer C) Investors are guaranteed a minimum payout from the note D) They offer principal protection

D) they offer principal protection Equity-linked notes (ELNs) are typically issued by an investment bank in the form of a debt security. While the note offers principal protection, any payouts will be based on the performance of an underlying security or index, as well as the credit quality of the issuer