Final Exam 3 - Wrong Answers
B- Tax-deferred growth One of the benefits of a 529A or Achieving a Better Life Experience (ABLE) account is tax-deferred growth. Additionally, the earnings are distributed tax-free if used for qualified expenses, including basic living expenses, education, employment support, housing, financial management, legal fees, transportation, and wellness for disabled persons. ABLE accounts are funded with after-tax contributions.
A 529A of ABLE account permits which of the following? A- Tax-free growth B- Tax-deferred growth C- Pretax contributions D- Growth that is taxed at a lower rate
A- A sell limit She should place a limit order to sell, which can only be executed at a specified price or higher. A sell stop and/or sell stop-limit order is placed below a stock's current value and is used to protect the stock in case it falls in value. A buy stop and/or buy stop-limit order is placed above a stock's current value and is used to protect a short position in case it rises in value.
A client owns stock that's trading at $52.50 and wants to sell her shares, but only if she can sell at $54.00 or higher. She should place which of the following orders? A- A sell limit B- A sell stop C- A sell stop-limit D- A buy stop
A- corporate resolution A corporate resolution authorizing a person to trade for the account is necessary to open a corporate cash account. A risk disclosure document may be required but only if options or penny stocks are going to be traded in the account. A hypothecation agreement and corporate charter are required to open a margin account.
A corporation wishes to open a cash account. Which of the following documents is required? A- corporate resolution B- A copy of the corporate charter C- A hypothecation agreement D- A risk disclosure document
B- U4 Disciplinary actions are reported by the employing firm as an amendment to the RR's Form U4. Form U4 is processed when an RR joins a firm. Form U5 is processed when the RR leaves employment of a firm and will also contain information regarding the RR's disciplinary history. These reports feed information into the Central Registration Depository (CRD) system. Some of the information found in the CRD may be accessed by the public through FINRA's BrokerCheck® system.
A disciplinary action concerning a registered representative (RR) would be reported by the firm on which of the following choices? A- CRD B- U4 C- U5 D- BrokerCheck®
C- The corporation that leases the facility The corporation using the facility that was built by the industrial development revenue bond becomes the authority that backs the bonds. The credit rating of these bonds is dependent on that corporation, not on the municipality that issued the bonds.
A facility is created by the issuance of industrial development revenue bonds. The bonds are backed by: A- The local municipal district in which the facility is domiciled B- The state in which the facility is domiciled C- The corporation that leases the facility D- Both the corporation that leases the facility and the municipality
B- To pay for the college tuition of the investor's daughter Under certain conditions, the 10% penalty tax is waived for IRA withdrawals prior to age 59 1/2. These situations include withdrawals that are: Used to pay qualified higher education expenses for the account owner, the owner's spouse, or the child or grandchild of the owner or the owner's spouse Used to pay acquisition costs for a first-time homebuyer, which can include the account owner, the owner's spouse, and any child, grandchild, or ancestor of the owner or spouse. However, this does not include the purchase of a vacation home. Withdrawals related to disability also receive the waiver, but only due to the disability of the account owner. Note, when a waiver applies, it's only the penalty tax that's waived. The taxable part of the distribution is still reported as ordinary income.
A withdrawal from an IRA may be made prior to age 59 1/2 without incurring a 10% penalty tax in which of the following situations? A- To purchase a vacation home B- To pay for the college tuition of the investor's daughter C- As a result of the permanent and total disability of the investor's spouse. D- To cover the costs of the funeral of the investor's father.
B- Must be maintained for four years Records of customer complaints must be maintained for four years according to FINRA record-keeping rules. Complaints can be delivered in any written format, including letters, e-mails, and text messages.
According to FINRA rules, an e-mail complaint: A- Does not constitute an official complaint and does not need to be retained by the broker-dealer B- Must be maintained for four years C- Must be maintained for six years D- Must be maintained for the life of the member firm
D- Within a reasonable period The Customer Identification Program (CIP) is part of a broker-dealer's overall anti-money laundering compliance program. Under this program, a customer's identity must be verified within a reasonable period following the opening of the account.
According to the Customer Identification Program, broker-dealers are required to verify each customer's identity: A- Before the account is opened B- Before the privacy notice is given C- Before the first trade D- Within a reasonable period
A- The transactions may not involve private placements, even if the activity is otherwise acceptable Private securities transactions are defined as transactions that are executed outside of the regular scope of an associated person's employment with a member firm. An associated person who engages in these transactions must provide written notice to the employing member. In addition, if the associated person is to receive compensation for the transaction, the member must specifically approve the transactions in writing in order for the person to participate. However, personal transactions in investment company and variable annuity securities are not covered by this rule. There is no specific prohibition regarding private placements.
All of the following statements are TRUE regarding private securities transactions that are executed by an associated person of a member firm, EXCEPT: A- The transactions may not involve private placements, even if the activity is otherwise acceptable B- If a registered person will be compensated, the firm must approve of the transactions in writing C- If a registered person will not be compensated, the firm must be notified of the person's participation D- A registered person's personal transactions in mutual funds are not covered by this rule
A memo must be prepared describing any action taken in response to the complaint. 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.
An registered person has received a letter from a customer which includes a complaint about a recent new issue that declined substantially on its first day of trading. The customer purchased the shares based on a recommendation by the registered person and now claims that the recommendation was unsuitable. Which of the following statements is TRUE? A- The firm must keep a copy of the complaint for six years. B- The principal must review the complaint and submit a written response to the customer. C- A memo must be prepared describing any action taken in response to the complaint. D- The firm must promptly enter into arbitration (or mediation) with the customer to determine whether a reimbursement is warranted.
C- Before disclosing nonpublic, personal information A consumer is someone who provides information to a firm in connection with a potential transaction but is not yet a customer. The rules differ for customers and consumers. A consumer need only be provided with a privacy notice before disclosing nonpublic, personal information to a nonaffiliated third party. If the firm does not intend to provide this information to a nonaffiliated third party, it does not need to provide the consumer with its privacy notice.
Broker-dealers must provide a privacy notice to every consumer: A- When the account is opened B- When the first trade occurs C- Before disclosing nonpublic, personal information D- If requested
C- Average price of the securities purchased will be more than the average cost of the securities over a long period Dollar-cost averaging involves investing the same amount of money, in the same securities, over a long period. Since prices are volatile, the result is that the average cost of the securities purchased should be less than the average price of the securities over that period. However, dollar-cost averaging doesn't assure profits or long-term growth.
By using a dollar-cost averaging investment strategy, an investor will generally find the: A- Average price of securities being purchased are less than the average cost of the securities over a long period B- Average cost of securities purchased is more than the average price of the securities purchased over a short period C- Average price of the securities purchased will be more than the average cost of the securities over a long period D- Average cost of the securities will be equal to the average price of the securities over a long period
D- Six months If a person fails a qualification examination, a 30-day waiting period applies between the first and second attempt, and again between the second and third attempt. However, if a person fails the qualifying examination on her third attempt, she must wait 180 days (six months) between all subsequent attempts.
If a person fails a qualification exam on her third attempt, for how long is she required to wait before retaking that same exam? A- 30 days B- 90 days C- Two years D- Six months
D- Are age 21 or older and have worked a minimum of 1,000 hours during the year In order to be eligible to participate in employer-sponsored qualified retirement plans, ERISA requires that employees be age 21 or older, have worked full-time (1,000 hours minimum) during the year, and be employed for at least one year.
ERISA stipulates that employers with qualified plans are not permitted to exclude employees who have worked for the employer at least one year and: A- Are age 18 or older B- Are age 21 or older C- Are age 18 or older and have worked a minimum of 1,000 hours during the year D- Are age 21 or older and have worked a minimum of 1,000 hours during the year
D- The third Friday of the expiration month at 11:59 p.m. Eastern Time Equity options expire on the third Friday of the expiration month at 11:59 p.m. Eastern Time.
Equity options expire on: A- The last Friday of the expiration month at 5:30 p.m. Eastern Time B- The last Friday of the expiration month at 11:59 p.m. Eastern Time C- The third Friday of the expiration month at 5:30 p.m. Eastern Time D- The third Friday of the expiration month at 11:59 p.m. Eastern Time
D- Sell Limit @ 60 This situation is best approached by looking at the customer's intent. Joan wants to receive $6,000 for her stock. She owns 100 shares, so she needs to sell them at $60 per share in order to do that. This immediately rules out choices (a) and (c). Now, consider the two remaining choices, a sell stop at $60 and a sell limit at $60. If Joan were to place an order to sell stop at $60, her stock will be sold instantly, at a price of $57 per share (roughly). Why? Remember that sell stop orders are used to protect a position from losing value. The activation price of this order will be $60, which translates into: If the stock is trading at $60 OR LOWER, sell it instantly at the going market price. Since XYZ is trading at $57, the order will be triggered automatically, selling the stock at the market. The sell limit @ $60 is the right choice. In this case, no sell order will occur until XYZ is at or above the price of $60 per share.
Joan owns 100 shares of XYZ, which is currently trading at $57 per share. She wishes to liquidate the position when she can receive $6,000 from the trade. Which of the following orders is the BEST choice to fulfill Joan's intentions? A- Sell Stop @ 57 B- Sell Stop @ 60 C- Sell Limit @ 57 D- Sell Limit @ 60
C- 4:00 p.m. Eastern Time on the expiration date Listed equity options cease trading at 4:00 p.m. Eastern Time on the expiration date. The expiration date for listed equity options is the third Friday of the expiration month, at 11:59 p.m. Eastern Time.
Listed equity options cease trading at: A- 11:00 a.m. Eastern Time on the expiration date B- 2:30 p.m. Eastern Time on the expiration date C- 4:00 p.m. Eastern Time on the expiration date D- 5:30 p.m. Eastern Time on the expiration date
C- Provides the maximum cash flow of all payout options The annuitant will receive the greatest cash flow from the straight-life annuity payout option. This option allows the annuitant to receive payments as long as the annuitant is alive. At death the payments stop. No beneficiary is designated and the insurance company is relieved of its obligation to make payments. The annuitant has the greatest degree of risk with this type of payout.
Many investors prefer to receive variable annuity payments under the straight-life payout option because it: A- Is the most conservative method for receiving payments B- Allows for a beneficiary for the entire payout period C- Provides the maximum cash flow of all payout options D- Provides an equal amount each month for the investor's lifetime
C- Par value plus accrued interest 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.
Prior to the maturity of a variable-rate demand obligation, an investor has the right to receive the: A- Current market value B- Par value C- Par value plus accrued interest D- Par value less accrued interest
D- The date that is set by the fund or its principal underwriter (sponsor) Mutual fund shares do not trade on exchanges and do not have a fixed settlement date. For this reason, the ex-dividend date for a mutual fund will not automatically be one day before the record date, as it is for common stock. Instead, a mutual fund's ex-dividend date is on a date that is determined by the fund or its principal underwriter (sponsor). In practice, mutual funds will often use the day after the record date as the ex-dividend date.
The Founders Income Fund has declared a dividend that is payable to stockholders of record on Thursday, May 29. This mutual fund's ex-dividend will typically be on: A- Monday, May 26 B- Tuesday, May 27 C- Wednesday, May 28 D- The date that is set by the fund or its principal underwriter (sponsor)
D- Vested The time at which employees are eligible to receive at least some of the retirement benefits that have been contributed to the plan by the employer is referred to as vested. There are different schedules that can be used to determine when the employee is fully (100%) vested in the employer's contributions.
The time at which an employee is eligible to receive at least some of the retirement benefits that have been contributed to the plan by the employer is referred to as: A- Eligibility B- Qualification C- Contributory D- Vested
C- The brother of a registered person of a broker-dealer who has an account with a different broker-dealer All of the choices listed are considered restricted persons except for the brother of a registered person of a broker-dealer. Restricted persons include any employee of a FINRA member firm (broker-dealer) and any immediate family member of the member firm's employees. Immediate family members include a spouse, children, parents, siblings, in-laws, and any other person who is materially supported by an employee of a member firm. Regarding immediate family members, they are only considered restricted persons if any one of the following three conditions apply: 1) the employee gives/receives material support to/from the immediate family member (material support is defined as providing more than 25% of the person's income or living in the same household as the registered person of the broker-dealer, 2) the registered person is affiliated with the member firm that's selling the new issue, or 3) the employee has the ability to control the allocation of the new issue. Since there are no details given to suggest that the brother lives in the registered person's home or gives/receives material support, he is not considered a restricted person
Under the New Issue Rule, all of the following persons are defined as restricted persons, EXCEPT A- The portfolio manager of an investment company B- A registered person of a broker-dealer C- The brother of a registered person of a broker-dealer who has an account with a different broker-dealer D- The parents of a registered person of a broker-dealer who reside in the same house as the registered person
A- Contributions can be made until age 18 and must be used by age 30. The beneficiary of a Coverdell ESA can be named at birth, thereafter contributions can begin and continue up to age 18. The assets in the account must be used by the beneficiary's 30th birthday or transferred to another relative who is not yet age 30.
Which of the following is TRUE concerning the beneficiary of a Coverdell ESA? A- Contributions can be made until age 18 and must be used by age 30. B- Contributions can be made until age 25 and must be used by age 30. C- Contributions can be made until age 18 and used at any age. D- Contributions can be made until age 25 and used at any age.
A- The cousin of a registered representative The prohibition against IPO purchases by restricted persons includes: Member firms and any associated person (i.e., an employee) of the member firm. An immediate family member of an employee of a member firm if the equity IPO is purchased from the employee's firm or there is material support between the immediate family member and the employee of the member firm. Immediate family members include a spouse, children, parents, siblings, in-laws, and any other person who is materially supported by an employee of a member firm. Portfolio managers, which include persons who can buy or sell securities on behalf of institutional investors (e.g., banks, investment companies, investment advisers, insurance companies, savings and loan institutions), as well as anyone whom they materially support. These are people who are in a position to direct future business to the firm, which is the reason for their restricted status. They also may not purchase equity IPOs in their personal accounts. Since, under the rule, a registered representative's cousin is not considered an immediate family member, she is permitted to purchase an equity IPO.
Which one of the following persons is permitted to purchase an equity IPO in her personal account? A- The cousin of a registered representative B- The mother-in-law of a registered representative C- A portfolio manager of a mutual fund D- A person employed by an insurance company who buys and sells securities
