Missed 7
A customer has $10,000 in passive losses from a limited partnership investment. If the customer has no other passive income for that tax year, the customer may deduct: A. 0 B. $3,000 C. $5,000 D. $10,000
A
A customer is short 1 ABC Jan 90 Put @ $5. The put is exercised when the market price of ABC is $80. The cost basis of the shares is: A. strike price minus premium B. strike price plus premium C. market price minus premium D. market price plus premium
A
A customer sells short 100 shares of PDQ at $49 and sells 1 PDQ Sep 50 Put @ $6. The maximum potential gain while both positions are in place is: A. $500 B. $600 C. $700 D. unlimited
A
A customer viewing virtual trading floor information on the NYSE Website notices that he can see most, but not all, of the stocks included in the Dow Jones Industrial Average, trading on the floor. The customer asks his registered representative why this is the case. The customer should be told that: A. Of the 30 stocks included in a Dow Jones Industrial Average, a handful do not trade on the NYSE B. The NYSE only includes the most actively traded Dow Jones Industrial Average stocks in the display C. These are the companies that have not paid the NYSE to be included in the display D. The companies that are not displayed have just announced significant news and trading has been halted in those issues until the news is disseminated
A
A registered representative is the subject of a written complaint from a customer alleging that he stole $12,000 from her account. Which statement is TRUE? A. This must be reported to FINRA promptly B. No report to FINRA is required because this complaint is not verified C. No report to FINRA is required because the amount involved is under $15,000 D. The representative can settle the complaint by offering to pay the customer $12,000
A
If a customer calls his registered representative and states the following: "I just got my account statement and I see that your recommendations have lost 15% in value. Clearly, you have made unsuitable recommendations and you will be hearing from my attorney." Which statement is TRUE under FINRA rules regarding how the representative should handle this? A. No action need be taken by the representative because the customer has not complained in writing B. FINRA includes oral complaints in its definition of a complaint that must be documented and resolved by the member firm C. A record of the complaint must be filed with FINRA within 15 business days D. A record of the complaint must be filed with the SEC within 15 business days
A
In a corporate new issue offering, the underwriter's responsibilities include which of the following? I Managing the syndicate account II Determining each syndicate member's participation III Printing the certificates IV Registering the certificates A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
A
In which of the following types of underwriting commitments are the underwriters acting as principals? I Firm II Stand-By III All or None IV Best Efforts A. I and II only B. III and IV C. I, III, IV D. I, II, III, IV
A
Payments to holders of Ginnie Mae pass-through certificates: I are made monthly II are made semi-annually III represent a payment of both interest and principal IV represent a payment of only interest A. I and III B. I and IV C. II and III D. II and IV
A
Regulation NMS requires: A. market centers to accept automated executions that do not discriminate against any class of users of their systems B. ECNs to register with FINRA as broker-dealers and to electronically display their quotes if they are responsible for 5% of the trades in that issue C. broker-dealers to charge commissions to customers that are fair and reasonable D. market makers to stop trading all equity securities in the United States if a circuit breaker is triggered
A
Section 529 plans are established by the: A. state B. donor C. recipient D. custodian
A
The "cross-over" point in a limited partnership program is defined as the point where: A. taxable income exceeds tax deductions B. tax deductions exceed taxable income C. the program generates positive cash flow D. the program generates negative cash flow
A
The determination of which stocks are marginable is made by (the): A. FRB B. SEC C. FINRA D. SIPC
A
Under FINRA rules, proxy materials: I must be sent to the beneficial owner of that stock, even if the owner has instructed the member firm not to do so II may be sent to the beneficial owner's designated investment adviser, if the owner has instructed the member firm to do so III may be voted by the member firm, if no contest is involved, if they are not received from the owner within 10 days' of the annual meeting IV may be voted by the issuer's Board of Directors, if no contest is involved, if they are not received from the owner within 10 days' of the annual meeting A. I and II B. I and IV C. II and III D. I, II and IV only
A
Under a gross revenue pledge, bondholders have a first lien on: A. gross revenues B. gross revenues minus operations and maintenance C. gross revenues minus debt service reserve fund D. gross revenues minus deposits to the sinking fund
A
When analyzing a General Obligation bond, all of the following ratios would be evaluated EXCEPT: A. debt service coverage ratio B. debt to assessed valuation ratio C. debt per capita ratio D. tax collection ratio
A
Which of the following are the primary sources of information about the municipal secondary market? I EMMA II Bloomberg III Munifacts IV Daily Bond Buyer A. I and II B. III and IV C. I and IV D. II and III
A
Which of the following municipal bonds will trade "flat" ? I Defaulted bonds II Zero-coupon bonds III Moral obligation Bonds IV General obligation bonds A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
A
Which of the following municipal issues is a short term note that is retired by a later permanent bond sale? A. BAN B. RAN C. TAN D. TRAN
A
Which of the following securities are ONLY traded in the "over-the-counter" market? I U.S. Government Securities II American Depositary Shares III Preferred Stock IV Municipal Securities A. I and IV B. II and III C. III only D. I, II, III, IV
A
Which of the following statements are TRUE regarding Rule 144A? I Rule 144A allows qualified institutional buyers to buy and trade between themselves large blocks of privately placed issues II Rule 144A limits the amount of restricted securities that can be sold in the public markets III Rule 144A permits issuers to sell tradeable private placement units to qualified institutional buyers IV Rule 144A permits issuers to sell tradeable private placement units to individual investors A. I and III B. II and IV C. I, II, III D. I, II, III, IV
A
Which statement is TRUE about the use of a "red herring" preliminary prospectus? A. The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest B. The preliminary prospectus may be sent to a potential customer only after that customer has expressed an indication of interest C. The preliminary prospectus may only be sent to a customer after the registration of the issue is effective D. The preliminary prospectus may only be sent with the confirmation of sale of the issue
A
Which statements are TRUE? I Distributions from a 529 plan to pay for higher education costs are not taxable II Distributions from a 529 plan to pay for higher education costs are taxable III Distributions from a Coverdell ESA to pay for qualified education costs are not taxable IV Distributions from a Coverdell ESA to pay for qualified education costs are taxable A. I and III B. I and IV C. II and III D. II and IV
A
A customer's portfolio consists of the following positions: Market Value Cost Basis 10,000 ABCC $500,000 $300,000 10,000 DEFF $300,000 $500,000 10,000 PDQQ $500,000 $500,000 Both the registered representative and the customer believe that while the investments are appropriate for the customer, the market will remain "flat" for the next 3 months. The following options with 3 month expirations are available: ABCC Jan 50 Calls @ $4 ABCC Jan 50 Puts @ $3 DEFF Jan 30 Calls @ $2 DEFF Jan 30 Puts @ $6 PDQQ Jan 50 Calls @ $1 PDQQ Jan 50 Puts @ $1 If the customer wishes to maximize income with minimum risk, and only wants to trade 100 contracts, the best recommendation for the customer is to: A. Sell 100 ABCC Jan 50 Calls B. Sell 100 DEFF Jan 30 Puts C. Sell 100 ABCC Jan 50 Calls and 100 PDQQ Jan 50 Puts D. Sell 100 PDQQ Jan 50 Calls and 100 DEFF Jan 30 Puts
A Since this customer owns stock, he or she can derive extra income by selling covered calls against the stock positions. To maximize income, the calls with the highest premiums should be sold - and the ABCC premium of $4 is the highest of the 3 call contracts shown. As long as the market stays flat, the calls will expire and the customer will earn the premium income, If the market rises, the stock will be called away. Since he bought the stock for $30 per share; and the call strike is at $50, if the stock is "called away," the customer will make $20 on the stock, plus will also earn the $4 premium per share. If the stock drops, the calls expire, but it can fall a long ways before the customer loses money (remember, the customer bought the stock at $30 and it is now worth $50).
Which statements are TRUE regarding Real Estate Investment Trusts? I REITs must distribute at least 90% of Net Investment Income to shareholders II REITs must invest at least 90% of assets in other REIT securities III Interest expense paid by REITs is deductible to the REIT IV REITs are registered as investment companies under the Investment Company Act of 1940 A. I and III B. I and IV C. II and III D. II and IV
A.
A 60 year old customer desires an investment that will provide for retirement income when she reaches age 65. The customer is able to invest $1,000 per month over that time period. Which of the following recommendations is most suitable? A. The purchase of income bonds B. The purchase of a variable annuity contract C. The purchase of government bonds in an IRA account D. The purchase of high yield bonds
B
A 60-year old man is looking to create a portfolio that will provide current income and preservation of capital. Which of the following portfolios would be the BEST recommendation to the client? A. Long term corporate bonds rated AA or better, high yield corporate bonds and blue chip stocks B. Treasury bills, a money market mutual fund and bank certificates of deposit C. Treasury STRIPS, corporate income bonds and PO tranches D. Growth stocks, defensive stocks and foreign stocks
B
A customer has a long margin account with no SMA. If the market value of the securities rises, SMA will increase by: A. 25% of the increase in market value B. 50% of the increase in market value C. 100% of the increase in market value D. 150% of the increase in market value
B
A customer in the 20% tax bracket with a 15-year investment time horizon is considering investing $250,000 with an objective of current income and safety of principal. The registered representative is considering making the recommendation of either a managed investment grade bond mutual fund or an investment grade bond fixed unit investment trust. When presenting the 2 choices to the customer, the registered representative should mention that: I breakpoints are available on mutual funds, but not on unit investment trusts II breakpoints are available on both mutual funds and unit investment trusts III expense ratios for mutual funds tend to be higher than expense ratios for fixed unit investment trusts IV expense ratios for fixed unit investment trusts tend to be higher than expense ratios for mutual funds A. I and III B. II and III C. I and IV D. II and IV
B
A customer margin account shows: 100 shares of ABC @ $50 300 shares of DEF @ $80 200 shares of PDQ @ $30 Debit = $20,000 SMA = $4,500 Reg. T = 50% If the customer sells the PDQ position, how much cash can be withdrawn from the sale proceeds? A. $1,500 B. $3,000 C. $4,500 D. $6,000
B
A customer owns 500 shares of ABC preferred stock trading at $90 per share. Following a 3:1 common stock split, the customer will have: A. 500 shares at $30 per share B. 500 shares at $90 per share C. 1,500 shares at $30 per share D. 1,500 shares at $90 per share
B
A customer places an order to sell 100 shares of ABC at the market. The initial execution report shows the trade occurring at $75.50. The firm later discovers that the trade occurred at $75.13. Which statement is TRUE? A. The customer will receive $7,550 less any applicable commissions B. The customer will receive $7,513 less any applicable commissions C. The customer can DK the trade D. The customer will receive $7,513 and can submit a claim to arbitration for an additional $37
B
A customer purchases a reverse convertible note. Under which scenario will the customer receive less than par value at maturity? I The market price of the reference stock has declined II The market price of the reference stock has increased III At maturity, the price of the reference stock is above the "knock-in " price IV At maturity, the price of the reference stock is below the "knock-in " price A. I and III B. I and IV C. II and III D. II and IV
B
A customer sells short 100 shares of PDQ at $61 and buys 1 PDQ Jul 60 Call @ $3. The breakeven point is: A. $57 B. $58 C. $61 D. $64
B
A registered representative takes an order from a customer to buy 100 shares of SPQR stock at $40 and writes the order ticket for processing. The registered representative fails to note the execution price on the ticket. Which statement is TRUE? A. The order will be processed as a market order by default B. The order will be returned to the representative for entry of the execution price C. The order will be canceled without any further action taken D. The order will be referred to the member firm's compliance department for resolution
B
A registered representative wishes to give a seminar about investing in CMOs as a way for older investors seeking an income-producing investment in a low-interest rate environment without assuming a high level of risk. Which statement is TRUE about giving this seminar? A. A registered principal must attend the seminar and such attendance must be documented B. Any materials given to participants must be filed with FINRA no later than 10 business days after first use C. The names of the attendees of the seminar must be recorded by the member firm and must be retained for at least 3 years D. FINRA prohibits registered representatives from giving seminars about CMOs
B
A structured product that invests in tranches of private label subprime mortgages is a: A. CMO B. CDO C. CMB D. CAB
B
An individual customer says the following to his broker: "Buy 100,000 shares of ABC stock whenever you think the time is best. This order is good unless I call you to cancel." Which statement is TRUE about the handling of this order? A. An executed power of attorney must be obtained from the customer prior to accepting the order B. The order must be executed by the close of the market on that trading day C. The order can be accepted as given, and can be executed at the discretion of the brokerage firm at any time or day D. This order can only be accepted if the customer places it via fax or e-mail
B
Quotes published in the news media for mutual funds show: A. Bid price at NAV; Ask price at NAV plus an average sales charge B. Bid price at NAV; Ask price at NAV plus the maximum sales charge C. Bid price at NAV less any redemption fee; Ask price at NAV plus an average sales charge D. Bid price at NAV less any redemption fee; Ask price at NAV plus the maximum sales charge
B
The Market Maker on the CBOE: I buys and sells for his own account II does not buy or sell for his own account III holds a book of public orders IV does not hold a book of public orders A. I and III B. I and IV C. II and III D. II and IV
B
Under MSRB rules, municipal securities traders that participate in secondary market joint accounts: A. can only act as agent in the transactions and cannot carry positions overnight B. cannot disseminate quotes severally for the securities held by the account; any quote can only indicate that one market exists C. cannot place orders to buy bonds for an accumulation account sponsored by a dealer participating in the joint account D. cannot effect customer transactions and can only deal with other municipal broker-dealers
B
Under the Code of Procedure, disciplinary action taken by FINRA against a registered representative can be all of the following EXCEPT: A. Termination of employment B. Arbitration C. Fine D. Censure
B
When the Securities and Exchange Commission sets the effective date for a new issue in registration, which of the following statements is (are) TRUE? I The SEC has certified that the offering documents give full and fair disclosure II The proper documents for registration have been filed with the SEC III The SEC has approved the offering for sale to the public IV The SEC has established the final offering price A. I only B. II only C. I, II, IV D. I, II, III, IV
B
Which of the following can affect the holding period of a stock held short term? A. Buy a call B. Buy a put C. Sell a call D. Sell a put
B
Which of the following measures considers the "time value" of money? A. Current Yield B. Internal Rate of Return C. Net Interest Cost D. Return on Equity
B
Which of the following must be disclosed, or be disclosed upon customer request, in competitive bid municipal underwritings? I Spread II Initial offering price of each maturity III Participation amount of each underwriter IV Order priority provisions A. I and III B. II and IV C. I, II and IV D. I, II, III, IV
B
Which of the following statements are TRUE about the Federal Funds rate? I The Federal Funds rate is set by the Federal Reserve and is the rate at which member banks can borrow reserves from the Fed II Federal Reserve actions taken by the FOMC will influence the Federal Funds rate III The Federal Funds Rate is lower than the discount rate IV The "Effective" Federal Funds rate is the daily compounded rate of interest paid by borrowers A. I and II only B. II and III only C. III and IV only D. I, II, III, IV
B
Which of the following statements are TRUE about the NYSE Super Display Book system? I Commissions charged to retail customers for Super Display Book executions are lower than for manual executions II Orders placed in the system are not subject to size limitations III Orders are routed directly to the DMM's Display Book for execution IV Reports of executed orders are routed directly back to the originating broker-dealer A. I and II only B. III and IV only C. I, II, III D. II, III, IV
B
Which of the following statements are TRUE about the taxation of interest on securities issued by the Federal Farm Credit Banks Funding Corporation? I Interest is exempt from state and local taxes II Interest is subject to state and local taxes III Interest is exempt from Federal tax IV Interest is subject to Federal tax A. I and III B. I and IV C. II and III D. II and IV
B
Which statement is TRUE about IO tranches? A. When interest rates rise, the price of the tranche falls B. When interest rates rise, the price of the tranche rises C. When interest rates rise, the interest rate on the tranche falls D. When interest rates rise, the interest rate on the tranche rises
B
personal holding in that company. The research analyst would be permitted to sell that personal holding: A. under no circumstances B. only if hardship is shown C. only if the transaction is effected on an up-bid D. without restriction
B
A 25-year old client with a low risk tolerance wishes to invest in bonds. The client has invested in equities before, but has no experience investing in bonds. The BEST recommendation would be: A. BB-rated short-term bonds B. BB-rated intermediate-term bonds C. AA-rated short-term bonds D. AA-rated long-term bonds
C
A customer calls and places an order to "Buy 200 shares of ABC at the Market" and the order is executed. 20 minutes later, the customer calls and says that she has changed her mind and does not want the stock. The registered representative should: A. break (reverse) the trade by taking the position to the house account for close-out by the member firm B. journal the position into another customer's account over which the registered representative has discretionary authority C. inform the customer that she owns the stock and can enter an order to sell it if she so desires D. buy back the position from the customer under the provisions of the SEC "Buy Back Rule"
C
A smaller business with variable cash flow is looking to establish a pension plan for its 50 employees. It wants a plan that allows it to contribute the largest possible amount for its employees, but wants the flexibility to reduce contributions in lean years. The BEST recommendation is a: A. 401(k) plan B. 403(b) plan C. SEP IRA D. SIMPLE IRA
C
All of the following statements are true about Auction Rate Securities EXCEPT: A. Auction Rate Securities have an interest rate that steps up or steps down with the market B. The Dutch Auction method is used to set the interest rate C. Failure of an auction is not possible because of broker-dealer bidding D. Auction Rate Securities are issued by corporations and municipalities
C
All of the following statements are true about Regulation A offerings EXCEPT: A. the maximum offering amount permitted under the rule is $50,000,000 within a 12 month period B. an offering circular must be provided to all purchasers C. sales are limited to purchasers who are "resident" in the state where the issuer resides D. there are no minimum income or net worth standards for individuals wishing to invest
C
An investor is seeking a municipal bond issue offering call protection. An issue having which features would NOT be an appropriate investment? I Low stated interest rates II High stated interest rates III Low stated call premiums IV High stated call premiums
C
If a member firm believes that a senior citizen with an account at the firm is being financially exploited, the member would contact the client's A. attorney B. closest relative C. trusted contact person D. registered representative
C
Prior to opening an options account, all of the following steps must be taken EXCEPT: A. completing the new account form B. delivering the options disclosure document to the customer C. receiving the signed options agreement from the customer D. approving the first transaction in the account
C
The Advance / Decline ratio shows all of the following EXCEPT: A. breadth of the market B. market sentiment C. share turnover D. number of issues that increased in price versus number of issues that decreased in price
C
The NYSE Specialist (DMM) and Floor Trader system is the model for trading used by which of the following markets? I NASDAQ II AMEX (NYSE American) III PHLX IV BATS A. I and III B. I and IV C. II and III D. II and IV
C
The Sarbanes-Oxley Act of 2002 requires: I registration of new non-exempt issues with the SEC II chief corporate officers to certify the company's financial disclosures III research analysts to be separated from investment banking functions at broker-dealers IV issuers to file audited financial statements with the SEC A. I and III B. I and IV C. II and III D. II and IV
C
The Securities and Exchange Commission is empowered to administrate which of the following Acts? I Securities Act of 1933 II Securities Exchange Act of 1934 III Trust Indenture Act of 1939 IV Uniform Securities Act A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
C
The manager of an unregistered hedge fund is typically compensated by a fee based on a: A. percentage of assets under management B. performance fee based on profits C. percentage of assets under management plus a performance fee based on profits D. performance fee based on exceeding a benchmark index
C
The maximum loss for the writer of a put is: A. the premium received B. unlimited C. strike price minus premium received D. strike price plus premium received
C
The separate account that the insurance company maintains for a variable annuity is: A. directly invested in common stocks B. invested in Legal List securities only C. invested in designated mutual funds D. invested in U.S. Government guaranteed securities
C
The time horizon to be used when constructing a portfolio for a person who will retire in a few years is the: A. time remaining until retirement B. expected time till the person cannot care for him or herself C. expected lifetime of that person D. expected lifetime of that person's beneficiaries
C
To impose the maximum sales charge, under FINRA rules, mutual funds must offer investors which of the following benefits? I Breakpoints II Plan Completion Insurance III Rights of Accumulation IV Letter of Intent A. I and II only B. III and IV only C. I, III and IV D. I, II, III, IV
C
Treasury Notes are issued by the U.S. Government in: I bearer form II book entry form III minimum denominations of $100 IV minimum denominations of $10,000 A. I and III B. I and IV C. II and III D. II and IV
C
Under MSRB rules, yield to worst means that: A. all municipal bonds quoted on a yield basis must be priced to maturity B. municipal par bonds quoted on a yield basis must be priced to maturity C. municipal discount bonds quoted on a yield basis must be priced to maturity D. municipal premium bonds quoted on a yield basis must be priced to maturity
C
Under Regulation M, which statements are TRUE regarding stabilizing bids entered by market makers? I Stabilizing bids can only be maintained for 5 consecutive business days II There is no time limitation on the period that a stabilizing bid can be maintained III A stabilizing bid cannot be placed unless a "Notice of Stabilization" is included in the prospectus IV A stabilizing bid cannot be placed unless an "Official Notice of Sale" is placed in the prospectus A. I and III B. I and IV C. II and III D. II and IV
C
Which of the following are likely purchasers of commercial paper? I Individuals II Insurance Companies III Trust Companies IV Open-End Investment Companies
C
Which of the following paperwork is required for trades to be effected in an account for a deceased person who held an individual account at a brokerage firm? I Executor's authorization certificate II Copy of the death certificate III Affidavit of domicile IV Third party trading authorization A. I and II B. II and III C. I, II, III D. I, II, III, IV
C
Which of the following statements are TRUE when comparing convertible preferred stock and non-convertible preferred stock? I Convertible preferred stock will have a higher yield than non-convertible preferred stock II Convertible preferred stock will have a lower yield than non-convertible preferred stock III Convertible preferred stockholders benefit as the market price of the common stock rises IV Convertible preferred stockholders benefit as the market price of the common stock falls A. I and III B. I and IV C. II and III D. II and IV
C
Which statements are TRUE about variable annuities? I Contributions are tax deductible II Contributions are not tax deductible III Distributions are taxable IV Distributions are not taxable A. I and III B. I and IV C. II and III D. II and IV
C
Which statements are TRUE regarding the weekly Treasury Bill auction? I The minimum competitive bid has no dollar limit II The minimum competitive bid amount is $5,000,000 III The maximum competitive bid has no dollar limit IV The maximum competitive bid amount is $5,000,000 A. I and III B. I and IV C. II and III D. II and IV
C
Which statements are TRUE when comparing Companion CMO tranches to "plain vanilla" CMO tranches? I Holders of Companion CMO tranches have lower prepayment risk II Holders of Companion CMO tranches have higher prepayment risk III Holders of "plain vanilla" CMO tranches have lower prepayment risk IV Holders of "plain vanilla" CMO tranches have higher prepayment risk A. I and III B. I and IV C. II and III D. II and IV
C
ustomer Z is a single 26-year-old man who earns $125,000 annually. He informs you that he is getting married and that his new wife's income of $75,000 per year will put them into the highest federal tax bracket. The couple will have investable income of $25,000 per year. The couple wishes to buy a house in 5 years that will be substantially more expensive than the condominium in which they currently reside. To meet the customer's needs for the large cash down payment in 5 years and to reduce taxable income, the BEST recommendation is to: A. open a margin account and invest in income bonds B. open an Individual Retirement Account and invest in tax-deferred variable annuities C. open a cash account and invest in mutual funds holding high yielding common and preferred stocks D. open a trust account and invest in Treasury STRIPs
C
16 months ago, a customer purchased 100 shares of XYZ stock at $32 in a cash account. It is now January and the stock is now trading at $50. The customer believes that the stock will continue to appreciate in the next 3 months to $55 per share, at which point no further appreciation is expected. The customer wishes to maximize the return on this stock with the smallest capital commitment. The following April options are available for XYZ stock: Calls Puts Apr 50 4 3 Apr 55 3 2 Apr 60 2 1 The best recommendation for the customer is to sell: A. 1 XYZ Apr 50 Call B. 1 XYZ Apr 50 Put C. 1 XYZ Apr 55 Call D. 1 XYZ Apr 55 Put
C This customer bought the stock at $32, and it is now worth $50. The customer believes that the stock will rise to $55, so the customer does not want to sell a 50 call on that stock (since it will be called away if the price rises above $50). If the customer sells a 55 call, he or she will collect a smaller premium, but the customer will collect something. As long as the stock price does not rise above $55, the customer will enjoy the price rise in the stock and the stock will not be called away. Furthermore, there will be no additional cash outlay required from the customer since the sale of the call is "covered" by the ownership of the stock. The collected premium from the sale of the call can be used by the customer for whatever he or she wishes!
Which of the following cover a short call contract? I Long a depository receipt for the stock II Long the cash value of the stock III Long an escrow receipt for the stock IV Long the stock A. IV only B. I and III only C. I, III, IV D. I, II, III, IV
C A short call cannot be covered by the deposit of cash because the theoretical loss is unlimited. The only way to cover a short call is with the ownership of the stock or owning an option that allows for the purchase of the stock at a price not to exceed the strike price of the short call, good for the entire life of the short call. Being long the stock covers a short call; long an escrow receipt shows that the stock is on deposit at a bank; long a depository receipt shows that the stock is on deposit with a clearing corporation.
If a corporation has an operating margin of profit of 9.50%, this means that for every $1 of revenue, the company has: A. $.095 of expenses B. $.95 of expenses C. $.905 of expenses D. $.0905 of expenses
C An income statement starts with revenues and deducts all operating expenses to arrive at operating income. The "margin" is a profitability or loss percentage. Gross Sales - Operating Expenses Operating Income The "margin" is a profitability or loss percentage. The Operating Margin of Profit is: Operating Income / Revenues. (Also note that the term "Operating Margin of Profit" is a wording that is now rarely used - instead the current wording is simply Operating Profit Margin or Operating Margin - but it may still be used on the exam.) If the company has an Operating Margin of Profit of 9.50%, this means that it had operating income of $.095 for each $1 of revenue ($.095 / $1 = 9.50%). Because operating expenses are deducted from revenue to arrive at the operating margin, this means that for every $1 of revenue, there were $.905 of expenses.
Client A's portfolio consists of the following: Equities: 85% Fixed Income: 10% Cash: 5% The breakdown of these holdings is: Equities 35% DEFF Total Market Index Fund 30% 2,100 shares of ABCD 25% 3,100 shares of XYZZ 10% PDQQ International Small Cap Growth Fund Fixed Income: 75% Investment Grade 25% Speculative Cash: 100% Money Market Fund Client A is 55 years old, single with no children. He is beginning to think about retirement and wishes to modify his portfolio so that he can start receiving an assured income stream starting at age 65. Which recommendation would be the BEST choice to meet the customer's changed investment objective? A. The ABCD and XYZZ stock holdings should be liquidated in full immediately, with the proceeds invested in 10 year income bonds of companies in special situations B. The DEFF Total Market Index Fund holding should be liquidated in full immediately, with the proceeds invested in 10-30 year Treasury bonds C. The customer should set minimum and maximum threshold prices at which the ABCD and XYZZ stock positions are to be liquidated; and if this occurs, the proceeds should be invested in 10-30 year maturity Treasuries D. The customer should liquidate the ABCD and XYZZ stock holding to purchase 10, 15 and 20 years STRIPs that will mature in even installments
C This customer's portfolio is 85% invested in stocks and only 15% invested in bonds and cash. Since he is looking for income 10 years from now, more of the portfolio mix must be allocated to bond investments. Immediate liquidation of some of the stock investments might cause the customer to sell at a loss; or to miss out on potential stock gains that he or she anticipates. Setting minimum and maximum threshold prices to begin liquidating the stock investments, and reallocating the proceeds to safe income generating bond investments, is the best way to meet the customer's income objective.
A client surrenders a variable annuity contract 5 years after purchase because of poor performance. The customer invested $50,000 and redeemed it when the NAV was $40,000, however the customer only received $37,000 because a $3,000 surrender fee was imposed. The tax consequence is: A. $13,000 capital loss B. $13,000 deductible ordinary loss C. $10,000 capital loss and $3,000 non-deductible loss D. $10,000 deductible ordinary loss and $3,000 non-deductible loss
D
A customer's margin account shows the following: LMV: $60,000 Debit: $35,000 SMA: $5,000 If the customer wishes to eliminate the restriction in the account, he or she can: I deposit $5,000 of cash to pay down the debit II deposit $5,000 of SMA to pay down the debit III deposit $10,000 of fully paid securities IV sell $10,000 of stock from the account A. I only B. I and II C. III and IV D. I, III, IV
D
A wealthy, sophisticated investor with a high risk tolerance has just turned extremely bearish on the market. To profit from this, the BEST recommendation to the client would be to: A. buy index calls B. buy index puts C. buy inverse floaters D. buy leveraged inverse ETFs
D
An elderly customer seeking extra income who has $100,000 to invest could be recommended which of the following? I The $100,000 purchase of a variable annuity II The $100,000 purchase of dividend paying blue chip stocks in a cash account against which calls are sold III The $200,000 purchase of dividend paying blue chip stocks at 50% margin in a margin account IV The $100,000 purchase of Treasury bonds A. I and III B. I and IV C. II and III D. II and IV
D
As an initial transaction in a new margin account, a customer sells short 100 shares of ABC at $20 per share. After the customer deposits the appropriate margin, the credit balance in the account will be: A. $1,000 B. $2,000 C. $3,000 D. $4,000
D
Distributions from Roth IRAs: A. must commence by April 1st of the year prior to reaching the age of 70 1/2 without being penalized B. must commence by April 1st of the year of reaching age 70 1/2 without being penalized C. must commence by April 1st of the year after reaching age 70 1/2 without being penalized D. can commence at any time after reaching age 59 1/2 without being penalized
D
Growth in the separate account of a variable annuity is: I guaranteed as to minimum rate II not guaranteed as to minimum rate III capped as to maximum rate IV not capped as to maximum rate A. I and III B. I and IV C. II and III D. II and IV
D
The "cover" in a municipal bid is best described as the: A. highest interest rate bid B. lowest interest rate bid C. spread between the bid interest cost and the ask interest cost D. increment by which the next highest interest cost bid exceeds the winning bid
D
The BEST investment during a period of high inflation is: A. Common Stock B. Preferred Stock C. 30-Year Bonds D. Money Market Instruments
D
The ex date for a stock split is set at: A. 2 business days prior to the Record Date B. 1 business day following the Record Date C. 2 business days prior to the Payable Date D. 1 business day following the Payable Date
D
Under MSRB rules, yield to worst means that: A. all municipal bonds quoted on a yield basis must be priced to the near-term in whole call date B. municipal par bonds quoted on a yield basis must be priced to the near-term in whole call date C. municipal discount bonds quoted on a yield basis must be priced to the near-term in whole call date D. municipal premium bonds quoted on a yield basis must be priced to the near-term in whole call date
D
Which of the following individuals trades on the New York Stock Exchange Floor? I Specialist (DMM) II Floor Broker III Two Dollar Broker IV Competitive Trader A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
D
Which of the following information is available on EMMA? I Official Statements for municipal bond issues, notes, and 529 plans II Details of bonds that have been pre-refunded III Real-time prices and yields for municipal bond trades, as reported through RTRS IV Real-time price and yields for municipal note trades as reported through SHORT A. I and II B. III and IV C. I, II, III D. I, II, III, IV
D
Which of the following securities earn interest? I Treasury Strip II Treasury Stock III Treasury Bond IV Treasury Note A. II, III, IV B. I, II, III C. I, II, IV D. I, III, IV
D
Which statements are TRUE about the amortization of bond premiums? I Amortization of bond premiums increases reported interest income each year II Amortization of bond premiums decreases reported interest income each year III Amortization of bond premiums increases the bond's cost basis each year IV Amortization of bond premiums decreases the bond's cost basis each year A. I and III B. I and IV C. II and III D. II and IV
D
If the price of the underlying security remains unchanged until expiration, which of the following options investors may have a profit? I Buyer of an "at the money" Put II Seller of an "at the money" Put III Buyer of a Straddle IV Seller of a Straddle A. I and III B. I and IV C. II and III D. II and IV
D If the market price remains the same at expiration, "at the money" options contracts will expire. This means that the writer of the contract will earn the premium and the holder will lose the premium. Since a long straddle is the purchase of a call and a put on the same stock with the same strike price and expiration, the buyer of an "at the money" straddle will lose the premiums paid if the stock price remains unchanged because both positions will expire. On the other hand, the writer of that straddle, the sale of a call and a put on the same stock, will earn the premiums.
The Trust Indenture Act of 1939 applies to: I U.S. Government Bonds II Municipal Bonds III Corporate Bonds A. I only B. II only C. III only D. I, II, III
C
