Practice Test
A customer buys XYZ stock at $60 per share. The stock is currently trading at a 10:1 price-to-earnings (PE) ratio. The firm declares a 3:1 stock split. What will the PE ratio be after the split if earnings remain unchanged? A) 10:1. B) 3:1. C) 5:1. D) 12:1.
A) 10:1.
An options trader establishes the following positions: Long 10 ALF Apr 40 calls at 6 Short 10 ALF Apr 50 calls at 2 What is the client's maximum gain and loss per share? A) Gain 6, loss 4. B) Gain 2, loss 6. C) Gain unlimited, loss 6. D) Gain 4, loss 2
A) Gain 6, loss 4. The gain is 6 (between 44 and 50). If the stock declines, both options will expire for a loss of 4 (6 − 2).
An investor with no other positions sells 1 ABC Jan 45 call at 2.50. If the option expires when the stock is trading at 44.50, what is the investor's profit or loss? A) $50 profit. B) $250 profit. C) $50 loss. D) $250 loss.
B) $250 profit. The option expired because it was out-of-the-money. When the option expires, the writer profits by the amount of the premium received from the sale.
An instrument that illustrates the transfer of title to any dividend, interest, or right that pertains to securities contracted for is called: A) a right. B) a due bill. C) a power of attorney. D) a warrant.
B) a due bill.
All of the following statements regarding a negotiated underwriting are true EXCEPT that: A) the municipality appoints the underwriter. B) all states require that General Obligation bonds must be underwritten using a negotiated process. C) either municipal general obligation or revenue bonds can be underwritten on a negotiated basis. D) the investment banker consults with the issuer to establish a price for the issue.
B) all states require that General Obligation bonds must be underwritten using a negotiated process.
Under the Uniform Practice Code, regular way transactions for common stock settle on the: A) 5th business day following the trade date. B) 2nd business day following the trade date. C) 3rd business day following the trade date. D) same day as the trade date .
C) 3rd business day following the trade date.
Selling mutual fund shares immediately below the dollar amount stated in the prospectus that would qualify an investor to receive a reduced sales charge is called A) front running. B) conditional orders. C) a breakpoint sale. D) selling dividends.
C) a breakpoint sale.
Yield-based options expire on the A) day after the last day of trading B) day following the third Friday of the month C) last day of trading D) third Wednesday of the month
C) last day of trading
Under the provisions of Rule 144, what percentage of outstanding stock may a control person sell every 90 days? A) 0.05. B) 0.03 C) 0.04. D) 0.01.
D) 0.01.
A customer enters an order to purchase 1000 shares of XYZ common stock at the market when the quote is 18.22 bid, 18.30 ask. If the transaction is executed at the market and the broker charges a $.10 mark-up how will the price be reported to the consolidated tape system? A) 18.22 B) 18.32 C) 18.40 D) 18.30
D) 18.30
Treasury stock is: A) authorized but unissued stock owned by the company. B) preferred stock. C) issued by the U.S. Treasury Department. D) stock repurchased by the issuer.
D) stock repurchased by the issuer.
Under FINRA rules, a member may pay continuing commissions to a retired representative: I. only if a written agreement is in effect. II. based on business generated while employed. III. based on business introduced after retirement. IV. only within 30 days of retirement.
I and II Continuing commissions may be paid to a retired representative only if a written agreement exists between the member and the retired representative and if payout is based only on business generated while employed.
Which of the following are TRUE of an official statement? I. It is required by the SEC for all new issues. II. It is required by the MSRB for all new issues. III. It is required to be delivered to purchasers at or before settlement. IV. It is generally used by underwriters to help sell the issue.
III and IV
In what order are distributions paid under a net revenue pledge? I. The surplus fund. II. The debt service account. III. The operations and maintenance fund. IV. The debt service reserve account.
III, II, IV, and I
All of the following communications are exempt from filing with FINRA EXCEPT A) retail communications that make a financial or investment recommendation B) retail communications previously filed with FINRA C) prospectuses and preliminary prospectuses D) communications that refer to an investment solely as part of a listing of products offered by the member
A) retail communications that make a financial or investment recommendation
If a customer purchases a new issue of stock from a syndicate member, the customer will pay the public offering price: A) with no mark-up or commission. B) plus a commission. C) plus a mark-up. D) plus the spread.
A) with no mark-up or commission. New issues are sold at the public offering price without a commission or mark-up. In the secondary market, securities are traded on an agency basis (commission) or on a principal basis (mark-up or mark-down).
Your client who has not yet attained the age of 59 ½ wants to take a withdrawal from his traditional IRA. Not being disabled or meeting any other qualifying reason allowing for an early withdrawal you explain that the amount taken will be subject to a penalty of: A) 25%. B) 10%. C) 15%. D) 5%.
B) 10%.
A resident of a state who acquires stock pursuant to Rule 147 (intrastate offerings) is prohibited from selling the stock to a nonresident of that state for how many months? A) 18. B) 9. C) 6. D) 12.
B) 9. Rule 147 stock cannot be sold to a nonresident of the state for a period of nine months from the last date of sale by the issuer.
Underwriters that reserve the right to stabilize the price of securities distributed to the public under an SEC registration statement may do so: A) under no circumstances. B) only if notice is given in the prospectus. C) without restriction. D) only if the securities being distributed will be immediately listed for trading on the NYSE or other exchange.
B) only if notice is given in the prospectus.
The receipt of all of the following would raise concern about the possibility of money laundering EXCEPT: A) postal money order. B) personal check. C) currency. D) travelers' check.
B) personal check.
The 5% markup policy applies to: A) All of these. B) principal OTC trades. C) mutual funds. D) new issues.
B) principal OTC trades.
All of the following statements regarding Nasdaq Level 3 are true EXCEPT that: A) the system shows the inside quote. B) this level is used by registered representatives only. C) actual interdealer quotes are displayed. D) quotes are entered by market makers.
B) this level is used by registered representatives only.
All of the following deal with the secondary market EXCEPT A) broker's broker B) Thomson's Muni Market Monitor (formerly Munifacts) C) notice of sale D) dealer quotes
C) notice of sale
A customer has filed a serious complaint against your firm and is threatening to take the firm to court. When informed that he has signed a predispute arbitration agreement, he demands to see a copy of it. How long does your firm have to supply the customer with a copy of the signed agreement upon receipt of his request? A) 3 business days. B) 7 business days. C) 5 business days. D) 10 business days.
D) 10 business days.
Which of the following stocks is regarded as a defensive stock? A) Stock selling close to its support level. B) Stock with a strong cash position and a low ratio of debt. C) Aerospace stock. D) Electric utility stock.
D) Electric utility stock.
A registered representative who is NOT licensed in Utah but whose firm is registered in Utah: A) need not be licensed in that state until after he writes his third order ticket. B) need not be licensed if he solicits only state-registered securities. C) need not be licensed provided his firm's registration remains effective. D) must be licensed in Utah to conduct securities business in that state.
D) must be licensed in Utah to conduct securities business in that state.
If one of your clients dies, on notification of death you should immediately: I. mark the account "deceased" until proper documents are received. II. cancel all GTC orders for the account. III. obtain a letter from the attorney representing the estate with instructions for transfer. IV. obtain the names and addresses of the beneficiaries of the estate.
I and II
Under MSRB rules regarding municipal securities, a control relationship exists when I. officers or employees of a broker/dealer hold positions of authority over the municipal issuer. II. officials of the municipal issuer hold policymaking positions at the broker/dealer. III. the municipal issuer is a public finance client of the broker/dealer. IV. an employee of the broker/dealer lives in the issuer's municipality.
I and II
A firm may assign option exercises using which of the following methods? I. FIFO II. LIFO III. Random assignment IV. To the holders of the smallest positions
I and III
Which of the following statements regarding GNMA securities are TRUE? I. Interest is subject to federal income tax. II. Interest is exempt from federal income tax. III. They are backed by farm mortgages. IV. They are backed by residential mortgages.
I and IV
Which items would change if a company buys equipment for cash? I. The working capital. II. The total assets. III. The total liabilities. IV. The shareholders' equity.
I only
Dark pools of liquidity I. enhance market transparency for public retail customers II. diminish market transparency for public retail customers III. accommodate small transactions for institutional traders IV. accommodate large-volume transactions for institutional traders
II and IV
Which of the following responsibilities did the MSRB receive through the Securities Acts Amendments of 1975? I. Regulation of municipal issuers. II. Establishment of recordkeeping requirements for municipal broker/dealers. III. Enforcement of any municipal regulations it adopts. IV. Creation of regulations for participants in the municipal securities secondary market.
II and IV
Which of the following would make a corporate bond more subject to liquidity risk? I. Short-term maturity. II. Long-term maturity. III. High credit rating. IV. Low credit rating.
II and IV
A customer enters a day order to sell 300 XYZ stock at 34.60. XYZ continues to trade in a 33 to 33.60 range. An hour before the close, he considers changing the order to a GTC order. You respond that he might consider allowing the order to remain on the books as a day order, and if it remains unexecuted at the close, to re-enter it the next day as a GTC order. You would have based this recommendation on concern for which of the following? A) An existing order has precedence over a new order when it comes to execution. B) Additional cost to the firm of changing the order twice in a day. C) Weakening the customer's risk tolerance by encouraging him to change orders frequently. D) Day orders are less risky than GTC orders.
A) An existing order has precedence over a new order when it comes to execution.
Your firm has determined that a person seeking to open an account is on the Office of Foreign Asset Control's (OFAC) list of individuals who are viewed as threats to the United States. Who must oversee your firm's dealings, if any, with this individual? A) An officer of the firm who has been designated to monitor and check customer names against the Specially Designated Nationals (SDN) list maintained by OFAC. B) The Internal Revenue Service (IRS). C) The U.S. Treasury will have OFAC send a licensed agent to handle this account. D) The registered representative whom the person approaches.
A) An officer of the firm who has been designated to monitor and check customer names against the Specially Designated Nationals (SDN) list maintained by OFAC.
The board of directors of DMF, Inc., announces a 5:4 stock split. The market price of DMF after the split should decrease in value by A) 0.2. B) 0.25. C) 0.1. D) 0.3.
A) 0.2. The easy way to handle questions about stock splits is to turn the split into a fraction. You know that after a split, which increases the number of shares outstanding, the market price per share will be reduced. With a 5:4 stock split, the new price should be about 4/5 the old price. A 1/5-change equals 20% (100% / 5 = 20%).
If your customer bought an original-issue discount bond from the Mt. Vernon Port Authority, how is the discount on this bond taxed? A) Accreted during the life of the bond and not taxed. B) Amortized during the life of the bond and not taxed. C) As capital gains. D) As ordinary income.
A) Accreted during the life of the bond and not taxed
New issues of municipal bonds are exempt from each of the following EXCEPT: A) Securities Exchange Act of 1934 antifraud provisions. B) U.S.A. state registration requirements. C) Securities and Futures Authority (SFA) requirements. D) Securities Act of 1933 registration requirements.
A) Securities Exchange Act of 1934 antifraud provisions.
When XYZ stock trades at 40 and an XYZ Oct 35 call trades at 5, which of the following is TRUE? A) The time value is zero. B) The option is at-the-money. C) The option is out-of-the-money. D) The option's time value equals its intrinsic value.
A) The time value is zero.
Which of the following is limited in the case of a limited tax municipal bond? A) Type of tax that can be used to service the debt. B) Number of bonds issued. C) Number of buyers. D) Number of taxpayers.
A) Type of tax that can be used to service the debt.
A money market mutual fund would be least likely to invest in which of the following assets? A) U.S. Treasury notes. B) U.S. Treasury bills. C) Bank certificates of deposit. D) Repurchase agreements.
A) U.S. Treasury notes.
A portfolio that invests in blue-chip stocks and growth stocks can best be described as: A) a growth and income portfolio. B) a balanced portfolio. C) an aggressive portfolio. D) a high-yield portfolio.
A) a growth and income portfolio
A company set up to invest in real estate, mortgages, construction, and development loans that must distribute at least 90% of its net income to avoid paying taxes on the income distributed is called: A) a real estate investment trust. B) a unit investment trust. C) an open-end investment company. D) a trust indenture.
A) a real estate investment trust.
All of the following are oil and gas program sharing arrangements EXCEPT: A) all or none underwriting arrangement. B) reversionary working interest. C) functional allocation. D) disproportionate sharing.
A) all or none underwriting arrangement.
Each of the following is true about stop orders EXCEPT they: A) are the same as limit orders. B) can limit a loss in a declining stock. C) can accelerate the advance or decline of a stock's price if executed. D) become market orders when there is a trade at, or the market passes through, a specific price.
A) are the same as limit orders.
A broker/dealer has put customer's securities in its own proprietary accounts. This is a violation of industry rules known as: A) commingling. B) freeriding. C) withholding. D) refunding.
A) commingling.
An employer-sponsored retirement plan that pays a specific benefit to participants at their normal retirement age is a: A) defined benefit plan. B) defined contribution plan. C) section 401(k) plan. D) supplemental employee retirement plan.
A) defined benefit plan. A traditional defined benefit plan promises to pay a specific benefit to a participant at his normal retirement age as specified by the plan document.
A company that has issued cumulative preferred stock: A) pays past and current preferred dividends before paying dividends on common stock. B) pays the preferred dividend before paying the coupons due on its outstanding bonds. C) pays the current dividends on the preferred, but not the past dividends on the preferred, before paying a dividend on the common. D) forces conversion of the preferred that is trading at a discount to par, thereby eliminating the need to pay past-due dividends.
A) pays past and current preferred dividends before paying dividends on common stock.
Your firm is interested in submitting a bid on a forthcoming general obligation municipal bond issue. Your firm could obtain the appropriate bid worksheets through a service provided by: A) the Bond Buyer. B) Standard & Poor's. C) the MSRB. D) The Wall Street Journal.
A) the Bond Buyer.
All of the following characteristics regarding industrial development bonds (IDBs) are true EXCEPT: A) the bonds are normally backed by the full faith and credit of the municipality. B) the funds are used to construct a facility for a private corporation. C) funds from the lease are used to pay the principal and interest on the bonds. D) the bonds are issued by municipalities or other governmental units.
A) the bonds are normally backed by the full faith and credit of the municipality.
The POP for a mutual fund as quoted in the financial press reflects: A) the maximum sales charge the fund distributor collects. B) no sales charge because the offering price depends on the quantity purchased. C) the minimum sales charge the fund distributor collects. D) the average sales charge for the preceding 3 months.
A) the maximum sales charge the fund distributor collects.
Your customer is interested in a variable annuity but is unclear on some of the details regarding different specifications and riders that can be attached to the contract. He makes the following four statements, all of which are true EXCEPT A) with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed B) a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant C) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero D) with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually
A) with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed
If a bond is sold to a customer at par, under MSRB rules, all of the following must be disclosed to the customer on his confirmation EXCEPT A) yield based on price B) number of bonds purchased C) total monies due D) information on call features
A) yield based on price
Which of the following permits the highest annual contributions? A) A Coverdell Education Savings Account. B) A SEP IRA. C) A traditional nondeductible IRA. D) A traditional spousal IRA for which the contribution has been deducted.
B) A SEP IRA.
Buying stocks with high PE ratios normally reflects which of the following investment styles? A) Turnaround. B) Growth. C) Special situations. D) Value.
B) Growth.
The determination of a broker/dealer's financial failure is made under the provisions of the A) 1939 Trust Indenture Act B) Securities Investor Protection Act of 1970 C) Securities Act of 1933 D) Bank Secrecy Act
B) Securities Investor Protection Act of 1970
A fiduciary acting under the prudent investor rule should recognize that one of the following transactions would not be acceptable or meet the standards of the rule. Which is it? A) Purchasing BBB-rated debentures B) Writing uncovered calls C) Buying sector funds D) Purchasing shares of a tech sector mutual fund
B) Writing uncovered calls
An accumulation unit in a variable annuity contract is: A) an accounting measure used to determine payments to the owner of the variable annuity. B) an accounting measure used to determine the contract owner's interest in the separate account. C) fixed in value until the holder retires. D) none of these.
B) an accounting measure used to determine the contract owner's interest in the separate account. When money is deposited into the annuity, it is purchasing accumulation units.
Rulings under the Code of Arbitration Procedure: A) may be appealed to the SEC. B) are binding on all parties. C) may be appealed to the FINRA National Adjudicatory Council. D) are binding on members but not on customers.
B) are binding on all parties.
An unqualified legal opinion means that the: A) interest is not exempt from state or local taxes. B) bond counsel has rendered an opinion without any qualifying limitations. C) underwriter has failed to disclose sufficient information to qualify the issue. D) issue is legal, but certain contingencies may limit the flow of funds in the future.
B) bond counsel has rendered an opinion without any qualifying limitations.
A limited partner assisting the general partner to solicit new investors. A) is permitted if done within 90 days of his acceptance as limited partner. B) could jeopardize his limited partner status. C) is permitted if no compensation is paid. D) is permitted if stated in the partnership agreement.
B) could jeopardize his limited partner status.
A customer creates a long straddle by buying 5 ABC Nov 50 calls and 5 ABC Nov 50 puts paying premiums of $3,750. If ABC is at 56.50 at expiration, the customer has a: A) gain of $1,000. B) loss of $500. C) loss of $1,000. D) gain of $500.
B) loss of $500. While the puts would expire, the customer may close out the calls by selling them at 6.50 (56.50 − 50) for $3,250 (6.50 × 5 × $100). The result is a loss of $500 ($3,750 − $3,250).
If an investor has an established margin account with a short market value of $24,000 and a credit balance of $30,000, the maintenance call will be for A) 7200. B) 6000. C) 1200. D) 2000.
C) 1200. Minimum maintenance requirement in a short margin account is 30% of the current market value. In this case, 30% of $24,000 is $7,200. The equity in the account is currently $6,000 ($30,000 − $24,000). Therefore, the amount of the maintenance call is $1,200.
A customer buys 200 ABC at 76 and simultaneously writes 2 ABC MAR 80 calls at 2. If the stock rises to 83 and the customer is assigned on the short calls, the customer has a gain of: A) 800. B) 1400. C) 1200. D) 1800.
C) 1200. The customer bought 200 shares at 76 and was forced to sell those shares at 80 for a gain of $800. In addition, the customer received $400 for writing the calls, so the overall gain is $1,200. The price of 83 is irrelevant. It only explains why the customer was exercised (the 80 calls are in-the-money). Breakeven for covered call writing is the cost of stock (76) less premiums (2). The breakeven point is 74, and the customer sold at 80 (6 points × 200 shares = $1,200).
A corporate insider may profitably sell the stock of his company, without penalty, after the stock has been held for more than: A) 12 months. B) 3 months. C) 6 months. D) 9 months.
C) 6 months.
As a requirement of investing in a particular business investment, your customer has just signed a statement attesting to his annual income, net worth, and affirming that the risks associated with the investment are understood. The signed statement, once submitted with the intended investment amount, will either be approved or disapproved. Approval allows the investor to subscribe to the investment. Which of the following investments would have such a requirement? A) A hedge fund B) A variable annuity C) A direct participation program D) A collateralized mortgage obligation
C) A direct participation program
Which of the following would protect a short May 50 call? A) Long June 55 call. B) Long April 55 call. C) Long June 45 call. D) Long April 45 call.
C) Long June 45 call. For a long call to cover a short call, it must have the same or lower strike price and the same or longer expiration. This ensures the investor may purchase the stock without financial loss and deliver it at 50 if the short call is exercised.
With the same dollar amount either paid or received, which of the following strategies can cause an investor to experience the greatest loss? A) Buying a straddle. B) Selling a covered put option. C) Selling a naked call option. D) Selling a naked put option.
C) Selling a naked call option.
Two siblings have an account with your broker/dealer registered as joint tenants with rights of survivorship. Both live in a state that recognizes community property as an ownership designation. If one of the siblings dies, which of the following will occur? A) The deceased sibling's interest in the account will be divided in accordance with the community property laws of that state. B) The entire account will be liquidated and divided in accordance with the community property laws of that state. C) The deceased sibling's interest in the account will pass to the surviving sibling in accordance with the joint tenants with rights of survivorship account registration. D) The deceased sibling's interest in the account will become the property of her estate.
C) The deceased sibling's interest in the account will pass to the surviving sibling in accordance with the joint tenants with rights of survivorship account registration.
In its notice of sale in the "Bond Buyer", an issuer states that it will take into consideration the timing of interest payments when evaluating bids. The issuer will be using which of the following methods in its bid selection? A) Net interest cost. B) Low interest cost. C) True interest cost. D) Real interest cost.
C) True interest cost.
The individual responsible for the overall supervision of all of a firm's options activities on behalf of its customers must be: A) the general securities principal. B) an office manager. C) a registered options principal (ROP). D) the financial and operations principal.
C) a registered options principal (ROP).
Corporate bonds that are guaranteed are: A) required to maintain a self-liquidating sinking fund. B) guaranteed as to payment of principal and interest by the U.S. government. C) guaranteed as to payment of principal and interest by another corporation. D) insured by Assured Guaranty Corp. (AGC).
C) guaranteed as to payment of principal and interest by another corporation.
A customer buys 200 XYZ at 32, 2 XYZ June 35 calls at 3 and 1 XYZ June 35 put at 6.50. Two months later, the customer purchases 1 XYZ June 35 put at 4. Before expiration, with XYZ trading at 37, he sells his stock, and closes his calls at 2.10 and his puts at .25 for a: A) gain of $180. B) loss of $450. C) loss of $180. D) gain of $450.
C) loss of $180. The customer opens 4 positions with debits to his account: 200 shares at $32 per share = a debit of $6,400; 2 calls at $300 each = $600; 1 put at $650 = a debit of 650; and finally, an additional put at $400. The stock position is sold for $37 per share for a credit of $7,400. The calls are closed for 2.10 each, a credit of $420, and the puts are closed for a credit of $25 each.
All of the following are money market instruments EXCEPT: A) bankers' acceptances. B) reverse repurchase agreements. C) options. D) commercial paper.
C) options.
If a customer fails to return a proxy statement to a member firm by the 10th day before the annual meeting, the member may vote the shares: A) without restriction B) with the permission of the issuer. C) provided the matters to be voted on are of minor importance. D) under no circumstances.
C) provided the matters to be voted on are of minor importance.
Your broker/dealer has prepared an advertising piece for general distribution to all of its retail customers regarding numerous option strategies. Filing the piece with FINRA is A) required to occur no later than the end of the month during which it was used B) required within 10 business days of the time it is first used or published C) required at least 10 business days prior to first use or publication D) not required
C) required at least 10 business days prior to first use or publication
When assets are pooled into financial instruments such as Collateralized Mortgage Obligations (CMOs) to better facilitate selling them to the general public, the process is known as: A) diversification. B) best efforts. C) securitization. D) structuring.
C) securitization.
When a member firm sells municipal bonds to a customer out of its inventory, it must: A) disclose the amount of commission on the customer's confirmation. B) comply with the 5% markup policy. C) take into consideration the total dollar amount of the transaction when determining the markup. D) indicate the amount of markup on the customer's confirmation.
C) take into consideration the total dollar amount of the transaction when determining the markup.
If a customer has a margin account with a long market value of $140,000 and a debit balance of $60,000, what is the buying power in the account? A) 0. B) 10000. C) 5000. D) 20000.
D) 20000. The buying power of a margin account is twice the amount of SMA. This account has equity of $80,000, and the Regulation T requirement is $70,000. Therefore, the excess equity is $10,000 or SMA purchasing power equal to $20,000.
The over-the-counter market could be characterized as what type of market? A) Primary. B) First. C) Auction D) Dealer.
D) Dealer.
An investor has accumulated 3000 shares of XYZ common stock over several years via several separate purchases. If the investor sells 1000 shares and chooses to identify the specific shares sold for tax purposes, he must: A) Identify the specific shares to be sold prior to the transaction. B) Notify FINRA on the trade date. C) Notify the IRS no later than the last business day of the month the trade occurred in. D) Notify the broker dealer who handled the sell transaction within 3 business days of the trade date.
D) Notify the broker dealer who handled the sell transaction within 3 business days of the trade date.
One broker/dealer receives a don't know (DK) notice from another. Which of the following would be a reason for a DK to be sent? A) The broker/dealer who sent the DK wants to know if the other broker's customer wants to trade more stock at the same price. B) The broker/dealer who sent the DK is alerting the other broker that one of their clients has opened a new account with them. C) The broker/dealer who sent the DK is confirming that the trade specifications are good. D) The broker/dealer who sent the DK was expecting 200 shares of ABC common stock and received 200 shares of ABC preferred shares.
D) The broker/dealer who sent the DK was expecting 200 shares of ABC common stock and received 200 shares of ABC preferred shares.
Which of the following events would require public disclosure and a corporation to file a report with the SEC? A) The value of the company's shares rises by more than 1% in a single day. B) The company is featured in a trade journal. C) The number of registered market makers in the company's stock increases. D) The company's employees strike.
D) The company's employees strike.
If a customer owns 7% of a publicly traded company's stock and his spouse owns 6% and wants to sell her shares, which of the following statements is TRUE? A) The spouse is not an affiliate and Rule 144 does not apply. B) The spouse is not an affiliate and Rule 144 applies. C) The spouse is an affiliate and Rule 144 does not apply. D) The spouse is an affiliate and Rule 144 applies.
D) The spouse is an affiliate and Rule 144 applies.
Which of the following legislative acts exclusively regulates debt securities? A) Securities Act of 1933. B) Securities Exchange Act of 1934. C) Investment Advisers Act of 1940. D) Trust Indenture Act of 1939.
D) Trust Indenture Act of 1939.
Customers seeking to open an options account may be granted approval by the: A) registered representative. B) branch manager only. C) registered financial advisor. D) branch manager initially, with the subsequent approval of a ROP.
D) branch manager initially, with the subsequent approval of a ROP.
A person wishing to grant a registered representative the right to make investment decisions for his account does so by: A) providing a letter from an attorney. B) calling the representative each time he wants to place an order. C) providing a full power of attorney to someone other than the registered representative who will then instruct the representative as to investment decisions. D) providing a limited power of attorney giving discretionary powers.
D) providing a limited power of attorney giving discretionary powers.
An employee of another broker/dealer would like to open an account with your firm. Under FINRA rules, all of the following statements regarding the employee and the account are true EXCEPT A) if the employer requests them, they must receive duplicate copies of all account transactions B) the employer must be notified in writing of the opening of the account C) the employer need not grant prior written approval to open the account D) the broker/dealer holding the account must approve each transaction before entry of the order
D) the broker/dealer holding the account must approve each transaction before entry of the order
A customer's confirmation for a municipal bond callable at par and quoted higher than the nominal yield would show: A) coupon yield. B) yield to call (YTC). C) current yield. D) yield to maturity (YTM).
D) yield to maturity (YTM). Because the quoted yield is higher than the nominal yield, the bond is offered at a discount; the lower of YTM or YTC is the bond's yield to maturity.
Which of the following is NOT under governance of the MSRB? I. Issuers of municipal fund securities. II. Broker/dealers that sell municipal fund securities. III. Issuers of municipal bonds. IV. Banks that sell municipal securities.
I and III Issuers of municipal or municipal fund securities are exempt issuers and are not regulated or under the guidance of the MSRB or any other SRO.
An investor purchases 100 shares of XYZ common stock for $70 and sells it one year later for $50. Which of the following activities would violate the wash sale rule? I. Purchasing an XYZ call option 20 days after the sale. II. Purchasing an XYZ put option 20 days after the sale. III. Purchasing 100 shares of XYZ common stock 20 days after the sale. IV. Selling short 100 shares of XYZ common stock 20 days after the sale.
I and III The wash sale rule is violated when an investor sells a security at a loss and purchases the same or a substantially identical security within 30 days of the sale date. The IRS considers a call option substantially identical to the underlying stock because it represents the right to buy the shares.
Which of the following statements describe the conduit theory of taxation? I. A fund is not taxed on earnings it distributes provided distributions equal 90% or more of net investment income. II. Earnings distributed by a regulated investment company are taxed three times. III. Dividends and interest are passed through to the investor without the fund being taxed. IV. Dividends and interest accumulate tax free to the shareholder.
I and III Under the conduit, or pipeline, theory of taxation, a fund is liable for taxes only on the income retained, provided it distributes at least 90% of its net investment income. The investor benefits because the income is only taxed twice (at the corporate level and at the individual level), and avoids taxation at the fund level. There is no tax-free accumulation for the shareholder.
An investor who believes the U.S. dollar will strengthen against the Canadian dollar should profit from which of the following strategies? I. Buying puts on the Canadian dollar. II. Writing puts on the Canadian dollar. III. Writing a straddle on the Canadian dollar. IV. Establishing a call credit spread on the Canadian dollar.
I and IV
Which of the following regarding a Roth IRA are TRUE? I. The contributions are nondeductible. II. Contributions must cease at age 70½. III. Withdrawals must begin at age 70½. IV. Withdrawals after age 59½ can be tax free.
I and IV
If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? I. She will receive the annuity's entire value in a lump-sum payment. II. She may choose to receive monthly payments for the rest of her life. III. The accumulation unit's value is used to calculate the total value of the account. IV. The annuity unit's value represents a guaranteed return.
II and III
Characteristics of Inverse Floater CMOs include: I. low volatility. II. high volatility. III. decreasing principal payments as interest rates rise. IV. increasing principal payments as interest rates rise.
II and III Inverse floater CMO tranche types are considered to be highly volatile and suitable only for sophisticated investors willing to assume high levels of risk. As interest rates rise, principal payments to the investor may decrease. The reduction in repayment of principal extends the maturity date which is known as extension risk.
In which of the following markets would an investor expect to find closed-end investment company shares traded? I. A market maintained by the investment company itself. II. The over-the-counter market. III. The commodities market. IV. The exchanges.
II and IV
An investor enters a day order to buy 200 shares of GGZ at 63. Three hours later, with GGZ trading above that price, he calls his registered representative wanting to change the order to a good-till-canceled order. The registered representative should: I. immediately cancel the existing order. II. leave the existing order on the order book. III. immediately enter a new limit order to buy 200 shares of GGZ at 63 GTC. IV. enter a new limit order to buy 200 shares of GGZ at 63 GTC before the next day's opening if the day order was unexecuted.
II and IV The representative should not cancel the existing order because it would lose priority on the order book. However, the representative should not enter a GTC order that day because it could be filled twice. Instead, the representative should let the order stay for the day, when it would be canceled automatically if not executed. Then, the representative could enter a GTC order the next morning.
When a registered representative opens a new options account, in which order must the following actions take place? I. Obtain approval from the branch manager. II. Obtain essential facts from the customer. III. Obtain a signed options agreement. IV. Enter the initial order.
II, I, IV, III
