Qbank SIE
MAS Corporation has enjoyed an extremely profitable year. It has been determined that those owning the MAS 4% preferred, participating to 6% preferred shares, will receive the full participating dividend. The participating shareholders will receive an additional dividend of
2% The stated MAS preferred dividend is 4%, participating up to 6%. In this year, when it has been determined that they should receive the full participating dividend, they will receive the additional participating 2%. Reference: 2.1.1 in the License Exam Manual
Updates to the Form U-4 such as a change in address, and that do not point to disciplinary action must be made promptly but no later than
30 days Any changes such as a change in address require filing an amended Form U-4 with the Central Registration Depository (CRD) no later than 30 days after the member becomes aware of the changes. If the amendment to the form involved a likely statutory disqualification, an amended form must be filed within 10 business days. Reference: 4.2.1 in the License Exam Manual
A strong U.S. dollar leads to more ?
A strong U.S. dollar leads to more U.S. imports and a balance of payments deficit When the dollar is strong, it is more affordable for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit. Reference: 1.3.3 in the License Exam Manual
For a real estate DPP, which of the following is TRUE? A) Income can be derived from rents received for the properties. B) Neither income nor capital growth would come from rents received. C) Capital growth can be derived from rents received. D) Income will come from appreciation of the portfolio properties.
A) Income can be derived from rents received for the properties. For real estate DPPs, both income and capital growth are possible. Income comes from the property rents received, and capital growth would come from the appreciation of the properties. Reference: 2.1.5 in the License Exam Manual
Under the Uniform Securities Act (USA), state laws require that registered representatives must register in a state in which of the following circumstances? A) The registered representative is a resident of the state. B) The registered representative solicits business in the state. C) The registered representative vacations in a state more than twice per year. D)The registered representative owns rental property in a state
A) The registered representative is a resident of the state. B) The registered representative solicits business in the state. State laws require that broker-dealers with an office in the state, or those that direct calls into the state or receive calls from the state, be registered in that state. Registered representatives must register in a state if they are residents or if they solicit business in a state. Reference: 1.4.3 in the License Exam Manual
Affiliate-
Affiliate- A person who directly or indirectly controls, owns, or holds 10% or more of the outstanding voting securities of a company. Under Investment company act of 1940 , a person who has any type control over an investment company's operations, which includes anyone with 5% or more of voting securities outstanding, or any corporation which hold 5% or more of voting securities outstanding.
The options disclosure document must be provided ?
At or before the time of account approval The options disclosure document (ODD) explains options strategies, risks, and rewards and is designed to provide full and fair disclosure to customers before they begin options trading. It must be provided at or before the time the account is approved. Reference: 2.1.3 in the License Exam Manual
Regarding oil and gas DPPs, tangible drilling costs are associated with items that A) have no salvage value at the end of the program B) have some salvage value at the end of the program C) can be depreciated D) cannot be depreciated
B) have some salvage value at the end of the program C) can be depreciated Costs for items that will have some salvage value at the end of the program are considered tangible drilling costs. These items, such as equipment, can be depreciated and written off over the life of the program. Reference: 2.1.5 in the License Exam Manual
Which of the following orders can be used to close a short position in CDT stock that consists of 1,000 shares?
Buy 1,000 shares of CDT To close a short position consisting of 1,000 shares of CDT stock, one would need to purchase 1,000 shares—buy 1,000 shares of CDT. Buying the call options would not close the position, but once owned, they could be exercised with the purchased shares then used to close the short position. Reference: 3.1.1 in the License Exam Manual
NON-Systematic Risk
Capital Risk- Is the potential of loss of part or all of an investment. It applies to the whole gamut of assets that are not subject to a guarantee of full return of original capital. Investors face capital risk when they invest in stocks, non-government bonds, real estate, commodities, and other alternative assets. Also, when a company invests in a project, it exposes itself to risk that the project will not produce future returns to cover its capital invested. Business Risk generally caused by poor management decisions. At best lower earnings, at worst drive the company out of business. Business risk is any exposure a company or organization has to factor(s) that will lower its profits or lead it to fail. Business risk comes from different sources including consumer taste and demand, the overall economy, and government regulation. While businesses may not be able to completely avoid risk, they can take steps to mitigate the impact including the development of a strategic risk plan. Financial Risk Mostly related to companies that use debt financing (leverage). Inability to meet interest and principle payments or on debt obligations can lead to bankruptcy. Also referred to as credit risk or default risk. Financial risk generally relates to the odds of losing money. The financial risk most commonly referred to is the possibility that a company's cash flow will prove inadequate to meet its obligations. Financial risk can also apply to a government that defaults on its bonds. Credit risk, liquidity risk, asset-backed risk, foreign investment risk, equity risk, and currency risk are all common forms of financial risk. Investors can use a number of financial risk ratios to assess a company's prospects Call Risk Call risk is the risk that a bond issuer will redeem a callable bond prior to maturity. This means the bondholder will receive payment on the value of the bond and, in most cases, will be reinvesting in a less favorable environment—one with a lower interest rate. This can lead to reinvestment risk. There are ways to protect against this which are known as call protection. Prepayment risk Prepayment risk is the risk involved with the premature return of principal on a fixed-income security. When principal is returned early, future interest payments will not be paid on that part of the principal, meaning investors in associated fixed-income securities will not receive interest paid on the principal. The risk of prepayment is most prevalent in fixed-income securities such as callable bonds and mortgage-backed securities (MBS). Bonds with payment risk often have prepayment penalties. Currency Risk Currency Risk- commonly referred to as exchange-rate risk, arises from the change in price of one currency in relation to another. Investors or companies that have assets or business operations across national borders are exposed to currency risk that may create unpredictable profits and losses. Liquidity Risk stems from the lack of marketability of an investment that can't be bought or sold quickly enough to prevent or minimize a loss. It's typically reflected in unusually wide bid-ask spreads or large price movements. Regulatory risk Regulatory risk is the risk that a change in laws and regulations will materially impact a security, business, sector, or market. A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of an investment, or change the competitive landscape. Legislative Risk- Lumped together with regulatory risk but different because it is not a change to regulations but rather a risk that results from a change in the law. A government agency, state or the FEDS may pass certain regulations, but only a legislature can pass a law. Changes to the tax code is most obvious and common type of legislative risk. Political Risk Political risk is the risk an investment's returns could suffer as a result of political changes or instability in a country. Instability affecting investment returns could stem from a change in government, legislative bodies, other foreign policymakers or military control. Political risk is also known as "geopolitical risk," and becomes more of a factor as the time horizon of investment gets longer There are a variety of decisions governments make that can affect individual businesses, industries, and the overall economy. These include taxes, spending, regulation, currency valuation, trade tariffs, labor laws such as the minimum wage, and environmental regulations. The laws, even if just proposed, can have an impact
Can a registered representative of a member firm to receive any form of compensation, such as commissions, after terminating employment ?
Continuing commissions are permitted, but there is no requirement that they be offered. In order for a former registered representative to receive them, the terms must be spelled out in a contract entered into before termination. The contract may call for payment to heirs but cannot provide any compensation for business referred or introduced by an employee after that person ceases to be registered with the member. Reference: 3.3.3 in the License Exam Manual
Control Persons-
Control Persons- Directors, officers, or persons who own or control 10% or more of issuers voting stoc
Which of the following is TRUE regarding a registered person who wishes to move her registration from one broker-dealer to another? A) A person who has been registered more than 25 years is grandfathered in and no filings need to be made. B) If the registered person has taken and passed the Series 24 General Securities Principal Exam, no filings need be made. C) Only Form U-5 need be filed, separating the registered person from the existing employer. D) In no circumstances can a registration be transferred from one firm to another.
D) In no circumstances can a registration be transferred from one firm to another. Transferring a registration from one member firm to another is not permitted. Should a person resign or be terminated, the member firm must file a Form U-5 with the Central Registration Depository (CRD) within 30 days of the termination date. A Form U-4 must then be filed by the new employer with all of the form's information requirements met. Reference: 4.2.1 in the License Exam Manual
An investor short a January 30 call at 4 has a maximum gain potential of
Dont Take Premium into account it is just the cost to play for the purchaser. 4 points or $400 Maximum gain for any short option position (call or put) is the premium initially received when the contract was written. In this case, it is 4 points or $400. This would occur if, at expiration, the contract was at or out of the money and, therefore, left unexercised. Reference: 2.1.3 in the License Exam Manual
With CCD stock at 40, a September 45 call trading at 3 is out of the money by
Dont Take Premium into account it is just the cost to play for the purchaser. 5 points and has no intrinsic value When a calls strike price is higher than the underlying stocks value, the call contract is out of the money. In this case, it is out of the money by 5 points (45 - 40). When a contract is out of the money, we say that it has no intrinsic value. We do not use the term "negative" when referring to contracts with no intrinsic value. Reference: 2.1.3 in the License Exam Manual
Rule 144A
For QIB's only. No volume or holding period as long as other purchaser is QIB.
Types of Systematic Risk
Market Risk Interest Rate Risk Reinvestment Risk Inflation Risk (purchasing power risk) Market Risk- When overall market declines, so too will any portfolio made up of the securities that market is comprised of. Interest Rate Risk- Interest rate risk is the potential that a change in overall interest rates will reduce the value of a bond or other fixed-rate investment. As interest rates rise bond prices fall, and vice versa. This means that the market price of existing bonds drops to offset the more attractive rates of new bond issues. Long-term bonds often have a maturity risk premium to offset the potential downside of interest rate changes. Investors can reduce interest rate risk by buying bonds that mature at different dates. They also may allay the risk by hedging fixed-income investments with interest rate swaps and other instruments. Reinvestment Risk- Reinvestment risk refers to the possibility that an investor will be unable to reinvest cash flows (e.g., coupon payments) at a rate comparable to their current rate of return. Zero-coupon bonds are the only fixed-income security to have no investment risk since they issue no coupon payments. Callable bonds are especially vulnerable to reinvestment risk because the bonds are typically redeemed when interest rates decline. Methods to mitigate reinvestment risk include the use of non-callable bonds, zero-coupon instruments, long-term securities, bond ladders, and actively managed bond funds. Inflation (purchasing power risk)- Effect of continually rising prices. If an investments yield is below the inflation rate the purchasing power of a client's money diminishes over time. Conversely deflation is a prolonged period of falling prices which in turn make fixed income instruments more valuable because their coupon payments can buy more goods and services.
For registered shares held by an affiliate (known as control stock), which of the following applies?
No holding period, but volume limits always apply Control stock would be registered shares held by an affiliate. There is no holding period, but there will always be volume limits for as long as the individual is an affiliate. Reference: 2.1.1 in the License Exam Manual
A municipal securities dealer has just made a contribution to the mayor's reelection campaign. How long must the firm wait before it can enter competitive bids on proposed bond issues by the city?
No waiting period If a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a 2-year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not. Reference: 4.2.2 in the License Exam Manual
Bills have maturities of less than one year, and only make one payment at maturity, and are issued essentially every week. What about Notes and Bonds.
Notes have maturities ranging from 2 to 10 years and several are issued every month. Bonds have maturities of 30 years and are issued several times per year.
Restricted Securities-
Restricted Securities- are those acquired through some means other than a registered public offering. A security purchased in a private placement is a restricted security. Restricted securities may not be sold until they are held fully paid for 6 months.
Rule 144 Control Securities (registered securities)
Rule 144 Control Securities (registered securities) held by an affiliate has no hold requirement, but always subject to volume limits. Restricted Stock held by an affiliate must hold the stock fully paid for 6 months and are then subject to the following volume restrictions: 1 % of total outstanding shares of same class or average weekly trading volume in the stock over last 4 weeks on all exchanges as reported through Nasdaq. Restricted Stock held by a non-affiliate 6 month held than can sell freely with now volume limits.
On behalf of a customer, a broker-dealer requested an extension for payment that was not granted. The broker-dealer must ?
Sell out the securities purchased and freeze the account for 90 days If the extension request was not granted (denied), the broker-dealer must sell out the securities purchased and freeze the account for 90 days. Reference: 3.2.1 in the License Exam Manual
Economic reports show that there is a general rise in prices for consumer goods and a high unemployment rate occurring simultaneously. This combination can best be described as
Stagflation is the term used to describe the unusual combination of inflation (a rise in prices) and high unemployment (stagnation). This generally occurs when the economy isn't growing (there is a lack of consumer demand and business activity), yet prices for goods are still rising. Reference: 1.3.2 in the License Exam Manual
A corporation has a shareholders' meeting coming up wherein several controversial proposals will be made. A number of persons will be actively soliciting proxies, and the corporation plans to send out up-to-date material on the proposals to shareholders to permit them to make informed decisions. Which of the following must review this material before it is sent out?
The Securities and Exchange Commission If proxies are to be solicited in what is known as a proxy contest, the corporation must send out written material to the shareholders to permit them to make informed proxy decisions. The SEC imposes this requirement and further requires that it be given the material to review before it is sent to the shareholders. Reference: 3.1.4 in the License Exam Manual
T-bills are issued (auctioned) by the U.S. Treasury Department how often?
Treasury bills (T-bills) are issued (auctioned) by the U.S. Treasury weekly. Reference: 2.1.2 in the License Exam Manual
When is the electronic filing of all information on customer complaints by broker-dealers with FINRA due?
Within 15 days of the end of each calendar quarter Broker-dealer firms must electronically report information on all customer complaints to FINRA within 15 days of the end of each calendar quarter. Both these filings and the complaints must be retained by the firm for 4 years. Reference: 4.2.1 in the License Exam Manual
Common shareholders have the right to receive an audited set of financial statements of the company's performance
annually While a company can supply this information as often as they want to shareholders, it is only required that an audited report be received on an annual basis. Reference: 2.1.1 in the License Exam Manual
The statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" is
mandated to be in the final prospectus by the SEC Commonly known as the Securities and Exchange Commission's disclaimer, the SEC mandates that it be found in the final prospectus. Reference: 1.4.4 in the License Exam Manual
A penny stock is best described as an
unlisted stock valued at less than $5 per share A penny stock is an unlisted (not listed on a U.S. stock exchange) security offered at less than $5 per share. Reference: 2.1.1 in the License Exam Manu