Random SIE Final #1
ABC Corp. plans to issue subordinated notes that include warrants . The warrants allow investors to purchase ABC common stock . Based on this information , which is most likely true of the notes ? [ A ] The notes become less marketable at issuance . [ B ] It will be required to pay a higher interest ( coupon ) rate . [ c ] It will make the notes more difficult to sell in the secondary market . [ D ] The notes will become more marketable at issuance .
D ] The notes will become more marketable at issuance . With the inclusion of warrants in the sale of the subordinated notes , the corporation could pay a lower interest rate because of this added and attractive feature . Also , the notes will likely be more marketable ( investors would be more willing to buy these notes when they are issued ) . The warrants do not make it more difficult to sell the security in the secondary market .
Municipal security issuers and market participants are subject to which of the following ? [ A ] Anti - fraud provisions of the Securities Exchange Act of 1934 . [ B ] Prospectus delivery requirements to purchasers of new issues ( the Securities Act of 1933 ) . [ c ] Issuer reporting requirements to the SEC under the Securities Exchange Act of 1934 . [ D ] Securities registration requirements to the SEC before selling to the public .
[ A ] Anti - fraud provisions of the Securities Exchange Act of 1934 . All securities are subject to the anti - fraud provisions of the 1934 Act , but while municipals do not provide a prospectus , they do provide an Official Statement , and municipals . exempt from the SEC reporting and registration requirements . Anti - Fraud is a Federal Act , so it will be referenced in both Federal Acts - 1933 and 1934. Both Acts protect the public from fraud . You could see it either way on the exam .
Mark - to - market adjustments of open short positions to reflect profits and losses must be made : [ A ] Daily [ B ] Weekly [ c ] Monthly [ D ] At year end
[ A ] Daily Mark - to - market is a daily adjustment of open short positions to reflect profit or losses .
A client contributes $ 500 a month to her qualified retirement plan . Which of the following taxes is NOT paid on these contributions ? [ A ] Federal income tax [ B ] Social security tax [ c ] State unemployment tax [ D ] Medicare tax
[ A ] Federal income tax In tax - qualified deferred compensation plans ( e.g. , 401k plans ) , income taxes are deferred on contributions until distributions are taken from the plan . However , contribution amounts are still subject to social security , Medicare , and state and federal unemployment tax .
Which of the following best describes a mutual fund that invests in stocks and bonds issued by U.S. and foreign companies ? [ A ] Global Fund [ B ] G - 8 Fund [ c ] International Fund [ D ] Any open - end fund
[ A ] Global Fund Global Funds include stocks and bonds issued by U.S. and foreign companies whereas an International Fund would not include the U.S ..
Activities of Open Market Operations of the Federal Reserve Board include : I. Influencing interest rates II . Contracting or expanding the money supply III . To cause foreign markets to fluctuate IV . Determining the amount of government securities that will be issued weekly [ A ] I and II [ B ] I and III [ c ] II and III [ D ] II and IV
[ A ] I and II The Federal Reserve Board's Open Market Operations ' activities influence interest rates and the money supply .
After a mild recession , the U.S. economy enters a prolonged period of economic growth . During such a period of time , which of the following would be a concern of the Federal Reserve and would be a reason for the Federal Reserve to increase interest rates ? [ A ] Inflation [ B ] Deflation [ c ] Unemployment [ D ] Foreign Trade
[ A ] Inflation During periods of economic growth , inflation can become an issue . Inflation ultimately means a de valuation of the US Dollar . In order to combat inflation , the Federal Reserve would increase interest rates and tighten the money supply in the US .
An inverted yield curve generally indicated that : [ A ] Interest rates have increased quickly . [ B ] Interest rates have declined quickly . [ c ] Interest rates have remained stable . [ D ] Interest rates have no effect on yield curves .
[ A ] Interest rates have increased quickly .
What is the typical form of compensation that an investment advisor ( IA ) charges a mutual fund ? [ A ] It's considered a fee charged for investment advice and / or based on the fund's assets . [ B ] It must be charged according to the SEC's guidelines for IA rates . [ c ] It's a percentage of the sales charges . [ D ] The IA typically charges an overall percentage of profits realized by the fund .
[ A ] It's considered a fee charged for investment advice and / or based on the fund's assets . Most investment advisors to a fund are paid a management fee based on a sliding scale of the average daily net assets of the fund and this fee is deducted from the gross income of the fund .
Which of the following is TRUE of open - end investment companies ? [ A ] Shares are issued and redeemed daily . [ B ] A fixed number of shares is issued and then publicly traded . [ c ] Upon initial issuance , the investor must be provided with a prospectus ; secondary market transactions do not require a prospectus . [ D ] The share price at which an investor can sell the fund is based on supply and demand .
[ A ] Shares are issued and redeemed daily . Open - end Investment companies shares are issued and redeemed daily and because newly issued shares are constantly being offered , a current prospectus must always be provided to the investor with new purchases . Open - end investment funds do not issue a fixed number of shares upon issuance . An investor can sell an open - end fund at its NAV , not at a price determined by supply and demand .
Listed options contracts are standard contracts that are issued by and guaranteed by : [ A ] The Options Clearing Corporation [ B ] The Federal Reserve Board [ c ] The exchange where the option is listed [ D ] The writers of the option
[ A ] The Options Clearing Corporation Listed option contracts are standardized contracts that are issued by and guaranteed by the Options Clearing Corporation ( O.C.C. ) .
What information MUST a telemarketer disclose to the recipient of a cold call according to the Telephone Consumer Protection Act of 1991 ? [ A ] The caller's and the firm's names and the firm's address or telephone numbers . [ B ] How the caller got the recipient's name and telephone number . [ c ] The purpose of the call [ D ] That the recipient is not on the caller's do - not - call list .
[ A ] The caller's and the firm's names and the firm's address or telephone numbers . The Cold Calling rules require telemarketers to disclose the caller's name , the firms name and the address or telephone number from where the call is being made .
Brokerage Firms are required under SEC Rules to maintain books and records for certain periods of time . SEC Rule 17a - 4 requires FINRA Member Firms to maintain Order Tickets for which of the following time periods ? [ A ] Three years . [ B ] Five years . [ c ] Six years . [ D ] Life of the enterprise .
[ A ] Three years . Order Tickets must be kept under SEC Rule 17a - 4 for a period of three years . Customer account records must be kept for six years .
A benchmark is best described as [ A ] a measure to gauge investment performance . [ B ] the loan rate on margin accounts . [ c ] the intrinsic value of an option . [ D ] a breakpoint level for mutual fund purchases .
[ A ] a measure to gauge investment performance . Benchmarks are used to gauge or measure the performance of an investment such as an individual stock or a portfolio of stocks . There are benchmarks that can be used for different asset classes , including stocks . bonds , and commodities . One of the most common benchmarks used by investors and analysts is the S & P 500 Index .
A broker - dealer must disclose credit terms to customers opening Margin Accounts . The credit terms relating to margin transactions must be given to customers in writing under SEC Rules : [ A ] at the time of or before the opening the Margin Account . [ B ] At the exact time the Margin Account is opened . [ c ] Prior to executing the first margin transaction the account . [ D ] No later than Settlement Date of the first transaction .
[ A ] at the time of or before the opening the Margin Account . SEC Rules require disclosure to be made by a broker - dealer to a customer concerning credit terms at the time of or before the account is opened .
An investor is interested in owning REIT securities . He is aware of an upcoming offering of a new hybrid REIT . The investor is not an accredited investor and is able to invest a maximum of $ 2,000 only . The investor [ A ] can purchase the REIT . [ B ] cannot purchase the REIT because he does not meet the minimum investment threshold . [ c ] cannot purchase the REIT because he is not an accredited investor . [ D ] cannot purchase the REIT because it would be unsuitable for this investor .
[ A ] can purchase the REIT . To purchase a REIT , an investor does not have to be an accredited investor , be in a specific tax bracket or invest a minimum amount . This is true of new REITS or those that trade in the secondary market . The question is not asking about the suitability and there is not enough information in the question to make a suitability determination .
Due to a significant increase in demand for used cars , used car sellers raise their prices . This best describes [ A ] demand - pull inflation . [ B ] cost - push inflation . [ c ] core inflation . [ D ] price discovery .
[ A ] demand - pull inflation . Demand - pull inflation occurs when demand for goods or services is greater than supply . As a result , suppliers will increase prices to meet the increased demand .
Settlement date for a cash transaction is [ A ] on the same day as the transaction . [ B ] on the next business day after the transaction . [ c ] on the second business day after the transaction . [ D ] on the fourth business day after the transaction .
[ A ] on the same day as the transaction .
If a trade in municipal securities is T + 2 , it is [ A ] regular way . [ B ] cash . [ c ] when issued . [ D ] delayed delivery .
[ A ] regular way .
The following net asset values of closed - end bond fund shares were reported by the individual companies as of Friday , June 14 , 19XX . The table shows the closing listed market price or a dealer - to - dealer ask price of each fund's shares , with the percentage of difference (NAV) (Stock Price) (% Difference) European Limited Bond Fund ($ 19.18) ($19.73) (+2.1) Pioneer Fund ($18.12) ($17.78) (-.8) An investor paid approximately how much if he purchased 100 Pioneer Fund on June 14 . [ A ] $ 17.78 [ B ] $ 17.78 + commission [ c ] $ 18.13 + a sales load [ D ] $ 18.12 + a markup of .8 %
[ B ] $ 17.78 + commission Notice that these are quotes on Closed End funds which trade just like a stock trades , therefore the customer would pay the closing stock price plus commission .
Assume a customer places an order with a registered representative and the order ticket is written up as follows ( order has not been executed ) : Order ticket (Exchange) (Buy / Sell / Short) (Quantity) (Symbol / Description) (Price) (NYSE) (Buy) (5M) (Consolidated Industry 43 / 4 % 2030) (85) If executed at the customer's price , he will pay a total of : [ A ] $ 850 [ B ] $ 4,250 [ c ] $ 5,000 [ D ] $ 8,500
[ B ] $ 4,250 The investor is buying bonds with a par value of $ 5,000 ( indicated by the 5M ) at a price of 85 . 85 x $ 10 per point = $ 850 per bond $ 850 per bond x 5 bonds = $ 4,250
When discounting a draft between a US company and a foreign exporter to expedite foreign trade , they would be discounting which of the following ? [ A ] A Treasury Bill [ B ] A Banker's Acceptance [ c ] A Certificate of Deposit [ D ] A Letter of Credit
[ B ] A Banker's Acceptance A Banker's Acceptance would be used to finance foreign trade and would be discounted in order for the exporter to receive immediate payment .
A Joint Account With Rights of Survivorship , established for a husband and wife , would have all of the following characteristics EXCEPT : [ A ] Both the husband and wife may place orders to trade in the account . [ B ] A Consent Agreement must be signed by both the husband and wife so that checks may be made payable to either party . [ c ] A Margin Agreement would have to be signed by both the husband and wife if margin functionality was part of the account . [ D ] Should either party to the account die , the surviving party would get complete control of the account .
[ B ] A Consent Agreement must be signed by both the husband and wife so checks may be made payable to either party . Checks may only be made payable to both parties in a JTWROS account .
Under the Investment Company Act of 1940 , Which of the following is NOT an investment company ? [ A ] A unit investment trust [ B ] A variable annuity [ c ] A mutual fund [ D ] A face amount certificate
[ B ] A variable annuity There are three types of investment companies : 1. face amount certificates 2. unit investment trusts 3. management companies ( open - end and closed - end funds ) . While variable annuity separate accounts are regulated under the Investment Company Act of 1940 , they are not considered to be an investment company .
A customer asks his RR how the market looks for XYZ shares . She states that the bid is $ 25 and the ask is 25.10 . The last sale was $ 25.05 . The investor places a market order to buy 100 shares . At what price will the customer buy shares and at what price is the market maker of XYZ shares obligated to sell these shares to the customer ? [ A ] Customer : $ 25.10 and market maker : $ 25 [ B ] Customer : $ 25.10 and market maker : $ 25.10 [ c ] Customer : $ 25 and market maker : $ 25 [ D ] Customer : $ 25.05 and market maker : $ 25.05
[ B ] Customer : $ 25.10 and market maker : $ 25.10 The bid price is the price at which a market maker will buy stock from a customer who enters a market order to sell . The ask price is the price that a market maker will sell to a customer who enters a market order to buy . The current market in XYZ shares is Bid : $ 25 and Ask : $ 25.10 . So the market maker will sell at $ 25.10 . which is what the customer will pay for the stock . The market maker could also sell at $ 25.05 , which is in the middle . However , the market maker is not obligated to do so . 1.800.339.3445
Which of the following is NOT required on a new account form ? [ A ] Investment objectives [ B ] Education [ c ] Customer Tax ID Number [ D ] Citizenship
[ B ] Education The customer's education does not have to be noted on the new account form .
Mr. Smith is a 50 year old client of Bob , who is a registered representative . Bob is trying to get Mr. Smith to purchase a non - qualified Deferred Variable Annuity offered by his company . In making this recommendation to Mr. Smith , Bob should first be sure that : [ A ] The variable annuity has a death benefit associated with it . [ B ] Mr. Smith has already made his maximum contributions into his before - tax retirement plans . [ c ] Mr. Smith plans to retire prior to the completion of the surrender period . [ D ] The variable annuity has a fixed annuity payment at the time Mr. Smith retires .
[ B ] Mr. Smith has already made his maximum contributions into his before - tax retirement plans . Since non - qualified Variable Annuities do NOT offer the before - tax benefits that other before - tax retirement plans offer ( such as 401k ) the RR should be sure that the customer has made the maximum contributions possible into before - tax retirement plans .
John is a registered representative and one day a new client walks into his office and wants to open a new account . The new client wants John to help him choose how to allocate his assets in his portfolio based on a seminar that the client attended . Which of the following would be the appropriate action for John to take ? [ A ] Open the new account , review the literature from the seminar and tell the client which asset allocation model is best for the client . [ B ] Prior to opening the account , John should obtain more information from the client with regard to his current investments , income , and investment objectives . [ c ] John should refuse to open the account because John did not attend the seminar and needs more information about the seminar , perhaps even going as far as attending . [ D ] John should open the account and come up with a portfolio for the client that doesn't include any of the strategies or investments covered in seminar .
[ B ] Prior to opening the account , John should obtain more information from the client with regard to his current investments , income , and investment objectives . The registered representative should , prior to opening the account , get additional information from the client with regard to the client's current investments , income , and investment objectives . Then the RR can look at the information from the seminar and see if it coordinates with being a suitable recommendation for the client and whether the client should open an account in the first place .
Fannie Mae commonly securitizes which of the following forms of debt to create CMO products ? [ A ] US Government Treasury Bonds [ B ] Residential Mortgages [ c ] Commercial Mortgages [ D ] Student Loan Debts
[ B ] Residential Mortgages Though many forms of debt can be " securitized " , Fannie Mae is a government agency that commonly securitizes residential mortgage debt into CMO products .
A client is seeking mortgage - backed securities such as Collateralized Mortgage Obligations ( CMOS ) in her portfolio . As an agent , each of the following would be suitable recommendations , EXCEPT securities created by [ A ] Fannie Mae ( FNMA ) . [ B ] Sallie Mae ( SLMA ) . [ c ] Ginnie Mae ( GNMA ) . [ D ] Freddie Mac ( FHLMC ) .
[ B ] Sallie Mae ( SLMA ) . Sallie Mae is an association established to create , service , and collect on educational or student loans . Student Loans would NOT be included in recommendations tied to mortgage - backed products such as CMOS . Each of the other entities works with CMO products .
Which of the following regulations or regulators added the requirement that member firms obtain a client's Social Security Number or Tax ID Number when opening an account ? [ A ] FinCen ( Financial Crimes Enforcement Network ) [ B ] The USA Patriot Act [ c ] The Red Flags Rule from the FTC ( Federal Trade Commission ) [ D ] Pay - to - Play Rules
[ B ] The USA Patriot Act The USA Patriot Act added the requirement that a valid Social Security Number or Tax ID Number be collected when opening a new account at a member firm .
The most reliable source of a mutual fund's performance statistics would be found in which of the following ? [ A ] The Wall Street Journal [ B ] The fund's current prospectus [ c ] A financial magazine [ D ] The fund's sales literature
[ B ] The fund's current prospectus Due to the disclosure and updating requirements , the funds current prospectus would be the most reliable source of performance statistics of the fund .
Which of the following is considered a primary market transaction ? [ A ] The purchase of an equity security that is listed on the NYSE [ B ] The sale of municipal securities by an underwriter [ c ] The purchase of bonds that trade on an exchange [ D ] The transfer of shares of common stock to a beneficiary as part of an inheritance
[ B ] The sale of municipal securities by an underwriter The primary market transaction is the municipal securities sold by an underwriter . An underwriter facilitates the primary offering or primary sale of securities ( the first time the securities are sold by an issuer to the public ) . Each of the other scenarios are examples of secondary market trades or transfers .
Hypothecation occurs when [ A ] a customer gives a broker - dealer discretionary authority over their account . [ B ] a broker - dealer makes a margin loan to a customer using securities purchased as collateral for the loan . [ c ] a customer pays for purchases in full . [ D ] a broker - dealer sends the customer a minimum maintenance call .
[ B ] a broker - dealer makes a margin loan to a customer using securities purchased as collateral for the loan . Hypothecation occurs when the broker - dealer makes a margin loan to a customer using the securities purchased as collateral . Hypothecation by the customer , as well as the potential re - hypothecation of securities by the broker - dealer for margin loans will require the customer to sign a hypothecation agreement . Discretionary authority is provided to the broker - dealer when the customer signs a Discretionary Authorization . There is no hypothecation or pledge of collateral when a customer has a Cash account and pays for purchases in full . A minimum maintenance call would be identified as a minimum maintenance call , not hypothecation .
The following net asset values of closed - end bond fund shares were reported by the individual companies as of Friday , June 14 , 20XX . The table shows the closing listed market price or a dealer - to - dealer ask price of each fund's shares , with the percentage of difference NAV Stock Price % Difference European Limited Bond Fund $ 19.18 $ 19.73 +2.1 Pioneer Fund $ 18.12 $ 17.78 .8 At the close of business on June 14 , 20XX , European Fund is selling at [ A ] the current net asset value [ B ] a price 2.1 % higher than the close on the previous day [ c ] a premium [ D ] a discount
[ B ] a price 2.1 % higher than the close on the previous day Because under the column called " % Difference " , we see the fund price was +2.1 , that tells us the price was 2.1 % higher on June 14 Because no context is given in relation to the terms " premium " and " discount " in answers " C " and " D " , those answers are too ambiguous to be the best choice .
A registered individual at a member firm has received a lot of assistance from a team of Registered Representatives ( RRS ) and Operations Professionals ( OPS ) in opening a new account for a large institutional client . In total , 3 RRs and 3 OPs make up the team . Rather than buying individual gifts to show appreciation , the registered individual purchases a gift certificate to a local restaurant for $ 500 and gives it to the team at the end of the year having given no other gifts throughout the year . Under FINRA rules governing gifts , this arrangement is [ A ] unacceptable because the gift exceeds $ 100 . [ B ] acceptable because the gift is for 6 associated persons and falls below the $ 100 per person threshold . [ c ] unacceptable because clients are not permitted to give gifts to OPs , but would be acceptable if only given to the 3 RRs . [ D ] acceptable because dining expenses are considered entertainment and do not count toward the $ 100 / person gift limitations .
[ B ] acceptable because the gift is for 6 associated persons and falls below the $ 100 per person threshold . Because the team consists of 6 persons , the total allowable gift would be $ 600 or less , or $ 100 per person . At $ 500 , this gift is acceptable for 6 associated persons . Registered persons are permitted to give gifts to both OPs and RRs , but the $ 100 limitation applies . Though certain business dinner functions can be excluded from the $ 100 gift limitation , this is specifically a gift card to the team . So , the gift is only acceptable because it is under $ 100 per person and the $ 500 total would count toward the $ 100 / person gift rules .
Which of the following is incorrect regarding supervoting shares ? They [ A ] are issued by corporations . [ B ] are considered preferred stockholders . [ c ] permit a limited number of stockholders to retain control of a company . [ D ] provide shareholders with more than one vote per share as compared to another class of stock issued by the same company .
[ B ] are considered preferred stockholders . Supervoting shares are a type of shares issued by corporations that provide shareholders with more than one vote per share as compared to another class of stock issued by the same company . Supervoting stock permits a limited number of stockholders to retain control of a company . They are not considered preferred stockholders .
REITS can pass through all of the following to investors except : [ A ] dividends [ B ] capital losses [ c ] capital gains [ D ] interest
[ B ] capital losses Since REITs trade like a corporate security , there is no pass through of losses : losses are treated as capital losses .
Municipal securities which have interest and principal payments dependent on rental income from corporate facilities built to improve local environment are [ A ] special tax bonds . [ B ] industrial revenue bonds . [ c ] special assessment bonds . [ D ] limited tax general obligation bonds .
[ B ] industrial revenue bonds . The key words in the questions are " corporate facilities . " Municipal bonds issued on behalf of corporations are called Industrial Revenue Bonds .
An elderly customer of an RR develops dementia and can no longer handle his own affairs . The RR becomes aware of the customer's situation and can only take orders for trades in the customer's account from a third party who [ A ] has a power of attorney . [ B ] is a court - appointed guardian or conservator of the customer's property . [ c ] has a signed letter from the customer authorizing a third party to act for him . [ D ] is a close relative of the customer .
[ B ] is a court - appointed guardian or conservator of the customer's property If a customer develops dementia and cannot handle his or her affairs , a court order is required in order to take orders from a third party . A power of attorney may only be signed by a person of sound mind . ( However , a durable power of attorney signed at a time that the customer was of sound mind is acceptable documentation to take orders from a third party . ) A signed letter is insufficient because the customer is not of sound mind . Also , the fact that a person is a close relative is insufficient absent statutory authorization .
Mr. Smith is short 100 shares of ABC common stock when ABC pays a 10 % stock dividend . On the morning of the ex - date Mr. Smith would [ A ] receive 10 additional shares of ABC common stock [ B ] owe 10 additional shares of ABC common stock [ c ] not be affected by the stock dividend [ D ] owe the value of the 10 shares of ABC common stock in cash
[ B ] owe 10 additional shares of ABC common stock When a customer is SHORT stock and a stock dividend is paid , the investor would OWE the additional shares to the firm that they borrowed the stock from , therefore Mr.Smith would owe 10 additional shares of ABC common stock .
Common stock shareholders have all of the following rights EXCEPT : [ A ] vote for directors [ B ] vote for officers [ c ] supervoting shares [ D ] receive declared dividends
[ B ] vote for officers Officers are elected or appointed by the Board of Directors , not the shareholders .
An investor interested in obtaining an Official Statement for a particular state's 529 Plan would contact which of the following ? [ A ] SEC Securities Exchange Commission [ B ] FINRA Financial Industry Regulatory Authority [ C ] MSIL - Municipal Securities Information Library [ D ] Governor of the State
[ C ] MSIL - Municipal Securities Information Library Official Statements for a state's 529 Plan must be filed with the Municipal Securities Information Library MSIL ) and are available to the public .
The minimum deposit required for the purchase of $ 20,000 of a marginable stock in a margin account would be [ A ] $ 12,000 in cash . [ B ] $ 10,000 of marginable stock . [ c ] $ 20,000 in cash . [ D ] $ 20,000 of marginable stock .
[ D ] $ 20,000 of marginable stock . To satisfy the MINIMUM deposit requirement , the investor can do either of the following : Deposit Cash to meet a call = 100 % of the amount called is required . The question states that $ 20,000 in stock was purchased . Reg T is 50 % so the minimum cash required is $ 10,000 ( not $ 12,000 which is more than the minimum ) Deposit Securities to meet a call = deposit securities that have a loan value equal to the amount of the call ( twice as much of a deposit is needed in securities because securities have a loan value of 50 % ) . The Reg T. minimum deposit is $ 10,000 , so depositing marginable stock of $ 20,000 would meet that requirement .
A customer buys 200 shares of XYZ at $ 35 per share and buys 2 XYZ July 35 Puts for 2 each . The customer will have a pre - tax profit at what market price for the stock ? [ A ] $ 32 [ B ] $ 34 [ c ] $ 35 [ D ] $ 38
[ D ] $ 38 buys 200 shares of XYZ at 35 B - 7,000 buys 2 XYZ July 35 puts at 2 B -400 - 400 -7,000 Cost of transactions -7,400 $ 7,400 Cost/200 shares = $ 37 Breakeven Since the breakeven is 37 , the customer will have a " profit " if the market price of the stock goes up to 38 .
Each of the following activities in a customer's account would be considered suspicious , EXCEPT : [ A ] A transaction involving over $ 5,000 takes place that meets standard criteria for suspected money laundering . [ B ] A customer who regularly trades in his account online is not reachable using phone or mail for an extended period of time . [ c ] Significant losses that comprise a major portion of a client's account and net worth occur and in discussions with the client's registered representative , the client asks no questions and shows no concerns about the losses . [ D ] A wealthy customer's spouse speculated in options and lost over $ 7,500 and after expressing frustration , the customer requests a transfer of money equal to the losses from her account to replace the lost funds in her spouse's account .
[ D ] A wealthy customer's spouse speculated in options and lost over $ 7,500 and after expressing frustration , the customer requests a transfer of money equal to the losses from her account to replace the lost funds in her spouse's account . In a scenario where a wealthy customer's spouse loses funds , it would not be unreasonable to have the spouse transfer assets to replace the lost funds . The transfer of funds is also fully traceable from one account at the firm to another , so there isn't a question of the origin or destination of funds . If a transaction meets criteria for suspected money laundering , then this would be suspicious . If a customer is unreachable for an extended period of time , but regularly trades in an account , then this would also be suspicious . If a customer takes losses that amount to a significant portion of their account and net worth and is not concerned , this would be suspicious .
A short position may result from which of the following ? I . Sales against - the - box as a hedge on a long position . II . The sale of borrowed stock by a customer who hopes to buy the security later at a lower price . III . Arbitrage trades related to mergers and acquisitions . [ A ] I and II [ B ] I and III [ c ] II and III [ D ] All
[ D ] All
Which of the following are reasons for a corporation to repurchase its own stock ? [ A ] To increase " Earnings Per Share [ B ] To fund stock option plans [ c ] To finance future acquisitions [ D ] All of the above
[ D ] All of the above
Dealing With Customers A broker learns that one of his institutional clients is about to enter a buy order for 10,000 shares of ABC stock . The broker tells one of the principals of the broker - dealer and the broker - dealer immediately enters a proprietary buy order for 10,000 shares of ABC stock ahead of the client's order . This trade is generally prohibited as front running but would be permitted if : [ A ] The firm can demonstrate that the trade is unrelated to the customer's block order [ B ] The trade was made to fill or facilitate the customer's block order [ c ] The trade is executed on a national stock exchange and in compliance with its rules [ D ] All of the above .
[ D ] All of the above . Front running is where a trader opens a position in a security based on advance knowledge of an upcoming block trade in that security that will probably influence the market price . Front running which is a form of trading on insider information is generally prohibited , but the three choices in this questions are circumstances in which it is permitted .
One of your fellow registered representatives wishes to send out an approved worksheet on options . The worksheet must be sent out with , or preceded by , which of the following documents ? [ A ] Documents including the appropriate disclaimers [ B ] Documents related to opening a margin account [ c ] Documents related to opening an options account [ D ] Documents including the ODD ( Options Disclosure Document )
[ D ] Documents including the ODD ( Options Disclosure Document ) Any options - related material that is sent out must be preceded or accompanied by the Options Disclosure Document ( ODD ) .
NOTICE OF RIGHTS OFFERING Rights issued to : Holders of Common Stock of Brim Co. Record Date : May 20 , 20XX Ex - Rights : ( NYSE ) May 21 , 20XX Subscription To : Additional Shares Price : $ 25.50 per share Ratio : 1 Share for Each 6 Now Held Rights Expire : June 12 , 20XX Agents : ABC Trust Co. & Brim Co. Principal Underwriter: Solar Securities , Inc. Remarks & Conditions :Holders of rights not evenly divisible by 6 may subscribe to the next full share . Rights must be received by June 12 at which of the following : [ A ] Investor's individual broker - dealer [ B ] Solar Securities , Inc. [ c ] The ABC Trust Co. [ D ] Either the ABC Trust Co. or Brim Co.
[ D ] Either the ABC Trust Co. or Brim Co. Rights are delivered to the " agents " listed on the offering sheet .
Prior to repurchasing its own shares in the open market , a corporation would usually be required to : [ A ] Amend its initial Registration Statement . [ B ] Get approval of the holders of common stock . [ c ] Get approval from the Securities Exchange Commission [ D ] Get approval of the Board of Directors .
[ D ] Get approval of the Board of Directors . A corporation would usually be required to get the approval of the Board of Directors of the company .
An investor is seeking maximum income . Which type of yield curve would cause investor to invest in short - term rather than long - term instruments ? [ A ] Normal . [ B ] Ascending [ c ] Converted . [ D ] Inverted ( negative )
[ D ] Inverted ( negative ) An inverted or negative yield curve indicates that short - term yields are higher than long - term yields . A prudent investor would then invest in the short - term securities until such a time as longer term bonds had at higher yield .
Assume a broker enters buy and sell orders creating activity in the shares of ABC . The broker's sole purpose is to give appearance of heavy trading in ABC's stock . This practice is a violation of Federal Securities Laws referred to as : [ A ] Backing away [ B ] Pegging [ c ] Churning [ D ] Painting the tape and is a form of price manipulation
[ D ] Painting the tape and is a form of price manipulation Creating false activity by buying and selling repeatedly is referred to as " Painting the Tape " and is done in an attempt to push the market price of a stock higher .
Which of the following is NOT a type of underwriting contract ? [ A ] Firm [ B ] Best Efforts [ c ] All or None [ D ] Rights Offering
[ D ] Rights Offering Firm , Best Efforts , and All or None are types of underwriting contracts that syndicates may enter into with an issuer in the distribution of a new issue . A Rights Offering is not a type of underwriting contract .
If an investor buys shares of a closed - end investment company , which of the following will directly influence the price paid for the shares ? [ A ] The fund's Net Asset Value ( NAV ) per share [ B ] The sales load charged by the fund for new fund purchases [ c ] The initial public offering price and par value of the fund shares [ D ] The bid and ask for the fund in the secondary market , along with any commissions or mark - ups / mark - downs
[ D ] The bid and ask for the fund in the secondary market , along with any commissions or mark - ups / mark - downs Closed - end fund shares trade like regular stock in the secondary market . This means that the pricing of these shares is determined by supply and demand , rather than NAV and sales loads like open - end fund shares . An investor who buys closed - end fund shares can also expect to pay a commission or mark up / mark - down on the shares purchased .
A customer wants to open an account for his niece , who is a minor . The customer will make a gift of money and securities under the statutes of the Gifts to Minors Act . When the niece reaches majority , what happens to the custodial property ? [ A ] The custodian can continue the account before with written permission of the niece . [ B ] The niece can decide to continue the account as before provided the niece takes custody of the securities . [ c ] The property must be turned over to the niece and the niece must receive custodian property equal to the highest market value the account reached at any one time . [ D ] The custodian must turn over to the niece all custodial property in the account that has not been expended .
[ D ] The custodian must turn over to the niece all custodial property in the account that has not been expended . The custodian must turn over all custodial property to the minor when the minor reaches majority .
The option premium is the [ A ] expiration date of the option . [ B ] price at which the option can be exercised . [ c ] profit generated on the option . [ D ] cost of the option to the buyer .
[ D ] cost of the option to the buyer . The option premium is the price the buyer pays to purchase the option .
A customer sells 100 shares of ABC short at 35. The initial minimum requirement , assuming Regulation T is 50 % , is : [ A ] $ 500 [ B ] $ 1,750 [ c ] $ 2,000 [ D ] $ 3,500
[ c ] $ 2,000 Sell Short 100 @ 35 = $ 3,500 x.50 * $ 1,750 Not enough * Since the question asks for initial , the minimum requirement is $ 2,000 .
A new client opens up a margin account . Their initial transaction in the account was a purchase of 100 shares of ABC at a market value of $ 2,750 . To comply with regulations on margin accounts , what amount must the client deposit in cash ? [ A ] $ 825 . [ B ] $ 1,375 . [ c ] $ 2,000 . [ D ] $ 2,750 .
[ c ] $ 2,000 . The client must deposit 50 % or $ 2,000 , whichever is GREATER . In this situation , 50 % is $ 1.375 , which is less than the $ 2,000 initial deposit figure .
If a licensed registered representative resigns from their position at a broker - dealer , how many years does that person have to reinstate their licenses without having to re - test ? [ A ] 6 months from the filing date of Form U5 [ B ] 12 months from the filing date of Form U5 [ c ] 2 years from the filing date of Form U5 [ D ] 4 years from the filing date of Form U5
[ c ] 2 years from the filing date of Form U5 If a registered person leaves the industry , that person has 2 years from the filing date of their Form U5 to reinstate their license . If there is a time lapse of more than 2 years , that person would have to re - qualify by taking the qualification exams again .
of the following options transactions , which MUST be labeled either " Uncovered " or " Covered " on the ticket ? [ A ] A closing purchase transaction [ B ] A opening purchase transaction [ c ] A opening sale transaction [ D ] A closing sale transaction
[ c ] A opening sale transaction When an opening sale is made on an options contract , the ticket must indicate whether or not the sale is " covered " or " uncovered . " Remember that the buyer of an options contract sits in the driver's seat and controls whether or not the option contract is exercised . Making an opening purchase would not subject a buyer to excess risk . Making a closing purchase or sale would " close " or end the options position , so the only ticket that would have to be marked as indicated is that of an opening sale ( of say an uncovered call ) .
A customer interested in call protection on a bond would NOT purchase which of the following ? [ A ] A discount bond callable at a premium [ B ] A deep discount bond callable at par [ c ] A premium bond callable at par [ D ] A discount bond callable at par
[ c ] A premium bond callable at par
All of the following are characteristics of 401 ( k ) plans EXCEPT [ A ] Voluntary employee contributions [ B ] Voluntary employer contributions unless the employer has committed to matching contributions . [ c ] A profit sharing contribution formula may not be included in the plan [ D ] The plan may be designed as a Roth 401 ( k ) plan
[ c ] A profit sharing contribution formula may not be included in the plan A 401 ( k ) defined contribution plan is a qualified retirement plan that allows a worker to defer the receipt a part of his / her current compensation and contribute it into a personal retirement account inside the plan . These plans are sometimes called CODA plans - cash or deferred plans . The contributions by the employees are voluntary . Contributions by the sponsoring employer are also voluntary unless the employer has committed to matching contributions . The plan may be designed with a profit sharing contribution formula or as a Roth 401 ( k ) plan .
In 2022 , a single person who is not an active participant in a pension or profit sharing plan has earned income of $70,000 and wants to establish an Individual Retirement Account . Which of the following is TRUE ? [ A ] An IRA cannot be established because his income exceeds $ 50,000 . [ B ] An IRA can be established but only after - tax dollars can be deposited . [ c ] An IRA can be established and up to $ 6,000 can be contributed on a tax deductible basis . [ D ] An IRA can be established but the deduction allowed is only $ 2,500 .
[ c ] An IRA can be established and up to $ 6,000 can be contributed on a tax deductible basis . This person is not an active participant in a pension or profit - sharing plan . Therefore , he can establish an IRA and make a tax - deductible contribution up to $ 6,000 in 2022 ( this amount is unchanged from 2021 ) .
Full registration under the Securities Act of 1933 would be expected for which of the following securities ? [ A ] A primary offering of municipal securities by the State of California [ B ] A distribution of Regulation A securities [ c ] An initial public offering ( IPO ) of corporate common stock [ D ] A primary auction sale of US Treasury Bills
[ c ] An initial public offering ( IPO ) of corporate common stock Full registration under the Securities Act of 1933 with the Securities and Exchange Commission ( SEC ) would be expected for an initial public offering ( IPO ) of corporate common stock . Each of the other securities listed would be exempt from registration under the 1933 Act .
Which of the following facts is provided in a call provision of a callable bond ? [ A ] Maturity date [ B ] The bond's duration [ c ] Callable date and the price at which the bond will be called [ D ] Current yield of the bond
[ c ] Callable date and the price at which the bond will be called Call provisions allow an issuer to call bonds in if a reduced cost of borrowing is available ( e.g .. call high interest rate bonds to issue low interest rate bonds ) . The call provision in a bond's indenture provides the callable date and the call price . The callable date is the date from which the bonds may be called by the issuer . Prior to this date , the bonds may not be called during the " call protection " period . On callable bonds . the price at which the bonds are called will be listed . Usually this is at a slight premium to par ( over $ 1,000 ) .
A customer with a long option position sells an option in the same series . This is referred to as a : [ A ] Opening sale [ B ] Opening purchase [ c ] Closing sale [ D ] Closing purchase
[ c ] Closing sale A closing sale offsets an opening purchase .
Which of the following would a company most likely issue in order to stabilize cash flow ? [ A ] Common stock [ B ] Banker's acceptance [ c ] Commercial paper [ D ] Certificates of deposit
[ c ] Commercial paper In order to stabilize its cash flow , a company would most likely issue commercial paper . Commercial paper is unsecured , short - term corporate debt which has a maximum maturity of 270 days .
Which of the following would be the MOST important factor to consider when determining the suitability of a mutual fund investment for a customer ? [ A ] Exchange privileges [ B ] NAV track record [ c ] Fund objectives [ D ] Reinvestment privileges
[ c ] Fund objectives Fund objectives would have to match the investor's investment objectives
Bob heard that municipal bonds are tax - free investments . He wants to reduce his tax burden associated with investments , so he thinks it would be a good idea to liquidate all of his US Government Securities positions and invest everything in a wide variety of municipal bonds . Which of the following would be important considerations for Bob's agent to discuss with him prior to the liquidation of other investments and full investment in municipal bonds ? I. Bob's agent should discuss the tax consequences of liquidating his positions as well as the transaction costs for re - distributing all of his funds II . Bob's agent should discuss the fact that only municipal bond interest is tax - free at the federal level and can be taxable at the state and local level depending upon the situation . III . Bob's agent should discuss the fact that he doesn't get as much in commissions and transaction costs associated with trades in municipal bonds . IV . Bob's agent should discuss the fact that municipal bonds often carry more risk than US Government Securities . [ A ] I and II only [ B ] II and III only [ c ] I , II , and IV only [ D ] I , II , III , and IV
[ c ] I , II , and IV only Each of the items listed would be important aspects of Bob's desire to invest in munis EXCEPT for the reduction in commissions or transaction costs that would be received by Bob's agent . Most municipal bond interest is tax - free at the federal level and can be tax - free at the state and local levels , depending on the situation . If Bob sells all of his securities to buy munis , he will have significant consequences in terms of taxation and transaction costs which should be a part of the consideration . Last , munis do carry more risk than US Government Securities , so that should also be a point discussed with Bob .
Keogh Plans have all of the following characteristics except ? [ A ] It is a tax deferred investment . [ B ] It is a type of Retirement Fund . [ c ] It provides for tax free distributions . [ D ] It is designed for self - employed individuals .
[ c ] It provides for tax free distributions .
Regular way settlement of trade date plus one business day ( T + 1 ) would apply to which of the following securities ? [ A ] Municipal bond transactions [ B ] Common stock transactions [ c ] Listed equity option transactions [ D ] Corporate bond transactions
[ c ] Listed equity option transactions Equity options have regular way settlement of T + 1 . Common stock , municipal bonds , and corporate bonds have regular way settlement of T + 2 .
Which of the following orders are entered below the current market price of the stock ? [ A ] Buy Stop and Buy Limit [ B ] Buy Stop and Sell Limit [ c ] Sell Stop and Buy Limit [ D ] Sell Stop and Sell Limit
[ c ] Sell Stop and Buy Limit Only Sell Stop and Buy Limit orders are entered below the current market price and will only be activated or executed if the market declines to the specified price or lower .
of the following account types , which represents co - ownership with no rights of survivorship ? [ A ] Joint tenancy [ B ] Tenants at will [ c ] Tenants in common [ D ] Transfer on death
[ c ] Tenants in common Tenants in common do not have a right of survivorship . Upon the death of one owner his interest in the account passes to his estate , not to the surviving owner of the account . Choice A and D have a right of survivorship where the surviving owner becomes the sole owner upon the death of the first owner . Choice B involves a landlord - tenant relationship in real estate .
Which of the following statements would NOT be true with regard to 529 Education Savings plans ? [ A ] The account owner is allowed to change beneficiary . [ B ] The account is overseen by the account owner . [ c ] The maximum annual contribution to the account is $ 2,000 . [ D ] Withdrawals from the plan are exempt from federal income tax if they are qualified
[ c ] The maximum annual contribution to the account is $ 2,000 . The maximum annual contribution of $ 2,000 is applicable to a Coverdell Plan - NOT a 529 Plan . Contributions limits to 529 Plans vary based on the plan and the state .
A new RR of a retail BD and the RR's spouse are treated to an all - expense - paid weeklong trip to Hawaii by the managing underwriter of a public offering as a reward for the sales results by the RR . The RR's BOM should have the greatest concern about which of the following ? [ A ] The customers may not have received the required prospectus delivery . [ B ] The RR would be permitted to accept the trip , but the RR's spouse would not be permitted to receive anything over $ 100 from the managing underwriter . [ c ] The trip may violate FINRA regulations on gifts , both cash and non - cash . [ D ] The RR is new and inexperienced , and the RR's recommendations may not have been suitable for all customers .
[ c ] The trip may violate FINRA regulations on gifts , both cash and non - cash . FINRA Rule 3220 prohibits influencing or rewarding the employees of other BDs by giving or permitting to be received any gifts in excess of $ 100 per person per year , whether in the form of cash or non - cash compensation . The RR would not be permitted to accept the trip , as an all - inclusive trip would exceed the $ 100 maximum , regardless of whether or not the RR's spouse was included .
One of your customers is 65 years of age and purchased a variable annuity 10 years ago . Initially , the customer invested $ 100,000 into the account and the account is now worth over $ 130,000 . A one - time withdrawal is made by the customer from the annuity in the amount of $ 10,000 . For tax purposes , what are the consequences of this withdrawal ? [ A ] There is no tax because the investor is over 59 1/2 . [ B ] The withdrawal is subject to a 10 % penalty [ c ] The withdrawal is taxable because tax law requires the use of the LIFO ( last in , first - out ) method . [ D ] Because of the appreciation in the account and the investors original cost basis , 76.92 % of the withdrawal will be tax - free ( 100,000 cost basis / 130,000 current value = 76.92 % ) .
[ c ] The withdrawal is taxable because tax law requires the use of the LIFO ( last in , first - out ) method . The tax law requires the use of the LIFO method . The age of the investor is irrelevant . The exclusion ratio is used for periodic payments ( e.g .. An annuity ) , not for lump sum withdrawals .
A member firm and its associated persons regularly deal with customers and provide recommendations . Some customers lack a basic understanding of investments , while others have extensive knowledge of the markets . For the customers who have an extensive knowledge of securities markets , which of the following statements about suitability is TRUE ? [ A ] The level of care taken by associated persons handling customers with extensive knowledge is permitted to be lower than with customers who lack a basic understanding of investments . [ B ] When providing recommendations to clients with extensive knowledge of the markets , associated persons can absolve themselves of certain suitability regulations because of the client's knowledge level . [ c ] Whether a client has market knowledge or not , associated persons are not permitted to provide lower levels of care or disclaim any responsibility under suitability rules . [ D ] Member firms are permitted to invoke disclaimers related to recommendations given by their associated persons in order to reduce liabilities and place responsibility solely on their associated persons .
[ c ] Whether a client has market knowledge or not , associated persons are not permitted to provide lower levels of care or disclaim any responsibility under suitability rules . Under FINRA Rule 2111 , members and associated persons cannot disclaim any responsibilities under suitability rules . Further , associated persons must offer the same level of care in terms of suitability to customers regardless of their investing background . Firms would not be permitted to have disclaimers related to the recommendations given by associated persons . The firm is responsible for ensuring suitability rules are followed and procedures are in place .
Stan , is an RR with ABC Broker - Dealer and decides he is going to open a cash account with XYZ Broker - Dealer . All of the following would be requirements that must be adhered to EXCEPT : [ A ] Stan would be required to notify both ABC and XYZ Broker - dealer in writing before the account is opened . [ B ] ABC Broker - Dealer must provide Stan with a notification of their approval or disapproval of the new account quest . [ c ] XYZ Broker - dealer must obtain prior written approval from ABC broker - dealer when executing any transactions in Stan's account . [ D ] XYZ Broker - dealer must follow the instructions of ABC Broker - Dealer regarding requests for copies of confirmations and / or statements in Stan's account .
[ c ] XYZ Broker - dealer must obtain prior written approval from ABC broker - dealer when executing any transactions in Stan's account .
Adding a selling group to a new issue underwriting enhances the underwriting by : [ A ] adding research capabilities [ B ] adding capital investment [ c ] adding marketing and distribution outlets [ D ] reducing liability
[ c ] adding marketing and distribution outlets Adding a selling group of broker - dealers to the underwriting enhances the distribution / marketing function by adding additional retail outlets .
An order to buy or sell an option at a specific price or better is a [ A ] day order . [ B ] market order . [ c ] limit order . [ D ] contingency order .
[ c ] limit order . Buy or selling at a specific price or better is a Limit Order .
Neil is a very successful registered representative and gets his hair cut at an exclusive , high - end men's salon . His hairdresser is one of his clients and she is not registered . Neil has provided his hairdresser with good investment advice and she has made a lot of money with those recommendations . She also has many other clients and has told them about Neil . Generally when Neil comes in for a haircut , she provides him with at least one new referral and Neil pays her $500 cash for each referral . This practice is [ A ] acceptable since Neil has never asked his hairdresser to send him the referrals . [ B ] acceptable since the hairdresser is not employed with a broker - dealer . [ c ] not acceptable because the hairdresser is not a registered person at Neil's firm to split commissions and because gift limitations are placed at $ 100 annually . [ D ] not acceptable because Neil is not permitted to get referral business from existing clients .
[ c ] not acceptable because the hairdresser is not a registered person at Neil's firm to split commissions and because gift limitations are placed at $ 100 annually . Regardless of how the payment is classified ( referral fee or gift ) Neil is not permitted to give $ 500 per referral to his hairdresser . Neil is not permitted to split his commissions with an unregistered person , and gift regulations limit annual gifts related to the business to $ 100 per person . Neil doesn't have to ask the hairdresser for the referrals , as the payment of $ 500 per referral is what is in question . Referrals from existing customers are perfectly normal , but regulations associated with compensation and gifts must be followed .
A client contacts her investment adviser rep to express concern that the payout amount she has been receiving on her variable annuity has dropped significantly from the previous month . The investment adviser rep should respond that the payout change is most likely due to [ A ] a change in the number of accumulation units . [ B ] a decline in the value of the S & P 500 Index . [ c ] the value of the underlying separate account declining in value . [ D ] a decrease in premiums .
[ c ] the value of the underlying separate account declining in value . A change in the payout amount ( increase or decline ) of a variable annuity is most likely due to a change in the value of the underlying separate account . Before a variable annuity begins paying out to the investor the accumulation units that were created when the investor was paying premiums into the variable annuity must be converted into annuitization units . The value of these units fluctuates on how the separate account performs .
When mortgages are pooled together to create a CMO product , [ A ] an open - end investment company is created . [ B ] a closed - end investment company is created . [ c ] the mortgages are said to be securitized . [ D ] the resulting equity securities are said to be amortized .
c ] the mortgages are said to be securitized In structuring a CMO , the issuer distributes the cash flow coming in from the mortgages to a series of different classes of short , medium , or long - term maturities of CMO , which are called " tranches " . Because CMOS are backed by mortgages , which can be ( and frequently are ) prepaid prior to maturity , each CMO tranche will have an average life expectancy anywhere from 2 to 20 years . When the CMO is created it is called " securitization " of the mortgages or the mortgages are said to be securitized " .
