Review 1
An investor purchased an XYZ Oct 50 put for a premium of 4. On the expiration date, XYZ is selling for 57, and the investor closes the position at the option's intrinsic value. For tax purposes, the investor has realized
$400 ST cap loss
Which of the following is the most stringent test of liquidity taken from a corporation's balance sheet?
(Current assets - inventory) / current liabilities
acid test ratio
(current assets - inventory)/current liabilities
GIN Corporation is offering shareholders the right to subscribe to a new issue of stock at $30 per share. The current market price of the GIN stock is $44 per share, and it takes 20 rights plus the subscription price to purchase one share. The theoretical value of a single right, prior to the ex-rights date, is approximately
0.67 (44-30)/21 = 0.67
Which of the following orders may be used to acquire a security at a specific price or better? A buy stop limit A buy limit A sell stop A sell limit
1 and 2
KPT, Inc., is preparing to report its net income for the past year. An increase in which of the following causes a decrease in the reported net income? Tax rate Cash dividend Allowance for bad debts Retained earnings
1 and 3
Which of the following may be affected when a company declares a cash dividend? Shareholders' equity Total assets Total liabilities Current assets
1 and 3
Which of the following statements regarding qualified retirement plans are true? Contributions are made with pretax dollars. Contributions are made with after-tax dollars. Distributions are 100% taxable. Distributions are taxable only to the extent of earnings.
1 and 3
The holder of a yield-based call option would be more likely to profit if rates rise. rates fall. debt prices rise. debt prices fall.
1 and 4
what does the selling syndicate member (1) , syndicate manager (2) , and selling group member (3) earn on a sale of a muni bond?
1. total takedown 2. entire spread 3. concession
According to the Investment Company Act of 1940, a diversified mutual fund may hold, at most, what percentage of a corporation's voting securities?
100%
A customer purchases 10 8% Treasury notes at 101-16. What is the dollar amount of this purchase?
10150
Aenical Corporation issued $100 million of $100 par value preferred stock a number of years ago. The stock pays quarterly dividends of $1.25. Recent issues of comparable preferred stock carry a dividend yield of 4%. One could expect the market price of the Aenical preferred stock to be closest to
125 annual div = $5 5/.04 = 125
One of your customers has $135,000 in her cash account. She also has a long margin account with a market value of $17,000, a debit balance of $10,800 and no SMA. The customer wants to open a custodial account for her niece and transfer money from the cash and the margin accounts into that account. How much can be transferred into the niece's account?
135k if there had been SMA, that could've been added
The Trade Reporting and Compliance Engine (TRACE) is a trade reporting system used to report certain bond trades to the public. Trade details must be reported to FINRA via TRACE no later than
15 min after trade execution
FINRA Rule 2310 defines a direct participation program as "a program which provides for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution including, but not limited to, oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, Subchapter S corporate offerings and all other programs of a similar nature, regardless of the industry represented by the program, or any combination thereof." The rule places limits on the overall expenses and amount of broker-dealer compensation considered fair and reasonable. That limit is
15% of the gross proceeds
A legal opinion evaluates which of the following features of a municipal issue? Marketability Legality Tax-exempt status Economic feasibility
2 and 3
Your customer has purchased $40,000 of stock in a new margin account and deposits the required Regulation T amount into the account. At the end of the month, the broker-dealer charges the client interest on the monies borrowed in the amount of $133. At the end of the month, the value of the stock drops to $36,000. The month-end statement for this client will show a debit balance of
20,133
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?
20k 140k x .5 = 70k 80k-70k = 10k 10k x 2 = 20k
A convertible corporate bond with a conversion price of $20 is trading at 115. The parity price of the common stock is
23
An investor purchased 100 shares of ABC common stock at $60 per share on March 2, 2019. At the same time, an ABC Oct 55 put was purchased at $2. On June 2, 2020, the investor sold the stock for $85 per share. As a result, the tax consequences are
2300 LT cap gain
There are several conditions found in the Securities Act of 1933 permitting the offering of control stock to the public without filing a Form 144. Included in that list are 1. the dollar amount is $1 million or less. 2. 100,000 shares or fewer are sold. 3. 5,000 shares or fewer are sold. 4. the dollar amount is $50,000 or less.
3 and 4
Under the Code of Arbitration Procedure, all monetary awards must be paid within how many days of the decision date?
30
United States Treasury notes are intermediate length securities. Treasury notes are not issued with maturities of
4 years (2,3,5,7, 10)
An investor's portfolio contains the following four bonds: ABC 7% due in 2040 DEF 6% due in 2040 GHI 5% due in 2040 JKL 8% due in2040 Which of these bonds would show the greatest price change as a percentage of its current market price if interest rates jumped by one percentage point?
5%
A customer purchased an ABC $3 convertible preferred stock at $60. The par value is $50 and the conversion price is $5. If the common stock is trading a half point below parity, the price of ABC common is
5.50 50/5 = 10 (conv ratio) 60/10 = 6 (parity price) 6 - .5 = 5.50
If a customer writes 1 ABC Nov 60 put at 3.50, and the put is exercised when ABC is 57.50, the customer's cost basis in ABC stock is
56.50
An investor buys 100 shares of QRS stock at $60 and writes 1 QRS 60 call at 4, and sells 1 QRS 60 put at 5. If QRS stock is trading at $74 on the expiration date, the investor realizes a profit of
900
If near-term liquidity were the only objective for a client, which of the following pairs of investments would represent the most/least liquid? A) Exchange-listed equities/direct participation program B) Variable annuity/direct participation programs C) 10-year corporate bonds/U.S. T-bills D) Variable annuity/money market mutual funds
A
Your 30-year-old client has $100,000 to invest and is willing to assume a moderate amount of risk, but she would also like to have $10,000 available for a down payment on a home in six months. Which of the following asset allocation strategies would best suit her situation? A) 70% large-cap stock fund, 20% balanced fund, 10% money market fund B) 50% government bond fund, 50% large-cap fund C) 50% large-cap stock fund, 40% municipal bond fund, 10% money market fund D) 70% high-yield corporate bond fund, 20% growth fund, 10% government bond fund
A
All of the following positions have limited loss potential except A) long stock/long put. B) short stock/short put. C) long stock/short call. D) short stock/long call.
B
Which of the following assets would be least likely used to back a collateralized debt obligation (CDO)? A) Auto loans B) Mortgages C) Corporate receivables D) Credit card debt
B
Which of the following pooled investment vehicles would most likely be structured as a limited partnership? A) An exchange-traded fund B) A hedge fund C) A unit investment trust D) A real estate investment trust
B
Which of the following would not be a suitable recommendation to an investor with a liquidity constraint? A) A unit investment trust B) An interval fund C) A closed-end fund D) An open-end fund
B
All of the following are expenses to the operation of mutual funds except A) the legal costs of SEC filings. B) the compensation paid to the underwriter or distributor. C) the custodian bank's charges. D) the fees paid to the fund's investment adviser.
B -- part of sales charges, paid by investor
The industry term junk bond applies to a bond with a Standard and Poor's rating no higher than
BB
An investor looking for current income while wishing to reduce interest rate risk would most likely find which of the following investments suitable? A) A U.S. Treasury note maturing in eight years B) U.S. Treasury STRIPS maturing in five years C) A bond unit investment trust (UIT) with a duration of five years D) A $100 par preferred stock callable at 102 in three years
C
Insurance companies offering annuities make available a variety of purchase options to investors. Which of the following definitions regarding annuity options is not true? A) A periodic payment deferred annuity allows a person to make periodic payments over time. The contract holder can invest money on a monthly, quarterly, or annual basis. B) A single premium deferred annuity requires a lump-sum investment with payment of benefits deferred until the annuitant elects to receive them. C) An accumulation annuity permits an investor to accumulate funds in a separate account before investment in an annuity. D) An immediate annuity allows an investor to deposit a lump sum with the insurance company. Payout of the annuitant's benefits starts immediately, usually within 60 days.
C
A registered representative of a FINRA member firm specializes in handling business accounts. In which of the following accounts are the business owners subject to double taxation?
C corp
Which of the following quotes represents a municipal dollar bond quote? A) 0.085 B) $850-$870 C) 8.20-8.00 D) 85½
D
All the following statements are true concerning the over-the-counter (OTC) market except A) more stock issues trade OTC than on the national stock exchanges. B) unlisted securities are traded OTC. C) exchange-listed securities may trade OTC. D) the OTC market is an auction/hybrid market.
D -- it's a negotiated market
A customer's confirmation for a municipal bond callable at par and quoted higher than the nominal yield would show
YTM
The issuer of an American depositary receipt (ADR) is
a domestic bank
An inherent risk associated with auction rate securities (ARS) is the potential to have
a failed auction
Long an ABC Apr 60 call and short an ABC Apr 70 call is
a net debit spread
When an individual who has been investing in a periodic payment variable annuity annuitizes,
accumulation units are exchanged for annuity units
SEC Regulation FD is best described as a rule requiring disclosure by
an issuer of secs
Which of the following is a short-term money market instrument with a bank guarantee that is used to provide capital for exporters to foreign countries?
banker's acceptance
If a Japanese exporter wants to hedge a recent sale of stereo equipment to a U.S. buyer, and the exporter will be paid in U.S. dollars upon delivery of the goods, the best hedge would be to
buy japanese yen calls
A registered principal must approve all orders
by the end of the trading day
An offering of a new issue is being made under the provisions of Regulation D of the Securities Act of 1933. The filing of a Form D must be made
by the issuer no later than 15 calendar days after the date of first sale of securities in the offering
There are four corporate characteristics, more than two of which must not be in evidence for a direct participation program to avoid corporate taxation. Which of the four is virtually impossible to avoid?
centralized management
The price of which of the following securities is determined based on supply and demand?
closed-end management investment company
The breakeven point for covered call writers is
cost of stock less premiums
Which of the following investments would be most suitable for an IRA?
covered call
If an index option is exercised, the holder's account will be
credited the in-the-money amount
Which of the following would not be a valid use of the partnership democracy?
deciding which partnership assets should be liquidated to pay creditors
simplified arbitration
dispute involving dollar amount of 50k or less
When a mutual fund registers with the SEC under the Investment Company Act of 1940, it has the option to elect to be
div or nondiv
REITs (do/do not) pass losses through to shareholders
do not
Zr (do/do not) accrue interest
do not
An investor purchased a 3× leveraged ETF. The index value is $100. On day one, the index fell by 10% and then on day two went up by 10%. How did this affect the investor's account?
down 9%
Mutual fund shares represent an undivided interest in the fund, which means that
each investor owns a proportional part of every security in the portfolio
For an out-of-the-money equity option expiring in seven months, the time value of the option will most likely be
equal to the option premium
Many investors, especially institutions, diversify their fixed-income portfolios by purchasing bonds issued outside of the United States. When a French corporation issues a bond denominated in Swiss francs, it is known as
eurobond
Which of the following is not a characteristic of a money market fund?
high beta
munis are only an acceptable investment when
in high tax bracket or looking for tax free income
Individuals with diversified stock holdings in their portfolios write covered calls to
increase their rate of return on the stocks held in their portfolio
premium =
intrinsic value + time value
A blind pool offering
is one in which 25% or more of the props are not specified
Your client owns a variable annuity contract with an assumed interest rate (AIR) of 4%. In March, the actual net return to the separate account was 8%. If this client is in the payout phase, how will her April payment compare with her March payment?
it will be higher
A municipal securities principal must approve all of the following except
legal opinions
Which of the following best describes the advantages of an oil and gas income program, as compared to other types of oil and gas programs?
lowest risk of capital
An investor purchased a PQR convertible bond at 98 on June 18, 2023. The bond is convertible at $25 (40:1) on January 1, 2024. On June 20, 2024, when the common stock is trading at around $26 per share, the investor converted the bond into the company's common shares. For tax purposes, these transactions would most likely result in
neither a gain nor loss (converting a bond into stock is not a taxable event)
A municipal revenue bond has a catastrophe call feature, but otherwise, is not callable. Does it need to be designated as callable?
no
Advertisements for the Abstemious Balanced Fund (ABF) describe the investment as a no-load fund. In order to make this claim, the fund must
not have a conditional deferred sales chared or 12b-1 charge in excess of 0.25%
Regarding the purchase of new equity issues, restricted persons may
not purchase shares of a new issue
FINRA rules require broker-dealers to conduct anti-money laundering training
on an ongoing basis
A corporation with an outstanding convertible debenture issue could force conversion by
publishing an announcement that the debenture holders have thirty days to tender their bonds at the call price
married put
purchase of put on stock at same time as purchase of stock
FINRA's suitability rule involve several different forms of analysis. The rule does not include
qualitative suitability analysis
tax credit
reduced liability dollar for dollar
Filing with FINRA within 10 business days of first use is required for all of the following except
retail comms that promote or recommend a specific REIT
Moody's Investment-Grade (MIG) rating would be applicable to
revenue anticipation note
What is a possible benefit of purchasing shares of a closed-end investment company in the secondary market?
shares frequently trade at a discount to the NAV
Which term describes the following position? Write 1 DOH Jan 30 call Write 1 DOH Jan 40 put
short combo (long call and long put OR short call and short put)
successful completion of a rights offering generally leads to
slight decline in market price of stock
All of the following would be considered a proper way for a client to file a complaint with a FINRA member firm except
telephone
A customer purchased 10 ABC 9s of 2045 convertible debentures at 99. The debentures are callable at 101. The conversion ratio is 40. Some time later, the debentures are called while the common is trading at $24 and the debenture is trading at 98. Which of the following options would be most beneficial to the customer?
tender the bonds tender - 10 x 1,010 sell - 10 x 980 convert - 400 x 24
The rate on an adjustable preferred stock may be indexed to
the T-bill rate
For an oil and gas limited partnership (LP), allowances in the form of deductions are allowed by the IRS to be taken to compensate for a depleting resource. The allowance can be taken based on
the amount of natural resource sold
Betco Corporation had insufficient liquidity to meet its outstanding debt and was subsequently forced into bankruptcy. There were numerous lawsuits from all of the various creditors and investors against the corporation. Finally, a court settlement was reached to dissolve the company and use the remaining assets to pay off the creditors. Who most likely has the highest priority of getting paid?
the attorneys reping the plaintiffs in the lawsuits against the bankrupt company
In an interdealer trade, if the seller delivers before the settlement date, which of the following statements is true?
the buyer may accept the stock or refuse it without prejudice
When a customer instructs a registered representative to transfer and ship, the representative instructs the margin department to transfer ownership into
the customer's name and deliver the secs to the customer
When a corporation issues a debt security, the terms of the loan are expressed in a document known as the bond's indenture. The indenture is sometimes referred to as
the deed of trust
bond confirmations must disclose
the lower of the YTM or the YTC
When comparing portfolios, a registered representative dealing with a risk averse client would most likely recommend the one whose beta is
the lowest possible
A testimonial used by a member firm in connection with retail communications must state all of the following except
the time period covered by the testimonial.
You have a client who has heard stories about individuals who purchase an immediate annuity with a straight life payout and die one or two years later. What lifetime settlement option could you offer the client that guarantees the full amount invested into the immediate annuity will be paid out?
unit refund annuity
Your customer just received a minimum maintenance call because his margin account is not meeting the house maintenance requirement. He demands that your firm rescind the call, since he says that nothing changed from the time he made his last purchase. What most likely has happened?
your firm changed its maintenance margin req
