S7 Missed Qs

AIR

-Assumed interest rate illustration -Conservative interest rate assumption that shows that annuity that would be received if the separate account grew at this rate -not a guarantee of interest, interest is dependent on the mutual fund held in the separate account

A registered representative wishes to place an announcement in the newspaper that simply includes the firm's name; the representative's name; and the following statement: "For information on investing in options, please all 1-800-FOR-OPTIONS". In order to place the advertisement: A. Approval must be obtained from the branch office manager prior to use B. Approval must be obtained from the Options Exchange at least 30 days prior to use C. Approval must be obtained from the firm's designated Registered Options Principal prior to use D. No prior approval is required

C. Approval must be obtained from the firm's designated Registered Options Principal prior to use

A nominal quotation given by a municipal dealer represents a(n): A. Firm bid or offer B. Likely bid or offer C. Approximate market value, with no bid or offer D. Bid or offer limited to round lots of 100 bonds

C. Approximate market value, with no bid or offer

The interest rate charged from the banks to broker-dealers on loans where securities are collateral is the: A. Discount Rate B. Federal Funds Rate C. Broker Loan Rate D. Prime Rate

C. Broker Loan Rate

A trust indenture is required for a(n) A. Treasury bond B. Agency bond C. Corporate debenture D. General Obligation bond

C. Corporate debenture

Which of the following would be least important in determining the level of diversification in a corporate bond portfolio? A. Bond Ratings B. Industries represented in portfolio C. Domicile of issuer D. Maturities of the bonds in the portfolio

C. Domicile of issuer

A customer who is retired wants to select an investment that is marketable, and that provides the highest rate of return. The BEST choice would be to recommend: A. Treasury Bills B. Treasury Notes C. Investment Grade Preferred Stock D. Certificates of Deposit

C. Investment Grade Preferred Stock

A couple wants to invest for the college education of their 4 children. The children are 1, 5, 10, and 16 years old. What is the biggest suitability concern when making an investment recommendation? A. Tax deferral B. Investment growth C. Investment time horizon D. Liquidity

C. Investment time horizon

All of the following are participants that offer municipal bonds in the secondary market EXCEPT: A. Bank dealers B. General securities dealers C. Issuers D. Municipal broker's brokers

C. Issuers

Gain or loss on all of the following options positions will be short term EXCEPT for those realized from: A. Long equity options B. Short equity options C. Long equity LEAP options D. Short equity LEAP options

C. Long equity LEAP Options

Which statement about management fees is TRUE? A. A no-load fund is one that does not have a management fee B. Management fees cannot be more than 8 1/2% of the public offering price C. Management fees cannot be based on fund performance D. Maximum management fees are set under the Investment Company Act of 1940

C. Management fees cannot be based on fund performance

Speculators in foreign currencies would be subject to all of the following risks EXCEPT: A. Political risk B. Market risk C. Reinvestment risk D. Exchange rate risk

C. Reinvestment risk

The "Efficient Market Theory" states that: A. practitioners of fundamental analysis should realize superior investment returns as compared to technical analysts B. practitioners of technical analysis should realize superior investment returns as compared to fundamental analysts C. securities selection based on technical or fundamental factors is irrelevant since prices reflect all available information D. securities selection based on both fundamental and technical analysis will result in superior returns

C. Securities selection based one technical or fundamental factors is irrelevant since prices reflect all available information

Under SEC rules, filing of the Form 144, required when selling restricted stock, is the responsibility of the: A. Issuer B. Broker-dealer C. Seller D. Transfer agent

C. Seller

The target allocation for a specific asset class has been set at 20% of total assets under an asset allocation scheme. The manager is permitted to reduce this percentage to 15%, and can increase it to 25%; as he or she sees fit. If this action is taken by the manager, this is termed: a. portfolio rebalancing b. strategic asset management c. tactical asset management d. active asset management

C. Tactical asset management

ETFs are: A. Non-negotiable B. Redeemable C. Traded on exchanges D. Traded over-the-counter

C. Traded on exchanges

A municipal firm that is participating in a secondary market join account can do all of the following EXCEPT: A. effect a transaction for a related portfolio from the joint account B. effect a transaction for an accumulation account from the joint account C. disseminate a quote for the security separate from the joint account D. share liability for the bonds in the account with the other participants

C. disseminate a quote for the security separate from the joint account

A "reallowance" is a discount given to a: A. syndicate member B. selling group member C. non-member of the underwriting "group" D. retail customer

C. non-member of the underwriting "group"

FINRA: Correspondence

Communication to 25 or fewer existing or prospective retail clients

Registered Representatives may be compensated based on which of the following? I Trading commissions paid by the brokerage firm to the representative II Trading commissions paid by the customer to the representative III Salary paid by the brokerage firm to the representative IV Salary paid by the customer to the representative

I & IV

Which of the following statements are TRUE regarding a broker-dealer holding margin and fully paid securities? I Margin securities can be commingled with the securities of other customers and rehypothecated II Margin securities must be segregate and placed in safekeeping III Fully paid securities can be commingled with the Securities of other customers and rehypothecated IV Fully paid securities must be segregated and placed in safekeeping

I and IV

Which of the following conditions must be met to send a confirmation solely to a person holding a power of attorney in a customer account? I The customer must request the sending of the confirmation in writing II The person holding the power of attorney must request the sending of the duplicate confirmation in writing III The registered representative must believe that the action is prudent IV The manager must approve of the action in writing

I only

Delivery of which of the following options communications containing a recommendation must be accompanied or preceded by an Options Disclosure Document? I Options Advertising II Options Correspondence III Options Sales Literature

I, II, III

Which of the following are components of total long term capital of a corporation? I Common at Par II Capital in Excess of Par III Retained Earnings IV Preferred Stockholders' Equity

I, II, III, IV

Which of the following are exempt issues under the Securities Act of 1933? I Government Bonds II Municipal Bonds III State Chartered Bank Issues IV Small Business Investment Companies

I, II, III, IV

Which of the following requires filing with the SEC? I Purchase of a 5% position in one company's stock II An officer selling 1% of that company's stock III Corporation declaring bankruptcy IV Corporate proxy materials

I, II, III, IV

Which of the following statements are TRUE regarding defined benefit plans? I Actuarial tables are used to determine contribution rates for each employee II Distributions upon retirement are 100% taxable III Employees with the highest salaries and the fewest years to retirement benefit the most IV Contributions made to the plan can vary from year to year

I, II, III, IV

Which of the following would be used to evaluate a general obligation bond issue? I The trend of assessed property valuation II The collection ratio of the issuer III The debt ratios of the issuer IV The mill rate trend of the issuer

I, II, III, IV

Which of the following money market instruments trades "flat" I Treasury Bills II Banker's Acceptance III Certificates of Deposit IV Commercial Paper

I, II, IV

Under SEC rule 606 of Regulation NMS, the required quarterly report on order routing methods includes information on which of the following? I Directed orders for listed equity securities II Non-directed orders for listed equity securities III Directed orders for NASDAQ securities IV Non-directed orders for NASDAQ securities

II & IV

Which of the following statements are TRUE about Eurodollar bonds? I The bonds are issues in the US II The bonds are issued outside the US III The purchasers are US residents IV The Purchasers are foreign residents

II & IV

If interest rates decline, which of the following is likely to happen? I Issuers will call outstanding bonds with low interest rates II Issuers will call outstanding bonds with high interest rates III Issuers will sell new issues with longer maturities IV Issuers will sell new issues with shorter maturities

II and III

Which of the following dates may be needed to compute the total dollar price of a municipal bond traded on a yield basis in the secondary market? I Dated Date II Maturity Date III Call Date IV Put Date

II and III

Which of the following statements are TRUE? I New issues of Treasury Bills are generally priced at par II New issues of Treasury Bonds are generally priced at par, or at a slight discount to par III New issues of Agency Bonds are generally priced at par, or at a slight discount to par

II and III

Revenue Anticipation Notes are a(n): I funded debt II unfunded debt III source of permanent financing IV source of temporary financing

II and IV

If an unsolicited facsimile is sent to a potential client, which of the following information must be sent? I Date and number of sheets II Identity of sender III Time, place and address from which sent IV Phone number from which sent

II, III, IV

Which of the following are functions of a corporation's Board of Directors I Mailing dividend payments to shareholders II Canceling old shares and issuing new shares III Preparing and mailing proxies IV Setting the Declaration Date

IV

Ratio Spread

Purchase and sale of call/put on the same stock with different strike prices and/or expirations

Long Straddle

Purchase of a call and a put on the same stock, same strike price, and same expiration

Leap Deposit

Regulation T sets the initial margin to buy Leap Options (long-term options) that have 9 months or less left to its life, the margin requirement becomes 100% - the same as for a regular option

Sales Literature Retail Communication

Research Reports, market letters, delivered to more than 25 existing or prospective retail clients, scripted speeches delivered to more than 25 existing or prospective retail client, password-protected websites

A floor broker goes to the trading post to buy 10,000 shares of ABC at the market-not held. The specialist (DMM) says to the trader "One hundred shares are stopped at 19." This means that:

The Specialist/DMM has guaranteed that the price will not change for a short period

CMO

-Collateralized Mortgage Obligations are a derivative security, whose value is derived from an underlying instrument -To create a CMO, Mortgage backed pass-through certificates are placed into trust, and the monthly mortgage payments are reallocated into "synthetic" securities. -The cash flows are allocated into so-called "tranches," each with a different maturity and yield -From the underlying mortgage backed pass-through certificates, the monthly mortgage payments are allocated pro-rate to all tranches for the interest payments; but are allocated sequentially to the tranches for the principal repayments -All tranches receive a monthly interest payment; but the tranches are retired sequentially, creating a sequence of maturities

FINRA: Retail Communication

-Communication to more than 25 existing or prospective retail clients -Must be approved by a principal prior to use and can be required to be filed with FINRA.

8k Report, Securities Exchange Act of 1934

-Corporate issuers must file report for significant events that might affect the issuer's stock price -Must be filed if issuer: declares bankruptcy, declares merger, declares divestiture, changes the composition of the board of directors -Report must be filed within 4 business days of event

Rule 612 of Regulation NMS

-Does not allow sub-penny orders to be entered for NMS (NYSE, NYSE American (AMEX) or NASDAQ) stocks -However, trade executions are permitted in sub-penny increments, since this makes the market more competitive

Long position Maintenance Margin

-FINRA sets minimum at 25% -Reg T sets initial margin at 50%

Short Position Maintenance Margin

-FINRA sets minimum maintenance margin at 30% -Reg T sets initial margin at 50%

Form 1-A

-Filed with SEC to claim regulation A exemption -Gives disclosure about the issue and a "20 day review period" must be completed before the issue can be sold. -Disclosure to investors is made through an offering circular rather than a prospectus

Ex Dividend Date

-First day when a stock will trade without the purchaser receiving the upcoming dividend. -Since trades settle regular way 2 business days after trade date, this date is set at 1 business day prior to the record date -The ex date is set by FINRA based upon the report of the record date -On the ex date, the exchange reduces the market price of the stock for the value of the distribution -Ex dates are set for any corporate distributions, including cash dividends, stock dividends, stock splits, and rights distributions

Regulation A, Securities Act of 1933

-Intended to make it easier for start-up companies to raise capital -Gives an exemption from full registration for offerings of up to $50 million within a 12 month period. -Tier 1 offerings, up to a maximum amount of $20 million, are given the easiest registration method and do not require audited financial statements -Tier 2 offerings allow a maximum of $50 million to be raised but require audited financial statements. Tier 2 issues are also called regulation A+ and can be exchange listed

Regulation NMS

-Requires all market centers to electronically link and provide automated execution at the best price of all markets within 1 second for orders that are executable -It mandates that market centers cannot discriminate against customers who access their quotes -It requires that markets have procedures in place to prevent trade-throughs - which is "trading through" another market's better priced quote -Sets disclosure rules for markets - which must provide monthly reports on the speed and quality of trade executions -Set disclosure rules for broker-dealers, which must provide customers with reports on how their orders were routed and whether the broker-dealer accepted payments for order for for sending the order to a specific market

Economic Leading indicators

-Show where economy is heading in next 6 months -Ex: New consumer goods orders, initial claims for unemployment, length of manufacturing workweek, delivery delays by vendors, building permits, S&P 500 stock prices, Consumer Expectations, Money Supply M-2, Spread between yield of 10 year treasuries and Federal Funds

Economic Coincident Indicators

-Show where economy is right now -Ex: Personal Income Levels, Index of industrial production, employment levels, Manufacturing and trade sales, Gross Domestic Product

Lagging Economic Indicators

-Show where economy was in the last 6 months -Ex: Employment duration, Inventory to sales Ratio, Labor cost per manufacture unit, Commercial Loans Outstanding, Ratio of consumer credit to income level, corporate profits

SMA

-Special Memorandum Account: unused additional borrowing that is permitted in the account -50% of the Long Market Value - Debit = SMA

Reinvestment Risk

-The risk that interest rates drop after the issuance of a bond, and the semi-annual interest payments received from a bond are now reinvested at lower current market rates. Thus, the overall rate of return on the investment is reduced -Zero-coupon bonds do not make periodic interest payments and hence, do not have reinvestment risk

Internal Rate of Return (IRR)

-Way of assessing the projected return to the partners is through an internal rate of return computation -In the partnership offering prospectus is a 10 year cash flow projection -discounting the projected cash flows to today's "present value" will show the implicit yield of the program -Considers the time value of money

Treasury STRIPS

-Zero Coupon Treasury bonds or Notes -Separating Trading of Registered Interest and Principal Securities -Main purchasers are retirement pan managers that are looking for long-term, safe, investments that do not have reinvestment risk. Because these are "zero-coupon" obligations, their value grows internally based on the yield. There are no semi-annual interest payments received that must be reinvested.

CMO Floating Rate Tranche

-has an interest rate that varies, tied to the movements of a recognized interest rate index, like LIBOR -Therefore, as interest rates move up, the interest rate paid on the tranche goes up as well; and when the interest rates drop, the interest rate paid on the tranche goes down as well -There is usually a cap on how high the rate can go and a floor on how low the rate can drop. -Because the interest rate moves with the market, the price stays close to par - as is the case with any variable rate security

Trading halts in National Market System stocks will occur if the Standard and Poor's 500 Index drops by all of the following EXCEPT: A. 5% B. 7% C. 13% D. 20%

A. 5% Trading halts Starts at 7% drop

To Speculate on a rising interest rate environment, the strategy that would give the largest profit is to: A. Buy TYX calls B. Sell TYX calls C. Buy TYX puts D. Sell TYX puts

A. Buy TYX calls

FINRA's IPO purchase restrictions that prohibit industry personnel from buying new issues in the primary market apply to: A. Common stock offerings B. Preferred stock offerings C. Bond offerings D. Investment company offerings

A. Common stock offerings

The Bond Buyer "20 Bond" index is only composed of: A. General Obligation Bonds B. Special Tax Bonds C. Revenue Bonds D. Industrial Revenue Bonds

A. General Obligation Bonds

If a member firm routes a customer market order for a NASDAQ Capital Market issue to NASDAQ's automated trading system, the order will be sent to: A. The NASDAQ System (Single Book) B. Super Display Book C. Pink Sheets D. OTCBB

A. The NASDAQ System (Single Book)

A muncipal revenue bond trust indenture includes an "additional bonds test" covenant. This means that: A. the issuer is prohibited from issuing new debt under any circumstance B. the issuer is prohibited from issuing new debt unless the facility's revenues are sufficient to pay for existing and additional debt C. the issuer is prohibited from issuing new debt unless outstanding bonds are called D. additional debt can be issued without restriction

B. the issuer is prohibited from issuing new debt unless the facility's revenues are sufficient to pay for existing and additional debt

Interest Coverage Ratio

Bond Interest Coverage Ratio = Operating Income (and any other non-operating income / Bond Interest Expense

A syndicate member in a municipal underwriting wishes to place an order for the new issue bonds with the manager. The bonds are to be purchased for the member's own portfolio. Under MSRB rules, an order for such a "related portfolio:" A) Must be accorded "Pre-Sale" status by the manager B) Must be disclosed to the manager as such at the time that the order is entered C) Must be entered as a "Designated" order by the member

B) Must be disclosed to the manager as such at the time that the order is entered

A customer sells short 100 shares of ABC stock at $60 as an initial transaction in a margin account. At the end of the day, the stock increases in value to $70 per share. The customer deposit: A. $2,000 B. $3,000 C. $3,500 D. $6,000

B. $3,000

Under Rule 147, intrastate offerings cannot be resold out of state for how long after the sale date? A. 3 months B. 6 months C. 12 months D. 24 months

B. 6 months

All of the following statements are true regarding municipal advertising EXCEPT: A. All municipal advertising must be approved by either the Municipal Principal or General Principal prior to use B. Copies of municipal advertising must be filed in advance of first use with the Municipal Securities Rulemaking Board C. Copies of municipal advertising must be retained by the member for 4 years D. Official statements are exempted from the advertising rules

B. Copies of municipal advertising must be filed in advance of first use with the Municipal Securities Rulemaking Board

Where would you find the names of the persons authorized to trade a corporate account? A. Corporate charter B. Corporate resolution C. Proof of Domicile D. New Account Form

B. Corporate resolution

Common carriers such as airline, railroad, or trucking companies would most likely issue: A. Mortgage bonds B. Equipment trust certificates C. General obligation bonds D. Revenue anticipation notes

B. Equipment trust certificates

All of the following are included in the 10 leading economic indicators EXCEPT: A. Building Permits B. Index of Industrial Production C. S&P 500 Index D. Initial Unemployment Claims

B. Index of industrial Production

Which of the following measures considers the "time value" of money?

B. Internal Rate of Return

An option with over 9 months to expiration held in a margin account has: A. no loan value B. a 25% loan value C. a 50% loan value D. a 75% loan value

B. a 25% loan value

If one asset class greatly underperforms another class in an asset allocation plan, the portfolio must be: A. renegotiated B. rebalanced C. repositioned D. realigned

B. rebalanced

All expenses associated with holding municipal bonds are: A. 100% tax deductible B. 50% tax deductible C. 0% tax deductible D. tax deductible to the extent of municipal interest income received

C. 0% tax deductible

A grandmother wishes to make a gift into her grandson's 529 college savings plan. What is the maximum that can be contributed without incurring gift tax liability? A. 1 times the annual gift tax exclusion amount B. 2 times the annual gift tax exclusion amount C. 5 times the annual gift tax exclusion amount D. 10 times the annual gift tax exclusion amount

C. 5 times the annual gift tax exclusion amount

A municipality would defease its debt with all of the following EXCEPT: A. US government securities B. US government agency securities C. AAA Corporate Securities D. Bank certificates of deposit

C. AAA corporate securities

SEC Regulation M (Rules 101-105)

Covers secondary market activities related to regsitered public offerings, and addresses such items as prohibition or limits on syndicate members buying the stock in the secondary market during the 20-day cooling off period (this is for add-on offerings).

Rule 103 of Regulation M

Covers the situation where a firm in the underwriting group for an add-on securities offering also happens to be a market maker in the stock. The worry of the SEC is that the market maker, during the 20-day cooling off period, would be tempted to aggressively buy the stock to push up the market price. This, in turn, would push up the POP when it is set just prior to the effective date, which would increase the underwriters' spread.

The ex date for stock splits and stock dividends is set at: A. 1 business day after the payable date B. 1 business day after the record date C. 2 business days prior to payable date D. 2 business days prior to the record date

D. 2 business days prior to the record date

Which of the following is NOT defined as "portfolio income" under IRS guidelines? A. Dividends received from preferred stock holdings B. Interest income received from bond holdings C. Proceeds from the sale of securities in excess of tax basis of those securities D. Distributive share of income from limited partnership holding

D. Distributive share of income from limited partnership holding

Under MSRB rules, a registered representative is prohibited from sharing in the gains and losses of a customer's account unless the: A. Registered representative has made a written guarantee of performance to the customer B. Registered Representative agrees to reduce the commission rate to be charged C. Customer agrees to the arrangement in writing D. Registered representative contributes capital proportionate to his sharing percentage and receives written approval of the principal

D. Registered representative contributes capital proportionate to his sharing percentage and receives written approval of the principal

A self-employed client ha an annual income of $200,000 and is in a high tax bracket. He is not covered by a retirement plan and would like to make the maximum contribution to one to reduce his taxable income. He believes that he will be in a lower tax bracket once he retires. The BEST recommendation is to contribute to a: A. Traditional IRA B. Roth IRA C. 401(k) D. SEP IRA

D. SEP IRA

A customer owns a long-term negotiable CD. If the customer wishes to tender the CD prior to maturity, the registered representative should inform the customer that: A. A prepayment penalty will be charged B. he or she will receive par value of the principal plus accrued interest C. The CD may not be redeemed prior to maturity D. The customer will receive the market value plus accrued interest

D. The customer will receive the market value plus accrued interest

John is a registered representative who has discretionary options accounts for 25 of his largest customers. John likes the news coming out of ABCD corporation and decides to buy ABCD calls for some of his clients. He buys 30,000 ABCD call contracts each for 10 out of the 25 discretionary accounts that he manages. The position limit for ABCD is 250,000 contracts on each side of the market. Which statement is TRUE? A. This is not a violation of position limits because the positions were taken in different account B. This is not a violation of position limits because of the exemption from position limit violations given to position taken in 10 or fewer accounts C. This is not a violation of position limits because position limit violations only apply to the down-side of the market D. This is a violation of position limits

D. This is a violation of position limits

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory Inventory Turnover Ratio = Annual Cost of Sales / Year End Inventory

MSRB

Municipal Securities Rulemaking Board est in 1975 as the primary rulemaking authority for the municipal market participants which include bank dealers and broker-dealers

Rule 147

SEC rule that spells out the requirements for an issuer to obtain an exemption from registration for a new issue because the offering will be made only in 1 state (an intrastate exemption). 100% of the issue must be sold solely to state residents to obtain the exemption.

Short Straddle

Sale of a call and sale of a put on the same stock with the same strike price and expiration

A customer has a long stock position that has appreciated greatly in value. It is now October and the customer wants to protect the gain at no cost, but not taxed until the next year. To achieve this, the customer could:

Sell a "deep in the money" European style call of the stock

Advertising Retail Communication

TV, radio, newsprint, billboards, websites, internet bulletin boards

Two 20-year corporate bonds are issued at par, with stated interest rates of 10%. One issue is puttable at par in 5 years, while the other is puttable at part in 10 years. If interest rates rise by 200 basis points shortly after issuance, which statement is TRUE?

The bond puttable in 10 years will depreciate more than the bond puttable in 5 years

For bonds trading at a premium, rank the yield measures from lowest to highest? Nominal Current Basis Yield To Call Basis

Yield to Call Basis, Basis, Current, Nominal

Record Date

To receive a quarterly dividend, a purchaser must settle no later than the record date - as of the close of business on this date, the list of shareholders to be sent the dividend is taken

The use of index funds as investment vehicles for asset classes increases: a. diversification b. expected rate of return c. standard deviation of return d. market risk

a. diversification

Dollar Cost Averaging

investing roughly equal amounts of money at regular intervals

Listed Option contracts are not marginable they must be...

paid in full