Series 6: Unit 1 Quiz 2

Three years ago, your client invested $10,000 in the RIF Fund. During this time, the fund has distributed $700 in dividends and $1,100 in capital gains, all of which have been reinvested in additional shares. If the client decides to liquidate his position of 1,173.452 shares when the POP is $12.00 and the NAV is $11.52, the client's cost base is A) $11,800.00. B) $10,000.00. C) $11,100.00. D) $10,700.00.

A) $11,800.00 A mutual fund investor's cost base is the total of all investments, including reinvested distributions. In this case, the initial $10,000 is increased by the $1,800 total of distributions.

If a member firm is notified by FINRA that it must begin tape-recording the phone calls of its assistant representatives and registered representatives to existing and potential customers, it must do so within how many days of notification? A) 60 B) 30 C) 90 D) 45

A) 60 A firm has 60 days to secure the equipment and begin recording.

An individual or firm that charges a fee for executing transactions on behalf of its customers is called what? A) Broker B) Principal C) Dealer D) Market maker

A) Broker A broker (agent, agency) is an individual or firm that charges a fee for executing transactions on behalf of its customers, as opposed to holding an inventory of the security and trading into and out of its own inventory.

All of the following are criteria for a Rule 147 (Intrastate Offering Rule) except A) all investors must be from that state. B) 100% of the issuer's assets are located in the state. C) any underwriters must be located in the state. D) the issuer's principal offices are in the state.

B) 100% of the issuer's assets are located in the state. One of the 80% rules is that at least 80% of the issuer's assets must be in the state, not 100%. The other rules listed above are all part of Rule 147.

All of the following statements regarding Government National Mortgage Association (GNMA) pass-through securities are true except A) investors own an undivided interest in a pool of mortgages. B) GNMAs are considered to be the riskiest of the agency issues. C) investors receive a monthly check representing both interest and a return of principal. D) interest is taxed at all levels -federal, state, and local.

B) GNMAs are considered to be the riskiest of the agency issues. GNMA securities, which are backed by the full faith and credit of the U.S. government, are considered to be the safest of the agency issues.

Which of the following are exempt from the registration provisions of the Securities Act of 1933? I. Variable annuities II. Bonds issued by the State of Alaska Ill. Mutual funds IV. Commercial paper maturing in 90 days A) I and IV B) Il and IV C) lI and III D) I and III

B) II and IV Municipal bonds are always exempt from registration under federal law, as is commercial paper with a maturity of 270 days or less.

If a registered representative wishes to open a joint account with his brother, who is a client of his, which of the following rules would not apply? A) The account can be opened as joint tenants with right of survivorship (JTWROS). B) The sharing in profits and losses in the account must be proportional to each party's investment in the account. C) The Conduct Rules would not apply to this situation. D) The representative's principal must approve the opening of the account.

B) The sharing in profits and losses in the account must be proportional to each party's investment in the account. If a registered representative is opening a joint account with an immediate family member, the sharing of profits and losses need not be proportional to each party's investment in the account. Although it would be most common for the account to be opened TIC, there is nothing that requires it and the brothers could open as JTWROS if they desired.

An investor is buying stock through a private placement. Under the Securities Act of 1933, which of the following staterents is true? A) The investor will receive a letter stating their ownership. B) The stock need not be registered with the SEC. C) The stock must first be registered with the SEC. D) The investor must notify the SEC that they are buying private placement securities.

B) The stock need not be registered with the SEC. Private placements are exempt transactions under Regulation D of the Securities Act of 1933 and are therefore exempt from registration. Investors in a private placement of stock are entitled to receive a stock certificate as with any stock purchase. However, the certificate may bear a legend indicating that it cannot be transferred without registration or exemption

If your firm is in the process of underwriting a new issue, sales literature, including a record of past performance, may be included in a mailing of A) the red herring prospectus. B) the final prospectus. C) either preliminary or final prospectus. D) the preliminary prospectus.

B) the final prospectus No literature may accompany a preliminary prospectus or red herring. All such information may only be used with a final or statutory

Your customer purchased the common stock of GEM Corporation for $30 a share. The stock pays $1 in dividends annually. After the year the stock is trading at $35 a share. What is the total return for the holding period? A) 10% B) 30% C) 20% D) 13%

C) 20% The formula for calculating capital gains is income received plus gains (or minus losses) divided by cost basis equals total return. In this example, (1 + 5) / 30 = 20%.

All of the following activities are prohibited during the cooling-off period except A) distributing sales literature with the preliminary prospectus. B) publishing a buy recommendation. C) giving a red herring to prospective investors. D) taking binding indications of interest received from prospective investors.

C) giving a red herring to prospective investors. During the cooling-off period, red herrings (preliminary prospectuses) may be distributed and tombstone advertisements may be published. Indications of interest can be taken but are nonbinding on all parties. Sales literature may not be distributed and a recommendation to buy may not be published during the cooling-off period.

All of the following statements about a bond's nominal yield are true except A) it identifies the amount of interest that the bondholder will receive. B) it is stated on the bond certificate. C) it increases when interest rates increase. D) it is also known as the bond's coupon.

C) it increases when interest rates increase. bond's nominal yield is fixed as of the date of issue. It identifies the amount of interest an investor receives and, once the bond is issued, lot affected by changes in market interest rates. It is also known as the coupon rate of the bond and is stated on the bond certificate.

All of the following statements about put sellers are true except A) they receive money from the option transaction. B) they hope the underlying stock holds steady or goes up in value. C) they are bearish on the underlying stock. D) they have taken on an obligation.

C) they are bearish on the underlying stock Put sellers are paid the premium, in exchange for which they take on the obligation to buy stock at a fixed price, called the strike price. Whenever buying something (obligation to buy), the investor is bullish, not bearish.

Which of the following bond prices would fluctuate the least if interest rates fall? A) 30-year zero coupon with duration of 15 B) 30-year corporate bond with duration of 14 C) 30-year mortgage bond with duration of 26 D) 15-year unsecured bond with duration of 12

D) 15-year unsecured bond with duration of 12 Generally speaking, the rule of thumb is that bonds with long-term maturities will have greater fluctuations in price than will short-term maturities, given the same move in interest rates. What we need to pay attention to here is not the original maturity of the bond but how much time is left. The truest measure of sensitivity (volatility) is the bonds' duration and the greater the duration, the greater the fluctuation in price when interest rates move.

Which of the following is not a characteristic of GNMA securities? A) The usual minimum purchase amount is $25,000. B) Interest income received on GNMAs is fully taxable at both the state and the federal level. C) These securities are directly backed by the U.S. Treasury. D) Distributions are made annually.

D) Distributions are made annually GNMA securities (Ginnie Maes) make interest-plus-principal payments monthly.

Which of the following securities are exempt from the 1933 Act? A) Unprofitable entities B) Stocks being issued in more than one state C) A 20-year corporate bond being offered nationwide D) Federal and state governmental issues

D) Federal and state governmental issues Federal and municipal issues are exempt from registration. Corporate securities being offered in more than one state are not. Not-for-profit entities are exempt. "Unprofitable" just means they are losing money.

An investment company offering securities registered under the Act of 1933 may make which of the following statements? I. "The SEC has passed on the merits of these securities as an investment." II. "The SEC has released our securities for sale to the public." III. "The SEC has passed on the accuracy of the information in our prospectus." IV. "The SEC has declared this prospectus effective. A) land IV B) I and III C) ll and III D) Il and IV

D) II and IV When a security registers with the SEC, the date that sales are allowed is known as the effective date. The SEC neither approves nor disapproves an issue, nor does it pass on the accuracy or adequacy (completeness) of the information presented in a prospectus.

What is the maximum number of accredited investors that may participate in a Regulation D offering? A) 15 to 25, dependent on the size of the offer B) 25 C) 35 D) No maximum

D) no maximum There is no limit to the number of accredited investors that may participate in a Regulation D offering. The maximum number of non-credited investors is 35.

The disclosure document most commonly used in a municipal securities offering is called A) official circular. B) official prospectus. C) official tombstone. D) official statement.

D) official statement The standard disclosure document in a municipal offering is called an official statement. In corporate issues it is normally called a prospectus (preliminary or final. For other exempt offerings the most common term is the offering circular.

In general, the Conduct Rules permit selling concessions and discounts A) as consideration for services rendered by nonmembers of FINRA in obtaining business. B) to anyone who deals in securities transactions. C) within certain percentage limits. D) to FINRA member firms engaged in the investment banking or securities business.

D) to FINRA member firms engaged in the investment banking or securities business. The Conduct Rules permit FINA member broker-dealers to allow concessions and discounts only to other members

An offering of a new issue in which the underwriters act as agents for the issuer is called what? A) Maximum effort B) Best efforts C) Market baker D) Firm commitment

B) Best efforts In a best efforts underwriting the underwriters act as an agent selling the securities to the customer directly from the issuer. In a best efforts underwriting the underwriter takes no responsibility for any unsold shares.