Series 7
A customer buys an ABC July 50 call, paying a $3 premium. Seven months later, the customer exercises the call when the market price of ABC stock is $60 per share. The customer immediately sells the stock for $6,000. If the customer had sold the option at $8 instead of exercising the option, the profit would have been taxable as:
$500 capital gain
A corporation has $125,000,000 of convertible bonds outstanding. The conversion price is $50. The corporation refunds $75,000,000 of the bonds for nonconvertible bonds. How many additional shares of common stock will be outstanding if the remaining bonds are converted?
1 mil shares
A customer has sold stock, but he has failed to complete the transaction by delivering the securities. The latest date on which the broker-dealer may buy in the securities is:
10 days from settlement
An investor owns $10,000 worth of XYZ Corporation convertible bonds that are callable at 102. The bonds are currently selling in the market at 103. If the corporation calls the bonds at the call price, the investor will receive:
10.2k
A bond convertible at $40 is selling in the market for 120. If the stock has a current market price of $50, the parity price for the bond is:
1250
A customer purchased an initial public offering of stock at $38 a share. The current market price is $24 and the EPS is 19 cents. If the company has no plans to pay a cash dividend, what is the price/earnings ratio of the company?
126.3 (24/.19)
An offering of convertible securities is sold as a private placement. Which TWO of the following considerations would be required of a married couple to be classified as an accredited investor?
1mil net worth or combined annual salary of 300k
A corporation has issued a bond with a 5% coupon that is convertible into common stock at $40. The stock is selling at $43.50 and the bond is selling at 109. The number of shares that will be received on conversion is:
25
On September 1, an underwriter offers stock that has been registered with the SEC. This is the first offering of stock made by the issuing company. The issue will be listed on the New York Stock Exchange. A dealer that subsequently sells the stock in the secondary market will be required to furnish a prospectus:
25 days following
A convertible bond is convertible at $25 and is selling in the market at 108. At what price should the common stock be selling for it to be at parity with the bond?
27
An individual purchases 10 ABC June 90 calls @ 4 and writes 10 ABC June 95 calls @ 2. The individual's maximum loss is:
2k
An individual's home has a resale value of $500,000 and an assessed value of $200,000. If the tax rate is 10 mills, the property tax is:
2k ((200k * 10 mills)/1k)
An investor writes 5 uncovered ABC May 35 puts for a premium of 3 per contract, when ABC has a market price of $36. At what market price will the investor break even?
32
According to FINRA rules, an e-mail complaint must be maintained for:
4 years
With no other securities position, a customer sells short 100 shares of ABC at $40 and sells 1 ABC October 40 put for $500. The customer will break even when the price of the stock is at:
45 (breakevn for a put seller is market price of short sale + premium)
On Monday, June 15, an investor purchases for regular-way settlement, $20,000 face value of 8% municipal bonds that mature on November 1, 2035. How many days of accrued interest is the investor required to pay?
46 (may + june)
A client purchased 1,000 shares of ABC Corporation preferred stock at $80 per share. The company is paying a quarterly dividend of $1.25 and the current market price is $90. The current yield is:
5.56%
A customer's margin account has a current market value of $10,000, a debit balance of $8,000, and SMA of $1,000. The customer could meet a maintenance call with:
500 cash
What is the SRO maintenance requirement on a $1 million purchase of a 2x Long Gold Index ETF?
500k
An individual may roll over a lump-sum distribution from a corporate pension plan to an IRA without tax consequences if it is done within:
60 days
Within how many days of receipt must a principal approve or disapprove an application to purchase a variable annuity?
7 days
A Form 3 must be filed when?
A person must file Form 3 with the SEC within 10 days of becoming an insider. An insider is defined as any director or officer of a corporation or any person with beneficial ownership of more than 10% of issuer's equity securities. Form 4 must be filed within two business days of the date on which an insider changes his ownership position (i.e., buys or sells).
A corporation is in the 21% tax bracket. Which of the following choices provides the best return if the corporation wants to invest some of its surplus cash? - preferred stock paying a 7.50% dividend - corporate bond yielding 8% - common stock yielding 6% - municipal bond yielding 6%
A preferred stock paying a 7.50% dividend
The interest paid on special assessment bonds is derived from:
Charges on the benefitted property
A due bill is used if a trade occurs:
Before the ex-dividend date, with delivery made after the record date
Who submits asset input data?
Carrying firm
What is the method of how GO bonds are sold?
Competitive bidding
According to MSRB rules, a municipal bond dealer will NOT consider which of the following factors when determining a markup?
Coupon rate
This is an example of a retirement plan that needs not set standards for vesting, eligibility, and funding?
Deferred Compensation Plan
Which TWO of the following choices can be calculated by examining the income statement of a company?
EBIT and operating price margin
Diamonds are:
ETFs that mirror the DJIA for large cap stocks
An outstanding municipal bond would most likely be called when interest rates:
Fall below the bond's nominal yield
A customer has purchased a new municipal issue during the underwriting period. According to MSRB rules, the customer must receive which TWO of the following documents? The final confirmation showing the aggregate price A copy of the notice of sale A copy of the official statement, if prepared A list of syndicate members
Final confirmation showing the aggregate price and the copy of the official statement if prepared. Confirmation on every transaction
Debt per capita is used when analyzing a _________________ bond
GO
A bond for which another corporation promises to pay interest and principal if necessary.
Guaranteed bond
Two individuals hold $100,000 in assets in a JTWROS account. Each party's ownership in the account may be described as:
In a JTWROS account, each holder's interest is equal and undivided. Each position in the account is owned by both persons.
Any communication directed only to these types of customers does not need to be filed with FINRA
Institutional
The advance-decline theory states that:
It is bullish if more stocks go up than go down during the day Explanation: A technical indicator that measures the strength of the market by comparing the number of stocks that increase and decrease is called the advance-decline theory. It shows the general direction and breadth of a market movement on a given day.
A registered representative invites 20 retail clients to a seminar and allows each client to bring one guest. The sales script that is used for the presentation is considered:
Retail communication
tax ID included on customer confirmation? Y/N?
No
This type of plan is often unfunded, meaning the employer does not actually set aside money to fund the promised plan benefits. The employer promises to pay the plan benefits when they are due to the employee, usually at retirement. This creates the risk that if the employer is in financial difficulty when the payments should be made, the employee might not receive them.
Nonqualifed deferred compensation plan
A registered representative will be soliciting customers to purchase low-priced equity securities. A special disclosure document must be provided to customers if the securities are quoted on:
OTC pink marketplace
According to anti-money laundering (AML) procedures, a member firm, when opening a new account for a non-U.S. citizen, is required to obtain a:
Passport number and country of issuance
Before being sent to customers, this is not required by FINRA to be approved by a principal:
Prospectus
Why is a 30 yr STRIP have more interest rate risk than a 30 yr 6% treasury?
Strips have a lower coupon since they are basically zero coupon bonds. The longer term bond with the lowest coupon has the most interest rate risk
A 3-month Treasury bill is issued at a discount to yield 9.5%, and a corporate bond is issued to yield 9.5%. The bond is to mature in 10 years. If both are offered on the same day on a bond equivalent yield basis, which of the has a greater yield
T bill (bond equivalent yield is always higher than its discount yield)
If an EQUITY option is exercised, when is the settlement date for the stock transaction?
T+2
The main difference between a registered exchange-traded REIT and a registered nontraded REIT is:
The amount of liquidity each has
The Founders Income Fund has declared a dividend that is payable to stockholders of record on Thursday, May 29. This mutual fund's ex-dividend will typically be on:
The date that is set by the fund or its principal underwriter (sponsor)
A client is notified by his broker-dealer that certain trades may be executed by an Electronic Communication Network (ECN). Which TWO of the following choices are risks of using this type of system? Trades are not subject to SRO regulations There may be a limited ability to execute transactions Higher commissions are possible The system may only accept certain types of orders
There may be a limited ability to execute transactions & The system may only accept certain types of orders
A disciplinary action concerning a registered representative (RR) would be reported by the firm on which of the following choices?
U4
If a broker-dealer is assigned an exercise notice on Monday, May 2, on what day will the called stock settle?
Wednesday the 4th (If an option contract is exercised, the settlement date for the stock transaction is two business days from the date the option was exercised)
An employee of a brokerage firm has decided to open an account with an investment company to purchase various mutual funds under the company's complex of funds. The employee:
Written notification is not required when opening an account with another member firm if the transactions will be limited to redeemable investment company shares, variable contracts, or unit investment trusts.
Municipal serial bonds are priced on the basis of:
YTM
If an investor is bearish on small-cap stocks, which of the following products should be avoided?
a russell index ETF (its the benchmark for smallcap stocks)
Relating to a municipal bond swap, which of the following would NOT be a consideration?
amount of accrued interest
A member firm has decided to send all client account statements on a quarterly basis. The practice would:
be permitted
Which of the following choices gives the best indication of current interest rates on revenue bonds?
bond buyer
The purpose of a sinking fund is to redeem a corporation's:
bonds
These orders do not give a broker discretion when the order is activated. When activated, the order becomes a market order and should be executed immediately. All
buy stop and sell stop
Which type of fund's shares can sell above or below NAV: Closed end or Open end?
closed end because they are based on supply and demand
Suitability in variable annuity transactions does not apply in which of the following situations?
contribution to a 403b plan
Two types of stock that may contain a stock legend are:
control stock, restricted stock
TRACE is for:
corp bonds
treasury bills are issued at what price and they come in denominations of how much?
discount, 100
Which of the following interest-rate environments makes call protection MOST valuable to a purchaser of bonds?
decreasing interest rates
A corporation's long-term debt would most likely be called when interest rates:
fall below the bond's nominal yield
Which of the following situations requires a DK (don't know) notice?
firm disagrees on the # of shares in the trade
When a market maker gives a quote for a stock without qualification, the quote is a:
firm quote for 100 shares
All of the following choices are disadvantages for a limited partner, EXCEPT:
flow through treatment for income and loss
A block of bonds is offered firm by Dealer A to Dealer B for one hour with a five-minute recall. Dealer A calls Dealer B and says, fill or kill. Dealer B:
has 5 mins to take the bonds
The amount of interest paid on the company's bonds outstanding (interest expense) is found in a company's _____________________?
income statement
Under MSRB rules, which of the following documents do NOT need to be retained for a specific period?
issuers official statements
Regulation NMS (National Market System) requires a broker-dealer to provide its clients with the best price available for:
listed equity trades available for electronic execution
During periods of deflation, which of the following investments tends to perform the best?
long term debt, long term zeros would be the best performer
Which TWO of the following orders is a designated market maker (DMM) prohibited from accepting on his book?
market order and a not held order
The most significant factor affecting the net asset value of a fund on a day-to-day basis is the:
marking the portfolio to market (calculating the NAV of the mutual fund at the end of the day)
A corporation is in the 21% tax bracket. Which of the following choices provides the BEST return if the corporation wanted to invest some of its surplus cash? - preferred stock paying a 5 1/2% dividend - corporate bond yielding 6% - common stock paying a 5% dividend - municipal bond yielding 5.5%
municipal bond yielding 5.5% 100%-21% =79% .21*.5 = 10.5% .79+.105 = .895 Muni has best yield since they are tax free and 5.5 is greater than all the other yields
Can arbitration decisions be appealed?
no
An investor purchases $10,000 face value of an 8-year municipal bond at a price of 108 and holds the bond to maturity. The investor will report:
no loss or gain
In which of the following documents are bid limitations for a new municipal bond issue found?
notice of sale
The sponsor of the Fenderbender Funds would like to publish some advertisements in several personal finance magazines describing the past performance of the Fenderbender Balanced Fund. In which of the following can the fund's performance be included? A tombstone ad An omitting prospectus ad Generic advertising Supplementary sales literature
omitting prospectus ad and supplementary sales literature
A municipal bond that is issued at par is later purchased at a discount and redeemed for par at maturity. The investor's profit on the transaction is taxed as:
ordinary income
An individual purchases 600 shares of BAZ preferred stock. One week later the stock pays a dividend of $1.20 per share and the investor sells the stock the next day. For tax purposes, how will the dividends be taxed?
ordinary income
the majority of the arbitration panel must come from where?
outside the securities industry
An individual has made before- and after-tax contributions to her traditional IRA. When she begins taking distributions after age 59 1/2, they would be taxed as:
part ordinary, part return of capital
Upon the death of the insured, the proceeds of a variable life policy:
pass to the beneficiary free from federal income tax
Mr. Smith purchases 100 shares of MNP @ 30 and also purchases 1 MNP May 30 put @ 3. Mr. Smith is:
protected from a decline in the market until the option expire
These work sponsored retirement plans grow tax-deferred and are funded with pretax dollars through employee and/or employer contributions.
qualified plans
OCC uses which method:
random selection
An employee in the operations department of a broker-dealer asks an Operations Professional what is meant by the term, covered XAM put. The BEST answer would be if it includes a position in which a customer is:
short XAM stock
According to FINRA which TWO of the following are not required when opening a cash account for a customer?
signature and SSN
An investment banking representative would require an authorized person of an institutional investor to sign which of the following documents to attest to, or determine, whether the institution has the status of an accredited investor?
subscription agreement
Industrial development revenue bonds are backed by:
the corporate guarantor
If an investor expects interest rates to fall significantly in the next two years, what would be the most appropriate investment?
treasury bonds
A mutual fund that invests in stocks that are currently trading below their intrinsic market value is a(n):
value fund
An investment contract that offers life insurance benefits plus participation in a portfolio of securities is called a:
variable life insurance contract
A _____________ is one in which a client is charged a flat fee which covers all the costs of research, trading, advice, and administration. In order to be compensated from these fees an individual must be registered as an investment adviser representative. For those with Series 7 it would require passing Series 65 or Series 66.
wrap account
The most effective means of reducing the price of a stock purchase:
writing a covered call
If a bond is selling at a premium and is callable at par, how is the yield calculated?
yield to call
