Series 7 Checkpoint

A Western account underwriting of $100 million in municipal bonds is established. A member firm agrees to underwrite 10% of the issue and sells out its entire allotment of $10 million. However, some of the other firms participating in the underwriting are unable to sell their full allocation, and $15 million of the bonds remain unsold. What is the financial obligation of the underwriting firm who sold their entire allotment? A) Pooled responsibility for $15 million B) $1.5 million C) $150,000 D) $0

$0

When the inside market (best bid and best offer) for XYZ stock was 17.30-17.60, a market maker bought 100 shares from a customer at 16.90. At the time of the trade, the market maker's market was 17.25-17.70. What was the amount of the markdown? A) $0.35 B) $0.65 C) $0.40 D) $0.75

$0.40

A customer's margin account shows a debit balance of $10,000. Federal law permits the broker-dealer to rehypothecate a maximum of A) $10,000 of the customer's margin securities. B) $20,000 of the customer's margin securities. C) $14,000 of the customer's margin securities. D) $5,000 of the customer's margin securities.

$14,000 of the customer's margin securities.

A customer purchases an ABC $100 par 6½% convertible preferred stock at $80. The conversion price is $20. If the common stock is trading 2 points below parity, the price of ABC common is A) $16. B) $18. C) $14. D) $12.

$14.

A customer opens a new margin account, and the first trade is the short sale of 100 shares of ABC, at a price of $18 per share. What is the required margin deposit? A) $1,800 B) $2,000 C) $9,000 D) $900

$2,000

A corporation has $20 million net income after taxes, 7 million common shares outstanding, and $15 million of 6% preferred stock ($25 par). What is the corporation's earnings per share (EPS)? A) $2.83 B) $2.73 C) $2.86 D) $2.54

$2.73

If a customer has a long margin account with a market value of $20,000, a debit balance of $12,000, and SMA of $5,000, how much cash can the customer withdraw from the account? A) $5,000 B) $1,500 C) $3,000 D) $2,500

$3,000

The Jefferson County Water Works revenue bond is being underwritten by a syndicate led by ABC Securities, Inc. The bond has serial maturities going out up to 25 years with a balloon at 30. The coupons range from 3.2% to 4.1%, and all the bonds are offered at par. The terms of the syndicate agreement call for a total takedown of ¾ of a point with a selling concession of ½ point. A syndicate member who sells 500 of the bonds will earn A) $3,750. B) $2,500. C) $6,250. D) $7,500.

$3,750.

To be designated as an accredited investor under Regulation D, a married couple must have an income in excess of A) $300,000 for the past two years with an expectation of reaching that level again this year. B) $200,000 for the past two years with an expectation of reaching that level again this year. C) $100,000 for the past two years with an expectation of reaching that level again this year. D) $500,000 for the past two years with an expectation of reaching that level again this year.

$300,000 for the past two years with an expectation of reaching that level again this year.

On September 1, an investor sold 100 shares of KLP Corporation common stock for a loss of $1 per share. On September 15, he purchased a KLP convertible bond with a conversion price of $40. How much of the original loss may he now declare for tax purposes? A) None B) $40 C) $75 D) $100

$75

One of your customers purchased a fixed premium variable life insurance policy five years ago. The face value of the policy is $2 million and the current cash value is $107,237. The customer calls you and asks about taking a policy loan. Although the exact details are in the prospectus, you know that the minimum amount that could be borrowed is A) $80,427.75. B) $107,237.00. C) $96,513.30. D) $1,500,000.00.

$80,427.75.

If an investor sold two BCD Feb 40 calls at 4 on August 4, 2018, and the call expired unexercised, what were the tax consequences? A) $800 ordinary income for tax year 2019 B) $400 short-term capital gain for tax year 2019 C) $800 ordinary income for tax year 2018 D) $800 short-term capital gain for tax year 2019

$800 short-term capital gain for tax year 2019

ALFA Electronics has been trading around 70. A customer tells his registered representative that if 1,000 shares of the stock can be purchased in a single attempt, the customer will take it. If not, the customer is not interested and the order should be canceled immediately. How should the representative enter this order? A) 1,000 ALFA IOC at 70 B) 1,000 ALFA at 70 C) 1,000 ALFA FOK at 70 D) 1,000 ALFA AON at 70

1,000 ALFA FOK at 70

If a contract calls for a delivery between member broker-dealers of 500 shares of stock, all of the following certificate combinations would be a good delivery conforming with the FINRA Uniform Practice Code except A) 1 certificate for 200 shares and 1 certificate for 300 shares. B) 10 certificates for 30 shares each and 4 certificates for 50 shares each. C) 5 certificates for 40 shares each and 5 certificates for 60 shares each. D) 10 certificates for 50 shares each.

10 certificates for 30 shares each and 4 certificates for 50 shares each.

When an account is owned by an individual who is 65 years old or older, or the client is 18 years old or older and a member firm believes the client has an impairment that prevents the person from defending their interests, a temporary hold is permitted on disbursements for how many days if the firm comes to reasonably believe that an attempt at exploiting the person has been made? A) 30 calendar days B) 3 business days C) 15 business days D) 5 business days

15 business days

A registered representative of a FINRA member firm has been found guilty of a trade practice violation. If desired, the Code of Procedure requires the individual to file an appeal within A) 25 days after receiving the decision. B) 30 days after receiving the decision. C) 45 days after receiving the decision. D) 60 days after receiving the decision.

25 days after receiving the decision.

The minimum maintenance requirement on long stock accounts is what percentage of the market value? A) 50% B) 25% C) 30% D) The same percentage as the initial margin requirement

25%

A customer establishes the following positions: Buy 100 ABC at 28 Buy 1 ABC Dec 25 put at 2 What is the breakeven point? A) 23 B) 26 C) 27 D) 30

30

An investor is long 500 shares of DEFG common stock, short 200 shares of DEFG common stock, and short 300 shares of DEFG 5% preferred stock. A tender offer for DEFG common shares is announced. Under SEC rules, this investor is permitted to tender A) 300 shares. B) 500 shares. C) 800 shares. D) 0 shares.

300 shares.

Your client sells one naked MAV Oct 40 call at 2 when the market price of MAV is $41. What must MAV be selling at for the client to break even? A) 43 B) 38 C) 42 D) 40

42

Your customer owns a variable annuity contract. The assumed interest rate (AIR) stated in the contract is 5%. In January, the realized rate of return in the separate account was 7%, and she received a check in February based on this return for $200. In February, the rate of return was 10%, and she received a check in March for $210. For her April check to be $210, what rate of return would the separate account have to earn in March? A) 7% B) 10% C) 5% D) 3%

5%

ABC Company has issued $20,000,000 of convertible bonds with a coupon of 5% and a current market value of 120. The conversion price is $40. If all the bonds are converted, how many additional shares of common stock will ABC have outstanding? A) 400,000 B) 600,000 C) 500,000 D) 1,000,000

500,000

Which of the following investments is most likely to have extension risk? A) A mortgage bond B) A hedge fund C) A zero-coupon bond D) A CMO

A CMO

Which of the following would be defined as a research report? A) A technical analysis that indicates the demand for steel is increasing based on the trading volume and price of the steel industry B) A document that states the banking industry is ready for recovery but ABC Bank will not participate in the recovery and if owned, investors should sell the security C) A written opinion that the economy is poised for recovery D) A notice that the rating for a bond has been downgraded by Moody's

A document that states the banking industry is ready for recovery but ABC Bank will not participate in the recovery and if owned, investors should sell the security

Which of the following forms of written communication must a principal approve before use? A) An interoffice memorandum B) A preliminary prospectus C) A letter sent this month to 50 prospective customers offering advice about a stock D) A letter to a customer confirming an annual account review appointment

A letter sent this month to 50 prospective customers offering advice about a stock

One of the ways in which U.S. government agency issues differ from those offered directly by the U.S. Treasury is that A) agency issues are taxable on the federal level, while Treasury issues are not. B) agency issues typically carry higher returns than Treasury issues because of the lack of direct government backing. C) agency issues are more likely to be issued in larger amounts. D) agency issues frequently trade on the NYSE, while Treasuries never do.

agency issues typically carry higher returns than Treasury issues because of the lack of direct government backing.

Options communications may contain projected performance figures (including projected annualized rates of return), provided that A) the client has returned the options account agreement within the specified time. B) all such communications are accompanied or preceded by the Options Disclosure Document. C) all such communications are accompanied or preceded by a warning of the possible defalcation by an officer of the exchange. D) in communications relating to annualized rates of return, the returns are not based on any less than a 30-day experience.

all such communications are accompanied or preceded by the Options Disclosure Document.

A type of alternative trading system that trades listed stocks and is required to register with the SEC as a broker-dealer is A) a dark pool. B) an ECN. C) an ETN. D) the fourth market.

an ECN.

An exchange-traded fund whose strategy is to generate performance opposite that of the designated index is called A) a hedge fund. B) an obverse fund. C) a leveraged fund. D) an inverse fund.

an inverse fund.

A limited partnership brought to market through a Rule 506(b) private placement may be sold to any of the following except A) an unlimited number of unaccredited investors. B) an unlimited number of accredited investors. C) an investor with over $1 million net worth. D) 35 unaccredited investors.

an unlimited number of unaccredited investors.

A FINRA member firm sends a promotional piece to 23 individuals over a three-day period. Ten of these individuals are current customers of the firm. The other 13 are prospects whose names came from a commercially available mailing list service. Under the FINRA rule on communications with the public, this promotional piece would be considered A) retail communication. B) correspondence to the existing customers, and retail communication to the prospects. C) correspondence. D) direct mail.

correspondence.

An example of overlapping debt would be a school district and A) corporate debt of the county's largest employer. B) a local utility power plant. C) county general debt. D) a water pollution control facility.

county general debt.

Under ERISA, all of the following retirement plans must set standards for vesting, eligibility, and funding except A) Keogh plans. B) profit-sharing plans. C) deferred compensation plans. D) corporate pension plans.

deferred compensation plans.

Advantages of owning a real estate DPP program include all of the following except A) cash flow. B) depletion. C) depreciation. D) appreciation.

depletion

An investor has unexpectedly received $30,000 from an old debt he had written off. This money will come in handy for a business venture planned for three years from now. Meanwhile, he would like to generate some income on the money with as little risk and as little expense as possible. Which of the following recommendations is likely to be the most suitable for this customer? A) Class B shares of the XYZ Growth Fund B) Class C shares of the ABC Investment-Grade Bond Fund C) Class B shares of the ABC Investment-Grade Bond Fund D) Class A shares of the MNO High-Yield Bond Fund

Class C shares of the ABC Investment-Grade Bond Fund

Which of the following underwriting arrangements is associated with an invitation, typically found in The Bond Buyer, directed at investment bankers and broker-dealers, intended to solicit interest in underwriting a new municipal issue? A) Competitive bid B) All or none C) Negotiated D) Best efforts

Competitive bid

Under the rules on communication with the public, review of which of the following by a principal may take place either before or after the distribution? A) Correspondence to 25 or fewer retail investors within any 30-calendar-day period B) Seminar scripts C) Independently prepared reprints D) Advertising in a newspaper

Correspondence to 25 or fewer retail investors within any 30-calendar-day period

When discussing a client's finances, which of the following would be of least importance when planning to make a lump-sum investment? A) Current salary B) Winning the lottery C) Year-end bonus D) Expected inheritance

Current salary

Section 28(e) of the Securities Exchange Act provides a safe harbor for certain soft dollar compensation extended from broker-dealers to investment advisers. Which of the following is most likely to be included in that safe harbor? A) Meal expenses to attend an investment seminar sponsored by the broker-dealer B) Desks remaining after the broker-dealer redesigned its office C) Use of vacant office space in the broker-dealer's facilities D) Customized software designed to give clients access to asset allocation programs

Customized software designed to give clients access to asset allocation programs

Which of the following types of municipal bonds is subject to statutory debt limits? A) Hospital bonds B) Industrial development revenue (IDR) bonds C) General obligation (GO) bonds D) Special tax bonds

General obligation (GO) bonds

Which of the following securities has the direct backing of the U.S. Treasury? A) Ginnie Maes B) Freddie Macs C) Fannie Maes D) Treasury stock

Ginnie Maes

Which of the following statements regarding hedge funds is correct? A) Hedge fund managers, like mutual fund managers, are compensated largely based on assets under management. B) Hedge funds are passively managed in an attempt to provide predictable returns for investors. C) Hedge funds are typically favored by inexperienced investors to hedge against losses they may experience as they gain investment savvy. D) Hedge funds are usually structured as a partnership.

Hedge funds are usually structured as a partnership.

A customer who seeks to supplement his retirement income and has a high risk tolerance would find which of the following securities most suitable? A) Investment-grade bond funds B) High-yield bond funds C) Municipal GOs D) Treasury STRIPS

High-yield bond funds

Which of the following statements regarding ADRs is not true? A) Dividends are received in U.S. dollars. B) ADRs make it easy to own a foreign security. C) Holders generally have voting rights. D) Key risks to identify include currency and political risks.

Holders generally have voting rights.

The GHI Transportation Company has run into decreased sales and is forced into a bankruptcy liquidation. Which of the following would have the most junior claim? A) Holders of GHI's mortgage bonds B) Holders of GHI commercial paper C) Holders of GHI's equipment trust certificates D) Holders of GHI's collateral trust certificates

Holders of GHI commercial paper

Which of the following securities can be traded in the third market? I. A closed-end investment company II. An exchange-traded fund III. An open-end investment company IV. A unit investment trust A) II and IV B) I and II C) II and III D) I and IV

I and II

You are reviewing an investor's balance sheet. Which of the following items would be found on a balance sheet and help you determine the client's net worth? 401(k) balance Credit card balance Monthly income Electric bill A) I and IV B) I and II C) III and IV D) II and III

I and II

Arbitration and mediation are two services provided by FINRA to settle disputes between members. Regarding these services, which of the following statements are not true? Mediation is mandatory; arbitration is not. Arbitration always results in a binding decision; mediation may not. If arbitration is unsuccessful, the dispute moves on to mediation. A mediator in a dispute may not serve as an arbitrator in the same dispute. A) I and III B) I and IV C) II and III D) II and IV

I and III

FINRA Rule 2330, which deals with members' responsibilities regarding variable annuities, applies under which of the following circumstances? The initial purchase of a deferred variable annuity. The initial purchase of an immediate variable annuity. The initial subaccount allocations. The initial subaccount reallocations. A) I and III B) I, II, and III C) I, II, III, and IV D) II and IV

I and III

In July, a customer invested $10,000 in the ABC Mutual Fund. In December of the same year, ABC announced a long-term capital gains distribution. In May of the next year, the customer decided to redeem his shares for a capital gain. How are both of the capital gains treated for tax purposes? The capital gain distribution is treated as long term. The capital gain from redemption is treated as long term. The capital gain from redemption is treated as short term. The capital gain distribution is treated as short term. A) I and III B) I and II C) II and IV D) III and IV

I and III

Which of the following statements regarding the suitability of municipal bonds are true? The tax-free interest payments make them more suitable for those in higher tax brackets. The tax-free interest payments make them more suitable for those in lower tax brackets. The tax-free interest is why municipal bonds are not considered suitable investments to be included in one's retirement account, such as an IRA. The tax-free interest is one reason why municipal bonds are considered suitable investments to be included in one's retirement account, such as an IRA. A) I and III B) II and III C) II and IV D) I and IV

I and III

Your customer, a small-business owner, likes investments that are short term, relatively safe from credit risk, and liquid. He's heard that higher rates of return can be realized from auction rate securities than the rates he is currently getting on the Treasury bills in his portfolio. He asks you to explain them to him. Which of the following would you note as being reasons why they are not suitable for him? Auction rate securities are intended as long-term investments. Interest or dividend rates are reset at established intervals based on a Dutch auction. If the auction fails, holders of ARSs may not have immediate access to their funds. The interest or dividend rate is set as the lowest rate to match supply and demand at the time of the auction. A) I and IV B) I and III C) II and III D) II and IV

I and III

A customer believes ABC's stock price will rise, but she does not currently have the money to buy 100 shares. How could the customer use options to profit from a rise in the stock's price? Buy calls Write calls Buy puts Write puts A) I and III B) II and III C) I and IV D) II and IV

I and IV

To comply with the regulations regarding customer identification programs, the minimum identifying information that must be obtained from each customer before opening an account includes which of the following? Their name Oral assurance that the customer is of legal age A street address, unless the primary mailing address is a post office box located in the state of residence A taxpayer identification number A) I and IV B) III and IV C) I and II D) II and III

I and IV

Under the conduit theory of taxation, which of the following statements are true? A fund is not taxed on earnings it distributes if it distributes at least 90% of its net investment income. Investors are not taxed on earnings they reinvest. A fund is only taxed on interest income. Investors are taxed on earnings they receive in cash. A) III and IV B) II and III C) I and IV D) I and II

I and IV

Which of the following positions subject an investor to unlimited risk? Short naked call Short naked put Long put Short sale of stock A) I and II B) I and IV C) II and III D) I and III

I and IV

For each violation of FINRA or MSRB rules, FINRA may impose which of the following sanctions? Fines Censure Restitution Expulsion A) I, II, III, and IV B) I, III, and IV C) I and II D) I, II, and IV

I, II, and IV

Which of the following would establish a covered put?. A) Long stock at 40, short put at 35 B) Long stock at 40, long put at 45 C) Short stock at 40, short put at 35 D) Short stock at 40, long put at 45

Short stock at 40, short put at 35

On a single day, a customer purchases 15 TPL Sep 50 puts at 6 and 15 TPL Sep 50 calls at 1. If the price of TPL is $45 per share and the customer has no other security positions, what is this position called? A) Covered B) Straddle C) Spread D) Combination

Straddle

Which of the following documents spells out the rights of each member of the underwriting syndicate and how the issue is allocated? A) Official notice of sale B) Syndicate letter C) Preliminary official statement D) Legal opinion

Syndicate letter

A customer, currently finding the income offered from a money market fund quite low, asks if there might be any debt instruments providing income that one could expect to at least keep pace with inflation as well as offer some tax relief. What suitable recommendation could be made that meets the investor's investment objectives? A) Participating preferred B) TIPS C) U.S. T-bills D) GNMAs

TIPS

A bond was issued 3 years ago with a coupon of 6%. The bond matures in 21 years and is callable at 103. Current market interest rates are 8%. Which of the following is most likely true? A) The coupon will be changed. B) The bond will be called. C) The bond is selling at a premium. D) The bond is selling at a discount.

The bond is selling at a discount.

Who has the final responsibility for debt service on an industrial revenue bond? A) The corporation leasing the facility B) The municipal issuer of the bonds C) The municipal authority established by the issuer D) The MSRB

The corporation leasing the facility

Your clients, an elderly retired couple on a small fixed monthly income, want to write uncovered (naked) calls in their joint account to generate income. For this account, this option strategy would most likely be deemed A) not suitable, because it is a speculative strategy with unlimited loss potential. B) suitable, because it is a standard strategy recommended to all retired customers to add income to their accounts. C) not suitable, because this strategy cannot be used in a joint account. D) suitable, because it has minimal risk characteristics.

not suitable, because it is a speculative strategy with unlimited loss potential.

Prior to effecting an initial penny stock transaction for a new customer, the registered representative must do all of the following except A) obtain a signed risk disclosure document from the customer. B) determine if the client has been receiving monthly statements. C) obtain a signed suitability statement from the customer. D) determine suitability based on financial condition, investment experience, and investment objectives.

determine if the client has been receiving monthly statements.

Each of the following is affected by the sale of securities in a restricted margin account except A) market value. B) equity. C) SMA. D) debit balance.

equity

On exercise of the option, the holder of a long call will realize a profit if the price of the underlying stock A) falls below the exercise price. B) falls below the exercise price minus the premium paid. C) exceeds the exercise price. D) exceeds the exercise price plus the premium paid.

exceeds the exercise price plus the premium paid.

After receiving and accepting securities from another firm, a broker-dealer discovers that the securities received were not in good deliverable form. Recourse for the broker-dealer is to A) cancel the trade and file a complaint. B) buy in the securities. C) sell out the securities. D) file a reclamation.

file a reclamation.

A client of a member broker-dealer is disgruntled with the attitude of some of the firm's staff. A complaint is sent by email to the manager of the branch servicing the account. FINRA rules require that a record of this complaint be maintained for no less than A) six years. B) four years. C) whatever time period the firm wishes, because the only time a complaint is recognized is if it is in writing. D) three years.

four years.

As a new registered representative, there is much industry jargon to learn. If you overheard your manager discussing a stock power, it would be in reference to A) the firm's technical analyst reporting a breakout on a stock. B) a power of attorney granted from a client to a third party. C) good delivery of a stock certificate. D) authorization to sell stock in a discretionary account.

good delivery of a stock certificate.

A corporate bond is quoted in the Wall Street Journal as follows: Bid: 100½ Asked: 100¾ Bid Chg.: -⅛ YTM: 5.75% From this information, you know the nominal yield is A) 5.75%. B) 5.625%. C) less than 5.75%. D) greater than 5.75%.

greater than 5.75%.

An investor acquires limited partner status in a direct participation program when A) he and the general partner have both signed the subscription agreement. B) he submits a signed copy of the subscription agreement. C) his money is received by the general partner. D) the certificate of limited partnership is filed in its home state.

he and the general partner have both signed the subscription agreement.

Your client wishes to invest $50,000 into shares of the ACE Mutual Fund. This morning's financial news indicated that the POP for ACE was $10.86, while the NAV was $10 per share. The client's order is placed at 2:00 pm Eastern time. Based on this information, you could confirm to the client a purchase of A) 5,000 shares. B) 4,604.052 shares. C) nothing yet, as you must wait for the POP to be computed based on the day's close. D) more than 4,604.052 shares, but fewer than 5,000 shares.

nothing yet, as you must wait for the POP to be computed based on the day's close.

An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. Her intent was to use the funds for the down payment on a house after graduation. Her agent recommended she choose a variable annuity as a safe haven for the funds. This recommendation is unsuitable because A) withdrawal of her cost basis is tax free. B) an 18-year-old can't own a variable annuity. C) the investment grows tax deferred. D) her situation exposes her to surrender charges and early withdrawal penalties.

her situation exposes her to surrender charges and early withdrawal penalties.

FINRA Rule 4530 states that each member shall promptly report to FINRA, but in any event not later than 30 calendar days, after the member knows or should have known of the existence of any of the following, otherwise than when the member or an associated person of the member A) is barred from becoming associated with any member of any securities, insurance, or commodities self-regulatory organization. B) is the subject of any written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery. C) is indicted, or convicted of, or pleads guilty to, or pleads no contest to, any felony, or any misdemeanor that involves the purchase or sale of any security in a domestic, military, or foreign court. D) is the subject of an adjudication of bankruptcy by any domestic, military, or foreign court.

is the subject of an adjudication of bankruptcy by any domestic, military, or foreign court.

Compared to U.S. government agency-backed CMOs, CDOs have. A) less credit risk. B) generally more secure collateral. C) greater liquidity. D) less prepayment risk.

less prepayment risk.

A new client of yours indicates that they remember hearing stories from grandparents who lived through the Great Depression of the 1930s. Those relatives lost almost everything they had in the stock market, and the client is not interested in seeing a repeat of the family history. When doing your information gathering, this would be an indication of the client's A) net worth. B) values. C) level of risk tolerance. D) employment stability.

level of risk tolerance.

A customer opens a margin account with a broker-dealer and signs a loan consent agreement. The loan consent agreement allows the firm to A) commingle the customer's securities with securities owned by the firm. B) lend the customer money. C) loan out the customer's margin securities. D) hypothecate securities in the account.

loan out the customer's margin securities.

A structured instrument known as an asset-backed security would not be backed by A) auto loans. B) loans on marginable securities. C) credit card debt. D) student loans.

loans on marginable securities.

When opening an options trading account, a broker-dealer is required by FINRA to A) determine if the customer is approved for options trading at any other member firm. B) have the customer sign the options account agreement prior to or concurrent with the first trade in the account. C) deliver the OCC Options Disclosure Document to the customer within five business days of the account being opened. D) make sure the options agreement is signed and returned to the firm within 15 days of the account being approved.

make sure the options agreement is signed and returned to the firm within 15 days of the account being approved.

A member of the board of directors of the Able Baker Charlie Company (ABCC) took her director's fees and purchased 200 shares of ABCC on the Nasdaq Stock Market at $20 per share. If she wished to sell these shares, compliance with Rule 144 would entail A) meeting neither a size limit nor a time limit. B) meeting a size limit, but not a time limit. C) meeting a time limit, but not a size limit. D) meeting both a size limit and a time limit.

meeting neither a size limit nor a time limit.

Moody's Investment Grade (MIG) ratings are applied to A) money market instruments. B) municipal notes. C) corporate bonds. D) municipal bonds.

municipal notes.

When investing in securities, there are many potential risks. When recommending a specific security to clients, a member firm A) must have a reasonable belief that the recommended security will outperform the overall market. B) may disclose the existence of a control relationship between the firm and the subject company if it is material. C) may follow the dictum of caveat emptor. D) must disclose the existence of a control relationship between the firm and the subject company.

must disclose the existence of a control relationship between the firm and the subject company.

An investor in an oil and gas limited partnership program is subject to the economic consequences of all of the following except A) recourse loans. B) depreciation on tangible assets. C) operating losses. D) nonrecourse loans.

nonrecourse loans.

FINRA Rule 2330 states: no member or person associated with a member shall recommend to any customer the exchange of a deferred variable annuity unless such member or person associated with a member has a reasonable basis to believe the exchange suitable, taking into consideration whether A) the new annuity has a higher assumed interest rate. B) the customer has had another deferred variable annuity exchange within the preceding 36 months. C) the customer is at least 59½ and will not be subject to the 10% tax penalty. D) the customer's health has declined since the purchase of the initial annuity.

the customer has had another deferred variable annuity exchange within the preceding 36 months.

A brokerage order ticket must contain all the following except A) the account number for which the order is entered. B) the date the account was opened. C) the discretionary authority exercised. D) the price and time limits, if any.

the date the account was opened.

An important feature of scheduled premium variable life insurance policies is that A) the cash value can never fall below the guaranteed minimum amount. B) better than expected performance of the separate account can lead to reduced premiums. C) purchasers must understand that there are no guarantees with these policies. D) the death benefit can never fall below the guaranteed minimum amount.

the death benefit can never fall below the guaranteed minimum amount.

When creating a diversified municipal bond portfolio, all of the following should be considered except A) the credit rating. B) the source of funds backing the bonds. C) the geographic location of the issuer. D) the denomination of the bonds included in the portfolio.

the denomination of the bonds included in the portfolio.

Bob Smith, who is in his 40s, has just become covered by an extremely generous defined benefit retirement plan at his company. He has decided he no longer needs his variable annuity for retirement purposes and wants to use the money for a trip to Africa. Over the past 10 years, he has invested $60,000 in the annuity, and its net value is now $80,000. If Bob should go ahead and surrender the annuity, the tax consequences will be A) ordinary income tax on $20,000 and a $2,000 penalty. B) capital gains tax on $60,000 and a $6,000 penalty. C) ordinary income tax on $60,000 and a $6,000 penalty. D) capital gains tax on $20,000 and a $2,000 penalty.

ordinary income tax on $20,000 and a $2,000 penalty.

One way in which open-end investment companies differ from closed-end investment companies is that an open-end investment company's shares A) are traded in the secondary markets rather than on an exchange. B) outstanding will vary in number at any point in time. C) are purchased and redeemed based on supply and demand. D) may be priced at a premium or discount relative to its net asset value.

outstanding will vary in number at any point in time.

All of the following will affect the working capital of a corporation except A) payment of a cash dividend. B) an increase in current assets. C) declaration of a cash dividend. D) a decrease in current liabilities.

payment of a cash dividend.

If a client asked you about an equity security with a cumulative feature, the question would most likely be dealing with A) common stock. B) preferred stock. C) outstanding stock. D) preemptive rights.

preferred stock.

An order memorandum or ticket must be prepared A) by the close of business on the trade date. B) by the close of business on T+1. C) by the settlement date. D) prior to order execution.

prior to order execution.

Maintaining a fair and orderly market on the NYSE trading floor is the responsibility of A) the order book official. B) the traders. C) the floor brokers. D) the designated market maker.

the designated market maker.

Determining a client's investment objectives is an important function of being a registered representative. A customer who identifies as having a conservative investment posture would probably avoid A) preservation of capital. B) growth. C) speculation. D) income.

speculation.

In an account opened by two individuals as joint tenants with right of survivorship, all of the following are true except A) orders may be entered by either party. B) in the event of death, the other party assumes full ownership of the account. C) mail may be directed to the joint owner agreed upon by both parties to the account. D) stock certificates may be delivered in the name of either party.

stock certificates may be delivered in the name of either party.

One respect in which TIPS bonds differ from all other U.S. Treasury securities issued at par value is that they A) have a variable coupon rate. B) are quoted in 1/8 increments. C) pay interest annually. D) subject the investor to phantom income.

subject the investor to phantom income.

Your customer is interested in buying call options on CDL common stock. The client asks you, "Who issues CDL options?" The proper response is A) the exchange where the option is traded. B) the seller of the option. C) CDL Corporation. D) the Options Clearing Corporation.

the Options Clearing Corporation.

A municipal bond underwriter looking in The Bond Buyer would recognize the percentage of new issues sold versus new issues offered for sale the prior week as A) the revenue bond index. B) the acceptance or placement ratio. C) the general obligation (GO) index. D) the visible supply.

the acceptance or placement ratio.

All of the following statements regarding the short sale of a listed security are true except A) short sales may take place at the closing. B) the buyer must be advised that he is purchasing borrowed shares. C) short sales may take place at the opening. D) a short sale can be executed at any time in the trade sequence.

the buyer must be advised that he is purchasing borrowed shares.

Opening a margin account involves a number of different documents. The document describing how the interest on the margin debt is calculated is generally known as A) the hypothecation agreement. B) the loan consent agreement. C) the risk disclosure document. D) the credit agreement.

the credit agreement.

In portfolio theory, the alpha of a security or a portfolio is A) the difference between the expected return of the portfolio, given the portfolio's beta, and the actual return the portfolio achieved. B) a measure of the variance in returns of a portfolio divided by its average return. C) a measurement of a portfolio's performance versus a standard benchmark such as the S&P 500. D) the risk of the portfolio associated with the factors that affect all risky assets.

the difference between the expected return of the portfolio, given the portfolio's beta, and the actual return the portfolio achieved.

When a customer, who is at least 59½, withdraws money from a traditional IRA that has been funded totally with deductible contributions, A) the entire amount withdrawn is subject to taxation at ordinary income tax rates. B) the withdrawal causes the entire IRA balance to be subject to taxation at ordinary income tax rates. C) the basis is taxed as ordinary income, and the gains are taxed at the capital gains rate. D) the entire amount withdrawn is subject to taxation at ordinary income tax rates with an additional 10% penalty.

the entire amount withdrawn is subject to taxation at ordinary income tax rates.

Limited partnership programs are categorized as direct participation programs. The term direct participation refers to A) the ability of any partner, limited or general, to participate in the running of the partnership. B) the flow-through of profits and losses of the partnership to the individual limited partners. C) the ability, through the partnership democracy, for each partner to have her vote flow through to the general partner. D) the general partners directly participating in the day-to-day management of the partnership.

the flow-through of profits and losses of the partnership to the individual limited partners.

A customer asks for sales literature for a money market mutual fund. Upon receiving the literature, she notices A) the fund is an appropriate addition for investors seeking capital appreciation. B) the fund stipulates that future results will be substantially the same as the past performance listed in the 1-, 5-, and 10-year returns. C) the fund's current yield is insured by the Federal Deposit Insurance Corporation. D) the fund seeks to maintain a stable price but the fund can lose money.

the fund seeks to maintain a stable price but the fund can lose money.

If a prospectus for a variable life insurance product contains hypothetical projections of returns, A) the maximum return permitted is 12%, and there must be an illustration showing a 0% return as well. B) the issuer could be liable for civil action. C) they may be used to demonstrate why this is an investment product. D) they must reflect returns for the past 1-, 5-, and 10-year periods.

the maximum return permitted is 12%, and there must be an illustration showing a 0% return as well.

The STU Corporation has issued common stock, preferred stock, promissory notes, and mortgage bonds. Should STU enter bankruptcy proceedings, the order of payment against claims would be A) the preferred stock, the common stock, the mortgage bonds, and the promissory notes. B) the mortgage bonds, the promissory notes, the preferred stock, and the common stock. C) the mortgage bonds, the preferred stock, the common stock, and the promissory notes. D) the promissory notes, the mortgage bonds, the preferred stock, and the common stock.

the mortgage bonds, the promissory notes, the preferred stock, and the common stock.

A generic ad for an investment company placed by a broker-dealer would contain A) neither the name of the investment company nor the name of the broker-dealer. B) the name of the broker-dealer, but not the name of the investment company. C) both the name of the investment company and the name of the broker-dealer. D) the name of the investment company, but not the name of the broker-dealer.

the name of the broker-dealer, but not the name of the investment company.

Perhaps the most important thing to understand when a business is organized as a sole proprietorship is that: A) the owner is liable for all the debts of the business. B) all profits are taxed at business level, which will likely lower overall taxes. C) this type of business mode is best for raising large amounts of money. D) all losses are taxed to the sole proprietorship.

the owner is liable for all the debts of the business.

KAPCO Manufacturing Corporation declares a 5-for-1 stock split on its outstanding shares of $20 par value common stock. This split will cause A) the dividend per share on KAPCO's preferred stock to be reduced. B) the price of the shares to change to $4 per share. C) a change to KAPCO's net worth. D) the par value of the shares to change to $4 per share.

the par value of the shares to change to $4 per share.

The rights and liabilities of general and limited partners are listed in A) the certificate of partnership. B) the Uniform Limited Partnership Act. C) the partnership agreement. D) the partnership title.

the partnership agreement.

Marking-to-the-market is A) the calculation of the difference in value between the current market price and the Regulation T requirement. B) the revaluing of a margin account's equity based on the market price on the settlement date. C) the calculation of the difference between the maintenance margin and the Regulation T requirement. D) the revaluing of securities held long or short in the account based on the actual CMV of the securities.

the revaluing of securities held long or short in the account based on the actual CMV of the securities.

Limited partners in a real estate partnership have all of the following rights except A) the right to sue the general partner for violating the partnership agreement. B) the right to monitor the partnership on an ongoing basis. C) the right to decide which properties the partnership purchases. D) the right to receive their pro rata share of income or loss.

the right to decide which properties the partnership purchases.

If an investor establishes a call spread, and buys the lower exercise price and sells the higher exercise price at a net debit, he anticipates that A) the price of the underlying stock will not change. B) the exercise prices will change. C) the spread will widen. D) the spread will narrow.

the spread will widen.

An analyst reports that a stock's price is consolidating. This means A) the stock's trendline is moving primarily in a horizontal direction. B) the stock's trendline is moving primarily in a upward direction. C) no distinct pattern can be observed. D) the stock's trendline is moving primarily in a downward direction.

the stock's trendline is moving primarily in a horizontal direction.

If a customer writes one uncovered in-the-money put, the maximum loss to the customer is A) 100% of the premium. B) unlimited. C) the strike price minus the premium multiplied by 100 shares. D) the strike price plus the premium multiplied by 100 shares.

the strike price minus the premium multiplied by 100 shares.

The primary difference between an underwriting syndicate member and a selling group member in a firm commitment underwriting is that A) the syndicate member assumes liability for unsold shares and the selling group member does not. B) the securities offered by each differs within the offering. C) the size of a syndicate member firm will always be larger than a selling group member firm. D) the price per share paid by the public (POP) is more if purchasing new shares from a selling group member.

the syndicate member assumes liability for unsold shares and the selling group member does not.

A fundamental analyst researching a stock is concerned with all of the following except A) the volume of shares traded. B) management efficiency. C) the stock's market price as a multiple of the company's earnings. D) the capitalization ratio.

the volume of shares traded.

An investor purchases a bond on its initial public offering. Even though the bond has a maturity value of $1,000 in 10 years, the offering price is only $600. If the bond is held to maturity, A) there is a $400 long-term capital gain. B) there are no tax consequences to report. C) $400 is reported as ordinary income. D) there is a $360 long-term capital gain and $40 in ordinary income.

there are no tax consequences to report.

There are many different types of asset-backed securities, but the common theme uniting all of them is A) they are supported by a contractual obligation to pay. B) they are usually backed by a single source of payment. C) they tend to be exchange traded. D) they are a form of equity financing.

they are supported by a contractual obligation to pay.

You have a client who invested in the PQR Growth Fund 10 years ago and now, as retirement age approaches, asks you about using the exchange privilege to move into the PQR Balanced Fund. The client should know that A) this exchange is considered a taxable event as of the date of the exchange. B) the exchange qualifies for any breakpoint reduction. C) the old shares are liquidated at NAV and the new shares are purchased at the POP. D) any tax consequences are deferred until the Balanced Fund shares are liquidated.

this exchange is considered a taxable event as of the date of the exchange.

All of the following are reasons for entering a stop order except A) to protect unrealized gains on an existing long position. B) to guarantee execution at a specified price or better. C) to limit losses on an existing long position. D) to protect profits on an existing short position.

to guarantee execution at a specified price or better.

A member firm's client has issued instructions for the assets held in an account at another member to be transferred to this account. The member firm has received the proper ACATS validation from the carrying firm. Therefore, it is expected that the transfer will be completed within A) three additional business days. B) two additional business days. C) one additional business day. D) five additional business days.

two additional business days.

Under Regulation T, when a customer purchases securities, payment must be received by the broker-dealer no later than A) the settlement date. B) one business day after the settlement date. C) one business day before the settlement date. D) two business days after the settlement date.

two business days after the settlement date.

In a direct participation program (DPP) limited partnership, the general partner has A) limited liability and a passive role. B) limited liability and an active role. C) unlimited liability and a passive role. D) unlimited liability and an active role.

unlimited liability and an active role.

Which of the following client statements describes an investment objective rather than an investment constraint? A) "I will not invest in any polluter of the atmosphere." B) "I want my investments to be liquid." C) "I want to maximize my income." D) "See how much in taxes you can save."

"I want to maximize my income."

On December 13, an investor buys six ABC Feb 60 calls at 2.25 each, when ABC is trading at 59.50 per share. If the calls expire unexercised, how much money will the investor lose? A) $810 B) $1,350 C) $225 D) $6,000

$1,350

A customer has the following margin account balance: Market value: $50,000 Balance: (DR) $30,000 SMA: $0 Regulation T: 50% If a customer sells securities in the amount of $20,000 in this account, what is the maximum amount she can withdraw from the account after the settlement date? A) $14,000 B) $10,500 C) $6,000 D) $10,000

$10,000

In a new margin account, a customer buys 300 shares of ABC at $40 per share, 100 shares of the Ajax Mutual Fund at $24, and 10 PDQ Aug 30 calls at 4. The customer will receive a margin call for A) $4,400. B) $12,400. C) $10,800. D) $9,200.

$12,400.

A customer's long margin account contains the following securities: 100 shares of DEF, CMV $40 per share 200 shares of AMF, CMV $50 per share 100 shares of KLP, CMV $80 per share The current debit balance in the account is $10,800. If each of the securities held in the account were to appreciate by $5 per share, the equity in the account would be A) $13,200. B) $8,200. C) $11,200. D) $12,700.

$13,200.

A customer's margin account shows the following entries: MV = 25,000 DR = 15,000 You may inform the customer that he will receive a maintenance call if the LMV falls below A) $22,500. B) $24,000. C) $21,000. D) $20,000.

$20,000.

A customer is short a DMF 50 call for which he received a premium of 4. Seven months later, the call was exercised when the current market for DMF was 56. Under the Internal Revenue Code, what were the proceeds of his sale? A) $4,600 B) $5,400 C) $5,000 D) $5,600

$5,400

If an investor buys one KLP Oct 95 put at 6.50, what is the investor's maximum potential gain? A) $8,850 B) $9,650 C) $10,150 D) $9,500

$8,850

A customer in the 28% tax bracket wants to buy a municipal GO bond with a 7.5% yield that matures in 6 years. The tax-equivalent yield of this bond is A) 0.075. B) 0.060. C) 0.026. D) 0.104.

0.104

A customer has placed an open order to buy 1,600 shares of GHI at $60. GHI declares a 25% stock dividend. On the ex-date, this order is considered a buy limit order for A) 2,000 shares at $60. B) 1,600 shares at $45. C) 2,000 shares at $48. D) 1,600 shares at $50.

2,000 shares at $48.

A registered representative has just been disciplined under the Code of Procedure. Within how many days does the U-4 need to be updated? A) 10 B) 20 C) 60 D) 30

30

Based on yesterday's closing price of $60 per share, Blech Sheet Metal, Inc., has a current P/E ratio of 12:1. If the current quarterly dividend payment is $0.50 per share, the dividend payout ratio is A) 10%. B) 40%. C) 16.66%. D) 3.33%.

40%.

ZOO is trading at 50.63. Your customer, who owns 100 shares of the stock, places an order to sell ZOO at 50.25 stop limit. The tape subsequently reports the following trades: ZOO 50.63 50.75 50.13 50.17 50.27 Your customer's order could first be executed at A) 50.17. B) 50.13. C) 50.27. D) 50.75.

50.27.

A customer gives you a limit order to buy 500 shares of XYZ at 30. You erroneously buy 1,000 shares at 29. The customer is entitled to A) 500 shares at 30. B) 1,000 shares at 29. C) 1,000 shares at 30. D) 500 shares at 29.

500 shares at 29.

An investor owns six RIF Apr 150 puts. How many shares of the RIF will change hands if all the options are exercised? A) 900 B) 600 C) 150 D) 100

600

On November 4, a customer writes an S&P 100 Jan 785 put at 6. The maximum potential gain on this position is A) 300. B) 100. C) unlimited. D) 600.

600.

A bond with a 9% coupon, maturing in 18 years and 6 months, is selling at 120. The yield to maturity is closest to A) 7.05%. B) 7.50%. C) 11.66%. D) 9.00%.

7.05%.

A customer establishes the following positions: Buy 100 ABC for 63 Write 1 ABC Jan 70 call for 1 What is the customer's maximum gain? A) 700 B) Unlimited C) 600 D) 800

800

A customer wrote 10 KLM Jun 80 calls for a premium of 4.75 at a time when the market value of KLM was 81.75. What is his gain or loss if he now closes out his positions at 2.12? A) A $2,630 gain B) A $4,750 gain C) A $4,750 loss D) A $2,630 loss

A $2,630 gain

Which of the following debt securities would be most likely to offer a conversion feature into common stock? A) A debenture B) Preferred stock C) A mortgage bond D) Commercial paper

A debenture

Which of the following actions would increase SMA in a long margin account? A) A long purchase B) A long sale C) A stock dividend received D) A decline in CMV

A long sale

Which of the following accounts would a CMO Z-tranche be best suited for? A) An IRA account for a middle-aged client who is willing to defer the income B) A professionally managed hedge fund specializing in real estate portfolio securities C) A joint account where the owners are looking to diversify and lower their risk D) A custodial account set up under the Uniform Transfer to Minors Act (UTMA)

A professionally managed hedge fund specializing in real estate portfolio securities

A 45-year-old client of yours receives an inheritance of $100,000 and wishes to invest it without having to worry about any taxes being due until she reaches age 68. In addition, the client would like to have some protection against inflation. Which of the following would be the most appropriate recommendation? A) An S&P 500 index fund B) A single premium deferred variable annuity C) An immediate variable annuity D) A single premium variable life insurance policy

A single premium deferred variable annuity

Which of the following bodies may not incur overlapping debt? A) A parks and recreation department B) A state government C) A school district D) A county highway department

A state government

Which of the following is contained in an official notice of sale? A) Agreement among underwriters B) Amount of good-faith deposit required with the bid C) Delivery date D) Reoffering yields on the bond

Amount of good-faith deposit required with the bid

Which of the following is true regarding an institutional communication? A) No more than five retail customers may receive an institutional communication. B) An individual with $50 million or more in total assets is considered an institution. C) It must be filed with FINRA. D) It must be preapproved by a principal.

An individual with $50 million or more in total assets is considered an institution.

Under the Code of Arbitration Procedure, arbitrators fall into one of two categories: public or nonpublic arbitrators. Which of the following persons could not be a public arbitrator? A) A retail investor who has filed a complaint against a broker-dealer in the last two years B) Any person who worked in the financial industry for any portion of her career C) An attorney who has represented an investor in an arbitration case once in the past five years D) Private investors who have substantial mutual fund holdings

Any person who worked in the financial industry for any portion of her career

Customer account statements must include the per-share estimated value of a direct participation program (DPP) or unlisted real estate investment trust (REIT) security held in the account. Which of the following does FINRA accept as an estimated value methodology? A) Market value B) Gross investment C) Appraised value D) Tax basis

Appraised value

When evaluating a client's suitability, which of the following would be considered a nonfinancial consideration? A) Net worth B) Salary C) Attitude D) Debt

Attitude

An investor purchases 100 shares of JKL common stock at a price of $42 per share on April 22, 2020. On June 27, 2021, JKL's market price is $51 and the investor liquidates the position. Which of the following transactions made on October 17, 2020, would have an effect on the investor's tax treatment of this gain? A) Buying a Feb 45 JKL put B) Selling a Feb 45 JKL put C) Selling a Feb 45 JKL call D) Buying a Feb 45 JKL call

Buying a Feb 45 JKL put

If an investor purchases 500 shares of an aggressive growth stock, which strategy would limit his downside risk? A) Writing five straddles B) Writing five puts on the stock C) Buying five puts on the stock D) Buying five calls on the stock

Buying five puts on the stock

A customer is very concerned about investments that may not keep pace with inflation. He asks which securities would have the least exposure to inflation risk. Which of the following would be the best answer?. A) Preferred stock B) Common stock C) Fixed annuity D) Cash

Common stock

An investor is looking for a fixed-income investment that can provide a reasonable income while offering potential inflation protection. Which of the following would be the best recommendation to meet this investor's objective? A) Cumulative preferred stock B) High-yield bonds C) Common stock D) Convertible bonds

Convertible bonds

Liquidity ratios measure the solvency of a firm, or the firm's ability to meet short-term financial obligations. Which of the following is a liquidity ratio? A) Dividends divided by earnings per share B) Net income divided by average total equity C) Current assets divided by current liabilities D) Gross profit divided by net sales

Current assets divided by current liabilities

Which of the following is used to report a bankruptcy filing of a registered representative of a FINRA member firm? A) BF B) ADV C) TIF D) DRP

DRP

When it comes to securities data, the industry relies heavily on acronyms. Which of the following is used exclusively for municipal securities? A) EMMA B) TRACE C) ACT D) CAT

EMMA

Asset allocation refers to the spreading of portfolio funds among different asset classes with different risk and return characteristics. When allocating among asset classes, you would not include A) stock. B) cash and cash equivalents. C) ETFs. D) bonds.

ETFs.

All of the following statements regarding the Federal National Mortgage Association (FNMA) are true except A) FNMA pass-through certificates are not guaranteed by the U.S. government. B) interest on FNMA certificates is taxable at all levels. C) FNMA is a publicly held corporation. D) FNMA is owned by the U.S. government.

FNMA is owned by the U.S. government.

Under which of the following terms does the underwriter act in a dealer capacity? A) Syndicate B) Selling group C) Firm commitment D) Best efforts

Firm commitment

In a strong bull market, which of the following positions utilizing leverage has the potential for the highest percentage gain? A) Writing puts B) Holding stocks C) Holding calls D) Selling short

Holding calls

Which of the following must be registered as investment companies under the Investment Company Act of 1940? Closed-end investment companies Separate accounts of insurance companies offering variable products Variable annuity contracts Variable life insurance policies A) I and IV B) II and III C) III and IV D) I and II

I and II

Which of the following would be found on a when-, as-, and if-issued confirmation? Trade date Settlement date Price Accrued interest A) I and III B) III and IV C) II and IV D) I and II

I and III

Voter approval may be required for new bond issues for construction of which of the following? Airports Turnpikes State prisons Public high schools A) II and IV B) I and II C) III and IV D) I and III

III and IV

Which of the following statements regarding revenue bonds issued by a state or municipality is true? A) Interest and principal payment is guaranteed. B) The bonds carry an unqualified promise to pay interest and principal backed by the power of the issuer to levy taxes. C) Interest and principal payment is backed by the full faith and credit of the issuer. D) Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve.

Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve.

It would be most unusual to see which of the following issued at a discount? A) Treasury bill B) Jumbo CD C) Commercial paper D) Banker's acceptance

Jumbo CD

Which of the following is not considered a debt security? A) Debenture B) Promissory note C) Prior lien preferred stock D) Equipment trust certificate

Prior lien preferred stock

The interest on which of the following municipal securities may be considered preference income for alternative minimum tax purposes? A) TANs B) Original issue discount bonds C) PHAs D) Private purpose bonds

Private purpose bonds

TCB Corporation wants to offer $75 million worth of common stock solely to residents of its home state. The issue will not be registered at the federal level. What type of registration will TCB use to register with the state? A) Qualification B) Coordination C) Regulation D D) Notice filing

Qualification

Fairweather Securities Corp. (FSC), a registered broker-dealer, has invited several IARs from Econometric Advisory Services (ESA), a registered invested adviser that directs transactional business to FSC, to a seminar featuring a disquisition on current economic trends being presented by a leading economist. It would be permitted for FSC to cover which of the following expenses? A) Travel and transportation fees, but not the seminar fee B) Registration fees for the seminar C) None of these; because ESA directs commission business to FSC, it would be an unethical business practice for FSC to pay any portion of the expenses D) Registration fees for the seminar plus travel expenses

Registration fees for the seminar

Which of the following is not a type of corporate debt instrument? A) Subordinated debenture B) Revenue bond C) Income bond D) Mortgage bond

Revenue bond

A stock is trading consistently between $20 and $24. The investor with a long position is neutral on the stock. The goal is to generate income. Which of the following recommendations is most appropriate? A) Buy a put B) Sell a call C) Sell a put D) Buy a call

Sell a call

Your customer has contributed $1,000 annually into her Roth IRA for seven years. Which of the following statements concerning her Roth IRA distributions is true? A) She will not be taxed on the distributions if she is over age 59½ and the money has been held in the account for five years beginning with the first tax year for which a contribution was made to any Roth IRA established for her. B) The distributions are taxed as ordinary income. C) The distributions are taxed as capital gains. D) She will pay ordinary income taxes on the part of the distribution that represents earnings.

She will not be taxed on the distributions if she is over age 59½ and the money has been held in the account for five years beginning with the first tax year for which a contribution was made to any Roth IRA established for her.

In a volatile market, which of the following option strategies carries the most risk? A) Debit spread B) Long straddle C) Short straddle D) Credit spread

Short straddle

The owner of an IRA, age 45, has contributed $10,000 into the account and the IRA is now worth $20,000. The owner is going to convert the entire $20,000 into a Roth IRA. What are the tax consequences of this conversion? A) $10,000 will be taxable as ordinary income, and $10,000 will be taxed as a capital gain. B) The $20,000 is taxable as ordinary income, but there is a $2,000 tax penalty for early withdrawal. C) $10,000 will be taxable as ordinary income, and $10,000 will be taxed as a capital gain; in addition, there will be a $2,000 tax penalty for early withdrawal. D) The $20,000 is taxable as ordinary income in the year of the conversion.

The $20,000 is taxable as ordinary income in the year of the conversion.

The Bond Buyer compiles several indexes of municipal bonds. Which of the following is limited to bonds with the highest ratings? A) The Revdex 25 B) The 20 Bond Index C) The 11 Bond Index D) The 40 Bond Index

The 11 Bond Index

The market-wide circuit breaker (MWCB) rule uses which of the following as the pricing reference point to measure a market decline? A) The S&P 100 index recalculated monthly B) The DJIA recalculated quarterly C) The S&P 500 index recalculated daily D) The Wilshire index recalculated daily

The S&P 500 index recalculated daily

SEC Rule 17a-4 describes the retention requirements for records made by registered broker-dealers. Which of the following records has a retention requirement of six years? A) The record of a transfer of a customer account to another member firm B) Records of the disposition of written customer complaints C) Articles of incorporation if the member firm is a corporation D) Trade confirmations for transactions with institutional customers

The record of a transfer of a customer account to another member firm

Under the Investment Company Act of 1940, which of the following statements regarding the renewal provisions of an investment adviser's contract is not true? A) The renewal must be approved by either majority vote of the board or majority vote of the outstanding shares, as well as majority vote of the noninterested members of the board. B) The renewal may be executed orally, provided it is done within two years of the initial contract. C) The contract must be terminable upon no more than 60 days' notice. D) The renewal must state the adviser's compensation.

The renewal may be executed orally, provided it is done within two years of the initial contract.

Which of the following is an example of sovereign debt? A) U.S. Treasury bonds B) Royal Bank of Canada CDs C) Bank of England notes D) Sony Corporation debentures

U.S. Treasury bonds

Which of the following equity securities has the longest expiration date? A) Common stock B) Preemptive rights C) Preferred stock D) Warrants

Warrants

Which of the following would be considered a bearish strategy? A) Writing a call B) A credit put spread C) Writing a put D) A debit call spread

Writing a call

When a broker-dealer makes a market, it is acting as A) an agent. B) a principal. C) an underwriter. D) a broker.

a principal.

Under FINRA rules, customers who are approved to trade options must receive a copy of the OCC Options Disclosure Document A) at the time of or before account approval. B) within 15 days of account approval. C) at the time of or before the mailing of the confirmation representing the first options trade. D) at the time of or before the mailing of the next monthly statement.

at the time of or before account approval.

A technology fund manager concerned about a downturn in the value of his portfolio would hedge by A) selling narrow-based index calls. B) buying narrow-based index puts. C) buying broad-based index puts. D) selling broad-based index calls.

buying narrow-based index puts.

A method of analyzing limited partnerships by identifying the sources of revenues and expenses is known as A) liquidity analysis. B) cash flow analysis. C) technical analysis. D) capital analysis.

cash flow analysis.

An angry customer has written a letter of complaint and sent it to the registered representative handling the account. The first step the registered representative must take is to A) accept responsibility for the problem and offer a refund to the customer. B) notify the firm's designated examining authority (DEA). C) contact the customer and try to resolve the issue. D) forward the complaint to the proper supervisory person.

forward the complaint to the proper supervisory person.

The Securities and Exchange Commission regulates all of the following except A) intrastate securities offerings. B) the secondary market. C) initial public stock offerings. D) investment adviser and client relationships.

intrastate securities offerings.

An investor whose primary objective is a steady income flow would probably be best served by building a portfolio of A) income bonds. B) preferred stock. C) cumulative common stock. D) investment-grade debentures.

investment-grade debentures.

All of the following are exempt securities except A) commercial paper. B) T-bills. C) bankers' acceptances. D) municipal bond mutual funds.

municipal bond mutual funds.

High-tax-bracket investors are likely to receive the most favorable tax treatment from investing in A) GNMA pass-through securities. B) municipal bonds issued by a political subdivision of their state. C) preferred stock. D) bonds issued by the U.S. Treasury.

municipal bonds issued by a political subdivision of their state.

An arbitration case dealing with a dispute between a customer and a member firm in the amount of $72,000 will be heard by A) one arbitrator, unless FINRA determines three is more appropriate. B) three arbitrators, the majority of whom must be public. C) one arbitrator, unless both parties agree to three. D) three arbitrators, all of whom must be public.

one arbitrator, unless both parties agree to three.

All of the following are common to both DPPs and REITs except A) pass-through of income. B) pass-through of losses. C) centralized management. D) capital gains distributions.

pass-through of losses.

For several months, there has been no activity in a client's account. A monthly statement would be required if the account contained A) municipal bonds. B) penny stocks. C) mutual funds. D) unlisted REITs.

penny stocks.

All of the following terms are associated with general obligation (GO) bonds except A) limited tax bond. B) protective covenants. C) voter referendum. D) coterminous debt.

protective covenants.

All of the following risks are considered diversifiable except A) default risk. B) sovereign risk. C) purchasing power risk. D) liquidity risk.

purchasing power risk.

Complying with the suitability rules involves evaluating all of the following except A) reasonable-basis suitability. B) qualitative suitability. C) quantitative suitability. D) customer-specific suitability.

qualitative suitability.

One concern that FINRA has with fee-based accounts is that they might lead to A) higher commissions. B) churning. C) over-trading. D) reverse churning.

reverse churning.

All of the following option contracts are in-the-money when XYZ is 54 except A) short XYZ 50 put. B) short XYZ 45 call. C) long XYZ 60 put. D) long XYZ 50 call.

short XYZ 50 put.

When a corporation issues a debt security, the terms of the loan are expressed in a document known as the bond's deed of trust. The deed of trust is sometimes referred to as A) the debenture. B) the loan agreement. C) the indenture. D) the bond resolution.

the indenture.

XYZ Widgets is a publicly traded corporation. Upon the death of one of the founders of the company, a donation of 100,000 shares of XYZ stock is made by the executor of the deceased's estate. This would now be considered A) unissued stock. B) treasury stock. C) outstanding stock. D) retired stock.

treasury stock.

Common risk factors found when investing in penny stocks would include all of the following except A) unfavorable tax treatment. B) limited transparency. C) illiquidity. D) high volatility.

unfavorable tax treatment.

A customer has the following accounts: Market value: long account $35,000; short account $40,000 Balance: long account (DR) $23,000; short account (CR) $60,000 SMA: long account $3,000 Regulation T: 50% What is the combined minimum maintenance requirement for the long and short margin positions? A) $12,750 B) $20,750 C) $18,750 D) $8,750

$20,750

You have been given the name of a new potential client who responded to a marketing piece sent out by your broker-dealer. Which of the following would be the most appropriate way to obtain information about the client's objectives and investment constraints? A) Monitoring the client's tweets B) The client's LinkedIn page C) A face-to-face meeting at the client's home D) An interview with the client's neighbors

A face-to-face meeting at the client's home

Government agency bonds issued by which of the following carry a minimum denomination of $1,000 with $1 increments? A) Federal Home Loan Bank B) Sallie Mae C) Freddie Mac D) Ginnie Mae

Ginnie Mae

What might happen if a limited partner begins making business decisions for the partnership? A) He might jeopardize his limited liability status. B) He may be removed from the partnership completely. C) He ascends to general partnership status as a reward for his decision-making contribution. D) There would be no effect because of the partnership democracy.

He might jeopardize his limited liability status.

In general, commercial paper, a popular money market instrument, has a maturity not exceeding A) 365 days. B) 270 days. C) 90 days. D) 30 days.

270 days.

A corporation is having a rights offering. The terms of the offering require six rights plus $60 to purchase one share. With the stock's current market price at $74 per share, the theoretical value of one right before the ex-rights date is A) $0.23. B) $2.00. C) $2.33. D) $0.20.

$2.00.

A customer purchases ten 8% Treasury notes at 101-16. What is the dollar amount of this purchase? A) $10,150 B) $10,116 C) $10,015 D) $10,812

10,150

Which of the following securities is frequently offered with a 50-year maturity? A) U.S. Treasury bond B) GNMA pass-through C) Federal Home Loan Bank D) TVA bonds

TVA bonds

If TCB is trading at 43 and the TCB Apr 40 call is trading at 4, what are the intrinsic value and the time value of the call premium? A) Intrinsic value: 1; time value: 3 B) Intrinsic value: 3; time value: 1 C) Intrinsic value: 3; time value: 4 D) Intrinsic value: 4; time value: 0

Intrinsic value: 3; time value: 1

Your firm is bidding on a new general obligation bond issue. As the issuer weighs and evaluates the competitive bids, what factor will be most important in deciding who will be awarded the winning bid? A) Net interest cost B) Scale C) Concession D) Takedown

Net interest cost

Which of the following statements best describes a hedge fund? A) An investment company, registered under the Investment Company Act of 1940, that charges higher than usual management fees and employs sophisticated investment techniques in an attempt to provide level returns during periods of market uncertainty B) A closed-end investment company employing leverage through the use of debt and preferred stock financing C) A private and unregistered investment pool that accepts the investor's money and employs sophisticated hedging and arbitrage techniques using long and short positions, leverage and derivatives, and investments in many markets D) An investment pool that is generally unregistered and that, through the use of sophisticated market tools, offers investors returns that generally exceed those available elsewhere

A private and unregistered investment pool that accepts the investor's money and employs sophisticated hedging and arbitrage techniques using long and short positions, leverage and derivatives, and investments in many markets

Regarding a summary section and a statement of additional information (SAI) for management investment companies, which of the following is true? A) A summary section need not be included in the prospectus of a mutual fund. B) A statement of additional information need not be included in the prospectus of a management company. C) Neither are required to be in the prospectus of a mutual fund. D) Both must be included in the prospectus of a management company.

A statement of additional information need not be included in the prospectus of a management company.

An investor is concerned about safety. When consulting the ratings, which of the following securities would appear to be least likely to default on its obligation to make timely payment of interest and principal? A) A rated mortgage bond B) AA rated debenture C) BB rated sovereign debt D) AAA rated common stock

AA rated debenture

All of the following securities would be suitable investments for a traditional IRA except A) A rated corporate bonds. B) blue-chip common stocks. C) AAA rated municipal bonds. D) AAA rated U.S. government agency bonds.

AAA rated municipal bonds.

A sophisticated client has expressed an interest in becoming more aggressive with their investment strategy. Her current portfolio consists of the following: $50,000 cash $200,000 in retirement accounts $100,000 in various individual stocks in different industries $100,000 in a balance fund She is willing to invest $25,000 for a minimum of 7 to 10 years and accepts that the investment can and will fluctuate in value over time. Which of the following investments would be the most appropriate? A) DEF Asset Allocation Fund B) XYZ Value Equity Fund C) MNO High-Yield Bond Fund D) ABC Capital Appreciation Small-Cap Fund

ABC Capital Appreciation Small-Cap Fund

When market interest rates are rising, the market price of which of the following securities would probably be affected the most? A) ABC Gas and Electric, a regulated public utility B) GHI Money Market mutual fund C) JKL Corporation adjustable-rate preferred stock D) DEF Technologies, a cybersecurity firm

ABC Gas and Electric, a regulated public utility

A fund seeks maximum capital appreciation by investing in common stocks of companies located outside the United States. The management selects well-established companies that are listed on their national stock exchanges and that have demonstrated high earnings potential. This information describes which of the following mutual funds? A) ATF Biotechnology Fund B) ABC Stock Index Fund C) ATF Capital Appreciation Fund D) ATF Overseas Opportunities Fund

ATF Overseas Opportunities Fund

Your customer, age 60, is retired and living at home with a fully paid-off mortgage. Her portfolio contains growth stocks and high-quality bonds, and she is a long-time investor and comfortable with moderate risk. Her objective is a moderate level of current income to supplement her corporate pension plan distributions and the earnings from her traditional IRA. How are the distributions taxed from her IRA? A) The distribution is taxed as either ordinary income or capital gains, depending on the source of the distribution. B) If a security is sold for more than it was purchased for, the distribution of the profit is taxed as a capital gain. C) All taxable distributions from a traditional IRA are taxed as ordinary income. D) If the IRA has been owned for more than one year, the distributions are long-term capital gains.

All taxable distributions from a traditional IRA are taxed as ordinary income.

Certain investments are available only to those who meet the SEC's definition of an accredited investor. Which of the following qualify? A) An individual who has joint income with that person's spouse in excess of $200,000 in each of the previous two years and has a reasonable expectation of reaching the same income level in the current year B) An individual with net worth in excess of $1 million, exclusive of the equity in a primary residence C) An individual with earnings of $200,000 in the previous year with a reasonable expectation of reaching the same income level in the current year D) An individual with net worth in excess of $1 million, inclusive of the equity in a primary residence

An individual with net worth in excess of $1 million, exclusive of the equity in a primary residence

There are certain securities offerings that are limited to those who meet the definition of accredited investor. The SEC requires that the issuer shall take reasonable steps to verify that purchasers of securities sold in those offerings are accredited investors. One way in which this may be accomplished for natural persons is obtaining a written confirmation from certain persons or entities that such person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months and has determined that such purchaser is an accredited investor. Confirmation from which of the following would not meet the SEC's requirements? A) A registered broker-dealer B) A licensed attorney who is in good standing under the laws of the jurisdictions in which he or she is admitted to practice law C) An investment adviser registered and in good standing under the laws of the state of its principal office D) A certified public accountant who is duly registered and in good standing under the laws of the place of his or her residence or principal office

An investment adviser registered and in good standing under the laws of the state of its principal office

All sell orders must indicate whether they are long or short. In which of the following cases would the sell order be marked long? A) An investor has purchased the stock being sold but the trade has not yet settled. B) An investor owns warrants to buy the stock to be sold but has not yet exercised them. C) An investor owns debentures convertible into the stock to be sold but has not tendered them. D) An investor has a call option to buy the stock to be sold but has not exercised the option.

An investor has purchased the stock being sold but the trade has not yet settled.

Investing in undeveloped land satisfies which of the following primary objectives? A) Tax-deferred income B) Appreciation C) Deductible interest expense D) Investment tax credits

Appreciation

Under SEC rules, which of the following events requires a broker-dealer to furnish an updated account statement to a customer? A) Change of the broker-dealer's address B) Change of the customer's name or address C) Disciplinary action taken against the registered representative assigned to the account D) Change in the registered representative assigned to the account

Change of the customer's name or address

A customer asks your advice regarding a deferred compensation plan at work. You should state that: A) if the business fails, the employee is considered a secured bondholder in terms of liquidation priority and getting paid back. B) if they sit on the board of directors and are also an employee of the company, they are not eligible for the plan. C) deferred compensation plans usually benefit younger employees because the money in the plan has more time to grow prior to retirement. D) deferred compensation plans may be somewhat risky because the employee covered by the plan becomes a general creditor if the business fails.

D) deferred compensation plans may be somewhat risky because the employee covered by the plan becomes a general creditor if the business fails.

If an investment representative hosts an investment seminar and intends to discuss general investment concepts and a specific mutual fund for which he has performance charts, which of the following are true? He may discuss the investment returns of the mutual fund in general, provided he does not use a specific time frame. He may discuss the investment returns of the mutual fund using a specific time frame. He must disclose all material facts regarding the mutual fund to the audience. He may emphasize the positive aspects of the mutual fund and refer prospective investors to the prospectus for further details. A) I and III B) II and III C) I and IV D) II and IV

II and III

If two customers are tenants in common in a joint account, which of the following statements are true? If one of the tenants dies, the survivor will automatically assume full ownership. They need not make equal investments in the account. They need not have equal interests in the property in the account. If one of the tenants dies, the account need not be frozen. A) I and III B) II and III C) II and IV D) I and IV

II and III

If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are true? She will receive the annuity's entire value in a lump-sum payment. She may choose to receive monthly payments for the rest of her life. The accumulation unit's value is used to calculate the total value of the account. The annuity unit's value represents a guaranteed return. A) I and III B) I and IV C) II and IV D) II and III

II and III

SEC regulations for securities issued by investment companies prohibit which of the following? Closed-end funds from issuing preferred stock Open-end funds from issuing preferred stock Closed-end funds from issuing bonds Open-end funds from issuing bonds A) II and IV B) I and III C) I and IV D) II and III

II and IV

The certificate of limited partnership contains which of the following? The market-out clause The amount of time the partnership expects to exist Each investor's net worth All conditions of dissolution A) I and II B) I and III C) II and IV D) II and III

II and IV

To meet a Fed call, a customer must deposit which of the following? 50% of the call in cash 100% of the call in cash 100% of the call in marginable securities 200% of the call in marginable securities A) I and III B) II and IV C) II and III D) I and IV

II and IV

Which of the following statements regarding limited partnerships are true? The maximum commission in selling partnership offerings is 5%. The maximum commission in selling partnership offerings is 10%. Commissions taken are deducted from the original investment to determine beginning cost basis. Commissions taken are not deducted from the original investment to determine beginning cost basis. A) II and IV B) I and IV C) I and III D) II and III

II and IV

A legal opinion issued for a municipal bond covers which of the following? Feasibility of public works projects Creditworthiness of the issuing municipality Tax status of the municipal debt Constitutionality and legality of the municipal debt A) I and II B) I and IV C) II and III D) III and IV

III and IV

In discussing a direct participation program with your customer, she notes investment characteristics that are important to her and some that are not. For a DPP to be considered suitable for the customer, rank the following items in order of those that should be most important to those that should be least important. Tax write-offs Liquidity and marketability Potential for economic gain SEC approval A) III, I, II, IV B) II, III, IV, I C) I, II, III, IV D) III, IV, II, I

III, I, II, IV

From first to last, which of the following sequences reflects the priority of payments made when a limited partnership is liquidated? General partners Limited partners General creditors Secured creditors A) IV, III, II, I B) IV, III, I, II C) I, IV, III, II D) I, II, III, IV

IV, III, II, I

The ABC Corporation would like to raise capital via a Regulation D private placement. Under Rule 506(c), which of the following statements is true? A) If the offering is limited to accredited investors, advertising is permitted. B) Private placements under Regulation D cannot be publicly advertised. C) If the offering is limited to no more than 35 nonaccredited investors, advertising is permitted. D) Under Rule 506(c), a prospectus is only required for nonaccredited investors.

If the offering is limited to accredited investors, advertising is permitted.

Which of the following is not a right conferred upon ownership of common stock? A) Dividends, if declared by the board of directors B) Limited liability C) Transferability of shares D) Voting in person or by proxy

Limited liability

Which of the following is a bull spread? A) Long May 40 put, short May 35 put B) Long Aug 30 call, short Aug 25 call C) Long Jul 30 put, short Jul 35 put D) Short Aug 40 call, short Aug 40 put

Long Jul 30 put, short Jul 35 put

In the trading of options, there are a number of different multiple option strategies. An investor has the following position: Buy one RIF Apr 120 call Buy one RIF Jul 130 put Which strategy is the investor using? A) Long straddle B) Time spread C) Diagonal spread D) Long combination

Long combination

Your client's position is long 100 MNO purchased at 90. Which of the following strategies will limit the customer's loss to $700? A) Sell a MNO 90 call at 7 B) Long one MNO 90 call at 4, long one MNO 90 put at 3 C) Buy a MNO 90 call at 7 D) Short one MNO 90 call at 4, short one MNO 90 put at 3

Long one MNO 90 call at 4, long one MNO 90 put at 3

Which of the following municipal bonds may be paid by a state's legislative apportionment of funds to service the debt? A) Industrial development revenue B) Special tax C) Moral obligation D) Special assessment

Moral obligation

Which of the following is associated with a process whereby a municipal issuer first appoints and then works with the underwriters who will be establishing the interest rate and offering price for a new municipal bond issue? A) Eastern underwriting B) Western underwriting C) Negotiated underwriting D) Competitive bid

Negotiated underwriting

A unit investment trust has 90% of its portfolio invested in high-grade bonds with an average maturity of almost 25 years. If the industry consensus was that long-term interest rates were about to increase sharply, which of the following actions would most likely be taken? A) Ladder the maturities B) Switch to short-term bonds C) Liquidate and begin to move into cash or cash equivalents D) No action would be taken

No action would be taken

If an investor expects to have a large amount of passive income over the next two years, which of the following programs listed will most likely lead to the largest amount of shelter? A) Real estate income B) Oil and gas drilling C) Equipment leasing D) Undeveloped land purchasing

Oil and gas drilling

A new customer has given you written authorization to transfer the holdings in his account at another broker-dealer to his new account at your broker-dealer. Under the Uniform Practice Code, using the Automated Customer Account Transfer Service (ACATS) Form, the carrying broker-dealer would have how many days to validate the positions? A) Two business days B) One business day C) Three business days D) Five business days

One business day

A client interested in the returns offered by CMOs asks you which type has the lowest prepayment risk. What should you say? A) Z-tranche B) Plain vanilla C) TACs D) PACs

PACs

Which of the following mortgage-backed securities would provide investors with the most predictable maturity date? A) TACs B) Ginnie Maes C) PACs D) Fannie Maes

PACs

Which of the following are directly backed by the U.S. government? A) Moral obligation bonds B) PHAs and NHAs C) Double-barreled bonds D) General obligation bonds

PHAs and NHAs

For tax-reporting purposes, qualified dividends are considered to be what type of income? A) Portfolio B) Phantom C) Passive D) Earned

Portfolio

Which of the following would be considered an equity security? A) Negotiable CDs B) Preemptive rights C) Exchange-traded notes D) Equity-linked notes

Preemptive rights

Which of the following statements regarding SMA balances is true? A) SMA balances may be withdrawn provided the withdrawal does not bring the account below minimum maintenance. B) SMA balances may be withdrawn without restriction regardless of the account status being below or brought below minimum maintenance by the withdrawal. C) SMA balances are free credit balances available to be withdrawn upon demand. D) SMA balances, which are considered a line of credit, may only be used to purchase additional securities.

SMA balances may be withdrawn provided the withdrawal does not bring the account below minimum maintenance.

Which of the following events requires a member firm to provide a client with a specific FINRA-designed educational communication? A) The firm is the subject of a disciplinary event resulting in the firm being suspended for a period of five business days or longer. B) The firm has invited select clients to attend a seminar describing highly sophisticated alternative investments. C) The firm, directly or through a registered representative, individually contacts a former customer of that registered representative to transfer assets to the firm. D) The firm proposes to transfer the client account into a wrap-fee program administered by its affiliated registered investment advisory firm.

The firm, directly or through a registered representative, individually contacts a former customer of that registered representative to transfer assets to the firm.

The performance of the XYZ Growth Fund has been in the top 1% of all funds in its category for the past 1-, 5-, and 10-year periods. Which of the following would be the biggest risk factor to an investor investing in this fund? A) The manager's tenure is six months B) Past performance is no assurance of future results C) A dividend yield of less than 2% D) Lack of diversification in the portfolio

The manager's tenure is six months

When opening a margin account for an individual customer, there are a number of documents required. Which one of the following never requires the customer's signature? A) The credit agreement B) The hypothecation agreement C) The margin risk disclosure document D) The loan consent agreement

The margin risk disclosure document

Which of the following statements describing Section 529 plans is true? A) The maximum lifetime contribution varies from state to state. B) They can only be opened for children under the age of 18. C) The fees associated with them are generally the same from state to state. D) Most state college savings plans require either the owner or the beneficiary of the plan to be a state resident.

The maximum lifetime contribution varies from state to state.

Which of the following statements regarding customer confirmations is not true? A) They must disclose whether the broker-dealer is a market maker in the security sold. B) They must disclose commissions if the firm acted as an agent. C) They must disclose the date and time of the transaction (or the fact that the time of the transaction will be furnished upon written request). D) They must disclose the current yield on equity securities.

They must disclose the current yield on equity securities.

Which of the following is not a characteristic of hedge funds? A) They use leverage, short positions, and concentrated positions. B) They are privately organized and generally unregistered. C) They offer managers high fixed fees. D) They invest in private securities, real assets, derivatives, and structured products.

They offer managers high fixed fees.

One of your existing clients wishes to open a new account in the name of his spouse and enter orders on her behalf. Which of the following statements is true? A) The agent could be liable if the stock declines in value. B) This action is prohibited unless the spouse signs a trading authorization. C) This action is prohibited unless the customer signs a trading authorization on behalf of his spouse. D) This practice is ordinary and acceptable.

This action is prohibited unless the spouse signs a trading authorization.

Danielle is the CFO of the XYZ Manufacturing Company. XYZ's shares are listed on the NYSE. She purchased shares of XYZ common stock through her registered representative of a FINRA member firm 165 days ago and, wishing to add on to her home, sells the stock and realizes a $50,000 profit. Under SEC rules, how will this transaction be treated? A) Because the shares were purchased in the open market, she gets to keep the profit. B) This is a violation of the rules on insider trading and could result in fines and/or imprisonment. C) This is considered a short-swing profit and it must inure to the benefit of the issuer. D) The sale will be reversed and she will have her initial investment returned to her.

This is considered a short-swing profit and it must inure to the benefit of the issuer.

Instead of signing on the back of a security sold, the registered owner could sign on a separate paper called A) a stock (or bond) power. B) an endorsement. C) a proxy. D) a stock split.

a stock (or bond) power.

An investor receiving a quote of 102 for a municipal security is probably interested in A) a general obligation bond. B) a term bond. C) a serial bond. D) a bond anticipation note.

a term bond.

While acting in a financial advisory capacity to a municipal issuer, a municipal securities dealer wants to be part of a syndicate in the underwriting of one of the issuer's new bonds. Which of the following statements regarding this situation is true? A) The dealer must obtain the MSRB's written approval before signing the syndicate letter. B) Only an approval by the SEC could allow the broker-dealer to function in both capacities. C) This is recognized by the MSRB as a potential conflict of interest; municipal rules generally prohibit a broker-dealer from acting in both capacities. D) The dealer would be allowed to participate and collect fees for both advisory and underwriting services supplied.

This is recognized by the MSRB as a potential conflict of interest; municipal rules generally prohibit a broker-dealer from acting in both capacities.

It is important for a registered representative to be able to distinguish between a client's investment objectives and investment constraints. Which of the following is an example of an investment constraint? A) Educational funding B) Capital growth C) Time horizon D) Retirement income

Time horizon

Your client lives in a state with a personal income tax. To minimize that tax liability, it would probably be best for this client to purchase A) FNMAs. B) Freddie Macs. C) GNMAs. D) U.S. Treasury bonds.

U.S. Treasury bonds.

Which of the following would be considered a bullish strategy? A) Writing a put B) A credit call spread C) A debit put spread D) Writing a call

Writing a put

A registered representative places an ad in her church newsletter promoting her services as an expert retirement planner. Does this advertisement need to be preapproved by a principal? A) Yes, but only if the newsletter is mailed as opposed to handed out on church property. B) No, because the church is a nonprofit organization, and therefore the ad is exempt from preapproval requirements. C) Yes, the ad will be defined as retail communication, which requires preapproval of a principal. D) No, because the ad only promotes a service, not a specific product.

Yes, the ad will be defined as retail communication, which requires preapproval of a principal.

A bond is currently priced at 96. Which of the following yields would be the highest? A) Nominal yield B) Yield to maturity C) Coupon yield D) Current yield

Yield to maturity

An investor purchased 10 GO bonds at a discount of 2 points per bond. The bonds mature in 10 years. After holding the bonds for 5 years, they were sold at par. For tax purposes, the investor has A) a $50 gain. B) a $100 loss. C) a $100 gain. D) no gain and no loss.

a $100 gain.

A customer writes two ABC Jul 15 puts at 2 when ABC is 14. If the contracts are closed at a premium of 4 when ABC is 13, the customer has A) a $400 loss. B) a $200 gain. C) a $400 gain. D) a $200 loss

a $400 loss.

If an investor wishes to open a cash account in her name only and allow her spouse to make trading decisions as well as withdraw cash and securities, she must instruct her broker-dealer to open A) a margin account. B) a cash account. C) a cash account with full power of attorney. D) a cash account with limited power of attorney.

a cash account with full power of attorney.

Each of the following trades occurs in the secondary market except A) an agent buying unlisted securities for a client. B) a corporate bond syndicate selling new issues to the public. C) an insurance company buying corporate bonds directly from another insurance company. D) a specialist (designated market maker) on the NYSE buying stock as a principal.

a corporate bond syndicate selling new issues to the public.

All of the following will cause a change in SMA in a long account except A) an increase in market value. B) a purchase of stock. C) a decrease in market value. D) a sale of stock.

a decrease in market value.

A characteristic of hedge funds that would not be found in a mutual fund is A) professional management. B) the ability to be purchased on margin. C) a diversified portfolio. D) a lock-up period.

a lock-up period.

All of the following statements about variable annuities are true except A) a minimum rate of return is guaranteed. B) such an annuity is designed to combat inflation risk. C) the rate of return is determined by the underlying portfolio's value. D) the number of annuity units becomes fixed when the contract is annuitized.

a minimum rate of return is guaranteed.

One of the major concerns of the regulatory bodies is the growing problem of senior exploitation. To combat this issue, at the time of an account opening, whether margin or cash, a member firm must disclose in writing that the member or an associated person is A) required to meet the requirements with respect to opening a new account, including obtaining the contact information of a trusted person for any account, retail or institutional. B) unable to further update the customer record with regard to a trusted contact person without written consent from the contact person. C) authorized to contact the trusted contact person provided on the new account form by the customer and to disclose information about the customer's account in addressing possible exploitation. D) unable to open the account in the absence of the name and contact information for a trusted contact person.

authorized to contact the trusted contact person provided on the new account form by the customer and to disclose information about the customer's account in addressing possible exploitation.

If an OTC market maker provides a firm quote to another broker-dealer then refuses to buy or sell at the price quoted, the market maker is said to be A) backing away. B) interpositioning. C) crossing quotes. D) freeriding.

backing away.

A corporation has determined that if it were to go bankrupt, common stockholders would receive $8.47 per share. This calculation is known as A) retained earnings per share. B) net asset value per share. C) book value per share. D) settlement value per share.

book value per share.

The practice of dollar cost averaging requires the investor to A) buy a security in a falling market and buy it in a rising market. B) buy a security in a falling market and sell it in a rising market. C) sell a security in a falling market and buy it in a rising market. D) sell a security in a falling market and sell it in a rising market.

buy a security in a falling market and buy it in a rising market.

On the order book, all of the following orders are reduced on the ex-date for a cash dividend except A) buy stop. B) buy limit. C) sell stop. D) sell stop limit.

buy stop.

Under SEC Rule 10b-10, customer confirmations must be sent at or before A) the settlement date plus two business days. B) completion of a transaction. C) the end of the month in which the transaction took place. D) the date of the transaction.

completion of a transaction.

Greater Growth Capital (GGC), a FINRA member firm, has just been acquired by Better Retirement Outcomes (BRO), a much larger FINRA member. If GGC would like to effect a bulk transfer of its customer accounts using a negative consent procedure, FINRA rules A) prohibit GGC from charging a fee to any existing GGC customers who decide to transfer their accounts to a different firm. B) require GGC to obtain affirmative written consent before transferring a customer's account to BRO. C) prohibit GGC from charging a fee to any existing GGC customers who elect to transfer their accounts to BRO, but permit a nominal charge if the customer wishes to transfer to another member firm. D) require that GGC send a notice to each affected customer at least 60 calendar days before it effects the bulk transfer.

prohibit GGC from charging a fee to any existing GGC customers who decide to transfer their accounts to a different firm.

When reviewing a client's account, your supervisor notices that although each recommendation appears to be suitable based on that client's profile, there is a concern regarding the frequency of activity in the account. This is an example of A) quantitative suitability. B) customer-specific suitability. C) qualitative suitability. D) reasonable-basis suitability.

quantitative suitability.

An investor who purchases 20-year Aaa rated corporate zero-coupon bonds would be least concerned with A) reinvestment risk. B) default risk. C) purchasing power risk. D) interest rate risk.

reinvestment risk.

If interest rates increase, the interest payable on outstanding corporate bonds will A) remain unchanged. B) change according to the inverse payout theory. C) decrease. D) increase.

remain unchanged.

If the State of Texas has solicited bids for a proposed municipal bond offering, the underwriters for that offering would be the syndicate that would A) sell the issue at the highest price. B) sell the issue at the lowest price. C) generate the most proceeds for the State of Texas. D) sell the issue at the lowest net interest cost to the State of Texas.

sell the issue at the lowest net interest cost to the State of Texas.

A prospect is heavily invested in the common stock of an employer's company, ABC, relative to other investments. The stock has performed well over the last 15 years and the prospect is very happy with the investment. After reviewing financial and nonfinancial criteria, you have determined that A) because ABC has performed well over a 15-year period, he should keep the stock but sell it if inside information indicates a fall in value is imminent. B) he should begin to liquidate the ABC stock using the FIFO accounting method. C) owning too much ABC stock has increased credit risk to an unacceptable level. D) selling a portion of ABC and using the proceeds to purchase mutual funds will reduce his nonsystematic risk.

selling a portion of ABC and using the proceeds to purchase mutual funds will reduce his nonsystematic risk.

When processing the morning mail, your firm's trading department notices a confirmation for an unrecognized trade. The proper procedure to follow is A) sending a DK notice to the sender of the confirmation. B) waiting a day or two to see if the sending party recalls the confirmation. C) sending a rejection notice to the sender of the confirmation. D) sending a reclamation notice to the sender of the confirmation.

sending a DK notice to the sender of the confirmation.

An investor buys two ABC Nov 50 calls, three ABC Dec 45 calls, and one ABC Jan 50 call. The best way to describe the portfolio is that it consists of A) six options of the same class. B) six options of the same type. C) two options of one class, three of another class, and one of a third class. D) six options of the same series.

six options of the same class.

If a customer of a member firm would like to file a claim under the Code of Arbitration Procedure, the claim will not be eligible once A) four years have elapsed from the occurrence or event giving rise to the claim. B) ten years have elapsed from the occurrence or event giving rise to the claim. C) six years have elapsed from the occurrence or event giving rise to the claim. D) two years have elapsed from the occurrence or event giving rise to the claim.

six years have elapsed from the occurrence or event giving rise to the claim.

With ABC stock selling for $49, a client sells one ABC 50 Nov call option in his cash account with your firm. One week later, ABC is now at $51 per share and his spouse sells two ABC 50 Nov calls in her account. In early November, ABC is selling for $62 per share and the spouse is assigned an exercise notice on one of the calls. The client calls and asks you, "Why was the exercise notice assigned to my spouse and not me?" You should respond: A) your broker-dealer assigns exercise notices based on the market price at the time the option was written. B) your broker-dealer uses random allocation when assigning exercise notices. C) your broker-dealer assigns exercise notices based on LIFO. D) your broker-dealer assigns exercise notices based on the larger position.

your broker-dealer uses random allocation when assigning exercise notices.

A commonly used investment to provide a defined sum in the future, such as for college education or retirement, is A) common stock. B) zero-coupon bonds. C) convertible bonds. D) warrants.

zero-coupon bonds.