Series 7 - Knopman Test (Simulated Exam)

Rule ________ exempts (from registration) additional shares resulting from stock splits or stock dividends. Stock issued in connection with an acquisition must be registered, as must stock in an IPO.

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The Three Contact Rule does NOT apply to the purchase or sale of a non-Nasdaq security provided there is at least:

2 priced quotations available electronically .

Regulation T requires that a broker/dealer receive payment in full, from a customer making a purchase of this type in a cash account, no later than

5 business days after the trade date.

All of the following statements regarding corporate insiders are true EXCEPT

A corporate insider is defined as an officer, director, 10% stockholder, or family member of an insider. Insiders are required to report any changes in their holdings to the SEC within two business days. The Securities Exchange Act of 1934 also prohibits short selling of company shares by company insiders. They cannot use inside (nonpublic) information for their own benefit.

Brokered CDs, like other CDs issued by a bank directly to customers, carry FDIC insurance up to

A) $250,000

If a Nasdaq market maker is selling stock to a customer from inventory and the firm has held the shares to be sold for several months, what price should the dealer use as a basis for a markup?

A) Best offering price quoted in the interdealer market. FINRA rules require that a dealer's markup to a customer be based on the current market rather than the dealer's cost in an active, competitive market. The dealer's potential loss on inventory is considered to be a risk of making a market.

In a variable life annuity with 10-year period certain, a contract holder receives: A) a minimum of 10 years of variable payments, followed by additional variable payments for life. B) variable payments for 10 years, followed by fixed payments for life. C) 10 years of variable payments. D) fixed payments for 10 years, followed by variable payments for life.

A. The owner of a life annuity with 10-year period certain will receive payments for life, subject to a minimum of 10 years. If the contract holder dies before the period expires, the remaining payments are made to the beneficiary. An example would be if a life annuity with 10-year period certain contract holder died after 5 years, payments would continue for 5 more years to the beneficiary and then stop.

Assume that a customer has an established margin account with no SMA and the account is restricted. With the Regulation T requirement at 50%, the purchase of $10,000 worth of stock would generate a Regulation T call of: A) 5000. B) 25000. C) 2500. D) 20000.

A. The customer must deposit the full margin requirement of the purchase (50% of $10,000) whether the account is restricted or not; therefore, the call would be for $5,000.

An official notice of sale publicizes each of the following EXCEPT: A) the bond's rating. B) the bond counsel's name. C) the amount of good faith deposit required. D) the issuer's name.

A. The notice of sale is the advertisement placed by a municipality soliciting bids from underwriters for an issue it wishes to sell. It does not include the bond's rating.

A confirmation of each customer trade must be given or sent: A) on or before the settlement date. B) before the settlement date. C) before the trade date. D) on the trade date.

A. on or before the completion (settlement date)

If a customer submits a redemption order to her broker/dealer after the close of the New York Stock Exchange, she will receive a price based on the net asset value computed:

B) the next time the fund computes it.

All of the following statements regarding customer confirmations are true EXCEPT: A) the confirmation must disclose commissions if the firm acted as agent. B) the customer must receive the confirmation no later than the business day after the trade. C) the confirmation must disclose if a control relationship exists. D) the confirmation must disclose whether the broker/dealer is a market maker in the security sold.

B. The customer must be sent or receive a confirmation from the broker/dealer no later than completion of the transaction.

Who attests to the legality of a bond issue and issues a legal opinion on a proposed new municipal bond issue? A) Case attorney. B) Bond counsel. C) State Administrator. D) Syndicate manager.

B. The issuer hires a firm or an individual to act on its behalf as bond counsel.

The syndicate manager in a firm commitment underwriting takes which of the following actions in a divided municipal syndicate account that does not sell out? A) Confirms the bonds to the member that did not sell its share B) Returns the bonds to the issuer C) Prorates the bonds according to syndicate participation D) Holds an auction

Because this offer is a divided, or Western, syndicate, each member is responsible for selling a specific number of securities. If a member does not sell its share, it receives the bonds for its inventory.

hours worked

Both the S&P 500 and housing permits are leading economic indicators, as is the measure of hours worked because it reflects changes in the average workweek during the current period of time. Corporate profits are a lagging indicator.

An investor who has purchased a nonqualified variable annuity has the right to: vote on proposed changes in investment policy. approve changes in the plan portfolio. vote for the investment adviser. withdraw funds without any tax consequences. A) II and III. B) II and IV. C) I and III. D) I and IV.

C) I and III. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal.

A new client holds unregistered securities purchased offshore from a US issuer in an exempt Regulation S transaction. These securities A) may not be resold in the United States no matter how long they have been held B) may be resold in the United States unrestricted C) must be held 1 year before they can be resold in the United States D) must be held 9 months before they can be resold in the United States

C. Securities offered under Regulation S in an exempt transaction (US issuers offering securities offshore to non-US residents) must be held for 12 months (1 year) before they can be resold in the United States.

If a customer fails to meet a Regulation T margin call of $2,500, securities may be sold out of the account with a value of: A) 8000. B) 3333. C) 5000. D) 2500.

C. Securities valued at twice the Regulation T cash call must be sold out if a customer fails to meet a Regulation T margin call ($2,500 × 2 = $5,000).

A mutual fund that charges 12b-1 fees may use the money to cover all of the following EXCEPT: A) sales fees. B) printing costs. C) management fees. D) promotion costs.

C. 12b-1 fees may not be used to pay for the portfolio manager's fees, only for sales promotions and fees, and other activities relating to the distribution of the fund's shares.

All of the following statements regarding 529 plans are true EXCEPT: A) a beneficiary of a 529 plan may also be the beneficiary of a Coverdell Education Savings Account. B) earnings accumulate tax free if the money is used for qualified educational purposes. C) contributions are made with pretax dollars at the federal level. D) anyone can make a contribution on behalf of a beneficiary.

C. Contributions are made with after-tax dollars. Withdrawals are tax free at the federal level if used for qualified higher education expenses.

If a customer has a margin account with a long position worth $20,000 and a debit balance of $8,000, what is the purchasing power of this customer's account? A) 2000. B) 8000. C) 4000. D) 6000.

C. The account has $12,000 of equity. If 50% of the market value is $10,000, the account has $2,000 of excess equity. When Regulation T is 50%, the purchasing power of excess equity is 2-for-1.

One of your customers has donated securities that have appreciated over time since they were first purchased to her favorite charity. Wanting to use the donation as a tax deduction on her tax return the customer would be advised that she will be allowed to deduct A) the amount by which the securities have gone up in value above the purchase price B) the original cost of the securities when initially purchased C) the market value of the securities on the date the donation was made D) no portion of the donation

C. When an individual has donated appreciated securities to a charity, the amount of the allowable tax deduction is equal to the current market value of the securities on the day the donation was made.

Mutual fund Class B shares assess A) a front-end load B) no load C) a deferred sales load D) a level load

Class B shares carry a deferred sales load. This is sometimes referred to as a back-end load. Class A shares carry a front-end load. Class C shares charge a 12b-1 fee quarterly with a small back-end load in the first year. Class A - front end load Class B - back end load (deferred sales load) Class C - 12b 1 fee quarterly with a small back end load in the first year

Commercial Papers

Commercial paper represents the unsecured debt obligations of corporations needing short-term financing. Because commercial paper is issued with maturities of less than 270 days, it is exempt from SEC registration under the Act of 1933.

A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has: A) a proportionately increased interest in the company. B) a proportionately decreased interest in the company. C) greater exposure. D) no effective change in the value of the position.

D. When a stock splits, the number of shares each stockholder has either increases or decreases (in the case of a reverse split). The customer experiences no effective change in position because the proportionate interest in the company remains the same.

A member firm receives an order from an investment adviser to purchase shares in a common stock IPO. Regarding restricted persons, the member must: A) obtain a list of the client(s) whose account(s) will be credited with the shares in order to determine eligibility. B) refuse to accept the order. C) obtain a list of all of the adviser's clients to determine eligibility. D) obtain a representation from the conduit that the purchaser is not a restricted person.

D. When receiving an order to buy a new equity issue from a bank, investment adviser, or other conduit, a member must obtain a representation from the conduit that all purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons).

All of the following may be cited to justify a markup on a stock sold from a broker/dealer's inventory EXCEPT: A) availability. B) the security's price. C) overall value of the transaction. D) dealer's cost.

Dealers cost

The symbol OPD appearing on the Consolidated Tape System indicates:

Delayed Opening Print The OPD symbol appears on the Consolidated Tape System (CTS) with first transactions of the day for securities that had delayed openings.

All of the following are characteristics associated with equity-linked notes (ELNs) EXCEPT: A) They can be exchange traded or traded OTC. B) They are equity securities. C) They are considered to be nonconventional structured investments. D) They have final payments at maturity linked to the return of an underlying stock or basket of stocks.

Despite their name, equity-linked notes (ELNs) are debt instruments, not equity instruments. They have a partial fixed return as well as a final payment linked to the performance of a single stock or equity index. Some are exchange traded while others trade OTC. FINRA who considers ELNs to be nonconventional structured investments has expressed concerns that investors might not fully understand ELNs or the risks associated with them.

The exchange privilege offered by open-end investment companies allows investors to:

Exchange privileges allow an investor to convert the value of shares held in one fund for those of an equal value in the same family. Remember that conversion is a taxable event; if the shares converted have increased in value, capital gains taxes will be due.

Your broker/dealer has prepared an advertising piece for general distribution to all of its retail customers regarding numerous option strategies. Filing the piece with FINRA is A) required within 10 business days of the time it is first used or published B) required at least 10 business days prior to first use or publication C) not required D) required to occur no later than the end of the month during which it was used

Filing with FINRA is required at least 10 business days prior to first use or publication for retail communications having to do with options.

If a customer wants his account designated by number, not by name, the registered representative: A) can open the account with a written statement of ownership from the customer. B) can open this account with a written statement of ownership and approval from the FINRA. C) can open this account without additional documentation. D) cannot open the account in this manner.

For numbered accounts, the customer must sign a document attesting to ownership.

Full Power of Attorney (vs. Limited Power of Attorney)

Full power of attorney gives the named third party, the designee, all of the power of the owner except the right to change the name on the account.

A member firm receives a signed proxy from a customer who failed to indicate how his shares held in street name are to be voted at the annual shareholder's meeting. Under NYSE rules, the member firm: A) must vote the shares as recommended by management of the issuer. B) may vote the shares as it sees fit. C) may vote the shares as it sees fit only if a principal attends the meeting. D) cannot vote the shares.

If the beneficial owner of street name stock returns a signed proxy statement but fails to indicate how the shares are to be voted, the member must vote the shares as recommended by management of the issuer.

If your client has a certificate registered in his own name, to be a good delivery, the certificate must be accompanied by: A) a properly-executed assignment to the brokerage firm on the reverse side of the certificate. B) a buyer's option. C) the legal opinion, unless the client is selling municipal bonds. D) the promise that it has not been called for redemption.

If the certificate is registered in your client's name, a stock power or a properly executed assignment to the brokerage firm must appear on the reverse side of the certificate.

In a functional allocation oil and gas program, which of the following statements are TRUE?

In a functional allocation program, the general partner picks up all tangible drilling costs while the limited partners pick up all intangible drilling costs. As intangible drilling costs are deductible as incurred, this type of program benefits the limited partners. Tangible drilling costs, however, are deductible pro rata over the estimated life of the well.

Municipal bonds would be considered the most suitable for which of the following customer scenarios?

Interest received from bonds make them more appropriate for investors with income objectives rather than growth objectives. Because interest from municipal bonds is tax free, they benefit those in higher tax brackets the most. Lastly because the interest is tax free they have no place in a tax-favored account such as an IRA or 401k plan.

Your firm is interested in submitting a bid on a forthcoming general obligation municipal bond issue. Your firm could obtain the appropriate bid worksheets through a service provided by: A) The Wall Street Journal. B) Standard & Poor's. C) the MSRB. D) the Bond Buyer.

Official notices of sale announcing the offering of municipal issues to competitive bidders are published in the Bond Buyer, which offers a service to subscribers-called the New Issue Worksheet and Record Service-that summarizes each notice. It provides information about new issues put up for bid and worksheets for underwriters to determine yields and prices when bidding.

Which of the following real estate limited partnerships allows tax credits to the investor?

Raw land partnerships seek appreciation. Existing property and new construction partnerships seek passive income and tax deductions from business operations. Historic rehabilitation partnerships allow not just deductions but actual tax credits.

Which of the following activities are NOT a registrar's function(s)? Audit the transfer agent. Accounting for the number of shares outstanding. Canceling old shares. Transferring shares into the new owners' names.

The registrar accounts for the number of shares and audits the transfer agent.

Which of the following best describes book entry? A) The transfer of ownership is entered on the books of the SRO. B) The transfer of ownership is entered on the books of the issuer or the issuer's transfer agent. C) The transfer of ownership is entered only on the books of the buyer. D) The transfer of ownership is entered on the books of the clearing agency.

The transfer of ownership is entered on the books of the issuer or the issuer's transfer agent.

In its notice of sale in the "Bond Buyer", an issuer states that it will take into consideration the timing of interest payments when evaluating bids. The issuer will be using which of the following methods in its bid selection?

The true interest cost method (TIC) takes into consideration the time value of money. The issuer discounts future interest payments to arrive at a present value. Reference: 3.2.5.1 in the License Exam Manual

A significant increase in imports of foreign goods into the United States would have what effect on the strength of the US dollar?

Weaken. Importing tends to weaken the dollar because it indicates an outflow of money from the United States to foreign countries. Much of this outflow is in the form of debt. When our debt (deficit in balance of payments) gets too high, there is international concern about our ability to pay our debts and a reluctance in accepting U.S. dollars as payment for goods-our dollar weakens.

If a municipal bond rated BBB is pre-refunded, all of the following statements are true EXCEPT A) the marketability of the issue will decrease B) the rating of the issue will increase C) funds required to meet debt servicing have been set aside in escrow D) the issue is now backed by U.S. government securities

When funds are escrowed to call in a bond at a predetermined call date, the bond is said to be pre-refunded. The money set aside is invested in government securities, which makes the issue very safe and highly marketable. The rating of pre-refunded bonds is AAA, as they are now backed by U.S. government securities.

Stabilizing bids may be entered at:

a price no higher than the public offering price.

All of the following disputes may be resolved using arbitration under the Code of Arbitration EXCEPT

class action suits against a member