Series 7
A county taxes real property at a millage rate of 15. If your customer owns real property in the county and the assessed value is 80% of the current market value of $150,000, the annual tax is
$1,800
How much would the special memorandum account (SMA) price increase if a customer bought $22,000 worth of marginable stock in the existing margin account and fully paid for the transaction?
$11,000
A customer should receive a current option disclosure document before or at the date of
Account Approval
If a member firm wishes to have a clearly erroneous trade reviewed, it must notify
Nasdaq Market Operations.
An investor purchased 100 shares of AMNZ stock five years ago at $200 per share. With AMNZ currently selling at a price in excess of $1,000 per share, the investor would like to generate some income. Which of the following strategies would you recommend?
Sell an AMNZ call
At 2:15 pm ET, a customer gives his registered representative a market order to buy 100 shares of ABC at the close. What should the registered representative do with the order?
Send the order to the floor immediately.
All of the following characteristics are advantages of a real estate investment trust (REIT) except
Tax deferral
If an investor buys a Jan 30 XYZ call for 4 and sells a Jan 35 call for 2, to become profitable, the spread between the prices of the two options must
Widens
The Bond Buyer's revenue index is which of the following?
Yields of municipal revenue bonds with 30 years to maturity
The City of Columbus issued a 20-year general obligation bond at a price of 50. An original purchaser sold the bond at 75 after holding it for 7 years. For tax purposes, that sale generated
a $75 capital gain.
A customer with an aggressive growth investment objective and short-term (6- to 12-month) time horizon wants to invest $50,000 in a mutual fund. He has a substantial net worth, but none of it is invested in mutual funds. You inform him that mutual fund investments are intended to be long-term investments, but he expresses his intention to make the short-term investment anyway. If the XYZ fund family (one you have dealt with in the past) offers an aggressive growth fund that has a respectable track record, your recommendation should be to
buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in one year and 0.75% 12b-1 fee.
As the price of the volatility market index (VIX) rises, investors should expect
call and put option premiums to rise.
When auction rate securities (ARS) reset the yield to be paid in the upcoming period, the process used
is a Dutch auction. establishes a clearing rate.
J.B. Collingsworth is the CEO and largest single shareholder in Collingsworth Industries, Inc. (CII). Three years ago, J.B. purchased 15,000 shares of CII in the secondary market. J.B. has decided to purchase a vacation home and is going to use the proceeds from a sale of 5,000 of those 15,000 shares as a down payment for the home. With CII selling at $8 per share,
it is not necessary for J.B. to file a Form 144.
All of the following statements regarding commercial paper are correct except
it is quoted as a percentage of par.
An investor seeking a high level of income combined with a moderate level of risk would purchase
mortgage bonds.
Every transaction made by a registered representative for a customer's account
must be reviewed by a principal of a FINRA member firm.
Expressed as a percentage of par, one basis point equals
one-one hundredth of 1%.
All of the following are reasons to consider adding REITs to your client's portfolio except
redemption at net asset value.
A nonqualified deferred compensation plan is often used by corporations to
retain high salaried key employees.
All of the following are objectives in a direct participation program (DPP) except
short-term capital gains
A pension plan might invest in each of the following except
tax-free municipal bonds.
A distribution was made from a Coverdell Education Savings Account for $12,000 when the educational expenses were only $10,000. The amount distributed beyond the educational expenses will be
taxable to the beneficiary on any portion of the excess representing earnings.
When a person is calculating cost basis for a nonqualified variable annuity, the person is using
the after-tax dollars contributed.
Yield-based options expire on
the last day of trading.
If a customer believes the Swiss franc will depreciate against the U.S. dollar, which of the following option strategies may best take advantage of the expected depreciation?
uncovered call writing
A 38-year-old investor places $25,000 into a qualified single premium deferred variable annuity. Twenty-two years later, with the account valued at $72,000, the investor surrenders the policy. If the investor is in the 25% marginal income tax bracket, the total tax liability is
$18,000.
If an investor opens a new margin account and sells short 100 shares of ABC at 32.50, with Regulation T at 50%, what is the investor's required deposit?
$2,000.00
Due to a distribution of stock, the contract size in the JGH Oct 50 call options is 108. A customer purchasing one of these contracts for a premium of 2½ would expect to pay
$270.
The Class A shares of the GEMCO Balanced Fund carry a sales charge of 4.5%. If the next computed net asset value per share is $32.74, purchase orders will be filled at a price of
$34.28 per share.
A town's ad valorem tax rate is 20 mills on 60% of the assessed value. Your client owns a property with a market value of $500,000, and the town has assessed it at $400,000. The taxes due on this property are
$4800. = 2 cents (20 mills at $0.001 = $0.02) times the assessed property value ($240,000). $240 times 20 and that equals the correct answer of $4,800. LO 6.c
XYZ Technology Fund permits rights of accumulation. A shareholder has invested $9,000 and signed a letter of intent for a $15,000 investment. If his reinvested dividends during the 13 months total $720, how much money must he contribute to fulfill the letter of intent?
$6,000
An investor owns $100,000 of convertible bonds with a conversion price of $50. By depositing these bonds into her account, how many covered calls could she write?
20
Which of the following will not affect special memorandum account (SMA)?
A stock dividend on stock held long in the account
Your customer in her early 30s has received a modest inheritance from a relative. Listing tax-deferred growth as an objective for retirement income, which of the following investments is most suitable?
A variable annuity
Which of the following would be most likely to require a mandatory sinking or surplus fund?
A water and sewer revenue bond
Which of the following would not be a suitable recommendation to an investor with a liquidity constraint?
An interval fund
An investor with a large salary, as well as unearned investment income, is two years from retirement. If she wants to shelter a portion of her income, which of the following programs would provide her with substantial initial write-offs?
An oil and gas drilling program
The client decides to sell 200 shares of the VACL on November 14 of the same year when the price of the stock is $53 per share. Tax consequences would be minimized if the investor
By using the identified cost method, the investor would sell the highest cost purchases. This would result in the lowest taxable gain (or perhaps even a loss). Average cost is only available for mutual funds.
Which of the following statements regarding tax-deferred, noncontributory, defined benefit plans are true?
Contribution amounts vary. & Benefit payments are fixed.
One of the popular mortgage-back issues are those issued by the Government National Mortgage Association (GNMA). One of the reasons for their popularity is the elimination of
Credit Risk
Under Section 28(e) of the Securities Exchange Act of 1934, which of the following is allowable soft-dollar compensation from a broker-dealer to an investment adviser under the safe harbor provisions?
Custodial services provided by the broker-dealer
$15 million @8% due in 10 years, callable at 101
DERF Corporation has a significant amount of cash on hand. The chief financial officer (CFO) has suggested to the chief executive officer (CEO) that it might be wise to pay off $10 million of the company's outstanding debt. There are four bond issues outstanding, and your broker-dealer is approached for advice on determining which issue to repay. Which of these four issues would the firm recommend?
The over-the-counter (OTC) market could be characterized as what type of market?
Dealer
Which of the following would be considered in analyzing the credit worthiness of a revenue bond issuer?
Debt service coverage & Management
Which of the following would not be examples of overlapping debt?
Debt to build a state office building within city limits & Debt backed by two states cooperating in the construction of a bridge Because: State debt cannot overlap with any other municipal entity.
Which of the following responsibilities did the Municipal Securities Rulemaking Board (MSRB) receive through the Securities Acts Amendments of 1975?
Establishment of record keeping requirements for municipal broker-dealers & Creation of regulations for participants in the municipal securities secondary market
A resident of Minnesota is in the 28% federal tax bracket and the 4% state tax bracket. This person must pay both federal and state taxes on
Federal National Mortgage Association (FNMA) pass-throughs.
Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements?
Funding policy
Collateralized mortgage obligations (CMOs) are a type of asset-backed security. What type of securities are frequently the assets behind a CMO?
Ginnie Mae, Fannie Mae, and Freddie Mac products
A customer who seeks to supplement his retirement income and has a high risk tolerance would likely find which of the following securities most suitable?
High-yield bond funds
Dividend distributions will be reinvested at net asset value. & Capital gains distributions will be reinvested at net asset value.
If you invest in a front-end load mutual fund and choose automatic reinvestment, you should expect that
Your customer's portfolio consists of 40% long-term government bonds, 20% preferred stock, and 40% common shares of utility companies. Which of the following may have the single largest impact on the entire portfolio?
Interest rate movements
If a customer is in a low federal income tax bracket and his main investment objective is current income, which of the following securities should the agent recommend?
Investment-grade corporate bond
All of the following are regulated by the Municipal Securities Rulemaking Board (MSRB) except
Issuers
Why do hedge funds tend to limit the participation to a maximum of 100 investors?
Keeping it to 100 or less avoids the need to register with the SEC
Which of the following taxes are considered sources of debt service for special tax bonds?
License taxes paid by businesses & Special liquor and tobacco taxes
Which of the following best describes the advantages of an oil and gas income program, as compared to other types of oil and gas programs?
Lowest risk of capital
A customer opens the following positions: Buy 100 shares of ABC @$60; sell 1 ABC Jun 60 call @3. What is the customer's maximum gain, maximum loss, and breakeven point?
Maximum gain is $300; maximum loss is $5,700; breakeven point is $57.
A registered representative reproduced a research report prepared by an independent research analyst on his broker-dealer's letterhead, with no mention of the party who prepared the report. If this literature is forwarded to a select group of clients only, the registered representative's action is
Not allowed
Which of the following is least likely to be part of an equipment leasing partnership?
Oil well casing and piping
A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client?
Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis
Which of the following municipal securities are backed by the full faith and credit of the U.S. government?
Public Housing Authority bonds (PHAs)
An account initially approved only for covered call writing must be reapproved for which of the following?
Ratio writing Spreads Naked option writing Straddles
An investor desiring a limited partnership investment with capital gains potential would most likely select one investing in
Raw land
Each of the following are generally used to service state general obligation bond issues except
Real estate taxes
To determine the winning bid on an net interest cost (NIC) basis, an issuer will do which of the following?
Subtract any premium from total interest cost & Add any discount to total interest cost
Cash flow analysis
The IRS will generally consider a direct participation program to be an abusive tax shelter unless the program can show a profit motive. A popular method of measuring the economic viability of a DPP is
The most current information on new releases of municipal bonds can be found in
The bond buyer
All of the following Municipal Securities Rulemaking Board (MSRB) Rules of Uniform Practice requirements may be altered by mutual agreement between dealers except
The content of confirmation
Revenue bond rate covenants require the user fees to be high enough to cover all of the following obligations of the issuing authority except
The optional call provision
A customer has his broker enter an order to buy GHI stock at the opening. Though transmitted promptly, the order does not reach GHI's trading post in time to be filled at the opening. How is the order handled?
The order is canceled.
Having held 100 shares of GHI stock for 15 months, a customer purchases 1 GHI Jan 50 put in December. If the put is exercised before the expiration date and the long stock is delivered, which of the following statements are true?
The premium is deducted from the sale proceeds. Any gain is long term.
A sophisticated investor wants to purchase stock of a foreign company or an American depositary receipt (ADR) representing the shares of that company. The purchase would align with the investor's goal of growth and income, but he makes several statements about the potential purchase, and only one of them is accurate. You feel it is important to point out and discuss from a suitability perspective which statements were and were not accurate. Which of the following is the accurate statement?
The purchase of ADRs representing the shares exposes me to currency risk.
Convertible debentures offer which of the following benefits to investors?
The upside potential of a common stockholder with less downside risk
ABC Corporation has just completed an IPO raising $100 million. The investment bankers handling the offering made total commissions of $4 million. It is most likely that this was
a best efforts underwriting. B/c: The key to the question is commissions. In a best efforts underwriting, the investment bankers have no financial responsibility and earn a commission on whatever they sell.
A customer buys 100 DEF at 70, but several months later, the stock is trading at 82.85. The customer, concerned about a possible pullback, buys 1 DEF Aug 80 put at 1.50. If the stock subsequently falls to 77.25, and the customer sells her stock by exercising the put, the result is
a gain of $850.
Under FINRA's rules governing the activities of member broker-dealers, prior notification to the employing firm and prior written consent from the employing firm would be required to open a brokerage account for all of the following except
a registered representative of another member opening a 529 plan.
According to Municipal Securities Rulemaking Board (MSRB) rules, a municipal finance professional (MFP) is
an associated person of a broker-dealer engaged in municipal securities representative activities other than retail sales. & subject to the political contribution rules as outlined in MSRB Rule G-37.
All of the following items of information must be included in a municipal securities confirmation except
an extraordinary call provision.
All of the following statements regarding municipal bond official statements are true except
an official statement must be delivered only upon request of a retail customer.
A buy stop order is elected (triggered) when the underlying stock trades
at or above the stop price
In performing their natural job functions, all of the following may act in a principal capacity in a transaction with customers except
branch managers of FINRA member firms.
The locate requirement of Regulation SHO for short sales does not apply to
nonconvertible bonds traded on the NYSE
If a registered options principal is asked to approve a discretionary order to buy 1 XYZ Oct 60 put and sell 1 XYZ Oct 55 put for a net debit of $5, he should
not approve the order.
city and school district are coterminous. When evaluating the debt issues of the city, the school district debt would be considered
overlapping debt
Riskless and simultaneous transactions by a broker-dealer are
permissible if they comply with the 5% policy.
All of the following are suitable objectives for a covered call writer except
profiting from an increase in the price of stock.
Broker-dealers who reserve the right to disclose nonpublic private information about their customers to unaffiliated third parties must
provide notice to customers at the time of the account opening. & provide reasonable means for customers to opt out of such disclosures.
Under FINRA Rule 2273, a registered representative leaving one member firm and licensing with another must follow certain rules when recruiting former clients. Among those is the delivery of a disclosure document in educational format explaining certain issues the current customer should evaluate. Among those issues are all of the following except
the change will require the customer complete new account forms.
All of the following are expenses to the operation of mutual funds except
the compensation paid to the underwriter or distributor.
If a customer buys 100 shares of stock and writes one out-of-the-money call against her long position, the breakeven point is
the cost of stock purchased less premium.
If DMF Corporation issues $10 million of convertible debentures at par, all of the following balance sheet items will be affected immediately except
the net worth.
The customer relationship summary (Form CRS) is an integral part of Regulation Best Interest. For an existing cash account customer who received the initial Form CRS in early July 2020, a new Form CRS must be delivered no later than
the opening of a new margin account.
Most mutual funds operate as regulated investment companies. This means that
they qualify for special tax treatment under Subchapter M of the Internal Revenue Code.
A customer buys a municipal bond in the secondary market at 96 that has four years to maturity. Two years later, the customer sells the bond at 99. The tax consequences of this investment are
two points of ordinary income and one point of capital gain.
An agent has recommended investments in the XYZ Fund family to her customers for 10 years. She is referred by one of her customers to a prospect who has inherited $500,000 as the beneficiary of a life insurance policy. The prospect tells the agent he has never invested in the market before, is risk averse, and wants safety of principal to be the first priority, with liquidity second. The agent recommends the following investments: XYZ government bond fund, B shares: $200,000 XYZ large-cap growth and Income B shares: $150,000 XYZ liquid reserve money market: $150,000 The recommendation is
unsuitable because it does not address the customer's two primary objectives.
One way in which open-end investment companies differ from closed-end investment companies is that open-end companies
use forward pricing to determine their redemption value.
An investor interested in acquiring a convertible bond as part of her investment portfolio would
want the safety of a fixed-income investment along with potential capital appreciation.
Traders can sell short
when a stock ticks up. when a stock ticks down. unrestrictedly in both exchange and over-the-counter (OTC) markets. A)
If a customer wishes to purchase a nonexempt security in a cash account, Regulation T requires a broker-dealer to receive payment in full
within 4 business days.
All of the following statements concerning IRA contributions are true except
you may make contributions for the past year after April 15, provided you have filed an extension on a timely basis.
