Series 7

Annual limitations under MSRB rules for gifts and gratuities

$100 per person

Which of the following new bond issues will most likely be purchased through competitive bidding

general obligation bonds. Corporate, revenue, and high-yield are usually sold on a negotiated basis

A balance sheet will list the

Assets, liabilities, and owner's equity as of a specific date.

Confirmations on regular-way transactions must be sent to customers no later than the:

At the completion of the transaction. Confirmations on regular way transactions must be sent to customers, at, or prior to the completion of the transaction. Usually the settlement but not always

Changes in an investors profile should be updated

At the time the change occurs.

When a customer sells a stock they would receive the

Bid price

A variable annuity offers a death benefit

But a death benefit is not considered life insurance

Below current market price

Buy limits sell stops

A double-barreled security is a municipal security that

Can be paid from the revenues of a project and is a general obligation of a municipal government

A put writer would be "covered" by:

Cash equal to the strike price multiplied by 100 shares. A covered put option gives investors the obligation to buy. The the writer needs to have sufficient cash on deposit, have long equivalent put, or have a bank guarantee letter to "cover" the put if exercised by the holder

Which of the following investments have super voting rights

Classified common stock

Commercial paper

Commercial paper is issued at a discount, in an unsecured promissory note with a maximum maturity of 270 days. But it is not used to finance foreign trade (this is a banker's acceptance). Commercial paper is generally used to finance accounts receivable of the corporation

A municipal bond traded does not

Commit to underwriting's

What type of equity capital would have a delayed, diluted effect on a corporation

Convertible debt

When a corporation is investing its funds, which of the following types of securities provides the best tax incentives for the corporation

Corporate preferred stock. When a corporation invests in the equity securities of other corporations, the dividends from those securities are 50% excludable from taxable income. Therefore, only 50% is subject to income tax. Preferred stock provides the greatest level of income and appreciation. Alone with tax benefits

If an analyst wants to determine a company's ability to pay its liabilities that will be maturing in one year with its liquid assets, he will be most interested in the

Current ratio. This is a comparison of current assets to current liabilities for a one year period and is used as an indicator of a companies abilities to pay those liabilities.

Auto manufacturers and home builders are

Cyclical stocks and are very sensitive to interest rates

The marketability of a municipal bond would NOT be affected by the: a. Rating b. Block size c. Maturity date d. Dated date

Dated date

Municipal securities dealer A quotes a price for a block of bonds to dealer B for one hour with a five minute recall. This means:

Dealer A may recall Dealer B within the one-hour period and demand a decision of Dealer B in five minutes

Principal transaction

Dealer capacity and charges a markup or markdown

A customer's long margin account will become restricted when

Debit balance in the account is more than half of the market value of the securities in the account.

Market value at maintenance long formula

Debit balance or debit register divided by 0.75 Owe brokerage firm 20,000/0.75=26,666 30,000 above good 24 lower not good

The process of a customer instructing his bank to deliver cash when securities are received from the clear i too firm is referred to as

Delivery versus Payment

In a 529 education savings plan account the federal gift tax liability falls on the

Donor not the donee. There is an annual tax exclusion for the donor

Which of the following statements is true concerning a customer who purchases an original issue discount U.S government security

Each year the customer will only pay federal income tax

retained earnings

Earned surplus

During annuitization, a variable annuity owner will receive payments that are based on a:

Fixed number of annuity units

Tax consequences on gifts are paid by the

Giftor

Long term bonds react the

Greatest. 25 year bonds would see the largest adjustment over time

Leaves the industry

Has 2 years from the filing date of their U5 to reinstate their license.

A business that is traded on an exchange, owns properties in its portfolio, and makes mortgage loans to developers is an example of a

Hybrid REIT

Should an investor take a loan against the accumulated value

Interest would be charged

Diversification in REIT's

Invest in ETF's that are issued on a REIT index

Married couple looking to invest in fixed income securities primarily to save for their one year old's college. Don't need current income.

Invest in zero coupon bonds

A full power of attorney

Is never needed when a client is decades address

When shares are inherited through a will, the cost basis to the beneficiary

Is stepped up to the value of the stock at the time of death. In this case, the shares were valued at $60 per share on the date of death so that will be the cost basis

If the issuer's convertible bonds are converted by bond holders, what is the effect on the issuer's outstanding stock

It will increase the number of outstanding shares

A call notice is likely to be issued on a long-term CD if:

It's trading at a premium to the call price

Which of the following bonds would increase the most in price if interest rates

Long-term bonds selling at a discount

Systematic risk

Market risk which persists despite diversification.

Rule 145 applies to a(n):

Merger or acquisition

POP formula

NAV / (100% - sales charge)

Remembering the slope of the seesaw

Noah Cans yams yuck

In which of the following documents are bid limitations for a new municipal bond issue found

Notice of Sale

Member firms can select (assign) customers with open short positions

On a first in, first out basis, a random selection basis, or any method that is fair and equitable for

Bond Anticipation Notes (BANs)

Paid from the proceeds from the issuance of long-term bonds

The term that's used when a company sells stock to the public above par value

Paid in capital or capital surplus

A municipal offering in which two or more issues of bonds have the same priority of claim against pledged revenues is referred to as:

Parity bond

Upon the death of the insured, the proceeds of a variable life policy:

Pass to the beneficiary free from federal income tax. However, proceeds are included in the policy owner's estate for tax purposes

Hard-dollar costs

Paying for research and commissions

Preferred stock

Pays a dividend to shareholders on a quarterly basis

Reg D offerings or private placements

Place a 6 month restriction on the sale of the securities purchased in the offering. If an investor is concerned about liquidity, then a private placement would not be appropriate

In a soft dollar arrangement, which of the following is not acceptable

Providing office supplies. It must benefit the client

Which of the following about Roth IRA plans is true

Qualified distributions from a Roth IRA is not taxable. In a Roth IRA, the maximum contribution for 2022 is 6,000. There is an additional catch up of $1,000 allowed for individuals who are at least 50 years of age. Contributions are allowed after age 72. Minimum distributions from a ROTH IRA are not required by the age of 72. Investment in common stock is allowed in a Roth IRA

Although the current asset selection of a balance sheet may include additional terms, when the total amount of cash, accounts receivable, and marketable securities are added together and divided by current liabilities the result is the

Quick asset ratio (also referred to the acid test ratio). The general formula for calculating the quick asset ratio is current assets minus inventory divided by current liabilities

Acid or quick ratio

Quick assets divided by current liabilities 40,000,000 Current assets 20,000,000 inventory Quick assets: 20,000,000/current liabilities 20,000,000/10,000,000: 2/1

One of the RR's clients is an elderly investor who seems disoriented, confused, possible dementia. Best action to take is

Recommend the customer bring a close family friend or relative to a meeting

Which of the following is not an expense or charge associated with a variable annuity?

Redemption fees. Investment management fees, expense charges, and admin expenses are all a part

Stabilizing bids

Regulation M permits the syndicate to purchase shares in the secondary market to prevent a price decline, only form of manipulation allowed by SEC, may not exceed public offering price (only at or below the public offering price), only one syndicate member may stabilize, notification to principal market must be made, no limit on how long a stabilizing bid may remain open. -SEC receives notice of stabilization through registration documents involved in offering -When stabilizing is imminent, FINRA member must notify FINRA Market Regulations Department if security is listed on Nasdaq

Fannie Mae securities

Residential mortgages

CDO's usually not suitable for

Retail investors

SBA

Small Business Association

What determines the tax liability to an individual who surrenders their holding of a variable annuity that is labeled as non-qualified?

Tax liability is determined by subtracting the amount which was invested in the annuity from the net proceeds upon surrender. A non-qualified annuity is an annuity where after-tax dollars are contributed by the individual buying the contract

The legal opinion about a municipal bond issue attests to the

Tax status of the municipal bond issue. Such an opinion is part of the official statement and is included with the bond. It is necessary to bring a bond to market.

A limited partner has contributed to a direct participation program. Two years later, he extends a loan. Which of the following statements are true if the DPP declares bankruptcy

The LP is considered a limited partner for the capital contribution and a creditor for the loan

A registered rep discovers that one of her customers is on the Office of foreign assets control list. The RR or another person at her firm must notify

The Treasury department

Industry rules permit a person who has power of attorney (POA) over a customer's account to receive confirmations, account statements, or any other communication if the following conditions are satisfied:

The account owner provides written approval to send the communications to this person and duplicate copies of any communications are sent to the account owner at another address that is designated in writing by the customer

The difference between the investor's cost basis and sale proceeds would be

The amount subject to tax liability for the investor

It a bond is currently selling for less than par value then

The current yield is higher than the nominal yield

Spread could be

The difference between bid and ask. And the difference between the public offering price and the proceeds to the issuer on a new issue

A revenue bonds is backed by a pledge of net revenues. This indicated that

The first use of net revenues is to pay the debt service on the bonds. The issue requires that operation and maintenance expenses are paid from gross revenues. Gross revenues minus operating and maintenance expenses leaves net revenues. Debt service (also called bond service) wound be the first item paid from net revenues

Tax treatment of CMO's

The interest received from CMO's is fully taxable. The principal payments are considered a return of capital and not taxable. Investors receive their principal payments each month instead of receiving the entire principal at maturity

An investor has been making payments into a variable annuity for the last 20 years. The investor decides to annuitize and selects a straight-life payout.

The investment risk is assumed by the customer. The amount of the payment to the customer is not guaranteed

When the wash sale rule is activated

The investor must add the loss to the new cost of the stock regardless of whether the stock is re-purchased at a price that is higher or lower than the original cost. In this example, the investors cost basis for tax purposes is found by adding the three point loss to the new cost of 27

Capital risk

The risk of losing some or all of the principal invested

Which of the following statements is true regarding dividend and capital gain distributions of mutual funds

They can be reinvested automatically in additional shares if the shareholder chooses to do so

Which two of the following statements are true about REITs

They must distribute 90% of their earnings to shareholders. Their profits are derived from the difference between the payments made on outstanding mortgages and the amount received in rental income

All of the following are advantages of CMOs except

They produce tax-free interest

Investor's in mutual funds seek all of these except

They seek diversification, professional management, liquidity-but not short-term trading

Filed with the SEC

Tombstone advertisements, mutual fund profiles, and prospectuses

Which two of the following securities are typically sold at a discount

Treasury bills and banker's acceptances

A net transaction means the client

Will be charged a markup on a buy or a mark down on a sell which will be adjusted in the net amount of the transaction

All or none

Would be completely cancelled if not fully subscribed

An investor has a large portfolio of blue chip common stocks and expects the market to remains stable or decline slightly. He'd like to increase the rate of return on his portfolio. Which of the following is the best choice

Write covered calls on the portfolio

Prior felony convictions must be disclosed on Form U4 if the conviction occurred:

at any time. Statutory disqualification within 10

A client buys 100 shares of XYZ Corporation at $27 per share and writes an XYZ October 30 call at a $3 premium.The XYZ Corporation 30 call option will expire on: a.October 30 b.The first day of November c.The third Friday of October d.The fourth Friday of October

c. The third Friday of October Beginning February 15, 2015, the expiration date for equity option contracts is the third Friday of the expiration month, at 11:59 p.m. Eastern Time.

Current ratio

current assets divided by current liabilities

A corporation is not considered to be in default if it fails to pay interest on which of the following bonds

income bond

Pattern Day Trader

one who executes four or more day trades in a five business day period

The determination of when the NAV of a mutual fund is calculated is stipulated by

prospectus

Income programs

purchase already producing wells, but offer few intangible drilling costs

Which of the following will not influence the calculation of fully diluted earnings per share

call options. But rights, warrants, and convertible bonds do

Which of the following will not offer protection in the event of a municipal bond declining in value due to rising interest rates or financial difficulties of the issuer

call provisions. They allow the issuer to retire the debt at a predetermined price, but this generally occurs when interest rates have fallen and bond prices have gone up. A put provision, bond insurance, and letters of credit wound provide protection

Broker-Dealer X receives an order from a customer who wants to buy 2,000 shares of a Nasdaq stock. X does not make a market in the stock. To fill the order, X buys 2,000 shares from a market maker that is at the inside offer price on Nasdaq and immediately sells the stock to the customer, charging a markup. This type of transaction would be considered:

riskless principal transaction. When a broker dealer buys or sells a stock on a principal basis to fill a customer order that is already in hand. Many regulations treat riskless principal transactions in the same manner as agency transactions, since neither involves market risk to the broker dealer executing the trade

Which of the following positions would be considered a covered option

short the stock, short a put

purchaser representative

someone independent of the issuer in a private placement who can represent the needs of a non-accredited investor. He must be knowledgeable and experienced in business and financial matters

Tax-free equivalent yield

taxable yield*(100%-tax bracket) A 9% coupon, nominal yield .09X(100-.70)=6.3% 30% tax bracket (.7 for the formula)

bid

the price a dealer is willing to pay for a security

Bid price

the price at which a dealer or other trader is willing to purchase a security

Municipal serial bonds are priced on the basis of:

yield to maturity

A municipal bond is currently trading at 92 and is callable in 10 years at par. What is the effective yield that must be disclosed on a customers confirmation

yield to maturity The MSRB regulates the yield that must be disclosed on a client's confirmation. The yield disclosed is the lower of the yield to maturity or yield to call. In other words, the yield to worst. If a bond is callable and trading at a discount, the lower of the two would be the yield to maturity.

What term is used when a company sells stock to the public above par value

capital surplus. Shares are often priced well above their pair value in an offering. This excess is recorded on the balance sheet as capital surplus. For example an $8 capital surplus is added to the capital surplus in the stockholder's equity portion of the balance sheet. A more common term is paid in capital.

A level debt service bond issue is one in which

combined annual interest and principal payments are equal

closely held company

company with few shareholder-thin market is a major risk factor

Cumulative preferred stockholders must receive a dividend of

$12. 9 from his year and 2 from two years ago and 1 from last year

A closed end funds shares are listed in The Wall Street Journal with a Net Asset value or 21.85 and a market price of 21.50. If a customer purchases the shares at the current market price, he will pay

$21.50 plus a commission. Since this is a closed-end fund, it's shares will sell at their current value plus a commission.

A client purchased 200 shares of ABC for $22,500. Over the next few years the client sold ABC call options for a total of $1,500. All the calls expired worthless. For tax purposes, the cost basis of the 200 shares of ABC is

$22,500 because the options were not exercised. The $1,500 is the premium amount for the option contract

The FDIC provides insurance of up to

$250,000 per depositor. The couples joint account at freedom bank is also covered since each tenant in the account is provided coverage of up to $250,000

Mr. smith has been bearish about ABC common stock and decides to sell short 1,000 shares at 40 in his margin account. The stock later declines to $35. What is Mr. Smith's equity in his margin account after the decline in the market value

$40,000 (proceeds of the short sale)+$20,000 (Reg T Deposit)=$60,000 (credit balance)-$35,000 (market value of the short stock)=$25,000 equity in a short account

XYZ convertible debentures are convertible into 20 shares of XYZ Corporation common stock. If the bonds were selling in the market at $960, what would the common stock need to be selling for to be on parity?

$48 To find the stock's parity price, divide the current market price of the bond ($960) by the conversion rate (ratio) which is given as 20 shares. This equals $48.

What price the client will report for tax purposes in relation to the price at which the sfo k is sold to the buyer of the call

$57.50 per share. Take the call price of 55 and add $2.50. If it was uncovered the customer wound be forced to buy $60.75

After tax contributions of up to

$6,000 May be made to an IRA by the taxpayer participating in his company's pension plan. Even though you decide to participate in your company's pension plan you can still make contributions to your own personal IRA. But you cannot take a deduction for the contribution on your tax return. The IRA contribution would have to be made after-tax

Acid Test Ratio

(Current Assets - Inventory) / Current Liabilities

Net asset value is

(Total value of assets - any liabilities) divided by the number of outstanding shares. This is the market value (bid price) of mutual fund shares. The offering price is the NAV of a fund plus its sales charge

Wash Sale Rule

- cannot declare a loss on a security if you purchase the identical security within 30 days before or after the sale. In this question, The purchase of three coal options will disallowed the loss on 300 of the 700 shares that were sold for a loss on February 13

Non-Qualified Deferred Compensation Plans

-NQDCPs are those retirement plans which do not meet the requirements of the Code. -The employer does not receive a deduction for contributions to the employee's plan account until the employee realizes income. -The employee is not taxed on the contribution and funds may accumulate tax-free in the account, unless they are set aside for the employee and not reachable by the creditors of the employer.

A security that pays a fixed amount twice a year, and also allows the holder to profit if the common stock rises, is known as a:

convertible bond

In a limited partnership, a general partner's minimum participation in profits and losses is

1%. According to tax law, a general partner must have at least 1% participation in profits and losses for a business to maintain limited partnership status

An offering of convertible securities is sold as a private placement. Which TWO of the following considerations would be required of a married couple to be classified as an accredited investor?

1,000,000 net worth. 300,000 annual income

There are four types of orders that can be placed with a syndicate

1. A presale order is any order placed before the syndicate that actually purchased the issue from the issuer 2. A group order is a situation where all members of the syndicate share in the profit 3. A designated order is usually placed by a large institution that determines two or more members to receive credit for the sale 4. A member order is an order placed by members of the firm for their customers

Determining the cost basis of common stock

1. Calculate the conversion ratio: take the par value of the preferred stock ($100) and divide by the conversion price ($25). 4 shares of common stock if converted 1. Divide the original purchase price ($106) by the number or shares received. ($106/4)

Order for settling accounts

1. Secured creditors 2. General creditors 3. Limited partners 4. General partners

Penny stock rules don't apply under the following conditions

1. The customer is defined as an existing customer (a person who has maintained an account with a broker dealer for more than one year or who has previously engaged in three or more transactions with penny stocks). The transaction is non-recommended or unsolicited. The rule applies to a transaction recommended by the broker dealer

The trade is generally prohibited as front running but would be permitted if

1. The firm can demonstrate that the trade is unrelated to the customer's block order 2. The trade was made to fill or facilitate the customer's block order 3. The trade is executed on a national stock exchange and in compliance with its rules

Securities sold in which of the following transactions are not subject to the penny stock disclosure rules

1. Transactions with an institutional accredited investor 2. Private placements 3. Transactions with the issuers officers directors general partners or 5% owners 4. Transactions that are not recommended by the broker dealer 5. Transactions by broker dealer whose commissions and mark ups from penny stocks do not exceed 5% of its total commissions in the mark ups

FINRA's quiet period rules for an IPO

10 calendar says following the effective date for an initial public offering, which applies to any syndicate member or dealer. The effective date is not counted. So if it was registered on the 1st day of the month, the 10 day calendar period is the 2nd through the 11th making the 12th the earliest possible

If a mutual fund has been in existence for 17 years, the longest average annual return that's required to be show in the advertisement is

10 years

A mutual fund has an NAV of $26.85 and a sales charge of 8%. In order to find the asked price, the investor should divide the $26.85 NAV by

100% minus the 8% sales charge

Breakeven in Put contracts

125 minus 8=117 Strike price minus premium PUT DOWN

If the sector of S&P 500 has a beta of 1.6 and the S&P 500 increased by 10%, the investor would expect an increase in her portfolio of

16% (1.6x10%)

A customer enters a sell stop-limit order for 100 shares at 18.50. The last round-lot sale that took place before the order was entered was 18.88. Round-lot sales that took place after the order was entered were at 18.60, 18.25, 18.38, 18.50, and 18.63. The execution price is:

18.50 After the order was activated by the round-lot sale of 18.25 (which is at or lower than 18.50), the order became a limit order to sell 100 shares at 18.50 or better. 18.50 is the first price that meets this requirement and is the execution price.

A company, which has investors with registration rights, has recently conducted an IPO. Typically, how long must these investors wait to sell their shares after the IPO

180 days. Lock up agreement generally expire six months following the closing of the company's IPO

A convertible bond has a conversion price of $50 and is currently selling in the market at $1,100. The conversion ratio is

20: $1,000/50

Unless registration is delayed, the effective date of a registration statement is generally on the:

20th day after the registration statement is filed

Retail Communication

25 or more retail investors within a 30 day calendar period

Customers with long margin accounts are required to maintain a minimum equity level of

25%

NYSE Minimum Maintenance

25%

A client has requested that his account be transferred to another firm. If the firm is validated, the account must be transferred within

3 business days. Customer account transfers must either be validated or protested within one business day. If ir is validated, it must he completed within 3 business days

Corporate and muni bonds

30 day month and 360 day year

Muni bond

30 day month and 360 day year. So take the face value, multiply by the rate, and then the days of interest (30 day month. Not including settlement date). Divide by 360

Which of the following bonds had the most interest rate risk

30 year treasury STRIP

Short margin accounts have a

30% minimum maintenance requirement

NYSE/FINRA minimum maintenance requirement for a short margin account is

30% of the market value

A private placement conducted under Reg D may be sold to a maximum of

35 non accredited investors

According to industry rules, how long should investors wait between 1035 exchanges of variable contracts

36 months

Accrued interest for Us government bonds

365 day year counting actual days elapsed

A corporation's earnings per share on its common stock, after paying preferred dividends of $3.00 per share, is $5.00 per share. The corporation also paid a dividend of $2.00 per share on the common stock. The dividend payout ratio is:

40% Explanation: Since the earnings per share on the common stock is given, the $3.00 preferred dividend can be disregarded. To find the dividend payout ratio, divide the yearly dividend on the common stock ($2.00) by the earnings per share on the common stock ($5.00). This equals a dividend payout ratio of 40%.

Reg T is

50% of the purchase price. If 50% is under $2,000, make it $2k

A member firm is not permitted to accept an exercise notice from a customer after

5:30 eastern time

Broker dealer firms must retain information related to the opening of a customer account for

6 years beyond when the account is closed at the firm.

An individual may roll over a lump-sum distribution from a corporate pension plan to an IRA without tax consequences if it is done within

60 days

The BG mutual fund has an NAV of 11.62 and a maximum offering price of 12.67. Based on these details what is the maximum sales charge for the BG fund's shares

7 1/2-Under SRO requirements, the maximum sales charge for mutual fund shares is 8.5%, however as long as they don't exceed these percentage, the fund's can set their own maximum. (12.67-11.72)/12.67=7 1/2%

Within how many days of receipt must a principal approve or disapprove an application to purchase a variable annuity

7 business days

A corporation is about to to public. Its shares will be quoted on the OTCBB. A broker-dealer selling the securities in the aftermarket is required to deliver a prospectus to purchasers for how many days following the effective date of registration

90 days. Prospectus must be delivered for 40 days after the effective date in the case of issuers with publicly traded securities already outstanding. Or 90 days for IPOs. NASDAQ is 25 days.

Rule 144 Control Stock applies to restricted stock and control persons

: Control stock is any security owned by an insider or affiliate (officer, director, or >10% shareholder) of that company. The sale of control stock is subject to volume limitations. Affiliates can sell the greater of: 1% of the outstanding shares, or The average reported weekly trading volume during the preceding four weeks

Working Capital

current assets - current liabilities On the balance sheet Current assets are cash or things you plan to turn to cash. If you have 40,000,000 in current assets and 10,000,000 in current liabilities Company has 30,000,000 in working capital Some of the current assets are inventory Quick assets are the current assets less the inventory

Working capital

current assets - current liabilities. Ignore fixed assets and intangible and long term liability

Working capital

current assets - current liabilities. So with a cash dividend, working capital is reduced since current liabilities are increased. Although dividends are currently taxed at the same rate as capital gains, they are not capital gains. Dividends are taxed as dividends

If a company pays a cash dividend

current assets decrease. If it is declared the retained earnings (shareholder's equity will decrease)

A soft-dollar arrangement should benefit the:

customer. Soft dollars are products and services that an investment adviser receives from a broker dealer in exchange for customer order flow. It is a means of paying a brokerage firms for their services through trade commissions. The key here is that the services that the adviser receives as part of a soft-dollar arrangement must benefit its customer. In this context, the customer is the individual or institutional customer of the investment adviser

The bond buyer municipal bond index is based on

A 40-Bond Index Explanation: The Bond Buyer Municipal Bond Index represents the average of the prices of 40 long-term municipal bonds adjusted to a yield of 6%.

Which is a qualified retirement plan

A 401k. Qualified is an ERISA term associated with certain work sponsored retirement plans. Typically, these qualified plans grow tax deferred and are funded with pretax dollars through employee or employer contributions. Traditional IRAs, Roth IRAs, and 529 plans are individually funded vehicles that have nothing to do with the clients employer or ERISA

A negotiated underwriting of a municipal securities usually involves all of the following except

A bid form. A bid form is used in a competitive bid underwriting rather than a negotiated underwriting. G.O bonds are usually awarded by competitive bid. Revenue bonds are usually negotiated

Which of the following best describes a guaranteed bond

A bond for which another corporation promises to pay interest and principal if necessary.

Which of the following choices is a valid reason for a carrying broker to protest an account transfer request

A carrying broker may protest an account transfer if basic account information such as the tax ID, account title, or account number does not match the info on record

Which of the following choices does not require a broker-dealer to make a change in the cost basis of a stock held in a customers account

A cash dividend

When reading a research report for an automobile company, a registered representative's use of fundamental analysis determines the stock is a good investment. When attempting to determine the best time to execute orders to buy the stock, the registered representative could refer to

A chart showing a recent history of the market price of the stock. The fundamental analyst will use the balance sheet and income statements of companies to determine which security to purchase but may use technical analysis (reviewing the chart pattern of a stock's market price) to assist in determining when to make a purchase (timing)

A variable annuity wound be most suitable for

A client in a high tax bracket who is purchasing the annuity for his spouse's retirement needs

Which of the following statements is true concerning periodic payment variable annuities

A client's number of annuity units never changes. The accumulation units are exchanged for a fixed number of annuity units when the payout period begins

Which of the following statements is TRUE regarding the disclosure of back-end sales charged to customers

A confirmation should be sent disclosing that a sales charge may have to be paid upon redemption

Municipal bonds indenture

A contractual obligation between the trustee and the issuer and it includes details on necessary reserve funds and required rate schedules for the bond

Convertible debt and warrants

A convertible debt is a hybrid security consisting of a bond with an imbedded call option permitting the purchase of a share of common stock at a fixed price. A convertible bond traded as one unit. A bond with warrants attached will trade as two separate units. When the bond is issued, the warrants are detached from the bond and will trade as a separate unit. An event that will reduce the proportionate claim of common stockholders to the earnings of a corporation is considered to be dilutive. The conversion of convertible securities into common stock and the issuance of additional shares of common stock will each result in additional shares owned by new shareholders

Which of the following actions must be reported on form U4 and is cause for a person to be subject to statutory disqualification

A conviction of a felony by a military court

Treasury Stock

A corporation's own stock that has been reacquired by the corporation and is being held for future use.

When a portfolio is established which consists of 50% bonds, 10% equities, and 40% money market instruments it wound be best suited for which of the following investors

A couple nearing retirement would be most interested in preservation or capital and income which would cause the portfolio to be heavily weighted in bonds and light on equity securities

A Nasdaq-listed stock currently shows an inside market of 15.50 - 15.75, 10 x 10. A broker-dealer that is not a market maker in the stock simultaneously receives orders from two customers, one to buy 500 shares of the stock at the market, the other to sell 500 shares at the market. Rather than send the orders to a market maker for execution, the broker-dealer matches the two orders with one another at 15.625, and charges each client a commission. This transaction is:

A cross trade, which must be specifically disclosed on the confirmation to each customer

Dark Pools

A dark pool is a source of liquidity for large institutional investors in high frequency traders. However the system doesn't disseminate quotes. This system can be operated by broker dealers or exchanges and allows his investors to buy and sell large blocks of stock anonymously. The objective is to allow these investors to trade with the least amount of market impact and with low transaction costs. Some dark pools provide matching systems and can allow for participants to negotiate prices

Net Basis Transaction

A dealer holding a customer order to buy, squires stock on a principal basis and executes the customer's order at a different price than the dealer's acquisition price. If the dealer executes the transaction at the same price and charges the customer a markup, the capacity is disclosed on a riskless principal basis. The markup in a riskless principal must be disclosed. A dealer selling from inventory is acting in a principal capacity. Selling stock without a markup or comisión is unlikely to occur.

Subscription warrants are usually issued as part of:

A debenture offering to obtain a lower interest rate. Originate as part of a new bond issue. They are intended to be sweeteners to allow the issuer to pay a lower interest rate. They are separate securities from the bond. They could also be issued as part of a preferred stock offering, but not to obtain a lower par value

An investment in which of the following securities requires a customer to sign a statement attesting to her annual income and net worth

A direct participation program Explanation: An investor purchasing a limited partnership or DPP is required to sign a subscription agreement. As part of this agreement a customer would be required to sign a statement attesting to her annual income and net worth. In order to be suitable for this type of investment, the customer must meet minimum annual income and net worth requirements. By signing this statement, the customer has acknowledged the information she disclosed is accurate. The other investments do not require this type of statement signed by the customer.

Blind Pool Offering

A direct participation program in which the sponsor does not identify the assets of the partnership. Could be a real estate limited partnership that does not specify the actual properties. Could be an oil and gas program where the properties to be drilled are not specified in the prospectus

Risk Disclosure Document

A document required to be delivered in order for an account to begin options trading. A brokerage firm must deliver the document at or prior to the account being approved for options trading. Also if penny stocks

A corporate resolution

A document stating that the corporation's board of directors has authorized particular individuals to act on behalf of the corporation. This document is necessary when the corporation opens a cash or margin account

The additional bonds covenant is

A financial test that ensures a project's revenue is sufficient to make the debt service payments on both existing and proposed bond issues

Form 4

A form filed by an insider within 2 days of conducting a trade with which the insider is involved. To promote transparency in the market and discourage insider trading.

Alpha

A form of risk adjusted return for an asset

All of the following fall under the definition of a registered investment company except

A growth fund and an income fund or both mutual funds and therefore our investment companies. The sub account of a variable annuity must register under the investment company act of 1940 and is considered to be an investment company registered under the act. A separately managed account is a professionally managed portfolio of securities but the securities are directly owned by the account owner which is the customer. Therefore they are not classified as investment companies

Opening a Margin Account

A hypothecating agreement and corporate charter are required

A tombstone ad states that Southern California Gas is issuing 8 3/4% first mortgage bonds at a price of 96.35% of their par value. The payment of interest and principal on the bond is secured by:

A lien on property owned by Southern California Gas

In order to sell variable annuities to clients, a person must hold which of the following?

A life insurance license and securities registration Explanation: Variable annuities are considered both insurance products and securities. As a result, an individual must be properly registered (Series 6 or 7) and hold a life insurance license.

If one of the customers of a registered representative (RR) wants to borrow funds from her 401(k) plan, what advice should the RR provide?

A loan is permitted, but the amount is based on the customer's vested interest. The IRS limits the maximum loan amount to the lesser of 50% of the amount vested or $50,000. The term of the loan is typically 5 years. If the funds are being used to purchase a primary residence, they must be repaid within 25 years

Under federal income tax law, which of the following is true concerning a wash sale

A loss will be disallowed if the same or similar security is purchased 30 days prior to or after the transaction established the loss

Which of the following descriptions best defines the term duration

A measure of a fixed income security's relative interest rate risk

For the following size transactions, ABC mutual fund has a big price of $8.50 and an asked price of $9.26. Which of the following sales is allowed under the Conduct Rules?

A member sells 250 shares of ABC fund at $9.26 to one of the firm's clients. A FINRA member firm may not sell the fund at a discount

Tax Treatment of Municipal Bonds

A municipal bond purchased as an original issue discount is accreted (not amortized) each year for tax purposes based on a constant yield method (also called constant interest method) which issues the bond's YTM. Municipal bonds purchased at a premium are amortized each year based on a constant yield method

A registered principal would not be required to approve

A mutual fund prospectus. Does need to do new accounts, seminar scripts, and sales literature containing a recommendations sent to 30 retail investors

According to SEC rules, before a broker-dealer can mark a sell long, the customer entering the order must have

A net long position.

Stock Legend

A notice on stock certificates stating that selling is restricted unless the shares are SEC-registered or exempt

If a customer develops dementia and cannot handle his or her affairs a court order is required in order to take orders from a third party

A power of attorney may only be signed by a person of sound mind. However, a durable power of attorney signed at a time the customer was of sound mind is acceptable documentation to take orders from a third party.

A RR performs a transaction via wire order in a customers account. Under FINRA rules

A principal of the firm is required to review and approve such transactions. Member firms have a duty to reasonably supervise their registered representatives. This includes the duty to review and approve all trades

Due bill

A printed statement showing the obligation of a seller to deliver securities or rights to the purchaser. A due bill is also used as a pledge to deliver dividends when the transaction occurs after the record date

A hedge fund is

A private investment fund designed for wealthy, sophisticated investors. They are private investment pools designed for wealthy, sophisticated investors. They include wealthy sophisticated individuals but hedge funds are not mutual funds

Which of the following types of income would not be considered earned income for federal tax purposes

A profit that results from the sale of securities is a capital gain. Each of the other items would be earned income. Hours wages, salary bonuses, and billing for services rendered all fall into the earned income category

When a firm's customer exercises a call option, the firm will submit an exercise notice to the options clearing corporation. The options clearing corporation, in turn, will select a firm to receive the exercise notice based on

A random selection basis.

Regarding variable annuities, which of the following statements is TRUE?

A registered principal is required to review and approve a transaction in a variable annuity. When a client exchanged an annuity, the insurance company may charge a surrender fee. A principal of a broker-dealer is required to review subaccounts if both a deferred variable annuity and any particular sub accounts are suitable for the investor. If a client withdraws the proceeds from a variable annuity prior to age 59 1/2, the IRS imposed a 10% penalty regardless of whether the insurance company charged a surrender fee

Regulation SHO

A regulatory addition by the SEC that expands and updates the restrictions placed on short sale transactions; a primary goal of this regulation is to require broker-dealers to locate securities that are being sold short

Which of the following is not required to be filed with FINRA

A retail communication that provides information on a broker-dealer

Regulation S

A safe harbor by the SEC to sell securities outside of the US without publicly registering. Any offer, sale, or resale is made in an offshore transaction. No direct selling effort may be made in the U.S in connection with the transaction

According to FINRA rules, a breakpoint sale is

A sale of mutual fund shares at a dollar level that's below the point in which a sales charge reduction is available and is a violation

Which of the following funds wound typically have the least amount of stability in NAV

A sector fund

Least suitable for a retiree in need of a steady stream of income

A sector fund specialized mutual fund that concentrated on one industry. It is very risk. If a retiree were to lose money in a sector fund, he/she may not have sufficient time to recover this loss

FINRA rule 5330(b) states that if

A security is subject to a reverse split all open orders shall be cancelled

An investor owns stock that has increased in value. Which of the following is the most suitable recommendation for the RR to make if the investor wants to protect her profit

A sell stop order that's placed below the current market price or a long put position. The stop order will not be activated until the market declines to or below the stop price. By purchasing purchasing put options the investor will have the right to sell his stock at a specific price (the strike price) thereby limiting any greater downside risk

A municipal bind has a provision for redeeming a certain number of bonds at pair in ten semi-annual installments. This type of call feature is best described as

A sinking call. Frequently require that a certain number of bonds be retired annually or in semi-annual installments

Which two of the following types of municipal securities does not require voter approval

A special tax bond and a certificate of participation

An investment banking representative would require an authorized person of an institutional investor to sign which of the following documents to attest to or determine whether the institution has the status of an accredited investor

A subscription agreement. Is a sales contract for the sale of securities in a private placement. It sets forth the terms and conditions of the securities. The client, or an authorized person of an institutional investor, will sign the agreement attesting to the status of an accredited investor

403(b) plan

A tax-deferred retirement plan for teachers, hospital workers, ministers, and some other public employees. Similar to 401k plans the contributions can be made in pre-tax dollars up to certain limits and the earnings in the account are tax deferred. Employees cannot claim a tax credit on their contributions

Which of the following would have an inventory of municipal securities in the secondary market

A trader of municipal securities.

If interest rates increase, which of the following securities has the largest price change

A treasury bond trading at a discount

All of these are a conflict of interest for a general partner

Accepting a payment not to complete with the program. Selling property to the partnership is a definite conflict of interest. Can't commingle partnership money. But can lend money to the partnership

Amortization

Accounting procedure that gradually reduces the cost value of a limited life or intangible asset through periodic charges to income. For fixed assets the terms used is DEPRECIATION, and for wasting assets (natural resources) it is depletion, both terms meaning essentially the same thing as amortization.

Developmental programs

Acquire leases in proven areas

The net asset value of mutual fund shares is calculated by

Adding up the value of all the cash and securities in the portfolio and subtracting the liabilities, and dividing the result by the number of shares outstanding. The receipt of interest income on portfolio securities would increase the NAV. The payout of realized capital gains would decrease the NAV

An equity security that is distributed under the provisions of Regulation S may be resold in U.S. markets:

After a one-year waiting period is satisfied. It is 40 days for debt securities

ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a customer's buy order. ABC has acted as a:

Agent Explanation: When a broker-dealer buys a security from a market maker (dealer) on behalf of its customer, it is acting as a broker (agent).The client is charged a commission on the transaction. If the firm bought the security for its own account, or sold the security to a client from its inventory, it is acting as a dealer (principal). The client in this case is charged a markup or markdown.

Because standard traditional options have expirations out to 9 months

All gains and losses in options will be short-term capital gains or losses. The investor realizes the gain or loss in the year the position is closed

When signing a letter of intent

All purchases over a 13-month period are accumulated and the sales charge on the first and subsequent purchases are based on the letter of intent amount

403(b) plans

Allowed for tax-deductible contributions and tax-deferral of earnings. Unlike Roth IRAs, withdrawals from a 403(b) plan are taxable at the owner's ordinary income rate

Dividends and capital gain distributions in a variable annuity are:

Allowed to accumulate on a tax-deferred basis

The growth in the value of a variable annuity is

Allowed to accumulate on a tax-deferred basis

Competitive bidding

Allows any underwriter to submit a bid to underwrite a municipal bond issue. Municipalities will publish a notice of sale in the bond buyer in order to invite broker dealers to submit a bid. The notice will provide details of the bond offering. The winning broker dealer will be the one that presents the municipality with the lowest interest expense. Competitive sales are typically associated with GO bonds

Exchange traded notes provide which of the following to investors

Allows investors to access to market sectors that would ordinarily be unsuitable like commodities, currencies, emerging markets, and strategies. ETNs do not provide protection of principal and are debt securities therefore do not represent ownership in the underlying index or issuing bank

Market risk

Also known as systematic risk, refers to the risk that is inherent in all securities due to market volatility. While market risk cannot be eliminated by diversifying a portfolio, it can be measured by a calculation know. As beta. A stock's volatility compared to the volatility of the whole market.

ADR's

American depository receipts are priced in dollars and are sensitive to the value of the stock and the fluctuations of the currency in the underlying issue as host country. ADRs may be listed on an exchange and may be sponsored by the company. The trading volume of ADR is varies considerably among issuers. Securities that are not heavily traded may have significant disparities between the price of the ADR and the underlying stock

A customer purchased a government security and later discovered it was nonnegotiable. This security could have been

An EE savings bonds. HH and I bonds are also this way. This means that purchasers May not resell them to other investors in the secondary market. They can only be redeemed

A client wants to invest $250 a month and have broad exposure to the U.S. equity market. Which of the following recommendations is the most suitable for this client?

An S&P 500 Index mutual fund

It would be most important to discuss the risk of loss of principal and fluctuations in payment from investing in mutual funds with an investor who is switching to mutual funds from

An account focused in US treasury bills and certificates of deposit

The maximum sales charge on a variable annuity contract

An amount that is fair and reasonable. No statutory maximum sales charges on variable annuities or variable life insurance policies

An investor with an investment objective of tax-exempt income will need access to the funds in four months. An RR should not recommend

An auction rate security. If the auction fails the investor may not have immediate access to his funds

Which of the following lists assists a broker dealer in making a reasonable determination that a security is abasí me to be borrowed from another broker dealer in order to effect a short sale transaction

An easy to borrow list. These lists must be less than 24 hours old, provide reasonable grounds for belief that a security on the list will be available to be borrowed. Expedites the fulfillment of the locate provision.

Consolidated Quotation System (CQS)

An electronic service that provides quotations on issues listed on the NY, American and other regional stock exchanges, that are traded by FINRA member firms in the third market

Which of the following would be considered the most volatile mutual fund

An emerging markets fund. Invests in securities issued by countries with unsure economic, political, and social climates. This leads to significant volatility in share prices

When a catastrophe takes place a _____ call would take place

An extraordinary or catastrophic call

A customer who is about to retire wants to buy a low risk product that will provide a predictable stream of income. Which of the following is most suitable for needs?

An immediate fixed annuity

Factors that reinforce the quality of general obligation issues

An increasing population trend and a mixture of diverse businesses (both new and established) are positive demographic indicators that reinforce the quality of general obligation issues

Accredited Investor

An individual must have $1,000,000 net worth of $200,000 annual income (300,000 for a married couple) in each of the last two years with anticipation it will continue at that level. 501c3 organizations, charities, and trusts are required to have at least $5,000,000 of total assets to be considered accredited

Insider provision

An insider is an officer, director, or principal stockholder meaning a person who owns more than 10% of the outstanding shares of a company. Insiders are known as affiliated persons and control persons

Which of the following wound not be considered a bullish options strategy

An investor establishes a short straddle-this is a neutral position

After filing Form 144

An investor has 90 days to sell the greater of 1% of the outstanding shares of the average weekly trading volume over the previous four weeks. In this example 1% of the 1,000,000 outstanding shares is 10,0000 shares, which is greater than the average weekly trading volume over the past four weeks or 4,000 shares. As a result the investor is able to sell an additional 8,000 after having sold 2,000 in the previous month

Which two of the following choices would be most suitable purchasers of municipal zero-coupon bonds

An investor who does not seek present additional cash flow. A custodian account where the parent of the minor child is in the highest tax bracket

Series K preferred stock is suitable for which of the following investors?

An investor who is seeking a high fixed dividend for a period of time followed by a floating rate dividend

A business development company is most suitable for

An investor who is seeking a speculative investment in a portfolio of distressed companies and is interested in liquidity

In terms of features that would limit the credit risk that would apply to a municipal bond issue, which of the following would do so most effectively

An issue which is escrowed to maturity. When a bond is pre-funded it means that new bonds have been sold, the proceeds of which are invested in government securities which can only be used to pay off old outstanding bond issue

At the opening order

An order to buy or sell at the opening price. If not executed at the opening, it will be cancelled

Susan must begin to take distributions from her IRA which includes her variable annuity

And will be subject to the surrender charges on her annuity

Current Yield (of Preferred Stock)

Annual dividend divided by current market price 6% preferred CMP is $90/share Pay $6 annually (6%x$100) 6/90

Current yield is

Annual interest payment/current market value. Bond is trading at 80 and has a 6% coupon. The bonds current yield is 1,000x.06=$60 $60/800

current yield

Annual return divided by the current market value

After opening an account with a firm a customer just receive an updated privacy notice

Annually

Broker's broker

Anonymity to municipal securities dealers, only charge a fee when a bond trade takes place. Act in an agency capacity with regards to the transactions they facilitate. Does not serve at the retail level

When a market maker gives a quote for a stock without qualification, the quote is a: a. Subject quote for 100 shares b. Workout quote for 100 shares c. Nominal quote for 100 shares d. Firm quote for 100 shares

d. Firm quote for 100 shares The market maker is obligated to buy or sell 100 shares at his quoted price. Subject, workout, or nominal quotes are given for informational purposes only.

When a beneficiary receives the death benefit from a variable annuity, the amount received is: a. Tax-free to the beneficiary b. Fully taxable to the beneficiary c. Taxable above the cost basis to the annuitant d. Taxable above the cost basis to the beneficiary

d. Taxable above the cost basis to the beneficiary

Investors that have short positions in a stock owe

Any dividends that are paid while they are short

A fiduciary is

Anyone who holds or controls the assets of a plan or who influenced how the assets are managed or invested. The tax preparer for the plan is not a fiduciary but the custodian in charge of plan assets, the individual selecting the plan's IA, and the plan's IA are all fiduciaries

Rude 145

Applies to mergers, consolidations, reclassifications of securities, or transfers of corporate assets. Requires a company to provide written disclosure to shareholders for a stock split, dividend, or adjustment in par value. These 3 are exempted from filing under rule 145

A mutual fund shareholder is not required to report which of the following events for tax purposes

Appreciation in the value of the shares. Dividends and capital gains distributions are taxable to the investor regardless of whether they are reinvested in the fund. Exchanging shares for another fund within the same family or funds must also be reported in the investor's tax return since shares of one fund are being sold to buy shares in another fund.

Which of the following most accurately describes the figure that results from subtracting a mutual fund's portfolio cost from its current market value

Appreciation. This is the increase in value of an asset

Which of the following approvals is required before a municipality can begin making payments on a moral obligation bond

Approval by the state legislature

Cash dividends declared by a corporation

Are a current liability to the corporation when declared by the board of directors. The board of directors of the corporation has the authority to declare dividends. Does not need to be approved for payment by shareholders.

ERISA stipulates that employers with qualified plans are not permitted to exclude employees who have worked for the employer at least one year and:

Are age 21 or older and have worked a minimum of 1,000 hours during the year

The death benefits which vary with the performance of the separate account

Are calculated annually

Preliminary official statements and final official statements

Are disclosure documents and are not considered to be advertisements. Summaries of these documents would be considered advertisements.

Dividends in preferred stock

Are for a fixed percentage or dollar amount and are expected, but not mandatory.

ETFs

Are investments that resemble UITs. A fixed portfolio is constructed either to track a specific index or a given market segment. An ETF portfolio typically remains constant unless there is a change to the underlying index or one of the individual investments within the fund is affected by a corporate action such as a sale or a spin-off. ETFs are normally listed on NASDAQ or a traditional exchange and may fluctuate in price throughout the day as a regular stock would. They would have a bid and ask price as opposed to the NAV or POP found in mutual fund increments. Commissions are paid when trading ETFs as opposed to sales charged when purchasing mutual funds

Federal farm credit bonds

Are issued in book-entry form, are exempt from state income tax, but subject to federal. They are not backed by the US government and the bonds do have have an active secondary market more so than notes

CMOs

Are issued in minimum denominations of $1,000, are backed by pass-through securities (FNMA, GNMA, and FHLMC) and pay interest and principal monthly

Industrial development revenue bonds

Are revenue bonds issued by a local municipal government to build factories of other commercial properties. The plant or property is leased by the municipality to a corporation. The interest on the bonds is paid from the lease rental payments made by the corporation. The credit rating of the bond is based on the credit rating of the corporation and not on an analysis of the credit rating of the municipal government issuing the bonds

Treasury STRIPS

Are sold at a discount, their price is volatile, they lock in a rate for a predetermined period. Even though STRIPS and zero-coupon bonds pay no interest, the investor is still liable for taxes on the annual gains in the value of the bonds. The investor must pay taxes on gains that have not been received. It is called phantom income

Exploratory programs

Are the riskiest type or oil and natural gas program since they involve drilling in new and unproven areas

When a customer buys a stock they will pay the

Ask price plus a commission

Alpha

Aspect of a company's stock which is directly affected by company specific risks

CDO's

Asset backed securities because they are backed by a pool of assets including mortgages, auto loans, corporate debt, and credit card debt

A collateralized debt obligation is best defined as a type of

Asset-backed security

A limited partner wound be in jeopardy of losing her limited liability if the partner

Assisted in the decision of which properties to acquire. They have the right to receive their portion of income and losses, examine books and records, and make loans to the partnership. Getting involved in management is where they could lose their limited liability

Contingent differed sales load

Associated with class B shares. Class A shares typically have a front-end load. Class C May assess a small front-end load, but always have a 12b-1 fee

AIR

Assumed Interest Rate

Which of the following factors is not used in determining the value of an annuity unit

Assumed Interest Rate. The AIR is used to determine the subsequent payments made to the annuitant. The value of the annuity unit is determined by the value of the separate account, including all reinvested distributions

Treasury bills are brought to the market by

Auctions conducted by the federal reserve

If a company declares a cash dividend, which of the following is TRUE? a. Shareholders' equity increases b. Shareholders' equity decreases c. Current assets decrease d. Current assets increase

B Shareholders' equity decreases It is important to note that this question refers to the declaration of a cash dividend, not the payment of a cash dividend. If a company declares a cash dividend, dividends payable (a current liability) will increase by the amount of the announced dividend and the retained earnings (part of shareholders' equity) will be reduced. The announcement has no impact on the assets of the company; however, assets will be reduced once the company actually pays the cash dividend. Regardless of the specific corporate transaction, the balance sheet must remain balanced.

A company's assets (inventory), liabilities (debt or bonds), and shareholders' equity (treasury stock), are found on the

Balance sheet

Roundville Bank is considering an investment in Roundville County bonds. The bonds contain a provision that permits banks to deduct 80% of the interest cost being paid to depositors on the funds used to purchase the bonds. These securities are known as:

Bank-qualified bonds Explanation: Bank-qualified municipal bonds allow banks to deduct 80% of the interest cost paid to depositors on the funds used to purchase the bonds. This is done to encourage banks to invest in municipal securities. To qualify, a municipality may only issue up to $10,000,000 annually.

The federal farm credit system is composed of

Banks for cooperatives, federal intermediate credit banks, and federal land banks

ad volrem tax

Based on property values

An individual who's considering moving to the payout phase of a variable annuity should understand that the payments will be

Based on the performance of the subaccount products in the separate account compared to the AIR

Toll-free Telephone Number for a municipal 529 plan must

Be able to obtain the total return info from current to most recent month end

A member firm has decided to send all client account statements on a quarterly basis. This practice would

Be permitted since SRO rules require member forms to send account statements no less frequently than quarterly, regardless of activity in the account. Normal practice to send monthly but not required

A head and shoulders top formation indicates a trend that is

Bearish. Bottom is bullish

Benefit from the booming economy in Asia

Because the investor wants to add foreign stocks to the portfolio. ADRs are the best choice. ADRs are receipts traded in the US for foreign stocks that are held in nearer form by an American bank in a foreign country. The investor can benefit from the booming economy in Asia by buying shares in Asia based companies using ADRs

The buyer must trade

Before the ex-date to get the dividend (on or after the ex-date the buyer would not get the dividend)

A due bill is used if a trade occurs:

Before the ex-dividend date, with delivery made after the record date

The calculation for earnings per share on a primary basis

Before the possible dilution of convertible bonds, convertible preferred stock, stock options, or warrants. Is computed based on the number of outstanding common shares only

When an investor compares her portfolio's performance to an average or index, the average or index is considered a

Benchmark

Bob is trying to get Mr. Smith to purchase a non-qualified deferred variable annuity

Bob should first be sure that Mr. Smith has already made his maximum contributions into his before-tax retirement plans. Since non-qualified variable annuities do not offer the before-tax benefits that other before-tax retirement plans offer (401k).

A municipality borrowing for a short-term period to finance a capital project would issue:

Bond anticipation notes

Inappropriate investment in an IRA account

Bonds of a municipality because in an IRA account, either the funds invested are already tax-deferred

Which of the following types of debt Best defines a municipal issuer's total bonded debt

Both long-term and short-term debt plus overlapping debt

A mutual fund investor receives his dividends in cash but reinvests his capital gains distributions in additional shares. How is this taxed

Both the dividends and the capital gains distributions are taxable regardless of how they were taken (in cash or reinvested)

Joint Account with right of survivorship

Both the husband and wife nah place orders in the account, checks may only be made to both parties in the account, a margin agreement would have to be signed by both the husband and wife if margin functionality was part of the account. Should either party to the account die, the surviving party wound get complete control of the account

The spouse of a customer of a registered representative has $90,000 invested in shares of the XAM fund family at another broker-dealer. The RR's customer wants to invest an additional $60,000 in the XAM fund family with the RR's firm. The RR should explain to his customer that:

Breakpoints are allowed for investments in the same fund family, even if invested in different specific funds and at different broker-dealers

An advisory client has a portfolio that consists of a diversified group of domestic securities with different maturities. Diversification protects the client from which of the following risks? Business risk Financial risk Liquidity risk Market risk

Business, financial, and liquidity but not market risk.

Bonds issued for private purposes are items which could be used as preferences items when computing the AMT

But bonds issued for public purposes such as schools would not fall into this category. Private use municipal bonds for housing, financing an industrial complex, or industrial development. The school bonds wound be tax free and not subject to the AMT

Tax free rollovers from one qualified IRA to another can take place without penalty

But can only be done once every 12 months

Calls are not permitted to be sold to a corporate account when the calls are tied to the company's securities

But the RR can sell calls on the stocks of separate companies

Long market minus debit balance=equity

Buy 1,000 shares Long market value of 40,000 And debit balance of 20,000 40,000-20,000=20,000 Now 50,000 still over 20,000=30,000 EQ 50,000 to Reg T 30,000-25,000=5,000 in excess equity Make a SMA to your account

Since this client only wants to buy the stock IF the price of the stock moved up to 40, he should enter a

Buy Stop/Limit order at 40. Once the market hits 40, the stop order would be activated and turn into a buy limit order at 40.

If a German exporter expects the US dollar to weaken relative to the euro which of the following options strategies should manufacturers use to profit from this expectation

Buy calls on the Euro. German exporters are expecting the US dollar to decline (weaken) relative to the Euro. Foreign currencies generally live in opposite direction of the US dollar. So if the US dollar weakens, it takes more dollars to buy one Euro, the euro will rise in strength. If the US dollar strengthens, fewer dollars needed to buy one euro, the euro declines. Foreign exporters to the US that expect to be paid in dollars would typically buy calls on the euro since the euro is expected to go up. We cannot trade options here on the US dollar. Could also write puts on the euro which is a bullish position. If the euro does rise the manufacturers will profit by keeping the premium received from the sale of the pure

When a US firm wishes to hedge against fluctuations in a foreign currency because they will be receiving payment in that foreign currency, the US firm would

Buy puts on that foreign currency to hedge against a decline in value

A market maker is quoting a stock as follows: Bid 23.50, Offer 23.70. This means that the market maker will:

Buy shares at 23.50 and sell shares at 23.70. The bid is the highest price at which the market maker is willing to buy and the offer/ask is the lowest price at which a market maker will sell

When a bond transaction takes place between interest payments, accrued interest is paid by the

Buyer of the bond to the seller of the bond for the time period which the bond was held prior to maturity

An article in the Wall Street Journal states that yields on treasury bills have declined in the past month to 4.58% from 4.61%. This indicates that

Buyers of new bills paid more than buyers paid the previous month Explanation: Treasury bills are purchased at a discount from the dollar amount on its face. The larger the discount, the higher the discounted yield to maturity. In this example, the discounted yield to maturity has gone down to 4.58% from 4.61% from the previous month. This indicates that buyers of new bills paid more for the Treasury bills (meaning the discount was less) than buyers paid the previous month.

When a bond is called the bond holder receives the

Call price plus accrued interest

Which of the following characteristics is not associated with a variable annuity

Call risk is associated with fixed-income securities, but not variable annuities. Since variable annuity separate accounts are heavily weights with equities, market risk is assumed by annuitants. Mortality and expense charges are reflected in the expense ratio of a variable annuity and surrender charge are assessed for many variable annuities at the time of redemption

In the money

Call up put down. Strike and market price. Write it out

An issuer can effectively force the conversion of its outstanding callable and convertible bonds by

Calling the bonds at a redemption price below parity since the holder wants to avoid taking a loss.

MSRB rules certain aspects of a trade: what can and can't be modified

Can be modified: as long as both buyer and seller agree, the factors associated with good delivery may be modified. Can include terms, location of delivery, time of delivery, and who pays the shipping. Can't be modified: Confirmations are required to be uniform throughout the industry and the information contained on a confirmation can't be modified

If a customer is short 1,000 shares of RST stock, the customer

Can use a buy stop order to limit losses if the stock advances

If a customer is short 1,000 shares of RST stock, the customer

Can use a buy stop order to limit losses if the stock advances. A short position will be profitable if the market price of the security decreases. If the stock increases, the investor will have a loss. A guy stop order is placed above the market. If executed, stock will be purchased preventing further loss. There is no limit to the length of time that a short position may remain open. A portion of the short credit balance must always remain in the account to be used eventually to cover the short position. An investor who is short the stock does not receive dividends and does not have the right to vote

Quiet periods for equity research

Can't write research report for 10 calendar days after IPO is announced (for any participant) or 3 days after follow-on is announced (for manager or co-manager)

The price at which a mutual fund's shares will be redeemed

Cannot be determined before the order is entered since it is calculated at close of the market each day

Domestically options

Cannot be traded on the US dollar

On a when-issued municipal bond transaction, the interim confirmation will show the

Capacity in which the broker-dealer acted. When a bond trades WI when a final settlement date has not been established. The term covers the period of a new issue of municipal securities from the original date of sale by the issuer to the delivery of securities to the underwriter. Without a settlement date accrued interest and the final money amount can't be calculated. The broker dealer must disclose if they acted as an agent or a principal

Which of the following is true of an open-end investment company

Capital gains must be distributed to shareholders at least annually. Some funds choose to pay monthly or quarterly, but in any case, 100% of capital gains are distributed to shareholders

Stock can not be borrowed from

Cash accounts. Can be borrowed from another broker dealer, an insurance company, or it's own stock inventory

Bond swaps may be done to

Change the coupon, maturity, quality, and for tax purposes. Accrued interest is not a consideration

Once a variable annuity has been annuitized:

Changes are not permitted. A 1035 es change is switching from one annuity to another during the accumulation period

Risks of ADRs

Changes in inflation, risks associated with changes to legislators and political climate, risks associated with fluctuations in currency exchange rates. But ADRs are not normally issued in callable form so the risk of call by the issuer is not a major factor

Class A shares of an open-end investment company are different from Class B shares in that:

Class A shares have a front-end sales charge, while Class B shares have a contingent deferred sales charge

A sharp drop in stock prices accompanied by increasing volume after a lengthy period of market decline is described as a

Climax

If an investment company is trading at a discount to its NAV the security must be a

Closed end fund because shares of a closed end fund are not directly tied to the fund's net asset value due to supply-demand imbalances. The shares could trade at a discount to the NAV. That could not happen in an open end fund since the share price is directly related to the NAV. The other choices are not plausible

If the NAV of the Greenwich Fund is 90% of its offer price, this must be a(n):

Closed-end fund Open- and closed-end funds are types of management companies. The NAV could be below the offer price for both of these funds, but the situation referred to could not occur in an open-end fund. For an open-end fund, the NAV must be at least 91.5% of the offer price, because the maximum sales charge is 8.5%.

The net asset value of the mutual fund is best defined as the

Closing market value of all the securities in the fund's portfolio plus any interest or dividend income received on the securities in the portfolio

Broker dealers must close out failure to deliver positions

Closing out a failure to deliver for a sale transaction wound typically involve the purchase of securities of like kind and quality also known as a buy in

A bond secured by other bonds and securities

Collateral trust bond

The PSA model is used when pricing

Collateralized Mortgage Obligations

A mortgage backed security that is available in several tranches each with different cash flow characteristics is a

Collateralized mortgage obligation

Balanced programs for oil and gas

Combine developmental and exploratory

The formula for calculating the dividend payout ratio is the

Common Dividend/Earnings Per Share. The formula for calculating EPS is the net income minus the preferred dividends divided by the common shares outstanding. The corporation has $29 million in net income and paid out $3,750,000 in preferred dividends ($2.50x1.5 million shares). Therefore the corporation has 25.25 million available to pay its common shareholders. Since the corporation has 20 million common shares its EPS is 1.26 ($25.25/20). The quarterly dividend paid to common shares is $0.25 which means the annual dividend is $1.00 (0.25x4). As a result, the dividend payout ratio is 79.37%. (1.00 annual dividend/1.26 EPS

Dividend payout ratio

Common dividends / EPS

Full voting rights for

Common stock not typically preferred stock

pharmaceutical companies

Considered non-cyclical/defensive stocks.

A person who has been granted power of attorney over a customer's account contacts the RR and indicates that she wants to start receiving the trade confirmations. The RR should

Contact the customer and receive written approval to send the confirmations to the person who has power of attorney and provide duplicate copies to the customer

Notice of Sale

Contains information pertaining to a competitive offering of bonds such as the time, place, date of sale, and type of offering

Class B shares

Contingent defers sales charges are assessed, but typically decline to zero after 6 years

If an auction for auction rate securities were to fail, the holder would:

Continue to hold the securities and the interest rate would be set to the maximum rate. This rate is normally higher than the rate that would have cleared a successful auction

Contributions for comptroller under MSRB rules

Contributions cannot exceed $250 so this $200 contribution has not incurred any violation. Contributions to candidates regardless if he or she loses the election are covered by MSRB rule g-37

Two types of stock that may contain a stock legend are

Control stock and restricted stock. The restriction stipulated when and how the securities may be lawfully sold. Clean stock, stock without a legend-May he obtained by getting an opinion letter from the issuer's bond counsel

For an investor seeking income, which of the following is the most suitable investment in an IRA

Corporate bonds

Retail Communication

Could be a script, slide presentation, and brochure and are all required to be filed with FINRA or another SRO within 10 business days of first use

Because the customer is long the stock the option is considered

Covered. There is no margin required on covered option writing. Margin is only required on uncovered writing positions

Diversification by quality refers to

Credit quality

Market value at maintenance short formula

Credit register or credit balance divided by 1.3 45,000/1.3-market value at maintenance Goes above certain have a problem

diversifiable risk (nonsystematic risk)

Credit risk, business risk, industry risk

A customer wants to invest in preferred stock. His key objective is to maintain consistent current income from the dividends. Which of the following types of preferred stock would be most suitable

Cumulative preferred because all current dividends and any unpaid ones must be paid to cumulative before they are paid to non cumulative and common stockholders. It does not automatically participate in additional earnings as a participation feature would be necessary

Current ratio

Current assets divided by current liability 40,000,000 in current assets/10,000,000 in current liabilities 4:1

Parity of the bond

Current market price of the common stock multiplied by the conversion ratio Conversion price was $40 Conversion ratio was 25 shares Now the CMP is $50-if we can turn this $50 into 25 shares $50x25 shares=$1,250 parity of bond If it was less than parity, there would be an arbitrage opportunity

Mark to market adjustments of open short positions to reflect profits and losses must be made

Daily

ETNs represent

Debt of the bank which issued the ETN. They are linked to a specific index but do not represent equity in the index. They simply participate in the performance of the underlying index

Which of the following information does not have an effect on the credit quality of an airport revenue bond

Debt per capita. But tourism, airport traffic, and energy costs all do

Effect on working capital if a company declares a dividend

Declared dividends are a current liability-paid in the next 12 months. Working capital decreases Once we paid the dividend-less of an asset Pay the dividend-no effect

All of the following statements regarding non-qualified deferred compensation are false except

Default on the deferred compensation plan could occur if the employer's business fails. Proper documentation does not need to be sent to the IRS for review and approval. A special bank account does not need to be opened in which the employee will deposit taxes that would be due. And deferred compensation does not need to be held at a bank is escrow

Equity investor concerned with preservation of capital in a risking interest rate environment. Invest in

Defensive stocks

The agreement of limited partnership

Defines the responsibilities of the limited and general partners of the program. The rights and obligations or limited and general partners are found here

The payout from a variable annuity is

Dependent on the investment returns earned by the annuitant

The payout from a variable annuity contract is

Dependent on the investment returns that are earned by the annuitant

Comply with regulations on margin accounts

Deposit 50% or $2,000 whichever is greater

A customer is currently invested in the RLK Growth Fund and is now interested in a less aggressive balanced fund. What should the customer's registered representative do based on this request?

Determine whether there's a balanced fund in the RLK family. If the customer moves to another fund family, he will be assessed to the highest sales charge

The fair market value of a gift when given is used when

Determining any tax that allows to the gifting

A don't know trade

Disagreement on the price of the trade, size of the trade, no record of the trade at one of the firms

To be considered a regulated investment company, a mutual fund must

Distribute a minimum of 90% of its investment income to its shareholders. Meeting this requirement allows the investment company to pass on distributions to shareholders without the company having to first pay taxes on the income distributed

An open-end investment company (mutual fund)

Distributed in the primary market only. Generally it is purchased at its net asset value plus a sales charge. If there is no sales charge, it would be a no-load fund. Fixed-load find shares and Commissionable Trust Funds are terms used to describe other types of open-end investment companies

True about the taxation of municipal bond funds

Distributions of capital gains are subject to at the federal level but dividend from municipal bonds is not subject to federal taxes

Laddering

Diversifying a bond portfolio by staggering the maturity dates of the bonds in an attempt to manage interest-rate risk

XYZ corporation earned $4 per share and paid out $2 per share in dividends. XYZ corporation is selling at $56 in the market. The price to earnings for ratio is

Divide the market price or $56 by the earnings per share of $4. This is 14 to 1

To find the sales charge percentage

Divide the sales charge of $1.20 by the offer price or $14:20

Dividend payout ratio

Dividend divided by EPS $4 in EPS $2.00 dividend $4 EPS 2/4=50%

Which of the following shares would be paid a dividend if the common stock were paid a dividend

Dividends on preferred stocks must be paid prior to any common stock dividends. In this question you were told that dividends were already paid to common stockholders. Therefore all preferred stockholders must be paid a dividend. Convertible preferred stock is convertible into common stock at a specified price. Participating preferred stock gives the holder the right to participate in any extra dividends that are paid to common stockholders. In the holder of cumulative preferred stock will be entitled to any difference that have been omitted prior to a current dividend payment

Dividend payout ratio

Dividends paid to common shareholders/outstanding common shares Now take dividends per share and divide by earnings per share Or multiply and then divide

Which of the following is not included in an income sheet

Dividends payable. The income statement of a company includes its sales (revenues), less it's operating expenses, less interest paid in its debt, which equals earnings before taxes. Taxes are then deducted to determine its net income, from which dividends may be declared. The income statement also includes non-recurring events such as the closing of a business or extraordinary items. The entry of dividends payable is found in a company's balance sheet

Accelerated cost recovery systems

Do not allow component depreciation but instead requires composite depreciation. Component depreciation depreciates assets based on the life of the asset. Whereas composite depreciation applies one depreciation rate to all assets. 100% of the depreciabas basis can be recovered, used property is allowed a full write off, and salvage value is not considered

Municipal revenue bonds

Do not always have maturity schedules that equal the useful life of the facility being built. Instead, the facility's useful life should significantly exceed the maturity of the bonds. Municipal revenue bonds do not have the debt limitations that apply to general obligation bonds. A debt limitation is considered the statutory or constitutional maximum debt that an issuer May legally incur. Revenue bonds can be issued by states, political subdivisions, interstate authorities, and intrastate authorities. Municipal revenue bond interest and principal payments are derived from the funds being generated by the facility

Nontraded REITs

Do not have their shares listed on an exchange and offer very limited liquidity, similar to limited partnerships. They would not be suitable for investors seeking liquidity. Both are subject to the same tax consequences. Since they are both registered, both required to make the same disclosures

preferred shareholders

Do not normally have the ability to vote but do get a higher claim on assets than common

The 5% mark-up policy

Does not all my when a prospectus (or offering circular) is required to be delivered. It would not apply when purchasing shares of a mutual fund (open-end investment company), a secondary offering and a primary offering. It is for outstanding securities that are not exempt and are sold OTC

A customer buys 100 shares of a fund and pays the market price plus a commission. The investor has bought

ETF share. They are listed shares in the secondary market and they are purchased in the same manner as a common stock. The buyer pays the market price plus a commission.

Diamonds

ETFs that mirror the DJIA (large-cap equities)

The investment company act of 1940 regulates

ETFs-they must register with the SEC as either open-end investment companies or unit investment trusts. Hedge funds are private and unregulated investment pools. REITs are not considered investment companies and therefore are not regulated under the investment company act of 1940. The maximum allowable sales charge on mutual fund shares trades is established by FINRA

According to MSRB rules

Either a municipal securities principal or general securities principal is permitted to review and approve the opening of a customers account

Confirmations for transactions must be sent in

Either written or electronic form. If customer wants both honor it-otherwise just one

Tax qualified retirement plans

Employees and employers can contribute and deduct their contribution in the year it was contributed. Often there are limitations placed on the amount of money that can be contributed to such plans in any given year and limitations placed on deductions for tax purposes in any given year. Typically the contributions made by an employer are not taxed to the employee in the year that contributions were made and the funds grow within the retirement plan on a tax deferred basis

Spoofing

Entering orders with the intent to cancel then just prior to execution

In a JTWOS account each holder's interest is

Equal and undivided

Cost basis of gifted shares

Equal to the donor's basis at the time of the gift. In this case Harriet's basis is $9 per share so it becomes Bob's

Excess equity times 2

Equals buying power

Portfolio-Based Margin

Evaluates the total risk in the margin account by taking into consideration the long and short positions, as well as hedging strategies put in place. The margin requirement is based on net risk in the account.

You cannot accumulate a holding period on a short position

Even if the investor had a short position for more than a year

The Board of directors or a corporation is responsible for establishing all of the following dates except the

Ex-date. Standardized in the securities industry and is normally one business day prior to record date

ETN

Exchange Traded Note-do not pay a fixed coupon. They may be sold at any time in the secondary market or held until maturity. They carry issuer risk that is tied to the creditworthiness of the financial institution backing the note. If the issuer's financial condition deteriorates, it could negatively impact of the value of the ETN, regardless of how it's underlying index performs

Special Tax Bonds

Excise taxes on cigarettes, alcohol, and gasoline

Acid Test Ratio

Excludes the company's inventories and is usually a 1 to 3 month inventory

A registered representative has changed broker dealers. In the process of implementing ACATS for clients. Previous employee May not

Execute the balance of a partially executed GTC order in a validated account. Once the carrying firm (prior employer) receives written transfer instructions, it must cancel all open orders and freeze the account

Market on the close orders

Executed as close as possible to the closing price

Rights offering

Existing shareholders are given the right to buy new shares at a discount to the current market price; Dilutes ownership unless option is exercised; Sometimes the option can be sold

A secondary market joint account

Exists when two or more dealers form an account to jointly offer a block of bonds in the secondary market. There may be an order period as well as a takedown (member's discount). MSRB rules prohibit members of the account from offering the bonds at different prices.

Interest rates are going lower. RR could recommend to

Extend the overall maturity and increase the call protection on her bond portfolio. Lock in the longest maturities possible. Customer should make changes to her portfolio by selling bonds with the shortest maturities and buying bonds with longer maturities. Also she should sell bonds that are callable now or soon to be callable and buy new ones with callable dates that are much further out

An investor is in the third year of accumulating an interest in a variable annuity that assesses a deferred sales charge. The investors registered representative recommends for her to switch to a newly created variable annuity that offers a larger amount of su account choices.

FINRA will likely consider the switch unsuitable. The switch will not be taxable if it qualifies as a 1035 exchange

BrokerCheck

FINRA's program enabling the public to check on the disciplinary and registration history of any registered person and firm.

Determining if a municipal bond is suitable for a customer whose investment objectives are after-tax income, liquidity, and marketability

Factors that are relevant are the tax bracket of the customer, the maturity of the bond, and the rating of the bond. Age of the customer not really relevant

A corporation's long-term debt would most likely be called when interest rates:

Fall below the bond's nominal yield

FHLMC

Federal Home Loan Mortgage Corporation (Freddie Mac) its securities are only issued in book entry form, but interest that's paid to investors is taxable. FHLMC is only a government sponsored and is not backed by the full faith and credit of the US government

Which of the following securities is not backed by the credit of the U.S government

Federal National Mortgage Association (FNMA) bonds

Trust Indenture Act of 1939

Federal law requiring all corporate bonds to be issued under an INDENTURE agreement approved by the SEC and providing for the appointment of a qualified trustee free of conflict of interest with the issuer. The Act provides that indentures contain protective clauses for bondholders.

Interest received from Ginnie Mae pass through certificates is subject to

Federal, state, and local taxes

Retail communications that pertain to mutual fund shares must be

Filed with FINRA within 10 business days of first use

An individual who's interested in putting aside funds for retirement opens an account and purchases a variable annuity. Two months later the customer contacts his RR because he's concerned this might not be the best product. Customer wants to transfer to another BD

Fill out the necessary forms to transfer the account to the other broker dealer

Eurodollars are primary used in

Financing investments outside of the United States

A company has a net income of $14 million which is available to the common shareholders. The company has 2.5 million shares outstanding and a convertible bond issue with a $1 million par value thats convertible into $500,000 shares of common stock. What's the firms diluted earnings per share

Find a company's earnings per share, start with its net income, subtract any preferred dividends, and then divide by the common shares outstanding. Fully diluted earnings assumes that all convertible securities, rights, and warrants have been converted or exercised. This will increase the shares outstanding and lower the earnings per share. The net income is $14 million and the shares outstanding after the bonds are converted is $3 million (2.5 million plus 500,000). As a result the EPS is $4.67 ($14 million divided by $3 million)

On September 1, an underwriter offers stock that had been registered with the SEC. This is the first offering of stock made by the issuing company. The issue will be listed on the NYSE. A dealer that subsequently sells the stock in the secondary market will be required to furnish a prospectus

For a period of 25 days-for exchange and NASDAQ. 90 days ipo. 40

Which of the following may an US investor use to offset taxes paid on dividend income earning from owning foreign stocks

Foreign Tax Credit

To determine how much of a mutual fund's distributions are required to be included in taxable income, the shareholder should examine

Form 1099-DIV

Form 3

Form required by the SEC and the stock exchanges from and individuals or company after buying 10% or more of shares outstanding in a publicly traded company or buying activity of an insider. This is to prevent insider trading and monopolization. Required within 10 days of becoming an insider

Top of an inverse sauced pattern

Forms a top and is expected to fall. Bearish indicator

If it matures in December

Found have the other interest payment in June

Which of the following choices is not a good delivery in the sale of 599 shares of common stock

Four fifty-share certificates and ten 30-share certificates. Delivery must be made in 100 share certificates

In an undivided (Eastern) municipal syndicate account, the reminding liability of an account member is computed

From the number of bonds that are unsold in the account. Committed to 10% but the unsold will commit to 10% on that

A grant anticipation note is normally paid from:

Funds received from the federal government

A customer owns a variable annuity that has a life annuity payout option with a 20-year period certain. If the customer dies after 14 years of payments:

Future payments will continue for six years to a named beneficiary. If the customer lives beyond the 20 year period certain, she continues to receive payments for the remainder of her life, with no payment made to the beneficiary at death

An example of an unfunded liability of a municipality is

Future pension payments for which sufficient funds have not been set aside

Examine budgetary practices when analyzing a

G.O bond

A client is seeking a safe investment that pays interest in a monthly basis. Which of the following securities would be an appropriate recommendation

GNMA modified pass-through certificates

An individual owns shares of a mutual fund and wants to switch to an ETF because of the potential tax advantages provided by ETFs. Which of the following statements is TRUE regarding the taxation of ETFs?

Gains are only realized on ETFs when the shares are sold. Since ETFs are typically linked to indexes, the managers seldom trade with their portfolios and therefore don't generate capital gains that need to be distributed. On the other hand, mutual funds managers trade shares within their portfolios on a regular basis and any realized gains are taxable in the year in which they're received by the shareholders

A limited partner is considered accepted into the limited partnership when the

General partner signs and approves the subscription agreement. It is not final until the general partner signs the agreement which signifies the acceptance of the limited partner

The basis of inherited shares

Generally the value of the shares at the time of the descendent's death

A customer would like to open an individual account and would like his confirmations sent to a P.O Box

Get the client's primary residential address as well

CMOs are issued and collateralized with mortgage loans from

Ginnie Mae, Fannie Mae, Freddie Mac, FHA Mortgage Loans, Conventional/private mortgage issuers

An IOC order is

Good for one stock. Purchase all shares at or below the price limit price up to a specified amount in the order that are immediately available. Followed by cancellation of the remainder of the order

A mutual fund that invests primarily in small-cap and micro-cap stocks is most likely to have a beta that's

Greater than 1. Small and micro are considerably more volatile than average. Therefore their betas will be greater than 1. This means that they'll increase in value more than the average stock in a bull market, but suffer larger losses in a bear market

Guarantee of GNMA

Guaranteed as to the timely payment of principal and interest even if the underlying mortgages are not being paid on time

An investor is seeking a balance between income and capital growth. Which of the following increments most closely achieves this goal

Have assets diversified evenly between equity and fixed income. 20% in a blue chip fund, 20% in technology fund, 20% in emerging markets fund, 20% in a municipal bond fund, and 20% in a U.S. government bond fund

European style option

Have cash settlement and don't require the delivery of stock. The exercise of a European style option results in settlement of one business day after exercise

Finding the accreted value of a municipal bond

Have to know the purchase price, purchase date, and the date of the bonds maturity. This gives you the information necessary to see what the accreted value of the bond is up until this point. The current market value would be irrelevant

Greatest risk to a senior investor

Having the client invest in several leveraged, closed end funds made up entirely of bonds. Leveraged bond funds carry the greatest risk.

A client is interested in becoming a limited partner of a DPP. He signs a subscription agreement for the DPP. This would indicate all of the following except

He has become a limited partner and has received approval as such. But this does indicate that he has provided verification in relation to his net with, he has agreed to provide the general partner of the DPP with a power of attorney in relation to matters of the DPP, and he has indicated agreement in relation to subscription to the DPP offering

An inverted Head and Shoulders Formation would mean which of the following to a chartist?

Head and Shoulders Formations indicate the reversal of market trends to chartists. An inverted formation would forecast the reversal of a downtrend. A Head and Shoulder's Top Formation would forecast the reversal of an uptrend.

A prime brokerage account would most likely be established by a

Hedge fund

Determining suitability of a hedge fund

High net worth, comfortable with the fees and charges based, comfortable with the lack of liquidity.

Defined benefit plan

High salaried employees with only a few years to retirement benefit the most

The federal tax exemption for interest earned on an industrial revenue bond is NOT available if the:

Holder of the bond is a substantial user of the facility

Convertible bonds and warrants

If convertible bonds are exchanged for common stock, the debt will no longer be part of the company's capital structure. If the debt with warrants attached is exchanged for common stock, the company will raise additional capital

A 57-year old father was in the accumulation phase of his variable annuity when he passed away. What are the tax implications if the annuity is inherited by his son?

If liquidated, any amount above the cost basis is taxed as ordinary income to the son.

When is it appropriate for a registered representative to recommend the purchase of a non-qualified variable annuity in an IRA

If the client is worried about outliving his retirement savings and providing a death benefit to his beneficiaries

No disclosure of markup or commission on the confirmation. Is this acceptable

In a net basis transaction, a dealer holding a customer to buy, acquires the stock on a principal basis and executes the customer order at a difference price than the dealer's acquisition price. The dealer profits by charging a different price for the securities rather than charging a markup. Industry rules place disclosure requirements on dealers executing net basis trades with customers

A specialized or specialty fund invests in stocks that are primarily

In a particular industry or geographical area

After a client has passed away the executor of the client's estate is responsible for trading or distributing the client's assets

In order for an executor to invest the assets of a deceased individual, the executor would have to provide a court order or certificate verifying their executor status

Where can an investor find the remuneration of the CEO of an investment company

In the corporation's annual report. Filed with the SEC in form 10k.

Which of the following characteristics would be beneficial for an employer if they decided to use a non-qualified deferred compensation retirement plan for employees

In the event the employee is terminated, benefits earned up to that point May be forfeited. This would absolve the employer of certain obligations in the event that an employee was terminated.

Index options are always settled in cash when exercised. The cash detriment amount is the difference between the contact value and the index value

In this example the contract value is (500x100=$50,000) and the index value of (450x100=$45,000) at the time of exercise. Therefore 50k-45k=$5,000 cash settlement. This is the in the money amount of the option

A transaction for a stock that is not DTCC eligible settles on a regular way basis. This means that settlement occurs

In two business days At the buyer's premise Since the seller must make physical delivery of the securities, settlement takes place at the buyer's premises

The calculation for earnings per share on a fully diluted basis

Includes the outstanding shares if convertible bonds and preferred stock are converted into common

The amount of interest paid out on the company's bonds outstanding (interest expense) is found in a company's

Income statement

Issuers repurchase their shares to

Increase their earnings per share. When companies buy back their shares, it refuses the number of shares outstanding and accreted (doesn't dilute) the ownership of its current shareholders. Since these companies are reducing their outstanding shares, their EPS will increase

REIT's are not

Increment companies and do not have to be registered under the Investment Company Act of 1940. They are publicly traded securities and can be traded on an exchange or OTC. They generally own income producing properties like apartment buildings. They distribute 90% of their income to shareholders

The provisions for the flow of funds of a revenue bond appear in the

Indenture

Which of the following research reports is not required to be approved by a principal of a broker dealer that's distributing the report

Independent third party research

Dow Jones Industrial Average

Index of large capitalized stocks. Most but not all listed on the NYSE

SLD

Indicates a transaction that is reported out of sequence. For example, a transaction that occurred earlier in the day may be reported later in the day. It is a delayed report

A registration statement needs to be filed before

Indications of interest may be accepted-only indications not orders can be accepted

CMO's are typically more affected by

Inflation risk, interest rate risk, and prepayment risk than credit risk

An investor has a $5 million position in long-term treasury bonds. Which of the following types of risk is the investors greatest concern

Inflationary risk. The treasury market is generally a liquid market (being able to sell quickly). Backed by the US government (they have no credit risk). May not be prepaid prior to maturity. Interest rate risk too

A client is interested in obtaining the expense ratio of a mutual fund recommended by the RR. Which of the following actions would be BEST for the RR to take?

Inform the client that this information may be obtained by reviewing the front of the fund's prospectus

Advertising

Information disseminated to the public over which the broker dealer does not have control over who sees the information. A broker dealer wound not have control who might see the listing in a phone book

AMBAC

Insured new municipal bond issues. Moody's, standard and poors, and fitch are credit rating services

General obligation bonds

Interest from a general obligation bond is exempt from federal income tax. However, it is generally exempt from state and local taxes only if purchased by a resident of the state of issuance. In addition, a general obligation bond is backed by the taxing authority and full faith and credit of the issuer. Unlike a revenue bond, which is backed by a revenue generating project or facility. In general they are less risky than revenue bonds due to the issuer's pledge of taxes and it's full faith and credit

Freddie Mac securities

Interest is paid monthly

Which of the following is a risk for an owner of TIPS

Interest rate risk

The ideal time to invest in a long-term bond fund would be when [A] interest rates are rising [B] interest rates are falling [C] inflation is rising [D] GDP has been rising sharply

Interest rates are falling because as they fall, bond prices increase

Your firm has completed an underwriting of Zylo Plastics subordinated debentures. The bond indenture contains a five-year call protection provision. This covenant would be most valuable to bond purchasers if, during the five years following issuance:

Interest rates decline

Interval funds

Interval funds have an ongoing requirement to calculate their net asset value. An interval fund is classified as a type of closed-end fund that continuously offers shares to investors. They don't trade in the secondary market on an exchange, instead investors are allowed to sell a portion of their shares back to their fund at the current net asset value at a present interval (monthly, quarterly, semiannually). Since shareholders are only able to exit these funds at intervals that are stated in the fund's prospectus, they are illiquid investments. Due to their limited liability, interval funds are most suitable for long-term investors, those seeking income-producing investments, and those seeking to diversify their portfolios. These funds can provide individual investors with access to alternative investments (private equity and certain real estate investments) that are typically limited to accredited and institutional investors. Another issue for investors to understand about interval funds is that their fees and expenses tend to be much higher than other closed-end mutual funds.

An elderly woman did not want to participate in her work sponsored tax advantages retirement plan. She's now interested in investing for her retirement, but doesn't want to be obligated to take a required minimum distribution. She also wants to continue contributing after 72

Invest in a fixed annuity. Retired individuals cannot contribute to an employer sponsored plan. Contributions are only permitted for current employees. Only individual who have earned income may contribute to an IRA even after age 72.

Treasury arbitrage restrictions generally prohibit issuers of municipal securities from:

Investing bond proceeds in higher-yielding Treasury securities

For private placements the offering memorandum

Is a disclosure document that serves the same purpose as the prospectus

Fund of Funds (FOF)

Is a fund that invests in a portfolio of hedge funds. These funds do not always offer superior investment returns, and they typically carry higher than average expense ratios. Although these funds are not classified as diversified investment companies under the investment company act of 1940, they are subject to SEC registration. Funds of funds are typically used to increase diversification in a portfolio of stocks and bonds

A leveraged buyout

Is a takeover of a company using borrowed funds. Most often, the target company's assets are used as security for the loans taken out by the acquiring company, which repays the loan out of cash flow from the acquiring company

Accrued interest on a new municipal bond issue

Is calculated from the dated date up to, but not including the settlement date

The distribution of a long-term gain (the fund held the security for more than a year)

Is considered a long-term capital gain to the investors for tax purposes regardless of how long the investor has owned the mutual fund share

The record date of mutual fund distributions

Is decided by the fund itself. Because mutual funds are not traded OTC or on an exchange, the record date and ex-date would always have to be set by the fund itself

Material that is sent to both retail and institutional investors

Is either considered correspondence or retail communications based on the number of retail investors to which it was sent

The interest on an out of state municipal security

Is exempt from federal tax, but subject to state and local income tax. The tax rate is based on the state in which the customer maintains his primary residence

An individual transferring an IRA from one trustee to another

Is not subject to taxes or penalties. Not a limit on my he number of transfers

Cash flow

Is the amount of net cash generated by a business during a specific period. One means of cash flow is earnings which can be found in the income statement, not the balance sheet

The subscription agreement

Is the document through which an individual applies to become a limited partner.

Eurodollar bonds

Issued by U.S companies and some to investors overseas and pay their interest in Eurodollars. U.S dollar deposit in foreign banks not just European

Grant Anticipation Notes (GANs)

Issued with the expectation of receiving grant money from the federal government.

A call premium is best described as the amount the:

Issuer pays above 100 to retire bonds prior to maturity

If a firm places a temporary hold on a customer's account:

It applies to either the entire account or specific disbursements. If the firm places a temporary hold, it must permit disbursements from the account if there is no reasonable belief that financial exploitation is occurring

The exercise of warrants causes dilution because

It increases the total number of shares outstanding. This then decreases earnings per share. EPS is net income divided by total outstanding shares

Which of the following statements is true regarding dollar cost averaging

It is a systematic method of investing that results in the average cost of the securities purchased being less than the average of the prices paid. The benefits are not obtained with funds that have a stable asset value, such as money-market funds

The advance decline theory starts that

It is bullish if more stocks go up than go down during the day. A technical indicator that measures the strength of the market by comparing the number of stocks that increase and decrease is called the advance-decline theory. It shows the general direction and breadth of a market movement on any given day

A 65-year-old individual has retired and started receiving money from a qualified variable annuity. Which TWO of the following statements are TRUE concerning the distributions from the annuity? I.It is treated as ordinary income for tax purposes

It is treated as ordinary income for tax purposes and it is fully taxable at the investors tax bracket

Which of the following statements is not true concerning Sallie Mass

It issued securities that can be redeemed to pay for college education. It does though issue securities that are not backed by the US government. It does purchase federally sponsored student loans. It provides loans to educational institutions.

If an at-the-opening order is not executed:

It will be cancelled.

A technical analyst believes that if a stock's price breaks through the resistance level

It will continue to rise until it reaches the next resistance level. The analyst will purchase calls if the stocks price breaks through the resistance level

How would preferred stock most likely be affected by an increase in interest rates?

Its market value would decrease

According to MSRB rules, which of the following statements is TRUE regarding a secondary market joint account

Its members are not permitted to disseminate more than one quote relating to the account's securities

Which of the following annuity settlement options will provide the longest stream of income over the lives of two individuals

Joint and last survivor annuity.

Permitted to pass through both income and losses

LLCs, limited partnerships, and Subchapter S Corporations. A REIT is required to pass through a minimum of 90% of its income to its shareholders, but it is not permitted to pass through losses

One of the biggest drawbacks of investing in a Direct Participation program

Lack of liquidity since ownership interests are not always freely transferable and require the approval of general partners of the limited partnership.

Disadvantages for a limited partnership

Lack of voting lower, lack of liquidity, possible adverse changes in the internal revenue code. A benefit is the conduit (flow-through) treatment for income and loss. All income and losses flow through to the partner for treatment on his own tax return

All of the following are considered assets except a

Line of credit because it is not a legal commitment by a bank to make a loan to a customer. It is only a moral commitment. Therefore it is not something owned by the customer like a closed end fund, a negotiable CD, or a convertible bond. These have commercial value as assets

An investor is interested in selling 500 shares of her listed REIT. The sale will be handled in a manner that is similar to the

Liquidation of a stock on the NYSE. Vast majority of REITs trade on the NYSE with prices that are determined by the forces or supply and demand

Which of the following choices gives the best indication of current interest rates on revenue bonds

List of bonds with 30-year maturities. The bond buyer computes the revenue bond index which is the average yield of 25 revenue bonds with 30 year maturities

Breakeven in put spreads PUSH Put, subtract from the higher

Long 10 AAPL Dec 130 Puts @13 Short 10 AAPL DEC 100 Puts @7 Higher strike of 130 and subtract the net premium of 13-7=6 130-6=124

Short against the box

Long a Security and Sells the same security Short - For arbitrage purposes - to hedge an anticipated decline in their long stock position (but maintain long-term investment status for tax purposes)

A spread requires a

Long and short on the same type of option on the same stock. Buy an ABC June 50 call and sell an ABC July 50 call

Debt to Equity Ratio

Long term debt divided total capitalization 40,000,000 of bonds they issued. 50,000,000 in shareholder equity 90,00,000 in total capitalization Capitalization is equal to total debt Long term debt divided by total capitalization: 40,000,000/90,000,000=.44

Mutual funds are

Long term investments and should not be traded frequently

During periods of deflation which of the following investments tend to perform the best

Long-term debt. During deflationary periods, interest rates and the pice of goods will be declining, which generally have a negative impact on the stock market. The CPI to which the principal on TIPS is linked, declines in value during periods of deflation resulting in decreasing principal on TIPS. The fixed interest in TIPS would also decline. Bonds perform better when interest rates decrease, with long term debt appreciating more than short term debt. Long term zeros would tend to perform best during deflationary periods

Those who violate their duties as a fiduciary May be held liable for

Losses to the plan and fines

CAL Call add to the lower Breakeven in Call spreads Lower strike price plus net premium

Lower strike is 125 and add the net premium of 6 to get 131

Which of the following choices is Moody's best rating for a municipal note

MIG 1

In April, one of the customers of a broker-dealer died. If the descendent's estate is settled and the account is closed by a relative in November, the firm's responsibility is to

Maintain a record of the account for six years from the closure in November

In order to have the appropriate amount on settlement date the investor should

Maintain cash in their account that is equal to the option's intrinsic value. Not able to cover with securities

For the investment adviser that manages a mutual fund, it's fees is paid from the

Management fee. This is based on the amount of assets under management. Admin expenses are used to pay the custodian bank and transfer agent of a mutual fund. 12b-1 fees and front-end sales charges are used to pay sales representatives and marketing costs

Stabilization in a securities offering is performed by the

Managing underwriter

Which of the following terms is used when pricing an entire issue of municipal bonds on a yield to call basis

Mandatory in-whole

A maintenance call can be satisfied by depositing

Marginable unlisted stocks with a loan value equal to the call

The most significant factor affecting the net asset value of a fund on a day-to-day basis is the

Mark to market of the portfolio

Market on close orders

Market in close orders are intended to be executed as close as possible to the close of trading for the day. The NYSE rules require that the order from the broker dealer must be received by 3:50 EST and that it can't be canceled or reduced after 3:58 pm

A corporation has $7 million in income after paying preferred dividends or $500,000. The company has 1 million shares of common stock outstanding. The market price of the stock is $56. Price to earnings ratio is

Market price divided by earnings per share. Divide the $7 million by 1 million of common stock to get EPS of 7. Then divide $56 by 7 to get 8 times

The taxing power for an issuer of a limited tax bond is limited to a specified

Maximum rate

Structured products offered by an RR

May be linked to individual securities, commodities, foreign currencies, or indexes. These products are underwritten by most major financial services institutions and are usually registered as securities with the SEC. Structured products are not bank deposits and are not insured by the FDIC

Regulation D

May be sold to accredited investors but a holding period applies. An institutional accredited invested is defined as a non-individual (bank, trust, pension, or mutual fund). However an institutional accredited investor is only defined as a QIB if it's portfolio is worth at least $100 million

Using an annuity to fund a qualified retirement plan

May be suitable because the annuity provides a guaranteed lifetime income during retirement and because of the death benefits provided

If the discretionary authority is in the mail

May not place discretionary trades without first receiving written discretionary authority

An employee of a brokerage firm has decided to open an account with an investment company to purchase various mutual funds under the company's complex of funds. The employee

May open the account without notifying either firm. Written notification is not required when opening an account with another member firm if the transactions will be limited to redeemable investment company shares, variable contracts, or unit investment trusts

Margin accounts are not allowed for

Minors

Investor has $30,000 to invest but needs monthly income

Money market fund investment

Net debit

Money paid from an account either from a withdrawal or a transaction that results in decreasing the cash balance.

Net credit

Money received in an account either from a deposit or a transaction that results in increasing the account's cash balance.

A project financed through revenue bonds is experiencing difficulty in that revenues are not sufficient to meet debt service payments. If, through legislative approval, the state pays interest and principal in a timely manner, the issue is MOST LIKELY:

Moral obligation bonds

Tactical allocation strategy

More dynamic and attempts to exploit inefficiencies in the markets by rebalancing the portfolio frequently in response to changes in economic conditions

Small cap companies

More liquidity risk

Preferred stock

Most preferred stock does not have a maturity date. One of the risks of purchasing this type of security is that there is no fixed date when you receive your principal back. The securities are less volatile than common stock, and the prices of preferred stock are inversely related to the movement of interest rates, as are bonds. The dividend usually is paid quarterly not annually

Inverse ETFs

Move in the opposite direction to an index

Property tax is computed by

Multiplying the assessed value by the mileage rate. A mill equals .001

The Bond Buyer Index is based on which of the following securities?

Municipal bond indices are created by The Bond Buyer. The Bond Buyer is a financial publication that specializes in the municipal market.

The bond buyer index is based on

Municipal bonds

Which security provides tax-exempt interest

Municipal commercial paper

The review of transactions in municipal securities on a daily basis may only be performed by a

Municipal securities principal

Tax Anticipation Notes (TANs)

Municipalities issue these to finance current operations in anticipation of future tax receipts. This helps municipalities to even out cash flow between tax collection periods.

The premium paid on a municipal bond

Must be amortized over the life of the bond. If held to maturity, the cost basis is reduced to par value and there is no loss

An immediate or cancel order

Must be executed immediately but does not need to be executed in its entirety. Part of the order may be executed. For a customer that is willing to accept a partial execution on an order and if the client does not want the unexecuted portion to be left open

The prospectus for a variable annuity contract

Must be filed with the SEC, may be delivered electronically, must provide full and fair disclosure, must detail all sales charges and ongoing expenses in the contract

A broker dealer that manages any offering being sold on a contingency basis

Must promptly deposit the funds in a separate bank account. In contingency underwritings, the payment of sales commissions and underwriting expenses occur after the deal closes. Any release of funds to the underwriters earlier than the closing date of the offering is a violation of SEC rules. These rules were created to ensure that investors are refunded their entire subscription funds in the event the offering is unsuccessful. In this example, the investment banking firm needs to receive subscriptions (sales) based on the minimum of 3 million shares but may sell up to a max of 4 million

If a temporary hold has been placed on a customer's account, the firm:

Must provide notice to the account owner and the trusted contact person within 2 business days. Not required to provide notification to trusted contact if there has been financial exploitation

Concerning hedge funds, all of the following statements are TRUE, EXCEPT that the funds:

Must register under the '40 act if they are offered to U.S residents. No need since the investors are accredited. They may engage in short selling, use borrowed funds to increase returns, and concentrate assets into a few positions

Projections and predictions are

NEVER allowed when using illustrations of yields or income for variable annuities and or investment companies

A gift between married spouses is

NOT a taxable event.

Legislative approval of the bond is

NOT required. If the issue was a general obligation bond then voter approval would be required. Although bond council does not always review the feasibility study, it could review the document for a revenue bond issue. They review the statutory requirements, the validity of the bonds

Trade Reporting Facility (TRF)

Nasdaq's service that receives trade reports from market makers in Nasdaq Global Market securities, Nasdaq Capital Market securities, CQA issues, OTC equity securities, and Nasdaq-listed convertible bonds within 90 seconds (during applicable hours). Formerly known as the Automated Confirmation Transaction Service or ACT

The NSCC

National Securities Clearing Corporation. This organization administers the Automated Customer Account Transfer Service.

Transferring to another brokerage firm a joint account for options

Need an ACAT form, a joint account agreement, and an options agreement. Don't need a margin agreement

Opening a cash account

Need the corporate charter, corporate resolution, and corporate by-laws but not a margin agreement

Offering Price Formula

Net asset value plus any applicable sales charges

When computing coverage for revenue bonds, the ratio used is

Net revenue to debt service

Short straddles and short combinations represent

Neutral market strategies

Is a customer required to use ACATS?

No

The stock that's borrowed by a customer to facilitate a short sale must be returned within

No specified time period, however the broker dealer can demand the shares be returned at any time

If an investor anticipates a decline in interest rates over the next 15 years, the investor wound be best suited by a portfolio consisting of

Non-callable 15 year bonds and 30 year bonds, putable in 15 years-locks in a higher rate

Variable annuity B shares

Normal annuity shares with contingent deferred sales charges typically have surrender periods of seven to eight years before sales charges disappear

The commissions charged are

Not added to the price per share when reporting the trade price on the consolidated tape

Emerging growth companies are

Not subject to the quiet periods regarding the publishing of research

The seller must trade

ON or after the ex-date in order to get the dividend

REIT shares may be either traded

OTC or on an exchange (not always on an exchange). REITs are non-exempt securities under the Securities Act of 1933. REITs are not regulated investment companies and cannot pass losses to the investors

Quotes for non-Nasdaq, over-the-counter traded equities can be obtained from the:

OTC pink Market and the OTC Bulletin Board. No listing requirements for these two quotation systems

The spouse of a brokerage firm employee wants to open a brokerage account so that he can trade individual stocks. If the account is opened at a firm that does not employ her spouse, the employee of the firm is required to:

Obtain the prior written consent of her employing firm in order to open the account

Under FINRA rules, if a person is granted discretion the firm is required to

Obtain the signature of each person authorized to exercise discretion in the account. And record the date such discretion is granted

Customer will pay the

Offer or ask price

A registered representative can not

Offer to buy shares from a customer to protect the customer from a loss. Same as guaranteeing against a loss.

Revenue Anticipation Notes (RANs)

Offered periodically to finance current operations in anticipation of future revenues from revenue producing projects or facilities.

REIT

Offers income and capital appreciation. Growth stocks offer capital appreciation but no dividends. Utility offers large dividend but not much for capital appreciation

Annuity suitability rules require that contracts sold through FINRA members be forwarded to the representatives

Office of Supervisory Jurisdiction and be approved by a principal within 7 business days after receipt before being sent to the insurance company

The most detailed financial information regarding a municipal securities dealer

Official statement. Municipal securities are exempt from registration provisions of the SEC. A registration statement and prospectus are not required

The unexecuted portion of a day order or a GTC order is placed

On the designated market maker's book

Secondary market trades in U.S. government bonds, notes and bills settle

One business day after trade date

When do American style options settle

One business day from the trade date. If it is exercised settlement occurs two business days after the trade date

Mrs. Jones calls and wants to place an order in her husband's account because he is out of town and can't make the call himself. Can accept the Oder

Only if a trading authorization was signed by Mr. Jones

A primary offering of securities is being made for a company listed on the NYSE. Prospectuses must be delivered:

Only on purchases made at the public offering price. This company is already exchange-listed. There is no aftermarket delivery requirement

In a large private placement, an investment banking firm has purchased securities directly from an oil and gas company based in Houston, Texas. These securities may be resold immediately to:

Only qualified institutional buyers (QIBs). An example of a rule 144 A transaction.

A client has reached retirement age and decides to annuitize her nonqualified variable annuity. What amount of the payments made to her would be considered her cost basis?

Only the amount she paid when accumulating units, since reinvestments of distributions were in pretax dollars

Discretion is not exercised

Only used for accounts in which the RR has power of attorney, but the client is entering the order on his own

Any options related material that is sent out must be preceded or accompanied by the

Options disclosure document

Which of the following systems is used to report information on the origination, transmittal, and execution of an equity security

Order Audit Trail System (OATS)

A customer owns shares of restricted stock and now intends to sell them. If the proper forms are filed with the SEC, the customer may sell these shares:

Over a 90-day period

When a stock is at its resistance price, a technical analyst will most likely say that it is:

Overbought Explanation: A stock is overbought at its resistance level and oversold at its support level.

When a stock is at its support level a technical analyst thinks it is

Oversold (S memory aid)

Prior to the mature of a variable rate demand obligation an investor has the right to receive the

Par value Plus accrued interest

How to calculate the preferred dividend

Par value X Rate of Dividend X number of preferred stocks ($100 par value x .10 (rate of dividend) x 10,000 number of preferred stock

An individual has made before and after tax contributions to her traditional IRA. When she begins taking distributions after age 59 1/2 they would be taxed as

Part ordinary income and part return of capital

Under industry rules, the final approval to open a new account is given by a(n):

Partner or principal

All of the following are requirements to become a registered representative of a member firm

Pass a qualification exam, be covered under a fidelity bond, agree in writing to a background check, and agree to settle all securities disputes by arbitration not by lawsuit in federal court

Reg T Cash Account

Payment for a new issue in a cash account is due within two business days following the settlement date of the transaction. When buying shares of a new issue, an investor will receive a when-issued confirmation. Payment is due two business days following the date that the securities are ready for delivery

A fund of hedge funds

Pools investors money and allocated it to hedge fund managers. The fund or hedge funds may charge a fee in addition to the fee charged by the hedge fund managers. There is no requirement that it use a specific number of managers. Hedge fund managers are not limited to investing in securities listed on U.S exchanges. They may use a broad range of investment strategies that include difference asset classes, selling short, derivatives, and the use of leverage. A fund of hedge funds may not be suitable for all investors

Modern Portfolio Theory

Portfolio management should focus on diversification among different classes of assets

Participating Preferred Stock

Preferred stock that shares with common stockholders any dividends paid in excess of the percent stated on preferred stock.

When evaluating two CMOs backed by GNMAs, one having a 6% yield and the other having a 10% yield, which TWO of the following statements are true

Prepayment risk is greater for the CMO with the 10% yield. Credit risk is the same for both securities

The proceeds of the sale of a municipal bond issue are invested in U.S. government securities that are sufficient to cover interest, principal, and call premiums on an outstanding bond issue. The outstanding bonds are called:

Prerefunded bonds

When allocating bonds in a new municipal issue

Presale orders normally have first priority. This is followed by group net, designated, and then member orders. No bonds left for the member orders

Price to earnings ratio (PE Ratio)

Price divided by earnings Price is $48 (current market price) It has $4 in earnings per share Take $48 and divide by $4=12 per ratio

Yield moves up

Price of bond has decreased

A customer sells 500 shares of stock to a broker-dealer that makes a market in the stock. The broker-dealer acted in a(n):

Principal capacity and charged the customer a markdown

True about municipal bonds registered in the name of the owner

Principal is sent to the owner at maturity

A municipal securities broker dealer has a control relationship with an issuer. When selling the bonds subject to the control relationship, the broker dealer must disclose this relationship to customers

Prior to the trade, in writing at or prior to settlement, and for all accounts and all types of transactions

A variable annuity contract holder dies during the accumulation period. In this situation, which of the following statements is true regarding the tax consequences

Proceeds in excess of cost are taxable as ordinary income to the beneficiary.

short-swing profits

Profits made by corporate insiders during a period of less than six months between purchase and sale. If the president wants to sell within 2 months, the profit from the trade must be forfeited according to the short-swing profit rule

A registered representative recommends that a client purchase shares of a mutual fund today rather than tomorrow because the fund shares will go ex-dividend tomorrow. The registered rep explains that if the client waits until tomorrow to purchase the shares, the client will not receive the dividend. Such a recommendation is

Prohibited because such recommendation is selling dividends and is not in the client's best interest. Selling dividends is illegal. The rep has neglected to tell the investor that while he will receive the dividend, he is paying for it. The price of the stock is reduced on ex-dividend date by the amount of the dividend. If the client waits until they go ex-dividend he will pay less for it

Advertisements include

Promotional material made public about municipal securities that include circulars, reports, pamphlets, market letters, form letters, press releases, and any documents misrepresenting the skills of the financial managers. It does not apply to preliminary official statements, analysis investment tools, or written reports based on analysis investment tools

Common stock

Proven to be the best hedge against inflation. Bonds are subject to inflationary risk.

ETNs

Provide investors with the ability to invest in market sectors that would ordinarily be deemed unsuitable including commodities, currencies, emerging markets, and strategies. Since the investor who owns an ETN with the issuing bank they are not subject to tracking error as with an ETF. Since ETNs do not pay interest or dividends there is no annual tax and the participation in the gains would later be treated as a capital gain or loss to the investor. Investor fees are not a benefit

SEC Rule 147 and Rule 147A

Provides an exemption from registration for securities being sold on an intrastate basis. If securities are sold only to residents of a state by an issuer that is also a resident of the same state, the securities are exempt from both the registration and prospectus requirements of the Act. A resident of a state who acquires securities on rule 147 is not allowed to sell the securities to a nonresident of the state for a period or 6 months following the last date of sale by the issuer. It an individual intends to sell the securities prior to 6 months, he may only to a resident of the same state

Level 1 of nasdaq

Provides subscribers with the highest bid and the lowest offer (i.e the inside market) for a security that has at least two market makers. However, the actual market makers are not listed. Level 1 does not display the cumulative trading volume or the prices of the transactions as they occur. Although non-member firms subscribe to NASDAQ level 1, it is typically used by the branch offices of member firms

Which of the following is not acceptable under soft-dollar relationship

Providing software for accounting services. Would not assist the client in making increment decisions

Although ERISA does not require diversification of plan investments, diversification is generally considered to be

Prudent.

457(b) plans are for:

Public sector employers (State and local governments.) They are used to fund retirement and they grow tax deferred

An individual who's concerned about the alternative minimum tax may find it most suitable to invest in

Public use municipal bond

A long call

Purchasing a put and a call

An investor purchased a fixed annuity twenty years ago from a top rated insurance company. The investor is now considering whether to annuitize on a straight life basis or to take a lump sum settlement and invest it elsewhere. If economists are now forecasting an extended period of significant inflation, which of the following is the greatest risk facing the investor if she chooses to annuitize

Purchasing power risk

A customer purchases a when issued stock in a cash account for a total of $60,000. How much must the customer deposit in the cash account

Purchasing stock on a when issued basis in either a margin or a cash account requires a deposit of cash equal to 25% of the issuer cost of $2,000-whichever is greater. $60,000x25%=$15,000 deposited in a cash account on a when-issued basis

Which of the following features of VRDOs effectively make them short-term securities

Put feature. Allows investors to redeem at certain intervals

Does not expect that common stock will fluctuate in price over the next several months

Put on a short straddle. Receive premiums from the sale of both options

In order to qualify for special tax treatment where profits must be passed on to shareholders and avoid taxation as a corporation

REITs must distribute 90% of income to shareholders and must invest a minim of 75% of their assets in real-estate related activities

Business Development Company (BDC)

Raises money by selling securities to investors. A BDC uses the money it raises to invest in private companies, small developing businesses, and financially troubled companies. Most BDCs are liquid because they trade on exchanges, and are not taxed if they distribute at least 90% of their income to their investors. Most have investment objective of providing current income and capital appreciation. Since some of the funds are invested in the equity of non public companies, a customer purchasing a BDC is similar to buying a publicly traded investment in a private equity firm

A term bond has a mandatory sinking fund call feature. What method will be used to determine which specific bonds will be called?

Random selection

Nationally recognized statistical ratings organization

Rate the credit risk of bonds

Cash dividends received from which of the following securities will be taxed as ordinary income

Real Estate Investment Trust. Qualified dividends on common and preferred stock are taxed at a maximum rate of 20%. Dividends from a REIT are still taxed at the same rate as ordinary income since a REIT does not pay corporate income tax if it distributes a minimum percentage of its income.

Transactions in municipal securities must be reported to the

Real time transaction reporting system which is operated by the MSRB

Prior to accepting a DVP order from a customer a broker dealer must

Receive the name of the customer's agent and the customer's account number. The order ticket must be marked DVP or RVP

Client wants to preserve capital and see some current income from their investments

Recommend a portfolio of money market funds, short-term debt instruments issued by the treasury and federal agencies, and T-Bills

Short interest

Refers to the amount of a company's shares of common stock that have been sold short and have not yet been covered (closed out). An increase in short interest had historically been considered a bullish indicator by a technical analyst

Trusted contact person is acting shady and wants a disbursement

Refuse the disbursement. Fear the client is being exploited. Temporary hold. Initial hold for 15 day. Still at risk extend for 10, followed by an additional 30 days

The subaccount of a variable annuity must

Register under the investment company act of 1940 and is considered to be an investment company

Regulation SP

Regulation enacted by the SEC to Protect the privacy of customer information, particularly nonpublic personal information. Your firm must provide a privacy notice describing its privacy policies to customers whenever a new account is opened and annually thereafter. The notice must provide customers a reasonable means to opt out of the disclosure of the customer's nonpublic personal information to unaffiliated third parties. Methods such as a check-off box, web site, or a toll-free telephone number. It is too burdensome to write a letter

A customer purchases a security in a foreign market. The settlement date is determined by the

Regulatory authority in the foreign market

Investment income and capital gains on variable annuities are

Reinvested into additional securities. The reinvested income and gains are tax-deferred to the investor. Therefore the investor is not fully liable for taxes on the income and gains in the year realized in the separate account

A registered representative wound be required to certify that she informed the customer of all relevant facts

Relating to the lack of marketability and liquidity of the limited partnership. In addition, after obtaining information about the customer's investment objectives, financial and tax status, other increments, and future financial needs, the RR must have reasonable grounds to believe the customer has sufficient net worth and income to lose his entire investment, or has other liquid assets. The RR must certify that the customer is suitable, and is in a financial position to be investing in this limited partnership. There is no requirement to certify that the customer has been advised by an accountant or an attorney. A limited partnership is permitted to be sold to a retirement account

When shares are sold and no withdrawals are made, the equity value in the account

Remains unchanged. However, the market value and debit balance decline by the same amount because without additional instruction, the broker dealer will apply the proceeds of the sale to the debit balance. Take the 10,000 sale and reduce the market value by 10,000 and the debit balance by 10,000. Subtract and it's still the same equity value

Money put aside on a municipal revenue issue for the betterment and improvement of the facility is placed in the:

Renewal and replacement fund

An immediate or cancel order

Requires that all or part of the order be executed as soon as the broker enters a bid or offers. The portion not executed is automatically cancelled

Double barreled bonds

Revenue bonds that have characteristics of GO bonds. Interest and principal are paid from a specified facility's earnings, but bonds are also backed by taxing power of the state or municipality.

Feasibility study used for

Revenue bonds. Other factors for revenue bonds include the existing competing facilities, and protective covenants

Reverse Convertible Securities

Reverse convertible securities are short-term notes issued by banks and broker-dealers that usually pay a coupon rate above prevailing market rates. They are considered structured products because, in addition to the coupon rate, the investor may be required to purchase shares of an underlying asset at a fixed price. The underlying asset may be an equity security unrelated to the issuer, or a basket of stock, or an index. The issuer agrees to pay this higher coupon rate since it has an option to sell a security to the investor if the price of the security falls below a specified value known as the knock-in level. If the price of the underlying asset stays above the knock-in level, the investor will receive the high coupon and the full return of his principal. If the underlying asset falls below the knock-in level, the investor will be obligated to purchase shares of the underlying asset at a fixed price. The price of this asset may have depreciated below the knock-in level and the investor may receive substantially less than the original principal.

Which of the following securities would be the least suitable for an investor interested in preservation of capital

Reverse convertible securities.

If an investor is bearish on small cap stocks which of the following products should be avoided

Russell index ETFs which is a benchmark for small-cap stocks.

Standard and poor's lowest rating for a municipal note

SP-3

Calculate charge divided by public offering price

Sales charge divided by Public Offering price

A reason a corporation wound likely seek additional financial leverage is

Sales have been growing

Certificates of Deposit (CDs)

Savings accounts that guarantee a depositor a set interest rate over a specified interval as long as the funds are not withdrawn before the end of the period—six months or one year for example. Could own 12 CDs and have 1 CD mature each month or so.

Certificates of Deposit (CDs)

Savings accounts that guarantee a depositor a set interest rate over a specified interval as long as the funds are not withdrawn before the end of the period—six months or one year for example. Maximum maturity is 1 year or less so the client would have short term access to the funds

A regulation A exemption is allowed for an issuer that's offering

Securities with a value not exceeding $75 million (tier 2) of securities during a 12 month period

As a group, limited partners may NOT:

Sell assets to pay creditors-this is a management decision. They may sue the general partner, vote to remove the general partner, and inspect the partnership's books

Above current market price

Sell limits buy stops

An insider is not permitted to

Sell short his corporation's stock

Limited partners can not

Sell their interests back to the limited partnership without restriction

A short straddle

Selling a put and a call

An inverse equity ETF is most similar to

Selling short

Functions of the transfer agent

Send interest payments to investors, maintain detailed and orderly records of account holders, send annual tax documents to investors. Does not maintain custody of the securities. The fund's securities are held by the custodian and not the transfer agent. Securities are held separately to protect the shareholders

During a cooking period the syndicate members would only be allowed to

Send out a preliminary prospectus to customers that request them or have given an indication of interest on the new issue. Not allowed to accept money with indications, send out research reports, or take actual pre-sale orders

Benefit of a DVP/RVP account

Settlement is relatively safe as securities and cash are exchanged nearly simultaneously

Settlement date for exercise of an option

Settlement of the resulting stock transaction is second business day

A 65-year old individual invested $240,000 into a variable annuity, which has since grown to $400,000. If she wants to withdraw $150,000, what's the tax implication of taking the withdrawal?

She will be taxed on $150,000 as ordinary income. Any amount withdrawn beyond the first $160,000 is considered a return of the individuals basis and not taxed

A fundamental analyst is not interested in which two of the following metrics

Short interest and reading volume. They are interested in EPS and P/E ratio

Technical indicators

Short interest and trading volume

NASDAQ Level 2

Shows firm quotes and the market makers who are making a market in the security

The dollar amount being invested in mutual fund shares is

Significant since features such as breakpoints and rights of accumulation are only offered for class A shares. The anticipated holding period is equally important since Class B shares have a declining sales charge that is based on how long the investor owns the shares prior to redemption. When compared to class A shares, both B and C shares have higher annual operating expenses. Therefore A May be cheapest to own over a long period

Qualified plan

Since contributions to a qualified plan are made in pre-tax dollars, this results in a zero cost basis. None of the funds have been taxed. As a result when distributions are made, the entire amount is taxed

ABC Corporation has net income of $6,000,000. It had $1,000,000 in interest expense and is in the 34% tax bracket. ABC has 500,000 shares of common stock and 10,000 shares of 10% preferred stock ($100 par value) outstanding. What is the earnings per share for ABC?

Since the question gives ABC Corporation's net income, interest and taxes have already been deducted. Earnings per share is equal to net income minus the preferred dividend divided by the number of common shares outstanding. ($6,000,000 net income-$100,000 preferred dividend) divided by 500,000

Utility companies are highly leveraged

So interest rates increase would also have a negative impact on these companies as the higher rates means higher interest payments

A registered representative had discretionary authority over a customer's account and has determined a limited partnership investment is suitable for the customer. In order to invest in the partnership thr RR may

So so with written approval from the customer due to the complex and risky nature of the investment

options are classified as capital assets

So therefore any gain or loss would be treated as a capital gain or a capital loss. The customer bought a call for $400 and it expired therefore the customer would end up with a capital loss of the $400 premium he paid

The growth and income fund are both mutual funds

So they are investment companies

The 5% markup policy is a guideline for

Spreads in dealer transactions and commissions in brokerage transactions, including purchasing OTC securities from a client and riskless transactions

When an issuer is raising additional capital and conducts a rights offering, it may enter into an agreement whereby a syndicate agrees to purchase all of the shares that the issuing corporation may not be able to sell. This is a

Standby agreement

The filing of the certificate of limited partnership

Starts the business or is considered to give the business life

Revenue bonds are not subject to

Statutory debt limitations. But current legislation at the state level requires the self-sufficiency of projects of this nature. User fees are expected to support the project once completed. Only certain members of the community will use the project

Breakeven in covered call or buy/write

Stock cost minus premium Buy 100 shares at $125 a share Write 1 AAPL LEAP '04 140 calls @14 125-14=111 Stock position

breakeven protective put

Stock cost plus premium Buy 100 shares of apple at $125 a share Buy 1 AAPL Dec 11 120 Put @4 Pay 125 for the AAPL and 4 points for protection Add if buying and subtract if selling

As it relates to convertible bonds which of the following provides an arbitrage opportunity

Stock trading at a premium to parity

A technical analyst looks at a chart of a stock to identify the support level, he would look for the point in which the stock

Stopped decreasing

When a muni bond is purchased at a premium, the premium is decreased each year by the same amount until the bond reaches maturity. This reduction in premium is known as

Straight line amortization

If a portfolio manager is rebalancing a client's assets on a quarterly basis, this would be considered:

Strategic asset allocation strategy

Breakeven in Call contracts

Strike price plus premium CALL UP Stock price at $125+8=133 BE

Breakeven in straddles and combos

Strike price plus total premiums (upside) Strike price minus total premiums (downside) 125+16=141 upside premium Put 125-16=109

Structured Products

Structured products may be linked to individual securities, commodities, foreign currencies, or indexes. These products are underwritten by most major financial in situations and are usually registered with the SEC. They are not bank deposits

Question with a federal bond

Subject to federal but not state and local

Treasury bills

Subject to federal tax but exempt from state and local

There is no age limit on making contributions to an IRA as long as the individual has

Sufficient earned income. A penalty of 10% applies to early withdrawals. Taxes on earnings are deferred until the owner withdraws them. An annual tax deduction is made up to the maximum contribution

When sent to a client, what must be proceeded or accompanied by a prospectus?

Supplemental sales literature for the bond mutual funds in the family of funds. Requirements does not apply to general advertising, tombstone ads, or omitting prospectus ads

Real Time Transaction Reporting System (RTRS)

System used to report municipal securities transactions. Operated by the MSRB.

If an equity option is exercised, when does the stock transaction settle?

T + 2

Which of the following securities issued by the federal government does not have reinvestment risk

T-Bills since they are sold at a discount and the discount is the yield. Pays no interest to the investor. The investor does not receive any interest to reinvest while holding the T-Bill

Tax Equivalent Yield Formula

TEY = (Tax-exempt Yield) / (1 - Marginal Tax Rate)

Which of the following is true concerning trade reporting and compliance engine reports

TRACE was created to provide greater transparency in the corporate bond market. Every FINRA member firm that is a party to a transaction in TRACE-eligible securities must report its side of the transaction. Includes US foreign corporate bonds, US treasuries, and debt of US government agencies and enterprises.

Conversion to common then sale of common

Take $1,000 par divide by 25 to get to 40 shares. Then multiply by the current trading value of 29.50. Compare that to what the bonds are selling at 105 ($1,050)

Determining how high the market value of the short stock position could rise before the customer received a minimum maintenance call

Take the credit balance and divide it by 1.30=appreciation allowed before the MM call. The credit balance is found after adding proceeds of the short sale and the reg T deposit together

Maximum gain potential

Take the difference between the strikes and then subtract the net debit

How to calculate buying power

Take the market value (125,000) divide it in half (62,500) minus the debit (35,000) leaves you with excess equity or 27,500. Excess equity times 2=$55,000

Sales charge

Take the offer minus the bid. Then do sales charge divided by the offering price

Conversion of convertible bond

Take the par (face) value and divide by the conversion price of the bond

An investor must pay accrued interest for a secondary market purchase of:

Tax anticipation notes

Taxable Equivalent yield

Tax free yield divided by (100%-tax bracket) 4%/100-40 .04/.60=6.6%

As a customer's tax bracket increases, the RR is likely to allocate more of a customer's portfolio to

Tax-exempt funds

Monthly interest received from CMOS is

Taxable at the federal, state, and local level

Which of the following will most likely have a mandatory sinking fund

Term issues

In an IRA which investment is not allowed

Term life insurance policies. An IRA is intended to provide retirement benefits and the term life insurance provides no cash values at retirement. Can invest in marginable stock, equity options, and closed-end investment company stock

Money is set aside to redeem municipal bonds under a mandatory call

That money wound be deposited into a sinking fund

If interest rates decline, the risk for an investor in a mortgage-backed security is

That payment of principal will increase and reinvested funds will earn less

A dealer will NOT consider which of the following factors when determining the markup on a transaction?

The 5% mark who policy if the transaction involves a municipal bond. Municipal bonds transactions are exempt from the 5% policy. MSRB rules require a broker dealer to obtain a price that's fair and reasonable based on prevailing market conditions

A bond that's owned by an ETF has recently matured. What happens with the proceeds that result from the bond's maturity?

The ETF manager will reinvest them into another bond

A limited partner has contributed capital to a direct participation program. Two years later, he extends a loan. If the DPP declared bankruptcy

The LP is considered a limited partner for the capital contribution and a creditor for the loan

An individual walks into your branch and wishes to open an account. In this account the individual wishes to trade options and indicates should would like to be approved for the sale of uncovered puts and calls. The customer must receive the options disclosure document in what time frame

The ODD must be provided to the new client before the client is approved for options trading

You are an RR at a firm and one of your customers calls you up and informs you that she wishes to exercise a long listed option that she currently holds. Present such order to

The OcC who is the issuer and guarantor of all listed options.

A client sells a stock short in their portfolio. The client plans to cover the short sale but prior to covering, calls to ask the RR how to achieve long-term status for capital gains purposes on the short sale. How should the RR respond?

The RR should inform the client that short sales do not qualify for long-term capital gains treatment, regardless of how long the position was short in the client's account.

Prior to an investor signing a limited partnership subscription agreement

The RR should know the clients sentiment toward loss of invested capital, the client's tax ID or SSN, needs to determine the customer's needs related to investments with tax advantages. Does not need to know if they'll be accepted into the limited partnership

Written Supervisory Procedures (WSPs)

The WSP manual includes the policies and procedures governing all aspects of a firm's business as well as identifying those responsible for implementing the procedures.

Which of the following indexes is the broadest equity indicator

The Wilshire Index. Consists of approximately 3,500 stocks that trade on the NYSE and Nasdaq

Which of the following statements about technical analysis is true

The advance-decline index is a good indicator of the strength of a bull or bear market Explanation: The advance-decline index is a measurement of advancing stocks versus declining stocks over a specified period. It is a good indicator of the strength of a bull or bear market. The other technical analysis theories are just the opposite of how they should be stated.

If a member firm brokers a customer purchase of a security, the firm must disclose

The amount of commission, either the name of the person who sold the security or the fact it can be furnished upon request, the time when the transaction took place or the fact it can be provided, the fact that the member acted as broker for the selling party if that is the case

The price to earnings ratio is found by dividing the market price of $48 by the annual earnings per share

The annual EPS is $1.10x4=4.40. The PE ratio is 10.9 ($48/4.40). The amount of the dividend is not relevant in calculating the PE ratio

A registered representative is reviewing a corporation's financial statements. Which two of the following statements are true concerning an issuer's bond interest expense

The annual interest payments are found on the income statement and the interest payment is deducted from EBIT.

On the annual IRS form 1099-B issued by broker dealers to the IRS and its customers, all of the following information on securities sales transactions must be reported except

The applicable taxable gain or loss using the LIFO method. You need to report gross sales proceeds, the cost basis of security purchases, and the holding periods. If the security was bought on different dates for different prices, the FIFO method will apply unless the taxpayer designated the settlement date of each trade or has a standing instruction

Which of the following indicators is bullish

The bottom of a saucer pattern. Expected to rise

Priority provisions for liquidating a limited partnership are found in

The certificate of limited partnership.

One of your new clients with little investing experience is trying to figure out their capital gains and losses for the year. They had capital gains of $6,000 for the year, but had capital losses totaling $10,000 as well. What can the client do in this situation?

The client can deduct $3,000 from gross income and carry $1,000 forward as a capital loss

A registered representative wants to open a new account for a client who is a resident of Mexico. Which of the following statements is true

The client can either have a taxpayer identification number or a passport number and country of origin

Reg T states that if a client has been sold out for failure to make prompt payment that the account must be frozen for 90 days

The client will have to deposit sufficient cash to cover the total trade amount before the order to buy is entered. Cash account so can't deposit just 50%. Since the account is frozen client can't make payment using regular way. When an account is frozen, clients must deposit funds prior to entering orders to buy but are not prohibited from making purchases

Required information for opening an account for a client

The client's level of outstanding debt and overall net worth. Tax bracket for previous year is not a primary concern. The market value of the client's home gives no indication as to equity

Which of the following statements is true regarding the supervision of real-time communication through social networking sites

The communication is regulated in a manner similar to correspondence

Wireless communications is offering 2,000,000 common shares (par value $0.10) at $15. Which two of the following choices describe the financial impact on the company?

The company will receive cash from the sale of the stock, so liquidity will increase. The common stock account and the paid in capital accounts, which is part of stockholders equity will also increase. The long term debt ratio will fall as the equity capital rises and since the company is raising cash, current assets will increase. Finally, fixed assets will be unchanged

A split merely changes the number of outstanding shares and the price of those shares

The company's overall capitalization and earnings will not be affected by a stock split. So here, the price to earnings ratio will not be affected by the 2:1 stock split

A facility is created by the issuance of industrial development revenue bonds. The bonds are backed by:

The corporation that leases the facility

Stock dividend

The cost basis of the customer's shares are adjusted, but there are no tax consequences in the year that the stock dividend is received

In a soft dollar arrangement between an investment adviser and a broker dealer, the BD is permitted to pay

The cost of a conference concerning the future of the computer software industry

Not a factor for markup

The cost of the security to the dealer. The markup is based on the current market value of the stock. Type, availability, per share price of the security

In order to reduce liabilities associated with taxes on the sale

The customer should identify the shares they intend to sell

When selling a security for a customer, all of the following items MUST be included on the sell order ticket, EXCEPT:

The customer's Social Security number. You need the number of shares or par value, name of the security, limitations (limit, stop), and whether it is buy or sell. If it is a sell order, the location of the security (long or short) must be indicated.

Which of the following situations should be escalated to the firm's compliance department

The customer's mail is sent only to the registered rep's primary address

The Founders Income Fund has declared a dividend that is payable to stockholders of record on Thursday, May 29th. The mutual fund's ex-dividend will typically be on

The date that is set by the fund or its principal underwriter (sponsor). Mutual funds do not trade on exchanges and do not have a fixed sett net date. For this reason, the ex-dividend date for a mutual fund will not automatically be one day before the record date, as is for common stock. Instead, a mutual fund's ex-dividend date is on a date determined by the fund or its principal underwriter (sponsor)

When opening an account for an employee or another municipal securities dealer

The dealer opening the account must provide notification to the employing dealer that the account is being opened, must follow any instructions regarding the account from the emoting dealer, and must send duplicate copies regarding all transactions in the account to the employing firm. Does not need approval for each transaction

Which of the following is a benefit of purchasing variable life insurance

The death benefit can exceed the guaranteed minimum based on the value of the sub account products

The separate account of a variable annuity has earned a return higher than the assumed interest rate (AIR) on the policy. What effect does this have on the account

The death benefit will increase

Market momentum refers to

The degree of strength or weakness in various industry forums. It is the tendency of a security to continue movement in a single direction. Momentum is one of the most important factors in trend analysis of the stock prices.

The maximum profit on a debit spread is

The difference between the strike prices adjusted by the premiums

What system allows investors to hold securities in book entry form

The direct registration system allows investors to hold securities in book entry form

Receiving a distribution from a retirement plan

The distribution must be rolled over into another qualified plan within 60 days of receiving the money in order to avoid taxes and penalties. Rollovers may be done only once each year

Cash dividend

The dividend would be fully taxable as ordinary income in the year received, regardless of whether the money received were reinvested

The secondary market price of a municipal bond would be least likely affected by

The election of new municipal leaders. Changes in the tax code, market conditions, and an upgrade in the credit rating would have an affect

Cash dividend in common stock correct information

The ex-date will be set one business day prior to the stock record date. Current liabilities of the corporation are increased by the amount of dividends declared on the declaration date. Incorrect dividend payments are adjusted with due bills. The ex-dividend date determines who is entitled to a dividend not the record date

1035 exchange

The exchange is not a taxable event, but the new annuity may come with additional restrictions

Secondary market

The exchanges and the OTC markets where securities are bought and sold after the original issuance

Fill or Kill

The instructions to fill an entire order immediately or kill (cancel) the entire order.

Payout options of a variable annuity are guaranteed by which of the following? [A] The pertinent state securities department or commission [B] Securities and Exchange Commission (SEC) [C] The insurance company that issued the variable annuity [D] Securities Investor Protection Corporation (SIPC)

The insurance company that issued the variable annuity

A customer is a resident of Utah, but has a vacation home in California. A friend of the customer who lives in California intends to raise capital for a new business in California using Rule 147. If the customer wants to invest less than 1% of her liquid assets in her friend's business, how should the RR advise the customer?

The investment is not permitted since the customer is not a resident of Cali. Under SEC rule 147, an offering is exempt from SEC registration if all of the investors are residents of the state in which the offering is being conducted. Owning a vacation home in Cali doesn't make the customer a resident so she is ineligible to buy the securities

Who would benefit most from a park call on a high coupon municipal bond trading at a premium

The issuer benefits from calling the bond at par without a redemption premium and from redeeming the high coupon bond. The seller does not benefit

A customer owns a municipal bond that has been escrowed to maturity. Which of the following statements is TRUE?

The issuer has deposited money in an escrow account that will contain U.S. government securities used to pay off the municipal bonds at maturity When interest rates fall, a municipality may want to engage in advance refunding. In this case, the municipality will sell a new issue with the proceeds of the sale going into an escrow account containing U.S. government securities. Since the municipal bond has been escrowed to maturity, the U.S. government securities would be purchased with a maturity date that coincides with the maturity date of the municipal bonds.

Mutilated corporate bond must be authenticated by

The issuer or transfer agent.

Which of the following parties states that a municipality may legally issue bonds

The issuer's bond counsel writes the legal opinion. It states that the interest is exempt from federal taxation and that the issue is valid and legal. Prior to giving an opinion as to the validity and tax exemption of the issue, the issuer's bond counsel examines all federal, state, and local legislation to be sure that the issue meets all requirements. Neither the MSRB, the SEC, nor any other regulatory agency states that a municipality may legally issue bonds.

When a client buys a bond above par, the confirmations must indicate the:

The lower of the yield to call or the yield to maturity.

Under the code of arbitration, if a public customer takes a member firm to arbitration to resolve a dispute

The majority of the panel must come from outside the securities industry. Unless the customer requests a panel with a majority of industry arbitrators

An investor holds a variable annuity and started to annuitize and receive monthly payments. Non-qualified variable annuity. What can they expect to pay in terms of tax liability?

The monthly payments will be partially taxable on earnings in the annuity and will be partially tax-free with regards to principal that was invested in the variable annuity. Earnings grew in the account tax-deferred so these earnings will be taxable to the investor. The plan is non-qualified, so after tax dollars were invested. This means that principal paid into the annuity will be returned to the investor with no tax consequence

If interest rates are expected to rise

The most suitable investments would be those that can be reinvested quickly to take advantage of rising rates, or variable or adjustable rate securities. Bonds with short-term maturities can be reinvested in bonds quickly with higher rates, and the dividend on adjustment rate preferred stock would increase since the dividend paid is based on LIBOR or another rate that quickly reacts to changing interest rates

Which of the following is measured by a mutual fund's expense ratio

The mutual fund's operating costs or operating efficiency

A customer wants to open a cash account

The name of the registered representative and the signature (approval) of the branch office manager must always be included on the new account form. The customer's signature is required for a margin account but not a cash account. The registered representative must determine whether the customer is of legal age

On the NYSE an investor enters an order to buy 400 shares of HRJ at $56 per share. Which of the following is true

The order may be partially filled. Since a limit order may be executed at the limit price or better. In this question the investor wants to by HRJ at $56 or lower. The order is not required to be executed at exactly the limit price. Since it doesn't indicate all or none, a portion may be filled. Also since it's not immediate or cancel doesn't have to be immediate. An order is not required to be executed at $56 for this order to receive execution

Cost Basis

The original investment in the contract is the contact owner's cost basis. So for a non-qualified variable annuity contract that invested $100,000 in the contract, the cost basis is $100,000

Under what circumstances will the payout from a variable annuity increase

The performance of the separate account exceeds the AIR

A person has had a brokerage account with an online securities trading firm, but has just been hired by a broker-dealer. Which of the following statements is TRUE?

The person is permitted to maintain the account if his employer provides written consent within 30 days of being hired.

A person purchased a variable life contract one year ago. Although the contract performed well, the policyholder has never really understood the policy and has informed his RR that he wants out of the contract. What option is available to the policyholder?

The policyholder may be able to convert his policy into a whole life contract that is offered by the same firm. Many variable life insurance contracts have a conversion privilege which allows the contact to convert the policy to a traditional whole life policy within the first two years.

How would the exercise price on a foreign currency option be displayed

The price of the U.S. Dollar per foreign currency unit. US dollar pricing per foreign currency unit

A technical analyst does not review

The price-earnings ratio of the Dow Jones stocks Explanation: The price-earnings ratio of the Dow Jones stocks is an indicator that a fundamental analyst will examine. A technical analyst will review the advance-decline theory, short interest, and the trendline theory.

Bond counsel on a municipal bond issue

The primary function is in relation to the legal opinion. They also review bond documentation to ensure the legality of the bonds as well as performs an examination of the bonds once executed. Re-offering yields are a function of the secondary market and not the bond counsel determination of the tax status and delivery of the legal opinion

A registered representative receives a sell order from his customer and when he submits he messes up two of the digits and it gets processed under the wrong account

The problem is fixed by the branch manager

Which of the following is not a factor that would affect the amount of an underwriting spread in a securities offering

The profitability of the managing underwriting. The size of the issue, the type of security involved, and the business history of the issuer is important

Which of the following descriptions defines a tax swap

The purchase and sale of bonds to realize a capital loss to offset against a capital gain for tax purposes

An investor is seeking capital gains and income from their investments, what type of increment would best suit these objectives

The purchase of a mutual fund heavily invested in equity. Growth pays little to nothing in dividends. Treasury STRIPS do not provide income-interest and principal at maturity. Money market fund-minimal amounts of income, but wound not provide capital gains

When-issued transaction

The purchase of a new issue prior to settlement with the issuer. Covers the period of a new issue of municipal securities from the original date of sale by the issuer to the delivery of securities to the underwriter

An individual has been purchasing shares of a mutual fund and has chosen to reinvest all distributions rather than take the payments. If the individual chooses to sell the shares purchased through these investments, the cost basis will be

The purchase price of these shares

An individual has been purchasing shares of a mutual fund and has chosen to reinvest all distributions rather than take the payments. If the individual chooses to sell the shares purchased through these reinvestments, the cost basis would be

The purchase price of these shares

A firm's suitability responsibilities for sales of variable annuities do not apply to recommendations in

The reallocation of assets among sub-accounts after the initial purchase. Only to new purchased, exchanged, and initial sub account allocations

Net worth statement for

The recommendation of an interest in a limited partnership

A new client uses the services of an investment adviser and has requested that duplicate copies of statements and confirmations from the account be forwarded to the IA.

The request and the name and address of the IA should be noted on the new account form

A breakpoint sale

The sale of mutual fund shares in an amount just below the level at which the purchaser would qualify for reduced sales charges. This violates the Conduct Rules.

When analyzing a mutual fund's expenses, an analyst does not consider

The sales load charged to buy fund shares. Does consider the management fees charged by the investment advisor, the fees charged by the fund's custodian, and the fund's expense ratio

A serial bond issue is coming to market. Where should one expect to find the yields listed in relation to maturity

The scale of the bond issue. Scale as applied to serial bonds with staggered maturities means vital data for each of the scheduled maturities including the number of bonds, maturity dates, the coupon rate, the offering price and the yields

Violation under MSRB rules

The solicitation under municipal securities business by the securities dealer directed toward the investment company and based solely on the number of investment company shares sold

Municipal bond rating organizations are concerned primarily with the risk of

default

Statement of Additional Information (SAI)

The supplementary document to a prospectus that contains more detailed information about a mutual fund; also known as 'Part B' of the prospectus. Available when the client requests it

A technical analyst will buy ours if the stock's price breaks through

The support level since the analyst believes the stocks price will continue to decline until the next support level

The confirmations that broker dealers provide to customers must include all of the following except

The tax identification number. Include the name, address, and telephone number

Which of the following best describes what earnings coverage means when dealing with a revenue bond for a municipality

The term describes available revenue that the issuer can use to pay debt service. Debt service coverage generally comes from the municipalities earrings and include the amount a municipality set aside to meet fixed annual charges on bonds out of revenues

Makeup of a balance sheet

The total liabilities plus the company's net worth equals the total assets of the company (liabilities+net worth=total assets)

A broker-dealer that is an MSRB member firm sells bonds to one of its customers. If the broker-dealer is a member of the syndicate, the firm is entitled to the:

The total takedown

Options advertising prohibits

The use of reference to equity options or performance of those specific equity options

A bond counsel will issue an unqualified legal opinion for a municipal bond issue to state that:

There are no limitations or pending lawsuits that hinder the issuance of the bonds

Regulation A

There are two tiers which represent the maximum amount of the offering. Under Tier 1, the maximum offering size is an aggregate of $20 million of which no more than $6 million of the offering be sold on behalf of existing shareholders. Under tier 2, the maximum offering size is an aggregate of $75 million, of which no more than 22.5 million of the offering being sold on behalf of existing investors (30% of offering). The only issue that is able to take advantage of Regulation A exemption is the issuer conducting an aggregate offering of $45 million, or which only $12.5 million is on behalf of its selling shareholders. In this case it is approximately 28% of the offering size

If the purchaser of a non-qualified annuity dies at the age of 56, which of the following BEST describes the tax impact?

There is no penalty assessed and the difference between the amount invested and the death benefit is taxable at ordinary income tax rates. If an annuitant withdraws the proceeds of his variable annuity prior to age 59 1/2 a 10% penalty applies. However, this penalty is waived if the annuitant dies or becomes disabled. Although no penalty, difference between amount invested and the death benefit is taxable at ordinary income tax rates

T-Bills

There is no stated interest rate on T-Bills. They are short term securities. They can be issued with 1,2,3,6 and 12 month maturities. T-Bills are sold at auction at a discount and the yield is determined at that time. The 1 month T-Bills are a relatively new addition to government securities

In a DVP or RVP as a means of settlement, the broker dealer must be notified of the identity of the third party bank or institution that's being used to provide delivery of securities or funds

These forms of settlement are generally used by institutions through book entry settlement. Delivery and payment of cash can be made as late as 35 days after trade date

Which of the following statements is true concerning the use of bond volatility ratings when marketing a mutual fund

These ratings may account for NAV changes due to currency fluctuations.

Client is considering investing in hedge funds. Which of the following statements concerning this investment is true

These securities are not liquid investments. There is no guaranteed daily redemption feature offered to investors in hedge funds. Not required to registered with the SEC

Which two of the following statements are true regarding Eurodollar bonds

They are denominated in U.S dollars only. They are traded in the U.S and international markets

FHLMC securities

They are not guaranteed by the federal government, interest income is fully taxable, and they are not commonly referred to as Sallie Mae's (FHLMC=Freddie Maca) they are only issued in book entry form though

Which two of the following statements are true regarding treasury bills

They're discount securities and they are issued in denominations of $100

Conservative increments for

Third party estate, the account of a trust, the account of a minor handled under UGMA/UTMA guidelines. Not for an increment club since they can be speculative depending on the club

Specified group of stocks is combined and a mathematical figure to indicate the value of this group of stocks as a whole

This describes an index of securities

An investor placed an order to buy shares of a mutual fund after the investment company has determined its NAV for the day. The RE instructs the fund company to purchase the shares at that day's NAV for the investor

This is a sales practice violation known as late trading

sale of restricted securities, including Rule 144

This rule limits the resale of two types of securities issued by public companies: control securities and restricted securities. Sale of existing shares

Which of the following best describes money received by a corporation during an issue of equity securities that exceeds the face value of securities being sold

This would refer to the paid-in capital of the corporation.

Securities purchased from the auction conducted by the federal reserve would settle

Three business days after trade date

Quiet period for secondary market

Three calendar days following the effective date for a secondary offering which only applies to managers or co-managers. Registered on the first day of the month. Three day calendar period is from the 2nd through the 4th making the 5th the earliest

Investors may receive disclosure and secondary market information concerning municipal securities:

Through the EMMA system

The CAPM pricing model was developed

To explain the behavior of security prices. It provides a mechanism to assess risk and return. It is based on the efficient market theory and assumes investors act rationally. It does not predict future values for the stock

Bank Qualified Municipal Bonds

To qualify a municipality May only issue up to $10,000,000 annually. Commercial banks may receive an 80% tax deduction of interest costs

A customer sells 1,000 shares of stock and asks for the actual time of the execution. For a branch office manager, what is the appropriate action

To state that the firm is able to provide this information on written request

For a new municipal issue, which of the following choices is the responsibility of the underwriting syndicate?

To submit the official statement to the MSRB's EMMA system

Individual's net worth

Total asserts minus total liabilities

Balance Sheet Equation

Total assets=total liabilities+stockholders equity

Client seeking reasonable income and growth of capital. His investment objective is best described as seeking

Total return (growth plus income)

The largest portion of the underwriting spread in a new municipal securities issue is the

Total takedown Explanation: The largest portion of the underwriting spread in a municipal securities issue is the total takedown, which is made up of the additional takedown plus the concession.

A trader at your firm executes an order for a corporate bond. The trade must be reported to the:

Trade reporting and compliance engine (TRACE). Used to provide greater transparency in the bond market.

Market Wide Circuit Breakers

Trading halts are based on the S&P 500 index and are calculated daily (not monthly). A trading halt on one exchange applies to all exchanges that trade the same security. A level 1 market decline (7%) and a level 2 decline of 13% will halt trading for 15 minutes. For a level 3 market decline 20%-trading will be halted for the remainder of the day

Traditional IRAs

Traditional IRAs are made available to individuals earning income. The individual may start to withdraw funds from a traditional IRA without penalty at 59 1/2. Rollovers must generally be completed within 60 days. Though securities can be purchased within a traditional IRA, an individual may not contribute securities to their traditional IRA

A CMO has 4 tranches. Interest rates have dropped significantly and mortgage holders are starting to prepay their loans because they are financing at lower rates. Which tranche would be most affected by those prepayments

Tranche 1 since principal payments and pre-payments from the mortgage loans in the CMO pool pay off one tranche at a time in order of maturity

Which of the following securities does NOT trade with accrued interest

Treasury STRIPS Explanation: Securities that pay interest periodically or have a stated rate of interest (such as Treasury bonds, municipal bonds, corporate bonds, and certificates of deposit) trade with accrued interest. However, many money-market securities such as Treasury bills and bankers' acceptances trade at a discount and are, therefore, purchased without paying accrued interest. Zero-coupon bonds (e.g., Treasury STRIPS) do not pay periodic interest and are traded without accrued interest.

Which of the following securities are subject to state tax

Treasury notes (not FNMA, convertible bonds, or corporate stock

A customer purchases a municipal security in a secondary market a discount. At maturity the customer will

Treat the discount as ordinary income

The day to day business activities of a unit investment trust are the responsibility of the

Trustee. While mutual funds are often structured as corporations with a board of directors, a UIT is a trust. A trustee is responsible for overseeing the operation of a UIT. Since a UIT is not actively managed, it has no investment advisor

Net Revenue Pledge Provision

Typically found in a flow of funds provision of a municipal revenue bond issue. Typically the flow of funds in decreasing order of priority is 1. Operation and maintenance 2. Debt service 3. Sinking fund for redemption of debt prior to maturity. Oh my Debby sang

Convertible bonds

Typically have a lower coupon rate than non convertible securities. The convertible bonds pay less interest and offer lower yields because the convertible feature gives individuals the ability to become stockholders at their discretion

Regarding ETFs, which of the following statements is TRUE?

Typically, ETFs may be sold short. They may be purchased on margin, and may invest in either equity or debt instruments.

TRACE-eligible securities include:

U.S dollar denominated foreign and U.S. corporate bonds. Debt securities issued by the US government and U.S. government sponsored enterprises. Foreign government bonds, municipal securities, and corporate money market instruments are not eligible

A corporation has raised money that it needs to use within the next six months. In which of the following should the corporation invest the funds until they are needed

U.S treasury bills

Yankee bonds

U.S. dollar-denominated debt securities issued by foreign governments or corporations and traded in U.S. securities markets

Restricted accounts can participate in

Uncovered call writing

Not a part of REITs

Undeveloped land

Negative effect on a general obligation municipal bond

Unfounded pension liabilities, the issuance of long-term debt to satisfy current debt service on outstanding debt, a diminishing tax base. But a stable level of outstanding debt when property values are appreciating is positive

An annuitant is receiving payments from a variable annuity and, at the time of his death, his beneficiary receives a lump-sum payment. The annuity payout option is:

Unit refund life annuity

Treasury notes

United States government obligation with a maturity of 2 to 10 years. Not good for the couple looking to save for young kids child education. Laddered zero coupon bonds better for them

An investor with a short straddle position has

Unlimited loss potential since the short straddle includes a short call position

All of the following positions have unlimited loss potential except

Unlimited: short stock, short put Short straddle Uncovered call When a customer writes about-covered or uncovered-the loss is limited to the strike price of option less the premium received for writing the option

A stock's price has increased

Unrealized capital gain

Under the provisions of rule 10b-10, a confirmation sent to a customer must disclose all of the following except

Unusual expenses included that will justify a higher markup. The confirmation must disclose if the broker dealer acted as a broker or as a dealer, the time and price of the transaction, the yield on te bond trade, and any odd lot fees or differentials paid. Markups must be disclosed on riskless principal transactions and for NASDAQ securities and third market trades, but the factors that are considered in determining the markup do not need to be disclosed

Automated execution systems

Used by institutions and individual. Expedite the execution. Market and limit orders can be entered. Instantaneous execution

Dividends from blue chip stocks

Usually paid quarterly not monthly

A mutual fund that invests in stocks that are currently trading below their intrinsic market value is a

Value fund

As far as variable annuities are concerned, which of the following statements is TRUE?

Variable annuity nonqualified separate accounts are registered under the Investment Company Act of 1940. The investment risk is borne by the annuity owner, not by the insurance company as in the case of a fixed annuity. Payments of a variable annuity cannot be decreased because of an increase in the expenses of the insurance company. RRs selling variable annuities are required to register with the SEC and FINRA

An investment contract that offers life insurance benefits plus participation of securities is called a

Variable life insurance contract.

Advantages of CMO's

Various bond clases, highly rated, 1,000 denominations. Tax free interest is not one of the advantages

While saving for her retirement, a variable annuity owner investing $1,000 per month will buy a:

Varying number of accumulation units. Since the value of the sub accounts will fluctuate, a client investing $1,000 per month will purchase a different number of accumulation units with each purchase

In order to avoid coverage by Wash Sale rules, a customer who has sold a stock and wishes to report the loss in the year of the sale must wait how long before buying that same stock again in their account? [A] The customer must wait until the 91st day following the sale. [B] The customer must wait until the 90th day following the sale. [C] The customer must wait until the 31st day following the sale. [D] The customer must wait until the 30th day following the sale.

Wait until the 31st day

If a customer placed an order to buy bonds at 104 at, it indicates that the customer

Wants to pay a maximum of 104 including any markup or commission

The record date of a company's cash dividend is Thursday October 7ths before what date must a customer purchase this company's stock to be entitled to the dividend

Wednesday, October 6th

Principal Capacity

When a firm trades out of its own account, it is acting in a "principal" capacity in the transaction. When acting in a principal capacity, the firm is considered to be a "dealer."

Buy calls

When a stock breaks through a resistance level

Buy puts

When a stock breaks through a support level

Parity of the common stock (really important)

When given the conversion price, we need to establish the conversion ratio Conversion price is $40 Take Par which is 1,000 and divide by $40-conversion ratio of 25 shares Figure out Client is considered buying a convertible bond for 1,300/25-would be paying $52 for the stock

A RR should update a client's financial condition or status:

When there is a change in the clients purchases or sales that might indicate a different financial situation

Which action is not taken by the receiving firm when processing an ACATS request

When transferring an account using ACATS, the receiving firm will submit the TIF data, and there are no exceptions, will review the asset input data that was supplied by the carrying firm and accept the transfer. If there is an issue, the carrying firm will reject the transfer request and the receiving firm will update the TIF data within 24 hours. The carrying firm submits the asset input data since it holds the customers assets

Which of the following wound be a scenario in which a durable power of attorney would need to be submitted at a broker-dealer firm?

Where a third party is to manage and have full legal authority in relation to a client's affairs and accounts at the firm. Relevant when a person is alive, not the appropriate means of showing control over an account where the client has died

The subscription agreement for a limited partnership

Will normally state the suitability standards of the program, specify who will sign the agreement, specify who the check must be made payable, and make inquiries of the purchaser to make sure that he understands the ramifications of the investment

Overlapping debt

Will not occur at the state level. Debt is shared by more than one municipality. One of the most common types of overlapping debt is that of a school district (one school district for two or more towns)

Up to 16,000 May be gifted to each individual recipient

Without tax consequence to the giftor

A corporation purchases new machinery using cash. Which of the following choices are results of this transaction

Working capital is reduced and total assets remain the same

50% municipal debt, 30% blue-chip common, 10% equity mutual funds, 10% money market funds

Would be suitable for investor A since she is conservative but should still maintain a moderate percentage of equities in her portfolio. She should be concerned about the tax implications of her investment returns after the $5,000,009 inheritance. The inclusion of municipal bonds in the portfolio provides that benefit. Investor B seems financially secure and is willing to assume some risk in his portfolio. Maintaining a portion of the portfolio in equities would be suitable. The municipal bonds would also provide a source of tax free income as he ages

WSP must cover

Written supervisory procedures must cover approval of new accounts, an identity theft prevention program, and communication between different departments of a broker-dealer (research and investment banking)

An employee of a broker dealer owns shares of XYZ in his personal account. His spouse is a director of XYZ corporation. If XYZ is engaged in a secondary offering of stock can shares be purchased in a joint account that's owned by the employee and his spouse

Yes because secondary offerings are permitted to be sold to restricted persons, only IPOs or equity securities are prohibited to restricted persons. Since the spouse is a director of the issuer, the sale would be permitted if it was an IPO too

May a brokerage firm place a temporary hold on a securities transaction?

Yes, for the account of a senior investor. FINRA permits a brokerage firm to place a temporary hold on the disbursements or transfers of funds and securities. Applies to the account of a specified adult who's 65 or older or a person who's age 18 and who the firm reasonably believes has a mental or physical impairment that renders her unable to protect her own interests

You have noticed that a customer has recently been making larger and more frequent transactions in her account. Should this be noted in her investment profile?

Yes, when a change in the client's investment pattern is noticed.

If the client is unsatisfied with the fund

You can make arrangements to redeem the fund shares at the current NAV. Can't guarantee a customer against loss

Y.S treasury receipts are also known as

Zero coupon treasury bonds. These securities function in a similar capacity to zero-coupon bonds. They are issued at a discount and pay all interest at maturity. They do not have coupon payments

When a registered representative is trying to determine if a stock is a growth stock, public utility, or blue chip, they would most likely look at the

dividend payout ratio. Blue chip maintain approximately 50%. Growth stocks about 25%. And public utilities 75%

Modern Portfolio Theory

a concept and procedure for combining securities into a portfolio to minimize risk. Portfolio management should focus on diversification among different classes of assets

Open-end investment company

a firm that can issue an unlimited number of shares that it buys and sells at a price based on the current market value of the securities it owns; also called a mutual fund. They would sell at their offering price, which is the net asset value of the shares plus any applicable sales charges

Delivery versus Payment (DVP)

a form of settlement in which payment will be made when the securities involved in the transaction are delivered and accepted.

Municipal term bonds are generally quoted on a:

dollar price basis

Open end fund

a fund that issues or redeems its shares at net asset value

Yield curve

a graph showing the relationship between bond yields and maturities

CAPM (Capital Asset Pricing Model)

a model based on the proposition that any stock's required rate of return is equal to the risk-free rate of return plus a risk premium that reflects only the risk remaining after diversification

Shelf Registration

a procedure that allows firms to file one registration statement for several issues of the same security in the upcoming 3 year period

The third market

exchange-listed stock traded OTC primarily by institutional investors

Third market

exchange-listed stock traded OTC primarily by non-exchange member firms and institutional investors

If a mutual fund changes or adds a portfolio manager, the greatest effect would be on the fund's:

alpha. This is a measure of an investment's performance on a risk-adjusted basis. The excess return of the investment relative to the return of the benchmark index is its alpha. Simply stated, alpha is often considered to represent the value that a portfolio manager adds or subtracts from a fund's portfolio return

Variable annuity L shares

also referred to as short surrender annuities, generally have surrender periods of three to four years, after which no sales charges apply.

follow-on offering

an issue of share by a public company that is already listed on an exchange (FPO) raise additional equity capital in the capital markets through stock issues. Had an immediate, not delayed dilutive effect

Market order

an order telling a broker to buy or sell a specific security at the best currently available price

A client redeems shares of a mutual fund. According to current regulations, a check must be sent within how many days of submitting a redemption notice? a. 5 days b. 7 days c. 10 days d. 15 days

b. 7 days

As a retirement vehicle, which of the following choices would probably provide the greatest protection of purchasing power? a. Fixed annuities b. Variable annuities c. Corporate bonds d. Mortgage-backed securities

b. Variable annuities Explanation: Variable annuities, theoretically, provide the greatest protection against loss of purchasing power. The payout is based on the securities (mostly equity securities) in the separate account, which historically have increased in inflationary periods. This provides for a larger cash payout to offset the effects of inflation. The other choices given have a fixed payout and do not offer protection against the loss of purchasing power in inflationary periods.

A mutual fund that has a diversified portfolio that includes a significant percentage of both stocks and bonds would most likely be a

balanced fund

The purpose of a sinking fund is to redeem a corporation's:

bonds

Regulation NMS

facilitate trading among competing venues to provide customers with fair and liquid markets. Requires a broker dealer to provide its clients with the best price available for listed equity trades available for electronic execution. The best price is defined as the highest bid or lowest offer (inside market) from all available market centers. Reg NMS does not apply to securities subject to manual execution. Nor does it apply to debt securities, whether electronically or manually executed

Doing business requirements under rule 147 and 147A. A condition of this exemption is that the issuer must meet at least one of the four doing business requirements:

1. At least 80% of its consolidated gross revenues are derived from the operation of a business or of a real property that is located in the state or territory or from the rendering of services within the state or territory 2. At least 80% of its consolidated assets are located within the state or territory at the end of its most recent semiannual fiscal period prior to first offer of securities under the exemption 3. At least 80% of the net proceeds from the offering are intended to be used by the issuer, and are in fact used in connection with the operation of a business or of a real property, the purchase of real property located in, or the rendering of services within the major state or territory 4. The majority of the issuer's employees are based in the state or territory (this fourth requirement was not included in the original rule 147)

MSRB Rule G-37

2 year prohibition on negotiated underwriting

Sell short 1,000 shares of sea world. Get $30,000 from selling. Reg T put up $15k. $30,000 from selling plus the $15k I put with it.

45,000-30,000=15,000

Listed equity options cease trading at:

4:00 p.m. Eastern Time on the expiration date

Business Continuity Plan

A plan for how an organization will recover and restore partially or completely interrupted critical function(s) within a predetermined time after a disaster or extended disruption

Mutual funds

A pool of money used by a company to purchase a variety of stocks, bonds or money market instruments. Provides diversification and professional management for investors.

A customer buys $10,000 worth of stock in a cash account. Two business days after the transaction settles, the customer calls the broker and tells the broker he does not have sufficient funds to pay for the stock. The brokerage firm will:

According to Regulation T of the Federal Reserve Board, the brokerage firm must sell out the securities in the account and freeze the account for 90 days.

Private label mortgage backed securities are issued by which of the following entities

financial institutions such as commercial banks, investment banks, and home builders. Not an obligation of the U.S government and any GSE and its credit rating is assigned by an independent agency. A private label MBS has a higher degree of credit risk and is generally not given a AAA rating

Business functions recognized by the IRS such as seminars and sales meetings are acceptable but

All expenses paid vacations are not acceptable

Which of the following investors would be least suitable for an oil and gas direct participation program

An investor who is concerned about the alternative minimum tax

Which must be labeled either uncovered or covered

An opening sale transaction

Current yield on a bond

Annual Interest / Current Market Price

Current yield on a corporate bond

Annual interest divided by current market price 8% bond passed on par of 1,000 Pays $80 Traded at 92% of par which is 1,000 Trading at $920 80/920=8.7%

Buy-stop orders or sell-stop orders can provide all the following features, EXCEPT: a. Provide price protection for a short position b. Provide price protection for a long position c. Give a broker discretion when the order is activated d. Possibly cause a fluctuation in the market price of a stock

c. Give a broker discretion when the order is activated Explanation: Buy-stop or sell-stop orders do not give a broker discretion when the order is activated. When activated, the order becomes a market order and should be executed immediately. All of the other choices are correct.

An investor might take advantage of a Section 1035 exchange if: a. The new contract carries a new or longer surrender period b. The enhanced features do not apply to her c. Her investment objectives have changed and she is unable to obtain new benefits by switching to another subaccount in the same contract d. The total cost of the exchange outweighs the benefits of the exchange

c. Her investment objectives have changed and she is unable to obtain new benefits by switching to another subaccount in the same contract

Under MSRB rules, which of the following documents do NOT need to be retained for a specific period? a. Customer confirmations b. Written customer complaints c. Issuers' official statements d. Customer related correspondence

c. Issuers' official statements Copies of official statements need not be retained since the MSRB does not have the authority to regulate issuers and, therefore, may not require the preparation of an official statement.

Efficient Frontier

graph representing a set of portfolios that maximizes expected return at each level of portfolio risk

An investment that outperforms the market as it goes up but underperforms the market as it goes down would have a beta of

greater than 1

If a stock is not listed on an exchange and not quoted in the OTC market, the stock is considered to be in the:

grey market

An equity fund invests in the stocks of companies whose earnings are projected to increase greatly over the next 10 years. This is an example of a:

growth fund

divided/western account

in regards to syndicate underwriting for a municipal bond. each member is responsible for a percentage of the issue. if the member sells its portion of the issue, it will not be responsible for any part of the unsold balance.

NASDAQ Level 3

is the interactive level of the Nasdaq system through which market makers enter and update their quotes. The best quote available (the inside market) is also shown on the Level 3. Registered representatives use the Nasdaq Level 1, which displays the inside market quote only.

The price the earnings ratio

market price per share/earnings per share

Price/Earnings (P/E) Ratio

market price per share/earnings per share Take the current market price of $24 and divide it by the earnings of 19 cents. This equals a price earnings ratio of 126.3 ($24/.19). The IPO price and the amount of the dividend is not relevant in calculating the price/earnings ratio

Earnings Per Share (EPS)

net income/shares outstanding

Option trades settle

next business day (T+1).

Not held order

order to buy or sell a specific number of shares of a particular stock that leaves the time of order placement up to the broker, e.g., "buy 300 shares of ABC this afternoon. Gives the broker dealer discretion as to when to execute the order

Money received by a corporation when it sells its stock above its par value is called

paid-in capital. This is different from earned surplus (retained earnings), which is profits that have been retained by the company and have not been paid as dividends

preliminary prospectus (red herring)

part of the registration statement prepared by a company prior to an IPO that is circulated to investors before the stock is offered. Does not include the final offering price

Special assessment bonds

payable from the assessment on the benefited property (users of sewer, lighting, electricity districts)

Special assessment bonds

payable from the assessment on the benefited property (users of sewer, lighting, electricity districts, sidewalks, streets)

sell stop limit order

placed below current market price; once it hits stop price it is activated and becomes a sell limit order ; to protect against a long position

You are the portfolio manager for Home Fund, Inc., a mortgage-backed securities mutual fund. Which type of risk concerns you in a falling interest rate environment?

prepayment risk

Which of the following choices is another way of expressing the earnings multiple

price-earnings ratio

Short term bonds react the

quickest to interest rate changes

Which of the following is an expense or charge not normally associated with a variable annuity

redemption fees. But investment management fees, expense charges, and admin expenses all are

What type of risk do zero-coupon bonds eliminate

reinvestment risk. But they do have extreme interest rate risk because the bonds duration will equal the years to maturity

Closed end fund

shares may not be redeemed, but instead are traded at prices that can differ from net asset value

If a technical analyst looked at a chart of a stock to identify the resistance level, he will look for the point at which the stock:

stopped increasing

OTC Reporting Facility (ORF)

system used to report trade executions for OTC equities (OTCBB and Pink Marketplace)

Current yield on Common stock

the annual dividend divided by the current market price .35 quarterly dividend CMP is $30 .35 times 4=1.40 is annual dividend 1.40/30=4.67%

If a long call option is exercised by the holder, the holding period on the acquired securities begins:

the day after the option is exercised

Good Faith Deposit

the deposit required by a municipal issuer for all syndicates submitting bids for an issue of bonds. Typically, 1-2% of par value. Given to the issuer or a new municipal bond issue with a syndicate's bid and is not required in secondary-market transactions

Mark to Market

the difference between the market value of a security and the contract value of a security

Ask price

the price at which a dealer or other trader will sell a security

ask

the price the seller is willing to accept

Rule 144A regulates:

the trading of restricted securities to institutional investors known as qualified institutional buyers (QIBs). They may purchase during the six-month restricted period

firm commitment underwriting

the type of underwriting in which the underwriter buys the entire issue, assuming full financial responsibility for any unsold shares

Best Efforts Underwriting

the type of underwriting in which the underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility

MSCI Emerging Markets Index

tracks the stocks of companies in developing economies, such as the BRICS (Brazil, Russia, China and India) and others.

Which of the following choices makes a financial commitment in the distribution of a new issue of securities

underwriting syndicate. If they can't resell the offering at the public offering price, it may suffer a loss. Although the selling group participates in the sale of the new issue, it does not run the risk of losses or the securities do not sell.

Which investment company does NOT charge a management fee?

unit investment trust. The portfolio is fixed and there is no investment adviser since the UIT is supervised not managed

Common stockholders have the right to

vote on significant matters that affect the corporate charter share in the distribution of profits participate in the election of directors They do not have the right to receive fixed cash dividends. Only once board of directors declares a dividend. Only a right once declared and are not fixed.