Series 7 missed questions

All of the following municipal bonds are callable at par. Which confirmation will show yield to call? A) 5-½%, 5% basis, maturing 2030. B) 6-½%, 7% basis, maturing 2034. C) 5-½%, at par, maturing 2034. D) 6-½%, 7% basis, maturing 2030.

A) 5-½%, 5% basis, maturing 2030. Bond confirmations must disclose the lower of the yield to maturity or yield to call. On a premium bond, the yield to call is the lower of the two.

Which of the following covers a short call? I. Long stock II. Short stock III. Long put IV. Stock rights A) I and IV B) II and IV C) I and III D) II and III

A) I and IV I. Long stock IV. Stock rights Covering a short call requires taking action to eliminate the risk of being exercised. If the customer owns the stock or has the right to acquire it, the customer is covered. Stock rights (preemptive rights) give the holder the right to purchase the stock. Short stock and long puts both have the same market attitude as a short call (bearish) and therefore would not cover the risk associated with a short call.

A customer wanting to invest in an oil and gas limited partnership wants to know what her cost basis would be for tax purposes. While there can be a number of variables, cost basis for a limited partner is best defined as A) cash investment made + recourse debt - distributions B) cash investment made - distributions C) noncash contribution + nonrecourse debt - recourse debt D) recourse debt - cash contributions

A) cash investment made + recourse debt - distributions Cost basis for a limited partner is defined as investment made (cash contributions) + recourse debt (debt the LP is responsible for) - distributions. Nonrecourse debt would only be included for real estate programs. Real estate programs are the only types where LPs can be responsible for both recourse and nonrecourse debt.

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

A) 4000 The account has $12,000 of equity. If 50% of the market value is $10,000, the account has $2,000 of excess equity. When Regulation T is 50%, the purchasing power of excess equity is 2-for-1.

If a customer owns a $10,000 8% U.S. Treasury Bond and she is in the 28% federal tax bracket and a 2-½% state tax bracket, what amount of tax will she pay on the income received from the bond? A) $224. B) $20. C) $80. D) $100.

A) $224 Interest on U.S. Treasury bonds is taxable at the federal level only; $800 of interest taxed at 28% = $224. *got this right, but lucky guess*

If 1 OEX 375 call is purchased at 3.25 and exercised when the S&P 100 closes at 381, the writer delivers which of the following to the holder? A)$600 cash. B)$325 cash. C)$381 in securities. D)$600 in stocks.

A) $600 cash Index options settle in cash. Physical delivery does not occur. The call buyer receives cash equal to the difference between the strike price and the index closing value on the day the option is exercised.

In a margin account, if a client purchases $15,000 of LMN preferred shares, $15,000 of money-market mutual fund shares, and $2,500 of call options, what is the Regulation T call? A) 25000. B) 16250. C) 32500. D) 17500.

A) 25,000 The amounts that must be deposited are: $7,500 for the preferred shares, $15,000 for the mutual fund, and $2,500 for the options. Mutual fund shares cannot be hypothecated for 30 days and option purchases are never marginable.

If a customer is short 100 XYZ shares at 54 and long 1 XYZ 55 call at 2, what is the maximum potential loss? A) 300. B) Unlimited. C) 100. D) 200.

A) 300 The customer has protected his short stock position from a market advance by purchasing the call. If the market rises, the call is exercised, allowing the customer to buy stock at the options strike price of 55 to cover the short position. Therefore, the most the customer can lose is $100 on the stock position (the difference between the option strike price and short sale price), plus the premium paid for the option ($100 + $200 = $300).

Your customer owns a leveraged ETF having a performance goal of 200% of the underlying Index. When purchased two weeks ago the ETF was priced at 50. If the index was up 10% the first week and down 20% the second week, what is the value of the ETF today if it performed as it was intended to? A)36 B)44 C)40 D)45

A) 36 Priced at 50 when purchased, after the first weeks 10% increase in the index the 2X leveraged ETF would be up 20% (20% X 50 = 10 point increase) to 60. After the second week 20% decline in the index the 2X leveraged ETF would be down 40% (40% X 60 = 24 point decrease) to 36.

The premium on the XYZ Jan 30 calls is 3 - 3.15, while the premium on the XYZ Jan 30 puts is quoted at 2.25 - 2.35. A customer establishing a short straddle receives total premiums of: A)525. B)537. C)550. D)545.

A) 525 To establish a short straddle, the customer sells a call and a put at the bid price. The premiums received are $300 for the call and $225 for the put, for a total of $525.

A customer buys 10 DEC 91.50 calls on the Canadian dollar for 6.70. ($10,000 CD per contract). At the time of purchase, the spot rate for the Canadian dollar was 92.25. What is the margin requirement for the purchase? A) 6700. B) 9150. C) 3350. D) 9225.

A) 6700 options cant be purchased on margin

Which of the following are a direct obligation of the U.S. government? A) Ginnie Maes. B) Treasury receipts. C) Government bond mutual funds. D) Fannie Maes.

A) Ginnie Maes Direct debt is backed in full by the U.S. government. The Government National Mortgage Association is owned by the U.S. government; thus, Ginnie Maes are fully backed. Treasury receipts are zero-coupons based on U.S. government debt instruments but are created and issued by broker/dealers and, as such, are not direct obligations of the U.S. government.

Of the following system characteristics which can be associated with TRACE (Trade Reporting and Compliance Engine)? I Both sides of the transaction must report. II Only the buyer is required to report. III Money market securities are excluded from the reporting system. IV It is an execution and trade reporting system. A)I and III B)II and IV C)I and IV D)II and III

A) I and III Both sides of the transaction must report money market securities are excluded from the reporting system TRACE requires that both sides of the transaction report corporate bond trades that occur in the OTC secondary market. Money Market securities are one of the specific exclusions from the trade reporting system. Trace is not an execution system.

Which of the following is NOT under governance of the MSRB? I) Issuers of municipal fund securities. II) Broker/dealers that sell municipal fund securities. III) Issuers of municipal bonds. IV) Banks that sell municipal securities. A) I and III. B) I and II. C) II and IV. D) II and III.

A) I and III I) Issuers of municipal fund securities III) Issuers of municipal bonds Issuers of municipal or municipal fund securities are exempt issuers and are not regulated or under the guidance of the MSRB or any other SRO.

Before the filing of a registration statement for a new issue, an investment representative may NOT: I) solicit indications of interest for the security. II) solicit orders. III) confirm the sale of the security to a customer. A) I, II and III. B) I only. C) II only. D) II and III.

A) I, II, and III Before the registration statement is filed, no sale, solicitations, or indications of interest in the issue may occur.

The OCC automatically exercises an open equity option contract if, at expiration, the contract is in-the-money by: I) .10 or more for a public customer. II) .01 or more for a member firm. III) .01 or more for a public customer. IV) .10 or more for a member firm. A) II and III. B) I and IV. C) I and II. D) III and IV.

A) II and III II) .01 or more for a member firm III) .01 or more for a public customer At expiration, the OCC automatically exercises options that are in-the-money by .01 or more for both customer and member firm accounts.

When determining a position limit, a member firm aggregates which of the following customer positions? I) Long calls and long puts. II) Long calls and short puts. III) Short calls and short puts. IV) Short calls and long puts. A) II and IV. B) II and III. C) I and IV. D) I and III.

A) II and IV Contracts on each side of the market are used for determining position limits. Long calls and short puts are on the same side (bullish); long puts and short calls are on the same side (bearish).

Which of the following is the computation for the coverage ratio for a municipal revenue bond issue? A) Net revenue divided by annual interest and principal expense. B) Revenues collected divided by annual principal expense. C) Revenues collected divided by annual interest expense. D) Annual interest and principal expense divided by revenues collected.

A) Net revenue divided by annual interest and principal expense Debt service coverage measures the amount of money available for debt service compared to the annual debt service requirements. Annual debt service includes both interest and principal expense.

A 3% bond with 20 years to maturity is being issued by a syndicate with a reoffering yield of 4%. What is the term used to describe this bond? A) Original issue discount. B) Secondary market discount. C) Original issue premium. D) High-yield bond.

A) Original issue discount Because the bond is being issued by a syndicate, it is a new issue (i.e., an original issue). Because the yield (4%) is higher than the coupon (3%), it is an original issue discount.

Covered put writing is a strategy where an investor: A) sells a put on a stock he has sold short. B) sells a put on a stock that he owns. C) sells a put and buys a call on the same stock. D) sells a put and sells a call on the same stock.

A) Sells a put on a stock he has sold short The customer sells the put to generate income. The short stock position provides the necessary cash should his short put be exercised, forcing him to buy the stock.

If a customer has sold 1,000 shares of XYZ at a loss, a wash sale will result within 30 days of the date of sale if your customer: A)buys 10 XYZ at the money calls. B)buys 10 XYZ at the money puts. C)writes 10 XYZ at the money puts. D)writes 10 XYZ at the money calls.

A) buys 10 XYZ at the money calls If, within 30 days of the date of sale, the customer buys back the security or the right to buy it back (a call option), the loss is disallowed. It will also be disallowed if the customer writes deep in-the-money puts on the security sold within 30 days. A deep in-the-money put will likely be exercised, forcing the customer to buy stock.

Earlier in the day, you entered a customer order to buy 300 XYZ at 26.45 GTC. By late afternoon, you notice that XYZ is trading at your customer's limit price. At the close of trading, you contact the order desk and get a Nothing Done report because of A)stock ahead B)the normal time delay between execution and execution reports C)the order was canceled at the close of trading D)the small size of the order

A) Stock ahead All limit orders stand in time priority.

All of the following are true of negotiable, jumbo certificates of deposit EXCEPT: A) they are fully insured in any denomination by the FDIC. B) they are readily marketable. C) they are usually issued in denominations of $100,000 to $1 million. D) they usually have maturities of less than 1 year.

A) They are fully insured in any denomination by the FDIC FDIC only covers 250k

Which of the following securities underlies a yield-based option? A)Treasury securities. B)Debentures. C)Revenue bonds. D)Income bonds.

A) Treasury Securities Yield-based interest rate options are based on the yields of Treasury bills, notes, and bonds.

In its notice of sale in the "Bond Buyer", an issuer states that it will take into consideration the timing of interest payments when evaluating bids. The issuer will be using which of the following methods in its bid selection? A) True interest cost. B) Real interest cost. C) Low interest cost. D) Net interest cost.

A) True interest cost The true interest cost method (TIC) takes into consideration the time value of money. The issuer discounts future interest payments to arrive at a present value.

The amount paid into a defined contribution plan is set by the: A) trust agreement. B) employee's age. C) employer's profits. D) ERISA-defined contribution requirements.

A) Trust agreement A defined contribution plan's trust agreement contains a section explaining the formula(s) used to determine the contributions to the retirement plan.

Buying municipal bonds would normally NOT be considered suitable for A)a defined benefit plan portfolio B)a corporation's investment account C)a mutual fund portfolio D)an individual investor

A) a defined benefit plan portfolio A defined benefit plan is a form of qualified tax-deferred corporate pension plan. Tax-free municipal bonds would never be considered suitable for a tax-deferred account. An individual investor, a mutual fund portfolio and a corporate investment account could call benefit from receiving tax-free municipal bond interest.

All of the following statements regarding a municipality's collection ratio are true EXCEPT: A) a poor collection ratio might mean the municipality is likely to default on its revenue bonds. B) a high collection ratio is more favorable than a low collection ratio. C) the collection ratio is calculated as follows: taxes collected divided by taxes assessed. D) the collection ratio measures the municipality's property tax collections.

A) a poor collection ratio might mean the municipality is likely to default on its revenue bonds *got this right, but good to know* The collection ratio measures taxes collected versus taxes assessed. It is a tool used in analyzing GO bonds, which are backed by the taxing authority of the issuer. Revenue bonds are backed by user fees, not taxes.

What is the latest date that an IRA participant may make an IRA deposit for the current year? A)April 15 of the following year. B)July 15 of the following year, if extensions have been filed. C)April 15 of the current year. D)December 31 of the current year.

A) april 15th of the following year Contributions to IRAs can be made up to April 15 of the year following the year for which the contribution is being made.

An analyst comparing revenues with expenses is most likely analyzing: A)cash flow. B)liquidity. C)capitalization. D)working capital.

A) cash flow The analyst is most likely measuring the income statement for cash flow (money coming in against money going out). Working capital analysis would involve examining the balance sheet's current assets and current liability entries, not the income statement. Capitalization analysis involves examination of long-term debt and stock issues. Liquidity analysis involves examining current assets and liabilities from the balance sheet.

Which of the following is typically the largest component of a corporate underwriting spread? A)Concession. B)Reallowance. C)Underwriting fee. D)Manager's fee.

A) concession The concession tends to be the largest component of a corporate underwriting spread; the manager's fee is generally the smallest component.

All of the following statements are true of the risks of investing in an oil and gas limited partnership EXCEPT: A) development programs have higher risk than exploratory programs. B) wells may not have sufficient reserves to return drilling costs. C) income programs have fewer tax benefits than exploratory programs. D) development programs may involve acquisition of expensive leases.

A) development programs have higher risk than exploratory programs Exploratory programs have the highest risks, rewards, and tax benefits. Development wells are drilled to develop a reserve that is already known to be present.

A customer, age 72, retired and on a fixed income wants to invest $50,000 in small-cap stocks in an account set up as JTWROS with a spouse. As a registered representative you feel the transactions to be unsuitable for the customer. Therefore you should: A) discuss with the customer why small-cap stocks might not be appropriate given the circumstances as you know them before entering any orders. B) enter the trade without question or discussion. C) refuse the trade as unsuitable. D) require documentation from the other party to the JTWROS account showing they agree with the proposed transactions.

A) discuss with the customer why the small-cap stocks might not be appropriate given the circumstances as you know them before entering any orders If a registered representative (RR) feels the proposed transactions might not be suitable for the customer there is no obligation by industry rule to refuse the trade but there is however a responsibility to explain so to them before entering any orders. In a JTWROS account either party may enter trades without the prior consent of the other party.

Capital gains distributed by a mutual fund to shareholders are reported and taxable for the year: A) earned (accrued). B) paid by the fund. C) the shareholder chooses but not later than 2 years after all shares are redeemed. D) the shares are redeemed by the fund.

A) earned (accrued) Capital gains can be distributed to shareholders by a mutual fund no more than once per year and are reported and taxable for the year earned (accrued).

Losses from direct participation programs can be used to offset: A) income from limited partnerships. B) none of these. C) earned income from salary or commissions. D) portfolio income.

A) income from limited partnerships Passive losses can be used only to offset passive income, which is earned from direct participation programs and rental real estate.

A customer buys 300 LMN at 45 and writes 3 LMN Aug 45 calls at 4. The customer will profit under all of the following circumstances EXCEPT if LMN: A)is below 41 at expiration. B)is between 41 and 45 at expiration. C)rises and the calls are exercised. D)remains at 45 through expiration.

A) is below 41 at expiration Breakeven is 41 (45 − 4). The stock price must be above breakeven for the investor to make a profit.

A statutory debt limitation restricts a municipality's authority regarding A)issuing general obligation (GO) bonds. B)insuring bond issues. C)raising tax rates. D)selling revenue bonds.

A) issuing general obligation (GO) bonds A municipality may be limited by statute regarding the amount of GO debt it may incur.

If a customer buys callable municipal bonds, MSRB rules state that the confirmation sent to the customer must disclose the: A)lower of either the yield to call or yield to maturity. B)nominal yield only. C)yield that would result if the bonds were called midway between the date they become eligible to be called and their maturity date. D)higher of either the yield to call or yield to maturity.

A) lower of either yield to call or yield to maturity MSRB Rule G-15 states that the confirmation must indicate the lowest possible yield.

Which of the following documents would include information about the issuer's financial condition? A) Official statement. B) Trust indenture. C) Bond resolution. D) Notice of sale.

A) official statement The official statement is used to disclose all material information about the issuer an investor would need to know to make a decision regarding issue purchase. *got this right, but keep the info fresh*

If a customer wishes to open a cash account, who must sign the new account form? A)Only the principal B)The customer, the registered representative, and the principal C)Only the registered representative D)Only the customer

A) only the principal The customer's signature nor the registered representative's signature is required to open a cash account. A principal must review and then accept the new account by signing the form.

For tax purposes, cash dividends are taxable to stockholders as of the: A) payable date. B) record date. C) ex-date. D) declaration date.

A) payable date Cash dividends are not taxable until paid to the investor.

Which of the following items appears on the confirmation statement for a when-issued trade of municipal bonds? A)Principal or agency trade. B)Total contract price. C)Accrued interest. D)Settlement date.

A) principal or agency trade The capacity of the firm, principal or agent, must be disclosed on all confirms. The settlement date, accrued interest, and total price would not appear on a when-issued confirm.

All of the following would flow through as a loss to limited partners EXCEPT: A) principal repayment on recourse debt. B) depletion. C) interest payments on recourse debt. D) accelerated depreciation. Explanation Principal repayments are not deductible for tax purposes. The interest is deductible.

A) principal repayment on recourse debt Principal repayments are not deductible for tax purposes. The interest is deductible. *actually got this right but it was a lucky guess*

Planned amortization class (PAC) CMOs were designed to provide which of the following benefits compared to plain vanilla tranches? A) Reduce prepayment risk for tranche holders. B) Eliminate prepayment risk for tranche holders. C) Increase prepayments to tranche holders. D) Match the prepayment risk of plain vanilla tranches.

A) reduce prepayment risk for tranche holders PACs reduce but cannot eliminate prepayment risk for tranche holders. The companion tranches will have higher prepayment risk than the PAC, as they were designed to absorb the bulk of the prepayment risk. *got this right but was unsure of it*

Which of the following would have the least market risk? A) Revenue anticipation notes. B) Corporate or municipal bonds with long-term maturities. C) AAA corporate debentures. D) Fannie Maes

A) revenue anticipation notes Anticipation notes are the shortest term, which gives them the least market risk (the risk that price will fluctuate during the time left to maturity).

Covered put writing is a strategy where an investor: A)sells a put on a stock he has sold short. B)sells a put and sells a call on the same stock. C)sells a put and buys a call on the same stock. D)sells a put on a stock that he owns.

A) sells a put on a stock he has sold short. The customer sells the put to generate income. The short stock position provides the necessary cash should his short put be exercised, forcing him to buy the stock.

Interest received on a California general obligation bond purchased by a San Francisco resident is exempt from: A) state and federal income taxes. B) state income tax only. C) federal income tax only. D) capital gains taxes only.

A) state and federal income taxes A municipal bond is generally exempt from federal and state income taxes in the state in which it was issued. The exemption, or lack thereof, applies to interest, not capital gains.

All of the following characteristics are advantages of a REIT EXCEPT: A)tax deferral. B)professional management. C)liquidity. D)diversification.

A) tax deferral A REIT is a professionally managed company that invests in a diversified portfolio of real estate holdings. REITs are traded on exchanges and OTC, which provides liquidity. The IRS does not permit tax deferrals on REIT investments.

The POP for a mutual fund as quoted in the financial press reflects: A) the maximum sales charge the fund distributor collects. B) no sales charge because the offering price depends on the quantity purchased. C) the average sales charge for the preceding 3 months. D) the minimum sales charge the fund distributor collects.

A) the maximum sales charge the fund distributor collects The public offering price for a quoted mutual fund includes the maximum sales charge the fund distributor can assess. *got this right, but was unsure of answer*

One of your customers has maintained a traditional IRA for the past 15 years. Some of his annual contributions were not tax deductible due to his income level and participation in another qualified plan. At age 60, the customer elects to make a lump-sum withdrawal. Which of the following statements is TRUE? A) The portion representing principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. B) The entire withdrawal is taxable as ordinary income. C) The portion representing earnings and principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. D) The portion representing earnings from the nondeductible contributions is tax free, while the balance is taxable as ordinary income.

A) the portion representing principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income All earnings, whether from deductible or nondeductible contributions, are tax deferred. Therefore, all earnings are taxable as ordinary income on withdrawal. Only the nondeductible contribution is returned tax free.

If a customer owns 7% of a publicly traded company's stock and his spouse owns 6% and wants to sell her shares, which of the following statements is TRUE? A)The spouse is an affiliate and Rule 144 applies. B)The spouse is not an affiliate and Rule 144 applies. C)The spouse is not an affiliate and Rule 144 does not apply. D)The spouse is an affiliate and Rule 144 does not apply.

A) the spouse is an affiliate and Rule 144 applies Together, the client and wife own 13% of the company's stock, so the spouse is considered an affiliate and is bound by Rule 144. If there is a 10% or more ownership interest among members of an immediate family, then all members are considered control persons (affiliates) subject to Rule 144.

A customer sells securities and uses the proceeds to buy more securities at the same cost. Under the 5% markup policy, the markup is calculated on: A) the total of both sides. B) the sell side only. C) each side separately. D) the buy side only.

A) the total of both sides The firm must consider the entire transaction (a proceeds transaction) when calculating the markup.

You and your spouse like to invest in option contracts. You each have separate individual accounts with different brokers for executing your trades. The current level of contract position limits for ABC stock is 75,000 contracts. Which of the following would be a violation of the contract limit? A)You are long 37,650 ABC puts; your spouse is short 37,560 ABC calls. B)You are long 37,950 ABC calls; your spouse is short 37,020 ABC calls. C)You are short 38,650 ABC calls; your spouse is short 36,345 ABC calls. D)You are long 36,650 ABC calls; your spouse is long 38,350 ABC puts.

A) you are long 37,650 ABC puts; your spouse is short 37,560 ABC calls A violation would occur if you exceed the 75,000 contract position limit for ABC stock with combined positions that are on the same side of the market. A long put and a short call each represent a bearish position, and the combined positions in the correct answer exceed 75,000. Even though you each have individual accounts, it is deemed that you would each have control over the other's account for determination of contract position limit violations.

The manager of ABC Municipal Securities is interested in bidding on some general obligation bond issues that will be available in the coming months. Where would the manager find information about these forthcoming issues? A) "Electronic Municipal Market Access (EMMA)". B) "The Bond Buyer". C) "The Washington Post". D) "Standard & Poor's Bond Guide".

B) "The Bond Buyer" Municipalities publish their official notices of sale soliciting bids from interested parties in the "Bond Buyer". The notice gives the details of the bonds put up for bid and how to bid on the issue. The "S&P Bond Guide" gives details of outstanding issues and their ratings. The "Electronic Municipal Market Access" (EMMA) is an online site primarily for retail, non-professional investors.

A customer purchased 10 municipal OID bonds at 92. If he holds them to maturity, he will be federally taxed on which of the following? A) $800. B) $0. C) $80. D) $8,000.

B) $0 The key here is OID, which stands for original issue discount. The discount on OID bonds is considered interest. A municipal bond interest is tax free. Therefore the profit realized from the difference between the discounted purchase price and the redemption price at maturity is also considered federally tax free. If the owner lives in the state within which the bonds are issued, they will be state and local tax free as well.

If a customer buys $28,000 of ABC stock in April of 2017 and at year end, the stock is worth $23,000, how much may the customer deduct on his 2017 tax return? A) $2,000. B) $0. C) $5,000. D) $3,000.

B) $0 Until the customer realizes the loss by selling, there is no tax deduction.

A customer purchases an XYZ municipal bond at 108. It is scheduled to mature in 16 years. After owning the bond for 10 years, he sells the bond at 102. What capital gain or loss must he report for tax purposes at the time of the sale? A) $20 gain. B) $10 loss. C) $10 gain. D) $60 loss.

B) $10 loss If a municipal bond is purchased at a premium, the premium must be amortized over the time until maturity. An $80 premium on a 16-year municipal bond indicates that $5 will be amortized each year ($80 divided by 16 = $5). Ten years at $5 per year is $50 of amortization. Therefore, after 10 years, the tax basis would be $1,080 minus $50, or $1,030 (103). Because the sale was for 102 ($1,020), the customer has a $10 loss on one bond.

An investor purchases 100 shares of CDE on December 20, 2000, for $2,000. On the same day, he purchases 100 shares of QRS for $2,000. On January 3, 2001, he sells the CDE stock for $1,700 and the QRS stock for $2,200. On January 24, 2001, he purchases 200 shares of CDE for $3,000. What capital gains or losses did he realize from these transactions? A) $300 loss in CDE. B) $200 gain in QRS. C) $300 loss in CDE and $200 gain in QRS. D) $300 loss in QRS and $200 gain in CDE.

B) $200 gain in QRS The investor in this question has a $200 capital gain to report on the purchase of QRS stock for $2,000 and its subsequent sale for $2,200. Because the investor repurchased the CDE stock (January 24) within 30 days of selling it (January 3), the $300 loss incurred ($2,000 - $1,700 = $300) when sold (January 3) is disallowed under the wash sale rule.

A customer buys a municipal bond at 106 with 8 years to maturity. What is the amount of unamortized premium at the end of 4 years? A)$50. B)$30. C)$40. D)$36.

B) $30 The original premium was $60 for 8 years, which means that after 4 years the remaining premium is half that amount.

An investor opens the following position: Write 1 CDE Oct 30 call at 3.30 Buy 1 CDE Oct 40 call at .10. The maximum gain is: A) 1000. B) 320. C) unlimited. D) 680.

B) $320 The maximum gain on a credit spread is the net credit received (3.30 − .10 = 3.20 × 100 shares = $320). *got this right, but important to revisit this*

A recession is defined as a drop in GDP for: A) 6 consecutive quarters. B) 2 consecutive quarters. C) 4 consecutive quarters. D) 3 consecutive quarters.

B) 2 consecutive quarters

Which of the following is an automated system of delivering information relating to the market for municipal securities? A) "The Bond Buyer" B) Thomson's Muni News or Muni Market Monitor (Munifacts) C) INSTINET D) "The Blue List"

B) Thomsons Muni News or Muni Market Monitor (Munifacts) Thomson's Muni News or Muni Market Monitor (formerly Munifacts) supplies up-to-the-minute information to its subscribers.

GC, Inc., is proposing an additional public offering of common stock. It conducts a rights offering to its current shareholders at $55 per share, plus 5 rights. If the market price of GCI is $70 after the ex-rights date passes, what is the value of 1 right? A)15. B)3. C)2.5. D)5.

B) 3 Because the stock is selling ex (after ex-rights), the formula is ($70 − $55) / 5. ($70 − $55 = $15) ($15 / 5 = $3).

An active options trader establishes the following position: Long 10 ALF Apr 40 calls at 6 Short 10 ALF Apr 50 calls at 2 What is the breakeven point? A) 4. B) 44. C) 46. D) 40. Explanation The breakeven on a call spread is determined by adding the difference in premiums (6 − 2 = 4) to the lower strike price. In this case, the net debit is 4 points. Therefore, 4 + 40 = 44.

B) 44 *got this right, but good to know* Explanation The breakeven on a call spread is determined by adding the difference in premiums (6 − 2 = 4) to the lower strike price. In this case, the net debit is 4 points. Therefore, 4 + 40 = 44.

An investor has an established margin account with a short market value of $4,000 and a credit balance of $6,750, with Reg T at 50%. How much excess equity does the investor have in the account? A)2750. B)750. C)1500. D)2000.

B) 750 The Regulation T requirement and equity must be calculated before excess equity can be determined. The Regulation T requirement is 50% of the short market value of $4,000 ($2,000). Equity is calculated by subtracting the short market value of $4,000 from the credit balance of $6,750 ($2,750). Excess equity is calculated by subtracting the Regulation T requirement of $2,000 from the equity of $2,750 ($750).

Which of the following refers to the primary market for municipal securities? A) A broker's broker. B) A notice of sale. C) The Real-Time Transaction Reporting System (RTRS). D) A sale from inventory.

B) A notice of sale A notice of sale is published to provide syndicates with information on proposed new (primary market) issues. When bond dealers act as principals in secondary market trades, they are acting as principals. RTRS is the reporting system for secondary market trades. A broker's broker executes trades in municipal securities for or on behalf of another MSRB member firm. Transactions by a broker's broker could be in both the primary and secondary markets. *got right but was unsure of answer*

Which of the following will NOT affect SMA? A) A deposit of cash into the account by the customer. B) A stock dividend on stock held long in the account. C) A long sale at a profit. D) A cash dividend on stock held long in the account.

B) A stock dividend on stock held long in the account The value of the stock dividend received will be offset by the decline in CMV of the long position on which the dividend is paid. The account's long CMV will not change; it will just be represented by more shares. There will be no change in the overall CMV, debit balance, or equity, and therefore no change in SMA. On the other hand, a cash dividend means that new money is coming into the account, which will reduce the debit balance and be credited to SMA so the customer may withdraw the dividend, if desired.

A customer is choosing a payout option for a variable annuity. Maximizing monthly income for the rest of his life is the customer's key objective. This annuitant has no living relatives so beneficiaries are not a concern. Which of the following options available would best meet the needs of this annuitant? A) Take random withdrawals from the contract B) A straight life payout option C) A life with a 5-year period certain payout option D) A life with a 20-year period certain payout option

B) A straight life payout option The largest monthly check an annuitant can receive for the rest of his life is generated by a straight life (life income or life only) payout option. Though there is no beneficiary designation during the annuitization, this is not an issue for this annuitant. Life with period certain will produce a smaller check for life because the insurance company will guarantee payments to a beneficiary for a certain period of time designated in the contract should the annuitant die within that period. But again, the need to designate beneficiaries is not an issue for this annuitant. Random withdrawals do not guarantee how long the money will last because large withdrawals can deplete the funds before the annuitant dies.

If a customer purchases a new issue of stock from a syndicate member, the customer will pay the public offering price: A) plus a commission. B) with no mark-up or commission. C) plus the spread. D) plus a mark-up.

B) With no mark-up or commission New issues are sold at the public offering price without a commission or mark-up. In the secondary market, securities are traded on an agency basis (commission) or on a principal basis (mark-up or mark-down).

A customer sells short 1,000 ZOO at $30 per share. If the ZOO stock declines to $25 per share and the customer is worried the stock may reverse its trend, what should the customer do? A)Write 10 ZOO puts. B)Buy 10 ZOO calls. C)Buy 10 ZOO puts. D)Write 10 ZOO calls.

B) Buy 10 ZOO calls To protect the profit on the short stock position, the customer must be able to buy stock at the existing low price if the market moves up. By purchasing calls (say, at a $25 strike price), the customer can capture existing profit by exercising and buying stock at $25, regardless of how high the market moves.

An investor who believes the U.S. dollar will strengthen against the Canadian dollar should profit from which of the following strategies? I) Buying puts on the Canadian dollar. II) Writing puts on the Canadian dollar. III) Writing a straddle on the Canadian dollar. IV) Establishing a call credit spread on the Canadian dollar. A) III and IV. B) I and IV. C) II and IV. D) I and III.

B) I and IV I) buying puts on the Canadian dollar IV) Establishing a call credit spread on the Canadian dollar The investor who is bearish on the Canadian dollar should buy puts, write calls, and call spreads. Short straddles pay off when the market does not move either way. *got this right, but need to stay fresh on this info*

A customer's long margin account has a market value of $60,000, a debit balance of $35,000, and SMA of $5,000. In order to eliminate the restriction, the customer can: I) deposit $5,000 in cash. II) borrow $5,000 from the account utilizing the SMA. III) deposit $5,000 in fully-paid securities. IV) sell $10,000 of securities in the account. A) III and IV. B) I and IV. C) I and II. D) I and III.

B) I and IV I) deposit $5,000 in cash IV) sell $10,000 of securities in the account. When equity is between the initial (50% of LMV) requirement and the maintenance requirement (25% of LMV), an account is described as restricted. This account has $25,000 of equity which is $5,000 below the initial requirement. To bring the equity to 50% of the market value, the customer may deposit $5,000 in cash or sell $10,000 of securities. If $10,000 of securities are sold, LMV becomes $50,000, the debit falls to $25,000 and equity is at $25,000, exactly 50% of the LMV. However, if a customer is using securities to eliminate a restriction (either by selling or depositing fully-paid securities), the customer must sell or deposit an amount equal to twice the restriction.

Under which of the following circumstances would an investor risk an unlimited loss? Short 1 IBS Jul 50 put.Short 100 shares of IBS stock.Short 1 IBS Jul 50 uncovered call.Short 1 IBS Jul 50 covered call. A) I and III. B) II and III. C) I and II. D) II and IV.

B) II and III II) Short 100 shares of IBS stock III) Short 1 IBS Jul 50 uncovered call A short stock position gives an investor unlimited risk potential if the stock should rise because the investor must eventually buy back the stock at the higher price. Because stock can rise an unlimited amount, there is unlimited risk. The sale of a naked call requires that, if exercised, the writer must buy the stock in the market and deliver it at the strike price.

A client bought 100 XYZ at $65 per share and sold an XYZ 65 call at 8. Closing the short call at 10 and selling XYZ at 68 would result in a: A) $100 loss. B) $100 profit. C) $500 loss. D) $500 profit.

B) a $100 profit Let's use the T-chart to show the flow of the money. The client bought 100 shares of the stock at $65 per share so $6,500 went "out" (a debit). At the same time, the call was sold for a premium of 8 which brought "in" $800 (a credit). The short call was closed out (how to you close out something you sold? You buy it back) at 10 so we put $1,000 in the "out" (DR) column and the stock was sold for $6,800 which goes in the "in" (CR) column.That means, $6,500 plus $1,000 went "out" and $6,800 plus $800 came "in". That is a total of $7,500 out and $7,600 in for a net gain of $100.

An investor enters a day order to buy 200 shares of GGZ at 63. Three hours later, with GGZ trading above that price, he calls his registered representative wanting to change the order to a good-till-canceled order. The registered representative should: I) immediately cancel the existing order. II) leave the existing order on the order book. III) immediately enter a new limit order to buy 200 shares of GGZ at 63 GTC. IV) enter a new limit order to buy 200 shares of GGZ at 63 GTC before the next day's opening if the day order was unexecuted. A) I and III. B) II and IV. C) II and III. D) I and IV.

B) II and IV II) leave the existing order on the order book. IV) enter a new limit order to buy 200 shares of GGZ at 63 GTC before the next day's opening if the day order was unexecuted. The representative should not cancel the existing order because it would lose priority on the order book. However, the representative should not enter a GTC order that day because it could be filled twice. Instead, the representative should let the order stay for the day, when it would be canceled automatically if not executed. Then, the representative could enter a GTC order the next morning.

Which of the following provisions govern the offering of control stock to the public without filing a Form 144? I The dollar amount is $1 million or less. II 100,000 shares or fewer are sold. III 5,000 shares or fewer are sold. IV The dollar amount is $50,000 or less. A)II and IV. B)III and IV. C)I and II. D)I and III.

B) III & IV 5,000 shares or fewer are sold the dollar amount is $50,000 or less Under Rule 144, when shares are sold by an affiliate (control), Form 144 need not be filed if 5,000 or fewer shares are sold and the dollar amount is $50,000 or less. This de minimis rule applies to sales in any 90-day period.

Which of the following orders are NOT placed on the order display book? Buy stop limit. Buy stop. Market. Not held. A) I and IV. B) III and IV. C) II and III. D) I and II.

B) III and IV Market orders are executed immediately and are not placed on the order book. Not held orders are not presented to the order book.

The bond placement ratio, as shown in the Bond Buyer, is computed by taking A) the dollar amount of new issues sold divided by the dollar amount of new issues unsold. B) the dollar value of new issues sold divided by the dollar value of the new issues offered. C) the number of new issues divided by the 30-day visible supply. D) the number of new issues unsold divided by the number of new issues offered.

B) The dollar value of new issues sold divided by the dollar value of the new issues offered The bond placement ratio is the percentage of new municipal bonds offered last week that were sold last week. Although not a term you'll see on the exam, think of this as the "success ratio". It reports how well the underwriters did in moving the week's new issues. For example, if $1 billion of bonds were offered during the week and $700 million were placed (sold), that is a 70% placement ratio.

As a requirement of investing in a particular business investment, your customer has just signed a statement attesting to his annual income, net worth, and affirming that the risks associated with the investment are understood. The signed statement, once submitted with the intended investment amount, will either be approved or disapproved. Approval allows the investor to subscribe to the investment. Which of the following investments would have such a requirement? A)A special situation fund B)A direct participation program C)A collateralized mortgage obligation D)A variable annuity

B) a direct participation program Investors purchasing limited partnership participations or DPPs are required to sign a subscription agreement. In part the investor would be attesting to annual income, net worth and that they understand the risks associated with the type of program they are investing in. While suitability would be a factor for each of the investments listed, they do not require this type of statement be signed by the customer.

Accrued interest for U.S. government bonds is computed on the basis of: A)30-day months. B)actual days elapsed. C)31-day months. D)SEC accrued interest guidelines.

B) actual days elapsed Accrued interest for U.S. government bonds is calculated on the basis of actual days elapsed.

A customer with an aggressive growth investment objective and short-term (6- to 12-month) time horizon wants to invest $50,000 in a mutual fund. He has a substantial net worth, but none of it is invested in mutual funds. You inform him that mutual fund investments are intended to be long-term investments, but he expresses his intention to make the short-term investment anyway. If the XYZ fund family (one you have dealt with in the past) offers an aggressive growth fund that has a respectable track record, your recommendation should be to: A) decline the transaction because short-term trading of funds is not allowed. B) buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in 1 year and .75% 12b-1 fee. C) buy the XYZ Aggressive Growth Class B shares with a declining CDSC and .75% 12b-1 fee. D) buy the XYZ Aggressive Growth Class A shares with a 4% load and .25% 12b-1 fee.

B) buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in 1 year and .75% 12b-1 fee. If the client insists on making this type of investment, then the Class C shares are most appropriate for this customer's objectives; the sales load would be lower than that of either Class A or Class B shares.

A 5% bond is trading at a premium. Which of the following would be the bond's highest yield? A)Dividend yield B)Coupon yield C)Current yield D)Yield to maturity

B) coupon yield If a bond is trading at a premium, its coupon rate will represent the highest of its yields. Bonds do not have a dividend yield.

When a customer instructs a registered representative to transfer and ship, the representative instructs the margin department to transfer ownership into the: A) customer's name and deliver the securities to the customer's bank for safekeeping. B) customer's name and deliver the securities to the customer. C) brokerage firm's name and deliver the securities to the brokerage firm's commercial bank for safekeeping. D) brokerage firm's name and deliver the securities to the customer.

B) customers name and deliver the securities to the customer The term "transfer and ship" means to transfer the securities into the name of the customer and to ship (deliver) the securities to the customer. Hold in street name would require the securities to be transferred into the name of the broker/dealer and held in safekeeping.

The IRS requires a municipal bondholder to use straight-line amortization for the purpose of determining the annual: A)increase to a premium bond's cost basis. B)decrease to a premium bond's cost basis. C)decrease to a discount bond's cost basis. D)increase to a discount bond's cost basis.

B) decrease to a premium bonds cost basis Premiums are amortized; discounts are accreted. For municipal bonds bought at a premium, the bondholder must adjust cost basis annually in such an amount that, if held to maturity, there is no reported capital gain or loss. The amortization is straight line, or the same amount must be amortized each year.

A customer is long 650 shares of DEF stock trading at $32 per share in a margin account, and the debit balance in the account is $9,200. If DEF pays a 10% stock dividend, what will the effect be on the customer's account? A)Equity will increase. B)Equity will remain the same. C)Market value will increase. D)The debit balance will be reduced.

B) equity will remain the same Even though the investor receives more shares, the price per share falls; there is no effect on the market value of the customer's holdings.

A company's balance sheet dated December 31 shows retained earnings of $100,000. You can deduce from this information that the company: A) has at least $100,000 in cash. B) has had $100,000 in undistributed profits since its inception. C) earned a profit of $100,000 for this year. D) has had total net income of $100,000 since its inception.

B) has had $100,000 in undistributed profits since its inception Retained earnings represent the accumulated total of all earnings that have been retained in the company since its inception. It is quite possible that the company did not earn $100,000 in that particular year and does not have $100,000 in cash.

Which of the following would make an employee ineligible to participate in a company's qualified retirement plan? A) He is not a member of the company's management team. B) He is only 20 years old. C) He works only 1,200 hours a year for the company. D) He has been with the company for only 2 years

B) he is only 20 years old Under the Employee Retirement Income Security Act, anyone over the age of 21, management or not, who has been with the company for at least 1 year, and who works 1,000 or more hours per year or 500 hours per year for three consecutive years for the company, must be allowed to participate in the company's qualified plan.Please Note: This question has been updated for the SECURE Act that became effective on January 1, 2020. Please check the Content Updates for more information

Private placements: A) may be advertised under all circumstances B) may be advertised if all of those solicited are accredited investors C) can only be advertised when 35 or fewer of the investors are nonaccredited D) may never be advertised under any circumstance

B) may be advertised if all of those solicited are accredited investors In order to solicit or advertise private securities offerings, all purchasers of the advertised securities must be accredited investors or the business must reasonably believe that the investors are accredited investors at the time of the sale.

A customer purchases $100,000 of original issue discount municipal bonds. How will this trade be considered for tax purposes when the bonds mature? A)Fully taxable on capital gain. B)No capital gain. C)Taxable as short-term gain. D)Taxable as long-term gain.

B) no capital gain Original issue discount profit at maturity is treated as part of the tax-free interest on a municipal bond. However, for a municipal bond bought at a discount in the secondary market, the discount is considered ordinary income subject to tax.

All of the following deal with the secondary market EXCEPT A) dealer quotes B) notice of sale C) broker's broker D) Thomson's Muni Market Monitor (formerly Munifacts)

B) notice of sale A notice of sale is published to provide syndicates with information on proposed new (primary market) issues.

Upon notification of the death of a client, which of the following actions would NOT be required to be taken by the registered representative assigned to the account? A) Canceling all day orders currently entered for the account B) Obtaining the names of the beneficiaries of the estate for the purpose of notifying all parties C) Marking the account Deceased until all proper documentation has been received D) Canceling all GTC orders currently entered for the account

B) obtaining the names of the beneficiaries of the estate for the purpose of notifying all parties Upon being notified of the death of a client, the registered representative assigned to the account should cancel all open orders (GTC and day) and mark the account Deceased. The firm should not permit any trades until proper documents are received from the estate representative. There is no requirement nor is it the responsibility of the firm to contact the decedent's attorney or beneficiaries.

A 3% bond with 20 years to maturity is being issued by a syndicate with a reoffering yield of 4%. What is the term used to describe this bond? A)High-yield bond. B)Original issue discount. C)Original issue premium. D)Secondary market discount.

B) original issue discount Because the bond is being issued by a syndicate, it is a new issue (i.e., an original issue). Because the yield (4%) is higher than the coupon (3%), it is an original issue discount.

If a municipal firm purchases a block of municipal bonds in anticipation of a price increase, the firm is engaged in: A) short selling. B) position trading. C) arbitrage. D) hedging.

B) position trading The dealer is buying for its inventory (position trading).

For both U.S. Treasury notes and Ginnie Maes A) interest is computed on an actual-day basis B) quotes are as a percentage of par, in 32nds C) settlement is next business day D) interest income is taxed at the federal level only

B) quotes are as a percentage of par, in 32nds Interest from U.S. T-notes is taxed at the federal level only, while interest on Ginnie Maes is taxed at all levels. GNMA bonds are treated like corporate bonds in many ways. T-notes settle next day; Ginnie Maes normally settle T+2. Interest on T-notes is computed on an actual day basis; Ginnie Mae interest is computed on a 30 day month/360 day year basis. Both Ginnie Maes and T-notes are quoted in 32nds.

All of the following communications are exempt from filing with FINRA EXCEPT A)retail communications that make a financial or investment recommendation B)retail communications previously filed with FINRA C)prospectuses and preliminary prospectuses D)communications that refer to an investment solely as part of a listing of products offered by the member

B) retail communications previously filed with FINRA Retail communications previously filed with FINRA, prospectuses and preliminary prospectuses, as well as communications that refer to an investment solely as part of a listing of products offered by the member, are all exempt from filing with FINRA. Any retail communication that makes a financial or investment recommendation would require filing.

In an interdealer trade, if the seller delivers before the settlement date, which of the following statements is TRUE? A) The buyer must accept delivery. B) The buyer may accept the stock or may refuse it without prejudice. C) The seller has violated the Uniform Practice Code. D) The buyer must only accept delivery if the seller gave advance notice of his intention.

B) the buyer may accept the stock or may refuse it without prejudice In a regular way trade, the firm is not obligated to accept securities delivered before settlement date (2 business days after the trade date) but may do so if it wishes.

If a customer is long 1 ABC Oct 50 call at 11 and short 2 ABC Oct 60 calls at 5, the maximum loss potential is: A)1000 B)unlimited C)100 D)1100

B) unlimited The customer is short two calls and long one call, leaving one of the short calls uncovered. The loss potential for a naked call writer is unlimited on the upside. If exercised, the writer must buy the stock at the current market price so it will be delivered at the strike price.

A customer has $12,000 of capital gains, $15,000 of capital losses, and $50,000 adjusted gross income. How much unused loss is carried forward to the following tax year? A)$15,000. B)$12,000. C)$0. D)$3,000.

C) $0 After netting capital gain and losses, the customer has a net capital loss of $3,000. Because $3,000 of net losses can be deducted from income in any single tax year, there is no carry forward.

A customer buys a newly issued municipal zero-coupon original issue discount bond for 85. If the bond is held until maturity, the tax consequence: A)is $150 gain. B)cannot be calculated from the information given. C)is $0. D)is $150 loss.

C) $0 Municipal original issue discount bonds must be accreted. At maturity, the entire discount will have been accreted, and the cost basis will be equal to the par value. No gain or loss will occur at maturity.

A corporate bond is quoted at 102-5/8. A customer buying 10 bonds would pay: A) $10,258.00. B) $10,285.00. C) $10,262.50. D) $10,025.80.

C) $10,262.50 Par ($1,000) × 102% = $1,020. 5/8 of one bond point ($10) = .625 × $10 = $6.25. Therefore, the quote reading 102-5/8 = $1,026.25 per bond ($1,020 + $6.25). Because we are told the customer is buying 10 bonds, we multiply $1,026.25 × 10 bonds which equals the amount the customer will need to pay in order to make the entire purchase; $10,262.50.

XYZ Corporation has outstanding a 7% convertible bond currently trading at 102. The bond, which has a conversion price of $50, was issued with an antidilution covenant. If XYZ declares a 10% stock dividend, the new conversion price, as of the ex-date, will be: A) $55.55. B) $45.00. C) $45.45. D) $55.00.

C) $45.45 To compute a new conversion price, divide the current conversion price by 100% plus the percent increase in shares. $50 / 110% = $45.45.

Which of the following terms is used in connection with a municipal securities underwriting? A) Cooling-off period. B) Effective date. C) Agreement among underwriters. D) In-registration.

C) Agreement among underwriters The agreement among underwriters (or syndicate letter) details the participation and obligations of each syndicate member. "Cooling-off period", "registration period", and "effective date" are terms that apply to nonexempt issues that must be registered with the SEC in accordance with the Securities Act of 1933. Municipal issues are exempt from these registration requirements.

A customer buys 5 municipal bonds maturing in 20 years for 104. If he sells the bonds after 10 years at 103, the customer has a: A)$100 capital gain. B)$100 capital loss. C)$50 capital gain. D)$50 capital loss.

C) $50 capital gain The premium on the municipal bonds must be amortized. The bonds were bought at 104 and therefore each bond has $40 in premiums (5 bonds X $40 = $200 premium to be amortized over 20 years). This means the cost basis of the bonds ($5,200) decreases by $10 a year ($200 / 20 years = $10). After 10 years amortization, $100 has been amortized (10 years × $10 per year), and the customer has an adjusted cost basis of $5,100. If the bonds are sold for 103 ($5,150), the customer has a $50 taxable capital gain.

An investor with no other positions sells 4 DWQ Jun 45 calls at 4. The calls are exercised when the stock is trading at 47.25. What is the investor's profit or loss? A) $175 loss. B) $175 profit. C) $700 profit. D) $700 loss.

C) $700 Profit When the calls were exercised, the investor had the obligation to sell the stock to the owner of the call at 45. Because the investor had no other positions we know that in order to fulfill the obligation to sell they will first need to purchase the stock in the open market for 47.25. 4 was received when the call was sold and 45 was received when the stock was sold to the owner of the call. Therefore a total of 49 was received. 47.25 had to be paid to purchase the stock in the open market. Therefore 47.25 paid and 49 received = 1.75 point profit ($175) per contract. $175 × 4 contracts = $700 total profit.

A new margin customer buys $12,000 CMV of ABC and sells short $10,000 CMV of XYZ. With Regulation T at 50%, what is the amount of his initial call? A)5000. B)1000. C)11000. D)6000.

C) 11,000.00 In a mixed-margin account, the investor should figure the transactions as separate. The investor needs $6,000 for his purchase and $5,000 for his short sale.

A broker/dealer can hypothecate (pledge) up to A) 100% of the long market value (LMV) in a margin account. B) 50% of the equity balance in a margin account. C) 140% of the debit balance in a margin account. D) 25% of the debit balance in a margin account.

C) 140% of the debit balance in a margin account The amount of securities a broker/dealer can hypothecate (pledge) in a customer's margin account is equal to 140% of the account debit balance.

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

C) 4000 The account has $12,000 of equity. If 50% of the market value is $10,000, the account has $2,000 of excess equity. When Regulation T is 50%, the purchasing power of excess equity is 2-for-1.

Which of the following competitive bids on a new municipal issue is most likely to be awarded the bid? A) 6% coupon with no premiums over par. B) 7% coupon with no premiums over par. C) 6% coupon with premiums over par. D) 8% coupon with premiums over par.

C) 6% coupon with premiums over par In a competitive bid bond sale, the winning bid is the one that provides the issuer with the lowest net interest cost. If the syndicate pays the issuer more than par for the bonds, the issuer is taking in more money than it must pay out at maturity. Therefore, its net interest cost is lower than the 6% coupon on the bonds.

XYZ Technology Fund permits rights of accumulation. A shareholder has invested $9,000 and signed a letter of intent for a $15,000 investment. If his reinvested dividends during the 13 months total $720, how much money must he contribute to fulfill the letter of intent? A)9000. B)15000. C)6000. D)5280.

C) 6,000 The shareholder must contribute the full $15,000, so he owes an additional $6,000. Reinvested dividends and changes in the NAV do not count toward a breakpoint during the period of a letter of intent.

If a customer opens a spread on Canadian dollars (10,000 units) by purchasing 1 Dec 74 call for 2.30 and selling 1 Dec 77 call for 1.50, what is the total cost of this debit spread? A) 800. B) 700. C) 80. D) 970.

C) 80 The customer pays a premium of 2.30 ($230) and receives a premium of 1.50 ($150) for a net debit of .80, or $80.

The confirmation for the purchase of a callable municipal bond would show yield to call for which of the following bonds? A) A 7% bond priced to yield 8%. B) A 9% bond priced to yield 10%. C) A 9% bond priced to yield 6.5%. D) A 7% bond priced at par.

C) A 9% bond price to yield 6.5% Confirmations for municipal bonds that are callable will show yield to call for premium bonds. Of the choices given only the 9% bond currently trading at a price to yield 6.5% is a premium bond. Therefore because we know the bond is callable, the 6.5% represents the yield to the nearest call date and this would be shown on the confirmation. Remember if the yield is down, the price is up; premium.

Which of the following accounts would a CMO Z-tranche be best suited for? A) a custodial account set up under the uniform transfer to minors act (UTMA) B) a joint account with a nonworking spouse C) a professionally managed hedge fund specializing in real estate portfolio securities D) an IRA account for a middle aged client

C) A professionally managed hedge fund specializing in real estate portfolio securities A zero tranche (Z-Tranche) CMO is considered to be among the most volatile CMO tranches because they receive no payments until all preceding tranches of the CMO are retired. Generally CMO tranches are not suitable for smaller or unsophisticated investors which is why customers are required to sign a suitability statement before purchasing any CMO tranche. Of the answer choices given the best suited account would be the one that is professionally managed and already specializing in real estate investments.

Which of the following is NOT generally associated with an existing real estate DPP? A) Lower risk than other types of real estate programs B) Immediate income stream C) Appreciation potential D) Known history of income and expenses

C) Appreciation potential Appreciation potential is generally not associated with existing real estate programs because most appreciation occurs in the earliest years for real estate assets.

Interest income from all of the following are exempt from state and local taxation EXCEPT: A)Series EE savings bonds. B)Treasury bills. C)FNMA mortgage-backed issues. D)Treasury bonds.

C) FNMA mortgage-backed issues As a general rule, the interest income from U.S. government and agency securities is subject to federal taxation only; it is generally exempt from state and local taxation. However, the interest income from mortgage-backed securities is fully taxable.

A retired person, age 76, wants to reinvest $100,000 of an existing $800,000 investment portfolio in something that will help with monthly household expenses. There are no IRAs or pensions to draw from and social security is the only current monthly income. Which of the following would be most suitable? A)Variable annuity (VA) B)Warrants C)Ginnie Mae (GNMA) D)Real Estate Investment Trusts (REITs)

C) Ginnie Mae (GNMA) GNMA would be deemed the most suitable for meeting the monthly income objective and should become a part of the individual's existing portfolio. Each month GNMA certificates pass through a portion of one's principal and interest lending themselves to monthly income. REITs nor warrants provide monthly income and VAs do; they are generally not deemed suitable unless all other retirement vehicle investments have been utilized first. Additionally, liquidating assets to purchase a VA or cashing out life insurance policies to do so, is almost always deemed unsuitable.

Investment banks or bankers I assist corporations in raising capital II assist municipalities in raising capital III accept deposits IV make loans to individual customers A)I and III B)II and IV C)I and II D)II and III

C) I and II assist corporations in raising capital assist municipalities in raising capital Investment banks and bankers assist both corporate and municipal issuers in raising capital by issuing securities to the investing public. Unlike traditional banks, they do not accept deposits or issue loans.

Which combination of the following statements is TRUE regarding the investment strategy known as "dollar-cost averaging"? I) Invests the same dollar amount each period over a length of time. II) Purchases the same number of shares each period over a length of time. III) Lowers average cost per share over a length of time (assuming share price fluctuations). IV) Invests the same dollar amount each period to protect the investment from loss of capital. A) I and II. B) I and III. C) II and III. D) II and IV.

C) I and III I) Invests the same dollar amount each period over a length of time. III) Lowers average cost per share over a length of time (assuming share price fluctuations).

Which of the following statements regarding nonsystematic risk are TRUE? It is the risk that an individual stock will not perform well. It is the same as market risk. Diversification reduces it. Diversification does not reduce it. A)II and III. B)II and IV. C)I and III. D)I and IV.

C) I and III It is the risk that an individual stock will not perform well diversification reduces it Nonsystematic risk is company risk, the risk that an individual investment will perform poorly. Diversification can reduce most nonsystematic risks.

Which of the following would be considered in analyzing the credit worthiness of a revenue bond issuer? I) Per capita debt. II) Debt service coverage. III) Management. IV) Debt to assessed valuation. A) I and IV. B) I and II. C) II and III. D) III and IV.

C) II and III II) Debt service coverage III) Management Revenue bonds are paid out of revenues from a particular project or facility, not from tax revenue. Therefore, debt service coverage and the personnel in charge of managing the facility are important. Overall debt of the issuer would be important in analyzing a general obligation bond backed by the issuer's full faith and credit.

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

C) II and IV Open-end funds from issuing preferred stock open-end funds from issuing bonds Closed-end funds may issue more than one class of security, including debt issues and preferred stock. Open-end funds may issue only one class of security: redeemable, voting common stock; they may not issue senior securities.

Which of the following debt instruments generally present the least amount of default risk? A)High-yield corporate bonds. B)Municipal revenue bonds. C)Municipal general obligation bonds. D)Convertible senior debentures.

C) Municipal general obligation bonds Because the full taxing power of the municipality backs a general obligation municipal bond, it will exhibit the least amount of default risk. A corporate debenture is an unsecured bond with a greater degree of risk, as is a junk or high-yield corporate bond.

Your customer, still working, informs you that she will be funding a variable annuity you have recommended from 2 sources: a refinancing of her primary home where she will be able to draw out equity that has built up since it was purchased 15 years ago, and cashing out another variable annuity that she recently purchased within the past 2 years without a lifetime income rider like the one you have recommended. Based only on these facts, the variable annuity recommendation is A)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract B)not suitable because a lifetime income rider is only for someone who is already retired C)not suitable D)suitable regardless of funding sources

C) Not suitable Based on the information given in the question, the VA recommendation would not be suitable. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. Cashing out life insurance policies or VAs where steep surrender charges are likely to exist, particularly in the earlier years of those contracts, is also considered abusive. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase.

A limited partner (LP) invests $100,000 in a limited partnership with a nonrecourse note for $300,000. The partnership liquidates and the LP receives $100,000. His loss for tax purposes is: A) 100,000. B) 200,000. C) 0. D) 300,000.

C) O *got this right, but good to know* Limited partners are liable for their investments and any shares of recourse debt. They are not liable for nonrecourse debt. Because the limited partner received the full amount of his original investment at the liquidation of the partnership, he has no loss to declare.

Depletion allowances apply to all of the following EXCEPT: A) timber. B) oil and gas. C) real estate. D) copper mining.

C) Real Estate Depletion is applicable to natural resources such as mining or timber. It is not applicable to real estate. However, buildings can be depreciated *got this right, but its important*

Regarding Regulation D (Private Placement) offerings, which of the following statements is TRUE? A) The amount of capital that can be raised via a private placement is limited. B) Purchasers need not be provided or have access to offering information normally provided by a prospectus. C) Registration with the SEC is not required. D) The SEC requires no filings be made by the issuer.

C) Registration with the SEC is not required Regulation D offerings are exempt transactions and therefore no SEC registration is required. However, issuers must still file information with the SEC on Form D regarding the issue. This filing will contain all of the information a potential investor might want to know, similar to the information contained on a prospectus. There is no limit to the amount of capital that can be raised via a Regulation D private placement transaction.

Which of the following statements regarding a discretionary account is NOT true? A) A principal must review all account activity frequently. B) A principal must accept the account in writing. C) Securities in a discretionary account may not be rehypothecated. D) A principal must review all trades in the account promptly after execution.

C) Securities in a discretionary account may not be rehypothecated No limits are placed on the rehypothecation of securities in an account based solely on its discretionary status. Both cash and margin accounts may be discretionary.

An OTC quote that must be reconfirmed with the OTC trading room before a broker/dealer takes action is: A)third party. B)firm. C)subject. D)representative.

C) Subject Before a trade can take place, a subject quote always must be reconfirmed with the OTC trader or market maker that provided it. Subject quotes are typically used in conjunction with thinly traded securities or before filling large block orders.

Which of the following best describes how a syndicate determines the amount to bid for a new municipal issue? A) The average reoffering price plus the takedown. B) The average sales price divided by the interest cost. C) The average reoffering price minus the spread. D) The gross spread minus the takedown.

C) The average reoffering price minus the spread A spread is analogous to the gross profit margin in other businesses. A syndicate's bid is based on the average reoffering price (the price the public will pay) less the syndicate's spread (the amount the syndicate will charge for bringing the issue to market).

When determining position limits for listed options contracts and LEAPS contracts on the same side of the market, which of the following statements is TRUE? A) The contracts are considered separately. B) The contracts do not have position limits. C) The contracts must be aggregated. D) The contracts are added to increase the position limits.

C) The contracts must be aggregated LEAPS and listed options on the same side of the market, on the same underlying security, must be aggregated and remain within position limits.

According to the MSRB rules, a registered representative can do all of the following EXCEPT: A) trade municipal bonds. B) sell municipal bonds. C) train other registered representatives. D) participate in underwriting municipal bonds.

C) Train other registered representatives Registered representatives must be trained as well as supervised by a registered principal. They may participate in new municipal bond underwritings and both sell and trade municipal bonds in the secondary markets.

Which of the following legislative acts exclusively regulates debt securities? A) Investment Advisers Act of 1940. B) Securities Act of 1933. C) Trust Indenture Act of 1939. D) Securities Exchange Act of 1934.

C) Trust Indenture Act of 1939 The Trust Indenture Act of 1939 protects investors in corporate bonds should the issuing company default. While the Acts of 1933 and 1934 both impact debt securities, the Trust Indenture Act of 1939 is the only act that regulates them exclusively.

Which of the following would be the least appropriate investment in a traditional IRA for a 67-year-old client? A) Common stock. B) Treasury notes. C) Variable annuities. D) Corporate bonds.

C) Variable annuities Why buy a tax-deferred product in a tax-deferred account? A variable annuity will provide no additional tax savings and will likely increase the expense of the IRA. In addition to sales and surrender charges, variable annuities may impose other charges such as mortality and expense risk charges, administrative fees, etc. In less than 4 years, your client will have to begin making withdrawals regardless of any surrender charges the annuity may impose.

If an investor buys 300 shares of FLB, and one month later buys 1 FLB Jul 50 put, how does this affect the holding period on his or her stock? A)It has no effect on the holding period for any of the shares owned by the investor. B)It eliminates the holding period on 300 shares. C)It eliminates the holding period on 100 shares. D)It ends the holding period on the put.

C) it eliminates the holding period on 100 shares The put purchase on stock with a short-term holding period (12 months or less), eliminates the holding period for any shares the put subsequently allows the holder to sell. Because the holder owns 1 put, this wipes out the holding period on 100 shares owned. The other 200 shares are unaffected.

An investor sells short 100 shares at 50 and sells a 50 put at 5. If the put is exercised when the stock is trading at 45, the investor realizes: A) a gain of $1,500. B) a gain of $1,000. C) a gain of $500. D) neither a gain nor a loss.

C) a gain of $500 When the short put is exercised, the investor buys stock at $50 that she can use to cover the $50 short sale. The investor realizes no gain or loss on the stock, but she collected $500 in premiums for a gain of $500.

A general partner may do all of the following EXCEPT: A) make general management decisions regarding the partnership. B) act as an agent for the partnership in managing partnership assets. C) borrow money from the partnership. D) sell property to the limited partnership.

C) borrow money from the partnership All these situations offer the potential for conflicts of interest. However, the general partner is not forbidden by law to engage in any of these acts, except for borrowing money-the general partner may never borrow money from the partnership.

If a customer gives specific instructions to his registered representative to purchase a security that is clearly unsuitable in light of the customer's investment objectives, under FINRA rules, the registered representative: A) can only enter the order with the prior approval of a principal. B) can only enter the order if the customer puts his verbal instructions into written form. C) can enter the order. D) cannot enter the order.

C) can enter the order Under FINRA rules, the representative may execute the trade at the customer's request; the trade ticket should indicate that the order was unsolicited. *second guessed yourself on this one*

All of the following securities are exempt from the registration provisions of the Securities Act of 1933 EXCEPT: A) state and municipal bonds. B) national and state bank securities. C) commercial bank holding company securities. D) commercial paper and bankers' acceptances that have maturities of no more than 270 days.

C) commercial bank holding company securities Commercial bank holding companies are corporations that have to register with the SEC. State and municipal bonds do not have to be registered under the Securities Act of 1933. Commercial paper and bankers' acceptances that have maturities of no more than 270 days are exempt from the registration provisions. National and state banks are regulated by various state and federal agencies.

The antifraud provisions of the Securities Exchange Act of 1934 apply to all of the following EXCEPT A)options B)Nasdaq and exchange listed securities C)commodities D)municipal bonds

C) commodities All securities are subject to the antifraud provisions of federal securities law. It should be recognized that commodities such as wheat or oil are not securities.

The IRS requires a municipal bondholder to use straight-line amortization for the purpose of determining the annual: A) decrease to a discount bond's cost basis. B) increase to a discount bond's cost basis. C) decrease to a premium bond's cost basis. D) increase to a premium bond's cost basis.

C) decrease to a premium bonds cost basis Premiums are amortized; discounts are accreted. For municipal bonds bought at a premium, the bondholder must adjust cost basis annually in such an amount that, if held to maturity, there is no reported capital gain or loss. The amortization is straight line, or the same amount must be amortized each year.

A customer tells a broker to buy 1,500 shares of ABCD at 33.60 immediately for the full 1,500 shares. This is a(n): A)all-or-none order. B)immediate-or-cancel order. C)fill-or-kill order. D)good-till-canceled order

C) fill-or-kill order In a fill-or-kill order, the instruction is to fill the entire order immediately at the limit price or better. If this cannot be done, the order will be canceled (killed). An immediate-or-cancel order is similar, except that partial execution is acceptable. An all-or-none order must be filled in its entirety. However, it can be filled over time; it does not require immediate execution.

Which of the following investments is most suitable for an investor seeking monthly income? A) Zero-coupon bond. B) Mutual fund investing in small-cap issues. C) Money-market mutual fund. D) Growth stock.

C) money-market mutual fund The money-market mutual fund is the most suitable investment for an investor seeking monthly income. The other securities offer higher long-term growth potential, but they are not designed to provide monthly income.

On the basis of a major decline occurring within a few minutes of the close, trading is halted on all markets for the remainder of the trading day. Under the market wide circuit breaker (MWCB) rules, market-on-close (MOC) orders pending at the time trading is halted A)should be held for execution on the following trading day unless canceled by the customer B)are converted to market orders and executed at the opening on the following trading day C)must be canceled D)should be held for execution on the following trading day

C) must be canceled During shorter market-wide trading halts that will allow trading to resume on that same trading day, pending and new incoming orders should be forwarded to the appropriate market for execution upon the resumption of trading. If a halt closes the market for the remainder of the trading day, market-on-close (MOC) orders pending at the time trading is halted should be canceled. MOC orders received after trading is halted should be declined.

The locate requirement of Regulation SHO for short sales does not apply to: A) over-the-counter equity securities. B) preferred stock traded on the NYSE. C) non-convertible bonds traded on the NYSE D) ADRs traded on the Nasdaq Stock Market.

C) non-convertible bonds traded on the NYSE The locate requirement is applicable to all short sales of equity securities. It is unlikely to be tested, but, just in case, for purposes of this rule, convertible bonds are considered equity securities.

All of the following are objectives in a DPP EXCEPT: A)deductions against passive income. B)long-term capital gains. C)short-term capital gains. D)deferment of taxes.

C) short-term capital gains DPPs are used to defer present income into the future and take advantage of time. In doing so, any gains will be taxed at favorable long-term rates. The expected losses in the early years may be taken as deductions against passive income from other sources.

All of the following statements regarding industrial revenue bonds are true EXCEPT: A) they can be issued by municipalities to build facilities that will be owned by the municipality but leased to a local corporation. B) they can be issued by municipalities to provide local industries with funds for expansion. C) the credit rating of the bonds is dependent on the credit rating of the municipality. D) interest is paid from rental payments received from corporations that have leased the property or equipment from the municipality.

C) the credit rating of the bonds is dependent on the credit rating of the municipality The debt service for industrial revenue bonds (IDRs) is derived from the lease payments made by the leasing corporation to the issuing municipality. Therefore, the credit rating of the bonds is dependent on the credit worthiness of the leasing corporation, not the issuing municipality.

ABC Corporation has outstanding a 7-¾% convertible debenture currently trading at 102. The bond is convertible into common stock at $40. ABC stock is trading $45 per share. Which of the following statements is TRUE? A) The bond is at parity with the stock. B) An arbitrage opportunity does not exist in this situation. C) To profit in this situation, the investor should buy the bonds and short the stock. D) To profit in this situation, the investor should buy the stock and short the bonds.

C) to profit in this situation, the investor should buy the bonds and short the stock With a conversion price of $40, the bond is convertible into 25 shares of ABC common stock ($1,000 / $40 = 25 shares). As the common stock is currently trading at $45 per share, the value of the stock as converted would be $1,125 (25 shares × $45 = $1,125), which is greater than the current price of the bond ($1,020). Therefore, the bond and the stock are not at parity. An investor could profit in this situation by shorting the stock and buying an equivalent number of bonds. A bond could be purchased for $1,020 and immediately converted into stock worth $1,125, a risk-free profit opportunity.

Under which of the following circumstances may a member firm sell a new equity issue to one of its nonregistered employees? A)Amount purchased is small and not disproportionate to the size of the issue. B)Transaction is consistent with the employee's normal investment practice. C)Under no circumstances. D)Permission of a principal is obtained.

C) under no circumstances Member firms and employees of members (registered and nonregistered) are prohibited from buying a new equity issue at the public offering price.

The visible supply has been increasing steadily over the last 30 days. This is an indication that: A) prices are likely to rise. B) fewer new issues will be offered in the next 30 days. C) yields are likely to rise. D) yields are likely to fall.

C) yields are likely to rise When the visible supply increases it tells us that the number of bond issues coming to market is increasing. Greater supply puts downward pressure on prices. As bond prices fall, yields increase.

A direct participation program shows the following operations results: Revenues: $3 million.Operating expense: $1 million. Interest expense: $200,000. Management fees: $200,000. Depreciation: $3 million. Profit or loss for the year is: A) loss $3 million. B) income $2.7 million. C) income $1.6 million. D) loss $1.4 million.

D) loss $1.4 million. Explanation Taxable income for a partnership is determined as follows: Gross revenue $3 million.Less operating expense -$1.2 million.Net revenue $1.8 million.Less interest -$200,000.Less depreciation $3 million.Taxable loss = $1.4 million.

An investor writes 1 IBS 280 put for 16.60. The position is closed and the put is bought for its intrinsic value when IBS is trading at 265.25. The investor realizes a: A) $235 loss. B) $185 loss. C) $145 profit. D) $185 profit.

D) $185 profit The opening sale of the IBS put was made for 16.60, and the closing purchase was made for the intrinsic value of 14.75. The put's intrinsic value is determined by how far the stock's market price is below the strike price. (In this case, 280 minus 265.25.) 16.60 − 14.75 = 1.85 × 100 shares = $185.00. The investor profits because the sale's proceeds exceed the purchase price.

An investor establishes the following positions:Long 1 XYZ Apr 40 call for 6 Long 1 XYZ Apr 50 put for 8 If both options are sold for intrinsic value when XYZ trades at 44, the investor realizes a loss of: A) 1000. B) 200. C) 100. D) 400.

D) 400 If the opening purchase of the XYZ Apr 40 call was made at 6, and the closing sale of that call was made at 4, the difference of 2 represents a $200 loss. If the opening purchase of the XYZ Apr 50 put was made at 8, and the closing sale of that put was made at 6, the difference of 2 represents a $200 loss. The total loss for the account is $400.

All of the following are credit spreads EXCEPT A) buy 1 ABC Apr 40 call; write 1 ABC Apr 30 call B) buy 1 ABC Jan 50 put; write 1 ABC Jan 60 put C) write 1 ABC Nov 35 put; buy 1 ABC Nov 30 put D) buy 1 ABC Jul 50 call; write 1 ABC Jul 60 call

D) Buy 1 ABC Jul 50 call; write 1 ABC jul 60 call The lower the strike price is, the more expensive the call premium for the option will be. The investor has purchased the option with the lower strike price so this is a debit spread. With puts, the higher the strike price is, the more expensive the option premium will be.

A customer enters an order to buy 1,000 ABC at 50, good for the week only. How will this order appear on the order book? A) Buy 1000 ABC 50 GTM. B) Buy 1000 ABC 50 Day. C) Buy 1000 ABC 50 GTW. D) Buy 1000 ABC 50 GTC.

D) Buy 1000 ABC 50 GTC Limit orders and stop orders are entered on the order book as either GTC or day orders. Orders that are good for only a particular time frame (good for the week) will appear as GTC. It is the responsibility of the broker/dealer that entered the order to cancel it at the end of the week, if unexecuted.

If IDBs are called because of condemnation, this would be covered under which of the following clauses in the bond indenture? A) Refunding B) Defeasance C) Refinancing D) Catastrophe

D) Catastrophe Condemnation is considered a catastrophe and only applies to revenue bonds.

A 5% bond is trading at a premium. Which of the following would be the bond's highest yield? A) Yield to maturity B) Dividend yield C) Current yield D) Coupon yield

D) Coupon yield If a bond is trading at a premium, its coupon rate will represent the highest of its yields. Bonds do not have a dividend yield.

If an investor is in the highest federal income tax bracket and is subject to the alternative minimum tax, which of the following securities should an agent recommend? A)Corporate bond. B)Industrial revenue bond. C)Treasury bond. D)General obligation bond.

D) General obligation bond Municipal bonds are suitable for the portfolio of an investor who is in a high tax bracket because the interest is exempt from federal income tax. A general obligation (GO) bond is a better recommendation than an industrial revenue bond because the interest on industrial revenue bonds is likely subject to the AMT.

A prospectus for a variable annuity contract: I) must provide full and fair disclosure. II) is required by the Securities Act of 1933. III) must be filed with FINRA. IV) must precede every sales presentation. A) III and IV. B) I and III. C) II and IV. D) I and II.

D) I and II A variable annuity is a security and must be registered with the SEC, not FINRA. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. Distribution can take place before or during any solicitation for sale.

In a functional allocation oil and gas program, which of the following statements are TRUE? The general partner picks up all tangible drilling costs. The general partner picks up all intangible drilling costs. The limited partners pick up all tangible drilling costs. The limited partners pick up all intangible drilling costs. A)I and II. B)II and III. C)III and IV. D)I and IV.

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

Some limited partnership programs provide potential tax credits to partners. Which of the following typically provide potential tax credits? I Rehabilitation of historic properties II Equipment leasing III Developmental oil and gas programs IV Government-assisted housing programs A)I and II B)II and III C)III and IV D)I and IV

D) I and IV Rehabilitation of historic properties Government-assisted housing programs Historic rehabilitation and government-assisted housing are two programs that offer potential tax credits. Tax credits are no longer available for equipment leasing and while developmental oil and gas programs offer high IDCs, these are not ITCs (investment tax credits).

Which of the following is NOT true regarding Treasury Receipts? A) They are not backed by the faith and credit of the U.S. government. B) Treasury securities held in trust collateralize the Receipts. C) They pay interest at maturity. D) Interest income is taxed at maturity.

D) Interest income is taxed at maturity Unlike Treasury STRIPS, which are issued directly by the U.S. government, Treasury Receipts are indirect obligations of the government. Treasury Receipts are issued by investment bankers who buy Treasury securities, place them in trust at a bank, and sell separate receipts against the principal and interest payments. Like most zeroes, interest must be accreted and taxed annually even though it is not received until maturity.

A registered representative executes the following trades for an options account: Buy 1 FLB Apr 40 call at 9 Sell 1 FLB Apr 45 call at 4 Are these suitable trades? A)It is impossible to tell. B)It depends on the customer's investment objectives. C)Yes, because the trades will result in a small profit. D)No, because the customer cannot make a profit on these trades.

D) No, because the customer cannot make a profit on these trades These trades are not suitable because the customer will not make a profit. In any price spread, the net debit represents maximum loss; in this case, the net debit is 5 points, or $500. Maximum loss added to maximum gain will always equal the difference between the strike prices. In this example, the difference between the strike price is 5 points, therefore maximum gain is 0.

The primary purpose for creating ERISA was to: A) establish a means for self-employed persons to provide for their own retirement. B) provide all employees, both government and nongovernment, with an additional source of retirement income in the event that the Social Security system defaults. C) promote a retirement fund for government employees. D) protect employees from the mishandling of retirement funds by corporations and unions.

D) Protect employees from mishandling of retirement funds by corporations and unions ERISA was created to protect the retirement funds of union members and employees of large corporations. ERISA guidelines state that all qualified retirement plans must be in writing, segregate funds from corporate or union assets, make prudent investments, report to participants annually, and not be discriminatory. All of these activities are audited under ERISA.

An investor, with a well diversified portfolio oriented toward growth has 60% invested in the stocks of 28 different companies. She would like to hedge the downside risk for the equities and is comfortable using options to do so. Which is most suitable? A) Purchase puts on each of the individual stocks B) Write index option calls C) Write calls on each of the individual stocks D) Purchase index option puts

D) Purchase index option puts Selling options to hedge adds income to the account (premiums received) but the protection is limited. The best hedging protection is to purchase options, and to hedge long stocks purchasing puts is the most suitable. With so many stocks to hedge, doing so individually would not be cost efficient due to commissions. On the other hand, hedging the entire portfolio with index options allows the hedge to be done in fewer, if not a single transaction.

Which of the following exemption provisions of the Act of 1933 may NOT be used for an initial offering of securities? A) Rule 147. B) Regulation D. C) Regulation A. D) Rule 144.

D) Rule 144 Rule 144 does not pertain to primary offerings; it affects secondary market transactions in restricted or control securities.

Which of the following securities is sold at auction? A) Freddie Macs. B) Ginnie Maes. C) Corporate bonds. D) T-bills.

D) T-bills T-bills, T-notes, and T-bonds are sold through auction. These auctions award securities to the most competitive bids. Agency securities are sold through selling groups appointed by the agency.

When XYZ stock trades at 40 and an XYZ Oct 35 call trades at 5, which of the following is TRUE? A) The option is at-the-money. B) The option's time value equals its intrinsic value. C) The option is out-of-the-money. D) The time value is zero.

D) The time value is zero An option's premium consists of time value and intrinsic value. In this situation, the call is in-the-money by 5 (intrinsic value is 5), because the market value of 40 exceeds the strike price of 35 by 5. If the total premium is 5 and the intrinsic value is 5, the time value must be 0. The option is at parity, which means the premium equals the intrinsic value.

Listed options on U.S. exchanges are available on all of the following currencies EXCEPT the: A) Japanese yen. B) Canadian dollar. C) Euro. D) U.S. dollar.

D) U.S. dollar In the U.S., exchange listed currency option contracts exist on foreign currencies, not on the U.S. dollar. With U.S. exchange listed currency option contracts, the U.S. dollar is the base currency to which movements in the foreign currency is compared. *got this right, but lucky guess and was unsure*

A UK company exports sweaters to the U.S. and will be paid in U.S. dollars on delivery. To hedge foreign-exchange risk using listed currency options, the UK company should: A) buy British pound puts. B) sell British pound puts. C) sell British pound calls. D) buy British pound calls.

D) buy British pound calls Normally, exporters buy puts on foreign currency in order to hedge. There are no listed currency options available on the U.S. dollar, so the British company should buy calls on its own currency.

A Japanese manufacturer sells recorders to a U.S. retailing firm. The manufacturer is to receive $1 million (U.S. dollars) in 90 days. How can he best protect himself against a decline in the dollar? A)Sell yen calls. B)Sell yen puts. C)Buy yen puts. D)Buy yen calls.

D) buy yen calls Because he is receiving U.S. dollars, his risk is that the U.S. dollar will go down in value against the Japanese yen. If the dollar goes down against the yen, the yen will rise. Therefore, to protect his risk against a rising yen, he should buy yen calls. The yen calls will increase in value if the yen rises.

If an officer of a bank wants to purchase new issues, which of the following statements is TRUE? A)He may purchase a new issue because no banking rules prohibit it. B)He may purchase a new issue because anyone is allowed to purchase new issues. C)He may not purchase a new issue because he is considered a restricted person. D)He may not purchase a new issue unless the amount he wishes to purchase is considered small in relation to the total offering.

D) he may not purchase a new issue unless the amount he wishes to purchase is considered small in relation to the total offering Under the rules regarding the purchase of new issues bank officers would be characterized as restricted persons. They may not, therefore, purchase new issues.

In the case of a real estate direct participation limited partnership program, nonrecourse financing will: A)decrease a limited partners original cost basis. B)have no effect on a limited partners original cost basis. C)be added to a limited partners sales proceeds at the time the partnership is dissolved. D)increase a limited partners original cost basis.

D) increase a limited partners original cost basis For real estate limited partnerships, nonrecourse loans are included in the limited partners cost basis. In this way, the loans increase the partners original cost basis by the amount of the partner's debt liability for the loan.

Which of the following is NOT true regarding Treasury Receipts? A) They are not backed by the faith and credit of the U.S. government. B) Treasury securities held in trust collateralize the Receipts. C) They pay interest at maturity. D) Interest income is taxed at maturity.

D) interest income is taxed at maturity Unlike Treasury STRIPS, which are issued directly by the U.S. government, Treasury Receipts are indirect obligations of the government. Treasury Receipts are issued by investment bankers who buy Treasury securities, place them in trust at a bank, and sell separate receipts against the principal and interest payments. Like most zeroes, interest must be accreted and taxed annually even though it is not received until maturity.

If a customer transfers his holdings from one fund to another within the same family of funds, what are the tax consequences? A) Losses are deducted and gains are deferred. B) Gains are taxed and losses are deferred. C) No gain or loss is recognized until redemption. D) On the transaction date, any gain or loss is recognized for tax purposes.

D) on the transaction date, any gain or loss is recognized for tax purposes An exchange is a taxable event. The cost basis of the shares in the original account must be compared to their redemption value. Any gain or loss is recognized in the year of the exchange. The exchange privilege allows the investor to avoid paying an additional sales charge. It does not allow the investor to avoid taxes.

The call premium on a municipal bond trading above par is best described as the difference between: A) the market price and par. B) the amortized premium and the annual interest. C) the market price and the call price. D) par and the call price.

D) par and the call price The call premium represents the difference between the call price and par. The farther away a call date, the lower the call premium.

Advantages of oil and gas direct participation programs do not generally include? A)IDC. B)Depletion. C)Potential cash flow and/or income. D)Potential alternative minimum tax

D) potential alternative minimum tax Alternative minimum tax is not considered an investment benefit of an oil and gas DPP. This tax arises from excess intangible drilling costs being considered a tax-preference item. An oil and gas limited partnership has the advantages of intangible drilling costs (IDCs), depletion, depreciation, and the potential for cash flow and/or income. Such a program would also usually have the advantage of the deductions of operating expenses. For the exam, intangible drilling costs, as long as not treated as excess by the IRS, and depletion are advantages to an oil and gas program that are available to no other limited partnership.

An offering of securities in compliance with Rule 144A is sold primarily to: A) foreign individual investors. B) All of these. C) American individual investors. D) qualified institutional buyers.

D) qualified institutional buyers Rule 144A allows securities to be sold to (qualified) institutional buyers without having to meet the holding period or volume requirements of Rule 144.

All of the following will be included on a confirmation for noncallable municipal bonds purchased on a yield basis EXCEPT: A) par value. B) yield to maturity. C) dollar price. D) taxable equivalent yield.

D) taxable equivalent yield As investors' tax brackets vary, taxable equivalent yield is never required to be shown.

One of your clients purchased shares of the Ajax Mutual Fund several months ago. At that time, the NAV of the fund was $17.20. Today, the NAV is $17.56 and your client wants to know what accounts for the difference. You should advise him that the difference likely represents: A) capital gains. B) capital losses. C) realized appreciation. D) unrealized appreciation.

D) unrealized appreciation The NAV of mutual funds is marked to the market daily; the increase reflects higher market prices for the securities in the fund's portfolio

The City of Podunk has an outstanding 25-year maturity issue that is callable in 7 years. It has prerefunded the issue and established an escrow account containing the proper government securities with face amounts and maturities approximating the call provisions of the original issue. In quoting the original issue, which of the following must be used? A) Yield-to-maturity. B) The lower of the yield-to-call or the yield-to-maturity. C) Current yield. D) Yield-to-call.

D) yield-to-call When a bond issue is prerefunded, the issuer is going to redeem the bond on the first call date. The yield must be quoted to call.