Series 7: Units 11-20 Checkpoint Questions

What information is required on Form U4?

- name, address & any aliases used -5 year residency history -10 year employment history -disclosure of an arrest or conviction for any felony or securities-related misdemeanor

A registered representative of a FINRA member firm has been found guilty of a trade practice violation. If desired, the Code of Procedure requires the individual to file an appeal within

25 days after receiving the decision.

FINRA rules require that a record of customer complaints be kept for a minimum of how many years?

4 years

Customers seeking to open an options account may have the account approved by A)the branch manager, only as long as they have a Series 10 registration or are a Registered Options Principal (ROP). B)the branch manager initially as long as it is subsequently approved by a principal who has a Series 10 registration or is a Registered Options Principal (ROP). C)the registered representative handling the account. D)the registered investment adviser managing the client's portfolio.

B)the branch manager initially as long as it is subsequently approved by a principal who has a Series 10 registration or is a Registered Options Principal (ROP). In general, an options account will be approved by a Limited Principal with a Series 10 license or a Registered Options Principal (ROP). If the branch office manager is not a Registered Options Principal or a Limited Principal—General Securities Sales Supervisor, account approval or disapproval shall, within ten (10) business days, be submitted to and approved or disapproved by a Registered Options Principal or a Limited Principal—General Securities Sales Supervisor.

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

A)A document that states the banking industry is ready for recovery but ABC Bank will not participate in the recovery and if owned, investors should sell the security One of the keys to defining a research report is that it suggests taking action (buy, sell, or hold) on the subject security. The term does not include commentaries on economic, political, or market conditions.

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

A)ABC Gas and Electric, a regulated public utility Exp: Stocks that are interest rate sensitive will reflect the impact of a change to market interest rates more than others. Utility stocks, with their high degree of debt leverage and liberal dividend payout ratios, are considered interest rate sensitive. Preferred stock is also subject to interest rate risk, but the adjustable-rate feature minimizes the risk because the dividend rate changes to mirror the market rate. The yield of the money market fund will change, but the combination of the short maturities and the attempt to keep the NAV fixed at $1 per share limits the price risk.

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

A)Any person who worked in the financial industry for any portion of her career Think of yourself as a nonpublic

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

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

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

B) a principal Making markets is a principal activity. The broker-dealer stands ready, willing & able to buy or sell securities for its own account. A dealer acts as a principal when it owns the securities it trades. When the broker-dealer is not acting for its own account, it acts as a broker or agent.

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

B) payment of a cash dividend Exp: Working capital is defined as current assets minus current liabilities. On the declaration date, the future dividend payment is "booked" as a current liability (dividend payable). When the payment date comes, disbursement of the cash dividend will reduce current assets (cash) and current liabilities (dividend payable) by the same amount, leaving working capital unchanged.

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

B) the designated market maker. The designated market maker maintains a fair and orderly market on the NYSE exchange floor. The role historically was filled by the specialist, a term that might still appear on the exam. Floor brokers represent member firms in the execution of their customer orders.

A municipal bond dealer purchased $100,000 of municipal revenue bonds at a 3% yield less 3/8ths. The dealer marks the bond up by ½ point and reoffers them to his customers. The compensation to the firm on each bond is A)$10.00. B)$5.00. C)$3.75. D)$8.75.

B)$5.00. The price paid for the bonds is irrelevant. The important fact is that the dealer put on a markup of ½ point. That is $5 per bond.

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

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

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

B)intrastate securities offerings.

In recent years, much publicity has surrounded the rapid growth of start-up businesses. In most cases, the early financing was done privately. When private debt is used at the intermediate stage of a company's development, it is called A)intermediate debt. B)mezzanine debt. C)middle-risk debt. D)mid-term debt.

B)mezzanine debt. Just as the mezzanine in a theater is between the balcony and the orchestra levels, mezzanine debt represents financing supplied at the intermediate point in a new company's development. The funds are provided on a private basis and the investment carries a high degree of risk. As an alternative investment, it will be suitable for a very narrow range of customers. **This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.

Which of the following actions would cause a corporation's earnings per share (EPS) to increase? A)The exercise of outstanding warrants B)An increase in cost of goods sold (COGS) C)A reduction in the number of shares outstanding D)A 3:2 stock split

C)A reduction in the number of shares outstanding There are two primary ways to increase EPS. The most obvious is to increase the company's earnings. That is accomplished either by increasing revenue or reducing costs. The second is to reduce the number of outstanding shares. The math behind the EPS formula is net income divided by the total number of common shares outstanding. If the denominator (the number of shares) is reduced, the EPS increases. A stock split and the exercise of warrants have the opposite effect because there are now more shares outstanding. An increase to COGS reduces the net income.

A client purchases 1,000 shares of the XYZ Value Fund when the NAV is $18.75 and the POP is $19.74. Five years later, the client makes a gift to her daughter when NAV is $24.50 and POP is $25.79. The daughter elects to receive all distributions in cash. Two years after the gift, she sells all shares when the NAV is $34.25 and POP is $36.05. What are the tax consequences of this sale? A)Long-term capital gain of $17,300 B)Long-term capital gain of $15,500 C)Long-term capital gain of $14.510 D)Long-term capital gain of $16,310

C)Long-term capital gain of $14.510 In the case of a gift of securities, the donee acquires the donor's cost basis—$19.74 per share. Sale (redemption) takes place at the NAV ($34.25) for a profit of $14.51 per share (times 1,000 shares = $14,510.00).

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

C)one arbitrator, unless both parties agree to three. When the amount in dispute is more than $50,000 and no more than $100,000, the usual number of arbitrators is one. If both parties agree, it can be three. When the dispute involves an amount greater than $100,000, there are three arbitrators unless both parties agree to one. In a dispute with a customer that involves an amount greater than $100,000, the customer can request that all three arbitrators selected be from the public sector.

A corporation has determined that if it were to go bankrupt, common stockholders would receive $8.47 per share. This calculation is known as

Book Value Per Share

The primary difference between an underwriting syndicate member and a selling group member in a firm commitment underwriting is that

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

How long can a firm hold a customer's mail? Can it be verbal instruction?

up to 3 months (can be longer for an acceptable reason like safety or security concerns but not for convenience) has to be written instructions firm has to make customer aware of alternate methods to view account info

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

D)all such communications are accompanied or preceded by the Options Disclosure Document. Once the communications get specific enough to include performance figures, prior or concurrent delivery of the ODD is necessary. Although the risks must be disclosed, possible defalcation by an exchange officer (a form of embezzlement), is not an investment-related risk. The requirement to return the options account agreement within 15 days has nothing to do with permitted options communications. When annualized rates of return are shown, the minimum is a 60-day period, not 30 days.

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

D)the acceptance or placement ratio.

For each violation of FINRA or MSRB rules, FINRA may impose which of the following sanctions? Fines Censure Restitution Expulsion

Fines, Censure & Expulsion

Under which of the following terms does the underwriter act in a dealer capacity?

Firm commitment

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

A statement of additional information need not be included in the prospectus of a management company. A statement of additional information (SAI) need not be in a prospectus. It must be available for investors in open- and closed-end investment companies. It consists of information that is not necessarily needed to make an informed purchase decision but is still useful to the investor. The SEC, however, mandates that enhanced disclosure in the form of a summary section be included in the prospectus of open-end investment companies (mutual funds). It must be written in plain language, and the SEC mandates which items must be addressed in the summary and in what order.

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

A) Appraised Value Exp: For these securities, where a ready market does not exist, the estimated value must be based on an appraised valuation of the assets and liabilities of the DPP or REIT. This appraisal must be performed at least annually, by, or with the material assistance or confirmation of, a third-party valuation expert or service. The value must be derived from a methodology that conforms to standard industry practice. Because there is no market value, an alternative, such as appraisal, must be used.

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

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

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

D) DRP DRP stands for disclosure reporting page. That is the part of the Form U4 where a registered person indicates certain mandatory disclosures. In addition to bankruptcy filing, it includes the following: · Criminal disclosures · Civil disclosures related to nonsecurities cases · Disclosures of actions taken by regulatory authorities · Customer complaints · Termination for cause

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

D)Correspondence to 25 or fewer retail investors within any 30-calendar-day period A principal may review correspondence before or after its distribution as long as it is limited to no more than 25 retail investors during any 30-calendar-day period. The other choices require principal approval rather than just review before first use.

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

D)Net interest cost NIC measures an issuer's overall cost of borrowing for a particular bond issue. It is, therefore, the most important item an issuer considers when evaluating competing bids.

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

D)Qualification If the registration is just with one state, the registration will be done through qualification. Qualification means that the state will collect all the information and decide whether or not to clear the offering for sale in the state.

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

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