SIE

What's the required minimum net worth for an investor to be considered accredited? * $1 million, excluding their primary residence * $1 million, including their primary residence * $200,000, including their primary residence * $200,000, excluding their primary residence

$1 million, excluding their primary residence. To be considered accredited, an investor must have a minimum net worth of $1 million, which excludes her primary residence. An investor could also be considered accredited if she has annual income of at least $200,000 ($300,000 if married) in each of the last two years.

The net asset value (NAV) of an open-end investment company is $22.20 and its sales charge is 8%. What is the public offering price? * $20.42 * $22.20 * $23.98 * $24.13

$24.13 The public offering price (POP) or asked price is $24.13. To find the POP, the net asset value is divided by the complement of the sales charge, as follows: NAV / (100% - sales charge) $22.20 / (100% - 8%) $22.20 / 92% $22.20 / 92% = $24.13 Remember, a mutual fund's sales charge is always expressed as a percentage of the POP. For this reason, it is incorrect to multiply the sales charge (8%) by the NAV ($22.20).

What's an investment adviser? * A person who buys or sells securities * A person in the business of giving investment advice for a fee * A person who holds funds or securities * A person who manages and keeps track of an issuing company's shareholders

A person in the business of giving investment advice for a fee. Investment advisers are individuals or companies that provide investment advice about securities for a fee. Broker-dealers buy and sell securities for commissions. Custodians hold funds or securities for investors. Transfer agents manage and keep track of the shareholders of a corporation that issues stock.

The OTC Bulletin Board (OTCBB) is BEST defined as: * A quotation system for securities that are not listed on either the NYSE or Nasdaq * An exchange for securities that are not listed on either the NYSE or Nasdaq * An execution system for securities that are not listed on either the NYSE or Nasdaq * A quotation system for securities that are listed on the NYSE or Nasdaq and traded in the OTC market

A quotation system for securities that are not listed on either the NYSE or Nasdaq. The OTC Bulletin Board (OTCBB) is a quotation system for securities that are not listed on either the NYSE or Nasdaq. The OTCBB has no listing requirements and it's not an exchange. The system doesn't provide the execution services; instead, the equity traders from broker-dealers can either contact the dealer that has provided the quote by telephone or through a proprietary electronic delivery system. The companies whose stock is quoted on the OTCBB either don't meet the requirements for listing on an exchange or they've been delisted from an exchange. A similar system is the Pink Marketplace. The third market refers to exchange-listed securities that are traded over-the-counter or away from traditional exchanges.

A customer has an account with a discount broker-dealer that specializes in online trading. If the customer is being charged a commission, the firm is MOST likely acting in which of the following capacities? *Agent * Principal * Market marker * Underwriter

Agent. A broker-dealer who charges customers a commission is acting as an agent or broker. A broker-dealer who charges customers a markup or markdown is acting as a principal or dealer.

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

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

A husband and wife have combined earnings of greater than $300,000 in each of the last two years. If it's reasonably expected that this level of income will remain the same, the couple is considered: * A qualified investor * An accredited investor * An institutional investor * A qualified institutional buyer (QIB)

An accredited investor. Accredited investors have a net worth of $1 million (excluding their primary residence) or annual income of $200,000 in each of the last two years. For married couples to be considered an accredited investor, they need to have income of at least $300,000. A qualified institutional buyer (QIB) must be institution with $100 million in assets under management (AUM), but is NOT a natural person.

If a market maker has a current quote of 50.00 - 50.05 (15 x 20), this indicates that the firm is willing to: * Sell 200 shares at $50.00 and buy 150 shares at $50.05 * Buy 150 shares at $50.00 and sell 200 shares at $50.05 * Sell 1,500 shares at $50.00 and buy 2,000 shares at $50.05 * Buy 1,500 shares at $50.00 and sell 2,000 shares at $50.05

Buy 1,500 shares at $50.00 and sell 2,000 shares at $50.05. When reading a quote, the bid is always listed first (i.e., $50.00 in this question) and the offer/ask (i.e., $50.05 in this question) is listed second. The market maker is willing to buy shares at $50.00 and sell them for $50.05. The numbers in parentheses or brackets refer to the number of shares represented by the bid and offer. Unless specified otherwise, it's assumed that the size is in round lots of 100 shares. Therefore, the market maker is willing to buy up to 1,500 (15 lots x 100 shares) at $50.00 and sell 2,000 (20 lots x 100 shares) at $50.05.

A market maker is quoting a stock as follows: Bid 23.50, Offer 23.70. This means that the market maker will: * Buy shares at 23.50 and sell shares at 23.70 * Buy shares at 23.70 and sell shares at 23.50 * Sell shares at a price higher than 23.70 and buy shares at a price lower than 23.70 * Buy and sell shares at a price between 23.50 and 23.70

Buy shares at 23.50 and sell shares at 23.70. The bid is the price at which a market maker is willing to buy stock, while the offer is the price at which a market maker is willing to sell stock. In this example, the market maker is obligated to buy shares at the bid price of 23.50 and is obligated to sell shares at 23.70.

The investment banking department of a broker-dealer does NOT typically perform which of the following activities? * Assisting a corporation in raising capital * Acting as an underwriter when an issuer wants to offer bonds * Assisting a company that's restructuring after declaring bankruptcy * Buying and selling securities for both customers and the firm's own account

Buying and selling securities for both customers and the firm's own account. All of the activities can be performed by the investment banking department, except for buying and selling securities for customers and/or the firm's own account. Instead, this is a function of the trading department.

A broker-dealer acting in an agency capacity will charge customers a: * Markup * Markdown * Commission * Fee

Commission. When acting in an agency capacity, the broker-dealer will normally charge the customer a commission. A broker-dealer that is always willing to buy and/or sell a security is considered a market maker. A market maker will normally act in a principal capacity and charge the customer a markdown when buying stock from a customer and charge a markup when selling stock to a customer.

The goal of which o f the following entities is to increase the volume of securities transactions by eliminating physical delivery with a book entry system? * SEC * FINRA * DTCC * OCC

DTCC. The Depository Trust & Clearing Corporation's (DTCC's) goal is to expand the ability to process transactions by automating clearing and settlement. This involves replacing physical delivery of securities with book-entry (electronic delivery).

If ABC Brokerage (a broker-dealer) purchases 600 shares of stock from a customer and places the securities into its inventory, it likely acted as a(n): * Dealer * Designated market maker * Agent * Underwriter

Dealer. When a broker-dealer buys a security from a customer using its own funds and places the securities into its inventory, it is acting as a dealer (principal). Since the firm is buying the securities from the customer, the customer is charged a markdown on the transaction (the firm charges a markup if it is selling the securities to the customer). On the other hand, if the firm locates the other side of the trade for its customer, it is acting as a broker (agent) and will charge the customer a commission. A firm is acting as an underwriter when it buys securities from an issuer and sells them to customers (i.e., it engages in primary market transactions). A firm that controls trading in a given stock on an exchange is referred to as a designated market maker (DMM).

A person pleaded guilty to a charge of counterfeiting and bribery five years ago. He has now been released from prison and is applying for an investment banking position with your firm. Which of the following statements is TRUE regarding his eligibility for current employment in the securities industry? * If the offenses are not related to securities, the criminal record is of no significance. * He's subject to statutory disqualification and is not currently eligible to be hired. * Pleading guilty does not constitute a conviction; therefore, this person is eligible for employment. * The branch manager may use her own judgment to determine the applicant's status

He's subject to statutory disqualification and is not currently eligible to be hired. Any person who has been convicted of a misdemeanor related to securities, or any felony during the last 10 years, is subject to statutory disqualification. A guilty plea is the equivalent of a conviction. Since the conviction occurred five years ago, this person is unable to enter the securities industry until another five years have elapsed.

Which of the following is not subject to the Investment Company Act of 1940? * Hedge funds * Inverse ETFs * Mutual funds * Leveraged ETFs

Hedge funds. Hedge funds are exempt from the Investment Company Act of 1940. On the other hand, mutual funds and ETFs are subject to the Act.

The department of a brokerage firm that advises a corporation regarding the structure and timing of a potential stock offering and also assists in the underwriting of securities is the: * Research department * Operations department * Investment banking department * Sales department

Investment banking department. The investment banking department of a brokerage firm assists issuers that intend to sell new securities to the public. The sales department is involved in buying and selling securities for customers of the firm. The research department makes recommendations to customers as to whether they should buy, hold, or sell a security. The operations department ensures that all of the paperwork, funds, and securities transfers which are associated with a trade (or processing) are handled efficiently and according to specific industry standards.

Which of the following statements is NOT TRUE about a company's Form 10-K? * It contains financial information about the company. * It's an annual filing. * It must be filed with the SEC within 60 days of the end of the fiscal year * It allows shareholders to vote without attending the annual meeting.

It allows shareholders to vote without attending the annual meeting. A Form 10-K is an annual filing that provides details of a company's financial information. A Form 10-K must be filed within 60 days of the company's fiscal year end. The form that allows shareholders to vote without attending the annual meeting is referred to as a proxy.

Which of the following statements is NOT TRUE concerning a clearing corporation? * It provides trade comparison and reporting services. * It is responsible for automated book-entry changes in the ownership of securities. * It assists broker-dealers in transferring assets in a customer account to another broker-dealer. * It offers customers the ability to have real-time trade matching.

It is responsible for automated book-entry changes in the ownership of securities. The responsibility for automated book-entry changes in the ownership of securities is a function of a depository facility (e.g., the DTC), not a clearing corporation. Each of the other choices are functions of a clearing system, such as the National Securities Clearing Corporation (NSCC).

An investor who is searching for a quote on a non-listed stock may find it on: * Nasdaq * NYSE * OTCBB * OCC

OTCBB. Non-listed stocks, also referred to as OTC equities, are quoted electronically on the Over-the-Counter Bulletin Board (OTCBB) and the OTC Pink Marketplace.

A broker-dealer executes but does not process transactions. If the firm processing the transactions does not know the identity of the customers, this is known as a(n): * Prime broker * Clearing broker * Omnibus account * Fully disclosed account

Omnibus account. Due to the expense of setting up trade processing operations, many smaller broker-dealers choose not to self-clear. These firms do not process customer transactions nor operate their own Operations Department. Instead, they contract with another member firm to perform these services. The firm providing these services is the clearing firm, while the firm paying for these services is the introducing firm. While customers of an introducing firm consider that firm as their broker-dealer, their funds and securities are physically held at the clearing firm, from which they generally also receive statements and confirmations. If the introducing firm keeps the books and records for its own customers and the clearing firm does not know the identity of these customers, this arrangement is known as an omnibus account.

The type of market in which an issuer raises capital by selling its securities to investors is referred to as the: * Secondary market * Primary market * Third market * Fourth market

Primary market. The type of market in which an issuer raises capital by selling its securities to investors is referred to as the primary market. The secondary market is where investors that purchased securities in the primary market then sell them to other investors. The third market involves securities that are listed on an exchange (e.g., the NYSE or Nasdaq) are traded in the OTC market. The fourth market refers to direct institution-to-institution trading and does not involve the public markets or exchanges.

In what type of offering are all of the proceeds directed to the issuer? * Primary * Split * Secondary * Guaranteed

Primary. In a primary offering (distribution), all of the proceeds of the offering are directed to the issuer of the securities. In a secondary offering, the proceeds are directed to another party (NOT the issuer).

A customer sells 500 shares of stock to a broker-dealer that makes a market in the stock. The broker-dealer acted in a(n): * Agency capacity and charged the customer a commission * Principal capacity and charged the customer a commission * Agency capacity and charged the customer a markup * Principal capacity and charged the customer a markdown

Principal capacity and charged the customer a markdown. A broker-dealer that's always willing to buy and/or sell shares of stock is considered a market maker. A market maker will normally act in a principal capacity and charge a customer a markdown when buying the stock from the customer and a markup when selling the stock to the customer. When acting in an agency capacity, the broker-dealer will not take the other side of the trade and normally charges the customer a commission.

The third market is concerned with: * Securities listed on an exchange that are traded directly between institutional investors * Securities listed on an exchange, but traded in the OTC market * Listed securities trading on an exchange * OTC equity securities trading on an exchange

Securities listed on an exchange, but traded in the OTC market. The third market is concerned with securities that are listed on an exchange (e.g., the NYSE or Nasdaq) that are traded in the OTC market. The fourth market refers to direct institution-to-institution trading and does not involve the public markets or exchanges.

Which characteristic is shared by both fixed and variable annuities? * Tax-deferral of earnings * Tax-deductible contributions * A variable rate of return * A fixed rate of return

Tax-deferral of earnings. Both fixed and variable annuities provide for the tax-deferral of earnings (i.e., investors are not required to pay taxes on income or gains until they withdraw from the annuity). Unless an annuity is specifically identified as qualified, it doesn't allow for tax-deductible (pre-tax) contributions. Fixed annuities offer a fixed rate of return, while variable annuities offer a variable (i.e., non-guaranteed) rate of return.

Which of the following organizations provides clearing services for equity securities? * The National Securities Clearing Corporation (NSCC) * The Fixed Income Clearing Corporation (FICC) * The Options Clearing Corporation (OCC) * A transfer agent

The National Securities Clearing Corporation (NSCC). The National Securities Clearing Corporation (NSCC) provides clearing services for the majority of broker-to-broker equity trades in the United States. The NSCC is also a subsidiary of the Depository Trust and Clearing Corporation (DTCC) that provides custodial services. The Fixed Income Clearing Corporation provides clearing services for U.S. government and mortgage-backed securities (i.e., debt securities).

Which of the following actions should be taken if a registered representative (RR) receives a written complaint from a customer? * The RR should respond to the complaint within 10 business days. * The RR should forward the complaint to her principal. * FINRA should receive a copy of the complaint within 10 business days. * The firm should immediately respond to the customer.

The RR should forward the complaint to her principal. When an RR receives a written complaint, it should immediately be forwarded to a principal who must place a copy in a complaint file.

In the secondary market, the "spread" for a security represents the difference in: * The bid and offer prices * The ask and offered price * The nominal and firm prices * The market prices and public offering prices

The bid and offer prices. The spread for a stock in the over-the-counter (OTC) market is the difference between the bid and offer prices. The offer is sometimes called the "ask".

A broker-dealer is clearing its trades through another broker-dealer but is not disclosing specific information regarding its clients. Who is responsible for maintaining the account records? * The clearing broker-dealer. * The introducing broker-dealer. * The broker-dealer appointed by FINRA to prepare the records * Both the clearing and introducing broker-dealers

The introducing broker-dealer. When a firm clears trades for another firm but is not given specific information regarding the introducing firm's clients, the account is said to be an omnibus account. Introducing firms are required to establish and maintain records for omnibus accounts.

The Pink Marketplace displays: * All trades involving OTC equities that occurred on the previous day * The market makers for stocks that are not listed on either the NYSE or Nasdaq * The designated market maker assigned to each stock that trades on the NYSE * The market makers for stocks that are listed on Nasdaq

The market makers for stocks that are not listed on either the NYSE or Nasdaq. The Pink Marketplace lists market makers and their bid and asked quotations for over-the-counter stocks (i.e., OTC equities). These OTC equities are not listed on either the NYSE or Nasdaq.