SIE Comprehensive Exam 1 & 2

What is the par value of a bond? A) $1,000 B) $100 C) $1 D) $.01

$1,000 Explanation: The par value of one bond is assumed to be $1,000, while the par value of one share of preferred stock is assumed to be $100.

XYZ's common stock has a par value of $1 per share, a book value of $5 per share, and the current market price per share is $100. XYZ has 1,000,000 shares outstanding. What is its capitalization? A) $100 million B) $5 million C) $1 million D) $6 million

$100 million Explanation: Capitalization is calculated by multiplying the share price by the shares outstanding. For example, XYZ Corporation is currently trading at $100 per share with 1 million shares outstanding. The corporation's capitalization is $100 million.

What is the maximum maturity for Treasury bills? A 6 months B 3 months C 5 years D 1 year

1 Year Explanation: Treasury bills have maturities of 1 year or less.

Which of the following best describes the term matched sales? A) An RR placing shares of an IPO in a friend's account, and then reimbursing the friend for the cost of the IPO B) 2 or more entities trading a security back and forth between themselves to create the appearance of volume C) Posting anonymous stock tips on internet message boards to influence the stock price D) An officer, director or 10% shareholder passing on inside information through a third party, typically a newspaper

2 or more entities trading a security back and forth between themselves to create the appearance of volume Explanation: matched sales occur when 2 entities attempt to influence the price of a stock. They accomplish this by trading a stock back and forth between each other, which creates the illusion of heavy trading volume in the stock. This volume attracts normal investors who may think that something is about to happen. Those investors then start buying up the stock thinking they are getting in before the price takes off. Their buying is what causes the price movements, which is what the manipulators had as their goal the entire time. Obviously, this process is illegal. At times it is difficult to detect and catch.

An investor is 75 and has not taken any withdrawals from their IRA. What percentage penalty will the IRS assess on the amount of the insufficient distribution? A) 20% B) 25% C) 6% D) 10%

25% Explanation: By April 1st of the year following the year they attain age 73, IRA holders must begin withdrawing from their accounts and report the withdrawals as income. Failure to do so will result in the taxpayer being assessed a 25% IRS penalty on the amount that should have been withdrawn.

To verify that the correct information was collected at the time of account opening, the registered representative must send a copy of the customer profile or account record to the customer within how many days of opening the account? A) 45 B) 30 C) 90 D) 60

30 Explanation: Under FINRA's Know Your Customer rule, registered representatives and member firms must use due diligence to obtain essential information to service the customer's account, follow the customer's instructions, and comply with all laws and regulations. To verify that the correct information was collected, the RR must send a copy of the customer profile or account record to the customer within 30 days of opening the account or with the customer's next statement. Updates and account information verification must be sent to the client at least every 36 months.

If a registered rep is terminated from a member firm, the firm must notify FINRA of the termination within: A) 15 days B) 10 days C) 30 days D) 60 days

30 days Explanation: This is specified by FINRA and applies to a representative who voluntarily resigns or who is terminated by the firm.

A teacher at the local school has agreed to reduce their pay by a specified amount and invest it. Which type of retirement plan does the teacher likely have? A) 403(b) B) SIMPLE C) SEP D) 401(k)

403(b) Explanation: 403(b) plans (sometimes called tax-sheltered annuities or TSAs) are available for eligible employees of public-school systems and qualified 501(c)(3) nonprofit organizations, including religious organizations, colleges, universities, hospitals, and museums. 401(k) plans are offered by private and public companies. SEPs (simplified employee pensions) are fully funded by the employer. A SIMPLE plan can be adopted by small businesses that employ 100 or fewer people and do not have another qualified plan available.

A no-load fund is permitted to charge investors which of the following? A) A 12b-1 fee and CDSC B) A management fee and 12b-1 fee C) An up-front or back-end sales charge D) No fees can be charged

A management fee and 12b-1 fee Explanation: Many funds do not levy sales charges, either front-end or back-end (that is, contingent deferred sales charge or CDSC). Therefore, the NAV and POP are the same. These are known as no-load funds. No-loads still charge their customers management, administrative, and, in some cases, 12b-1 fees (maximum 12b-1 fee of .25% per year).

A brokerage firm is planning to conduct its annual compliance meeting. Which of the following statements concerning this activity is correct? A) The meeting must be held in the home office of the broker-dealer B) A portion of the meeting may utilize a pre-recorded webcast if there is the opportunity for audience members to interact with the presenter C) The meeting may be conducted solely via a pre-recorded videotape D) To ensure attendance, RRs are required to be physically present at the location where the meeting is conducted

A portion of the meeting may utilize a pre-recorded webcast if there is the opportunity for audience members to interact with the presenter Explanation: According to FINRA Rules, firms are required to hold an annual compliance meeting. This meeting may be conducted with the registered representatives via video conference, interactive classroom setting, or other electronic means, provided certain standards are met. Members choosing to conduct a compliance conference via an electronic format must ensure that the communication means used permit interactive communication. This means, at a minimum, the participants must be able to hear presenters live and in an interactive environment. They should be able to ask questions and engage in dialogue with the presenters. Presenters may use supplemental learning and communications tools such as videotapes or computer programs that include informational or instructional materials from persons who are not physically present.

All the following statements regarding the due diligence meeting are true, except: A) a representative from the SEC must attend this meeting B) The syndicate will hold a due diligence meeting to ensure that all involved parties are apprised of the key facts about the new issue C) The public may attend this meeting D) By demonstrating that due diligence has been performed, liability is limited for all involved in the registration process

A representative from the SEC must attend this meeting Explanation: It is important that the information in the registration statement be accurate and complete, since anyone connected to its preparation, including the issuer, its accountants, and the underwriters, can be liable to purchasers who believe they have been misled. Anyone intentionally misleading the public may be charged with fraud. Due diligence meetings are held to make sure that the information in the registration statement is complete and not misleading. Members of the public can attend these meetings.

Which of the following is an example of a property dividend? A) A real estate limited partnership (RELP) passes through property depreciation, which is tax deductible to the limited partners B) A real estate investment trust (REIT) distributes 90% of its ordinary income to unit holders for their pro-rated share of the earnings C) A soft-drink company issues a case of soda to shareholders for every 100 shares that they own as of the record date D) An investor who owns 1,000 shares of a publicly traded corporation receives an additional 100 shares from the corporation

A soft-drink company issues a case of soda to shareholders for every 100 shares that they own as of the record date Explanation: A property dividend is a non-monetary distribution to a company's investors, something other than cash or stock payment. This could be giving its own products, equipment, inventory, or even investments held by the company to investors instead of cash. Property dividends are taxable to the recipients based on the fair market value of assets. A real estate investment trust (REIT) is required to distribute a minimum of 90% of its net earnings to investors as a cash distribution. A real estate limited partnership (RELP) can generate tax write-offs to its investors, such as interest expense, maintenance costs, and depreciation of the property. A shareholder receiving additional shares from the company is an example of a stock dividend.

Fraudsters using aggressive sales techniques lure members of the local church into investing in a company that was allegedly developing new technology for the MLB to use in the World Series and falsely promising the investors guaranteed investment returns. The fraudsters take the investor funds for personal use and payments to sales agents that were hired to solicit investors. What is this an example of? A) Affinity fraud B) Pump and dump C) Infinity fraud D) Charities fraud

Affinity fraud Explanation: Affinity fraud is a tool used by criminals to gain the trust of victims by claiming to be members of the same identifiable group, such as a religious affiliation, race, national origin, or profession, or to have similar interests.

All the following are required to open a trust account, except: A) Attorney B) Trust agreement C) Beneficiary D) Trustee

Attorney Explanation: Trust accounts are established by a grantor who provides the investment. The trustee acts as the fiduciary and manages the assets on behalf of a beneficiary. All transactions should be based on the beneficiary's needs, not the trustee's needs. A trust agreement is required to open the account and names both the trustee and the beneficiary. The agreement specifies the trading authority of the trustee, who may also be the grantor. Though most trusts are established by trust attorneys, this is not a requirement.

A market maker has a quote displayed for ABC stock $10.00 - $10.40 (3X5). A customer order is placed to buy 100 shares of ABC stock for $10.40, and the market maker suddenly changes the ask price to $10.45. This is known as: A) Updating quotes B) Backing down C) Switching D) Backing away

Backing away Explanation: Under SEC Rules, all quotes made by market makers must be firm. The market maker must honor the size and price of the quote that they have displayed. Backing away, which occurs when a firm fails to honor their quote. This is prohibited and may result in a monetary fine, suspension from market-making, or both.

What measures a security's volatility when compared to the market as a whole? A Beta B Circa C Alpha D Delta

Beta Explanation: Volatility is the frequency and size of fluctuations in a security's value compared to changes in the overall market. Volatility is measured in terms of beta. Beta describes the likely movement of a security compared to the market.

In the over-the-counter market, the term spread refers to the difference between: A Bid and ask B Offer and ask C Opening and closing price D Indicated and final price

Bid and Ask Explanation: The difference between the bid and ask is called the spread. Offer is another term for ask. In the OTC trading market, market makers buy at the bid and sell the ask. The spread is the market maker's profit.

The Chief Financial Officer of PDL Industries tells their best friend that PDL is going to announce earnings that are much higher than analysts' estimates. The next morning the friend purchases the stock at $20 per share, and immediately sells after the announcement at $29. Who may be considered in violation of insider trading rules? A) Both the CFO and the friend B) Neither the CEO nor the friend C) The CFO D) The friend

Both the CFO and the friend Explanation: According to insider trading rules, both the CFO (the tipper) and the friend (the tippee) are in violation of the rules. The prohibition against insider trading applies not only to those who work for an issuer, but to anyone who is tipped off by an insider.

What is the best way to hedge a short stock position to protect its principal value or lock in most of the unrealized appreciation? A) Buy a put B) Sell a call C) Sell a put D) Buy a call

Buy a call Explanation: Hedging in the options market involves protecting an appreciated stock position against large losses. Hedge strategies always involve the purchase of an option contract. With a short stock position, the investor wants the price of the stock to decrease. A long call could be purchased to protect them if the stock price rises. The call could be exercised, and the investor would purchase at the strike price vs. the current market price. An investor with that owns stock (long stock position) expects the stock to rise in value. A put option could be purchased to protect that investor if the stock price drops. This would allow them to sell the stock at the put strike price vs. the market price.

According to industry regulations, which of the following is not required when opening a new customer account? A) Customer's social security number B) Customer's date of birth C) Customer's signature D) Customer's street address

Customer's signature Explanation: According to industry regulations, a broker-dealer must obtain a customer's name and address. In addition, the BD must obtain the customer's date of birth and Social Security number. Industry rules do not require the customer's signature on a new account application. The only signature required is the signature of a principal of the BD.

All the following information is required to be verified with the customer every 36 months, except: A) Investment objectives B) Date of birth C) Customer address D) Net worth

Date of birth Explanation: SEC rules require that the basic customer account information collected at account opening be sent separately to the customer for verification within 30 days of account opening; and this information must be sent for verification and updating (if needed) every 36 months thereafter.

Which of the following is false regarding the Uniform Transfers to Minors Act? A) Custodial property may be used to support the minor B) Dividends and cash proceeds from sales must be immediately reinvested C) Securities cannot be purchased on margin or pledged in any fashion D) There can be more than 1 donor to the account

Dividends and cash proceeds from sales must be immediately reinvested Explanation: The custodian has total fiduciary responsibility over the account. They can do whatever they think is best with dividends and sales proceeds.

A registered representative is directed by a new and wealthy client to invest $100,000 into "something fun." The RR should: A) Invest the funds in an aggressive growth fund B) Invest the funds in an overseas investment C) Temporarily invest the funds into a GNMA fund D) Do nothing until the client's investment objectives are more clearly defined

Do nothing until the client's investment objectives are more clearly defined Explanation: Objectives such as "fun," "exciting," or "interesting" do not provide sufficient guidance to an RR to allow for a suitable investment recommendation. The RR should not invest the funds until there is a clearer understanding of the customer's financial situation and objectives. RRs are required to "know their customer" prior to making a recommendation.

An owner of a convertible bond can: A Exchange the bond for preferred stock B Exchange a warrant for a right C Exchange a subordinated debt for a senior debenture D Exchange the bond for common stock

Exchange the bond for common stock Explanation: Convertible bonds are favored by investors willing to accept a lower coupon in return for the upside potential through the conversion of their debt into equity (common stock).

All the following conditions must be met for a registered representative to share in the profits or losses in a customer account, except: A There must be a written agreement with the customer B FINRA must approve the arrangement in writing C The representative must obtain prior written authorization from the member firm D The sharing must be in direct proportion to the financial contributions made to the account

FINRA must approve the arrangement in writing Explanation: Generally, no member firm or associated person can share directly or indirectly in the profits or losses in any account of a customer carried by the member firm or any other member. However, a member firm or associated person CAN share in the profits or losses in such an account if the member firm or associated person obtains prior written authorization from the customer, the associated person obtains prior written authorization from the member firm, and the member firm or associated person shares in the profits or losses only in direct proportion to the financial contributions made to the account.

When the underwriter purchases all the securities being sold by the issuer, and then resells them to investors at a slightly higher price, it is best described as: A Markup underwriting B Standby underwriting C Firm commitment underwriting D Best-efforts underwriting

Firm Commitment Underwriting Explanation: In best efforts underwriting, the underwriter will agree to sell as many shares to investors as it can, and then will return any unsold shares to the issuer. In standby underwriting, the underwriter will standby to purchase any unsold new shares for its own account and then attempt to sell those shares to the public.

Under the Investment Company Act of 1940, investors are permitted to combine purchases of mutual fund shares to qualify for the reduced sales charge if the securities are purchased: A) By individuals who have formed an investment club B) For a parent and their 26-year-old daughter C) For a single fiduciary account, such as a qualified employee profit-sharing plan D) By the duly designated agent of a group of individuals joined together for this purpose

For a single fiduciary account, such as a qualified employee profit-sharing plan Explanation: Breakpoints may occur through total purchases in various other accounts, such as shares of the fund owned in a qualified retirement plan, having an account with other family members, or investing in several funds in the same family (complex). To qualify, the parent must be a custodian for a minor, not an adult, child.

The custodian holds the assets of a mutual fund: A) To guarantee principal B) As protection against a loss in market value C) As collateral for loans to customers D) For safekeeping

For safekeeping Explanation: There is no protection against market loss or guarantee of principal. Funds do not extend loans. The custodian safeguards the fund's portfolio assets.

All the following are typical risks associated with asset-backed securities, except: A) Foreign exchange B) Prepayment C) Reinvestment D) Default

Foreign exchange Explanation: Rationale: Asset-backed securities (ABS) are a form of pooled fixed-income investment. They were created to take advantage of the higher interest rates of other types of debt. Often auto loans, credit card debt, and home equities are used in the pool. This type of investment has come under a lot of regulatory scrutiny in recent years. Investors should investigate the underlying debt that makes up the pool of assets to determine if the potential reward along with the associated risk fits their overall investment profile and objectives.

All the following statements are true regarding record-keeping requirements, except: A) A separate duplicate copy can be maintained in an alternate location B) Member firms may preserve records in a non-rewritable format C) If a time period is not specifically stated for a particular record, the default time period of retention is 3 years D) Member firms may preserve records in non-erasable format

If a time period is not specifically stated for a particular record, the default time period of retention is 3 years Explanation: Acceptable storage media includes original hard copies, microfilm, microfiche, and optical disc. As an alternative, firms may maintain a time-stamped audit trail system. A separate duplicate copy needs to be maintained in an alternate location or a backup electronic recordkeeping system must be in place. Firms are allowed to utilize a third party to maintain records if the third party provides proper maintenance and allows unlimited and unhindered access of these records to the firms. If a time period is not specifically stated for a particular record, the default time period of retention is 6 years. Member firms must keep the most recent 2 years' records readily accessible and available for inspection.

Treasury bills mature: A) In 2-10 years B) In 10-30 years C) In 9 months D) In 4-52 weeks

In 4-52 weeks Explanation: T-bills are issued with maturities of 4, 13, 26, or 52 weeks. There are no 9-month T-bills.

Which example describes the diversification feature of mutual funds? A) An accumulation plan under which all dividends and capital gains distributions are reinvested in fund shares B) Investment in a number of different securities for reducing investment risk C) Option to exchange shares of one fund for shares of another fund in the same family D) Minimizing the sales charge by making large purchases at 1 time

Investment in a number of different securities for reducing investment risk Explanation: Diversification is one of the main benefits of mutual fund investing. Diversification allows an investor to purchase one packaged security that invests in many different securities to reduce investment risk. The option to exchange shares of one fund for shares of another fund in the same family describes the fund family's exchange privilege. Minimizing the sales charge on a fund and investment by making larger purchases at 1 time describes breakpoints. An accumulation plan under which all dividends and capital gains distributions are reinvested back into the fund without paying an additional sales charge describes reinvestment options.

The possibility that the value of an investment will fall due to a decline in the market as a whole rather than any adverse conditions of an issuer is known as what type of risk? A) Interest rate B) Political C) Business D) Market

Market Explanation: Market risk is the possibility that the value of an investment will fall due to a decline in the market and is unrelated to any adverse conditions of an issuer. A systematic risk is inherent to investing in the stock market. Interest-rate risk pertains to the sensitivity of the investment to changes in interest rates. Purchasing-power risk pertains to inflation. Business risk is the risk that a particular company will not have enough cash flow to cover its operating expenses. Political risk is a common concern for investors with foreign holdings, particularly in the emerging markets sector.

A client places an order to buy 1,500 shares of XYZ stock at the closing market price. The registered representative places an order to sell 10,000 shares of XYZ at the end of the day to get the client a lower execution price. This is best described as: A) Front-running B) Backing away C) Marking the close D) Freeriding

Marking the close Explanation: Marking the open or close is a form of market manipulation that involves attempting to influence market prices. Marking the close involves executing purchase or sales orders at or near the close of normal trading hours. This activity can give an inflated or depressed closing price for that security and may affect the price of any orders that haven't been filled yet. This is considered fraudulent and is a prohibited activity.

What does limited discretion allow a registered representative to do? A) May enter buy or sell orders, and deposit cash in the account B) May enter buy or sell orders, and withdraw cash from the account C) Cannot enter buy or sell orders, but can deposit and/or remove cash from the account D) May only enter buy or sell orders in the account

May only enter buy or sell orders in the account Explanation: There are 2 basic types of discretion: limited discretion (allowing someone to enter buy or sell orders into the account) and full discretion (allowing the designated individual to enter orders into the account and to deposit/remove cash and/or securities). Discretionary control over an account must be given to an RR in writing and approved by their manager.

A client who is concerned about liquidity risk would be well advised to invest in: A) Common stock B) Preferred stock C) Government bonds D) Money market instruments

Money market instruments Explanation: Money market securities are short term, high quality, and very liquid debt instruments. They provide safety and liquidity. Because of their volatility, stocks are not suitable for liquidity needs. Many government bonds have long maturities and, therefore, volatile prices. They are used for principal safety at maturity but are still subject to interest-rate risk. Even though many government bonds are highly liquid, there may be principal loss if they are sold prior to maturity.

Which of the following is not a characteristic of a securities exchange? A) Listing requirements B) Central location C) Negotiated pricing D) Specified trading hours

Negotiated pricing Explanation: A securities exchange takes place in a physical location during specified trading hours. Securities which are listed on the exchange must meet specific minimum requirements regarding capitalization, etc. With many buyers and sellers in one location, an exchange is an auction, not a negotiated market. In contrast, the OTC market is decentralized (telephones and internet) and is a negotiated market.

Which statement is false regarding trading authorization over a customer account? A) A broker-dealer may have full written discretion over the account B) A customer's spouse may have written authorization over the account C) One's CPA may have limited written authorization over the account D) No one other than the broker-dealer may have written authorization over the account

No one other than the broker-dealer may have written authorization over the account Explanation: An investor may appoint anyone they desire to have control over their account. No one has discretion over their account without the customer's specific written authorization.

What is not required to be included on the new account form? A) Principal's signature B) Registered representative's signature C) Whether the client is of legal age D) Residential address

Registered representative's signature Explanation: A new account application must include the customer's name, physical address, and date of birth. The only signature required on the new account application is that of the principal. Remember, industry rules do not require the registered representative or the customer's signature on the application.

An investor sells stock, which they have owned for 18 months, to another investor. This trade took place in the: A) Initial public offering B) Primary market C) Secondary market D) Additional primary offering

Secondary market Explanation: When outstanding securities trade between investors, these trades are executed in the secondary market and there is no benefit to the issuer. Initial public offerings and additional primary offerings are two types of offerings which take place in the primary market, where the issuer benefits by receiving the sales proceeds.

Which of the following statements is true regarding secondary offerings? A) Sale proceeds go to the issuer B) Shares are sold through an underwriter C) They are considered a primary offering since the shares have already been issued D) Secondary offering transactions take place in the secondary market

Secondary offering transactions take place in the secondary market Explanation: A secondary offering is not a primary offering because the shares have already been issued. Investors sell the securities to other investors and sale proceeds go to the seller. Proceeds go to the issuer in an initial public offering where shares are sold to the public.

The federal agency that oversees the U.S. securities markets is the: A) Office of the Comptroller of the Currency (OCC) B) Securities and Exchange Commission (SEC) C) Department of Treasury (DOT) D) Financial Industry Regulatory Authority (FINRA)

Securities and Exchange Commission (SEC) Explanation: The federal agency that oversees the U.S. securities markets is called the Securities and Exchange Commission (SEC), which functions as the ultimate enforcer of federal securities laws. FINRA oversees its members, which can be broker-dealers and registered representatives. The Office of the Comptroller of the Currency regulates and supervises all national banks. The Department of the Treasury works with financial institutions to encourage economic growth and promote the stability of the broader United States financial system.

All the following are secured bonds, except: A) Senior debentures B) Equipment trust certificates C) Mortgage bonds D) Collateral trust bonds

Senior debentures Explanation: Debentures are not secured by any specific collateral, whether they are senior or subordinated.

Which of the following is not an income strategy? A) Long stock with a short call B) Short stock with a short call C) Short stock with a long call D) Short stock with a short put

Short stock with a long call Explanation: Income strategies are used to provide income when the market is flat. Options are sold to generate additional income. All income strategies involve a short option contract. A short stock with a long call is a hedge strategy.

When an employee starts to receive distributions from a qualified plan, what is the taxability of each payment? A) Since neither the contributions nor the earnings have been taxed, all distributions will be taxed as ordinary income, based on the employee's tax bracket in the year the withdrawal is taken B) Any earnings from interest or dividends are taxed as ordinary income, and any profits from investment securities sales are taxed as capital gains C) The amounts received prior to full retirement age are income taxable, and after that, they are received income tax-free D) The cost basis is received income tax-free, and any tax-deferred earnings are treated as capital gains

Since neither the contributions nor the earnings have been taxed, all distributions will be taxed as ordinary income, based on the employee's tax bracket in the year the withdrawal is taken Explanation: Since neither the contributions nor the earnings have been taxed, all distributions will be taxed as ordinary income, based on the employee's tax bracket in the year the withdrawal is taken, if subject to taxation per the IRS.

What type of order is based on a recommendation by the representative and must comply with suitability requirements? A) Discretionary B) Non-discretionary C) Unsolicited D) Solicited

Solicited Explanation: A solicited order is based on a recommendation by the representative. Solicited orders must comply with suitability requirements. An unsolicited order is directed by the customer. The RR must place the unsolicited trade, even if unsuitable. Trades must be marked as solicited or unsolicited. A discretionary order is an order in which the registered rep determines the name of the security, size of the order, and/or action to be taken (buy or sell). The customer must authorize this type of order by granting power of attorney to the RR. Otherwise, the order must be non-discretionary, even if the RR determines time/price.

Qualified retirement plans were created to provide an employee with: A) Life insurance B) Taxable income at retirement C) Health insurance benefits D) Tax-free income at retirement

Taxable income at retirement Explanation: Qualified plans were created to provide participants additional income in retirement.

A shareholder's ownership interest in a mutual fund will pass to their estate upon death under which form of account ownership? A) Tenants in common B) POA C) UTMA D) Joint tenants with right of survivorship

Tenants in common Explanation: If the account were JTWROS, the remainder would pass to the surviving tenant. In a joint account with tenants in common, upon an owner's death, the investor's portion passes over to their estate.

What is the name of the agency under the treasury department that is responsible for collecting taxes and enforcing tax laws? A) The comptroller of the currency B) The Internal Revenue Service (IRS) C) The federal appellate courts D) The FED

The Internal Revenue Service (IRS) Explanation: The Internal Revenue Service (IRS) is the agency under the treasury department that is responsible for collecting taxes and enforcing tax laws. The IRS has the authority to issue monetary fines and punishment for violating the Internal Revenue Code (IRC). The IRC covers rules concerning income, gift, estate, and capital gains tax.

Who issues standardized options? A) The Options Clearing Corporation (OCC) B) Broker-dealers C) FINRA D) Publicly held corporations

The Options Clearing Corporation (OCC) Explanation: The Options Clearing Corporation (OCC) is the clearing agency through which transactions for all listed options are completed. The OCC is the obligor, the guarantor, and the issuer of options.

A potential customer comes in to open a new account with your firm but refuses to give their Social Security number. The individual claims that releasing this information could allow the customer's identity to be stolen. Which of the following statements is true? A) The account cannot be opened B) The account may be opened if the supervising principal approves and signs the new account form C) The account can be opened, but all orders must be unsolicited D) The account can be opened if the firm is able to verify the customer's identity

The account cannot be opened Explanation: To open a new account, broker-dealers are required to obtain the 4 pieces of critical information: Full legal name of each customer having access to the account, home or business street address, date of birth, and taxpayer identification (SS# or Tax ID #).

A customer has an individual account with your firm. Who is permitted to make transactions in the account? A The account owner, or the spouse of the account owner, is permitted to make transactions in the account B The account owner is the only person that can make transactions in the account without exception C The account owner is the only person that can make transactions in the account, or an individual that has been granted power of attorney D The account owner and representative that manages the account are both permitted to make transactions in the account

The account owner is the only person that can make transactions in the account, or an individual that has been granted power of attorney Explanation: The individual is the only person authorized to make transactions in their individual account, without written power of attorney.

What are exempt securities still subject to? A The anti-fraud provisions of the Securities Act of 1933 B SEC approval of all sales literature and advertisements C Volume limitations when eventually sold by an investor D A holding period before the security can be resold to the public

The anti-fraud provisions of the Securities Act of 1933 Explanation: Certain securities are exempt from registration. Exempt securities do not need to be registered with the SEC, since it would not make sense for certain issuers to go through the time and expense of filing the registration statement. Exempt securities include U.S. government and agency issues, municipal issues, money market issues, bank issues, common carrier issues, insurance company issues, and nonprofit or religious organization issues. While an exempt issuer is not required to register its securities with the SEC, it is still subject to the anti-fraud provisions. A non-exempt security is one that must be registered with the SEC.

The CPI measures: A The change in price of a fixed basket of funds purchased by a typical consumer B The change in price of a fixed basket of currencies purchased by a typical consumer C The change in price of a fixed basket of stocks purchased by a typical consumer D The change in price of a fixed basket of goods purchased by a typical consumer

The change in price of a fixed basket of goods purchased by a typical consumer. Explanation: The CPI (consumer price index) is the change in price of a fixed basket of goods and services purchased by a typical consumer.

What happens when a customer's account is frozen? A The cash to cover purchases must be in the account before a purchase can occur B No cash may be withdrawn from the account C Only sales may occur in the account D No transactions may occur in the account

The cash to cover purchases must be in the account before a purchase can occur Explanation: When a customer's account is frozen, purchases may only be made if sufficient cash is already in the account. If the customer abides by this rule for 90 days, the account is no longer frozen.

When a broker-dealer is underwriting a new issue, which one of the following does not apply? A) An employee of the broker-dealer cannot buy the new issue B) The broker-dealer can only sell to established clients C) The wife of the broker-dealer's CEO cannot buy the new issue D) A registered representative with another firm cannot buy a new issue

The broker-dealer can only sell to established clients Explanation: New issues may not be sold to restricted persons. Each share of a new issue must be offered to the investing public, and a restricted person is considered an "industry insider," rather than a member of the public. Restricted persons include: -- Broker-dealers and associated persons (registered representatives) -- Associated persons' immediate family members, including spouses, parents-, brothers-, and sisters-in law, children, parents, and any person who is at least 25% financially supported by a restricted person -- Underwriters and their finders and fiduciaries -- Banks, savings and loans, and insurance companies

Which of the following statements is true regarding the registration process for new securities? A) The registration statement must be given to all purchasers of a new corporate security 90 days before the offering B) The prospectus must be given to all purchasers of a new corporate security for up to 90 days following the offering C) The prospectus must be given to all purchasers of a new corporate security 90 days before the offering D) The registration statement must be given to all purchasers of a new corporate security for up to 90 days following the offering

The prospectus must be given to all purchasers of a new corporate security for up to 90 days following the offering Explanation: The registration statement will later become the prospectus, which is the official statement that must be given to all purchasers of a new corporate security for up to 90 days following the offering.

All the following are characteristics of a general obligation bond, except: A) They are backed by the full faith, credit, and taxing power of the municipality that issues them B) They are used to fund specific projects C) Payments come from the general revenue of the governing body D) They are considered to be low risk

They are used to fund specific projects Explanation: A general obligation bond differs from a revenue bond primarily by its revenue source: payments come from the general revenue of the governing body, rather than the revenues of a specific project, such as a stadium or bridge. Because they are backed by the full faith and credit of the municipality that issues them, they are considered to be low risk. However, GO bonds are generally not used to fund specific projects.

How is the funding for SIPC coverage generated? A) Through fines collected by the SEC B) Through federal taxes C) Through premiums paid by investors D) Through assessments upon member firms

Through assessments upon member firms Explanation: SIPC is not a governmental entity and receives no tax subsidies. SIPC is a private, not-for-profit organization that broker-dealers are required to join. Members are required to pay annual assessments, which are held for customer reimbursements in case of member bankruptcies.

A municipal bond is purchased regular way on Tuesday, January 21. When does this trade settle? A) Friday, January 24 B) Thursday, January 23 C) Tuesday, January 21 D) Wednesday, January 22

Thursday, January 23 Explanation: Regular-way settlement for municipal securities is T+2. This trade occurs on Tuesday, January 21, so settlement will be on Thursday, January 23.

What is the role of the clearing agency in handling book-entry settlements? A) Transfer of ownership B) Holding securities on deposit C) Delivery of physical certificates D) Cancel physical certificates

Transfer of ownership Explanation: Book-entry settlement applies to securities held in book entry on the issuer's books or in brokerage accounts. These securities must be settled through a registered securities depository, such as DTCC, and are deposited at the clearing agency. The clearing agency will transfer ownership through bookkeeping entries and does not include a physical delivery of certificates.

Treasury receipts were created and issued by broker-dealers. These receipts are backed by the interest and principal of what type of Treasury securities? A) Treasury bills B) Treasury notes C) T-STRIPS D) Series EE bonds

Treasury notes Explanation: A treasury receipt is a zero-coupon security, similar to a Treasury STRIPS, which was created and issued by broker-dealers. These receipts are backed by the interest and principal of Treasury securities (T-notes or T-bonds), owned by the broker-dealer, and held in escrow.

ABC Homes builds custom modular homes. XYZ Lumber has been their supplier for the past 10 years. ABC Homes buys XYZ Lumber, this is a: A) Vertical merger B) Exchange offer C) Tender offer D) Horizontal merger

Vertical merger Explanation: A vertical merger is when companies in 2 different industries merge, for some business benefit. In this example, the home builder believes that by purchasing the lumber supplier, the cost of building homes will be reduced. In a horizontal merger 2 companies offering similar products in the same industry combine to gain a larger share of the market. A tender offer is when a corporation offers to purchase some of the shares currently held by investors at a premium. With an exchange offer, which is a type of tender offer, the corporation offers shareholders the option of trading in their common stock shares for another security such as a bond or preferred stock.

Which of the following is not true regarding a trustee? A) Is appointed by the issuer to protect the bondholders' rights B) Is usually a bank or trust company C) Works with the issuing entity to assist in determining the offering price D) Has the right to seize the bond issuer's assets to protect the bondholders' rights to their investment if the issuer becomes insolvent

Works with the issuing entity to assist in determining the offering price Explanation: The underwriter, not the trustee, works with the issuing entity to assist in determining the offering price. The trustee is a firm, such as a trust company, commercial bank, or financial institution hired by bond issuers to protect the bondholders' interests.

A 21-year-old college student works part-time at an ice cream shop to earn money to pay their cable bill. This year the student earned $1,200. What is the maximum this person can contribute to an IRA? A $6,000.00 B $1,200 C $5,500 D $300

$1,200 Explanation: Individuals with earned income can contribute the lesser of 100% of earned income or the current year's specified dollar limit into an IRA. Earned income includes salaries, tips, and other forms of compensation that come from services provided. It does not include interest earned on investments or capital gains realized from the sale of assets. Since the student earned only $1,200, that is the maximum they can contribute into their IRA.

Broker-dealers must file a Currency Transaction Report for transactions in cash totaling more than: A $1,000 B $10,000 C $3000 D $5,000

$10,000 Explanation: A CTR must be filed for all cash transactions more than $10,000. No information is necessary for any transfer below this amount. SARs are filed for any red flags or suspicious amount below $10,000 in cash or cash equivalent.

XYZ's common stock has a par value of $1 per share, a book value of $5 per share, and the current market price per share is $100. XYZ has 1,000,000 shares outstanding. What is its capitalization? A $6 million B $100 million C $1 million D $5 million

$100 million Explanation: Capitalization is calculated by multiplying the share price by the shares outstanding. For example, XYZ Corporation is currently trading at $100 per share with 1 million shares outstanding. The corporation's capitalization is $100 million.

An investor would like to establish UTMA accounts for their 2 children. Which of the following is not permitted? A The parent as custodian of each account B 1 account for each child C 1 gift for each child D 1 account for both children

1 account for both children Explanation: UTMA specifies 1 custodian and 1 child per account. The custodian may be a parent or another party. There are no limitations on the number (or amount) of gifts or donors under UTMA rules.

If the 1-year T-bills are currently yielding 4% while growth stocks are yielding 14%, what is the risk-adjusted rate of return for investing in growth stocks? A 10% B 0% C 4% D 14%

10% Explanation: The risk-adjusted rate of return measures the security's return based on the amount of risk. In this scenario growth stocks are yielding 14% while the risk-free rate of return for investing in T-bills is 4%, this makes the risk-adjusted rate of return 10%.

ABC Brokerage runs an "Ask the Expert" call-in line to provide both prospects and customers with general information regarding investments and estate planning. Under the TCPA of 1991, during what hours may ABC offer this service? A 24 hours per day B 9 a.m. to 5 p.m., Eastern time C 8 a.m. to 9 p.m., customer's time D Never, the use of general information hotlines is prohibited under SEC anti-fraud rules

24 hours per day Explanation: The Telephone Consumer Protection Act of 1991 limits the hours of prospecting to between 8 a.m. and 9 p.m. local time of the customer called. Call-in lines are exempt from these rules, since the time limitations do not apply to any contact initiated by the customer. Phone solicitations by non-profit organizations are also exempt from the time constraints of the TCPA.

Qualified distributions from a Roth IRA are not subject to income tax if the account has been held for at least: A) 2 years or more B) 5 years or more C) 5 years or more and to age 59½ D) 10 years or more

5 years or more and to age 59½ Explanation: The first rule for qualified distributions is that the account must be open for at least 5 years. Once the 5-year time frame has been met, the account holder must be age 59½ or older, or meet one of the following exceptions: *Death or disability *Terminal illness *Unreimbursed medical expenses exceeding 10% of AGI *Qualified birth or adoption expenses (up to $5,000 per taxpayer) *Health insurance premiums for unemployed individuals *First-time home buyer (up to $10,000) *Higher education expenses *Substantially equal periodic payments (72(t) withdrawals) *Federally declared disasters ($22,000 max per individual)

What is the initial margin requirement that must be deposited by the customer in a margin account? A 75% B 100% C 25% D 50%

50% Explanation: The customer must deposit the initial margin requirement of 50% of the current market value of the securities purchased on margin, and the balance is borrowed from the broker-dealer. Securities in the account that are used as collateral against the loan are held in the name of the broker-dealer, referred to as "street name."

ABC Corporation has just announced a 3-for-2 stock split. An investor owns 500 shares of ABC, currently trading at $88 a share. After the stock split, the investor will own: A 3,000 shares at $14.67 per share B 1,000 shares at $44 per share C 750 shares at $58.67 per share D 333 shares at $132.13 per share

750 shares at $58.67 per share Explanation: In a stock split, shareholders will receive additional shares of stock, each valued proportionally lower. A 3-for-2 stock split means that shareholders will receive 3 shares for every 2 that they currently own, a 50% increase. A stock split is described as a ratio, giving the number of new shares compared to the relative number of old shares. You will always see two numbers, using a format of "x-for-y". Use the following steps to calculate the results of a stock split: To find the new number of shares, multiply the original number of shares by the first number in the ratio, then divide the result by the second number in the ratio. To find the new value per share, multiply the original value by the second number in the ratio, then divide the result by the first number in the ratio. In this example, the ratio is 3-for-2. Multiply the original number of shares by the first number in the ratio (500 × 3 = 1,500) and divide the result by the second number (1,500 ÷ 2 = 750 shares). For the new value, multiply the original value by the second number ($88 × 2 = $176), and divide the result by the first number ($176 ÷ 3 = $58.67).

If the portfolio manager removes dollars from the underperforming assets to the assets the manager believes will outperform in the next quarter, this is a form of what? A Active portfolio managing B Passive portfolio managing C Asset allocation D Hedging

Active portfolio managing Explanation: There are several ways to rebalance a portfolio. Active portfolio rebalancing requires the portfolio manager to remove dollars from the underperforming assets and to pick those assets the manager believes will outperform. Passive rebalancing is a type of automatic rebalancing that removes dollars from the overperforming assets and reallocates them to the underperforming assets. This can be done on an annual or quarterly basis.

Who makes the investment decisions for a management company? A An investment adviser B A bank C The board of directors D A registered representative

An investment adviser Explanation: Management companies hire a professional investment manager or investment adviser to make investment decisions and ensure proper diversification for the portfolio based on research and monitoring of economic and market conditions. The investment adviser is paid a fee that is typically based on the dollar amount of assets under management. They have a contract they sign that spells out all the work they are to provide for the fund, which is mainly to follow the investment objective of the fund.

Under the Investment Company Act of 1940, which of the following is not eligible for breakpoints? A A custodian for minor's accounts B An investment club C A fiduciary for a pension plan D A married couple in a joint account

An investment club Explanation: Only legal entities qualify for combining accounts to qualify for reduced sales charges. Investment clubs do not qualify.

Which of the following investment company products is continuously offered in the primary market? A) A round lot of ABC Corporation common stock B) A unit investment trust company C) An open-end management company D) A closed-end management company

An open-end management company Explanation: Common stock only trades in the primary market during a primary offering. Once the primary offering is complete, common stock shares trade in the secondary market. A mutual fund or open-end fund is continuously offered in the primary market. A closed-end management investment company has an IPO, and the securities are not redeemable back to the company itself, rather they trade in the secondary market. UITs typically have fixed maturities where the portfolio is dissolved and are not continually offered.

A corporation has issued an 8% preferred stock. The 8% represents the: A Annual dividend based on a $100 par value, or $8 per year in dividend payments B The corporation will allocate 8% of its annual net earnings after taxes, to distribute to preferred stockholders for their pro-rated share C Minimum dividend payment, but not the maximum D Dividend premium above common stock, so that preferred shareholders will receive 8% more per year than common shareholders

Annual dividend based on a $100 par value, or $8 per year in dividend payments Explanation: The stock will pay a dividend of 8% annually of its $100 par value, or $8 per year. Assume all questions regarding preferred stocks are about straight preferred, ones with no additional features beyond the stated dividend rate, unless specifically told otherwise.

To qualify for a favorable tax treatment of net investment income distributions, REITs must distribute: A) At least 95% of net investment income B) At least 90% of net investment income C) At least 85% of net investment income D) At least 100% of net investment income

At least 90% of net investment income Explanation: Under the IRC, special tax treatment is allowed for qualified REITs. To be considered qualified, the REIT must have at least 75% of its assets invested in real estate, cash, or Treasurys, a minimum of 75% of its gross income from real estate activities, and 90% of the net investment income must be "passed through" (distributed) to holders of the units. If this is done, the REIT is only taxed on the retained amount, and it would be considered a qualified REIT under the IRC Subchapter M.

The net asset value of all open-end management company shares is computed: A At least once daily B Weekly, based on the average bid price for that period of time C Whenever the total number of shares in the fund increases D At the end of the fiscal year when the fund issues a statement of its assets and liabilities

At least once daily Explanation: The net asset value is calculated at the end of each business day.

When does the minor take control over the assets in their UGMA account? A Immediately B At age 14 C No later than age 30 D At the age of majority

At the age of majority Explanation: With an UGMA account the ownership transfers to the minor when the child reaches the age of majority which varies by state. Alternatively, if the account is established pursuant to UTMA, the donor may specify the age of transfer when the account is established. The donor can choose between the age of majority up to a maximum age of 25.

Which of the following describes a quote for a closed-end fund? A) NAV and POP B) Forward pricing C) NAV plus sales charge D) Bid and ask

Bid and ask Explanation: When thinking of a closed-end fund, think of a common stock. How does a common stock trade? It trades on an exchange continually throughout the day. It is priced using a bid and ask price, sometimes referred to as a bid and offer. This is the same way that closed-end funds are quoted and traded. NAV and POP refer to the way that open-end funds are quoted and priced.

What type of firms are not members of SIPC? A Broker-dealers that clear trades for other firms B Broker-dealers that sell bonds C Broker-dealers that sell stocks D Broker-dealers that sell only mutual funds or variable annuities

Broker-dealers that sell only mutual funds or variable annuities Explanation: All broker-dealers that sell stocks or bonds or clear these transactions must be members of SIPC. Member firms must advise all new customers in writing at the time of opening an account that they may obtain more information and the SIPC brochure by contacting SIPC. They must provide the SIPC website address and telephone number. Members must provide all customers with this same information in writing at least once per year. Member firms must display an official sign showing membership at each location. They cannot imply that SIPC membership confers approval or a recommendation concerning any security. Broker-dealers that sell only mutual funds or variable annuities only are not members. Firms that are not members must disclose that they are not members.

What type of investment risk relates to the ability of the issuer to remain a profitable organization? A Business risk B Market risk C Economic risk D Interest-rate risk

Business risk Explanation: Business risk occurs when the issuer is unprofitable or fails and the investor loses their money. Interest-rate risk applies to outstanding fixed-income security prices versus interest rates. Market risk is the risk that the entire market declines.

How does an underwriter protect itself if there are market disruptions that make marketing an issue difficult or impossible? A By hedging with put options on the securities being offered B By entering into a best efforts underwriting agreement C By including a market-out clause in the underwriting agreement D By establishing a very large credit line prior to entering into an underwriting agreement

By including a market-out clause in the underwriting agreement Explanation: A market-out clause may be included in an underwriting agreement that releases the underwriting firm from the agreement if there are material adverse circumstances that affect the issuer or market disruptions that make marketing the issue difficult or impossible.

Stockholders are all the following to the corporation, except: A Junior claim status in the event of bankruptcy B Equity position C Debt position D Owner

Debt position Explanation: A stockholder is an owner of the company and has an equity position. In the event of the corporation's bankruptcy, stockholders have a junior claim on assets. A debt position represents a lender or creditor position.

The board of directors of ABC Corporation is holding their quarterly meeting, where they will determine the next quarterly cash dividend. Which of the following dates in the dividend payment process are determined by the board of directors? A Settlement date B Ex-dividend date C Declaration date D Regulation T payment date

Declaration date Explanation: When the board of directors declares a dividend will be paid to shareholders, they will determine the amount of the dividend, the declaration date, the record date, and the payable date. The board does not determine the ex-dividend date, which is set by FINRA. The settlement date of corporate and municipal securities is 2 business days following the trade date, often abbreviated as T + 2. The settlement date of securities transactions is established under Regulation T of the Securities Exchange Act of 1934.

When the supply of goods and services is greater than the demand, this is known as: A) Inflation B) Deflation C) Recession D) Economics

Deflation Explanation: Deflation refers to a decrease in the general level of prices. In this case, the supply of goods and services is greater than the demand. On the other hand, inflation is a general rise in the level of prices. This occurs when the demand for goods and services increases faster than the supply of those goods and services.

What is the key difference between disposable income and discretionary income? A When economic output is strong disposable income will fall and discretionary income will rise B Disposable income does not take necessities such as food, shelter, and clothing into account; discretionary income does account for personal necessities C Disposable income is money that is not needed; discretionary income is money that is paid at the employer's discretion such as a year-end bonus D Disposable income is lower than discretionary income within the same household because expenses of necessities are not considered with disposable income

Disposable income does not take necessities such as food, shelter, and clothing into account; discretionary income does account for personal necessities Explanation: Discretionary income is the amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing), and debts have been paid. This includes money spent on luxury items, vacations, and non-essential goods and services. Disposable income is the amount of money that a household has available for spending and saving after income taxes have been accounted for. It is independent of all costs that need to be paid out to survive. Disposable income is higher than discretionary income within the same household because expenses of necessary items are not removed from the disposable income.

In reviewing prospectuses and registration statements, the SEC: A Does not approve securities registered with it and offered for sale B Guarantees the accuracy of the disclosures made in a prospectus C Passes on the merits of the particular security covered by the registration statement D Guarantees the adequacy of the disclosures made in a prospectus

Does not approve securities registered with it and offered for sale Explanation: The SEC requires that all prospectuses note in bold print that registration and requirements on prospectuses do not mean that the SEC approves them. This includes judgments on the merits of those securities and that it does not guarantee adequacy or accuracy of the information contained.

Which of the following securities would typically trade on either NASDAQ or a traditional stock exchange? A) ETFs and ETNs B) Variable annuities C) Open-end funds D) Unit investment trusts

ETFs and ETNs Explanation: Both ETNs and ETFs are exchange-traded securities. Variable annuities are purchased through the issuing insurance company and do not trade. Mutual funds are redeemed with the issuer and do not trade. Unit investment trusts are typically redeemable back to the issuer.

All the following information must be taken into consideration when building the client profile, except: A) Education level B) Disposable income C) Dependents D) Employment status

Education level Explanation: It is necessary to have both personal and financial information about a client when constructing a customer profile. In addition to the 4 pieces of critical information, some of the other information to consider includes: age, marital status, dependents, employment status, income, expenses, disposable income, discretionary income, assets and liabilities, tax status.

A debt instrument backed by equipment such as vehicles or other machinery is a(n): A Collateral trust certificate B Debenture C Mortgage bond D Equipment trust certificate

Equipment trust certificate Explanation: Mortgage bonds are secured by the corporation's real estate or property owned by the issuer, such as an office building. A debenture is an unsecured bond issue backed only by the creditworthiness of the issuer. A collateral trust certificate is backed by securities of another company. Equipment trust certificates are secured issues backed by leased or purchased equipment, such as vehicles or other machinery, by debtors, such as railroads, trucking companies, and airlines.

Option contracts that can only be exercised on the expiration or maturity date are: A) American B) European C) British D) Canadian

European Explanation: Option contracts that can be exercised any time before expiration during the life of the contract are American style. All equity options trade as American options. Option contracts that can only be exercised on the expiration or maturity date are European style. Both American and European options can trade at any time.

Which of the following SROs requires registration and oversees the activities of BDs and RRs? A) NASAA B) CBOE C) FINRA D) MSRB

FINRA Explanation: While the SEC retains ultimate jurisdiction over financial market regulation, supervision of many of the day-to-day activities of member firms (BDs) and registered representatives (RRs) has been delegated to SROs, which are financed and operated by the member firms. FINRA is the leading SRO in the United States, regulating broker-dealers and registered representatives in the securities industry. CBOE is the examining authority for broker-dealers engaging in the Options market. MSRB is the SRO that governs the broker-dealers and banks that engage in the municipal securities business.

A client has $10,000 cash available in their cash account with XYZ broker-dealer. On Tuesday the client purchases $15,000 of ABC stock, intending on sending a payment of $5,000 by Thursday through an electronic funds transfer. On Wednesday, ABC stock has a sizable increase in price due to a rumor of a potential merger. The client decides to sell the shares of ABC stock for $20,000 on Wednesday. What violation has the client engaged in? A Front running B Backing away C Freeriding D Ghosting

Freeriding Explanation: A cash account is an account where the transactions are paid for with cash, or cash equivalents, within a specified time. Regulation T requires payment no later than 4 business days after the trade date or T+4. Investors must pay for their purchases of securities before selling them. If a customer attempts to profit on and then sell those same securities before paying for them, it is called freeriding and is prohibited under Regulation T.

Deposits to 529 plans are considered: A) Tuition B) Partial payment C) Transfers D) Gifts

Gifts Explanation: Under Section 529 of the IRC, Congress authorized the creation of state-sponsored qualified tuition programs. Contributions to these plans are considered gifts under the federal tax code, and eligibility for participation is not subject to income limitations.

All the following retirement plans must comply with ERISA requirements, except: A Simplified Employee Pension plans B Profit-sharing plans C 401(k) plans D Government plans

Government plans Explanation: ERISA regulates private sector retirement plans. Plans established by the government, a municipality, nonprofit organizations, or individual plans are not regulated by ERISA.

Under FINRA's Know Your Customer rule, registered representatives and member firms must do all the following, except: A Follow customer's instructions B Comply with all laws and regulations C Use due diligence to obtain essential information to service the customer's account D Guarantee the account against market losses

Guarantee the account against market losses Explanation: Under FINRA's Know Your Customer rule, registered representatives and member firms must use due diligence to obtain essential information to service the customer's account, follow the customer's instructions, and comply with all laws and regulations. To verify that the correct information was collected, the RR must send a copy of the customer profile or account record to the customer within 30 days of opening the account or with the customer's next statement. Updates and account information verification must be sent to the client at least every 36 months.

Which of the following is not a characteristic of money market instruments? A Liquid B Investment grade C Short term D High yield

High yield Explanation: Money market instruments are always short term (one-year maximum maturity), have a high degree of safety (investment grade), and are liquid (easily traded between investors). Money market securities are high quality which provides lower yields.

The "Red Flags Rule" was created to identify the possibility of which of the following: A Market manipulation B Identity theft C Unauthorized trading D Insider trading

Identity theft Explanation: As a result of the Dodd-Frank Act, the SEC created Regulation S-ID, the "Red Flags Rule," which requires that firms have reasonable policies and procedures for identifying red flags of identity theft

If a bond is issued with a put provision, under what circumstances would a bondholder exercise this provision? A If the bonds were declining in value due to lower credit ratings or rising interest rates in the market B If the corporate common stock was a better value overall to the investor C If the bonds were increasing in value due to higher credit ratings or falling interest rates in the market D If the investor's investment objective changed from income to growth Good Job!

If the bonds were declining in value due to lower credit ratings or rising interest rates in the market Explanation: Put provisions, found on some bond issues, allow the bondholder to sell the bond back to the issuer at par value on specific dates before maturity. This provision protects the bondholders from declining values of the bonds due to lower credit ratings or rising interest rates in the market.

Why is it generally not advisable to engage in short-term trading of mutual funds? A) Loss of Regulation T advantages B) Low potential for marketability of such funds C) Impact of recurring sales charges and fund expenses D) Regulation M penalties

Impact of recurring sales charges and fund expenses Explanation: Generally, each purchase or redemption results in a sales charge, this would reduce the investor's return. Even no-load funds have operating expenses that reduce returns. Short-term trading doesn't allow for investors to recover those costs through earnings received when held for longer time periods.

Regarding different types of securities offerings, all the following are true, except: A) In an initial public offering (IPO), proceeds will go to the issuer B) In an additional public offering, proceeds will go to the existing stockholders C) In a secondary offering, proceeds can go to investors who are selling their shares D) In a secondary offering, proceeds can go to employees who are selling their shares

In an additional public offering, proceeds will go to the existing stockholders Explanation: In all primary offerings, initial public offering (IPO), or additional public offering (APO), the proceeds go to the issuing company. In secondary offerings, the proceeds will go to existing shareholders who may either be investors, or sometimes employees of the issuer.

The IRS has the authority to issue monetary fines and punishment for violating the: A Internal Revenue Code (IRC) B State income tax rules C FINRA code of procedure D FINRA code of conduct

Internal Revenue Code (IRC) Explanation: The Internal Revenue Service (IRS) is the agency under the treasury department that is responsible for collecting taxes and enforcing tax laws. The IRS has the authority to issue monetary fines and punishment for violating the Internal Revenue Code (IRC). The IRC covers rules concerning income, gift, estate, and capital gains tax.

All the following are paid from the underwriting spread, except: A) Syndicate B) Issuer insiders C) Selling group D) Managing underwriter

Issuer insiders Explanation: The underwriting spread compensates the managing underwriter, syndicate, and selling group.

A customer does not pay for a security purchase by the Regulation T deadline. What must the broker-dealer do? A Lend the money to the client B Automatically extend the deadline 2 business days C Give the client additional time D Liquidate the purchase

Liquidate the purchase Explanation: Payment for orders must be paid for promptly. This is defined as within 2 business days after settlement. If a customer does not pay for a security purchase by the Regulation T deadline, the firm will liquidate (sellout) the position and freeze the account for 90 days.

Municipal fund securities fall under regulation of the: A FINRA B NASAA C MSRB D SEC

MSRB Explanation: Municipal fund securities are funds or trusts that are offered by individual states or local governments. These types of investments fall under the regulation of the MSRB as municipal securities. A program disclosure document is used with the sale of municipal fund securities since they are not subject to prospectus requirements. Municipal fund securities include Section 529 plans, ABLE plans, and local government investment pools.

Under the penny stock rules, an established customer is one who has held an account with a broker-dealer for at least 1 year and has within the past calendar year: A Made a purchase of either stocks or bonds with a market value of $1,000 or more in the SIPC account B Made a deposit of cash or securities into the brokerage account C Made a purchase or sale of either stocks or bonds in the account D Made a purchase or sale of a penny stock in the account

Made a deposit of cash or securities into the brokerage account Explanation: Under the penny stock rules, an established customer is someone who has held an account with a broker-dealer for at least 1 year and has made a deposit of funds or securities into the account or has made at least 3 unsolicited penny stock transactions of different issuers on 3 different occasions in the account.

All the following statements are true for securities, except: A Common examples of a security include stocks, bonds, and mutual funds B Securities may be sold on an exchange or over-the-counter C A security is an investment contract offered through a legal entity managing the efforts for an expected profit D Market participants are included under the definition of a security

Market participants are included under the definition of a security Explanation: Market participants are included under the definition of a person.

The record date to receive a dividend is set for Tuesday, January 14th. If a current stockholder wishes to receive the dividend, but want to sell their shares, they must sell the stock in a regular way trade no earlier than: A Friday January 10th B Tuesday January 14th C Thursday January 9th D Monday January 13th

Monday January 13th Explanation: If an individual owns common stock and wishes to receive the dividend, that individual cannot sell their shares prior to the ex-date. The ex-date is 1 business day prior to the record date, in this example Monday January 13th. If the stock is sold on or after January 13th, the seller would still be entitled to receive the dividend. If the stock is sold before this date, the individual that purchases the shares would be entitled to receive the dividend.

If an account is frozen, which of the following statements is correct? A Money (or securities) must be in the account before a buy (sell) order may be placed B The customer is prohibited from establishing any new positions or liquidating existing positions until the freeze is lifted C All purchases must be paid for within 24 hours D The customer is prohibited from establishing any new positions until the freeze is lifted

Money (or securities) must be in the account before a buy (sell) order may be placed Explanation: A customer who violates Regulation T will have their account restricted or frozen for 90 days. Customers can still trade in a frozen account, but they must have the cash in the account before making any purchases. This is called cash up front (CUF).

The Securities Act of 1933 covers which of the following? A New issues of securities that must be sold with a prospectus B Transactions involving accredited investors C Securities traded in the secondary market D Any agreement for the sale of securities between an issuer and an underwriter

New issues of securities that must be sold with a prospectus Explantation: The Securities Act of 1933 covers new public issues of securities and requires that a prospectus accompany the offering. Securities traded in the secondary market are covered in the Securities Exchange Act of 1934. Agreements for the sale of securities between an issuer and an underwriter could include private sales of securities and/or sales in the secondary market. Transactions involving accredited investors are Regulation D offerings. They are private placements to a limited number of people meeting certain suitability standards. Regulation D offerings do not require registration and are not covered by the Act of 1933.

Which of the following is false regarding a no-load fund? A) The investment company is the distributor B) The NAV will equal the POP C) No fees can be charged D) Shares are purchased and redeemed directly from the fund

No fees can be charged Explanation: With a no-load fund the NAV will equal the POP, there is no sales charge. Customers will purchase and redeem shares directly from the fund. Even though a sales charge is not imposed, the fund still charges management and administrative fees, and can assess a 12b-1 fee no greater than 0.25% (25 basis points) per year.

The AZA Corporation declares a dividend payable on May 1 to all shareholders of record on April 15. If an investor purchases AZA common stock in a regular-way settlement on April 14, the investor is: A Required to settle the transaction on April 15 B Entitled to the dividend C Not entitled to the dividend D Entitled to an accrued dividend

Not entitled to the dividend Explanation: For regular-way settlement on a stock, the ex-dividend date is 1 business day before the record date. Since the stock was purchased on the ex-dividend date, the investor will not receive the dividend.

Which of the following tools is most often used by the Federal Reserve to control the money supply? A) Setting margin requirements B) Setting the discount rate C) Open market operations D) Setting reserve requirements

Open market operations Explanation: The Fed influences the money supply by buying and selling U.S. government securities in the open market with a select group of banks and broker-dealers, called primary dealers. This activity is done regularly to control the money supply. Repos are used to increase the money supply, having an easing effect on the economy. Reverse repos are used to tighten the money supply.

For a registered representative to be able to trade in a customer's account without specific trade instructions for each trade, all the following must be in place, except: A Trades approved, and account reviewed by a principal B Profit-sharing agreement C Customer provided written authorization D Initial account acceptance by the broker-dealer

Profit-sharing agreement Explanation: A discretionary account gives an RR or broker-dealer trading authority in an account. A discretionary account can be established with either limited or full power of attorney (POA). No broker-dealer or registered representative will exercise any discretionary power in a customer's account unless that customer has given prior written authorization. The account must be accepted by the broker-dealer, as evidenced in writing by a qualified principal. A discretionary trade must be approved by the broker-dealer promptly after the trade is done. All discretionary accounts must be reviewed at frequent intervals to review suitability and to detect and prevent transactions that are excessive in size or frequency.

A broker-dealer holds client securities with the firm's securities. This practice is: A Acceptable, provided proper paperwork is kept B Acceptable when it only involves cash not securities C Prohibited and defined as commingling D Prohibited, unless approved by the customer

Prohibited and defined as commingling Explanation: Commingling is a prohibited illegal practice that occurs when a broker-dealer or registered representative combines their securities and/or money with client's securities and/or money.

A registered representative is out to lunch with a college friend, during which the friend says, "I heard that ABC Fund has taken a large position in XYZ stock". Based on this conversation, the representative calls clients and recommends they immediately purchase XYZ stock. This would be: A Permitted without restriction B Permitted because it is not inside information C Prohibited and unethical as this recommendation is based on a rumor D Prohibited and fraudulent as this recommendation is based on inside information

Prohibited and unethical as this recommendation is based on a rumor Explanation: This representative is making recommendations based on a rumor, which is unethical and prohibited.

A new client just opened a margin account with EFG Capital Management and is ready to place their first trade. When does the broker-dealer need to obtain a signed margin agreement from this client? A A signed margin agreement is not required B Within 3 business days of the initial transaction in the account C Before the initial transaction in the account D Promptly after the initial transaction in the account

Promptly after the initial transaction in the account Explanation: It is a violation to execute any transaction in a margin account without securing from the customer a properly executed (signed) written margin agreement promptly after the initial transaction in the account.

During an IPO, a security must be sold by: A Prospectus B Written agreement C Word of mouth D Marketing brochure

Prospectus Explanation: As of the effective date, the syndicate and selling group members may complete sales of the new offering made by use of the final prospectus, which must be provided at or prior to confirmation of the sale. It is a requirement of the Securities Act of 1933. A prospectus provides the potential investor with full and fair disclosure of material facts which will help the investor determine whether to move forward with a purchase of the securities being offered.

Form CRS was created under Regulation Best Interest. The use of the form is mandated for all new broker-dealer customer relationships. In what format must the mandated categories be presented? A Alphabetized B Disciplinary history listed first C Bold font D Question and answer format

Question and answer format Explanation: Form CRS, which is a form that briefly describes the broker-dealer's relationship with their clients, must be delivered to each retail customer and filed with the SEC. Firms that are registered as both broker-dealers and investment advisers are encouraged to create separate forms that pertain to their relationships under each entity. Firms must provide the information in a specific order using specific headings for each category, which are in question and answer format. The first category on the form is relationships and services. The specific heading for the category is: "What investment services and advice can you provide me?".

A shareholder owning 525 shares of an ABC mutual fund may not do which of the following? A Redeem any portion of the shares B Redeem the shares at the previous day's price C Pledge the entire value as collateral for a loan D Rely on the mutual fund to provide year-end tax information

Redeem the shares at the previous day's price Explanation: Shares are always purchased/redeemed at the next calculated NAV. Mutual fund shares that have been owned fully paid for at least 30 days may be pledged as collateral in a margin account. Investors may redeem any amount of their shares at any time. The fund provides each investor a 1099 at year end that reports tax information.

Which of the following statements is true regarding secondary offerings? A Secondary offering transactions take place in the secondary market B They are considered a primary offering since the shares have already been issued C Shares are sold through an underwriter D Sale proceeds go to the issuer

Secondary offering transactions take place in the secondary market Explanation: A secondary offering is not a primary offering because the shares have already been issued. Investors sell the securities to other investors and sale proceeds go to the seller. Proceeds go to the issuer in an initial public offering where shares are sold to the public.

A registered representative meets with a client who wishes to invest in ABC International Funds. The employing broker-dealer does not currently have any ABC Funds on their approved mutual fund list. The registered representative does research and thinks it's a good fit for the client and sells the funds to the client privately without disclosing the transaction to the firm. What is this called? A Selling away B Outside business activity C Proprietary trading D Matched sale

Selling away Explanation: Registered representatives may not sell investments the broker-dealer does not offer unless they disclose the transaction to their firm. This practice is known as selling away, and it can lead to disciplinary action by regulators and the broker-dealer as well.

What type of contracts trade on the Chicago Board Options Exchange (CBOE)? A Customized B Variable C Standardized D Fixed

Standardized Explanation: The Chicago Board Options Exchange (CBOE) is the examining authority for broker-dealers engaging in the options market. The CBOE is an exchange that trades in standardized options contracts, including options on stocks, foreign currencies, interest rates, and exchange-traded funds. As an SRO, the CBOE is charged with regulating the trading activities and sales practices of its member firms.

Corporate bonds pay interest on a semiannual basis to bondholders. The interest received is: A Taxable when the bond matures B Subject to ordinary income tax in the year received C Not subject to taxation D Subject to capital gains tax in the year received

Subject to ordinary income tax in the year received Explanation: Corporate bonds often offer attractive coupons, but investors must realize that the coupon (interest) on the bond is subject to taxation, at ordinary income rates, in the year earned.

A shareholder's ownership interest in a mutual fund will pass to their estate upon death under which form of account ownership? A UTMA B POA C Tenants in common D Joint tenants with right of survivorship

Tenants in common Explanation: If the account were JTWROS, the remainder would pass to the surviving tenant. In a joint account with tenants in common, upon an owner's death, the investor's portion passes over to their estate.

A registered representative meets the definition of MFP for a municipal securities firm that is acting as an underwriter for that municipal issuer. In their spare time the representative is a volunteer to the election campaign of a candidate for mayor of the issuer. The representative attends a reception dinner for the candidate that costs $400 a plate. Which of the following statements is true? A The $400 out of pocket expenses are within the allowable amount B The $400 out of pocket expenses exceed the political contribution limit resulting in the municipal securities firm being banned as an underwriter for that issuer for a period of 2 years C The representative is entitled to vote in the election and can make contributions up to $500 D This is permitted because the MFP did not contribute to the campaign, the cost of $400 was for the reception which falls outside the restrictions

The $400 out of pocket expenses exceed the political contribution limit resulting in the municipal securities firm being banned as an underwriter for that issuer for a period of 2 years Explanation: MSRB Rule G-37 specifically prohibits brokers, dealers, or municipal securities dealers from engaging in municipal securities business with an issuer within two years after any contribution is made to an official of the issuer by either the broker, dealer, municipal securities dealer, or any municipal finance professional (MFP) associated with these firms. There is one exception to this rule, which is considered a de minimis rule. The prohibition would not apply if the only contributions to officials of issuers are made by MFPs entitled to vote for such officials, provided the contributions are not in excess of $350 by each MFP to each official, per election. The $400 out of pocket expense in this question has exceeded the de minimis rule.

Which of the following statements concerning an individual email is correct? A) The email is considered correspondence and must be filed with FINRA within 10 days of being sent B) The email is considered correspondence and subject to spot checks based on the firm's procedures C) All email is exempt from FINRA rules and is simply subject to whatever "house rules" govern a given branch D) The email is considered retail communication and subject to internal approval prior to distribution

The email is considered correspondence and subject to spot checks based on the firm's procedures Explanation: An individual email is considered correspondence under FINRA rules. Correspondence is subject to house rules which may involve spot checks or sampling. Correspondence is not required to be filed with either FINRA or the SEC.

Who establishes a trust account? A The fiduciary B The grantor C The trustee D The beneficiary

The grantor Explanation: Trust accounts are established by a grantor who provides the investment. The trustee acts as the fiduciary and manages the assets on behalf of a beneficiary. All transactions should be based on the beneficiary's needs, not the trustee's needs. A trust agreement is required to open the account and names both the trustee and the beneficiary. The agreement specifies the trading authority of the trustee, who may also be the grantor.

Which of the following statements regarding the separate account of a variable annuity is false? A The insurance company bears the investment risk in the separate account B The securities in the separate account are kept separate from the insurance company's general account C Separate accounts must be registered under the Investment Company Act of 1940 D Separate accounts are only issued by insurance companies

The insurance company bears the investment risk in the separate account Explanation: The policyholder, not the insurance company, bears the investment risk in the separate account. The separate account contains professionally managed portfolios of securities and must be registered as an investment company.

Under the Uniform Transfers to Minors Act, securities contributed by the donor must be transferred to: A The name of the custodian for the benefit of the minor B The parents of the minor C Street name D The name of the donor

The name of the custodian for the benefit of the minor Explanation: All securities in the account must be in the custodian's name for the benefit of the minor.

The discount rate used by the Fed is: A The interest rate banks charge each other for loans B The discount given on sales prices of repurchase agreements C The rate the Fed charges member bankers when borrowing money directly from the federal reserve D The percentage of bank's demand deposits that they are required to keep on reserve

The rate the Fed charges member bankers when borrowing money directly from the federal reserve Explanation: The Fed's discount rate is the rate the Fed charges its member banks for loans to meet their overnight reserve requirement. T The discount rate is the only rate set by the Fed. The Fed funds rate is the interest rate banks charge each other for loans.

An issuer has a standby underwriting agreement with its underwriter for a new issue of 10,000 shares. The security trades on the New York Stock Exchange. At the end of the first 30 days of the offering, only 6,000 of the shares have sold. Who is obligated to purchase the other 4,000 shares? A The New York Stock Exchange B The market maker C The underwriter D Existing shareholders

The underwriter Explanation: In a standby underwriting, the underwriter agrees to purchase any of the new issue that is not purchased by those who have preemptive rights. The underwriter is acting as a principal and assumes the risk for any unsold shares. Existing shareholders have the right but not the obligation to buy more shares and doing so will maintain their proportionate ownership interest. This is a type of firm commitment underwriting.

If a person does not fulfill their letter of intent: A The underwriter can sue them B The underwriter can grant an extension C The underwriter can lend the customer money D The underwriter can liquidate shares in escrow and use the proceeds to pay the sales charge

The underwriter can liquidate shares in escrow and use the proceeds to pay the sales charge Explanation: Either the investor pays the additional sales charge, or the fund will liquidate enough shares to pay it. The fund cannot sue and will not grant extensions.

Which statement is true regarding the writer of a put option? A The writer is bearish on the market B The writer is obligated to buy from the buyer C The writer pays a premium to the buyer D The writer is the buyer

The writer is obligated to buy from the buyer Explanation: The put writer receives a premium for agreeing to let the put buyer sell (put) the stock to the seller at a future date. The seller (writer) of the put is bullish on the stock and is obligated to fulfill the contract if the buyer exercises it.

If the call holder exercises their option, what happens? A The writer must close out their position immediately B The writer must sell the underlying security at the strike price C The writer must purchase the underlying security at the strike price D The writer must meet their margin call immediately

The writer must sell the underlying security at the strike price Explanation: When an option contract is exercised, the writer of the contract is notified that this occurred. It lets the writer know that they will have to fulfill the contract. Prior to being exercised, the writer had an obligation. Once exercised, that obligation becomes an assignment. If a call is exercised, the writer needs to sell the underlying security at the strike price. If a put is exercised, the writer needs to purchase the underlying security at the strike price.

All the following are characteristics of a general obligation bond, except: A They are used to fund specific projects B They are backed by the full faith, credit, and taxing power of the municipality that issues them C Payments come from the general revenue of the governing body D They are considered to be low risk

They are used to fund specific projects Explanation: A general obligation bond differs from a revenue bond primarily by its revenue source: payments come from the general revenue of the governing body, rather than the revenues of a specific project, such as a stadium or bridge. Because they are backed by the full faith and credit of the municipality that issues them, they are considered to be low risk. However, GO bonds are generally not used to fund specific projects.

What is an advantage of investing in hedge funds? A Hedge funds have high risk B They are only open to accredited investors, making them highly exclusive and desirable C They seek to achieve aggressive returns, offering high potential rewards D They are not registered with the SEC, so there are no rules to follow

They seek to achieve aggressive returns, offering high potential rewards Explanation: Hedge funds are high-risk investments for sophisticated investors who seek aggressive yield. They use sophisticated investment strategies and tactics to protect against downside market risk. A primary advantage of investing in hedge funds is the upside potential growth. The disadvantages are that hedge funds have high fees and they are illiquid, as they do not trade.

A corporation would want to buy back its shares for all the following reasons, except: A) To reduce the amount of dividends it is required to pay out B) To try to prevent a potential merger by acquiring more than a majority of the outstanding shares C) To increase its earnings per share D) To reduce the number of outstanding shares

To reduce the amount of dividends it is required to pay out Explanation: When corporations want to invest in themselves, they create a buyback program. The corporation purchases their own securities on the secondary market, or they present existing shareholders with a tender offer. With a tender offer, the corporation offers to purchase some of the shares currently held by investors at a premium. The investor has the option of tendering all, some, or none of their shares. There are several different reasons that a corporation might create a buyback program. One reason is to reduce the number of shares that are held publicly and increase the earnings on the ones remaining. Another reason is to stop a potential merger by acquiring more than a majority of the outstanding shares. Corporations must notify the SEC of their intent to purchase securities through a tender offer.

Shares that a corporation repurchases from existing shareholders are referred to as what type of stock? A) Common B) Preferred C) Treasury D) Corporate

Treasury Explanation: Shares that have been previously issued and repurchased by the company are referred to as treasury stock.

Which of the following entities is the executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States? A Treasury Department B Internal Revenue Service (IRS) C Federal Deposit Insurance Corporation (FDIC) D The Federal Reserve

Treasury Department Explanation: The IRS is the agency under the Treasury Department that is responsible for collecting taxes and enforcing tax laws. The FDIC is an independent federal agency that protects bank account deposits in U.S. banks from bankruptcy. The Fed acts as the central bank of the United States.

To register an associated person with a member firm, which form is filed? A) U5 B) U4 C) U6 D) BD

U4 Explanation: The standard registration form is Form U4. This will be filed electronically with the Central Registration Depository (CRD). Form U5 is used by the employing firm to terminate a registered representative. Form U6 is the Uniform Disciplinary Action Reporting form used to report disciplinary actions against broker-dealers and associated persons. Form BD is the uniform application for broker-dealer registration.

Under the Investment Company Act of 1940, which of the following would not be considered a management company? A Closed-end fund B Open-end fund C Nondiversified mutual fund company D Unit investment trust

Unit investment trust Explanation: Management companies include both open- and closed-end funds, whether diversified or not. Management companies and unit investment trusts are the most common types of investment companies under the Act.

What does beta measure? A) It's a risk measurement that compares the extra return achieved by assuming extra risk B) The degree to which an option is exposed to shifts in the price of the underlying asset C) A stock's price movement relative to the stocks in its industry D) Volatility of a security or portfolio in comparison to the entire market or a benchmark

Volatility of a security or portfolio in comparison to the entire market or a benchmark Explanation: Volatility is measured in terms of "beta". Beta describes the likely movement of a security compared to the market: Higher beta means that the price of the security is more likely to rise or fall dramatically over a short time; lower beta means that a security's value does not fluctuate as dramatically or as frequently.

Which index is the broadest measure of the market? A Wilshire Index B S&P 500 C Dow Jones Industrial D Value Line

Wilshire Index Explanation: The Wilshire index is the broadest index and is considered the "total market" it was originally started with 5,000 stocks. The Dow Jones Industrial consists of 30 large-cap companies chosen to reflect the U.S. economy, most of which are listed on the NYSE. The Value Line index covers 1,700 stocks that are listed on the NYSE, AMEX and NASDAQ. The S&P 500 includes 500 largest capitalization companies.

A statement that advises the customer to report promptly any inaccuracy or discrepancy in that person's account to the brokerage firm must be included: A With the account statements B Only at account opening with the new account disclosures C With every order ticket submitted D As part of the annual disclosures that must be sent to customers

With the account statements Explanation: Broker-dealers must send account statements to customers at least quarterly. In any account where there is activity, statements will typically be sent at least monthly. The statement must include a description of any securities held in the account, money balances, or any activity that occurred in the account since the previous statement was sent. There must also be a statement that advises the customer to report promptly any inaccuracy or discrepancy in that person's account to the brokerage firm.

If a bond is purchased at a premium, which of the following is true? A) Yield to maturity will be equal to the current yield B) Yield to maturity will be less than the nominal yield C) Yield to maturity will be greater than the nominal yield D) Yield to maturity will be greater than the current yield

Yield to maturity will be less than the nominal yield Explanation: When a bond is purchased at a premium, that amount of premium needs to be taken into consideration in determining the bond's overall yield. The investor will receive the par value at maturity, which will be less than the purchase price. That, along with the coupon payments, will drive the yield to maturity lower than the current and nominal yields.

A registered representative met with a potential client and inquired about the client's feelings on risk and potential returns. The client stated their goal is to potentially increase the portfolio's value as quickly as possible, seeking maximum long-term returns, while accepting maximum risk. Based just on this information, this client: A Is risk-averse B Has a low risk tolerance C Has a moderate risk tolerance D Has a high-risk tolerance

has a high-risk tolerance Explanation: This client is looking for maximum capital appreciation and willing to accept higher risk, this client has a high-risk tolerance.