SIE Exam

What is the Current Yield for a Preferred stock which has a par value of $100 and a current market price of $95 with an annual dividend payment of 5%? (A)5.26 % (B)1.9% (C)1.31% (D)5%

(A) 5.26 % (5/95) *100= 5.26%

Does In the Money mean it's Profitable for the Long Exercising Party?

No

ABC is trading at 45 per share 1 ABC 40 Call at 7 What is the the Break Even?

$47 Bought at $40, but you paid $7 per share

OCC- Options Clearing Corp.

-Regulator of the Options Market -Issues & Guarantees Options Contracts, Ensures performance

An investor sells short 100 shares of XYZ stock at 61 and buys 1 XYZ 65 call for 1.50 When the market price of ABC is 62. What is the investor's breakeven on the combined positions? A. 59.5 B. 60.5 C. 62.5 D. 63.5

A. 59.5 When an investor buys a call to protect a short stock position, the investor will breakeven when the stock price is equal to the price at which the stock was sold short minus the call premium paid. 61 - 1.50 = $59.50. The investor is bearish and will make money only when the short position can be covered at a price below this point because of the premium that was paid for the call.

If you're Long an Option what do you want? A. In the Money B. At the Money C. Out of the Money D. None of the above

A. In the Money

American Style Option

Can exercise at anytime

What does At the Money Mean?

Strike = Current Market Value Indifferent to exercise the Option because you either sell in the Market at Market Value or exercise the Option and sell to Short Put Market Value

If an Option is At the Money, who is most likely showing a profit on the trade? The Long (Buyer) or Short (Writer) party?

The Short (Writer)

Long A Call

The right to buy from a seller

Do all In the Money Options get exercised?

Yes

ABC is trading at 45 per share 1 ABC 40 Call at 7 Did you lose money?

Yes. Bought at $40, Sell at $45 (making $5/share) but you paid $7/share so you end up with $-2

The yield on a convertible bond will decrease when the price of the underlying stock [A] increases. [B]decreases. [C] is at parity with the bond [D] remains unchanged.

[A] increases. If a bond is convertible into common stock, the price of the bond will tend to move with the price of the stock. When the price of the underlying stock increases, the yield on the bond will decrease (remember, as bond yields decrease, bond prices increase).

A put writer's maximum gain and maximum loss are which TWO of the following: I. The maximum gain is unlimited. II. The maximum loss is limited. III. The maximum gain is limited to the premium received. IV. The maximum loss is limited to the premium received. [A] I and II [B] II and III [C] I and IV [D] III and IV

[B] II and III A put writer has a maximum profit potential of the premium received and a maximum risk of loss of the exercise price minus the premium paid which is a limited amount.

A customer of a SIPC member firm which is in liquidation and for which a trustee has been appointed must submit his claim to [A] the failed broker-dealer. [B]the SEC. [C]the trustee. [D] SIPC.

[C]the trustee. If a broker-dealer fails, the local Federal District Court will appoint a SIPC Trustee to liquidate the firm.

The main purpose of the Securities Exchange Act of 1934 is to regulate [A] the sale of new issues, prospectuses, and disclosures [B] the distribution and sale of investment companies [C] the issuance of Treasury securities to the public [D] broker-dealers and markets on which securities trade

[D] broker-dealers and markets on which securities trade The Securities Exchange Act of 1934 regulates the secondary market which is the exchanging of securities after they have been issued to the public. The 1934 Act also regulates stock exchanges, broker-dealers, and some SROs, including FINRA.

Which of the following statements about Roth IRA plans is TRUE?

[D] The qualified distributions of a Roth IRA plan are not taxable. Qualified distributions from a Roth IRA are not taxable. Non-qualified distributions from a Roth IRA would be subject to a 10% penalty tax. In a Roth IRA, the maximum contribution for 2021 is $6,000 (same as 2020). There is an additional "catch-up" contribution of $1,000 allowed for individuals who are at least 50 years of age. Like Traditional IRAs, contributions are allowed after age 72. Minimum distributions from a ROTH IRA are NOT required by the age of 72. Investment in common stock is allowed in a Roth IRA.

Which one of the following is true regarding a stock split? [A] The corporate assets of the company will lose book value. [B] The par value of the stock is unchanged. [C] The existing stockholders are given more rights than they had before the split. [D] The stockholder's percentage ownership remains unchanged.

[D] The stockholder's percentage ownership remains unchanged.

An unsecured bond is also known as a(n) A. indenture. B. collateral trust bond. C. debenture. D. private activity bond.

C. debenture. Unsecured bonds are also known as debentures.

A customer deposits $2,000 of cash into a brokerage account in the morning and $10,000 in cash into the same account that afternoon. The firm is required to file A. a SAR. B. a CMIR. C. a CTR. D. nothing at this time, but this suspicious activity should be monitored.

A customer deposits $2,000 of cash into a brokerage account in the morning and $10,000 in cash into the same account that afternoon. The firm is required to file A Currency Transaction Report (CTR) must be filed with FINCEN within 15 days for any cash deposits in excess of $10,000 in a single day.

When must the brokerage firm deliver a customer confirmation to the customer? A. At or before completion of each transaction B. When an order is placed C. Upon the customer's request D. Within three days of trade date

A. At or before completion of each transaction Confirmations must be delivered to customers at or before completion of each transaction (aka by settlement).

Which of the following regulators enforce the MSRB rules for securities firms? A. FINRA B. Federal Reserve C. Comptroller of the Currency D. FDIC

A. FINRA The MSRB creates rules, but does not enforce its own rules. The MSRB rules are enforced by FINRA for securities firms. Within banks, they are enforced by the Federal Reserve, Comptroller of the Currency, and the FDIC.

Which of the following terms describes a broker-dealer's practice of interjecting another broker-dealer into the middle of a trade, resulting in an increase in commission at the customer's expense? A. Interpositioning B. Front-running C. Churning D. Collaboration

A. Interpositioning FINRA rules prohibits broker-dealers from interpositioning a third party between the customer and broker for purposes of avoiding or evading the best execution requirement, or to generate additional fees and commissions.

What type of order should Martin enter if his objective is to buy 500 shares of Cisco stock as soon as possible at the best price available? A. Market B. Limit C. Good-til-cancelled D. Trailing stop

A. Market A market order gives the broker instructions to buy or sell a specified quantity of securities immediately, as soon as the order reaches the market. A full execution of the order is assured but the execution price is unknown.

Which of the following organizations guarantees the performance of standardized options contracts? A. OCC B. CBOE C. FINRA D. SEC

A. OCC The Options Clearing Corporation (OCC) is the world's largest equity derivatives clearing house. As a clearinghouse, the OCC also acts as guarantor, ensuring that the obligations of the contracts it clears are fulfilled.

A husband and wife wish to open a brokerage account in which the husband will own 60% and the wife 40%. At either owner's death, the owner's portion will be liquidated and distributed to his/her beneficiary. What type of account should they open? A. Tenancy in common B. Joint Tenancy with Rights of Survivorship C. Partnership D. Tenancy by the Entirety

A. Tenancy in common Under a Tenancy in Common (or Joints Tenants in Common account), each owner has a specified percentage of the entire account. At each owner's death, his/her portion of the account is liquidated and distributed to his/her beneficiary.

When a broker-dealer acts on an agency basis to help a customer complete trades, the firm normally is compensated through A. commissions. B. mark-ups. C. asset-based fees. D. transaction surcharges.

A. commissions. Acting as an agent, broker-dealers normally charge commissions. Acting as principals, they markup securities sold from their own inventory.

All of the following sectors are considered cyclical EXCEPT A. healthcare. B. hotel. C. steel. D. furniture.

A. healthcare. The healthcare industry is considered a recession-proof (i.e. defensive) sector because it remains constant regardless of the ups and downs of the economy.

An 80 -year-old individual would be least likely to purchase a A. hedge fund. B. treasury bond. C. bank CD. D. money market fund.

A. hedge fund. An individual who is retired, or in the later stages of life, would not be likely to make an investment that could result in the complete loss of their capital, or one that would require a long-term investment horizon.

When calculating total return on a bond, A. interest earned is added to any capital gain, and this result is then divided by the initial purchase price. B. interest earned is subtracted from any capital gain, and this result is then divided by the initial purchase price. C. interest earned is divided by the redemption value of the bond. D. interest earned is subtracted from the redemption value of the bond.

A. interest earned is added to any capital gain, and this result is then divided by the initial purchase price. Total return on a bond is determined by adding the interest earned during the time period to any capital gain, then dividing this result by the initial purchase price of the bond.

The Nasdaq market is a(n) A. negotiated market. B. auction market. C. transfer market. D. double-auction market.

A. negotiated market. Nasdaq is a negotiated market where market-makers negotiate a price with other customers and broker-dealers.

Penny stocks present added risk to customers because of A. their potential lack of liquidity. B. their high surrender charges. C. their low potential for return. D. their potential for exposure to adverse tax consequences.

A. their potential lack of liquidity. Penny stocks are stocks priced below $5 per share that do not trade on an exchange. They are frequently thinly traded, which means that there may be no market for the stock if customers want to liquidate their positions. Because of this market risk additional disclosure must be made to all buyers of penny stock.

With regard to the price of closed-end fund shares held by investors which of the following statements is TRUE? A. The price is set by formula each business day B. Shares may be sold at a discount or premium to their NAV C. Shares are sold at the price calculated at the close of business on that day D. Shares are sold at a discount when the securities in the fund have increased in value relative to their NAV

B. Shares may be sold at a discount or premium to their NAV Closed-end company shares trade in the secondary market on exchanges. Their prices are determined by market supply and demand and therefore may be priced at a premium or discount to their NAV.

All the following are exempt from the registration requirements of the Securities Act of 1933 except A. A rated municipal bonds. B. AAA rated corporate bonds. C. US Treasury bonds. D. domestic bank securities.

B. AAA rated corporate bonds. Corporate securities are not exempt from registration under the Securities Act of 1933. They must be SEC registered.

When opening a minor's account, the social security number to be used is that of the A. parent. B. minor. C. custodian. D. registered rep.

B. minor. The social security number of the minor is used, as the minor is the legal owner of the assets.

Preferred stock includes which of the following features? I. Voting rights II. Dividends if declared by the Board of Directors III. Priority over debentures in a corporate liquidation A. I only B. II only C. III only D. I, II and III

B. II only Preferred stock pays dividends if declared by the Board of Directors. Preferred stock generally does not have voting rights. While it has priority over common stock in the event of a corporate liquidation, it does not have priority over corporate debt, including debentures.

Joe is a registered rep currently employed by MidWest Broker-Dealer, a St. Louis based firm. Joe likes to leave downtown and drive through the rural fields of the Midwest on the weekends. He so enjoys the open plains that he chats with his 12 closest family members to borrow $200,000 and open his very own farm. Which of the following is true regarding this action? A. Joe must notify MidWest that he is borrowing money from family members B. Joe must notify MidWest that he is engaging in outside business activity C. Joe must notify MidWest that he is engaging in an outside business activity and must await permission from his firm before moving forward D. This type of outside business activity is prohibited by FINRA rules

B. Joe must notify MidWest that he is engaging in outside business activity Outside business activity requires the firm to be notified of the full details of the activity. It does not, however, require permission from the firm. Borrowing money from family members does not require permission from a broker dealer.

Passive losses generated by a limited partnership may be used to reduce which of the following? A. Ordinary income only B. Passive income only C. Both ordinary income and passive income D. Capital gains from the sale of appreciated investments only

B. Passive income only Passive losses may be used to offset earnings from other passive sources only. They cannot be used to offset investment income or ordinary income.

When comparing rights and warrants, which of the following statements is TRUE? A. Warrants have shorter expiration periods than rights B. The exercise price of a right is generally below the price of the stock when the right is issued; the exercise price of the warrant is generally above the price of the stock when it is issued. C. Rights are often added to bond issues as sweeteners; warrants are offered to existing shareholders to permit them to maintain their proportionate interest in the company when additional shares are issued D. Warrants protect shareholders against dilution, rights do not

B. The exercise price of a right is generally below the price of the stock when the right is issued; the exercise price of the warrant is generally above the price of the stock when it is issued. Rights are short-term instruments that allow a shareholder to purchase the stock below its market price for a period that usually expires after 4-6 weeks. They are issued to existing shareholders in proportion to their ownership interest, so that if exercised, they allow the shareholder to maintain their percentage of ownership, or protect against dilution. Warrants are long term instruments and are often used as sweeteners in corporate bond issues. They do not protect shareholders from dilution.

Which of the following is not an example of a restricted person under FINRA rules? A. The spouse of a restricted person B. The uncle of a restricted person C. The brother-in-law of a restricted person D. The child of a restricted person

B. The uncle of a restricted person Restricted persons include immediate family members of restricted persons. Immediate family members under this rule include spouses, siblings, children, parents, and in-laws. Grandparents, aunts, uncles, cousins, and ex-spouses are not considered restricted persons and therefore can freely invest in IPOs.

The credit quality of an exchange-traded note is A. primarily connected to the strength of the underlying security. B. based on the credit worthiness of the issuer, typically the investment bank that structures the note. C. usually very strong, since they are commonly sold by broker-dealers who must meet minimum capital standards. D. always difficult to determine owing to the lack of disclosure required when selling these products to the public.

B. based on the credit worthiness of the issuer, typically the investment bank that structures the note. The credit quality of an exchange-traded note is based on the creditworthiness of the issuer, usually an investment bank that structures the note and sets its terms. Importantly, the credit quality is not based on the underlying portfolio for which the performance of the investment is based upon.

A municipal finance professional at JoeBrokerDealer made a contribution of $500 to candidate in a local election that resulted in a ban on underwriting activity. A month later the MFP joined a new municipal securities firm, JaneBrokerDealer. The remainder of the two-year ban will apply to A.neither JoeBrokerDealer or JaneBrokerDealer. B. both JoeBrokerDealer and JaneBrokerDealer. C. JoeBrokerDealer only. D. JaneBrokerDealer only.

B. both JoeBrokerDealer and JaneBrokerDealer. JoeBrokerDealer will be subject to the ban for two years after the contribution was made even if the MFP leaves the firm. JaneBrokerDealer is also subject to the ban for the same period, even though the contribution was made while the MFP was associated with another municipal securities firm.

A communication made available to 20 institutional clients and 20 retail clients is classified as A. retail communication. B. correspondence. C. institutional communication. D. a blog post.

B. correspondence. A communication made available to retail investors cannot be classified as institutional. If the number of retail recipients is up to and including 25 persons, it is classified as correspondence. For larger audiences (more than 25 retail persons), it is considered retail communication.

A representative's personal account has been identified for review because of account activity in which securities were bought and quickly sold, often on the following day. This may be evidence of the prohibited practice called A. commingling. B. freeriding. C. front-running. D. selling away.

B. freeriding. Freeriding is the prohibited practice of entering a trade to buy securities, then selling them the following day without having had sufficient funds in the account to pay for the trade.

When opening a margin account, the agreement that customers sign to pledge their securities as collateral for a loan from the broker-dealer is the A. margin agreement. B. hypothecation agreement. C. re- hypothecation agreement. D. loan agreement.

B. hypothecation agreement. Customers that open margin accounts must sign a hypothecation agreement to pledge their securities as collateral for loans from the broker-dealer for margin account purchases. The broker-dealer may then rehypothecate the securities to the bank, meaning that they are pledged to the bank as collateral for loans to the broker-dealer for lending to customers.

Bonds that are issued by state and local governments but benefit a private corporate are A. double-barreled bonds. B. industrial revenue bonds. C. special assessment bonds. D. moral obligation bonds.

B. industrial revenue bonds. Industrial development bonds are issued by governments for the benefit of private corporations. Revenue streams raised by the facilities pay principal and interest. They are a form of conduit bond. Projects funded by IDRs include parking garages, factories, industrial parks, and sports stadiums.

Investors purchase common stock primarily for A. the income stream it generates. B. its appreciation potential. C. its relative safety. D. its resistance to business risk.

B. its appreciation potential. Common stock is purchased by investors for its capital appreciation potential. Historically it has kept pace with the rate of inflation and is used to meet growth objectives. It is most junior in terms of claims to assets in a corporate liquidation, and does not protect investors from investment risk.

Accrued interest is calculated from the A. dated date and continues to the settlement date. B. last coupon date and continues to the day prior to the settlement date. C. last coupon date and continues through the settlement date. D. dated date to the next coupon date.

B. last coupon date and continues to the day prior to the settlement date. Accrued interest is measured from the last interest payment date (coupon date) up to but not including the settlement date of the trade. Settlement date is not included in these accrued interest computations because legal ownership of the bond changes on settlement date and this is the date from which the new owner of the bond begins earning his own interest.

As part of Rule 144A, the SEC created another category of financially sophisticated investors known as A. accredited investors. B. qualified institutional buyers. C. qualified asset managers. D. sophisticated wealthy individuals.

B. qualified institutional buyers. QIBs generally are institutions or other entities that, in aggregate, own and invest (on a discretionary basis) at least $100 million in securities. Under Rule 144A, QIBs can freely trade private placements among themselves.

All of the following are features of ETFs EXCEPT A. typically lower fees than closed-end company shares. B. redeemed by the issuer. C. often track an index or other benchmark. D. initially capitalized through a public IPO.

B. redeemed by the issuer. ETFs are not redeemed by the issuer. Instead, investors liquidate shares by selling them on an exchange.

An individual contacts her financial representative to sell her mutual fund shares. The price she will receive is A. the market price at the time the order is entered. B. the next calculated NAV price. C. the asked price at the close of the trading day. D. the next calculated POP price.

B. the next calculated NAV price. Investors sell their shares at the net asset value price next calculated after the order is received, which is the concept of forward pricing.

Noreen and her husband Jeff, residents of New York City, have just had their first child Ali. They are interested in opening a 529 Plan for Ali in order to save for her future college education. As a registered representative, it would be most appropriate to tell them A.to invest in a New York state 529 as there may be certain tax advantages at the federal level. B. to invest in a New York state 529 as there may be certain tax advantages at the state level. C. to invest in a 529 Plan outside of New York state as there may be certain tax advantages at the federal level. D. it does not matter which state they open up a 529 Plan in as the distributions will be treated the same regardless.

B. to invest in a New York state 529 as there may be certain tax advantages at the state level. Investors make after-tax contributions to 529 Plans. The earnings in the plan grow tax-free and any distributions for qualified educational expenses are tax-free at the federal level. Additionally, registered representatives must disclose that there may be certain tax benefits for opening a plan inside your state of residency, for example, tax deductions off of your state income taxes. Conversely, if an individual invests in a 529 Plan outside of their state, their state of residency might make they pay taxes on the growth of the plan.

In a 401(k) with a Roth account option, how are employer matching contributions allocated? A. To either the regular 401(k) or Roth account, at the employee's option B. To either the regular 401(k) or Roth account, at the employer's option C. To the regular 401(k) only D. To the Roth account only

C. To the regular 401(k) only Only employee deferrals, not employer contributions, may go into the Roth account. All employer contributions go into the regular 401(k).

Which of the bonds listed below would have the greatest price volatility? A. A variable rate bond B. A short-term investment grade bond C. A long-term zero-coupon bond D. A Treasury note

C. A long-term zero-coupon bond Because zero coupon bonds pay no interest until maturity, their prices fluctuate more than other types of bonds in the secondary market. Variable bonds have little price fluctuation because their rates adjust to current interest rates. Also, long-term bonds are generally more volatile than short-term bonds.

To avoid double taxation on dividends paid to shareholders, REITs must invest what portion of their total assets in real estate? A. Substantially all B. At least 90% C. At least 75% D. At least 51%

C. At least 75% REITs can avoid double taxation on profits passed through as dividends to shareholders by concentrating their investments in real estate. At least 75% of total assets must be in real estate, and at least 75% of gross income must be derived from real estate. Also, they must pass through at least 90% of their gains to shareholders.

For existing customer accounts, how often do broker-dealers required to send a written notice to the customer for verification of account information? A. Annually B. Every two years C. Every 3 years D. very 5 years

C. Every 3 years Firms must verify customer information at least once every 36 months. The point of this requirement is to ensure that the account is still appropriate and the information on file is still accurate.

If you're Short an Option what do you want? A. In the Money B. At the Money C. Out of the Money D. None of the above

C. Out of the Money

Which of the following is a key difference between a Traditional IRA and a Roth IRA? A. The annual contribution deadline is different B. Annual contribution limits are higher in Traditional IRAs C. Roth IRAs are not available to everyone with earned income, but Traditional IRAs are. D. A 10% penalty for withdrawals before age 59 ½ exists only in a Traditional IRA, not a Roth IRA

C. Roth IRAs are not available to everyone with earned income, but Traditional IRAs are. Roth IRAs are not available to everyone with earned income. Instead, only individuals who earn below a certain threshold can contribute to a Roth. In contrast, any investor with earned income is eligible to invest in a traditional IRA.

What tax benefit do municipal bonds offer to individual U.S. investors? A. Low tax rates on capital gains B. Investment tax credits C. Tax-exempt interest D. Avoidance of Alternative Minimum Tax

C. Tax-exempt interest Interest income received by holders of municipal bonds is generally exempt from federal income tax and from state and local income taxes for residents of the state in which debt is issued.

The money supply will tighten based on which of these techniques of monetary policy? A. The Federal Reserve purchases government securities from primary dealers B. The Federal Reserve reduces the reserve requirement C. The Federal Reserve increases the discount rate D. The U.S. Government decreases government spending

C. The Federal Reserve increases the discount rate Under monetary policy, an increase to either the reserve requirement or the discount rate will deter lending, which will result in a tightening of the money supply. A decrease in spending by the U.S. government will also reduce the amount of money, but government spending is a tool of fiscal policy. When the Fed purchases securities in the open market more money goes into circulation, so this would ease the money supply.

The threshold to qualify for a sales charge discount on a mutual fund is $75,000. An investor places an order for $72,500 of this fund and is not informed by the registered rep that he would be entitled to a sales charge discount if he invests an additional $2,500. This is an example of a A. breakpoint. B. letter of intent. C. breakpoint sale. D. value investor.

C. breakpoint sale. A "breakpoint sale" is a violation that occurs when a registered rep does not disclose to the customer the opportunity to take advantage of a sales charge discount, or "breakpoint".

The Securities Investor Protection Corporation (SIPC) protects customers from A. market loss. B. issuer bankruptcy. C. broker-dealer financial failure. D. identity theft compromising customer accounts or the broker-dealer.

C. broker-dealer financial failure. SIPC coverage protects customers from financial loss in the event of the financial failure of a broker-dealer. It protects each separate customer for up to $500,000 total, but no more than $250,000 in cash. Importantly, SIPC does not protect against market losses.

Investors that purchase high quality fixed income investments for retirement income are most concerned with A. credit risk. B. principal risk. C. inflation risk. D. economic risk.

C. inflation risk. Inflation risk is a major concern for investors who hold portfolios of fixed income investments for funding retirement income. As inflation increases, the purchasing power of their fixed coupon will fall.

When the market price of a bond is lower than its par value, A. its nominal yield is higher than its YTM. B. its current yield is lower than its nominal yield. C. its YTM is higher than its current yield. D. its nominal yield and its YTM are the same.

C. its YTM is higher than its current yield. When a bond is trading at a discount (market price lower than par value), the YTC will be the highest yield, then YTM, then CY, and the nominal yield the lowest yield.

The "third market" is a marketplace where A. listed securities trade in their primary listing venue. B. OTC securities trade on a stock exchange. C. listed securities trade in the OTC market. D. OTC securities trade in a foreign market.

C. listed securities trade in the OTC market. The "third market" is where exchange listed securities trade in the OTC market, typically handled by a broker-dealer through its own trading system.

In order to receive a dividend, a shareholder must own stock as of the A. declaration date. B. ex-dividend date. C. record date. D. payable date.

C. record date. An investor must own stock as of the date of record in order to receive a dividend payment. To own stock by the record date, it must be purchased before the ex-dividend date which is 1 business day before the record date. By purchasing before the ex-date, there are two business days for settlement to occur, in accordance with regular way settlement process.

Investors whose bonds have been called as interest rates have fallen are now facing A. credit risk. B. inflation risk. C. reinvestment rate risk. D. capital risk.

C. reinvestment rate risk. Investors would now be facing reinvestment rate risk, as bonds have been called and it will be difficult to find another investment offering the same return that was available prior to the bond being called.

The regulatory element of continuing education must be completed on the A. first anniversary of initial registration, and every two years thereafter. B. second anniversary of initial registration, and every two years thereafter. C. second anniversary of initial registration, and every third year thereafter. D. third anniversary of initial registration, and every second year thereafter.

C. second anniversary of initial registration, and every third year thereafter. The regulatory element of continuing education must be completed on the second anniversary of initial registration, and every third year thereafter.

The order of liquidation in a limited partnership is A. general partner, limited partner, unsecured bondholder, secured bondholder. B. secured bondholder, general partner, unsecured bondholder, limited partner . C. secured bondholder, unsecured bondholder, limited partner, general partner. D. general partner, secured bondholder, limited partner, unsecured bondholder.

C. secured bondholder, unsecured bondholder, limited partner, general partner. The order of liquidation in a limited partnership is secured bondholder, unsecured bondholder, limited partner, and lastly general partner.

An upward sloping yield curve indicates A. that bond prices are increasing. B. that yields are falling. C. that long-term interest rates are higher that short-term interest rates. D. the Federal Reserve Board is pursuing a tight monetary policy.

C. that long-term interest rates are higher that short-term interest rates. An upward sloping, or normal yield curve, indicates that long-term interest rates are higher than short-term interest rates. This is considered normal as investors holding bonds with long-term maturities demand more interest for taking on the increased risk.

The SEC has declared a new public offering effective. This indicates that A. the SEC approves of the new issue. B. the SEC has verified the issuer's information. C. the SEC has cleared the issuance for public sale. D. the SEC recommends the issuer's securities for purchase.

C. the SEC has cleared the issuance for public sale. The SEC never approves or disapproves of securities. Instead, the SEC clears the distribution for public sale.

Dollar limits on 529 plan contributions per beneficiary are set by A. the federal government. B. the Municipal Securities Rulemaking Board. C. various states. D. the College Board.

C. various states. There are no federal dollar limits on contributions as long as they do not exceed "the amount necessary to provide for the qualified education expenses of the beneficiary." Many states do impose dollar limits on total contributions made on behalf of one beneficiary.

An investor has 100 shares of XYZ stock at $90 per share. After a 3-for-1 split, the investor can expect to own A.100 shares at $30 per share. B.100 shares at $90 per share. C.300 shares at $30 per share. D.300 shares at $90 per share.

C.300 shares at $30 per share. A stock split doesn't affect the total value of stock owned. In this example, the shares are worth $9,000 before and after the split. But three times as many shares are owned. To calculate the new number of shares, multiply the shares by the first number of the split and divide by the second number of the split: 100 shares x 3 / 1 = 300 shares. Because the $9,000 is now divided among 300 shares, the new stock price will be $30 per share.

If a customer wishes to open a short margin account and sell short 100 shares of stock at $15 per share, the customer must deposit A. $750. B. $1,000. C. $1,000. D. $2,000.

D. $2,000. In a short margin account, a customer must deposit $2,000 even if the full value of the transaction is less than $2,000. This is a FINRA rule separate from the Federal Reserve Board's Regulation T.

A corporate bond that is currently trading at 95 pays a semi-annual coupon of $25. What is the current yield? A. 0.025 B. 0.0263 C. 0.05 D. 0.0526

D. 0.0526 A bond's current yield is calculated by dividing the annual interest income by the current market price. $50/$950 = 5.26%.

Which of the following events would subject an individual to a statutory disqualification? A. A felony conviction 11 years ago B. An indictment for a securities related felony 3 years ago C. A conviction for a non-securities related misdemeanor six months ago D. A conviction for a securities related misdemeanor 9 years ago

D. A conviction for a securities related misdemeanor 9 years ago A statutory disqualification occurs if the individual has been convicted a felony or a securities related misdemeanor within the past 10 years.

Which of the following interest rates is established by the Federal Reserve Board? A. Prime rate B. Fed Funds rate C. Money Market rate D. Discount rate

D. Discount rate The discount rate is set by the Fed, and is the rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window. The Fed influences the Fed Funds Rate, but does not actually set the rate - it is set by the market. The prime rate is set by banks.

Which of the following statements is TRUE regarding the value of variable contract annuity units? A. It is determined by a formula specified in the annuity contract B. It is linked to the performance of the insurance company's general account C. It is fixed at the time of the contract's annuitization D. It fluctuates based on the performance of separate account assets

D. It fluctuates based on the performance of separate account assets Annuity units in variable annuity contracts fluctuate in value based on the performance of separate account assets. The number of units is fixed but their value continues to fluctuate.

The theory that says the economy is best controlled through taxation and government spending is known as A. Classical economic theory. B. Monetarist economic theory. C. Open market operations. D. Keynesian economic theory.

D. Keynesian economic theory. This is the framework behind Keynesian economic theory, founded by John Maynard Keynes in the 1930's.

Commercial paper, bankers' acceptances and large time deposits are part of what segment of the fixed income market? A. Corporate bonds B. Municipal C. Asset-backed D. Money market

D. Money market Debt maturing in one year or less trades in the money market. Money market investments are attractive to investors because they offer high liquidity. Many investors access this market through money market mutual funds.

Henry and Jennifer, a married couple, have a net worth of $800,000, excluding home equity. Their income has been about $250,000 for several years. Are they eligible to participate in a private placement of securities as accredited investors? A. Yes, because they meet the income test B. Yes, because they meet the net worth test C. Yes, because they meet both tests D. No, because they meet neither test

D. No, because they meet neither test Under Regulation D, for a married couple to be accredited they must have a net worth, excluding home equity, of $1 million. The income test for married persons is a joint income of $300,000 in each of the two most recent years. This couple meets neither test.

Which of the following options positions obligates an investor to purchase stock? A. Long call B. Long put C. Short call D. Short put

D. Short put Short options positions have obligations that must be performed if the holder exercises the contract. Put writers have the obligation to buy stock at exercise when the put holders exercise the right to sell at the strike price.

A customer requests in writing that his account statements be held by the firm while he spends the winter in Florida. In response to the customer's request, the firm is permitted to honor the request A. for the time period specified by the customer. B. for a maximum of one month. C. for a maximum of two months. D. for a maximum of three months.

D. for a maximum of three months. A firm may hold customer mail upon written request. Mail can be held for up to three months.

A company "reverse splits" its stock on a 1-for-10 basis. If an investor holds 800 shares before the event, what will be the impact of the split, if any, on the total value of the investors' shares? A. Total value will decline by 10% B. Total value will decline by 90% C. Total value will increase by 10 times D. Total value will not change

D. Total value will not change Stock splits and reverse splits do not change the total value of investors' holdings. For example, if the investor owned 800 shares at $1 per share before the 1-for-10 reverse split, he/she will own 80 shares at about $10 per share after the event.

Trader R hears news from an underwriter that his firm will be buying a large block of XYZ Co stock. If R buys shares of the stock before the news is made public, he is engaged in A. bid-rigging. B. insider trading. C. rumoring. D. front-running.

D. front-running. Front-running is defined as trading on material non-public information ahead of an imminent block sale in the same or related securities.

A primary difference between Ginnie Mae and Fannie Mae/Freddie Mac is that Ginnie Mae A. only finances commercial mortgages, whereas the others finance home mortgages. B. mortgages are only available for government subsidized housing, while the others are available for all real estate purchases. C. is a publicly held company while the others are privately held. D. is a government agency that has the explicit backing of the US government, while the others do not.

D. is a government agency that has the explicit backing of the US government, while the others do not. Ginnie Mae is a government agency that has the explicit backing of the US Government, while Fannie Mae and Freddie Mac have an 'implied' backing of the US government.

During the accumulation phase of a variable annuity, dividends, interest, and capital gains A. may be withdrawn with no tax implications. B. are taxed as ordinary income if the contract is non-qualified. C. are taxed as capital gains if the contract is non-qualified. D. may be reinvested without any current tax liability.

D. may be reinvested without any current tax liability. One of the most attractive benefits of a variable annuity is tax-deferred growth during the accumulation period. All dividends, interest, and capital gains earned during the accumulation period may be reinvested tax-free.

Pursuant to Regulation S-P, a broker-dealer must provide a privacy notice to a customer A. at the time a solicitation is made to purchase a security. B. when a confirmation of a trade is sent. C. when a statement of account is sent. D. prior to engaging in any securities business with that customer.

D. prior to engaging in any securities business with that customer. Under Regulation S-P, a privacy notice must be sent to a customer prior to entering into an agreement to engage in business with that client and annually thereafter.

A registered representative located in California makes a 7:30pm cold call to a potential customer in New Jersey. This is A. permitted as long as the potential customer is not on the do-not-call-list. B. permitted as long as the registered rep had prior verbal consent from the potential customer. C. permitted because the call occurred between the hours of 8am and 9pm. D. prohibited because cold calls can only be made between 8am and 9pm in the potential customer's time zone.

D. prohibited because cold calls can only be made between 8am and 9pm in the potential customer's time zone. Cold calls can be made between 8am and 9pm in the customer's time zone. Although it is 7:30pm in California, it is actually 10:30pm in New Jersey because of the difference in time zones. Therefore, this call is prohibited.

Helen opened a Roth IRA last year and wants to know what part of this year's contributions she can deduct. The answer is A. she can deduct 100%. B. it depends on her income. C. it depends on her age. D. she can't deduct any amount.

D. she can't deduct any amount. Roth contributions are always made with after-tax dollars and are never tax-deductible.

A customer must sign and return the options account agreement A. at or prior to the approval of the account. B. at or prior to placing the initial trade in the account. C. within 15 calendar days of placing the initial trade. D. within 15 calendar days of account approval.

D. within 15 calendar days of account approval. The options account agreement must be signed and returned within 15 days of account approval.

European Style Option

Exercise can only occur at expiration

XYZ Inc. declares a $0.30 dividend payable on Monday, August 15, to all shareholders of record as of Monday, August 8. When is the ex-dividend date for a regular way trade in the stock? A. Tuesday, August 2 B. Wednesday, August 3 C. Thursday, August 4 D. Friday, August 5

For regular way trades in equities, the ex-dividend date is one business days before the record date.

Short A Call

I have a obligation to sell

ABC is trading at 45 per share 1 ABC 40 Call at 7 For the Seller - In the Money/At The Money/Out of the Money?

In the Money- Because the Buyer will exercise the option and the Strike Price is less than the Market Value for Calls

ABC is trading at 45 per share 1 ABC 40 Call at 7 For the Buyer - In the Money/At The Money/Out of the Money?

In the Money- Because you right to buy a stock $40 even though the Market Value is stock at $45. The Option will be exercised because the Buyer has the right to purchase stock for less than what it's worth.

Market Value is 45 Short 1 ABC 40 Put at 2 Is this in the Money or Out of the Money

Out of the Money, It is the Long Put's (Seller) choice and they will not Exercise the Option to sell a $45 Market Value stock at $40 Strike Price

Market Value is 45 Long 1 ABC 40 Put at 2 Is this in the Money or Out of the Money

Out of the Money, the Strike Price $40 is below the Market Value $45. So you let the Option Expire

All of the following statements about qualified defined benefit pension plans are true EXCEPT [A] They are employer sponsored plans [B] The employer bears the investment risk [C] High paid and long service employees are the primary beneficiaries of such plans [D] Small and mid-size employers are the primary sponsors of such plans

[D] Small and mid-size employers are the primary sponsors of such plans Qualified defined benefit pension plans are employer sponsored plans in which the plan sponsor defines/promises a monthly pension on retirement to employees/plan participants based on a benefit formula that includes the employee's age, years of service and salary.(e.g. 2% of final pay times years of service). The longer the service and/or the higher the salary, the higher the pension. These plans are going out of favor, but remain popular with governments and very large employers.

Which of the following is NOT a tool used by the Federal Reserve to conduct monetary policy? [A] Prime Rate [B] Open Market Operations [C] Moral Suasion [D] Discount Rate

[A] Prime Rate The Federal Reserve uses all of the choices offered except the prime rate. The prime rate is set by banks; it is not directly set by the Federal Reserve.

A client's margin account has the following positions: $67,000 Current Market Value 30,000Debit Balance $37,000 Equity Reg T is 50%. House Maintenance is 30%. Federal Retention is 50%. What total dollar amount may the broker-dealer borrow according to the rehypothecation regulations? [A] $16,750 [B] $30,000 [C ]$42,000 [D] $67,000

[B] $30,000 A broker-dealer may only borrow up to the amount of the customer's debit balance but would be able to use 140% of the debit as collateral for the rehypothecation loan.

The two issuance formats used when Corporate Bonds are issued, are Serial Form and Series Form. In describing Series Form, the issue would have I. Different issuance dates II. The same issuance date III. Different maturity dates IV. The same maturity date [A] I and III [B] I and IV [C] II and III [D] II and IV

[B] I and IV A bond issued as Series Form, would have different issuance dates and the same maturity date.

Which of the following would be included in a chart that illustrates the business cycle? [A] Fed modifications to the discount rate are always reflected on the chart. [B] Upward trends typically result in a peak before a recession takes place. [C] Inflation numbers are clearly demonstrated on a business cycle. [D] The yield curve can be easily determined from a chart showing the business cycle.

[B] Upward trends typically result in a peak before a recession takes place.

Which of the following provides a long-term opportunity to purchase a certain number of common shares at a specific price? [A]Standard equity options [B]Warrants [C]Rights [D]ETFs

[B] Warrants In this question, the "long-term" is very important. Standard Equity Options, Warrants, and Rights all allow an investor to buy a certain number of common shares at a specific price, but the warrant is the only answer that does so on a long-term basis.

A registered operations professional (OP) decides to leave the securities industry to pursue a career in real estate. He will be required to re-qualify and re-take his Series 99 exam if he remains unregistered for [A] over 1 year. [B] over 2 years. [C] over 3 years. [D] over 6 years.

[B] over 2 years. If a previously-registered person decides to return to the securities industry, they will be required to re-qualify and re-take exams if their return is longer than 2 years from the date of termination and filing of U-5 documentation.

A market maker may: I Take a long or short position at any time. II. Sell from his own inventory, which may be either long or short. III. Act as both agent and principal in the same transaction. IV. Quote a work out market, a range within which the dealer feels he can obtain the security within a reasonable time period. [A] I and II [B] I, II, and III [C] I, II, and IV [D] II, III, and IV

[C] I, II, and IV A market maker may perform all actions except III. Market makers may act as broker OR as dealer on a transaction but never as both on the same transaction.

A client is contemplating investing in a mutual fund focused on domestic bonds versus investing in a mutual fund focused on international bonds. When should this investor expect to see the international fund have higher levels of income than the domestic fund? I. Interest rates in the U.S. are greater than foreign rates. II. Interest rates in foreign countries are greater than U.S. rates. III. The value of the U.S. Dollar is going down in relation to the currencies of other countries. IV. The value of the U.S. Dollar is going up in relation to the currencies of other countries. [A] I and III [B] I and IV [C] II and III [D]II and IV

[C] II and III An investor should expect to see more income when the rates abroad are higher than domestically. Also, the investor should expect to see more income when the value of the U.S. Dollar is going down in relation to the value of currencies abroad.

In order for a firm to effectively enforce an anti-money laundering program, which of the following would be most important [A] Not allowing cash deposits [B] Filing a SAR report on time [C] Knowing its customers [D] Reviewing accounts for churning

[C] Knowing its customers

An investor is looking for maximum profit potential and is bearish on ABC. Which of the following option positions would be best for this investor? [A] Long Calls [B] Short Puts [C] Long Puts [D] Short Calls

[C] Long Puts Long Puts would be the best choice for a bearish investor because when an investor buys a Put they have profit potential all the way down to zero.

Which of the following statements about REPOs (Repurchase Agreements) is FALSE? [A] Typically REPOs denominations start at a minimum of $1,000,000. [B] REPOs are considered money market instruments. [C] REPOs are often thought of as risk-free investments. [D] REPOs typically have maturities of less than three months.

[C] REPOs are often thought of as risk-free investments. Though REPOs have a very low level of risk, they are not considered "risk free" or "riskless" investments.

According to SEC rules, a Summary Prospectus Cover Page must include each of the following EXCEPT [A] the date of first use of the Summary Prospectus. [B] a legend providing a website address and email address that can be used to obtain a Statutory Prospectus. [C] the minimum purchase requirements and quantity discounts available on fund shares. [D]the fund's name and the classes of shares available to investors.

[C] the minimum purchase requirements and quantity discounts available on fund shares. Though a requirement within the Statutory Prospectus, minimum purchase requirements would NOT be on the cover page of the summary prospectus. The Summary Prospectus Cover Page must include: - The fund's name and the class or classes of the fund's shares. - Identify that the document is a summary and that the Statutory Prospectus is available and where it can be found. - Date of first use of the Summary Prospectus. - Legend - the legend must provide a website address and email address that investors can use to obtain the Statutory Prospectus and other information.

The agreement that authorizes a broker-dealer to pledge a customer's margin securities as collateral for a loan from a bank to the broker-dealer is called: [A]A credit agreement [B]A loan consent agreement [C]A hypothecation agreement [D]A joint account agreement

[C]A hypothecation agreement

An investor buys two bonds: a 7.5% bond and a 8.5% bond, maturing in 2030, and at a 6.00 basis (ytm). The price of both of the bonds moves to 90.5. Which bond is likely to have the most price appreciation? [A] The 7.5% bond [B] The 8.5% bond [C] Both will appreciate by the same amount. [D] Neither, because the market price decreased.

[D] Neither, because the market price decreased. The bonds were purchased with a 6% basis (ytm) when the coupons were higher at 7.5% and 8.5%. This indicates that the bonds had been purchased at a premium, or at a value higher than $1,000 (the par value). The question states the price of both bonds goes to 90.5 or $905, which is a quote at a discounted price (below par value); therefore, the price of the bonds would have declined. D is the correct answer.

Which of the following scenarios would NOT violate SEC rules related to trading on inside information? [A]The husband of the manager of a company's accounting department buys the company stock in his own personal account based on information discussed with his wife over dinner about unreleased financials showing significant profits for the quarter. [B]The daughter-in-law of an executive at a major corporation sells the stock of the corporation short prior to the release of news that significant cut-backs and lay-offs are approaching for the company. [C]A registered representative of a broker-dealer with inside information related to the upcoming release of a positive research report executes an unsolicited buy order from a customer. [D]A member of a company's outside counsel legal team instructs his brother to sell the company's stock short due to the expectation of a negative outcome on a pending legal matter.

C] A registered representative of a broker-dealer with inside information related to the upcoming release of a positive research report executes an unsolicited buy order from a customer.

A share of ABC 8% preferred stock with a par value of 25 will pay a quarterly dividend of: [A]$.50 [B]$2.00 [C]$.80 [D]$8.00

[A] $.50 The annual dividend will be $2.00 per share ($25 par x 8% = $2.00). The quarterly dividend will be $.50 ($2.00/4 = $.50).

A customer at ABC broker-dealer has $1,000,000 in cash and securities at the firm when the firm goes into liquidation. What is the maximum coverage for this customer? [A] $500,000 for cash and securities, no more than $250,000 of which will be paid for cash claims [B] $500,000 for securities plus $250,000 in cash [C] $250,000 in securities plus $500,000 for cash claims [D] $250,000 for securities, no more than $125,000 of which will be paid for cash claims

[A] $500,000 for cash and securities, no more than $250,000 of which will be paid for cash claims After the firm has paid liquidation expenses, all remaining assets of the firm are available to satisfy remaining portions of customer claims. If any customer claims still remain, SIPC will provide protection for customers of up to $500,000 per separate customer for cash and securities, but no more than $250,000 may be paid for a cash claim.

A private company plans to raise capital using the Regulation Crowdfunding offering exemption. According to the regulation, what is the time period during which it can raise the maximum offering amount? [A] 12 months [B] 18 months [C] Two years [D] 6 months

[A] 12 months Regulation Crowdfunding (Reg C) allows start-up companies to offer up to $5,000,000 worth of common shares within a 12-month period without being required to register with the SEC.

Which of the following is accurate of FINRA Rule 4512 regarding the Financial Exploitation of Specified Adults? [A] A trusted contact person can be named to the account but is not required. [B] The member firm must contact account holders within 30 days of placing a hold on the account. [C] The member firm can contact the "trusted person" on the account only if the account owner is incapacitated. [D] A hold on disbursements from the account can be placed for 20 business days.

[A] A trusted contact person can be named to the account but is not required. FINRA Rule 4512 allows for a trusted contact person to be added to an account, but the rule does not require a trusted contact person.

Which of the following is the implied credit rating on a Collateralized Mortgage Obligation (CMO) [A] AAA [B]AA [C] AA+ [D] A

[A] AAA Due to the credibility of the mortgages in the portfolio, CMO's generally have a AAA rating, but investors should consider that the rating has nothing to do with market risk, which can be significant.

If a customer's cash account is frozen due to the failure to make prompt payment: [A] Additional purchases (except for exempt securities) are not permitted unless sufficient funds are already in the account before the order is processed. [B] He may not make any additional purchases in the account. [C] All transactions in the account must cease. [D] It indicates that there is a deficit balance in the account.

[A] Additional purchases (except for exempt securities) are not permitted unless sufficient funds are already in the account before the order is processed. If a customer's cash account is frozen due to the failure to make prompt payment any additional purchases are not permitted unless sufficient funds are already in the account before the order is processed.(except for exempt securities)

Which of the following is NOT a characteristic of Notes issued by the U.S. Treasury? [A]All U.S. Treasury Notes have call features. [B]Maturities on these securities are typically intermediate. [C]Quotes on these securities are listed as a percentage of the note's par value. [D]Interest is paid on these securities semi-annually.

[A] All U.S. Treasury Notes have call features. U.S. Treasury Notes have intermediate term maturities in the 2-10 year range. These securities are quoted as a percentage of par and pay interest semi-annually like U.S. Treasury Bonds. T-Notes are NOT issued as callable.

Which of the following would NOT be considered advertising under FINRA rules? [A] An Options Clearing Corporation prospectus [B] A newspaper ad [C] A telephone recording [D] A sign on a billboard

[A] An Options Clearing Corporation prospectus

When an OTC security is approved for margin trading, it has been approved by which of the following? [A] FRB [B] MSRB [C] NASD [D] NYSE

[A] FRB The Federal Reserve Board approves OTC Securities for margin trading

Which of the following may NOT be purchased on margin? [A]IPOs [B]U.S. T-Bills [C]Stocks listed on a national exchange [D]Equity securities quoted on the National Market System

[A] IPOs

Which of the following is NOT a characteristic of a Traditional Individual Retirement Account (IRA)? [A] Individuals over 72 may not make tax-deductible contributions. [B] A penalty of 10% applies to early withdrawals on such plans. [C] Taxes on earnings in such accounts are deferred until the owner withdraws them in retirement. [D] An annual tax deduction is made available on these accounts up to the maximum contribution, but the deduction is limited or eliminated under certain circumstances.

[A] Individuals over 72 may not make tax-deductible contributions. According to the Secure Act of 2019, there is no age limit on making contributions to an IRA as long as the working individual has sufficient earned income. For this reason, the statement about a 72 year old being unable to make tax-deductible contributions is NOT a characteristic of a Traditional IRA.

The yield curve for bonds during a period of easy credit will [A] Slope upward from the shortest maturity to the longest [B] Slope downward from the shortest maturity to the longest [C] Be flat [D] None of the above

[A] Slope upward from the shortest maturity to the longest During an easy money or normal market condition short term instruments yield less than long term instruments, thus causing the yield curve to slope upwards.

Which of the following statements about variable annuities is TRUE? [A] The annuitant may choose lifetime payments [B] The annuitant will receive annuity payments in a fixed amount [C] The annuitant will be credited with a fixed number of annuity units during the accumulation period [D] The annuitant will be credited with a fixed number of accumulation units during the annuity payout period.

[A] The annuitant may choose lifetime payments Most variable annuity payouts are for a lifetime. The annuitant is credited with an ever increasing number of accumulation units during the pay-in period and is credited with a fixed number of annuity units during the pay-out period. Both the accumulation units and the annuity units vary in value based on the performance of the underlying investment option.

A new client opens up a margin account at the firm. The client wishes to perform a short sale as their first transaction. They wish to sell short 1,000 shares of MNO corporation, which is currently trading at $2.25 per share. How much must this client deposit assuming no other deposits have been made at this time? [A]The client must deposit $1,125. [B]The client must deposit $2,250. [C]The client must deposit $2,500. [D]The client must deposit $4,500.

[A] The client must deposit $1,125. The minimum deposit required for low priced stock with a market price between $0 - $2.50, is $2.50 per share. Yes, this investor has to give $2.50 per share, not the current market value of $2.25.

Which of the following is TRUE regarding annuity units when a variable contract is annuitized? [A] The value of the units will fluctuate. [B] The value of the units will remain fixed. [C] The number of units cannot be determined given market fluctuations. [D] The number of units will increase within the first two years and then remain fixed.

[A] The value of the units will fluctuate. The number of annuity units paid out will remain the same but their value will fluctuate because they are based on the value of the separate account.

When shares of stock are being sold to the public for the first time, which of the following is TRUE? [A] This would be an example of primary market activities. [B] This would be an example of secondary market activities. [C] This would be an example of third market activities. [D] This would be an example of fourth market activities.

[A] This would be an example of primary market activities. The primary market is the market for new securities that are being sold to the public for the first time. The secondary market is where securities change hands from shareholder to shareholder after the securities have already been issued. The third and fourth markets are subsets of the secondary market. The third market is where exchange-listed securities trade off of an exchange, while the fourth market is where institutions trade directly with one another off of the exchange.

A broker-dealer drafts a written communication to investors regarding a company that includes a solicitation to buy the securities. The issuer has a registration statement filed with the SEC. Under SEC rules, the communication the broker-dealer has drafted is best described as [A] a free writing prospectus. [B] an institutional communication. [C] a supplement to the prospectus. [D] an illegal prospectus.

[A] a free writing prospectus. The SEC does permit written communications other than the final prospectus once the issuer has filed the registration statement. These communications are called a free writing prospectus which is any written communication that involves either an offer to sell a security or solicit an offer to buy where the security in question is related to a registered offering and the communication occurs after a registration statement has already been filed with the SEC.

Disciplinary actions taken by SROs [A] are subject to SEC review. [B] must be voted on by members. [C] can be modified by member firms if deemed too severe. [D] are filed with the SEC but are not subject to review.

[A] are subject to SEC review. SROs have full authority to impose fines and penalties on their members. However, these decisions are subject to SEC review. Member firms do not vote on these actions nor do they have authority to amend them.

Junk bonds are also called [A] high yield bonds [B] low yield bonds [C] investment grade bonds [D] revenue bonds

[A] high yield bonds Junk Bonds or high yield bonds are issued by companies that have little or no track record of sales or earnings, have a BB rating or lower or no rating, or are issued by companies that are in financial distress.

An RR has a customer who is 55, has been making contributions to an IRA for many years and is in the top federal tax bracket. She has an urgent medical-related issue and needs $11,000 cash now to resolve it. She explains that the issue concerns payment of outstanding medical insurance premiums. The RR correctly responds that [A] she can proceed with the withdrawal as stated but will have to pay income taxes. [B] withdrawals are not permitted before age 59 1/2. [C] she can withdraw up to $10,000 only because she is in the top federal tax bracket. [D] withdrawal can proceed but she will have to pay a 10% penalty.

[A] she can proceed with the withdrawal as stated but will have to pay income taxes. Under IRS rules, IRA account owners can withdraw from the account prior to age 59½ without penalty if the withdrawal has a qualifying reason (i.e., medical expenses, medical insurance premiums) but the account owner still must pay income taxes. The 10% penalty would not apply.

Who receives an annuity contract's surrender value? [A]The beneficiary designated by the contract owner receives the surrender value. [B]The owner of the contract receives the surrender value. [C]The surrender value is forfeited back to the issuer. [D]The surrender value will be auctioned to the highest bidder.

[B ]The owner of the contract receives the surrender value. The contract owner is entitled to the cash surrender value of the contract. The annuitant is entitled to the annuity payments. The beneficiary is entitled to the death benefits. The issuer (the insurance company) issues the contracts, it is not returned to the issuer. In D, the owner of the account could sell his contract to a third party. This is called a life settlement.

A basis point equals: [A] 1/1000 of 1% [B] 1/100 of 1% [C] 1/10 of 1% [D] 1%

[B] 1/100 of 1% A basis point equals 1/100 of 1% (i.e., .01%).

If a broker-dealer receives currency over $10,000 from a customer, according federal rules, which of the following must occur? [A] The currency must be deposited into a bank account within one business day. [B] A Currency Transaction Report (CTR) must be filed by the broker-dealer. [C] A Suspicious Activity Report must be filed by the broker-dealer. [D] The transaction must be refused.

[B] A Currency Transaction Report (CTR) must be filed by the broker-dealer. When a broker-dealer receives currency, which exceeds $10,000 in value a Currency Transaction Report (CTR), must be filed by the broker-dealer.

Which of the following is true about a cash account versus a cash transaction? [A] A cash account is where purchases can be made with borrowed funds from the broker-dealer. [B] A cash transaction is a transaction which settles on the same day that the transaction occurs. [C] A cash account is where all transactions settle on the same day that the transactions take place. [D] A cash transaction is an account where purchases are always paid for in full and settle regular way.

[B] A cash transaction is a transaction which settles on the same day that the transaction occurs. A cash account is where a customer can buy securities but must pay for purchases in full. Not all transactions in a cash account settle regular way or same day. This depends on the security that the customer is purchasing. A cash transaction is when a customer buys or sells a security which settles on the same day as trade date.

Under the FINRA Borrowing and Lending to Customers rule, pre-approval procedures must be followed in all of the following situations except? [A] An RR with an account at his employing firm lends another RR with an account at firm $50,000. [B] An RR lends her brother, a client of the firm, $25,000 for the down payment on a new home. [C] An RR lends their friend and neighbor who has an account at the firm, $5,000. [D] The RR's business partner and customer borrows funds to buy a new car.

[B] An RR lends her brother, a client of the firm, $25,000 for the down payment on a new home. Pre-approval is not required if the customer is an immediate family member or if the customer is a financial institution in the business of lending.

If the basis price of a bond is 5.25% and the coupon rate 4.75%, the bond is selling [A] At par [B] Below par [C] Above par [D] Cannot determine

[B] Below par If the basis (yield to maturity) is higher than coupon, that tells you that the bond's price is below par. Lower price equals higher yield (Basis).

Eurodollars are BEST described with which of the following statements? [A]Eurodollars are the currency of a group of European countries. [B]Eurodollars represent currency of the U.S. that is currently being held in foreign (non-U.S.) banks. [C]Eurodollars represent currency of a group of European countries that are held in domestic banks (banks in the U.S.). [D]Eurodollars represent currency that may only be traded in European markets.

[B] Eurodollars represent currency of the U.S. that is currently being held in foreign (non-U.S.) banks.

Which regulator determines which securities can be purchased on margin when the securities are non-exempt securities trading on the OTC market? [A] FINRA - Financial Industry Regulatory Authority [B] FRB - Federal Reserve Board [C] SEC - Securities Exchange Commission [D] SIA - Securities Industry Association

[B] FRB - Federal Reserve Board The Federal Reserve Board determines which securities can be purchase on margin when the securities are non-exempt OTC securities. Exchange traded securities are determined by the exchange on which they trade.

ABC Company declared a fifty cent ($0.50) per share dividend on August 15th to shareholders of record Friday, September 15th. On which two of the following days can an ABC Company stockholder sell his shares and still receive his fifty cent ($0.50) per share dividend? I . Monday, September 11th for regular way settlement. II. Thursday, September 14th for regular way settlement. III. Friday, September 15th for cash settlement. IV. Monday, September 18th for cash settlement. [A] I and III [B] II and IV [C] I and IV [D] II and III

[B] II and IV Usually dividend questions are asked from a buyer's point of view, - buy before ex-date to receive the dividend - but this question says the investor already owns the stock and wants to keep the dividend; when should they SELL. In this case the investor would wait until the ex-date before selling in order to keep the dividend. Ex-date for regular way settlement is 1 business day prior to record date - or II Sept 14th. Ex-date for cash settlement is the business day after records - or IV Sept 18th. Remember you must: Buy before the ex-date or Sell on or after the ex-date to receive the dividend.

Which of the following is TRUE of FINRA rules regarding private securities transactions performed by an associated person? [A] They require preapproval of FINRA before executing them. [B] If the member firm approves of the transaction(s) it must record them and supervise them. [C] Oral or written notice to the member firm is required. [D] If the member disapproves the associated person can appeal to FINRA.

[B] If the member firm approves of the transaction(s) it must record them and supervise them. If approval of the transaction is given, the member firm must record the transaction on its books and records and supervise the person's participation (such as reviewing copies of confirmations or statements).

Your customer is short WLC calls. Under the Exchange's position limit rule, his short call position is affected by holding which of the following in his account? [A] Long WLC calls [B] Long WLC puts [C] Short WLC puts [D] Long WLC common stock

[B] Long WLC puts Under the exchanges position limit rules, option positions are affected by options which are on the same side of the market: Long Calls & Short Puts are on the same side of the market Long Puts & Short Calls are on the same side of the market

The Uniform Transfer to Minors Act allows gifts of cash or securities to be made to minors. One major benefit of an UGMA Account is which of the following? [A] The gift is revocable at the option of the Donor. [B] Normally a lower tax will be levied on the earnings generated in the account. [C] A 100% tax deduction is realized for the amount of the gift by the Donor. [D] Earnings grow on a tax deferred basis and are also tax free when withdrawn from the account.

[B] Normally a lower tax will be levied on the earnings generated in the account. Uniform Gifts to Minors Act normally have a lower tax on the earnings, because the income is taxed to the minor. The minor is normally in a low tax bracket rate.

If there is no activity in a client's account, how often must the broker-dealer send an account statement to its customer? [A] Monthly [B] Quarterly [C] Semi-annually [D] Annually

[B] Quarterly

All of the following statements are true about "time and price" discretionary orders EXCEPT: [A] They are good for the day only. [B] They are good until canceled [C] They do not require written authorization. [D] They are sometimes referred to as "not held" orders because the broker is not held liable if the price moves against the customer

[B] They are good until canceled "Time and price" discretionary orders allow a broker for a customer to hold a market order for a short time to try to get a better price for the customer. It is "good for the day" only. It cannot be carried over to the next day. This type of discretion does not require written authorization. They are also known as "not held" orders.

Which of the following is not true regarding Exchange Traded Funds (ETF's)? [A] They are similar to index mutual funds [B] They cannot be bought on margin or sold short [C] They generally have low annual expenses [D] They are traded through the trading day.

[B] They cannot be bought on margin or sold short ETF's can be bought on Margin and can be sold short since they trade just like a common stock trades.

In looking at a particular stock's patterns, you notice that the stock has historically mirrored economic performance. Which of the following would be the BEST characterization of this stock? [A] This would be a speculative growth stock. [B] This would be a cyclical stock. [C] This would be a stock that is defensive with regards to economic fluctuations. [D] This would be a large capitalization blue-chip stock.

[B] This would be a cyclical stock. A stock that tends to fluctuate with changes in the economy would be known as a cyclical stock.

If an associated person at Member Firm A wishes to open an account at Member Firm B, which of the following is TRUE? [A] The associated person is required to provide Firm B with notification that they are an associated person at Member A, but only after the first trade has been executed in the account. [B] Written notification of Member Firm A must be given prior to opening or otherwise establishing the account at Member Firm B. [C] Member Firm B is required to get prior approval for all orders and send duplicate copies of all confirmations and account statements to Member Firm A. [D] As long as supervisory approval of the account has taken place at Member Firm B, no notification or consent is required in relation to Member Firm A.

[B] Written notification of Member Firm A must be given prior to opening or otherwise establishing the account at Member Firm B. If an associated person of a member firm wishes to open an account at another member firm, there is a requirement that the employing firm receive prior notice before the account is opened and provide consent. The associated person is also required to notify the firm where the account will be opened, and this firm will be required to send duplicate copies of confirmations and account statements if so requested by the employing member firm. All trades would NOT need prior approval, and in these scenarios, supervisory approval of the account would be required, but would NOT be a replacement for notification and consent of the employing firm.

A client of the firm has received a lot of assistance from a team of Registered Representatives (RRs) and Operations Professionals (OPs). In total, 3 RRs and 3 OPs make up the team. Rather than buying individual gifts to show appreciation, the client purchases a gift certificate to a local restaurant for $500 and gives it to the team at the end of the year, having given no other gifts throughout the year. FINRA Regulations on gifts dictate that this arrangement is [A] unacceptable, because the gift exceeds $100. [B] acceptable, because the gift is for 6 associated persons and falls below the $100 per person threshold. [C] unacceptable, because clients are not permitted to give gifts to OPs, but would be acceptable if only given to the 3 RRs. [D] acceptable, because dining expenses are considered entertainment and do not count toward the $100/person gift limitations.

[B] acceptable, because the gift is for 6 associated persons and falls below the $100 per person threshold. Because the team consists of 6 persons, the total allowable gift would be $600 or less, or $100 per person. At $500, this gift is acceptable for 6 associated persons. Clients are permitted to give gifts to both OPs and RRs, but the $100 limitation applies. Though certain business dinner functions can be excluded from the $100 gift limitation, this is specifically a gift card to the team. So, the gift is only acceptable because it is under $100 per person and the $500 total would count toward the $100/person gift rules.

A customer of a FINRA member firm is on vacation. He wants the firm to discontinue his mail. Upon receiving written instructions from the customer, the member firm may do all of the following under FINRA Rules, EXCEPT [A] send the mail to another address of the customer at the end of the period. [B] send the mail to another registered representative's office to be held for the client. [C] hold his mail for longer than a three-month period as long as there is an acceptable reason for the request. [D] hold his mail up to three months.

[B] send the mail to another registered representative's office to be held for the client. A FINRA member firm cannot send the customer's mail to another registered representative's office to be held for the client.

Which of the following would NOT be a right of a common stockholder? [A] to receive dividends declared by the company [B] to vote for officers of the company [C] to vote for the board of directors of the company [D] participate in a rights offering presented by the company

[B] to vote for officers of the company

An RR must explain sales charges to prospective mutual fund clients so that they [A]can negotiate the all sales charges and fees [B]understand breakpoint discounts and maximum charges related to buying mutual fund shares [C]aware of the SEC fees that are included in each mutual fund transaction [D]understand how the RR's commission is generated

[B] understand breakpoint discounts and maximum charges related to buying mutual fund shares. A RR is required to explain sales charges to help the prospect understand the cost of buying shares in the fund at both the maximum sales charge (the Ask price) and at the reduced sales charge that the prospect may be eligible for because of a quantity purchase (breakpoints).

The term "capital risk" is best described by which of the following statements? [A] The customer will incur a loss if securities are purchased at the wrong time. [B] The full amount originally invested may not be received by the customer upon disposition of the security. [C] When the investment is liquidated, purchasing power may be less than that when the money was originally invested. [D] It is the amount of regular income received from an investment which may or may not be the amount that was originally expected.

[B]The full amount originally invested may not be received by the customer upon disposition of the security.

In 2021, an attorney who is not an active participant in a retirement plan earns $110,000 annually and the attorney's spouse is unemployed. The maximum tax deduction allowed under IRS tax rules for IRAs for this couple is [A] $6,000. [B] $2,000. [C] $12,000. [D] $10,000.

[C] $12,000. The maximum deductible contribution to an IRA for the attorney and the eligible unemployed spouse in 2021 is $12,000, $6,000 each. (The amounts are unchanged from 2020).

A company has authorized 10,000,000 shares of common stock. 8,000,000 shares have been issued. 4,000,000 shares are treasury. This means: [A] 8,000,000 shares are outstanding [B] 10,000,000 shares are outstanding [C] 4,000,000 shares are outstanding [D] 14,000,000 shares are outstanding

[C] 4,000,000 shares are outstanding Issued stock minus Treasury stock = Outstanding Stock Therefore, 8,000,000 issued - 4,000,000 Treasury would equal the 4,000,000 outstanding shares.

Chris has a portfolio of corporate bonds. The portfolio currently yields 7.5%, but then Chris has tax consequences related to the bonds. Chris is currently in the 25% tax bracket. Chris is considering switching over to a portfolio of municipal bonds, where he will have no tax consequences. With Chris paying 25% on his 7.5% corporate bonds, what would an equivalent municipal bond yield look like? [A] 10% [B] 7.5% [C] 5.625% [D] 1.875%

[C] 5.625% Chris is looking for a municipal bond that has a tax-free yield that is equivalent to his corporate taxable yield of 7.5%. So the yield that we are seeking is going to be less than 7.5%. To find the figure, we use the formula for taxable equivalent yield: .075 Corporate yield X .75 (100% - .25 tax bracket) = 0.05625 or 5.625%

Variable annuities are investment vehicles that should be used for clients with certain investment objectives in mind. Of the following, which client would BENEFIT MOST from investment in a variable annuity? [A] A female client in her early 60s who currently falls in the 33% tax bracket and wishes to have a portion of returns on her portfolio guaranteed. [B] A male client in his early 50s who currently falls in the 10% tax bracket and wishes to take on very low levels of risk with short-term investing. [C] A male client in his mid 40s who currently falls in the highest tax bracket and who is looking for an alternative investment vehicle since he has currently maximized contributions to his company-sponsored retirement account. [D] A female client in her mid 30s who currently falls in the 28% tax bracket and wishes to have liquidity and access to funds as she seeks to purchase a home.

[C] A male client in his mid 40s who currently falls in the highest tax bracket and who is looking for an alternative investment vehicle since he has currently maximized contributions to his company-sponsored retirement account. Variable annuities are alternative investment vehicles which allow the tax deferral of earnings until the plans are annuitized. Of the clients listed, the male in his 40s in the highest tax bracket is the best candidate because he has maximized contributions to a 401(k) plan and would benefit from the deferral of taxation on the investments in the variable annuity.

Your firm has securities available from a SEC Reg D private placement of variable life policies, which are unregistered. One of your fellow RRs would like to place an ad in a financial newspaper regarding the availability of the securities. Reg D allows which of the following in this situation? [A] Because it's a private placement, Reg D advertising is limited to hedge fund sales literature only. [B] As long as accredited investors are the only ones allowed to invest in the products, general advertising is acceptable, even if it reaches non-accredited members of the public. [C] Accredited investors who are pre-qualified for the purchase of the security may be invited to a sales seminar by the RR. [D] As long as the RR focuses advertising toward investors with sizeable net worth, advertising is acceptable.

[C] Accredited investors who are pre-qualified for the purchase of the security may be invited to a sales seminar by the RR. In this situation, the only acceptable scenario would be the sales seminar conducted for pre-approved customers with accredited investor status. Advertising is NOT allowed on Reg D Private Placements. Make sure to differentiate this from the rule 506c, which does allow general advertising. However, we must answer questions based on the general rule, not on 506c, unless specifically stated.

Of the following types of orders, which would be used to obtain a specific price of execution or better? [A] Buy Stops and Sell Stops [B] Buy Stops and Sell Limits [C] Buy Limits and Sell Limits [D] Buy Limits and Sell Stops

[C] Buy Limits and Sell Limits Limit orders (buy and sell) are used to obtain a specific price of execution or better. Stop orders become market orders and are used to protect an existing position or profit. Market orders are executed at the market price at the time the order is placed.

Which of the following is correct regarding ABLE accounts? [A] Underlying investments typically include growth stocks. [B] Investment earnings are considered taxable income at the federal level. [C] Distributions used for qualified disability expenses are not taxable. [D] Distributions used for qualified disability expenses are considered taxable income.

[C] Distributions used for qualified disability expenses are not taxable. ABLE accounts are programs established under Section 529A of the Internal Revenue Code to permit states to establish a tax-advantaged savings program for individuals with disabilities. Distributions from Able Accounts that are used for the qualified disability expenses of the designated beneficiary are NOT taxable.

Place the following in order, highest to lowest, in terms of asset distribution if a corporation is liquidated: I. Preferred stockholders II. Owners of secured debt instruments III. Common stockholders IV. Owners of unsecured debt instruments [A] I, II, III, IV [B] III, I, IV, II [C] II, IV, I, III [D] IV, II, III, I

[C] II, IV, I, III The order of asset distribution is taxes, secured debt, unsecured debt, preferred stockholders, and common stockholders.

When is the seller of a listed put option entitled to receive a cash dividend? [A] If the exercise notice is filed with the OCC on or after the ex-date. [B] If the exercise notice is filed with the OCC on or after the record date. [C] If the exercise notice is filed with the OCC just prior to the ex-date. [D] If the exercise notice is filed with the OCC just prior to the record date.

[C] If the exercise notice is filed with the OCC just prior to the ex-date. Whoever ends up owning a security the day before the ex-date would receive a dividend. "C" would cause the put writer to be the owner of the stock just before ex.

Regarding FINRA rules, if an RR will be paid to find investors for a limited partnership that he is affiliated with, which of the following is TRUE? [A] The member firm must contact the limited partnership to notify it that the RR is employed by the member firm. [B] No action is needed unless the RR is a limited partner. [C] If the member firm approves of this activity it must record it and supervise it. [D] If approved, FINRA has 10 business days to review the activity.

[C] If the member firm approves of this activity it must record it and supervise it. RRs must inform their member firms of any "private securities transactions" done away from the business activity of the broker-dealer before engaging in such activity. If the member approves such activity, it must maintains records and supervise such activity.

An investor, Mrs. Smith, is seeking a mutual fund offering a high yield. Which of the following is the best choice for Mrs. Smith? [A] Aggressive Growth Fund [B] Hedge Fund [C] Income Fund [D] Emerging Growth Fund

[C] Income Fund Of the choices offered, the income fund would offer the best "yield". A Growth fund would offer more capital appreciation. Hedge Funds are not a type of mutual fund - they are in a class by themselves and are sold to institutional and accredited investors.

In which of the following cases is an RR prohibited from selling a call option? [A] The RR has trading authority in a client's account. [B] The client owns 5% of the stock of the underlying company. [C] The RR receives the order from a corporate client who issued the underlying stock. [D] An investment adviser for the client, who has third party trading authority, enters the order.

[C] The RR receives the order from a corporate client who issued the underlying stock.

Prior to executing a short sale in an equity security Reg SHO requires which of the following of the broker-dealer? [A] The broker-dealer must get a written repurchase agreement from the customer. [B] The broker-dealer must have an inventory position in the security. [C] The broker-dealer must execute a locate in the security by confirming the security is available to be borrowed by the investor. [D] The broker-dealer must have a net short position in the security.

[C] The broker-dealer must execute a locate in the security by confirming the security is available to be borrowed by the investor. When executing a short sale in an equity security for a customer broker-dealers must perform a locate on the security to confirm it is available to be borrowed by the investor BEFORE the sell short order is entered. Failure to get a locate is a violation of Regulation SHO.

A pharmaceutical company plans to release a new drug next month. Prior to the release, one of your clients buys 1,000 shares. Two weeks prior to the release, the FDA publicly announces a delay in the approval of the drug. Your customer's shares drop approximately 20% in value. Which of the following types of risk is BEST represented by this scenario? [A]This is an example of re-investment risk. [B]This is an example of market or systematic risk. [C]This is an example of legislative or regulatory risk. [D]This is an example of unsystematic or business risk.

[C] This is an example of legislative or regulatory risk.

Regular Way Settlement for corporate securities such as common stocks, preferred stocks, and bonds is: [A] Same day as trade date [B] Trade date plus one business day [C] Trade date plus two business days [D] Trade date plus three business days

[C] Trade date plus two business days Regular-way settlement on corporate and municipal securities is Trade Date Plus Two Business Days (T+2). The former rule was T+3. Regulation T Settlement is T+4, formerly T+5

Which of the following best describes the "Fourth Market"? [A] Transactions that take place in listed securities off of the floor of an exchange [B] Transactions that take place from customer to customer either OTC or on the floor of an exchange [C] Transactions that take place off of the floor of an exchange where institutions trade directly with no broker-dealer involvement [D] Transactions that take place when an issuer sells securities to the public for the first time

[C] Transactions that take place off of the floor of an exchange where institutions trade directly with no broker-dealer involvement The Fourth Market is where institutions trade privately with other institutions off of the floor of an exchange and away from broker-dealers. Third market transactions take place in listed securities off of the floor of an exchange in the OTC market. Secondary market transactions are trades between investors in the OTC or listed markets where no beneficial interest passes back to the issuer. Primary market transactions take place when issuers sell securities to the public for the first time.

Which of the following activities would not be done by a designated market maker on the floor of an Exchange? [A] handling the execution of odd lot orders [B] recording open orders in the book [C] handling the distribution of new issues [D] trading for their own account

[C] handling the distribution of new issues A designated market maker would execute odd lot orders (but not report them to the tape), record open (GTC) orders in the book and trade for their own account but would never be involved in the distribution of new issues or be part of an underwriting syndicate.

It is not advisable for an investor to trade in and out of mutual funds with a sales load because [A] there is not an active secondary market in mutual funds. [B]of Regulation T penalties. [C] of the impact of sales charges which will drastically reduce the potential for profit. [D] the commission charges on secondary market transactions.

[C] of the impact of sales charges which will drastically reduce the potential for profit. The impact of being charged a new sales load with each investment is the primary reason why investors should never trade in and out of loaded funds - too much of their capital is eaten up by the sales charge.

On the ex-date for a 20% stock dividend, a customer with a short position of 300 shares of common stock would: [A] receive an additional 60 shares of common stock. [B] not be affected by the distribution. [C] owe an additional 60 shares of common stock. [D] Their account would be debited for the dollar value of the 60 shares of common stock.

[C] owe an additional 60 shares of common stock. Investors with "short" positions always owe any dividends and distributions that occur while they are short, whereas "long" positions receive any dividends and distributions. Since this investor was short 300 shares of stock they would "owe" 60 shares of common stock ( 300 shares X .20 = 60 shares )

A common stockholder in a corporate liquidation has a [A] priority claim on the assets. [B] claim on the assets prior to preferred stockholders. [C] residual claim on the assets. [D]claim on the assets prior to subordinated lenders but after secured creditors.

[C] residual claim on the assets. Common stockholders have a residual claim on the corporate assets. If liquidation occurs, common stockholders would be the last to be paid.

The term "spread" could describe all of the following EXCEPT [A] the difference between the bid and the ask on a common stock. [B] the difference between the bid and the ask on a corporate bond. [C] the difference between an investor's cost basis and sale proceeds on preferred stock. [D] the difference between the public offering price and the proceeds to the issuer on a new issue.

[C] the difference between an investor's cost basis and sale proceeds on preferred stock.

In order to open a securities account for a corporation, all of the following documents are needed EXCEPT: [A] Corporate Resolution [B] New Account Form [C]Affidavit of Domicile [D] Copy of By-Laws

[C]Affidavit of Domicile Affidavit of Domicile is required when a customer is deceased, therefore it would not be needed for a corporate account.

Which of the following would be the best choice if a client has $30,000 to invest but needs monthly income of $600? [A] An aggressive growth fund [B] Blue chip stocks [C] A sector fund [D] A money market fund

[D] A money market fund Of the choices offered, the money market fund would be most appropriate because it offers income, safety and liquidity. You would not choose Aggressive Growth Fund because growth stocks generally do not pay dividends and would not provide income. Blue Chip stocks do pay dividends but NOT monthly. Dividends are paid quarterly, therefore, Blue Chip stocks would not work. A Sector Fund is too general since we do not know what sector it is in.

Which of the following would NOT be considered to be a Money Market Instrument? [A]Jumbo Certificates of Deposit [B]Bankers Acceptances [C]Treasury Bills [D]ADRs (American Depositary Receipts)

[D] ADRs (American Depositary Receipts) American Depositary Receipts trade like common stock and do not have set maturities.

Which of the following accurately describes a secondary offering or secondary distribution? [A]An offering of securities that remained after an initial public offering that was not fully sold [B]A rights offering of primary shares that would take place after the completion of an initial public offering [C]Transactions that take place within an underwriting syndicate before shares are actually made available to the public [D]An offering in the secondary market of securities owned by one or more major owners wishing to sell large volumes of their shares.

[D] An offering in the secondary market of securities owned by one or more major owners wishing to sell large volumes of their shares. A secondary offering or secondary distribution is the redistribution or sale of a large block of securities held by one or more major shareholders who wish to sell a large volume of shares.

A quote for a security trading in the secondary market typically contains all of the following, EXCEPT: [A] A bid price [B] An ask price [C] The size of the market [D] Average daily trading volume

[D] Average daily trading volume A quote for a security typically contains the bid price, the ask price, and the size of the market (the number of shares available for sale and for purchase). Average daily trading volume would not be found on a quote.

All of the following are characteristics of LEAPS, except: [A] They are used to protect against a decline in a stock's price or take advantage of an up move in stock prices. [B] They have expirations up to 3+ years (up to 39 months). [C] They are an alternative to stock ownership without the short term time risk of regular options. [D] Because they are long term, investors do not have to receive a risk disclosure document.

[D] Because they are long term, investors do not have to receive a risk disclosure document. All are true except d, because investors would still be required to receive a disclosure document (ODD - Options Disclosure Document).

One of your fellow registered representatives wishes to send out an approved worksheet on options. The worksheet must be sent out with, or preceded by, which of the following documents? [A] Documents including the appropriate disclaimers [B] Documents related to opening a margin account [C] Documents related to opening an options account [D] Documents including the ODD (Options Disclosure Document)

[D] Documents including the ODD (Options Disclosure Document) Any options-related material that is sent out must be preceded or accompanied by the Options Disclosure Document (ODD).

The Investment Company Act of 1940 requires that certain transactions use "forward pricing" (the valuation of mutual fund share prices as of the next computation). Which of the following transactions does NOT require "forward pricing"? [A] Shares are purchased directly from the principal underwriter by individual investors. [B] Shares are sold on behalf of an investor by the investor's broker-dealer through a wire order. [C] Shares are redeemed directly to the fund by a customer. [D] ETF shares are purchased by a customer in the secondary market.

[D] ETF shares are purchased by a customer in the secondary market. Forward pricing is required for all purchases and redemptions of mutual fund shares. However, investors who purchase ETFs in the secondary market pay the market price at the time of the purchase. Forward pricing is not used.

The ratio at which one country's currency can be converted into another country's currency is known as the: [A] Federal funds rate [B] Deficit rate [C] European currency rate [D] Exchange rate

[D] Exchange rate

A mutual fund's portfolio could include which of the following securities? I. Warrants on common stock II. Revenue bonds issued by a municipality III. Treasury bills of the U.S. Government IV. Equity securities such as the common stock of a corporation [A] III only [B] III and IV only [C] II, III, and IV only [D] I, II, III, and IV

[D] I, II, III, and IV Any or all of these investment securities could be included in the portfolio of a mutual fund depending on its investment objective and investment policies.

When an investor buys either a corporate or municipal bond, how frequently is interest paid? [A] Interest is paid every week. [B] Interest is paid every month. [C] Interest is paid on a quarterly basis. [D] Interest is paid on a semi-annual basis.

[D] Interest is paid on a semi-annual basis. Interest on both corporate and municipal bonds is normally paid semi-annually. Remember it is dividend payments that are made quarterly.

Eurodollar Bonds have which of the following features? [A ] They are based upon the Euro, and all payments related to these bonds are made in Euros. [B] They are based upon the U.S. Dollar, but all payments related to these bonds are made in Euros. [C] They are registered here in the U.S. and must abide by all U.S. regulations on securities. [D] Issuers of Eurodollar Bonds can be foreign companies/corporations and/or domestic companies/corporations.

[D] Issuers of Eurodollar Bonds can be foreign companies/corporations and/or domestic companies/corporations. Eurodollars are U.S. Dollars that are held in foreign banks. Eurodollar bonds are bonds issued in relation to these deposits of U.S. Dollars in foreign banks. Eurodollar bonds pay interest and principal in U.S. Dollars and can be issued by both foreign and domestic corporations/banks. These securities are not always registered in the U.S. and do not have to abide by all U.S. regulations.

Jane left the securities industry 5 years ago to raise her two children. The children are now in school full time and Jane has decided to go back to work at the same broker-dealer where she previously worked. Which of the following is true regarding Jane's registration status with the firm? [A]If Jane's firm paid the annual registration fees, Jane's license would still be valid and she could come back to work without having to take the qualification exams again, provided she kept up with the continuing education requirements of her license. [B]If Jane's firm paid the annual registration fees, Jane's license would still be valid and she could come back to work without having to take the qualification exams again but she would be required to complete the continuing education requirements to reactive her license. [C]Jane's licenses would have remained valid since she always intended to come back to work after her children went to school full time and had an agreement in place to come back to work at the firm. [D]Jane's licenses have lapsed and she will be required to take the qualification exams again.

[D] Jane's licenses have lapsed and she will be required to take the qualification exams again. When a registered person leaves a firm, a U-5 Form is filed and that person has 2 years from the date of the U-5 to reinstate their license without having to test again.

All of the following companies are examples of non-cyclical or defensive stocks except: [A] Public utilities such as water and gas [B] Companies selling pharmaceuticals [C] Energy providers [D] Manufacturers of appliances

[D] Manufacturers of appliances Cyclical stock tends to rise quickly when the economy turns up and to fall quickly when the economy turns down. Housing and appliances manufacturers are examples of cyclical stocks.

Which of the following is TRUE when a corporation declares a split in its common stock? [A]The corporation's working capital would be affected. [B]The corporation's retained earnings would be affected. [C]The market price of the common stock will remain unchanged. [D]The common stock's par value would be affected.

[D] The common stock's par value would be affected.

A Registered Representative thoroughly reads a preliminary prospectus and then writes a brief review of the prospectus which he wants to send to clients he believes are suitable. [A]This may only be done with the Branch Office manager's approval. [B]This may be done without restriction. [C]This may only be done with the approval of a supervisory analyst. [D]This may not be done under any circumstances.

[D] This may not be done under any circumstances. Preliminary prospectus' must be sent to clients without any attachment, comment or review.

A client of yours wants to put additional funds into his retirement account. He has an annual income of $400,000 and two children to support. He is considered a qualified plan participant. The best type of retirement account for this individual is [A] a Coverdell Education Savings Account. [B] a Roth IRA. [C] a Rollover IRA. [D] a Traditional IRA.

[D] a Traditional IRA. In this situation, since the individual wishes to put additional funds away for retirement, the best answer of those given would be the Traditional IRA. A - Coverdell - For educational expenses. B - Roth IRA - Income of $400,000 exceeds the maximum income limit for a Roth, and therefore they cannot contribute. C - Rollover IRA - The individual doesn't want to roll over his qualified plan, he wants to put additional funds into a retirement account. D - Traditional IRA - Allows an employed participant to make contributions of up to $6,000 annually (2021) (even if the participant has a qualified plan). If the client has a large income, they are still permitted to make a contribution of up to $6,000 (2021), but that amount will not be tax-deductible. These contribution amounts are unchanged from 2020.