SIE Exam Prep Quiz Questions Unit 6

Your customer, Jim, wants to deposit money into a 529 college savings plan for his great-niece Penelope. He states four reasons why he likes the 529 plan. Unfortunately, you need to tell him he is incorrect on one point. Which of his following points is not considered a feature of a 529 college savings plan? A)She has to use the money by the time she turns 30, so she will not be able to put it off too long. B)The growth can be tax free if used for qualified education expenses. C)If she gets into a good prep school the money can be used for that as well as college. D)The money grows tax deferred.

A 529 plans grow tax deferred and the funds may be withdrawn tax free if used for qualified education expenses. These plans may be used to fund secondary education (pre-college). There is no age limit on when the funds must be used.

How an account is registered determines A)ownership and control of the investments in the account. B)control of the investments in the account only. C)ownership of the account only. D)the sole individual allowed to access the account.

A Accounts can be registered in the name of one or more persons, as well as legal entities such as corporations or partnerships. Account registration determines the ownership of the account and who will have control of the investments in the account.

Which of the following business structures is effectively the property of a single natural person? A)Sole proprietorship B)Corporation C)Partnership D)Limited partnership

A An account opened for a sole proprietor is effectively the property of the business owner.

Under whose Social Security number is the custodial account established? A)The minor's B)The person who established the account for the minor, whether the parent or not C)The parent, whether the parent is custodian or not D)The custodian's

A Assets in a custodial account are the minor's property, so the minor's Social Security number is used.

All of the following are true of Roth IRAs except A)distributions are required after reaching 73. B)anyone with earned income under a certain limit may contribute. C)distributions are not required after reaching 73. D)contributions are not deductible.

A Because distributions are not taxable on Roth IRAs, there are no required distributions. Roth IRAs have income limits and contributions to Roth IRAs are not deductible.

Which of the following is true regarding accounts trading on margin? A)A fiduciary account may only trade on margin if it is specifically permitted in the trust or custodial agreement. B)A partnership account may only trade on margin if it is specifically permitted in the partnership resolution. C)A corporate account may only trade on margin if it is specifically permitted in the corporate charter. D)Joint accounts or those with more than one party titled on the account may never trade on margin.

A Both individual and joint accounts may trade on margin. While corporate and partnership accounts may trade on margin as long as they are not specifically restricted from doing so, a fiduciary account may only trade on margin if permission is specifically granted in the trust or custodial agreement. In the answers for the business accounts, it is the wording "only trade on margin if it is specifically permitted" that makes these responses incorrect. Corporate and partnership accounts may trade on margin as long as it is not prohibited.

All of the following are exempt from the Federal Reserve Board (FRB) Regulation T margin requirements except A)corporate stocks. B)government agency issues. C)Treasury bills. D)municipal bonds.

A Certain securities are exempt from the FRB's Regulation T initial margin requirements. Those exempted would include U.S. Treasury issues, government agency issues, and municipal securities. Corporate securities are not exempt; for corporate securities to be purchased on margin, buyers must meet the requirements of Regulation T

All of the following are true of Roth IRAs except A)Contributions may be deductible depending on income limits B)Withdrawals are not required at age 72 C)Contributions are made after tax D)Contributions may be able to be made after 59½

A Contributions are not deductible. They are made with after-tax dollars and may continue past age 59½ if still working. Roths are not subject to RMDs.

All of the following are benefits of Coverdell Education Saving Accounts except A)no income restrictions. B)they can be transferred to a sibling if not used by the original beneficiary. C)they are available for use for K-12. D)withdrawals are tax free if used for qualified education expenses.

A Coverdell plans have income restrictions; Section 529 plans do not. All the other benefits listed here apply to Coverdell plans.

Discretion given to a registered representative to make transactions applies to all of the following except A)timing and price only. B)the security for the transaction. C)whether to buy or sell. D)the number of shares or units for the transaction.

A Discretion is defined as the authority to decide, what security, the number of shares or units, and whether to buy or sell. Discretion does not apply to decisions regarding only the timing of an investment or the price at which it is bought or sold.

Which of the following is not a defined contribution plan? A)ABC Corporation pension plan B)ABC, Inc., profit-sharing plan C)ABC Corporation SIMPLE retirement plan D)ABC Corporation 401(k) plan

A In a pension plan, it is the eventual retirement benefit that is defined by the plan. The others listed here are types of defined contribution plans.

Alan and Barbara Collins have three minor children: Dan, Ellen, and Frank. Which of the following UTMA accounts could be opened? A)Barbara Collins as custodian for Ellen Collins B)Alan and Barbara Collins as custodians for Ellen Collins C)Alan Collins as custodian for Dan and Frank Collins D)Frank Collins as custodian for Dan Collins

A In an UTMA account, one adult is custodian for one minor. There is no such thing as joint custodians or joint beneficiaries.

A married couple have two children, both still minors. Which of the following UTMA accounts could be opened? A)Parent as custodian for one of the children B)Both parents as custodians for one of the children C)Parent as custodian for both children in a single account D)One of the children as custodian for the sibling

A In an UTMA account, only one adult can be the custodian for one minor. Joint custodians or joint beneficiaries to a single account are not permitted.

A registered representative placing trades in a customer account must have discretionary authority if they choose which of the following aspects of the trade? A)The action to be taken, the asset to be traded, or the amount of the trade B)The action to be taken and the asset to be traded C)The action to be taken, the asset to be traded, and the amount of the trade D)The asset to be traded and the amount of the trade

A In order for a trade to be considered discretionary the representative needs to choose any one or more of the three aspects of the trade (asset, action, or amount). It does not require more than one aspect, so the best response to the question is Action, Asset, or Amount. Any response that includes "and" suggests more than one of the "A"s needs to be controlled and is not accurate.

Roth IRAs I. have no minimum required distributions at any age. II. have higher contribution limits than those allowed for a traditional IRA. III. allow the withdrawal of earnings tax free as long as the account has been opened for two years. IV. can be contributed to in the same year as a traditional IRA. A)I and IV B)II and III C)II and IV D)I and III

A Roth IRAs have no minimum required distributions at any age. All earnings grow and may be withdrawn tax free as long as there has been an open Roth IRA for at least five years and the participant is at least age 59½. One may contribute to both a Roth and a traditional IRA in the same year, but the combined contribution may not exceed the annual maximum for any plan.

Craig and Judy have just married. It is a second marriage for both of them and they both have kids from a prior marriage. Craig would like his portion of their account to go to his kids when he dies and Judy would like her portion to go to her kids when she dies. As new partners in marriage, while they are both alive they would both like to have full access to the account. What type of account(s) should they set up? A)Joint tenants in common (JTIC) B)A partnership account C)Each should set up their own individual transfer on death (TOD) account with limited power of attorney (POA) D)Joint tenants with rights of survivorship (JTWROS)

A The JTIC account does exactly what the clients requested. The JTWOS does not separate their assets at death; instead the whole account would go to the surviving spouse. Individual accounts with limited POA and TOD would not give both full access to the account. The partnership account is for business accounts.

Your customer retired two years ago at age 70. He recently took a job with a retailer greeting customers. He would like to contribute to a retirement plan to accumulate additional money with the view to leave something to his grandchildren. You would most likely advise him to open A)a Roth IRA. B)a traditional IRA. C)a mutual fund. D)an annuity.

A The Roth IRA would require after-tax (nondeductible) contributions but would allow earnings to accumulate tax deferred as in any retirement plan. Roth IRA distributions need not begin at age 73, and if holding period requirements are satisfied, all distributions are tax free.

One of your clients wants to set aside some money for her niece, who just turned 30, but the client has some reservations. The client does not wish her niece's numerous creditors to have access to the money until after the client dies, but she wants her niece to have easy access to the money at that time. You recommend that she open A)a TOD registration on an account in her name. B)a custodial account. C)a TIC account. D)a joint tenants with rights of survivorship account.

A The acronym TOD stands for transfer on death. It is used to facilitate the transfer of assets in an account upon the death of the account holder (your customer, in this case) without the need for probate. While the owner is alive, the account remains her property. The niece is too old for a custodial account. She should not have a joint account because of creditor and control issues.

Which of the following is among the items of information that must be entered on a new account form? A)Names of all persons who will have access to the account B)What educational degree(s) the accountholder has earned C)Names and addresses of at least two of the prospective customer's neighbors as personal references D)Names of other broker-dealer firms already holding accounts for the prospective customer

A The facts that are required on a new account form are aimed at facilitating the operation of the account, properly identifying the customer, and guarding against money laundering and other illegal activities. Of the choices offered, only the names of those with access to the account would help with these goals, so this item of information is the only one on the list that is required.

The benefits of designating a brokerage account as transfer on death (TOD) are that I. the designation eliminates estate taxes. II. the designation avoids probate. III. the account holder no longer has to make investment decisions regarding the account. IV. the account holder may still make beneficiary changes for the account. A)II and IV B)I and IV C)II and III D)I and III

A The transfer on death (TOD) designation allows the account holder to name a specific beneficiary (or beneficiaries) to receive the account's assets upon death. Those named persons may be changed whenever the account holder wishes. Although this designation allows the account to bypasses probate, it does not avoid estate taxes. TOD has nothing to do with giving investment discretion.

A business that is owned by two or more people as an unincorporated association is known as which of these? A)Partnership B)Corporation C)Limited liability corporation D)Sole proprietor

A With two or more people, it can't be a sole proprietor, nor can it be a corporation or an LLC. It must be a partnership.

If three individuals have a tenants in common (TIC) account with your firm and one individual dies, then A. the two survivors continue as cotenants, along with the decedent's estate B. the account must be liquidated and the proceeds split evenly between the two survivors and the decedent's estate C. trading is discontinued until the executor names a replacement for the deceased D. the account is converted to joint tenants with right of survivorship

A In a TIC, the estate replaces the decedent tenant. Eventually, the decedent's portion of the account will be distributed to the estate's beneficiaries.

A retirement plan that requires a formula-based payment for the retiree's life is A. a pension plan B. a defined contribution plan C. a money purchase plan D. a 401(k) plan

A Pension plan is another name for a defined benefit plan. A defined benefit plan pays a benefit to the retiree for life. The payment is based on a formula that defines the amount of the benefit.

Sam Malloy owns a small business and has built a substantial estate both with his business success and his early career as a pro athlete. He wants to set up his estate in a way that he will control the assets until he passes away or becomes incapacitated. Once that time comes, he wants control to transfer easily and he wants to avoid probate. Sam should A)create a last will and testament. B)establish a revocable living trust. C)establish an irrevocable living trust. D)place his assets in a transfer on death account.

B A revocable living trust will accomplish his goals for his estate. An irrevocable trust takes away his control of his assets. The business cannot be placed in a transfer on death account. A will must go through probate.

D/B/A is another term for which of the following business organizations? A)S Corporation B)Sole proprietorship C)Partnership D)C Corporation

B D/B/A stands for "doing business as" and is a common phrase used for sole proprietorships.

Hypothecation is A)the closing of a securities initially position purchased on margin. B)the pledging of customer securities as collateral for margin loans. C)replacing shares that were borrowed to sell short in a margin account. D)opening a position in a margin account.

B Hypothecation is agreed to in the margin account agreement. The customer agrees to pledge the securities to be purchased on margin to the broker-dealer so that the broker-dealer can then pledge them to a bank as collateral for the margin loan.

For the risk disclosures found in the margin agreement, all of the following would be accurate disclosures except A)firms can increase their in-house margin requirements without advance notice. B)if a maintenance call is not met, the customer must direct which securities to sell. C)customers can lose more money than initially deposited. D)customers are not entitled to an extension of time to meet a margin call.

B If a maintenance call is not met it is the broker-dealer who determines which securities to sell, not the customer. The others are all accurate disclosures found in the margin agreement.

Which of the following are true of traditional IRAs but not of Roth IRAs? I. Contributions may be deductible II. Contributions are always deductible III. There is a penalty for failing to take the required minimum distribution (RMD) IV. There are income limits for making contributions A)III and IV B)I and III C)II and III D)I and II

B If the contributor has an employer-sponsored plan and makes over the limit, the contributor can still have an IRA but it won't be deductible. After reaching age 73, the RMDs must be taken each year. Failure to do so results in a 25% penalty. Income limits on traditional IRAs impact deductibility, not contributions.

A client and his spouse own shares in the KAPCO Fund as tenants in common. He has a 60% ownership interest in the account and the spouse has the balance. If the client dies, what happens to the shares in the account? A)50% of the shares would belong to his spouse and the remaining half would be distributed to his estate. B)40% of the shares would belong to his spouse and the remaining balance would be distributed to his estate. C)Ownership of the shares would be determined by probate court. D)His interest would automatically be transferred to the spouse.

B In a TIC account, securities owned by the decedent pass to the deceased owner's estate—in this case, 60% of the assets. The 40% belonging to the spouse is retained by the spouse.

Marsha, Jane, Cynthia, Craig, Jim, and Robert are owners of an account JTWROS. If Craig, Jim, and Robert pass away, then their interest in the account A)is distributed through the probate process. B)remains in the account and is now the property of the surviving tenants. C)is identified and distributed with the decedent's estate. D)is divided in half, and one half of the account is distributed evenly to the decedent's beneficiaries.

B In a joint tenants with rights of survivorship (JTWROS), the assets of the decedent simply remain in the account and become the property of the survivors. There is no probate process for these assets, but they are still a part of the decedent's estate for tax purposes.

Per FINRA regulations, the minimum equity in a long margin account must be at least A)50%. B)25%. C)75%. D)30%.

B Minimum maintenance for long margin is 25%. In a short account, the minimum maintenance requirement is 30%. Initial requirement under Regulation T is 50%.

The Conduct Rules permit specific types of lending arrangements between registered representatives and their firms and customers. Which arrangement below would not be permitted? A)The customer and the registered representative are both registered persons with the same firm. B)The firm lends the customer's securities without a consent agreement. C)The firm's customer is a lending institution. D)The registered representative and the customer are immediate family.

B The Conduct Rules permit several types of lending arrangements. Among them; an immediate family relationship exists between the representative and the customer, the customer is in the business of lending money, the customer and the representatives are both registered persons with the same firm, the customer and the representative have a personal relationship or a business relationship outside the broker-customer relationship. Lending securities for use in short sales can only be done with a signed consent agreement from the customer.

A margin account allows a customer to borrow a portion of the funds needed to complete a trade. Currently, the required minimum is 50%. Which regulator sets the requirement? A)The OCC B)The FRB C)The SEC D)FINRA

B The Federal Reserve Board sets the Regulation T requirement.

When opening a new account with margin, all of the following documents are required except A)credit agreement. B)consent to loan agreement. C)hypothecation agreement. D)account agreement.

B The consent to a loan agreement is not a regulatory requirement. Note this is a new account, so the regular account agreement is required in addition to the margin documents.

Your client, Maria Stephens, is a widow in her mid-70s. Her only son, Brent, is 40 and lives with her. She would like Brent to be able to manage her account for her but not have access to withdraw funds from her account. However, when she dies she would like all of her account to go to Brent because he is her only living relative. What type of account and what features should she set up? A)A joint with tenants in common (TIC) with Brent B)An individual account with transfer on death (TOD) and limited power of attorney for Brent C)A joint tenants with rights of survivorship (JTWROS) account with Brent D)An individual account with transfer on death (TOD) and full power of attorney for Brent

B The individual account with TOD and limited power of attorney would allow Brent to make the transaction in the account but not withdraw money, and would automatically become his at her death. If he had full power of attorney he would be able to withdraw funds. JTWROS and TIC accounts would allow Brent full access to the account while Stephens is still alive.

Which of the following is not needed when opening a partnership account? A)The partnership agreement B)A new account form signed by all the partners C)A resolution authorizing those who can make transactions in the account D)A new account form

B The new account form must be signed by those partners authorized to trade, not by all the partners. The others listed here are requirements.

Andrea recently began working for the Seabird Coffee Company as a barista. She tells you that her company has two retirement plans she can participate in. In one plan, she contributes a portion of her salary into an account where she can choose from a set of investments. The contributions reduce her taxable income. The money grows and when she retires, or leaves the company, she can take the balance. In the other program, she does not contribute to the plan; the company pays into the plan and invests the money. When she retires, and if she qualifies, she will receive a retirement income for life from the plan based on her working income. You explain that Seabird Coffee has A)two different defined contribution plans. B)a defined contribution and a defined benefit plan. C)two different defined benefit plans. D)a defined benefit and a nonqualified-deferred compensation plan.

B The plan she contributes into on a pretax basis is a defined contribution plan. The other plan promises an income for and is a defined benefit plan. Both are types of qualified plans.

The benefits of designating a brokerage account as transfer on death (TOD) are that I. the designation eliminates estate taxes. II. the designation avoids probate. III. the account holder no longer has to make investment decisions regarding the account. IV. the account holder may still make beneficiary changes for the account. A)I and III B)II and IV C)II and III D)I and IV

B The transfer on death (TOD) designation allows the account holder to name a specific beneficiary (or beneficiaries) to receive the account's assets upon death. Those named persons may be changed whenever the account holder wishes. Although this designation allows the account to bypasses probate, it does not avoid estate taxes. TOD has nothing to do with giving investment discretion.

Your customer purchases 200 shares of Seabird Airlines (the ticker is SBRD) at $30 a share in a cash account. Under Regulation T, the Federal Reserve has set the initial margin requirement at 50%. How much does your customer need to deposit for this trade? A)$3,000 B)$6,000 C)$1,500 D)$2,000

B This is a cash account. There is no margin borrowing, so 100% of the trade's value must be deposited. 200 shares at $30 = $6,000.

A customer receives a Regulation T margin call for $3,200. To meet the deposit requirement, which of the following can be deposited? A)Cash in the amount of $1,600 B)Fully paid for marginable securities totaling $6,400 in market value C)Fully paid for marginable securities totaling $1,600 in market value D)Fully paid for marginable securities totaling $3,200 in market value

B When meeting a Regulation T margin call with cash, 100% of the call must be deposited—in this case, $3,200. If using fully paid for marginable securities to meet the call, a deposit totaling twice the amount of the call must be made—in this case, $6,400. This is because securities are only marginable to 50% of their value.

A corporation opening a brokerage account must present all of the following documents except A. a new account form B. an authorization from the state department of corporations C. a copy of the corporate charter D. a resolution of the board of directors

B A corporation does not (normally) need authorization from the state to open an account.

A trust formed during the grantor's lifetime that may be modified only by the original grantor is normally called A. an irrevocable living trust B. a revocable living trust C. an A-B trust D. a life insurance trust

B If a grantor forms and funds a trust in his lifetime, it is a living trust. If anyone has the power to modify the trust, it is a revocable trust. An A-B trust is a type of revocable living trust used for estate planning purposes and is not expected to appear on the exam except, as you see here, as a distraction.

As the first purchase in a new margin account, your customer purchases 200 shares of ABC stock at $9 a share. The customer is expected to deposit how much to pay for the trade? A. $900 B. $1,800 C. $2,000 D. $450

B In a margin account, the minimum deposit is the higher of 50% of the purchase price (Regulation T) or the FINRA requirement of $2,000 or 100% of the purchase price if less than $2,000. In this case, the 200 shares at $9 is $1,800, below $2,000, so no borrowing is allowed.

Chris Perez began contributing $3,000 a year to a Roth IRA account 10 years ago when he was 50 years old. The account value today has grown to $60,000. He withdraws $5,000 from the account. Perez will owe taxes on A. the entire amount of the withdrawal B. none of the withdrawal C. the principal portion of the withdrawal D. the gains plus a 10% penalty for premature distribution

B Perez meets the requirements of a qualified distribution from his Roth IRA. He is over 591⁄2 (he started 10 years ago at the age of 50, so he is now 60). He has had the account for more than 5 years (about 10 years). There are no taxes for this distribution.

Your customer calls and requests that you purchase 300 shares of Seabird Coffee Company. He recently read an article online about the company's new collaboration with Sorag coffee makers and likes the prospects of Seabird. This is an example of A. a solicited trade B. an unsolicited trade C. a discretionary trade D. a suggested trade

B The customer chose this trade and placed it without prompting from the firm or a representative, making it an unsolicited trade.

Your customer purchases 200 shares of ABC stock at $9 a share in a cash account. The customer is expected to deposit how much to pay for the trade? A. $900 B. $1,800 C. $2,000 D. $450

B This is a cash account—100% of the trade must be paid for by the customer.

An individual opens an account with your firm. She tells you that upon her death, she wants any assets in the account to be divided equally among her three children. She also wants the ability to change the allocation in the event that conditions change and one of the children is in greater need than the others, but she does not want to incur any significant legal expense. You would suggest that the account be opened A. as a joint account with right of survivorship B. as a joint account with tenants in common C. as an individual transfer on death (TOD) account D. under a discretionary power

C An individual account with a TOD designation would be best for this customer. A joint account would make the children owners of the account, and a discretionary power does not accomplish the owner's desire to transfer the account on her death.

A fee-based account charges A)a set amount for every trade. B)$5 a trade. C)a set amount monthly or quarterly for all trading activity. D)for every trade based on the size of the trade.

C A fee-based account charges a fee, either fixed or based on a schedule, for all trading activity. The charge is typically applied on a monthly or quarterly basis.

A traditional pension plan is which type of corporate-sponsored qualified plan? A)Defined contribution plan B)Profit-sharing plan C)Defined benefit plan D)Section 403(b) plan

C A traditional pension plan defines the pension benefit to be paid at retirement based on a formula. The formula determines the benefit depending on the retiree's years of service, age, and salary. A defined contribution plan defines the amount of funds that are put into the plan, not the plan's eventual benefit. 403(b) plans and profit-sharing plans are types of defined contribution plans.

All of the following are true of Roth IRAs except A)distributions are not required after reaching 73. B)contributions are not deductible. C)distributions are required after reaching 73. D)anyone with earned income under a certain limit may contribute.

C Because distributions are not taxable on Roth IRAs, there are no required distributions. Roth IRAs have income limits and contributions to Roth IRAs are not deductible.

A registered representative is discussing fee-based and commission-based accounts with a customer. All of the following are true except A)disclosure of what services the fees cover in a fee-based account must be made to the customer before the account is opened. B)a fee-based account charges a single annual fee that can be a fixed dollar amount or a percentage of assets under management. C)fee-based accounts are most suitable for those who do very little trading during the course of the year. D)a commission based account bills for each transaction separately.

C Fee-based accounts charging a fixed dollar amount or a percentage of assets under management are more suitable for those doing at least a moderate amount of trading. Commission based accounts charging for each transaction on the other hand are better suited for those who do fewer transactions each year. For fee-based accounts full disclosure of what is covered by the annual fee must be made before the account can be opened.

If a customer wishes to open an account in his name and would like to allow his spouse to make trading decisions (but not be able withdraw cash or securities), you would suggest he open A)a limited joint tenancy account. B)an account with full power of attorney. C)an account with limited power of attorney. D)a custodial account.

C For a person other than the account owner to withdraw assets and make trading decisions, full power of attorney is required. A limited power of attorney allows someone other than the account owner to enter trades but not withdraw assets. There is no limited joint tenancy.

A registered representative is explaining discretionary and nondiscretionary accounts to a customer. Only one of the following statements is accurate and can be made by the registered representative. Which is it? A)In a discretionary account you will have the opportunity to approve any order I want to enter before I enter it. B)I decide if the account should be set up as discretionary or nondiscretionary, but must do so in your best interest. C)In a nondiscretionary account no order can be entered without your prior approval. D)If I decide that the account should be a discretionary one you will no longer be able to enter orders yourself.

C In a nondiscretionary account no order can be entered without the customer's prior approval. In a discretionary account the customer's prior approval is not required. Only the customer can decide if the account should be a discretionary one and grants that discretion with a limited power of attorney giving trading authorization to the registered representative. Even in a discretionary account the customer may still enter their own orders.

Which of the following are characteristics of a revocable living trust? I. It is established before the grantor dies II. The grantor can change beneficiaries III. The grantor can add or remove items from the trust IV. The grantor is not subject to tax on income that remains in the trust A)I and II B)I only C)I, II, and III D)I, II, III, and IV

C In a revocable living trust the grantor has complete control over the trust while alive, and because of this, the grantor is also subject to any tax implications of the trust.

A customer of a broker-dealer sells 300 shares of stock at $50 per share and leaves the proceeds in the account. The proceeds are I. a credit to the cash balance. II. a debit to the cash balance. III. available to the customer on demand. IV. available for withdrawal after 30 days.

C Proceeds from a sale that are not reinvested and are held in the account at the broker-dealer are called a free credit balance. The free means that the funds are available to the customer on demand (freely available).

All of the following are exempt from Regulation T except A)T-bills. B)New York City bonds. C)NYSE-listed securities. D)GNMAs.

C Stocks that trade on the NYSE are subject to Regulation T. Municipals, treasuries, and agencies are exempt.

The minimum initial requirement when buying 100 shares at $15 in a new account would be A)$375. B)$750. C)$1,500. D)$2,000.

C The FINRA minimum initial deposit for a long purchase in a margin account is $2,000 or 100%, whichever is less.

Your customer retired two years ago at age 70. He recently took a job with a retailer greeting customers. He would like to contribute to a retirement plan to accumulate additional money with the view to leave something to his grandchildren. You would most likely advise him to open A)a mutual fund. B)a traditional IRA. C)a Roth IRA. D)an annuity.

C The Roth IRA would require after-tax (nondeductible) contributions but would allow earnings to accumulate tax deferred as in any retirement plan. Roth IRA distributions need not begin at age 73, and if holding period requirements are satisfied, all distributions are tax free.

An account that is titled "customer name d/b/a business name" would be which of the following? A)Limited liability corporation B)Corporate account C)Sole proprietor account D)Partnership account

C The abbreviation "d/b/a" stands for "doing business as" and is used for a sole proprietor account when the business is using a fictitious business name.

Which of the following statements are true of an irrevocable trust? I. The grantor may change the terms of the trust II. The grantor must give up ownership of items placed in the trust III. The structure of the trust may reduce estate taxes IV. The grantor may retain ownership of items placed in the trust A)I and IV B)II and IV C)II and III D)I and II

C The grantor may be able to avoid some of the tax consequences because he gives up ownership of items in the trust and cannot change the terms of the trust once established.

At what minimum age could normal distributions be made from an individual retirement account (IRA) without a penalty? A)62 years old B)65 years old C)59½ years old D)70½ years old

C The minimum age to withdraw funds from a tax-qualified plan without penalty is 59½. Before that age, withdrawals are subject to a 10% penalty on growth withdrawn, unless an exclusion applies.

The minimum initial requirement when purchasing 100 shares at $30 in a new account would be A)$750. B)$375. C)$2,000. D)$1,500.

C The requirement is normally 50% but not less than $2,000 unless the purchase price is less than $2,000. Then only 100% of the purchase price would be required.

Opening a margin account for a client requires the client to do all of the following except A)recieve a risk disclosure document. B)signing the hypothecation agreement. C)signing the loan consent. D)signing the credit agreement.

C The signing of the loan consent agreement allowing one's securities to be loaned to others for the purpose of short sales is optional; all the other items are required to be signed to open a margin account.

Many investors like to put a transfer on death (TOD) designation on their brokerage accounts. Which of these are benefits of doing so? I. The TOD designation avoids estate taxes. II. The TOD designation avoids probate. III. The account holder is relieved of decision making in the account. IV. There is flexibility to change beneficiaries as conditions dictate. A)II and III B)I and IV C)II and IV D)I and III

C The transfer on death (TOD) designation allows the account holder to name a specific beneficiary (or beneficiaries) to receive the account's assets upon death. Those named persons may be changed whenever the account holder wishes. Although this bypasses probate, it does not avoid estate taxes. TOD has nothing to do with giving investment discretion.

Another term for a defined benefit plan is A)an annuity. B)a traditional term plan. C)a pension plan. D)a defined withdrawal plan.

C Though an annuity acts much like a defined benefit plan, it does not require sponsorship by an employer. The other two responses are just made up.

One difference between an UTMA account and an UGMA account is A)a UGMA account is tax deferred, and a UTMA account is not. B)a UTMA account transfers at the age of majority, while a UGMA account can go until the beneficiary turns 30 year of age. C)a UTMA account has a wider set of allowed investments. D)UTMA assets are considered an irrevocable gift, while a UGMA account allows the custodian to reclaim the assets.

C UTMA accounts allow real estate holdings; a UGMA account does not. Neither account is tax deferred and both accounts are irrevocable. The UGMA transfers at the age of majority; the UTMA may transfer as late as age 25.

The customer must agree to three specific elements of a trade before the trade's execution for the trade to be nondiscretionary. Which of the following is not required? A. Action B. Asset C. Allowance D. Amount

C Action, asset, and amount are the three elements. Allowance has no meaning in this context. It was just a good, distracting word that starts with A.

In order to contribute to both a traditional IRA and a Roth IRA in the same year, a customer must have sufficient A. ordinary income B. passive income C. earned income D. portfolio income

C An IRA contribution must come from earned income.

When opening a new brokerage account that will allow for margin trading, all of the following forms are required except A. account application B. credit agreement C. consent to loan agreement D. hypothecation agreement

C The consent to loan agreement is not a regulatory requirement.

A traditional pension plan is an example of which of the following? A)A non-qualified plan B)A defined contribution plan C)A simplified employee pension D)A defined benefit plan

D A traditional pension plan is a defined benefit plan. All defined benefit plan are qualified plans.

Sam Malloy owns a small business and has built a substantial estate both with his business success and his early career as a pro athlete. He would like to begin to move assets out of his estate in a way that will allow him to benefit from the assets, but also allows for an easy transfer to his heirs when he dies. He needs to lower the size of his estate before he passes and hates the idea of a public hearing that is part of probate. Sam should A)establish a revocable living trust. B)place his assets in a transfer on death account. C)create a last will and testament. D)establish an irrevocable living trust.

D An irrevocable living trust will accomplish his goals. The assets in a revocable trust remain part of his estate as do the assets in a TOD account and a will. Also, a will must be probated.

Representative Pete received a call from his client, Neil, to place a trade. He wanted to buy 200 shares of the Starshine Entertainment Company. Pete asked Neil a few questions about the trade before placing it. This is A)an unclassified trade. B)a discretionary trade. C)a solicited trade. D)an unsolicited trade.

D As the representative did not introduce the trade to the customer, this is an unsolicited trade. The customer provided the three key elements of the order (Action, Asset, Amount), so it is not a discretionary trade.

Two weeks ago, Representative Pete introduced his customer Neil to the Windmill Growth Fund in response to Neil's interest in growth funds. Today the customer called Pete to place a trade to invest $10,000 in the Windmill Growth Fund. This is A)a discretionary trade. B)an unclassified trade. C)an unsolicited trade. D)a solicited trade.

D Because the representative introduced the security to the customer, this is a solicited trade. The customer provided the three key elements of the order (action, asset, amount); it is not a discretionary trade.

Individual retirement accounts allow a catch-up contribution of $1,000 to be made into the account for those who are A)over 50 years old. B)59½ years old or over. C)over 72 years old. D)50 years old or over.

D Catch-up contributions are for those ages 50 and over (not over 50).

A 75-year old client in the 25% income tax bracket withdraws $20,000 from her traditional IRA. Based on her life expectancy, the withdrawal should have been $30,000. How much will she owe the IRS when she withdraws the additional amount needed to meet her required minimum distribution? A)$12,500 B)$10,000 C)$7,500 D)$ 5,000

D Failure to meet the required minimum distribution results in a 25% penalty on the shortfall. In this case, she took $20,000 when she should have taken $30,000 so there will be a 25% tax on the $10,000 difference ($2,500 penalty). In addition to that penalty, the ordinary income tax on the total amount that should have been withdrawn must also be paid (25% × $10,000 = $2,500). Total tax liability on the withdrawal equals $5,000 ($2,500 penalty plus $2,500 ordinary income tax).

In a defined benefit plan I. the benefit amount is fixed. II. the benefit amount is variable. III. the contribution amount is fixed. IV. the contribution amount can vary. A)I and III B)II and IV C)II and III D)I and IV

D In a defined benefit plan, the employee is promised a certain amount at retirement and the employer has to put in enough money to meet that promise. Changing rates of return can require changing deposits to meet the promised amounts at retirement.

Which regulator sets maintenance requirements for margin accounts? A)the SEC. B)the FRB. C)the OCC. D)FINRA.

D Maintenance requirements are set by the governing SRO. FINRA is the best answer of this set. FRB sets the initial margin requirement along with the SRO minimum. The FRB does not set maintenance requirements.

Which of these features does the Roth IRA include? I. There are no minimum required distributions after age 73 with a Roth IRA. II. There are higher contribution limits to a Roth IRA than to a traditional IRA. III. Withdrawal of earnings in the Roth IRA may be made without any taxation as long as a Roth IRA has been open for a minimum of one year and the participant is age 59. IV. There is the ability to contribute to both a Roth IRA and a traditional IRA. A)I and III B)II and III C)II and I D)I and IV

D One of the primary benefits to the Roth IRA is that reaching age 73 does not trigger the required minimum distributions found in other retirement plans. Probably the biggest benefit is that all earnings grow tax deferred, and may be withdrawn free of any tax, as long as there has been an open Roth IRA for at least 5 years AND the participant is at least 59½. One may contribute to both types of IRA, but the combined contribution may not exceed that annual maximum for a single plan.

Which of the following are true of qualified plans but not true of nonqualified plans? I. Contributions are not tax deductible II. Contributions are tax deductible III. Plan needs IRS approval IV. Plan does not need IRS approval A)II and IV B)I and III C)I and IV D)II and III

D Qualified plans require IRS approval, and the contributions are tax deductible. Because nonqualified plans' contributions are not deductible, they do not require IRS approval.

All of the following are benefits of a traditional IRA except A)funds may be withdrawn without penalty for certain exemptions. B)contributions may be tax deductible. C)earnings accumulate on a tax-deferred basis. D)no penalty is charged for failing to withdraw funds after age 73.

D Required minimum distributions must begin the year after the account owner reaches age 73.

Which of the following transactions, if any, must be done in a margin account? A)Sell 100 ABC to close B)All of these must be done in a margin account C)Buy 100 ABC to open D)Sell 100 ABC to open

D Selling to open (a short sell) can only be done in a margin account. The others can be done in a cash account or margin account.

The minimum initial requirement when purchasing 100 shares at $30 in a new account would be A)$375. B)$750. C)$1,500. D)$2,000.

D The requirement is normally 50% but not less than $2,000 unless the purchase price is less than $2,000. Then only 100% of the purchase price would be required.

Which of the following would constitute improper use of a customer's securities or funds? I. Agreeing to a stock purchase the representative thinks is beyond the client's means II. Selling a bond at the client's insistence during a period of high interest rates III. Lending securities for a short sale when the client has agreed to it on the phone IV. Borrowing a client's funds without permission, though it will be repaid the same day A)I and II B)I and III C)II and IV D)III and IV

D Though a customer may be ill-advised, complying with it does not constitute improper use. To lend securities without a signed loan consent agreement does constitute improper use, as does borrowing the client's funds without permission of the client, no matter how briefly the funds will be held.

Your Client, Sven, has an extensive portfolio of stocks and bonds. Last year, he had an income of $36,000, of which $200 a month was from a part-time job and the rest from his portfolio. How much can he contribute to a ROTH IRA for the previous year? A)The indexed maximum, which is not deductible from his ordinary income B)The legal maximum, which is deductible from his ordinary income C)$2,400, which is deductible from his ordinary income D)$2,400, which is not deductible from his ordinary income

D You may only contribute earned income to an IRA, not investment income. The most he may contribute is $2,400, based on his earned income from the part-time job. ROTH IRA contributions are not deductible.

Your customer, Cleveland Brown, would like you to be able to place trades in his account as and when you think best. In order to trade on a discretionary basis in Brown's account, you will need authorization from which of these? I. FINRA II. A principal III. The customer IV. The state administrator A. I and II B. I and III C. I and IV D. II and III

D Adding discretion to an account requires written authorization from the customer and a firm principal.

Which of the following investments would not be allowed in a custodial account? A. Covered call options B. Small-company stocks from an emerging market C. Blue-chip stocks D. Uncovered call options

D Uncovered call options with their inherent (unlimited) risk are not appropriate for a custodial account. Covered calls are allowed, as are most common stocks.