SIE Practice Exams- Missed and Clarification Questions

Reg T governs the extension of credit for which of the following: Listed common stock NASDAQ national market system OTC securities Government securities [A]I and II [B]I and III [C]II and III [D]I, II, and III

[A]I and II III Government securities are exempt from Reg T.

Which of the following options positions would give the maximum protection when hedging by using options? I. Long Calls II. Short Calls III. Long Puts IV. Short Puts [A]I and III [B]I and IV [C]II and III [D]II and IV

[A]I and III When looking for maximum protection, long calls and long puts provide the most protection since the only protection a writer can get is the amount of premium received when the option is written.

A customer holds a corporate bond with a coupon rate of 5.75%. This bond will pay how much interest on an annual basis? [A]$5.75 [B]$57.50 [C]$575.00 [D]Annual coupon payments will depend on the market price at which the bond was purchased

[B]$57.50 A standard corporate bond will have a par value of $1,000. Coupon rates are based on par value (NOT market price), so a rate of 5.75% on a $1,000 would be $57.50 in annual interest related to the coupon rate ($1,000 par x 0.0575 (5.75%) = $57.50. This interest will be broken into two semi-annual interest payments, but the question asks for the annual payout.

When an investor is deciding whether to buy puts or sell the stock short, buying the puts offers all of the following advantages EXCEPT? [A]The same or greater profit potential versus selling the stock short [B]Time value dissipates [C]Smaller capital required [D]Limited loss potential

[B]Time value dissipates

Which of the following facts is provided in a call provision of a callable bond? [A]Maturity date [B]The bond's duration [C]Callable date and the price at which the bond will be called [D]Current yield of the bond

[C]Callable date and the price at which the bond will be called

What are the purposes of the Securities Exchange Act of 1934? Created the SEC Provided for the regulation of credit Provided for the regulation of exchanges Provided for the regulation of new issues [A]II, III and IV [B]I and IV [C]I, II and III [D]I and III

[C]I, II and III All choices are true except IV. IV is incorrect because it is the Securities Act of 1933, which regulates new issues.

Which of the following is considered an affiliate, but bears no financial obligation when it comes to the primary offering of securities through a syndicate? [A]The Managing Underwriter [B]The Selling Syndicate Members [C]The Selling Group Members [D]Outside Broker/Dealers

[C]The Selling Group Members The syndicate is comprised of the managing underwriter who puts together a selling syndicate. Selling syndicate members have a financial commitment to the offering. As a further means of distribution, selling group members are brought in. Selling group members may be allocated a portion of the offering to sell, but bear no financial responsibility. Outside broker/dealers are not affiliated with the syndicate, but may request some of the offering for their clients

In which of the following scenarios would it be UNACCEPTABLE for a FINRA member firm to hold a customer's mail? [A]The customer is leaving the United States on business and the trip will be shorter than 3 months. [B]The customer provides a written request to the member firm to forward mail to a previously unknown address. [C]The customer asks the member firm to hold his mail until further notice from the customer. [D]The customer notifies the member firm that he will be on vacation for over a month

[C]The customer asks the member firm to hold his mail until further notice from the customer. Firms may not hold customer's mail indefinitely. The customer must tell the member firm how long the mail must be held. All of the other situations are acceptable concerning holding customer mail.

The underwriter of a mutual fund is also known as: [A]the custodian [B]the dealer [C]the sponsor [D]the trustee

[C]the sponsor

All of the following are required prior to when an employee of a member firm wants to open an investment account at another member firm EXCEPT: [A]The employee must notify in writing the employing member firm. [B]The employing firm must advise the employee of approval or disapproval of the request. [C]The employee must notify in writing the executing firm before the account is opened. [D]Duplicate confirms and statements must be provided to the employing firm.

[D]Duplicate confirms and statements must be provided to the employing firm. Once the account is approved no further notification is required UNLESS, after the approval, the employing member firm requests duplicate copies of statements and confirms from the carrying member firm.

Which of the following would be expected to increase during an expansionary period in a business cycle? Profits Production Employment Demand for goods [A]I and III only [B]II and IV only [C]III and IV only [D]I, II, III, and IV

[D]I, II, III, and IV During an expansionary or recovery period in a business cycle, demand for goods increases which causes an increase in production which causes an increase in employment, all of which causes an increase in profit.

When does settlement take place on cash transactions? [A]The fourth business day after trade date [B]The second business day after trade date [C]The next business day after trade date [D]The same day as the trade date

[D]The same day as the trade date Cash settlement takes place on the same day as the trade. Trade date plus 2 business days is a regular-way settlement, while trade date plus 4 business days is a Regulation T settlement.

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)

The TWO orders an investor would generally use to protect a profit or limit a loss are: Buy stop Sell stop Buy limit Sell limit [A]I and II [B]I and IV [C]II and III [D]II and IV

[A]I and II Stop orders are orders to buy or sell at the market price once the security has traded at a specified price, called the stop price or trigger price. The primary purpose of a buy stop is to protect a profit or limit a loss on a short sale. The primary purpose of a sell stop is to protect a profit or limit a loss on a security already bought at a higher price. Stop orders are sometimes called stop loss orders.

Common stockholders could take which of the following actions with regard to the corporation's business activities? Vote on a stock split Inspect the minutes from the Board of Directors meetings Attend the annual shareholders meeting Vote on a cash dividend [A]I and III [B]II and III [C]I, II and III [D]I, II, III and IV

[A]I and III Common stockholder would do I and III. II is not allowed since stockholders do not attend the meetings of the Board of Directors. IV is not done because common stockholders do not vote on the type or amount of dividends; that is done by the Board of Directors.

Which of the following are true about a cash account versus a cash transaction? A cash account is where purchases are always paid for in full. A cash transaction is a transaction which settles on the same day the transaction occurs. A cash account is where transactions settle on the same day the transaction takes place. A cash transaction is an account where purchases are always paid for in full and settle regular way. [A]I, II [B]I, IV [C]II, III [D]III, IV

[A]I, II EXPLANATION A cash account is where a customer can buy securities but must pay for purchases in full. A cash transaction is when a customer buys or sells a security which settles on the same day as trade date.

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

One of your friends works for a company that has established a profit-sharing plan that is company-sponsored. Which of the following statements on this type of plan is FALSE? [A]In this type of plan, deductions allowed to employers from one year can be carried to the following year. [B]The level of company profits is generally a deciding factor as to whether contributions are made to the plan and the amount thereof.[C]Contributions and earnings in this type of account are typically tax-deferred. [D]In this type of plan, the employer determines the annual contribution.

[A]In this type of plan, deductions allowed to employers from one year can be carried to the following year.

Which of the following types of bonds secures its income from fees charged to users? [A]Revenue bond [B]General obligation bond [C]Collateral bond [D]Convertible bond

[A]Revenue bond

Which of the following regulations govern distributions of new issues? [A]Securities Act of 1933 [B]Securities Act of 1934 [C]Maloney Act of 1938 [D]Trust Indenture Act of 1939

[A]Securities Act of 1933

A member firm is associated with Mr. Smith, an independent contractor of the member firm. Mr. Smith sells mutual funds from his home office. All of the following are true regarding this association EXCEPT: [A]Since Mr. Smith is an independent contractor, he will not be supervised by the firm. [B]Mr. Smith's home office must be registered as a branch office if he uses his home address in ads. [C]Mr. Smith must be registered. [D]Mr. Smith's mutual fund trades must be reviewed and approved by a Registered Principal of the member firm.

[A]Since Mr. Smith is an independent contractor, he will not be supervised by the firm.

An investor who trades a closed-end fund would receive which of the following prices? [A]The current market price [B]The price is based on the closing market price of the day [C]The current NAV of the shares [D]The value of the NAV from the previous trading day

[A]The current market price Closed-end funds trade on an exchange like common stock; therefore, the investor would buy or sell his shares for the current market price of the shares.

Economic analysts have found that over the past six months, there has been an overall decline in the following: - GDP (Gross Domestic Product) - Equity Prices - Employment Statistics - Business Activity Which of the following terms is most often used to describe this scenario? [A]This would be labelled an economic recession. [B]This would be labelled an economic depression. [C]This would be labelled a period of high inflation. [D]This would be lablelled a period of high deflation.

[A]This would be labelled an economic recession. The term that best fits the scenario described would be a recession. A recession is defined as a six-month consecutive decline in stock prices, business activity, employment, and GDP. Though the recession may affect inflation/deflation, periods of high inflation or high deflation would not automatically be associated with this 6-month decline.

When could one expect changes in the net asset value of a mutual fund? [A]When there are changes in the value of securities within the fund's portfolio [B]When customers redeem fund shares [C]When customers exchange fund shares for another fund's shares within the same family [D]When shares of the fund are split

[A]When there are changes in the value of securities within the fund's portfolio The Net Asset Value of a fund is calculated by taking the closing market value of all securities in the portfolio plus other assets and cash, minus liabilities and dividing that number by the total number of shares outstanding, therefore the best answer offered would be "A".

The SEC "quiet periods" for an IPO of an emerging growth company as applied to the underwriters are: [A]eliminated [B]shortened [C]lenghtened [D]remain unchanged

[A]eliminated The SEC "quiet periods"are the periods of time surrounding a public offering of a new issue when promotional materials are generally prohibited. The periods generally start from the date a decision is made by the issuer to make a public offering and extend until a certain number of days after the effective date of the registration statement. With respect to an IPO of an emerging growth company, the quiet periods are eliminated.

Mortgage Real Estate Investment Trusts generally invest in which of the following? [A]properties handled by developer or builders [B]income producing properties [C]residential mortgage loans [D]oil and gas properties

[A]properties handled by developer or builders

hen helping your customer select a mutual fund all of the following would be primary considerations EXCEPT [A]the NAV (Net Asset Value) of the fund [B]the fund's historical performance [C]sale charges [D]the fund's risk and volatility profile

[A]the NAV (Net Asset Value) of the fund

When discounting a draft between a US company and a foreign exporter to expedite foreign trade, they would be discounting which of the following? [A]A Treasury Bill [B]A Banker's Acceptance [C]A Certificate of Deposit [D]A Letter of Credit

[B]A Banker's Acceptance A Banker's Acceptance would be used to finance foreign trade and would be discounted in order for the exporter to receive immediate payment.

Which of the following BEST describes a market maker who acts in a "dealer" or "principal" capacity? [A]A designated market maker working trades of buyers and sellers, typically on the floor of an exchange. [B]A broker/dealer firm that trades into and out of their own inventory, typically in the Over-the-Counter (OTC) market. [C]Issuers, who work with underwriters in the sale of their own securities in order to generate capital for business operations.[D]Advisory firms who provide advice related to securities for fees.

[B]A broker/dealer firm that trades into and out of their own inventory, typically in the Over-the-Counter (OTC) market. Broker/dealers who trade into and out of their own account are working in a principal or dealer capacity. Market makers are often broker/dealers who are working in that dealer or principal capacity in the OTC market. The listed market is where a designated market maker maintains an orderly market. Issuers are the companies that are trying to generate capital and would not fit into the definition of a market maker as they sell in the primary market, while market makers work in the secondary market. Advisory firms also would not be considered market makers unless they were trading into and out of their own inventory, which is not specified.

A customer with a variety of investment products in his account elects to put a Transfer on Death (TOD) agreement in place with relation to his account. Which of the following is TRUE? [A]The customer should be informed that beneficiaries named in the agreement are permanent. [B]Assets will automatically be passed to beneficiaries per instructions in the TOD agreement and will avoid being tied up in legalities associated with regulations on assets of a deceased person.[C]Beneficiaries avoid estate taxes related to the death and subsequent inheritance due to the TOD agreement. [D]All types of investment products and securities held in the account will be transferred upon the death of the customer.

[B]Assets will automatically be passed to beneficiaries per instructions in the TOD agreement and will avoid being tied up in legalities associated with regulations on assets of a deceased person. With a TOD agreement in place, assets pass to the named beneficiaries in accordance with the TOD, thus eliminating probate (legalities associated with regulations on assets of a deceased person). The customer who puts the TOD in place can modify the beneficiaries who will receive the assets. TOD agreements do not reduce or eliminate estate taxes. Only securities such as common stock, bonds, and mutual funds are typically eligible for TOD agreements, thus it is incorrect to say that all types of investment products and securities will be transferred.

Which of the following is generally NOT TRUE in relation to Corporate Commercial Paper? [A]Commercial paper is normally offered in book-entry form.[B]Commercial paper is normally issued in callable form.[C]Commercial paper is normally sold at a discount. [D]Commercial paper is normally unsecured debt of a corporation.

[B]Commercial paper is normally issued in callable form.

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? Monday, September 11th for regular way settlement. Thursday, September 14th for regular way settlement. Friday, September 15th for cash settlement. 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.

Which of the following statements about investment advisory fees paid by a mutual fund is TRUE? [A]The SEC must review and approve the investment advisory fees.[B]In light of differences between funds, fees will differ from fund to fund. [C]For new investors Investment advisory fees are usually fixed for the first two years. [D]FINRA rules regulate the amount of fees paid to an investment advisor.

[B]In light of differences between funds, fees will differ from fund to fund.

Mr. Smith, your client, has maintained about 80% of his portfolio in fixed income securities. Interest rates are expected to decline over the next 12 month period. Mr. Smith calls you because he is concerned about this prediction and his portfolio. Which of the following recommendations would be appropriate for you to give to Mr. Smith? [A]Move 50% of his portfolio into equity securities [B]Leave his portfolio the way it is now [C]Move 60% of his portfolio into Money Market funds [D]Move 25% of his portfolio into Limited Partnerships

[B]Leave his portfolio the way it is now Of the choices offered the best choice would be to leave his portfolio in fixed income securities. If interest rates decline the value of his bonds will go up and his overall portfolio value will increase. He also would be able to continue to receive the income from the coupons on the bonds he currently owns.

Mrs. Smith set up a Uniform Gifts to Minors Account for her daughter and the custodial account has done very well this past year. The profits and earnings on this account would be reportable on which person's tax return? [A]Mrs. Smith's [B]Mrs. Smith's daughter [C]Mr. Smith [D]Mr. and Mrs. Smith's joint tax return

[B]Mrs. Smith's daughter In a UGMA/UTMA account the child's social security number is used and the profits and earnings on the account will be filed on the tax return of the minor. These profits and returns are NOT filed on the donor's or custodian's return.

All of the following statements on the secondary market of Brokered CDs are INCORRECT EXCEPT: [A]An interest penalty is added to the par value of the Brokered CD when it is returned to the investor. [B]On settlement date, accrued interest is added to the market value of the Brokered CD and the seller receives both. [C]No interest is added to the par value when the Brokered CD is returned to the seller. [D]On settlement date, the accrued interest penalty is subtracted from the market value of the Brokered CD and then paid to the seller.

[B]On settlement date, accrued interest is added to the market value of the Brokered CD and the seller receives both. When Brokered CDs are sold in the secondary market, they trade at the market value of the brokered CD plus accrued interest. This is paid to the seller by the buyer on settlement date.

A broker/dealer firm has become insolvent. SIPC liquidation procedures have begun. Jill and Jack are married and each of them have individual accounts along with a joint account with each other at the firm. The following are their account balances: Jill's individual account has $275,000 in fully-paid securities Jack's individual account has $265,000 in fully-paid securities Jill and Jack's joint account has $475,000 in fully-paid securities What would SIPC cover in relation to these accounts? [A]SIPC coverage would total $500,000 for the three accounts since the two parties are married. [B]SIPC coverage would pay $275,000 for Jill's account, $265,000 for Jack's account, and $475,000 for the joint account. [C]SIPC coverage would pay $1,500,000 in this case, because each account is insured for $500,000, regardless of the amount held when the broker/dealer firm became insolvent. [D]SIPC would not cover any of these claims.

[B]SIPC coverage would pay $275,000 for Jill's account, $265,000 for Jack's account, and $475,000 for the joint account.

Which of the following statements is FALSE when discussing the Federal Funds Rate? [A]Changes to the supply of money and demand for money cause fluctuations in the federal funds rate. [B]The Federal Reserve directly sets the Federal Funds Rate.[C]Historically, the discount rate has been lower than the Federal Funds Rate. [D]The calculation of the Federal Funds Rate takes place daily.

[B]The Federal Reserve directly sets the Federal Funds Rate. The Federal Funds Rate is set by banks that have met their reserve requirement and have excess funds which can be loaned to other banks who fall short of meeting their reserve requirements. The rate is NOT set by the FED.

Mr. Smith advises his registered representative to sell 300 shares of his ABC common stock whenever the price is right. Later that day ABC starts to move up and the RR enters a market order to sell the stock. Which of the following statements is true? [A]The RR was in violation because he did not have written discretionary authority for this customer. [B]The RR handled the order appropriately since the only decisions required were related to time and price. [C]The RR should have sought the approval of a supervisory person prior to entering the order. [D]The RR should have refused to take the order and asked the customer to call him back later in the day to see where the stock was trading.

[B]The RR handled the order appropriately since the only decisions required were related to time and price. Decisions as to "time and price" only DO NOT require written discretionary authority, therefore the RR handled the situation appropriately.

Harvey had his registration revoked last year. If he wants to re-join the securities industry as a licensed person, who can approve it? [A]FINRA [B]The SEC [C]The member firm's executive committee by unanimous vote only [D]The U.S. Justice Department

[B]The SEC If a registration is revoked, the individual cannot be licensed again unless approved by the SEC.

One of your clients purchases a callable corporate bond. The bond is callable at 106.55. What will the customer receive if the corporation calls the bonds and the customer tenders them back to the corporation? [A]The customer will receive $1,065.50 for the bond and accrued interest up to the call date will be subtracted from that figure. [B]The customer will receive $1,065.50 for the bond and accrued interest up to the call date will be added to that figure. [C]The customer will receive par value for the bond of $1,000 and will receive $65.50 in accrued interest. [D]The customer will receive par value for the bond of $1,000 and will receive $106.55 in accrued interest.

[B]The customer will receive $1,065.50 for the bond and accrued interest up to the call date will be added to that figure.

Which of the following statements is TRUE regarding an SEC Regulation A Offering? [A]A prospectus must be delivered [B]The offering may not exceed $50 million [C]A registration statement must be filed with the SEC [D]A maximum of 35 accredited investors may purchase the securities

[B]The offering may not exceed $50 million

Of the following statements which are true about market orders made "at the opening"? [A]Their priority is at parity with limit orders on the book. [B]Their priority is above limit orders on the book. [C]They are subordinate to limit orders. [D]"At the opening" orders cannot be used for market orders.

[B]Their priority is above limit orders on the book.

IRAs (Individual Retirement Accounts) and variable annuities have many similarities. Which of the following is one of them? [A]Taxable income is received by those investing in either type of plan. [B]There are many alternative investments for those participating in either type of plan. [C]Life insurance benefits are included in both plans. [D]Withdrawals must begin at age 59 1/2 if the investor wishes to avoid tax penalties.

[B]There are many alternative investments for those participating in either type of plan.

Which of the following would contain the conditions and agreements of an upcoming issue of bonds by a corporation? [A]These would be contained in the Tombstone Ads produced for the bonds. [B]These would be contained in the bond's indenture. [C]These would be contained in the underwriter's agreement.[D]These would be contained in the legal opinion of the bond.

[B]These would be contained in the bond's indenture.

While working one day, a 17-year old walks into the office. He has already graduated from high school and wishes to open an account at the firm. How should this situation be handled? [A]If the office manager is willing to approve the account, the RR should proceed as with any other customer. [B]Unfortunately, the RR has no choice but to refuse to open an account for the 17-year-old. [C]No extra approvals would be required and the RR can immediately open the account. [D]If the 17-year-old's parents give permission for the account, then the RR can proceed as with any other customer.

[B]Unfortunately, the RR has no choice but to refuse to open an account for the 17-year-old. Regulations state that no account may be opened in the name of a minor. Here, the 17-year-old is not yet of age and must wait until turning 18 to own their own account. An alternative would be an UGMA account for the benefit of the minor, but the 17-year-old would not be permitted to trade in the account and all transactions would have to be entered via the custodian.

A customer enters an order to Buy 100 shares of ABC @49 stop. This order will be activated by which of the following? [A]a trade executed at $49 or higher [B]a trade executed at $49 or lower [C]Buy stop orders are not allowed [D]Buy stop orders are executed as soon as they reach the floor of the exchange

[B]a trade executed at $49 or lower Buy stop orders are always entered ABOVE the current market price of the stock and will become a MARKET order as soon as a trade is executed at $49 or higher. Buy stops are used to protect short stock positions and to take advantage of an upward break in the resistance level of a stock.

Open-end investment companies do not list on national exchanges because they [A]qualify for listing on the OTC market only [B]are continuously being offered as new issues by the fund [C]require 100% shareholder approval [D]are wholly owned and traded by the underwriter

[B]are continuously being offered as new issues by the fund Mutual funds or open-end investment companies offer redeemable shares only. The do not offer shares that are publicly traded. Therefore, the fund is always issuing new shares to the public and redeeming shares that are sold back to the fund and would not have shares listed on a national exchange.

An investor is considered "uncovered" in which of the following scenarios involving option contracts? The investor: [A]buys 1 XYZ Call option with no other stock positions [B]buys 100 shares of ABC common stock and sells 1 ABC put option [C]buys 100 shares of XYZ common stock and sells 1 XYZ call option [D]buys 1 ABC put option with no other stock positions

[B]buys 100 shares of ABC common stock and sells 1 ABC put option Long stock positions do not cover a short put contract. The most common way that the seller of a put contract is covered is by having funds on hand in their account that are equal to the total exercise value of the contract in the event that the seller of the put receives an exercise notice. Buyers of options are not considered "covered" or "uncovered", because the buyer decides whether or not the option is exercised. If an investor owns 100 shares of a stock and sells a call against that stock, the investor is considered covered. Selling a call by itself with no stock position would be considered "uncovered" (not listed as an answer choice).

A floor broker executing an order for a public customer asks the designated market maker to guarantee a price while giving the floor broker an opportunity to obtain a better price for the customer. This is known as [A]a stop order [B]stopping stock [C]best efforts order [D]a limit order

[B]stopping stock

The appreciation of the value of a variable annuity during the accumulation period is [A]taxed as ordinary income each year. [B]tax deferred until annuitization. [C]taxed as a capital gain each year. [D]adjusts the cost basis and is taxed each year.

[B]tax deferred until annuitization.

Which of the following statements by an RR is TRUE regarding dividends? [A]"It is possible for a long-term equity anticipation security to pay dividends." [B]"An investor can expect to receive dividends on the underlying security in the event that they own a call option." [C]"An investor who owns an American Depository Receipt can expect to receive dividends from their investment when declared and paid." [D]"When an investor owns a warrant or right, they are entitled to receive dividends in accordance with these securities."

[C]"An investor who owns an American Depository Receipt can expect to receive dividends from their investment when declared and paid." ADRs can pay dividends. Each of the other items listed do NOT pay dividends. They may have underlying securities which pay dividends, but exercise of the derivative along with ownership of the security must take place. Warrants, Rights, and options do not pay dividends.

A customer calls their RR. Which of the following statements by the customer would allow the RR to take action in effecting a transaction for the customer? [A]"I'm in the market for some of that new IPO that we discussed, so if you ever see it under $50 per share, buy 150 shares for me." [B]"I think a mutual fund of some kind would be a good addition to my portfolio. Go ahead and find one and buy it for me." [C]"When you think that the price is right today, buy 200 shares of ABC for me." [D]"I've got some shares of MNO that I'd like to get rid of some time later this month. Sell 50 shares of MNO later this month, but for nothing less than $25 per share."

[C]"When you think that the price is right today, buy 200 shares of ABC for me." The only instructions that would be acceptable would be the instructions that give the broker "time and price" discretion only. Time and price discretion is only good for the day the instructions are given. All of the other statements would require the client to sign over discretionary authority to the RR.

The following quote appears on a consolidated tape: XYZ P 25.13 + .25 B 25 A 25.25 How much should you expect to pay to buy 100 shares? [A]$25 per share [B]$25.13 per share [C]$25.25 per share [D]$25.38 per share

[C]$25.25 per share ~Ask To Buy~ This is a quote from the consolidated tape. "XYZ" is the symbol for the company's security. "P" means that the last trade was on The Pacific Stock Exchange. $25.13 was the last trade price for a round lot (100 shares). That trade was .25 higher than the previous trade. "B" is the bid price of $25 and "A" is the ask price of $25.25.

An Open-end Mortgage Bond issued by a corporation is one in which the property used to secure the bonds: [A]Cannot be used to secure a later loan unless the later loan is lesser in claim. [B]Can be used to secure additional debt as long as the additional bonds are subordinated. [C]Can be used to secure additional bonds and all bonds rank equally. [D]Can be used to secure additional debt and in the event of bankruptcy bonds would be repaid by earliest maturities first.

[C]Can be used to secure additional bonds and all bonds rank equally. An Open-end Mortgage Bond issued by a corporation is one in which the property used to secure the bonds can be used to secure additional bonds and all bonds rank equally.

Which of the following is TRUE of an open-end investment company? [A]The transfer agent selects the fund's Investment Advisor.[B]Shareholders of a given fund can vote to list on an exchange.[C]Capital gains must be distributed to shareholders on an annual basis. [D]Undistributed capital gains are taxable to the investment company.

[C]Capital gains must be distributed to shareholders on an annual basis.

Under the SEC's "Pay-to-Play" rules, which of the following contributions by a covered associate is permitted to an elected official's campaign in which the covered associate may NOT vote? [A]Contributions of $350 or less per election, per covered associate.[B]Contributions of $350 or more per election, per covered associate. [C]Contributions of $150 or less per election, per covered associate.[D]Contributions of $150 or more per election, per covered associate.

[C]Contributions of $150 or less per election, per covered associate. In an election where the covered associate is NOT permitted to vote, the limitation for political contributions is $150 or less. In an election where the covered associate IS permitted to vote, the limitation for political contributions is $350 or less.

The Fed would use which of the following tactics to attempt to LOWER inflation? The discount rate would be increased. The requirements on margin accounts would be lowered. Open operations would take place where the Fed sells government securities. The reserve requirements on banks would be reduced. [A]I and II [B]I and III [C]II and III [D]III and IV

[C]II and III In order to LOWER inflation, the Fed would attempt to take money out of the system and they would increase rates. If the Fed sells government securities, the member banks are forced to buy these securities. This removes money from the system making for tighter money and less ease of borrowing. An increase in interest rates make borrowing more expensive, thus having a similar effect.

All of the following are true regarding IRA contributions EXCEPT: [A]Although a tax return is filed prior to April 15th, the IRA contribution may be delayed until April 15th. [B]Contributions may be made at any time between January 1st and April 15th of the following year. [C]If an extension for a tax return is obtained, the IRA contribution may be delayed until the date the tax return is filed. [D]Persons not participating in any other type of retirement plan may deduct their IRA contributions up to certain limits.

[C]If an extension for a tax return is obtained, the IRA contribution may be delayed until the date the tax return is filed. If an extension is granted for the filing of a tax return, the IRA contribution must still be made no later than April 15th.

Which of the following gifts would EXCEED the gift and gratuity limitations established by FINRA? [A]A registered representative, who services his mother-in-law's account, pays for an 3-day cruise for her and her husband at a cost of $2,500. [B]A branch manager of a firm who is a long-time friend of a principal at another firm pays for dinner and a concert for the two couples, where dinner totals $400 and the concert totals $250 per ticket. [C]In celebration of a clearing firm reaching 20 years in business, an introducing firm who uses the clearing firm buys Rolex watches (each valued over $2,000) for 20 executives and principals at the clearing firm. [D]To congratulate a customer on the birth of her first child, a registered representative buys the customer a $500 crib set.

[C]In celebration of a clearing firm reaching 20 years in business, an introducing firm who uses the clearing firm buys Rolex watches (each valued over $2,000) for 20 executives and principals at the clearing firm.

Which of the following statements regarding "inflation" and "interest rates" would be true? [A]Interest rates will remain unchanged during periods of inflation.[B]Interest rates will decline in periods of inflation. [C]Interest rates will increase in periods of inflation. [D]Interest rates and inflation have no correlation.

[C]Interest rates will increase in periods of inflation. During periods of inflation, interest rates are expected to increase. During periods of deflation, interest rates are expected to decline.

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

What type of order would an investor enter if they wanted to buy 1 ABC May 50 Call when the premium for the option declined from its current value? [A]Buy at the opening [B]Debit Spread [C]Limit order to buy [D]Market order

[C]Limit order to buy Of the choices offered the best choice would be the limit order. The client could enter an order to buy at a set price below the current premium value and when the market reaches or falls below the specified price the order would be executed.

You are analyzing your company in order to ensure that the retirement plans of its employees best benefit both the employees and the company. You notice that two of your executives are currently 57 and 60. Of the following choices, which best fulfills your concerns about the benefits working for both employee and employer? [A]Offering the two executives a deferred compensation plan that is non-qualified. [B]Offering the two executives a 403(b) plan. [C]Offering the two executives a defined benefit plan. [D]Offering the two executives a tax-sheltered annuity.

[C]Offering the two executives a defined benefit plan. The defined benefit plan would best suit both the company and the two executives that are likely to retire in the upcoming years. Older, long-service employees will have already accumulated the highest monthly pension benefits under a defined benefit plan. Be sure to differentiate between a defined benefit plan and a defined contribution plan. The formula for a defined benefit plan defines the monthly pension that the retiree will receive. The formula for a defined contribution plan defines how much the employer must contribute to the plan annually.

Form letters, telemarketing scripts, and seminar texts are examples of: [A]Correspondence [B]Advertisements [C]Sales literature [D]Educational material

[C]Sales literature "Sales literature" is defined as marketing material where the recipients can be targeted and the firm can control who receives the materials. "Advertisements" are marketing materials where the firm cannot control who receives the information and cannot designate or specify a target audience.

One of your clients has large holdings of a few blue-chip corporations. The investor wishes to hold onto the stock for multiple reasons, but she is uncertain about price fluctuations in the short-term future. How can she use options to provide the MOST downside protection? [A]She can purchase call options on the securities in her portfolio.[B]She can sell call options on the securities in her portfolio. [C]She can purchase put options on the securities in her portfolio.[D]She can sell put options on the securities in her portfolio.

[C]She can purchase put options on the securities in her portfolio. If an investor is looking for the "most" or "maximum" amount of protection on the downside and currently has holdings in a security, the investor should purchase put options on the securities in question. This will allow the investor to "put" the stock to the seller of the put contract at the strike price on the contract if the market price of the stock goes down. Though selling calls does provide some downside protection, the "maximum" protection is provided by the purchased puts.

One of your clients invested $75,000 in the fund. The worth of the client's investment has now fallen to $68,000. The client wishes to invest an additional $5,000 and wants to know what the sales charges will be on the $5,000 investment. Which is CORRECT regarding the charges to the client on the additional investment? [A]The client will have to pay the 7% sales charge because the client is only investing $5,000 at this time. [B]Because the client's investment is only worth $68,000 and the additional $5,000 does not push that value over $75,000, the client will have to pay 6%. [C]The client will have to pay a sales charge of 5.5% because the original investment was $75,000 and the client wishes to invest an additional $5,000. [D]Because the client's other investments at the firm are not known, there is no way to determine the sales charge.

[C]The client will have to pay a sales charge of 5.5% because the original investment was $75,000 and the client wishes to invest an additional $5,000. When covering questions on "Breakpoints" and "Rights of Accumulation" it is very important to thoroughly read the full question. Under "Rights of Accumulation" regulations, an investment company may base charges on NAV plus additional investments, amount invested plus additional investment, or the higher of the two. Here, the "Rights of Accumulation" are based on "AMOUNTS INVESTED." Since the investor has put up $75,000 already, and intends to invest an additional $5,000, the investor would get the breakpoint rate of 5.5%, even though NAV plus the $5,000 is less than $75,000.

If an investor buys a call option contract on the S&P 500 Index, what will the investor receive when exercising the call? [A]100 shares of the S&P 500 ETF at the strike price listed on the contract [B]The market price of the index at the close of trading on the day of exercise, in cash [C]The difference between the strike price on the contract and the market price of the index at the close of trading on the day of exercise, in cash [D]Proportionate shares of S&P 500 stocks to the value of the contract

[C]The difference between the strike price on the contract and the market price of the index at the close of trading on the day of exercise, in cash

When a company calls an issue of bonds, all of the following would typically be FALSE EXCEPT: [A]The ratio of debt to net worth will increase. [B]The company's credit rating will be reduced. [C]The holders of called bonds will receive the face value of the bond plus a call premium. [D]The holders of called bonds will be able to reinvest and receive a higher coupon.

[C]The holders of called bonds will receive the face value of the bond plus a call premium. Typically when a bond is called prior to its maturity due to a call feature, the bond holders will receive a premium over the face value of the bonds as a means of compensation for the early call (e.g., A bond with a face value of 100 and a final maturity in 10 years is callable this year. The company may pay 102 or 103 on the call to compensate them for the early call).

Mr. Smith has been considering the purchase of a mutual fund and has decided he wants to buy $8,000 of the fund but only has $4,000 to invest now. He asks you, his registered representative, to lend him the other $4,000 which he will repay in 2 months. Which of the following is correct about this situation? [A]The rep may lend the customer the funds as long as the agreement is in writing. [B]The rep should establish a margin account for the customer and buy the fund shares on margin. [C]The rep must deny the customer's request for a loan. [D]The rep may lend the customer funds with the firm's prior approval.

[C]The rep must deny the customer's request for a loan. Reps may not make loans to customers and could not establish a margin account since mutual funds may not be purchased on margin.

Which of the following factors is the LEAST important in analyzing the investment quality of a mortgage bond? [A]The collateral held by the trustee bank [B]The current phase of the economic cycle [C]The trustee bank holding the title to the collateral [D]The credit rating issued by a nationally recognized rating agency

[C]The trustee bank holding the title to the collateral The trustee bank is merely the legal owner of the real estate being pledged as collateral for the loan. In the event of default by the issuer, the trustee would initiate foreclosure proceedings against the property.

A client has held a long position in BCD Common for several years and has seen a sizeable increase in price since initially buying the stock. The client fears that BCD is headed for a slight downturn in price and wishes to protect the profits that he holds from the previous increase. Which option strategy provides the MAXIMUM protection for this client? [A]This client would be best suited by buying calls on BCD. [B]This client would be best suited by selling calls on BCD. [C]This client would be best suited by buying puts on BCD. [D]This client would be best suited by selling puts on BCD.

[C]This client would be best suited by buying puts on BCD. When looking for the "maximum" or "best" protection for an existing position, one would always end up being a buyer when using options strategies. In this case, the investor fears a downturn, so this investor would want downside protection. This makes buying puts on BCD the best option strategy for protection of the profits already seen from the appreciation.

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

Regulation T Settlement for corporate securities such as common stocks, preferred stocks, and bonds is: [A]Trade date plus 2 business days [B]Trade date plus 3 business days [C]Trade date plus 4 business days [D]Trade date plus 5 business days

[C]Trade date plus 4 business days Reg T Settlement is trade date plus four business days, or T+4. Regular way settlement is T+2.

The terms "bid" and "ask" are used to indicate [A]last sale information [B]initial public offering price [C]quotations on securities in the secondary market [D]the range within which securities are trading for that day

[C]quotations on securities in the secondary market Quotations will typically contain the bid price and ask price for a security trading in the secondary market. Last sale information applies to the price at which the last trade took place. During an initial public offering, there is a fixed offering price for primary shares. Bid and ask do not apply to the range of trading for a day.

Under the SEC's Pay-to-Play Rules, a "Covered Member" is BEST described as a person or firm that [A]is not included in the rules. [B]has previously made political contributions. [C]solicits a government entity in relation to investment advisory services. [D]accepts political contributions from politicians

[C]solicits a government entity in relation to investment advisory services. Cover Members and Covered Associates are any member that solicits a government entity for investment advisory services. Pay-to-Play Rules cover situations where investment advisers seek to influence the award of advisory business by making or soliciting political contributions to the government officials charged with awarding such business.

An over-the-counter stock trader is given a quote of "14-15 workout." This quote is: [A]bona fide. [B]firm. [C]subject to confirmation. [D]approximate.

[C]subject to confirmation. Workout quotes are subject quotes.

All of the following customer orders require written authorization by the customer EXCEPT: [A]"Buy some shares of ABC" [B]"Buy 100 shares of a good, safe stock" [C]"Buy some shares of ABC at the market opening" [D]"Buy 100 shares of ABC"

[D]"Buy 100 shares of ABC"

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

Of the following, which is a possible cause of the yield curve becoming inverted? [A]Due to favorable trends in interest rates, corporations are taking advantage by borrowing on a long-term basis. [B]Since short-term rates are low, there is an increased demand with regards to long-term debt. [C]Projections in manufacturing are showing a higher demand for goods, which has led manufacturing firms to borrow on a long-term basis to finance expansion. [D]Due to an economic slowdown, manufacturing firms have been unable to sell current inventories, leading to increased short-term borrowing to finance inventory carrying costs.

[D]Due to an economic slowdown, manufacturing firms have been unable to sell current inventories, leading to increased short-term borrowing to finance inventory carrying costs. An increase in demand for short-term borrowing will lead to increased rates in the short-term debt market (e.g., it will cost more to borrow short-term if everyone wishes to borrow short-term). This will lead to an inversion of the yield curve as short-term rates increase relative to long-term rates. Each of the other alternatives shows an increase in demand for long-term debt.

Which TWO of the following would be affected by a corporation's decision to declare a split in the corporation's common stock? I. The corporation's working capital would be affected by such a decision. II. The corporation's retained earnings would be affected by such a decision. III. The common stock's market price would be affected by such a decision. IV. The common stock's par value would be affected by such a decision. [A]I and II [B]I and III [C]II and IV [D]III and IV

[D]III and IV When a corporation declares a split in common stock, the par value and market price of the common will change. Retained earnings and working capital are not affected by a stock split because the actual value of all common stock is not affected, only the prices of such securities (e.g., a 2 for 1 split of $100 per share stock would result in two $50 shares which is equal to $100).

Which of the following is true concerning the over-the-counter market? [A]It is where customers buy and sell securities publicly with each other on an exchange floor. [B]It is an auction market. [C]Listed securities are never traded in this market. [D]It is where prices are negotiated between broker/dealers.

[D]It is where prices are negotiated between broker/dealers. The OTC market is a negotiated market where listed and non-listed securities trade. When listed securities trade OTC, it is called the "Third Market".

All of the following are true of a corporate bond with a call feature EXCEPT: [A]Interest payments cease after the bond is called. [B]It limits the upside potential on the bond. [C]If the bond has a call premium, it normally declines in later years.[D]The bond will be sold for a higher price because of the call feature.

[D]The bond will be sold for a higher price because of the call feature. Call features are less desirable to the investor so the bonds usually sell for a lower price.

Corporation X announces an offering of subscription rights. Which of the following statements is NOT true? [A]New common stock can be purchased by a rights holder below the offering price. [B]New common stock can be purchased by a rights holder before the public is able to buy. [C]Existing shareholders will receive rights offerings as a privilege.[D]The holder of a right can purchase the stock for two or more years.

[D]The holder of a right can purchase the stock for two or more years. Rights have a maximum life of 90 days. Warrants have longer-term maturities.

Which of the following statements pertaining to fiduciary accounts is FALSE? [A]Generally, "Prudent Investor" rules apply to such accounts.[B]Speculation is typically prohibited in such accounts. [C]Unless the documents which establish the account specifically permit it, purchasing securities on margin in such accounts is prohibited. [D]The profits of such an account may be shared with the fiduciary in charge of managing the account.

[D]The profits of such an account may be shared with the fiduciary in charge of managing the account.

An investor wants to exchange shares of one fund with shares of another fund that is within the same family of funds. Which of the following is NOT an important consideration when making such an exchange? [A]The fund's investment objectives [B]The investment risk profile of the fund [C]Tax consequences [D]The sales load of the new fund

[D]The sales load of the new fund When doing a conversion or switching of shares within the same family there would generally not be any sales load imposed; therefore, sales load would not be a consideration.

An investor, whose investment objective is speculation, would MOSTLY be concerned with which of the following? [A]Their exposure to reinvestment risk [B]Their exposure to currency risk [C]Their exposure to interest rate risk [D]Their exposure to capital risk

[D]Their exposure to capital risk When purchasing speculative investments, your biggest risk is going to be capital risk. Capital risk is the risk that the investor may lose all or part of the principal invested. When investing in highly speculative companies, this risk is amplified because of the business risk of the underlying company.

Repurchase Agreements are characterized by all of the following EXCEPT: [A]Repo rates are negotiated by the parties involved. [B]Banks and thrifts use Repos to raise temporary capital funds [C]The FRB uses Repos as instruments of monetary policy [D]Their fixed maturities make them unsuitable for use by corporations

[D]Their fixed maturities make them unsuitable for use by corporations Corporations like Repos because the maturities can be flexible which makes them ideal for "parking" funds for a short time.

Foreign exchange rates are determined in which of the following markets? [A]They are determined in the equity securities market. [B]They are determined in the primary market. [C]They are determined in the fourth market. [D]They are determined in the interbank market.

[D]They are determined in the interbank market.

When a customer opens a margin account at a broker/dealer, they are required to sign certain documents. Which of the following best describes the agreement between the customer and the broker/dealer related to the terms and conditions of financing involved in purchasing on margin? [A]This is covered in the customer's new account form. [B]This is covered in a consent by the client to the loan from the broker/dealer. [C]This is covered in the customer's hypothecation agreement.[D]This is covered in the Credit Agreement for a line of credit with the customer.

[D]This is covered in the Credit Agreement for a line of credit with the customer.

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.

Mr. Jones has a conservative investing approach. He has a large portfolio of blue chip common stocks and wants to use options to receive additional income from the portfolio. Which of the following would be the MOST suitable recommendation for Mr. Jones? [A]Buy Puts options on the portfolio of securities [B]Write Put options on the portfolio of securities [C]Buy Call options on the portfolio of securities [D]Write Call options on the portfolio of securities

[D]Write Call options on the portfolio of securities Since he has a conservative investment approach, he should only be advised to write covered call options as this is the MOST conservative of all the four choices

Zero coupon bonds are frequently used to: [A]amortize the cost of the bond [B]provide a steady stream of dividend income [C]provide a steady stream of interest income [D]accumulate capital to fund a particular investment goal

[D]accumulate capital to fund a particular investment goal Zero coupon bonds do not make semi-annual interest payments, but instead are sold at a deep discount from their face value by the issuer. They are generally purchased by investors that do not need the semi-annual income and want to accumulate capital.

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.

SEC Rule 144A permits the resale of non registered securities to all of the following EXCEPT: [A]insurance companies [B]banks [C]mutual funds [D]individuals

[D]individuals SEC Rule 144A permits the sale of restricted securities to Qualified Institutional Buyers (QIB's) but not individual investors.

A limited partner in a non-leveraged, non-assessable limited partnership assumes all of the following risks EXCEPT: [A]lack of liquidity [B]changes in the tax code [C]the general partner(s) management ability [D]losses in the excess of the limited partner's investment

[D]losses in the excess of the limited partner's investment A limited partner is only liable for a limited partnership's losses to the extent of his/her investment. Legally, a limited partner has limited liability.

Which of the following bond offerings would be required to have a trust indenture under the Trust Indenture Act of 1939? [A]U.S. Treasury Bond [B]airport authority revenue bond [C]general obligation bond [D]mortgage bond

[D]mortgage bond Since the Trust Indenture Act of 1939 is applicable only to corporate bonds, the mortgage bonds would be the only bonds required to have a trust indenture.

A registered representative offers to share in all of the gains and losses in a customer's account in order to give her confidence in his recommendations. Under the FINRA rules, the RR [A]is forbidden from such sharing under all circumstances [B]is permitted only if the RR has had a prior financial relationship with the customer [C]must obtain prior approval from FINRA [D]must obtain the prior written approval of his firm

[D]must obtain the prior written approval of his firm Under FINRA Rule 2150, the RR would need the prior written approval of his firm and the firm would need the prior written approval of the customer.

All of the following are components of the calculation to find compound accreted value (CAV) on zero-coupon bonds EXCEPT? [A]the maturity date of the bond [B]the dated date of the bond [C]the bond's original yield at offering [D]the bond's current market yield

[D]the bond's current market yield Compound Accreted Value (CAV) of a municipal or corporate bond is used as the starting point in determining the value of a zero coupon bond. CAV would consider the date from which interest begins to accrue on the bond (the dated date), the bond's maturity date, and the bonds original offering yield. The current market yield or value would not be relevant since that can change day to day based upon market fluctuations.

The following are duties of the transfer agent EXCEPT: [A]to issue new stock certificates [B]to cancel old stock certificates [C]to resolve problems arising from lost certificates [D]to prevent the over-issuing of shares of stock

[D]to prevent the over-issuing of shares of stock