SIE SERIOUS

The minimum initial requirement when purchasing 200 shares at $7.50 in a new account would be A)$1,500. B)$2,000. C)$750. D)$375.

A)$1,500. Explanation Normally it would be 50% of the purchase price or $2,000 whichever is greater, but the required deposit is never more than 100% of the purchase price in a long account.

Under the rules, a penny stock is defined as an unlisted, security trading at less than A)$5 per share. B)$2.50 per share on three consecutive days. C)$1 per share. D)$2 per share on three consecutive days.

A)$5 per share. Explanation Securities and Exchange Commission (SEC) rules define penny stocks as those that are unlisted on an exchange or Nasdaq trading at less than $5 per share.

A broker-dealer has hired an individual for the position of a registered representative. The individual is struggling to pass the necessary qualification exam and has failed four times. After that fourth failure, the applicant faces a waiting period of A)180 days. B)60 days. C)90 days. D)30 days.

A)180 days. Explanation If an individual fails the qualification exam, the waiting period before the next attempt is 30 days following the first two unsuccessful tries. Once failing a third time, each successive attempt requires a 180-day waiting period.

For nonlisted and non-Nasdaq securities, a prospectus must be provided to all those who purchase securities as part of an APO for how many days after the effective date? A)40 days B)30 days C)60 days D)10 days

A)40 days Explanation For nonlisted and non-Nasdaq securities, the prospectus delivery requirement period in the aftermarket is 40 days (90 days for an IPO). The requirement is 25 days for an IPO for a Nasdaq or exchange listed security (zero days for an APO).

Regarding different types of debt security maturities available to issuers, which of the following is accurate? A)A balloon maturity uses elements of both serial and term maturities. B)A serial maturity uses elements of both term and balloon maturities. C)No maturity types incorporate the elements of any other. D)A term maturity uses elements of both serial and balloon maturities.

A)A balloon maturity uses elements of both serial and term maturities. Explanation An issuer can schedule its bond's maturity using elements of both serial and term maturities. This is known as a balloon maturity. The issuer repays part of the bond's principal before the final maturity date, as with a serial maturity, but pays off the major portion of the bond at maturity.

Paula has applied for a representative position with Great Sky Securities, a broker-dealer firm and FINRA member. While in college, she was a bit of a trouble maker. Since completing her education four years ago, she's been a model citizen. Which of the following issues from her past may result in her disqualification from becoming a registered representative? A)A conviction eight years ago for misdemeanor larceny for selling her classmates an interest in the Bay Bridge

A)A conviction eight years ago for misdemeanor larceny for selling her classmates an interest in the Bay Bridge Explanation Disqualifying events include convictions (not charges) of a felony or a misdemeanor "involving investments and related to fraud." Infractions like speeding tickets are not a disqualifying

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)Joint accounts or those with more than one party titled on the account may never trade on margin D)A corporate account may only trade on margin if it is specifically permitted in the corporate charter

A)A fiduciary account may only trade on margin if it is specifically permitted in the trust or custodial agreement. Explanation 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.

Which of the following would most closely match the meaning of a red herring? A)A preliminary prospectus B)A tombstone advertisement C)A registration statement D)Prospectus

A)A preliminary prospectus Explanation A preliminary prospectus is also known as a red herring. The red herring does not include key information about the issue such as price and the number of shares offered. The term is derived from the disclaimer printed in red on the cover page.

The SEC has established rules regarding delivery of a prospectus when a secondary market transaction occurs after the effective date Which of these is correct regarding the rules for initial public offerings IPOs and additional public offerings APOs A)An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days B)An APO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 90 days

A)An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days. Explanation The prospectus delivery rules include the following: IPO for listed or Nasdaq—25 days APO for listed or Nasdaq—none IPO for non-Nasdaq—90 days APO for non-Nasdaq—40 day

A broker-dealer may extend credit under Regulation T for which of these transactions? A)An exchange-traded fund B)The purchase of an IPO at the POP C)A mutual fund purchase D)A fixed annuity purchase

A)An exchange-traded fund Explanation Regulation T governs customer payment and the extension of credit to clients in margin accounts. An exchange-traded fund (ETF) is a security that is eligible for purchase on credit. IPOs and other new issues—such as mutual fund purchases—may only receive loan value (and credit) after 30 days from issuance. Annuities may not be purchased with margined funds.

Which of the following issues only common stock? A)An open-end management investment company B)A closed-end management investment company C)A face-amount certificate company D)An equity unit investment trust

A)An open-end management investment company Explanation An open-end (mutual fund) management investment company may only issue redeemable common stock. A unit investment trust offers units of beneficial ownership. A closed-end management investment company may also issue bonds and preferred stock, while a face-amount certificate company offers a contract, as opposed to units or shares.

Most municipals pay interest that is tax free at the federal level. Which one of the following is a taxable municipal bond? A)BABs B)TANs C)RANs D)GANs

A)BABs Explanation BABs are Build America Bonds that were issued without the tax free status. The others are tax-free municipal notes. Though BABs are not covered in the SIE material, the other three items are, and are all tax free. Note that industrial development revenue bonds (IDRs or IDBs) are also taxable for investors subject to the alternative minimum tax (AMT).

Which of these will the writer of an index option be required to deliver to the buyer if the buyer exercises the option? A)Cash equal to the intrinsic value B)Shares of the underlying stock C)Cash equal to the original premium D)A basket of shares balanced to match the index

A)Cash equal to the intrinsic value Explanation There is no underlying stock to deliver in an index option, nor does the writer deliver a basket of stock. The writer delivers cash equal to the intrinsic value of the contract. If all an investor could get back was the original premium, then profit would be impossible.

Accusations of Financial Industry Regulatory Authority (FINRA) Conduct Rule violations will heard and handled under the A)Code of Procedure. B)Uniform Securities Act. C)Code of Arbitration Procedure. D)Uniform Practice Code.

A)Code of Procedure. Explanation The Code of Procedure describes how member violations of the Conduct Rules will be heard and handled.

An application for Financial Industry Regulatory Authority (FINRA) membership carries the applying firm's specific agreement to do which of the following? A)Comply with the association's rules and regulations B)Pay a fixed yearly sum to the Securities and Exchange Commission (SEC) C)Provide FINRA with periodic financial reports D)Attend FINRA's annual regulatory conference

A)Comply with the association's rules and regulations Explanation Application for FINRA membership carries the applying firm's specific agreement to comply with the association's rules and regulations, comply with federal securities law, and pay dues and assessments to FINRA.

Which of the following is part of the expense ratio of a mutual fund? A)Costs incurred by the board of directors B)Contingent sales charges C)Deferred sales charges D)Sales loads

A)Costs incurred by the board of directors Explanation Board of directors (BOD) costs are part of the expenses of a mutual fund and by extension are part of the expense ratio. The expense ratio does not include sales charges or loads.

An investor owns a municipal bond fund. What is the tax status of distributions from the fund? A)Income is tax free, but capital gains distributions are taxable. B)Both income and capital gains distributions are taxable. C)Both income and capital gains distributions are tax free. D)Income is taxable, but capital gains distributions are tax free.

A)Income is tax free, but capital gains distributions are taxable. Explanation Interest income distributed from municipal bond funds is normally tax free to an investor. Trading profits from portfolio adjustments, however, are taxable at capital gains rates.

Which of the following statements is true regarding Exchange-traded notes? A)Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution. B)Exchange-traded notes (ETNs) are backed by the good faith and credit of the United States government C)Exchange-traded notes (ETNs) track performance to U.S. Treasury notes D)Exchange-traded notes (ETNs) are junior, unsecured debt securities issued by a municipality

A)Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution. Explanation ETNs are senior, unsecured debt securities issued by a bank or financial institution. They are backed only by the good faith and credit of the issuer. The notes track the performance of a particular market index but do not represent ownership in a pool of securities the way share ownership of a fund does. ETNs are bond like with a stated maturity date but do not pay interest and offer no principal protection. ETN investors receive cash payments linked to the performance of its underlying index less management fees when the note matures.

The MSCI-EAFE Index tracks which of the following? A)Foreign equities B)Municipal bonds C)Corporate bonds D)Mid-cap stocks

A)Foreign equities Explanation Maintained by MSCI Inc., the Europe, Australasia, and Far East (EAFE) Index is designed to track equity markets of developed economies, excluding the United States and Canada.

Which of the following must be opened as a cash account? I. Custodial accounts II. Individual retirement accounts III. Joint accounts IV. Partnership accounts A)I and II B)III and IV C)I and III D)II and IV

A)I and II Explanation Certain accounts, such as IRAs, corporate retirement accounts, and custodial accounts, must be opened as cash accounts as opposed to margin accounts. For individual accounts, joint accounts, and corporate and partnership accounts, there is no such requirement, though the final decision on them is up to the broker-dealer carrying the account.

A free lunch seminar is advertised among senior citizens who may be looking to improve the results of their investment portfolio Which of the following activities by the registered hosts of the seminar would be deemed a potential violation I Use of a designation such as Chartered Senior Advisor a largely unknown designation II The representative is introduced as someone approved by FINRA to answer questions from senior investors AI and II BI and IV CIII and IV DII and III

A)I and II Explanation Use of degrees or designations may never be used in a misleading fashion nor can any reference to nonexistent or largely unknown designations be made. The use of designations is permissible so long as the compliance department of the firm has performed due diligence and is satisfied the credentials are bona fide and would be reasonably recognized as true tokens of expertise. Using educational degrees or securities registration licenses is permissible. To say that the representative is approved by FINRA to offer advice to seniors would likely bring heavy sanctions. The promotion of any stock is permissible so long as it is a balanced presentation with disclosure of the potential risks.

A registered representative speaks to a customer about a particular 6% municipal bond quoted on a 6.5% basis. Which of the following is correct? I. 6% is the bond's coupon. II. 6% is the bond's current yield. III. 6.5% is the bond's yield to maturity. IV. 6.5% is the bond's current yield. A)I and III B)II and III C)I and IV D)II and IV

A)I and III Explanation When a bond is referred to by a yield percentage (6%), it is the coupon (nominal or stated) yield being referenced. Basis yield refers to yield to maturity (YTM). Hence, a 6% coupon bond currently trading with a 6.5% YTM.

Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit? I. If the customer signs and returns a proxy statement but does not indicate how to the shares are to be voted II. If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting III. If the matters to be voted on are of major importance IV. If the matters to be voted on are of minor importance A)II and IV B)II and III C)I and III D)I and IV

A)II and IV A member firm holding stock in street name may vote the shares as it sees fit if the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting, and if the matters to be voted on are of minor importance. If the matters are of major importance (such as a change in the direction of the business or a merger or acquisition), the shares are simply not voted.

Regarding primary and secondary offerings, which of the following are true? I. An offering can only be either a primary or secondary. II. An offering can be a combination of primary and secondary. III. An initial public offering (IPO) is a secondary offering. IV. An additional primary offerings (APO) is a primary offering. A)II and IV B)II and III C)I and IV D)I and III

A)II and IV Explanation An offering can be a combination of primary and secondary. These are known as split offerings. Both IPOs and APOs are primary offerings, where the issuer receives the sale proceeds. LO 1.b

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)III and IV B)I and II C)II and IV D)I and III

A)III and IV Explanation 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.

If investors have income listed as their investment objective, they would not hold which of the following securities in their portfolio? A)Income bonds B)U.S. T-notes C)Corporate bonds D)Preferred stock

A)Income bonds Explanation Also known as adjustment bonds, income bonds pay interest only if the issuer has enough earnings to do so. They are often issued by companies coming out of bankruptcy. As a result, the interest payments providing the income to meet the objective are uncertain.

Which of the following bonds trade flat (without interest) unless interest payments are declared by the board of directors (BOD)? A)Income bonds B)Callable bonds C)Debentures D)Mortgage bonds

A)Income bonds Explanation Bonds that trade flat (without interest), unless the payments are declared by the BOD, are income bonds (also known as adjustment bonds).

The Sierra Company files a registration statement with the SEC for the sale of new securities While reviewing the registration statement, the SEC determines that it has not been filed properly and issues a deficiency letter Sierra Verde submits a corrected registration statement. Which of the following is true regarding the 20day cooling-off period A)It is halted on the day the deficiency letter is issued and may resume where it left off on the day the corrected registration is received

A)It is halted on the day the deficiency letter is issued and may resume where it left off on the day the corrected registration is received. Explanation When a deficiency letter is issued by the SEC to an issuer, the 20-day cooling-off period is halted. It may resume where it left off when the corrected registration statement is filed. In other words, the days that the cooling-off period are suspended do not count toward the 20 days. Note that the regulators may halt the entire process if they believe fraud may be involved.

The trade blotter for Seacoast Securities for June 2020 must be maintained by the company until which date? A)July 2026 B)August 2023 C)July 2030 D)June 2024

A)July 2026 Explanation Trade blotters are retained for six years. The best answer is July 2026.

For registered shares held by an affiliate (known as control stock), which of the following applies? A)No holding period, but volume limits always apply B)Six-month holding period, with volume limits thereafter C)Six-month holding period, with sales allowed freely thereafter D)No holding period or any volume restrictions

A)No holding period, but volume limits always apply Explanation Control stock would be registered shares held by an affiliate. There is no holding period, but there will always be volume limits for as long as the individual is an affiliate.

An investor has a long position in OMQ stock. After selling the stock at a loss, the investor could purchase which of the following and not violate the wash sale rule? A)OMQ put options B)OMQ call options C)OMQ convertible bonds D)OMQ warrants

A)OMQ put options Explanation In order to avoid violating the wash sale rule, investors selling a stock at a loss cannot purchase that same, or substantially identical, security within a 30-day period before or after the sale incurring the loss. Substantially identical would include anything that is exercisable or convertible into the same shares of stock, such as rights, warrants, call options, or a convertible bond. Purchasing the put options would not violate the wash sale rule because these can be exercised to sell the stock, not purchase it.

The federal government could use which of the following to slow the economy? A)Raise taxes B)Raise the federal funds rate C)Increase government spending D)Buy Treasury securities from banks

A)Raise taxes Explanation Taxation and government spending are tools of the federal government (president and congress). Changing the federal funds rate and open market activities (buying and selling treasuries) are tools of the Fed. Raising taxes slows down the economy.

When a company liquidates assets, in which order are claims satisfied? A)Secured bondholders, debentures, preferred stockholders, common stockholders B)Common stockholders, preferred stockholders, secured bondholders, debentures C)Guaranteed bonds, secured bondholders, debentures, common stockholders D)Debentures, secured bondholders, common stockholders, preferred stockholders

A)Secured bondholders, debentures, preferred stockholders, common stockholders Explanation With this type of question, look for what you know should be first and last; it simplifies choosing the correct answer. Only one choice starts with secured bondholders and ends with common stockholders.

Your customer owns 20 Government National Mortgage Association (GNMA) certificates. They receive a monthly payment of principal and interest. How is the interest taxed? A)The interest is taxable at both the federal and state level. B)The interest is subject to federal taxes only. C)The interest is subject to state income taxes only. D)The interest is not subject to income taxes at any level.

A)The interest is taxable at both the federal and state level. Explanation Interest from GNMA certificates is subject to income tax at all levels. Principal payments are not subject to tax because they represent a return of principal.

In a limited partnership, which of the following best describes who is responsible for tax consequences of the business? A)The investors B)The general partners C)The business D)The limited partners

A)The investors Explanation All tax consequences of the business flow through proportionality to the investors. All partners will have some tax impact, not just the general or just the limited partners.

Which of the following best describes how a market order to sell would fill if placed when the price of the stock is a 40? A)The next available price B)The next available price above 40 C)Only at 40 D)The next available price below 40

A)The next available price Explanation Market order always get the next available price, regardless of if it is a buy or sell and regardless of price.

BigBox Stores, Inc., declared a $1 per share dividend on Tuesday, August 8. The dividend will be paid to holders of record of BigBox common stock as of Thursday, August 30, and will be delivered to shareholders on Wednesday, September 6. What is the record date for this dividend? A)Thursday August 30 B)Wednesday, August 8 C)Tuesday, August 29 D)Thursday, September 7

A)Thursday August 30 Explanation Be careful: sometimes a question is just this obvious. The question tells you the record date and asks about the record date (not the ex-dividend date).

A weak U.S. dollar leads to more A)U.S. exports and a balance of payments surplus. B)U.S. imports and a balance of payments surplus. C)U.S. imports and a balance of payments deficit. D)U.S. exports and a balance of payments deficit.

A)U.S. exports and a balance of payments surplus. Explanation When the dollar is weak relative to other currencies, it makes U.S. goods more affordable for foreign consumers to buy, so U.S. exports increase. As more goods flow out of the U.S., more money flows in—surplus.

A company offers to repurchase outstanding debt securities it has issued directly from its bondholders for cash in what would commonly be known as A)a tender offer. B)an acquisition. C)a buy back. D)a hostile takeover.

A)a tender offer. Explanation When a company offers to buy outstanding securities for cash or for cash plus other securities from its stockholders or bondholders this is known as a tender offer. In contrast, a buyback, sometimes referred to as a repurchase, is when a company buys its own outstanding securities in the open market rather than appealing directly to its investors.

Accrued interest on U.S. government bonds is calculated using A)actual days in each month and actual days in the year. B)30 days in each month and 360 days in each year. C)30 days in each month and 365 days in each year. D)actual days in each month and 360 days in each year.

A)actual days in each month and actual days in the year. Explanation Corporate and municipal bonds use the artificial 30-day, 360-day calendar, but government bonds use actual days.

An oil and gas DPP that invests in wells that are already producing is known as A)an income program. B)a tangible program. C)an exploratory program. D)a leasing program.

A)an income program. Explanation An oil and gas DPP that invests in wells that are already producing is known as an income program. Exploratory programs are drilling new wells in search of new deposits.

The XYZ May 45 puts are trading 2.50. The current market value (CMV) for XYZ stock is $42.50. The May 45 put is A)at parity. B)without any intrinsic value. C)out of the money. D)at the money.

A)at parity. Explanation The amount that an option is in the money is its intrinsic value (IV). In this case, 2.50 points (45 − 42.50 = 2.50). An option is at parity when the premium equals intrinsic value. The premium of 2.50 equals the contract's 2.50 IV; therefore, the option is at parity.

Index and foreign currency options must be settled in A)cash. B)the underlying security. C)banker's acceptances. D)securities comprising the index and the foreign currency.

A)cash. Explanation Index and foreign currency options are cash settled. Instead of shares of stock being delivered as a result of the exercise, cash must be delivered by the party assigned (short the contract). This is because delivering all of the components of an index is not possible and delivering foreign currency would require exchanging one currency for another, and possibly having banking relationships abroad. Settling in cash (U.S. dollars) facilitates the exercise and assignment process much easier for U.S. investors.

An investor owns 3% preferred stock participating to 6%. This means the investor A)could receive an additional 3% over the stated 3% dividend if the board declares it. B)must receive at least 6% each year. C)must receive a total of 9% in any year the board declares the 6% participating be paid. D)could receive an additional 6% over the stated 3% dividend.

A)could receive an additional 3% over the stated 3% dividend if the board declares it. Explanation If a preferred stock is described as 3% preferred participating to 6%, the company pays its holders up to 3% in additional dividends in profitable years if the board of directors declares it.

The Federal Reserve Board (FRB) does all of the following except A)enact fiscal policy. B)regulate and impact the money supply. C)supervise the printing of currency. D)determine monetary policy.

A)enact fiscal policy. Explanation The FRB determines monetary policy (not fiscal) and takes actions to implement its policies, including but not limited to regulating the U.S. money supply and supervising the printing of currency.

Records relating to a Currency Transaction Report (CTR) must be retained for A)five years. B)six years. C)four years. D)three years.

A)five years. Explanation Currency Transaction Reports (CTRs) must be retained on file, together with other records generated in conjunction with them, for five years.

Money market instruments are typically A)fixed-income (debt) securities with short-term maturities. B)equity securities with short- to intermediate-term maturities. C)equity securities with short-term maturities. D)fixed-income (debt) securities with short- to intermediate-term maturities.

A)fixed-income (debt) securities with short-term maturities. Explanation Money market instruments are fixed-income (debt) securities with short-term maturities, typically one year or less.

A company very concerned about liquidity would want A)high current ratio. B)high price-to-earnings ratio. C)low price-to-earnings ratio. D)low current ratio.

A)high current ratio. Explanation The current ratio is a measure of liquidity. The higher the ratio, the more liquid the company. This has no bearing on whether high or low price-to-earnings ratios are desirable.

When the supply for money exceeds the demand, A)interest rates fall, making consumer borrowing easier. B)interest rates rise, making consumer borrowing easier. C)interest rates rise, making consumer borrowing more difficult. D)interest rates fall, making consumer borrowing more difficult.

A)interest rates fall, making consumer borrowing easier. Explanation Money available to lend is like all commodities in that its cost (interest) is impacted by supply and demand. When the supply is greater than the demand for money, interest rates fall, making consumer borrowing easier.

All of the following are true of negotiable commercial paper except A)it is typically issued by banks B)it is considered a money market instrument C)the issuers typically have strong credit ratings D)it has a maximum 270-day maturity

A)it is typically issued by banks Explanation Commercial paper is short-term unsecured debt issued by corporations having very good credit ratings. With a maximum 270-day maturity, it is considered a money market instrument.

Municipal revenue bonds are A)not subject to statutory debt limits and do not require voter approval. B)not subject to statutory debt limits but must still have voter approval. C)subject to statutory debt limits, which is why they require voter approval. D)subject to statutory debt limits but do not require voter approval.

A)not subject to statutory debt limits and do not require voter approval. Explanation Municipal revenue bond issues are self-supporting. Given that they do not rely on taxes to support the debt service, they do not require voter approval. Nor are they subject to statutory debt limits as general obligation (GO) bonds are.

A mutual fund has been in existence for 25 years. The prospectus must disclose the fund's performance A)over the last 1, 5, and 10 years. B)broken out as an average over the last 10 years. C)for each year over the last 10 years. D)over the last 1, 5, 10, 15, 20, and 25 years.

A)over the last 1, 5, and 10 years. Explanation The prospectus of a mutual fund must show the fund's performance over the last 10 years or the life of the fund, whichever is shorter. The data must be shown as the last year's performance, the performance over the last five years, and the performance over the last 10 years. With this fund, the 15-, 20-, and 25-year performances need not be shown.

CDT Corporation has issued 4.5% callable preferred shares. If these shares are ever called in, stockholders should expect that the shares would be called in at A)par value or higher. B)par value. C)par value or lower. D)current market value. Explanation In return for the call privilege, the corporation may pay a premium exceeding the stock's par value at the time of the call. It's reasonable that a shareholder would expect to receive at least par value or higher in the event of a call.

A)par value or higher. Explanation In return for the call privilege, the corporation may pay a premium exceeding the stock's par value at the time of the call. It's reasonable that a shareholder would expect to receive at least par value or higher in the event of a call.

Purchasers of common stock may generally look to all of the following risks associated with an investment except A)purchasing power risk. B)reduction in dividend payout. C)low priority. D)market risk.

A)purchasing power risk. Explanation Investors in common stock face market risk, in that the market value of the security may fall, and business difficulties may lead to possible reduction or elimination of the dividend and even bankruptcy leading to loss of principal. If the firm is bankrupted, a company's debt and preferred shares are considered senior securities and will have residual rights to corporate assets upon dissolution before common shareholders. Interest rate risk applies to preferred shares, bonds, and other fixed-income securities, but common stock generally bears little risk due to fluctuations in interest rates.

Benefits of mutual funds include all of the following except A)reinvested dividends are not taxed until withdrawal. B)mutual funds can provide broad diversification inside a single fund. C)mutual funds are professionally managed. D)mutual funds report distributions annually to investors.

A)reinvested dividends are not taxed until withdrawal. Explanation When dividends (or capital gains) are reinvested they are still taxed. All the other options are considered benefits of mutual funds.

To contract the overall economy, the Federal Reserve Board (FRB), acting as agent for the U.S. Treasury department, will A)sell securities via open-market operations, pushing interest rates up. B)buy securities via open-market operations, pushing interest rates down. C)buy securities via open-market operations, pushing interest rates up. D)sell securities via open-market operations, pushing interest rates down.

A)sell securities via open-market operations, pushing interest rates up. Explanation To contract the overall economy, we want to push interest rates up by decreasing the money supply. Higher interest rates make borrowing and spending more difficult for consumers. To decrease the money supply, the Federal Reserve Board (FRB) will sell securities via open-market operations, putting securities into the banking system and taking money out of the banking system.

Regarding the registration statement filed with the Securities and Exchange Commission (SEC) when new securities are to be issued, all of the following are true except A)the accuracy and adequacy of the registration documents is the responsibility of the underwriters. C)the names and addresses of company officers and directors, their salaries, and a five-year business history of each must be shown. D)underwriters may assist the issuer in preparing and filing the registration statement.

A)the accuracy and adequacy of the registration documents is the responsibility of the underwriters Explanation While underwriters (broker-dealers and investment bankers) may assist the issuer in preparing and filing the registration statement, the accuracy and adequacy of the registration documents is the responsibility of the issuer. Full disclosure is also made on a number of issues, including but not limited to names and addresses of company officers and a description of how the sale proceeds will be used.

To calculate earnings per share (EPS), you would divide A)the earnings available to the common shareholder from the income statement by the number of outstanding shares found on the balance sheet. C)the earnings available to the common shareholder from the balance sheet by the number of outstanding shares found on the income statement. D)the number of outstanding shares found on the balance sheet by the earnings available to the common shareholder from the income statement.

A)the earnings available to the common shareholder from the income statement by the number of outstanding shares found on the balance sheet. Explanation EPS is earning available to the common shareholder (from the income statement) divided by the number of outstanding shares (found in the net worth section of the balance sheet). The stock's current market value is not used in the calculation.

Electronic market centers designed primarily for institutional investors describes A)the fourth market. B)the third market. C)the OTC market. D)the exchanges.

A)the fourth market. Explanation The market centers that operate through electronic communication networks are known as the fourth market. These centers were created to serve large institutional investors like mutual funds and pension plans. The fourth market reduces the transparency of trading activity by these organizations and allows them to trade more efficiently.

An investor asks for a copy of mutual funds Statement of Additional Information (SAI). The request must be satisfied within A)three business days, free of charge. B)five calendar days, with a fee for postage permissible. C)five calendar days, free of charge. D)three business days, with a fee for postage permissible.

A)three business days, free of charge. Explanation Requests for an SAI must be complied with within three business days free of charge.

Records of original entry must be recorded no later than the next business day and must be kept readily available for A)two years. B)three years. C)six years. D)four years.

A)two years. Explanation The records must be maintained for a period of six years, but must be readily available for two years.

All of the following are money market instruments except A)warrants expiring within three months. B)negotiable certificates of deposit. C)Treasury bonds maturing within the next year. D)banker's acceptances.

A)warrants expiring within three months. Explanation Money market instruments are liquid debt securities maturing within a year. Warrants are equity securities.

LMN Corporation has a $60 par, 4% preferred stock currently trading at $45 per share. Its annual dividend is A)$4.00. B)$2.40. C)$24.00. D)$1.80.

B)$2.40. Explanation For preferred shares, the annual dividend is stated as a percentage of par. In this case, 4% of par value of $60 equals $2.40.

All of the following accounts would be fully covered by the Securities Investor Protection Corporation (SIPC) in the event of a broker-dealer's failure except A)$200,000 in an index ETF in an account with 100 30-year T-bonds. B)$200,000 of Windmill Advisors Growth Fund and $300,000 in steel futures. C)$200,000 in Seabird Coffee Company stock and $300,000 in the Alfs Money Market Fund. D)$250,000 in cash and $100,000 in Jim's favorites technology fund.

B)$200,000 of Windmill Advisors Growth Fund and $300,000 in steel futures. Explanation Futures are not a security and not covered by SIPC. A money market fund is a type of mutual fund and is covered as a security. Money market instruments and funds are not cash. None of the choices exceed $500,000 in value or hold more than $250,000 in cash.

Rule 144 limits the amount of shares an affiliate of a company may sell to A)the average weekly volume of the previous four weeks. B)1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater. C)5% of the shares outstanding. D)1% of the shares outstanding or the average weekly volume of trading in the previous eight weeks, whichever is the lesser.

B)1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater. Explanation Rule 144 allows the selling of 1% of the outstanding shares every three months or the average weekly trading volume of the last four weeks, whichever is greater. Note that it is the greater of the two calculations, not the average or the lesser.

If after a registered representative terminates the firm learns of something that should have been reported to the Central Registration Depository, how long does the firm have to make an amendment if that information would cause statutory disqualification? A)20 days B)10 days C)45 days D)30 days

B)10 days Explanation The rule requires notification within 10 days if the information involves statutory disqualification.

Which of the following is a reason an investor might choose to invest in a corporate bond? A)Bonds pay a higher dividend than stocks. B)A corporation is legally obligated to pay interest on its bonds. C)Bonds can grow faster than the rate of inflation. D)Corporate bond interest is tax-free.

B)A corporation is legally obligated to pay interest on its bonds. Explanation Corporate bonds are, depending on rating, generally reliable producers of income through interest payments. A failure to make timely interest payments puts the corporation into default and has legal consequences. Bonds do not pay dividends, nor do they grow in value with inflation. Corporate interest is fully taxable.

Which of the following statements is the most correct regarding customer accounts A)Cash accounts need to be approved by a principal promptly after the first trade. B)A customer may open both a cash and margin account at the same time. C)Only margin accounts need to be approved by an authorized principal of a broker-dealer. D)Hypothecation agreements are required for joint cash accounts only. Explanation

B)A customer may open both a cash and margin account at the same time. Explanation Customers may open a cash account, margin account, or any other account so long as the firm supports that type of an account and an authorized principal approves it.

Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is true? A)Sales loads increase investor returns because they are received by the fund increasing the amount they have to invest B)All reduce investor returns because they reduce the amount of money available for the fund to invest C)Only management fees and operating expenses reduce investor returns by reducing the amount of money available for the fund to invest

B)All reduce investor returns because they reduce the amount of money available for the fund to invest. Explanation Sales loads go to the underwriters or broker-dealers selling the shares for the fund. Therefore, they are subtracted from the dollars invested and in that light reduce possible returns for investors. Management fees and operating expenses are ongoing costs to the fund and, therefore, reduce the dollars that can be invested, again reducing potential returns.

Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal? A)Follow-on offering B)Best efforts underwriting C)Initial public offering D)Firm commitment underwriting

B)Best efforts underwriting Explanation In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent, collecting the funds for the purchase from the investor and then obtaining the securities from the issuer using the investor's funds. To say that the underwriter is buying the shares as an agent is a different way of expressing this transaction but still technically correct. Note that the underwriter is not buying the shares into inventory but is instead simply buying them on behalf of the investor and placing them in the investor's account. This question clearly states that the underwriter is acting as an agent, and that leaves best efforts as the only correct answer.

On Tuesday, December 10 your customer Bought 5 OEX (S&P 100 Index) 230 March calls at four. On Tuesday, March 10 the calls are in-the-money and your customer issues exercise instructions. On what days did the trade and the exercise settle? A)December 12 and March 12 B)December 11 and March 11 C)December 12 and March 11 D)December 11 and March 12

B)December 11 and March 11 Explanation All option trades settle next business days. The exercise of an Index option settles the next business day.

List the dates associated with dividend payment in their proper order. A)Declaration date, pay date, ex-dividend date, record date B)Declaration date, ex-dividend date, record date, pay date C)Declaration date, record date, ex-dividend date, pay date D)Record date, declaration date, ex-dividend date, pay date

B)Declaration date, ex-dividend date, record date, pay date Explanation The declaration date is the day the board of directors meets to declare the dividend. The ex-dividend date is the first day that a purchaser of the stock is too late to get the dividend. The record date is the day the shareholder must be on the records of the company to receive the dividend, and the checks are mailed on the pay date.

Which of the following investments are governed under the rules set down in the Investment Company Act of 1940? A)GNMA certificates B)Face-amount certificates C)Municipal notes D)Convertible preferred stock

B)Face-amount certificates Explanation The Investment Company Act of 1940 classifies investment companies into three broad types: face-amount certificate (FAC) companies, unit investment trusts (UITs), and management investment companies. The others listed here are individual securities, not a portfolio of securities within an investment company.

Which regulatory body oversees trading in the over-the-counter (OTC) market? A)Municipal Securities Rule Board (MSRB) B)Financial Industry Regulatory Authority (FINRA) C)Securities and Exchange Commission (SEC) D)New York Stock Exchange (NYSE)

B)Financial Industry Regulatory Authority (FINRA) Explanation FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons. FINRA also regulates investment companies and limited partnership transactions.

Rule 144 imposes volume limitations on the number of shares that can be sold by I. control persons selling registered stock held for one year. II. control persons selling restricted stock held for two years. III. nonaffiliates selling registered stock held for one month. IV. nonaffiliates selling restricted stock held for more than six months. A)I and IV B)I and II C)III and IV D)II and III

B)I and II Explanation Control persons are always subject to volume limitations. Nonaffiliates have no volume (or any other restrictions) when selling registered stock. If, however, the shares are restricted, volume limits for nonaffiliates are imposed for six months.

Which of the following are considered systematic risks—those that would impact all businesses? I. Market risk II. Inflation risk III. Regulatory risk IV. Business risk A)I and IV B)I and II C)III and IV D)II and III

B)I and II Explanation Systematic risk is the risk that changes in the overall economy will impact securities regardless of the company's business. Examples of that are inflation (purchasing power) risk, interest-rate risk, and market risk. Business risk and regulatory risk are examples of nonsystematic risk, the kind of risk that might be unique to certain businesses or industries.

CDC Pharmaceutical stock is currently trading at $50 a share. The CDC Nov 55 put is trading at $7. Which of the following is true? I. The time value is $2. II. The intrinsic value is $5. III. The time value is $5. IV. The intrinsic value is $2. A)II and IV B)I and II C)III and IV D)I and III

B)I and II Explanation With the stock at $50 a 55 put is $5 in-the-money, or has $5 of intrinsic value. Using the (IV + TV = Pr) formula the time value must be $2 (5 + 2 = 7).

The Federal Reserve's dual mandate includes which of these? I. Maintaining maximum employment II. Enforcement of price controls III. Control the value of the dollar versus other currencies IV. Price stability A)II and III B)I and IV C)III and IV D)I and II

B)I and IV Explanation The dual mandate is to maintain maximum employment while keeping inflation in check (price stability). They do not enforce price controls. They may takes steps to manage the value of the dollar, but this is not a part of the dual mandate.

When customers open margin accounts, when must they be provided with a risk disclosure document? I. Before initially opening the account II. Quarterly III. Semiannually IV. Annually A)I only B)I and IV C)I and II D)III and IV Explanation The risk disclosure document is required before opening the account and annually after opening the account.

B)I and IV Explanation The risk disclosure document is required before opening the account and annually after opening the account.

Under Rule 2210, institutional communication may require which of these? I. If pre-use principal approval is not required, the associate must have training on these communications II. A BD may require principal approval before use III. If principal approval is not required it must still be review by a principal after use IV. If principal review is not required, the associate must have a minimum of five years of experience A)II, III, and IV B)I, II, and III C)I, II, and IV D)II only

B)I, II, and III Explanation The rule allows the firm to require pre-use approval or allow for postuse review. If the firm allows postuse review, then the associates must receive education and training on communications with institutions.

In a defined contribution 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)II and IV B)II and III C)I and III D)I and IV

B)II and III Explanation In a defined contribution plan, the amount that the employer is depositing is fixed by the employer, but the employee chooses the investments, so the benefit varies.

In an irrevocable trust a grantor may or must do which of the following? I. May change the terms of the trust II. Must give up ownership of items placed in the trust III. May reduce estate taxes IV. May retain ownership of items placed in the trust A)I and II B)II and III C)II and IV D)I and IV

B)II and III Explanation 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.

A number of authorized shares is distributed to shareholders as part of a corporation's capital formation. What are these shares called? A)Authorized shares B)Issued shares C)Outstanding shares D)Treasury shares

B)Issued shares Explanation After a corporation is formed, a portion of the authorized shares (up to 100%) will be given to shareholders in return for investment in the company. These shares are issued to the company's owners and are thus called issued shares.

If Edna moves $50,000 from a maturing certificate of deposit to her checking account, which of the following measures of money supply would change? A)M3 B)M1 C)M2 D)All of these

B)M1 Explanation This move would only impact M1. M1 is a component of M2 and M3, so the funds never leave those measurements. The only change would be an increase in M1.

Which of the following terms is not associated with the exchanges? A)Auction B)Negotiated pricing C)Listed security D)Physical location

B)Negotiated pricing Explanation Negotiated pricing is a characteristic of the over-the-counter markets. Prices on the exchanges are set by the auction. Exchanges are often physical locations. Securities that trade on an exchange are called listed securities.

A municipal securities dealer has just made a contribution to the mayor's reelection campaign. How long must the firm wait before it can enter competitive bids on proposed bond issues by the city? A)Six months B)No waiting period C)Can never underwrite a bond for the city again D)Two years

B)No waiting period Explanation If a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a two-year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not.

What is the maximum number of nonaccredited investors allowed in a Regulation D exempt transaction under Rule 506(c)? A)25 B)None C)50 D)35

B)None Explanation In order to sell under Rule 506(c) (which allows advertising), all purchasers of the advertised securities must be accredited investors, or the business must reasonably believe that the investors are accredited investors at the time of the sale.

What method is used to assign exercise notices to broker-dealers with short positions by Options Clearing Corporation (OCC)? A)Any method considered fair and reasonable B)Random-selection basis C)First in, first out (FIFO) basis D)Last in, first out (LIFO) basis

B)Random-selection basis Explanation The OCC assigns exercise notices to short broker-dealers (those with customers who are short) using a random-selection basis only. Broker-dealers, however, may then assign exercise notices to their short customers on a random basis, on a FIFO basis, or any other method that is fair and reasonable.

Which of the following is a benchmark for small cap stocks? A)Wilshire 5000 B)Russell 2000® Index C)Dow Jones Industrial Average D)Standard and Poor's 500 Index

B)Russell 2000® Index Explanation The Russell tracks 2,000 small company stocks.

Primary market transactions would include which of the following? A)Sale of $10 million of corporate stock by a broker-dealer acting as a market maker B)Sale of $10 million of corporate bond by a broker-dealer acting as an underwriter C)Sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker D)Sale of $10 million of municipal bonds by a broker-dealer acting as a market maker

B)Sale of $10 million of corporate bond by a broker-dealer acting as an underwriter Explanation Market makers are broker-dealers who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market.

Regular way settlement for Treasury bonds is A)same day. B)T+1. C)T+3. D)T+2.

B)T+1. Explanation All U.S. government issues settle next business day (T+1).

Which of the following is true for U.S. Treasury-issued securities? A)T-notes are purchased at a discount to par, while T-bonds are purchased as a percentage of par. B)T-bills are purchased at a discount, while T- bonds are purchased as a percentage of par. C)T-notes and T-bills pay interest annually. D)T-bills and T-bonds pay interest semiannually.

B)T-bills are purchased at a discount, while T- bonds are purchased as a percentage of par. Explanation T-bills are purchased at a discount, while T- bonds and T-note are purchased as a percentage of par. T-notes and T-bonds pay interest semiannually, but interest on T-bills is not paid until maturity (the difference between the discount paid and par value received).

The monetarist theory proposes which of the following? A)The federal government impacts the economy through repurchase and reverse repurchase agreements. B)The Federal Reserve may impact the economy by raising and lowering the discount rate. C)The federal government can impact the economy by raising and lowering the federal funds rate. D)The Federal Reserve has a major impact on the economy by raising and lowering taxes.

B)The Federal Reserve may impact the economy by raising and lowering the discount rate. Explanation The Federal Reserve controls the discount rate and repurchase and reverse repurchase agreements. The federal government controls taxes and spending.

Which of the following acts created the SEC? A)The Securities Act of 1933 B)The Securities Exchange Act of 1934 C)The Securities Investor Protection Act of 1970 D)The Securities Market Improvement Act of 1975

B)The Securities Exchange Act of 1934 Explanation The Securities Act of 1933 requires the registration of most new issues; the Securities Exchange Act of 1934 created the SEC; the Securities Investor Protection Act of 1970 created the SIPC; the Securities Market Improvement Act of 1975 created the MSRB.

Which of the following are true of both qualified plans and nonqualified plans? A)Contributions are not tax deductible B)The accounts grow tax deferred C)Contributions are tax deductible D)Tax on interest and dividends are deferred, but not on capital gains

B)The accounts grow tax deferred Explanation With qualified plans, deposits go in before taxes and grow tax deferred. All withdrawals are taxable. With nonqualified plans, deposits are made after tax, and distributions above the cost basis are taxable.

Which of the following best describes how a buy stop at 39 would fill? A)The next available price after the market price falls to 39 B)The next available price after the market price rises to 39 C)The next price below 39 after the market price falls to 39 D)The next price above 39 after the market price rises to 39

B)The next available price after the market price rises to 39 Explanation A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.

An arbitration panel finds Great Plains Securities at fault in a trade error and orders the firm to pay the customer $1,200. Great Plains may appeal the decision to whom? A)The SEC B)There is no appeal in an arbitration hearing C)State courts D)National Adjudicatory Council

B)There is no appeal in an arbitration hearing Explanation There is no appeal to an arbitration award. Such awards must be paid within 30 days.

The following records must be kept for how many years? A list of the offices where registered representatives conduct business Compensation records for registered representatives The firm's compliance manuals A)For the life of the firm B)Three years C)Six years D)Four years

B)Three years Explanation These are all three-year records.

An individual would most likely be statutorily disqualified from working in the securities industry for which of the following reasons? A)Conviction for misdemeanor assault B)Willful failure to disclose personal bankruptcy or unsatisfied liens C)Charged with driving under the influence of alcohol resulting in personal injury—a felony D)Willful failure to disclose motor vehicle fines in excess of $1,000

B)Willful failure to disclose personal bankruptcy or unsatisfied liens Explanation A willful misstatement or omission made on an application for membership or registration as an associated person is deemed a serious infraction of securities law that would likely lead to a statutory disqualification from the securities industry. The Form U4 does not ask about motor vehicle fines per se. Felonies convictions have to be disclosed, as do misdemeanor convictions involving money or securities.

Any sale of securities outside an associated person's or the employing member firm's regular business is recognized as A)an outside business activity. B)a private securities transaction. C)an unsolicited transaction. D)a nonissuer transaction.

B)a private securities transaction. Explanation The Conduct Rules define a private securities transaction, also known as selling away, as any sale of securities outside an associated person's regular business and her employing member.

A bond that is structured so that a portion of the principal is scheduled to mature at intervals over several years is A)a series bond. B)a serial bond. C)a term bond. D)a balloon bond.

B)a serial bond. Explanation With a serial bond, portions of the issue mature over a period of years until the entire issue is paid.

Notice of corporate actions is required by the Securities and Exchange Commission (SEC) to be given for all of the following actions except A)a reverse uneven 4:5 stock split. B)an interest payment on a bond. C)a forward 10:1 stock split. D)a rights offering.

B)an interest payment on a bond. Explanation While notice to shareholders is required for splits, dividends, and rights and warrants offerings, one is not required for an ordinary interest payment on a corporate debt (bond) security.

STRIPS are delivered in A)bearer form. B)book entry. C)physical certificates. D)registered as to principal only form.

B)book entry. Explanation All U.S. government issues are delivered in book entry.

A bank trustee holds the titles to assets a corporation has purchased and utilizes in its day-to-day business. The corporation issues debt securities backed by these assets. These securities are A)debentures. B)equipment trust certificates. C)collateral trust bonds. D)mortgage bonds.

B)equipment trust certificates. Explanation Debt securities issued by corporations backed by the assets the corporation owns and uses in its daily business are known as equipment trust certificates.

Direct participation programs (DPPs) are set up A)to pass on taxable income only to the investors, but not losses. B)having the owners of the business liable for any taxes due. C)to be taxed directly, much like corporations are taxed. D)as tax-free investments with no potential write-offs.

B)having the owners of the business liable for any taxes due. Explanation DPPs are not taxed directly as a corporation would be. Instead, the income or losses from the business are passed directly through to the owners of the partnership. These are the investors who are then individually responsible for any tax liability.

A broker-dealer designated as a clearing firm would be expected to do all of the following except A)take custody of customer funds and securities. B)maintain a lower net capital than noncarrying broker-dealers. C)clear transactions for customer accounts. D)perform back-office functions such as sending trade confirmations to customers.

B)maintain a lower net capital than noncarrying broker-dealers. Explanation A firm carrying customer funds and securities assumes certain risks, and is therefore required to maintain levels of net capital higher than that of firms who do not accept custody of funds or securities (noncarrying firms).

The Municipal Securities Rulemaking Board (MSRB) does not regulate A)the writing of municipal securities rules and regulations. B)municipalities issuing municipal securities. C)the underwriting of municipal securities. D)the trading of state or local municipal securities.

B)municipalities issuing municipal securities. Explanation While the MSRB writes its own rules and regulates all matters related to the underwriting and trading of state and local municipal securities, it does not regulate municipal issuers (municipalities). In addition, the MSRB has no enforcement powers for its own rules and regulations. Enforcement is left to other SROs, such as FINRA.

All of these are true regarding correspondence except correspondence A)must be in good faith. B)must be filed with FINRA within 10 business days. C)may be reviewed after use (postreview). D)must be to 25 or fewer retail customers or prospects within 30 days.

B)must be filed with FINRA within 10 business days. Explanation Correspondence may be either pre-use approval or postuse review; it is the firm's decision. All communication with the public must be in good faith. Correspondence may go to 25 or fewer persons within 30 days. Unlike retail communication, correspondence does not need to be filed with FINRA.

Those persons employed by a Financial Industry Regulatory Authority (FINRA)-registered broker-dealer to do nothing other than provide training for its associated persons A)need not be registered. B)must be registered as a principal. C)are exempt from the firm element of the firm's continuing education requirement. D)must be registered as a representative.

B)must be registered as a principal. Explanation Those who manage any part of a member's securities activities must be registered as a principal with FINRA, including those involved solely in training associated persons.

A REIT can avoid being taxed as a corporation by B)receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders.

B)receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders. Explanation Under the guidelines set by the Internal Revenue Code, a REIT can avoid being taxed as a corporation by receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders.

The breakeven on a short call is A)strike - premium. B)strike + premium. C)the premium. D)the strike price.

B)strike + premium. Explanation The breakeven on a call option, whether held long or short, is the strike price plus the premium. A writer of a short call would like the underlying stock price to go below the breakeven.

Sovereign risk is the risk A)of losing all one's investment due to a change in tax laws. B)that a country will default on its commercial debt obligations. C)that interest rates decline in several countries simultaneously. D)that a dollar earned today will not be able to purchase the same goods or services it can now in the future.

B)that a country will default on its commercial debt obligations. Explanation Sovereign risk is when a country is at risk of defaulting on its commercial debt obligations. When this occurs, the impact is felt on financial markets worldwide.

The rate on an adjustable preferred stock would most likely be indexed to A)the Producer Price Index (PPI). B)the Treasury bill (T-bill) rate. C)the Dow Jones Industrial Average (DJIA). D)the Consumer Price Index (CPI).

B)the Treasury bill (T-bill) rate. Explanation The dividend on an adjustable-rate preferred stock is tied to a particular benchmark interest rate, and the Treasury bill rate is a common benchmark. The CPI, the PPI, and the DJIA are not interest rates.

The law that provides the legal framework for state registration of securities is A)the Securities Exchange Act of 1934. B)the Uniform Securities Act. C)the Trust Indenture Act of 1939. D)the Securities Act of 1933.

B)the Uniform Securities Act. Explanation The Uniform Securities Act provides a legal framework for the state registration of securities, as well as the registration requirements applicable to broker-dealers, investment advisers, investment adviser representatives, and registered representatives.

Federal funds represent A)the amount of a bank's deposits required to be held on reserve at the Federal Reserve Board (FRB). B)the amount by which a bank exceeds its required deposits to be held on reserve at the Federal Reserve Board (FRB) C)the amount by which a bank falls short of its required deposits to be held on reserve at the Federal Reserve Board (FRB) D)the amount the Federal Reserve Board (FRB) holds in reserve for its member banks

B)the amount by which a bank exceeds its required deposits to be held on reserve at the Federal Reserve Board (FRB). Explanation The FRB mandates how much money its member banks must keep on reserve at the Federal Reserve. Any deposits in excess of the required amount are known as federal funds.

Considered the most volatile of the benchmark interest rates in the economy would be A)the broker call loan rate. B)the federal funds rate. C)the prime rate. D)the discount rate.

B)the federal funds rate. Explanation The federal funds rate is the rate banks charge each other for overnight loans of $1 million or more. With overnight representing the shortest of loans and short-term interest rates being the most volatile, this rate is considered to be the most volatile of all the benchmark interest rates.

The interest rate negotiated for an uncollateralized overnight loan between two money center banks is known as A)the discount rate. B)the federal funds rate. C)the repo rate. D)the prime rate.

B)the federal funds rate. Explanation The federal funds rate is the rate commercial money center banks charge each other for an overnight, unsecured (no collateral) loan.

A customer wanting to open a margin account is told that the securities will be held in street name. This means that the securities will be registered in A)the names of the customer and the broker-dealer jointly. B)the name of the broker-dealer. C)the name of the customer. D)the name of the bank supplying the loan.

B)the name of the broker-dealer. Explanation Securities held in street name are registered in the name of the broker-dealer, who is the named or nominal owner. The customer remains as the beneficial owner.

An underwriter is placing a tombstone advertisement for a company's new issue. A prospective investor might expect to see all of the following information on the advertisement except A)the type of security to be sold (stock or bond). B)the names of the company's officers. C)the number of shares to be sold. D)the names of the underwriting members.

B)the names of the company's officers. Explanation Information on a tombstone, those advertisements allowed to be placed prior to the effective date, is limited to; name of issuer, type of security, number of shares to be sold, public offering price or expected range, and names of the underwriters or group.

For an owner to be paid a dividend, his name should be recorded on the stock record book of the issuer's transfer agent by A)the payable date. B)the record date. C)the ex-date. D)the next business day.

B)the record date. Explanation To receive a dividend, the buyer must be on the issuer's books as the owner on the record date.

A cash settlement trade settles A)the next day. B)the same day as the trade. C)the regular way, but no margin borrowing is permitted. D)in two business days.

B)the same day as the trade. Explanation A cash settlement trade settles the same day as the trade. A cash trade is a trade that occurs in a cash account (meaning no margin).

Your client is buying municipal bonds and wants to know when payment is due. You should tell him A)trade date plus 1 business day. B)trade date plus 2 business days. C)trade date plus 3 business days. D)trade date.

B)trade date plus 2 business days. Explanation Regular way settlement is T + 2 for everything except treasuries, money market securities, options.

As an investment vehicle, and regarding the tax consequences, Real Estate Investment Trusts (REITs) are organized as A)debt instruments. B)trusts. C)corporations. D)mutual funds.

B)trusts. Explanation REITs, as their name tells us, are organized as trusts. Assets held in the trust and the distributions made can impact the tax consequences for the trust. As an investment vehicle, shares are sold to investors and these shares sometimes trade on exchanges. Whether traded or nontraded, the shares are considered to be equity (not debt) securities.

After receiving a written complaint letter from a client, a registered representative should A)forward copies immediately to Financial Industry Regulatory Authority (FINRA) or the appropriate self-regulatory organization (SRO). B)turn the complaint over to the appropriate supervisor or principal. C)employ a thorough investigation and provide a report to the Securities and Exchange Commission (SEC). D)contact the client immediately to attempt reaching a resolution to the issue.

B)turn the complaint over to the appropriate supervisor or principal. Explanation Any representative receiving a written customer complaint is required to turn the complaint over to a supervisor or principal without delay.

The primary use for a revocable living trust is to A)limit the grantor access to items in the estate. B)use as a substitute for a will. C)prevent the grantor from liquidating his estate prior to death. D)avoid tax consequences for the grantor.

B)use as a substitute for a will. Explanation While the grantor is alive he has full control of the trust. It is mainly used in place of a will.

DEF Income Fund has a public offering price (POP) of $75 per share and a net asset value (NAV) of $72.75. What is the fund's sales charge (SC)? A)2% B)5% C)3% D)4% ]

C) 3% Explanation The basic formula is NAV + SC = POP. In this example 72.75 + 2.25 = 75. SC is expressed as a percentage of POP: 2.25 / 75 = .03 (3%).

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

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

Accrued interest on corporate bonds is calculated using A)30 days in each month and 365 days in each year. B)actual days in each month and actual days in the year. C)30 days in each month and 360 days in each year. D)actual days in each month and 360 days in each year.

C)30 days in each month and 360 days in each year. Explanation Corporate and municipal bonds use the artificial 30-day, 360-day calendar, but government bonds use actual days.

Updates to the Form U4 such as a change in address, and that do not point to disciplinary action must be made promptly but no later than A)60 days. B)90 days. C)30 days. D)10 business days.

C)30 days. Explanation Any changes such as a change in address require filing an amended Form U4 with the Central Registration Depository (CRD) no later than 30 days after the member becomes aware of the changes.

Which of the following situations may not be disclosed to a potential buyer while a security is in registration? A)The issue is being offered through ABC Investment Bank. B)There will be a road show in New York City in May. C)A brokerage report shows the security is properly undervalued. D)The issue is expected to be priced in early June.

C)A brokerage report shows the security is properly undervalued. Explanation Brokerage reports may not be distributed while a security is in registration. Expected dates for pricing and road shows (due diligence meetings) may be communicated to potential buyers. The underwriters are named in the issue's registration statement.

Which of the following statements would describe the Fourth Market? A)These transactions take place through electronic communications networks (ECNs). ECNs are open 24 hours a day and act solely as principals C)A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers D)These transactions take place through electronic communications networks (ECNs) which are open during normal trading hours and act solely

C)A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers Explanation The Fourth Market is a market for institutional investors in which blocks of stock trade through ECNs that are open 24 hours a day acting as agents.

Which of the following issues are exempt from registration under the Securities Act of 1933? A)ABC Corporation convertible callable preferred B)ABC Corporation 30-year bonds C)ABC Corporation commercial paper D)ABC Corporation 2-year notes

C)ABC Corporation commercial paper Explanation Commercial paper and other securities with maturities of 270 days or less are exempt from registration.

A company reorganizing with the intent to emerge from a bankruptcy is likely to issue which of the following type of bonds to accomplish that goal? A)Mortgage bonds B)Debentures C)Adjustment bonds D)Subordinated debt

C)Adjustment bonds Explanation Income bonds, also known as adjustment bonds, are used when a company is reorganizing. These bonds allow the issuer to only pay interest if the corporation has enough income to meet the interest payment obligations. This allows the corporation some flexibility while attempting to reorganize and emerge from bankruptcy.

Some issuers issue securities in electronic form, while some securities have been issued in physical form. Which of the following statements is true in relation to electronic or physical form? A)Corporate bonds have always been issued in electronic form B)All U.S. government securities are issued with physical paper certificates C)All U.S. government securities are issued in book entry form D)Corporate stocks can only exist in electronic form

C)All U.S. government securities are issued in book entry form Since the mid-1980s, all government securities have been in electronic form. All of the paper certificates have matured. Historically, corporate securities were issued in paper form and some still exist, but most of the bonds have matured that were issued in physical form. Some investors still hold paper stock certificates. Virtually all new securities are now issued in electronic form (book entry).

A married couple opens a new account with a broker-dealer as tenants in common. In explaining the details of the account to the couple, the registered representative would not indicate which of the following? A)Orders may be given by either party. B)Mail may be sent to either party with the permission of the other party. C)Certificates may be registered in the name of either party. D)In the event of death, the decedent's interest in the account goes to the decedent's estate.

C)Certificates may be registered in the name of either party. Explanation With a joint account, certificates must be registered in the names of all parties to the account.

Federal, state, and local income tax would be due on the interest from which of the following issues? A)5-year TIP B)Tax anticipation note issued by Orlando, Florida C)FHLMC certificate D)Dallas, Texas, general obligation bond

C)FHLMC certificate Explanation Interest from a GNMA certificate is taxed at all levels. Municipal bonds are tax free at the federal level. Treasury issues are tax free at the state level.

Federal, state, and local income tax would be due on the interest from which of the following issues? A)Jersey City, New Jersey, general obligation bond B)90-day Treasury bill C)FNMA certificate D)Grant anticipation note issued by Ogden, Utah

C)FNMA certificate Explanation Interest from an FNMA certificate is taxed at all levels. Municipal bonds are tax free at the federal level. Treasury issues are tax free at the state level.

Which regulatory body oversees trading in the over-the-counter (OTC) market? A)Municipal Securities Rule Board (MSRB) B)Securities and Exchange Commission (SEC) C)Financial Industry Regulatory Authority (FINRA) D)New York Stock Exchange (NYSE)

C)Financial Industry Regulatory Authority (FINRA) Explanation FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons. FINRA also regulates investment companies and limited partnership transactions.

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 $3,200 in market value C)Fully paid for marginable securities totaling $6,400 in market value D)Fully paid for marginable securities totaling $1,600 in market value

C)Fully paid for marginable securities totaling $6,400 in market value Explanation 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.

Prepayment risk is associated with which type of securities? A)Municipal bonds B)Treasury bonds C)GNMA D)Corporate bonds

C)GNMA Explanation GNMAs are mortgage back securities; if homeowners pay off their mortgages early, mortgage backed securities are subject to prepayment risk.

At the time of a limited partnership's dissolution, who is the last to be paid? A)Secured lenders (creditors) B)Limited partners C)General partners D)General lenders (creditors) Explanation When a limited partnership (LP) is dissolved, the general partners are paid last.

C)General partners Explanation When a limited partnership (LP) is dissolved, the general partners are paid last.

Which of the following are true of long-term or short-term gains or losses? A)Holding a stock and selling below its cost basis if held for over a year would be a short-term loss. B)Holding a stock and selling it above its cost basis if held for one year would be a long-term gain. C)Holding a stock and selling above its cost basis if over 12 months later would be a long-term gain. D)Holding a stock and selling below its cost basis if held for one year would be a long-term loss.

C)Holding a stock and selling above its cost basis if over 12 months later would be a long-term gain. Explanation For the holding period to be long term it must be more than one year.

Which of the following best describe a wrap account? I. The firm offering the account would need to be registered as both a broker-dealer and an investment advisor II. The account fee covers both transactions and advice III. The wrap fee for the account covers only where the firm acts as a broker or acts as a dealer IV. The firm may only be registered as a broker or dealer A)I and IV B)II and III C)I and II D)III and IV

C)I and II Explanation The fee covers both the advice and any transaction, so the firm must be registered as both a broker-dealer and an investment advisor.

A registered representative has left a firm and joined another. The new firm must obtain a copy of the Form U5 filled out by the old firm. Where might the new firm obtain a copy of the form? I. From the new employee II. From the Securities and Exchange Commission (SEC) III. From Financial Industry Regulatory Authority (FINRA)'s Central Registration Depository (CRD) IV. From the representative's former employer A)I and IV B)II and III C)I and III D)II and IV

C)I and III Explanation Copies of a new employee's Form U5 may be obtained from the employee, or from FINRA's Central Registration Depository (CRD). Whichever the source, the firm must obtain the copy within 60 days of filing the new Form U4 for the new employee.

An exception report would be most likely generated by which of the following observations? I. Seeing activity in the account of a deceased person II. Noting that a customer's telephone area code matches the ZIP code provided III. Receiving an execution for 300 shares when the order was for only 100 IV. Receiving a written complaint from a customer A)I and II B)II and III C)I and III D)II and IV

C)I and III Explanation There are a number of red flags that might generate an exception report. Among them are a trade in the account of a deceased person and a trade for an amount in excess of the customer's order. Address numbers or area codes matching what we know or is expected is not a red flag nor is a single complaint, but excessive complaints could be.

Which of the following choices would a registered representative be able to make for a customer in a nondiscretionary account? I. The time of execution of the trade II. Which security to buy III. How much of the security to buy IV. At what price to execute the trade A)II and III B)I and II C)I and IV D)II and IV

C)I and IV Explanation If the registered representative chooses the asset, the action, or the amount, it must be placed in a discretionary account. The registered representative can choose the time or price without needing to place the trade in a discretionary account.

A buy stop order at 39 could fill at which of the following prices? I. 38 II. 39 III. 40 IV. 41 A)I and II B)II and III C)I, II, III, and IV D)III and IV

C)I, II, III, and IV Explanation A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.

Regarding oil and gas DPPs, tangible drilling costs are associated with items that I. have no salvage value at the end of the program. II. have some salvage value at the end of the program. III. can be depreciated. IV. cannot be depreciated. A)I and IV B)I and III C)II and III D)II and IV

C)II and III Explanation Costs for items that will have some salvage value at the end of the program are considered tangible drilling costs. These items, such as equipment, can be depreciated and written off over the life of the program.

Of the following stocks, which would be defined as penny stocks? I. Nasdaq-listed stock trading at $4 per share II. OTC Markets stock trading at $4 per share III. Exchange-listed stock trading at $4 per share IV. OTC Pink stock trading at $4 per share A)I and IV B)I and III C)II and IV D)II and III

C)II and IV Explanation A penny stock is a non-Nasdaq listed (OTC) stock trading under $5 per share. If a stock is listed on an exchange or listed on Nasdaq, it is not a penny stock, regardless of price.

Under the IRC Subchapter M, if the WWF Fund only distributes 85% of its net investment income to its shareholders, then which of these is true? I. The fund must pay taxes on the undistributed 15% of net investment income. II. The fund must pay taxes on 100% of the net investment income. III. The shareholder pays no tax if the income is reinvested. IV. The shareholder must pay taxes if the income is received in cash or reinvested. A)I and III B)II and III C)II and IV D)I and IV

C)II and IV To avoid triple taxation according to the IRC Subchapter M, an investment company must distribute at least 90% of its net investment income. Since WWF Fund only distributed 85% of its net investment income, it must pay taxes on 100% of the net investment income. Shareholders always pay taxes on taxable income whether received in cash or reinvested.

A client buys stock on Monday, May 2, in a cash account. Under Regulation T, when is the client's payment due? A)In two business days B)The same day C)In four business days D)At or prior to the time of order placement

C)In four business days Explanation Regular-way firm-to-firm settlement is two business days after the trade date (T+2). Under Regulation T, payment must be made two business days after the settlement date (S+2 or T+4).

A registered representative is appointed the fiduciary for a trust account. Which of the following is true? A)Trading on margin is always permissible as a safe and efficient way to employ leverage for the account B)It is expected that speculative positions should be taken to enhance the performance of the account for the benefit C)Investment decisions must be made in accordance with the prudent investor rule D)A RR, as fiduciary, may share in the account's profits and charge a reasonable fee

C)Investment decisions must be made in accordance with the prudent investor rule. Explanation When acting as a fiduciary, all investment decisions must be made in accordance with the prudent investor rule, which mandates that only wise and safe investment decisions be made. Speculative positions, such as selling short or writing uncovered call options, are almost always prohibited. Margin trading can only occur if it has been specifically designated as being allowed in the trust documents. Fiduciaries may charge a reasonable fee for their services but may not be compensated based on, or share in, profits. LO 6.d

Which of the following risks is the risk that congress could change the laws and negatively impact a particular company or industry? A)Sovereign risk B)Regulatory risk C)Legislative risk D)Political risk

C)Legislative risk Explanation Legislative risk occurs because of changes in the law.

Owning an American depositary receipt (ADR) effectively eliminates which of the following risks? A)Market risk B)Currency risk C)Liquidity risk D)Business risk

C)Liquidity risk Explanation As ADRs trade on domestic exchanges and OTC, there is almost no liquidity risk. ADRs are still subject to currency risk because the corporations are located in foreign countries. All corporate stocks are subject to business and market risk.

Which of the following is not considered a money market instrument? A)Negotiable jumbo certificates of deposit (CDs) B)Commercial paper C)Money market funds D)Banker's acceptances (BAs)

C)Money market funds Explanation Money market instruments are short-term debt instruments. Money market funds are a type of mutual fund that holds money market instruments: they have the shares, but have no maturity date. Remember that in order to be considered a money market security, the debt instrument should have one year or less to maturity. BAs and commercial paper both have maximum maturities of 270 days; most negotiable jumbo CDs mature in one year or less.

Which of the following is not an exempt issuer? A)First National Bank B)County of Rural Township C)National Bank Holding Company D)City of Newark

C)National Bank Holding Company Explanation Corporations are nonexempt (must register). Banks and savings and loan associations are exempt, but bank holding companies are not. Municipal governments are exempt.

Under Regulation T, when must a corporate stock transaction be paid for in full in a cash account? A)No later than the day of the trade if the trade is placed before 2:00 pm ET B)No later than trade date plus 2 business days C)No later than regular way settlement plus 2 business days D)No later than the next business day

C)No later than regular way settlement plus 2 business days Explanation Regulation T states that the trade in a cash account be paid for in full no later than settlement date plus 2 business days. Regular way settlement is trade date plus 2 business days. Next business day is how government bonds settle. A cash trade (different from a trade in a cash account) settles same day.

In an effort to safeguard customer information which regulation specifies securing desktop and laptop computers and encrypting email? A)The Securities Exchange Act B)Regulation T C)Regulation S-P D)Regulation A+

C)Regulation S-P Explanation Safeguard requirements such as securing desktop and laptop computers and encrypting email to protect customer information is an obligation of financial institutions under Regulation S-P.

If representative Jamison sends a flyer introducing an exciting new investment opportunity to 30 existing middle market customers, this communication would be considered which of these? A)Correspondence B)Educational communication C)Retail communication D)Institutional communication

C)Retail communication Explanation The limit for correspondence is 25 retail customers. A middle market customer is not a financial institution. It may be educational in nature, but that is not one of FINRA's classifications for communications.

Which of the following business organizations is the easiest to form and dissolve? A)Limited Liability Corporation B)C Corporation C)Sole Proprietorship D)S Corporation

C)Sole Proprietorship Explanation A sole proprietorship is considered very simple to form and dissolve. Corporations and LLCs need to file registration forms with the state and must file separate tax reports. Though the specific steps for forming a sole proprietorship vary from state to state, it is generally a fairly simple process.

Which of the following prospectus must be provided no later than confirmation of the sale? A)Summary prospectus B)Statement of additional information C)Statutory prospectus D)Rule 498 prospectus

C)Statutory prospectus Explanation The summary prospectus and the rule 498 prospectus are the same thing. They can be used to discuss key information, but the statutory prospectus is still required at or prior to confirmation. The statement of additional information is only provided if requested by the customer.

Who is responsible for meeting the desired returns on a defined contribution plan? A)The sponsor B)The custodian C)The employee D)The Pension Benefit Guaranty Corporation

C)The employee Explanation The employee chooses how the money is invested, so the employee takes responsibility for the returns.

If a registered representative is involved in a securities transaction outside the scope of employment with the firm, a practice known as selling away and will receive compensation for it, which of the following must see that the representative is properly supervised for the transaction? A)The firm where the trade will take place B)None because there is no supervisory requirement C)The employing firm D)A Financial Industry Regulatory Authority (FINRA) examiner

C)The employing firm Explanation If a registered representative is to be compensated for a trade done through another firm, the employing firm must run the trade on its own books and see to it that the representative is properly supervised. The firm where the outside trade will take place is, of course, responsible only for the actions of its own registered representatives.

In which of the following circumstances would a firm be denied Financial Industry Regulatory Authority (FINRA) membership? A)The firm has only two principals and four registered representatives. B)The firm has only been in existence for three months. C)The firm has been expelled or suspended by the foreign equivalent of an self-regulatory organization (SRO). D)The firm plans to only allow registered representatives to invest in equities and fixed notes for their customers.

C)The firm has been expelled or suspended by the foreign equivalent of an self-regulatory organization (SRO). Explanation Firms will be denied membership if the applicant has been expelled or suspended by another self-regulatory organization (SRO) or from the foreign equivalent of an SRO. LO 12.b

Which of the following is true of an additional public offering? A)The investors are a combination of institutional and retail investors, and the issuer receives none of the proceeds from the sale. B)Existing shareholders receive all of the proceeds of the sale. C)The issuer receives all of the proceeds from the sale. D)The issuer receives some of the proceeds, and existing shareholders receive some of the proceeds from the sale.

C)The issuer receives all of the proceeds from the sale. Explanation In an APO, the issuer is selling additional shares of their already-traded stock. In a split offering, the corporation issues a portion of the shares offered to the public and receives the sales proceeds from those shares, while existing shareholders offer the balance of the shares to the public and receive the proceeds from those shares.

Which of the following is not correct regarding a rights offering? A)The rights offering allows the holder to exercise and purchase the stock at a price lower than the market. B)Rights are issued to existing shareholders on a one-right-for-one-existing-share basis. C)The number of rights issued is based on the number of new shares to be issued. D)The subscription period is typically 30 to 45 days.

C)The number of rights issued is based on the number of new shares to be issued. Explanation A rights offering allows stockholders to purchase common stock below the current market price. The rights are valued separately from the stock and trade in the secondary market during the subscription period, which is typically 30 to 45 days. Existing shareholders receive one right per share owned. The number of rights required to purchase one share of the new issue depends on the number of outstanding shares and the number of new shares offered.

If an officer of a bank with the authority to purchase and sell securities on behalf of the bank wants to purchase new issues, which of the following statements is true? A)The officer may not purchase a new issue unless the amount he wishes to purchase is considered small in relation to the total offering. B)The officer may purchase a new issue because no banking rules prohibit it. C)The officer may not purchase a new issue because he is considered a restricted person. D)The officer may purchac

C)The officer may not purchase a new issue because he is considered a restricted person. Explanation Under the rules regarding the purchase of new issues, bank officers would generally be characterized as restricted persons. They may not, therefore, purchase new issues.

Which of the following regarding Treasury STRIPS, receipts, bills, notes and bonds is true? A)They are all backed by the good faith and credit of the U.S. government. B)They are all sold at a discount to par. C)They all mature at par value. D)They all pay semiannual interest payments.

C)They all mature at par value. Explanation The only commonality for all of these is that each matures at par. Only T-bills, receipts and STRIPS are sold at a discount to par. Only T-notes and bonds make semiannual interest payments, and though STRIPS, bills, notes, and bonds are all backed by the good faith and credit of the U.S. government, Treasury receipts issued by broker-dealers are not.

Which of the following is true if a member firm is acting in both a principal and an agency basis on the same trade? A)This is an example of acting as an agent for the client. B)This activity requires prior disclosure. C)This activity is not allowed. D)This is an example as acting as a market maker.

C)This activity is not allowed. Explanation A BD is both a broker and a dealer, but the BD may not act in both capacities on the same transactions. The best response to this question is that it is not allowed.

The board of directors of the ABC Growth Fund has declared a $1-per-share dividend payable to holders of record on Wednesday, April 27. What is the most likely ex-dividend date for this dividend? A)Friday, April 29 B)Monday, April 25 C)Thursday, April 28 D)Tuesday, April 26

C)Thursday, April 28 Explanation Purchasers of mutual fund shares become owners of record on the day the buy takes place. Sellers of mutual funds cease to be owners on the day the trade takes place. The result of the trade and settlement taking place on the same day is that you may buy the fund and receive the dividend as an owner of record on the same day. So when is the dividend no longer available to new owners? The day after the record date. The ex-dividend date for a mutual fund is the day after the record date

U.S. government deposits securities with a trustee against which certificates are sold representing principal only with no regular interest payments. These are known as A)Treasury bonds. B)Treasury notes. C)Treasury STRIPS. D)Treasury receipts. Explanation When the U.S. government deposits securities with a trustee, against which it issues certificates representing principal payments only, and no regular interest payments, these are known as Treasury STRIPS.

C)Treasury STRIPS. Explanation When the U.S. government deposits securities with a trustee, against which it issues certificates representing principal payments only, and no regular interest payments, these are known as Treasury STRIPS.

A customer purchases 100 American depositary receipts (ADRs) of a London-based company. When does the trade settle? A)On the trade date B)One business day following the trade date C)Two business days following the trade date D)Seven business days following the trade date (due to the international currency transaction)

C)Two business days following the trade date Explanation ADRs trade in U.S. markets in U.S. dollars and settle T+2.

Before an option trade may be entered for a customer, that customer's account must be approved for option trading by A)a firm principal. B)a branch manager. C)a Registered Options Principal. D)an executive officer.

C)a Registered Options Principal. Explanation Only an ROP may approve option trading for an account.

A customer enters an order that must be executed in its entirety when entered or canceled immediately. This is known as A)an all-or-none (AON) order. B)a day order. C)a fill-or-kill (FOK) order. D)an immediate or cancel (IOC) order.

C)a fill-or-kill (FOK) order. Explanation A FOK order must be canceled immediately if it cannot be filled in its entirety when entered. In this situation, there can be no partial executions. The entire order must be filled immediately, or it must be killed. An IOC order allows for partial executions, and an AON order can remain working as a good-till-canceled order if it cannot be filled immediately when entered.

Having been told that a firm incorporates proprietary trading in its business model buying and selling securities into and out of its own inventory you would know that it is A)a fully disclosed broker-dealer. B)a clearing agent. C)a market maker. D)an executing for commissions only.

C)a market maker. Explanation Broker-dealers who incorporate proprietary trading into their business model are known as market makers. As a market maker the broker-dealer trades in their own account attempting to profit. A firm making markets may be a carrying firm or a fully disclosed firm. Commissionable transactions are those done by brokers for customer accounts, not proprietary trades.

A restricted person in the issuing of new securities under Rule 5130 would include all of the following except A)a roommate of a registered representative. B)a broker-dealer buying for its own account. C)a portfolio manager buying for a portfolio she manages. D)a registered representative buying for his own account.

C)a portfolio manager buying for a portfolio she manages. Explanation It is OK for portfolio managers to buy for portfolios they manage, but it is not OK for them to buy for their own account. Buying for other people in the industry and those supported by or under the support of those in the industry would also be prohibited. Because roommates of a registered representative would be codependent, they would also be prohibited.

An offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time is known as A)a primary offering. B)an initial public offering. C)a secondary offering. D)a subsequent offering.

C)a secondary offering. Explanation A secondary offering is one in which one or more stockholders in the corporation are selling all or some of their shares to the public. The sale proceeds for these shares are paid to the selling stockholders rather than to the corporation.

Hedge funds A)are regulated under the Investment Company Act of 1940 with no SEC registration required. B)are nonregulated but still require SEC registration. C)are not regulated under the Investment Company Act and no Securities and Exchange Commission (SEC) registration is required. D)are highly regulated, starting with the requirement to be registered with the SEC.

C)are not regulated under the Investment Company Act and no Securities and Exchange Commission (SEC) registration is required. Explanation Hedge funds normally do not require registration with the SEC as they are often sold under Reg D. Furthermore, they do not come under the Investment Company Act of 1940.

Money market instruments guaranteed by a bank that are used to provide capital for international trade are called A)Eurodollars. B)American depositary receipts (ADRs). C)banker's acceptances (BAs). D)foreign bills.

C)banker's acceptances (BAs). Explanation BAs provide short-term financing for importers and exporters

The Office of the Comptroller of the Currency supervises all of the following except A)federal savings associations. B)foreign banks operating in the United States. C)broker-dealers. D)national banks.

C)broker-dealers. Explanation The Office of the Comptroller of the Currency supervises nearly 1,400 national banks, federal savings associations, and federal branches and agencies of foreign banks operating in the United States. The mission of the comptroller is to ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. The comptroller also serves as a director of the Federal Deposit Insurance Corporation.

The risk when investing, where one has the potential to lose all or part of the investment due to circumstances that are unrelated to the issuer's financial strength or well-being, is known as A)business risk. B)financial risk. C)capital risk. D)call risk.

C)capital risk. This is the definition of capital risk. For example, capital risk might be least when investing in securities backed by the federal government but much more prevalent when investing in derivative products.

All the following are coincident indicators except A)personal income. B)retail employment. C)changes in durable goods inventories. D)trade sales.

C)changes in durable goods inventories. Explanation Changes in durable goods inventories (whether an increase or decrease) is a leading economic indicator. Trade sales, retail employment, and personal income are all coincident indicators.

An offering is defined as the sale of a security. Regarding offerings, all of the following are true except A)offerings can be identified by who is selling the securities issuer or investor. B)offerings of stocks can be made to the investing public. C)corporate securities can only be offered in public securities offerings. D)offerings of bonds can be made to the investing public.

C)corporate securities can only be offered in public securities offerings. Explanation Both stocks and bonds can be made available to the investing public through an offering. Different types of offerings are identified by who is selling the securities—an issuer or another investor. Securities offered by corporations for sale to the investing public are sold to investors through either public or private securities offerings.

All of the following are corporate secured bonds except A)mortgage bonds. B)equipment trust certificates. C)debentures. D)collateral trust certificates.

C)debentures. Explanation Debentures are unsecured. Mortgage bonds are backed by property. Equipment trust certificates are backed by equipment. Collateral trust certificates are backed by securities.

During the cooling-off period, underwriters may not A)take indications of interest. B)distribute a preliminary prospectus. C)distribute sales literature or advertising material. D)place a tombstone advertisement.

C)distribute sales literature or advertising material. Explanation During the cooling-off period, underwriters may not distribute sales or advertising literature regarding the securities to be offered. However, they may distribute a preliminary prospectus intended to gather indications of interest and place tombstone ads.

Securities issued by the U.S. government are backed by A)only the value of real assets owned by the government. B)its full faith and credit, based on the value of real assets owned by the government. C)its full faith and credit, based on its power to tax the people. D)the assets of government agencies.

C)its full faith and credit, based on its power to tax the people. Explanation Securities issued by the U.S. government are backed by its full faith and credit. The promise to pay is based on the federal government's power to tax the people, as well as to print currency when it needs to.

Secured corporate debt includes A)debt owed to the federal government. B)preferred shareholder stock. C)mortgage debt. D)debt owed to suppliers. Explanation Examples of secured corporate debt includes outstanding bonds and mortgage paper. Debt owed to suppliers would be unsecured. Government debt owed is taxes, and preferred and common stock is equity.

C)mortgage debt. Explanation Examples of secured corporate debt includes outstanding bonds and mortgage paper. Debt owed to suppliers would be unsecured. Government debt owed is taxes, and preferred and common stock is equity.

You are recommending the purchase of the XYZ Growth Fund to one of your clients, and you explain that the fund operates pursuant to a 12b-1 plan. Under the terms described in the prospectus, the fee is A)reduced on purchases that reach or exceed specified breakpoints. B)a part of the fee paid to the fund's investment manager. C)part of the expense ratio of the fund. D)included in the sales charge when shares are purchased.

C)part of the expense ratio of the fund. Explanation A 12b-1 fee is deducted each quarter from a mutual fund's assets to cover the costs of marketing and distributing the fund to investors.

A supply-side approach to fiscal policy will use all of these tools except A)providing tax credits to small business. B)decreasing government regulatory costs. C)personal income tax rebates. D)decreasing tax rates on business entities.

C)personal income tax rebates. Explanation Supply-side fiscal policy seeks to create a better environment for business to thrive. The end goal is a growing economy that creates jobs. Sometimes called trickle-down economics, the emphasis is on the business side much more than the consumer side.

All the following are leading indicators except A)stock prices. B)new orders. C)personal income. D)the money supply.

C)personal income. Explanation The money supply, new orders, and stock prices are all leading indicators. These increase in advance to an increase in economic activity. Personal income, however, is a coincident indicator moving along with economic activity.

All of these are rules set down by an exchange except A)order priority. B)capital requirements for members. C)revoking a corporate charter. D)listing and delisting of a security.

C)revoking a corporate charter. Explanation A corporate charter is granted by a government entity, usually the state. An exchange can not revoke it. However, a firm whose corporate charter has been revoked will likely see a delisting shortly thereafter.

The Conduct Rules A)determine who is at fault in disputes that would result in monetary settlements. B)establish standard trade practices, including settlement dates, good delivery procedures, and ex-dates. C)set out fair and ethical trade practices that member firms and their representatives must follow. D)determine how member violations will be heard, reviewed, and addressed.

C)set out fair and ethical trade practices that member firms and their representatives must follow. Explanation The Conduct Rules set out fair and ethical trade practices that member firms and their representatives must follow when dealing with the public, including reportable events.

Underwriters in a firm commitment offer A)will not be at risk for any securities left unsold. B)will act as an agent for the issuer. C)will act as principals. D)do not provide the issuer with any guarantee that they will raise all of the capital needed.

C)will act as principals. Explanation In a firm commitment, the underwriters contract with the issuer to buy the securities from them, and thus, they are acting as principals rather than agents. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately, all of the securities will be sold and all of the capital needed will be raised.

If an investor purchases $1,000 face amount of an 8% corporate bond at 93, and the bond is scheduled to mature in 2028, what will the investor receive at maturity? A)$1,080 B)$930, plus 8% on the invested funds C)$1,000 D)$1,040

D)$1,040 Explanation The investor will receive $1,040 at maturity. This amount is comprised of the principal repayment of $1,000 plus the final semiannual interest payment of $40.

ABC Growth Fund has net assets of $120 million and liabilities of $5 million. The fund has 5 million outstanding shares. What is the fund's current net asset value (NAV) per share? A)$25 B)$23 C)$22 D)$24

D)$24 NAV is calculated by dividing the net assets of the fund by the number of outstanding shares. In this question the net assets are given; the liabilities are already in the figure. The math is 120 million / 5 million = $24 per share.

A trade of an equity option settles in ( ) days, while an exercise of an equity option must be completed in ( ) days. A)1,1 B)2,2 C)2,1 D)1,2

D)1,2 Explanation An option trade settles next business day (T+1); the exercise of an equity option settles in two days from exercise.

For nonlisted and non-Nasdaq securities, a prospectus must be provided to all those who purchase securities as part of an APO for how many days after the effective date? A)10 days B)30 days C)60 days D)40 days

D)40 days Explanation For nonlisted and non-Nasdaq securities, the prospectus delivery requirement period in the aftermarket is 40 days (90 days for an IPO). The requirement is 25 days for an IPO for a Nasdaq or exchange listed security (zero days for an APO).

The aftermarket prospectus requirement for the IPO of nonlisted securities is A)not specified in the Securities Act of 1933. B)25 days. C)40 days. D)90 days.

D)90 days. Explanation For the first 90 days following the IPO, a prospectus must be provided to purchasers in the secondary market.

A letter of intent may be backdated to include a prior purchase up to A)13 months. B)6 months. C)indefinitely. D)90 days.

D)90 days. Explanation LOIs may be backdated up to 90 days. The obligation under the LOI must be met within 13 months from the date of the letter.

Your client, Janice Thomas, is an active trader and wants to invest in a managed equity portfolio that she can trade intraday. Which of the following should you recommend? A)An index exchange-traded fund (ETF) B)A mutual fund C)An exchange-traded note (ETN) D)A closed end fund

D)A closed end fund Explanation A closed end fund is actively traded and most of them are equity funds. They trade on the exchanges like stocks. Mutual funds can be equity funds and can be actively managed, but because they only trade once per day, they are not good for active trading. ETF are actively traded but are not actively managed. ETNs are debt securities, not equities.

Firm element training requires member firms to prepare training how frequently? A)Quarterly B)Biannually C)Semiannually D)Annually

D)Annually Explanation Firm element requires member firms to prepare an annual training plan, taking into account such factors as recent regulatory developments, the scope of the member's business activities, employee performance in the regulatory element, and its supervisory needs.

Under penny stock rules, what is required for a broker-dealer to consider an investor an established customer? A)Signed transaction agreement B)Open cash account for six months or more C)Signed risk disclosure statement D)At least three separate penny stock purchases

D)At least three separate penny stock purchases Under penny stock rules, investors are established customers if they have deposited funds or securities in an account for at least one year before the penny stock transaction, or have purchased at least three different penny stocks from the same broker-dealer

Your client asks about exchange-traded notes (ETNs) for her portfolio, and during the course of the conversation, she makes several statements. Which of the following is true? A)ETNs are debt securities backed by the exchange they trade on. B)ETNs are equity securities backed by the issuer. C)ETNs are equity securities backed by the exchange they trade on. D)ETNs are debt securities backed by the issuer.

D)ETNs are debt securities backed by the issuer. Explanation ETNs are senior, unsecured debt securities. Always associate the word note with debt. They are issued by banks or financial institutions, and therefore, are backed only by the good faith and credit of the issuer.

The rules to prevent pay to play regarding contributions made to political parties, candidates, and elected officials by firms involved in the underwriting or sales of municipal securities are enforced by A)Municipal Securities Rule Board (MSRB). B)Federal Reserve Board (FRB). C)Securities and Exchange Commission (SEC). D)Financial Industry Regulatory Authority (FINRA).

D)Financial Industry Regulatory Authority (FINRA). Explanation Having no authority to enforce the rules it enacts, the MSRB relies on FINRA to enforce its municipal securities rules. This would include the enforcement of the pay to play or play for pay rules regarding political contributions.

Regarding a member firm's fingerprint records for employees, which of the following statements is not true? A)Fingerprint records are required for all associated persons involved in the sales of securities B)Fingerprint records need not be kept for employees deemed to be performing clerical functions only C)Fingerprint records are required for all those physically handling cash or securities, D)Fingerprint records must be submitted to the Securities and Exchange Commission for processing

D)Fingerprint records must be submitted to the Securities and Exchange Commission for processing. Explanation Fingerprint cards (records) are submitted to the U.S. Attorney General (or designee) for identification and processing.

The two classifications of chapters for corporate bankruptcies are I. liquidations. II. reorganizations. III. bankruptcy. IV. failures. A)II and III B)III and IV C)I and IV D)I and II

D)I and II Explanation Corporate bankruptcies can be either liquidations, where assets are sold off and proceeds are distributed based on the priority of the claim, or reorganizations, where the company continues to operate under a plan to repay creditors.

Which of the following items are required to be kept more than three years? U4 forms U5 forms Customer order tickets Customer confirmations A)I and IV B)II and III C)III and IV D)I only

D)I only Explanation U4 forms must be kept for three years after the rep terminates, so if the rep worked for the firm 30 years, the form would have to be kept for 33 years. All others are three-year records.

A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm? A)Prime/executing B)Clearing/carrying C)Market making D)Introducing/fully disclosed

D)Introducing/fully disclosed Explanation A fully disclosed introducing broker-dealer is what the word implies—it introduces its customers to a clearing firm. Clearing firms (often referred to as carrying firms) hold their customer's funds and securities as well as those of their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm's back office. Because the risk associated with holding customer funds and securities is not present, net capital requirements are much lower for introducing firms than they are for self-clearing or carrying broker-dealers.

Which of the following securities pays interest that is taxable at the federal level and tax free at the state level? A)FNMA B)Corporate bond issued from the customer's home state C)GNMA D)Treasury bond

D)Treasury bond Explanation Treasury issues pay interest that is taxable at the federal level but free from state income tax. All of the others here are taxable at all levels.

Regulation for a firm that offers advice on securities for a fee on a regular basis is based on which of the following? A)Securities Act of 1933 B)Uniform Securities Act of 1956 C)Investment Company Act of 1940 D)Investment Advisers Act of 1940

D)Investment Advisers Act of 1940 Explanation The three-part test for an investment adviser is (1) provides advice on securities, (2) charges a fee for this advice, and (3) this activity is a regular part of the business. The firm in the question meets these criteria and is an investment adviser. Investment Advisers are primarily governed under the Investment Advisers act of 1940.

Which of the following is true regarding currency risk? A)It is a nonsystematic risk and, therefore, cannot be reduced by diversification. B)It is a systematic risk and, therefore, can be reduced by diversification. C)It is a nonsystematic risk and, therefore, can be reduced by diversification. D)It has elements of both systematic and nonsystematic risk.

D)It has elements of both systematic and nonsystematic risk. Explanation Currency risk is the possibility that an investment denominated in one currency could decline if the value of that currency declines in its exchange rate with the U.S. dollar. Currency risk is an example of a risk that is not easily qualified as being a systematic or not.

On Tuesday, July 3, your customer bought 15 SBRD 30 September calls at 4. On Friday, August 10, the calls are in the money and your customer issues exercise instructions. On which days did the trade and the exercise settle? A)July 6 and August 13 B)July 5 and August 12 C)July 4 and August 11 D)July 5 and August 14

D)July 5 and August 14 Explanation All option trades settle next business day. The exercise of an equity option settles in two business days. July 4 is a holiday. August 11 and 12 are on a weekend. July 4 and December 25 are the only holidays we expect you to see on the test.

An official statement is a disclosure document that would be used in connection with an offering of which of the following securities? A)U.S. Treasury notes B)Common of preferred stock offered privately C)Limited partnership interests D)Municipal bonds

D)Municipal bonds Explanation An official statement serves as a disclosure document and contains any material information an investor might need about a municipal bond issue. Municipal bonds are exempt from registration under the Securities Act of 1933.

Money laundering activities are most easily caught during which phase? A)Integration B)Structuring C)Layering D)Placement

D)Placement Explanation Illicit funds are most susceptible to detection during the placement phase, where the funds first enter the money laundering scheme.

A corporate bankruptcy liquidation took place. Of the following—general creditors, secured bondholders, subordinated debenture holders, accrued taxes—who was paid first and who was paid last? A)Secured bondholders first, accrued taxes last B)Secured bondholders first, general creditors last C)General creditors first, secured bondholders last D)Secured bondholders first, subordinated bondholders last

D)Secured bondholders first, subordinated bondholders last Explanation The liquidation priority is as follows: secured debt, unsecured debt and general creditors, then subordinated debt, and then equity holders with preferred shareholders first, followed by common shareholders. Therefore, of those that are listed here, secured bondholders would be paid first, and subordinated bondholders last. General creditors and taxes are paid at the same level.

The market for Sierra Verde Coffee Company stock is at $72 per share. Your customer would like to sell his shares for $75, and believes the stock will climb to that level in the next two to three weeks. Which order should he place? A)Sell limit 75 FOK B)Sell limit 75 C)Sell limit 75 AON D)Sell limit 75 GTC

D)Sell limit 75 GTC Explanation Only the good-til-canceled (GTC) order will live past today. All the others will cancel if unexecuted by the end of the day. If there is no qualifier, then it is a day order. Fill-or-kill (FOK) orders cannot be filled immediately or canceled. An all-or-none (AON) order would need to also be marked GTC to go into the next day.

Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144? A)Unregistered stock acquired by a nonaffiliate under an investment letter B)Stock acquired by a corporate affiliate in a private placement C)Unregistered stock acquired by a corporate affiliate in a stock option program D)Stock acquired on the NYSE by a corporate affiliate

D)Stock acquired on the NYSE by a corporate affiliate Explanation The holding period rule applies only to unregistered stock, which may or may not be control stock. Unregistered stock results from either private placements or the exercise of a corporate stock option. Because this question asked which securities were not subject to the Rule 144 holding period, only stock acquired on the NYSE by a corporate affiliate is the correct answer. However, the affiliated person is subject to volume restrictions.

Regarding the issuance of new securities to the public, which of the following is true? A)Registrations become effective within 10 business days of Securities and Exchange Commission (SEC) B)The Securities and Exchange Commission (SEC) review of a new issues filing must always be longer than 20 days C)Underwriters are permitted to accept orders for securities during the Securities and Exchange Commission (SEC) review period D)The Securities Act of 1933 provides criminal penalties for fraud.

D)The Securities Act of 1933 provides criminal penalties for fraud. Explanation The Securities Act of 1933, which provides for criminal penalties for fraud in the issuance of new securities, ensures that investors are fully informed about a security and its issuer when the security is offered to the public. The SEC review or cooling-off period must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date.

For Treasury receipts and STRIPS, which of the following is true? A)Both Treasury receipts and STRIPS are backed in full by the U.S. government. B)Neither Treasury receipts or STRIPS are backed in full by the U.S. government. C)Treasury receipts are backed in full by the U.S. government. Treasury STRIPS are not. D)Treasury STRIPS are backed in full by the U.S. government. Treasury receipts are not.

D)Treasury STRIPS are backed in full by the U.S. government. Treasury receipts are not. Explanation Brokerage firms can create and issue a type of bond known as a Treasury receipt from U.S. Treasury notes and bonds. Issued by financial institutions, they are not backed by the U.S. government. However, the Treasury Department has its own version of receipts known as Treasury STRIPS. Issued by the Treasury Department, they are direct debt obligations of the U.S. government.

All of the following are backed by the full faith and credit of the U.S. government except A)Treasury bonds. B)Treasury STRIPS. C)Treasury bills. D)Treasury receipts.

D)Treasury receipts. Explanation Treasury bills, bonds, and notes are backed in full by the U.S. government. Treasury STRIPS are also backed in full by the U.S. government, but Treasury receipts are not because they are issued by broker-dealers. Therefore, the government's backing can only be as good as the credit rating of the broker-dealer that issued them.

FINRA firms must employ at least how many principals? A)Five B)Four C)Three D)Two

D)Two Explanation The rule requires at least two principals, unless the firm only has one individual working for the firm.

An officer of a financial firm has identified what might represent suspicious behavior on the part of a customer, involving more than $5,000. When must the firm file a suspicious activity report (SAR)? A)By the end of the business day B)Within 180 calendar days C)Within 5 business days D)Within 30 calendar days

D)Within 30 calendar days Explanation A SAR must be filed with FinCEN within 30 calendar days of the firm becoming aware of the suspicious activity. The suspected parties may not be informed that they are the subject of an SAR.

The Windmill Alternative Energy Fund offers its shares to the public at the fund's net asset value (NAV) based on the next calculation of that figure. Based on this, you can say that the fund is A)a front-end load fund. B)a hedge fund. C)a closed-end fund. D)a no-load fund.

D)a no-load fund. Explanation Offering shares at the next NAV calculation is a characteristic of mutual funds and other open-end management companies (called forward pricing). If a mutual fund has a public offering price equal to its NAV, it has no sales charge and is therefore a no-load fund.

The transfer agent for a corporation is responsible for each of the following except A)maintaining records of ownership. B)ensuring that its securities are issued in the correct owner's name. C)canceling old and issuing new certificates. D)acting as an intermediary between the buy and sell sides of a transaction. Explanation D)acting as an intermediary between the buy and sell sides of a transaction. Explanation

D)acting as an intermediary between the buy and sell sides of a transaction. Explanation The transfer agent (often a bank) for a corporation is responsible for ensuring that its securities are issued in the correct owner's name, canceling old and issuing new certificates, maintaining records of ownership, and handling problems relating to lost, stolen, or destroyed certificates. Acting as an intermediary in a trade is the function of the clearing corporation.

It would be appropriate to refer to any of the following as an issuer transaction except A)an APO. B)an IPO. C)an SPO. D)an REPO.

D)an REPO. Explanation Issuer transactions are those where the proceeds of the offering go to the issuing company. APOs (additional public offerings), IPOs (initial public offerings), and SPOs (subsequent public offerings) all result in funds going to the issuer. A repo (repurchase agreement) is a money market instrument where the money changes hands between the buyer and the seller.

A broker-dealer's business continuity plan (BCP) should be reviewed A)on an as needed basis or if prompted by Financial Industry Regulatory Authority (FINRA) to do so. B)semiannually by a principal of the firm. C)biannually by a registered representative designated to do so. D)annually by a principal of the firm.

D)annually by a principal of the firm. Explanation Business continuity plans (BCPs) are required to be reviewed annually by a principal of the firm.

The SEC can do all of the following except A)revoke registration of broker-dealers. B)limit activities of broker-dealers. C)fine broker-dealers who violate SEC regulations. D)approve broker-dealers to participate in the securities business.

D)approve broker-dealers to participate in the securities business. Explanation The SEC does not approve anyone; they "allow" them to become reregistered.

All registered persons must complete computer-based training sessions annually by December 31 to comply with A)FINRA's regulatory element continuing education regulation. B)FINRA's firm element regulation. C)the Uniform Securities Act state regulation requirements. D)both the regulatory and firm level continuing education requirements.

D)both the regulatory and firm level continuing education requirements. Explanation The continuing education requirement consists of two elements: regulatory and firm. Both of these must be completed by December 31 every year. The best answer here is "both." The two responses that list the two requirements individually are technically correct, but you are expected to select the best response.

A clearing corporation agent or depository for securities transactions A)can be a bank or corporation only if they are also a broker-dealer. B)must be a broker-dealer. C)can never be a corporation. D)can be a commercial bank.

D)can be a commercial bank. Explanation A clearing agent can be a broker-dealer but doesn't have to be. In addition to broker-dealers, commercial banks can act as clearing agencies and depositories, as can corporations that are set up specifically to clearing securities transactions and taking custody of funds and securities.

An investor having no affiliation with CDS Company has just purchased shares that were sold subject to Rule 144. This investor A)must wait six months before any sales can be made. B)can only sell subject to volume limits. C)must wait six months before selling shares subject to volume limits. D)can sell the shares unrestricted at any time.

D)can sell the shares unrestricted at any time. Selling shares under Rule 144 effectively registers the shares. In other words, buyers of stock being sold subject to Rule 144 are not subject to any restrictions if they choose to resell.

Promissory notes are a form of A)Treasury bills issued by the U.S. government. B)jumbo CDs issued by banks. C)Treasury notes issued by the U.S. government. D)commercial paper issued by corporations.

D)commercial paper issued by corporations. Explanation Corporations issue short-term, unsecured commercial paper, known as promissory notes. The proceeds from these notes are generally used to fund such items as pending accounts receivable and seasonal inventory gluts.

An affiliate holding unregistered shares can sell under Rule 144 A)as often as wished. B)one time a year. C)two times a year. D)four times a year.

D)four times a year. Explanation Rule 144 allows an affiliate to sell the greater of 1% of the outstanding shares or the average of the last four weeks' trading volume with each Form 144 filing. The filing is good for 90 days (three months), which would allow for as many as four filings per year.

All of the following statements regarding the different securities offering types are true except A)in an initial public offering (IPO), underwriting proceeds go the company. B)in a secondary additional issue, underwriting proceeds go to existing stockholders. C)in a secondary offering of a new issue, underwriting proceeds go to existing stockholders. D)in an additional primary offering (APO), underwriting proceeds go to existing stockholders.

D)in an additional primary offering (APO), underwriting proceeds go to existing stockholders. Explanation In a primary offering (IPO or APO), underwriting proceeds go to the issuing company. In a secondary offering, proceeds go to existing stockholders.

A hedge fund having a lock-up provision means that A)provisions have been made to lock up new buyers so sales of shares can be made easily. B)the fund organizers are fully accountable and can be sued in the courts with full ramifications. C)a minimum return is guaranteed or investments are fully refundable—locked up. D)investors are required to maintain the investment for a minimum length of time.

D)investors are required to maintain the investment for a minimum length of time. Explanation A lock-up provision means that the fund requires investors to hold their shares for a minimum length of time that the fund establishes. Therefore funds having a lock-up provision are associated with being illiquid.

One of the ways in which closed-end investment companies differ from open-end investment companies is in their ability to A)issue common stock. B)lend money. C)operate as nondiversified management companies. D)issue preferred stock.

D)issue preferred stock. Explanation Open-end investment companies can issue only one class of security-redeemable common stock. Closed-end companies can issue both common and preferred shares. Both can lend money under certain circumstances and can operate as either diversified or nondiversified companies.

Financial Industry Regulatory Authority (FINRA) has a continuing education requirement with the goal of making sure that all registered personnel are aware of industry changes. If a registered representative has just observed her second anniversary in the industry and did the required regulatory element CE, the next time she will be required to sit for the regulatory element is A)three years from now. B)two years from now. C)within 120 days. D)next year.

D)next year. Explanation All registered representatives are required to sit for the regulatory element continuing education every year by December 31.

Preferred shareholders have A)both voting and preemptive rights. B)preemptive rights only. C)voting rights only. D)no voting or preemptive rights.

D)no voting or preemptive rights. Explanation Preferred shareholders have no voting rights, nor do they have preemptive rights, which is the right to maintain the same percentage ownership in the corporation should additional shares be issued.

Under the USA PATRIOT Act, financial firms must create and maintain records of wire transfers only A)to retail investors. B)to bank customers. C)to a different state. D)of $3,000 or more.

D)of $3,000 or more. Explanation Records of wire transfers of $3,000 or more must kept, regardless of their destination.

When the Options Clearing Corporation (OCC) assigns exercise notices to a broker-dealer, the broker-dealer will in turn assign the exercise to customers with short positions using any of the following methods except A)on a FIFO basis. B)using a random selection method. C)using any method that is considered fair and reasonable. D)on a LIFO basis.

D)on a LIFO basis. Explanation Under OCC rules, LIFO is not considered an acceptable method for assigning an exercise to a customer on the short side of an options trade. The others listed are all acceptable.

In a prime brokerage account, the prime broker A)subcontracts out all services to other brokers. B)provides custody, clearing, and all execution services. C)provides execution services only, while another broker clears transactions and provides any other account services required. D)provides custody and clearing services and may share execution services with other broker-dealers.

D)provides custody and clearing services and may share execution services with other broker-dealers. Explanation In a prime brokerage account, the prime broker provides custody and clearing services and may share execution services with other broker-dealers.

T-notes pay interest A)quarterly. B)annually. C)monthly. D)semiannually.

D)semiannually. Explanation Treasury notes (T-notes) and bonds (T-bonds) pay interest on a semiannual basis.

All of the following describe mutual funds except A)the portfolio is professionally managed. B)funds simplify tax calculations for investors by supplying Form 1099. C)various withdrawal plans may be offered for redemption of shares. D)shares may be sold either on an exchange or over the counter (OTC).

D)shares may be sold either on an exchange or over the counter (OTC). Explanation Mutual fund shares are redeemable securities. Hence, they do not trade in the secondary market either on exchanges or OTC. Instead, they may be purchased and redeemed only through the mutual fund company itself.

Treasury bills (T-bills) are A)intermediate-term debt obligations issued weekly. B)intermediate-term debt obligations issued monthly. C)short-term debt obligations issued monthly. D)short-term debt obligations issued weekly.

D)short-term debt obligations issued weekly. Explanation Treasury bills are short-term debt obligations of the U.S. government issued weekly.

A document that substitutes for the owners signatures on the back of a stock or bond certificate is called a A)signature substitution letter. B)certificate power. C)security substitution letter. D)stock or bond power.

D)stock or bond power. Explanation A stock (or bond) power signed by the owners may be used in lieu of the customer's signature on the back of the certificate.

Broker-dealers that transact securities business with customers or other broker-dealers must apply and be approved for registration with A)the Chicago Board Options Exchange (CBOE). B)the Financial Industry Regulatory Authority (FINRA). C)the Municipal Securities Rule Board (MSRB). D)the Securities and Exchange Commission (SEC).

D)the Securities and Exchange Commission (SEC). Explanation The SEC is the securities industry's primary regulatory body. Broker-dealers that transact securities business with customers or with other broker-dealers must apply and be approved for registration with the SEC.

The broker loan rate charged by banks is also known as A)discount rate. B)prime rate. C)federal funds rate. D)the call loan rate.

D)the call loan rate. Explanation The broker loan rate or call loan rate is the interest rate banks charge broker-dealers on money that broker-dealers borrow to lend to margin account customers.

Your customer purchases 5 JIM 50 calls at 3. Funds must be deposited in the account to pay for the trade no later than A)in two business days. B)the same day. C)no funds are required for this trade. D)the next business day.

D)the next business day. Explanation An option trade settles the next business day (T+1). As this was a purchase, the customer must deposit funds sufficient to pay for the trade by settlement.

The maximum loss on a long put is A)strike price - premium. B)the strike price. C)strike price + premium. D)the premium.

D)the premium. Explanation The maximum loss on any long option is the amount that was paid for the option (premium).

Securities regulations that are called blue-sky laws refer to those at A)both the state and the federal level. B)neither the state nor the federal level. C)the federal level. D)the state level. Explanation These are state laws that pertain to the issuance and trading of securities within that state. They are known as blue-sky laws because of a statement made by a Kansas Supreme Court justice who referred to "speculative schemes that have no more basis than so many feet of blue sky."

D)the state level . Explanation These are state laws that pertain to the issuance and trading of securities within that state. They are known as blue-sky laws because of a statement made by a Kansas Supreme Court justice who referred to "speculative schemes that have no more basis than so many feet of blue sky."

An investor interested in quarterly income should invest in A)STRIPS. B)corporate bonds. C)Treasury bonds. D)utility company stock.

D)utility company stock. Explanation Utility stocks generally pay quarterly dividends, whereas corporate and Treasury bonds pay interest semiannually. STRIPS pay at maturity.

A customer has an account with a broker-dealer who provides a group of services, such as asset allocation, portfolio management, trade executions, and administration, for a single fee. This is known as a A)commission-based account. B)margin account. C)discretionary account. D)wrap account.

D)wrap account. Explanation Wrap accounts are accounts for which firms provide a group of services, such as asset allocation, portfolio management, executions, and administration, for a single fee rather than charging commissions for individual transactions. Wrap accounts are generally investment advisory accounts and can be cash accounts, margin accounts, discretionary accounts, or nondiscretionary accounts.