Test 1
A company declares a forward stock split. What is the effect on the stock's par value? A No effect on the par value B An increase in the par value C A decrease in the par value D An increase in the par value and a decrease in the number of shares outstanding
C A decrease in the par value
Which of the following is a municipal bond that is backed by the full faith and credit of the issuer? A A debenture B A revenue bond C A general obligation (G.O.) bond D A guaranteed bond
C A general obligation (G.O.) bond
All of the following persons are permitted to be named as a trusted contact person for a senior investor, EXCEPT: A A family member B A business associate C A law firm D A friend
C A law firm To be a trusted contact person for a senior investor, the only requirements are that the person must be a natural person (not a law firm) and be at least 18 years old.
Which of the following statements is NOT TRUE regarding profit-sharing plans? A Contributions are allocated based on a pre-determined formula. B The board of directors determines the amount of contributions. C Contributions are required to be made each year. D Contributions are in pre-tax dollars.
C Contributions are required to be made each year. In a profit-sharing plan, contributions are not required to be made each year and can be adjusted based on the profitability of the company. The board of directors determines the amount of the contributions, which are in pre-tax dollars and allocated based on a pre-determined formula.
Final arbitration awards against registered representatives and/or firms are reported on which of the following forms? A Form U5 B Form U4 C Form U6 D Form BD
C Form U6 Form U6 is used to report disciplinary actions against RR's and firms as well as final arbitration awards against individuals or firms. Form U4 is filed with FINRA when a person is applying for securities registration. Form U5 is filed with FINRA when a person's registration is terminated. Form BD is filed by brokerage firms to register with FINRA, the SEC, and states.
Which of the following statements is TRUE about variable annuities? A The dollar amount of payments is guaranteed B Participants may not vote to change objectives C Payout is based on a number of annuity units, which remains fixed for the duration of the payout period D Annuity payments are of a constant dollar amount throughout the payout period
C Payout is based on a number of annuity units, which remains fixed for the duration of the payout period A variable annuity does not give an annuitant a fixed-dollar return over a fixed number of years. Variable annuities give the annuitant a variable return based on the value of the securities in the separate account of the annuity. Payout is based on the number of annuity units that an investor receives upon annuitizing. The number of units remains fixed for the duration of the payout period. The investor takes on all investment risk since payments are not guaranteed. Investors are allowed to vote on certain issues.
When bond issues have staggered maturity dates, they're referred to as: A Term bonds B Sinking fund bonds C Serial bonds D Zero-coupon bonds
C Serial bonds Bonds with staggered maturity dates are referred to as serial bonds. For serial bonds, the principal amount outstanding is reduced over time. On the other hand, term bonds have one maturity date.
Which of the following is a prohibited practice? A Buying a company's shares after hearing a positive rumor concerning the company. B Selling a company's shares after hearing a negative rumor concerning the company. C Spreading a rumor about a company on social media and then buying the company's shares. D Overhearing a rumor at an internal meeting about a pending merger.
C Spreading a rumor about a company on social media and then buying the company's shares. Some investors have spread false or misleading information about companies to influence the price of stocks and bonds. The development of the internet and the overwhelming popularity of social media has increased the ability to fraudulently impact the price of securities using unsubstantiated rumors. The spreading of rumors can impact the price of a security in either a positive or negative manner. For example, in an effort to drive down the price of a company's stock, a person may use social media to spread either positive or negative news concerning a company. Although buying or selling a company's stock after hearing a rumor is not recommended, it's not a violation. The key to this question is recognizing that spreading a rumor to influence the price of a security is prohibited.
A type of order that becomes a market order when a round-lot trades at or through a particular price is called a: A Market order B Limit order C Stop order D Stop-limit order
C Stop order A type of order that becomes a market order when a round-lot trades at or through a particular price is called a stop order. A variation of a stop order is a stop-limit order, which is activated when a round-lot trades at or through a particular price, along with the requirement that the limit price be satisfied.
The main disadvantage of 529 Prepaid Tuition Plans compared to 529 Savings Plans is that: A Distributions that are not used to pay for educational expenses are subject to a 10% tax penalty B Qualified distributions may be used to pay for tuition, books, room and board, and other expenses C The account owner may lose financially if the student does not attend a public school in that state D The account owner can lock-in the beneficiary's tuition at a state college at a reduced rate
C The account owner may lose financially if the student does not attend a public school in that state The main disadvantage of a prepaid tuition plan is that the investor may suffer financially if the beneficiary attends an out-of-state or private college. Unlike 529 Savings Plans, prepaid tuition plans do not have distributions. Instead, the account owner purchases credits toward tuition at a state university or college. Prepaid tuition plans generally may not be used to save money for other educational expenses such as room and board. The advantage of a prepaid tuition plan is that the investor is guaranteed a certain number of credits toward the beneficiary's tuition.
A confirmation must be sent to a customer no later than: A The trade date B The business day after the settlement date C The completion of the trade D Two business days after the settlement date
C The completion of the trade
All of the following must be included in a preliminary prospectus according to the Securities Act of 1933, EXCEPT: A A written statement on the left border of the preliminary prospectus (red herring) that states that the prospectus may be subject to changes B The purpose for which the funds are being raised C The final offering price D The financial status and history of the company
C The final offering price A preliminary prospectus (red herring) is issued to obtain indications of interest on a prospective new issue of securities. This document will have a written statement on it that states that the prospectus may be subject to change. This statement will be on the left border of the cover page. The red herring will state the purpose for which the funds are being raised as well as the financial history of the issuing company. The item that will not appear is the final offering price. Only a price range is provided.
Regulation T requires payment from a customer in how many days? A By settlement date B One business days following regular-way settlement C Two business days following regular-way settlement D Three business days following regular-way settlement
C Two business days following regular-way settlement
A firm is not permitted to accept an exercise notice from a customer for a listed equity option after: A 2:30 p.m. Eastern Time on the expiration date of the option B 3:30 p.m. Eastern Time on the expiration date of the option C 4:30 p.m. Eastern Time on the expiration date of the option D 5:30 p.m. Eastern Time on the expiration date of the option
D 5:30 p.m. Eastern Time on the expiration date of the option According to SRO rules a firm is permitted to accept from a customer, an exercise notice for a listed equity option no later than 5:30 p.m. Eastern Time on the expiration date of the option (the third Friday of the expiration month). Brokerage firms, however, may set an earlier deadline for notification of an option holder's intention to exercise.
According to current regulations, if a client redeems his mutual fund shares, the fund company must send the payment within: A 3 days B 5 days C 10 days D 7 days
D 7 days Federal regulations require that funds send payment for the redemption of mutual fund shares within seven days.
A company has $50,000,000 par value convertible bonds outstanding. The coupon rate is 8%. The bonds are currently selling at 96. What is the current yield? A 7.0% B 7.5% C 8.0% D 8.3%
D 8.3% To find the current yield of the bonds, divide the yearly interest paid on the bonds by the current market value of the bonds. The yearly interest is $80. The market value of a bond is $960. Therefore, the current yield equals 8.3% ($80 divided by $960 equals 8.3%). The fact that these are convertible bonds is not relevant.
For SIPC coverage purposes, which of the following would not represent "separate customer accounts"? A An individual customer account B An individual customer account and a joint account of a customer with a spouse C Two custodian accounts for two different children with the same custodian for each account D A cash account and a margin account owned by the same individual
D A cash account and a margin account owned by the same individual All of the choices given would be considered separate customer accounts for SIPC coverage purposes except a cash account and a margin account owned by the same individual. Multiple accounts at a broker-dealer that are owned by the same person or persons are not considered separate accounts for SIPC coverage purposes. The coverage is $500,000 in cash and securities, of which no more than $250,000 can be for cash for each customer, regardless of how many different types of accounts the customer has.
A corporation is NOT considered to be in default if it fails to pay interest on which of the following bonds? A Mortgage bond B Debenture C Convertible bonds D Income bond
D Income bond For an income (adjustment) bond, an issuer is only expected to pay interest if it has sufficient income. However, on all of the other debt securities, interest must be paid regardless of the corporation's income. The mortgage bond is secured, but both the debenture and convertible bonds are unsecured. Although the claims of debenture holders come after those of the mortgage bondholders, the corporation is considered to be in default if it fails to make the required interest payments.
Which of the following statements is TRUE regarding a prime broker? A It is only permitted to execute transactions for a hedge fund B It is only permitted to clear transactions for a hedge fund C It may execute and clear transactions, but may not provide securities lending services to a hedge fund D It may execute and clear transactions, and may also provide securities lending services to a hedge fund
D It may execute and clear transactions, and may also provide securities lending services to a hedge fund A prime-brokerage arrangement involves a variety of services offered by a broker-dealer to an active trading firm, such as a hedge fund. Most prime brokers offer both execution and clearing services to these customers. There are no rules preventing a broker-dealer from acting in both capacities. There is no restriction for providing securities lending services to a hedge fund.
Which of the following securities would be subject to federal securities registration requirements? A Securities offered through a private placement B GNMA securities C Municipal bonds D Mutual fund shares
D Mutual fund shares Mutual fund shares would be subject to registration requirements at the state and federal level. The other securities are exempt from federal and state registration requirements. GNMA securities (U.S. government agency securities) and municipal securities are exempt securities. Private placements are exempt offerings.
For which of the following circumstances is there a required tax payment? A Unrealized gain B Realized loss C Return of capital D Realized gain
D Realized gain Taxes are paid on realized capital gains; however, unrealized capital gains or losses (paper profits or losses) have no impact on the investor's tax situation. Capital or realized gains are generated when an investment is sold for a greater value than its cost basis. Return of capital occurs when an investor receives a portion of her original investment back. Since this return is not considered either income or a capital gain, it's not a taxable event.
If a customer enters an order that is good for one month only, who is responsible for cancelling the order at the end of the month if the order is not executed? A The designated market maker B The customer C The NYSE D The brokerage firm that entered the order
D The brokerage firm that entered the order A customer can enter an order good for a week, a month, or any specified time. If the order is not executed by the end of the specified time, the brokerage firm is responsible for cancelling the order.
Obtaining best execution includes all the following factors, EXCEPT: A Price and volatility B The general character of the market C The size and type of transaction D The number of market makers for the security
D The number of market makers for the security For purposes of obtaining best execution. the factors considered include price and volatility of the security, general character of the market, size and type of transaction, and the locations and accessibility of the member organization to primary markets. However, the number of market makers for the security is not a factor.
A corporation is voting on several new directors. A customer who cannot attend the meeting to vote in person: A Will receive a proxy to vote, if requested B Can verbally assign the right to vote to another individual C Can only vote in person D Will receive a proxy to vote, or sign over the vote to another person
D Will receive a proxy to vote, or sign over the vote to another person
The tendering of equity securities is permitted if an investor is: I. Long investment-grade, non-convertible securities II. Long call options that have been exercised III. Long a convertible security that has not been tendered for conversion IV. In possession of the securities based on having borrowed them PICK 2
II. Long call options that have been exercised III. Long a convertible security that has not been tendered for conversion
A 5% $1,000 par value bond sells at $900 and matures in 10 years. What is the amount of each interest payment? A $25 B $45 C $50 D $90
A $25 Bonds pay interest every six months (semiannually). The dollar amount of interest payments is computed as a percentage of the par value. In this example, the coupon rate is 5%. The annual interest payment is $50 (5% of $1,000 par value). Each interest payment is one-half of that amount, or $25.00.
An investor purchases a 20-year 5.30% bond at par value that will yield 5.75% if called at the first call date in five years. The yield to maturity on the bond is: A 5.30% B More than 5.30% C Between 5.30% and 5.75% D 5.75%
A 5.30%
Which of the following is the likely result of persistent deflation? A A decrease in interest rates B A decrease in the level of inflation C A decrease in bond prices D An increase in the value of equities
A A decrease in interest rates Deflation is considered a reduction in the general level of prices. Deflation leads to lower interest rates, which results in higher bond prices. Equities tend to perform well during periods of inflation, not deflation.
A due bill is used if a trade occurs: A Before the ex-dividend date, with delivery made after the record date B After the ex-dividend date C After the record date D Before the ex-dividend date, with delivery made before the record date
A Before the ex-dividend date, with delivery made after the record date A due bill is evidence that a dividend is due to a buyer of stock, but will be paid to a seller instead. An individual who buys stock prior to the ex-dividend date is entitled to the dividend. For the buyer to receive the dividend, the transaction should settle either at or prior to the record date; therefore the transfer agent will recognize that there is a new owner of record. However, if the seller fails to deliver the stock by the record date, the transfer agent will not be aware of the identity of the new buyer and will still have the original owner listed as the holder of record. In this case, the dividend will be delivered to the seller. When the seller delivers the stock, he will attach a due bill as evidence that the dividend will be turned over to the buyer when it is paid.
The investments that tend to perform the WORST during periods of inflation are: A Bonds B Mutual funds C ETFs D Gold and silver
A Bonds Bonds tend to perform the worst during periods of inflation since rising interest rates will result in falling bond prices and a decrease in the purchasing power of the interest payments. Mutual funds, ETFs, and gold and silver commodities tend to be good investments for a person seeking to offset inflation.
The investments in a Coverdell Education Savings Account (CESA) are: A Determined by the investor B Determined by the firm through which it's opened C Limited to AAA rated bonds D Limited to mutual funds
A Determined by the investor
A firm is the managing underwriter of a follow-on offering of a security that is listed on the NYSE. The prospectus delivery rule:' A Does not require the firm to deliver a prospectus B Requires the firm to deliver a prospectus for 25 days C Requires the firm to deliver a prospectus for 40 days D Requires the firm to deliver a prospectus for 90 days
A Does not require the firm to deliver a prospectus If an issuer was subject to the reporting requirements of the Securities Exchange Act of 1934 prior to the filing of the registration statement, there is no prospectus delivery requirement for dealers. An issuer that is listed on the NYSE or Nasdaq would be required to file reports with the SEC (a reporting issuer). If the issuer was filing for an IPO (a non-reporting issuer) and will be listing on the NYSE or Nasdaq, the firm would be required to deliver a prospectus to any purchaser within 25 days of the effective date.
Which of the following statements BEST describes exchange-traded notes (ETNs)? A ETNs are debt instruments linked to the performance of a commodity, currency, or index B ETNs are equity securities that pay a large dividend C ETNs are mutual funds that invest in debt instruments D ETNs are equity securities that represent ownership of a securities exchange
A ETNs are debt instruments linked to the performance of a commodity, currency, or index Exchange-traded notes (ETNs) are a type of unsecured debt security. This type of debt security differs from other types of fixed-income securities since ETN returns are linked to the performance of a commodity, currency, or index minus applicable fees. Similar to ETFs, ETNs are traded on an exchange, such as the NYSE, and may be purchased on margin or sold short. Investors may also choose to hold the debt security until maturity.
The SEC rules regarding the record retention generally require that records be kept in an easily accessible location for the: A First two years B First three years C First six years D Life of the firm
A First two years The SEC rules regarding record retention generally require that records be kept in an easily accessible location for the first two years. Records must generally be kept in total for either three years, six years, or the life of the firm depending on the specific record.
A previously registered person was convicted of a felony 14 years ago and has served out his sentence in federal prison. If he's now seeking employment as a registered representative, he should be informed that: A He may be hired as a registered representative B He may not be hired as a registered representative C He may be hired to provide investment advice to customers, but will not be permitted to receive compensation based on these transactions D He may be hired to provide financial advice, but will not be permitted to become registered
A He may be hired as a registered representative A convicted felon is barred from the securities business for 10 years from the time of conviction. This type of ban is referred to as a statutory disqualification. Since the conviction was more than 10 years ago, the person may be hired as a registered representative. There are no special restrictions concerning registration and compensation of the person who was previously subject to statutory disqualification.
A registered representative is sending an email to five clients. Which of the following statements is TRUE? A It is considered correspondence and subject to review by a principal. B It is considered correspondence and subject to pre-approval by a principal. C It is considered retail communication and subject to review by a principal. D It is considered retail communication and subject to pre-approval by a principal.
A It is considered correspondence and subject to review by a principal.
Which types of investments have historically shown a great deal of sensitivity to regulatory risk? A Limited partnerships B Corporate bonds C Common stocks D Variable annuities
A Limited partnerships Regulatory risk is the possibility that changes in the law or regulations can have an adverse impact on the value of investments. Although all kinds of investments can be subject to regulatory risk, limited partnerships have historically been particularly vulnerable. For example, adverse changes in the tax laws can cause the value of many limited partnerships to drop.
For a competitive offering of municipal bonds, which document notifies potential bidders of the general features of the offering? A Notice of Sale B Official statement C Prospectus D Legal opinion
A Notice of Sale For a competitive offering of municipal bonds, the Notice of Sale is created by the issuer to provide potential bidders with information regarding the general characteristics of a proposed bond offering.
In what type of offering are proceeds paid to both the issuer and selling shareholders? A Split B Dual C Semi D Mini-maxi
A Split
When do options trades settle? A T + 1 B T + 2 C T + 4 D At expiration
A T + 1
A broker-dealer has received no written complaints from its customers. Which of the following statements is TRUE? A The firm is required to maintain an empty complaint file. B The firm is not required to maintain an empty complaint file. C The firm should question its registered representatives to determine if there have been verbal complaints. D Notification of FINRA is required since the firm has received no complaints.
A The firm is required to maintain an empty complaint file. Even if a member firm has received no written complaints, the firm must still maintain an empty file. FINRA need not receive a report that no complaints were received by the firm.
A U.S. Treasury bond is selling in the market at 95.18. The dollar value of this bond is: A $951.80 B $955.62 C $958.75 D $952.18
B $955.62 U.S. Treasury bonds are quoted in full points and 32nds of a point. A T-bond quote of 95.18 represents 95 18/32. By converting the fraction to a decimal, the quote becomes 95.5625 percent of the par value of $1,000. $1,000 x 95.5625% = $955.62.
Which of the following is TRUE if a municipal finance professional writes a check from a joint checking account to a politician for whom she may vote, but only the MFP signs the check? A 50% of the value is allocated to the MFP. B 100% of the value is allocated to the MFP. C None of the value is allocated to the MFP. D This type of contribution is prohibited.
B 100% of the value is allocated to the MFP. If the MFP is the only person to sign the check, the entire amount of the contribution is allocated to the MFP. If the amount exceeds $250, the two-year underwriting ban for the MFP's firm is triggered. If an MFP writes a check from a joint account and both the MFP and her spouse sign the contribution check, it is split equally between the contributors.
For underwriting purposes, what is the typical length of the cooling-off period? A 10 days B 20 days C 30 days D 90 days
B 20 days For underwriting purposes, the cooling-off period is typically 20 days. The cooling-off period begins once the issuer files its registration statement with the SEC.
The current yield on a municipal bond with a coupon rate of 4.50%, purchased at par and currently trading at $1,055, is: A 4.15% B 4.26% C 4.46% D 4.50%
B 4.26% The current yield is found by dividing the yearly interest payment of $45 by the market price of $1, 055. This equals 4.26%. The fact that the bond was purchased at par is not relevant.
If a temporary hold has been placed on an account, it will expire: A After two business days B After 15 business days C After 30 days D After the firm completes its investigation of the account
B After 15 business days If a temporary hold is placed on the account of a specified adult, it will expire by no later than 15 business days after the date that it was first placed on the account, unless it was otherwise terminated or extended by another authorized regulatory entity. The temporary hold may be extended by the firm for no longer than 10 business days following the date, unless it was otherwise terminated or extended by another authorized regulatory entity.
Government-sponsored enterprise securities are comparable to direct government obligations with regard to all of the following statements, EXCEPT: A They trade in the over-the-counter market B All are government guaranteed C Short-term securities are quoted on a discount yield D Long-term securities are quoted as a percentage of par
B All are government guaranteed
Which of the following approvals is required before a municipality can begin making payments on a moral obligation bond? A Approval by a majority of legal age voters B Approval by the state legislature C Approval by the bond trustee D Approval by the appropriate state agency
B Approval by the state legislature State legislative approval is required before a municipality can begin making payments on a moral obligation bond.
A specialized or specialty fund invests in stocks that are primarily: 'A In many industries B In a particular industry or geographical area C Traded in the OTC market D Special situations
B In a particular industry or geographical area A specialized or specialty fund is a type of a fund that invests primarily in a particular industry or geographical area.
Who derives the MOST benefit from a call provision attached to a bond offering? A Bondholders B Issuers C Preferred stock holders D Common stock holders
B Issuers A call provision allows the bond issuer to redeem its outstanding bonds before they reach maturity. The benefit to the issuer is that, if the bond is called, it's no longer required to make periodic interest payments.
Which of the following documents allows a broker-dealer to lend a customer's securities to other clients or broker-dealers? A Hypothecation agreement B Loan consent agreement C Margin disclosure statement D Credit agreement
B Loan consent agreement The loan consent agreement allows a broker-dealer to lend a customer's securities to other customers or broker-dealers. This is usually to accommodate short sellers. The hypothecation (pledge) agreement allows the broker-dealer to use the customer's securities as collateral to secure a loan from a bank on behalf of the customer. The margin disclosure document identifies the risks to which a customer is exposed when a margin account is opened. The credit agreement discloses the terms of any loan that's extended to a customer.
An individual has invested in a nonqualified variable annuity. If she withdraws the entire value of the annuity, the tax treatment will be: A Ordinary income on the entire amount B Ordinary income on the amount in excess of the original investment C Ordinary income on the amount in excess of the original investment and a capital gain on the original investment D A capital gain on the entire amount
B Ordinary income on the amount in excess of the original investment A total withdrawal from a nonqualified annuity results in two separate tax treatments. The original amount invested is treated as a return of capital and the earnings in the account (amount above the original investment) is treated as ordinary income
An investor in a mutual fund: A Owns the actual securities in the portfolio B Owns shares which represent an interest in the portfolio C Is considered a creditor of the portfolio D Is considered a limited partner in the fund
B Owns shares which represent an interest in the portfolio An investor in a mutual fund owns shares which represent an interest in the portfolio, but does not actually own the assets or shares that are held in the mutual fund's portfolio.
A client owns shares of stock purchased at $46 a share. If the current market price is now $70 and the client wants to protect her profit if the price should fall 10%, the RR should recommend which of the following orders? A A market order B Sell stop $63 C Sell limit $63 D Sell stop-limit $63
B Sell stop $63
Which of the following statements is TRUE if interest rates are lower in the U.S. than they are overseas? A U.S. investors will invest in the United States. B U.S. investors will invest overseas. C The value of the dollar will strengthen. D Foreign goods will become more attractive.
B U.S. investors will invest overseas. If interest rates are lower in the U.S. than they are overseas, this will typically lead to U.S. investors investing overseas. This will decrease the demand for the dollar, which results in a weaker dollar and foreign goods being less attractive.
