Test 3
Many investors prefer to receive variable annuity payments under the straight-life payout option because this option: A Is the most conservative method for receiving payments B Allows for a beneficiary for the entire payout period C Provides the maximum cash flow of all payout options D Provides an equal payment each month for the investor's lifetime
C Provides the maximum cash flow of all payout options Annuitants will receive the greatest cash flow from the straight-life annuity payout option. This option allows an annuitant to receive payments for his lifetime. At death, the payments cease since no beneficiary is designated and, therefore, the insurance company is relieved of its obligation to make payments. The annuitant assumes the greatest degree of risk with this type of payout.
Which of the following option positions obligates the investor to sell shares if exercised? A Long a call B Long a put C Short a call D Short a put
C Short a call
Which of the following securities will provide an investor with protection against purchasing-power risk? A Treasury bills B Treasury notes C TIPS D STRIPS
C TIPS Treasury Inflation-Protected Securities (TIPS) are U.S. government securities that are inflation-adjusted based on the Consumer Price Index (CPI). With TIPS, the rate of interest is fixed. However, the principal amount on which that interest is paid will vary based on the CPI. They are usually purchased as protection against inflationary or purchasing power risk. The other choices are U.S. government securities that pay an investor either a fixed rate or a fixed amount.
All of the following statements are TRUE about 529 Prepaid Tuition Plans, EXCEPT: A They are generally administered by the states B They permit investors to pay for a child's tuition expenses at a state college in advance at a reduced rate C The beneficiary may use the tuition credits purchased at virtually any college or university in the United States D The account owner is protected against future increases in tuition
C The beneficiary may use the tuition credits purchased at virtually any college or university in the United States An investor who purchases a prepaid tuition plan is buying tuition credits that may be used for the beneficiary's education at a public school in the state that administered the plan.
A mutual fund has a NAV of $58.23 and a POP of $62.55. The sales charge, when computed as a percentage of the offering price, is approximately: A 6.9% B 7.4% C 7.0% D 9.3%
A 6.9% The sales charge in this example is $4.32, which is found by subtracting the NAV of $58.23 from the POP, $62.55. To find the sales charge percentage, divide the sales charge of $4.32 by the offer price of $62.55, which comes to approximately 6.9% ($4.23 divided by $62.55 = .0691 = 6.91%).
If a seller knows she requires additional time to settle due to legal issues with the stock certificate, which of the following is TRUE? A A seller's option may be requested and implemented if the buyer agrees B A seller's option may be requested and implemented and only requires the seller's consent C Transactions can only settle regular-way no exception may be made D Transactions can only settle regular-way or same day no other exception may be made
A A seller's option may be requested and implemented if the buyer agrees A seller's option may be requested and implemented if the buyer agrees. This accommodation must be requested prior to the trade execution.
The Securities Investor Protection Corporation is funded by: A Assessments on broker-dealers B A tax on customer transactions C Annual appropriations from Congress D SEC registration fees
A Assessments on broker-dealers The creation of the Securities Investor Protection Corporation (SIPC) was authorized by Congress in the Securities Investor Protection Act (SIPA). SIPC is funded by assessments on its broker-dealer members. It is not funded by the federal government, although it is authorized to borrow up to $1 billion from the U.S. Treasury if necessary.
A company in which your client owns stock is about to make a rights offering. The client informs you that he does not plan on subscribing to the offer. You would tell the client that his proportionate ownership interest in the company would: A Decrease B Increase C Remain unchanged D Depend on the market value of the stock
A Decrease If an individual does not subscribe to additional stock in a rights offering, his proportionate ownership interest in the company will decrease.
What type of underwriting is typically used for any shares that are left unsubscribed after a rights offering? A Firm commitment B Best efforts C All-or-none D Fill-or-kill
A Firm commitment Rights offerings are typically backed by a standby underwriting agreement. In this type of offering, the standby underwriter makes a firm commitment to place any of the shares that are left unsubscribed after the rights offering.
A broker-dealer is permitted to hold a customer's mail without instructions concerning a valid reason: A For a period not exceeding three consecutive months B For a period not exceeding two consecutive months C For a period not exceeding six consecutive months D Under no circumstances
A For a period not exceeding three consecutive months A broker-dealer may hold mail for a customer who will not be receiving mail at his usual address provided the firm receives written instructions from the customer that include the time-period during which the mail is to be held. If the period exceeds three consecutive months, the customer's instructions must also include a valid reason for the request.
If a firm places a temporary hold on a customer's account: A It applies to either the entire account or specific disbursements B It applies to the entire account C It only applies to specific disbursements D It is required to obtain the prior approval of FINRA
A It applies to either the entire account or specific disbursements If a firm places a temporary hold on a customer's account, it can apply to either the entire account or specific disbursements. If the firm places the temporary hold, it must permit disbursements from the account if there is no reasonable belief that financial exploitation is occurring (e.g., paying normal bills).
If a temporary hold has been placed on a customer's account, the firm: A Must provide notice to the account owner and the trusted contact person B Must provide notice only to the account owner C Must provide notice only to the trusted contact person D Must provide notice to FINRA
A Must provide notice to the account owner and the trusted contact person If a temporary hold is placed on a customer's account (i.e., for a specified adult), the firm is required to notify both the account owner and the trusted contact person by no later than two business days after the hold has been placed.
The spouse of a brokerage firm employee wants to open a brokerage account so that he can trade individual stocks. If the account is opened at a firm that does not employ her spouse, the employee of the firm is required to: A Obtain the prior written consent of her employing firm in order to open the account B Obtain the prior written consent of her employing firm if the account is a joint account C Obtain the written consent of the employing firm within a reasonable period after the account is opened D Obtain the prior written consent of the employing firm for each order that's entered
A Obtain the prior written consent of her employing firm in order to open the account Employees of broker-dealers (as well as the spouse of dependent children of these employees) who intend to open outside accounts for the purpose of executing securities transactions are required to obtain the prior written consent of the employing broker-dealer.
Section 1035 of the Internal Revenue Code: A Permits the tax-free exchange of one annuity contract for another B Forbids the tax-free exchange of an insurance policy for a new life insurance policy C Forbids the tax-free exchange of an insurance policy for a new annuity contract D Permits the tax-free exchange of an annuity contract for a life insurance policy
A Permits the tax-free exchange of one annuity contract for another 1035 exchanges permit an individual to exchange one variable annuity contract for another, during the accumulation period, without tax consequences.
In periods of easy money when interest rates are declining, yield curves will tend to: A Slope upward from the shorter to the longer maturities B Slope downward from the shorter to the longer maturities C Remain flat D Become inverted
A Slope upward from the shorter to the longer maturities In periods of easy money when interest rates are declining, yields on shorter maturities would be less than those on longer maturities. Yield curves will tend to slope upward from the shorter to the longer maturities.
A member firm's business continuity plan (BCP) is designed to address: A The day-to-day policies and procedures of the firm B The procedures that will be followed in the event of a catastrophe at the firm C How a complaint is handled when it is received by a firm D The procedures used in the event of the loss of a key employee
A The day-to-day policies and procedures of the firm Business continuity plans consist of written procedures to be followed in the event that the firm is involved in a catastrophe (e.g., earthquakes, floods, fires, terrorism, etc.).
Under MSRB rules, firms that transact business in municipal securities are required to notify customers of all of the following, EXCEPT: A The names of all MSRB member firms B The MSRB website address C The availability of an investor brochure D That the firm is registered with the SEC and the MSRB
A The names of all MSRB member firms The MSRB's Investor Education Rule is similar to FINRA's Investor Education and Protection Rule which requires a firm to notify a customer about the availability of educational material on an annual basis. The requirement is to disclose that the regulated entity is registered with the MSRB and the SEC, the MSRB's website address, and the availability of a brochure (Investor Brochure) on the MSRB's website which describes the protections available under MSRB rules. The brochure also explains how customers can file complaints with the appropriate regulatory authority.
You are reading the prospectus for the Adventurers Aggressive Growth Fund. Which of the following statements are you LEAST likely to encounter? A The primary objective of the fund is income, with preservation of capital as a secondary objective. B There is no guarantee that the fund will meet its objectives. C The fund invests primarily in the stock of small-capitalization companies, some of which have a short or no operating history. D The securities in which the fund invests may be very illiquid.
A The primary objective of the fund is income, with preservation of capital as a secondary objective. Many of the stocks owned by an aggressive growth fund represent investments in small, relatively new companies. These companies rarely pay dividends, and such stocks tend to be very volatile. Therefore, income and preservation of capital are NOT objectives that one should expect from an aggressive growth fund.
If a brokerage firm creates an in-house, non-cash incentive program, it is permitted to be based on: A The total amount of sales executed by the RR B The specific type of product being sold by the RR C The most suitable products being sold by the RR D Only the equity securities being sold by the RR
A The total amount of sales executed by the RR A broker-dealer is permitted to create its own internal sales programs that offer non-cash incentives, such as merchandise and vacation trips. However, FINRA places some restrictions on these arrangements. One of the restrictions requires that non-cash incentive programs be based on an RR's total production for all securities products sold, rather than being based on the sale of any specific products.
Which of the following is the BEST rationale for why a mutual fund charges a redemption fee? A To discourage investors from redeeming shares too quickly B To compensate salespersons C To compensate the investment adviser D To encourage investors to sell their shares
A To discourage investors from redeeming shares too quickly When mutual fund shares are redeemed, some funds deduct a small redemption fee from the amount that's being returned to the investor. This amount is directed back to the fund's portfolio. Ultimately, the fee is separate from any deferred charge that may apply and is designed to discourage investors from redeeming shares too quickly. Some funds waive redemption fees after the shares have been held for a specific period.
If the bid price for a stock is 20.50 and the ask price is 20.60, a client who enters a market order to sell the stock will most likely receive: A $20.50 and plus a commission B $20.50 minus a commission C $20.60 plus a commission D $20.60 minus a commission
B $20.50 minus a commission
Which of the following calculations describes the payout on a variable annuity? A A fixed number of annuity units multiplied by a fixed dollar amount B A fixed number of annuity units multiplied by a variable dollar amount C A variable number of annuity units multiplied by a fixed dollar amount D A variable number of annuity units multiplied by a variable dollar amount
B A fixed number of annuity units multiplied by a variable dollar amount When a variable annuity is annuitized, the annuitant will be assigned a fixed number of annuity units based on several factors, including the value of the investment, assumed interest rate, age and gender of the annuitant, and payout option chosen. This fixed number of annuity units is then multiplied by the net asset value of the separate account at each payout period to determine the dollar amount the annuitant will receive each pay period.
At the time of sale, a customer fails to sign a stock certificate. In order for the broker-dealer to complete the transaction, the client must sign: A An adoption agreement B A stock power C Letters testamentary D A hypothecation agreement
B A stock power To complete the transaction, the customer will be asked to sign a stock power, which is considered an endorsement of the stock certificate. Once the stock power is signed, the broker-dealer is able to deliver the securities to the buying broker-dealer.
An individual considering moving to the payout phase of a variable annuity should understand the payments will: A Never be less than the cost basis in the separate account B Be based on the performance of the subaccount products in the separate account C Be based on the performance of the subaccount products in the separate account plus the AIR D Be based on the performance of the subaccount products in the separate account minus the AIR
B Be based on the performance of the subaccount products in the separate account The investor assumes the risk when purchasing a variable annuity. Once annuitized, the number of annuity units remains the same and payments are based on the performance of the subaccount products in the separate account, and the chosen settlement option. Should the value of the separate account fall below the investor's cost basis, the payments may amount to less than the cost basis.
The primary purpose of the North American Securities Administrators Association is to: A Enforce rules that are established by the states B Create rules, laws, and exam requirements for states C Create rules, laws, and exam requirements for interstate transactions of securities D Examine broker-dealers that are registered in a state
B Create rules, laws, and exam requirements for states The provisions of the Uniform Securities Act (USA), which is a model law for the individual states, are established by the North American Securities Administrators Association (NASAA) and enforced by the individual states. Each state has its own securities regulations department and the person in charge of the department is referred to as the Administrator or Commissioner. NASAA membership includes Administrators of the 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico, Canada, and Mexico.
Selling away takes place when a registered representative: A Sells his firm's client list to nonaffiliated broker-dealers without his firm's permission B Engages in private securities transactions outside his regular scope of employment without his firm's permission C Sells securities through his firm in a financial product not created by his firm D Purchases speculative securities for his own account
B Engages in private securities transactions outside his regular scope of employment without his firm's permission A private securities transaction is defined as one outside the representative's regular scope of business. The representative must provide written notice to the employing member and must receive written approval from the member if he expects to receive selling compensation for these services. The member must also supervise the representative as if the transaction were executed on behalf of the member. Selling away occurs when a registered representative engages in private securities transactions, selling securities outside his regular scope of employment without his firm's approval.
Selling away occurs when a registered person: A Sells his firm's client list to non-affiliates without his firm's permission B Engages in private securities transactions outside of the regular scope of his employment and without his firm's permission C Engages in reverse churning of client accounts D Purchases speculative securities for his own account
B Engages in private securities transactions outside of the regular scope of his employment and without his firm's permission Selling away occurs when a registered representative engages in private securities transactions without his firm's approval (i.e., selling securities outside of the regular scope of his employment).
A customer buys a 6 3/4% bond at 101 3/4. The yield-to-maturity on the bond is: A 6 3/4% B Less than 6 3/4% C More than 6 3/4% D Par plus 1 3/4%
B Less than 6 3/4% The customer bought the bond at 101 3/4, which is at a premium over the $1,000 par value of the bond. If she holds the bond to maturity, she will only receive $1,000. Therefore, her yield-to-maturity will be less than the nominal yield (coupon rate) of 6 3/4%. Remember, if a bond's price is high (above par), then its yield is low.
The guidelines regarding brokerage employees opening personal accounts with other brokerage firms do not apply if the transactions in the account involve which of the following securities? A Municipal debt B Mutual funds C Exchange-traded funds D Treasury debt
B Mutual funds Employees of broker-dealers who intend to open outside accounts for the purpose of executing securities transactions are required to obtain the prior written consent of their firm. However, the requirements of this rule do not apply to accounts that are limited to transactions involving redeemable investment company securities (mutual fund shares), unit investment trusts, variable contracts, or 529 plans.
During a period of rising interest rates, an individual who invests in mortgage-backed securities is MOST concerned with: A Credit risk B Opportunity risk C Legislative risk D Prepayment risk
B Opportunity risk Like most debt instruments, mortgage-backed securities (MBSs) are subject to interest-rate risk (i.e., the risk that a debt security's value will fall as interest rates rise). However, during a period of rising interest rates, prepayment risk is less of a factor and opportunity risk becomes more important. Since the existing investments will be earning less than new MBSs, the existing securities could be liquidated at a loss and new MBSs could be purchased to take advantage of their higher return.
The call premium of a bond refers to the amount: A An investor must pay above par to buy a callable bond B Over par value that the issuer must pay to exercise the call privilege C The issuer must add to the semiannual interest payments to offset the call feature D Added to the price at issuance to compensate for the call privilege
B Over par value that the issuer must pay to exercise the call privilege The call premium of a bond refers to the amount the issuer must pay in excess of par value to exercise the call privilege. For example, if a bond is callable at 102, it has a 2 point ($20) call premium. The issuer must pay $1,020 ($20 more than par) if it wishes to call in the bond.
The major provisions of ERISA provide protection for: A Investors in mutual funds B Participants in pension plans C The benefits available in a defined contribution plan D Loss of funds in the case of a broker-dealer's bankruptcy
B Participants in pension plans ERISA gave the government jurisdiction over private pension plans and protects employees from improper investments by their employers. ERISA does not protect investors in mutual funds, the benefits in defined contribution plans, or the loss of funds due to the bankruptcy of a broker-dealer.
A customer lost $14,000 on a new issue and filed a complaint with his registered representative. The RR's firm provided the customer with a written response and, although the customer didn't receive any reimbursement, he was satisfied with the response. The firm is required to: A Promptly report the complaint to FINRA B Report information concerning the complaint to its SRO on a quarterly basis C Ensure that its compliance department conducts an investigation within 30 days D Do nothing, since resolved issues do not trigger reporting requirements
B Report information concerning the complaint to its SRO on a quarterly basis Member firms are required to report statistical and summary information regarding customer complaints to the appropriate SRO on a quarterly basis. If the complaint from a customer involves theft, forgery, or misappropriation of funds, the firm must promptly notify the SRO.
Common and preferred stock are similar in that: A Both have a fixed dividend B The dividends for both must be declared by the board of directors C Both are guaranteed to receive an annual dividend D Both have an equal vote on corporate issues
B The dividends for both must be declared by the board of directors Dividends for both common and preferred stock must be declared by the board of directors. While preferred stock normally has a fixed dividend, neither common nor preferred stockholders are guaranteed a dividend.
Which of the following statements about municipal revenue bonds is NOT TRUE? A They are not subject to the debt limitations that apply to general obligation bonds B The maturity of the bonds will equal the useful life of the facility being built C They can be issued by states, political subdivisions, interstate authorities, and intrastate authorities D The interest and principal payments are derived from the funds being generated by the facility
B The maturity of the bonds will equal the useful life of the facility being built Municipal revenue bonds do not always have maturity schedules that equal the useful life of the facility being built. Instead, the facility's useful life should significantly exceed the maturity of the bonds. Municipal revenue bonds do not have the debt limitations that apply to general obligation bonds. A debt limitation is considered the statutory or constitutional maximum debt that an issuer may legally incur. Revenue bonds can be issued by states, political subdivisions (e.g., counties and townships), interstate authorities, and intrastate authorities. Municipal revenue bond interest and principal payments are derived from the funds being generated by the facility.
A registered representative is employed by a broker-dealer and her husband is seeking to open an individual account at another full-service firm. Which of the following statements is TRUE concerning this situation? A The account may be opened without restriction since it's not in the name of the registered representative. B The registered representative must ensure that the firm opening the account is aware of her status as a registered representative. C The registered representative needs her firm's written permission prior to her husband's account being opened. DThis action is prohibited since registered representatives and immediate family members are prohibited from having external accounts.
B The registered representative must ensure that the firm opening the account is aware of her status as a registered representative.
If a REIT generates at least 75% of its income from rents or mortgage interest, and pays out at least 90% of its income to the shareholders, for tax purposes the income distributed by the REIT will be taxable to: A The REIT and not the shareholders B The shareholders and not the REIT C Both the shareholders and the REIT D Neither the shareholders nor the REIT
B The shareholders and not the REIT To qualify as a REIT, it must receive no more than 25% of its revenue from subsidiary (non-real estate) activities and must be structured and established as a trust. Also, the REIT must distribute a minimum of 90% of its income. Shareholders are responsible for paying taxes on the income distributed by the REIT. This income is treated as a nonqualifying dividend for tax purposes.
All of the following are defined as types of investment companies, EXCEPT: A Variable annuities B Unit investment trusts C Management companies D Face-amount certificate companies
B Unit investment trusts
A Suspicious Activity Report (SAR) should be filed: A Only in the event that the firm has actual knowledge that the client is laundering money B When a transaction equals or exceeds $5,000 and the firm suspects illegal activity C Only for transactions of more than $10,000 D Only for transactions with parties on the Office of Foreign Assets Control (OFAC) list
B When a transaction equals or exceeds $5,000 and the firm suspects illegal activity
Which of the following securities is an example of a collateralized time draft? A Commercial paper B American Depositary Receipts C Bankers' acceptances D Eurodollars
C Bankers' acceptances
All FINRA members must have an anti-money laundering compliance program that includes all the following requirements, EXCEPT: A A designated compliance officer to administer the program B An ongoing program to train personnel C Disclosure to FINRA of the name of the designated compliance training officer D An independent audit function to test the program's effectiveness
C Disclosure to FINRA of the name of the designated compliance training officer According to FINRA, all member broker-dealers must have an AML compliance program that includes policies and procedures reasonably designed to detect money laundering and must report suspicious transactions. The requirements include the designation of a compliance officer who is responsible for the program, an ongoing employee training program, and an independent audit function to test the program's effectiveness. The name of the person overseeing the anti-money laundering program must be provided to FINRA, not the name of the training officer.
On the same day, a customer makes three consecutive $9,500 cash deposits into his brokerage account and places a trade. Since there does not seem to be a business purpose or rational explanation for paying for the transaction in this odd manner, the broker-dealer would: A File a Currency Transaction Report (CTR) only B File a Suspicious Activity Report (SAR) only C File both a Currency Transaction Report and a Suspicious Activity Report D Request that a supervisor contact the customer in order to verify whether his name is on the Office of Foreign Assets Control (OFAC) list
C File both a Currency Transaction Report and a Suspicious Activity Report Since the multiple cash deposits exceed $10,000, a Currency Transaction Report (CTR) is required to be filed. Also, due to the suspicious nature of the transactions and the fact that the transaction exceeds $5,000, a Suspicious Activity Report (SAR) must be filed. Clients are not informed of a firm s filing of an SAR based on the suspicious activities. The Office of Foreign Assets Control (OFAC) is a U.S. governmental office (formed under the Department of the Treasury) that maintains a list of persons who allegedly have ties to organized crime, terrorism, or other disreputable activities. On an ongoing basis, broker-dealers must compare their clients' names to the persons whose names appear on the OFAC list. However, broker-dealers are not responsible for adding names to the OFAC list.
Which of the following statements is NOT TRUE regarding an equity-indexed annuity (EIA)? A It offers a guaranteed minimum rate of return B It provides a return that is based on the performance of a stock market index C It is considered a security D It provides tax-deferred growth
C It is considered a security Equity-indexed annuities (EIAs) are a type of fixed annuity that provide a guaranteed minimum rate of return (unlike variable annuities), but may potentially provide a greater rate of return. An EIA's return is tied to the performance of a stock market index to which it is linked. As with standard annuities, they also provide tax-deferred growth. However, EIAs are not currently considered securities; instead, they are categorized as a life insurance product.
Which of the following statements is NOT TRUE regarding discretionary accounts? A All discretionary orders must be marked discretionary B A written power of attorney must be on file C Orders must be approved verbally by the customer prior to execution D Orders must not be excessive in terms of size or frequency
C Orders must be approved verbally by the customer prior to execution When transacting business for a discretionary account, the registered representative must have written power of attorney authorizing her to act for the customer. Each order in which the registered representative exercises discretion must be marked discretionary. The registered representative should not enter orders that are excessive in size or frequency (in order to churn the account to generate commissions). The registered representative makes the investment decisions and does not need to receive the customer's approval for each order being executed.
A registered person has been indicted for investment fraud, which was unrelated to his employment at the member firm. Which of the following statements is TRUE? A No action is required by the registered person until a verdict has been reached. B No action is required since the fraud was unrelated to the registered person's employment. C The registered person is permitted to remain employed at the member firm, but the event must be reported to FINRA. D The registered person is not permitted to remain employed at the member and the event must be reported to FINRA.
C The registered person is permitted to remain employed at the member firm, but the event must be reported to FINRA. If a person who is associated with a FINRA member firm has been indicted or pleads guilty to any felony or any misdemeanor that involves the purchase or sale of a security, fraud, extortion, forgery, or counterfeiting, the event must be reported to FINRA. Since the person has not been convicted, he is not subject to statutory disqualification and may remain employed at a member firm.
Which of the following is TRUE for the writers (sellers) of put options? A They have the right to buy 100 shares of stock. B They have the right to sell 100 shares of stock. C They have the obligation to buy 100 shares of stock. D They have the obligation to sell 100 shares of stock.
C They have the obligation to buy 100 shares of stock. Writers (sellers) of put options have the obligation to purchase 100 shares of stock at the strike price if exercised against.
If a company is utilizing a shelf registration, it is only required to file one registration statement to cover all of the securities to be issued during the next: A Six months B One year C Three years D Five years
C Three years Shelf registration allows the issuer to file a registration statement with the SEC and then, over a three-year period, sell the securities when the issuer considers the time appropriate.
A customer has filed the required forms in order to sell securities under Rule 144. If some of the securities were not sold within the required time frame and the customer wants to sell the remaining shares, which of the following is TRUE? A No additional forms are required to be filed. B A new form must be filed and the unsold shares may be sold within six months. C A new form must be filed and the unsold shares may not be sold. D A new form must be filed and the unsold shares may be sold within 90 days.
D A new form must be filed and the unsold shares may be sold within 90 days. Under Rule 144, an investor who intends to sell either restricted or control stock must notify the SEC by filing Form 144 at the time the sell order is placed. Once the filing is made, the customer may sell these shares within 90 days. If any shares from this filing have not been sold and the customer wants to sell these remaining shares, an updated Form 144 must be filed, which is valid for 90 days.
Which of the following statements is TRUE regarding stock index options? A The index is affected if a stock in the index should split B All index options use the European style of exercise C The shortest initial expiration is three months D An exercise is settled by cash instead of the delivery of securities
D An exercise is settled by cash instead of the delivery of securities The exercise of a stock index option is settled by cash instead of the delivery of securities. An index will not be affected if one of its components should split. Some index options are American style (may be exercised any day up to expiration), while others use the European style (may only be exercised on the last trading day prior to expiration). Stock index options have a monthly expiration cycle.
Jerry is planning to open an account at Grace Securities. Grace must furnish him with a privacy notice: A Only if it plans to disclose any of Jerry's private information to nonaffiliated third parties B Before Jerry enters his first order in the account C By the end of the year in which the account is opened and annually thereafter D At the time he opens the account
D At the time he opens the account Grace must furnish Jerry with a privacy notice at the time he opens the account. Jerry is establishing an ongoing relationship with Grace Securities by opening an account with them. Thus, he is considered a customer under Regulation SP and must receive a privacy notice at the time he opens the account (first establishes the ongoing relationship).
Who enacts fiscal policy? A The Federal Reserve Board B The Comptroller of the Currency C The FDIC D Congress
D Congress Fiscal policy is enacted by Congress. Fiscal policy is the use of the government's power to tax and spend. Control of the economy by changing the levels of government spending and taxation can either put money into the economy, or take money out of the economy. Monetary policy is carried out by the Federal Reserve Board's use of its available options for increasing or decreasing the supply of money and credit in the economy.
Which of the following features applies to a variable annuity, but not to a mutual fund? A Sales charge B Management fees C Administrative expenses D Death benefit
D Death benefit A variable annuity may have a death benefit which provides a payment if the annuitant dies during the accumulation period. The amount of the death benefit is the greater of the value of the annuity on the day of the annuitant's death or the total amount contributed.
A brokerage firm buys stock for its own account at $30 per share. The firm is able to take which of the following actions? A Execute any limit orders that the firm is holding for its customers B Execute any limit order to buy at a price below $30 per share C Execute any limit order to sell at a price above $30 per share D Execute any limit order to buy at $30 per share
D Execute any limit order to buy at $30 per share A broker-dealer is in violation of FINRA rules if it accepts and holds a customer order (either market or limit) for an equity security and executes a trade involving that security for its own account at the same price and on the same side of the market (buy or sell). If the firm buys stock at $30 per share for its own account, it has an obligation (within 60 seconds) to fill a customer's buy order at $30 or better. The firm can execute a customers order below $30, but it's not required to do so.
Rule 145 applies to a(n): A Stock split B Stock dividend C Adjustment in par value D Merger or acquisition
D Merger or acquisition Rule 145 applies to mergers, consolidations, reclassifications of securities, or transfers of corporate assets. Rule 145 requires a company to provide written disclosures to shareholders in connection with the previously listed corporate actions. Stock splits, dividends, and the resulting changes in par value are specifically exempted from filing under Rule 145.
Which of the following statements is TRUE regarding the approval of an official statement? A The SEC provides approval. B FINRA provides approval. C The MSRB provides approval. D Official statements are not required to be approved by a regulator.
D Official statements are not required to be approved by a regulator.
A country is experiencing economic difficulties as a result of pressure being put on the government by numerous parties. The negative impact on the economy is the result of: A Business risk B Legislative risk C Regulatory risk D Political risk
D Political risk Political risk is the risk that foreign investors will lose money due to changes that occur in the country's government or regulatory environment. Business risk is when certain factors will impact a specific company. Legislative risk is the risk that changes in laws may have a negative impact on an investment's value. Regulatory risk is when a change in regulations may have a negative impact on an investment's value.
Relative to the 5% markup policy, which of the following statements is TRUE? A A broker-dealer must charge less than a 5% markup B A broker-dealer may never charge more than a 5% markup C The 5% markup policy applies only to principal transactions D The 5% markup policy serves as a guideline when determining a broker-dealer's percentage markup
D The 5% markup policy serves as a guideline when determining a broker-dealer's percentage markup The 5% markup policy is a guideline, not a ceiling, and applies to both agency and principal transactions. According to industry rules, commissions and markups must be reasonable and justifiable.
Which of the following proxy rules is TRUE regarding customer securities held in street name by a brokerage firm? A The corporation sends the proxy to the customer B The corporation sends the proxy to the NYSE, which then sends it to the customer C The corporation sends the proxy to the SEC, which then sends it to the customer D The corporation sends the proxy to the brokerage firm, which then sends it to the customer
D The corporation sends the proxy to the brokerage firm, which then sends it to the customer A publicly held company must provide a means for shareholders who cannot attend company meetings to vote on important matters. This is done through a proxy, which is a delegation of the shareholder's vote. The corporation will send the proxy to all stockholders of record who can then cast their votes without attending the meeting. When stock is held in street name (i.e., in the name of the brokerage firm), the corporation sends the proxy to the brokerage firm, which is the stockholder of record on the corporate books. The brokerage firm sends the proxy to the customer and the corporation then pays the additional expenses. The SEC regulates the solicitations of proxy material.
