Things to Remember Test 5 (89%)
Among the ways in which UGMA accounts differ from UTMA accounts is that:
the transfer of assets in a UTMA account can be deferred until the beneficial owner reaches as late as age 25; in a UGMA account, assets are transferred when the minor reaches the age of majority.
An investor has been investing $100 per month for the past three months. The purchase prices were $20, $25, and $10. What is average cost per share purchased?
15.79 The first purchase (at $20) acquired 5 shares ($100/$20), subsequent purchases acquired 4, and 10 shares respectively. That is a total of 19 shares with an outlay of $300. The result is an average cost per share of $15.79 ($300/19).
How long must the confirmation of a money transfer be retained for under the Bank Secrecy Act?
5 years NOT 6 Wire transfers of amounts of $3,000 or more must be retained for 5 years. SO wire transfer records must be held for FIVE YEARS
Which of the following permits the highest annual contributions?
A SEP IRA. Under most circumstances, the annual contribution to a SEP IRA will be higher than those allowed for ESAs or traditional or Roth IRAs.
Under FINRA Rule 5130, which of the following would be permitted to invest in a new offering?
A director at a firm that sells only mutual funds. Initial public offerings may not be purchased by most FINRA member firms, their employees, or close family members, including those the employee financially supports. An exception is made for those who work for limited business broker-dealers, such as those that sell only investment company offerings and variable contracts.
Mr. and Mrs. Smith, both nearing retirement, want to maximize their income. They want to reallocate $100,000 of their $400,000 portfolio of securities for this purpose. Of the possible investment choices below, which would be the LEAST suitable recommendation given their investment objective?
AAA convertible corporate bonds NOT CMOs or Preferred stock Convertible bonds offer a lower coupon in exchange for the conversion feature, therefore is not a good choice for maximizing income. That is because convertible bonds offer a LOW coupon that would not maximize earnings
A company has negative operating revenues for the year. It would NOT be required to make interest payments on which of its following issues?
Adjustment bonds. Adjustment bonds are sometimes called income bonds because they ONLY pay interest when the company has sufficient income (as determined by the Board of Directors.
If your customer invests in a tax-sheltered variable annuity, what is the tax treatment of the distributions he receives?
All ordinary income. NOT Partially tax-free, partially ordinary income. In a tax-sheltered variable annuity, contributions are made with pre-tax dollars with all distributions taxed as ordinary income. YOU KNEW THIS AND CHANGED YOUR ANSWER. COME ONNNNN THIS is a 403b plan as in the one for public school teachers/nonprofits
A retail investor, age 40, wants to fund an annuity. She would like to take advantage of the stock market gains she sees in the news but is terrified of losing money. If an annuity is the right recommendation, what kind of annuity would be most appropriate?
An index annuity NOT A combination annuity An index annuity allows the investor to participate in the gains of the stock market, but not the losses and would be an appropriate recommendation. Fixed annuities do not have an assumed interest rate.
Your firm has determined that a person seeking to open an account is on the Office of Foreign Asset Control's (OFAC) list of individuals who are viewed as threats to the United States. Who must oversee your firm's dealings, if any, with this individual?
An officer of the firm previously given responsibility in this area. Financial institutions, including broker-dealer firms, must designate an officer of the firm as having responsibility for monitoring OFAC regulations and overseeing the blocking of transactions or declining of business with certain customers.
For which of the following would you have to open a cash account? IRA. Woman opening a trading account and naming her brother as the beneficiary via a TOD designation. UGMA. Trust account.
Corporate and personal retirement accounts and custodial accounts must be opened as cash accounts. A trust account will usually be opened as a cash account but may allow margin if specifically provided for in the trust agreement. SO cash accounts are NEEDED for retirement accounts and custodial accounts
John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments?
His annuity payments are partly taxable and partly tax-free return of capital. NOT His annuity payments are tax free. The key word here is nonqualifed! The investment John made was with after-tax dollars, the money grows tax-deferred, and only the earnings are taxed at distribution. A computation will be made at John's retirement called the exclusion ratio, to determine how much of each retirement payment will be treated as a return of cost basis and how much as taxable ordinary income. No annuity payment is treated as a distribution of capital gains.
Under the Insider Trading and Securities Fraud Enforcement Act of 1988, which of the following are insiders for purposes of insider trading? Attorney who writes an offering circular for a company. An investor holding 4% of the company's stock. The next-door neighbor of a board member of a company. Brother of a company's president.
I and IV. NOT II AND IV The Securities Exchange Act of 1934 defines an insider as an officer, director, or stockholder owning more than 10% of a company's outstanding voting equity. The definition also includes anyone else who has or could have access to insider information, such as immediate family members. Merely being someone's neighbor does not classify someone as an insider. Any professional who takes part in preparing the registration statement is automatically considered to have insider information. Stockholder would have had to hold 10% OR MORE of the company's stock (so 4% wasn't enough to define him as an insider)
A customer is considering entering into an accumulation plan with his mutual fund. He is worried about committing to sending in so much per month that he may have trouble meeting the obligation, but he doesn't wish to commit to so little per month that his account does not build rapidly enough to meet his investment objectives. The registered representative explains that accumulation plans: are binding on the investor. are binding on the mutual fund. are not binding on the investor. are not binding on the mutual fund.
II and III An investor is not obligated to meet the terms of an accumulation plan, even if it is a contractual plan that he has signed. If he cannot send money in for some period, he need not. The plan is, however, binding on the fund. When the fund does receive a payment, it must use it to purchase the appropriate shares.
A registered representative may arrange the purchase of an interest in a privately offered stock for a friend, for which she will receive no direct or indirect compensation, if the representative: gives written notification to her broker-dealer after the purchase has been paid for. gives written notification to her broker-dealer before the transaction. provides all documents and information requested by her broker-dealer. obtains written permission from her broker-dealer before the transaction.
II and III In a private securities transaction where there is no direct or indirect compensation to the registered representative, only written notification to the broker-dealer is required before the transaction. The employer may require certain documentation, and if requested, it must be furnished. Permission is only necessary when there is to be compensation.
During a fact-finding interview with a potential client, your client information sheet is used to list detailed financial information. Which of the following items would be relevant in determining a prospect's net worth? $225,000 annual income. $78,000 current IRA balance. recently paid off a $3,000 credit card balance. just installed a $25,000 home entertainment center.
II and IV Net worth is computed by subtracting liabilities from assets. The IRA balance and the home entertainment center are assets. The credit card debt was a liability, but since it has been paid, it no longer appears on the financial statement. Income is important, but it does not figure into net worth until it is deposited into a bank or invested in something.
A debt security issued by the City of Chicago that is backed by the rents received from a corporation leasing industrial park facilities is likely to be what kind of bond?
Industrial development revenue. Industrial Development Revenue bonds (IDRs) are used to finance municipal projects, such as industrial parks, that are in turn leased to private corporations. The lease payments serve as security for the bond.
Filing at least 10 business days before first use is required for which of the following?
Mutual fund advertisements placed by a broker-dealer that became a member of FINRA 7 months ago All retail communications prepared by members within their first year of registration must be filed 10 business days before first use. For established firms, retail communications dealing with investment companies and variable products are generally required to be filed within 10 business days of first use. SO mutual fund advertisements ARE retail communications
A customer has filed a serious complaint against your firm and is threatening to take the firm to court. When informed that he has signed a predispute arbitration agreement, he demands to see a copy of it. How many days does your firm have to supply the customer with a copy of the signed agreement upon receipt of his request?
Ten business days. NOT THREE Upon receiving a customer request for a copy of the signed predispute arbitration agreement, the member firm has ten business days to supply it.
Which of the following statements concerning a policy loan from a variable life insurance policy is NOT true?
The amount available for a policy loan must be at least 50% of the contract's cash value after the third year. The minimum percentage that must be available for a policy loan after three years is 75% of the contract's cash value.
An investor owns $10,000 of shares in ABC bond fund. Due to a change in his financial situation, he wishes to exchange the bond fund shares for shares in ABC's aggressive growth fund. Which of the statements below correctly describes the tax consequences of this action?
The exchange is considered a taxable event that must be recognized in the current year. The IRS considers this exchange to be a sale and repurchase. Any gain or loss on the bond fund shares must be recognized in the current year. Any share appreciation is classified as a capital gain and subject to taxation at capital gains rates. Because the exchange is made within the same family of funds, no new sales charge is applicable.
Under what circumstances may a member firm use a fictional name or DBA (doing business as) in its communications?
The name is filed with both FINRA and SEC. NOT The name is filed with FINRA. A fictional name or DBA may be used, provided the name is filed with both FINRA and the SEC.
A member firm wants to give a gift to a registered representative of another member firm. Which of the following would be applicable to the gift?
This is permitted only if the gift does not exceed $100.
The Securities Act of 1933 requires that all of the following be offered by a prospectus EXCEPT:
Treasury bonds. Treasury securities are exempt from registration requirements, and therefore do not require a prospectus. Treasury securities are EXEMPT from registration and DO NOT require a prospectus
Your customer has his own sole proprietorship. He and his wife are the only full-time employees. He would like to start a retirement plan for his business but would like to have access to the funds in the account by means of loans. You would recommend:
a solo 401(k) plan. NOT a Keogh Plan. The only plan that allows "loans" is the 401(k). The "solo" is used for sole proprietorships. SO only account type that permits loans are 401ks
generic advertisements
ads that promote securities but do not mention the name of any specific securities
Under the rules governing the activities of broker-dealer firms, prior consent of the employing firm would NOT be required in order for a registered representative of the firm to
discuss investment strategies with their brother whose account is at another broker-dealer Prior written consent from an employing broker-dealer is required for an associated person of the broker-dealer to open an account (cash or margin) at another broker-dealer, or any account in which the associated person has a beneficial interest, such as a spouse. Discussing investment strategies with a sibling, who has an account at another broker-dealer does not require notification or consent of the employing broker dealer.
Moody's bond ratings are based primarily on an issuer's:
financial strength. Bond ratings are credit ratings for an issuer and measure the issuer's ability to repay principal and interest and, thus, its financial strength.
Ginnie Maes
issued in minimum denominations of $25,000 The interest income on GNMAs generally is subject to federal and state taxes. GNMA securities may subject investors to capital gains taxes when sold or redeemed.
A registered representative at your firm has an opportunity to make some extra money by assisting a CPA in completing tax returns during March and April. The work will only take place on weekends and will not interfere with his ability to service his clients during trading hours. He must supply:
prior written notification to the firm. Outside business activities only require prior written notification to the member firm. There are no limits on compensation, and FINRA is not concerned.
A member broker-dealer sells shares of an investment company that it knows directs brokerage for its portfolio to them and to other broker-dealers based on share sales by those members. For the member, this would be:
prohibited under all circumstances. Selling shares of the fund when the member is aware that a policy exists to direct brokerage to broker-dealers based on shares sold is prohibited. This is also known as the ANTI RECIPROCAL RULE
Under the Uniform Practice Code, regular way transactions for equity securities settle on the
second business day following trade date Under the Uniform Practice Code, regular way trades for equity securities settle two business days after the trade date (T + 2).
A securities firm that holds stock rather than sells the stock is:
taking a position. A firm that acts as principal by holding stock is taking or holding a long position. The firm purchases the stock, hoping to sell at a later date at a higher price.
Capping and Pegging
taking investment action not for investment purposes but to affect the price of a security is MANIPULATIVE and thus PROHIBITED CAPPING is selling simply to keep the price below a certain level Pegging: is buying to keep the price above a certain level
A qualified profit-sharing plan offered by a corporation to its employees has all of the following features EXCEPT:
the amount of the contribution is tax deductible to the employee. NOT the employee may elect to rollover a lump-sum distribution into a traditional IRA. The amount of the contribution to the plan is deductible to the employer, not the employee. A major difference between a profit-sharing plan and a pension plan is that contributions to the former are not mandatory. so deductible to the employer NOT the employee
