Unit 15 Quiz 2
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? A) This is permitted only if the gift does not exceed $100. B) This is permitted only if the gift does not exceed $150. C) This is permitted only if the gift does not exceed $100 and FINRA's approval is obtained. D) This is permitted only if the gift does not exceed $100 and the recipient registered representative's employer consents.
A) This is permitted only if the gift does not exceed $100.
Under FINRA rules, a registered representative is permitted to borrow money from a customer: A) if written notification is given to the firm and the representative receives written approval. B) if written notification is given to the firm. C) without restriction. D) under no circumstances.
A) if written notification is given to the firm and the representative receives written approval.
A customer has $12,000 of capital gains, $15,000 of capital losses, and $50,000 adjusted gross income. How much unused loss is carried forward to the following tax year? A) $3,000. B) $0. C) $12,000. D) $15,000.
B) $0.
On September 1, an investor sold 100 shares of KLP Corporation common stock for a loss of $1 per share. On September 15, he purchased a KLP convertible bond with a conversion price of $40. How much of the original loss may he now declare for tax purposes? A) He may not declare any loss. B) $75. C) $40. D) $100.
B) $75. Since he purchased the convertible bond less than 30 days after realizing the loss, the sale of the stock falls under the wash sale rule; Investors who sell securities at a loss, and repurchase them, including their equivalents, 30 days before or after the sale will have the loss disallowed by the IRS. With a conversion price of $40, the bond could be converted into 25 shares (1,000 / 40) of KLP common stock. Hence, the investor has "bought back" the equivalent of 25 shares, and may only declare a $75 loss as the remaining $25 loss will be disallowed.
If a client is moderately risk-averse and has an investment objective of capital preservation, what types and allocation of investments would you recommend for this customer? A) A preponderance of speculative stocks and high-yield bonds. B) A mix of investment-grade bonds and cash/cash equivalents. C) A mix of high yield bonds and cash/cash equivalents. D) A preponderance of growth stocks and limited partnership vehicles.
B) A mix of investment-grade bonds and cash/cash equivalents.
Your customer's portfolio consists of 40% long-term government bonds, 20% preferred stock, and 40% common shares of utility companies. Which of the following may have the single largest impact on the entire portfolio? A) Foreign currency fluctuations B) Interest rate movements C) Corporate earnings D) Oil and gas price movements
B) Interest rate movements
Which of the following securities carries the highest degree of purchasing power risk? A) Blue-chip stock. B) Long-term, high-grade bond. C) Convertible cumulative preferred stock. D) Short-term note.
B) Long-term, high-grade bond.
An investor has accumulated 3000 shares of XYZ common stock over several years via several separate purchases. If the investor sells 1000 shares and chooses to identify the specific shares sold for tax purposes, he must: A) Identify the specific shares to be sold prior to the transaction. B) Notify the broker dealer who handled the sell transaction within 3 business days of the trade date. C) Notify the IRS no later than the last business day of the month the trade occurred in. D) Notify FINRA on the trade date.
B) Notify the broker dealer who handled the sell transaction within 3 business days of the trade date.
Three years ago, a customer purchased 300 shares of ACE Fund. He sold the shares on August 15 for a loss of $400. He then purchased 300 shares of the same fund on September 4 of the same year. If the investor is in a 10% tax bracket how will the loss be treated for tax purposes in the current year? A) The loss is only deductible to the extent that gains of an equal or greater amount were incurred. B) The loss is not deductible. C) 10% of the loss is deductible. D) The loss is fully deductible.
B) The loss is not deductible.
An investment adviser who switches among investment classes based upon anticipated market changes is using a technique known as: A) dollar cost averaging. B) asset allocation. C) value investing. D) indexing.
B) asset allocation.
Institutional managers are moving to increase their cash position. This action would be viewed as: A) neutral. B) bearish. C) neutral bull. D) bullish.
B) bearish.
A married couple who files jointly has a $5,000 long-term capital loss with no offsetting capital gains. Regarding the tax treatment of this loss, all of the following statements are true EXCEPT: A) capital losses can be deducted dollar for dollar against capital gains. B) capital losses can be used to offset capital gains only. C) they can carry forward $2,000 to future years. D) the maximum they can deduct this year is $3,000.
B) capital losses can be used to offset capital gains only.
The practice of placing clients who trade infrequently in fee-based accounts has been identified by the SEC as A) front running B) reverse churning C) interpositioning D) pegging
B) reverse churning
A customer purchases a corporate bond at 102, paying accrued interest of $50. If he elects not to amortize the premium, his cost basis for tax purposes is: A) 107. B) 97. C) 102. D) 100.
C) 102.
For tax-reporting purposes, qualified dividends are considered to be what type of income? A) Phantom. B) Passive. C) Portfolio. D) Earned.
C) Portfolio.
Most rating services rate which of the following? A) Marketability. B) Reinvestment risk. C) Quality. D) Durability.
C) Quality.
A customer has the following municipal bonds in his portfolio: A-rated, New York State GO 6½, 6-1-12 Baa-rated, M.T.A. (NY) 7½, 7-1-16 Aaa-rated, Buffalo, NY 5%, 2-1-20 The portfolio is diversified in all of the following EXCEPT by: A) purpose. B) issuer. C) geography. D) rating.
C) geography.
The ABCD Corporation has a beta coefficient of 1.25. Your client's portfolio contains $20,000 of ABCD. After a rise in the overall market of 10%, we would expect the value of this client's ABCD to: A) decrease by 25%. B) increase by $5,000. C) increase by $2,500. D) increase by $2,000.
C) increase by $2,500.
When determining whether a tax swap of municipal bonds will result in a wash sale, each of the following are considered EXCEPT: A) coupon. B) issuer. C) principal amount. D) maturity.
C) principal amount.
A municipal bond originally issued at 90 with a 10-year maturity will have a compound accreted value (CAV) after 5 years equal to: A) 10. B) 5. C) 100. D) 95.
D) 95. CAV is the cost basis of the bond, in this case, after 5 years accretion. There are 10 points to accrete (the difference between the issue price of 90 and par) over 10 years. One point each year will be added, so after 5 years, the adjusted cost basis will be 90 + 5, or 95.
Which of the following investments is most suitable for an investor seeking monthly income? A) Zero-coupon bond. B) Mutual fund investing in small-cap issues. C) Growth stock. D) Money-market mutual fund.
D) Money-market mutual fund.
A 3% bond with 20 years to maturity is being issued by a syndicate with a reoffering yield of 4%. What is the term used to describe this bond? A) Original issue premium. B) Secondary market discount. C) High-yield bond. D) Original issue discount.
D) Original issue discount.
An investor has losses on the sale of municipal bonds. Which of the following is TRUE for tax purposes? A) The losses can be applied only against gains on the sale of other municipal bonds. B) The losses can be applied only against gains on the sale of other debt instruments (bonds). C) No losses on municipal bonds can be applied against gains on sales of any securities. D) The losses can be applied against the gains on the sale of any other security.
D) The losses can be applied against the gains on the sale of any other security.
A customer buys a new issue municipal bond at a discount. If held to maturity, the amount of the discount is: A) taxed as a long-term capital gain. B) accreted and taxed as ordinary income. C) taxed as a short-term capital gain. D) accreted and is not taxed.
D) accreted and is not taxed.
A customer wants to buy ABC bonds, and as his representative, you have advised him that the trade is unsuitable. If he decides to go ahead with the purchase, you must: A) execute the trade only if the customer has previous trading experience in similar securities. B) not execute the trade. C) execute the trade if FINRA approves. D) execute the trade specifically as the customer has directed you to do but mark it unsolicited.
D) execute the trade specifically as the customer has directed you to do but mark it unsolicited.
A customer buys a newly issued municipal zero-coupon original issue discount bond for 85. If the bond is held until maturity, the tax consequence: A) is $150 loss. B) is $150 gain. C) cannot be calculated from the information given. D) is $0.
D) is $0.
Investors who are subject to the alternative minimum tax (AMT) will lose the tax benefits normally associated with A) losses on options positions B) capital losses C) gains associated with variable annuity portfolios D) tax preference items
D) tax preference items
Which combination of the following statements is TRUE regarding the investment strategy known as "dollar-cost averaging"? I. Invests the same dollar amount each period over a length of time. II. Purchases the same number of shares each period over a length of time. III. Lowers average cost per share over a length of time (assuming share price fluctuations). IV. Invests the same dollar amount each period to protect the investment from loss of capital.
I and III
If a customer buys a new issue municipal bond at a discount in the primary market, which of the following statements are TRUE? I. The discount must be accreted. II. The discount may not be accreted. III. At maturity, there is a capital gain. IV. At maturity, there is no capital gain.
I and IV
Alternative minimum tax (AMT): A) is assessed against high annual income earners and disallows some deductions and exemptions used to calculate adjusted gross income. B) is assessed against all self employed individuals. C) is assessed against high annual income earners and gives them special deductions to take that lower income earners do not get. D) is assessed against low annual income earners and allows special deductions for them to be taken.
A) is assessed against high annual income earners and disallows some deductions and exemptions used to calculate adjusted gross income.
A bond's duration is: A) longer for a 10-year bond with a 5% coupon than it is for a 10-year bond with a 10% coupon. B) an indication of a bond's yield that ignores its price volatility. C) expressed as a percentage. D) identical to its maturity for an interest-bearing bond.
A) longer for a 10-year bond with a 5% coupon than it is for a 10-year bond with a 10% coupon.
A registered representative is interviewing a new customer, age 27. The customer wants to list capital appreciation as the primary investment objective for the account and is willing to take a moderate degree of risk at this time in his life. The customer also notes concern about inflation and how it will impact his portfolio over time. Which of the following investments is the most suitable recommendation? A) Municipal debt securities B) Equities such as common and preferred stock C) Long-term government bonds D) Corporate debt securities
B) Equities such as common and preferred stock
Your customer, age 29, makes $42,000 annually and has $10,000 to invest. Although he has never invested before, he wants to invest in something exciting. Which of the following should you suggest? A) An aggressive growth fund because the customer is young and has many investing years ahead. B) Your customer should provide more information before you can make a suitable recommendation. C) A growth and income fund because the customer has never invested before. D) A balanced fund because when the stock market is declining the bond market will perform well.
B) Your customer should provide more information before you can make a suitable recommendation.
A 27-year-old client is in the lowest tax bracket and seeks an aggressive long-term growth investment. If his investment adviser representative recommends a high-rated general obligation municipal bond, the IAR has: A) recommended a suitable investment because GOs are good long-term investments. B) made an unsuitable recommendation based on the client's needs and objectives. C) committed no violation because municipal bonds are well suited for the market's volatility. D) made an unsuitable recommendation, since a municipal revenue bond would have been more appropriate.
B) made an unsuitable recommendation based on the client's needs and objectives.
A customer pursuing income using a defensive investment strategy while avoiding volatility would be most interested in: A) limited partnerships. B) short-term government bonds. C) growth stocks. D) high yield corporate debt
B) short-term government bonds.
A customer has realized a capital gain from the sale of a municipal bond. To reduce his tax liability, the capital gain can be offset against a capital loss in which of the following investments? I. GOs II. Equity securities. III. Corporate bonds. IV. Collateralized mortgage obligation.
I, II, III, IV
In constructing a profile for your customer, you wish to assemble information on both financial and nonfinancial investment considerations that affect your customer. Which of the following qualify as financial investment considerations? I. Your customer's tolerance of various forms of risk. II. Your customer's dependents and their ages. III. Your customer's liquid net worth. IV. Your customer's monthly credit card payments.
III and IV
Most taxes in the U.S. fit into one of two categories. They are either progressive or regressive. Which of the following taxes are known as progressive taxes? I. Sales. II. Cigarette. III. Income. IV. Estate.
III and IV
At year's end, your client reports $12,000 in capital gains and $20,000 in capital losses. The net effect of this on his taxes would be: A) a $4,000 deduction from ordinary income with a $4,000 loss carry-forward. B) a $3,000 deduction from ordinary income with a $5,000 loss carry-forward. C) an $8,000 deduction from ordinary income. D) a $3,000 deduction from ordinary income with a $2,500 loss carry-forward.
B) a $3,000 deduction from ordinary income with a $5,000 loss carry-forward.
Your next-door neighbor approaches you with a proposed security offering, knowing that you are a registered representative with a large, affluent client base. If he asks you to present this investment opportunity to your clients, you must tell him that: A) you will present the offering to your clients only after you have established that it is either registered or exempt from registration requirements. B) you must first show the offering to your broker/dealer and receive permission to proceed with it. C) you will present the offering only to those clients whose investment objectives make it a suitable purchase for them. D) you may make recommendations on the offering only after you have done a due diligence determination.
B) you must first show the offering to your broker/dealer and receive permission to proceed with it.
