6-2
A convertible preferred stock issue (par value $100) is selling at $125 and is convertible into five shares of common stock. The conversion price of the common stock is?
$20, = always use par / # of shares
12b-1 plan ?
- 0.75% of average net assets. - There is a maximum allowable charge of .75% for marketing and promotion - An additional .25% may be charged as a shareholder servicing fee. － 12b-1 fee deducted Assets of the fund. － charged quarterly as a percentage of the average annual assets.
preemptive rights
- Bondholders do not have the right to subscribe to a rights offering. - allow existing common stockholder when additional shares are being issued.
securities are exempt from the 1933 Act?
- Federal and state governmental issues. - Nonprofit organizations./ Public utilities and common - ---- carries whose activities are regulated as to rates and other items by a state or Fed. - CP, Banker's acceptances, private placements securities
net asset value per share?
- Increases if the fund's assets appreciate in value. - Decreases if the fund distributes a dividend to shareholders. Redeeming or purchasing shares and reinvesting dividends or capital gains have no effect on NAV. Net Assets/ shares outstanding = NAV
variable life insurance?
- receive the death benefit minus the value of the loan. - beneficiary need not pay taxes on the death benefit.
CMOs
- subject to taxation at the federal, state, and local levels - When interest rates fall, frequency of prepayments tends to increase. - interest only payment taxed as ordinary income.
traditional IRA
- withdraw by April 1, the year after the owner turns 70½. - Contributions for this year may be made anytime between Jan 1st to April 15 next year, no extension.
What is the conversion ratio of a convertible bond purchased at par value and convertible at $50?
20:1. = The $1,000 par/ 50
Letters of intent may be backdated up to how many days?
90 days, total 13 month of time limit. When backdated up to 90 days from the date it was filed have 10 month to complete the letter.
Who can buy IPO?
A director at a firm that sells only mutual funds. - Most FINRA member firms, their employees, close family, who financially supports employee. Except who work for limited business broker/dealers, such as those that sell only investment company offerings and variable contracts.
ETFs
A share of an ETF represents an entire portfolio, or a specific selection, of securities. Selling short and trading on margin are available transactions with ETFs. Real time quotes are available for ETFs. while a NAV can be calculated for an exchange traded fund, the price is set by the market and changes throughout the trading day.
According to the Conduct Rules, a FINRA member must do which of the following?
Authorize a registered representative to share in a client's profits or losses only in writing. a member firm may give certain selling concessions to other FINRA member firms.
Net worth in a corporation includes all ?
common stock. convertible preferred stock. preferred stock. considered ownership in a corporation and part of net worth or shareholders' equity. bond represent debt are long term liabilities.
bonds registered as to principal only are?
coupons are attached. the registered owner may sell the bonds before maturity. such bonds can be purchased today in the secondary market.
ABC's stock has paid a regular dividend every quarter for the last several years. If the price of the stock has remained the same over the past year, but the dividend amount per share has increased, it may be concluded that ABC's?
current yield per share has increased. divided/price=current yield
Mutual fund shares represent an undivided interest in the fund, which means that?
each investor owns a proportional part of every security in the portfolio.
A customer requests not to receive confirmations of the trades he makes. The registered representative should？
explain that FINRA rules don't allow for that
If interest rates in general are rising, the price of T-bills should?
fall.
If your firm is in the process of underwriting a new issue, sales literature, including a record of past performance, may be included in a mailing of the?
final prospectus.
variable annuity contract guarantees?
fixed mortality expense. capped administrative expense.
At age 65, your customer purchased an immediate variable annuity contract. He made a lump-sum $100,000 initial payment and selected a life income with ten-year period certain payment option. The customer lived until age 88. The insurance company made payments to him？
for 23 years.
balanced fund?
invest a portion of its portfolio in both debt and equity instruments.
fund of funds?
invests exclusively in shares of other mutual funds.
transfer agent is responsible for ?
issuing new shares. canceling shares. distributing dividends and capital gains.
TIPS-Treasury Inflation Protected Securities
keep pace with inflation and also has the lowest default risk, bought
A registered representative is contacted by the 70 year-old father of a close friend. The elderly gentleman has run into some financial difficulties due to excessive borrowing against his home equity. He mentions that he has a large variable life insurance policy with over $150,000 in cash value and has heard that there are investors willing to purchase this kind of policy for a price in excess of the cash value. The registered representative explains that this is known as a life settlement contract and arranges the sale for $250,000, receiving a commission of $5,000 for his efforts. Since this was done for a friend's father and because it is not part of his normal business practice, the representative does not inform his broker/dealer of this transaction. Under FINRA's conduct rules, this would be?
known as selling away, a prohibited activity. Life settlement is the sale of a life insurance policy in the 2nd market. because this is variable life considered as security.
Straight life?
largest monthly payments, because no beneficiary payable to annuitant for rest of their life
joint tenants with rights of survivorship?
mail can be sent to either of the parties to the account. checks can be made out to All party. trades may be made by either party. in the event of death, the remaining tenant has full ownership of the account.
charges
markup on the offering price of the securities---- acting as dealer commission------acting as a agent markdown on the bid price of the securities-----acting as principal on a customer sale
During the cooling off period of a securities registration, the underwriters will generally distribute a preliminary prospectus. This document?
may contain incomplete information. will not contain the effective date, only show in the final prospectus only. No any kind may be accepted from potential investors and promotional material on the new issue are prohibited.
Under the Code of Procedure, if an associated person is suspended from a FINRA member firm, he:
may not remain on the member firm's premises.
Ginnie Mae pass-throughs will pay back both principal and interest?
monthly.
An employee of a FINRA member firm wishes to open an account at another member firm. The member firm opening the account?
must give notice to the employing firm and must inform the employee that his employer will be notified of the account.
The first stage of money laundering is known as?
placement.
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.
ERISA
protect employees from the mishandling of retirement funds by corporations and unions. Private sector retirement plans.
open-end investment company may do ?
purchase call option contracts. lend money. borrow money. issue common stock
TCB wants to offer $7 million worth of common stock in its home state and in three other states. To clear the offer for sale, TCB must file a(n)?
registration statement.
In general, a corporation assumes the least risk when it obtains funds from the?
sale of preferred stock.
Under the Investment Company Act of 1940, the SEC may prohibit mutual funds from?
selling portfolio securities short. purchasing portfolio securities on margin.
A dispute arises between two FINRA member firms over unpaid commissions in the amount of $35,000. This dispute would be handled by?
simplified industry arbitration.
When discussing the benefits of a Section 1035 exchange with a client, it would be appropriate to point out that the main benefit is?
tax savings.
After a FINRA audit, if the Department of Enforcement issues a formal complaint against a member firm for alleged violations of federal securities law, the matter will be dealt with under?
the Code of Procedure. - Department of Enforcement has authority to issue complaints under the Code of Procedure.
A registered representative would likely be accused of a prohibited practice if he encouraged a customer to switch her mutual fund when?
the fund's ranking changes in her favorite financial periodical.
Individual accounts, transfer on death (TOD) account ?
the owner of the account may change beneficiaries at will. only those assets held at the broker/dealer are transferred. probate is avoided.no estate taxes.
SAI- An investor must be provided with a statement of additional information about a mutual fund?
upon request.
The net asset value per share of a mutual fund will fluctuate in value relative to the?
value of the fund's portfolio.
The contribution in a defined benefit plan will?
vary with the actual requirements to fund a certain benefit.
A broker/dealer with a sales agreement with a mutual fund must return all concessions to the underwriter if a customer redeems his shares?
within seven business days of the initial purchase.
If your client wants to accumulate $50,000 over the next ten years for her daughter's college education, to achieve this investment objective you would recommend a(n)?
zero-coupon bonds maturing in ten years.
FINRA issues a complaint against ALFA Securities, a FINRA member firm, charging that the firm failed to adequately supervise one of its employees involved in a private placement. Which body of rules governs how this complaint will be handled?
Code of Procedure.
If a customer has securities worth $250,000 in a cash account, $150,000 worth of fully-paid-for securities in a margin account, and $195,000 worth of securities in a joint account with his wife, what is the total SIPC coverage?
Combined $400,000 in the cash and margin account and $195,000 in the joint account.
zero-coupon bonds
The discount is in lieu of periodic interest payments. The discount is taxed annually as phantom income.
Keogh Plan
The portion representing the return of the principal invested voluntarily is not taxed, while the rest is taxed as ordinary income.
Which of the following interest rates would be of most direct concern to a business enterprise looking to borrow money for next year's business operations?
The prime rate.
When the annual report of a mutual fund is used as sales literature?
The principal of the firm must approve its use for that purpose. The figures contained in the report must be as of a specific date.
mutual fund investment adviser's contract?
There must be a vote each year to renew the contract. The maximum term for the initial contract is two years.
UITs
They are redeemable securities. No management fee, low expense ratio, share of benefit interest.
A first year broker/dealer posts an ad in the newspaper to recruit series 6 registered representatives on May 5, 2010 and again on August 14, 2010. How long must the broker/dealer maintain records of this?
Three years from August 14, 2010. This is a retail communication and independently prepared reprints IPRs,.
pay commissions under a continuing commission contract?
To a retired employee, for past business. To the widow of a former employee, for past business.
treasury stock?
Treasury stock is issued but has no voting or dividend rights. Treasury stock is previously issued stock that has been repurchased by the issuing company.
For a nonexempt security, Regulation T requires payment be made in how many business days after regular way settlement?
Two days.
Class C mutual fund shares?
Typically charge no front-end load. Level load never discontinues. Typically impose lower CDSCs than Class B shares for a shorter period.
Foreign customer sign?
W-8, Predispute arbitration agreement
variable life annuity with ten-year period certain
a minimum of ten years of variable payments, followed by additional variable payments for life.
If a registered representative wishes to place an advertisement in a local newspaper offering her services as a mutual fund representative for XYZ Funds, the advertisement must be approved ?
a registered principal. All retail communications are subject to approval by a registered principal before use.
sole proprietorship,have access to the funds in the account by means of loans.
a solo 401(k) plan
An investor owns 200 shares of common stock in ABC Corporation, and the corporate charter provides for statutory voting in elections for the board of directors. If there are eight candidates running for five vacancies on the board, the investor has?
a total of 1,000 votes, of which 200 may be cast for each of the vacancies. statutory voting allows one vote per stock share they own for each director position to be filled.
All of the following items require review by a principal of the member firm EXCEPT?
a training presentation that is marked for internal use only pre-approval is not required.
An investor who purchases stock in two technology companies with high projected earnings and growth potential but little performance history is considered a(n)?
aggressive investor.
variable annuities?
all account earnings must be reinvested. when funding a variable annuity, accumulation units are purchased in a separate account. upon annuitization, the investor selects the settlement options.
Conduct Rules
between member firms and members of the public.
Code of Procedure
FINRA hears and handles member violations of Conduct Rule
U.S. citizen?
Form W-9. Predispute arbitration agreement.
To help manage quantitative risk you can use quantitative measures to compare mutual funds regarding which of the following?
Fund performance.
Code of Arbitration Procedure
Governs the resolution of disagreements and claims between members, registered representatives, and the public, it addresses monetary claims. 6 YEARS of limitation
What are the consequences of Grandpa giving $50,000 of stock to his granddaughter?
Grandpa is responsible for any gift tax due. The granddaughter's cost basis in the stock remains the same as grandpa's cost basis.
If an officer of a member firm wants to purchase a new issue on the effective date, which of the following statements is TRUE?
He may not purchase the new issue because he is considered a restricted person.
qualified profit-sharing plan?
It must be established under a trust agreement.
One of your customers will be traveling extensively throughout Europe and asks your broker dealer to hold his mail and not send statements to his home?
Normal requests can be for up to three months but longer periods may be granted for acceptable reasons.
A unit investment trust has 90% of its portfolio invested in high grade bonds with an average maturity of almost 25 years. If the industry consensus was that long-term interest rates were about to increase sharply, which of the following actions would most likely be taken?
Nothing. UIT is fixed once it has been constructed, no change in reaction to market conditions.
SEC regulations for securities issued by investment companies prohibit which of the following?
Open-end funds from issuing preferred stock. Open-end funds from issuing bonds.
hedge funds
Ordinary investors may invest in hedge funds indirectly through funds of hedge funds. Purchasers of hedge funds are required to be accredited investors.
Options Disclosure Document?
Prior to account approval, " Understanding the risks and uses of options"
An individual who holds a Series 6 license may sell all of the following EXCEPT?
REITS.
Which of the following is a debt instrument that pays no periodic interest?
STRIPS.
The federal act that regulates securities markets and broker/dealers is the？
Securities Exchange Act of 1934.
Under federal law, which act regulates the activities of broker/dealers and associated persons?
Securities Exchange Act of 1934.
variable annuity?
Tax deferral.
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.
stocks of companies providing innovative products in the medical sector, including pharmaceutical developers and medical equipment suppliers.
Biotechnology Fund.
Which of the following is covered by the Securities Investor Protection Corporation?
Broker/dealer failure.
responsibility of an investment bank?
Distributing large blocks of stock to the public and to institutions. Raising long-term capital for corporations by underwriting new issues of securities.
When pension plan proceeds (employer contributions only) are rolled into a Roth IRA, what portion is taxable?
Employer contributions. Contributions are made with after tax dollars, but distributions are tax free.
In which of the following cases would an early withdrawal from an IRA NOT be subject to a penalty?
Equal installments based upon life expectancy. Disability. 1st home. Qualified education expenses may avoid the penalty, but only for immediate family members, not nieces or nephews.
Uniform Practice Code
Established the Uniform Trade Practices, including settlement, good delivery, ex-dates, confirmations, and other guidelines for broker/ dealers when they do business with other member broker/dealer firms.
Treasury notes ?
Every 6 months pay interest.
currency transaction report ?
Excess $10,000. The appropriate form, FinCEN Form 112 is filed with the IRS.
advantage of mutual fund investment?
Exchange privileges within a family of funds managed by the same management company. The ability to invest almost any amount at any time. The ability to qualify for reduced sales loads based on accumulation of investment within the fund.
