All the f****n questions you missed on the practice exams
A municipal revenue bond indenture contains a net revenue pledge. The following are reported for the year: $30 million of gross revenues, $18 million of operating expenses, $4 million of interest expenses, and $2 million of principal repayment. What is the debt service coverage ratio? A) 2:1 B) 9:1 C) 5:1 D) 3:1
A) 2:1 **Under a net revenue pledge, bondholders are paid from net revenue, which equals gross revenue minus operating and maintenance expenses. In this example, net revenue is $12 million ($30 million − $18 million). Debt service is the combination of interest and principal repayment. Here, debt service is $6 million ($4 million + $2 million). To compute the debt service ratio, divide net revenue by debt service: $12 million divided by $6 million equals a ratio of 2:1.
Which of the following statements regarding a bond ladder strategy is correct? A) A bond ladder strategy is a relatively easy way to immunize a portfolio against interest rate risk. B) A bond ladder strategy involves the purchase of very long-term and very short-term bonds. C) A bond ladder strategy works best when interest rates are stable. D) A laddered portfolio of bonds will provide lower yields than a portfolio consisting entirely of short-term bonds.
A) A bond ladder strategy is a relatively easy way to immunize a portfolio against interest rate risk. **You build a bond ladder strategy to protect a portfolio against interest rate risk
Which of the following forms of business is preferred when the goal is raising a significant amount of capital? A) C corporation B) General partnership C) S corporation D) LLC
A) C corporation (C) For Capital!
A registered representative of a FINRA member firm specializes in handling business accounts. In which of the following accounts are the business owners subject to double taxation? A) C corporations B) Sole proprietorships C) S corporations D) LLCs
A) C corporations
Income from which of the following is not partially exempt to a corporate investor? A) Convertible bonds B) Preferred stock mutual funds C) Preferred stock D) Common stock
A) Convertible bonds **Fifty percent of dividend income received from investments in common stock and preferred stock is excluded from taxation for a corporate investor. This exclusion applies to dividends from mutual funds where all of the portfolio securities are preferred or common stock.
The over-the-counter (OTC) market could be characterized as what type of market? A) Dealer B) First C) Primary D) Auction
A) Dealer
Which of the following are fair and equitable methods for the assignment of options contracts by a brokerage firm to a customer? A) First-in, first-out or random selection B) Last-in, first-out or random selection C) First-in, first-out or to the customer with the largest open position in that option D) Last-in, first-out or to the customer with the largest open position in that option
A) First-in, first-out or random selection **Options are FIFO and random selection
Amortization of a municipal bond premium does which of the following? 1. Increases cost basis 2. Decreases cost basis 3. Increases reported interest income 4. Decreases reported interest income A) II and IV B) I and III C) II and III D) I and IV
A) II and IV **he effect of amortization is to decrease reported interest income and cost basis. (Amortization only DECREASES)
Which of the following order types is permitted in Nasdaq and NYSE equity markets? A) Market B) Stop C) Good til canceled (GTC) D) Fill or kill (FOK)
A) Market
Which of the following collateralized mortgage obligation (CMO) tranches tends to have low extension and reinvestment risk? A) PACs B) TACs C) Companion D) Z-tranche
A) PACs (Planned amortizations class) **PACs have targeted maturity dates. They are retired first, and offer protection from prepayment risk and extension risk (the chance that principal payments will be slower than anticipated)
New issue municipal bond orders are allocated according to priorities the syndicate sets in advance. The MSRB requires syndicates to establish priority allocation provisions for orders. Which of the following is the most common priority? A) Presale, group net, designated, member B) Group net, presale, designated, member C) Member, designated, presale, group net D) Presale, designated, group net, member
A) Presale, group net, designated, member ** (PGDM) Pro Golfers Dont Miss
A senior official of an issuer learns that nonpublic information was disclosed to an institutional shareholder of the issuer and/or an analyst covering the issuer at a private meeting. To avoid violating Regulation FD, the issuer must do which of the following? A) Promptly disclose the information as soon as reasonably practical, but in no event after the later of 24 hours or the start of the next day's trading on the New York Stock Exchange. B) Promptly disclose the information as soon as reasonably practical, but in no event after the later of 24 hours or the start of the next day's trading on the marketplace where that security trades. C) Disclose the selective disclosure in its next SEC filing. D) Nothing need be done as long as no trading is done based on the selective disclosure
A) Promptly disclose the information as soon as reasonably practical, but in no event after the later of 24 hours or the start of the next day's trading on the New York Stock Exchange. ** Promptly disclose on the NYSE!
A registered representative (RR) has prepared a sales piece for one of his retail customers demonstrating a trading strategy. Regarding the piece, which of the following statements is true? A) The piece will be regulated as correspondence. B) The piece must be approved by a principal before being sent to the customer. C) The piece will be regulated as a retail communication with the public. D) All material sent to individual clients must be submitted to FINRA before use.
A) The piece will be regulated as correspondence. **A sales piece that is being sent to one customer will be regulated as correspondence (25 or fewer recipients = correspondence) CORRESPONDENCE = 25 OR FEWER RETAIL = MORE THAN 25
A customer purchases $50,000 of bonds at a discount in the secondary market. The bonds mature in 10 years and are callable in five years at par. Under industry rules, the customer's confirmation will show: A) YTM B) both the YTM and YTC. C) YTC. D) either the YTM or YTC.
A) YTM **With callable bonds, the confirmation must show the lower of the yield to maturity (YTM) or yield to call (YTC). For a bond bought at a discount, the YTM is lower than YTC. On the exam, you will never encounter a call on a bond selling at a discount—it is less expensive to purchase the bond in the open market than pay the call price (which is always at least par).
If a customer gives specific instructions to his registered representative to purchase a security that is clearly unsuitable in light of the customer's investment objectives, under FINRA rules, the registered representative: A) can enter the order. B) cannot enter the order. C) can only enter the order if the customer puts his verbal instructions into written form. D) can only enter the order with the prior approval of a principal.
A) can enter the order. **Under FINRA rules, the representative may execute the trade at the customer's request; the trade ticket should indicate that the order was unsolicited.
All of the following are characteristics of 529 plans except: A) donor income limits apply. B) there is no age limit on the beneficiary. C) the assets can be transferred to a family member if not used by the original beneficiary. D) an official statement (OS) must be provided to any prospective purchaser.
A) donor income limits apply. **Unlike the Coverdell ESA, there are no donor income limits with a 529 plan.
A covered call could be written to: A) improve the return on a portfolio. B) lock in a profit. C) protect a short stock position. D) purchase future securities.
A) improve the return on a portfolio.
All of the following statements about trading index options on the Chicago Board Options Exchange are true except: A) market orders entered by a market maker have priority over public orders. B) market makers may trade for their own accounts. C) floor brokers may execute orders for others on a commission basis. D) limit orders are maintained in an order official's book.
A) market orders entered by a market maker have priority over public orders. **Public orders must be filled before member orders.
In recent years, much publicity has surrounded the rapid growth of start-up businesses. In most cases, the early financing was done privately. When private debt is used at the intermediate stage of a company's development, it is called: A) mezzanine debt. B) middle-risk debt. C) intermediate debt. D) mid-term debt.
A) mezzanine debt.
If a company issues $10 million in par value convertible debentures, all of the following balance sheet items will be affected except: A) net worth. B) working capital. C) assets. D) liabilities.
A) net worth. **Net worth is not affected by the issuance of long-term debt because it does not represent ownership.
All of the following deal with the secondary market except: A) notice of sale. B) dealer quotes. C) Thomson's Muni Market Monitor (formerly Munifacts). D) broker's broker.
A) notice of sale. **A notice of sale is published to provide syndicates with information on proposed new (primary market) issues.
The bond placement ratio, as shown in The Bond Buyer, is computed by taking: A) the dollar value of new issues sold divided by the dollar amount of the new issues offered. B) the number of new issues unsold divided by the number of new issues offered. C) the number of new issues divided by the 30-day visible supply. D) the dollar amount of new issues sold divided by the dollar amount of new issues unsold.
A) the dollar value of new issues sold divided by the dollar amount of the new issues offered. **New issues sold AND offered
An investor in an equipment-leasing direct participation program (DPP) using straight-line depreciation would probably not be concerned about: A) the likelihood of recapture. B) liquidity risk. C) the quality of the management. D) legislative risk.
A) the likelihood of recapture. **Recapture of deductions is a concern when accelerated, but not when straight-line depreciation is used. (Straight-line depreciation, dont concern yourself with recapture)
A mother makes a gift of appreciated securities to her 10-year-old son. The son's cost basis in the stock is: A) the original cost of the securities to the mother. B) the market value of the securities on the date of the gift. C) the market value of the securities on December 31 of the year the gift is made. D) the market value of the securities on April 15 of the year the gift is made.
A) the original cost of the securities to the mother. **When a gift of securities is made while the donor is alive, the original cost of the securities is the cost basis, not the value of the security on the date of the gift.
A municipality's net total debt is calculated as: A) the total debt minus self-supporting debt minus sinking fund accumulations plus overlapping debt. B) the total debt plus self-supporting debt minus sinking fund accumulations minus overlapping debt. C) the total debt plus self-supporting debt plus sinking fund accumulations minus overlapping debt. D) the total debt minus self-supporting debt plus sinking fund accumulations plus overlapping debt.
A) the total debt minus self-supporting debt minus sinking fund accumulations plus overlapping debt. ** T - SS - SF + O (Total - self supporting - sinking fund + overlapping debt)
A broker-dealer can rehypothecate (repledge) up to: A) 50% of the equity balance in a customer's margin account. B) 140% of the debit balance in a customer's margin account. C) 140% of the equity in a customer's margin account. D) 50% of the debit balance in a customer's margin account.
B) 140% of the debit balance in a customer's margin account. ** 140% of the debit in a margin account
The OCC must receive exercise instructions for equity options no later than: A) 11:59 pm ET on the Saturday before the third Friday of the expiration month. B) 5:30 pm ET on the third Friday of the expiration month. C) 4:10 pm ET on the third Friday of the expiration month. D) 4:00 pm ET on the third Friday of the expiration month.
B) 5:30 pm ET on the third Friday of the expiration month. **Although trading stops at 4:00 pm ET on the third Friday of the expiration month, the final exercise deadline is 5:30 pm ET (4:30 pm CT) that same day.
One of your customers is concerned about future inflation. Which of the following mutual fund recommendations is likely to be the most suitable? A) A municipal bond fund B) A common stock growth fund C) A U.S. Treasury bond fund D) A balanced fund
B) A common stock growth fund **On this exam, the investment most likely to provide inflation protection is common stock. A balanced fund, one that contains almost equal proportions of common stock and fixed income, is generally thought of as a conservative investment providing both safety through the fixed income and potential growth through the equity.
Which of the following would least likely occur when a corporation engages in a rights offering? A) The number of outstanding shares would increase. B) After successful completion of the offering, the market price would rise slightly. C) The corporation would use a standby underwriter. D) After successful completion of the offering, the market price would decline slightly.
B) After successful completion of the offering, the market price would rise slightly. **Successful completion of a rights offering generally results in a slight decline in the market price of the stock. (After rights offering = decline in market price)
One of your customers has made periodic purchases of shares of the Castel Growth Fund over the past several years. The customer has decided to take a profit and sell some of those shares. When the investor's tax return is prepared for the year in which the sale of those shares occurs, it is necessary to establish a cost basis of the shares sold. Which of the following methods is available for mutual funds, that is not available for determining the cost basis of stock? A) Share identification B) Average cost basis C) Dollar cost averaging D) FIFO
B) Average cost basis **The Internal Revenue Service allows using the average cost basis to determine the cost basis of redeemed mutual fund shares. Investors cannot use this method when selling shares of any security other than a mutual fund.
Which of the following mortgage-backed securities would be expected to carry the greatest credit risk? A) Fannie Maes B) CMOs C) Ginnie Maes D) Freddie Macs
B) CMOs
If all other factors are equal, an investor would expect which type of preferred stock to pay the highest stated dividend rate? A) Cumulative B) Callable C) Convertible D) Straight
B) Callable
The syndicate manager in a firm commitment underwriting takes which of the following actions in a divided municipal syndicate account that does not sell out? A) Prorates the bonds according to syndicate participation B) Confirms the bonds to the member that did not sell its share C) Holds an auction D) Returns the bonds to the issuer
B) Confirms the bonds to the member that did not sell its share
Which of the following plans requires an actuary's services? A) Defined contribution B) Defined benefit C) Profit-sharing D) 401(k)
B) Defined benefit
In most cases, FINRA's recordkeeping requirements follow SEC Rule 17a-4. One notable exception is records of written customer complaints where: A) FINRA requires four years and the SEC six years. B) FINRA requires four years and the SEC three years. C) FINRA requires three years and the SEC two years. D) FINRA requires six years and the SEC three years.
B) FINRA requires four years and the SEC three years. ** It rhymes, FINRA 4 SEC 3
The 5% markup policy applies to which of the following? I. Exempt transactions II. Agency transactions III. Principal secondary market trades IV. New issues A) III and IV B) II and III C) I and II D) I and III
B) II and III ** 5% Deals with Agency and Principal transactions
Which of the following statements describes an oil and gas blind pool offering? A) An unknown number of representatives participate in the sale of known partnership units. B) Money is raised without a specific property being stated, and the general partner selects the investments. C) The oil exploration occurs in an area that is not adjacent to any known oil reserves. D) The income from producing wells is purchased at a discount from the present value of the projected future flows.
B) Money is raised without a specific property being stated, and the general partner selects the investments.
All of the following statements regarding planned amortization class (PAC) collateralized mortgage obligations are true except: A) PACs have a lower-than-average prepayment risk. B) PACs have higher yields than comparable TACs. C) PACs have companion tranches. D) PACs have a more certain maturity date than comparable TACs.
B) PACs have higher yields than comparable TACs. **PACs tend to have lower yields than comparable TACs.
Which of the following governmental bodies receive the least amount of their revenues from property taxes? A) County governments B) State governments C) School districts D) Municipalities
B) State governments **State governments generally do not assess property. Generally, state governments receive most of their income from sales and income taxes.
Regulation T governs the purchase of all of the following except: A) corporate convertible bonds. B) U.S. government bonds. C) American depositary receipts. D) listed options.
B) U.S. government bonds. **Regulation T applies only to nonexempt securities.
A retired person seeking to maximize income with reasonable safety and liquidity should most likely consider investing in: A) an intermediate-term government bond fund. B) an intermediate-term, high-grade corporate bond fund. C) a large-cap growth fund. D) a long-term government bond fund.
B) an intermediate-term, high-grade corporate bond fund. **The high-grade corporate bonds will offer a greater return with slightly more risk than the government bonds. If the question had said the investor wished to minimize risk, then the government bond fund would have been a better selection.
Bond trust indentures are required for: A) municipal revenue bonds. B) corporate debt securities. C) Treasury securities. D) municipal general obligation bonds.
B) corporate debt securities. **Municipal and government bonds are exempt from the trust indenture requirement of the Trust Indenture Act of 1939. Revenue bonds are frequently issued with a trust indenture, but no legal requirement to do so exists.
Upon assignment, the writer of an exchange listed equity call option must: A) deliver the underlying stock to sell within one business day. B) deliver the underlying stock to sell within two business days. C) pay for the underlying stock to buy within one business day. D) pay for the underlying stock to buy within two business days.
B) deliver the underlying stock to sell within two business days. **Assignment of an equity call option requires the assigned party to deliver the underlying stock. This is treated the same as any other sale of stock. Regular way delivery is two business days after the trade date. In the case of assignment, the trade date is the assignment date. 1ndex and Equi2y
An investor wanting to purchase municipal bonds should be aware that in most instances, if she buys the bond and then later sells it for a profit, then: A) interest received will be taxable, but the capital gains are exempt from taxation. B) interest received will be exempt from taxation, but not the capital gains. C) both interest received and capital gains will be exempt from taxation. D) neither interest received nor capital gains will be exempt from taxation.
B) interest received will be exempt from taxation, but not the capital gains. (Interest = Exempt Capital = Taxable
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 $0. C) is $150 gain. D) cannot be calculated from the information given.
B) is $0.
All of the following statements regarding a market not-held order are true except: A) a small portion may be filled at a time. B) it is given to a specialist (designated market maker). C) it gives the floor broker discretion over the price or time of execution. D) the order ticket must be marked, not held.
B) it is given to a specialist (designated market maker). **In a market not-held order, the client agrees not to hold the broker responsible if she cannot fill the complete order. Such an order allows the floor broker to use her judgment on the best execution strategy. Specialists (designated market makers) cannot accept market not-held orders.
Approval of a new options account by a principal may occur before: A) the customer has been furnished an options disclosure document. B) the customer has verified information on the new account form. C) the new account form has been completed. D) the customer has provided essential suitability information.
B) the customer has verified information on the new account form.
A bond is being issued to build a toll road. It has been identified that the state does not own all of the property that the road is going to be built upon. This would most likely be disclosed in: A) the bond resolution. B) the qualified legal opinion. C) the trust indenture. D) the prospectus.
B) the qualified legal opinion.
In a firm commitment underwriting of a municipal bond issue, when the syndicate manager makes the sale, the compensation is: A) the manager's fee. B) the spread. C) the total takedown. D) the selling concession.
B) the spread.
Under SEC Rule 17a-4, all of the following records must be retained for 6 years except: A) the stock record. B) trial balances. C) the general ledger. D) blotters.
B) trial balances. **Trial balances are a 3-year record.
A customer requests information on a variable life insurance policy and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted: A) if approved by a principal. B) under no circumstances. C) if accompanied by an unmarked prospectus. D) without restriction.
B) under no circumstances. **The prospectus is a legal document and may not be altered.
A customer of yours expresses an interest in purchasing a deferred variable annuity. After a careful analysis, you have determined that this is a suitable investment for the customer. Under FINRA rules, principal approval of this sale must be obtained: A) before submission of a complete and correct application package. B) within seven business days of receipt of a complete and correct application package. C) within three business days of receipt of a complete and correct application package. D) concurrently with the receipt of a complete and correct application package.
B) within seven business days of receipt of a complete and correct application package. ** Deferred variable annuity = 7 business days to verify suitability
An investor redeems 300 shares in ACE Fund. When the investor bought the shares at $12, the net asset value (NAV) was $11.08. If the current public offering price is $12.50, and the NAV is $11.80, the investor receives: A) $3,600. B) $3,750. C) $3,540. D) $3,324.
C) $3,540. **The key to this question is recognizing that the Ace Fund is a mutual fund rather than a closed-end fund. As a mutual fund, shares are redeemed at NAV. If the investor redeems 300 shares at an NAV of $11.80, he receives $3,540 (300 × $11.80).
If a couple has a long-term growth objective and is willing to accept a reasonable amount of risk, which of the following mutual funds is most suitable for them? A) Corporate bond fund B) Municipal bond fund C) Common stock fund D) Money market fund
C) Common stock fund
Under the USA PATROIT Act of 2001, which of the following must be maintained by financial institutions, such as banks and broker-dealers, to prevent the financing of terrorist operations and money laundering? A) Privacy notices B) Specially Designated Nationals and Blocked Persons list C) Customer identification programs (CIPs) D) Do-not-call lists
C) Customer identification programs (CIPs)
Your client, age 52, is considering taking distributions from her qualified retirement plan. A portion of her contributions were made with after-tax dollars. Which of these is correct? A) Distributions of earnings are tax free, but a 10% penalty will be applied to the distributions. B) Distributions of earnings are tax free, and there will not be a penalty applied to the distributions. C) Distributions of earnings are 100% taxable, and a 10% penalty will be applied to the distributions. D) Distributions of cost basis is 100% taxable, and a 10% penalty will be applied to the distributions.
C) Distributions of earnings are 100% taxable, and a 10% penalty will be applied to the distributions. **For qualified plans, distributions of earnings are tax deferred until taken. When taken, those earnings are 100% taxable.
An initial Regulation T margin call may be met by depositing: I. cash equal to the call. II. listed marginable securities with a loan value equal to the call. III. listed stock with a market value equal to the call. IV. cash equal to 50% of the call. A) III or IV B) I or III C) I or II D) II or III
C) I or II Cash equal to call & listed MARGINABLE securities
Which two of the following statements regarding a customer's account profile are true? 1. New account information must be sent to the customer for verification within 15 days of opening. 2. New account information must be sent to the customer for verification within 30 days of opening. 3. The customer's profile must be sent for updating and verification no less frequently than every 24 months. 4. The customer's profile must be sent for updating and verification no less frequently than every 36 months. A) I and IV B) II and III C) II and IV D) I and III
C) II and IV **SEC Rule 17a-3 requires delivery of a copy of the account information within 30 days of opening (and every 36 months thereafter). Customers are to verify the information and note any relevant changes to the information.
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? 1. Sales 2. Cigarette 3. Income 4. Estate A) I and II B) I and III C) III and IV D) II and IV
C) III and IV **With a progressive tax, such as income and estate taxes, the percentage amount increases as the taxable amount increases. (I + E Income plus Estate)
Rank the following from first to last in order of payment at liquidation of a corporation. I. General creditors II. Preferred stock III. Subordinated debentures IV. Accrued taxes A) III, IV, I, II B) IV, III, I, II C) IV, I, III, II D) III, IV, II, I
C) IV, I, III, II (A.G.S.P) Starts with Accrued interest
If a customer who has granted a durable power of attorney to her son dies, which of the following statements regarding the power of attorney is true? A) It remains in effect until the son cancels it. B) It remains in effect until the executor of the estate cancels it. C) It is canceled upon the death of either principal. D) It remains in effect only if the son is the sole heir to the estate.
C) It is canceled upon the death of either principal.
A resident of New York City purchases an Albany, New York, general obligation bond and receives $600 of interest from that bond during the year. How is that $600 taxed? A) It is subject to state income tax at ordinary rates. B) It is subject to federal income tax at ordinary rates. C) It is not subject to federal income tax. D) Taxation is deferred until the bond matures.
C) It is not subject to federal income tax.
If earnings decline significantly, which of the following employer-sponsored qualified retirement plans can reduce or even eliminate its contribution for the year? A) 401(k) plan B) Defined contribution plan C) Profit-sharing plan D) Defined benefit plan
C) Profit-sharing plan
One of your customers asks you to interpret her observation that the short interest in a stock she owns has been rapidly increasing over the past four months. Aligning with the short interest theory, you would tell her that this is: A) an indication of predictable stability in the stock. B) an indication of predictable volatility in the stock. C) a bullish indicator. D) a bearish indicator.
C) a bullish indicator.
An inherent risk associated with auction rate securities (ARS) is the potential to have: A) a Dutch auction. B) a clearing rate. C) a failed auction. D) a reset rate.
C) a failed auction.
All of the following statements regarding the 5% markup policy are true except: A) a transaction in common stock customarily has a higher percentage markup than a bond transaction of the same size. B) the markup policy does not apply to securities sold at a specific price and with a prospectus. C) a riskless transaction is not generally covered by the 5% markup policy. D) the type of security is a factor to consider.
C) a riskless transaction is not generally covered by the 5% markup policy. **Riskless transactions ARE covered by the 5% markup policy
To calculate a capital gain or loss on the sale of an original issue discount municipal bond, the discount must be: A) amortized. B) depleted. C) accreted. D) depreciated.
C) accreted. (OID = Accrete)
Under the Securities Act of 1933, SEC registration is required for: A) a private placement offering of $60 million by a brokerage firm. B) a commercial paper offering of $30 million maturing in 180 days. C) an offering of $25 million of a corporate bank holding company. D) a municipal revenue note offering of $4 million.
C) an offering of $25 million of a corporate bank holding company. **While some banks and savings and loans are exempt, issuers' corporate bank holding companies are not. Private placements, municipal securities, and commercial paper (short term) are all exempt from federal registration.
A customer opens an account, and payment and delivery instructions are established. Beyond the opening of the account, these instructions may: A) not be changed unless a new account is established. B) be changed at any time for all transactions going forward. C) be changed for individual transactions, or going forward, for all transactions. D) be changed for individual transactions only.
C) be changed for individual transactions, or going forward, for all transactions. ** Individual or all
A broker-dealer that is a financial advisor to a municipal issuer: A) can act as an underwriter of the issuer's bonds in a negotiated underwriting or competitive bid underwriting and receive compensation for both services. B) can act as an underwriter of the issuer's bonds in a negotiated underwriting only if they want to receive compensation for both services. C) cannot act as an underwriter of the issuer's bonds in a negotiated or competitive bid underwriting and receive compensation for both services. D) can act as an underwriter of the issuer's bonds in a competitive bid underwriting only if they want to receive compensation for both services.
C) cannot act as an underwriter of the issuer's bonds in a negotiated or competitive bid underwriting and receive compensation for both services. ** CANNOT ACT AS AN UNDERWRITER IN EITHER A NRGOTIATED OR COMPETITIVE BID
Investors in all of the following securities could receive dividend payments at an increased rate over time except: A) participating preferred stock. B) adjustable-rate preferred stock. C) cumulative preferred stock. D) common stock.
C) cumulative preferred stock. **Dividends on cumulative preferred stock are FIXED.
The IRS requires a municipal bondholder to use straight-line amortization for the purpose of determining the annual: A) decrease to a discount bond's cost basis. B) increase to a discount bond's cost basis. C) decrease to a premium bond's cost basis. D) increase to a premium bond's cost basis.
C) decrease to a premium bond's cost basis. **Premiums are amortized; discounts are accreted. For municipal bonds bought at a premium, the bondholder must adjust cost basis annually in such an amount that, if held to maturity, there is no reported capital gain or loss. The amortization is straight line, or the same amount must be amortized each year.
A risk faced by investors in most CMOs that is not found in corporate bonds is: A) interest rate risk. B) purchasing power risk. C) extension risk. D) default risk.
C) extension risk.
All of the following are risks associated with most mutual funds except: A) expense risk. B) tenure risk. C) liquidity risk. D) market risk.
C) liquidity risk. **Mutual funds have little to no liquidity risk
The 5% markup policy applies to: A) all of these. B) new issues. C) principal over-the-counter (OTC) trades. D) mutual funds.
C) principal over-the-counter (OTC) trades.
When an individual associated with another FINRA member firm wishes to open up an investment account at another member firm, the executing member must: A) notify the employer member of the associated person's intent to open the account. B) obtain a copy of the individual's Form U4 to verify registration status. C) provide duplicate statements and confirmations if requested by the employer member. D) receive permission from the employer member before the initial transaction may take place.
C) provide duplicate statements and confirmations if requested by the employer member.
If a customer of your firm receives stock from the estate of her mother, the stock's cost basis in the hands of the customer is: A) the market value at date of distribution to the customer. B) the original cost of the stock. C) the market value at date of death. D) the original cost of the stock adjusted for any estate taxes paid.
C) the market value at date of death.
Stop orders may be used for each of the following except: A) to establish positions. B) to protect profits on short positions. C) to lock in a specific price to close out a position. D) to protect profits on long positions.
C) to lock in a specific price to close out a position.
Payments received by the owner of a 403(b) plan are: A) taxable only to extent of the owner's cost basis. B) taxable only to extent of earnings. C) not taxable. D) 100% taxable.
D) 100% taxable. **When tax-sheltered annuity funds are withdrawn, they are fully taxed at ordinary income rates.
In a rising price environment, which of the following inventory valuation methods will result in the highest reported earnings? A) Straight line B) Average cost C) Last in, first out (LIFO) D) First in, first out (FIFO)
D) First in, first out (FIFO) **FIFO means lower cost inventory is used first in determining the cost of goods sold. This has the effect of inflating earnings. Using LIFO means higher cost inventory is used to determine the cost of goods sold. In a rising price environment, LIFO better matches cost with revenue.
Which of the following statements regarding Sallie Mae debentures are true? 1. Interest is generally paid monthly. 2. Interest is generally paid semiannually. 3. Interest is exempt from state and local taxation. 4. Interest is not exempt from state and local taxation. A) I and IV B) II and IV C) I and III D) II and III
D) II and III ** Semiannual and exempt from state and local taxation
An investor purchased an interest in a limited partnership, paying $10,000 in cash and signing a recourse note to the partnership under a letter of credit for $40,000. Which of the following statements are true? I. The investor's tax basis will be $10,000. II. The investor's tax basis will be $50,000. III. The investor's maximum loss will be $10,000. IV. The investor's maximum loss will be $50,000. A) II and III B) I and IV C) I and III D) II and IV
D) II and IV ** If an investor does sign a recourse note, his tax basis and maximum loss will be his upfront investment + the recourse note
Which of the following choices would generate the largest first-year deductions in an oil and gas exploratory drilling program? A) Depletion allowance B) Depreciation C) Recapture D) Intangible drilling costs
D) Intangible drilling costs **Intangible drilling costs (IDCs) would be the largest deduction in an oil and gas exploratory drilling program. These are also known as a wildcat program.
Which of the following investors may not take advantage of breakpoints? A) Individual B) Corporation C) Trust D) Investment club
D) Investment club
customer interested in a collateralized mortgage obligation (CMO) might look to which of the following for historical data or projections regarding mortgage prepayments? A) FINRA B) DEA C) Bond Buyer D) PSA
D) PSA **(PSA = CMO) The Public Securities Association (PSA) is the source of historical data for prepayment projections on CMOs.
Which of the following is not a factor when a communication to be distributed to the public is either being reviewed or approved within the broker-dealer? A) Whether achieving past performance results has been implied B) Whether statements of benefits are balanced with statements of potential risks C) The nature of the audience to which the communication is intended to be distributed D) Whether the piece will be distributed in written form or via electronic media
D) Whether the piece will be distributed in written form or via electronic media
One of the features of variable insurance products is the ability to withdraw money from the policies. Which of the following statements is correct? A) Withdrawals from variable annuities are taxed on a FIFO basis, while those from variable life are taxed on a LIFO basis. B) Withdrawals from both are taxed on a LIFO basis. C) Withdrawals from both are taxed on a FIFO basis. D) Withdrawals from variable annuities are taxed on a LIFO basis, while those from variable life are taxed on a FIFO basis.
D) Withdrawals from variable annuities are taxed on a LIFO basis, while those from variable life are taxed on a FIFO basis. ** VA = LIFO Vl = FIFO
Démodé Classic Investments (DCI) is planning a direct mail campaign to several thousand potential investors. The topic of the campaign deals with owning real estate through direct participation program limited partnerships. Under FINRA Rule 2210 on communications with the public, this is considered: A) a retail communication and must be filed with FINRA at least 10 business days before first use or publication. B) a retail communication that needs approval, but not filing, by a designated DCI principal. C) correspondence and needs review, not approval, by a designated DCI principal. D) a retail communication and must be filed with FINRA within 10 business days of first use or publication.
D) a retail communication and must be filed with FINRA within 10 business days of first use or publication. Within 10 business days AS OF -NOT 10 days before
One of your clients has the opportunity to participate in his employer's employee stock purchase plan (ESPP). Before enrolling, he should be aware that funds will come out of his paycheck on: A) an after-tax basis, and those contributions will be deductible on his tax return. B) a pretax basis, and those contributions are deductible on his tax return. C) a pretax basis, and those contributions are not deductible on his tax return. D) an after-tax basis, and those contributions are not deductible on his tax return.
D) an after-tax basis, and those contributions are not deductible on his tax return. ** ESPP (After tax and NOT deductible)
An investor purchased a REIT from her broker-dealer in an SEC-registered public offering. The following year, she asked her registered representative for a quote. When told there is no current quote available, you would gather that this is: A) an unregistered REIT. B) a hybrid REIT. C) an OTC traded REIT. D) an untraded REIT.
D) an untraded REIT.
One of your customers has asked you about trading penny stocks. After discussing the risks, the customer decides to go ahead. The firm sends the individual a copy of the special penny stock risk disclosure document. The firm needs the customer's signed and dated acknowledgment of receipt of the document. Trading in penny stocks may not begin in that account until: A) the day the signed acknowledgment has been received. B) at least two business days after receiving the statement. C) at least $25,000 in equity is in the account. D) at least two business days after sending the statement.
D) at least two business days AFTER SENDING the statement.
In performing their natural job functions, all of the following may act in a principal capacity in a transaction with customers except: A) designated market makers (DMM) on the NYSE. B) OTC market makers. C) broker-dealers. D) branch managers of FINRA member firms.
D) branch managers of FINRA member firms.
An investor's portfolio contains a number of different securities. Included are equity and debt positions in several business development companies (BDCs). It would be correct to state that: A) distributions from the equity BDC positions are treated as a return of capital while those from the debt positions are interest. B) distributions from both BDC positions are treated as dividends. C) distributions from both BDC positions are treated as interest. D) distributions from the equity BDC positions are treated as dividends while those from the debt positions are interest.
D) distributions from the equity BDC positions are treated as dividends while those from the debt positions are interest.
With respect to elective deferrals, a 403(b) plan must meet the requirements of the universal availability rule. Under this rule, if any employee of the employer maintaining the 403(b) may participate, then all of the employer's employees must be given the opportunity to participate. Certain employees may be excluded, including A) individuals not contributing to an IRA. B) employees who normally work less than 1,200 hours per year. C) any substitute teacher. D) employees who normally work less than 20 hours per week.
D) employees who normally work less than 20 hours per week.
The capital asset pricing model (CAPM) assumes: A) that no type of risk can be diversified away. B) that those who participate in smaller transactions are generally wrong regarding timing purchases and sales. C) that prices are influenced by supply and demand only. D) investors are averse to risk and expect to be rewarded for taking risk.
D) investors are averse to risk and expect to be rewarded for taking risk. **CAPM involves risk taking
A representative wishes to execute an order for a customer's discretionary account. The municipal dealer has a control relationship with the issuer of the security to be purchased. Under Municipal Securities Rulemaking Board rules, the representative: A) may refer the customer to a firm that has no control relationship. B) may not execute the order. C) must wait until the firm terminates the control relationship. D) must have specific authorization from the customer.
D) must have specific authorization from the customer.
An investor takes a short position in one XYZ Nov 140 call @7. Disregarding any commissions, if the option is exercised, on settlement date, the investor: A) receives $700. B) must pay $700. C) must pay $14,000. D) receives $14,000.
D) receives $14,000. **When an investor takes a short position in an option, it means the investor has sold, or written the option. When a call option is exercised, the seller is obligated to deliver the stock at the exercise (strike) price. A strike price of $140 for 100 shares results in the seller receiving $14,000 on settlement date.
When a customer instructs a registered representative to transfer and ship, the representative instructs the margin department to transfer ownership into: A) the customer's name and deliver the securities to the customer's bank for safekeeping. B) the brokerage firm's name and deliver the securities to the customer. C) the brokerage firm's name and deliver the securities to the brokerage firm's commercial bank for safekeeping. D) the customer's name and deliver the securities to the customer.
D) the customer's name and deliver the securities to the customer. **transfer and ship = Customers name and deliver to customer (Double customer)
All of the following must be considered by an investment adviser representative before recommending a municipal general obligation (GO) bond to a customer except: A) the customer's state of residence. B) the customer's tax status. C) the municipal security's rating. D) the municipality's coverage ratio.
D) the municipality's coverage ratio. **The coverage ratio is specific to REVENUE bonds only and tells how many times annual revenue from that issue will cover the debt service of the issue.
Marking to the market is used to adjust: A) the contract price to the settlement price. B) the margin requirement to Regulation T. C) the maintenance level to Regulation T. D) the positions in margin accounts based upon current market prices.
D) the positions in margin accounts based upon current market prices. **Marking to the market means adjusting cost to current market value. All margin account positions are adjusted daily.
