Custom SIE

All of the following statements are true except A) a bond mutual fund may issue bonds. B) a closed-end company may issue bonds. C) a bond mutual fund may not issue bonds. D) a closed-end company may issue preferred stock.

A, A bond mutual fund invests in the bonds of other companies. It may not itself issue bonds or preferred stock. They can only issue common shares. Closed-end companies are much like any other company. They may issue bonds and preferred stock, once they have sold common stock and become a publicly traded company.

Someone responsible only for training associated persons at a Financial Industry Regulatory Authority (FINRA) member firm A) must be registered as a principal of the firm. B) need not hold any registration because training is the person's only function. C) need only be registered as a registered representative. D) need not be registered because training is considered administrative.

A, Anyone who manages or supervises any part of a member firm's investment banking or securities business must be registered as a principal with FINRA, including people involved solely in training associated persons.

The market forces that typically drive the price of a bond trading in the secondary market would include all of the following except A) the price of the issuer's stock. B) supply or availability of the bond. C) investors' demand for the bond. D) interest rates.

A, Bond prices can be impacted by the usual market forces that impact securities in general, such as supply and demand. Additionally bond prices, they have an inverse relationship to interest rates.

Your client, Randall Stephens, has been bearish on LMN stock and sold it short several months ago. He now believes the company is in a good position for a turnaround and wants to change his strategy on LMN. What should he do to implement his new strategy? A) Buy to close his existing position and open a new long position in the stock B) Buy an equal number of shares to his existing short position C) Sell an equal number of shares to his existing position D) Sell short QRS to close his existing position

A, Buying to close will eliminate his existing position, but if he now wants to engage in a bullish strategy on LMN, he would need to buy additional shares.

Which of the following records must be kept for the life of a broker-dealer firm? A) Stock certificate books B) The general ledger C) Customer ledgers D) Forms U-4 and U-5

A, Certificate books on the stock issued by the firm must be kept as long as the firm is active. The general ledger and customer ledgers need only be kept for six years, and forms U-4 and U-5 regarding the firm's associated persons need only be kept for three years.

All of the following actions must be completed before a customer enters the first option order except A) completion of (signing of) the options agreement. B) completion of the new account form. C) delivery of an Options Clearing Corporation (OCC) disclosure booklet. D) approval by a branch office manager (BOM) or registered options principal (ROP).

A, Customers do not have to complete (sign) the options agreement before entering an order, although under the rules, the agreement must be signed and returned by the customer within 15 calendar days of account approval.

For real estate program partners, tax deductions will be derived from A) mortgage interest paid and depreciation. B) historic rehabilitation credits received. C) income received for rents. D) government-assisted housing allowances.

A, Deductions for real estate programs come primarily from mortgage interest paid on the properties and the depreciation allowable for the properties.

Which of the following would be recommendations? A) Discussing the advantages of day trading with an existing client to generate more business for you and your firm B) Discussing the pros and cons of a variety of account types and registrations with a prospective client C) Discussing the pros and cons of noninvestment products and services with a prospective client D) Discussing the advantages of your firm over another firm with a prospective client

A, Discussions with individuals who are not clients of the firm and discussions that are not regarding investments are not considered a recommendation. Suggesting a particular strategy with an existing client is recommendation.

The aftermarket prospectus requirement for the IPO of nonlisted securities is A) 90 days. B) not specified in the Securities Act of 1933. C) 25 days. D) 40 days.

A, For the first 90 days following the IPO, a prospectus must be provided to purchasers in the secondary market.

If a customer sold puts to open, which of the following transactions would be allowed if the options agreement was not returned signed within 15 days? A) Buy puts to close B) Sell calls to open C) Sell puts to open D) Buy calls to close

A, If the agreement is not returned signed in 15 days, only closing transactions to offset those positions already open would be allowed.

Under the Investment Company Act of 1940, which of the following is not considered and investment company? A) Hedge fund B) Management company C) Unit investment trust D) Face-amount certificate company

A, Investment companies include face-amount certificates, unit investment trusts, and management companies (both open- and closed-end). Hedge funds are organized as private investment companies, which are excluded under the definition of investment company und the Act of 1940.

The term investment strategy applies to all of the following except A) the customer's position in real estate. B) how much the customer may reasonably invest. C) the customer's investment goals. D) the customer's preferences in bond investments.

A, Investment strategy refers to information that can lead to suitable recommendations for a customer's investments in securities. Though many invest in assets that are not securities, such as real estate or art, not being securities, the term investment strategy does not apply to these assets.

Which of the following incur a fiduciary responsibility in a limited partnership? A) The general partners B) Both the general and the limited partners C) The limited partners D) Each individual partnership investor

A, It is the investors in an LP who are the partners. Only the general partners, however, incur a fiduciary responsibility to run the partnership and use the invested capital in the best interest of all the investors (partners).

Which of the following has the most liquidity risk? A) Limited partnerships B) Listed REITs C) Treasury bonds D) Stocks listed on NASDAQ

A, Limited partnerships are generally illiquid; the other options are actively traded securities.

Listed options expire on A) the third Friday of the expiration month. B) the first day of the expiration month. C) the first Friday of the expiration month. D) the business day after settlement.

A, Listed options contracts expire on the third Friday of the expiration month at 11:59 pm.

Which of the following would be allowed during the cooling off period? A) Distributing a red herring B) Distributing a prospectus C) Allocating shares to investors D) Taking orders

A, No selling or soliciting is allowed during the cooling off period. Distributing a red herring (a preliminary prospectus) is allowed.

Past-due dividends on cumulative preferred shares A) accumulate on the company's books until paid. B) must be reallocated to common shareholders. C) can never be paid until common shareholders receive a dividend. D) are written off as nonpayable.

A, Past-due dividends on cumulative preferred stock accumulate on the company's books until the corporation's board of directors decides to pay them. When the company resumes dividend payments, cumulative preferred stockholders receive current dividends plus the total accumulated dividends in arrears (those that were missed) before any dividends may be distributed to common stockholders. Common shareholders have no claim on preferred dividends.

Regarding the purchase of a new equity issue, an account where a restricted person has a beneficial interest would be allowed to purchase the new shares at the public offering price A) only if the interest does not exceed 10%. B) never. C) without restriction. D) only if the interest exceeds 15%.

A, Restricted persons will be able to have an interest in an account (one that is not wholly their own) that purchases new equity issues as long as no more than 10% of the account's beneficial owners are restricted persons.

A company's board of directors has agreed that the company should be prepared to have shares of common stock ready to be issued that are intended to be distributed in the form of a one-time employee bonus. Not knowing exactly when the one-time bonus plan will be implemented and the shares will be needed, the type of registration or offering that would best suit the scenario is A) a shelf registration. B) a shadow registration. C) a bonus share plan. D) an ESOP registration.

A, The Securities Act of 1933 permits issuers to quickly raise money in the capital markets when needed via a shelf registration. This type of registration allows the company to, in essence, take the securities from the shelf without the delay of registering with the Securities and Exchange Commission (SEC), because the actual registration has already been done ahead of time.

The bid price represents the price the broker-dealer is willing to pay when buying a security. the price the customer will pay when buying a security. the price a customer will receive when selling a security. the price the broker-dealer will receive when buying a security. A) I and III B) I and II C) II and IV D) II and III

A, The broker-dealer buys at the bid and sells at the ask. The customer buys at the ask and sells at the bid.

An investor owns 200 shares of MNO common stock. The company's management has proposed a 2:1 stock split. If the price of the stock at the time of the split is $50, what would the investor's adjusted position be? A) 400 shares at $25 B) 100 shares at $200 C) 400 shares at $100 D) 100 shares at $25

A, The number of shares doubles to 400 (2 × 200) and the price per share would be $25 ($50 ÷ 2).

Investors who sell call and put options are known as A) writers. B) covered. C) uncovered. D) long.

A, Those who sell calls and puts, those who are short the contract, are known as writers.

MMS Corporation has 7% callable preferred shares outstanding. Over the past few years, benchmark interest rates have declined and hovered close to 3%. Which of the following is true? A) The 7% shares are likely to be called. B) The issuer is likely to reduce the fixed dividend to 3%. C) The issuer will covert these shares to common stock. D) More 7% callable shares should be issued.

A, When interest rates fall, callable preferred shares are likely to be called. This allows the issuer to cease the higher dividend payments and reissue shares with lower dividend payments that align more with the current interest-rate environment. With interest rates now at 3%, the issuer would have no desire to issue more 7% shares, nor could they reduce the fixed dividend on these 7% shares. If the shares were convertible, conversion would be at the discretion of the shareholders, not the issuer.

A financial institution, in order to raise cash on a short-term basis, sells some of the securities it owns, with an agreement to buy them back at a later date at a slightly higher price. This is known as A) a promissory note. B) a repurchase agreement. C) a banker's acceptance. D) a reverse transaction.

B, A repurchase (repo) agreement is one where a financial institution, such as a bank or a broker-dealer, raises cash by temporarily selling some of the securities it holds with an agreement to buy back the securities at a later date at a slightly higher price. Hence, agreement to do a transaction and then reverse the transaction in the future.

All of the following are taxable to the investor except A) capital gains distributions. B) stock dividends. C) semiannual interest payments. D) cash dividends.

B, A stock dividend is payment of additional shares of the issuer to the stockholder rather than payment of cash. The price of the stock is adjusted so that the total value of the outstanding stock is the same before and after the dividend is paid. Stock dividends are thus not taxable.

An oil and gas DDP that invests in wells that are already producing is known as A) a leasing program. B) an income program. C) a tangible program. D) an exploratory program.

B, An oil and gas DDP that invests in wells that are already producing is known as an income program. Exploratory programs are drilling new wells in search of new deposits.

All of the following are considered control persons (owning control stock) except A) the corporation's CFO owning 1% of the outstanding shares. B) an unaffiliated shareholder owning 8% of the outstanding shares. C) an officer of the corporation owning less than 1% the outstanding shares. D) a director on the board of directors (BOD) owning 2% of the outstanding shares.

B, By virtue of their positions, directors and officers are considered control persons and any stock they own, no matter how little, is considered control stock. To be considered a control person, an unaffiliated person would have to own 10% or more of the voting (outstanding) shares.

Common shareholders wanting to vote on issues at a shareholder meeting can do so in all of the following ways except A) by proxy delivered by mail. B) by telephone or text message. C) in person. D) by proxy delivered online.

B, Common shareholders wanting to vote at a shareholder meeting can do so in person or in absentia, using a proxy delivered by mail or online. Voting by text or telephone would not be permitted.

Which of the following interest rates do large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans? A) Discount rate B) Prime rate C) Broker call loan rate D) Federal funds rate

B, Each bank sets its own prime rate—the rate charged to their most credit worthy corporate customers for unsecured loans.

If a customer wishes to open a cash account in his name only and allow a third party to make trading decisions, but not withdraw cash and securities, he must instruct his broker-dealer to open A) a cash account with full power of attorney. B) a cash account with limited power of attorney. C) a margin account. D) a cash account.

B, For a person other than the account owner to withdraw assets and make trading decisions, full power of attorney is required. A limited power of attorney allows someone other than the account owner to enter trades, but not to withdraw assets.

There are two types of do not call list. What are they and how long do names stay on the list? A) National list and names remain on list for five years, and broker-dealer list and names remain on list for 10 years B) Broker-dealer list and a national list; names remain on list until removed by customer C) Broker-dealer list and name remain on list for five years, and national list and names remain on the list for 10 years D) Broker-dealer list and names remain until removed by the customer, and national list and names remain for five years

B, For both the broker-dealer list and the national Do-Not-Call list, names are not to be called unless the customers request that their name be removed from the list. There was a prior law that only required the broker-dealer list to hold names for five years, but that has changed and names remain on the list indefinitely.

Hedge funds are considered A) a form of private investment company and heavily regulated. B) a form of private investment company and, therefore, unregulated. C) a form of mutual fund and, therefore, unregulated. D) a form of management company and, therefore, regulated.

B, Hedge funds are considered to be a form of private investment company. They do not come under the Investment Company Act of 1940 as mutual funds do, and they do not require Securities and Exchange Commission (SEC) registration. They are, therefore, considered unregulated.

Advantages to the investor offered by investment companies include ability to invest small amounts in many different securities. special securities prices available only to investment companies. elimination of market risk through pooling of investments. increased purchasing power in the marketplace. A) II and III B) I and IV C) I and III D) II and IV

B, Investors who can only invest relatively small amounts of money can nevertheless purchase interest in many different securities through investment companies. By the same token, they also gain access to increased purchasing power by pooling their investments with others.

Primary market transactions would include which of the following? A) Sale of $10 million of municipal bonds by a broker-dealer acting as a market maker B) Sale of $10 million of corporate bond by a broker-dealer acting as an underwriter C) Sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker D) Sale of $10 million of corporate stock by a broker-dealer acting as a market maker

B, Market makers are broker-dealers who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market.

When a bank lends money to a broker-dealer for the purpose of lending to margin account customers, the bank is lending at which of the following rates? A) Prime B) Broker call loan C) Discount D) Federal funds

B, Money lent to broker-dealers by banks for the purpose of making loans to margin account customers, the money is borrowed at the broker call loan rate (broker loan rate or call rate).

Within the money supply, which of the following are part of M2 but not M1? A) Currency in circulation B) Money market mutual funds C) Demand deposits at S&Ls D) Checking accounts at commercial banks

B, Money market funds are part of M2 but not M1. M2 includes everything in M1, plus time deposits and money market funds.

One of the major benefits of municipal bonds is A) they are always state and local-tax free. B) they are tax free at the federal level. C) they pay a higher interest rate than similar corporate bonds. D) they are safer than any other bonds.

B, Municipal bonds are federal-tax free and may be state- and local-tax free if the investor lives in that state. They pay a lower interest rate because of the tax-free status and are considered second in safety to U.S. government bonds.

On a long call, when the premium is equal to the intrinsic value, which of the following is true? A) None of these B) The contract is at parity C) The contract is out of the money D) The contract has time value

B, Parity is when the premium equals intrinsic value.

Which of the flowing is true regarding short sales? A) Selling shares not yet owned is prohibited. B) Selling short involves selling shares not yet owned. C) Selling short involves purchasing the shares first. D) Selling short means selling less shares than were purchased.

B, Short sales involve selling shares not yet owned. This is permitted. When selling short, investors are borrowing the shares to be sold, which must be replaced later by buying them. Investors who sell short are bearish, hoping the shares go down in value so that they can be purchased later at a lower price than they were initially sold for.

Which of the following earn interest but don't pay interest? A) None of these B) T-bills C) T-notes D) T-bonds

B, T-bills are sold at a discount and pay par at maturity. The difference between the discounted price and par is considered interest, but T-bills don't make interest payments.

Which of the following records must be kept for six years? Customer statements Customer new account forms Customer confirmations Customer order tickets A) III and IV B) I and II C) I and IV D) II and III

B, The buy and sell and quantity information on the order tickets and confirmations statements will show up on the customer's monthly or quarterly statements. Monthly and quarterly statements must be kept six years.

Which is the most common way investors pay a mutual fund's sales charge? A) Back-end load B) Front-end load C) Variable load D) Level load

B, The front-end load is the most common way a mutual fund's sales charge is paid. The sales charge is paid at the time of purchase. Front-end load, or Class A, shares have lower expenses than other classes, because the fund does not have to keep books on sales charge payments. It's already taken care of.

A bank is likely to do which of the following when the Federal Reserve Board (FRB) eases the money supply? A) Lower the hypothecation loan rate B) Lower its prime rate C) Raise its prime rate D) Raise its broker call loan rate

B, The prime rate and the broker call loan rate are set by banks for loans to corporate customers and broker-dealers, respectively. If the FRB eases the money supply (makes more money available to lend), banks can charge less for loans and will lower their lending rates. The hypothecation process isn't a rate, but a percentage amount (140% of the debit balance) and will not be impacted by the Fed's action with the money supply.

An August 15 call is written at 4. The call expires without being exercised by the owner. The writer of the call A) loses the $150 paid when the call was written. B) keeps the $400 received when the call was written. C) loses the $400 paid when the call was written. D) keeps the $150 received when the call was written.

B, The writer (seller) of the call would have received 4 ($400) for the contract when it was written. If the contract expires unexercised, the writer keeps the $400 premium received.

A bondholder has invested in a certificate backed by equipment that the issuer owns and utilizes in its daily operations. This issuer is most likely A) a utility. B) a transportation company. C) the federal government. D) a political subdivision (municipality).

B, This is the essence of an equipment trust certificate. These are corporate bonds commonly issued by transportation companies, such as railroads and airlines. These bonds are backed by equipment (e.g., aircraft) the issuer uses in its day-to-day business.

A REIT can avoid being taxed as a corporation would by A) receiving 100% of its income from real estate and distributing 90% or more of its net investment income to its shareholders. B) receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders. C) receiving less than 50% of its income from real estate and distributing 50% or more of its net investment income to its shareholders. D) receiving less than 75% of its income from real estate and distributing 100% of its net investment income to its shareholders.

B, Under the guidelines set by the Internal Revenue Code, a REIT can avoid being taxed as a corporation by receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders.

Different degrees of inflation can impact the economy differently. Which of the following best reflects this? A) High inflation pushes prices to their highest levels, continuously pushing the economy higher. B) Mild inflation can encourage growth and stimulate the economy. C) Mild inflation can thwart business investments and slow economic growth. D) High inflation spurs the economy forward by increasing the demand for goods.

B, While mild inflation can encourage economic growth because gradually increasing prices tend to stimulate business investments, high inflation pushes prices up, reducing the U.S. dollar's buying power. Ultimately, high inflation hurts the economy.

Your client, Soren Aland, buys a 4% XYZ corporate bond. If his current yield is 5%, he bought the bond at A) above par. B) a premium. C) a discount. D) par.

C, A bond purchased at a discount will have a current yield above the coupon rate.

A corporation has issued debt securities backed by the shares of another corporation that it owns. These debt securities are known as A) mortgage bonds. B) debentures. C) collateral trust bonds. D) equipment trust certificates.

C, A corporation can deposit securities it owns into a trust to be used as collateral to back its debt issues. When this is done, the securities issued are known as collateral trust bonds.

An investor has entered into a contract to pay an investment company a specific sum of money in exchange for the company's agreement to pay the investor a specific (larger) sum of money on a specific date in the future. The investment company must be A) a mutual fund. B) a closed-end investment company. C) a face-amount certificate company. D) a unit investment trust.

C, A face-amount certificate company offers the investor a certificate with a face amount on it. The investor buys it for a discount from the face amount, with the agreement being that the company will pay the investor the face amount on a specific date in the future.

Your client, Nate Bauer, has been investing for several years and is comfortable with moderate risk as long as he can get in and out of the investment easily. His portfolio is mostly in stock and he would like to diversify into some other asset classes and thinks real estate would help with that. Which of the following would be most suitable for you to recommend for him? A) An investment in individual rental properties B) A nonregistered real estate investment trust (REIT) C) A listed real estate investment trust (REIT) D) A real estate limited partnership

C, A listed REIT trades on an exchange and meets Bauer's requirement for liquidity. The other three options are not very liquid.

Options investors who are bullish on a stock should buy calls. bullish on a stock should buy puts. bearish on a stock should buy calls. bearish on a stock should buy puts. A) I and III B) II and III C) I and IV D) II and IV

C, Buying calls is bullish, and buying puts is bearish. Conversely, selling calls is bearish and selling puts is bullish.

Your firm must provide an account statement to a customer this month if five months have passed since the last activity in his account. there are penny stocks in the account. the account agreement states that statements are provided monthly. some of the securities in the account have lost significant market value this month. A) II and IV B) I and III C) II and III D) I and IV

C, Financial Industry Regulatory Authority (FINRA) members must send at least quarterly account statements to their account holders. Monthly statements are required as long as the account holds penny stocks. Member firms must abide by the account agreement.

Which of the following would be required for a good-til-canceled order to remain in force for more than six months? A) Nothing it stays on the books until the customer cancels it B) The specialist on the NYSE would need to reconfirm the order C) The customer would need to reconfirm the order D) The broker-dealer would need to reconfirm the order for it to remain in force

C, Good-til-canceled orders historically have been canceled the end of April and October some firms will cancel them more frequently but for the order to stay in effect longer than six months the customer would need to reinstate the order.

A nonaffiliated owns 3% of an issuer's common stock. This person will be considered a control person if a spouse owns A) 2% of the issuer's common stock. B) 5% of the issuer's common stock. C) 8% of the issuer's common stock. D) any shares of the issuer's common stock.

C, If there is a 10% or more interest held by immediate family members, then all those family members owning voting stock are considered to be control persons.

Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal? A) Follow-on offering B) Firm commitment underwriting C) Best efforts underwriting D) Initial public offering

C, In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement.

Common stockholders owning dividend paying stocks are exposed to A) current income risk but not market risk. B) market risk but not current income risk. C) market risk and current income risk. D) neither market risk nor current income risk.

C, In owning common shares, the investor stands to lose current income through dividend reduction or suspension (current income risk), as well as capital loss, should the market price decline (market risk).

When a company wants to issue additional shares of stock, the preemptive right given to existing shareholders allows those shareholders to A) decrease their proportionate ownership in the corporation. B) increase their proportionate ownership in the corporation. C) maintain their proportionate ownership in the corporation. D) pass on their proportionate ownership in the corporation to an heir.

C, In the event a corporation wants to issue additional shares of stock, the preemptive right given to existing shareholders allows the shareholders to maintain their proportionate ownership in the corporation by purchasing shares before the shares are available to new investors.

All of the following are true regarding market indexes except A) they can demonstrate the overall direction of the market. B) they are performance standards investors can monitor. C) they track single stocks rather than hypothetical portfolios. D) they can be used to compare against the performance of one's portfolio.

C, Indexes such as the DJIA or the S&P 500 are hypothetical portfolios, not single stocks. While there's no single standard or benchmark, an index can be used as a performance standard one can monitor and therefore judge the performance of a portfolio or investment against. When we refer to the stock market's performance in general, we are most likely referring to the performance of an index or average that tracks stocks or bonds. These benchmarks can serve as an indicator of the overall direction of the market as a whole, or the direction of individual market sectors.

Which of the following accounts would allow the assets of a single father's account to go directly to his daughter while avoiding probate but not a let her have access while he is alive? A) Joint tenants with rights of survivorship (JTWROS) B) Individual with power of attorney (POA) C) Individual with transfer on death (TOD) D) Tenants in common (TIC)

C, Individual with TOD exactly meets his requirements. JTWROS and TIC and individual with POA would all allow the daughter access to the account while he is still alive.

A restricted person in the issuing of new securities under Rule 5130 would include all of the following except A) a roommate of a registered representative. B) a broker-dealer buying for its own account. C) a portfolio manager buying for a portfolio she manages. D) a registered representative buying for his own account.

C, Portfolio managers buying for portfolios they manage is ok but not their own account. Other people in the industry and those supported by or under the support of those in the industry would be prohibited. Because roommates of a registered representative would be codependent, they would also be prohibited.

Under Regulation T, when must a corporate stock transaction be paid for in full in a cash account? A) No later than trade date plus 2 business days B) No later than the next business day C) No later than regular ways settlement plus 2 business days D) No later than the day of the trade if the trade is placed before 2:00 pm ET

C, Regulation T states that the trade in a cash account be paid for in full no later than settlement date plus 2 business days. Regular way settlement is trade date plus 2 business days. Next business day is how government bonds settle. A cash trade (different from a trade in a cash account) settles same day.

Which of the following best describes how a sell stop at 39 order would be filled? A) The next available price after the market price rises to 39. B) The next price above 39 after the market rises to 39. C) The next available price after the market price falls to 39. D) Only the next price below 39 after the market falls to 39.

C, Sell stop orders are placed below the current market price and become market orders once the price touches or passes through the stop price.

Which of the following is a benchmark for large cap stocks? A) Russell 2000® Index B) Dow Jones Utilities Index C) Standard and Poor's 500 Index D) Wilshire 5000

C, The Standard and Poor's 500 Index is an index of 500 large companies.

The maximum gain on a long put is A) strike price + premium. B) the premium. C) strike price - premium. D) the strike price.

C, The most money that can be made on a long put is when the underlying stock falls to zero. The put can then be exercised. The holder of the long put sells the stock for the strike price, making the difference between the strike price and zero (remember, the stock is worthless). The holder still needs to account for the cost he paid for the option, so the formula is strike price - premium. Note that this is the same as the breakeven price.

Which of the following is true regarding a registered person who wishes to move her registration from one broker-dealer to another? A) If the registered person has taken and passed the Series 24 General Securities Principal Exam, no filings need be made. B) A person who has been registered more than 25 years is grandfathered in and no filings need to be made. C) In no circumstances can a registration be transferred from one firm to another. D) Only Form U-5 need be filed, separating the registered person from the existing employer.

C, Transferring a registration from one member firm to another is not permitted. Should a person resign or be terminated, the member firm must file a Form U-5 with the Central Registration Depository (CRD) within 30 days of the termination date. A Form U-4 must then be filed by the new employer with all of the form's information requirements met.

A company's board of directors (BOD) approves a dividend payment. When this occurs it is recognized as the A) record date. B) dividend disbursement date. C) declaration date. D) ex-dividend date.

C, When a company's board of directors (BOD) approves a dividend payment it is recognized as the date the dividend was declared; declaration date.

Selling long is equivalent to which of the following? A) Selling to open B) Selling short C) Selling to close D) Selling to open then buying to close

C, When a customer owns a position and then sells that position that is referred to as selling long or selling to close.

When the Federal Reserve Board (FRB) wants to expand (loosen) the money supply, it will A) sell Treasury securities to banks in the open market. B) buy corporate securities from banks in the open market. C) buy Treasury securities from banks in the open market. D) sell corporate securities to banks in the open market.

C, When the FRB wants to expand (loosen) the money supply, it will buy Treasury securities from banks in the open market. The securities come out of the economy, and the money goes into the economy.

For investors, instability within an emerging economy is generally recognized as A) business risk. B) regulatory risk. C) political risk. D) currency risk.

C, While political risk can be interrelated with legislative risk, most attribute this risk specifically to the potential instability in the political underpinnings of a country or economy. This risk is often associated with emerging economies, though it can potentially exist anywhere.

An investor owns a bond with a 3.5% nominal yield making semiannual interest payments. On each interest payable date, the investor can expect to receive how much? A) $35.00 B) $175.00 C) $350.00 D) $17.50

D, A bond with a nominal yield of 3.5% pays $35 in interest annually (3.5% × $1,000 par value). Given the bond makes semiannual interest payments, each of those payments would be in the amount of $17.50.

A statutory debt limitation imposed on a municipality restricts its authority regarding A) selling municipal revenue bonds. B) raising tax rates. C) insuring municipal bond issues. D) issuing general obligation (GO) bonds.

D, A municipality may be limited by statute regarding the amount of GO debt it may incur, thus limiting the GO bonds it can issue.

An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to provide these services is best described as A) a prime broker. B) a market maker. C) an investment advisor. D) a trustee.

D, A trustee is legally appointed to manage as a fiduciary assets in a trust.

When XYZ is trading at 30, an XYZ 40 put bought at 3 would be A) at the money. B) out of the money. C) at parity. D) in the money.

D, All puts are in the money when the market price is below the strike price. They are out of the money when the market price is above the strike price. They at the money when the market price equals the strike price. They are at parity when the premium equals the intrinsic value.

Anyone who, as part of their business, gives investment advice for compensation must register as A) an underwriter. B) an agent for the issuer. C) a stock broker. D) an investment adviser under the Investment Advisers Act of 1940.

D, Broker-dealers who provide advice for a fee are subject to registration under this 1940 IA Act. Agents of investment advisers must register and pass a qualification examination.

Your client, Mrs. Stephens, has been bearish on LMN stock and sold it short several months ago. She now believes the company is in a good position for a turn around and wants to change her strategy on LMN. What should she do to implement her new strategy? A) Sell an equal number of shares to her existing position B) Buy an equal number of shares to her existing short position C) Sell short QRS to close her existing position D) Buy to close her existing position and open a new long position in the stock

D, Buying to close will eliminate her existing position, but if she now wants to engage in a bullish strategy on QRS she would need to buy additional shares.

An individual owning shares of a corporation's common stock would have all of the following rights except A) to vote for those who will serve on the board of directors (BOD). B) to vote when unable to be present at a shareholder meeting. C) to review a list of stockholders. D) to declare dividends.

D, Common shareholders have a number of rights. While they may receive dividends, declaring dividends is a function of the BOD.

Where can demand deposits, checking accounts, paper currency and coins be found in the money supply? A) M1 and M3 only B) M2 only C) M1 only D) M1, M2, and M3

D, Demand deposits, checking accounts, paper currency, and coins are a part of M1 in the money supply. However, consider that M2 contains all of M1, and M3 contains all of M2 and M1; therefore, one should recognize that these components are found in each of them: M1, M2, and M3,

All of the following are true for 529 plans except A) contributions to the plan are considered gifts for tax purposes. B) withdrawals would be tax free at the federal level if used for qualified education expenses. C) any adult can open a 529 plan for a student. D) plan donors must be related to the student benefactor.

D, Donors to 529 plans need not be related to the student benefactor. Each of the remaining statements is true.

If the portfolio of a variable annuity separate account is directly and actively managed by the insurance company, the separate account must be registered as A) an equity unit investment trust. B) a closed-end management investment company. C) a face-amount certificate company. D) an open-end management investment company.

D, If managed by the insurance company's own investment advisor, a separate account must register as an open-end company. If it is managed by a third party, it must register as a unit investment trust.

If the options agreement is not returned signed within 15 days of account approval, which of the following transactions could a customer perform if the initial transaction was buy calls to open? A) Sell puts to open B) Sell calls to open C) Buy calls to open D) Sell calls to close

D, If the agreement is not returned signed in 15 days, only closing transactions to offset those positions already open would be allowed.

Treasury bond (T-bond) interest is stated as A) a discount to the face value. B) a percentage of the purchase price. C) a premium over the price paid. D) a percentage of par value.

D, Like Treasury notes (T-notes), Treasury bonds (T-bonds) have interest stated as a percentage of par value. Example: Par value $1,000, with 4% interest equals $40 interest per year (0.04 × $1,000 = $40).

Which of the following securities is exempt from the Securities Act of 1933? A) Common stock B) Preferred stock C) Debenture D) Municipal note

D, Municipal debt securities, including short-term notes, are exempt from the Securities Act of 1933.

A customer of a broker-dealer makes it known that they would like to trade options in their account. The first step to accommodate the request is which of the following? A) Options Clearing Corporation (OCC) should be apprised to see if other options accounts are maintained at other broker-dealers. B) The firm's registered options principal (ROP) should approve the account so trades can occur immediately. C) The registered representative should provide the customer with the options disclosure document (ODD). D) The registered representative should determine the suitability of options trading for the customer.

D, Once the customer request being able to trade options in their account, the first step would be for the registered representative to collect all necessary information (financial and nonfinancial) to determine if trading options would be suitable for the customer.

Distinguishing by the issue's term to maturity for those securities issued by the U.S. federal government, which of the following is correct? A) Bonds represent intermediate-term issues. B) Notes represent long-term issues. C) Bonds and notes are both intermediate-term issues. D) Bills represent short-term issues.

D, Securities issued by the U.S. federal government, the shortest term to the longest term are bills, notes, and bonds.

In order to receive a declared dividend a shareholder must be an owner of record at the close of business on the A) declaration date. B) payable date. C) ex-dividend date. D) record date.

D, Shareholders must be owners of the stock on or before the record date in order to receive the current dividend.

All of the following are exempt from Regulation T except A) GNMAs. B) New York City bonds. C) T-bills. D) NYSE-listed securities.

D, Stocks that trade on the NYSE are subject to Regulation T. Municipals, treasuries, and agencies are exempt.

The ATOP Company is planning to offer shares of both common and preferred stock to the investing public in order to raise operating capital intended to be used for expansion. Which of the following laws enacted by Congress would be the most relevant when issuing these equity securities to the public? A) The Investment Company Act of 1940 B) The Securities Investors Protection Act of 1970 C) The Trust Indenture Act of 1939 D) The Securities Act of 1933

D, The Securities Act of 1933, is also known as the Paper Act, Prospectus Act, or New Issues Act. This federal law requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered.

According to the U.S. Commerce Department, the economy is in a recession when a decline in real output of goods and services lasts A) beyond 12 months. B) 9 months or more. C) 18 months or more. D) 6 months or more.

D, The U.S. Commerce Department defines a recession as a decline in real output of goods and services for six months or more.

Two years ago Joshua Ryan bought 100 XYZ at $60 per share. While he held the stock it paid dividends of $1 the first year and $1.50 the second year. Joshua sold the shares at $40 per share after a 2 for 1 stock split. How much gain or loss did he incur per share for tax purposes? A) $17.50 Loss per share B) $20 loss C) $12.50 gain per share D) $10 gain

D, The formula to calculate a gain or loss for tax purposes is the proceeds minus the cost basis. He bought the shares for $60 then there was a 2 for 1 split, so the cost basis was adjusted to $30 per share. He sold at $40, so he had a $10 gain dividend are not part of the calculation for gain or loss.

The four basic options transactions are A) long calls, sell calls, write puts, short puts. B) short calls, write calls, long puts, write puts. C) short calls, write calls, write puts, short puts. D) long calls, short calls, long puts, short puts.

D, The four basic options transactions are either buying or selling calls and puts. Hence, long calls, short calls, long puts, short puts. Remember that in options terminology, selling, shorting and writing all represent the same transaction.

Which of the following preferred stocks allows the issuer to pay the shareholders par and cease dividend payments following a stated period? A) Redeemable B) Puttable C) Adjustable D) Callable

D, The issuer can pay off callable preferred at any time after the call protection period, and dividends will cease.

Which of the following documents must be provided to the customer prior to approval of an options account? A) Statement of additional information B) Official statement C) Prospectus D) Options Disclosure Document

D, The option disclosure document (typically referred to as the ODD) must be provided prior to account approval.

MAS Corporation has enjoyed an extremely profitable year. It has been determined that those owning the MAS 4% preferred, participating to 6% preferred shares, will receive the full participating dividend. The participating shareholders will receive an additional dividend of A) 6%. B) 4%. C) 10%. D) 2%.

D, The stated MAS preferred dividend is 4%, participating up to 6%. In this year, when it has been determined that they should receive the full participating dividend, they will receive the additional participating 2%.

A registered representative opens a new options account for a customer. In which order must the following actions take place? Obtain approval from the branch manager Obtain essential facts from the customer Obtain a signed options agreement Enter the initial order A) I, II, IV, III B) I, II, III, IV C) II, I, III, IV D) II, I, IV, III

D, The steps or order of events to open an options account would occur in the following order: obtain essential facts about the customer, give the customer an options disclosure document (ODD), have the manager approve the account, enter the initial order, and have the customer sign the options agreement within 15 calendar days.

The Securities Act of 1933 exempts all of the following securities from registration except A) savings and loan issues. B) municipal issues. C) U.S. government issues. D) public real estate investment trusts (REITs).

D, Though some REITs trade on exchanges and others may not, all public REITs are nonexempt securities which must be registered with the Securities and Exchange Commission (SEC).

An investor holding T-bonds will receive interest payments A) annually. B) biennially. C) monthly. D) semiannually.

D, Treasury bonds (T-bonds) and notes (T-notes) pay interest on a semiannual basis.

All of the following would require that updated account information be sent to the customer for confirmation within 30 days except A) the customer informs the firm of a change in investment objectives. B) 36 months have passed since the account was opened. C) the account is a newly opened one. D) the account records system has been changed to a new format.

D, Updated account information must be sent to the customer with 30 days for confirmation upon the opening of the account, at least once every 36 months thereafter, and in the event of the customer notifying the firm of changes in any information shown or listed on the account form.

A customer who is bullish on ABC would most likely A) sell ABC long. B) sell ABC short. C) buy ABC short. D) buy ABC long.

D, When a customer is bullish, the customer expects the price to go up. Because trades are profitable when purchases are made at low prices and sales are made when prices are high, a customer would want to buy ABC long. Buying stock short is not a real trading strategy.

Which of the following are true of nonqualified plans but not true of qualified plans? A) All withdrawals are taxable B) The plan cannot discriminate C) All withdrawals are tax free D) The plan may discriminate

D, With qualified plans, all withdrawals are taxable and the plan cannot discriminate; it has to be offered to all qualified employees. A nonqualified plan does not need to be offered to all qualified employees, and distributions above the cost basis are taxable.