FINRA SIE
A customer receives a Regulation T margin call for $3,200. To meet the deposit requirement, which of the following can be deposited?
A) Fully paid for marginable securities totaling $6,400 in market value✅ B) Fully paid for marginable securities totaling $3,200 in market value C) Fully paid for marginable securities totaling $1,600 in market value D) Cash in the amount of $1,600 When meeting a Regulation T margin call with cash, 100% of the call must be deposited—in this case, $3,200. If using fully paid for marginable securities to meet the call, a deposit totaling twice the amount of the call must be made—in this case, $6,400. This is because securities are only marginable to 50% of their value.
Which of the debt issues listed here would produce tax-free interest at all levels?
A) General obligation bond issued by the County of Los Angeles, California B) Florida Transportation Authority revenue bond C) General obligation bond issued by Guam✅ D) 26-week T-bill Issues from a territory of the United States (Guam is a territory of the United States) produce interest that is tax free at the federal, state, and local level. Municipal bond interest is tax free at the federal level and tax free at the state level if the bondholder is a resident of the same state as the issuer. Treasury issues are taxed at the federal level.
Which of the following is true regarding a registered person who wishes to move her registration from one broker-dealer to another?
A) Only Form U5 need be filed, separating the registered person from the existing employer. B) A person who has been registered more than 25 years is grandfathered in and no filings need to be made. C) If the registered person has taken and passed the Series 24 General Securities Principal Exam, no filings need be made. D) In no circumstances can a registration be transferred from one firm to another.✅
Corporate bonds are most likely to trade in which market center?
A) Over-the-counter market✅ B) The exchanges C) Directly with the issuer D) The third market
Which of the following best describes the calculation for gains or losses for tax purposes?
A) Proceeds minus dividend, plus cost basis B) Proceeds plus cost basis C) Proceeds minus cost basis✅ D) Proceeds plus dividends, minus cost basis Proceeds minus cost basis equals capital gains. The dividends are not part of the calculation for capital gains.
Which of the following is not a characterization of the Securities Act of 1933?
A) Prospectus Act B) Exchange Act✅ C) Paper Act D) Truth in Securities Act
An associated person of a Financial Industry Regulatory Authority (FINRA) member firm would not be considered a municipal finance professional (MFP) if involved solely in which of the following?
A) Research involving municipal securities for the firm B) Municipal securities communications with customers C) Underwriting municipal securities for the firm D) Municipal securities sales to customers✅ Associated persons whose activities are limited solely to sales or have only clerical or ministerial functions are not MFPs. All the other activities would be associated with an MFP.
A broker-dealer that executes trades and settles transactions for another broker-dealer is called
A) a carrying firm.✅ B) an introducing firm. C) a fully disclosed firm. D) a limited broker-dealer. Carrying firms, also known as clearing firms, execute trades, clear and settle transactions, take custody of customer funds and securities, and handle all back-office tasks such as sending trade confirmations and statements for themselves as well as for other broker-dealers classified as introducing or fully disclosed firms.
A company that offers sales of another company's securities in a primary market transaction would best be described as
A) a market maker. B) an underwriter.✅ C) a transfer agent. D) an issuer.
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. 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.
Limited partnership programs are categorized as direct participation programs. The term direct participation refers to the
A) ability of any partner, limited or general, to participate in the running of the partnership. B) flow through of profits and losses of the partnership to the individual limited partners.✅ C) ability for each partner to have her vote flow through to the general partner. D) general partners directly participating in the day-to-day management of the partnership. Understanding the flow through concept is critical with DPPs. Only DPPs allow flow through of losses.
To open a new account that will have margin trading, all of the following documents will be required except
A) account agreement. B) consent to loan agreement.✅ C) hypothecation agreement. D) credit agreement. The consent to a loan agreement is not a regulatory requirement. Note this is a new account, so the regular account agreement is required in addition to the margin documents.
Under regulation S-P, nonpublic personal information would not include a customer's
A) account balance. B) social security number. C) home address.✅ D) information collected through an internet cookie.
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) an open-end management investment company.✅ C) a face-amount certificate company. D) a closed-end management investment company.
The primary use for a revocable living trust is to
A) avoid tax consequences for the grantor. B) limit the grantor access to items in the estate. C) prevent the grantor from liquidating his estate prior to death. D) use as a substitute for a will.✅
Put buyers are
A) both bullish and bearish. B) bearish. ✅ C) neither bullish nor bearish. D) bullish.
Securities regulations that are called blue-sky laws refer to those at
A) both the state and the federal level. B) the federal level. C) the state level.✅ D) neither the state nor the federal level. These are state laws that pertain to the issuance and trading of securities within that state. They are known as blue-sky laws because of a statement made by a Kansas Supreme Court justice who referred to "speculative schemes that have no more basis than so many feet of blue sky."
A market maker
A) can only be an institution doing proprietary trading. B) acts as an agent to buy and sell for public customers who will hold their own securities. C) trades in a customer's account standing ready to buy or sell at their own discretion. D) trades in a proprietary account to facilitate trading of a security and provide liquidity.✅ Any entity, individual or institution, willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security is known as a market maker or trader.
A form of market manipulation that attempts to keep the price of the stock from falling is called
A) capping. B) supporting.✅ C) front running. D) backing away. Supporting is a form of market manipulation to keep the price of a security from falling. It is illegal if used to manipulate the market.
How an account is registered determines
A) control of the investments in the account only. B) ownership of the account only. C) ownership and control of the investments in the account.✅ D) the sole individual allowed to access the account.
When a broker-dealer pledges customer securities to a bank as collateral for a margin loan, the pledge is known as
A) credit agreement. B) loan consent. C) rehypothecation. ✅ D) hypothecation.
For the risk disclosures found in the margin agreement, all of the following would be accurate disclosures except
A) customers can lose more money than initially deposited. B) firms can increase their in-house margin requirements without advance notice. C) if a maintenance call is not met, the customer must direct which securities to sell. ✅ D) customers are not entitled to an extension of time to meet a margin call.
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) pass on their proportionate ownership in the corporation to an heir. C) increase their proportionate ownership in the corporation. D) maintain their proportionate ownership in the corporation.✅
The authorities delegated to FINRA by the SEC include all of these except
A) establishing initial margin requirements.✅ B) investigating complaints. C) establishing testing and standards for associates of broker-dealers. D) establishing membership requirements. The initial margin requirement is set by the Federal Reserve under Regulation T. FINRA creates and administers securities licensing requirements (e.g., the SIE), sets its own membership requirements, and may investigate complaints from customers.
Financial Industry Regulatory Authority (FINRA)'s Conduct Rules are designed to promote
A) fair and ethical trade practices when dealing with the public.✅ B) efficient and just handling of trade practice violations. C) uniform trade practices for firms to follow when dealing with other member firms. D) settlement of disputes between member firms without resorting to the courts.
All of the following terms and phrases apply to the buy side of the options contract except
A) has a right. B) loses the premium if the contract expires. C) receives the premium.✅ D) exercises the contract. The buyer of the contract pays the premium and loses it if the contract expires. The seller receives the premium and keeps it if the contract expires. The buyer has a right to exercise the contract. It is the seller who has an obligation if the buyer decides to exercise.
Purchased 15 years ago with a coupon of 6.25%, a corporate bond in an investor's portfolio has matured. With interest rates now substantially lower at 2.75%, this investor, having no immediate need for the proceeds, is now exposed to
A) interest-rate risk. B) financial risk. C) call risk. D) reinvestment risk.✅
The shares of a corporation that have been issued to shareholders, less any shares held in treasury, are called the
A) issued shares. B) authorized shares. C) treasury shares. D) outstanding shares.✅
An investor holds a 4% bond, callable in 8 years, and maturing in 12 years. The bond's current yield (CY) measures its annual coupon payment relative to
A) its market price.✅ B) par value. C) its value when callable. D) its value at maturity. The CY measures a bond's annual coupon payment (interest) relative to its market price, as shown in the following equation: annual coupon payment ÷ market price = current yield.
An investor has purchased Class A mutual fund shares. The net asset value (NAV) per share of the fund is the price the investor
A) knows will be the cost per share when the order is entered. B) will use as the cost basis in tax return filings once redeemed. C) has paid for the shares when purchased. D) will receive upon redemption of the shares.✅
A bank trustee holds the titles to assets a corporation has purchased and utilizes in its day-to-day business. The corporation issues debt securities backed by these assets. These securities are
A) mortgage bonds. B) debentures. C) equipment trust certificates.✅ D) collateral trust bonds.
Under Rule 2210 the rules regarding correspondence include all of the following except
A) must be to 25 or fewer retail customers or prospects within 30 days. B) must be in good faith. C) preapproval is always required.✅ D) may be reviewed after use (postreview).
All associated persons must be fingerprinted if they handle
A) new account forms. B) cold-call lists. C) direct mail programs. D) cash and securities.✅ Any associated person put in a position that would have them handle cash or securities would be required to be fingerprinted.
A company that has issued noncumulative preferred stock
A) pays the preferred dividend before paying the interest due on its outstanding bonds. B) pays current preferred dividends before paying dividends on common stock. ✅ C) pays in arrears and current dividends on the preferred before paying a dividend on the common. D) forces conversion of the preferred that is trading at a discount to par, thereby eliminating the need to pay past-due dividends.
If the stock market were to fall substantially in a single day, a portfolio consisting primarily of common and preferred stock would be most subject to
A) reinvestment risk. B) market risk.✅ C) regulatory risk. D) inflation risk.
All of the following are taxable to the investor except
A) stock dividends.✅ B) capital gains distributions. C) semiannual interest payments. D) cash dividends. 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.
All of the following self-regulatory organizations (SROs) function under the Securities and Exchange Commission's (SEC's) oversight except
A) the Chicago Board Options Exchange (CBOE). B) the Financial Industry Regulatory Authority (FINRA). C) the Municipal Securities Rule Board (MSRB). D) the Federal Savings and Loan Insurance Corporation (FSLIC).✅
A customer submits a written complaint stating that funds were stolen from an account held at a member broker-dealer. Resolution of this complaint will take place by
A) the Code of Procedure (COP).✅ B) the Uniform Practice Code (UPC). C) the Conduct Rules. D) the Code of Arbitration (COA). The COP governs the resolution of violations of the Code of Conduct. Written complaints may come in several forms including instant messages, tweets, texts, and emails.
All of the following are examples of SROs in the securities industry except
A) the NYSE. B) the Municipal Securities Rulemaking Board (MSRB). C) FINRA. D) the Securities Exchange Commission (SEC).✅
The access equals delivery rule applies to
A) the final prospectus and aftermarket delivery obligations.✅ B) all prospectuses delivered before the registration date. C) the preliminary prospectus delivery requirements during the cooling-off period. D) the final prospectus delivery requirements during the cooling-off period.
A mutual fund company may offer noncash compensation to associates of broker-dealer firms in the form of attendance at a meeting or convention, provided that
A) the meeting is held for the purpose of entertainment only and not for business purpose. B) attendance is conditional upon agreement to a predetermined sales target. C) a record of compensation and meeting details is kept by the attendee member's firm.✅ D) expenses of spouses or other guests of attendees are also met. The firms whose associates attend the meeting must keep records of all noncash compensation and details of what went on at the meeting. Noncash compensation of this type will inevitably be at least indirectly business-related, but must not be conditional upon agreeing to meet some sales goal. Side trips and expenses of guests must be met by those in attendance, not the host of the meeting.
The seller of a put has
A) the right to sell the stock. B) the obligation to sell the stock. C) the right to buy the stock. D) the obligation to buy the stock.✅
Great Plains Securities, an OTC market maker, holds inventory and provides liquidity for Modulux Homes, an NYSE listed company. This is an example of
A) the third market.✅ B) the force market. C) the primary market. D) the fourth market. When an exchange-listed security trades in the OTC market, it is being traded in the third market. The fourth market is composed of electronic communication networks and is primarily used by institutional investors. Primary markets are for raising capital.
An investor asks for a copy of mutual funds Statement of Additional Information (SAI). The request must be satisfied within
A) three business days, with a fee for postage permissible. B) five calendar days, free of charge. C) five calendar days, with a fee for postage permissible. D) three business days, free of charge.✅ Requests for an SAI must be complied with within three business days free of charge.
An investor has purchased Class A mutual fund shares. The net asset value (NAV) per share of the fund is the price the investor
A) will use as the cost basis in tax return filings once redeemed. B) has paid for the shares when purchased. C) will receive upon redemption of the shares.✅ D) knows will be the cost per share when the order is entered.
Three brothers open a joint account instructing you that if they die, they want the cash and securities in the account to go to the remaining parties to the account. The account should be opened
A) with rights of survivorship.✅ B) as a custodial account. C) as a tenants in common (TIC) account. D) as a transfer on death (TOD) account. Under joint tenants with right of survivorship (JTWROS), each brother's interest in the account would go to the surviving brother. Although JTWROS accounts may be opened with a TOD designation, that is not the best answer to this question - that is a feature that would be added to the account. From time to time, you will see questions on the exam where it will be a challenge to choose between two good-looking answers. The key is to pick the one that is the most appropriate to the specific question.
Which of these is not correct?
A)Both a 529 College Savings Plan and an ESA may be used to pay for pre-college education expenses. B)There is no annual contribution limit for a 529 plan. C)A 529 plan's assets must be used by age 30, an ESA does not.✅ D)There are no earnings limits for those contributing to a 529 plan. An education savings account (ESA) must be used by age 30, a 529 plan has no such limit. As of January 1, 2018, both plans may be used for pre-college education costs.
All of the following phrases are associated with a broker-dealer acting as a dealer except
A) "profits on spread." B) "maintains inventory." C) "trades with customers from own inventory." D) "charges a commission for the transaction."✅
In the last year, a customer made the following four transactions: Purchased 1,000 shares of ABC stock for $67 per share Purchased 500 shares of DEF stock for $45 per share Sold 1000 shares of ABC stock for $50 per share Sold 500 shares of DEF stock for $55 per share Which of these is the result of the year's transaction?
A) $12,000 in capital gains B) $12,000 reduction in ordinary income C) $3,000 reduction in ordinary income and $12,000 in gains D) $3,000 reduction in ordinary income and $9,000 in carry-forward losses✅ The customer realized a $17,000 loss on ABC and a $5,000 gain on DEF for a net loss of $12,000. The customer can use $3,000 to reduce ordinary income leaving $9,000 in losses to carry forward.
Your customer establishes the following position: Long 1 XYZ January 50 put at 2. You can correctly inform the customer that the maximum potential gain on the position is
A) $5,200. B) $4,800.✅ C) unlimited. D) $200. Maximum gain for a long put is calculated by subtracting the premium from the strike price (50 − 2 = 48 per share). One contract represents 100 shares, so the buyer's maximum gain is $4,800 (this occurs if the stock becomes worthless).
What is the intrinsic value of an XYZ 40 call sold at a premium of 3 when the current market value of XYZ is at 30?
A) $7 B) -$7 C) -$10 D) $0✅ Intrinsic value is the amount that a contract is in the money. The premium of the contract is not a factor. All calls are in the money when the market value of the stock is above the strike price.
Firms must file a SAR within how many days of becoming aware of a suspicious transaction?
A) 10 days, and they are prohibited from notifying the customer involved that a report has been filed B) 30 days, and they are required to notify the customer involved that a report has been filed C) 10 days, and they are required to notify the customer involved that a report has been filed D) 30 days, and they are prohibited from notifying the customer involved that a report has been filed✅
How long do securities regulators retain jurisdiction over a person after a U5 form is filed?
A) 2 years✅ B) 5 years C) 10 years D) 180 days
Your customer is long 1 October 55 put at 4. The customer's breakeven point is
A) 59. B) 40. C) 51.✅ D) 55. For puts, the breakeven is found by subtracting the premium (4) from the strike price (55). Because put buyers are bearish, the long put contract is profitable below the breakeven at expiration.
You quote ABC stock to a customer 67 bid for 1,000 shares, 700 offered at 67.10. Which of the following is true?
A) 67 is currently the lowest price any seller is willing to accept. B) The quote's inside spread is 0.10.✅ C) 67.00 is the ask price. D) 67.10 is currently the highest price any buyer is willing to pay. 67 bid for, offered at 67.10 is the quote. The spread is the difference between the bid and offer: 0.10. The bid (67) is the highest price any buyer is willing to pay, and the offer (67.10) is the lowest price any seller is willing to accept. The offer is also known as the ask price.
Your client, Janice Thomas, is an active trader and wants to invest in a managed equity portfolio that she can trade intraday. Which of the following should you recommend?
A) A closed end fund✅ B) An exchange-traded fund (ETF) C) An exchange-traded note (ETN) D) A mutual fund
Which of the following is an acceptable investment for an IRA?
A) A collection of medieval manuscripts and art B) Gold coins minted in Switzerland but sold in the U.S. C) A mutual fund specializing in speculative bonds✅ D) A universal variable life insurance contract
A registered representative needs which of the following licenses to solicit a variable annuity sale?
A) A securities license only B) A life insurance license only C) A securities and a life insurance license✅ D) A fixed annuity license A variable annuity requires both a securities license (Series 6 or Series 7) and a life insurance license (issued by the states). There is no "annuity license."
Which of the following statements is correct concerning the pricing of American depositary receipts (ADRs)?
A) ADR pricing is dollar-based using an end of day net asset value (NAV). B) ADRs are priced in foreign currency. C) ADR pricing is dollar-based and fluctuates throughout the day.✅ D) ADR pricing is dollar-based using an end of day public offering price (POP).
Your customer notes that they did not pay a commission on their purchase of ACB preferred stock that they placed through your firm. The firm likely acted in what capacity in this transaction?
A) Agent B) Principal✅ C) Broker D) Underwriter
Match the following statement to the best expression: A well-controlled, moderately increasing money supply leads to price stability and a healthy economy.
A) Balance of payments B) Keynesian Theory C) Monetarist Theory✅ D) Socialism Monetarists judge that a well-controlled, moderately increasing money supply leads to price stability. Price stability allows business managers (considered to be more efficient allocators of resources than the government) to plan and invest, which in turn keeps the economy healthy.
Which of the following securities is most often used to fund international trade?
A) Banker's acceptance (BAs)✅ B) Negotiable certificate of deposit C) Real Estate Investment Trust (REIT) D) Federal funds BAs are widely used in international trade for payments that are due for a future shipment and delivery of goods. For example, a Brazilian shoe manufacturer would receive a BA from a U.S. retailer for a guaranteed future payment when the shoes arrive in the United States. The manufacturer may ship its product knowing that the BA is guaranteed by a commercial bank. BAs are negotiable and freely traded in the money markets at a discount.
Regarding a public offering and a private placement, which of the following statements is false?
A) Both are subject to the cooling-off period of 20 days found in the Securities Act of 1933.✅ B) Both may use the services of investment bankers to facilitate the sale of securities. C) Both allow securities to be sold to individual and institutional investors. D) Both are methods of offering securities for sale to investors.
Seacoast Securities, a broker-dealer, maintains an inventory in DEF, Inc., common stock. When transacting business in DEF stock, Seacoast is most likely acting in what capacity?
A) Broker B) Market maker✅ C) Agent D) Underwriter When a BD acts as a dealer (or market maker), they are selling securities from the firm's inventory to a customer or buying a security from a customer for the dealer's inventory.
Which of the following pairs are not covered by the Federal Deposit Insurance Corporation (FDIC) at any level?
A) Certificates of deposit and self-directed IRAs B) Mutual funds and annuities✅ C) Certificates of deposit and mutual funds D) Savings accounts and annuities Investment products that are not deposits are not covered by the FDIC. This would include life insurance policies, mutual funds, annuities, and individual securities such as stocks and bonds. At any level means neither partially nor fully.
A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm?
A) Clearing/carrying B) Market making C) Introducing/fully disclosed✅ D) Prime/executing
Which of the following issues only common stock?
A) Closed-end funds B) Municipalities C) Corporations D) Mutual funds ✅
Which of the following securities trade at a price determined by formula?
A) Common shares of a corporation B) Common shares of a mutual fund✅ C) Preferred shares of a corporation D) Common shares of a closed-end investment company Mutual funds are priced at the end of each business day, with sellers receiving the next calculated NAV and buyers paying the next calculated POP. All transition requests must be entered by 4:00 pm ET. Any requests to buy or sell that are entered after 4:00 pm will receive the next business day's NAV or POP. For example, a seller who places an order after the close (4:00 pm ET) on Friday will receive Monday's NAV when liquidating her shares.
What is the formula for calculating working capital?
A) Current assets ÷ current liabilities B) Assets + liabilities C) Current assets - current liabilities✅ D) Assets - liabilities Working capital = current assets - current liabilities.
List the dates associated with dividend payment in their proper order.
A) Declaration date, record date, ex-dividend date, pay date B) Declaration date, ex-dividend date, record date, pay date✅ C) Declaration date, pay date, ex-dividend date, record date D) Record date, declaration date, ex-dividend date, pay date The declaration date is the day the board of directors meets to declare the dividend. The ex-dividend date is the first day that a purchaser of the stock is too late to get the dividend. The record date is the day the shareholder must be on the records of the company to receive the dividend, and the checks are mailed on the pay date.
ABC Corporation's earnings remained steady while its shares outstanding increased by 5%. How does this impact ABC's earnings per share (EPS)?
A) EPS has stayed the same B) EPS has increased C) EPS has decreased✅ D) Not enough information to answer the question
One of the Financial Industry Regulatory Authority (FINRA) Conduct Rules is concerned with private securities transactions. Under that rule, it would be correct to state that I. if the member approves the registered representative participating in a transaction for compensation, it must treat the transaction as if it is being done on its own behalf by entering the transaction on its own books and supervising the associated person during the transaction. II. as long as no compensation to the registered representative is involved, notification to the member is not required. III. sale of a securities product to the registered representative's mother where there is only nominal compensation is not covered under the rule. IV. if the member disapproves of the registered representative's participation in a transaction for compensation, the associated person may not participate in it.
A) I and II B) II and III ✅ C) III and IV D) I and IV
In a defined contribution plan I. the benefit amount is fixed. II. the benefit amount is variable. III. the contribution amount is fixed. IV. the contribution amount can vary.
A) I and IV B) II and III ✅ C) II and IV D) I and III
In a reverse split, what happens to the cost basis and number of shares? I. The cost basis goes up II. The number of shares goes down III. The cost basis goes down IV. The number of shares goes up
A) I and IV B) III and IV C) II and III D) I and II ✅
The bid price represents I. the price the broker-dealer is willing to pay when buying a security. II. the price the customer will pay when buying a security. III. the price a customer will receive when selling a security. IV. the price the broker-dealer will receive when buying a security.
A) II and IV B) I and II C) I and III✅ D) II and III
Intraday price changes due to normal market forces would be found with I. closed-end fund shares. II. exchange-traded fund shares. III. hedge fund shares. IV. open-end (mutual) fund shares.
A) III and IV B) I and II✅ C) II and III D) I and IV Both closed-end funds and ETFs trade in the open market and are priced by supply and demand. Open-end (mutual) funds use forward pricing and generally price only once per day (usually at the end of the trading day). Most hedge funds are organized as private investment partnerships and are considered illiquid. Some have minimum holding requirements known as lock-up provisions, and in that light, their interests do not reliably trade intraday.
An issuer files a registration statement with the SEC for the sale of new securities on May 1. While reviewing the registration statement, the SEC determines that it has not been filed properly and issues a deficiency letter on May 5. The issuer submits a corrected registration statement on May 8. Which of the following is true regarding the 20-day cooling-off period?
A) It is halted on the day the deficiency letter is issued and must begin anew from that same date once the corrected registration is received. B) It is halted and does not resume until 20 days following the corrected registration is received. C) It continues and is not impacted by the issuance of the deficiency letter by the SE. D) It is halted on the day the deficiency letter is issued and resumes where it left off on the day the corrected registration is received.✅ When a deficiency letter is issued by the SEC to an issuer, the 20-day cooling-off period is halted. It resumes where it left off when the corrected registration statement is filed. In other words, the days that the cooling-off period are suspended do not count toward the 20 days.
ABC Corporation's board of directors declared a $0.25 per share dividend on Wednesday, June 15. The dividend will be paid to shareholders of record on Tuesday, July 5. The dividend will be sent to shareholders on Tuesday, July 26. What is the last day to purchase the stock and receive the dividend, assuming a regular way settlement?
A) July 2 B) June 30✅ C) July 3 D) July 1 This is a potent example of a difficult question that requires you to slow down and think it through. The ex-date for a corporation will be one business day prior to the record date. The record date is July 5. The day before is July 4, which is a holiday and not a business day. The days before that are Sunday and Saturday. The first business day before the ex-date is Friday, July 1. The last day to purchase the stock and qualify for the dividend is the day before the ex-date (June 30). The only holidays we have heard of appearing on the exam are July 4 and December 25.
Which of the following would be unlawful regarding use of a mutual fund prospectus?
A) Leaving a typographical error in the text unmarked B) Sending a prospectus to someone who has shown no interest in the fund C) Failing to highlight a small section the customer has specifically asked about D) Calling an investor's attention to a section that may be interesting✅ A prospectus for any security, not just one for a mutual fund, may not be marked, highlighted, or otherwise altered in any way, nor may steps be taken to call an investor's attention to some passage or section that might be of special interest, even if the potential customer asked that it be done.
Which types of investments are most susceptible to interest rate risks?
A) Money market instruments B) Bonds✅ C) Options D) Common stocks Bond prices move down when interest rates move up. Money market instruments can also be affected, but bonds are more impacted due to longer duration.
An investor has a long position in OMQ stock. After selling the stock at a loss, the investor could purchase which of the following and not violate the wash sale rule?
A) OMQ convertible bonds B) OMQ call options C) OMQ put options✅ D) OMQ warrants In order to avoid violating the wash sale rule, investors selling a stock at a loss cannot purchase that same, or substantially identical, security within a 30-day period before or after the sale incurring the loss. Substantially identical would include anything that is exercisable or convertible into the same shares of stock, such as rights, warrants, call options, or a convertible bond. Purchasing the put options would not violate the wash sale rule because these can be exercised to sell the stock, not purchase it.
If left unexecuted, a good til cancel (GTC) order will automatically be canceled when?
A) On the last business day of April and the last business day of October✅ B) On the last business day of June and the last business day of December C) On the first business day of April and the first business day of October D) On the cancel date specified by the customer at the time the order is entered GTC orders are valid until executed or canceled. Any GTC orders left unexecuted are automatically canceled on the last business day of April and the last business day of October. If the customer wishes to have the order remain working beyond those specific days, the customer must reenter the order.
Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is true?
A) Sales loads increase investor returns because they are received by the fund increasing the amount they have to invest. B) All increase investor returns because each is received by the fund increasing the amount they have to invest. C) All reduce investor returns because they reduce the amount of money available for the fund to invest.✅ D) Only management fees and operating expenses reduce investor returns by reducing the amount of money available for the fund to invest. Sales loads go to the underwriters or broker-dealers selling the shares for the fund. Therefore, they are subtracted from the dollars invested and in that light reduce possible returns for investors. Management fees and operating expenses are ongoing costs to the fund and, therefore, reduce the dollars that can be invested, again reducing potential returns.
For nonexempt securities being offered to the public for the first time by a corporate issuer, which of the following would be applicable?
A) Securities Act of 1934 regulating issues that must be offered by prospectus B) Securities Act of 1934 regulating securities that must be offered by prospectus C) Securities Act of 1933 regulating issues that must be offered by prospectus ✅ D) Securities Act of 1933 regulating securities traded in the secondary market
Which of the following characteristics are associated with face-amount certificates (FAC)?
A) Set death benefit B) Variable returns C) In return for a future payment, the investor agrees to pay the issuer a set amount of money ✅ D) No specific maturity date
Which of the following is considered a benefit for broker-dealers offering margin accounts to their customers?
A) The ability to accommodate more conservative clients B) The additional income generated from the payment of margin interest ✅ C) The ability to pledge customer securities for loans D) The additional employment of operational personnel to administer the accounts
Which of the following is true of an additional public offering?
A) The issuer receives all of the proceeds from the sale.✅ B) Existing shareholders receive all of the proceeds of the sale. C) The issuer receives some of the proceeds, and existing shareholders receive some of the proceeds from the sale. D) The investors are a combination of institutional and retail investors, and the issuer receives none of the proceeds from the sale.
Nolan McCann owned 100 shares of LMN at $10 per share when the board of directors declared a 1:4 split. What will happen to the share price and the number of shares?
A) The share price will go to $40, and he will own 25 shares.✅ B) The share price will drop to $2.50, and he will own 400 shares. C) The share price will go to $40, and he will own 100 shares. D) The share price will go to $2.50 per share, and he will own 400 shares. For reverse splits, the price goes up and the number of shares goes down.
Your client, Sophia, retired from her job five years ago and placed all of the proceeds of her 401(k) distribution into a rollover IRA at a local bank. If Sophia wishes to transfer the funds to an IRA at your broker-dealer, which of the following statements would be true?
A) There is no limit to the number of transfers per year between custodians. ✅ B) A transfer of this type is not permitted. C) Mandatory tax withholding applies to trustee-to-trustee transfers. D) A transfer of this type will incur a 10% penalty.
For ETFs, the phrase "tax efficiency" can best be described by which of the following concepts?
A) These exchange-traded products can be purchased on margin, allowing for a smaller initial investment. B) All transactions in ETFs are commissionable, and sales charges do not apply. C) ETFs generally have reportable tax gains passed on annually. D) Usually, for ETFs, there are no tax consequences for investors until the shares are sold.✅
Which of the following investments is managed by an investment adviser?
A) Treasury bill B) Unit investment trust C) Face-amount certificate D) Managed investment company✅ The managed investment company actively manages a securities portfolio to achieve a stated investment objective. UITs and FACs do not have actively managed portfolios. T-bills are not "managed."
Accusations of Financial Industry Regulatory Authority (FINRA) Conduct Rule violations will heard and handled under the
A) Uniform Securities Act. B) Code of Procedure.✅ C) Code of Arbitration Procedure. D) Uniform Practice Code. The Code of Procedure describes how member violations of the Conduct Rules will be heard and handled.
Which of the following is a true statement regarding warrants?
A) Warrants are issued to existing shareholders on a basis of one right for one existing share. B) The warrant is a long-term instrument, typically with five years or more until expiration.✅ C) The warrant allows the holder to exercise and purchase the stock at a price lower than the market. D) Warrants are short-term instruments, typically 30 to 45 days.
Which of the following statements with regard to the issuance of securities is true?
A) While the Securities and Exchange Commission (SEC) is reviewing a registration statement for a new offering of securities, the underwriters are permitted to solicit and accept orders for the securities from the public. B) The Securities Act of 1933 provides criminal penalties for fraud.✅ C) Once a registration statement has been filed with the Securities and Exchange Commission (SEC) it should be expected that the securities could be sold to the public within two business days. D) The cooling-off period beginning when a registration statement is filed with the Securities and Exchange Commission (SEC) can't last longer than 20 days. The Securities Act of 1933 (also known as the Paper Act, Full Disclosure Act, New Issues Act, Truth in Securities Act, and Prospectus Act) ensures that the investing public is fully informed about a security and its issuer when the security is offered on the primary market. The act provides criminal penalties for fraud in the issuance of new securities. The SEC review period, known as the cooling-off period, must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date.
Trade confirmations must be provided to a customer no later than when?
A) Within two days B) Seven business days C) Trade day D) Settlement day✅ Trade confirms must be provide no later than the day the trade settles. Remember that some trades settle T+1, and settlement date is business days, not calendar days.
