Progress Exam 1A & 1B
An employee wants to invest funds into a 401(k) that is sponsored by his employer. Assuming the employee waits until he reaches the age of 60 to begin taking distributions from the plan, what is the tax treatment of these funds?
100% is taxable since the plan has a zero cost basis
What's the tax treatment of dividends if a corporation invests in the preferred or common shares of another corporation?
65% of the dividends are excluded if ownership exceeds 20%.
A municipal tombstone advertisement must be approved by:
A municipal securities principal
For a corporation that's in the 21% tax bracket, which of the following choices will provide the best return if the corporation wants to invest some of its surplus cash?
A preferred stock paying a 7.50% dividend, Since the corporate bond is fully taxable, the $100 investment will generate $8.00 of total income. However, after paying $1.68 in taxes ($8.00 x 21% tax rate), the after-tax return is $6.32 ($8.00 - $1.68 tax). The common stock dividends have the same tax treatment as the preferred stock. Since the preferred stock is paying 7.50%, it's a better investment than the common stock which is only yielding 6%. Lastly, since the municipal bond provides tax-free income, a $100 investment will yield $6.00 after-tax ($100 x 6%). Ultimately, the $6.71 after-tax return from the preferred stock dividend is the best choice available.
Before being sent to customers, FINRA rules require approval by a principal of all of the following EXCEPT:
A prospectus for a mutual fund for which the RR's firm acts as a dealer
Which of the following choices, if included in an investment company retail communication, is likely to be considered misleading?
A statement that past performance is a good guide to future performance
Which of the following statements is NOT TRUE regarding discretionary accounts?
A written power of attorney must be updated every three years
Which of the following persons is typically compensated by receiving a fee that's based on a percentage of the assets under management?
An investment adviser are often compensated based on a percentage of assets under management.
Which of the following statements is TRUE regarding numbered accounts?
Any type of account may be identified by a number, provided the customer's name is on file
The balancing of asset classes according to an investor's financial objectives in order to maximize returns for a given level of risk is known as:
Asset allocation
Which of the following securities assist in the financing of import and export operations?
Bankers' acceptances (BAs), Of the choices given, a banker's acceptance (BA) is the only instrument that's used as a means of financing foreign trade. Don't confuse a BA with an ADR (American depositary receipt), which facilitates the trading of foreign securities in U.S. markets. Eurodollar certificates of deposit pay interest and principal in Eurodollars (U.S. dollars deposited in non-domestic banks) and are not used to finance import and export operations.
Required minimum distributions (RMDs) from a traditional IRA account must:
Begin by April 1 of the year following the one in which the individual turns 72
An investor is considering whether to buy the common or preferred stock of XYZ Corporation. When comparing these two types of securities, which of the following statements are TRUE? Preferred stock is more likely to receive a dividend than common stock Common stock has more potential for capital appreciation than preferred stock Preferred stockholders have greater control over the corporation compared to common stockholders Common stock is generally more liquid than preferred stock
Common stock is generally more liquid than preferred stock ;Provide the client with supplemental sales literature regarding the fund; Common stock has more potential for capital appreciation than preferred stock
Which of the following communications is NOT required to be filed with FINRA?
Communication sent only to customers that are registered investment advisers
Warrants are most likely issued to:
Create an incentive to purchase a bond which is offering a lower interest rate
The primary purpose of an exchange is for:
Creating a marketplace that brings buyers and sellers together
Which of the following retirement plans need not set standards for vesting, eligibility, and funding?
Deferred compensation plans
A broker-dealer is NOT required to maintain a record of which of the following items?
Final prospectuses
The factors that help determine a client's risk tolerance include: Income Age Personality Net worth
I, II, III, and IV
A client is notified by his broker-dealer that certain trades may be executed by an Electronic Communication Network (ECN). Which TWO of the following choices are risks of using this type of system? Trades are not subject to SRO regulations There may be a limited ability to execute transactions Higher commissions are possible The system may only accept certain types of orders
II and IV
The sponsor of the Fenderbender Funds would like to publish some advertisements in several personal finance magazines describing the past performance of the Fenderbender Balanced Fund. In which of the following can the fund's performance be included? A tombstone ad An omitting prospectus ad Generic advertising Supplementary sales literature
II and IV only, Performance information, such as the fund's total return for the past one-, five-, and ten-year periods, may be included in omitting prospectus ads and supplemental sales literature.
What's the FINRA filing requirements for communication that's exclusively made available to institutions?
It is NOT required to be filed with FINRA.
Which of the following statements is TRUE regarding a prime broker?
It may execute and clear transactions, and may also provide securities lending services to a hedge fund
When describing accounts for customers, all of the following are TRUE, EXCEPT:
Joint account information will be reported for both Social Security numbers on Form 1099
For customers who are subject to the alternative minimum tax, a registered representative should understand the implications of investing in:
Limited partnerships
According to anti-money laundering (AML) procedures, a member firm, when opening a new account for a non-U.S. citizen, is required to obtain a:
Passport number and country of issuance
An RR has a potential customer who is interested in international investing and sends the person a prospectus for an international equity fund. The customer then visits the RR's office to ask some questions about the types of risks that are associated with the fund. In order to help the client understand the risks of the fund, which of the following actions may the RR perform?
Provide the client with supplemental sales literature regarding the fund
A broker-dealer is NOT required to maintain a record of which of the following items?
Red herrings
A registered representative invites 20 retail clients to a seminar and allows each client to bring one guest. The sales script that is used for the presentation is considered:
Retail communication
When liquidating a corporation's assets, in which order are claims satisfied?
Secured bondholders, general creditors, preferred stockholders, common stockholders
Which of the following factors is the most important to consider when deciding to recommend a municipal bond unit investment trust to a client?
Tax bracket; While it is useful to know all of these things about a client, the tax advantages of municipal bonds are most important to clients in higher tax brackets. For clients in low tax brackets, a taxable investment is often more appropriate than a tax-exempt security.
A registered representative will be soliciting customers to purchase low-priced equity securities. A special disclosure document must be provided to customers if the securities are quoted on:
The OTC Pink Marketplace
When analyzing the benefits of a nonqualified deferred compensation plan, an individual would consider that the plan would have all of the following characteristics EXCEPT:
The accumulated funds can be used as collateral when purchasing a new home
Which of the following proxy rules is TRUE regarding customer securities held in street name by a brokerage firm?
The corporation sends the proxy to the brokerage firm, which then sends it to the customer
Series K preferred stock has which TWO of the following characteristics? The dividend payable begins at a fixed rate and switches to a floating rate The dividend payable begins at a floating rate and switches to a fixed rate The dividend is cumulative The dividend is non-cumulative
The dividend is non-cumulative; The dividend payable begins at a fixed rate and switches to a floating rate
Common and preferred stock are similar in that:
The dividends for both must be declared by the board of directors
Regarding warrants issued by a corporation, which TWO of the following statements are TRUE? They are issued with a discount subscription price They are issued with a premium subscription price They are relatively long term They are relatively short term
They are issued with a discount subscription price; They are relatively short term
Which of the following statements is NOT TRUE of treasury stock?
Treasury stock has been issued by the U.S. Treasury and was purchased by a corporation
A corporation may choose to pay its shareholders with cash dividends or stock dividends. Which of the following statements concerning the tax status of these events is the most accurate?
While only the cash dividend is taxable when received, the receipt of stock dividends will require the investor to adjust her cost basis per share.
