QBank101

A broker-dealer has engaged in a reverse repurchase (repo) agreement. How was this done? A) An initial sale is followed by a purchase later, at a higher price. B) An initial sale is followed by a purchase later, at a lower price. C) An initial purchase is followed by a sale later, at a lower price. D) An initial purchase is followed by a sale later, at a higher price.

An initial purchase is followed by a sale later, at a higher price. In a reverse repurchase (repo) agreement a dealer agrees to buy securities from an investor and sell them back later at a higher price. In other words, the reverse of a repo agreement.

A 72-year-old customer has a $30,000 required minimum distribution (RMD) calculated to be taken from an IRA. If the customer is in the 20% income tax bracket and only withdraws $25,000 from the account, how much tax will be owed? A) $5,000 B) $7,500 C) $12,500 D) $10,000

$7,500 Failure to meet the required minimum distribution (RMD) results in a 50% penalty tax on the shortfall. In this case, taking only $25,000 when $30,000 should have been taken leaves $5,000 exposed to the 50% penalty tax. $5,000 × 50% equals $2,500. In addition to the penalty tax, the ordinary income tax on the amount withdrawn must also be paid (20% × $25,000 = $5,000). Total tax liability on this withdrawal equals $7,500 ($2,500 penalty tax plus $5,000 ordinary income tax).

An investor purchases 1 KLP October 95 put at 6.50. What is the investor's maximum potential gain with this position? A) $9,650 B) $10,150 C) $9,500 D) $8,850

$8,850

Commercial paper issued by corporations can have maturities as short or as long as A) 1 day or 270 days B) 1 month or 6 months C) 30 days or 360 days D) 1 month or 3 months

1 day or 270 days Commercial paper is issued by corporations to meet short-term cash needs. A form of money market instrument, it can have maturities as short as 1 day (literally overnight) or as long as 270 days (9 months).

Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest as long as their interest in the account does NOT exceed A) 20% B) 25% C) 5% D) 10%

10% If the beneficial interests of restricted persons do not exceed 10% of an account, the account may purchase a new equity issue.

An investor purchased an MJS corporation 6% 20-year bond at issue for $950. Two years later, the investor sold the bond for $925. This investor experienced A) a $25 capital loss B) a $25 interest loss C) a $25 return on investment D) a $925 return on investment

A $25 capital loss If a security is sold for less than the original purchase price, the difference is called a capital loss. This would apply to both equity and debt securities.

Mr. Smith enters a trade in a stock at the same time as Mr. Jones, who has inside information regarding that company. Mr. Smith is considered

A contemporaneous trader Someone who enters into a transaction at the same time as someone else who has and may be acting on inside information is known as a contemporaneous trader. Contemporaneous traders may sue persons who have violated insider trading regulations, and suits may be initiated up to 5 years after the violation has occurred.

A customer has held an account with a broker-dealer for over one year. A registered representative associated with the firm recommends the purchase of an unlisted security trading at $3.50. What documentation, if any, is required prior to the trade? A) A disclosure statement is required, but not a suitability statement. B) No documentation is required. C) A suitability statement is needed, but not a disclosure statement. D) Both suitability and disclosure statements must be obtained.

A disclosure statement is required, but not a suitability statement. Established customers are exempt from the suitability statement requirement but not from the disclosure requirements when penny stocks are being solicited. An established customer is someone who has held an account with the broker-dealer for at least one year (and has made a deposit of funds or securities); or has made at least three penny stock purchases of different issuers on different days.

All of the following people working for a registered broker-dealer would be required to be fingerprinted EXCEPT A) a clerk handling all incoming mail B) the director of training C) a driver assigned to high-net-worth clients D) the chief compliance officer (CCO)

A driver assigned to high-net-worth clients Registered broker-dealers must have fingerprint records made for most of their employees, including all directors, officers, and partners, those involved in sales and those who handle cash or customer securities. While a clerk handling all incoming mail is likely to be to in a position to handle cash or securities coming to the BD, a driver is not.

Which of the following must be a member of the Securities Investor Protection Corporation (SIPC)? A) A firm that deals only with mutual funds B) A firm that deals only in industrial development revenue bonds C) A firm that deals only in U.S. government bills, notes and bonds D) A firm that deals only in OTC and exchange listed stocks

A firm that deals only in OTC and exchange listed stocks The Securities Investor Protection Act, which established SIPC, was passed in 1970 to protect persons with brokerage accounts from loss due to failure of their broker-dealer. Firms with such accounts are required to join, with the exception of dealers exclusively in government and municipal bonds, and those involved only with investment company securities.

A new registered representative receives a memo discussing the distribution of a "red herring." The RR knows that the memo is referencing A) a registration statement B) a final prospectus C) a preliminary prospectus D) a tombstone advertisement

A preliminary prospectus The term "red herring" is derived from the disclaimer printed in red on the cover page of a preliminary prospectus. Some key information that would be found in a final prospectus, such as price, is not found in the preliminary prospectus.

Deflation occurs during A) a depression, coinciding with economic expansion in the business cycle B) a recession, coinciding with an economic contraction C) a recession, coinciding with economic peaks D) a depression, coinciding with an economic trough in the business cycle

A recession, coinciding with an economic contraction Deflationary periods in the economy are most associated with severe recessions. Recessions occur during periods of economic contraction in the business cycle.

An investor with no existing positions in MMS stock sells 100 shares. This is A) a short bearish position B) a short bullish position C) a long bullish position D) a long bearish position

A short bearish position With no other existing positions, this sale transaction would have to be opening a position. Sell to open a position = short = bearish.

When Options Clearing Corporation receives a notice to exercise, it will assign that notice to A) the party short the contract B) the party long the contract C) a short broker-dealer D) a long broker-dealer

A short broker-dealer The exercise and assignment process is as follows: A long customer notifies its broker-dealer (long broker-deal). The long broker-dealer notifies OCOCC then assigns the short broker-dealer, who will then in turn assign its short customer.

An investor notices that a bond purchased several years ago at 95 is now priced at 90. The investor sells the bond for 90, then immediately repurchases it for 90. This action is known as A) a wash sale B) matched orders C) pegging D) marking the close

A wash sale The investor's intent with this wash sale is to declare a $50 capital loss without changing positions on the bond. Immediate repurchase is not illegal, but it precludes declaring the loss for tax purposes. The investor must wait at least 30 days before buying the bond back, or the loss will be disallowed.

A clearing corporation agent or depository for securities transactions A) can never be a corporation B) can be a bank or corporation only if they are also a broker dealer C) can be a commercial bank D) must be a broker-dealer

Can be a commercial bank A clearing agent can be a broker-dealer but doesn't have to be. In addition to broker-dealers, commercial banks can act as clearing agencies and depositories, as can corporations that are set up specifically to clearing securities transactions and taking custody of funds and securities.

Preferred shares have A) characteristics of neither equity nor debt securities B) only the characteristics matching those of debt securities C) only the characteristics matching those of equity securities D) characteristics of both equity and debt securities

Characteristics of both equity and debt securities Preferred shares are equity securities, but not only do they have the characteristics of equity securities, they share some of the characteristics of debt securities as well. The most notable characteristic is that a preferred stock's annual dividend represents its fixed rate of return, like the fixed rate of return for a bond (debt security).

Under the Uniform Securities Act, states have which of the following 2 ways to register securities to be sold? Preparation Integration Coordination Qualification A) II and III B) III and IV C) I and II D) I and IV

Coordination Qualification Securities to be sold within a state require registration at the state level. States have 2 ways to register (or blue sky) securities: coordination and qualification.

All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities EXCEPT A) carrying firms B) the Depository Trust Company C) the National Securities Clearing Corporation D) credit unions

Credit unions Credit unions cannot serve as a depository or clearing facility for securities transactions.

Which of the following must be opened as a cash account?. Custodial accounts Individual retirement accounts Joint accounts Partnership accounts A) I and III B) II and IV C) I and II D) III and IV

Custodial accounts Individual retirement accounts Certain accounts, such as IRAs, corporate retirement accounts, and custodial accounts, must be opened as cash accounts as opposed to margin accounts. For individual accounts, joint accounts, and corporate and partnership accounts, there is no such requirement, though the final decision on them is up to the broker-dealer carrying the account.

Industries that tend to be highly sensitive to inflation, deflation and the ups and downs of business trends would BEST be described as A) Cyclical B) Keynesian C) Growth D) Defensive

Cyclical Cyclical industries are highly sensitive to business cycles (the ups and downs of business trends) and inflationary or deflationary trends. Most cyclical industries produce durable goods, such as heavy machinery, or material such as steel to be utilized by other industries like the automobile industry. Demand for such goods increases when we are in periods of prosperity but during recessions, the demand for such products declines as manufacturers postpone investments in new capital goods and consumers postpone purchases of these goods.

A prospectus must be delivered to customers following a transaction in all of the following EXCEPT A) unit investment trust B) ETFs C) follow-on offering of common stock by a public reporting company D) mutual funds

ETFs ETFs make final and summary prospectuses available, for example on a website, for viewing or downloading but there is no requirement to send one to those who trade the exchange-traded fund. Publicly traded closed-end funds are not obligated to deliver a prospectus when traded in the secondary market place.

Negotiable jumbo CDs are issued in denominations of $100,000 to $1 million and trade in the secondary market. Most jumbo CDs are issued with maturities of one year or less. These CDs are unsecured promissory notes backed only by the credit standing of the issuing institution.

Each issue generally matures in 5 to 10 years Negotiable jumbo CDs are issued in denominations of $100,000 to $1 million and trade in the secondary market. Most jumbo CDs are issued with maturities of one year or less. These CDs are unsecured promissory notes backed only by the credit standing of the issuing institution.

Which of the following is NOT a type of real estate direct participation program? A) Income B) New construction C) Existing properties D) Raw land

Income Direct participation real estate programs come in 3 types: raw land, new construction, and existing properties. Income is a type of oil and gas program.

Under the Telephone Consumer Protection Act of 1991 (TCPA), administered by the Federal Communications Commission (FCC), a telephone solicitation is defined as a telephone call A) made to anyone within the same state as the originator of the call B) made only to those who have expressed an interest in purchasing the products offered by BDs C) initiated for the purpose of encouraging the purchase of investment products only such as securities D) initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services

Initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services Administered by the Federal Communications Commission (FCC) the Telephone Consumer Protection Act of 1991 (TCPA) defines a telephone solicitation as any telephone call initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services. This would include products and services offered in the securities industry by BDs.

A hedge fund having a "lock-up provision" means that A) investors are required to maintain the investment for a minimum length of time B) provisions have been made to "lock up" new buyers so sales of shares can be made easily C) a minimum return is guaranteed or investments are fully refundable—locked-up D) the fund organizers are fully accountable and can be sued in the courts with full ramifications

Investors are required to maintain the investment for a minimum length of time A "lock-up provision" means that the fund requires investors to hold their shares for a minimum length of time that the fund establishes. Therefore funds having a "lock-up provision" are associated with being illiquid.

FINRA's Conduct Rules regarding gifts and gratuities would permit a branch manager to A) invite a portfolio manager to see a popular Broadway show together B) offer 2 tickets to the portfolio manager only if their value did not exceed $100 C) offer a portfolio manager 2 tickets to all shows for that theater season D) transfer ownership and the rights to a luxury box to the portfolio manager

Invite a portfolio manager to see a popular Broadway show together A gift of tickets to a single event would be permitted under the Conduct Rules. A scenario where a representative of the firm accompanies the guest would fall under the heading of normal business dealings and the requirement that gifts be of no more than $100 in value is waived.

A partnership account wants to trade on margin. When would this be permitted? A) Never B) Only if it is not restricted from doing so in the partnership resolution C) Only if it is specifically stated as being permitted in the partnership resolution D) Always

Only if it is not restricted from doing so in the partnership resolution A partnership account will be allowed to trade on margin as long as there are no restrictions against doing so in the partnership resolution. This is the same standard used for corporate accounts.

Which of the following would have no effect on the NAV per share of a mutual fund share? A) The fund pays its monthly operating expenses like utility bills. B) Portfolio securities had to be sold for a big capital loss. C) The portfolio's market value undergoes a large increase. D) The fund receives a dividend from one of the portfolio stocks.

Portfolio securities had to be sold for a big capital loss. Selling securities out of the portfolio, whether for a gain or a loss, simply replaces the securities with an equivalent amount of cash, leaving the NAV per share unchanged. The other choices involve changes in net assets with no accompanying change in the number of shares outstanding, which would change the NAV per share.

The general partner of a limited partnership has responsibility for all the following EXCEPT A) organizing the business B) paying partnership's debts C) managing the day-to-day operations D) providing all of the partnership capital

Providing all of the partnership capital The general partner organizes and manages the partnership and assumes unlimited liability, responsible for paying all partnership debts. While some capital may also be provided by the GPs, it is the limited partners who provide the bulk of the capital.

All of the following are nonsystematic risks EXCEPT A) call risk B) purchasing power risk C) business risk D) capital risk

Purchasing power risk Purchasing power or inflation risk is a systematic risk. Capital risk, business risk, and call risk, among others, are nonsystematic risks, those that portfolio diversification can help to reduce.

Short-term securities that generate funds for a municipality that expects alternate longer-term financing include all of the following EXCEPT: A) TANs B) BANs C) REITs D) RANs

REITs Tax anticipation notes (TANs) for example are used to finance current operations in anticipation of future tax receipts. This helps municipalities to even out cash flow between tax collection periods. Similarly, BANs, bond anticipation notes will be converted to long-term financing through the sale of bonds and so on. REITs are not a municipal security. They issue shares of beneficial interest in a trust set up for real estate investment.

In what order do the following economic phases typically occur? Recovery Trough Decline Prosperity A) I, IV, III, II B) II, I, III, IV C) III, IV, I, II D) IV, III, I, II

Recovery Prosperity Decline Trough

In an effort to safeguard customer information which regulation specifies securing desktop and laptop computers and encrypting email? A) Regulation T B) The Securities Exchange Act C) Regulation A D) Regulation S-P

Regulation S-P Safeguard requirements such as securing desktop and laptop computers and encrypting email to protect customer information is an obligation of financial institutions under Regulation S-P.

Which of the following are the 2 basic types of Section 529 plans, which are products used for funding higher education? Savings plans Education savings accounts Secondary school funding plans Prepaid tuition plans A) II and III B) II and IV C) I and III D) I and IV

Savings plans Prepaid tuition plans The savings plan allows the investor to accumulate money for use later in funding someone's education. The prepaid tuition plan allows the purchaser to pay the tuition for a particular K-12 or higher education institution at current rates, either in a lump sum or by periodic payments. The beneficiary of the plan then attends the institution, perhaps many years later, tuition-free. Note that ESAs are not a type of 529 plan.

What does the mortality guarantee of a variable annuity insure? A) That total payments over the annuitant's life will meet a specific minimum B) That payments will continue for the annuitant's life expectancy C) That payments will continue for the life of the annuitant D) That each monthly payment will meet a specific minimum

That payments will continue for the life of the annuitant The mortality guarantee of a variable annuity, which the insurance company assumes as part of mortality risk, insures that payments will continue for the life of the annuitant. It does not guarantee the size of the payments.

Which of the following would you expect to have the lowest expense ratio? A) The ABC Corporate Bond Fund B) The MNO Small Cap Growth Fund C) The XYZ Aggressive Growth Fund D) The QRS Stock Income Fund

The ABC Corporate Bond Fund Bond mutual funds typically have lower expense ratios than stock funds, which tend to be riskier and require more sophisticated investment strategies. The ABC Bond fund is the only bond mutual fund listed. Growth funds involve equities (stock), and of course, the stock income fund specifies equities as well.

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 Securities Act of 1933 B) The Investment Company Act of 1940 C) The Securities Investors Protection Act of 1970 D) The Trust Indenture Act of 1939

The Securities Act of 1933 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.

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

The account records system has been changed to a new format 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.

An investor purchased 100 shares of LMN in 2013 at a price of $40 per share. Soon after, the LMN declared a 25% stock dividend. Three years after the shares were purchased, they were sold at $50. Which of the following statements are CORRECT? The adjusted cost basis of the shares is $30. The adjusted cost basis of the shares is $32. There is a short-term capital gain on all the shares sold. There is a long-term capital gain on all the shares sold. A) II and IV B) I and IV C) I and III D) II and III

The adjusted cost basis of the shares is $32. There is a long-term capital gain on all the shares sold. When a company declares a stock dividend, the cost basis per share is always reduced. The customer will receive 25 new shares (100 shares × 0.25 = 25). The computation is the original total cost $4,000 (100 × $40) divided by the new number of shares 125 (100 + 25). $4,000 / 125 shares equals a new cost basis per share of $32. The holding period for capital gain or loss (short or long term) is always from the original purchase date. In this case, because the shares were sold 3 years later at 50, the gains are long term.

Meeting the location requirements and the borrowing of securities when a customer wants to sell short is done by A) the broker-dealer on behalf of the short-selling customer B) the customer who wants to sell short C) the purchaser of the securities being sold short D) the customer or entity that the shares will be borrowed from

The broker-dealer on behalf of the short-selling customer Meeting the location requirements and the borrowing of securities is done by the back office of the broker-dealer on behalf of the short-selling customer. Meeting these requirements is not something the short-selling customer would undertake without a broker-dealer.

For securities held in "street name," which of the following is TRUE? A) The customer is the named or nominal owner. B) The bank accepting the securities as collateral is the beneficial owner. C) The customer is the beneficial owner. D) The broker-dealer is the beneficial owner.

The customer is the beneficial owner. When securities are held in street name (the name of the broker-dealer), the BD is the named or nominal owner, but the customer is still the beneficial owner retaining all rights of ownership.

Considered the most volatile of the benchmark interest rates in the economy would be A) the federal funds rate B) the prime rate C) the broker call loan rate D) the discount rate

The federal funds rate The federal funds rate is the rate banks charge each other for overnight loans of $1 million or more. With overnight representing the shortest of loans and short-term interest rates being the most volatile, this rate is considered to be the most volatile of all the benchmark interest rates.

As an investment vehicle, and regarding the tax consequences, REITS are organized as A) trusts B) corporations C) debt instruments D) mutual funds

Trusts Real estate investment trusts, as their name tells us, are organized as trusts. Assets held in the trust and the distributions made can impact the tax consequences for the trust. As an investment vehicle, shares are sold to investors and these shares sometimes trade on exchanges. Whether traded or nontraded, the shares are considered to be equity (not debt) securities.

A corporate stock is purchased on Friday, April 2, regular way. When will the trade settle? A) Monday, April 5 B) Tuesday, April 6 C) Wednesday, April 7 D) Friday, April 2

Tuesday, April 6 For corporate securities, regular way settlement is the trade date (Friday, April 2) plus two business days; therefore, the trade will settle on Tuesday, April 6.

After receiving a written complaint letter from a client, an RR should A) employ a thorough investigation and provide a report to the SEC B) turn the complaint over to the appropriate supervisor or principal C) contact the client immediately to attempt reaching a resolution to the issue D) forward copies immediately to FINRA or the appropriate SRO

Turn the complaint over to the appropriate supervisor or principal

A strong U.S. dollar leads to more A) U.S. exports and a balance of payments deficit B) U.S. imports and a balance of payments deficit C) U.S. imports and a balance of payments surplus D) U.S. exports and a balance of payments surplus

U.S. imports and a balance of payments deficit When the dollar is strong, it is more affordable for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit.

Regarding purchases on margin, which of the following is TRUE? A) Rights can be purchased on margin, but warrants cannot. B) Warrants can be purchased on margin, but rights cannot. C) Neither rights nor warrants can be purchased on margin. D) Warrants and rights can both be purchased on margin.

Warrants can be purchased on margin, but rights cannot.

T-bills are issued (auctioned) by the U.S. Treasury Department how often?

Weekly

Someone who is short 1 August 35 put at 3 will breakeven at A) 38 B) 35 C) 30 D) 32

32 For puts, the breakeven is found by subtracting the premium (3) from the strike price (35). Put sellers are bullish; therefore, the short put contract is profitable at or above the breakeven at expiration.

Which of the following is TRUE for debt instruments issued by the U.S. Treasury? A) All are issued in book-entry form. B) All have interest stated as a percentage of par value. C) All are priced as a percentage of par value. D) All pay semiannual interest payments.

All are issued in book-entry form. U.S. Treasury-issued debt instruments are all issued in book-entry form. Only T-notes and bonds are priced as a percentage of par, have interest stated as a percentage of par, and pay semiannual interest payments. T-bills are issued at a discount, have no stated interest rate, and do not pay interest until maturity.

In a proxy contest, which of the following must register with the Securities and Exchange Commission? All shareholders who have been approached by solicitors All persons participating in proxy solicitation The upper management of the corporation who are also shareholders All persons providing shareholders with unsolicited advice A) I and IV B) I and III C) II and IV D) II and III

All persons participating in proxy solicitation All persons providing shareholders with unsolicited advice

In a leasing partnership program, loans are taken to purchase equipment that is then leased to companies in return for the lease payments. This process A) allows for the loan interest and equipment depreciation to be taken as deductions that will shelter the income from the lease payments received B) eliminates any possibility of sheltering the income from the lease payments received with deductions or credits C) enables the partners to take tax credits against the income received from the lease payments D) allows for the equipment to be depreciated, adding to the income realized by the partnership

Allows for the loan interest and equipment depreciation to be taken as deductions that will shelter the income from the lease payments received When a leasing program purchases equipment that it will lease to companies in return for the lease payments, the program can deduct over the life of the program any interest costs on the loans to purchase the equipment, as well as any depreciation on the equipment it owns and leases. These deductions shelter the income taken in from the lease payments.

Which of the following choices would BEST describe a "follow-on" offering? A) An IPO that has additional shares added by the issuer on the effective date B) An offering to the employees of the issuing company C) An issue of shares by a public company that is already listed on an exchange D) The common stock that is issued attached to a "rights" offering

An issue of shares by a public company that is already listed on an exchange A follow-on public offer (FPO) is an issue of shares by a public company (registered and reporting to the SEC) that is currently listed on an exchange and has previously gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in the capital markets through a stock issue.

Treasury bills A) are always issued at a slight premium to par value B) can be issued with initial maturities of 3, 12, 24, and 50 weeks C) have the highest interest-rate risk of all Treasury securities D) are issued at a discount without a stated interest rate

Are issued at a discount without a stated interest rate Treasury bills are always issued at a discount, without a stated interest rate. Because of their short-term maturities, they have the lowest interest-rate risk for Treasury securities, not the highest. They are issued with maturities of 4, 13, 26, and 52 weeks.

Hedge funds A) are highly regulated, starting with the requirement to be registered with the SEC B) are nonregulated but still require SEC registration C) are regulated under the Investment Company Act of 1940 with no SEC registration required D) are nonregulated with no SEC registration required

Are nonregulated with no SEC registration required Hedge funds do not require registration with the SEC and are therefore considered to be nonregulated. Furthermore, they do not come under the Investment Company Act of 1940.

The repayment or maturity date of a banker's acceptance is normally which of the following? A) As short as 1 day or as long as 30 days B) As short as 3 months or as long as 9 months C) As short as 1 month or as long as 6 months D) As short as 1 day or as long as 270 days

As short as 1 day or as long as 270 days Banker's acceptances are short-term time drafts, making them money market instruments. Maturity (payback) dates are normally between 1 day and 270 days (9 months).

Regarding open-end and closed-end investment companies, all of the following are true EXCEPT A) both offer an unlimited number of shares in a continuous public offering B) both may avoid taxation by distributing all of their net investment income to shareholders C) both may be either diversified or nondiversified portfolios D) both may offer numerous investment objectives to select from

Both offer an unlimited number of shares in a continuous public offering The key difference between open-end investment companies and closed-ends is the fact that new shares are continuously being offered and are unlimited in number for open-end companies. In the case of the closed-end, the number of shares is fixed and once the IPO is over, the only way to acquire shares is in the secondary market. Both types of funds may operate as regulated investment companies and avoid taxation, both may choose to be diversified or not, and both offer a wide variety of investment objectives.

A registered representative provides financial support and housing at her home for her grandfather. Regarding the purchase of new issues, A) the grandfather is restricted, but the RR is not B) both persons are considered restricted C) the RR is restricted, but her grandfather is not D) neither are considered restricted

Both persons are considered restricted Working for a BD, the RR is considered restricted. While grandparents of restricted persons are generally not considered restricted, anyone being provided financial support and/or living under the same roof as a restricted person (as is the case here) is also restricted.

Recommendations regarding investment strategies under the "know your customer" (KYC) rule would NOT apply to recommendations to A) buy, hold, or sell common stock B) make purchases and sales intraday (day trading) C) make equity purchases in a particular market sector D) buy or sell commodities

Buy or sell commodities The definition of "investment strategy" does not include non-security investments such as commodities or fixed annuities. The term does apply to recommendations to invest in (buy), hold, or sell specific securities, as well as specific market sectors; trading, both long or short-term; or divesting of any asset or investment to make funds available to purchase securities.

Which of the following oil and gas direct participation programs might be considered the riskiest? A) Income B) Combined exploratory and income C) Exploratory D) Raw land

Exploratory Exploratory programs, also called wildcatting programs, are those that look for resources near existing producing wells in the hopes of finding more deposits. These are considered riskiest of the oil and gas programs—exploratory, income or a combination of the 2. Raw land is a type of real estate program, not an oil and gas program.

A customer receives a Regulation T margin call for $3,200. To meet the deposit requirement, which of the following can be deposited? A) Cash in the amount of $1,600 B) Fully paid for marginable securities totaling $1,600 in market value C) Fully paid for marginable securities totaling $6,400 in market value D) Fully paid for marginable securities totaling $3,200 in market value

Fully paid for marginable securities totaling $6,400 in market value 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.

Tax credits for partners in a real estate program can come primarily from A) historic rehabilitation and any rent-producing properties B) any property with the potential to appreciate in value C) income-producing properties, both residential and retail D) government-assisted housing and historic rehabilitation properties

Government-assisted housing and historic rehabilitation properties For partners in a real estate programs, tax credits would come primarily from programs concentrating on properties designated for government-assisted housing or historic rehabilitation. These are credits offered by the federal government.

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

Hedge fund 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 growth potential in the price of preferred shares is generally considered to be A) unrelated to the financial well-being of the issuer B) less than that of the issuer's common shares C) no different than that of the issuer's common shares D) greater than that of the issuer's common shares

Less than that of the issuer's common shares While the growth potential of both common and preferred shares can be tied to a company's financial well-being, preferred share growth is generally less than that of the common shares. The trade-off is that the preferred shares have preference with dividends received, enjoy a fixed rate of return via those dividends, and have a priority claim over common shareholders in the event of bankruptcy and the dissolution of assets.

All the following are exempt from the Securities Act of 1933 EXCEPT: A) U.S. Treasury securities B) Fixed annuity contracts C) Limited partnership D) Debt securities issued by religious organization

Limited partnership Limited partnership interests are not exempt securities. The exempt securities include U.S. government securities, municipal bonds, commercial paper and banker's acceptances that have maturities of less than 270 days, insurance policies and fixed annuity contracts (but not variable annuities), charitable, religious, educational, and nonprofit association issues and more.

Short sellers have A) limited profit potential and an unlimited loss potential B) unlimited profit and loss potential C) unlimited profit potential and limited loss potential D) limited profit and loss potential

Limited profit potential and an unlimited loss potential Short sellers are bearish—wanting to see the stock go down in value. Because stock could only go down as far as zero, the profit for a short seller is limited to the difference between the price the stock was shorted at and zero. By contrast, the risk for a short seller is that the stock goes up in value and there is no limit to how high the stock might rise, giving the short seller potentially unlimited losses.

Which of the following statements about listed options is TRUE? A) The Options Disclosure Document (ODD) must be delivered to only those who purchase out-of-the-money calls or puts. B) Listed options settle on the next business day after the trade date (T+1). C) All in-the-money options are profitable. D) Breakeven of a call option may be found by adding its strike price to the market value of the underlying stock.

Listed options settle on the next business day after the trade date (T+1). Listed options settle on the next business day after the trade date (T+1). Whether long or short a call option contract is deemed in-the-money when the market price of the stock is above the strike price by any amount. However, an option that is in-the-money may not necessarily be profitable. For example, if a call option were purchased at 3 but in-the-money by 2, there would be a loss of 1 if the option were closed (sold) at or near expiry.

Large time deposits of more than $100,000 are considered to be found in what part of the money supply? A) M1 and M2 B) M2 C) M1 D) M3

M3 M3 is where time deposits of more than $100,000 and repurchase agreements with terms longer than one day are found.

Which of the following is TRUE regarding a member firm operating under FINRA membership or the membership of another self-regulatory organization (SRO)? A) Member firms may never incorporate proprietary trading into their business model. B) Member firms must always accommodate dealing with retail investors and not limit business to that done with other industry professionals. C) Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options and others, or limit the products they offer to only a few. D) Member firms are required to be full-service broker-dealers.

Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options and others, or limit the products they offer to only a few. Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, and derivatives like options and others (be full service), or limit the products they offer to only a few. They need not adopt proprietary trading into their business model but can if they wish to. Likewise, they need not accommodate doing business with retail customers if they wish to deal only with other industry professionals, such as institutional investors.

Select the two distinctive types of policies that impact the U.S. economy. A) Balance of payments and balance of trade B) Monetary and fiscal C) Federal and municipal D) M1 and M2

Monetary and fiscal

Which of the following activities constitute pegging? Immediate repurchase of a security, purchased some time ago and just sold at a loss Multiple purchases a security during a down market to keep it from falling Two investors trading a security back and forth several times within one day Protecting a short call option from being exercised by placing sell orders during the day in the underlying stock A) I and IV B) II and IV C) I and III D) II and III

Multiple purchases a security during a down market to keep it from falling Protecting a short call option from being exercised by placing sell orders during the day in the underlying stock Any action to fix or stabilize the price of a security is pegging. Choice II would keep the price up, which would protect the holder of a long position; this is known as supporting. Choice IV would keep the price down, which would protect the holder of a short call; this is known as capping. Both constitute pegging.

An associated person of a FINRA member firm would not be considered a municipal finance professional (MFP) if involved solely in which of the following? A) Underwriting municipal securities for the firm B) Municipal securities communications with customers C) Municipal securities sales to customers D) Research involving municipal securities for the firm

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.

Which if the following may NOT be purchased on margin but can be used as collateral for a margin loan after being held for 30 days? A) Warrants B) Equities C) Mutual funds D) Options

Mutual funds Neither mutual funds nor new issues can be purchased on margin. However, both may be used as collateral for a margin loan after being held for 30 days. Options are not marginable securities, but equities, bonds, and warrants are.

Some institutions can function as a depository and intermediary for settling transactions between buyers and sellers of securities. All of the following are acceptable for this purpose EXCEPT A) the Depository Trust Company B) national banks C) the National Securities Clearing Corporation D) carrying firms

National banks Being a bank alone does not allow for serving as a depository or clearing facility for securities transactions. The National Securities Clearing Corporation and the Depository Trust Company are set up specifically to perform these functions, and they may also be performed by broker-dealers known as carrying or clearing firms.

A municipal securities dealer has just made a contribution to the mayor's reelection campaign. How long must the firm wait before it can enter competitive bids on proposed bond issues by the city? A) No waiting period B) 6 months C) 2 years D) Can never underwrite a bond for the city again

No waiting period If a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a 2-year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not.

Which of the following are fixed at the time a bond is issued? A) Yield to maturity B) Nominal yield C) Yield to call D) Current yield

Nominal yield Coupon, nominal, or stated yield is set at the time of issue and is a fixed percentage of the bond's par value.

An exception report would be most likely generated by which of the following observations? Seeing activity in the account of a deceased person Noting that a customer's telephone area code matches the ZIP code provided Receiving an execution for 300 shares when the order was for only 100 Receiving a written complaint from a customer A) I and II B) I and III C) II and III D) II and IV

Seeing activity in the account of a deceased person Receiving an execution for 300 shares when the order was for only 100 There are a number of red flags that might generate an exception report. Among them are a trade in the account of a deceased person and a trade for an amount in excess of the customer's order. Address numbers or area codes matching what we know or is expected is not a red flag nor is a single complaint, but excessive complaints could be.

Correspondent firms would be likely to have relationships with which of the following types of broker-dealers? A) Self-clearing B) Introducing C) Market maker D) Fully disclosed

Self-clearing A self-clearing (or carrying) firm holds funds and securities of the fully disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms for whom the carrying firm performs these services are known as their correspondents.

Member firms violate rules regarding sales of new equity issues to restricted persons when they do which of the following? Sell a new issue to one of their own customers Sell blocks of the new issue to accounts of partners or officers of the member firm Sell shares to the grandparent of a member affiliate Sell to accountants or attorneys acting on behalf of the underwriters A) I and III B) I and IV C) I and II D) II and IV

Sell blocks of the new issue to accounts of partners or officers of the member firm Sell to accountants or attorneys acting on behalf of the underwriters Rules prohibit the sale of a new equity issue to other brokers, partners, officers, employees of firms in the syndicate or selling group offering the issue, and their immediate or supported family members. For purposes of this rule, aunts, uncles, and grandparents are not considered immediate family.

T-notes pay interest A) monthly B) annually C) quarterly D) semiannually

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

To meet a Regulation T margin call, a customer would have how long? A) Settlement plus 2 additional business days B) Trade date plus 5 additional calendar days C) Trade date plus 2 additional business days D) Settlement date plus 2 additional calendar days

Settlement plus 2 additional business days The rule requires that the call be met within 2 business days of the settlement date, referred to as S + 2. If regular way settlement was T + 2, adding 2 additional business days to the trade date would be T + 4.

Banker's acceptances are A) intermediate-term debt instruments issued by banks to corporations B) short-term time drafts issued by banks to corporations C) short-term time drafts issued by banks to the federal government D) intermediate-term debt instruments issued by the federal government to banks

Short-term time drafts issued by banks to corporations Used by corporations to finance international (foreign) trade, BAs are issued by banks to corporations. They are considered money market instruments because of their short-term maturities, generally no longer than 270 days (9 months).

A toy company is experiencing sudden strong demand for a game. Purchasing this company's stock may prove profitable in the short run. This company's stock might BEST be termed as a(n) A) Growth B) Short sale C) Cyclical D) Special situation

Special situation Special situations arise when a company shows unusual profit potential resulting from nonrecurring circumstances. These situations might include new management, the discovery of a valuable natural resource on corporate property, patents pending, or the introduction of a new product.

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

Stock 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.

The prospectus delivery requirement, access equals delivery, is satisfied when A) a red herring is initially sent by mail to investors during the cooling-off period B) the final prospectus has been filed with FINRA and is available on FINRA's website for investors to see C) the preliminary prospectus has been filed with FINRA and is therefore available on FINRA's website for investors to see D) the final prospectus has been filed with the SEC and is available on the SEC's website for investors to see

The final prospectus has been filed with the SEC and is available on the SEC's website for investors to see Beyond physical delivery of a paper prospectus, access equals delivery is the industry standard for meeting the final prospectus delivery requirements. It is deemed to be satisfied when the final prospectus has been filed with the SEC and is therefore available on the SEC's website for investors to log in and see. This standard does not apply to delivery of a preliminary prospectus before the effective date.

A diversified growth fund charging 0.4% of net assets per year as a 12b-1 fee may NOT make which of the following statements? A) The fund will have a calculated fully disclosed expense ratio. B) The fund will have a diversified portfolio with a stated investment objective. C) The fund will pay its investment adviser a specified percentage of funds under management. D) The fund is a no-load fund.

The fund is a no-load fund. The fund would be expected and required to make statements regarding its diversification status, its expense ratio, and the rate at which it pays its adviser. It definitely may not, however, claim to be a no-load fund if it charges a 12b-1 fee, fees charged to market the fund's shares, of more than 0.25% of net assets.

An investor looking to speculate in penny stocks would be exempt from the suitability statement requirement under which of the following circumstances? A) The investor is an established customer. B) The investor's account is approved for margin purchases. C) The investor has already received the risk disclosure statement. D) The investor is already exempt from the risk disclosure requirements.

The investor is an established customer. Established customers are exempt from the penny stock suitability statement requirement. An established customer is someone who has held an account with the broker-dealer for at least one year (and has made a deposit of funds or securities); or has made three purchases of qualifying penny stocks that occurred on separate days and involved different issuers. No one is exempt from the risk disclosure requirements.

Regarding municipal general obligation (GO) bonds, which of the following is TRUE? A) The higher the statutory debt limit, the safer for bondholders B) The lower the statutory debt limit, the safer for bondholders C) The lower the statutory debt limit, the higher the risk will be for bondholders D) The higher the statutory debt limit, the less risk of excessive borrowing by the municipality

The lower the statutory debt limit, the safer for bondholders Municipal debt limits, known as statutory debt limits, can make a bond safer for investors. These limit the amounts of debt that the municipality can incur. The lower the debt limit, the less risk of excessive borrowing and default by the municipality, and thus the issuer's securities are safer for investors.

A securities firm that is not a FINRA member wishes to do trades with a FINRA member firm. Which of the following statements is TRUE regarding this situation? A) The firm may buy at a markdown from the public offering price, but it may receive no markup from the bid price. B) The firm may receive markups or markdowns from principal transactions, but it may not receive commissions from brokered transactions. C) The firm may sell at a markup from the public bid price, but it may receive no markdown from the public offering price. D) The nonmember firm will receive no concessions, but it will buy at the public offering price and sell at the public bid price.

The nonmember firm will receive no concessions, but it will buy at the public offering price and sell at the public bid price. A domestic nonmember firm dealing with a member firm must be treated like any member of the public. It may not be granted markups, markdowns, commissions, or concessions, but it must purchase at the public offering price and sell at the public bid price.

It would be expected that a repurchase (repo) agreement contract would include A) the repurchase price and the rate of return B) the rate of return and maturity date C) the repurchase price and the maturity date D) the maturity date only

The repurchase price and the maturity date A repurchase (repo) agreement contract would include the repurchase price (the price that the securities initially sold would be bought back at) and the maturity date (the date that the initial sale would be reversed). The return would be the difference between the initial sale price and the repurchase price.

Which of the following statements best describes financial risk? A) The risk that when interest rates decline, it is difficult to invest proceeds from redemptions B) The risk that a security with a call feature might be called before maturity C) A risk generally caused by poor management and operating decisions D) The risk that an issuer will be unable to meet interest and principal payments on debt obligations

The risk that an issuer will be unable to meet interest and principal payments on debt obligations Financial risk emanates from the use debt financing (leverage). It represents the potential inability to meet interest and principal payments on debt obligations, which can lead to bankruptcy. It is sometimes called credit risk or default risk.

All of the following are true of tombstone advertisements EXCEPT A) they would be expected to show the number of shares to be offered B) they are not an offer to sell or solicit sales for the securities C) they are mandatory and must be placed during the cooling-off period D) they can be placed by the underwriters

They are mandatory and must be placed during the cooling-off period Tombstone advertisements are not mandatory. They can be placed by the issuer or the underwriters and contain only bare bones facts about the new issue that is limited in scope and detail. However, expected information to be found there would include the name of the issuer and underwriters, type of security, number of shares to be offered, and the offering price or expected price range. All must have a disclosure or advisory that the ad is not an offer to sell or solicit sales for the shares.

An issuer that is already a publically traded company wants to register new securities without selling any of the shares until later when it anticipates it will be retooling all of its existing manufacturing plants. Which of the following applies? A) This can be accomplished by utilizing a new initial public offering, which is necessary for registration of all new shares. B) This can be accomplished by utilizing a shelf registration specifically designed to register shares presently to be sold later. C) This cannot be done because newly registered securities must be made available for sale immediately. D) This can be accomplished by utilizing an additional issue offering, which is specifically for publically traded companies wanting to register new shares to be issued later.

This can be accomplished by utilizing a shelf registration specifically designed to register shares presently to be sold later. A shelf offering (registration), allows an issuer that is already a publically traded company to register new securities without selling any of the shares until later or waiting to sell a portion of the shares later when the capital might be needed.

Mary Alice McVey, a registered representative with a FINRA member broker-dealer, has recently remodeled her home and now has an area with a private entrance that she would like to use instead of commuting each day to her office 20 miles away. Under FINRA rules A) she would only be permitted to see existing customers at her home. B) this would be permitted with FINRA's approval, but she would have to work at least one day per week in the branch in order to ensure proper supervision. C) this would be permitted with FINRA's approval D) registered representatives may not operate out of their homes

This would be permitted with FINRA's approval FINRA rules provide for the ability of registered representatives to operate out of their residence in what is known as a home office. Approval from FINRA is required and the same rules that apply to any branch office would apply here.

Your firm must provide a privacy notice describing its privacy policies to customers A) whenever a new account is opened and annually thereafter B) whenever a new account is opened only C) every third year after the account has been opened D) only when the customer indicates a change be made in information previously supplied

Whenever a new account is opened and annually thereafter Privacy Notifications under Regulation S-P must be provided to customers whenever a new account is opened and annually thereafter.

An investor has purchased Class A mutual fund shares. The NAV (net asset value) per share of the fund is the price the investor A) will use as the cost basis in tax return filings once redeemed B) will receive upon redemption of the shares C) knows will be the cost per share when the order is entered D) has paid for the shares when purchased

Will receive upon redemption of the shares The NAV per share of a mutual fund is calculated by dividing the net assets of the fund by the number of shares outstanding. When purchasing Class A shares, NAV plus a sales charge is paid. When redeeming the shares, the investor simply receives NAV. Remember that for purchases and redemptions of mutual fund shares, the next calculated NAV per share is used, a practice known as forward pricing. Therefore, when purchasing or redeeming shares, because mutual funds use forward pricing, the investor can never be certain of the exact price that will be paid or received when entering the order.

For a callable bond priced at a discount, A) YTC will be lower than the CY B) YTC will be lower than the coupon C) YTM will be lower than the YTC D) YTM will equal YTC

YTM will be lower than the YTC For callable bonds trading at a discount, YTC will be the highest possible yield, higher than YTM, CY, and the coupon (stated or nominal) yield.