SecuritiesPro QBank Quiz 1

A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year or for the two previous years. How much must the company pay the customer per share before it may pay dividends to the common stockholders? a) $8. b) $0. c) $16. d) $24.

$24. If the company is going to pay a common stock dividend, it must pay any preferred dividends first. A cumulative preferred stockholder must also receive all dividends in arrears. There are $16 due in back dividends in addition to $8 this year, for a total of $24.

The Laurel Government Securities Fund would be in violation of Rule 34b-1, the Name Rule, if it did not have at least what percentage of its assets invested in government securities? a) 80%. b) 40%. c) 25%. d) 90%.

80%. Rule 34b-1 of the Investment Company Act of 1940 deals with certain misleading statements contained in mutual fund marketing materials. The rule requires that any investment company whose name implies a certain type of portfolio composition must have at least 80% of its assets invested as implied.

Which of the following factors is least important in rating a bond? a) Amount and composition of issuer's existing debt. b) Asset protection available to the issuer. c) Stability of the issuer's cash flows. d) Bond's coupon.

Bond's coupon. A bond's coupon rate tends to be dictated by market factors and is not a factor in rating the bond

SEC Rule 17f-2 requires fingerprinting of certain employees of registered broker-dealers. Included in this rule are individuals who: I. handle customer funds and/or securities. II. supervise those who prepare records of original entry. III. work in the back office as a filing clerk. IV. prepare research reports on stocks and bonds.

I and II. Any employee who either handles, or who supervises the handling of, customer cash, securities, or original books and records, must be fingerprinted. Sales representatives and their supervisors are also required to be fingerprinted.

FINRA fees paid by a member firm are based on which of the following? I. Number of registered representatives employed II. Number of trades carried out per year III. Number of employees IV. Number of branch offices registered with FINRA

I and IV. FINRA fees are determined by the number of registered representatives, principals, and branch offices registered with FINRA.

Which of the following regarding T-bills are TRUE? I. T-bills trade at a discount to par. II. T-bills have maturities of one to ten years. III. Most T-bill issues are callable. IV. T-bills are a direct obligation of the U.S. government.

I and IV. T-bills trade at a discount to par, are 52 weeks or less to maturity, and are a direct obligation of the U.S. government. T-bills are also noncallable.

Which of the following entities are issuers of municipal bonds? I. U.S. government II. States III. Cities IV. Corporations

II and III. Municipal securities are issued by governments other than the federal government. States, counties, cities, school districts, agencies, and authorities are all examples of municipal issuers

Fiscal policy is established by: I. Federal Reserve Board II. Congress III. The President IV. The IRS

II and III. The President and Congress set and adjust fiscal policy to affect the economy, chiefly by increasing or decreasing taxes and government spending. The Federal Reserve Board controls monetary policy and uses tools such as the discount rate, the reserve requirement, and open market operations.

If the common stockholders of a company receive a dividend distribution, which of the following will also receive a dividend distribution? I. Warrant holders. II. Cumulative preferred stockholders. III. Rights holders. IV. Participating preferred stockholders.

II and IV. All preferred stockholders must receive dividends before common stockholders do. Rights and warrants do not pay dividends.

A registered representative wishes to lend money to a customer. Under which of the following circumstances would written notice to the broker-dealer be required? I. The customer is the RRs' spouse. II. The RR and the customer have never met before the account was set up a month ago. III. The customer is the RRs' mother IV. He and the customer have a long established business relationship outside the firm.

II and IV. Written notice to the broker-dealer is not required for loans to immediate family members such as spouses or parents.

Which of the following is a possible advantage of variable life insurance over whole life insurance? a) Less risk in the underlying investment instruments. b) Greater guaranteed cash value. c) Possible inflation protection for the death benefit. d) Flexibility of premium payments.

Possible inflation protection for the death benefit. Variable life has scheduled, not flexible, premium payments. The distinguishing factor is the variable death benefit. The insured assumes more risk, not less, in exchange for the possibility that the death benefit will provide protection from inflation.

An investor is in the annuity stage of a variable annuity purchased 15 years ago. During the present month, if the annuitant receives a check for an amount that is less than the previous month's payment, which scenario likely occurred? a) The account's performance was greater than the assumed interest rate. b) The account's performance was less than the previous month's performance. c) The account's performance was less than the assumed interest rate. d) The account's performance was greater than the previous month's performance.

The account's performance was less than the assumed interest rate. In the annuity stage of a variable annuity, the amount received depends on the account performance compared to the assumed interest rate. If actual performance is less than the AIR, the payout amount declines.

Which of the following statements concerning a policy loan from a variable life insurance policy is NOT true? a) The interest charged on the policy loan may not exceed the interest rate stated in the contract. b) The amount available for a policy loan must be at least 50% of the contract's cash value after the third year. c) If the loan amount exceeds net cash value, the insurer may cancel the contract in 31 days following notice to the policyholder if enough of the loan amount is not paid to equal a positive cash value. d) The interest due will be added to the contract loan if it is not paid on the due date.

The amount available for a policy loan must be at least 50% of the contract's cash value after the third year. The minimum percentage that must be available for a policy loan after three years is 75% of the contract's cash value.

All of the following may receive breakpoint discounts EXCEPT: a) a husband and wife in a joint account. b) an investment club. c) a pension plan trustee. d) an investor in an individual retirement account.

an investment club. Breakpoints are not available to investment clubs.

Last year, an investor purchased stock in XYZ Corporation because of its relatively high dividend compared with those of other companies in the same industry. This year, the price of the stock has dropped, but the dividend paid has remained constant. Compared with last year, the current yield of XYZ stock: a) has remained the same. b) has decreased. c) has increased. d) cannot be determined by the information given.

has increased. A stock's current yield is determined by dividing the annual dividend amount by its current market price. If the dividend amount stays the same while the price of the stock falls, the current yield will increase.

A registered person leaves the securities industry and 18 months later reassociates with another member firm. FINRA requires that this person's cycle for determining the dates for the regulatory element portion of continuing education be based on: a) the date on his application for reregistration. b) his original hire date. c) his initial registration date. d) his date of reassociation with his new firm.

his initial registration date. If reassociation occurs within two years, the cycle date remains associated with his original registration date. If it occurs after two years have elapsed, the new cycle is based on the reassociation date.

All of the following are included under the term retail communication EXCEPT: a) research reports. b) form letter distributed to 10 prospects per week. c) billboards. d) internal memos.

internal memos. Internal memos are not a type of public communication and therefore would not be governed under FINRA Rule 2210. Retail communication is defined as "any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period."

According to the Conduct Rules, a member firm may give certain selling concessions to: a) nonmember broker-dealers. b) member firms of other exchanges who are not FINRA members. c) other FINRA member firms. d) the general public.

other FINRA member firms. Members of FINRA may give other member firms concessions but must deal with the public and nonmembers at the public offering price.

When purchasing a new issue, a customer would be considered a restricted person if he were: a) the retired uncle of a bank clerical employee. b) the spouse of an officer of a bank affiliated with a broker-dealer. c) an Internal Revenue agent. d) a friend of the agent who works for the managing underwriter.

the spouse of an officer of a bank affiliated with a broker-dealer. The definition of a restricted person under FINRA Rule 5130 includes FINRA member firms, other broker-dealers, and any officer, director, general partner, associated person, or employee of a FINRA member firm or other broker-dealer. Immediate family members of such specified persons are also included under the definition.

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) as a TOD account. b) with rights of survivorship. c) as tenants in common. d) as a custodial account.

with rights of survivorship. Under joint tenants with right of survivorship, each brother's interest in the account would go to the surviving brothers. 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.