SIE
Two years ago John Henry sold short 100 shares at $50 per share, and two years later bought them back for $55 per share. The stock paid a $2.50 dividend each year. How much did John gain or lose per share for tax purposes?
$ 5loss The formula to calculate a gain or loss for tax purposes is the proceeds minus the cost basis. John bought the shares at $55 and sold at $50. The dividends are not included in the calculation of gain or loss for tax purposes.
The minimum initial requirement when purchasing 100 shares at $30 in a new account would be
$2000 The requirement is normally 50% but not less than $2,000, unless the purchase price is less than $2,000; then, only 100% of the purchase price would be required.
A joint account has a maximum coverage of __________In a margin account only the ________ is covered,
$500,000; equity
An investor opens an account with BNZ Government Securities, a broker-dealer limiting its transactions exclusively to securities issued by the U.S. government. The account holds $250,000 of Treasury bonds, $250,000 of Treasury notes, and $50,000 in cash. If BNZ's broker-dealer business should fail, the investor would receive Securities Investor Protection Corporation (SIPC) protection in the amount of
0 Although the vast majority of broker-dealers are required to be members of SIPC, those who deal exclusively in U.S. government securities are exempt.
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?
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.
Which of the following items are required to be kept more than three years? U-4 forms U-5 forms Customer order tickets Customer confirmations
1 only U-4 forms must be kept for three years after the rep terminates, so if the rep worked for the firm 30 years, the form would have to be kept for 33 years. All others are three-year records.
If after a registered representative terminates the firm learns of something that should have been reported to the Central Registration Depository, how long does the firm have to make an amendment if that information would cause statutory disqualification?
10 days
Your client bought 100 ABC at $50 per share and later received a 10% stock dividend. What is her new cost basis per share how many shares does he now have?
110 share at $45.45 His original cost basis was 100 × $50 = $5,000. He now has 110 shares still worth $5,000. $5,000 divided by 110 equals $45.45.
Customer letter of intent on mutual fund purchase is good for how long?
13 months
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 _______year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not.
2
After the issuer files a registration statement with the Securities and Exchange Commission (SEC), the time known as the cooling-off period begins. This allows a registration to become effective as early as
20 calendar days after the date the SEC has received it.
Trial balances, usually run at the end of a reporting period to ensure that the firm's credit and debit columns arrive at identical sums, must be kept for ______ years after the trial balance was run. Form BD and amendments are ______, whereas blotters and customer account records are
3 lifetime records six-year records.
An investor has asked a mutual fund company for a copy of its Statement of Additional Information (SAI). How long does the fund have to comply with the request?
3 business days
An investor asks for a copy of mutual funds Statement of Additional Information (SAI). The request must be satisfied within
3 business days free of charge
An amended Form U-5 must be filed and a copy sent to the former employee within how many days of discovery of the inaccuracy?
30
Firms must file a suspicious activity report (SAR) within how many days of becoming aware of a suspicious transaction?
30 days
Computation of dollar prices and accrued interest on municipal bonds normally on what calendar basis?
30/360
For nonlisted and non-Nasdaq securities, the prospectus delivery requirement period in the aftermarket is ____days, ___ days for Nasdaq or exchange listed, and __ days for issues quoted OTCBB or the electronic OTC Pink.
40 25 90
Information on the Form U-4 is extensive and includes names (aliases) and addresses in addition to which of the following?
5 years of residency and 10 years of employment history
For restricted stock (unregistered) held by a nonaffiliated, a _______________ holding period before any sales can be made applies. After the holding period, restriction on sales?
6 month sales can be made freely
Though they are almost always much smaller, sales charges for Class A shares may not exceed ____% of the money invested.
8.5%
A company has just conducted a stock offering, by prospectus, through an investment banker. The proceeds of the offering are used to purchase a portfolio of securities. The stock, now in the hands of the public, is freely traded in the secondary market, and the portfolio is managed to generate maximum profit according to a specific investment objective. The company must be
A closed-end company, or closed-end management investment company, is much like any other company, just that its source of profit is investments, rather than selling a product or service. Shares of closed-end companies are traded in the secondary markets, while the other choices listed here offer only redeemable securities.
WRJ stock is quoted as 21 bid, 21.15 offer. Which of the following is true? 1.A purchase can be made at $21 per share if buying at the market. 2.A purchase can be made at $21.15 per share if buying at the market. 3.The spread is $0.15. 4.A sale can be made at $21.15 per share if selling at the market.
A quote always represents the bid and an ask (offer) price. Investors pay the current ask price when purchasing (21.15) and receive the current bid price when selling (21). The spread is the difference between the bid and the ask price—in this quote, 0.15.
______are often listed on a securities exchange such as the NYSE or Nasdaq and trade throughout the day. Trades in these securities are ____________denominated. They trade and settle in the same fashion as a traditional common stock.
ADR's dollar
Records maintained for 3 years
All of the rest, cocoa and coft customer confirmations order tickets compensation records other ledgers advertising Trial balances Form u4, u5 fingerprint cards for terminated emp. Compliance and procedure manual Office locations
Which of the following expressions describes the current yield of a bond?
Annual interest (coupon) payment divided by current market price
Rule 144
Applies to shares that are sold through a non standard offering and are subject to resale restrictions and to sales by persons classified as insiders. 1. must hold restricted shares for 6 months before selling 2.Control stock: owned by those with 10% greater ownership. (aggregate family interest) volume limitation 1% of outstanding shares or average weekly trading volume most recent 4 weeks all measured over 90 day period
If a broker-dealer suspects that a transaction involves funds derived from illegal activity, a suspicious activity report (SAR) would be triggered at what threshold?
At least $5,000 in funds or other assets
Records maintained for six years
BCCDGS Blotters:book of original entry Customer ledgers Customer account records(statements) Designation of principals General Ledger Stock record
FINRA makes available some key information about firms and representatives through its ______________ T
Broker check service
Which class of shares have a 12b-1 fee as the primary sales charge?
C
Records kept for life
CAMPOS Corp charter or articles of inc Amendments Minutes Partnership agreement Organizational records ( form bd) Stock certificate books
A broker-dealer and its associated persons may be subjected to sanctions for violations of the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) rules. Which of the following penalties can be levied against the associated persons?
Censure There are many ways a firm and its associated persons can be sanctioned by FINRA including censure. However, imprisonment and forced withdrawal from SIPC are not approved disciplinary actions.
Class____ shares have back-end loads that reduce over time (contingent deferred sales charge, or CDSC). Class ___ shares charge an upfront load, and class ___ shares charge a level load as part of the expense ratio. No load funds have no sales charge.
Class B Class A Class C
Face amount certificates, unit investment trusts, and open end funds all redeem their shares. ______________ do not redeem their shares.
Closed end funds
Face amount certificates, unit investment trusts, and open end funds all redeem their shares. ___________________ do not redeem their shares.
Closed end funds
The __________________ deal with a broker-dealer's (and representative's) relationship with the customer and the public. The ____________________ deals with interactions with other broker-dealers.
Conduct Rules Uniform Practice Code
Which of the following is a benefit of 529 plans but not Coverdale Education Saving Accounts?
Coverdale plans have income restrictions
_________________are those that make products that are not as sensitive to economic cycles because people use the same amount of these products regardless of the condition of the economy. Other examples would be food and utilities.
Defensive industries example: pharmaceuticals
While an _____ can make a capital gains distribution, they generally do not—unlike a mutual fund, which generally would make such distributions on an annual basis. Can be traded like other exchange products using traditional stock-trading techniques and order types and are priced by supply and demand. Customers pay commissions, not sales charges.
ETFs
_________trade on exchanges and are priced by supply and demand, like any other exchange-traded product. With pricing influenced by market forces, transaction prices at any given time might be more or less than the fund's NAV.
ETFs
__________is the risk that an issuer would not be able to make principal and interest payments. Corp bonds is an example.
Financial risk
The aftermarket prospectus requirement following an APO for exchange-listed securities is
For exchange-listed additional public offerings, there is no aftermarket prospectus requirement.
The ______________ is a market for institutional investors in which blocks of stock trade through ECNs that are open 24 hours a day acting as agents.
Fourth Market
replacing shares that were borrowed to sell short in a margin account.
Hypothecation
_____________and ____________prohibit the use of margin, so they must be done in cash accounts. These other accounts can be cash or margin.
IRA's and custodial accounts
_________________who take on a management role lose their limited liability protection.
Limited partners
____________ranks mutual fund in a variety of categories by performance.
Lipper
Which of the following contracts do not have intrinsic value if the strike price is 40 and the market price is 30?
Long call and short call All calls are in the money when the market price is above the strike price. Contracts that are in the money have intrinsic value.
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
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 limit of outstanding shares of a mutual fund?
No limit
_______________involve two parties: buyer and seller. One party (buyer) has the right to either buy or sell the underlying security, while the other party (seller) would have the obligation to fulfill the contra side of the buy or sell transaction.
Options contracts
__________________are not considered outside business activity. An associated person may make this for his own account without providing written notice to the employing broker-dealer.
Passive investments, such as the purchase of a limited partnership interest,
Which of the following would have no effect on the NAV per share of a mutual fund share?
Portfolio securities had to be sold for a big capital loss.
________are nonexempt securities subject to the registration and new issue disclosure provisions of the Securities Act of 1933. Agency issues, U.S. government issues, and municipal securities are exempt.
REITs
they can pass through gains but not losses, listed ones are liquid investments, they can be registered under subchapter M. but ARE NOT they are registered as investment companies.
REITs
A RR who wants to place a mutual fund advertisement must get permission from whom?
Registered principal of the RR firm
___________ is not a regulatory body; rather it provides insurance protection for investors of failed broker-dealers.
SIPC
______________ are Treasury bonds with the coupons removed. With no coupons, they do not make regular interest payments. Instead, they are sold at a deep discount and mature at par value.
STRIPS
Your client, Alice Tate, with no other positions in her margin account, is bearish on ABC stock. Which of the following transactions would you recommend?
Sell ABC to open Because there are no other positions, this would be an opening transaction and selling the stock would be bearish.
our client Alice Tate with no other positions in her margin account is bearish on ABC stock. Which of the following transactions would you recommend?
Sell ABC to open Because there are no other positions, this would be an opening transaction and selling the stock would be bearish.
___________________are placed above the current market price and fill at the stated price or higher. Market orders fill at the next available price. Sell stop and sell stop limit orders are not triggered until the market drops to or through the stop price.
Sell limit orders
______________are placed below the current market price and become market orders once the price touches or passes through the stop price.
Sell stop orders
To meet a Regulation T margin call, a customer would have how long?
Settlement plus two additional business days The rule requires that the call be met within two business days of the settlement date, referred to as S + 2. If regular way settlement was T + 2, adding two additional business days to the trade date would be T+ 4
_________ involve selling shares not yet owned. This is permitted. investors are borrowing the shares to be sold, which must be replaced later by buying them. Investors do this are bearish, hoping the shares go down in value so that they can be purchased later at a lower price than they were initially sold for.
Short sales
______________________ have no special features beyond the stated dividend payment. Any missed dividends are not paid to the holder, thus they are noncumulative; missed dividend payments do not accumulate.
Straight preferred shares
____________ are purchased at a discount, while ________ and __________ are purchased as a percentage of par. T-notes and T-bonds pay interest____________, but interest on T-bills is not paid until maturity (the difference between the discount paid and par value received).
T bills T bonds and T notes semi annual
_______________provides a legal framework for the state registration of securities, as well as the registration requirements applicable to broker-dealers, investment advisers, investment adviser representatives, and registered representatives.
The Uniform Securities Act
Securities Act of 1933
The first major federal law regulating the securities industry. It requires firms issuing new stock in a public offering to file a registration statement with the SEC. ADrs included
ABC currently has the following quotes: Bid Ask Size 10.00 10.50 3 × 2 10.20 10.45 4 × 3 10.25 10.60 3 × 2 What is the inside quote of ABC?
The inside quote is the highest bid (the highest price someone is willing to buy) paired with the lowest offer, or ask (the lowest price someone is willing to sell). In this case, the most someone was willing to pay was 10.25, and the lowest someone was willing to sell was 10.45.
Which of the following best describes how a sell stop at 39 order would be filled?
The next available price after the market price falls to 39 Sell stop orders are placed below the current market price and become market orders once the price touches or passes through the stop price.
Which of the following best describes how a buy stop at 39 would fill?
The next available price after the market price rises to 39
A customer buys an October 75 MMS put. MMS stock closes at 70. Which of the following is true?
The put has intrinsic value. When the CMV of the stock is below the strike price, puts are in the money. Therefore, they have intrinsic value. This contract is in the money by 5 points (75 - 70).
What are examples of coincident indicators?
Trade sales, retail employment, and personal income
Your customer has purchased 1 February 35 call at 2 on Tuesday, December 4. This transaction will settle on
Wednesday, December 5. Options transactions settle on the next business day after the trade date, T + 1. In this case, an option transaction occurring on Tuesday, December 4, would settle on Wednesday, December 5.
DEF Corporation has 4% noncumulative preferred stock outstanding. The company eliminated its dividend payments for the past three years but now is in a position to resume paying them again. Before paying common shareholders a dividend, the company would be required to pay the preferred shareholders
With noncumulative preferred stock, missed or skipped dividends need not be paid or made up. However, in order to pay common shareholders in any year, preferred shareholders must receive their full dividend for that year. While it can be paid in one annual payment, quarterly, or however the board approves it to be paid, the total in this case would be $4.00. 4% × $100 par value = $4.00
If a bond is trading at a premium, rank the following rates from low to high.
Yield to call, yield to maturity, current yield, nominal yield
transaction in which a writer covers a position by purchasing an option is called
a closing purchase
Treasury receipts are issued at a ____________ and redeemed at ________, and the difference represents the ______________, which isn't received until maturity.
a discount redeemed at par, interest earned
Limited partnerships sold publicly via a prospectus offering would be expected to have
a large group of investors, each contributing a small sum.***Unlike partnerships sold as private placements, those limited partnerships sold through a public offering via a prospectus would consist of a large group of investors (partners), each contributing a small investment sum to the partnership.
What type of security can never be bought on margin?
a mutual fund
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 wash sale
The three classifications established under the Investment Company Act of 1940 are
ace-amount certificates, unit investment trusts, and management companies (open and closed-end funds).
While preferred shares tend to be less volatile than common shares, one type of preferred is noted as being even more stable in price than the others. This would be
adjustable rate
While preferred shares tend to be less volatile than common shares, one type of preferred is noted as being even more stable in price than the others. This would be
adjustable rate. Because the dividend payment adjusts to current interest rates, the price of the stock remains relatively stable. In other words, it is the return that fluctuates rather than the price.
Treasury bills pay
all int at maturity
An income bond is also known as
an adjustment bond Income bonds or adjustment bonds are used when a company is reorganizing. The bonds only pay interest if the corporation has enough income to meet the obligations on the debt issue and are therefore unsecured.
An affiliate has held restricted shares fully paid for six months. In anticipation of the desire to divest the shares, the affiliate should know that
any shares sold will be subject to volume restrictions if still an affiliate.
The spread a dealer makes is best described as
ask minus bid
On a short put, when the premium equals the intrinsic value, the put is
at parity All puts are in the money when the market price is below the strike price. They are out of the money when the market price is above the strike price. They at the money when the market price equals the strike price. They are at parity when the premium equals the intrinsic value.
The mutual fund purchaser must receive a prospectus when? Additionally, sales literature sent out to prospective customers is considered a sales solicitation and must therefore be accompanied by a prospectus.
before or during any sales solicitation or presentation.
++_____________typically have lower expense ratios than stock funds, which tend to be riskier and require more sophisticated investment strategies.
bond mutual funds
A bond mutual fund invests in the bonds of other companies. It may not itself issue __________________. They can only issue __________________ Closed-end companies are much like any other company. They may issue bonds and preferred stock, once they have sold common stock and become a publicly traded company
bonds or preferred stock common shares.
A registered representative has a customer buying securities, but rather than paying in full, the customer wants to borrow some of the money needed for the purchase from the broker-dealer. It is explained to the customer that in order to borrow the money, there will be interest payable based on
broker call loan rate
Before submitting an application to enroll, part of the process for an associated person to engage in the investment banking or securities business, is to have the member firm that sponsors them ascertain the individuals
business reputation, character, education, and experience. Before submitting an application to enroll any person with Financial Industry Regulatory Authority (FINRA) as a registered representative, a member firm must ascertain the person's business reputation, character, education, qualifications, and experience. As part of the application process, the member firm must certify that it has made an investigation and that the candidate's credentials are in order.
Portfolio diversifying might be used to reduce which of the following risks?
business risk. Nonsystematic risks can be reduced using diversification. These would include business, financial, credit, and liquidity risk (among others). Market, inflation, and interest-rate risks are types of systematic risks that are considered nondiversifiable because they impact all investments and, therefore, cannot be diversified away or mitigated simply by diversifying.
A period of low inflation and economic recession the Federal Reserve is expected to take which action?
buy bonds in open market
Recommendations regarding investment strategies under the know your customer (KYC) rule would not apply to recommendations to
buy or sell commodoties or any non securities product
A ____________ becomes a market order and fills at the next available price once it touches or passes through the stop price.
buy stop order
The broker dealer buys at _________and sells at ___________.
buys at bid and sells at aks
The call provision of a bond stipulates
call date and price
Some bonds have a feature that prohibits them from being called by the issuer before a certain date. This is known as
call protection
reinvestment risk is most closely associated with
call risk
The risk that all or a significant portion of the sum invested might be lost is known as
capital risk
A broker-dealer that executes trades and settles transactions for another broker-dealer is called
carrying firm
____________ can do trade executions, clear and settle transactions, and handle all back-office tasks, such as sending trade confirmations and statements. While they can take custody of customer funds and securities, they may not commingle them with those belonging to the firm. Abiding by the rule is known as segregating customer funds and securities.
carrying firms
Economists take a broad view of the money supply and include within it all .....
cash (paper money and coins), loans, credit, and other liquid instruments, such as savings and checking accounts.
________________________is an intermediary between the buy and sell sides of a transaction that receives and delivers payments and securities on behalf of both parties.
clearing agent While some broker-dealers are self clearing (act as their own clearing agent), simply being a broker-dealer doesn't always include being able to provide the services of a clearing agent.
Face amount certificates, unit investment trusts, and open end funds all redeem their shares. _________ do not redeem their shares. LO 4.a
closed end funds
Accusations of Financial Industry Regulatory Authority (FINRA) Conduct Rule violations will heard and handled under the
code of procedure
Personal or household incomes are ___________, moving up and down along with the overall economy. Equity prices and housing starts are both leading indicators. Changes in the duration of unemployment is a lagging indicator.
coincident indicators
A corporation can deposit securities it owns into a trust to be used as collateral to back its debt issues. When this is done, the securities issued are known as _______________________
collateral trust bonds.
Once the customer request being able to trade options in their account, the first step would be for the registered representative to
collect all necessary information (financial and nonfinancial) to determine if trading options would be suitable for the customer.
Which type of securities are most susceptible to business risk?
common stock
Financial Industry Regulatory Authority (FINRA) has three classifications of communication with the public:
communication to 25 or fewer retail investors in a 30-day period; retail communications is to more than 25 retail investors in a 30-day period; and institutional communication is going to banks, insurance companies, and mutual funds, et cetera.
Securities and Exchange Commission Rule 144 regulates the sale of ________________. The rule stipulates the holding period, quantity limitations, manner of sale, and filing procedures when divesting of control or restricted shares.
control and restricted securities in the secondary market
____________________can be converted into shares of the issuer's common stock. In this light, the value is linked to the value of the common stock and the share price tends to fluctuate in line with the common.
convertible preferred shares
A put option has intrinsic value or is in the money when the
current market price of the underlying asset is less than the exercise price
On a discount bond the ______________is always higher than the ________________
current yield coupon rate.
records retained for 4 years
customer complaints for 4 years after resolution
List the dates associated with dividend payment in their proper order.
declaration date, ex-dividend date, record date, pay date
Economists refer to longer, more severe contractions in the economy as
depressions
What is the primary benefit for an American investor when purchasing an American depository receipt (ADR)?
diversification
An opening transaction can be ____________________. Which one will determine the investor's market attitude—bullish when buying to open a position and bearish when selling to open a position (selling short).
either a buy or a sell
An investor who has a short position in 500 shares of JKH common stock would eliminate that position by
entering a closing purchase order for 500 shares of JKH. n order to eliminate a position, long or short, the investor always takes an action opposite that of the one that began (opened) the position. Therefore, we always close the position with a closing order. In the case of a short position, we began with a sale, so we close with a purchase of the same security that was initially sold short—in this case, 500 shares of JKH.
A share of stock in the hands of a stockholder represents what?
entitlement to receive profits through dividends when distributed and the right to vote for who will serve on the board of directors (BOD).
An ___________________is one who has effected a non-penny securities transaction or made a deposit of funds or securities into the account at least one year before the proposed penny stock trade or has made three purchases of penny stocks on three separate days involving three separate issues. Established customers are exempt from the suitability statement required but are subject to the disclosure rules.
established customer
Adversely impacted if credit is downgraded
exchange traded notes
The OCC sets standard _____________________________but the options premiums that buyers pay are determined by________
exercise prices and expiration dates for all listed options, the market
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
face amount certificate company
FINRA divides private securities transactions into two categories. If the associated person will receive compensation, the rules are more comprehensive requiring approval or disapproval. If approved, the firm must record the transaction on its books and records and supervise as if it were executed on behalf of the member firm. Trades with immediate family members are not included if there is no compensation. In other transactions where there is no compensation, written notice to the employer member is still required.
facts
If a registered representative is to be compensated for a trade done through another firm, the employing firm must run the trade on its own books and see to it that the representative is properly supervised. The firm where the outside trade will take place is, of course, responsible only for the actions of its own registered representatives.
facts
Paying a dividend would reduce the net assets of the fund without reducing the number of shares outstanding, which would reduce the NAV per share. A decline in the market value of the portfolio would have the same effect. Sales and redemptions of shares change the net assets but also change the number of shares outstanding to the same degree, leaving the NAV per share unchanged. Selling securities for a capital gain simply replaces securities in the portfolio with an equivalent amount of cash, leaving the NAV unchanged.
facts
Stop orders become market orders once triggered and stop limit orders become orders to sell at the specified limit once triggered. Stop or stop limit orders can be either buys or sells.
facts
The interest rate negotiated for an uncollateralized overnight loan between two money center banks is known as
fed funds rate
U4 reportable event that results in statutory disqualification?
felony dui conviction
For preferred shares, the annual dividend payment is
fixed and stated as a percentage of its par value.
What kind investment companies terminates business on a predetermined date?
fixed unit investment trust
Open-end shares are redeemable and may be purchased in specific dollar amounts. This results in __________________ being sold. ____________ shares trade on the open market, and are therefore traded in round lots of full shares only.
fractional shares closed end
A measure of a nation's citizen's economic activity is
gnp
Rule 144 allows an affiliate to sell__________________________________________ the with each Form 144 filing. The filing is good for _______ which would allow how many filings per year?
greater of 1% of the outstanding shares or the average of the last four weeks' trading volume 90 days (three months), or as many as four filings per year.
An investor is short 1 XYZ January 20 call at 3. This investor
has received $300 for writing the call contract. An investor who is short 1 January 20 call at 3 has received $300 premium to write (sell) the call. Being short the call (sold), the investor will be obligated to sell 100 shares of XYZ stock if the contract is exercised at the strike price ($20). Remember that only the owner, the buyer or the party who is long can exercise the contract.
Direct participation programs (DPPs) are set up
having the owners of the business liable for any taxes due.
Which of the following bonds trade flat (without interest) unless interest payments are declared by the board of directors (BOD)?
income bonds also known as adjustable rate
_________________are used when a company is reorganizing. The bonds only pay interest if the corporation has enough income to meet the obligations on the debt issue and are therefore unsecured.
income bonds or adjustment bonds
The ______________ is the highest bid, or the most someone is willing to pay. In this situation, MM3 is willing to pay 10.25 for 300 shares.
inside bid
Under rule 144A an issuer of restricted stock is permitted to sell to what type of investor?
institutional
A surplus in the U.S. balance of payments can occur if
interest rates in foreign countries are lower than U.S. domestic rates.foreign consumers are purchasing (importing) U.S. goods. **Anything that brings money into our domestic economy leads to a surplus (more money coming in than going out). When interest rates abroad are comparatively lower, money flows into the United States to earn a better rate. When foreign consumers are purchasing more U.S. domestic goods and services, money flows into the United States as well.
Changes in durable goods inventory is an example of what type indicator?
leading
New orders for consumer goods is a _____________, foretelling future economic activity (the actual purchase of those goods). Wages and gross domestic product are ____________ indicators. Corporate profits are ______________ indicators.
leading indicator coincident lagging
The enactment of, or changes in, laws represent potential ____________ whereas enactment of, or changes in, regulations represent _______________. ____________ is specific to potential political instability associated more with emerging economies.
legislative risk regulatory rist Political rist
Short sellers have
limited profit potential and an unlimited loss potential.
A customer has given permission for securities in an investment account to be used for the purpose of other customers who want to borrow them in order to sell those securities short. This would have entailed the customer signing
loan consent form
Which of the following option strategies has the most risk?
long puts
A March 25 put purchased at 1.5 has expired without being exercised. The owner of the put
loses the $150 premium paid. The owner (buyer) of the put would have paid 1.5 ($150) for the contract. When option contracts expire unexercised, the buyer (owner, holder, party who is long) loses the premium paid—in this case, $150.
market maker owning 70,000 shares of HCHS stock noted that it is down 0.25 on the day so far. Near the very end of the trading day the market maker enters an order to buy 100 shares at the market. This is likely an attempt to
mark the close
_________________-are broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to FINRA that they can manage the operational and financial risk.
market makers
List prohibited activities:
matched orders, free riding, churning
An individual would most likely be statutorily disqualified from working in the securities industry for which of the following reasons? A)
misstatement or omissions
A well-controlled, moderately increasing money supply leads to price stability and a healthy economy.
monetorist theory
++++++++++++++issues are self-supporting. Given that they do not rely on taxes to support the debt service, they do not require voter approval. Nor are they subject to statutory debt limits as general obligation (GO) bonds are.
municipal revenue bond issues
Limited partnerships
must end on a predetermined date or can be dissolved earlier by vote.
___________________ are redeemable securities. Hence, they do not trade in the secondary market either on exchanges or OTC. Instead, they may be purchased and redeemed only through the mutual fund company itself.
mutual fund shares
______________can issue fractional shares
mutual funds
Being secured by no physical asset and backed only by a bank's good faith and credit, a bank's promise to pay principal and interest can be evidenced in which of the following securities that are traded in the secondary market?
negotiable cds
Regular way settlement on treasury bonds is
next business day
How many primary offerings can company have
no limit
Why do no load mutual funds have lower expense ratios than load funds?
no load funds are not permitted to charge 12b1 fees greater than .25
A registered representative has left one firm to join another. Sometime later, the former employer discovers that some information on Form U-5 filed at the time of termination was inaccurate. The firm need not file an amended U-5 if at least how much time has gone by?
no stated limit
The coupon on a bond can be described as its
nominal yield
The bond is offered with a YTM of 8.25%. Because the YTM is higher than the 8% coupon, the bond is trading at discount to par. For discount bonds, the ________________nominal yield is lower than both the _______________and ________________-.
nominal yield current and YTM
An investor anticipates that a fall in interest rates is imminent. This investor, now wanting to purchase bonds in order to lock in interest income, would likely buy
non callable bonds
While an associated person may work for an entity other than the member firm, the employing member firm's permission is
not required, but must provide notice
The two types of municipal bonds are general obligation (GO) and revenue bonds. Revenue bonds are ___________________________________________ Unlike GO bonds, they are not subject to any _______________________.
not secured by a specific pledge of property; instead they are backed by project revenue. statuatory debt limits.
Which of the following orders can be used to close a short position in CDT stock that consists of 1,000 shares?
o close a short position consisting of 1,000 shares of CDT stock, one would need to purchase 1,000 shares—buy 1,000 shares of CDT. Buying the call options would not close the position, but once owned, they could be exercised with the purchased shares then used to close the short position.
A corporation is issuing a bond with an interest rate below that which is commonly being offered for this type of bond. To improve the bond's marketability without reducing the capital to be obtained, which of the following actions might the corporation take?
offer warrant on the stock with each bond. Warrants are sometimes offered as sweeteners attached to bond issues to improve the marketability of bond.
Listed options contracts expire when?
on the third Friday of the expiration month at 11:59 pm.
Corporations issue equity securities (stock) and debt securities (bonds and debentures), but they do not issue ______________. these are issued by______________ Options are issued by the Options Clearing Corporation (OCC).
options Options are issued by the Options Clearing Corporation (OCC).
A shareholder owns preferred shares that allow for the possibility of receiving more than the stated dividend. This type of preferred share would be known as
participating
Industry rules regarding political contributions intended to preserve investor confidence and market integrity apply to contributions made to
political parties, candidates for office, and elected officials.
Possible outcome for a covered call option
profit and loss are both limited
Corporations issue short-term, unsecured commercial paper, known as ________________. The proceeds from these notes are generally used to fund such items as pending accounts receivable and seasonal inventory gluts.
promissory notes
allows the registered representative to vote the customer's shares if it is a discretionary account.
proxy voting
An investor is convinced that CDT stock will soon decline in value for a number of reasons. Which investment strategy will allow the investor to take advantage of the anticipated decline in share value with the smallest cash investment?
purchase a put option
The Federal Reserve Bank is raising interest rates, this will do what to bond prices in open market?
push them lower
Purchasing a ________ is a basic option strategy utilized when one is bearish on a stock. If the stock declines as anticipated, the investor could exercise the right to sell the stock at the strike price and then repurchase it at its lower current market price for a profit. The premium paid to buy the put costs less than the margin required if one were to sell the stock short. Purchasing a call or a call spread are bullish options strategies.
put
The buyer of a _____has the right to sell the stock. The seller has the obligation to buy the stock.
put
Economists call mild, short-term contractions
recessions
he firm has an obligation to protect the privacy of customer information. the firm must give the customer the opportunity to opt out at the opening of the account. the firm must initially when opening the account and annually thereafter provide the customer with a privacy notice.
regulation sp
Call risk is most closely associated with
reinvestment risk
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.
call protection is most valuable to a bond owner when bond prices are generally
rising
_______________________ are intended to compensate the underwriter and broker-dealers and their sales representatives who sell the fund shares to the public, and are thus expenses to the investor, not to the fund.
sales charges
The expense ratio includes ongoing operating expenses but not ______________
sales charges or load fees
Associated persons whose activities are limited solely to _________or _________________- are not MFPs. All the other activities would be associated with an MFP.
sales or have only clerical or ministerial functions
Under Reg T, a 90 day restriction imposed when a customer opens and closes what type of position?
same stock in a cash account without paying for it in full
What things effect standardized adjustment of a stocks cost basis?
scheduled common events such as dividends, issuance of rights and warrants and forward and reverse splits
Ensuring that the investing public is fully informed about a security and its issuing company when shares are first sold in the primary market is covered under which of the following federal acts?
securities act of 1933
____________________-firms not only clear and settle their own executions (transactions) but can clear the executions of other firms that would be considered introducing or fully disclosed firms. ____________firms are those that introduce their business to clearing firms. Clearing and settling transactions includes providing any back-office functions needed.
self clearing fully disclosed
A customer is given a quote for ABC as: 17.00 - 17.25 6 × 12. This quote indicates the customer can
sell 600 shares for $17 per share. ustomers can purchase at the offer (the lowest price someone else is willing to sell) and sell at the bid (the most someone else is willing to sell). With this in mind, the customer can buy up to 1,200 shares at $17.25 or sell up to 600 shares at $17.
When the Federal Reserve Board (FRB) wants to contract (tighten) the money supply, it will
sell Treasury securities to banks in the open market.
Your client, Mary Quinn, wants to place an order to sell a stock in her portfolio when the current price is 45, but she is only willing to sell if she can sell for at least 47. Which order should she place?
sell limit order
Shares must be borrowed in order to
sell short to open a position. When selling short, an investor is opening a position (a short position). Selling short means selling shares not yet owned. In order to do so, the shares must be borrowed first.
Selling long is equivalent to which of the following?
selling to close
Interest on Treasury notes are paid how often
semi annual
stability in the value of a debt portfolio is greatest when maturities of debt portfolio are
short
Which position has the greatest potential risk if the price of the underlying stock goes up?
short call
Which of the following strategies is a covered call?
short call long call
Penny stock rules only apply to _________________, and it is required that the penny stock disclosure document be provided before any transactions in those securities may take place. However, a signed suitability statement (different than the risk disclosure) is not required for established customers. Statements of account activity must be provided _______ when an account holds penny stocks.
solicited transactions monthly
An offering can be a combination of primary and secondary. These are known as ______________. IPOs and APOs are __________ offerings, where the issuer receives the sale proceeds.
split offerings primary
Economic reports show that there is a general rise in prices for consumer goods and a high unemployment rate occurring simultaneously. This combination can best be described as
stagflation
The economy is showing that employment is low, there is little consumer demand, and loans for expansion and retooling are way down, showing a lack of business activity. Yet prices for consumer goods are still rising. Economists would call this a period of
stagflation
Scheduled, common events such as dividend declarations, issuance of rights and warrants, and forward and reverse stock splits are accompanied by what?
standardized adjustment of the stock's cost base. Unique events do not
REcords that must be kept for 6 years.
statements and new acct forms
Entitle existing common stockholders to maintain proportionate ownership shares in a company by buying newly issued shares before a company offers them to the general public.
stock rights or preemptive rights
Stockholders must receive notice from the issuer in the event of actions to shareholders, chiefly those that are unscheduled or unpredictable. Some examples are
stock splits, dividend payments, and rights or warrant offerings. A scheduled interest payment on a corporate bond thus does not require delivery of notice.
The breakeven point on a long call is
strike plus premium In order for an investor to breakeven on a long call, she must be able to sell the stock for her cost (the strike price), plus enough to cover the cost of the option (premium). The formula for breakeven on a long call is BE= XP + Pr.
Its primary purpose is to build order book and allocate stock
syndicate desk
Regular way settlement is _________ for everything except Treasuries and money market securities and options.
t + 2
Which of the following securities is exempt from the Regulation T margin requirements but still subject to an initial margin requirement as determined by the broker-dealer?
t notes
For tax purposes, investment income is
taxed at either ordinary income tax or capital gains tax rates. Investment income is that which is earned from one's investments. Sometimes called portfolio income, it would include dividends, interest, and capital gains derived from the sale of securities. For tax purposes, investment income will generally be taxed at one of two rates: ordinary income tax rate or capital gains tax rate.
_____________ are structured so that the principal of the entire issue is all payable on the same date—the maturity date.
term bonds
Current yield equals
the coupon rate (annual income) divided by the current market price. This is a very common formula on the test.
Who is responsible for meeting the desired returns on a defined contribution plan?
the employee
All calls are in the money when _______________________ Contracts that are in the money have intrinsic value.
the market price is above the strike price.
All calls are in the money when
the market value of the stock is above the strike price.
The bid price represents
the price the broker-dealer is willing to pay when buying a security. the price a customer will receive when selling a security. The broker-dealer buys at the bid and sells at the ask. The customer buys at the ask and sells at the bid.
The ask price represents
the price the broker-dealer is willing to sell for.
For real estate DPPs, both income and capital growth are possible. Income comes from __________-, and capital growth would come from the ___________________,
the property rents received appreciation of the properties.
A hedge fund portfolio has been characterized as being highly leveraged. This means that
there is substantial borrowing or purchasing on margin. D)
Regular way settlement is T + 2 for everything except_______________,___________and ___________.
treasuries, money market securities, and options.
Issued stock that has been subsequently re acquired by the corporation.
treasury stock
debentures are _____bonds
unsecured
What limit is placed on the number of outstanding shares a mutual fund may have in the hands of investors?
varies state to state
Certificate granting its owner the right to buy securities from the issuer at a specified price, normally higher than the market price when issued
warrants
The trade would need to be placed in a discretionary account if the registered representative chooses which of the following?
what security to buy and how much
Interest-rate sensitivity for preferred shareholders should be understood to mean that
when interest rates rise, the prices for preferred shares can fall.
An investor has purchased Class A mutual fund shares. The net asset value (NAV) per share of the fund is the price the investor
will receive upon redemption of the shares.