SIE EXAM

OPTION CONTRACT An investor holds a November 35 call that was purchased on March 3. The investor, if wanting to exercise the contract, would need to do so no later than

the 3rd Friday of November Options can be exercised up to and including (no later than) expiration. Options expire on the 3rd Friday of the expiry month. In this case, the 3rd Friday of November.

FEDERAL OPEN MARKET COMMITTEE Implementing monetary policy, and thereby undertaking the responsibility to maintain the stability of the U.S. financial system, is

the Federal Open Market Committee (FOMC)

DISCOUNT RATE Federal Reserve member banks needing to borrow money can borrow from

the Federal Reserve Bank at the discount rate.

SECURITY ACT 1933The federal law requiring companies offering public equity or debt securities to provide a prospectus to investors is known as

the Securities Act of 1933

PROXYA party wishing to solicit proxy authority to vote a particular stockholder's shares must register with

the Securities and Exchange Commission

T-BILL The rate on an adjustable preferred stock would most likely be indexed to

the Treasury bill (T-bill) rate

TREASURY BILL T-BILL RATE The rate on an adjustable preferred stock would most likely be indexed to

the Treasury bill (T-bill) rate

The rate on an adjustable preferred stock would most likely be indexed to

the Treasury bill (T-bill) rate The dividend on an adjustable-rate preferred stock is tied to a particular benchmark interest rate, and the Treasury bill rate is a common benchmark. The CPI, the PPI, and the DJIA are not interest rates.

In order to meet federal budget needs, the types and quantity of government securities to be issued are determined by

the U.S. Treasury Department It is the U.S. Treasury Department that determines the types and quantities of government securities to be issued each week in order to accommodate budgetary needs. At the time of issue, the Federal Reserve Board acts as the Treasury Departments agent.

Meeting the location requirements and the borrowing of securities when a customer wants to sell short is done by

the broker-dealer on behalf of the short-selling customer

BROKER LOAN RATE The broker loan rate charged by banks is also known as

the call loan rate

CAPITAL MARKET Raising funds is generally accomplished by corporations through the issuance of stock (equity) or bonds (debt). This is done in

the capital market

MARKET PRICE The market price of a company's common stock could be affected by

the company's earnings changes in the business cycle FRB policies International conflicts

A broker-dealer firm has just rehypothecated a thousand shares of MMS stock. This means

the customer pledged the stock to the firm, which has now pledged it to a bank

SUSPENSION If an associated person is disciplined for violating SEC rules and regulations, and is ultimately suspended by the SEC, the member firm where the person is affiliated must report the suspension to

the exchanges where the firm is a member

FEDERAL FUNDS RATE The rate that commercial money center banks charge each other for overnight loans is

the federal funds rate

FEDERAL FUNDS RATES Considered the most volatile of the benchmark interest rates in the economy would be

the federal funds rate

PROSPECTUS The prospectus delivery requirement, access equals delivery, is satisfied when

the final prospectus has been filed with the SEC and is available on the SEC's website for investors to see

OPTION CPNTRACT An investor is long 6 MAS February 60 calls at 2.25 each. If at the time of the February expiration, the calls expire unexercised, how much money will the investor lose?

$1,350= 6*225

MONEY To arrive at M3, one would add to M2 which of the following?

$100,000 and larger time deposits and repurchase agreements

An investor owns 500 shares of stock whose current market value is $20 per share. The stock undergoes a split, after which the investor owns 400 shares. What is the new price of the investor's stock?

$25 per share The rule for stock splits is that the total value of the stock position must be the same before and after the split. In the case of this reverse, uneven split, the total value of the stock before the adjustment was $10,000. For the 400 shares after the split to be worth $10,000, the price would have to be adjusted to $25 per share ($10,000 / 400 shares = $25).

BOARD OF DIRECTORS A company's business operations are overseen by

A) a board of directors elected by shareholders

OPTION CONTRACT 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

$4,800 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).

NON-CUMULATIVE PREFERRED STOCK DEF Corporation has 4% noncumulative preferred stock outstanding. The company eliminated its dividend payments for the past 3 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

$4.00 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.

An investor has purchased a bond with a 5% coupon. This investor will receive

$50 annual interest until maturity

The point at which an investor neither makes a profit nor loses money is known as

) the breakeven point

Negotiable certificate of deposit is an unsecured money market instrument issued by banks

. Negotiable means that it can be traded in the secondary market and unsecured means that it is backed only by a promise to pay—a bank's good faith and credit

LIQUIDATIONIn the event of a corporate bankruptcy liquidation, the order of payment is as follows:

1- wages, 2- taxes, 3- secured debt-holders, 4- unsecured debt-holders (including general creditors), 5- holders of subordinated bonds, 6- preferred stockholders, 7- common stockholders.

FEDERAL RESERVE BOARD

12 REGIONAL FEDERAL RESERVE BANKS AND HUNDREDS OF NATIONAL AND STATES BANKS THAT BELONG TO THE SYSTEM. THE FEDERAL RESERVE BOARD DETERMINE MONETARY POLICY AND TAKES ACTION TO IMPLEMENT ITS POLICIES INCLUDING: -ACTING AS AGENT OF US TREASURY -REGULATING US MONEY SUPPLY -SETTING RESERVE REQUIREMENTS FOR MEMBERS -SUPERVISING AND PRINTER CURRENCY -CLEARING FUND TRANSFERS THROUGH THE SYSTEM -EXAMINING MEMBERS TO ENSURE COMPLIANCE WITH FEDERAL REGULATIONS -AUDITING THE DEPOSIT-TAKING ACTIVITIES OF MEMBERS BOARD

FINRA EXAM An applicant who was unable to pass a FINRA qualifications exam 3 times would need to wait how long before another attempt would be permitted?

180 days Applicable to the first 2 attempts, if an individual fails to pass a FINRA qualification exam, a 30-day waiting period before the next attempt can be made is imposed. An unsuccessful 3rd attempt requires a 180-day waiting period.

A nonaffiliated owns 3% of an issuer's common stock. This person will be considered a control person if a spouse owns

8% of the issuer's common stock

The sales charge for Class A shares may NOT exceed

8.5% of the total investment Though they are almost always much smaller, sales charges for Class A shares may not exceed 8.5% of the money invested. For example, if an investor spends $1,000 for Class A shares, no more than $85 may be charged as a sales load.

Which of the following investment companies terminates business on a predetermined date? Fixed UIT

A fixed unit investment trust (UIT) typically has bonds in its portfolio that mature on a specific date. Before that date, the trust buys and redeems units of beneficial ownership in the portfolio. When the bonds mature and pay off, the trust distributes the remaining interest and principal to the current unit holders and dissolves

Which of the following may receive a commission from a FINRA member firm? A)

A foreign nonmember firm that agrees to abide by FINRA rules

FORWARD SPLIT

A forward split increases the number of outstanding shares.

REVERSE SPLIT

A reverse split reduces the number of outstanding shares.

Treasury bonds mature in

A) 10 years or more

Bonds can typically be issued with

A) term, serial, or balloon maturities

AMERICAN DEPOSITORY RECEIPTS Which of the following is best describes the trade execution of ADRs? A) Trades are executed domestically in U.S dollars.

ADRs are often listed on a securities exchange such as the NYSE or Nasdaq and trade throughout the day. Trades in these securities are dollar denominated. ADRs trade and settle in the same fashion as a traditional U.S.-based common stock.

BLUE-SKY LAWSSecurities regulations that are called blue-sky laws refer to those at

BLUE-SKY LAWS

Which of the following is a characteristic shared by both corporate debentures and income bonds?

Both must pay principal as it comes due.

CAPITAL MARKET A corporation needs to build a new manufacturing facility costing several hundred million dollars. In which of the following markets could this new capital be raised?

Capital market

Which of the following settlement arrangements has trade and settlement occurring on the same day?

Cash settlement

CODE OF PROCEDURE Accusations of FINRA Conduct Rule violations will heard and handled under the

Code of Procedure

PENNY STOCKS An established customer is one who has effected a non-penny securities transaction or made a deposit of funds or securities into the account at least 1 year before the proposed penny stock trade or has made 3 purchases of penny stocks on 3 separate days involving 3 separate issues.

Established customers are exempt from the suitability statement required but are subject to the disclosure rules.

Systematic risk is the risk that changes in the overall economy will impact securities regardless of the company's business.

Examples of that are inflation (purchasing power) risk, interest-rate risk, and market risk. Business risk and regulatory risk are examples of nonsystematic risk, the kind of risk that might be unique to certain businesses or industries.

EXCHANGE TRADE FUNDS Which of the following securities would most likely have the lowest expense ratio?

Exchange-traded fund Expenses tend to be lower than those of mutual funds, and the management fee is low as well. Remember that the portfolio is designed to track an index, and just as the securities contained in the index are change infrequently, so are the securities in the fund portfolio

FULL DISCLOSED FIRM OR INTRODUCING FIRMS

IT IS THE INTERMEDIARY BETWEEN THE BUY AND SELL SIDES OF TRANSACTION. ANY ORGANIZATION THAT FULFILLS THIS FUNCTION INCLUDING SECURITIES DEPOSITORY IS CONSIDERED A CLEARING AGENCY

STATEMENTS FINRA members must send at least quarterly account statements to their account holders.

If activity has occurred in a given month, a statement must be sent that month, and monthly statements are required as long as the account holds penny stocks.

STOCK SPLIT Which of the following describes the consequences of a stock split?

If the number of shares goes up, the price goes down. If the number of shares goes down, the price goes up.

Which of the following is TRUE for mutual funds and those who invest in them?

Investors must be provided with specific information when purchasing mutual funds. Mutual fund investors must be provided with specific information and disclosures before purchasing shares. Among the information required would be all that is disclosed either on a full or summary prospectus.

For the primary market, which of the following is TRUE?

Issuer transactions occur in the primary market, and securities are offered at a public offering price.

PRIMARY MARKET Which of the following is TRUE regarding the primary market?

Issuer transactions occur in the primary market.

NON-SYSTEMATIC RISK Which of the following is TRUE regarding currency risk?

It is a nonsystematic risk and, therefore, can be reduced by diversification.

Which of the following is TRUE regarding currency risk?

It is a nonsystematic risk and, therefore, can be reduced by diversification. Currency risk is the possibility that an investment denominated in one currency could decline if the value of that currency declines in its exchange rate with the U.S. dollar. This is one of the severable nonsystematic risks that can be mitigated by utilizing diversification.

INSIDER TRADE Which 2 of the following criteria, taken together, would cause a particular fact to be considered insider information under the Insider Information and Securities Fraud Enforcement Act of 1988?

It is not known to the general public. It could have a strong effect on the welfare of the corporation.

Class C mutual fund shares are also known as

LEVEL LOAD SHARES

Subject to market liquidity, which of the following orders is most likely to be executed immediately?

Market order When a liquid market exists, buy or sell market orders are executed at the best available price immediately.

Characteristics common to penny stocks would include which of the following?

Market price less than $5 per share and unlisted

Which of the following best describes a final prospectus?

Meets the full and fair disclosure requirements of the Securities Act of 1933

MONETARIST THEORY Match the following statement to the BEST expression: A well-controlled, moderately increasing money supply leads to price stability and a healthy economy.

Monetarist Theory

SHORT AND LONG TERM A customer has a short-term investment time horizon and a fairly certain need for funds she wishes to invest. Which of the following might meet those 2 investment objectives?

Money market instruments

T-BILLS Which of the following are considered money market securities at the time of issue? A) T-bills

Money market securities are short-term (1 year or less) securities at the time of issue. Of the choices listed, only Treasury bills meet the short-term criteria at the time of issue.

Prices of bonds trading in the secondary market have an inverse relationship to interest rates. As interest rates rise in the marketplace, the prices of bonds trading in the secondary market will fall, and as interest rates fall in the marketplace, the prices of bonds trading in the secondary market will rise.

Once the coupon rate is established by the issuer, it remains unchanged throughout the life of the bond.

MONEY MARKET SECURITIES Which of the following is TRUE regarding money market securities? A) T-notes and T-bonds can be considered money market instruments when they have only a year left to maturity.

Only T-bills, because they have maturities of one year or less, are considered money market securities at the time of issue

MUTUAL FUNDS The reason a mutual fund is also called an open-end investment company is that it may sell an unlimited number of shares to the public. This is referred to as a continuous primary offering.

Other stock-issuers are limited to the number of shares specified in the corporate charter. When they reach that limit, no more new shares can be sold unless they change the charter.

Which of the following is an example of an equity security?

Preferred stock

OPTION CONTRACT An investor sells short 1 MJS June 55 put at 2. The current market value of LMN is 56. The investor's maximum loss potential is

Put sellers are bullish. Therefore, the maximum risk is if the stock falls to 0. The maximum potential loss, therefore, is the strike price less the premium received for the put (55 - 2 = 53). The maximum loss per contract is $5,300. The current market value of the stock at the time the put was sold short is of no consequence.

INVESTORS

RETAIL-INDIVIDUAL WHO BUYS SECURITIES FOR ITS OWN INSTITUTIONAL - 100 MILLION IN SECURITIES ACCREDITED INVESTORS - NET WORTH OF ONE MILLION NOT INCLUDING NET EQUITY FOR THE PRIMARY RESIDENCE HAS AN ANNUAL INCOME OF 200,000 IN EACH OF MORE TWO RECENT YEARS(OVER 300,00 IF JOINTLY) AND WHO HAS A REASONABLE EXPECTATION OF REACHING THE SAME INCOME LEVEL DURING THE CURRENT YEAR.

SECONDARY MARKET TRADING A bank issues and guarantees certificates of deposit, and those that are negotiable are considered money market instruments. What makes a CD negotiable?

Secondary market trading While all of these are characteristics of negotiable certificates of deposit issued by banks, it is the ability to trade the CDs in the secondary market that makes them negotiable

TREASURY ISSUED SECURITIES

T-bills are purchased at a discount, while T- bonds and T-note are purchased as a percentage of par. T-notes and T-bonds pay interest semiannually, but interest on T-bills is not paid until maturity (the difference between the discount paid and par value received).

Which of the following is TRUE for U.S. Treasury-issued securities?

T-bills are purchased at a discount, while T- bonds are purchased as a percentage of par.

TERM BOND A bond has been structured so that the principal of the entire issue matures on a single date. This is what type of bond?

TERM BOND

BALLOON BOND

THE ISSUER PART OF THE BOND'S PRINCIPAL BEFORE THE FINAL MATURITY DATE, AS WITH A SERIAL MATURITY, BUT PAY OFF THE MAJOR PORTION OF THE BOND AT MATURITY. THIS BOND HAS BALLOON OR SERIAL AND BALLOON, MATURITY.

TERM BOND

THE PRINCIPAL OF THE WHOLE ISSUE MATURES AT ONCE. BECAUSE THE ENTIRE PRINCIPAL IS REPAID AT ONE TIME, ISSUERS MAY ESTABLISH A SINKING FUND ACCOUNT TO ACCUMULATE MONEY TO RETIRE THE BOND AT MATURITY.

CARRYING FIRM OR CLEARING FIRM

THEY TRADE EXECUTIONS, CLEAR AND SETTLE TRANSACTIONS , TAKE CUSTODY OF CUSTOMER FUNDS AND SECURITIES AND HANDLE ALL BACK OFFICE TASK SUCH AS SENDING TRADE CONFORMATIONS AND STATEMENTS

NAC Which of the following entities establishes the rules, regulations, and membership eligibility standards to be registered with the SEC?

The National Adjudicatory Council (NAC)

529 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.

PRIMARY OFFERING A primary offering is one in which the proceeds raised go to the issuing corporation, municipality, or government.

The corporation in this case looks to increase its liquid capital by offering bonds. Primary offerings of bonds may be made by an issuer publically, as is the case here, or privately. This question points to an additional public offering (APO) of securities, not an initial public offering.

COST OF DOING BUSINESS The cost of doing business is closely linked to the cost of money, which is known as

The cost of doing business is closely linked to the cost of money; the cost of money is called interest. In large measure, the supply and demand of money determines the rate of interest that must be paid to borrow it.

COMPENSATION 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.

Why is a fixed annuity NOT considered to be a security?

The fixed annuity buyer assumes no investment risk.

SHARE CLASS Individual mutual funds are often available to investors as Class A, Class B, or Class C, and there are other classes varying from fund to fund.

The share class determines when and how the sales charge is paid. Class A shares have it paid when the shares are purchased, Class B shares have it paid when the shares are redeemed, and Class C shares have a small charge removed from the investor's account every quarter.

INVESTMENT STRATEGY As they apply to knowing your customer and making recommendations which of the following are TRUE statements?

The term investment strategy applies to recommendations to buy, hold and sell. Non-financial considerations such as marital status and age should be considered as well as financial considerations when making recommendations.

INTEREST RATE RISK When interest rates are rising, bond prices in the open market are pushed down. Rate movements and prices have an inverse relationship. Those already holding the bonds in their portfolios see their investments decrease in value.

This also makes bonds trading in the open market less desirable because new issue bonds will be yielding the now higher rates and comparably be more desirable.

FIXED ANNUITY With fixed insurance products such as whole life insurance and fixed annuities, the insurance company assumes the investment risk.

This elimination of investment risk for the purchaser is what differentiates the product from a security. Note that with fixed products, even though not a security, the purchaser faces inflation risk.

In safety of principal, municipal bonds are considered second only to

U.S. government and agency bonds

UNDERWRITERA company that offers sales of another company's securities would BEST be described as a(n)

UNDERWRITER

WARRANTS A certificate issued by a company granting its owner the right to purchase securities from the issuer at some specified price years into the future would best be described as a

WARRANTS

DISCRETIONARY ACCOUNT

WITHOUT ORDER APPROVED FIRST BY THE CUSTOMER

STAGFLATION

When prices for goods and services are rising (inflation) during times when the economy isn't growing (stagnation), the economy is known to be in a period of stagflation.

Which of the following is a TRUE statement with regard to either U.S. securities laws or the description of international economic factors?

When the U.S. dollar is strong, foreign currency buys fewer U.S. goods.

CLOSED END COMPANIES 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

CLOSED END COMPANY 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

Restricted shares, those that are unregistered, meaning that they were not attained in a public offering, may be sold by a nonaffiliate

after holding them for 6 months and freely thereafter Nonaffiliates holding unregistered shares must wait 6 months before divesting of those shares, but because they are nonaffiliates, they may sell freely (without volume restrictions) thereafter.

PREFERRED SHARES Different categories of preferred shares offered by an issuer

all have preference over the issuer's common shares Separate categories of preferred shares may differ in several ways, including dividend rate and profit participation privileges. However, all maintain preference over common stock shares issued.

Treasury bills pay

all interest at maturity

Class B mutual fund shares are also known as

back-end load shares Class B mutual fund shares are bought with no sales charge at the time of purchase. The sales charge is paid instead at the time of redemption, or at the "back end." Hence, they are known as back-end load shares. For this type of share, the sales charge percentage is reduced each year of ownership, typically becoming zero after 5 years. At this time, they convert to Class A shares

BOND COUPON When interest rates in the open market move up or down, a bond's coupon rate will

be unaffected by the open-market interest rates Though the price of a bond will react to market forces, such as supply and demand, and be interest-rate sensitive (inverse), the coupon is always the same: A fixed percentage of par value established by the issuer when the bond was first issued.

An investor sells one equity call option on DGF stock. This investor is

bearish on DGF the stock

If a prospectus is being used to close a mutual fund sale, it must be given to the investor

before or during the sales presentation The mutual fund purchaser must receive a prospectus before or during any sales solicitation or presentation. Additionally, sales literature sent out to prospective customers is considered a sales solicitation and must therefore be accompanied by a prospectus.

LIMITED PARTNERSHIP Advantages enjoyed by the limited partners in a partnership might be all of the following EXCEPT A) owning an interest in an investment managed by others B) C) having liability limited to the loss of the money invested D) having income and expenses flow directly through to them

being in a fiduciary position with responsibilities to others

DIVIDENDS Once a dividend is initially declared by the board of directors, any future dividend payments

carry no guarantee of payment in any amount While the potential to share in the company's profits by receiving dividends is considered one of the benefits of equity ownership, one of the risks is the possibility of dividend income decreasing or ceasing entirely. Dividends are not guaranteed in any way.

All associated persons must be fingerprinted if they handle

cash and securities

The best characterization of how economists view the money supply is

cash, loans, different forms of credit, and other liquid instruments

COLLATERAL TRUST BONDS A corporation has issued debt securities backed by the shares of another corporation that it owns. These debt securities are known as

collateral trust bonds

When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this

decreases the money supply

OIL AND GAS DIRECT PARTICIPATION PROGRAM An allowable deduction to compensate for decreasing natural resources in an oil and gas DPP are known as

depletion allowances

A company has distributed profits to its shareholders. This type of distribution would most likely be in the form of

dividends

With interest rates in the marketplace at 7%, it could be expected that in the secondary market, a bond carrying a 5% coupon would trade

downward in price

With interest rates in the marketplace at 7%, it could be expected that in the secondary market, a bond carrying a 5% coupon would trade

downward in price While bond prices like those of other securities are impacted by supply and demand, they also have a unique inverse relationship to interest rates. As interest rates rise in the marketplace, the prices of bonds trading in the secondary market will fall, and as interest rates fall in the marketplace, the prices of bonds trading in the secondary market will rise.

A share of stock in the hands of a stockholder represents

entitlement to receive profits through dividends when distributed and the right to vote for who will serve on the board of directors

BONDS An investor purchases a bond offered at par. The bond has a coupon rate

equal to its current yield

EVEN SPLIT

even split's ratio has the number 1 to the left or right: 2:1, 3:1, 1:2, 1:4,

EX-DIVIDEND In the dividend disbursement process three of the four critical dates are determined by the board of directors but one is determined by either FINRA for OTC stocks or the exchange for listed stocks. Which one is it?

ex-dividend

INTEREST RATE As interest rates rise, prices of preferred stock will

fall

DIRECT PARTICIPATION PROGRAMS Limited partnership programs are categorized as direct participation programs. The term direct participation refers to the

flow-through of profits and losses of the partnership to the individual limited partners

A convertible feature for preferred shares allows the owner to exchange the shares

for a fixed number of shares of the issuing corporation's common stock

Because common stock can be sold or given away, it is considered to be

freely transferable Common stock is freely transferable to anyone who wants to buy it or receive it as a gift. In this regard, shareholders have the right to sell or give away their shares without permission of the corporation.

MUNICIPAL SECURITIES Your customer has a portfolio consisting entirely of municipal-issued securities. Therefore, the entire portfolio would have to consist of

general obligation and revenue bonds

Options contracts

give one party the right to buy or sell the underlying security

A customer buys a 4% Treasury bond, maturing in 10 years, at a price of 96.08. The yield to maturity is

greater than nominal yield

Options Clearing Corporation (OCC) guarantees the performance of listed option contracts.

guarantees the performance of listed option contracts.

Regarding transferability for common shares, which of the following is TRUE?

hares can be sold or given away without the permission of the corporation. Shareholders have the right to sell or give away their shares without permission of the corporation.

A limited partnership (LP)

has 2 types of partners

Direct participation programs (DPPs) are set up

having the owners of the business liable for any taxes due

Money market instruments can be associated with all of the following EXCEPT A) high-yielding debt instruments B) nonvolatile and safe debt instruments C) short-term debt instruments D) highly liquid debt instruments

high-yielding debt instruments Money market instruments are highly liquid, short-term debt securities. The short time to maturity makes them less volatile and relatively safe, suitable to meet short-term investment horizons. In return for the safety, investors sacrifice high potential yields for low yields.

BUSINESS CYCLE An expansion in the business cycle would be characterized by

increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values

The prime rate is set by

individual banks The prime rate is the interest rate that large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans. Each bank sets its own prime rate.

RESTRICTED PERSON All of the following are restricted persons EXCEPT A) finders and fiduciaries acting on behalf of the underwriters B) individual owning 5% or more of a member firm C) portfolio managers D) employees of members

individual owning 5% or more of a member firm

A deficit in the U.S. balance of payments can occur if

interest rates in foreign countries are higher than U.S. domestic rates U.S. consumers are purchasing (importing) foreign goods

Anyone who, as part of their business, gives investment advice for compensation must register as a(n)

investment adviser under the Investment Advisers Act of 1940.

DEPLETION

is a deduction associated with natural resources programs, such as oil and gas.

REPO

is a money market instrument where money changes hands between the buyer and the seller.

Guaranteed bond

is debt backed by another company, such as a parent company

Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club's brokerage account. The investment club

is not a restricted account and will be allowed to purchase equity shares of an IPO

Fiscal policy

is not considered the most efficient means to solve short-term economic issues is reflected in the budget decisions enacted by our president and Congress

Treasury receipts

issued by broker-dealers

U.S. government securities are

issued by the U.S. Treasury in book-entry form

The growth potential in the price of preferred shares is generally considered to be

less than that of the issuer's common shares

A client has established a long put position. The contract will have intrinsic value when the price of the underlying stock is

less than the exercise price Put buyers are bearish and want the underlying stock to fall in value. Puts give the owner the right to sell at the contract's exercise (strike) price. Therefore, the put contract will pick up intrinsic value if the price of the underlying stock falls below the contract's strike price. The long put position will become profitable if the stock falls below the strike by more than the amount of the premium paid.

OPTION CONTRACT Short sellers have

limited profit potential and an unlimited loss potential

OPTION CONTRACT A March 25 put purchased at 1.5 has expired without being exercised. The owner of the put

loses the $150 premium paid

A March 30 call purchased at 3 has expired without being exercised. The owner of the call

loses the $300 premium paid

MUNICIPAL REVENUE BOND A state government has outstanding debt that it issued to finance toll roads, sports facilities, and public housing projects. All of these issues are examples

municipal revenue bonds

Limited partnerships

must end on a predetermined date or can be dissolved earlier by vote

OPTION CONTRACT An investor who buys and sells options on stock is

neither an owner of nor a debtor of the company Derivative securities of corporate equity securities represent neither equity (ownership) in a company nor debt (a loan). They represent the right to either buy or sell the stock at a later time at a fixed price.

All investors and investments are different. Recognizing this, it is TRUE that

no investment should be deemed suitable for every investor Because all investments are different, carrying different levels of risk and reward, no investment can ever be assumed as being suitable for all investors. Each investment type and/or strategy will be suitable for some investors but not all.

Preferred shareholders have A)

no voting or preemptive rights

The stated coupon on a bond is its

nominal yield

NON-SYSTEMATIC RISK Risks that are unique to a specific industry, business type, or investment type are known as

non-systematic risks Non-systematic risks are those that are unique to a specific industry, business enterprise, or investment type.

USA PATRITOT ACT Under the USA PATRIOT Act, financial firms must create and maintain records of wire transfers only

of $3,000 or more

FEDERAL RESERVE BOARD Tools available to the Federal Reserve Board (FRB) include

open-market operations, setting the discount rate, and setting reserve requirements

PURCHASING POWER RISK The potential that inflation will devalue the fixed dividend income payments received by preferred shareholders is known as

purchasing power risk Remember that the fixed dividends received by preferred shareholders are a stated percentage of par value. Purchasing power risk is the possibility that the income produced via the fixed dividend received will not purchase as much in the future for preferred shareholders as it does today due to inflation.

INTEREST RATE The Federal Reserve Bank is raising interest rates, this will

push bond prices lower in the open market

INTEREST-RATE RISK The Federal Reserve Bank is raising interest rates, this will

push bond prices lower in the open market

EXCHANGE TRADE FUNDSA customer is interested in an exchange-traded fund (ETF). With regard to how they can be traded, you would want the customer to be aware that

real-time quotes are available for ETFs, which can be purchased throughout the trading day

RECORD DATE Shareholders who own the stock on a certain date receive a dividend when one has been declared. That date is known as the

record date

REGULATORY RISK Those holding the securities of a company where rules might change that impact or upset the way the company does business are exposed to

regulatory risk

When a client of a broker-dealer purchases stock on margin, in order to finance the loan, the broker-dealer

rehypothecates the stock to a bank

Call risk is most closely associated with

reinvestment risk Call risk is the risk that a bond might be called before maturity. Often when this occurs, investors who receive their principal back sooner than anticipated are left to find ways to reinvest that will achieve the same returns—reinvestment risk.

REINVESTMENT RISK An investor has a bond maturing during a time when interest rates are falling. It is likely that the investor, wanting to keep the funds invested, would be most concerned with

reinvestment risk When interest rates are declining, it is difficult to invest proceeds from redemptions or distributions and maintain the same level of income one had previously without increasing credit or market risks. This is reinvestment risk.

Callable preferred stock is advantageous to the issuing company because it allows the company to

replace a higher, fixed-rate issue with a lower issue after the call date

Securities acquired through some means other than a registered public offering are known as

restricted

T-notes pay interest

semiannually

Treasury bonds pay interest

semiannually and mature at par value Treasury bonds (T-bonds) and notes (T-notes) both pay interest semiannually and mature at par value.

Treasury bills (T-bills) are

short-term debt obligations issued weekly

When a corporation issues a mortgage bond, the issue's total value

should be less than that of the real estate it is backed by

Economic growth has slowed to a halt with little consumer demand, but prices for goods and services are still rising. This is known as economic

stagflation

STAGFLATION 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

Rule 144 stipulates that after holding restricted stock fully paid for 6 months, an affiliate may begin selling shares

subject to volume restrictions within any 90-day period

SYNDICATE A select pair or group of companies organized to underwrite corporate or municipal securities is BEST known as a(n)

syndicate

PROSPECTUS Beyond physical delivery of a paper prospectus, access equals delivery is the industry standard for meeting the final prospectus delivery requirements. I

t 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.

OPTION CONTRACT An investor holds a November 35 call that was purchased on March 3. The investor, if wanting to exercise the contract, would need to do so no later than

the 3rd Friday of November

The decision to pay a dividend rests with

the BOD but is not guaranteed The decision to pay a dividend rests with the BOD but is not guaranteed. The declaration to pay a dividend may or may not occur. When it does occur, the amount can decrease, increase, or remain unchanged from the previous dividend.

FEDERAL FUNDS RATE Considered the most volatile of the benchmark interest rates in the economy would be

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

Hypothecation is

the pledging of customer securities as collateral for margin loans

Listed option transactions settle

trade date + 1 business day

PENNY STOCK A penny stock is best described as an

unlisted stock valued at less than $5 per share

Commercial paper is

unsecured debt with a maximum maturity of 9 months Issued by corporations, commercial paper, also known as prime paper or promissory notes, are unsecured money market instruments with maximum maturities of 270 days (9 months).

Exempt from the penny stock rules are

unsolicited transactions Unsolicited transactions (those not recommended by the broker-dealer or registered representative) are exempt from the penny stock rules. Solicited transactions are nonexempt and the rules therefore apply.

Regarding the decision to dissolve a LP before its scheduled predetermined dissolution date, it would need to be

voted on by the limited partners holding a majority interest

CALLABLE BONDS To the benefit of the issuer, a callable bond is likely to be called

when interest rates fall Bonds with call features are most likely to be called by an issuer when interest rates fall. For example, if an issuer has an outstanding bond paying 6% and interest rates have fallen to 4%, why pay out 6% when prevailing market rates are only 4%? Better to call in the 6% bond and reissue a new bond at the current rate of 4%. In this way, call features benefit the issuer.

PREFERRED STOCKS Interest-rate sensitivity for preferred shareholders should be understood to mean that A)

when interest rates rise, the prices for preferred shares can fall

At a shareholders' meeting, a mutual fund investor might be called upon to vote on any of the following EXCEPT changes in membership in the board of directors approval of the investment adviser's contract

whether to sell a certain company's stock out of the portfolio changing to a new landscaper for the fund's headquarters

OPTION CONTRACT Investors who sell call and put options are known as

writers

An investor sells short 1 MJS June 55 put at 2. The current market value of LMN is 56. The investor's maximum loss potential is

$5,300 Put sellers are bullish. Therefore, the maximum risk is if the stock falls to 0. The maximum potential loss, therefore, is the strike price less the premium received for the put (55 - 2 = 53). The maximum loss per contract is $5,300. The current market value of the stock at the time the put was sold short is of no consequence.

MONETARY POLICY When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this will do which of the following?

) Increase interest rates on loans to consumers

COMERCIAL PAPER Commercial paper issued by corporations can have maturities as short or as long as A)

1 day or 270 days

Money market debt instruments typically have maturities of

1 year or less

Which of the following regarding Treasury STRIPS, receipts, bills, notes and bonds is TRUE?

A) They all mature at par value.

Of the debt and equity holders listed here, in what order would claimants receive payment in the event that a corporate bankruptcy liquidation needed to occur? Holders of secured debt Holders of subordinated debentures General creditors Preferred stockholders

1- Holders of secured debt 2- General creditors 3- Holders of subordinated debentures 4- Preferred stockholders

Of the debt and equity holders listed here, in what order would claimants receive payment in the event that a corporate bankruptcy liquidation needed to occur? Holders of secured debt Holders of subordinated debentures General creditors Preferred stockholders A) I, III, II, IV

1- Holders of secured debt 2- General creditors 3- Holders of subordinated debentures 4- Preferred stockholders

OPTION ACCOUNT STEPS A registered representative opens a new options account for a customer. In which order must the following actions take place? Obtain approval from the branch manager Obtain essential facts from the customer Obtain a signed options agreement Enter the initial order

1- Obtain essential facts from the customer 2- Obtain approval from the branch manager 3- Enter the initial order 4- Obtain a signed options agreement

MAS Corporation has enjoyed an extremely profitable year. It has been determined that those owning the MAS 4% preferred, participating to 6% preferred shares, will receive the full participating dividend. The participating shareholders will receive an additional dividend of

2% The stated MAS preferred dividend is 4%, participating up to 6%. In this year, when it has been determined that they should receive the full participating dividend, they will receive the additional participating 2%.

COMMON SHARES Which of the following securities is the underlying asset used to create an ADR?

Common shares

STATEMENT OF ADDITIONAL INFORMATION 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 from the date of the request If an investor asks for a copy of a mutual fund's SAI, the copy must go into the mail no later than the end of the 3rd business day from the date of the request. It must also be supplied free of charge.

An investor is long a January 30 call at 2. Breakeven is

32 Break-even for a long call is premium (2) plus strike price (30)—in this case, 32 points. The investor needs the stock to be above the breakeven point to make a profit.

An investor is short a January 30 call at 5. Breakeven is

35 Breakeven for a call (long or short) is premium (5) plus strike price (30). In this case 35 points. Because short calls are bearish, the investor who is short the call needs the stock to be below the BE (35), while the investor who is long the call wants it to be above the breakeven point (35) to make a profit. Always remember that BE for both parties to the contract is always the same number.

ACCOUNT UPDATE Once a customer account has been opened at a broker-dealer, rules require that updating information on the account record occur no less frequently than once every

36 months

Your customer is long 1 October 55 put at 4. The customer's maximum loss potential is

4 points ($400) For long option contracts (puts or calls), the maximum loss is always the premium initially paid—in this case, 4 points ($400). This happens if the price of the underlying is at or above the put strike price at the option's expiration—in other words, at, or out of the money.

An investor short a January 30 call at 4 has a maximum gain potential of

4 points or $400 Maximum gain for any short option position (call or put) is the premium initially received when the contract was written. In this case, it is 4 points or $400. This would occur if, at expiration, the contract was at or out of the money and, therefore, left unexercised.

An affiliate holding unregistered shares can sell under Rule 144

4 times a year

For nonlisted and non-Nasdaq securities, a prospectus must be provided to all those who purchase securities for how many days after the effective date?

40 For nonlisted and non-Nasdaq securities, the prospectus delivery requirement period in the aftermarket is 40 days, 25 days for Nasdaq or exchange listed, and 90 days for issues quoted OTCBB or the electronic OTC Pink.

An investor owns 200 shares of MNO common stock. The company's management has proposed a 2 for 1 stock split. If the price of the stock at the time of the split is $50, what would the investor's adjusted position be?

400 shares at $25

OPTION CONTRACT With CCD stock at 40, a September 45 call trading at 3 is out of the money by

5 points and has no intrinsic value When a calls strike price is higher than the underlying stocks value, the call contract is out of the money. In this case, it is out of the money by 5 points (45 - 40). When a contract is out of the money, we say that it has no intrinsic value. We do not use the term "negative" when referring to contracts with no intrinsic value.

A customer purchased 1 MNO Jan 50 call at 2. What is the breakeven point for both the purchaser and the seller?

52 Whether long or short the call, the breakeven for a call is found by adding the premium to the strike price. For the call buyer, the contract is profitable above the breakeven. For a call seller, the contract stands to lose money if the price of MNO rises above breakeven.

RESTRICTED STOCK For restricted stock (unregistered) held by a non-affiliated, which of the following applies?

6-month holding period, with sales allowed freely thereafter

BONDS A bond has a 7% coupon and is currently offered at a price of 102. Which of the following yields could be the yield to maturity for this bond?

6.55% For a bond trading at a premium (102), the ranking of yields from lowest to highest is YTC, YTM, current yield, and nominal yield. Therefore, the YTM for this bond must be less than the nominal yield of 7%.

The current yield on a bond with a coupon (nominal) rate of 7.5% currently selling at 105-½ is approximately

7.1% A bond with a coupon rate of 7.5% pays $75 of interest annually. Current yield equals annual interest amount divided by bond market price, or $75 / $1,055 = 7.109%, or approximately 7.1%.

A broker-dealer firm managing an IPO wishes to give a gift to an associated person of one of the selling group members. Which of the following would be an unacceptable gift under the rules?

A $125 designer edition fountain pen and desk holder

BALLOON BOND

A ISSUER SOMETIMES SCHEDULES IT BOND'S MATURITY USING ELEMENTS OF BOTH SERIAL AND TERM MATURITY.

SERIAL BOND

A SERIAL BOND ISSUE SCHEDULES PORTION OF THE PRINCIPAL TO MATURE AT INTERVALS OVER A PERIOD OF YEARS UNTIL THE ENTIRE BALANCE HAS BEEN REPAID.

SERIAL BOND

A SERIAL BOND ISSUE SCHEDULES PORTIONS OF THE PRINCIPAL TO MATURE AT INTERVALS OVER OF YEARS UNTIL THE ENTIRE BALANCE HAS BEEN REPAID.

BALLON MATURITY Regarding different types of debt security maturities available to issuers, which of the following is accurate?

A balloon maturity uses elements of both serial and term maturities.

DEBT SECURITIES Regarding different types of debt security maturities available to issuers, which of the following is accurate?

A balloon maturity uses elements of both serial and term maturities. An issuer can schedule its bond's maturity using elements of both serial and term maturities. This is known as a balloon maturity. The issuer repays part of the bond's principal before the final maturity date, as with a serial maturity, but pays off the major portion of the bond at maturity.

BREAKPOINTS There is no standardized industry mandated breakpoint schedule. Offering breakpoints and where they occur is at the discretion of the investment company. In accordance with a breakpoint schedule, the greater the investment, the lower the sales charge will be.

A breakpoint sale occurs when a sale is made just below a breakpoint with the intent of the registered representative to be the recipient of a higher sales commission. In this light, disclosure of breakpoints when they are offered is required.

OPEN-END MANAGEMENT INVESTMENT COMPANY An open-end (mutual fund) management investment company may only issue redeemable common stock. A unit investment trust offers units of beneficial ownership.

A closed-end management investment company may also issue bonds and preferred stock, while a face-amount certificate company offers a contract, as opposed to units or shares.

Balloon maturity for an issuer's debt securities is most accurately described as

A) a later final maturity within a serial issue of bonds that contains a disproportionately large percentage of the principal amount of the original issue

Corporate shareholder structure regarding liability is different from that of a partnership. In recognizing that, which of the following is TRUE?

A corporate shareholder cannot be forced to liquidate personal assets during a corporate bankruptcy.

FACE AMOUNT CERTIFICATE COMPANY An investor has entered into a contract to pay an investment company a specific sum of money in exchange for the company's agreement to pay the investor a specific (larger) sum of money on a specific date in the future. The investment company must be A) a face-amount certificate company.

A face-amount certificate company offers the investor a certificate with a face amount on it. The investor buys it for a discount from the face amount, with the agreement being that the company will pay the investor the face amount on a specific date in the future.

A statutory debt limitation imposed on a municipality restricts its authority regarding A) issuing general obligation (GO) bonds

A municipality may be limited by statute regarding the amount of GO debt it may incur, thus limiting the GO bonds it can issue

MUTUAL FUND If an investor purchases a mutual fund based solely on seeing the summary prospectus, the investor must A) be able to access a full prospectus no later than confirmation of sale

A mutual fund investor may base a decision to purchase solely upon studying the summary prospectus. If so, a full prospectus must be made available for delivery no later than receipt of confirmation of sale. In this case, online delivery of the full prospectus is permissible.

PENNY STOCK Of the following stocks, which would be defined as penny stocks? Bulletin Board stock trading at $4 per share "OTC Pink" stock trading at $4 per share

A penny stock is a non-Nasdaq listed (therefore, Bulletin Board or "OTC Pink") stock trading under $5 per share. If a stock is listed on an exchange or listed on Nasdaq, it is not a penny stock, regardless of price.

The Securities Act of 1933 is also known as the Prospectus Act. With limited exceptions, companies looking to offer securities to the public must provide a prospectus to those who are approached about purchasing those securities.

A prospectus is a disclosure document that provides key information about the company.

PUT AND CALL FEATURES Given bonds are interest-rate sensitive, which of the following statements regarding put and call features for bonds are TRUE? The put feature would likely be exercised if interest rates rise. The issuer will likely call bonds if interest rates fall.

A put feature on a bond benefits the bondholder. Once the bond becomes puttable, its holder has the right to put it back to the issuer at par. At this point, the bondholder is insulated from rate risk (the risk that rates will rise, putting downward pressure on bond prices). Once puttable, the bond will not trade below par. Issuers will likely call bonds if rates fall. The issuer can issue new bonds at a lower rate and use the proceeds to call in the original bond.

Which of the following corporate actions are designed to allow investors to buy shares of stock under specific, defined conditions?

A rights offering Issuing warrants

Which of the following positions would give an investor an unlimited loss potential? Short 100 shares of IBS stock Short 1 IBS Jul 50 uncovered call

A short stock position gives an investor unlimited risk potential if the stock should rise because the investor must eventually buy back the stock at the higher price. Because stock can rise an unlimited amount, there is unlimited risk. The sale of a naked call requires that, if exercised, the writer must buy the stock in the market and deliver it at the strike price. Again, because the stock can rise to some unlimited price, the position carries unlimited risk.

An issuer has a subordinated debt issue outstanding. Which of the following is TRUE?

A subordinated debenture has a claim that is junior to all other debt but senior to preferred stock.

SUBORDINATED DEBT An issuer has a subordinated debt issue outstanding. Which of the following is TRUE?

A subordinated debenture has a claim that is junior to all other debt but senior to preferred stock. Subordinated debt (usually debentures) have a junior claim to all other debt issues but, like all debt, is senior to the claims of all equity holders, both preferred and common.

SENIOR EXPLOITATION A member firm suspects financial exploitation of a senior customer. Which of the following is true regarding actions that can be taken?

A trusted contact person if one was named can be contacted and a temporary hold on disbursements from the account can be administered.

RULE 144 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) 10%

The U.S. gross domestic product is best described as

A) all goods and services produced within the nation

STATUTE OF LIMITATIONS ON FRAUDULENT PRACTICES An investor discovers that exactly 2 years and 9 months ago, the investor was given fraudulent information on a security that prompted the investor to sell it. As a result, the investor lost money. How long does the investor have to bring action?

A) 3 months The statute of limitations on fraudulent practices, under the Securities Exchange Act of 1934, is 3 years from the event itself, or 1 year from its discovery, whichever comes sooner. In this case, the event took place 2 years and 9 months ago, therefore action would need to be taken within the next 3 months (3 years total), as that would be sooner than 1 year from the current discovery.

SECURITY ACT 1933 Each of the following provides for an exemption from the registration requirement of the Securities Act of 1933 EXCEPT B) Rule 147 C) Regulation D D) Regulation A

A) Access equals delivery rule

Money market securities can be associated with which of the following characteristics? A) Being highly liquid

A) Being highly liquid

At expiration, for those who trade call options, which of the following is TRUE?

A) Call buyers want the contract to be in the money. At expiration for all options (calls and puts), buyers want the contracts to have intrinsic value—therefore, be in the money. Writers, on the other hand, want the contracts to be either at or out of the money and therefore have no intrinsic value.

CLOSED-END COMPANY Which of the following investment companies has an actively managed portfolio?

A) Closed-end company

Accusations of FINRA Conduct Rule violations will heard and handled under the

A) Code of Procedure

Which of the following statements is TRUE regarding Exchange-traded notes?

A) ETNs are senior, unsecured debt securities issued by a bank or financial institution.

Which of the following oil and gas direct participation programs might be considered the riskiest?

A) Exploratory

An investor makes several statements regarding what they know about exchange-traded funds. All of them are correct EXCEPT B) I can expect them to have lower expense and operating costs than mutual funds C) I won't have to pay any sales charges as I do with mutual funds, but I will have to pay commissions D) I'll be able to buy or sell them throughout the trading day like stocks trading on an exchange

A) I can't buy them on margin because they represent an entire basket of stocks like mutual funds do Though mutual funds cannot be purchased on margin, ETFs can be. They can be traded throughout the trading day with purchases and sales commissionable transactions. They tend to have low expense ratios.

If investors have income listed as their investment objective, they would NOT hold which of the following securities in their portfolio?

A) Income bonds

MUTUAL FUNDS Which of the following is TRUE for mutual funds and those who invest in them?

A) Investors must be provided with specific information when purchasing mutual funds. Mutual fund investors must be provided with specific information and disclosures before purchasing shares. Among the information required would be all that is disclosed either on a full or summary prospectus.

Which of following securities is least likely to have an active trading market? B) Municipal bonds C) Real estate investment trusts (REITs) D) Preferred shares

A) Limited partnership interests . A disadvantage to limited partnership interests is the lack of liquidity.

LIQUIDITY RISK By virtue of a stocks listing for trading on a U.S. stock exchange, which of the following risks is reduced or even recognized as eliminated?

A) Liquidity risk One of the advantages of a security being traded on a U.S. listed stock exchange is the ready availability of buyers and sellers. This means the investment can be considered a liquid one—easy to divest of at a fair price, if and when one needs to.

Which of the following statements is TRUE?

A) Municipalities, the federal government, and corporations can raise funds in the capital markets.

YIELDS Which of the following would all be considered the same regarding yields on debt instruments? y

A) Nominal, yield to call, and yield to maturit

OPTION CLEARING CORPORATION The performance of listed options contracts is guaranteed by which of the following?

A) OCC

PRIME RATE A bank is likely to do which of the following when the Federal Reserve Board (FRB) tightens the money supply?

A) Raise its prime rate.

A registered securities broker-dealer that does not comply with FINRA and SEC rules and regulations is subject to each of the following sanctions EXCEPT: B) Partial or full suspension of its registration. C) Limits on activities, functions, or operations. D) Censure.

A) Reductions in SIPC coverage.

SEC Broker-dealers that transact securities business with customers or other broker-dealers must apply and be approved for registration with

A) SEC

OPTION CONTRACTS Your customer wants to be in a position to buy CDS stock while taking in premium. Which of the following options positions might accomplish this?

A) Short puts Long calls or short puts would meet the criteria of being in a position to buy stock, but only sellers of options take in premium (income). Therefore, to meet both criteria, shorting puts would be the only basic option position that might accomplish this

NAC Which of the following entities establishes the rules, regulations, and membership eligibility standards to be registered with the SEC?

A) The National Adjudicatory Council (NAC)

AMERICAN DEPOSITORY RECEIPTS Mr. Smith bought an ADR in a French company at $13.03 and recently sold the shares for $24.88. How would this trading profit be taxed?

A) The profit is taxed as a capital gain in the U.S. only

A customer of a broker-dealer makes it known that they would like to trade options in their account. The first step to accommodate the request is which of the following?

A) The registered representative should determine the suitability of options trading for the customer. Once the customer request being able to trade options in their account, the first step would be for the RR to collect all necessary information (financial and nonfinancial) to determine if trading options would be suitable for the customer.

All of the following are considered control persons (owning control stock) EXCEPT B) a director on the BOD owning 2% of the outstanding shares C) the corporation's CFO owning 1% of the outstanding shares D) an officer of the corporation owning less than 1% the outstanding shares

A) an unaffiliated shareholder owning 8% of the outstanding shares

BUSINESS RISK A company is about to introduce a new product. While confident in the product's appeal and market, it is still an unknown factor until sales results are viewed later. Investors holding stock in the company are at this time specifically exposed to

A) business risk

When the Federal Reserve Board wants to expand (loosen) the money supply, it will

A) buy Treasury securities from banks in the open market

A tombstone advertisement placed before the effective date

A) can be placed by the issuer directly or by the underwriters

Uniform Practice Code (UPC) establishes uniform trade practices pertaining to all of the following EXCEPT B) settlement and ex-dates C) don't know (DK) procedures D) good-delivery procedures

A) communications with the public

A hypothecation agreement would be best described as a

A) contract allowing securities to be pledged for the loan

DIRECT PARTICIPATION PROGRAM Partners in direct participation leasing programs can receive write-offs for all the following EXCEPT B) interest expenses C) depreciation D) operating expenses

A) depletion

Partners in direct participation leasing programs can receive write-offs for all the following EXCEPT B) operating expenses C) depreciation D) interest expenses

A) depletion

With interest rates in the marketplace at 7%, it could be expected that in the secondary market, a bond carrying a 5% coupon would trade

A) downward in price While bond prices like those of other securities are impacted by supply and demand, they also have a unique inverse relationship to interest rates. As interest rates rise in the marketplace, the prices of bonds trading in the secondary market will fall, and as interest rates fall in the marketplace, the prices of bonds trading in the secondary market will rise.

CHURNING A violation known as "churning" refers to

A) excessive transactions done solely for the purpose of generating commissions.

An investor is short 1 XYZ January 60 put at 2. This investor

A) has received $200 for writing the put contract An investor who is short 1 January 60 put at 2 has received $200 premium to write (sell) the contract. Being short the put (sold), the investor will be obligated to buy 100 shares of XYZ stock at the strike price ($60) if the contract is exercised by the owner who would have the right to sell it. Remember that only the owner, the buyer, or the party who is long can exercise the contract and this imposes an obligation on the seller, the writer, or the party who is short the contract.

Money market instruments can be associated with all of the following EXCEPT B) highly liquid debt instruments C) nonvolatile and safe debt instruments D) short-term debt instruments

A) high-yielding debt instruments

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) initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services

MONETARY SUPPLYWhen the money supply in the economy decreases,

A) interest rates go up, hence borrowing and spending for consumers is more difficult Decreases in the money supply means less money is available to lend. This pushes interest rates up, hence borrowing and spending for consumers is more difficult.

All of the following are true regarding the term market EXCEPT B) it includes stock exchanges C) it can be a physical place or an electronic venue D) it is where buyers and sellers come together for the purpose of trading assets

A) it is unique to the U.S. securities industry

A broker-dealer firm opening a corporate account must establish all of the following EXCEPT B) any limitations the corporation has placed on account activities C) the legal right of the corporation to open a brokerage account D) the names of those who will have access to or authority over the account

A) location of any account records the corporation will keep when received

A broker-dealer firm opening a corporate account must establish all of the following EXCEPT B) the legal right of the corporation to open a brokerage account C) any limitations the corporation has placed on account activities D) the names of those who will have access to or authority over the account

A) location of any account records the corporation will keep when received

OPTION CONTRACTS The 4 basic options transactions are

A) long calls, short calls, long puts, short puts

A March 30 call purchased at 3 has expired without being exercised. The owner of the call

A) loses the $300 premium paid The owner (buyer) of the call would have paid 3 ($300) for the contract. If the contract expires unexercised, the owner loses the $300 premium paid.

Limited partnerships

A) must end on a predetermined date or can be dissolved earlier by vote

Mutual funds that market directly to the public, using no underwriter and charging no sales charge, are called

A) no-load funds

DIVIDENDS When the board of directors (BOD) declares a dividend,

A) owners of preferred shares must be paid before any payment is made to common shareholders

CDT Corporation has issued 4.5% callable preferred shares. If these shares are ever called in, stockholders should expect that the shares would be called in at

A) par value or higher

The Investment Company Act of 1940 classified all the following as investment companies EXCEPT B) face-amount certificates C) management companies D) unit investment trusts

A) private investment companies

A written customer complaint has been received by a broker-dealer, alleging that the customer's signature was forged on a document. The broker-dealer must report this to FINRA

A) promptly but no later than 30 calendar days

Regarding registered representatives working from their residence, commonly known as their "home office," all of the following would be true EXCEPT B) the office is subject to a premise visit by FINRA examiners as often as they see fit C) home office address and telephone numbers may be used for normal advertising purposes D) the office would be subject to a premise visit and review by a principal of the firm

A) prospects would not be allowed to visit and be on the premises at this location

MONETARY POLICY To stimulate the economy during a recession by expanding the availability of credit, the FRB would do any of the following EXCEPT B) lower the discount rate C) lower the reserve requirement D) buy U.S. government securities in open-market operations

A) raise the federal funds rate To stimulate the economy by expanding the availability of credit (more money available, which lowers interest rates), the FRB can buy U.S. government securities in open-market operations, lower the discount rate, and lower the reserve requirement. The federal funds rate is not set by the FR

REAL ESTATE INVESTMENT TRUST A REIT can avoid being taxed as a corporation would by

A) receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders

When a broker-dealer pledges customer securities to a bank as collateral for a margin loan, the pledge is known as

A) rehypothecation

All of the following are types of direct participation programs (DPPS) EXCEPT B) oil and gas C) leasing D) real estate

A) retail distribution

To contract the overall economy, the Federal Reserve Board, acting as agent for the U.S. Treasury department, will

A) sell securities via open-market operations, pushing interest rates up

STAGFLATION Economic growth has slowed to a halt with little consumer demand, but prices for goods and services are still rising. This is known as economic

A) stagflation

US TREASURY DEPARTMENT In order to meet federal budget needs, the types and quantity of government securities to be issued are determined by

A) the U.S. Treasury Department It is the U.S. Treasury Department that determines the types and quantities of government securities to be issued each week in order to accommodate budgetary needs

If the U.S. dollar is relatively strong against the Japanese yen, it can be assumed that

A) the U.S. dollar will buy more goods produced in Japan, while the Japanese yen buys fewer goods produced in the United States

CAPITAL MARKET Raising funds is generally accomplished by corporations through the issuance of stock (equity) or bonds (debt). This is done in

A) the capital market

Treasury receipts are backed by

A) the issuing broker-dealer

A customer wanting to open a margin account is told that the securities will be held in street name. This means that the securities will be registered in

A) the name of the broker-dealer

An investor owns a bond carrying a 4% coupon. Interest rates in the marketplace have been moving downward and are currently at 2.5%. Given the current interest rates in the marketplace, this investor should see

A) the price of the bond move higher

OPTION CONTRACT An investor owns 1 November 15 put at 5. The 15 in this contract represents

A) the strike price, the price the investor can sell stock at For this put contract, 15 is the strike price, which represents the price at which the investor has the right to sell stock, and 5 represents the $500 premium paid for the contract.

COLLATERAL TRUST BONDS For collateral trust bonds, all of the following are true EXCEPT B) a trust serves as a depository holding the securities to serve as collateral C) securities backing the debt can be securities of either fully or partially owned subsidiaries D) the issuer deposits securities it owns into a trust

A) these are unsecured debt securities

LIQUIDATION Once a corporate liquidation proceeding in court is underway, common shareholders know that

A) they are not guaranteed to be paid back any amount

All of the following are true regarding market indexes EXCEPT B) they can be used to compare against the performance of one's portfolio C) they are performance standards investors can monitor D) they can demonstrate the overall direction of the market

A) they track single stocks rather than hypothetical portfolios

Each of the following is considered a control person under SEC Rule 144 EXCEPT B) another company that owns 10% or more of the company's equity securities C) those persons who own 10% or more of the total beneficial interest of a company's common stock D) corporate officers and directors

A) those persons who own 5% or more of the total beneficial interest of a company's common stock

OPTION CONTRACT An investor is short a January 30 call at 5. Maximum loss for the investor is

A) unlimited

Exempt from the penny stock rules are

A) unsolicited transactions

FEE-BASED ACCOUNT

APPROPRIATE ONLY FOR INVESTORS WHO ENGAGE IN AT LEAST A MODERATE LEVEL OF TRAINING ACTIVITY PREVIOUS DISCLOSURE DOCUMENT

OFFERING CIRCULAR Section 529 plans are considered municipal fund securities. They must therefore be sold by

A)offering circular

TRADER AND MARKET MAKERS

ANY ENTITY, INDIVIDUAL OR INSTITUTION WILLING TO ACCEPT THE RISK OF HOLDING A PARTICULAR SECURITY IN ITS OWN ACCOUNT TO FACILITATE TRADING AND PROVIDE LIQUIDITY IN THAT SECURITY.

EXCHANGE TRADE NOTES

ARE SENIOR UNSECURED DEBT SECURITIES ISSUED BY A BANK OR FINANCIAL INSTITUTION. THEY ARE BACKED ONLY OF GOOD FAITH AND CREDIT OF THE ISSUER. ETNs ARE BOND LIKED INSTRUMENTS WITH A STATE MATURITY DATE , BUT THEY DO NOT PAY INTEREST AND OFFER NO PRINCIPAL PROTECCTION

Which of the following is an unsecured debt instrument?

Aaa/AAA-rated debentures

DEBENTURES Which of the following is an unsecured debt instrument?

Aaa/AAA-rated debentures Corporate debentures are unsecured bonds backed by the good faith and credit of the issuing corporation; they are not secured by any underlying collateral.

Which of the following must precede the first trade in an account? A) Approval of the new account by a principal

All accounts must be approved by a principal before the first trade. Neither the customer nor the registered representative need sign the new account form, and no self-regulatory organization (SRO)—requires the filing of new account information with them.

Corporate actions where the adjustments to cost basis are standardized would include cash and stock dividends, even and uneven splits both forward and reverse and the issuance of rights and warrants. repurchases of stock.

All other corporate actions are considered nonstandard. Examples would include mergers and acquisitions, takeovers, spin-offs, tender offers and buy-backs or

PROXY In a proxy contest, which of the following must register with the Securities and Exchange Commission?

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

SALES LOADS Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is TRUE?

All reduce investor returns because they reduce the amount of money available for the fund to invest. Sales loads go to the underwriters or broker-dealers selling the shares for the fund. Therefore, they are subtracted from the dollars invested and in that light reduce possible returns for investors. Management fees and operating expenses are ongoing costs to the fund and, therefore, reduce the dollars that can be invested, again reducing potential returns.

EXCHANGE TRADE FUNDS ETFs can be traded (purchased and sold) throughout the trading day. Changing price quotes are available in real time as investors buy and sell.

Although ETFs have an NAV that is calculated on the basis of the portfolio holdings, the trading price is determined by supply and demand in the open market, with customers paying commissions (not sales charges).

AMERICAN DEPOSITORY RECEIPTS A Japanese computer chip manufacturer wants to attract U.S equity investors. Which of the following securities would help the issuer to accomplish this goal?

American Depository Receipts

AMERICAN DEPOSITORY RECEIPTS Money market instruments guaranteed by a bank that are used to provide capital for international trade are called

American depository receipts

AMERICAN DEPOSITORY RECEIPTS Which of the following securities provides U.S. investors with a way to gain exposure to the common stock of a foreign issuer?

An ADR

AMERICAN DEPOSITORY RECEIPTS are a type of equity security that simplify foreign investing for Americans.

An ADR is created when common shares are purchased in the foreign company's home market. These shares are then deposited in a foreign branch of a U.S. bank and a receipt (the ADR) is created. The ADR trades in the U.S and is denominated in U.S. currency.

SYSTEMATIC RISK 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.

An associated person may be disciplined for violating SEC rules and regulations. If a member firm suspends an associated person, the firm must report the suspension to the exchanges where the firm is a member.

Which of the following regarding established customers of a broker-dealer and the purchase of penny stocks are TRUE? They are exempt from the suitability statement requirement. They are not exempt from the disclosure rules.

An established customer is one who has effected a non-penny securities transaction or made a deposit of funds or securities into the account at least 1 year before the proposed penny stock trade or has made 3 purchases of penny stocks on 3 separate days involving 3 separate issues. Established customers are exempt from the suitability statement required but are subject to the disclosure rules.

DELIVERY NOTICE Which of the following would NOT require delivery of notice?. Payment of a cash dividend B) A 2:1 stock split C) An interest payment on a corporate bond D) A rights offering

An interest payment on a corporate bond

Oil and gas DDP that invests in wells that are already producing is known as A) an income program

An oil and gas DDP that invests in wells that are already producing is known as an income program. Exploratory programs are drilling new wells in search of new deposits.

OPEN-END INVESTMENT COMPANY Which of the following issues only common stock? A) An open-end management investment company

An open-end (mutual fund) management investment company may only issue redeemable common stock. A unit investment trust offers units of beneficial ownership. A closed-end management investment company may also issue bonds and preferred stock, while a face-amount certificate company offers a contract, as opposed to units or shares.

ETFS VS MUTUAL FUNDS Because ETFs usually track an index, the operating expense ratios are generally lower than that of open-end companies. But that advantage can be canceled out by the commission charges when purchasing and selling an ETF.

An open-end investment company must redeem shares at the NAV per share; with ETFs, pricing is based on supply and demand, making it possible to receive less than NAV. One cannot purchase open-end shares on margin, but ETFs can be.

OPEN-END MANAGEMENT INVESTMENT COMPANY Which of the following issues only common stock?

An open-end management investment company

UNEVEN SPLIT

An uneven split does not have 1 in either place: 5:4, 2:3, and so on

DEBENTURE Which one of the following best describes a debenture?

An unsecured corporate debt obligation A debenture is unsecured corporate debt, not backed by any physical assets but only the issuer's good faith and credit.

Which of the following expressions describes the current yield of a bond?

Annual interest (coupon) payment divided by current market price The current yield on a bond is calculated by dividing the annual interest (coupon) payment by the current market price of the bond: Annual coupon payment ÷ market price = current yield.

An investor has been putting aside funds for retirement in a nonqualified variable annuity for over five years. She is now age 66 and takes a lump-sum distribution. How are the earnings taxed?

As ordinary income

ORDINARY INCOME An investor has been putting aside funds for retirement in a nonqualified variable annuity for over five years. She is now age 66 and takes a lump-sum distribution. How are the earnings taxed?

As ordinary income

BANKER ACCEPTANCE The repayment or maturity date of a banker's acceptance is normally which of the following?

As short as 1 day or as long as 270 days

Which of the following is used to calculate a company's net worth?

Assets - liabilities Net worth is calculated by taking the business's assets less its liabilities (creditors' claims).

PENNY STOCKS Under penny stock rules, what is required for a broker-dealer to consider an investor an established customer?

At least 3 separate penny stock purchases Under penny stock rules, investors are established customers if they have deposited funds or securities in an account for at least 1 year before the penny stock transaction, or have purchased at least 3 different penny stocks from the same broker-dealer.

COLLATERAL FOR MARGIN 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 Options D) Equities

B) 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

CONTRACTIONS Downturns in the business cycle or economic contractions are characterized by all of the following EXCEPT A) rising numbers of bankruptcies C) higher consumer debt D) rising numbers of bond defaults

B) falling inventories

Should a member firm or an associated person be found in violation of FINRA's Conduct Rules, a number of sanctions may be imposed. However, under the Code of Procedure, FINRA may NOT A) issue a fine to a member firm or associate C) censure the violator D) bar an associated person from the industry forever

B) impose a prison sentence on the violator

An associated person of a FINRA member firm has been found guilty of forging a customer's signature on a document relating to a securities transaction. Under the Code of Procedure, FINRA could impose any of the following sanctions EXCEPT A) suspension from FINRA that might cause the person extreme hardship C) requiring the person to retake the licensing exam before resuming work D) a fine far in excess of the amount involved in the transaction

B) imprisonment for a specified period

COMMERCIAL PAPER All of the following regarding a trust set up for the purpose of holding commercial property, or mortgages on commercial property, are true EXCEPT A) gains can pass through to the owners of these shares C) ownership of these shares may provide for the receipt of dividends D) these investments could not be considered open- or closed-end funds

B) investors may never purchase shares in these trusts on an exchange or OTC This is a REIT. REIT shares can trade on exchanges or over the counter (OTC). Owners of these shares may receive dividend distributions and have capital gains pass through to them for tax purposes as well. REITS, organized as trusts, are not investment companies (open- or closed-end funds). Shares in REITs are equity securities.

529 PLANS All of the following are true for 529 plans EXCEPT A) withdrawals would be tax free at the federal level if used for qualified education expenses C) contributions to the plan are considered gifts for tax purposes D) any adult can open a 529 plan for a student

B) plan donors must be related to the student benefactor

All of the following are true for 529 plans EXCEPT A) contributions to the plan are considered gifts for tax purposes C) any adult can open a 529 plan for a student D) withdrawals would be tax free at the federal level if used for qualified education expenses

B) plan donors must be related to the student benefactor

SECURITY PURCHASES All of the following statements about securities purchases are true EXCEPT A) in a short margin account, customers borrow securities for short sales C) in a cash account, the customer pays in full for securities. D) in a long margin account, customers borrow money for securities purchases

B) securities may not be purchased with borrowed money

Registered representatives must complete or satisfy each of the following EXCEPT A) the regulatory element C) the firm element D) state registration requirements

B) the Form U-5 FINRA requires that registered representatives complete both the regulatory and the firm elements of a continuing education program. In addition to satisfying FINRA requirements for registration, each state has its own requirements that must be satisfied before a representative can act in that state. A representative is not required to file a Form U-5. That form is filed by the member firm upon the termination of a registered representative for any reason. A copy will be provided to the departed representative.

BUILD AMERICA BONDSWhich of the following are TRUE? A) Direct payment BABs provide municipal issuers with payments from the U.S. Treasury.

Build America Bonds are issued by corporations to fund urban development in depressed communities

Portfolio diversifying might be used to reduce which of the following risks?

Business risk

TREASURY RECEIPTS

Brokerage firms can create a type of bond known as a Treasury receipt from U.S.

Which of the following securities is most often used to fund international trade?

Banker's acceptance (BAs)

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.

Money market securities can be associated with which of the following characteristics?

Being highly liquid Money market securities have short-term maturities. With little time left to default, they are considered to be highly liquid and, therefore, relatively safe. Safety or less risk equates to lower returns. Typically issued at a discount and maturing at face value, they generally make no regular interest payments. The difference between the discounted purchase price and the face value received at maturity represents their return.

MATURITY Which of the following shows Treasury bills, Treasury bonds, and Treasury notes listed in ascending order of maturity?

Bills, notes, bonds

Which of the following would you expect to have the lowest expense ratio? A) 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.

SHORT AND LONG TERM With a short-term time horizon and an already identified need for the funds, the only choice of those listed here would be money market instruments with a fixed rate of return.

Bonds are generally long-term instruments, and equity investments, such as common stock, do not offer a fixed rate of return and can be volatile.

Holding a callable bond with call protection is least impactful for the investor when A) interest rates are rising

Bonds are more likely to be called when interest rates are falling. Call protection, a length of time during which the bond cannot be called, protects the investor during these times. Therefore, the call protection is least impactful when interest rates are rising—in other words, least impactful during times when the bond wouldn't likely be called.

CONTROL PERSON Mr. Smith purchases 2% of MES Corporation's common stock. Four years later Mrs. Smith purchases 9% for her own account. Which of the following is TRUE?

Both Mr. and Mrs. Smith are considered control persons. If a 10% or more interest is held by immediate family members, then all those family members owning voting stock are control persons. In this instance the combined ownership is more than 10% (2% + 9% = 11%).

VARIABLE AND FIXED ANNUITY Which of the following are the most likely to make monthly or quarterly payments for the life the investor? Fixed annuity Variable annuity

Both a fixed and variable annuity is an insurance contract designed to provide retirement income. The term annuity refers to a stream of payments guaranteed for a certain period including the life of the annuitant. In the case of a variable annuity, the actual amount to be paid out may or may not be guaranteed, but the stream of payments itself is. Because an annuity can provide an income for life, the contract has a mortality guarantee. Mutual funds and UITs have no such guarantee

Which of the following is a characteristic shared by both corporate debentures and income bonds?

Both must pay principal as it comes due. All bonds must pay principal when due. Income bonds, however, are not required to pay interest when due unless the earnings of the issuer are deemed to be sufficient and the board of directors declares that interest payments be made.

OPTION CONTRACT Which of the following orders can be used to close a short position in CDT stock that consists of 1,000 shares?

Buy 1,000 shares of CDT To 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.

OPTION CONTRACTS For investors engaging in the trading of option contracts, which of the following is TRUE?

Buyers pay the premium for the right to exercise the contract.

To arrive at M3, one would add to M2 which of the following?

C) $100,000 and larger time deposits and repurchase agreements

CORPORATE ACTIONS All of the following are considered unique or nonstandard corporate actions EXCEPT A) takeover B) merger D) tender offer

C) 3:1 stock split

Which of the following scenarios would NOT violate general standards regarding member firm communications? A) A graph exclusively showing penny stocks that have advanced in price more than 75% during each of the past 3 years is distributed to retail customers. B) A customer is shown a brochure outlining how the use of stop orders completely prevents a customer from losing any money. D) An RR with a master's degree in astronomy notes that this is a benefit when choosing securities in the aerospace industry sector.

C) A recruitment advertisement promises substantial training to be delivered to incoming employees.

INCOME BONDS Your client is about to retire and wants to rearrange his portfolio in order to have predictable income. Which of the following would NOT be a good investment vehicle? A) U.S. Treasury notes B) AA rated mortgage bonds D) AA rated debentures

C) Adjustment bonds Income bonds, also known as adjustment bonds, are issued when a company is reorganizing and coming out of bankruptcy. Income bonds pay interest only if the company has enough income to meet the interest payment. Therefore, the interest payments are not predictable, and they are not suitable for customers seeking income.

EXEMPT SECURITIES The Securities Act of 1933 exempts all of the following securities from registration EXCEPT A) U.S. government issues B) savings and loan issues D) municipal issues

C) Public real estate investment trusts

BALANCE OF PAYMENTS The U.S. balance of payments deficit would decrease in all of the following scenarios EXCEPT A) an increase in exports of domestic goods from the United States B) a decrease in dividend payments by U.S. companies to foreign investors D) a decrease in imports of foreign goods into the United States

C) a decrease in purchases of U.S. securities by foreign investors

ISSUING COMPANY OFFERING All of the following are issuer transactions where the proceeds of the offering go to the issuing company EXCEPT A) a subsequent public offering (SPO) B) an initial public offering (IPO) D) an additional public offering (APO)

C) a repurchase agreement (REPO)

All of the following are terms that can be used to describe an option contracts strike price relative to the price of the underlying stock EXCEPT A) at the money B) out of the money D) in the money

C) above the money

To obtain a Statement of Additional Information (SAI) regarding a particular mutual fund, an investor could do any of the following EXCEPT A) request one from a broker that sells the investment company shares B) call or write to the investment company that offers the fund D) request a copy from the Securities and Exchange Commission (SEC)

C) apply to the Financial Industry Regulatory Authority (FINRA)

Common shareholders wanting to vote on issues at a shareholder meeting can do so in all of the following ways EXCEPT A) in person B) by proxy delivered online D) by proxy delivered by mail

C) by telephone or text message

LIMITED PARTNERSHIP Your customer is a limited partner in a real estate partnership. This partner has the right to do all of the following EXCEPT A) vote with the limited partners to remove the general partner B) sue the general partner for damages resulting from any business decisions made D) inspect and obtain copies of all partnership records

C) choose which properties the partnership should buy or sell

PARTNERSHIP Your customer is a limited partner in a real estate partnership. This partner has the right to do all of the following EXCEPT A) sue the general partner for damages resulting from any business decisions made B) vote with the limited partners to remove the general partner D) inspect and obtain copies of all partnership records

C) choose which properties the partnership should buy or sell

All of the following would generally be associated with a limited partnership (LP) EXCEPT A) partners responsible for reporting to the IRS B) the pass-through of gains and losses D) tax credits for specific programs

C) freely transferable interests With no secondary market trading, one of the greatest disadvantages of a limited partnership is that an investor's partnership interest in one is generally not considered to be freely transferable. The pass-through of gains and losses, all tax consequences, and the individual partners being responsible for reporting to the IRS are all characteristics of LPs.

All of the following are true of negotiable commercial paper EXCEPT A) the issuers typically have strong credit ratings B) it is considered a money market instrument D) it has a maximum 270-day maturity

C) it is typically issued by banks THEY ARE ISSUED BY CORPORATIONS

All of the following are valid terms describing stock splits EXCEPT A) uneven split B) reverse split D) even split

C) odd split

DDIRECT PARTICIPATION PROGRAMS All of the following are types of direct participation programs (DPPS) EXCEPT A) oil and gas B) real estate D) leasing

C) retail distribution Call buyers pay the premium for the right to purchase the stock at the strike price. Those who buy stock are bullish (anticipate that it will rise).

All of the following describe mutual funds EXCEPT A) various withdrawal plans may be offered for redemption of shares B) funds simplify tax calculations for investors by supplying Form 1099 D) the portfolio is professionally managed

C) shares may be sold either on an exchange or over the counter

DISCRETIONARY ACCOUNTS Discretion given to a registered representative to make transactions applies to all of the following EXCEPT A) the security for the transaction B) the number of shares or units for the transaction D) whether to buy or sell

C) timing and price only

EXCHANGE TRADE FUNDS ETFs

CAN BE BE PURCHASED AT MARGIN AND SOLD SHORT. INTRADAY PRICE CHANGES DUE TO NORMAL MARKET FORCES.

NON -SYSTEMATIC

CAPITAL RISK BUSINESS RISK FINANCIAL RISK CALL RISK PREPAYMENT RISK CURRENCY RISK LIQUIDITY RISK REGULATORY RISK LEGISLATIVE RISK POLITICAL RISK

CAPPING There are a number of prohibited actions that can be considered market manipulation. One of them that is primarily used by investors who have written call option contracts is

CAPPING

COMMISSION BASED ACCOUNT

CHARGE A SINGLE FEE(EITHER FIXED OR A PERCENTAGE OF ASSETS IN THE ACCOUNT

THE USA PATRIOTIC ACT(PARTIALLY BASED ON THE BANK SECRECY ACT OF 1970)

COVER ANTI MONEY LAUNDERING POLICIES AND PROCEDURES THAT MUST BE FOLLOWED BY FINANCIAL FIRMS.

SECURITIES INVESTOR PROTECTION ACT OF 1970 (SIPA)

COVERS THE PROTECTION THRESHOLDS FOR CUSTOMERS IN THE EVENT OF THE BROKER DEALER BANKRUPTCY

CALLABLE BONDS If a callable bond is priced at par, which of the following is TRUE?

CY equals YTC.

If a callable bond is priced at par, which of the following is TRUE?

CY equals YTC. For any bond priced at par, all of the yields are equal; nominal = CY = YTM = YTC if callable.

At expiration, for those who trade call options, which of the following is TRUE?

Call buyers want the contract to be in the money.

At expiration, for those who trade call options, which of the following is TRUE?

Call buyers want the contract to be in the money. At expiration for all options (calls and puts), buyers want the contracts to have intrinsic value—therefore, be in the money. Writers, on the other hand, want the contracts to be either at or out of the money and therefore have no intrinsic value.

At expiration, for those who trade call options, which of the following is TRUE?

Call buyers want the contract to be in the money. Mortgage bond issues represent the amount the issuer is borrowing that is backed by its real estate assets. Just as with a home mortgage, the amount borrowed shouldn't exceed the value of the property. Hence, the issue's total value should be less than that of the real estate by which it is backed. Backed by real property, these are secured debt instruments.

OPTION CONTRACT Which of the following investors are bearish?

Call writers and put buyers

CALLABLE BONDS When interest rates are falling, which bonds are most likely to expose holders to call risk?

Callable bonds with higher coupons When interest rates fall, issuers will call in their callable debt issues with the highest coupon rates first. These are the ones currently costing the issuer the most in interest payments. Therefore, when interest rates are falling, holders of higher coupon bonds are more exposed to call risk than are those investors holding lower coupon bonds.

Which of the following must be opened as a cash account?. 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.

A customer recently approved to trade options buys a put contract for the account's initial transaction. If the customer fails to return the signed option agreement within 15 days of account approval, which of the following transactions is the customer permitted to make?

Closing sale

A customer recently approved to trade options buys a put contract for the account's initial transaction. If the customer fails to return the signed option agreement within 15 days of account approval, which of the following transactions is the customer permitted to make?

Closing sale If a customer fails to return the signed option agreement within 15 calendar days of account approval, the customer is permitted to do closing transactions only. Because the customer opened a position by buying, the only transaction permitted would be a closing sale.

EQUITY SECURITY Which of the following is an example of an equity security? A) Preferred stock

Common and preferred stock are examples of an equity security. Bonds of any type by comparison are certificates of indebtedness—debt instruments.

COMMON STOCK Which of the following securities carries the greatest amount of risk in conjunction with a corporate liquidation? A)

Common stock

Someone who purchases shares of a corporation's common stock has A) limited liability and voting rights

Common stockholders enjoy limited liability in that they can only lose what was invested. They are in no way responsible for any debt of the corporation. Voting rights are one of the key benefits for common shareholders.

VOTING RIGHTS A common stockholder's voting rights apply to which of the following? Election of the board of directors Authorization or issue of more common shares

Common stockholders never vote directly on dividend payment or size. They may elect the board of directors (indirectly influencing the policy on payment of dividends) and may vote on issues concerning the company's capitalization, such as the issuance of more common stock. They do not vote on day-to-day business decisions, such as suppliers used.

An application for FINRA membership carries the applying firm's specific agreement to do which of the following?

Comply with the association's rules and regulations

COVERDELL ES The income level of a donor A) may affect contributions into a Coverdell ES

Contributions into a Coverdell ESA are phased out at high income levels for a donor, whereas the income level of a donor has no impact on contributions made into a Section 529 plan.

CONVERTIBLE PREFERRED STOCKS Which of the following preferred issues is most likely to fluctuate in line with the issuer's common shares?

Convertible

Which of the following are TRUE? A) Direct payment BABs provide municipal issuers with payments from the U.S. Treasury.

Created under the Economic Recovery and Reinvestment Act of 2009 to assist in reducing costs to issuing municipalities and stimulate the economy, Build America Bonds (BABs) are taxable municipal securities. There are two types; "Direct Payment" BABs that provide the municipal issuer with payments from the U.S. Treasury and Tax credit or "Issuer" BABs that provide the bondholder with a federal income tax credit.

Which of the following is a unique risk incurred by investors in mutual funds that specialize in holding securities in the fund portfolio from foreign issuers?

Currency risk A foreign stock or bond issuer runs all the usual risks associated with business, finance, and investment, but currency risk is peculiar to foreign investments. If the foreign currency involved weakens against the dollar, dividends and interest paid by the foreign company will buy fewer dollars and thus be smaller as far as the American investor is concerned.

AMERICAN DEPOSITORY RECEIPTS Which of the following statements is correct concerning currency risk when investing in an ADR?

Currency risk is still a factor when purchasing an ADR.

CYCLICAL Industries that tend to be highly sensitive to inflation, deflation and the ups and downs of business trends would BEST be described as

Cyclical

BALANCE OF PAYMENTS The U.S. balance of payments deficit would decrease in all of the following scenarios EXCEPT A) a decrease in imports of foreign goods into the United States B) a decrease in dividend payments by U.S. companies to foreign investors C) an increase in exports of domestic goods from the United States

D) a decrease in purchases of U.S. securities by foreign investors

All of the following are examples of legislative risk EXCEPT A) a luxury tax imposed on high-priced amenities such as automobiles or yachts B) a law that would either allow or eliminate a tax deduction C) changes made to the tax code regarding income tax

D) an environmental regulation enacted to require certain precautions be taken

FIRM ELEMENT All of the following regarding the firm element of a broker-dealer's continuing education requirement are true EXCEPT A) it is applicable to both registered representatives and registered principals B) it comprises training for those who have direct contact with the public C) it must take into account the scope of the member firm's business

D) it is prepared by FINRA for the member firm to administer

COMMON STOCK BENEFIT All of the following could be characterized as benefits to owning common stock EXCEPT A) income potential via the receipt of dividends B) limited liability C) capital gains via increases in share price

D) low dissolution priority

Bonds can be issued with additional features attached, making them more attractive to investors. All of the following can be considered such features EXCEPT A) puttable B) callable C) convertible

D) maturity

MUTUAL FUNDS A mutual fund can offer all of the following to investors EXCEPT A) the ability to do transfers by telephone or online B) check-writing privileges for redemptions C) acting as custodian for retirement accounts

D) physical custody of the fund's portfolio cash and securities

All of the following are true for 529 plans EXCEPT A) contributions to the plan are considered gifts for tax purposes B) withdrawals would be tax free at the federal level if used for qualified education expenses C) any adult can open a 529 plan for a student

D) plan donors must be related to the student benefactor

An investor buys 1 DWQ May 70 call at 2, giving the investor the right to buy 100 shares of DWQ at $70 per share. All the specifications of the transaction are set or standardized by the Options Clearing Corporation EXCEPT A) contract size of 100 shares B) expiration date in May C) exercise price of 70

D) premium of 2 Options Clearing Corporation (OCC) sets standard exercise prices and expiration dates for all listed options, but the options premiums that buyers pay are determined by the market.

A member firm is assigned an exercise notice by the Options Clearing Corporation. The member firm may assign the exercise notice to one of its short customers by any of the following methods EXCEPT A) in any way that is fair and reasonable B) to the customer having the oldest short position C) on a random-selection basis

D) to the customer having the largest short position

OPTION CONTRACT The buyer of an option contract can be known as all of the following EXCEPT A) long party B) holder C) owner

D) writer

ETPs are priced so that the value of the product is derived from other investment instruments, such as a commodity, a currency, a share price or an interest rate.

ETPs are benchmarked to stocks, commodities or indices. They are marginable and may be sold short.

An investor is long a January 30 call at 2. Maximum loss for this position is A) $200

For any long option (call or put), the maximum loss potential is the premium initially paid—in this case, 2 points ($200).

INSIDER TRADING AND SECURITIES FRAUD ENFORCEMENT ACT OF 1988

DEFINES PENALTIES FOR THE MISUSE OF MATERIAL, NONPUBLIC INFORMATION BY BOTH FIRMS AND INDIVIDUALS

AMERICAN DEPOSITORY RECEIPTS What is the primary benefit for an American investor when purchasing an ADR?

DIVERSIFICATION

LIQUIDATION A common stock shareholder's residual right to corporate assets refers to which of the following?

During the dissolution of corporate assets, common shareholders will be paid if there are any funds left after debt holders and preferred shareholders are paid.

ETFS VS MUTUAL FUNDS Regarding exchange-traded funds (ETFs), as compared to open-end (mutual) funds, which of the following are TRUE? .

ETF transactions are subject to commissions. ETFs may trade at a price that is less than the NAV per share.

Which of the following statements regarding real estate investment trusts are TRUE? Some REITs hold no real property but hold mortgages on commercial property instead. REITS can pay dividends to shareholders and make capital gains distributions

Equity REITs typically hold commercial property rather than residential property. Mortgage REITs hold mortgages on commercial property, and hybrid REITs do both. Dividend disbursements, as well as capital gains distributions, can be made to shareholders.

OPTION CONTRACT If long one equity call option, the owner A) has the right to purchase 100 shares of the underlying stock

Equity options buyers have the right to purchase shares of the underlying security. One equity option contract represents 100 shares of the underlying security; therefore, the call owner has the right to purchase 100 shares of the stock.

Which of the following statements is TRUE regarding Exchange-traded notes? A) ETNs are senior, unsecured debt securities issued by a bank or financial institution.

Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution. They are backed only by the good faith and credit of the issuer. The notes track the performance of a particular market index but do not represent ownership in a pool of securities the way share ownership of a fund does. ETNs are bond like with a stated maturity date but do not pay interest and offer no principal protection. ETN investors receive cash payments linked to the performance of its underlying index less management fees when the note matures.

A bond has been structured so that the principal of the entire issue matures on a single date. This is what type of bond? A) Term

Explanation Term bonds are structured so that the principal of the entire issue is all payable on the same date—the maturity date.

STATEMENT Your firm must provide an account statement to a customer this month if there are penny stocks in the account activity has occurred in the account this month

FINRA members must send at least quarterly account statements to their account holders. If activity has occurred in a given month, a statement must be sent that month, and monthly statements are required as long as the account holds penny stocks.

FISCAL POLICY To grow or expand the economy, U.S. fiscal policy should be to A) cut taxes and increase government spending for programs and development

FISCAL POLICY

Issuance and trading of securities are regulated at more than one governmental level. These would include regulations at which of the following?

Federal level State level

FINANCIAL RISK, CREDIT RISK OR DEFAULT RISK Which of the following statements best describes financial risk? A) 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.

A customer has requested that your BD hold mail for them while they are traveling. Which of the following is TRUE? A)

Firms may choose or choose not to hold customer mail when requested to.

Fiscal policy is not considered the most efficient means to solve short-term economic issues is reflected in the budget decisions enacted by our president and Congress

Fiscal policy is reflected in the budget decisions enacted by our president and Congress. This political process takes time for conditions and solutions to be identified and implemented and is therefore not considered the most efficient way to solve short-term economic issues.

FIXED UNIT INVESTMENT TRUST Which of the following investment companies terminates business on a predetermined date?

Fixed UIT A fixed unit investment trust (UIT) typically has bonds in its portfolio that mature on a specific date. Before that date, the trust buys and redeems units of beneficial ownership in the portfolio. When the bonds mature and pay off, the trust distributes the remaining interest and principal to the current unit holders and dissolves

BANK ACCEPTANCE BAs are widely used in international trade for payments that are due for a future shipment and delivery of goods.

For example, a Brazilian shoe manufacturer would receive a BA from a U.S. retailer for a guaranteed future payment when the shoes arrive in the United States. The manufacturer may ship its product knowing that the BA is guaranteed by a commercial bank. BAs are negotiable and freely traded in the money markets at a discount

CALL FEATURE A call feature attached to a bond allows an issuer to call in a bond before maturity. Issuers will do this when interest rates have fallen.

For example, if an issuer has an outstanding bond paying 6% and interest rates have fallen to 4%, why pay out 6% when prevailing market rates are only 4%? Better to call in the 6% bond and reissue a new bond at the current rate of 4%. Obviously, the ability to call in the bond benefits the issuer.

OPTION CONTRACT An investor is long 1 May 35 call at 5. The 35 in this contract represents A) the strike price, the price the investor can purchase stock at

For this contract, 35 is the strike price, which represents the price at which the investor has the right to purchase stock, and 5 represents the $500 premium paid for the contract.

U-5 A registered representative has left a firm and joined another. The new firm must obtain a copy of the Form U-5 filled out by the old firm. Where might the new firm obtain a copy of the form?

From the new employee From FINRA's Central Registration Depository

A customer's account has been frozen. Which of the following is TRUE if the customer wants to purchase more securities?

Funds to pay in full must be available in the account before the buy order is entered. Purchasing securities in a frozen account is permitted, but the funds to pay for the purchase in full must be available in the account before the order can be entered.

SECURITIES EXCHANGE ACT 1934

GOVERN TRADING MARKET FOR EXISTING SECURITIES AND REGISTRATION REQUIREMENTS OF BROKER DEALERS, BROKER DEALERS EMPLOYEES, AND EXHANAGES

Security Act of 1933

GOVERNS THE NEW ISSUANCE(PRIMARY) MARKET, WHICH INVOLVES THE MONEY-RAISING ACTIVITIES OF ISSUERS REQUIRES ISSUER TO REGISTER THEIR SECURITIES WHEN SELLING TO THE PUBLIC

INVESTMENT COMPANY ACT 1940

GOVERNS THE REGULATION OF PACKAGED PRODUCTS SUCH AS MUTUAL FUNDS, CLOSED-END FUNDS, AND UNIT INVESTMENT TRUST

INVESTMENT ADVISERS ACT 1940

GOVERNS THE REGULATIONS OF FIRMS THAT EARN FEES FOR PROVIDING INVESTMENT ADVICE

LIMITED PARTNERSHIP Regarding limited partnerships, which of the following are TRUE? A general partner can be held personally liable for business losses and debts. A general partner business decisions are legally binding on the partnership.

General partners have unlimited liability, meaning that they can be held personally liable for the partnership's losses and debts. In their role to manage the partnership, they make decisions that are legally binding on the partnership.

Money market debt instruments typically have maturities of 1 year or less.

Generally, securities with maturities of 1 year to 10 years are considered intermediate term and those with 10 years or more to maturity are long term.

Clearing Firm

HOLD THE FUNDS AND SECURITIES PF THE INTRODUCING FORM CUSTOMERS AND PERFORM RELATED FUNCTIONS SUCH AS SENDING CONFIRMATION, AND STATEMENTS OF ITS CORRESPONDENCE

Which of the following describes the results of a 1 for 2 reverse stock split?

Half as many shares at twice the original price

Prime Broker

Has the following primary functions: clearing and financing trades for its client, providing research, arranging financing, and producing portfolio accounting. THE KEY ADVANTAGE FOR THE PRIME BROKERAGE ACCOUNT IS PROVIDE THE CLIENT THE ABILITY TO TRADE WITH MULTIPLE BROKERAGE HOUSES WHILE MAINTAIN A CENTRALIZED MASTER ACCOUNT WITH ALL THE CLIENT CASH AND SECURITIES

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.

NOTICE FILING When securities are deemed to be federally covered, the states have no jurisdiction over the registration requirements.

However, the National Securities Markets Improvement Act did provide that states could require the filing of a notice (notice filing) to sell securities in that state, along with the payment of a filing fee

LIQUIDATION

IN EVENT OF COMPANY LIQUIDATION THE PRIORITY OF CLAIMS ARE: 1- IRS(TAXES) AND EMPLOYEES(UNPAID WAGES) 2- SECURED DEBT(BONDS AND MORTGAGES) 3- UNSECURED LIABILITIES AND GENERAL CREDITORS(SUPPLIERS AND UTILITIES) 4- SUBORDINATED DEBT(DEBT HOLDERS WHO AGREE TO BE PAID BACK LAST OF ALL DEBT HOLDERS IN THE EVENT OF LIQUIDATION EVER NEEDED TO OCCUR) 5- PREFERRED STOCKHOLDERS 6- COMMON STOCKHOLDERS

INCOME BONDS Which of the following bonds trade flat (without interest) unless interest payments are declared by the board of directors (BOD)?

INCOME BONDS

CUSTODIAN AND TRUSTEE

INSTITUTION OR PERSON RESPONSIBLE FOR MAKING ALL INVESTMENT, MANAGEMENT, AND DISTRIBUTION DECISIONS IN AN ACCOUNT MAINTAINED IN THE BEST INTEREST OF ANOTHER.

INTRODUCING FIRMS(FULLY DISCLOSED)

INTRODUCE TO ITS CUSTOMERS TO A CLEARING FIRM

TERM BOND

IT IS STRUCTURED SO THAT THE PRINCIPAL OF THE WHOLE ISSUE MATURES AT ONCE. BECAUSE THE ENTIRE PRINCIPAL IS REPAID AT ONE TIME , ISSUER MAY ESTABLISH A SINKING FUND ACCOUNT TO ACCUMULATE MONEY MONEY TO RETIRE THE BONDS AT MATURITY

If the portfolio of a variable annuity separate account is directly and actively managed by the insurance company, the separate account must be registered as A) an open-end management investment company

If managed by the insurance company's own investment advisor, a separate account must register as an open-end company. If it is managed by a third party, it must register as a unit investment trust.

For primary and secondary markets, which of the following is TRUE?

In the primary market, securities are sold to the public and the issuer receives the sale proceeds.

OPTION CONTRACT Which of the following describes the position in a call option on a stock with a strike price of 20, a premium of 7, and a current market of 26? A) In the money

In this case, the strike price is less than the current market value, so a call option would be in the money by the difference between the strike price and the market price (6 points, in this case). "At the money" means the strike price and the market price are the same; "at parity" means the premium equals the intrinsic value.

Convertible preferred shares can be converted into shares of the issuer's common stock.

In this light, the value of a convertible preferred stock is linked to the value of the common stock and the convertible preferred share price tends to fluctuate in line with the common.

When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this will do which of the following?

Increase interest rates on loans to consumers

MONETARY POLICY When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this will do which of the following?

Increase interest rates on loans to consumers When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this will tighten the money supply; securities go into the economy, and money comes out of the economy. Less money available increases interest rates to consumers.

MUTUAL FUNDS A mutual fund's share class determines A) how sales charges and related expenses are paid

Individual mutual funds are often available to investors as Class A, Class B, or Class C, and there are other classes varying from fund to fund. The share class determines when and how the sales charge is paid. Class A shares have it paid when the shares are purchased, Class B shares have it paid when the shares are redeemed, and Class C shares have a small charge removed from the investor's account every quarter.

DIRECT PARTICIPATION PROGRAM DPPs are not taxed directly as a corporation would be.

Instead, the income or losses from the business are passed directly through to the owners of the partnership. These are the investors who are then individually responsible for any tax liability.

For revenue bonds issued by a state or municipality, which of the following is TRUE?

Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve

Introducing/fully disclosed A broker-dealer's business model allows for only the purchase and sale of securities for retail customer accounts. It does not execute, settle, or clear its customer's transactions, nor does it tend to any back-office functions such as sending trade confirmations or forwarding proxies. This broker-dealer would best be described as what type of firm?

Introducing/fully disclosed

Accredited investor is one who meets A) income or net worth criteria with substantial investment experience

Investors in limited partnerships offered in private placements as opposed to those being offered publicly must be accredited investors. The generally accepted definition of an accredited investor is one who meets designated annual income or net worth criteria, and has substantial investment experience.

At the time of dissolution, which of the following regarding a limited partnership is TRUE?

Limited partners are paid before general partners. When a limited partnership (LP) is dissolved, limited partners are paid before general partners. Remember that with an LP, all tax consequences are passed on to the partners. Therefore, it is the individual partners who may incur a tax liability to be paid to the IRS, not the partnership entity.

LIQUIDITY RISK By virtue of a stocks listing for trading on a U.S. stock exchange, which of the following risks is reduced or even recognized as eliminated?

Liquidity risk One of the advantages of a security being traded on a U.S. listed stock exchange is the ready availability of buyers and sellers. This means the investment can be considered a liquid one—easy to divest of at a fair price, if and when one needs to.

LOCAL GOVERNMENT INVESTMENT POOLS An example of securities that are established by states to provide other government entities such as cities, towns, school districts or state agencies with a short-term investment vehicle to invest funds include A) Local Government Investment Pools

Local government investment pools (LGIPs) are established by states to provide other government entities within its borders such as cities, counties, school districts or other state agencies with a short-term investment vehicle to invest funds.

MONEY SUPPLY According to economists which of the following is the correct characterization of the money supply?

M3 includes all of M1 and M2.

SYSTEMATIC RISK

MARKET RISK INTEREST RATE RISK REINVEST RISK INFLATION POWER RISK (PURCHASING POWER RISK)

M1-M2-M3 Currency held by the public, including checking accounts and time deposits less than $100,000, and money market mutual funds would best be described by economists as

MS

Which of the following regulatory authorities relies exclusively upon other examining authorities to enforce its rules?

MSRB

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.

GENERAL OBLIGATION BONDS Which of the following require voter approval?

Municipal general obligation bonds Municipal general obligation (GOs) bonds require voter approval because the debt service for these bonds (principal and interest payments) is funded by the taxes collected by the municipal issuer. Voters pay these taxes.

A mutual fund's public offering price is $15.23. An investor who wishes to invest $1,000 in the fund will purchase how many shares? A) 65.66 shares

Mutual funds can issue fractional shares. This is an advantage for those who invest in mutual funds because they can think in terms of the dollars they want to invest rather than in the numbers of shares they want to purchase. Wanting to invest $1,000 at the current price of $15.23 allows 65.66 shares to be purchased ($1,000 / $15.23 = 65.66 shares).

NON-DISCRETIONARY ACCOUNT

NO ORDER CAN ENTER WITHOUT THE CUSTOMER PRIOR APPROVAL.

YIELD A bond with 10 years to maturity and callable in 5 years at par is sold at a discount. Rank the following yields from lowest to highest. Nominal yield Current yield Yield to call Yield to maturity

NOMINAL YIELD CURRENT YIELD YIELD TO MATURITY YIELD TO CALL

NEGOTIABLE CERTIFICATES OF DEPOSIT 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 certificates of deposit

A bond with 10 years to maturity and callable in 5 years at par is sold at a discount. Rank the following yields from lowest to highest. Nominal yield Current yield Yield to call Yield to maturity

Nominal yield Current yield Yield to maturity Yield to call

OPTION CLEARING CORPORATION If an investor is long an option contract and wishes to exercise the contract, the investor notifies the broker-dealer, who then notifies

OCC The investor who is long will notify the broker-dealer to exercise. The broker-dealer will then notify Options Clearing Corporation (OCC).

OPTION CLEARING CORPORATIONIf an investor is long an option contract and wishes to exercise the contract, the investor notifies the broker-dealer, who then notifies

OPTION CLEARING CORPORATION (OCC)

Which of the following would cause a mutual fund's NAV per share to fall? The fund pays a dividend to shareholders. The market value of the portfolio declines.

Paying a dividend and suffering market decline both reduce the net assets of the fund without reducing the number of shares; hence, the NAV declines. Purchasing portfolio securities simply replaces portfolio cash with an equivalent value of securities; hence the NAV remains unchanged. Redemption of shares reduces the fund's net assets, but the number of shares declines by an equivalent proportion; hence, the NAV remains unchanged.

Interest-rate sensitivity for preferred shareholders should be understood to mean that A) when interest rates rise, the prices for preferred shares can fall

Preferred shares, like debt securities, are sensitive to and have an inverse relationship to interest rates. Rates up, prices down. Rates down, prices up.

The holders of which of the following securities are considered owners of the issuing corporation?

Preferred stock Common stock

CAPITAL GAINS

Profits on positions held 12 months or less are considered short-term gains. For those positions held longer than 12 months, the gains are considered long term and taxed at a more favorable rate.

OPTION CONTRACT 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

Fixed dividends received by preferred shareholders are a stated percentage of par value.

Purchasing power risk is the possibility that the income produced via the fixed dividend received will not purchase as much in the future for preferred shareholders as it does today due to inflation.

RANDOM SELECTION BASIS What method is used to assign exercise notices to broker-dealers with short positions by Options Clearing Corporation (OCC)?

Random-selection basis

What method is used to assign exercise notices to broker-dealers with short positions by Options Clearing Corporation (OCC)?

Random-selection basis

NON-EXEMPT SECURITIES Which of the following securities are nonexempt from registration under the Securities Act of 1933?

Real estate investment trusts and corporate equity issues Explanation Real estate investment trusts (REITs) 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.

REPURCHASE AGREEMENT (REPO)

Repurchase (repo) agreement is one where a financial institution, such as a bank or a broker-dealer, raises cash by temporarily selling some of the securities it holds with an agreement to buy back the securities at a later date at a slightly higher price. Hence, agreement to do a transaction and then reverse the transaction in the future.

Broker-dealers who transact securities business with other BDs or customers must be registered with

SEC

TRANSFER AGENT IS RESPONSIBLE FOR:

SECURITIES UNDER THE CORRECT NAME CANCELING OLD AN ISSUING NEW CERTIFICATES MAINTAIN RECORDS OR OWNERSHIP HANDLING PROBLEMS RELATING TO LOST, STOLEN OR DESTROYED CERTIFICATED.

Which of the following companies was created by an act of Congress and provides securities investors limited financial coverage in the event that the investor's servicing broker-dealer fails financially?

SIPC

SIPC Which of the following companies was created by an act of Congress and provides securities investors limited financial coverage in the event that the investor's servicing broker-dealer fails financially?

SIPC The Securities Investor Protection Corporation (SIPC) was created by Congress to meet customer claims in the event of a broker-dealer bankruptcy.

BROKER DEALERS

SOME REFERRED AS FULL SERVICE: STOCKS, BONDS, MUTUAL FUNDS, OPTIONS, ETC.

STAGNATION Which of the following refers to prolonged periods of slow or little economic growth, unusually accompanied by high unemployment?

STAGNATION

MUTUAL FUNDS Which of the following are TRUE regarding mutual fund sales charges? They are not an expense to the fund, but to the investor. They are used to compensate the fund's underwriter and sales representatives.

Sales charges are not among the standard business expenses of a mutual fund and may not be considered part of them. They 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.

Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is TRUE? A) All reduce investor returns because they reduce the amount of money available for the fund to inves

Sales loads go to the underwriters or broker-dealers selling the shares for the fund. Therefore, they are subtracted from the dollars invested and in that light reduce possible returns for investors. Management fees and operating expenses are ongoing costs to the fund and, therefore, reduce the dollars that can be invested, again reducing potential returns.

529 PLANS Which of the following are the 2 basic types of Section 529 plans, which are products used for funding higher education?

Savings plans Prepaid tuition plans

NEGOTIABLE CERTIFIED OF DEPOSIT Bank issues and guarantees certificates of deposit, and those that are negotiable are considered money market instruments. What makes a CD negotiable?

Secondary market trading

When a limited partnership is liquidated (dissolved), the priority of payments to settle accounts are made from first to last in which order?

Secured creditors General creditors Limited partners General partners

SEC The primary regulatory body for the securities industry would be which of the following?

Securities and Exchange Commission (SEC)

Restricted securities are those acquired through some means other than a registered public offering.

Securities purchased via a private placement are an example. These securities may not be sold (are restricted) until they have been held fully paid for 6 months.

SERIAL BOND When an issuer schedules portions of a bond issue's principal to mature at predetermined intervals over a period of years until the entire balance has been repaid, the issuer has issued what type of bond?

Serial A serial bond issue schedules portions of the principal to mature at intervals over a period of years until the entire principal balance has been repaid

MUTUAL FUNDS FEES Which of the following would be included in a mutual fund's list of expenses?

Shareholder records and service Investment adviser's fee

Common dividends may be declared, increased, reduced, or suspended at the discretion of the board of directors (BOD).

Shareholders have no vote on these dividend matters

Regarding transferability for common shares, which of the following is TRUE?

Shares can be sold or given away without the permission of the corporation.

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.

CLOSED END COMPANY 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.

OPTION CONTRACT Your customer has one position in her account and it poses an unlimited loss potential. Which of the following is it?

Short call

Your customer has one position in her account and it poses an unlimited loss potential. Which of the following is it?

Short call

CAPITAL GAINS Regarding capital gains, which of the following is TRUE?

Short-term gains are those realized on positions held for 12 months or less.

Which of the following would all be considered the same regarding yields on debt instruments?

Stated, nominal, and coupon yields The interest rate the issuer has agreed to pay the investor is the coupon yield. The coupon yield is also called the stated or nominal yield.

A stock's market value is directly determined by which of the following?

Supply and demand

SUPPLY SIDE ECONOMIC THEORY Match the following statement to the BEST expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes.

Supply-side Economic Theory

Supply-side Economic Theory Match the following statement to the BEST expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes.

Supply-side Economic Theory

Supply-side economics holds that governments should allow market forces to determine prices of all goods.

Supply-side adherents judge that the federal government should decrease government spending and taxes. In this way, sellers of goods will price them at a rate that allows them to meet market demand and still sell them profitably.

SYSTEMATIC RISK Investors face many different risks. Which of the following would be factors of systematic risk? War Global security threats

Systematic risk points to changes in the overall economy. It has an adverse effect on individual securities apart from the company's circumstances. It is generally caused by factors that affect all businesses, such as war, global security threats, or rampant inflation. No matter how diversified a portfolio is, it remains subject to systematic risk. An investor cannot diversify systematic risk away.

By the SEC definition, when is the latest that payment in full for purchased securities may take place in a cash account?

T + 4 business days

T-BILLS For Treasury bills, which of the following are TRUE? T-bills are issued at a discount to par. T-bills are a direct obligation of the U.S. government.

T-bills are issued at a discount to par, are 6 months or less to maturity, and are a direct obligation of the U.S. government. Callable and convertible features are those that should be associated with corporate issues not government issues.

MUNICIPAL REVENUE BOND Which of the following are TRUE of municipal revenue bonds? They are not subject to statutory debt limits. They are backed by a facilities ability to generate revenue.

The 2 types of municipal bonds are GOs and revenue bonds.

Which of the following would you expect to have the lowest expense ratio?

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

INSIDER TRADE An investor has received insider information from a research scientist that a chemical company has just invented a new polymer that could be very useful in making strong, light girders in building construction. The investor buys several thousand shares of the company's stock through his registered representative. Several months later, when the patent comes out, the investor sells the stock for a substantial capital gain. Which of the following is least likely to be found liable under the Insider Trading Act?

The CEO of the chemical firm

CLASS A MUTUAL FUND 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 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.

Which of the following publishes and maintains a list of known terrorists and drug traffickers and those controlled by them or acting on their behalf?

The Office of Foreign Assets Control (OFAC)

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?

The Securities Act of 1933 Paper Act, Prospectus Act, or New Issues Act.

Regarding the issuance of new securities to the public, which of the following is TRUE?

The Securities Act of 1933 provides criminal penalties for fraud.

Securities Act of 1933Regarding the issuance of new securities to the public, which of the following is TRUE?

The Securities Act of 1933 provides criminal penalties for fraud.

COUPON RATE The coupon rate on a debt security represents A) the interest rate the issuer has agreed to pay the investor

The coupon rate on a debt security represents the interest rate the issuer has agreed to pay the investor for use of the funds loaned to the issuer.

TAX rate on qualified dividends depends on which of the following?

The current IRS tax code The tax bracket of the shareholder

MINOR ACCOUNT What happens to the contents of a custodial account in the event of the death of the beneficial owner (the minor child)? The custodian's fiduciary responsibility ceases. The account passes to the minor's estate . .

The custodian's fiduciary responsibility is for the benefit of the minor and ceases upon the minor's death. The account passes to the minor's estate for distribution to the minor's heirs.

OIL AND GAS PARTICIPATION PROGRAM Deductions for depletion would most likely apply to which of the following direct participation programs (DPP)? A) Oil and gas income program

The depletion allowance is a tax benefit reflecting the decreasing supply of oil or gas (or any other natural resource or mineral) after it is taken and sold. With income programs, the wells have been drilled and are already producing and, therefore, being depleted. By contrast, exploratory programs have a low expectation of success and it is therefore more likely that there will not be anything found to deplete.

COMPENSATION If a registered representative is involved in a securities transaction outside the scope of employment with the firm, a practice known as "selling away," and will receive compensation for it, which of the following must see that the representative is properly supervised for the transaction?

The employing firm

LIMITED PARTNERSHIP The fiduciary responsibility is borne by the GPs, not the LPs.

The flow-through of income and expenses, limited liability, and having an investment managed by the GPs are all considered advantages for the LPs.

GENERAL PARTNERS Which of the following incur a fiduciary responsibility in a limited partnership?

The general partners

INSIDER TRADE An investor has received insider information from a research scientist that a chemical company has just invented a new polymer that could be very useful in making strong, light girders in building construction.

The investor buys several thousand shares of the company's stock through his registered representative. Several months later, when the patent comes out, the investor sells the stock for a substantial capital gain. Which of the following is least likely to be found liable under the Insider Trading Act?

T-BILLS A new customer tells you that her objective is to incur little risk because she is anticipating a new home within the next 12 months. Which of the following would be a suitable recommendation? A) T-bills

The investor's time frame for needing the funds (within 12 months) and low-risk objective are the key factors to consider. With such a short time horizon, any equity investment involves too much risk, as does an investment in a high-yield bond fund (higher the yield, greater the risk to attain it). Of the choices, T-bills are the shortest fixed term and are issued by the U.S. government, entailing little to no risk.

BALLON MATURITY An issuer can schedule its bond's maturity using elements of both serial and term maturities. This is known as a balloon maturity.

The issuer repays part of the bond's principal before the final maturity date, as with a serial maturity, but pays off the major portion of the bond at maturity.

Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution. They are backed only by the good faith and credit of the issuer.

The notes track the performance of a particular market index but do not represent ownership in a pool of securities the way share ownership of a fund does. ETNs are bond like with a stated maturity date but do not pay interest and offer no principal protection. ETN investors receive cash payments linked to the performance of its underlying index less management fees when the note matures.

If an officer of a bank with the authority to purchase and sell securities on behalf of the bank wants to purchase new issues, which of the following statements is TRUE?

The officer may not purchase a new issue because he is considered a restricted person.

Which of the following regarding Treasury STRIPS, receipts, bills, notes and bonds is TRUE? A) They all mature at par value.

The only commonality for all of these is that each matures at par.

LIMITED PARTNERSHIP What might happen if a limited partner begins making day-to-day business decisions for the partnership?

The partner might jeopardize the limited liability status held as an LP. While LPs can vote on overall business objectives, they cannot vote on any day-to-day operational business decisions. A limited partner having any control over the partnership's day-to-day operations could be judged a general partner and lose LP status.

LIMITED PARTNERSHIP In an LP, which of the following is TRUE? A)

The partnership entity is not responsible for paying taxes on gains. Both gains and losses from an LP flow through to the individual partners. Gains are taxable, and any taxes due are the responsibility of the individual partners, not the partnership entity.

OPTION CONTRACT Purchasing a put 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.

Which of the following characteristics are typical of an exchange-traded product?

The value of an ETP is derived from other investment instruments, and it trades on a national securities exchange

Guaranteed bonds are backed by a company other than the issuing corporation, such as a parent company.

The value of the guarantee is only as good as the strength of the company making that guarantee (good faith and credit) because no physical assets back the bonds. Hence, these are unsecured debt instruments.

MUTUAL FUNDS What limit is placed on the number of outstanding shares a mutual fund may have in the hands of investors?

There is no limit.

ETFS The single greatest advantage associated with ETFs is the fact that while they can pass on capital gains from time to time, creating tax consequences in that year, they rarely do.

Therefore, there would be no expected tax consequences until the shares are sold. This is the tax efficiency generally associated with ETFs.

DIRECT PARTICIPATION PROGRAM DPPs are not taxed directly as a corporation would be. Instead, the income or losses from the business are passed directly through to the owners of the partnership. T

These are the investors who are then individually responsible for any tax liability.

XYZ Corporation is guaranteeing a debt issue for the IHG Company. Regarding these bonds, which of the following is TRUE?

These bonds are unsecured, with the value of the guarantee being as good as the strength of XYZ.

Which of the following regarding federal funds is TRUE?

These funds may be loaned from one FRB member bank to another.

ADRs are a type of equity security designed to simplify foreign investing for Americans. An ADR is created when shares are purchased in the foreign company's home market.

These shares are then deposited in a foreign branch of a U.S. bank and a receipt (the ADR) is created. The ADR provides U.S. investors with a convenient way to diversify their holdings beyond domestic companies.

PENNY STOCKS Which of the following regarding established customers of a broker-dealer and the purchase of penny stocks are TRUE?

They are exempt from the suitability statement requirement. They are not exempt from the disclosure rules.

529 PLAN Contributions into a 529 plan are always after tax at the federal level but not always at the state level. Therefore, withdrawals are always tax free at the federal level if used for qualified education purposes (tuition, books, lecture fees, lab fees).

They are generally tax free at the state level unless it is an out-of-state plan, in which case, state tax law may apply.

Sales charges are not among the standard business expenses of a mutual fund and may not be considered part of them.

They 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.

Which of the following are TRUE regarding mutual fund sales charges?

They are not an expense to the fund, but to the investor. They are used to compensate the fund's underwriter and sales representatives.

Treasury notes and bonds placed in trust at a bank. .

They then sell separate receipts against the principal and coupon payments the notes and bonds represent

A market in which exchange-listed securities are traded in the OTC market would BEST be described as the

Third Market

CALLABLE PREFERRED STOCKS By issuing a callable preferred stock, a corporation can call in a high dividend payment issue and replace it with a lower one when interest rates have fallen.

This feature allows the company to take advantage of reduced interest rates by calling in high-rate preferred issues and replacing them with lower ones.

INTEREST-RATE RISK When interest rates are rising, bond prices in the open market are pushed down. Rate movements and prices have an inverse relationship.

Those already holding the bonds in their portfolios see their investments decrease in value. This also makes bonds trading in the open market less desirable because new issue bonds will be yielding the now higher rates and comparably be more desirable.

OPTION CONTRACTS For options investors, which of the following are TRUE? Buyers pay the premium for the right to exercise. Sellers receive the premium and incur an obligation to buy or sell.

Those who buy options contracts pay the premium for the right to exercise (buy or sell the underlying security). Those who sell the contract incur the obligation to either buy or sell the underlying to fulfill the buyers exercise.

OPTION CONTRACTS For options investors, which of the following are TRUE? Buyers pay the premium for the right to exercise. Sellers receive the premium and incur an obligation to buy or sell.

Those who buy options contracts pay the premium for the right to exercise (buy or sell the underlying security). Those who sell the contract incur the obligation to either buy or sell the underlying to fulfill the buyers exercise.

An investor sells (writes) put options on MAS stock. This investor is A) bullish on MAS the stock

Those who sell put options may be obligated to buy the stock at the strike price if the contract is exercised by the owner. Being in a position to own the stock makes the investor bullish on the stock.

MARKET INTEREST RATES When interest rates in the open market move up or down, a bond's coupon rate will A) be unaffected by the open-market interest rates

Though the price of a bond will react to market forces, such as supply and demand, and be interest-rate sensitive (inverse), the coupon is always the same: A fixed percentage of par value established by the issuer when the bond was first issued.

AMERICAN DEPOSITORY RECEIPTS Which of the following is best describes the trade execution of ADRs?

Trades are executed domestically in U.S dollars.

Which of the following statements best describes the term "churning"?

Trading in a customer's account considered excessive, and for which no discernible investment purpose is detected.

Treasury notes Debt instruments put up for auction by the U.S. Treasury Department that offer intermediate maturities best describes

Treasury notes

A brokerage firm places U.S. Treasury notes and bonds in a trust at a bank and then issues securities collateralized by either the principal or interest payments those notes and bonds represent. These new securities the broker-dealer is offering are

Treasury receipts

TREASURY RECEIPTS A brokerage firm places U.S. Treasury notes and bonds in a trust at a bank and then issues securities collateralized by either the principal or interest payments those notes and bonds represent. These new securities the broker-dealer is offering are

Treasury receipts Brokerage firms can create a type of bond known as a Treasury receipt from U.S. Treasury notes and bonds placed in trust at a bank. They then sell separate receipts against the principal and coupon payments the notes and bonds represent.

When engaging in open-market operations, taking actions to either expand or contract the money supply, the FRB will buy or sell

Treasury securities

Under which of the following conditions will an investor be able to purchase mutual fund shares and pay no sales charge?

Under the automatic reinvestment privilege

UNIFORM SECURITIES ACT The law that provides the legal framework for state registration of securities is the A)

Uniform Securities Act

For ETFs, the phrase "tax efficiency" can best be described by which of the following concepts?

Usually, for ETFs, there are no tax consequences for investors until the shares are sold.

CONTINUING EDUCATION Registered persons must undergo regular training in the securities industry. What is known as the regulatory element of this training is determined by FINRA and takes place every 3 years.

What is known as the firm element is determined by the broker-dealer firm and takes place annually. Together, the 2 elements are said to meet the firm's continuing education (CE) requirement.

Bond backed by a corporation's full faith and credit is unsecured not backed by any assets

When a bond is backed by a corporation's full faith and credit, it is backed only by the reputation, credit record, and financial stability of the corporation. Not being backed by any of the corporation's assets, this bond is unsecured.

SHARES MJS Corporation has called in its 6% preferred shares. Owners of these shares should expect that A) dividend payments will cease on the call date

When a corporation calls in preferred shares, the shares stop trading and dividend payments cease on the call date.

LEASING PARTNERSHIP PROGRAM

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.

AT THE MONEY MOS stock is trading at 55. A March 55 call contract would therefore be trading A) at the money

When an option contract strike price is the same as the underlying stocks current market value, the contract is right at the money. When a contract is right at the money, it has no (zero) intrinsic value.

INVESTMENT STRATEGY The term "investment strategy" applies to recommendations to invest in, hold, or sell specific securities.

When making recommendations, both financial and nonfinancial items in a customer's profile should be considered.

RESTRICTED PPERSON A member firm receives an order to purchase shares in a common stock IPO from another broker-dealer for a customer. Regarding restricted persons, the member must A) obtain a written representation that the buyer is not a restricted person

When receiving an order to buy a new equity issue, a member must obtain a written representation that purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons).

AMERICAN DEPOSITORY RECEIPTS ADRs are issued and pay dividends in U.S. dollars eliminating the complications of currency conversion. However, ADRs are still subject to currency risk. Why? The company pays dividends in its home currency, and the issuing bank pays out those dividends in U.S. dollars.

When the exchange rate changes, the amount these dividends (in U.S. dollar terms) will fluctuate as well. Also, the value of the ADR itself will rise and fall with the value of the underlying foreign stock which is partially due to currency swings.

Indexes such as the DJIA or the S&P 500 are hypothetical portfolios, not single stocks. While there's no single standard or benchmark, an index can be used as a performance standard one can monitor and therefore judge the performance of a portfolio or investment against.

When we refer to the stock market's performance in general, we are most likely referring to the performance of an index or average that tracks stocks or bonds. These benchmarks can serve as an indicator of the overall direction of the market as a whole, or the direction of individual market sectors.

Hedge funds attempt to A) achieve high returns and are, therefore, associated with high-risk investments

While hedging is the practice of attempting to limit or mitigate risk, most hedge funds specify generating high returns as their primary investment objective. In attempting to achieve these returns, they tend to entail a substantial amount of risk for those who own shares.

Balloon maturity is generally distinguished from term bonds by the presence of serial maturities in the years immediately preceding the final maturity date.

While some of the principal is paid back on the serial dates, the major portion of the principal is paid back on the final maturity date.

HEDGE FUNDS Identify 2 trading strategies that a hedge fund could employ in its portfolio but a mutual fund cannot. Trading on margin to purchase portfolio securities Selling short stocks

While there can be limited and rare exceptions, mutual funds are prohibited from purchasing securities on margin and selling securities short. Both strategies, however, are commonly employed by hedge funds.

EXCHANGE TRADE FUNDS Advantages of Exchange-traded funds (ETFs) are that they have low operating costs and expense ratios and can be bought and sold throughout the trading day.

While they can pass on capital gains to investors like mutual funds, they rarely do.

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

529 PLAN Which of the following is TRUE when opening an out-of-state Section 529 plan?

Withdrawals may not be free of state taxation.

CUSTOMER COMPLAINTS When is the electronic filing of all information on customer complaints by broker-dealers with FINRA due?

Within 15 days of the end of each calendar quarter

WRAP ACCOUNT Which type of accounts bills a single fee annually for a group of services that might include asset allocation, portfolio management, and executions?

Wrap account.

All of the following statements are true EXCEPT A) a closed-end company may issue bonds B) a bond mutual fund may not issue bonds C) a closed-end company may issue preferred stock D)

a bond mutual fund may issue bonds

A convertible feature for a corporate bond allows

a bondholder to convert a debt instrument into securities that give the investor ownership rights

A convertible feature for a corporate bond allows

a bondholder to convert a debt instrument into securities that give the investor ownership rights Corporate bonds with convertible features allow the bondholders to convert the debt obligation they hold into shares of stock. Stock gives the holders an equity position in the company with ownership rights.

AD VALOREM An investor holds a debt security backed by ad valorem taxes. This security is issued by

a city or local municipality Ad valorem taxes are real estate taxes. Real estate taxes can only back debt securities issued by towns, cities, or counties (never states). These are collectively known as local municipalities.

CLEARING FIRM A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is

a clearing agent

An investor purchases a bond in the secondary market at $950. Assuming $1,000 par value, this bond is trading at

a discount When a bond is priced below par value, it is trading at a discount (discount to par).

Hedge funds are considered

a form of private investment company and, therefore, unregulated

Limited partnerships sold publicly via a prospectus offering would be expected to have

a large group of investors, each contributing a small sum

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.

RESTRICTED PERSON An officer of a broker-dealer firm would be categorized as a restricted person if that individual attempted to purchase

a new issue IPO at the public offering price As restricted persons, officers of broker-dealer firms or other institutional investors are prohibited from purchasing a new issue (IPO) at the public offering price.

Treasury note (T-note) interest is stated as

a percentage of par value Like Treasury bonds (T-bonds), Treasury notes (T-notes) have interest stated as a percentage of par value. Example: Par value $1,000, with 8% interest, equals $80 interest per year (0.08 × $1,000 = $80).

Treasury bond (T-bond) interest is stated

a percentage of par value Like Treasury notes (T-notes), Treasury bonds (T-bonds) have interest stated as a percentage of par value. Example: Par value $1,000, with 4% interest equals $40 interest per year (0.04 × $1,000 = $40).

TRANSFER AGENTS

a person or company who keeps track of stock ownership for a corporation. Prepares a list of stockholders who should receive dividends, issue meeting notices and perform other tasks for the corporation ISSUER USUALLY USES COMMERCIAL BANKS AND TRUST COMPANIES.

During the cooling-off period of a new registration filed with the SEC

a red herring may be given to prospective investors

REPURCHASE AGREEMENT (REPO)A financial institution, in order to raise cash on a short-term basis, sells some of the securities it owns, with an agreement to buy them back at a later date at a slightly higher price. This is known as

a repurchase agreement

REVERSE SPLIT If a stock is at risk of failing to maintain the minimum price requirements to remain listed on the NYSE, the most likely corporate action taken to preserve the listing could be A)

a reverse split

EXERCISE NOTICE When Options Clearing Corporation receives a notice to exercise, it will assign that notice to

a short broker-dealer

OPTION CLEARING CORPORATION When Options Clearing Corporation receives a notice to exercise, it will assign that notice to

a short broker-dealer

Limited partnerships sold through private placements involve

a small group of investors, each contributing a large sum Limited partnerships sold through private placements generally consist of a small group of accredited investors, each contributing a large sum to the partnership.

Cumulative preferred stock

accrues payments due its shareholders that have been missed in the event dividends are reduced or suspended.

SELF CLEARING FIRM A firm designated as self-clearing can

act in a back-office capacity for an introducing firm clear and settle transactions executed by other firms

SELF CLEARING A firm designated as self-clearing can act in a back-office capacity for an introducing firm clear and settle transactions executed by other firms

act in a back-office capacity for an introducing firm clear and settle transactions executed by other firms

Restricted shares, those that are unregistered, meaning that they were not attained in a public offering, may be sold by a non-affiliate

after holding them for 6 months and freely thereafter Nonaffiliates holding unregistered shares must wait 6 months before divesting of those shares, but because they are nonaffiliates, they may sell freely (without volume restrictions) thereafter.

Treasury bills pay

all interest at maturity Treasury bills (T-bills) are the only Treasury security issued at a discount to par value. At maturity, par value is received. The difference between what was paid and the par value received would be considered the interest income.

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

allows for the loan interest and equipment depreciation to be taken as deductions that will shelter the income from the lease payments received

Rule 144 stipulates that after holding restricted stock fully paid for 6 months,

an affiliate may begin selling shares but is subject to volume restrictions within any 90-day period.

CALL FEATURE A call feature attached to a bond allows

an issuer to call in a bond before maturity at times that will benefit the issuer

Treasury bills have a maturity of less than 1 year, Treasury notes mature in 1 to 10 years,

and Treasury bonds mature in 10 years or more. Therefore, in ascending order, short-term to long-term, they are T-bills, T-notes, T-bonds.

COMMUNICATIONS The category of correspondence, one of the three identified as being communications with the public, is defined as

any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period

CORRESPONDENCE The category of correspondence, one of the three identified as being communications with the public, is defined as

any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period

STRIPS, bills, notes, and bonds

are all backed by the good faith and credit of the U.S. government,

Treasury bills

are issued at a discount without a stated interest rate

Hedge funds

are nonregulated with no SEC registration required

Revenue bonds

are not secured by a specific pledge of property; instead they are backed by project revenue.

Tombstone ads A)

are permitted before the effective date

Term bonds

are structured so that the principal of the entire issue is all payable on the same date—the maturity date

Regarding options, it should be recognized that the maximum movement for any underlying stocks price could be

as low as zero or as high as infinity Any stock's price could move as low as zero or as high as infinity. That movement toward either of those points, and the market attitude of the option position employed (bullish or bearish), determines what the maximum gain, loss, or breakeven point is.

LIMITED PARTNERSHIP In order for a business entity to qualify as a limited partnership, the LP must have

at least one general partner and one limited partner

U-4 U-5 An individual has been a registered representative with a national firm for the past three years. Another member firm makes an attractive offer in an attempt to lure this individual to join them. In order to do so, the paperwork necessary would be

both a Form U-5 from the previous employer and a Form U-4 from the new one.

Declaration, record, and payment dates are determined by the board of directors (BOD),

but FINRA, or the exchange, determines the ex-dividend date

Exchange-traded funds are priced

by supply and demand where transaction prices may be higher or lower than the fund's NAV

Exchange-traded funds (ETFs)

can be bought and sold throughout the trading day and have low expense ratios

An investor having no affiliation with CDS Company has just purchased shares that were sold subject to Rule 144. This investor

can sell the shares unrestricted at any time

CAPITAL RISK The risk when investing, where one has the potential to lose all or part of the investment due to circumstances that are unrelated to the issuer's financial strength or well-being, is known as

capital risk

COMMERCIAL PAPER Promissory notes are a form of

commercial paper issued by corporations Corporations issue short-term, unsecured commercial paper, known as promissory notes. The proceeds from these notes are generally used to fund such items as pending accounts receivable and seasonal inventory gluts

Examples of investments in assets that would be considered illiquid would be all of the following EXCEPT A) works of art B C) classic automobiles D) real estate

common stock Investments in stocks and bonds are considered fairly liquid, while investments in fixed assets like real estate, art or collectibles are not, and therefore relatively illiquid.

All of the following actions must be completed before a customer enters the first option order EXCEPT A) completion of (signing of) the options agreement B) completion of the new account form C) delivery of an OCC disclosure booklet D) approval by a branch office manager or registered options principal

completion of (signing of) the options agreement

CONTINUING EDUCATIONTo keep up with recent developments in the industry regarding regulatory changes and other requirements imposed by FINRA, as well as needs identified by the broker-dealer firm, registered persons must fulfill the firm's

continuing education (CE) requirement

Preferred shareholders who expect missed dividend payments to be eventually paid are most likely to own

cumulative preferred stock

Common dividends may be

declared, increased, reduced, or suspended by the board of directors

Common dividends may be

declared, increased, reduced, or suspended by the board of directors Common dividends may be declared, increased, reduced, or suspended at the discretion of the board of directors (BOD). Shareholders have no vote on these dividend matters

Direct participation programs (DPPs) are set up

having the owners of the business liable for any taxes due DPPs are not taxed directly as a corporation would be. Instead, the income or losses from the business are passed directly through to the owners of the partnership. These are the investors who are then individually responsible for any tax liability.

A fully disclosed "introducing" broker-dealer

is what the word implies—it introduces its customer's business to a clearing firm. Clearing firms (often called carrying firms or agents) hold funds and securities and settle transactions (clear and process) for their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm's back office.

U.S. government securities are

issued by the U.S. Treasury in book-entry form All U.S. government securities issued by the U.S. Treasury are in book-entry form with no paper certificates.

ISSUERS An underwriting group is currently assisting an issuer with the preparation and filing of the registration statement for a new issue. Who is responsible for the accuracy of the information within the registration statement?

issuing corporation

Securities issued by the U.S. government are backed by

its full faith and credit, based on its power to tax the people Securities issued by the U.S. government are backed by its full faith and credit. The promise to pay is based on the federal government's power to tax the people, as well as to print currency when it needs to.

A change to tax rates on dividends would be an example of

legislative risk

CORPORATE BOND When an investor purchases a corporate bond, the investor is

lending money to and becoming a creditor of the corporation While stock represents ownership, a bond represents a loan. When investors purchase bonds, they are lending money to the borrowing entity and thus become creditors of the entity.

PUBLIC OFFERING Rules to protect the investing public during the public offering process include all of the following EXCEPT A) B) securities industry insiders may not take advantage of their insider status to gain access to new issues for their own benefit C) member firms may not withhold securities in a public offering for their own benefit D) members must offer the securities at the public offering price

limiting the number of shares of an IPO that may be purchased by the issuing company's employees

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.

DISCOUNT RATE To ease its monetary policy, allowing consumers to borrow more easily, the Federal Reserve Board can

lower the discount rate

A registered representative is opening a new account for a senior citizen age 68. The RR must

make a reasonable effort to obtain the name and contact information for a trusted contact person

T-notes and bonds

make semiannual interest payments,

The statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" is

mandated to be in the final prospectus by the SEC

If the stock market were to fall substantially in a single day, a portfolio consisting primarily of common and preferred stock would be most subject to

market risk

MARKET RISK If the stock market were to fall substantially in a single day, a portfolio consisting primarily of common and preferred stock would be most subject to

market risk

Short-term purchases and sales of a mutual fund to take advantage of price fluctuation is known as

market timing

Short-term purchases and sales of a mutual fund to take advantage of price fluctuation is known as

market timing The practice of market timing in mutual funds is not illegal but is rarely advantageous. Because many purchases and redemptions are involved over relatively short time periods, the sales charge lost each time the investor buys or redeems precludes making much in the way of profits. Most mutual funds in fact prohibit the practice.

A preliminary prospectus (red herring)

may be used to gather indications of interest

BUILD AMERICA BONDS Created under the Economic Recovery and Reinvestment Act of 2009 to assist in reducing costs to issuing municipalities and stimulate the economy, Build A

merica Bonds (BABs) are taxable municipal securities. There are two types; "Direct Payment" BABs that provide the municipal issuer with payments from the U.S. Treasury and Tax credit or "Issuer" BABs that provide the bondholder with a federal income tax credit.

NOTICE FILING A provision for filing securities at the state level used solely for securities that are considered to be federal covered securities is known as

notice filing When securities are deemed to be federally covered, the states have no jurisdiction over the registration requirements. However, the National Securities Markets Improvement Act did provide that states could require the filing of a notice (notice filing) to sell securities in that state, along with the payment of a filing fee

A customer who has written an option contract receives an assignment notice. This customer is

now obligated to either buy or sell the underlying stock at the strike price Only the owners of options contracts can exercise them. When this occurs, the writers of the contracts are assigned and must fulfill their obligation to perform. Performance (buy or sell) is determined by whether they have written a call (short call - obligated to sell) or a put (short put - obligated to buy).

OPTION CONTRACT A stock currently has a market value of $75 per share. If a put option on the stock has an exercise price of $60, the put option is

out of the money This put option has a zero intrinsic value and is therefore out of the money by the 15 points difference by which the market price exceeds the strike price. 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 (in this example, $60).

Noncash compensation exceeding the $100 annual limit to another member firm's employee is

permitted if occasional

PRIMARY OFFERINGA company is looking to raise additional capital to fund an expansion plan. The company's senior management chooses to issue additional bonds to the general public. The best expression to explain this type of offering would be a(n)

primary offering

An equity option call buyer has the right to

purchase stock and therefore is bullish

Inflation risk is most closely associated with

purchasing power risk

PURCHASING POWER RISK The potential that inflation will devalue the fixed dividend income payments received by preferred shareholders is known as

purchasing power risk

MONETARY POLICY When the Federal Reserve Board wants to contract (tighten) the money supply, it will

sell Treasury securities to banks in the open market

SENIOR EXPLOTATION On behalf of a customer, a broker-dealer requested an extension for payment that was not granted. The broker-dealer must

sell out the securities purchased and freeze the account for 90 days

OPTION ACCOUNT TRADING While a branch office manager can initially approve an options account for trading, it must ultimately be approved by

the firm's ROP

BREAKPOINTS All of the following are true regarding breakpoints for mutual funds EXCEPT A) the greater the investment, the lower the sales charge B) a breakpoint sale is considered to be a sale just below a breakpoint C) breakpoints must be disclosed to potential investors D)

the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold

Treasury receipts are backed by

the issuing broker-dealer Treasury receipts are issued by broker-dealers Treasury receipts can only be backed by their issuer, the issuing broker-dealer.

With a balloon maturity,

the major portion of the principal debt is paid on the final maturity date With a balloon maturity, the issuer repays part of the bond's principal before the final maturity date over scheduled serial maturity dates, but pays off the major portion of the bond principal on the final maturity date.

A customer wanting to open a margin account is told that the securities will be held in street name. This means that the securities will be registered in

the name of the broker-dealer

The U.S. federal government is

the nation's largest borrower and considered the best credit risk The federal government is the nation's largest borrower, as well as the best credit risk. Securities issued by the U.S. government are backed by its full faith and credit. There is no stronger backing than that of the U.S. federal government.

OPTION CONTRACT An investor pays 102 ($1,020) for a $1,000 par value bond. At maturity,

the premium paid decreases the return A $1,000 par value bond purchased at 102 ($1,020) is bought at a premium to par. Whenever a bond is purchased for an amount greater than will be received at maturity, the premium paid decreases the return. In this case, the additional $20 paid when the bond was initially purchased reduces the overall return from the interest payments received.

An investor owns 1 November 15 put at 5. The 15 in this contract represents

the premium, the price the investor has paid for the contract For this put contract, 15 is the strike price, which represents the price at which the investor has the right to sell stock, and 5 represents the $500 premium paid for the contract.

RULE 144 Securities and Exchange Commission Rule 144 regulates

the sale of control and restricted securities Securities and Exchange Commission Rule 144 regulates the sale of control and restricted securities in the secondary market. The rule stipulates the holding period, quantity limitations, manner of sale, and filing procedures when divesting of control or restricted shares.

An investor owns 1 November 15 put at 5. The 15 in this contract represents

the strike price, the price the investor can sell stock at

TRADE CONFIRMATION Your customer has purchased an MJS October 35 call at 4. Their proof of ownership will be

the trade confirmation

STATEMENTS Your firm must provide an account statement to a customer this month if

there are penny stocks in the account activity has occurred in the account this month

An investor in a direct participation program wishes to divest of a partnership interest purchased some time ago. You would correctly advise that

there is no secondary market making them highly illiquid

Hedge fund portfolio has been characterized as being highly leveraged. This means that

there is substantial borrowing or purchasing on margin While hedge funds can employ all these investment types and strategies, being highly leveraged means borrowing to purchase. Borrowing to purchase securities is typically known as buying on margin.

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

they are mandatory and must be placed during the cooling-off period

GO bonds,

they are not subject to any statutory debt limits.

If a preferred shareholder received a $3.50 annual dividend each year, it could be assumed that

this is a 3.5% preferred class

PREFERRED SHAREHOLDER If a preferred shareholder received a $3.50 annual dividend each year, it could be assumed that

this is a 3.5% preferred class An annual dividend of $3.50 simply tells you that this is a 3.5% preferred class of stock (3.5% × par ($100) = $3.50) or ($3.50 / par ($100) = 0.035).

Holders of subordinated debt instruments know that in the case of a corporate liquidation, they

will be paid back last of all debtholders In the event of a corporate bankruptcy, subordinated debtholders, while having no guarantees of being paid, would come last of all bondholders in the liquidation priority—subordinate.

An investor has purchased Class A mutual fund shares. The NAV (net asset value) per share of the fund is the price the investor

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.

RESTRICTED PERSON Regarding the sale of a new issue, a customer is considered a restricted person if the person is

working as a salesperson who works for the issuing firm's underwriter Restricted persons include FINRA member firms and their associated persons, such as a salesperson working for an underwriter, plus immediate family members. Immediate family members do not include aunts and uncles or grandparents.