SIE MOCK EXAM PRACTICE QUESTIONS

the annual limit for gratuities or compensation made to employees of other member firms is A. $100 B. $150 C. $200 D. $250

A. $100

An investor owns a bond with a 3.5% nominal yield making semiannual interest payments. On each interest payable date, the investor can expect to receive how much? A) $17.50 B) $350 C) $175 D) $35

A. $17.50 A bond with a nominal yield of 3.5% pays $35 in interest annually (3.5% × $1,000 par value). Given the bond makes semiannual interest payments, each of those payments would be in the amount of $17.50.

A new customer opens a margin account and, upon account approval, does an initial transaction purchasing 100 shares of MJS common stock at $25. How much will the customer need to deposit? A) $2,000 B) $1,000 C) $2,500 D) $5,000

A. $2,000 For the first trade in a newly opened margin account, there must be at least $2,000 in equity. The rule is as follows: transaction greater than $4,000, deposit 50%; between $2,000 and $4,000, deposit $2,000; and if the transaction is less than $2,000, deposit 100% of the purchase price. In this case, the transaction was between $2,000 and $4,000, and so a deposit of $2,000 is required.

A customer writes an MMM January 70 put at 6. The maximum potential gain on this position is A) $600 B) $100 C) $300 D) $760

A. $600 The potential gain on any short (written) option position, call or put, is the premium received on the transaction.

Interest on a 7% corporate bond would be paid to the investor as A) 2 semiannual checks for $35 each B) several checks totaling $70 each year C) 1 annual $70 check D) 2 semiannual checks for $70 each

A. 2 semiannual checks for $35 each Interest on corporate bonds is paid twice per year, or semiannually. The interest rate reported, however, is an annual rate. Thus a 7% bond would pay 7% of par ($1,000), or $70, per year as 2 semiannual checks for $35 each.

For nonlisted and non-Nasdaq securities, the prospectus for an APO must be provided to all those who purchase securities for how many days after the effective date? A) 40 B) 60 C) 30 D) 10

A. 40 For nonlisted and non-Nasdaq securities, the prospectus delivery requirement period in the aftermarket following an APO is 40 days, 90 days for an IPO. 25 days for an IPO of a Nasdaq or exchange listed security, and zero days for an APO.

The current yield on a bond with a coupon (nominal) rate of 7.5% currently selling at 105-½ is approximately A) 7.1% B) 7.5% C) 6.5% D) 8.2%

A. 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%.

Which of the following statements is correct concerning the pricing of ADRs? A) ADR pricing is dollar-based and fluctuates throughout the day. B) ADR pricing is dollar- based using an end of day NAV. C) ADR pricing is dollar-based using an end of day POP. D) ADRs are priced in foreign currency.

A. ADR pricing is dollar-based and fluctuates throughout the day Many ADRs are listed on exchanges such as the NYSE or Nasdaq. ADRs trade throughout the day and settle in the same manner as would the shares of a U.S.-based company. ADRs are priced in U.S. dollars.

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

A. I and II 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.

statutory disqualifications from registration can occur for I. a felony conviction II. any misdemeanor conviction III. any misdemeanor conviction involving securities or money IV. any failure to appear before a court A. I and III B. I and II C. I and IV D. II and IV

A. I and III

If an arbitration agreement has not been signed, under which 2 of the following circumstances would a dispute between a FINRA member firm and a retail customer go to arbitration? I. The dispute cannot otherwise be resolved to the satisfaction of both parties. II. The customer requests that the dispute go to arbitration. III. The amount under dispute is less than $50,000. IV. The FINRA director of arbitration so rules. A) I and II B) II and IV C) III and IV D) I and III

A. I and III Generally speaking, a broker-dealer firm has the customer sign a binding arbitration agreement before opening the account. In the absence of such an agreement, if a dispute cannot otherwise be resolved, the dispute can go to arbitration if the customer wishes it so.

By purchasing shares of stock in a company, investors can benefit from which of the following? I. An increase in the price of the shares II. An increase in price of the company's debt securities III. An increase in the yield of the company's outstanding debt securities IV. The receipt of profits to be distributed A) I and IV B) I and III C) II and IV D) II and III

A. I and IV Stockholders as owners can benefit from an increase in the price of the shares (capital appreciation) and by sharing in earnings through the receipt of dividends (distributed profits). Both are potential benefits, but neither are guaranteed.

which equity security allows the owner to vote for the board of directors? I. common stock II. convertible preferred III. straight preferred IV. cumulative preferred A. I only B. I and II C. I, II, and III D. I, II, III, and IV

A. I only

Of the following stocks, which would be defined as penny stocks? I. Nasdaq listed stock trading at $4 per share II. Bulletin Board stock trading at $4 per share III. Exchange Listed stock trading at $4 per share IV. "OTC Pink" stock trading at $4 per share A) II and IV B) II and III C) I and III D) I and IV

A. II and IV 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.

With money market securities, the risks are I. lack of liquidity II. a lower return than with longer-term instruments III. relative safety compared with other longer-term debt instruments IV. the potential reinvestment of principal at different rates over short periods of time A) II and IV B) II and III C) I and IV D) I and III

A. II and IV Because of their short-term maturities, money market instruments are relatively liquid and safe compared with other debt securities. These are considered advantages. The risks, however, would be lower returns (a trade-off for the safety) and potentially having to reinvest one's funds at a different rate each time the instrument matures (short intervals). In this light, not only is income minimal, but it will fluctuate with each new instrument purchased.

Considering a customer's nonfinancial considerations is as important as considering the customer's financial concerns. Included in the category of nonfinancial considerations are I. salary II. marital status III. credit card debt IV. number and ages of dependents A) II and IV B) I and IV C) II and III D) I and III

A. II and IV Nonfinancial considerations are those that are not generally monetized. Even so, they can sometimes be more important than the financial ones. Things like marital status and the number and ages of the customer's dependents play a critical role in determining the appropriate investment strategies. Of course, knowing the salary and debt is important, but those are financial considerations, not the subject of this question.

The Securities Act of 1933 requires that all of the following be offered by a prospectus EXCEPT: A) Treasury bonds. B) Mutual fund shares. C) Unit investment trusts. D) Variable annuities.

A. Treasury bonds

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

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

The Securities Act of 1933 requires that A) a new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale B) registration with the Securities and Exchange Commission (SEC) before public sale can be made be an option for all new issues C) all new issues be exempted from registration with the Securities and Exchange Commission (SEC) so that they may be sold to the public D) both exempt and nonexempt new issues be registered with the Securities and Exchange Commission (SEC) before public sale

A. a new issue, unless specifically exempted from the Act, e registered with the securities and While some new issues can be exempt from registration, the Securities Act of 1933 requires that a new issue, unless it is specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sales can be made.

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

A. an environmental regulation enacted to require certain precautions be taken Legislative risk results from a change in the law. Changes to the tax code are the most common legislative risks. Regulatory risk comes from a change to regulations that might impact certain individuals or businesses. The imposition of environmental regulations is one such example.

Which of the following must precede the first trade in an account? A) Approval of the new account by a principal B) Registered representative's signature on the new account form C) Filing of the account information with the applicable SRO D) Customer's notarized signature on the new account form

A. approval of the new account by 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

Class B mutual fund shares are also known as A. back-end load shares B. partially loaded shares C. deferred-load shares D. contingent-deferred shares

A. 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.

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 A) capping B) front running C) supporting D) pegging

A. capping Capping is the act of entering sell orders in a stock for the purpose of keeping the stock from rising. This would be an attempt to keep calls one is short from being in the money and exercised.

Voting rights are a privilege generally afforded to A) common shareholders only B) neither common nor preferred shareholders C) preferred shareholders only D) both common and preferred shareholders

A. common shareholders only One of the differences between common and preferred shareholders is that preferred shareholders generally have (with few rare exceptions) no voting rights

All of the following would be required for a new margin account EXCEPT: A. consent to loan agreement B. margin (credit agreement) C. hypothecation agreement D. new account agreement

A. consent to loan agreement

the Achieving a Better Life Experience (ABLE) Act of 2014 enabled the establishment of ABLE accounts for certain individuals. All of the following regarding ABLE accounts are true EXCEPT: A. contribution to ABLE accounts are tax-deductible B. income earned in an ABLE account is not taxed C. contribution can be made by any person, including the account beneficiary D. eligibly is limited to those where the onset of a significant disability occurred before the age of 26

A. contribution to ABLE accounts are tax-deductible

If the Midlands Pencil Corporation has issued several different debt securities, and inventory would expect the lowest income stream from A. convertible debentures B. speculative bonds C. ordinary debentures D. subordinated debentures

A. convertible debentures

an issuer of a bond can be A. corporate and both the federal and municipal governments B. corporate entities only C. corporates and municipal governments only D. federal and municipal governments only

A. corporate and both the federal and municipal governments debt instruments (bonds) can be issued by corporations, and both municipal and federal governments

An LP is a type of A) direct participation program B) trust set up for investors C) corporate business entity D) debt investment

A. direct participation program A limited partnership (LP) is the most common form of direct participation program (DPP). LPs are business entities allowing for the economic consequences of the business to flow through to the individual investors (partners).

All of the following are stages of money laundering EXCEPT A) diversification B) layering C) placement D) integration

A. diversification

variable annuities include which of the following attributes? A. guaranteed death benefit B. tax-free growth C. unlimited pre-tax contributions D. intra-day liquidity

A. guaranteed death benefit

Which of the following can encourage economic growth because gradually increasing prices tend to stimulate business investment? A) Mild inflation B) Stagnation C) High inflation D) Deflation

A. mild inflation Inflation is a general increase in prices. Mild inflation encourages economic growth because gradually increasing prices stimulate business investment. High inflation reduces a dollar's buying power, which hurts the economy.

All of the following are eligible to apply for FINRA membership EXCEPT A) a real estate broker B) a penny stock dealer C) an investment banker D) a municipal bond broker

A. real estate broker Any person who effects transactions in securities may apply for FINRA membership. Real estate is not a security.

All of the following statements about securities purchases are true EXCEPT A) securities may not be purchased with borrowed money B) in a cash account, the customer pays in full for securities. C) in a short margin account, customers borrow securities for short sales D) in a long margin account, customers borrow money for securities purchases

A. securities may not be purchased with borrowed money Borrowing is a perfectly acceptable practice when buying and selling securities, whether it is cash that is borrowed for purchases or securities that are borrowed, chiefly from other investors who have signed a loan consent agreement, allowing their securities to be borrowed for short sales.

An investor is short 1 December 15 put at 6. The investor's maximum loss on this position is A) $1,500 B) $900 C) $60 D) $2,100

B. $900 A put writer's maximum loss is the put's strike price (15) less the premium received (6)—in this case, 9 points. Note that this is the same as the breakeven. This maximum loss occurs when the stock price drops to zero. The investor is forced to buy the worthless stock at the option's strike price of 15 and, therefore, has lost 15 points. The investor's total loss (15), however, is reduced by the premium (6) received, making the ML 9 points ($900).

Subject to market liquidity, which of the following orders is most likely to be executed immediately? A) All-or-none order B) Market order C) Limit order D) Fill-or-kill order

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

During a discussion with a customer about a potential investment opportunity involving securities, standing alone, all of the following would likely be permissible EXCEPT A) the RR shows the customer a brochure with a chart showing best and worst case scenarios for product development over the next year B) the RR points out only that a tech firm has a brilliant product idea and the CEO has advanced degrees in science C) the RR pessimistically implies that an investment has a good chance of losing money, as well as gaining, because the product might not have a market D) the RR points out, correctly, that the maximum possible loss on this particular investment is probably smaller than the maximum possible gain

B. the RR points out only that a tech firm has as brilliant product idea and the CEO has advanced degrees in science The CEO may have advanced degrees, and the product idea may be brilliant, but the registered representative has failed to mention that these 2 things do not guarantee success nor the relevancy of the degree to the product or idea being discussed.

Shelf offerings are covered under which if the following? A) The Trust Indenture Act of 1939 B) The Securities Act of 1933 C) The Bank Secrecy Act D) The Investment Company Act of 1940

B. the Securities Act of 1933 The shelf offering (registration) provision under the Securities Act of 1933 allows issuers to quickly raise capital when needed or when market conditions are favorable.

For those who follow monetary theory, which is the most complete measure of the money supply? A) M1 + M2 B) M1 C) M3 D) M2

C. M3

T-bills are issued (auctioned) by the U.S. Treasury Department how often? A) Only when the U.S. Treasury Department deems it necessary B) Monthly C) Weekly D) Bimonthly

C. weekly

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

C. whenever a new account is opened and annually thereafter

When is the electronic filing of all information on customer complaints by broker-dealers with FINRA due? A) Within 15 days of the end of each calendar year B) Within 30 calendar days of receipt of the complaint C) Within 15 days of the end of each calendar quarter D) Semiannually, in June and December

C. within 15 days of the end of each calendar quarter Broker-dealer firms must electronically report information on all customer complaints to FINRA within 15 days of the end of each calendar quarter. Both these filings and the complaints must be retained by the firm for 4 years.

A married couple have 2 children, both still minors. Which of the following UTMA accounts could be opened? A) One of the children as custodian for the sibling B) Parent as custodian for one of the children C) Both parents as custodians for one of the children D) Parent as custodian for both children in a single account

D. parent as custodian for both children in a single account In an UTMA account, only one adult can be the custodian for one minor. Joint custodians or joint beneficiaries to a single account are not permitted.

Federal Reserve member banks needing to borrow money can borrow from A) non-member banks at the federal funds rate. B) the Federal Reserve Bank at the federal funds rate. C) member firms at the discount rate. D) the Federal Reserve Bank at the discount rate.

D. the Federal Reserve Bank at the discount rate Federal Reserve member banks needing to borrow have 2 resources: the Federal Reserve Bank itself, which will lend to them at the discount rate, and other member banks, who will lend to one another at the federal funds rate.

Raising funds is generally accomplished by corporations through the issuance of stock (equity) or bonds (debt). This is done in A) the currency market B) the secondary market C) the funding market D) the capital market

D. the capital market the issuance of stock or bonds by corporations to raise new funds takes place in the capital market

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 A) the state securities office B) the Board of Governors C) the Federal Reserve Board FRB) D) the exchanges where the firm is a member

D. the exchanges where the firm is a member 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 describes the results of a 1 for 2 reverse stock split? A) Half as many shares at twice the original price B) Twice as many shares at half the original price C) Half as many shares at the same price D) Twice as many shares at the same price

A. half as many shares at twice the original price If a stock price has become too low, for example for listing to continue on an exchange, a corporation may carry out a reverse stock split. In a 1 for 2 reverse split, the price of the stock is doubled, but the number of shares outstanding is halved. Any stock split, forward or reverse, must leave the total value of the outstanding stock unchanged before and after the adjustment.

Direct participation programs (DPPs) are set up A. having the owners of the business liable for any taxes due B. as tax-free investments with no potential write-offs C. to be taxed directly, much like corporations are taxed D. to pass out on taxable income only to the investors, but not losses

A. 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 for any tax liability

a corporation is issuing a bond with an interest rate below that which is commonly being offered for this type of bond. To improve the bond's marketability without reducing the capital to be obtained, which of the following actions might be the corporation take? A. offer a warrant on the stock with each bond B. conduct a rights offering for potential bond buyers C. offer the bond at a discount D. offer a stock dividend to the current shareholders

A. offer a warrant on the stock with each bond warrants are sometimes offered as "sweeteners" attached to bond issues to improve the marketability of bond. Rights offerings and stock dividends do not apply in this case, and selling the bonds at discount would be self-defeating because the issuer wouldn't be able to raise the needed capital

which of the following is TRUE for a buy stop order? A. it becomes a market order once triggered (elected) B. it will always be executed as soon as it is entered C. it can only be executed at its specified limit or better D. it will be entered below the CMV

A. it becomes a market order once triggered (elected)

how an account is registered determines A. ownership and control of the investments in the account B. the sole individual allowed to access the accounts C. ownership of the account only D. control of the investments in the account only

A. ownership and control of the investments in the account accounts can be registered in the name of one or more persons, as well as legal entities such as corporations or partnerships. Account registrations determines the ownership of the account and who will have control of the investments in the accounts

Which of the following is an example of an equity security? A) Preferred shares B) Debentures C) Mortgage bonds D) Equipment trust certificates

A. preferred shares both common and preferred shares are equity securities. each of the other choices represents a debt instrument

Regarding the registration of securities with the Securities Exchange Commission which of the following is TRUE? A) Private securities offerings are generally exempt from registration. B) Public securities offerings are generally exempt from registration. C) No securities offering can ever be exempt from registration. D) All securities offerings, public or private are exempt from registration

A. private securities offerings are generally exempt from registration

If it finds that the registration statement needs revision, expansion, or to have corrections made, the SEC may suspend the review of the new issue and issue a deficiency letter. Once the issuer submits a corrected registration statement, the 20-day cooling-off period A) resumes where it had left off B) considered over allowing the registration to be effective C) begins anew D) is increased by 10 business days to accommodate review of the new information

A. resumes where it had left off If the SEC issues a deficiency letter suspending its review of the new issue, the 20-day cooling-off period is halted and resumes where it had left off once the corrected registration statement is received.

Treasury bills (T-bills) are A) short-term debt obligations issued weekly B) short-term debt obligations issued monthly C) intermediate-term debt obligations issued weekly D) intermediate-term debt obligations issued monthly

A. short-term debt obligations issued weekly

once form U-5 is filed, affiliated persons have how long to reaffiliate with another member firm without requalifying for registration? A. 6 months B. 2 years C. 1 year D. 4 years

B. 2 years

changes to form U-4 must be filed within A. 30 days of the event with SEC B. 30 days of the event with CRD C. 15 days of the event with FINRA D. 15 days of the event with the broker-dealers SRO

B. 30 days of the event with CRD

which of the following is true for a forward stock split adjustment? I. aggregatepositon value remain unchanged II. aggregate position value increases III. number of shares decreases IV. number of shares increases A. I and III B. I and IV C. II and III D. II and IV

B. I and IV

Your customer has purchased $10,000 in U. S. Treasury bonds. These securities A) can be transferred in either physical or book entry form in accordance with the purchasers request B) will have evidence of ownership recorded in book entry form C) are required to be delivered in the form of physical paper certificates D) cannot be delivered in physical certificates because they exceed the amount for paper certificate delivery

B. will have evidence of ownership recorded in book entry form All U.S government securities o matter what the denomination or amount are delivered, transferred, and have ownership recorded in book entry form

Which of the following are the most likely to make monthly or quarterly payments for the life the investor? I. Fixed annuity II. UIT III. Mutual fund IV. Variable annuity A) II and III B) III and IV C) I and IV D) I and II

C. I and IV 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.

Yield to call (YTC) calculations reflect the early redemption date and I. acceleration of the discount gain if the bond was originally purchased at a premium II. acceleration of the discount gain if the bond was originally purchased at a discount III. accelerated premium loss if the bond was originally purchased at a premium IV. accelerated premium loss if the bond was originally purchased at a discount A) I and III B) I and IV C) II and III D) II and IV

C. II and III Yield to call (YTC) calculations reflect the early redemption date and consequent acceleration of the discount gain if the bond was originally purchased at a discount (less than what will be received at maturity), or the accelerated premium loss if the bond was originally purchased at a premium discount (more than what will be received at maturity).

Which of the following constitute a private securities transaction, or "selling away"? I. A registered representative executes a trade for a customer in securities of a type normally handled by the representative's broker-dealer. II. A registered representative's sibling has some old bonds that the representative sells as a favor through a municipal securities broker. III. A registered representative helps an old school friend issue securities for a small business under formation. IV. A registered representative helps an acquaintance sell some inherited stock certificates without the acquaintance becoming a customer of the firm. A) I and II B) II and IV C) III and IV D) I and III

C. III and IV A private securities transaction is any sale of securities outside the scope of the regular business of the associated person involved and of the broker-dealer firm. Such a transaction done for an immediate family member, however, does not fall under the definition.

A customer retired 2 years ago at age 70. He recently took a job with a retailer greeting customers. He would like to contribute to a retirement plan to accumulate additional money with the view to leave something to his grandchildren. You would most likely advise him to open A. a mutual fund B. a traditional IRA C. a Roth IRA D. an annuity

C. a Roth IRA?

An option contract having no intrinsic value at expiration will likely be A) exercised by the holder B) assigned to the holder C) allowed to expire D) exercised by the writer

C. allowed to expire With no intrinsic value at expiration, an option contract is worthless. Therefore, the owners of these contracts would most likely allow them to expire rather than exercise them.

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

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

MOS stock is trading at 55. A March 55 call contract would therefor be trading at A. in the money B. at par C. at the money D. with intrinsic value

C. 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 intrinsic value

money market instruments guaranteed by a bank that are used to provide capital for international trades are called A. Eurodollars B. foreign bills C. bankers acceptances D. American Depository Receipts

C. bankers acceptances bankers acceptances provide short-term financing for importers and exporters

Which of the following for call option contracts is TRUE? A) Maximum loss is the same for both parties. B) Maximum gain and loss are the same for both parties. C) Breakeven is the same for both parties. D) Maximum gain is the same for both parties.

C. breakeven is the same for both parties Every option is a 2-party contract. One party's gain is the other party's loss. Therefore, MG and ML for each party is different. But BE is the same for both parties. One wants the underlying stock to be above the BE, while the other wants the underlying stock to be below the BE

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? A) The employing firm B) None because there is no supervisory requirement C) The firm where the trade will take place D) A FINRA examiner

A. the employing firm 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

When the Federal Reserve Board (FRB) utilizes the tools available to it, it is influencing A) the money supply B) fiscal policies C) the amount of money raised through taxes D) the federal budget

A. the money supply Through the use of open-market operations, affecting changes in the discount rate, and setting reserve requirements, the FRB is influencing the money supply. The money supply is the capital available for lending institutions to lend and thus consumers to borrow and spend.

All of the following statements about a bond trading at par value are true EXCEPT A. the nominal yield is lower than the current yield B. the nominal yield always stays the same C. the yield to maturity is lower than the nominal yield D. the current yield is higher than the yield to maturity

A. the nominal yield is lower than the current yield

A violation known as "churning" refers to A) repeatedly purchasing stock in order to keep the price supported. B) purchasing calls on a particular stock for your own account before entering a large customer order to purchase the stock. C) excessive transactions done solely for the purpose of generating commissions. D) repeatedly selling a stock short in order to prevent a price rise.

C. excessive transactions done solely for the purpose of generating commissions Unnecessary transactions entered into for the purpose of generating commissions with no regard for profitability constitute churning. A charge of churning can result from both excessive number and excessive size of transactions.

FINRA's Conduct Rules are designed to promote A) efficient and just handling of trade practice violations. B) settlement of disputes between member firms without resorting to the courts. C) fair and ethical trade practices when dealing with the public. D) uniform trade practices for firms to follow when dealing with other member firms.

C. fair and ethical trade practices when dealing with the public the Conduct Rules specify trade practices that are fair and ethical when dealing with the public. Events that must be reported are also described

A mutual fund's share class determines A) how the shares are delivered to the investor B) the net asset value per share C) how sales charges and related expenses are paid D) how many shares the investor may purchase

C. how sales charges and 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.

An investor who relies heavily on fixed interest payments from long-term (25-30 years) bonds should be most concerned with A) legislative risk B) reinvestment risk C) inflation risk D) financial risk

C. inflation risk Sometimes referred to as purchasing power risk, inflation risk is the effect of rising prices over a long period while an investor is collecting fixed interest payments. For example, if a bond's yield is lower than the inflation rate, the purchasing power of the interest payments received diminishes over time

Holding a callable bond with call protection is least impactful for the investor when A) interest rates are nonvolatile B) interest rates are stable C) interest rates are rising D) interest rates are falling

C. 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.

A registered representative has left one firm to join another. Sometime later, the former employer discovers that some information on Form U-5 filed at the time of termination was inaccurate. The firm need not file an amended U-5 if at least how much time has gone by? A) 2 years B) 5 years C) No stated time limit D) 30 days

C. no stated time limit An amended U-5 form must be filed and a copy sent to the affected former employee within 30 days of discovery of the inaccuracy. It does not matter how long it has been since the employee's termination.

Regarding the purchase of a new equity issue, an account where a restricted person has a beneficial interest would be allowed to purchase the new shares at the public offering price A) never B) without restriction C) only if the interest does not exceed 10% D) only if the interest exceeds 15%

C. only if the interest does not exceed 10% Restricted persons will be able to have an interest in an account (one that is not wholly their own) that purchases new equity issues as long as no more than 10% of the account's beneficial owners are restricted persons.

which of the following statements is NOT true? A. common stock is an equity security that represents ownership in the issuer B. convertible preferred stock can be converted to the issuer's common stock at any time C. preemptive rights obligate the stockholder to maintain their percentage of ownership when additional shares are issued D. preferred stock dividends must be satisfied before common dividends can be paid

C. preemptive rights obligate the stockholder to maintain their percentage of ownership when additional shares are issued

the power to revoke registration at the state level lies with A. FINRA B.the SEC C. the state administrator D. the National Adjudicatory Council (NAC)

C. state administrator

which of the following accurately states delivery requirements for account statements and trade confirmations? A. statements always monthly, confirmations on trade date B. statements always quarterly, confirmations no later than 10 business days after trade date C. statements quarterly if no activity in the account, confirmations on or before settlement date D. statements quarterly if not activity in the account, confirmations on next business day (T + 1)

C. statements quarterly if no activity in the account, confirmations on or before settlement date

The risk that changes in the overall economy will have an adverse effect on individual securities regardless of the company's circumstances is known as A) nonsystematic risk B) investment risk C) systematic risk D) securities risk

C. systematic risk Systematic risk is the risk that changes in the overall economy will have an adverse effect on individual securities regardless of the company's circumstances. Common causes that can impact all securities or investments might be war, global security threats, and inflation.

An underwriter is placing a tombstone advertisement for a company's new issue. A prospective investor might expect to see all of the following information on the advertisement EXCEPT A) the names of the company's officers B) the type of security to be sold (stock or bond) C) the number of shares to be sold D) the names of the underwriting members

C. the number of shares to be sold Information on a tombstone, those advertisements allowed to be placed prior to the effective date, is limited to; name of issuer, type of security, number of shares to be sold, public offering price or expected range, and names of the underwriters or group.

A stock trade took place on Tuesday, July 2. When would regular way settlement normally take place? A) Monday, July 8 B) Wednesday, July 3 C) Tuesday, July 2 D) Friday, July 5

D. Friday, July 5 Regular way settlement for a stock trade is T + 2 (trade date plus 2 business days). This would normally make settlement for this transaction Thursday July 4, but because July 4 is not a business day (national holiday), regular way settlement would have to be Friday, July 5.

To expand 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 down B) sell securities via open-market operations, pushing interest rates up C) buy securities via open-market operations, pushing interest rates down D) buy securities via open-market operations, pushing interest rates up

C. buy securities via-open market operations, pushing interest rates down To expand the overall economy, we want to push interest rates down by increasing the money supply. Lower interest rates make borrowing and spending easier for consumers. To increase the money supply, the FRB will buy securities via open-market operations, taking securities out of the banking system and putting money into the banking system.

which of the following is accurate? A. sell to open=short=bullish B. buy to open=short=bearish C. buy to open=long=bullish D. sell to open=long=bearish

C. buy to open=long=bullish

All of the following may be purchased on margin EXCEPT A) municipal securities B) NASDAQ listed stocks C) call and put contracts D) exchange listed securities

C. call and put contracts Option contracts—calls and puts—are among those securities products that cannot serve as collateral for a margin loan and, therefore, may not be purchased on margin. In the case of options, their unpredictable intrinsic value, diminishing time value, and limited life make them inappropriate for securing any kind of loan.

Margin calls can be met with deposits of A) either marginable or non-marginable securities B) cash only C) cash or fully paid for marginable securities D) fully paid for marginable securities only

C. cash or fully paid for marginal securities

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

C. depletion Write-offs (deductions) associated with leasing programs are those taken for operating expenses, depreciation of the equipment owned and leased, and interest costs on the loans to purchase the equipment. Depletion, however, is a deduction associated with natural resources programs, such as oil and gas.

Which of the following corporate actions are designed to allow investors to buy shares of stock under specific, defined conditions? I. A rights offering II. A forward split III. Issuing warrants IV. A stock dividend A) II and III B) II and IV C) I and IV D) I and III

D. I and III A rights offering allows current shareholders to purchase enough additional stock to maintain their proportionate ownership of the corporation, in the event more shares are sold to the public. The shareholders may purchase the stock before the public has access and will purchase the stock at a discount from its market price. Warrants allow the owner to purchase a certain number of shares of stock at a specified price at a specified time later. Splits and stock dividends, the other choices, do not involve the purchase of stock but instead are adjustments to existing stock positions.

Advantages to the investor offered by investment companies include I. ability to invest small amounts in many different securities II. special securities prices available only to investment companies III. elimination of market risk through pooling of investments IV. increased purchasing power in the marketplace A) I and III B) II and IV C) II and III D) I and IV

D. I and IV Investors who can only invest relatively small amounts of money can nevertheless purchase interest in many different securities through investment companies. By the same token, they also gain access to increased purchasing power by pooling their investments with others.

regular way settlement for corporate securities is A. same day (trade date) B. T + 1 business days C. T + 3 business days D. T + 2 business days

D. T+2 business days

A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following? A) A depository trust B) An investment company C) A fully disclosed introducing firm D) A carrying firm

D. a carrying firm Most firms choose to "introduce" their customers to another member firm known as a clearing or carrying firm to handle back office tasks, such as clearing trades, sending trade confirmations, settlement and reporting compliance, trade execution, and custody of customer funds and securities.

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

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

A customer has given permission for securities in an investment account to be used for the purpose of other customers who want to borrow them in order to sell those securities short. This would have entailed the customer signing A) a hypothecation agreement B) a margin account form C) a credit agreement D) a loan consent form

D. a loan consent form Allowing one's securities to be loaned to others who want to borrow them for the purpose of selling them short would entail signing a loan consent form. This is optional and need not be signed to open a margin account or any other.

All of the following unregistered persons may under certain circumstances receive commissions from a FINRA member firm EXCEPT A) a retired broker who still has commissions coming from preretirement trades B) a foreign nonmember firm ineligible for FINRA membership C) the spouse of a retired broker who is still owed commissions D) a suspended broker who recommends the broker's firm for a transaction

D. a suspended broker who recommends the brokers firm for a transaction Foreign nonmember firms and retired brokers (and their spouses in the event of their death) may all receive commissions from a FINRA member firm, provided specific requirements are met in each case. A suspended or expelled person, however, must always be treated like any non-FINRA member or member of the public.

Under the Uniform Securities Act, registrations must be renewed how frequently? A) Biannually B) Quarterly C) Semiannually D) Annually

D. annually State laws require that registrations must be renewed annually for broker-dealers with an office in the state, or those that direct calls into the state or receive calls from the state.

Treasury note (T-note) interest is stated as A) a premium over the price paid B) a discount to the face value C) a percentage of the purchase price D) a percentage of par value

D. at 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).

suspicious activity reports (SARs) are A. filed with FINRA as required by FINRA's code of conduct B. filed internally only for analysis involving potential problematic patters C. filed with the SEC as required by the Securities Exchange Act of 1933 D. field to the Financial Crimes Enforcement Network (FinCEN) as required by the USA PATRIOT Act

D. filed to the Financial Crimes Enforcement Network (FinCEN) as required by the USA PATRIOT Act

A registered representative is explaining discretionary and nondiscretionary accounts to a customer. Only one of the following statements is accurate and can be made by the RR. Which is it? A) In a discretionary account you will have the opportunity to approve any order I want to enter before I enter it. B) If I decide that the account should be a discretionary one you will no longer be able to enter orders yourself. C) I decide if the account should be set up as discretionary or nondiscretionary, but must do so in your best interest. D) In a nondiscretionary account no order can be entered without your prior approval.

D. in a nondiscretionary account no order can be entered without your prior approval In a nondiscretionary account no order can be entered without the customer's prior approval. In a discretionary account the customer's prior approval is not required. Only the customer can decide if the account should be a discretionary one and grants that discretion with a limited power of attorney giving trading authorization to the RR. Even in a discretionary account the customer may still enter their own orders.

All of the following is TRUE about local government investment pools (LGIPs) EXCEPT A) The pool maintains a fixed $1.00 net asset value B) LGIPs operate similarly to a money market instrument C) Pools are not required to register with the SEC D) Investors must be provided a prospectus at or before they purchase shares in the investment portfolio

D. investors must be provided a prospectus at or before they purchase shares in the investment portfolio The operating characteristics of LGIPs are similar to those of money market funds, and they keep a $1.00 NAV. They are not required to register with the SEC and therefore there is no prospectus but do provide information statements, which include details of the management fees.

Ownership of a security indicates that one is A) short the position and bearish B) short the position and bullish C) long the position and bearish D) long the position and bullish

D. long the position and bullish Owning a security means that one is long the position. When one is long (owns) the security, the person is bullish, anticipating it will go up in value in the hopes of selling it later at a higher price than it was purchased for.

your customer is aware that a corporate action has taken place where the adjustment to the number of shares owned and the stock price will not be standardized, but instead unique to fit the circumstances and terms of the corporate action. Of those listed, which is most likely to be such an action? A. forward stock split B. a stock dividend C. uneven reverse split D. merger or acquisition

D. merger or acquisition

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) Equities B) Options C) Warrants D) Mutual funds

D. 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.

for investors, instability within an emerging economy is generally recognized as A. currency risk B. business risk C. regulatory risk D. political risk

D. political risk while political risk can be interrelated with legislative risk, most attribute this risk specifically to the potential instability in the political under printings of a country or economy. This risk is often associated with emerging economics, though it can potentially exist anywhere

A 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) A) secondary offering B) private securities offering C) initial public offering D) primary offering

D. 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.

inflation risk is most closely associate with A. nonsystematic risk B. interest-rate risk C. call risk D. purchasing power risk

D. purchasing power risk when prices are rising (inflation), purchasing power is reduced. During inflationary periods' dollar today often doesn't the quantity of goods and services it purchased yesterday

Regarding investment risks, which of the following is TRUE? A) Higher yields should be expected when assuming less risk. B) Safer investments come with higher yields. C) Lower yields should be expected when assuming more risk. D) Safer investments tend to offer lower yields.

D. safer investments tend to offer lower yields Safe investments tend to offer lower yields, but investments where considerable risk is attached should offer much higher potential yields. Higher yield is the potential reward for assuming greater risk.

A member of the Federal Reserve System wanting to increase its reserves could do so by borrowing money from A) the Federal Reserve Board (FRB) at the federal funds rate. B) another FRB member bank at the discount rate. C) another FRB member bank at the prime rate. D) the Federal Reserve Board (FRB) at the discount rate.

D. the Federal Reserve Board (FRB) at the discount rate A Federal Reserve Board member bank can increase its reserves by borrowing from the Federal Reserve Bank directly, or it can borrow from another FRB member bank. When borrowing from the FRB directly, a bank will pay the discount rate. When borrowing from another member bank, a bank will pay the federal funds rate.

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

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

A broker-dealer firm has just rehypothecated a thousand shares of MMS stock. This means A) a bank has pledged the stock to the firm, which now pledges it to the customer B) the firm has withdrawn the stock from a bank and pledged it to the customer C) the customer withdraws the stock from the bank and pledges it directly to the firm D) the customer pledged the stock to the firm, which has now pledged it to a bank

D. the customer pledged the stock to the firm, which has now pledged it to the bank In a long margin account, customers put up at least half the purchase price of securities, and the broker-dealer firm borrows the remainder on the customer's behalf from a bank. The customer pledges the securities to the broker-dealer, which is known as hypothecating the securities. The broker-dealer then rehypothecates them to the bank as collateral for the margin loan.

Which of the following is not TRUE regarding no-load shares? A) They offer more return per dollar invested versus load funds if investing results are the same. B) They are sold by the fund with no sales charges or fees of any kind. C) They are redeemed with no charges or fees of any kind. D) They have fees associated with sales and redemptions.

D. they have fees associated with sales and redemptions No-load shares have expenses that are not considered sales charges. Some broker-dealers may charge fees for transactions, but these fees are not form the fund

An investor is short a January 30 call at 5. Maximum loss for the investor is A) 50 points or $5,000 B) 5 points or $500 C) 25 points or $2,500 D) unlimited

D. unlimited Max loss for a short call is unlimited. This could occur because the underlying stock can rise to some unlimited number

Which of the following offering types would be used for a deal that will be sold exclusively to residents of one state? A. a Rule 144 offering B. a Reg A offering C. a Reg S offering D. a Rule 147 offering

D. a Rule 147 offering

Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal? A) Best efforts underwriting B) Firm commitment underwriting C) Follow-on offering D) Initial public offering

A. Best efforts underwriting In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement.

The tax rate on qualified dividends depends on which of the following? I. The current IRS tax code II. The financial status of the issuer III. The tax bracket of the shareholder IV. The price per share of the stock A) I and III B) II and III C) I and IV D) II and IV

A. I and III Qualified dividends are taxed at a rate lower than the rate applied to the investor's tax bracket. That rate thus depends on current provisions of the IRS tax code and the investor's ordinary income tax bracket.

In order to receive a declared dividend a shareholder must be an owner of record at the close of business on the A) payable date B) declaration date C) ex-dividend date D) record date

D. record date Shareholders must be owners of the stock on or before the record date in order to receive the current dividend.

In general, the first industry form that a new applicant for registration sees is the Form U-4. This lengthy form requests information about the applicant's I. name including any aliases II. residency history back through the previous two years III. 10-year employment history IV. convictions, but not arrests, dealing with any securities related violations A) I and III B) II and IV C) III and IV D) I and II

A. I and III The Form U-4 contains the applicant's name as well as any aliases used. Residence history is shown for the past 5 years and employment history for the past 10 years. Charges, arrests, and convictions for securities related violations must be disclosed.

Which of the following would cause a mutual fund's NAV per share to fall? I. The fund purchases securities for the portfolio. II. The fund pays a dividend to shareholders. III. The market value of the portfolio declines. IV. A large number of shares are redeemed. A) II and III B) II and IV C) I and III D) I and IV

A. II and III 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.

An investor has opened an individual brokerage account for use in a small business and has given a business partner a power of attorney (POA) over the account. Which of the following persons may have access to the account for trading purposes? I. The attorney who administers to the business's legal needs II. The investor's partner who was given the POA III. The investor who opened the account IV. A secretary at the business, but only in an emergency A) II and III B) II and IV C) I and III D) I and IV

A. II and III The owner of an individual account and anyone who has power of attorney over the account are the only persons who may have access. This would exclude the business's attorney, secretary, or anyone else not having the POA.

An investor owning 500 shares of stock worth $40 per share receives notice that the stock will undergo a split. When the split is completed, the investor owns 400 shares of stock worth $50 per share. The split must have been I. a forward split II. a reverse split III. an uneven split IV. an even split A) II and III B) I and IV C) II and IV D) I and III

A. II and III This split reduced the number of shares, which makes it a reverse split. This investor now owns 400 shares when previously they had 500 shares, which would be expressed as a 4:5 split. Since neither number in the ratio is 1, it is an uneven split.

Yield to call (YTC) calculations reflect the early redemption date and I. acceleration of the discount gain if the bond was originally purchased at a premium II. acceleration of the discount gain if the bond was originally purchased at a discount III. accelerated premium loss if the bond was originally purchased at a premium IV. accelerated premium loss if the bond was originally purchased at a discount A) II and III B) I and IV C) I and III D) II and IV

A. II and III Yield to call (YTC) calculations reflect the early redemption date and consequent acceleration of the discount gain if the bond was originally purchased at a discount (less than what will be received at maturity), or the accelerated premium loss if the bond was originally purchased at a premium discount (more than what will be received at maturity).

Which of the following would constitute improper use of a customer's securities or funds? I. Agreeing to a stock purchase the representative thinks is beyond the client's means II. Selling a bond at the client's insistence during a period of high interest rates III. Lending securities for a short sale when the client has agreed to it on the phone IV. Borrowing a client's funds without permission, though it will be repaid the same day A) III and IV B) II and IV C) I and II D) I and III

A. III and IV Though a customer may be ill-advised, complying with it does not constitute improper use. To lend securities without a signed loan consent agreement does constitute improper use, as does borrowing the client's funds without permission of the client, no matter how briefly the funds will be held.

In safety of principal, municipal bonds are considered second only to A) U.S. government and agency bonds B) AAA-rated corporate debt issues C) corporate preferred stock issues D) corporate common stock issues

A. U.S. government and agency bonds Municipal securities are considered second in safety of principal only to U.S. government and agency issues.

Which of the following federal securities acts provides framework for registration at the state level? A. Uniform Securities Act B. 1934 Securities Exchange Act C. National Securities Markets Improvements Act D. 1933 Securities Act

A. Uniform Securities Act

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) A $125 designer edition fountain pen and desk holder B) A $150 leather brief case with the broker-dealer's name and logo on it C) A dinner at an expensive restaurant with a representative of the broker-dealer D) A ticket to a major league ball game to attend with a principal of the broker-dealer

A. a $125 designer edition fountain pen and desk holder FINRA member firms may not give business-related compensation to associated persons of other firms - compensation directly tied to sales or promises of sales - but may give an individual gifts whose value does not exceed $100 in a 12-month period. Tickets to a sporting event or dinner at an expensive restaurant may exceed the $100 limit if it is occasional, someone from the rewarding firm is present, and the employing firm has given its permission. Reminder advertising, items with the BD's name and /or logo, may also exceed the $100 limit, within reason, because it has a business purpose.

Which of the following is considered suspicious? A. a customer unconcerned about losses B. a client expressing undue concern about substantial commissions being charge to the account C. transactions that alone, or in aggregate, involve at least $2,000 D. moving large sums of money between accounts with the same last names

A. a customer unconcerned about losses

When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as A) a market maker B) an agent C) an underwriter D) an investment banker

A. a market maker When a broker-dealer buys and sells securities into and out of its own account as for the purpose of making a profit it is engaged in proprietary trading and is acting as a market maker (making markets in those securities). Investment banking and underwriting both primarily involve assisting issuers with bringing new securities issues to public investors. Agents act on behalf of others in the marketplace, such as a broker-dealer buying or selling for one of its customers.

The transfer agent for a corporation is responsible for each of the following EXCEPT: A) Acting as an intermediary between the buy and sell sides of a transaction B) Ensuring that its securities are issued in the correct owner's name C) Maintaining records of ownership D) Canceling old and issuing new certificates

A. acting as an intermediary between the buy and sell sides of a transaction The transfer agent (often a bank) for a corporation is responsible for ensuring that its securities are issued in the correct owner's name, canceling old and issuing new certificates, maintaining records of ownership, and handling problems relating to lost, stolen, or destroyed certificates. Acting as an intermediary in a trade is the function of the clearing corporation.

While preferred shares tend to be less volatile than common shares, one type of preferred is noted as being even more stable in price than the others. This would be A) adjustable rate B) participating C) callable D) convertible

A. adjustable rate Because the dividend payment adjusts to current interest rates, the price of the stock remains relatively stable. In other words, it is the return that fluctuates rather than the price.

Rules regarding restricted persons state that each of the following is considered immediate family EXCEPT A) an aunt or an uncle B) a mother-in-law or a father-in-law C) parents D) a brother or a sister

A. an aunt or an uncle Rules regarding restricted persons define "immediate family" as spouses, parents, siblings, in-laws, and children. Aunts and uncles and grandparents are excluded (not considered immediate family).

An oil and gas DPP that invests in wells that are already producing is known as A) an income program B) a leasing program C) a tangible program D) an exploratory program

A. an income leasing program An oil and gas DPP 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.

For which of the following investors would Class C shares be most suitable? A) An investor who intends to redeem the shares within a short time B) A relatively inexperienced investor C) An investor interested in high-risk, high-potential return speculation D) An investor who intends to leave the money in the fund for many years

A. an investor who intends to redeem the shares within a short time Because Class C shares have no sales charge levied at the time of purchase but rather levy a withdrawal from the customer's account every quarter, they would be most suitable for an investor intending to redeem the shares relatively soon. Mutual funds are not intended for the speculative investor, those who might trade in and out frequently, and no particular share class is especially suited to the inexperienced investor

An indication of interest given by an investor during the cooling-off period is A) an investor's declaration of potential interest in purchasing some of the issue after the security comes out of registration B) an investor's declaration of potential interest in purchasing some of the issue immediately C) an investor's binding commitment to purchase some of the issue immediately D) an investor's binding commitment to purchase some of the issue after the security comes out of registration

A. an investors declaration of potential interest in purchasing some of the issue after the security comes out of registration An indication of interest given by an investor during the cooling-off period is the investor's declaration of a nonbinding potential interest to purchase some of the issue after the security comes out of registration (after the effective date).

The XYZ May 45 puts are trading 2.50. The current market value (CMV) for XYZ stock is $42.50. The May 45 put is A) at parity B) at the money C) without any intrinsic value D) out of the money

A. at parity The amount that an option is in the money is its intrinsic value (IV). In this case, 2.50 points (45 - 42.50 = 2.50). An option is at parity when the premium equals intrinsic value. The premium of 2.50 equals the contract's 2.50 IV; therefore, the option is at parity.

Exchange-traded funds are priced A) by supply and demand where transaction prices may be higher or lower than the fund's NAV B) using forward pricing where transaction prices may be higher or lower than the fund's NAV C) by supply and demand insuring transaction prices equal to the fund's NAV D) using forward pricing so that all transaction prices equal the fund's NAV

A. by supply and demand where transaction prices may be higher or lower than the funds NAV ETFs trade on exchanges and are priced by supply and demand, like any other exchange-traded product. With pricing influenced by market forces, transaction prices at any given time might be more or less than the fund's NAV.

Exchange-traded funds are priced A) by supply and demand where transaction prices may be higher or lower than the fund's NAV B) using forward pricing so that all transaction prices equal the fund's NAV C) by supply and demand insuring transaction prices equal to the fund's NAV D) using forward pricing where transaction prices may be higher or lower than the fund's NAV

A. by supply and demand where transaction prices may be higher or lower the fund's NAV ETFs trade on exchanges and are priced by supply and demand, like any other exchange-traded product. With pricing influenced by market forces, transaction prices at any given time might be more or less than the fund's NAV.

When interest rates are falling, which bonds are most likely to expose holders to call risk? A) Callable bonds with higher coupons B) All bonds, regardless of whether or not they are callable C) Callable bonds with lower coupons D) All bonds, regardless of the coupon rate

A. 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.

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 A) capital risk B) business risk C) financial risk D) call risk

A. capital risk This is the definition of capital risk. For example, capital risk might be least when investing in securities backed by the federal government but much more prevalent when investing in derivative products.

Regarding bankruptcy proceedings, A) courts protect both corporate and individual filers from creditors B) a plan for reorganization must be submitted first before the courts can offer protection from creditors C) the procedure is only available to individuals seeking protection from creditors and not business entities D) liquidation of assets must occur first before the courts can offer protection from creditors

A. courts protect both corporate and individual filers from creditors Bankruptcy is a general term for court procedures available to both individuals and businesses. During the proceedings, filers are protected by the court from creditors. Protection is granted independent of any actions to liquidate or file a plan for reorganization.

Which of the following must be signed by a customer wanting to open a margin account? A) Credit and hypothecation agreements B) Loan consent and hypothecation agreements C) Credit and loan consent agreements D) Risk disclosure document and credit agreement

A. credit and hypothecation agreements Opening a margin account requires that the customer sign the credit agreement and the hypothecation agreement. The loan consent form (agreement) is optional. While the risk disclosure document must be received and attested to as read by signing the credit agreement, it need not be signed.

Which of the following records must be maintained for 6 years? A) Customer ledgers (statements) B) Minute books of directors meetings C) Customer confirmations and order tickets D) Organizational amendments shown on Form BD

A. customer ledgers (statements) Customer ledgers, from which account statements are prepared, must be kept on file or in appropriate electronic form for 6 years. Minute books and Form BD and its amendments are kept for the life of the firm. Confirmations and order tickets are kept for 3 years.

A company's board of directors (BOD) approves a dividend payment. When this occurs it is recognized as the A) declaration date B) dividend disbursement date C) ex-dividend date D) record date

A. declaration date When a company's board of directors (BOD) approves a dividend payment it is recognized as the date the dividend was declared; declaration date

Negotiable jumbo CDs are characterized by all of the following EXCEPT A) each issue generally matures in 5 to 10 years B) they trade in the secondary market C) they are issued in amounts of $100,000 to $1 million D) they are unsecured debt of the issuing bank

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

In order for a registered representative of a member firm to receive any form of compensation, such as commissions, after terminating employment, all of the following statements are correct EXCEPT A) earnings from referred business from existing clients would be eligible for payment B) there must be a contract in effect calling for these continuing commissions C) it would be permissible to pay continuing commissions to a surviving spouse D) the agreement must be entered into before the termination of employment

A. earnings from referred business from existing clients would be eligible for payment Continuing commissions are permitted, but there is no requirement that they be offered. In order for a former registered representative to receive them, the terms must be spelled out in a contract entered into before termination. The contract may call for payment to heirs but cannot provide any compensation for business referred or introduced by an employee after that person ceases to be registered with the member.

As interest rates rise, prices of preferred stock will A) fall B) remain unaffected C) become volatile D) rise

A. fall Because it pays a fixed dividend, preferred stock is interest-rate sensitive. As rates rise, prices of preferred stocks tend to fall, and vice versa.

Your client has $50,000 to invest. His objective is monthly income that he can receive after he retires. Part of his customer profile stresses that he has had uncomfortable experiences in the past with stock market and is no inclined to invest in anything that is based on stock market performance, and would opt for principal protection instead. Based on the client's profile, which of the following would be the best recommendation? A. fixed annuity B. mutual fund portfolio consisting of blue-chip stock C. variable annuity D. exchange-traded funds (ETFs)

A. fixed annuity

After the filing of a registration for a new issue with the SEC, and still in the registration's cooling-off period, broker-dealers may A) give a red herring to prospective investors B) never publish tombstone advertisements C) distribute sales literature with the preliminary prospectus D) take binding indications of interest received from prospective investors

A. give a red herring to prospective investors During the cooling-off period, red herrings (preliminary prospectuses) may be distributed and tombstone advertisements may be published. Indications of interest can be taken but are nonbinding on all parties. Sales literature may not be distributed during the cooling-off period.

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

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

An investor holds a 6% callable bond purchased at 105. If the issuer calls the bond before maturity, the yield to call realized by the investor would be A) less than the coupon B) greater the CY C) greater than the YTM D) equal to the YTM

A. less than the coupon When a bond purchased at a premium (105) is called before it matures, the accelerated premium loss is reflected in the calculated YTM and YTC. In this light, remember that the YTC is always the lowest of all possible yields for premium bonds, less than the coupon, CY, and YTM.

An investor is short 1 XYZ January 20 call at 3. This investor A) has received $300 for writing the call contract B) can exercise the contract to purchase XYZ stock at $20 per share C) can exercise the contract to sell XYZ stock at $20 per share D) has the right to buy 20 shares of XYZ stock

A. has received $300 for writing the call contract An investor who is short 1 January 20 call at 3 has received $300 premium to write (sell) the call. Being short the call (sold), the investor will be obligated to sell 100 shares of XYZ stock if the contract is exercised at the strike price ($20). Remember that only the owner, the buyer or the party who is long can exercise the contract.

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) impose a prison sentence on the violator B) censure the violator C) issue a fine to a member firm or associate D) bar an associated person from the industry forever

A. impose a prison sentence on the violator Only a court can issue a prison sentence. Each of the remaining answer selections, bar, fine, and censure, are sanctions FINRA could impose under the Code of Procedure.

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) imprisonment for a specified period B) requiring the person to retake the licensing exam before resuming work C) a fine far in excess of the amount involved in the transaction D) suspension from FINRA that might cause the person extreme hardship

A. imprisonment for a specified period FINRA does not have arrest or imprisonment authority, but in the event of a violation, FINRA may impose any fitting sanction on the guilty firm or associated person. Customary penalties include censure, suspension, expulsion, and fines, but FINRA is not limited to those. For example, taking the licensing exam is often imposed on associated persons found guilty of a violation.

Which of the following is TRUE regarding a registered person who wishes to move her registration from one broker-dealer to another? A) In no circumstances can a registration be transferred from one firm to another. B) A person who has been registered more than 25 years is grandfathered in and no filings need to be made. C) Only Form U-5 need be filed, separating the registered person from the existing employer. D) If the registered person has taken and passed the Series 24 General Securities Principal Exam, no filings need be made.

A. in no circumstances can a registration be transferred from one firm to another Transferring a registration from one member firm to another is not permitted. Should a person resign or be terminated, the member firm must file a Form U-5 with the Central Registration Depository (CRD) within 30 days of the termination date. A Form U-4 must then be filed by the new employer with all of the form's information requirements met.

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

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

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

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

Income from an investment in debt securities is known as A) interest B) total return C) capital gains D) dividends

A. interest Income from debt securities is known as interest. Income from common stock is known as dividends. Sale of a security for a price different from that originally paid is known as a capital gain or loss. The total return on an investment is the sum of income received and capital gain or loss upon sale.

U.S. government securities are A) issued by the U.S. Treasury in book-entry form B) issued by the Federal Reserve Board with physical certificates evidencing ownership C) issued by the U.S. Treasury with physical certificates evidencing ownership D) issued by the Federal Reserve Board in book-entry form

A. 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.

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

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

For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are A) made by the clearing firm B) never permitted C) made by the introducing broker-dealer D) made by the customer

A. made by the clearing firm Broker-dealers who are self-clearing will make their own extension requests. For those that are not self-clearing, known as introducing broker-dealers, the extension request must be made by the clearing firm.

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 A) mandated to be in the final prospectus by the SEC B) placed by the issuer in the preliminary prospectus C) mandated by FINRA to be placed in both the preliminary and final prospectus D) is the disclaimer placed by the underwriters in a tombstone advertisement

A. mandated to be in the final prospectus by the SEC Commonly known as the Securities and Exchange Commission's disclaimer, the SEC mandates that it be found in the final prospectus.

Common stockholders owning dividend paying stocks are exposed to A) market risk and current income risk B) current income risk but not market risk C) neither market risk nor current income risk D) market risk but not current income risk

A. market risk and current income risk In owning common shares, the investor stands to lose current income through dividend reduction or suspension (current income risk), as well as capital loss, should the market price decline (market risk).

Short-term purchases and sales of a mutual fund to take advantage of price fluctuation is known as A) market timing B) price-spotting C) time-spotting D) front running

A. 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.

In an underwriting where fixing a minimum dollar amount to be sold in order to move forward with the entire offering is most commonly referred to as A) mini-max B) firm commitment C) de minimis D) all-or-none

A. mini-max A mini-max offering is a best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting, and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell.

If the beneficiary of a custodian account dies, the securities in the account pass to the A) minor's estate B) custodian's estate C) parents D) SIPC trustee's account

A. minors estate If the beneficiary of a custodial account (minor) dies, the securities in the account must pass to the minor's estate, not to the parents' or custodian's estate.

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 of A) municipal revenue bonds B) Treasury bonds C) convertible bonds D) municipal general obligation (GO) bonds

A. municipal revenue bonds These are all examples of municipal revenue bonds, which are bonds issued to finance a project or facility with the bonds' debt service backed by the facility's revenue stream. The revenue might come from rents, tolls, or admission fees, among other sources.

An unsecured promissory note issued by a bank that can be traded in the secondary market is known as A) a negotiable CD B) commercial paper C) prime paper D) mortgage bond

A. negotiable CD Corporations issue unsecured promissory notes known as commercial or prime paper. When a bank issues an unsecured promissory note, it is known as a negotiable certificate of deposit (CD).

The coupon on a bond can be described as its A) nominal yield B) current yield C) yield to call D) basis yield

A. nominal yield The coupon on a bond is also known as the "nominal or stated yield" and indicates the annual interest paid. For example, a 4% bond pays $40 of interest per year (4% × $1,000 par value).

An investor anticipates that a fall in interest rates is imminent. This investor, now wanting to purchase bonds in order to lock in interest income, would likely buy A) noncallable bonds B) either callable or noncallable bonds C) callable bonds D) neither callable nor noncallable bonds

A. noncallable bonds If rates fall, bonds are likely to be called. Therefore, an investor who anticipates that rights might fall soon would look to purchase bonds that are not callable (noncallable). In this way, the investor is assured of receiving the coupon interest payments until maturity.

For investors, instability within an emerging economy is generally recognized as A) political risk B) currency risk C) regulatory risk D) business risk

A. political risk While political risk can be interrelated with legislative risk, most attribute this risk specifically to the potential instability in the political underpinnings of a country or economy. This risk is often associated with emerging economies, though it can potentially exist anywhere

in general, corporation assumes the least risk when it obtains funds from the sale of A. preferred stock B. secured bonds C. zero coupons D. debentures

A. preferred stock

The Federal Reserve Board (FRB) might impact the money supply by using all of the following EXCEPT A) prime rate B) reserve requirements for member banks C) discount rate D) buying or selling securities in open market

A. prime rate The prime rate is set by money center banks, not the FRB. The remaining 3 answer choices are the tools available to the FRB to be used to impact the money supply.

If a shareholder does not wish to attend an annual stockholders' meeting, but still wishes to vote, the shareholder may confer a limited power of attorney on another party to vote the shares. This power is known as A) a proxy B) a voting power C) a substitute D) a stand-in

A. proxy Most voting shareholders choose not to undertake the travel, expense, inconvenience, and time away required to attend a shareholders' meeting. Having someone else vote the shares is called voting by proxy and is a way to stay at home but still have a voice in crucial corporate decisions.

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. B) Lower its prime rate. C) Lower its broker call loan rate. D) Raise the hypothecation loan rate.

A. raise its prime rate The prime rate and the broker call loan rate are set by banks for loans to corporate customers and broker-dealers, respectively. If the FRB tightens the money supply (makes less money available to lend), banks will need to charge more for loans and will raise their lending rates. The hypothecation process isn't a rate, but a percentage amount (140% of the debit balance) and will not be impacted by the Fed's action with the money supply.

To tighten its monetary policy, making it more difficult for consumers to borrow money, the Federal Reserve Board can A) raise the discount rate B) lower the discount rate C) raise the federal funds rate D) lower the federal funds rate

A. raise the discount rate Wanting to tighten its monetary policy, which would make it harder for consumers to borrow money, the Federal Reserve Board can raise the discount rate—the rate it charges its member banks for short-term loans. This lessens the availability of money its member banks have to lend to consumers. The federal funds rate isn't a rate charged by the FRB but instead by large commercial banks to one another.

when a security position is liquidated for a gain, cost basis A. represents a return of capital invested B. is taxed as a capital gain C. represents the difference between capital invested and sales proceeds D. is taxed as ordinary income

A. represents a return of capital invested

An investor needs to decide whether or not they would like to maintain their percentage of ownership in a company that has decided to increase the number of outstanding shares. Which of the following is the best description of what is taking place? A) Rights will be distributed to existing stockholders with an exercise price lower than the current market value B) Warrants will be distributed to existing stockholders with an exercise price equal to the current market value. C) Warrants will be distributed to existing stockholders and they will have two to five years to decide whether or not to buy the stock at the strike price. D) Rights will be distributed to existing stockholders; they have only two options: exercise the rights or let them expire.

A. rights will be distributed to existing stockholders with an exercise price lower than the current market value Preemptive rights entitle existing common stockholders to maintain their proportionate ownership shares in a company by buying newly issued shares before the company offers them to the general public. They are offered with an exercise price lower than the current market value and are issued (typically) for a period of four to six weeks (30-45 days). Existing shareholders who receive rights have three options: they may be exercised, sold in the secondary market, or allowed to expire at the end of their subscription.

Under the Uniform Transfers to Minors Act (UTMA) a custodian has control over the account and can do each of the following EXCEPT A) sell short and write uncovered call options B) liquidate, trade, or hold securities C) exercise right or warrants D) buy or sell securities

A. sell short and write uncovered call options Selling short and writing uncovered options may only be effected in a margin account. The UTMA forbid the establishment of a margin account. Furthermore, these investment strategies, though legal and appropriate in other settings, provides unlimited risk and is inappropriate in an account held for a minor and therefore not permitted.

A corporation has issued a single bond having successive maturity dates set from 2020 through 2030. This is known as what type of bond? A) Serial B) Balloon C) Series D) Term

A. serial

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

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

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 B) Long puts C) Long calls D) Short calls

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.

Which of the following would all be considered the same regarding yields on debt instruments? A) Stated, nominal, and coupon yields B) Stated, nominal, and yield to maturity C) Nominal, coupon, and yield to call D) Nominal, yield to call, and yield to maturity

A. 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 company's net worth belongs to its A) stockholders B) bond holders C) president and CEO D) board of directors

A. stockholders A company's net worth (assets - liabilities) belongs to the business owners (its stockholders).

A broker-dealer wants to give an employee of another firm a gift. This is permitted provided all of the following conditions are met EXCEPT A) the gift or compensation is preapproved by the firm's SRO B) the gift or compensation is not conditional on sales C) the gift or compensation has the employing member firm's prior approval D) the gift or compensation doesn't exceed the annual $100 limit

A. the gift or compensation is preapproved by the firms SRO Firms may not distribute gifts, gratuities, or compensation to the employees of other member firms unless the compensation is not conditional on sales or promises of sales, it has the employing member's prior approval, and the compensation's total value does not exceed the annual limit of $100 per person. Approval of the self-regulatory body the firm reports to is not a requirement or condition.

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

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

When the Federal Reserve Board (FRB) utilizes the tools available to it, it is influencing A) the money supply B) fiscal policies C) the federal budget D) the amount of money raised through taxes

A. the money supply Through the use of open-market operations, affecting changes in the discount rate, and setting reserve requirements, the FRB is influencing the money supply. The money supply is the capital available for lending institutions to lend and thus consumers to borrow and spend.

What might happen if a limited partner begins making day-to-day business decisions for the partnership? A) The partner might jeopardize the limited liability status held as an LP. B) The partner may still maintain the limited liability status held as an LP. C) The partner may be removed from the partnership completely. D) There would be no effect because limited partners have the right to vote.

A. 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.

FINRA and the other SROs place extreme importance on knowing your customer. That involves knowing both financial and non- financial considerations. All of the following are non-financial considerations EXCEPT A) the salary paid to the client by her employer B) the client's age C) the number of children the client has D) the client's attitude towards risk

A. the salary paid to the client by her employer Non-financial considerations are those for which there is no monetary relationship. Clearly, the client's salary is one of the most important of the financial considerations.

Calls made regarding of all of the following under the Telephone Consumer Protection Act of 1991 (TCPA) are exempt EXCEPT A) those made that are unsolicited for the purpose of prospecting new clients B) those made to parties with whom the caller has an established business relationship C) those on behalf of a tax-exempt nonprofit organization D) those made for legitimate debt collection purposes

A. those made that are unsolicited for the purpose of prospecting new clients The Telephone Consumer Protection Act of 1991 (TCPA) exempts calls made to parties with whom the caller has an established business relationship or from whom the caller has prior express permission or invitation to call, call made on behalf of a tax-exempt nonprofit organizations or not made for a commercial purpose and those made for legitimate debt collection purposes. Calls made unsolicited for the purpose of prospecting new clients or to solicit sales of securities products or services of broker-dealers are covered by the Act.

FINRA has a continuing education requirement with the goal of making sure that all registered personnel are aware of industry changes. If a registered representative has just observed her second anniversary in the industry and did the required regulatory element CE, the next time she will be required to sit for the regulatory element is A) three years from now B) next year C) two years from now D) within 120 days

A. three years from now New registered representatives are required to sit for the regulatory element as of their second anniversary. Thereafter, they are scheduled each three years. Having just completed her second anniversary regulatory element CE, she will be next scheduled in three years.

Which of the following are considered intangible drilling costs for an oil and gas DPP? A) Wages and insurance B) Wages and equipment C) Fuel and interest expenses D) Equipment and fuel

A. wages and insurance Intangible drilling costs (IDCs) are costs for those items that would have no salvage value at the end of the program. These might include wages, supplies (not equipment that can be depreciated), fuel, and insurance.

Regarding stock rights and stock warrants, which of the following is TRUE? A. warrants are sometimes bundled with other securities B. rights cannot be sold in the open market, only exercised once received C. warrants have a short-erm subscription length (expiry) D. rights are exercised to purchase at a premium, above the securities price when issued

A. warrants are sometimes bundled with other securities

An individual would most likely be statutorily disqualified from working in the securities industry for which of the following reasons? A) Willful failure to disclose personal bankruptcy or unsatisfied liens B) Charged with driving under the influence of alcohol resulting in personal injury—a felony C) Willful failure to disclose motor vehicle fines in excess of $1,000 D) Conviction for misdemeanor assault

A. willful failure to disclose personal bankruptcy or unsatisfied liens A willful misstatement or omission made on an application for membership or registration as an associated person is deemed a serious infraction of securities law that would likely lead to a statutory disqualification from the securities industry. The Form U-4 does not ask about motor vehicle fines per se. Felonies convictions have to be disclosed, as do misdemeanor convictions involving money or securities.

When must a new options customer return a signed option account agreement form? A) Within 15 calendar days of the account approval B) At or before the customer receives the options disclosure document C) Before the 1st order is entered D) Before the account is approved by a registered options principal

A. within 15 calendar days of the account approval The option agreement must be signed and returned within 15 calendar days of account approval. This agreement states the customer will abide by the rules of the options exchange and the OCC, and will not violate position or exercise limits. If it has not been returned, the customer can only close out existing positions. No new positions may be opened.

Investors who sell call and put options are known as A) writers B) long C) uncovered D) covered

A. writers

For revenue bonds issued by a state or municipality, which of the following is TRUE? A) 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. B) Interest and principal payment is guaranteed. C) The bonds carry an unqualified promise to pay interest and principal backed by the power of the issuer to levy taxes. D) Interest and principal payment is backed by the full faith and credit of the issuer.

A.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 Revenue bonds are not backed by the full faith and credit of the municipality that issues them. Instead, they are backed by the revenue produced by the project or facility that they support. In that light, the revenue must be large enough to cover the interest and principal payments if those obligations are to be met.

Exempt from the penny stock rules are A) both solicited and unsolicited transactions B) unsolicited transactions C) solicited transactions D) all transactions

B. 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.

Each of the following investments and practices are deemed ineligible for an IRA or any other retirement plan EXCEPT A) collectible fine art B) variable annuities C) margin account trading D) life insurance

B. variable annuities

For real estate program partners, tax deductions will be derived from A) government-assisted housing allowances B) historic rehabilitation credits received C) mortgage interest paid and depreciation D) income received for rents

C. mortgage interest paid and deprecation Deductions for real estate programs come primarily from mortgage interest paid on the properties and the depreciation allowable for the properties

A 72-year-old customer has a $30,000 required minimum distribution (RMD) calculated to be taken from an IRA. If the customer is in the 20% income tax bracket and only withdraws $25,000 from the account, how much in taxes and penalties will be owed? A) $10,000 B) $8,500 C) $12,500 D) $5,000

B. $8,500 Failure to meet the required minimum distribution (RMD) results in a 50% penalty tax on the shortfall. In this case, taking only $25,000 when $30,000 should have been taken leaves $5,000 exposed to the 50% penalty tax. $5,000 × 50% equals $2,500. Note that the IRS will force the distribution of the RMD shortfall ($5,000). In addition to the penalty, the ordinary income tax on the amount withdrawn must also be paid (20% × $30,000 = $6,000). Total tax liability on this withdrawal equals $8,500 ($2,500 penalty tax plus $6,000 ordinary income tax)

To arrive at M3, one would add to M2 which of the following? A) Savings and checking accounts B) $100,000 and larger time deposits and repurchase agreements C) All currency in circulation, including coins D) Gold and silver bars held on reserve at the FR

B. $100,000 and larger time deposits and repurchase agreements Included in M3 but not found in M2 are time deposits of more than $100,000 and repurchase agreements with terms longer than one day.

A client opens a new margin account and, as the initial trade, purchases 300 shares of MS Corporation common stock at $10 per share. The firm would send the client a margin call for A) $1,000 B) $2,000 C) $3,000 D) $1,500

B. $2,000 No credit may be extended in a new margin account with less than $2,000 in equity. This purchase of $3,000 of stock would normally require 50% payment ($1,500) in accordance with Regulation T, but because it is the initial trade in the account, the $2,000 minimum must be met.

An investor holds a 4% corporatists bond with a yield to maturity of 2.75%. How much will be received in interest on each of the schedules interest payment dates? A. $20 B. $27.50 C. $400 D. $40

B. $27.50?

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 A) 10% B) 2% C) 6% D) 4%

B. 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%.

A customer purchased 1 MNO Jan 50 call at 2. What is the breakeven point for both the purchaser and the seller? A) 52 and 48 B) 52 C) 50 and 48 D) 50

B. 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.

According to the U.S. Commerce Department, the economy is in a recession when a decline in real output of goods and services lasts A) beyond 12 months B) 6 months or more C) 9 months or more D) 18 months or more

B. 6 months or more The U.S. Commerce Department defines a recession as a decline in real output of goods and services for 6 months or more.

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

B. ABC Corporate Bond 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.

Which of the following obligations is backed by the full faith and credit of the United States Government? A) FHLMC B) GNMA C) Treasury receipts D) FNMA

B. GNMA The Government National Mortgage Association (GNMA) is a government-owned corporation that supports the Department of Housing and Urban Development. Ginnie Maes are the only agency securities backed by the full faith and credit of the federal government.

The market price of a company's common stock could be affected by I. the company's earnings II. changes in the business cycle III. FRB policies IV. International conflicts A) II and III B) I, II, III, and IV C) I and II D) I and III

B. I, II, III, and IV Obviously, the price of a company's common stock will be impacted by earnings, whether it is higher or lower than anticipated. Changes in the business cycle, as well as FRB policies, will also carry weight in the marketplace. In today's global economy, conflicts even on the other side of the world can affect stock market prices.

WRJ stock is quoted as 21 bid, 21.15 offer. Which of the following is TRUE? I. A purchase can be made at $21 per share if buying at the market. II. A purchase can be made at $21.15 per share if buying at the market. III. The spread is $0.15. IV. A sale can be made at $21.15 per share if selling at the market. A) III and IV B) II and III C) I and IV D) I and III

B. II and III A quote always represents the bid and an ask (offer) price. Investors pay the current ask price when purchasing (21.15) and receive the current bid price when selling (21). The spread is the difference between the bid and the ask price—in this quote, 0.15.

Fiscal policy I. is the most efficient means for solving short-term economic issues II. is not considered the most efficient means to solve short-term economic issues III. is reflected in the budget decisions enacted by our president and Congress IV. is reflected in the money supply decisions enacted by the Federal Reserve Board A) II and IV B) II and III C) I and III D) I and IV

B. II and III 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.

Certain actions taken by the FRB would likely have the effect of causing interest rates to increase. Which would these be? I. The FOMC buying securities II. Raising the reserve requirements III. Raising the discount rate IV. Raising the prime rate A) I and IV B) II and III C) II and IV D) I and III

B. II and III Raising reserve requirements, having more member deposits being held on reserve at the Fed, would lessen the money available to lend. Raising the discount rate, charging member banks more for loans, would also lessen the money available to lend. With less money available to lend, interest rates would go up.

An investor owning 500 shares of stock worth $40 per share receives notice that the stock will undergo a split. When the split is completed, the investor owns 400 shares of stock worth $50 per share. The split must have been I. a forward split II. a reverse split III. an uneven split IV. an even split A) I and III B) II and III C) II and IV D) I and IV

B. II and III This split reduced the number of shares, which makes it a reverse split. This investor now owns 400 shares when previously they had 500 shares, which would be expressed as a 4:5 split. Since neither number in the ratio is 1, it is an uneven split.

Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit? I. If the customer signs and returns a proxy statement but does not indicate how to the shares are to be voted II. If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting III. If the matters to be voted on are of major importance IV. If the matters to be voted on are of minor importance A) I and IV B) II and IV C) II and III D) I and III

B. II and IV A member firm holding stock in street name may vote the shares as it sees fit if the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting, and if the matters to be voted on are of minor importance. If the matters are of major importance (such as a change in the direction of the business or a merger or acquisition), the shares are simply not voted.

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

B. II and IV All those participating in the solicitation of proxies, whether directly to obtain proxies themselves, or to provide unsolicited advice to shareholders regarding how to vote must register with the SEC.

During the cooling-off period, underwriters of new securities may I. accept orders to purchase shares II. not accept orders to purchase shares III. not accept indications of interest regarding potential purchases of shares IV. accept indications of interest regarding potential purchases of shares A) I and IV B) II and IV C) II and III D) I and III

B. II and IV Orders for shares may never be taken before the effective date; therefore, no orders to purchase shares may be taken during the cooling-off period. Indications of interest, however, are allowed to be taken but are not binding on either party.

If a broker-dealer holds the stock of an investor in street name, which of the following must be forwarded to the investor promptly upon receipt? I. Articles about the company found in financial industry literature II. Proxy statements relating to upcoming shareholder meetings III. Changes in the credit status of the issuing corporation IV. Quarterly financial and other reports generated by the issuer A) I and III B) II and IV C) II and III D) I and IV

B. II and IV Stock a broker-dealer holds in street name will be the subject of financial reports, proxy statements, and other material generated by the issuer that is important for the investor, the beneficial owner of the stock, to have. Accordingly, the broker-dealer must forward the material to the investor promptly.

The benefits of designating a brokerage account as "transfer on death" (TOD) are that I. the designation eliminates estate taxes II. the designation avoids probate III. the account holder no longer has to make investment decisions regarding the account IV. the account holder may still make beneficiary changes for the account A) I and IV B) II and IV C) I and III D) II and III

B. II and IV The transfer on death (TOD) designation allows the account holder to name a specific beneficiary (or beneficiaries) to receive the account's assets upon death. Those named persons may be changed whenever the account holder wishes. Although this designation allows the account to bypasses probate, it does not avoid estate taxes. TOD has nothing to do with giving investment discretion.

Characteristics common to penny stocks would include which of the following? A) Market price greater than or equal to $5 per share and listed on an exchange or Nasdaq B) Market price less than $5 per share and unlisted C) Market price less than $5 per share and listed on an exchange or Nasdaq D) Market price greater than or equal to $5 per share and unlisted

B. Market priceless than $5 per share and unlisted Penny stocks are generally defined as those with a market price below $5 per share that are not listed (traded) on any exchange or Nasdaq.

Which of the following are securities representing other securities held on deposit with a trustee where the principal and interest payments have been separated? A) Treasury bills and notes B) Treasury receipts and STRIPS C) Treasury receipts, bills, and notes D) Treasury notes and bonds

B. Treasury receipts and STRIPS Treasury receipts or STRIPS can represent U.S. T-bonds and notes held on deposit at a bank where essentially the coupon interest payments have been separated from the principal. When the Treasury Department does this, the resulting new issues are known as Treasury STRIPS, and when broker-dealers do this, the resulting new issues are known as Treasury receipts.

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

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

An investor has sold MJS stock, a stock not currently owned in her portfolio. This is A. a limited risk position B. a bearish position C. a long position D. a closing transaction

B. a bearish position?

If a customer wishes to open a cash account in his name an allow a third party to make trading decisions, but not withdraw cash and securities, he must instruct his broker-dealer to open A. a cash account with full power of attorney B. a cash account with a limited power of attorney C. a margin account D. a cash account

B. a cash account with limited power of attorney

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) a nonfixed UIT B) a closed-end company C) a fixed UIT D) a mutual fund

B. a 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.

A balloon maturity for an issuer's debt securities is most accurately described as A) a serial issue of bonds on which the interest rate periodically changes over the life of the issue for all bonds remaining outstanding B) a later final maturity within a serial issue of bonds that contains a disproportionately large percentage of the principal amount of the original issue C) bonds comprising all of a particular issue that come due in a single maturity D) an obligation granting the bondholder the right to require the issuer to purchase the bonds at par at a certain time before maturity

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

Assuming $1,000 par value, a bond priced at $1,200 is trading at A) a discount B) a premium C) discount to premium D) par

B. a premium When a bond is priced above par value, it is trading at a premium (premium to par).

When an issuing company sells securities to primarily institutional investors and a small number of wealthy individuals, as opposed to the general investing public in an exempt offering, this is known as A) a primary placement B) a private placement C) a secondary placement D) a secondary offering

B. a private placement A private placement occurs when the issuing company sells securities that are exempt from registration to private investors, as opposed to the general investing public. These investors tend to be institutional investors and small groups of wealthy individuals who meet certain net worth and income criteria.

Which of the following is the best description of a limited partnership? A) An investment that exempts individual investors from reporting gains or losses B) An investment that permits both gains and losses to pass through to the investors C) An investment that allows for losses only to pass through as write-offs to the investors D) An investment that allows only for income to flow through to the investors

B. an investment that permits both gains and losses to pass through the investors LPs are investment opportunities that permit the economic consequences of a business to flow or pass through to investors (limited partners). These would include the consequences of both income received and losses incurred.

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) a closed-end management investment company B) an open-end management investment company C) a face-amount certificate company D) an equity unit investment trust

B. 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.

A broker-dealer's business continuity plan (BCP) should be reviewed A) bi-annually by a registered representative designated to do so B) annually by a principal of the firm C) on an as needed basis or if prompted by FINRA to do so D) semi-annually by a principal of the firm

B. annually by a principal of the firm Business continuity plans (BCPs) are required to be reviewed annually by a principal of the firm.

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

B. apply to the Financial Industry Regulatory Authority (FINRA) The SEC, the fund itself, or a broker-dealer that sells the fund are the possible sources an investor may look to for a copy of a mutual fund's SAI. The fund itself is required to have it available for delivery within 3 business days of an investor's request.

An investor sells one equity call option on DGF stock. This investor is A) neither bullish nor bearish on the DGF stock B) bearish on DGF the stock C) both bullish and bearish on the DGF stock D) bullish on the DGF stock

B. bearish on DGF the stock Those who sell equity call options may be obligated to sell the stock at the strike price if the contract is exercised by the owner. Being in a position to sell makes the investor bearish.

Each of the following activities would require prior written notification by an associated person to the employing broker-dealer EXCEPT A) acting as a real estate sales agent, limited to the sales of individual homes only B) becoming a limited partner in an oil and gas drilling program C) offering to sell a limited partnership interest in an oil and gas drilling program D) part-time work parking cars on the weekend at a local racetrack

B. becoming a limited partner in an oil and gas drilling program Passive investments, such as the purchase of a limited partnership interest, are not considered outside business activity. An associated person may make a passive investment for his own account without providing written notice to the employing broker-dealer.

Each of the following activities would require prior written notification by an associated person to the employing broker-dealer EXCEPT A) part-time work parking cars on the weekend at a local racetrack B) becoming a limited partner in an oil and gas drilling program C) acting as a real estate sales agent, limited to the sales of individual homes only D) offering to sell a limited partnership interest in an oil and gas drilling program

B. becoming a limited partner in an oil and gas drilling program Passive investments, such as the purchase of a limited partnership interest, are not considered outside business activity. An associated person may make a passive investment for his own account without providing written notice to the employing broker-dealer.

Automatic disqualification for an individual to be registered in the securities industry would NOT include A. having been found as the cause of another associated persons suspension B. being convicted of a non-securities-related misdemeanor C. being under an SEC order to be bared from associating with a broker-dealer D. having been found to enter a misstatement in the application for membership

B. being convicted of a non-securities related misdemeanor

Each of the following are likely to be found on a trade confirmation EXCEPT A) description B) bond credit rating C) commission D) CUSIP

B. bond credit rating Trade confirmations are required to include many details about the trade and the securities including, but not limited to, the trade date, description of the security, CUSIP number, commissions (not markups or markdowns) and more. There is no obligation for the firm to print the bond credit rating on the trade confirmation.

An investor believes the price of an exchange-listed stock will likely fall in the near term. Which of the following option strategies would best support this belief? A) Selling puts B) Buying puts C) Buying both calls and puts D) Buying calls

B. buying puts A put buyer is a bearish investor because she anticipates the market to fall. The put is exercised only if the market price of the stock falls below the strike price.

Interest-rate risk A) is often called purchasing power risk B) cannot be reduced by diversification C) occurs when interest rates rise, pushing bond prices higher D) occurs when interest rates fall, pushing bond prices lower

B. cannot be reduced by diversification Interest-rate risk is one of the systematic risks that cannot be reduced by diversification. It is the risk that fluctuating interest rates will impact bond prices. Primarily, when interest rates are rising, bond prices will be pushed lowe

Which of the following regarding capital and money markets is TRUE? A) Money markets provide intermediate to long-term financing. B) Capital markets provide intermediate to long-term financing. C) Money markets provide long-term financing. D) Capital markets provide short-term financing.

B. capital markets provide intermediate to long-term financing The capital market serves as a source of intermediate to long-term financing. The money market, on the other hand, provides short-term financing.

In accordance with the terms of the Telephone Consumer Protection Act, all of the following statements are true EXCEPT: A) calls made to parties with whom the caller has an established business relationship are exempt from the Act. B) cold calls may be made between 8:00 am and 9:00 pm in the time zone from which the representative is making the call. C) calls made on behalf of tax-exempt nonprofit organizations are exempt from the Act. D) the firm must maintain a Do-Not-Call list documenting all those who have asked to be placed on it.

B. cold calls may be made between 8:00 am and 9:00 pm in the time zone from which the representative is making the call Any solicitation made must occur between 8:00 am and 9:00 pm in the recipient's time zone (not the callers). Firms must maintain a Do-Not-Call list, and the act exempts calls made on behalf of tax-exempt nonprofit organizations and calls made to parties with whom the caller has an established business relationship.

Reports of rising inventories generally occur during which period of the business cycle? A) Peak B) Contraction C) Expansion D) Recovery

B. contraction Downturns in the business cycle (a contraction) tend to be characterized by rising inventories due to a lack of consumer demand. During expansion or recovery, demand is high and goods are less likely to remain in inventory.

An offering is defined as the sale of a security. Regarding offerings, all of the following are true EXCEPT A) offerings of stocks can be made to the investing public B) corporate securities can only be offered in public securities offerings C) offerings of bonds can be made to the investing public D) offerings can be identified by who is selling the securities issuer or investor

B. corporate securities can only be offered in public securities offerings Both stocks and bonds can be made available to the investing public through an offering. Different types of offerings are identified by who is selling the securities—an issuer or another investor. Securities offered by corporations for sale to the investing public are sold to investors through either public or private securities offerings.

A company's board of directors (BOD) approves a dividend payment. When this occurs it is recognized as the A) ex-dividend date B) declaration date C) record date D) dividend disbursement date

B. declaration date When a company's board of directors (BOD) approves a dividend payment it is recognized as the date the dividend was declared; declaration date.

MJS Corporation has called in its 6% preferred shares. Owners of these shares should expect that A) the shares will continue to trade in the open market B) dividend payments will cease on the call date C) dividend payments will continue until the owner chooses to turn in the shares D) the shares will be resold to new investors

B. 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.

Regarding different types of risk, which of the following is TRUE? A) Enactment of, or changes in, laws represent political risk. B) Enactment of, or changes in laws, represent potential legislative risk. C) Changes in regulations represent potential legislative risk. D) Changes in regulations represent political risk.

B. enactment of, or changes in laws, represent potential legislative risk The enactment of, or changes in, laws represent potential legislative risk, whereas enactment of, or changes in, regulations represent regulatory risk. Political risk is specific to potential political instability associated more with emerging economies

Regarding the taxation of gains on securities, all of the following are true EXCEPT A) short-term gains are taxed at less favorable ordinary income tax rates B) gains on securities for a position held at least 12 months are not taxable C) capital gains are associated with the sale of securities and other real assets D) long-term gains are taxed at more favorable long-term rates

B. gains on securities for a position held at least 12 months are not taxable Investment income, which includes capital gains realized on securities positons, is taxable. Depending on how long a security was held, the gains might be taxable at the investor's ordinary income tax rate (for short-term gains) or at a more favorable long-term rate if the position was held for longer than 12 months.

A limited partnership (LP) A) is run by investors who are the limited partners B) has 2 types of partners C) is limited and can have only investors and no partners D) has one type of partner

B. has 2 types of partners LPs have 2 types of partners: general and limited. There must be at least one of each. It is the general partner who is responsible for running the partnership entity.

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

B. 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.

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

B. 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.

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

B. highly-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.

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

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

Regarding the Regulation T requirement, which of the following is TRUE? A) It is currently 50% and must remain unchanged unless mandated by Congress. B) It is currently 50% but can be changed at any time by the FRB. C) It is currently 30% and must remain unchanged unless mandated by Congress. D) It is currently 25% but can be changed at any time by the FRB.

B. it is currently 50% but can be changed at any time by the FRB The Regulation T initial margin requirement is currently 50%. While it has been so for many decades, it can be changed by the Federal Reserve Board anytime it deems appropriate to do so.

Common shareholders have the right to A) full access to a company's books and records B) limited access to a company's books and records C) no access to a company's books and records D) access a company's books and records with SEC permission

B. limited access to a company books and records By virtue of owning the company's common stock, shareholders have a limited right to review the company's books and records. For example, they have the right to examine the minutes of meetings of the board of directors.

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

B. limited partnership interests A disadvantage to limited partnership interests is the lack of liquidity. Of the choices above, direct participation programs such as limited partnership interests are generally deemed illiquid. Whereas municipal debt securities, preferred stock, and REITs are often freely traded in their respective marketplac

A customer of a securities firm has concluded that selling short would be an effective trading technique to reach his investment goals. Assuming the firm's principal agrees to permit the customer to effect short sales, what type of account would be most suitable for short selling? A) Fiduciary account B) Margin account C) Cash account D) Individual retirement account

B. margin account Investors who choose to sell short eligible securities must satisfy Federal Reserve Board (FRB) margin requirements to do so. The margin requirement is a deposit of 50% of the sale proceeds in the customer's margin account.

Carrying firms may NOT A) send trade confirmations and statements to customers B) mix customer funds and securities with their own C) execute transactions for their customers D) clear and settle transactions for their customers

B. mix customer funds and securities with their own Carrying firms can do trade executions, clear and settle transactions, and handle all back-office tasks, such as sending trade confirmations and statements. While they can take custody of customer funds and securities, they may not commingle them with those belonging to the firm. Abiding by the rule is known as segregating customer funds and securities.

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

B. municipal securities sales to customers Associated persons whose activities are limited solely to sales or have only clerical or ministerial functions are not MFPs. All the other activities would be associated with an MFP.

What dollar limit is placed on damages if a suit is filed based on allegations of manipulative practices? A) $500,000 B) No dollar limit C) 300% of the damages suffered D) $250,000

B. no dollar limit No dollar limit is placed on damages collectible from a lawsuit based on allegations of fraudulent or manipulative practices.

Municipal revenue bonds are A) subject to statutory debt limits but do not require voter approval B) not subject to statutory debt limits and do not require voter approval C) subject to statutory debt limits, which is why they require voter approval D) not subject to statutory debt limits but must still have voter approval

B. not subject to statutory debt lints and do not require voter approval Municipal revenue bond issues are self-supporting. Given that they do not rely on taxes to support the debt service, they do not require voter approval. Nor are they subject to statutory debt limits as GO bonds are

A method of registering securities at the state level that is reserved only for federal covered securities is known as A) qualification B) notice filing C) coordination D) federal covered application

B. notice filing The method known as notice filing exempted federal covered securities from state jurisdiction but still established a method by which the states could collect fees when issuers of those securities wished to have them sold in the state.

Each of the following activities would be deemed a violation of FINRA rules EXCEPT A) parking B) notice filing C) marking the close D) breakpoint sales

B. notice filing With the exception of notice filing, each of these is a violation of FINRA rules. Certain categories of securities, such as those listed on national exchanges and investment companies registered under the Investment Company Act of 1940, are deemed to be federally covered (known as federal covered). The effect of this is that states do not have jurisdiction over the registration requirements of these securities. However, the law provides that states may require the filing of a notice to sell securities in that state along with a filing fee.

Section 529 plans are considered municipal fund securities. They must therefore be sold by A) prospectus B) offering circular C) investment letter D) security memo

B. offering circular Municipal bonds are sold by offering circular, a document similar to a prospectus used in the sale of municipal securities. Because Section 529 plans are state sponsored, they must be sold by offering circular.

If left unexecuted, a good til cancel (GTC) order will automatically be canceled when? A) On the last business day of June and the last business day of December B) On the last business day of April and the last business day of October C) On the cancel date specified by the customer at the time the order is entered D) On the first business day of April and the first business day of October

B. on the last business day of April and the last business day of October GTC orders are valid until executed or canceled. Any GTC orders left unexecuted are automatically canceled on the last business day of April and the last business day of October. If the customer wishes to have the order remain working beyond those specific days, the customer must reenter the order.

Which of the following is an example of an equity security? A) Mortgage bonds B) Preferred shares C) Equipment trust certificates D) Debentures

B. preferred shares Both common and preferred shares are equity securities. Each of the other choices represents a debt instrument.

When a broker-dealer pledges customer securities to a bank as collateral for a margin loan, the pledge is known as A) hypothecation B) rehypothecation C) loan consent D) credit agreement

B. rehypothecation By signing the margin agreement, a customer hypothecates (pledges) the securities to the BD who then rehypothecates (pledges) them to the bank as collateral for the margin loan.

Which of the following statements about rights and warrants is TRUE? A) Rights and warrants are both long term. B) Rights are short term; warrants are long term. C) Rights are long term; warrants are short term. D) Rights and warrants are both short term.

B. rights are short term; warrants are long term A security with a termination, maturity, or expiration date that is 1 year or less from the date of issue is said to be short term. Rights offerings have a lifetime of 4 to 6 weeks, which makes them short term. If the end date is more than a year from the issue date, the security is long term. Warrants have expiration dates typically 2 to 5 years from the date of issue, which makes them long term.

Under the Uniform Transfers to Minors Act (UTMA) a custodian has control over the account and can do each of the following EXCEPT A) liquidate, trade, or hold securities B) sell short and write uncovered call options C) exercise right or warrants D) buy or sell securities

B. sell short and write uncovered call options Selling short and writing uncovered options may only be effected in a margin account. The UTMA forbid the establishment of a margin account. Furthermore, these investment strategies, though legal and appropriate in other settings, provides unlimited risk and is inappropriate in an account held for a minor and therefore not permitted.

A registered representative has a customer who is interested in utilizing options strategies such as spreads and straddles. The RR's firm does not offer options transactions as part of their existing business model. As such, the RR directs the customer to open an account through another broker-dealer. This would be known in the securities industry as A) trading away B) selling away C) investing away D) placing away

B. selling away A private securities transaction is any sale of securities outside an associated person's regular business and his employing member. Private securities transactions are also known as selling away. If an associated person wishes to enter into a private securities transaction, that person must provide prior written notice to his employer, describe in detail the proposed transaction, describe in detail the RR's proposed role in the transaction, and disclose whether they have or may receive compensation for the transaction.

A registered representative has a customer who is interested in utilizing options strategies such as spreads and straddles. The RR's firm does not offer options transactions as part of their existing business model. As such, the RR directs the customer to open an account through another broker-dealer. This would be known in the securities industry as A) trading away B) selling away C) investing away D) placing away

B. selling away A private securities transaction is any sale of securities outside an associated person's regular business and his employing member. Private securities transactions are also known as selling away. If an associated person wishes to enter into a private securities transaction, that person must provide prior written notice to his employer, describe in detail the proposed transaction, describe in detail the RR's proposed role in the transaction, and disclose whether they have or may receive compensation for the transaction.

When investors open a position by going long the security, they can close the position by A) selling the security short B) selling the security C) opening a new position in the security D) buying the security

B. selling the security Going long a security means that it was purchased. If a position was opened by purchasing the security, it would be closed by selling it.

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

B. stock dividends A stock dividend is payment of additional shares of the issuer to the stockholder rather than payment of cash. The price of the stock is adjusted so that the total value of the outstanding stock is the same before and after the dividend is paid. Stock dividends are thus not taxable.

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

B. 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.

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

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

All of the following associated persons engaged in the investment banking and securities business are considered registered representatives, EXCEPT A) someone who trains others to supervise, solicit, or conduct business in securities B) the chairman of the board C) an assistant officer who does not function as a principal D) someone who supervises, solicits, or conducts business in securities

B. the chairman of the board All associated persons engaged in the investment banking and securities business are considered registered representatives, including any assistant officer who does not function as a principal; any individual who supervises, solicits, or conducts business in securities; and any individual who trains people to perform functions in those capacities.

Defined benefit retirement plans offer which of the following features? A. Employees get to select their investment mix B. the employees benefits and length of service requirements are explained in the plan disclosure documents C. plan assets vest after 12 months D. retirement payments are tax free after age 59 1/2

B. the employees benefits and length of service requirements are explained in the plan disclosure documents?

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

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

All of the following must be on the cover page or beginning of the summary prospectus of a mutual fund EXCEPT A) the share class or classes offered by the fund B) the name of the investment advisor C) the fund share class or classes ticker symbols D) the website where a full prospectus may be downloaded

B. the name of the investment advisor The summary prospectus, as the name implies, contains the important information about a mutual fund in summary form. The cover page must contain a standardized listing of certain information, including the fund's name, share classes offered, ticker symbols, information on how to get a full prospectus, a warning that the information is in summary form, and other facts. There is no requirement that the name of the investment adviser be on the cover page of the summary prospectus.

All member firm communications are held to certain standards by FINRA. All of the following characterize those standards EXCEPT A) recruitment advertising must be fair and balanced in nature when expressing potential income B) the nature of the audience (age, investment experience) need not be a consideration at an open seminar C) professional designations and degrees may be noted but not used to imply expertise in areas where none exists D) charts and graphs must be balanced in showing both opportunities for gains and possible losses

B. the nature of the audience (age, investment experience) need not be a consideration at an open seminar FINRA mandates that members must consider the nature of the audience to which the communication will be directed and should provide details and explanations appropriate to the audience.

A registered representative enters a discretionary order for her clients account. All of the following are required EXCEPT A) a record of the order must be maintained B) the order must be approved by a principal prior to entry C) the order must be identified as or marked discretionary D) the order should be included in those required to be reviewed frequently

B. the order must be approved by a principal prior to entry Each discretionary order must be identified as such at the time it is entered for execution, a principal, officer or a partner of the BD must approve each order promptly and in writing, but not necessarily before order entry, a record must be kept of all transactions including discretionary ones, and as with all trading activity, it is subject to frequent and systematic review by a designated supervisor or manager.

Failure to complete the regulatory element continuing education requirement within the allotted time period will result in A) suspension of the individual until all CE requirements are met B) the registration being deactivated until the requirements are met C) an automatic bar from the industry for 3 years D) an automatic extension request, which FINRA will normally be grant

B. the registration being deactivated until the requirements are met Failure to complete the regulatory element within the allowable time frame will lead to FINRA's deactivating that person's registration until the CE regulatory element is met.

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

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

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

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

An individual would most likely be statutorily disqualified from working in the securities industry for which of the following reasons? A) Conviction for misdemeanor assault B) Willful failure to disclose personal bankruptcy or unsatisfied liens C) Willful failure to disclose motor vehicle fines in excess of $1,000 D) Charged with driving under the influence of alcohol resulting in personal injury—a felony

B. willful failure to disclose personal bankruptcy or unsatisfied liens A willful misstatement or omission made on an application for membership or registration as an associated person is deemed a serious infraction of securities law that would likely lead to a statutory disqualification from the securities industry. The Form U-4 does not ask about motor vehicle fines per se. Felonies convictions have to be disclosed, as do misdemeanor convictions involving money or securities.

A customer receives a voting proxy from a broker-dealer for shares owned by the customer and held in street name. The customer returns the proxy but later decides to attend and vote at the shareholder meeting in person. The voting proxy A) once signed could not be replaced by a vote made in person or by another proxy executed later B) would be revoked, and only the vote at the meeting would count C) would need to be rescinded in writing by the broker-dealer in order for the shareholder to vote in person D) would be deemed the shareholders vote because it would have already been counted

B. would be revoked, and only the vote at the meeting would count A proxy is automatically revoked if the stockholder attends the shareholder meeting and votes. Additionally, a proxy is revoked if another is executed later.

A bond with a 3% stated yield and a $1,000 par value would pay how much in annual interest? A) $300 B) $3 C) Not determinable D) $30

D. $30 The amount of interest payable annually as the stated, nominal, or coupon yield is calculated as follows: rate 3% × par value ($1,000) = $30.

A call option reaches its expiration date and goes unexercised. This means I. the buyer gains the premium paid II. the buyer loses the premium paid III. the writer gains the premium received IV. the writer loses the premium received A) II and IV B) I and IV C) II and III D) I and III

C. II and III Buyers of options pay the premiums for the contracts, and writers (sellers) receive the premiums. If the contract goes unexercised, the buyer loses the premium paid while the seller gets to keep it—a gain.

Which of the following bonds trade flat (without interest) unless interest payments are declared by the board of directors (BOD)? A) Mortgage bonds B) Callable bonds C) Income bonds D) Debentures

C. income bonds Bonds that trade flat (without interest), unless the payments are declared by the BOD, are income bonds (also known as adjustment bonds).

The max amount of securities that may be sold by an insider within a 3-month period under Rule 144 is A. the average weekly volume of the previous 8 weeks B. 5% of the shares outstanding C. 1% of he shares outstanding or the average weekly volume of trading in the previous 4 weeks, whichever is greater D. 1% of the shares outstanding or the average weekly volume of trading in the previous 8 weeks, whichever is greater

C. 1% of the shares outstanding or the average weekly volume of trading in the previous 4 weeks, whichever is greater

An investor owning 500 shares of MES stock received notice that the stock had undergone a 2:1 forward split when the stock's market price was $10 per share. The investor now owns A) 1,000 shares worth $10 per share B) 250 shares worth $20 per share C) 1,000 shares worth $5 per share D) 500 shares worth $20 per share

C. 1,000 shares worth $5 per share A forward split increases the number of shares and reduces the price proportionately so that the stock's total value is the same before and after the split. A 2:1 split in this case doubles the number of shares to 1,000 (the investor receives 2 shares for every 1 owned) and halves the price to $5 per share.

Your customer is long 1 October 55 put at 4. The customer's maximum loss potential is A) 59 points ($5,900) B) 40 points ($4,000) C) 4 points ($400) D) 51 points ($5,100)

C. 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.

Regarding a corporate bankruptcy and the liquidation priority, which of the following is accurate? A) Subordinated debt claims are satisfied before all other debt claims. B) Claims for taxes due are satisfied after all shareholder equity claims. C) Debt securities claims are satisfied before equity securities claims. D) Wages due employees are satisfied after all debt and equity claims.

C. Debt securities claims are satisfied before equity securities claims In the event of a corporate liquidation, the order of claims priority would be as follows: taxes (IRS) and wages, all debt instruments next (secured first, then unsecured with subordinated debt last), and then equity securities with preferred shareholders paid first, before common shareholders, who are last of all claimants to be satisfied.

All of the following would be considered advantages of exchange traded funds as opposed to mutual funds EXCEPT A) ETFs trade on exchanges B) ETFs are priced continuously throughout the trading day C) ETFs are commissionable D) ETFs are marginable

C. ETFs are commissionable Trading on exchanges, ETFs are priced throughout the trading day making them easy to trade and liquid. They can also be bought or sold on margin. The purchase or sale of ETF shares is a commissionable transaction. However, the commissions paid can erode the low expense advantage of ETFs and this would have the greatest impact when trading in and out of ETF shares frequently, or when investing smaller sums of money.

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

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

Options investors who are I. bullish on a stock should buy calls II. bullish on a stock should buy puts III. bearish on a stock should buy calls IV. bearish on a stock should buy puts A) II and III B) II and IV C) I and IV D) I and III

C. I and IV

One of the FINRA Conduct Rules is concerned with private securities transactions. Under that rule, it would be CORRECT to state that I. if the member approves the RR participating in a transaction for compensation, it must treat the transaction as if it is being done on its own behalf by entering the transaction on its own books and supervising the associated person during the transaction II. as long as no compensation to the RR is involved, notification to the member is not required III. sale of a securities product to the RR's mother where there is only nominal compensation is not covered under the rule IV. if the member disapproves of the RR's participation in a transaction for compensation, the associated person may not participate in it A) III and IV B) II and III C) I and IV D) I and II

C. I and IV FINRA divides private securities transactions into two categories. If the associated person will receive compensation, the rules are more comprehensive requiring approval or disapproval. If approved, the firm must record the transaction on its books and records and supervise as if it were executed on behalf of the member firm. Trades with immediate family members are not included if there is no compensation. In other transactions where there is no compensation, written notice to the employer member is still required.

Which of the following orders need NOT be immediately filled in their entirety? I. Immediate or cancel (IOC) II. Fill or kill (FOK) III. Market at open IV. All or none (AON) A) I and III B) II and IV C) I and IV D) II and III

C. I and IV Immediate or cancel (IOC) orders allow partial execution, with the unexecuted portion of the order being canceled. All or none (AON) orders may be executed piecemeal, until the end of the day (for day orders) or until they can be filled in their entirety (for good til canceled, or GTC) orders. Both FOK and market at open orders are expected to be filled immediately and in their entirety. If unable, a FOK order would be canceled (killed).

Which of the following would be unacceptable reasons for an officer of a member firm to make a contribution to the election campaign of a political candidate? I. The candidate is a member of the officer's political party. II. The candidate has promised to steer business to the officer's firm. III. The candidate is a close relative of a potential customer of the firm. IV. The officer approves of the policies and programs the candidate has proposed. A) II and IV B) I and III C) II and III D) I and IV

C. II and III

A private securities transaction I. is nonexempt and must be register under the Act of 1933 II. is exempt from registration under the Act of 1933 III. can be sold to individual accredited investors IV. can be sold to institutional investors only A) I and IV B) II and IV C) II and III D) I and III

C. II and III A private securities offering, sometimes called a private placement, is exempt from registration. While securities offered in a private securities transaction are generally sold to institutional investors, they can also be sold to small groups of wealthy individuals who meet net worth and income criteria, known as accredited investors.

Which of the following positions would give an investor an unlimited loss potential? I. Short 1 IBS Jul 50 put II. Short 100 shares of IBS stock III. Short 1 IBS Jul 50 uncovered call IV. Short 1 IBS Jul 50 covered call A) II and IV B) I and II C) II and III D) I and III

C. II and III 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.

Your firm must provide an account statement to a customer this month if I. 5 months have passed since the last activity in his account II. there are penny stocks in the account III. activity has occurred in the account this month IV. some of the securities in the account have lost significant market value this month A) II and IV B) I and III C) II and III D) I and IV

C. II and III 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.

For each transaction, a customer must be sent or given a written confirmation of the trade at or before the completion of the transaction, the settlement date. Information on that trade confirmation would include I. the markup (markdown) charged on a principal transaction II. the commission charged on an agency transaction III. the number of bonds purchased in a bond trade IV. the CUSIP number (if any) A) I and III B) II and III C) II and IV D) I and IV

C. II and IV Commissions for agency transactions are shown on confirms but not markups or markdowns charged in principal transactions. In a bond trade, the par value of the bond purchase (or sale) is confirmed, not the number of bonds. If the security has one, the applicable Committee on Uniform Securities Identification Procedures (CUSIP) number is included

If a broker-dealer holds the stock of an investor in street name, which of the following must be forwarded to the investor promptly upon receipt? I. Articles about the company found in financial industry literature II. Proxy statements relating to upcoming shareholder meetings III. Changes in the credit status of the issuing corporation IV. Quarterly financial and other reports generated by the issuer A) I and III B) I and IV C) II and IV D) II and III

C. II and IV Stock a broker-dealer holds in street name will be the subject of financial reports, proxy statements, and other material generated by the issuer that is important for the investor, the beneficial owner of the stock, to have. Accordingly, the broker-dealer must forward the material to the investor promptly.

As they apply to knowing your customer and making recommendations which of the following are TRUE statements? I. The term investment strategy applies to recommendations to buy and sell only. II. The term investment strategy applies to recommendations to buy, hold and sell. III. Only financial considerations such as income and net worth should be considered when making recommendations. IV. Non-financial considerations such as marital status and age should be considered as well as financial considerations when making recommendations. A) I and IV B) I and III C) II and IV D) II and III

C. II and IV 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.

Broker-dealers that transact securities business with customers or other broker-dealers must apply and be approved for registration with A) FINRA B) MSRB C) SEC D) CBOE

C. SEC The Securities and Exchange Commission (SEC) is the securities industry's primary regulatory body. Broker-dealers that transact securities business with customers or with other broker-dealers must apply and be approved for registration with the SEC.

Which of the following are considered money market securities at the time of issue? A) Municipal bonds B) T-notes C) T-bills D) T-bonds

C. 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.

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) Serial B) Balloon C) Term D) Single maturity

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

All of the following are U.S. government agency debt securities EXCEPT: A. Farm Credit Administration securities B. Federal National Mortgage Association securities C. Treasury Notes D. Government National Mortgage Association securities

C. Treasury Notes

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

C. Tuesday, April 6

Which of the following statements is the most CORRECT regarding customer accounts? A) Only margin accounts need to be approved by an authorized principal of a broker-dealer. B) Hypothecation agreements are required for joint cash accounts only. C) A customer may open both a cash and margin account at the same time. D) Cash accounts need to be approved by a principal promptly after the first trade

C. a customer may open both a cash and margin account at the same time Customers may open a cash account, margin account, or any other account so long as the firm supports that type of an account and an authorized principal approves it.

Which of the following is TRUE regarding accounts trading on margin? A) A partnership account may only trade on margin if it is specifically permitted in the partnership resolution. B) Joint accounts or those with more than one party titled on the account may never trade on margin. C) A fiduciary account may only trade on margin if it is specifically permitted in the trust or custodial agreement. D) A corporate account may only trade on margin if it is specifically permitted in the corporate charter.

C. a fiduciary account may only trade on margin if it is specifically permitted in the trust or custodial agreement Both individual and joint accounts may trade on margin. While corporate and partnership accounts may trade on margin as long as they are not specifically restricted from doing so, a fiduciary account may only trade on margin if permission is specifically granted in the trust or custodial agreement.

Hedge funds are considered A) a form of mutual fund and, therefore, unregulated B) a form of private investment company and heavily regulated C) a form of private investment company and, therefore, unregulated D) a form of management company and, therefore, regulated

C. a form of private placement investment company and, therefore, unregulated Hedge funds are considered to be a form of private investment company. They do not come under the Investment Company Act of 1940 as mutual funds do, and they do not require SEC registration. They are, therefore, considered unregulated.

Fingerprint records are required for each of the following employees of a registered broker-dealer EXCEPT A) a clerk who handles customer physical securities B) a registered representative who sells or offers to sell municipal or government bonds C) a receptionist greeting customers and directing them to the appropriate registered representative within the office D) those whose duties are limited to supervising clerks who handle the books and records of the firm

C. a receptionist greeting customers and directing them to the appropriate register representative within the office

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 stock dividend B) increasing earnings C) a reverse split D) reducing staff

C. a reverse split Reverse splits are a way of increasing a company's share price. In a reverse split, the number of shares outstanding decreases, but the price per share increases. As with all adjustments, a shareholder's total position in the stock remains unchanged before and after the action.

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

C. an interest payment on a corporate bond Stockholders must receive notice from the issuer in the event of actions to shareholders, chiefly those that are unscheduled or unpredictable. Some examples are stock splits, dividend payments, and rights or warrant offerings. A scheduled interest payment on a corporate bond thus does not require delivery of notice

Under penny stock rules, what is required for a broker-dealer to consider an investor an established customer? A) Signed risk disclosure statement B) Open cash account for 6 months or more C) At least 3 separate penny stock purchases D) Signed transaction agreement

C. 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.

An investor owns one NMS June 40 call trading at 5. If the underlying value of NMS stock is 45, the contract is trading A) with no intrinsic value B) out of the money C) at parity D) at the money

C. at parity This call contract is in the money by 5 points (45 - 40). It therefore has intrinsic value of 5 points. When a contracts premium (5) equals its intrinsic value (5), it is trading right at parity.

The flow of money between the United States and other countries is known as A) the surplus B) the payment reserves C) the balance of payments D) the balance of trade

C. balance of payments

Deflationary periods are characterized by all of the following EXCEPT A) coinciding with recessions B) rising unemployment C) increased consumer demand D) a decline in prices

C. increased consumer demand Periods of deflation tend to occur during recessions. Consumer demand decreases, leading to declining prices. When demand decreases, so does production, which leads to rising unemployment.

Which of the following shows Treasury bills, Treasury bonds, and Treasury notes listed in ascending order of maturity? A) Bonds, notes, bills B) Notes, bills, bonds C) Bills, notes, bonds D) Bills, bonds, notes

C. bills, notes, bonds 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.

When the Federal Reserve Board wants to expand (loosen) the money supply, it will A) sell Treasury securities to banks in the open market B) buy corporate securities from banks in the open market C) buy Treasury securities from banks in the open market D) Sell corporate securities to banks in the open market

C. buy Treasury securities from banks in the open market When the Federal Reserve Board wants to expand (loosen) the money supply, it will buy Treasury securities from banks in the open market. The securities come out of the economy, and the money goes into the economy.

Which of the following investors are bearish? A) Call buyers and put writers B) Call buyers and call writers C) Call writers and put buyers D) Put buyers and put writers

C. call writers and put buyers

A broker-dealer and its associated persons may be subjected to sanctions for violations of FINRA and SEC rules. Which of the following penalties can be levied against the associated persons? A) Loss of SIPC coverage B) Limits placed on research activities C) Censure D) Imprisonment

C. censure

Regarding bankruptcy proceedings, A) liquidation of assets must occur first before the courts can offer protection from creditors B) a plan for reorganization must be submitted first before the courts can offer protection from creditors C) courts protect both corporate and individual filers from creditors D) the procedure is only available to individuals seeking protection from creditors and not business entities

C. courts protect both corporate and individual filers from creditors Bankruptcy is a general term for court procedures available to both individuals and businesses. During the proceedings, filers are protected by the court from creditors. Protection is granted independent of any actions to liquidate or file a plan for reorganization.

An allowable deduction to compensate for decreasing natural resources in an oil and gas DPP are known as A) deductions for IDCs B) depreciation deductions C) depletion allowances D) tax credits

C. depletion allowances Tax deductions that compensate an oil and gas program for the decreasing supply of the resource after it is taken out of the ground and sold are known as depletion allowances.

Which of the following statements regarding systematic risk as it relates to an investment portfolio is TRUE? A) Diversification ensures that portfolios are not subject to it. B) Diversification cannot mitigate it to any extent. C) Diversification will not eliminate it. D) Diversification can be used to eliminate it completely.

C. diversification will no eliminate it Systematic risk is the risk that changes in the overall economy will have an adverse effect on individual securities, regardless of the company's circumstances. Understanding what it is, is to know that no amount of diversification will eliminate it completely. While one might be able to mitigate it somewhat, one cannot diversify away systematic risk.

Political risk is more associated with A) emerging economies and can never occur in highly developed ones B) developed economies and not with emerging economies C) emerging economies, but could occur even in highly developed ones D) developed economies but could occur even in emerging economies

C. emerging economics, but could occur even in highly developed ones While political risk, the potential instability in the political climate of a country or market, is mostly associated with emerging economies, it must be recognized that it can occur even in highly developed ones as well.

For preferred shares, the annual dividend payment is A) fixed and stated as a percentage of its current market value (CMV) B) subject to variation and stated as a percentage of its current market value (CMV) C) fixed and stated as a percentage of its par value D) subject to variation and stated as a percentage of its par value

C. fixed and stated as a percentage of its par value A preferred stock's annual dividend payment is its fixed rate of return, unlike that of common shares where the dividend is subject to variation.

Which of the following might be considered a red flag in a customer's account activities? A) The customer is constantly late for appointments with his registered representative. B) Several typos of little consequence are noted on the customer's new account and margin forms. C) Funds and securities are moved from one account to another for no apparent reason. D) The customer repeatedly makes mistakes in simple arithmetic during investment discussions.

C. funds and securities are moved from one account to another for no apparent reason Moving assets about for no apparent good reason could constitute layering, one of the steps in money laundering. In addition, the movement of assets may not have been at the customer's request, which might also need to be investigated because it might constitute improper use of customer funds and assets. The other activities may be unpleasant or distracting but would not amount to red flags

At the time of a limited partnership's dissolution, who is the last to be paid? A) General lenders (creditors) B) Limited partners C) General partners D) Secured lenders (creditors)

C. general partners When a limited partnership (LP) is dissolved, the general partners are paid last

If long one equity call option, the owner A) incurs an obligation to purchase 100 shares of the underlying stock B) incurs an obligation to sell 100 shares of the underlying stock C) has the right to purchase 100 shares of the underlying stock D) has the right to sell 100 shares of the underlying stock

C. 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.

If long one equity call option, the owner A) incurs an obligation to sell 100 shares of the underlying stock B) incurs an obligation to purchase 100 shares of the underlying stock C) has the right to purchase 100 shares of the underlying stock D) has the right to sell 100 shares of the underlying stock

C. 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.

Stagnation in the economy can be associated with A) prolonged periods of healthy economic growth B) robust production C) high unemployment D) plentiful employment opportunities

C. high unemployment

A customer of a broker-dealer has a cash balance in an account of $175,000 and securities holdings of $125,000. The customer asks about SPIC coverage, and you explain that the current coverage is A. $100,000securities and $100,000 cash for total coverage of $200,000 B. all of the securities and none of the cash for total coverage of $125,000 C. his cash balances only up to $250,000 D. $175,000 cash and $125,000 securities for total coverage of $300,000

C. his cash balances only, up to $250,000

Under regulation S-P nonpublic personal information would not include a customers A) any information collected through an internet cookie B) social security number C) home address D) account balance

C. home address The SEC, in Regulation S-P notes examples of nonpublic personal information to include a customer's Social Security number, account balances, transaction history, and any information collected through an internet cookie. A home address would not be considered nonpublic personal information.

For primary and secondary markets, which of the following is TRUE? A) In the secondary market, all sales proceeds go to the issuer. B) In the secondary market, securities transactions cannot take place on an exchange. C) In the primary market, securities are sold to the public and the issuer receives the sale proceeds. D) In the primary market, securities are purchased from and sold to individual investors.

C. in the primary market, securities are sold to the public and the issuer receives the sale proceeds In the primary market, the issuer of the securities receives the proceeds generated by the sale of the securities. In the secondary markets, such as an exchange or over-the-counter (OTC) securities trade between investors, one sells securities to another, and the issuer is not involved in the transaction.

All of the following is TRUE about local government investment pools (LGIPs) EXCEPT A) LGIPs operate similarly to a money market instrument B) The pool maintains a fixed $1.00 net asset value C) Investors must be provided a prospectus at or before they purchase shares in the investment portfolio D) Pools are not required to register with the SEC

C. investors must be provided a prospectus at or before they purchase shares in the investment portfolio The operating characteristics of LGIPs are similar to those of money market funds, and they keep a $1.00 NAV. They are not required to register with the SEC and therefore there is no prospectus but do provide information statements, which include details of the management fees.

Which of the following is TRUE regarding currency risk? A) It is a nonsystematic risk and, therefore, cannot be reduced by diversification. B) It is a systematic risk and, therefore, cannot be reduced by diversification. C) It is a nonsystematic risk and, therefore, can be reduced by diversification. D) It is a systematic risk and, therefore, can be reduced by diversification.

C. 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.

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

C. it is typically issued by banks Commercial paper is short-term unsecured debt issued by corporations having very good credit ratings. With a maximum 270-day maturity, it is considered a money market instrument.

Selling shares not yet borrowed or located to be borrowed is A) known as closing a short sale with a purchase B) known as closing a position with a sale and is prohibited C) known as a naked short sale and is prohibited D) known as a short sale and is prohibited

C. known as a naked short sale and is prohibited In order to open a position with a short sale, the shares to be sold must be borrowed or located to be borrowed first. Not doing so is known as selling short naked (naked short sale) and is prohibited.

Assets offered and traded in the securities markets can include all of the following EXCEPT A) currencies B) derivative products C) life insurance D) equities

C. life insurance Equities (stocks), bonds, currencies, and derivative products like options can be offered and traded in the financial markets. Insurance is not an asset that can be traded in the financial markets.

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

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

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) Market risk B) Equity risk C) Liquidity risk D) Price risk

C. 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.

A March 25 put purchased at 1.5 has expired without being exercised. The owner of the put A) keeps the $150 paid B) keeps the $25 paid C) loses the $150 premium paid D) losses the $25 paid

C. 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.

Which of the following is not a category of communications with the public designated by FINRA? A) retail B) institutional C) market letters D) correspondence

C. market letters The three categories of communications with the public designated by FINRA are retail, correspondence, and institutional. Market letters, as all sales or advertising pieces would, can fall under any of the three communications categories depending on to whom they are sent or made available to, and the number of recipients.

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 A) reinvestment risk B) inflation risk C) market risk D) regulatory risk

C. market risk Market risk is the risk that when the overall market declines, so too will any portfolio made of securities the market is composed of.

Secured corporate debt includes A) debt owed to the federal government B) debt owed to suppliers C) mortgage debt D) preferred shareholder stock

C. mortgage debt Examples of secured corporate debt includes outstanding bonds and mortgage paper. Debt owed to suppliers would be unsecured. Government debt owed is taxes, and preferred and common stock is equity.

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

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

If left unexecuted, a good til cancel (GTC) order will automatically be canceled when? A) On the last business day of June and the last business day of December B) On the first business day of April and the first business day of October C) On the last business day of April and the last business day of October D) On the cancel date specified by the customer at the time the order is entered

C. on the last business day of April and the last business day of October GTC orders are valid until executed or canceled. Any GTC orders left unexecuted are automatically canceled on the last business day of April and the last business day of October. If the customer wishes to have the order remain working beyond those specific days, the customer must reenter the order.

Registered broker-dealers must have fingerprint records for most of their employees and for which of the following? A) Receptionist B) Drivers C) Partners D) Doorman

C. partners Registered broker-dealers must have fingerprint records made for most of their employees, and all directors, officers, and partners. Those who are ancillary to the securities business and do not speak about securities with the investing public or who do not handle funds or securities are generally not required to be fingerprinted.

An institutional investor selects a single FINRA/NYSE member firm to provide for financing and custody of securities, while orders to buy or sell are placed with executing brokers. This is an example of a(n) A) omnibus clearing arrangement B) Investment advisory account C) prime brokerage account. D) managed account

C. prime brokerage account A prime brokerage account is one in which a customer (an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers.

The potential that inflation will devalue the fixed dividend income payments received by preferred shareholders is known as A) decreased dividend risk B) interest-rate risk C) purchasing power risk D) market risk

C. 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

What method is used to assign exercise notices to broker-dealers with short positions by Options Clearing Corporation (OCC)? A) Any method considered fair and reasonable B) Last in, last out (LIFO) basis C) Random-selection basis D) First in, first out (FIFO) basis

C. random-selection basis The OCC assigns exercise notices to short broker-dealers (those with customers who are short) using a random-selection basis only. Broker-dealers, however, may then assign exercise notices to their short customers on a random basis, on a first in, first out (FIFO) basis, or any other method that is fair and reasonable.

An investor holds shares of a manufacturing company where disposal of the by-products produced during the manufacturing process is necessary. The Environmental Protection Agency (EPA) updates the rules applicable to disposing of the product. For the investor, these changes present a form of A) political risk B) liquidity risk C) regulatory risk D) financial risk

C. regulatory risk Changes in the regulatory climate or specific rules that might impact how a company operates or its ability to do so profitably are recognized as regulatory risk.

Carrying firms, those that carry customer accounts, must A) maintain levels of net capital equal to or lower than non-carrying firms. B) not disclose its net capital if it is higher than non-carrying firms. C) segregate customer funds and securities from the firms' funds and securities. D) commingle customer funds and securities with the firms' funds and securities.

C. segregate customer funds and securities from the firms funds and securities Carrying firms, those that carry customer accounts, must segregate customer funds and securities from that of the firm's and because carrying customer accounts entails some inherent risk, maintain net capital higher than that which would be required for non-carrying firms.

On behalf of a customer, a broker-dealer requested an extension for payment that was not granted. The broker-dealer must A) for 90 days sell out the securities purchased with no other action required B) sell out the securities purchased and close the margin account C) sell out the securities purchased and freeze the account for 90 days D) freeze the account for 30 days with no other action required

C. sell out the securities purchased and freeze the account for 90 days If the extension request was not granted (denied), the broker-dealer must sell out the securities purchased and freeze the account for 90 days.

On behalf of a customer, a broker-dealer requested an extension for payment that was not granted. The broker-dealer must A) freeze the account for 30 days with no other action required B) for 90 days sell out the securities purchased with no other action required C) sell out the securities purchased and freeze the account for 90 days D) sell out the securities purchased and close the margin account

C. sell out the securities purchased and freeze the account for 90 days If the extension request was not granted (denied), the broker-dealer must sell out the securities purchased and freeze the account for 90 days.

Treasury bonds pay interest A) monthly and mature at current market value B) at maturity and mature at current market value C) semiannually and mature at par value D) annually and mature at par value

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

Regarding capital gains, which of the following is TRUE? A) Long-term gains are those realized on positions held for 2 years or more. B) Long-term gains are those realized on positions held for 10 years or more. C) Short-term gains are those realized on positions held for 12 months or less. D) Short-term gains are those realized on positions held for 9 months or less.

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

Which of the following would all be considered the same regarding yields on debt instruments? A) Nominal, yield to call, and yield to maturity B) Nominal, coupon, and yield to call C) Stated, nominal, and coupon yields D) Stated, nominal, and yield to maturity

C. 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.

The maximum potential loss for an investor short a put option is A) premium received B) strike price plus premium C) strike price minus premium D) unlimited

C. stripe price minus premium

Regulation T, the initial margin requirement, is set by A) the Securities and Exchange Commission (SEC) B) the president and Congress C) the Federal Reserve Board (FRB) D) the comptroller of the currency

C. the Federal Reserve Board (FRB) Regulation T, the initial margin requirement currently at 50%, is set by the Federal Reserve Board (FRB).

A customer has a significant amount of money in bank deposit accounts: $225,000 in a savings account titled in the customer's name; $240,000 in a checking account titled jointly with a spouse; and $100,000 in an account where the customer is custodian for a grandchild. Should that bank fail, the Federal Deposit Insurance Corporation (FDIC) insurance would cover A) $250,000 for the savings and checking accounts, $100,000 for the custodial account B) $225,000 for the savings account, $100,000 for the custodial account, and nothing for the checking account C) the entire $565,000 D) a total of $250,000, divided proportionately among the 3 accounts

C. the entire $565,000 The FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each deposit ownership category in each insured bank. Each account listed (savings, checking, and custodial) is a separate ownership category under FDIC rules, so all the money in each of them is covered.

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

C. 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.

Which of the following incur a fiduciary responsibility in a limited partnership? A) Both the general and the limited partners B) The limited partners C) The general partners D) Each individual partnership investor

C. the general partners It is the investors in an LP who are the partners. Only the general partners, however, incur a fiduciary responsibility to run the partnership and use the invested capital in the best interest of all the investors (partners).

A variable annuity's investment return each month is based on A) the assumed interest rate stated in the contract B) the contracts stated guaranteed monthly return C) the performance of the separate account D) the performance of the insurance company's general account

C. the performance of the separate account A key feature of the variable annuity is that the premium is invested into the insurance company's separate account rather than the general account. It is the performance of the separate account that provides the annuity's investment return each month. There are no guarantees as to the separate account performance or return each month.

A shareholder had arranged to vote by proxy at the corporation's annual shareholders' meeting, but later decided to vote the shares personally. All of the following statements regarding this situation are true EXCEPT A) the proxy may be assigned to yet another person B) the shareholders may still abstain from voting altogether C) the shareholders must accept the proxy's decision D) the shareholders may instead vote personally as they wish

C. the shareholders must accept the proxy decision If a shareholder decides not to abide by the decision to assign a proxy to a particular person, the decision can easily be abrogated. The shareholder may still abstain, may vote the shares personally or by mail or online, or may reassign the proxy to another.

Which of the following is NOT associated with hedge funds? A. they can invest in derivative products B. they might speculate in commodities and currencies C. they can be highly regulated D. they can have highly leveraged portfolios

C. they can be highly regulated

FINRA has a continuing education requirement with the goal of making sure that all registered personnel are aware of industry changes. If a registered representative has just observed her second anniversary in the industry and did the required regulatory element CE, the next time she will be required to sit for the regulatory element is A) two years from now B) within 120 days C) three years from now D) next year

C. three years from now New registered representatives are required to sit for the regulatory element as of their second anniversary. Thereafter, they are scheduled each three years. Having just completed her second anniversary regulatory element CE, she will be next scheduled in three years.

Which of the following statements best describes the term "churning"? A) Making false or misleading statements to a customer for the purpose of inducing the customer to purchase or sell a security. B) Manipulation of market prices by a firm. C) Trading in a customer's account considered excessive, and for which no discernible investment purpose is detected. D) Purchasing the same security in more than one customer account at a time.

C. trading in a customers account considered excessive, and for which no discernible investment purpose is detected Churning is excessive trading for a particular customer's circumstances or exceeding what would normally be considered suitable. This is equally true for both discretionary and nondiscretionary accounts.

Notice filing for securities at the state level is for A) secondary offerings of equity securities only B) securities being issued in an initial public offering only C) securities that are deemed to be federally covered only D) secondary offerings of debt securities only

C.securities that are deemed to be federally covered only Notice filing at the state level is for securities deemed to be federal covered. The state may require a notice be filed for these securities, such as those listed on national exchanges and those registered under the Investment Company Act of 1940, even though it has no jurisdiction over the registration requirements.

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

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

6% XYZ debentures are trading for $1,200 while similarly rated bonds are being offered at 4.5%. What is the current yield on the 6% XYZ debentures? A) 1.5% B) 6% C) 7.5% D) 5%

D. 5% Current yield is defined as the annual income (or coupon rate) from a bond divided by the bond's current market price ($60 / $1,200 = 0.05 or 5%). Accordingly, the current yield (5%) is lower than the coupon rate (6%) because the bond is trading at a premium.

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? A) 7.07% B) 7.09% C) 7.02% D) 6.55%

D. 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%.

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

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

A deficit in the U.S. balance of payments can occur if I. interest rates in foreign countries are higher than U.S. domestic rates II. interest rates in foreign countries are lower than U.S. domestic rates III. U.S. consumers are purchasing (importing) foreign goods IV. foreign consumers are purchasing (importing) U.S. goods A) I and IV B) II and IV C) II and III D) I and III

D. I and III Anything that sends money out of our domestic economy leads to a deficit (more money flowing out than coming in). When interest rates abroad are higher, money flows out of the United States to those foreign locations. When U.S. consumers are purchasing more foreign goods and services, money flows out of the United States to those foreign markets.

A call option reaches its expiration date and goes unexercised. This means I. the buyer gains the premium paid II. the buyer loses the premium paid III. the writer gains the premium received IV. the writer loses the premium received A) I and IV B) II and IV C) I and III D) II and III

D. II and III Buyers of options pay the premiums for the contracts, and writers (sellers) receive the premiums. If the contract goes unexercised, the buyer loses the premium paid while the seller gets to keep it—a gain.

The benefits of designating a brokerage account as "transfer on death" (TOD) are that I. the designation eliminates estate taxes II. the designation avoids probate III. the account holder no longer has to make investment decisions regarding the account IV. the account holder may still make beneficiary changes for the account A) II and III B) I and III C) I and IV D) II and IV

D. II and IV The transfer on death (TOD) designation allows the account holder to name a specific beneficiary (or beneficiaries) to receive the account's assets upon death. Those named persons may be changed whenever the account holder wishes. Although this designation allows the account to bypasses probate, it does not avoid estate taxes. TOD has nothing to do with giving investment discretion.

The performance of listed options contracts is guaranteed by which of the following? A) U.S. Treasury B) SEC C) FRB D) OCC

D. OCC

An investor has a long position in OMQ stock. After selling the stock at a loss, the investor could purchase which of the following and not violate the wash sale rule? A) OMQ warrants B) OMQ convertible bonds C) OMQ call options D) OMQ put options

D. OMQ put options In order to avoid violating the wash sale rule, investors selling a stock at a loss cannot purchase that same, or substantially identical, security within a 30-day period before or after the sale incurring the loss. Substantially identical would include anything that is exercisable or convertible into the same shares of stock, such as rights, warrants, call options, or a convertible bond. Purchasing the put options would not violate the wash sale rule because these can be exercised to sell the stock, not purchase it.

Which of the following is TRUE for U.S. Treasury-issued securities? A) T-notes are purchased at a discount to par, while T-bonds are purchased as a percentage of par. B) T-bills and T-bonds pay interest semiannually. C) T-notes and T-bills pay interest annually. D) T-bills are purchased at a discount, while T- bonds are purchased as a percentage of par.

D. T-Bills are purchased at a discount, while T-Bonds are purchased as a percentage of par 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).

The Securities Act of 1933 requires that all of the following be offered by a prospectus EXCEPT: A) Unit investment trusts. B) Variable annuities. C) Mutual fund shares. D) Treasury bonds.

D. Treasury bonds Treasury securities are exempt from registration requirements, and therefore do not require a prospectus

The Securities Act of 1933 requires that all of the following be offered by a prospectus EXCEPT: A) Mutual fund shares. B) Variable annuities. C) Unit investment trusts. D) Treasury bonds.

D. Treasury bonds Treasury securities are exempt from registration requirements, and therefore do not require a prospectus.

Your customer has purchased 1 February 35 call at 2 on Tuesday, December 4. This transaction will settle on A) Thursday, December 6 B) last business day of February C) same day D) Wednesday, December 5

D. Wednesday, December 5 Options transactions settle on the next business day after the trade date, T + 1. In this case, an option transaction occurring on Tuesday, December 4, would settle on Wednesday, December 5.

A put feature attached to a bond allows A) an issuer to put additional bonds to existing bondholders before the maturity date of bonds they hold B) a bondholder to put a bond back to the issuer for redemption at times that will benefit the issuer C) a bondholder to hold a bond beyond the maturity date benefitting the bondholder D) a bondholder to put a bond back to the issuer for redemption at times that will benefit the bondholder

D. a bondholder to put a bond back to the issuer for redemption at times that will benefit the bondholder A put feature attached to a bond allows a bondholder to put a bond back to the issuer for redemption before maturity. Bondholders will do this when interest rates have risen. For example, if a bondholder has a bond paying 4% and interest rates have risen to 6%, why settle for a 4% return when prevailing market rates are now up to 6%? Better to put the 4% bond back to the issuer for redemption and then purchase a new bond paying the prevailing higher rate. Obviously, the ability to put the bond back to the issuer benefits the bondholder.

Which of the following may not be disclosed to a potential buyer while a security is in registration? A. there will be a road show in NYC in May B. The issue is expected to be priced early in June C. The issue is being offered through ABC investment Bank D. A brokerage report showing the security is properly valued

D. a brokerage report showing the security is properly valued

A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following? A) A depository trust B) A fully disclosed introducing firm C) An investment company D) A carrying firm

D. a carrying firm Most firms choose to "introduce" their customers to another member firm known as a clearing or carrying firm to handle back office tasks, such as clearing trades, sending trade confirmations, settlement and reporting compliance, trade execution, and custody of customer funds and securities.

With money market securities held in one's portfolio, relative to other, longer-term debt securities, an investor should expect A) a lower degree of safety with lower returns B) a higher degree of safety with higher returns C) a lower degree of safety with higher returns D) a higher degree of safety with lower returns

D. a higher degree of safety with lower returns Because of their short-term maturities, money market securities are considered highly liquid and provide a relatively high degree of safety. In return for the safety, investors forgo a higher return for the lower returns generally associated with money market securities.

An investor has purchased bonds having a put feature attached. With this put feature, it is likely that these bonds were issued with A) a coupon that need not reflect the impact of the call feature B) a coupon that will be called away by the issuer before maturity C) a higher coupon than similar bonds without the feature D) a lower coupon than similar bonds without the feature

D. a lower coupon than similar bonds without the feature When bonds are issued with features that benefit the bondholder, such as a put feature, the issuer can generally pay a slightly lower coupon rate of interest. This is because the put feature compensates the holder in another way, aside from the coupon rate.

Treasury bond (T-bond) interest is stated as A) a discount to the face value B) a premium over the price paid C) a percentage of the purchase price D) a percentage of par value

D. 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).

Assuming $1,000 par value, a bond priced at $1,200 is trading at A) discount to premium B) a discount C) par D) a premium

D. a premium

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) out of the money B) at the money C) in the money D) above the money

D. above the money

Which of the following is the best description of a limited partnership? A) An investment that exempts individual investors from reporting gains or losses B) An investment that allows only for income to flow through to the investors C) An investment that allows for losses only to pass through as write-offs to the investors D) An investment that permits both gains and losses to pass through to the investors

D. an investment that permits both gains and losses to pass through to the investors LPs are investment opportunities that permit the economic consequences of a business to flow or pass through to investors (limited partners). These would include the consequences of both income received and losses incurred.

The category of correspondence, one of the three identified as being communications with the public, is defined as A) electronic communications only, that have been made available to 25 or fewer retail investors within the past 6 months B) communications that are targeted only at individuals who currently maintain accounts with the broker dealer C) written communications only, that have been made available to 25 or fewer retail investors within the past 6 months D) any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period

D. any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period Correspondence can be written or electronic. It can be targeted at either account holders or non-account holders of the broker/dealer. The criteria that makes the communication correspondence is that it is distributed to 25 or fewer retail customers within any 30 calendar-day period.

Each of the following activities would require prior written notification by an associated person to the employing broker-dealer EXCEPT A) part-time work parking cars on the weekend at a local racetrack B) acting as a real estate sales agent, limited to the sales of individual homes only C) offering to sell a limited partnership interest in an oil and gas drilling program D) becoming a limited partner in an oil and gas drilling program

D. becoming a limited partner in an oil and gas drilling program Passive investments, such as the purchase of a limited partnership interest, are not considered outside business activity. An associated person may make a passive investment for his own account without providing written notice to the employing broker-dealer.

Which of the following statements regarding bond interest is TRUE? A) Bond prices have a direct relationship to interest rates. B) The par value of a bond will increase as market interest rates fall. C) The par value of a bond will decrease as market interest rates fall. D) Bond prices have an inverse relationship to interest rates.

D. bond prices have an inverse relationship to interest rates Bond prices have an inverse relationship to interest rates. If interest rates go up, bond prices for those bonds trading in the secondary markets will go down. Conversely, if interest rates decline, bond prices rise. Par value is a fixed number for the life of the bond.

A corporation wanting to raise cash to finance accounts receivable and seasonal inventory needs is likely to issue any of the following EXCEPT A) commercial paper B) prime paper C) promissory notes D) bonds

D. bonds To raise cash for short-term needs, such as accommodating accounts receivable or inventory needs, corporations would issue commercial paper (also known as prime paper or promissory notes). Bonds should always be associated with long-term debt financing.

The point at which an investor neither makes a profit nor loses money is known as A) the minimum return B) the maximum loss C) the maximum gain D) the breakeven point

D. breakeven point The breakeven is that point at which an investor neither makes nor loses money on the investment.

Which of the following orders can be used to close a short position in CDT stock that consists of 1,000 shares? A) Write 10 CDT call options B) Buy 10 CDT call options C) Sell 1,000 shares of CDT D) Buy 1,000 shares of CDT

D. 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. Buying the call options would not close the position, but once owned, they could be exercised with the purchased shares then used to close the short position.

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

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

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 by mail C) by proxy delivered online D) by telephone or text message

D. by telephone or text message Common shareholders wanting to vote at a shareholder meeting can do so in person or in absentia, using a proxy delivered by mail or online. Voting by text or telephone would not be permitted.

When interest rates are falling, which bonds are most likely to expose holders to call risk? A) Callable bonds with lower coupons B) All bonds, regardless of whether or not they are callable C) All bonds, regardless of the coupon rate D) Callable bonds with higher coupons

D. 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.

Index and foreign currency options must be settled in A) securities comprising the index and the foreign currency B) the underlying security C) banker's acceptances D) cash

D. cash Index and foreign currency options are cash settled. Instead of shares of stock being delivered as a result of the exercise, cash must be delivered by the party assigned (short the contract). This is because delivering all of the components of an index is not possible and delivering foreign currency would require exchanging one currency for another, and possibly having banking relationships abroad. Settling in cash (U.S. dollars) facilitates the exercise and assignment process much easier for U.S. investors.

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

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

A registered representative with discretionary authority has been doing two or three trades per week in her customer's discretionary account. The volume of transactions is not in keeping with the historic activity in the account and the trades don't all align very well with the account objectives. A principal noted that other than generating commissions, the trades seem to have little profit potential. This is likely a red flag for A) front running B) market manipulation C) freeriding D) churning

D. churning Excessive trading in a customer's account to generate commissions rather than to help achieve the customer's stated investment objectives is an abuse known as churning. This can occur in both discretionary and nondiscretionary accounts

To 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 A) requirement to hold yearly meetings of all office personnel B) regulatory development (RD) requirement C) yearly sales development (SD) requirement D) continuing education (CE) requirement

D. continuing education (CE) requirement

Which of the following statements is correct concerning currency risk when investing in an ADR? A) U.S. investors are protected from currency risk by the underlying foreign corporation. B) Currency risk is eliminated since the securities are dollar denominated. C) U.S. investors are protected from currency risk by the depositary bank. D) Currency risk is still a factor when purchasing an ADR.

D. currency risk is still a factor when purchasing an ADR 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.

Your customer holds a callable bond currently trading at $935. Which of the following is TRUE? A. current yield (CY) is higher than yield to call (YTC) B. coupon (nominal) yield is higher than yield to maturity (YTM) C. yield to maturity (YTM) is higher than yield to call (YTC) D. current yield (CY) is lower than yield to maturity (YTM)

D. current yield (CY) is lower than yield to maturity (YTM)?

Reporting requirements for representatives and principals who are to be registered with FINRA include filling out a Form U-4 when the individual is hired. All of the following are required to make the registration effective EXCEPT A) providing names and all aliases used B) passing the appropriate qualification exam(s) C) providing a 10-year employment history and 5-year residency history D) disclosure of convictions of a spouse employed by a financial institution

D. disclosure of convictions of a spouse employed by a financial institution To register an associated person of a member firm with FINRA, the member fills out and submits Form U-4. Information required on Form U-4 is extensive and includes name, address, any aliases, 5-year residency history, 10-year employment history, and information on any charges, arrests, or convictions relating to the investment business for that individual (not spouses). Finally, registration cannot be effective until the person passes the appropriate qualification exam(s).

The Federal Reserve Board (FRB) does all of the following EXCEPT A) determine monetary policy B) supervise the printing of currency C) regulate and impact the money supply D) enact fiscal policy

D. enact fiscal policy The FRB determines monetary policy (not fiscal) and takes actions to implement its policies, including but not limited to regulating the U.S. money supply and supervising the printing of currency.

a bond offered at par value has a coupon rate A. greater than its yield to maturity B. less than its current yield C. less than its yield to maturity D. equal to its current yield

D. equal to its current yield?

Which of the following securities would most likely have the lowest expense ratio? A) Mutual fund B) Nonqualified variable annuity C) Qualified variable annuity D) Exchange-traded fund

D. 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.

As interest rates rise, prices of preferred stock will A) rise B) remain unaffected C) become volatile D) fall

D. fall Because it pays a fixed dividend, preferred stock is interest-rate sensitive. As rates rise, prices of preferred stocks tend to fall, and vice versa.

Limited partnership programs are categorized as direct participation programs. The term direct participation refers to the A) general partners directly participating in the day to day management of the partnership B) ability of any partner, limited or general, to participate in the running of the partnership C) ability for each partner to have her vote flow through to the general partner D) flow-through of profits and losses of the partnership to the individual limited partners

D. flow-through of profits and losses of the partnership to the individual limited partners Understanding the flow-through concept is critical with DPPs. Only DPPs allow flow-through of losses.

If the U.S. dollar is weak against foreign currency, A) foreign currency buys more U.S. goods; therefore, U.S. imports will increase B) U.S. currency buys more foreign goods; therefore, U.S. exports will increase C) U.S. currency buys less foreign goods; therefore, U.S. imports will increase D) foreign currency buys more U.S. goods; therefore, U.S. exports will increase

D. foreign currency buys more U.S. goods, therefore exports will increase When the U.S. dollar is weak against foreign currencies, U.S goods are more affordable for foreign buyers; therefore, U.S. exports will increase. At the same time, foreign goods are less affordable for U.S. consumers; therefore, U.S. imports will decrease.

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

D. fully paid for marginal securities totaling $6,400 in market value When meeting a Regulation T margin call with cash, 100% of the call must be deposited—in this case, $3,200. If using fully paid for marginable securities to meet the call, a deposit totaling twice the amount of the call must be made—in this case, $6,400. This is because securities are only marginable to 50% of their value.

Under what circumstances could a broker-dealer firm share in a financial loss with a customer? A) If the loss is proportional to the firm's share of the investment B) If the customer is an immediate family member of the firm's CEO C) If the firm also shares in the profits of the customer's investments D) If the loss was due to an error on the part of the firm

D. if the loss was due to an error on the part of the firm While a registered representative may share in profits and losses with a customer, provided certain requirements are met, the firm itself may only share in losses, and only if the loss is due to an error on the part of the firm.

For a real estate DPP, which of the following is TRUE? A) Income will come from appreciation of the portfolio properties. B) Capital growth can be derived from rents received. C) Neither income nor capital growth would come from rents received. D) Income can be derived from rents received for the properties.

D. income can be derived form rents received for the properties For real estate DPPs, both income and capital growth are possible. Income comes from the property rents received, and capital growth would come from the appreciation of the properties.

What is one of the advantages for the investor who invests in mutual funds that include foreign securities in the fund's portfolio? A) Higher dividends B) Reduced business risk C) Increased liquidity D) Increased diversification

D. increased diversification If an investor has a purely domestic mutual fund portfolio considered to be as fully diversified as possible, expanding into funds investing in foreign securities is an obvious route to further diversification. The other risks and advantages listed are not peculiar to foreign businesses or securitie

The prime rate is set by A) the Federal Reserve Board B) the Federal Open Market Committee C) the Securities and Exchange Commission D) individual banks

D. 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.

The effect of continually rising retail prices on the investment returns of one's portfolio is best described as A) reinvestment risk B) business risk C) call risk D) inflation risk

D. inflation risk Inflation, or continually rising prices, reduces the purchasing power that one's investment returns will have. This is the essence of inflation risk.

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

D. interest payment on a corporate bond Stockholders must receive notice from the issuer in the event of actions to shareholders, chiefly those that are unscheduled or unpredictable. Some examples are stock splits, dividend payments, and rights or warrant offerings. A scheduled interest payment on a corporate bond thus does not require delivery of notice.

Holding a callable bond with call protection is least impactful for the investor when A) interest rates are nonvolatile B) interest rates are stable C) interest rates are falling D) interest rates are rising

D. 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.

When the money supply in the economy increases, A) interest rates go up, hence borrowing and spending for consumers is more difficult B) interest rates go down, hence borrowing and spending for consumers is more difficult C) interest rates go up, hence borrowing and spending for consumers is easier D) interest rates go down, hence borrowing and spending for consumers is easier

D. interest rates go down, hence borrowing and spending for consumers is easier Increases in the money supply means more money is available to lend. This pushes interest rates down, hence borrowing and spending for consumers is easier

Your broker-dealer is a fully disclosed firm. This means that A. accepts customers funds to be held at the BD B. holds customer securities at the BD C. acts as its own back office, performing all functions such as sending out customer statements D. introduces its business to a clearing firm

D. introduces its business to a clearing firm

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

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

A change to tax rates on dividends would be an example of A) liquidity risk B) purchasing power risk C) currency risk D) legislative risk

D. legislative risk When legislation is passed that affects the income received on an investment, the investor is exposed to legislative risk. Only a legislature can change tax rates.

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

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

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

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

An investor is long 300 shares of MAS at 45. The stock has just undergone a 3:1 split. The investor's new position is A) long 900 shares at 45 B) long 100 shares at 15 C) long 100 shares at 45 D) long 900 shares at 15

D. long 900 shares at 15 The split is a "forward" split, which means the number of shares increases, while the price decreases. At 3:1, the number of shares goes up by a factor of 3 and the price goes down by a factor of one-third (i.e., to one-third of its previous value). The rule is that the total value of the position must remain unchanged before and after the adjustment. In this case, the original position's value was 300 shares × $45, or $13,500. The new position is valued at 900 × $15, which is also $13,500.

Which of the following is not a category of communications with the public designated by FINRA? A) retail B) institutional C) correspondence D) market letters

D. market letters The three categories of communications with the public designated by FINRA are retail, correspondence, and institutional. Market letters, as all sales or advertising pieces would, can fall under any of the three communications categories depending on to whom they are sent or made available to, and the number of recipients.

When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as A) an agent B) an underwriter C) an investment banker D) a market maker

D. market maker When a broker-dealer buys and sells securities into and out of its own account as for the purpose of making a profit it is engaged in proprietary trading and is acting as a market maker (making markets in those securities). Investment banking and underwriting both primarily involve assisting issuers with bringing new securities issues to public investors. Agents act on behalf of others in the marketplace, such as a broker-dealer buying or selling for one of its customers.

A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would BEST be described as a(n) A) municipal securities representative B) investment adviser C) market maker D) municipal advisor

D. municipal advisor A municipal advisor is a person that provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities.

Which of the following statements is TRUE? A) Only corporations can raise funds in the capital markets. B) Only the federal government and municipalities can raise funds in the capital markets. C) Only municipalities can raise funds in the capital markets. D) Municipalities, the federal government, and corporations can raise funds in the capital markets.

D. municipalities, the federal government, and corporations can raise funds in the capital markets Capital markets are a source of financing for corporations, municipalities, and governments

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? A) Certificate of deposit B) Commercial paper C) Notes and bonds D) Negotiable certificates of deposit

D. negotiable certificates of deposit A 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.

An individual is solicited with a cold call made by a registered representative. He tells the representative he is not interested in this investment or in making any future investments. Which of the following actions is required by the Telephone Consumer Protection Act of 1991? A) The representative may send a fax regarding future recommendations. B) A principal of the firm may call the prospect the next time. C) The representative may never make cold calls again. D) No calls may be made to the prospect by anyone at the firm.

D. no calls may be made to the prospect by anyone at the firm First the prospect's name must be placed on the firm's Do-Not-Call list, and then no one at the firm may call.

All investors and investments are different. Recognizing this, it is TRUE that A) all investments can be deemed suitable for every investor B) most investments are not deemed suitable for any investor C) some investments can be suitable for all investors D) no investment should be deemed suitable for every investor

D. 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.

When securities are bought and sold, ownership changes hands between the buyer and the seller A) at an agreed time between both parties B) on the transaction date C) upon delivery of the trade confirmation D) on the settlement date of the transaction

D. on the settlement date of the transaction When securities transactions occur, ownership changes hands between the 2 parties on the settlement date.

A preferred shareholder's priority claim on assets is the preferred shareholder's priority standing A) over bondholders B) over employees of the corporation C) over creditors of the corporation D) over common shareholders

D. over common shareholders A preferred shareholders priority claim on assets is the preferred shareholders priority standing over common shareholders only. Employees of the corporation, debt (bond) holders and other creditors would all have claims on assets settled before preferred 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 lower B) par value C) current market value D) par value or higher

D. par value or higher In return for the call privilege, the corporation may pay a premium exceeding the stock's par value at the time of the call. It's reasonable that a shareholder would expect to receive at least par value or higher in the event of a call.

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

D. private investment companies The 3 classifications established under the Investment Company Act of 1940 are face-amount certificates, unit investment trusts, and management companies (open and closed-end funds). Private investment companies do not come under the Act of 1940.

A bank issues and guarantees certificates of deposit, and those that are negotiable are considered money market instruments. What makes a CD negotiable? A) Backing by the banks good faith and credit B) Short-term maturity C) A fixed interest rate D) Secondary market trading

D. 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.

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

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

Treasury bonds pay interest A) annually and mature at par value B) at maturity and mature at current market value C) monthly and mature at current market value D) semiannually and mature at par value

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

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

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

An investor has some stock held in street name and has just received proxy statements forwarded by the broker-dealer for an upcoming shareholders' meeting. If the investor wishes the shares to be voted as recommended by the issuer's management, which of the following must the investor do? A) Inform the broker-dealer by letter or phone call how the shares are to be voted B) Nothing in this case C) Sign and return the proxy statements by the 5th day before the meeting D) Sign and return the proxy statements by the 10th day before the meeting

D. sign and return the proxy statements by the 10th day before the meeting Signing and returning proxy statements to a broker-dealer for stock held in street name is enough to get the shares voted as recommended by the issuer's management, as long as the broker-dealer receives the statements by the 10th day before a shareholders' meeting. If the shares are to be voted in some other way, the investor must specify the desired changes.

The president of a pharmaceutical company sells his stock in the company after learning that the Food and Drug Administration (FDA) is going to deny sales of a new drug that it was reviewing for the company. The registered representative that executes the order and knows of the denial informs a key client and recommends the client sell their stock in the pharmaceutical company. According to the Insider Trading and the Securities Fraud Enforcement Act of 1988, all of the following are guilty of insider trading EXCEPT A) the registered representative B) the registered representative's client C) the president of the pharmaceutical company D) the FDA

D. the FDA The act prohibits insiders trading on or communicating nonpublic information. Both the tipper (the person who relays the information) and the tippee (the person who receives the information) are liable, as is anyone who trades on information that they know or should know is not public or who has control over the misuse of this information. In this case, the president of the company who knew of the nonpublic information, traded on it and passed it on, the registered representative who also knew of the information and passed it on, as well as the client who received the information and traded based on it would all be liable under the Act.

In order to meet federal budget needs, the types and quantity of government securities to be issued are determined by A) the chairman of the Federal Reserve Board B) the U. S. president and Congress C) the Federal Reserve Board D) the U.S. Treasury Department

D. 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

All of the following associated persons engaged in the investment banking and securities business are considered registered representatives, EXCEPT A) someone who supervises, solicits, or conducts business in securities B) an assistant officer who does not function as a principal C) someone who trains others to supervise, solicit, or conduct business in securities D) the chairman of the board

D. the chairman of the board All associated persons engaged in the investment banking and securities business are considered registered representatives, including any assistant officer who does not function as a principal; any individual who supervises, solicits, or conducts business in securities; and any individual who trains people to perform functions in those capacities.

Generally before borrowing from or lending to a customer, a registered representative must advise the firm in writing and receive written permission. Which of the following would be an exception to the written notice and approval requirement? A) Both are employed by and registered in the industry with the same BD. B) The customer has a business relationship with the RR outside of the firm. C) The customer has a personal relationship with the RR outside of the firm. D) The customer is an immediate family member of the RR.

D. the customer is an immediate family member of the RR There are two exceptions to the written notice and approval requirement for permitted lending arrangements between customers and RR's. They are; when both are immediate family members or when the customer is a lending institution and the loan is a standard commercial lending transaction.

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

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

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

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

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 income in the U.S. only. B) The profit is taxed as income in France only. C) The profit is not taxed since ADRs are tax-exempt securities. D) The profit is taxed as a capital gain in the U.S. only

D. the profit is taxed as a capital gain in the U.S. only Any trading profits (capital gains) from an ADR would only be taxable here in the United States. A capital gain is the profit realized when buying then selling the shares. Remember, dividends paid to a U.S. investor may be subject to a withholding tax by the home country of the underlying foreign stock issuer. In many cases, the amount of tax withheld by the foreign government is applied as a credit against the investor's U.S. tax liability.

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

D. timing and price only Discretion is defined as the authority to decide, what security, the number of shares or units, and whether to buy or sell. Discretion does not apply to decisions regarding only the timing of an investment or the price at which it is bought or sold.

All of the following are rights of limited partners in a DPP EXCEPT A) to vote on business objectives B) to sue the general partners C) to inspect all books and records D) to make day-to-day business decisions

D. to make day-to-day business decisions Limited partners (LPs) have a number of rights, among them, to vote on business objectives, to inspect all books and records, and if the GPs are not acting in their best interest, to sue them. Making day-to-day business decisions is the responsibility of the GPs, and if an LP were to do so, they could lose their standing as an LP.

Which of the following securities are most likely deemed marginable by either the Federal Reserve Board (FRB) or regulatory bodies such as FINRA and the New York Stock Exchange? A) Exchange-listed stock currently being offered to the public by prospectus B) Rights certificates C) Listed options that expire in 9 months D) Treasury bonds

D. treasury bonds

An investor who commits a sizable portion of her portfolio to long-term AAA-rated bonds would be exposing herself to A) purchasing power risk B) uncertainty about the ability of the issuer to make timely payments of interest and principal C) liquidity risk D) less market risk than if the portfolio were invested in money instruments

D. uncertainty about the ability of the issuer to make timely payments of interest and principal?

Commercial paper is A) unsecured debt with a maximum maturity of 1 year B) secured debt with a maximum maturity of 9 months C) secured debt with a maximum maturity of 1 year D) unsecured debt with a maximum maturity of 9 months

D. 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).

Holding customer mail is consistent with your broker-dealer's in-house rules. Considering this, if requested to do so, the BD must A) have the customer request anew after six months and then each three months thereafter B) request approval from the Securities Exchange Commission (SEC) C) await approval from FINRA D) verify at reasonable intervals that the customer's instructions still apply

D. verify at reasonable intervals that the customer's instructions still apply If the BD chooses to hold customer mail, once requested to do so in writing the BD must verify at reasonable intervals that the customer's instructions still apply. The rule regarding holding customer mail does not require the BD to request or get SEC or FINRA approval and there is no requirement that the customer make additional requests to continue having the BD hold mail.

An individual would most likely be statutorily disqualified from working in the securities industry for which of the following reasons? A) Conviction for misdemeanor assault B) Willful failure to disclose motor vehicle fines in excess of $1,000 C) Charged with driving under the influence of alcohol resulting in personal injury—a felony D) Willful failure to disclose personal bankruptcy or unsatisfied liens

D. willful failure to disclose personal bankruptcy or unsatisfied liens A willful misstatement or omission made on an application for membership or registration as an associated person is deemed a serious infraction of securities law that would likely lead to a statutory disqualification from the securities industry. The Form U-4 does not ask about motor vehicle fines per se. Felonies convictions have to be disclosed, as do misdemeanor convictions involving money or securities.

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) reducing staff B) a stock dividend C) increasing earnings D) a reverse split

d. a reverse split Reverse splits are a way of increasing a company's share price. In a reverse split, the number of shares outstanding decreases, but the price per share increases. As with all adjustments, a shareholder's total position in the stock remains unchanged before and after the action.

the coupon rate on a debt security represents A. the interest rate the investor has agreed to pay the issuer B. the interest rate the issuer has agreed to pay the investor C. the principal amount loaned to the issuer D. the principal amount due to the investor at maturity

B. 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

Given bonds are interest-rate sensitive, which of the following statements regarding put and call features for bonds are TRUE? I. The put feature would likely be exercised if interest rates fall. II. The put feature would likely be exercised if interest rates rise. III. The issuer will likely call bonds if interest rates fall IV. The issuer will likely call bonds if interest rates rise. A) I and IV B) II and III C) I and II D) III and IV

B. II and III 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.

Treasury bills pay A) monthly interest payments B) all interest at maturity C) annual interest payments D) semiannual interest payments

B. 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.

Before submitting an application to enroll, part of the process for an associated person to engage in the investment banking or securities business, is to have the member firm that sponsors them ascertain the individuals A) past 10 years of residential history B) business reputation, character, education, and experience C) past 5 years of business/employment history D) highest level of education

B. business reputation, character, education, and experience Before submitting an application to enroll any person with FINRA as a registered representative, a member firm must ascertain the person's business reputation, character, education, qualifications, and experience. As part of the application process, the member firm must certify that it has made an investigation and that the candidate's credentials are in order.

what are the 2 basic types of return on an investment? A. dividends and interest B. capital gains and income C. interest and principal D. short term and long term

B. capital gains and income Upon the purchase of a security, the investors may receive dividends or interest, which are forms of income, or they may sell the security for a different price than was paid for it, which represents a capital gain or loss.

A hypothecation agreement would be best described as a A) written disclosure of the terms of the credit extended by the broker-dealer, including the method of interest computation and situations under which interest rates may change B) contract allowing securities to be pledged for the loan C) loan consent form which gives permission to the firm to loan the customers margin securities to other customers or broker-dealers D) partnership agreement stating which of the partners can make transactions for a partnership account

B. contract allowing securities to be pledged for the loan

in a custodial account for a minor, which of the following would be allowable investments of strategies? A. short sales B. covered call options C. trading on margins D. uncovered (naked) options

B. covered call options

A convertible feature for preferred shares allows the owner to exchange the shares A) for a fixed number of bonds issued by the corporation B) for a fixed number of shares of the issuing corporation's common stock C) for the preferred shares of another issuer D) for as many bonds as the issuer is willing to issue at that point in time

B. for a fixed number of shares of the issuing corporations common stock The conversion feature for preferred shares has fixed terms allowing the owner to convert the shares (exchange them) for a specified number of the same issuers common shares.

Which of the following order types allow for partial execution with the remainder being cancelled? A. Fill or Kill (FOK) B. Immediate or cancel (IOC) C. all or none (AON) D. Good til cancelled (GTC)

B. immediate or cancel (IOC)

If a margin deposit is late, an extension request made by the broker-dealer A) is not required but, if made, will always be granted B) is not required but can be made, and may or may not be granted C) is required to be made but may not always be granted D) is not permitted to be made in any circumstance

B. is not required but can be made, and may or may not be granted Extension requests can be made by the broker-dealer but are not mandatorily required. When made to the firm's designated examining authority (DEA), they may or may not be granted.

Which of the following describes the 4th market? A) These transactions take place through electronic communications networks (ECNs). ECNs are open 24 hours a day and act solely as principals B) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers. C) The after-hours market D) These transactions take place through electronic communications networks (ECNs) which are open during normal trading hours and act solely as principals

B. market for institutional investors in which large blocks of stock, both listed and non listed, trade in transaction unassisted by broker dealers

All of the following are benefits of a traditional IRA EXCEPT: A. funds may be withdrawn without penalty for certain exemptions B. no penalty is charged for failing to withdraw funds after age 72 C. contributions may be tex-deductible D. earrings accumulate on a tax-deferred basis

B. no penalty is charged for failing to withdraw funds after age 72

FINRA rules regarding outside business activity (OBA) require that A) all activities be coordinated between both employers B) prior written notice to the employing firm be provided C) approval is gotten from FINRA or another SRO D) all passive investments be reported under the rule

B. prior to written notice to the employing firm be provided Under FINRA's rules regarding outside business activity (OBA), prior written notice to the employing member is required.

A bond is trading at a price of $1,150 in the secondary market. If purchased at this price and held to maturity, this will A. have no impact on return if held to maturity B. reduce the investors return C. increase the investors return D. give the investor a $150 return at maturity

B. reduce the investors return

A customer submits a written complaint disputing monetary charges assessed against an account held at a member broker-dealer. Resolution of the complaint will take place by: A. the Uniform Practice Code (UPC) B. the Code of Procedure (COP) C. the Conduct Rules D. the Code of Arbitration (COA)

B. the Code of Procedure

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 provide the customer with the options disclosure document. B) The firm's registered options principal should approve the account so trades can occur immediately. C) The registered representative should determine the suitability of options trading for the customer. D) Options Clearing Corporation (OCC) should be apprised to see if other options accounts are maintained at other broker-dealers.

C. 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.

regarding rights and warrants, which of the following is TRUE? A. rights are long term, exercisable below CMV when issued B. rights are short term, exercisable below CMV when issued C. warrants are long term, exercisable above CMV when issued D. warrants are short term, exercisable above CMV when issued

C. warrants are long term, exercisable above CMV when issued

under the pay-to-play rules, a municipal finance principal eligible to vote for a candidate may contribute up to how much to that candidate? A. $100 B. $150 C. $200 D. $250

D. $250

Commercial paper issued by corporations can have maturities as short or as long as A. 1 month or 3 months B. 30 days or 300 days C. 1 month or 6 months D. 1 day or 270 days

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

An investor has the following position in MES stock: 100 shares at $30. After a 1:2 stock split, this investor will have A. 200 shares at $20, per share increasing the position value B. 100 shares at $15 per share, decreasing the position value C. 100 shares at $60 per share, increasing the position value D. 200 shares at $15 per share, leaving the position value unchanged

D. 200 shares at $15 per share, leaving the position value unchanged