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41 Cards in this Set
- Front
- Back
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Distributions from an Individual Retirement Account must commence by:
A. April 1st of the year preceding that person reaching age 59 1/2 B. April 1st of the year following that person reaching age 59 1/2 C. April 1st of the year preceding that person reaching age 70 1/2 D. April 1st of the year following that person reaching age 70 1/2 |
The best answer is D. Distributions from an Individual Retirement Account must commence by April 1st of the year following that person reaching age 70 1/2.
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A customer buys 1 ABC Jan 50 Call @ $6 and sells 1 ABC Jan 60 Call @ $2. Later, the positions were closed - the ABC Jan 50 Call was closed at $3 and the ABC Jan 60 Call was closed at $1. The customer has a:
A. $200 profit B. $200 loss C. $400 profit D. $400 loss |
The best answer is B. The opening position is: Buy 1 ABC Jan 50 Call@ $6Sell 1 ABC Jan 60 Call@ $2 $4Debit
The closing position is: Sell 1 ABC Jan 50 Call@ $3Buy 1 ABC Jan 60 Call@ $1 $2Credit The net loss is $200 since the spread between the premiums narrowed from 4 to 2. Remember, debit spreads are only profitable if the spread between the premiums widens. |
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Which of the following terms apply to publicly traded fund shares?
I Negotiable II Redeemable III One-time stock issuance IV Continuous stock issuance A. I and III B. I and IV C. II and III D. II and IV |
The best answer is A. Publicly traded fund shares represent an undivided interest in a portfolio of securities that is managed to meet an investment objective. A publicly traded fund has a 1-time stock issuance and then "closes" its books to new investment and then lists its stock on an exchange or NASDAQ. The stock then trades like any other common stock, except the company is in the business of making investments; instead of say, making cars, beer, or computers. Thus, this type of fund is "closed-end" - that is, closed to new investment.
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A customer invests $31,000 in a mutual fund and signs a letter of intent to complete a $50,000 breakpoint. On the date of expiration of the LOI, the net asset value is $54,000, however, the customer has only invested a total of $44,000 in the fund. What should the representative do?
A. Nothing, since the account value is over $50,000 B. Distribute the amount in excess of the $50,000 LOI requirement C. Get an extension of the LOI and inform the client that he must invest another $6,000 D. Liquidate the entire holding and distribute the proceeds to the client |
The best answer is A. As long as the NAV is over $50,000 as of the completion date of the Letter of Intent, the customer qualifies for the lower sales charge. In this case, he got there by a combination of purchases and asset appreciation. Note that this is how most funds work - there are a small minority of mutual funds that will not count asset appreciation towards completion of a breakpoint.
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A corporation has issued 20,000,000 shares of common stock at $2 par. The corporation has 5,000,000 shares of Treasury Stock on its books. The aggregate value of the outstanding shares is:
A. $10,000,000 B. $30,000,000 C. $40,000,000 D. $50,000,000 |
The best answer is B. Outstanding stock is: Issued stock (20,000,000 shares) - Treasury stock (5,000,000 shares) = 15,000,000 shares outstanding at $2 par = $30,000,000 value.
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In order to recommend a variable annuity to a customer, the representative must inform the customer, in general terms, about any:
I potential surrender period and surrender charge II potential tax penalty III mortality and expense fees IV charges for and features of enhanced riders A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV |
The best answer is D. Consider this to be a learning question. To recommend a variable annuity, the representative must have a reasonable basis to believe that the customer has been informed, in general terms, about the material features of the variable annuity. These include the potential surrender period and surrender charge, potential tax penalty, mortality and expense fees, charges for and expenses of enhanced riders (a very popular rider, at a cost, is a GMIB - a Guaranteed Minimum Income Benefit), insurance and investment components and market risk.
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Real Estate Investment Trusts are not suitable as tax advantaged investments because they:
A. have too many corporate characteristics B. do not qualify for conduit tax treatment under Subchapter M C. are not allowed to pass operating losses to shareholders D. are not allowed to pass capital gains to shareholders |
The best answer is C. REITs are not tax shelter vehicles because they cannot distribute losses to shareholders through conduit tax treatment; they can only distribute income and capital gains through conduit tax treatment to shareholders.
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An unmarried person, earning $100,000 a year, is not covered by a pension plan and has been contributing to an IRA account annually. If this individual joins a corporation at the same salary, and is included in that company's pension plan, which statement is TRUE?
A. Annual contributions to the IRA can continue but will not be tax deductible B. Annual contributions to the IRA can continue and continue to be tax deductible C. Annual contributions to the IRA must cease D. The IRA must be closed and the balance transferred to the pension plan |
The best answer is A. Anyone who has earned income can contribute to an IRA, whether covered by a pension plan or not. However, the contribution is not tax deductible for individual employees covered by a pension plan who earn over $71,000 in year 2015 (the deduction phases out between $61,000 - $71,000 of income). |
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A customer has bought an options contract and after 15 days, still has not returned the signed Options Agreement. The customer is only allowed to make which of the following transactions in this account?
A. opening purchase B. opening sale C. closing purchase D. closing sale |
The best answer is D. If the Options Agreement is not signed and returned within 15 days, only closing transactions are allowed. Since the customer made an opening purchase (he bought the contract), this transaction is closed with a sale.
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A customer has a gain on a short stock position that she wishes to protect. The appropriate order is:
A. buy stop order B. buy limit order C. market order D. sell stop order |
The best answer is A. The customer will "lose" the gain on a short stock position if the market begins to rise. To buy in the position in a rising market, the order must be a buy stop order (placed above the market). To buy in a short position in a falling market the order would be a buy limit order.
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Which of the following statements are TRUE about Keogh Plans?
I Contributions are 100% deductible II Contributions are not deductible III Distributions are 100% taxable IV Distributions are partially taxed, with only the amount above what was contributed being taxed A. I and III B. I and IV C. II and III D. II and IV |
The best answer is A. Keogh contributions are tax deductible (up to $53,000 in 2015), so the original investment was made with "before tax" dollars. In addition, earnings on Keogh investments are tax deferred. Once distributions commence from the Keogh, they are 100% taxable at that individual's tax bracket.
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PDQ Company $10 par common stock is currently trading at $40. PDQ is currently paying a common dividend of $.20 per share quarterly. The current yield of PDQ stock is:
A. 0.5% B. 2.0% C. 5.0% D. 8.0% |
The best answer is B. Yields are based on annual return. The formula for current yield is:
$.80 $40= 2.00% |
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The market maker on the CBOE gives the following quotes:
BidAsk ABC Jan 50 Call44.50 ABC Jan 50 Put22.50 ABC Jan 60 Call22.25 ABC Jan 60 Put88.50 A customer wishes to buy 5 ABC Jan 50 Calls and sell 5 ABC Jan 60 Calls, but does not wish to spend more than $3 for each combined position; and wants the orders executed as close together as possible. The appropriate order that should be placed is: B. a straddle order C. 1 limit order to buy and 1 limit order to sell D. 1 market order to buy and 1 market order to sell |
The best answer is A. This customer is specifying that a spread be purchased at a net debit not to exceed $3. The successful execution of this order requires that both "legs" of the spread be executed at the same time within the customer's limit (the debit). To facilitate the handling of such "one-on-one" orders (the same is also true for straddle and combination orders), the CBOE has the "spread priority rule." This rule states that a spread, straddle or combination order has priority over equivalent single sided orders on the trading floor. In this manner, it is easier for traders to successfully execute spread, straddle and combination orders. In this example, the Jan 50 Call is purchased at the ask price of $4.50; and the Jan 60 Call is sold at the bid price of $2; creating a debit of $2.50 for the spread position.
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Which of the following statements are TRUE regarding mutual funds and variable annuities that are in the accumulation phase?
I Distributions to mutual fund shareholders are taxable to the holder in the year the distribution is made II Distributions to mutual fund shareholders are tax deferred III Distributions to variable annuity holders are taxable to the holder in the year the distribution is made IV Distributions to variable annuity holders are tax deferred A. I and III B. I and IV C. II and III D. II and IV |
The best answer is B. When a mutual fund distribution is made, tax liability arises, Thus, the distribution is taxable in the year the distribution is received. Dividends and capital gains in variable annuity separate accounts build tax deferred; no tax is due until the holder is retired and commences withdrawals.
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Which of the following trades settle in "clearing house" funds?
I General Obligation Bonds II U.S. Government Bonds III Agency Bonds IV GNMA Pass-Through Certificates A. I only B. I and II C. II and IV D. III and IV |
The best answer is A.
Corporate and municipal bond trades settle in clearing house funds. These are funds payable at a registered clearing house, which are usually not good funds for three business days. These trades are settled through NSCC - the National Securities Clearing Corporation. U.S. Government and agency bond trades settle in Federal Funds, which are good funds the business day of the funds transfer (next business day for regular way settlement of government securities). Ginnie Mae Pass-Through certificates are U.S. Government guaranteed, so trades settle in Fed Funds. These trades are settled through GSCC - the Government Securities Clearing Corporation. |
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Portfolios A, B, C and D are allocated as follows:
ABCD Money Markets15%5%5%0% Treasury Bonds40%10%20%20% Speculative Bonds10%30%10%30% Blue Chip Equities15%15%20%10% Small Cap. Equities10%10%30%5% Emerging Markets10%20%10%30% REITs0%10%5%5% Which asset allocation is MOST appropriate for a married client that has 2 children that will start attending college in 4 years, if the client must use income from the portfolio, as well as part of the portfolio capital base, to pay for college tuition expenses? B. Portfolio B C. Portfolio C D. Portfolio D |
The best answer is A. This customer needs to start paying college bills in 4 years, so the asset mix that is readily convertible to cash, and that has minimal risk, is most appropriate. Portfolio A is most heavily weighted in Treasuries and cash; whereas the other portfolios are weighted more speculatively.
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Which of the following statements are TRUE regarding the premium of an option contract?
I The lesser the volatility of the underlying security, the higher the premium II The greater the volatility of the underlying security, the higher the premium III The lower the market price of the stock, the higher the premium on a call contract IV The lower the market price of the stock, the higher the premium on a put contract A. I and III B. I and IV C. II and III D. II and IV |
The best answer is D. The greater the volatility of the underlying security, the higher the premium; the higher the market price of the stock, the higher the premium on a call contract (since it goes further "in the money"). The lower the market price of the stock, the higher the premium on a put contract (since it goes further "in the money ").
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A customer is short 100 shares of XYZ stock at $70 per share. The customer covers the position at $75. 20 days later, the customer reestablishes the short position by selling short 100 shares of XYZ at $73. The tax consequence of these transactions is:
A. $200 capital loss; and sale proceeds on the reestablished position of $68 per share B. $500 capital loss; and sale proceeds on the reestablished position of $73 per share C. No capital loss due to the "wash sale rule"; and sale proceeds on the reestablished position of $68 per share D. No capital loss due to the "wash sale rule"; and sale proceeds on the reestablished position of $73 per share |
The best answer is C.
In this transaction, the customer is attempting to take a loss and then reestablish the position. Under the "wash sale" rule, the loss deduction is disallowed if the position is reestablished within 30 days of the date the loss was generated. This question is unusual, because the loss was generated by closing out a short stock position (instead of the usual close out of a long stock position). In this case, the customer originally sold short the stock at $70. The stock was repurchased at $75, for a $5 loss per share ($500 loss on 100 shares). Then, the customer sold short another 100 shares 20 days later at $73 - less than the 30 day limit set by the "wash sale" rule. Thus, the $500 loss is disallowed. The $5 per share loss will be deducted from the sale proceeds of $73, for a new sale proceeds of $68. In essence, this defers the taking of the loss until this short position is covered. |
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Treasury bonds:
I are issued in minimum $100 denominations II are issued in minimum $10,000 denominations III mature at par IV mature at par plus accrued interest A. I and III B. I and IV C. II and III D. II and IV |
The best answer is A. Treasury bonds are issued at par in minimum denominations of $100 each, and pay interest semi-annually. At maturity, the bondholder receives par. |
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A Japanese company has entered into a contract to deliver goods to New York, payable in U.S. dollars upon delivery. To hedge the position using the PHLX World Currency Options market, the Japanese company should: A. buy Japanese Yen callsB. buy Japanese Yen puts C. sell Japanese Yen calls D. sell Japanese Yen puts |
The best answer is A.
The Japanese exporter is being paid in U.S. dollars. If the dollar weakens against the Japanese Yen, then the exporter will receive fewer Japanese Yen when he or she converts the U.S. Dollars received into Yen. To protect against an adverse move, the exporter should buy U.S. Dollar Puts - however this is not a choice, since no U.S. Dollar options are traded on the PHLX! The risk here is that the Dollar will fall against the Yen; this is the same as the Yen strengthening against the Dollar. Thus, an equivalent hedge would be to buy Japanese Yen Calls. If the Yen appreciates against the Dollar, the gain on the Yen Calls would offset any loss on the Dollars received in payment. A currency index call or put would not move at the same rate as a single currency, making this less useful as a hedge. Furthermore, there are no PHLX traded currency index options. Instead of buying Yen calls, the exporter could sell Yen puts; and if the Yen appreciates, the puts would expire and the premium received could be used to offset any loss on the Dollars received in payment. However, this only hedges the importer to the extent of the premium collected; therefore, buying Japanese Yen calls is the better choice. |
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A customer, age 69, has never invested in securities. She is retired with no dependents, living on a fixed pension of $35,000 per year. She has a savings account with $160,000 and her home is fully paid. She desires to supplement her retirement income, assuming minimal risk. The BEST recommendation would be for the customer to invest $100,000 of her cash savings into a(n):
A. variable annuity contract B. CMO planned amortization class tranch C. SPDR D. income (adjustment) bond |
The best answer is B. CMO planned amortization classes give a good yield that is 50 or so basis points higher than equivalent maturity Treasuries and are extremely safe. These meet the customer's objective of additional income with low risk. Since this customer is only earning $35,000 per year, she is in a low tax bracket - making tax-deferred variable annuities unattractive. SPDRs - Standard and Poor's 500 Depository Receipts are an exchange traded fund that consists of equities - which don't provide much income. Income bonds only pay interest if the corporation has enough "income" - so these are not appropriate either.
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A general obligation bond is purchased in the secondary market at a discount and is held to maturity. The holder elects not to accrete the bond discount for tax purposes. Which statements are TRUE?
I The interest income is subject to Federal income tax II The interest income is not subject to Federal income tax III The discount is taxed as interest income IV The discount is not taxed A. I and III B. I and IV C. II and III D. II and IV |
The best answer is C. The interest income received from investments in "public purpose" municipal bonds is exempt from Federal income tax. However, the market discount on such bonds is taxable as interest income received. This is nothing more than a "tax grab" by the Federal government - the idea being that wealthy people buy municipal bonds, so if there is a way that they can be taxed without jeopardizing their basic Federal income tax-free status, why not? The holder can either accrete the discount annually as taxable interest income earned and adjust the cost basis of the bond upwards by this amount; or can wait until the bond is sold or matures to report the accumulated "earned" discount as taxable interest income at that point (this is the better choice from a tax standpoint). |
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An unregistered hedge fund creates a website and uses it to promote itself to investors. Potential investors are invited to enter a password-protected area where they can get details about the fund's investment strategy and performance. Which statement is TRUE?
A. This is prohibited under SEC rules B. This is permitted under SEC rules as long as the potential viewer completes and signs an accredited investor questionnaire before being given the password to enter C. This is permitted under SEC rules as long as the potential viewer completes and signs an arbitration agreement before being given the password to enter D. This is permitted without restriction |
The best answer is B. Private placements are typically only offered to "accredited investors." These are wealthy individuals and institutional investors. The SEC encourages the use of the internet and permits private placements under Regulation D to be offered via the web. However, the offerer must set up a password-protected website and can only allow access to accredited investors. To document that the purchasers are, indeed, accredited, an "accredited investor questionnaire" must be completed and signed by the potential purchaser. This is submitted to the offerer through the website, who then can give access to the potential investor.
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S & P 100 Index (OEX)
Calls - LastPuts - Last StrikeMayJunJulMayJunJul 28039.50.........70........ 285.............85........ 29028.0030.00....1.102.90.... 29522.5027.50....1.403.50.... 30017.9021.50....1.904.506.25 30514.50........2.855.507.40 31010.0014.5018.754.157.159.25 3156.6510.9013.755.758.9011.00 3204.007.7511.508.2511.1513.00 Total Call Volume:117,867 Total Call Open Int:455,436Total Put Volume:136,247 Total Put Open Int:575,985The Index: High 319.99 Low 314.55 Close 315.58 - 4.41 (Refer to the exhibit window to answer the following question) The time value of 1 OEX May 310 Call contract is? B. $542.00 C. $558.00 D. $1,000.00 |
The best answer is A. The premium on the OEX May 310 Call contract is 10. Since the index closed at 315.58, the contract is "in the money" by 5.58. Any premium above this amount is "time premium." Therefore, 10 - 5.58 = 4.42 time premium x 100 multiplier = $442.00.
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An investor has 1 ABC Jan 50 Call contract. ABC declares a 25% stock dividend. Which statement is TRUE regarding the option contract after adjustment for the dividend?
A. The contract becomes 1 ABC Jan 60 Call covering 125 shares B. The contract becomes 1 ABC Jan 40 Call covering 100 shares C. The contract becomes 1 ABC Jan 40 Call covering 125 shares D. The contract stays as 1 ABC Jan 50 Call covering 100 shares |
The best answer is D. This is a stock dividend of 25%. The OCC does not adjust the contract on ex date. Only if there is an exercise, then the OCC adjusts the "deliverable."
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Which of the following will affect net working capital?
I Declaration of a cash dividend II Declaration of a stock dividend III Reduction in the allowance for bad debts IV Increase in depreciation deductions taken A. I and III B. I and IV C. II and III D. II and IV |
The best answer is A. When a cash dividend is declared, it is appropriated from retained earnings and set up as a current liability - Dividends Payable. An increase in current liabilities reduces working capital. When a stock dividend is declared, it is appropriated from retained earnings and used to increase common at par and capital in excess of par. There is no effect on working capital. If a company reduces its allowance for bad debts, this increases accounts receivable (a current asset). If current assets rise, working capital rises. Increased depreciation deductions decrease the value of fixed assets and do not affect working capital.
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Which of the following are functions of the Federal Reserve Board?
I Setting margins on non-exempt securities II Lending funds to member banks through the discount window III Auditing commercial banks for compliance with banking and MSRB regulations IV Acting as fiscal agent for the U.S. Treasury A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV |
The best answer is D. The Federal Reserve has the power to set margins for non-exempt securities only. It cannot set margins for exempt securities such as governments and municipals. It lends funds to member banks at the discount rate. It audits commercial banks for compliance with banking and MSRB rules. The Fed acts as fiscal agent for the Treasury, conducting the weekly Treasury auctions.
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The principal difference between a structured product and an ETN is:
A. investment time horizon B. liquidity risk C. credit risk D. reference index |
The best answer is B. Regarding structured products, each bank's version has different features. They are "buy and hold" securities - there is almost no trading market. ETNs are "Exchange Traded Notes." They are an equity index linked structured product, that is listed and trades on an exchange. Because they trade, the liquidity risk aspect of structured products is eliminated
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Which of the following statements is TRUE regarding quotes for municipal bonds found in Bloomberg?
A. All quotes shown in Bloomberg are for round lots B. All quotes shown in Bloomberg are subject to prior sale or change in price C. All quotes shown in Bloomberg must reflect the current "inside market" at the time of entryD. All quotes shown in Bloomberg are nominal |
The best answer is B. The MSRB requires that all quotes that are disseminated be "bona fide." This means that, at the time that the quote was placed, the firm giving the quote is willing to trade at that price for the size quoted. However, all quotes are subject to prior sale or change in price. Bloomberg is published electronically, and lists dealer offerings of municipal bonds in the secondary market. All quotes are "firm;" nominal (approximate) quotes cannot be given unless it is clearly stated that the quote is nominal. Quotes in Bloomberg can be for any amount of bonds; it is not required that they be for round lots only. Quotes in Bloomberg do not necessarily reflect the "inside market" at that moment. Since municipal bonds are not actively traded, the concept of an "inside market" really does not exist for these securities. The MSRB's requirement is that any quote that is given be "reasonably related" to the current market, using the dealer's best judgment.
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A customer owns a 5 ABC convertible bonds, convertible into common stock at a 20:1 ratio. The common stock is currently trading at $29. The customer believes that the stock will rise during the next 6 months, but does not think that it will rise above $45 per share. The customer wishes to use options to profit from his belief, but wishes to minimize any additional capital outlay. Which strategy is the best recommendation to the customer?
A. Buy 1 ABC Jan 45 Call B. Sell 1 ABC Jan 45 Call C. Buy 1 ABC Jan 45 Put D. Sell 1 ABC Jan 45 Put |
The best answer is B.
This customer believes that the stock will rise from its current price of $29, but will not rise above $45 per share. As the holder of a convertible bond, convertible at $50 per share, it would not make sense to convert, even if the price rose to $45. However, the customer can use the convertible bond to "cover" the sale of call contracts against the stock. Since each bond is convertible at 20:1, 5 bonds is the equivalent of 100 shares of stock. By selling an ABC Jan 45 Call, the customer collects the premium income, and has no capital outlay since the short call is covered. Any option buying strategy does not meet the customer's specifications, since they require a money outlay. |
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Under the FINRA Conduct Rules, a broker-dealer may charge a customer for which of the following services?
I Collection of dividends II Safekeeping of securities III Handling the transfer and reregistering of securities IV Appraisals of securities in a customer portfolio A. I and II only B. III and IV only C. I, II, III, IV D. None of the above |
The best answer is C. FINRA rules allow fair and reasonable charges for "clerical" services that are unrelated to trading and market making (charges to customers for trading and market making are covered under the 5% Policy). These services include collection of dividends on street name stock; safekeeping of securities; transfer of securities; and appraisals of securities.
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The FINRA suitability rule requires all of the following EXCEPT:
A. Reasonable Basis Suitability B. Customer-Specific Suitability C. Quantitative Suitability D. Qualitative Suitability |
The best answer is D. FINRA requires that suitability determinations include multiple levels of review. These are:Reasonable Basis Suitability: This is a review of the features, returns, costs and risks of the recommended product or strategy. Only those products with the best combination can be recommended to clients. In essence, this rule requires that firms have an internal "recommended list" that has completed this review.
Customer-Specific Suitability: Once the recommendation has completed "reasonable basis" suitability, that does not mean that it can be recommended to all customers. To recommend it to a customer requires that "customer-specific" suitability be determined. Quantitative Suitability: A single recommendation might be suitable for a customer, however a large number of similar recommendations might not be. It all depends of the customer's objectives, needs, and ability to pay for the recommended transactions.There is no such thing as "Qualitative" suitability. |
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Exhibit from Specialist's/DMM's Book
Sell 50.08300 SL Day 50.07400 AB Day 50.06 50.05 Buy 200 DB GTC 100 GS Day50.04 100 SL GTC50.03 100 DW Day50.02 200 PB GTC50.01 100 ML GTC50.00
B. 50.06 C. 50.07 D. 50.08 |
The best answer is C. The "open" area on the book is where the stock is currently trading since any orders that were there would have been filled by the Specialist/DMM (Designated Market Maker). Therefore, the stock is trading around 50.05 - 50.06. If the market rises, the Specialist/DMM will have to sell for the customers on the book. The first order to sell as the market rises is at 50.07. The Specialist/DMM can sell LOWER than this price for his own account, but cannot sell at 50.07 until the customer order is cleared. Therefore, the Specialist/DMM can sell for his own account at 50.06 or lower, but not at 50.07.
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Customer Name:
Jack and Jill CustomerAges:62 and 57 Marital Status:Married - 39 years Dependents:None Occupations:Jack - Manufacturing Manager - Dyno-Mite Corp.Jill - Marketing Consultant - Self Employed Household Income:$140,000 Joint Income ($100,000 for Jack and $40,000 for Jill)Net Worth:$1,100,000 (excluding residence) Own Home:Yes $420,000 Value, No Mortgage Investment Objectives: Income / Tax AdvantagedRisk Tolerance:Moderate Investment Time Horizon: 25 yearsInvestment Experience: 30 yearsTax Bracket:30% Current Portfolio Composition: Cash in Bank:$30,000Growth Fund:$50,000 Variable Annuity:$50,000 Growth Stocks: $150,000Retirement Accounts: Jack's IRA: $100,000 invested in growth stocksJack's 401(k):$600,000 invested in Dyno-Mite Corp. stockJack's 529 Plan for Grandchild:$20,000 in growth mutual fund To meet the customer's investment objective of tax advantaged income, the BEST recommendation is for the customer to: B. set a minimum and maximum threshold price to liquidate as much of the Dyno-Mite stock as the customer will permit, and invest the proceeds in high yielding common and preferred stocks C. liquidate the IRA without penalty since Jack is past age 59 1/2, and use the proceeds to buy corporate income bonds D. consider early retirement, since Jack is old enough to receive Social Security as a means of supplementing income |
The best answer is B.
Dividend income is currently taxed at the preferential rate of 15%, so investments in high yielding common and preferred stocks will meet the customer's objective of tax advantaged income. High yield bonds come with a high potential risk of default, and this customer has a "moderate" risk tolerance level. If Jack liquidates his IRA, he will have to pay regular income tax on the liquidation amount at his 30% bracket; and income bonds do not give current income, so Choice C is particularly bad. If Jack retires now, his income will be cut substantially since he will not have his employment income anymore - and the small annual amount that Social Security pays will not offset this loss - making Choice D really bad as well! |
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Notification to FINRA is required for all of the following EXCEPT:
A. a written customer complaint is received about a registered employee misappropriating customer funds B. a registered representative is arrested for assault and battery C. a registered representative is committed to a mental institution D. a registered representative is indicted under the Securities Exchange Act of 1934 for "insider trading" violations |
The best answer is C. If one goes insane, notification to FINRA is not required. (After all, how would that person know to notify FINRA - he's insane).
However, FINRA does require prompt notification for a variety of reasons. If one is the subject of a written customer complaint involving theft or embezzlement; if one is arrested, arraigned, indicted, convicted, or pleads guilty to any criminal offense (except for minor traffic violations); or if one is sued under the Securities Acts; notification to FINRA is required. In addition, notification to FINRA is required if the registered representative is suspended or expelled by any other self-regulatory organization; is denied registration by another self-regulatory organization; or is the subject of a customer complaint that is settled for more than $15,000; or is the subject of disciplinary action by the member firm involving suspension, termination, or the withholding of commissions in excess of $2,500. When FINRA gets the report, they review it to see if they should do nothing, suspend the person's registration, or expel the registered representative. |
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Which of the following are considered in determining a fair and reasonable price in a municipal agency transaction?
I Availability of the security II Dollar amount of the transaction III Value of services rendered by the municipal broker IV The fact that the municipal firm is entitled to a profit in this transaction A. I and III only B. II and IV only C. I, II, III D. I, II, III, IV |
The best answer is D.
The MSRB Fair Pricing Rule states that the factors that should be considered when pricing a municipal bond for BOTH agency and principal transactions are the: * best judgment of the fair market value of the security;* expense of filling the order; * fact that the firm is entitled to a profit; * availability of the security; * value of services rendered in effecting the trade * maturity, rating and call features of the security; * nature of the dealer's business; and * existence of material information about the issuer. * price of the transaction; |
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For investors who are not extremely high earners, the maximum tax rate on cash dividends received is:
A. 15% B. 25% C. 35% D. 50% |
The best answer is A. A lower tax rate, 15%, is imposed on cash dividends received from both common and preferred stocks. The intent of this tax benefit is to promote long term equity investment. Note that this rate is raised to 20% for individuals with at least $400,000 of income and couples with at least $450,000 of income.
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Spot trades of foreign currencies settle:
A. the same business day as trade date B. the next business day after trade date C. 1 or 2 business days after trade date D. 3 business days after trade date |
The best answer is C. Spot trades of foreign currencies settle in either 1 or 2 business days after trade date. Trades of the more actively traded currencies settle in 1 day; trades of the less frequently traded currencies settle in 2 days.
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A variable annuity prospectus includes an AIR illustration using a 5% rate. This means that the:
A. purchaser is guaranteed a minimum 5% annual return B. annuity payment is guaranteed to grow at a minimum of 5% per year C. return could be less than 5% D. sales charge will be no higher than 5% |
The best answer is C. The AIR in a variable annuity prospectus is the "Assumed Interest Rate." It is a conservative illustration of how much the contract holder will receive in payments if the separate account grows at the AIR. If the account grows faster than the AIR, the payments increase. If the account grows slower than the AIR, the payments will decrease.
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Which of the following persons can approve the opening of an account under FINRA rules?
I Branch Office Manager II Supervisory Analyst III General PrincipalIV Financial and Operations Principal A. I or III B. I or IV C. II or III D. II or IV |
The best answer is A. The General Principal (Series #24 license) or Branch Office Manager (Series #9/10 license) approves accounts at FINRA member firms. The Financial and Operations Principal (Series #27 license) is the firm's accountant, and cannot approve the opening of customer accounts. The Supervisory Analyst (Series #16 license) is responsible for the preparation or approval of research reports.
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Monetary policy tools of the Federal Reserve Board include changing all of the following EXCEPT:
A. discount rate B. tax rates C. reserve requirements D. margin requirements |
The best answer is B.
Changes in tax rates are made with approval of Congress - this is a tool of fiscal policy. Monetary policy actions that can be taken by the Fed include changing the discount rate; open market operations; changing reserve requirements; and changing margin requirements. These can be memorized as "DORM." D is Discount rate; O is Open Market Operations; R is Reserve Requirements; and M is Margin on securities. |
