Series 7

Front 1

Bond Buyer

Back 1

primary market information; published daily

Front 2

A customer places an order to sell 500 ABC at 46 stop limit.
The order will be elected at 46 or ________
The order will be executed at 46 or ________

Back 2

lower
higher

Front 3

Sinking fund

Back 3

used as an escrow account to set funds aside for retiring a revenue bond

Front 4

Most suitable investment for an investor seeking monthly income:

Back 4

Money market mutual fund

Front 5

For OTC equity securities trading at $175+/share, one round lot =

Back 5

1 share
(below = 100 shares)

Front 6

Maximum fine for a minor rule violation under the Code of Procedure

Back 6

$2500

Front 7

Capital risk

Back 7

the risk that invested dollars can be lost as the result of circumstances unrelated to an issuer's financial strength

Front 8

Guaranteed corporate bonds are:

Back 8

guaranteed as to the payment of principal and interest by another corporation (typically one with a higher credit rating and that is in a control relationship with it)

Front 9

Which investments are inappropriate for IRAs?

Back 9

Short sales, uncovered calls, municipal bonds

Front 10

To hedge, exporters should:

Back 10

buy puts on foreign currency

Front 11

A unit investment trust:

Back 11

buys securities and holds them until redemption or until a specified future date.
The securities are not traded, so no manager is needed.

Front 12

Communication with the public must be kept for:

Back 12

at least 3 years

Front 13

Cond confirmations must disclose the _________ of the yield to maturity or yield to call.

Back 13

lower

Front 14

Overlapping debt referes to...

Back 14

property tax districts. (Airport issues usually revenue issues of an authority with no property taxing powers)

Front 15

For municipal discretionary accounts,

Back 15

1) A muni securities principal must approve all transactions in the account promptly after execution.
2) All activity must be reviewed frequently by muni secs principal
3) B/D cannot effect transactions for securities in which it has a control relationship with the issue w/o customer authorization

Front 16

Who can initiate a trading halt for listed securities trading on an exchange?

Back 16

the exchange or the SEC

Front 17

Amortization:
____________ cost basis & reported interest income,
and is for bonds purchased at a ____________.

Back 17

reduces; premium

Front 18

Accretion:
____________ cost basis & reported interest income,
and is for bonds purchased at a ____________

Back 18

increases; discount

Front 19

For corporate bonds, amortization is ___________, but accretion is ___________.

Back 19

optional; mandatory

Front 20

The discount on all bonds bought in the secondary market is taxed as _____________

Back 20

interest income

Front 21

The discount on a corporate bond purchased in the secondary market must be _______________ and is taxable as __________

Back 21

accreted; ordinary income

Front 22

Which entity guarantees a listed yield-based option?

Back 22

Options Clearing Corporation (OCC)

Front 23

Syndicate bid - Reoffering Price =

Back 23

spread, or underwriter's compensation

Front 24

A self-employed individual making the max contribution to his own Keogh (HR-10 plan) must contribute ____% of any eligible employees' earned income to their plans

Back 24

25

Front 25

Current Yield =

6% debentures trading for $1200

Back 25

= annual income (or coupon rate) / current market price

= income dividend / price

= $60/$1200 = 5%

Front 26

5% mark-up policy applies to:

NOT to:

Back 26

principal OTC trades; exempt securities transactions such as municipal bond trades

Front 27

A B/D may seek reimbursement for forwarding proxy materials to customers from the _________

Back 27

issuer

Front 28

EMMA

Back 28

Electronic municipal market access: Centralized online site to locate key info about munis presented for retail investors.

Front 29

Where are Protective Covenants found?

Back 29

In the trust indenture of a revenue bond.

Front 30

Registration with the SEC under the Securities Act of 1933 applies to all ____, _________ issues

Back 30

new, nonexempt. (ie, public dpps, variable annuities, open/closed-end funds)

(EXEMPT issues are US gov, bank issues, nonprofit organization securities)

Front 31

To create a credit calendar spread, an investor should:
1) _____ the near expiration;
2) _____ the distant expiration

Back 31

1) Buy
2) Sell

Credit calendar spread happens when premium received > amount paid out. The distant expiration has more time value, and therefore the higher premium.

Front 32

Insider trading fines for member firms?

Back 32

3x profit gained, or $5 million

Front 33

Requires corporate public issuers to send annual reports to shareholders

Back 33

Securites Act of 1934

Front 34

Option position rules are violated by exceeding the number of shares on _____________ side of the market

Back 34

the same

Front 35

A municipal finance professional (MFP) is:

Back 35

an associated person of a B/D engaged in muni securities representative activities OTHER than retail sales;
subject to the political contribution rules outlined in MSRB Rule G-37

Front 36

Separate accounts are NOT likely to invest in ________________.

Back 36

Municipal bonds; interest earned is already tax exempt at the federal level, so are not appropriate in a variable annuity

Front 37

In the event of death during variable annuity accumulation period, any death benefit will:

Back 37

be paid to the designated beneficiary

Front 38

Accelerated depreciation ______________ charged expenses during the early years of equipment life but ______________ charged expenses during the later years

Back 38

increases; decreases

Front 39

Mortgage-backed securities (ie FNMA & GNMA) are subject to which taxes?

Back 39

federal, state & local

Front 40

A FINRA member B/D trading in shares of an open-end investment company may NOT buy shares of the fund:

Back 40

for the purpose of resale at a later date

Front 41

A B/D may buy shares only:
1)
2)

Back 41

1) to fulfill existing orders
2) for its own investment account

(NOT for inventory)

Front 42

An issuer may NOT direct sales of a new issue to:

Back 42

officers of the managing underwriter

Front 43

____________ are not required by the MSRB on customer confirmations.

Back 43

Amounts of markdown or markup on a principal transaction

Front 44

Largest monthly payout variable annuity?

Back 44

Life annuity - less risk assumed by insurance company; no beneficiary in the event the annuitant dies.

Front 45

A riskless transaction is/is not generally covered by the 5% markup policy?

Back 45

IS

Front 46

The effective Fed funds rate is:

Back 46

the daily average rate charged by banks

Front 47

In a new municipal bond issue, interest begins to accrue as of the __________ date, up to but not including, the ___________ date

Back 47

dated; settlement

Front 48

For stocks trading on the OTC Pink:

1) Quotes are _________
2) Updates may not be current or made intra-day

Back 48

1) not firm

Front 49

The marketability of a block of bonds being sold by participants in a secondary market joint trading account can be affected by:
1)
2)
3)

Back 49

1)maturity
2)block size
3)rating

Front 50

Signs a customer may be money laundering?
1)
2)

Back 50

1) Excessive journal entries between unrelated accounts
2) Lack of concern for risk, commissions and other transaction costs

Front 51

What happens if one partner dies in a partnership account?

Back 51

The account is frozen until a new or amended partnership agreement is received

Front 52

Which education savings account limits distributions to higher education only?

Back 52

Section 529

Front 53

What's a SIMPLE?

Back 53

Retirement plans for businesses with fewer than 100 employees that have no other retirment plan in place;
Employee makes PRETAX contributions up to limit;
Employer permitted to make matching contributions for employees

Front 54

State GO bonds do not normally use __________

Back 54

real estate taxes

Front 55

Minimum denomination of a T-Bill?

Back 55

$100 face amount

Front 56

T-Bills are sold at a ____________.

Back 56

discount

Front 57

Regulation T Settlement is:

Back 57

T+5 days

Front 58

In muni bonds, a "workable indication" is:

Back 58

a likely bid

Front 59

A due diligence meeting is held between:

Back 59

the issuer and the underwriter before the effective date

Front 60

You _______ at the asked price and _________ to the bid

Back 60

buy; sell

Front 61

Debit spreads are profitable if the spread between the premiums ___________.

Back 61

widens

Front 62

To calculate breakeven point of a CALL spread,

Back 62

CALS

Net premium + LOWER STRIKE price

Front 63

Net interest cost measures:

Back 63

an issuer's overall cost of borrowing for a particular bond issue

(it's the MOST important factor in deciding who will be awarded the winning bid)

Front 64

The third market is composed of:

Back 64

listed securities traded OTC

Front 65

The effective federal funds rate is:

Back 65

the daily average of Federal Reserve System member banks

Front 66

Order of liquidation:

Back 66

1) wages & taxes
2) secured debt
3) debentures & general creditors
4) subordinated debentures
5) preferred stock
6) common stock

Front 67

All contributions made to Coverdell ESA accounts are before or after tax?

Back 67

AFTER

Front 68

Muni advertising must be approved by:

Back 68

A general securities principal or municipal securities principal

Front 69

A working interest in an oil & gas partnership entitles the holder to:
1)
2)

Back 69

1) a portion of the revenue;
2) the responsibility for extraction costs

Front 70

Net worth is not affected by:

Back 70

The issuance of long term debt because it does not represent ownership

Front 71

What are the 3 market tiers of Nasdaq?

Back 71

1) Nasdaq Global Select Market
2) Global Market
3) Capital Market

Front 72

Under the Investment Company Act of 1940, redemption payments for mutual funds shares must be made within how many days?

Back 72

7 calendar days

Front 73

During an IPO's cooling off period, a customer can:

Back 73

indicate an interest in the offering

Front 74

What does SIPC protect against?

Back 74

Broker default

Front 75

When informed that one party to a tenants in common account has died, a registered rep should:

Back 75

freeze the account

Front 76

Which retirement plan is NOT legally required to establish vesting, funding and eligibility requirements?

Back 76

Payroll deduction plan

Front 77

All of the following kinds of orders may be turned over to the specialist (DMM) for execution EXCEPT:
limit
market
stop
not-held

Back 77

not-held - a market order in which the investor has given the authority to choose the price & time to the floor broker to achieve the best possible execution

Front 78

T-notes are ______________ maturity (___-___ _____)

Back 78

intermediate; 1-10

Front 79

T-bills are ______________ maturity

Back 79

short term; less than 1 year

Front 80

Anticipation notes are _____________ revenue notes

Back 80

short term

Front 81

T-bonds are ______________ maturity

Back 81

long term (10+ years)

Front 82

Regulation T applies only to ___________ securities

Back 82

nonexempt

Front 83

The holding period of a capital asset iis based on:

Back 83

the amount of time the asset is held at risk

Front 84

A syndicate's bid is based on:

Back 84

the average reoffering price - syndicate's spread

Front 85

The registrar:
1)
2)

Back 85

1) Accounts for the number of shares
2) Audits the transfer agent

Front 86

Factors relevant in determining the fairness of a commission or markup:
1)
2)
3)

Back 86

1) type of security
2) services rendered by the firm
3) expenses and difficulty of executing a trade

Front 87

A sell limit order is executed when a stock is:

i) rising.
ii) falling.
iii) at or below the limit price.
iv) at or above the limit price.

Back 87

i & iv

Front 88

What is the fourth market?

Back 88

The fourth market is where direct trades between institutions, pension funds, broker/dealers, and other financial entities occur, utilizing electronic communications networks (ECNs).

NO BROKERS INVOLVED

Front 89

Government agencies settle:

Back 89

the third business day (treated as corporate issues; settle regular way)

Front 90

The price of closed-end investment company shares is determined by:

Back 90

supply & demand (traded in secondary market)

Front 91

A municipal bond dealer is making a bona fide quote. Which of the following statements regarding such a quote is TRUE?

I. The quote must have a reasonable relationship to fair market value.

II. The quote may take into consideration any anticipated market movement.

III. The quote cannot represent an offer to sell bonds the dealer does not currently own.

IV. The quote need not be one that the dealer is prepared to act upon (buy or sell).

Back 91

I & II

Front 92

Which of the following positions has an unlimited dollar risk?

A) Short 100 shares of ABC; long 1 ABC call.
B) Short 1 ABC Jan 50 put; short 100 shares of ABC.
C) Short 1 ABC Jan 35 call; long 1 ABC Jan 40 call.
D) Short 1 ABC Jan 50 put.

Back 92

B) Short 1 ABC Jan 50 put; short 100 shares of ABC.

An investor faces unlimited dollar risk when short stock, short a naked call, or when a short stock position is combined with a short put. In this position, the unlimited risk of the stock is only protected on the upside by the premium received.

Front 93

Which of the following individuals normally trade on the floor of an exchange?

Two-dollar broker.
Registered market maker.
Allied member.
Stock lending representative.

Back 93

Two-dollar brokers, registered market makers, and specialists (DMMs) may trade on the floor

Front 94

Which of the following actions would increase SMA in a long margin account?

A) A long purchase.
B) A stock dividend received.
C) A decline in CMV.
D) A long sale.

Back 94

A long sale

Front 95

The terms of municipal general obligation (GO) and revenue bond offerings may be set by the issuer as:

A) either competitive bid or negotiated underwritings.
B) neither competitive bid or negotiated underwritings.
C) competitive bid underwriting arrangements only.
D) negotiated underwriting arrangements only.

Back 95

Either competitive bids or negotiated underwritings

Front 96

Which of the following activities are NOT a registrar's function(s)?

Audit the transfer agent.
Accounting for the number of shares outstanding.
Canceling old shares.
Transferring shares into the new owners' names.

Back 96

Canceling old shares.
Transferring shares into the new owners' names.

The registrar accounts for the number of shares and audits the transfer agent

Front 97

Which of the following terms are associated with over-the-counter trading?

Market maker.
Specialist.
Auction market.
Negotiated market.

Back 97

Market maker.
Negotiated market.

Front 98

The trust indenture of a revenue bond will show all of the following EXCEPT the:

A) rate covenant.
B) revenue pledge.
C) reoffering yields.
D) application of flow of funds.

Back 98

C) reoffering yields.

Front 99

In its notice of sale in the "Bond Buyer", an issuer states that it will take into consideration the timing of interest payments when evaluating bids. The issuer will be using which of the following methods in its bid selection?

A) Real interest cost.
B) Net interest cost.
C) True interest cost.
D) Low interest cost.

Back 99

C) True interest cost.

Front 100

Ratio call writing exposes an options investor to

limited loss.
unlimited loss.
limited gain.
unlimited gain.

Back 100

unlimited loss.
limited gain.

Front 101

If an investment representative hosts an investment seminar and intends to discuss general investment concepts and a specific mutual fund for which he has performance charts, which of the following are TRUE?

He may discuss the investment returns of the mutual fund in general, provided he does not use a specific time frame.

He may discuss the investment returns of the mutual fund using a specific time frame.

He must disclose all material facts regarding the mutual fund to the audience.

He may emphasize the positive aspects of the mutual fund and refer prospective investors to the prospectus for further details.

Back 101

He may discuss the investment returns of the mutual fund using a specific time frame.

He must disclose all material facts regarding the mutual fund to the audience.

Front 102

All of the following statements concerning a variable annuity are correct EXCEPT:

A) separate account may consist of mutual funds.
B) the invested money will be professionally managed according to the issuers' investment objectives.
C) variable annuities will protect an investor against capital loss.
D) a majority vote from the shareholders is required to change the investment objectives.

Back 102

C) variable annuities will protect an investor against capital loss.

Front 103

Depletion allowances in oil and gas programs are based on the amount of oil:

A) lost to shrinkage.
B) sold.
C) in reserve.
D) extracted.

Back 103

B) sold.

Depletion allowances are allowed to compensate for a mineral resource, which is considered accomplished when it is sold.

Front 104

A customer establishes the following positions:

Long 1 ABC Jun 25 call at 2
Long 1 ABC Jun 25 put at 2

At expiration, the position is profitable if the stock price is

above 21.
below 21.
above 29.
below 29.

Back 104

below 21.
above 29.

Long straddle.
Call breakeven = net premium + call strike
Put breakeven = put strike - net premium

Front 105

Securities issued by private lending institutions approved by which of the following are directly backed by the federal government?

A) Federal Home Loan Mortgage Corporation (FHLMC).
B) Federal National Mortgage Association (FNMA).
C) Federal Intermediate Credit Bank (FICB).
D) Government National Mortgage Association (GNMA).

Back 105

GNMA

Front 106

A customer buys a municipal bond in the secondary market at 96 that has 4 years to maturity. Two years later, the customer sells the bond at 99. The tax consequences of this investment are:

A) 2 points of ordinary income and 1 point of capital gain.
B) 3 points of ordinary income.
C) 2 points of capital gain and 1 point of ordinary income.
D) 3 points of capital gain.

Back 106

A) 2 points of ordinary income and 1 point of capital gain.

When a municipal bond is purchased in the secondary market at a discount, the annual accretion is taxed as ordinary income. The annual accretion is 1 point per year (4 points divided by 4 years to maturity). Therefore, when the bond is sold 2 years later, its cost basis is 98. If the bond is sold at 99, there is a long-term capital gain of 1 point per bond. Also, there is ordinary income taxation on the accretion of 2 points.

Front 107

An officer of a broker/dealer firm would be categorized as a restricted person if he attempted to purchase:

A) a municipal bond in a state where he does not reside.
B) call options on a stock he believed was going down in price.
C) a new issue.
D) closed-end funds on the secondary market.

Back 107

C) a new issue.

As restricted persons officers of broker/dealer firms or other institutional investors are prohibited from purchasing a new issue.

Front 108

Which of the following statements regarding ADRs are TRUE?

They are issued by large domestic commercial banks.
They are issued by foreign banks.
They facilitate U.S. trading in foreign securities.
They facilitate a foreign investor who wants to trade U.S. securities.

Back 108

They are issued by large domestic commercial banks.
They facilitate U.S. trading in foreign securities.

Front 109

Revenue bonds may be called for all of the following reasons EXCEPT:

A) the facility has been destroyed.
B) interest rates have fallen.
C) the issuer has reached a statutory debt limit.
D) a provision in a sinking fund agreement calling for a partial call.

Back 109

C) the issuer has reached a statutory debt limit.

Statutory debt limits only apply to general obligation bonds.

Front 110

A callable municipal bond maturing in 30 years is purchased at 102. The bond is callable at par in 15 years. If the bond is called at the first call date, the effective yield earned on the bond is:

A) lower than the yield to maturity.
B) not determinable.
C) higher than the yield to maturity.
D) the same as the yield to maturity.

Back 110

A) lower than the yield to maturity.

If the bond is trading at a premium and it is called before maturity, the loss of the premium is compressed into a shorter period of time. This reduces the effective yield on the bond. If the bond is called, the effective yield is the yield to call.

Front 111

Which of the following best describes an intangible drilling cost?

A) Tax liability.
B) Proven reserve of oil or gas.
C) Exploratory well drilling.
D) Labor, fuel, or drilling rig rental.

Back 111

D) Labor, fuel, or drilling rig rental.

Intangible drilling costs are the noncapital costs of putting in a well. They are currently deductible expenses, like fuel, wages, and rent. An intangible drilling cost is one which, after expenditure, has no salvage value.

Front 112

Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest as long as their interest in the account does NOT exceed:

A) 0.25.
B) 0.1.
C) 0.05.
D) 0.2.

Back 112

B) 0.1.

Front 113

An investor purchases 1,000 shares of ABC at $42 per share. One year later, the stock is trading at $50 per share and the investor receives 50 shares of ABC as a stock dividend. How will this dividend be currently taxed?

A) As a $2,500 capital gain.
B) The shares are not subject to taxation.
C) As $2,500 ordinary income.
D) As a $2,100 capital gain.

Back 113

B) The shares are not subject to taxation.

Shares received per a stock dividend are not currently taxable.

Front 114

Which of the following are defined as penny stocks?

Nasdaq stock trading at $4 per share.
Bulletin Board stock trading at $4 per share.
Listed stock trading at $4 per share.
"OTC Pink" stock trading at $4 per share.

Back 114

Bulletin Board stock trading at $4 per share.
"OTC Pink" stock trading at $4 per share.

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

Front 115

According to MSRB rules, a separately identifiable division of a bank engaging in the sale and /or underwriting of securities issued by state and local governments is acting as a(n):

A) broker's broker.
B) investment banker.
C) municipal securities dealer.
D) mutual fund.

Back 115

C) municipal securities dealer.

Front 116

Unrealized gain in a mutual fund portfolio does which of the following?

Increases the dividends paid to shareholders.

Represents the undistributed income and the growth in market value of securities held in the portfolio.

Is realized by shareholders only when they redeem their shares.

Has no effect on shareholders until the annual long-term capital gains distribution is paid.

Back 116

Represents the undistributed income and the growth in market value of securities held in the portfolio.
Is realized by shareholders only when they redeem their shares.

Front 117

Which of the following orders on the order book will NOT be filled if the stock rises?

A) Buy stop.
B) Buy stop limit.
C) Sell limit.
D) Sell stop.

Back 117

D) Sell stop.

Those orders on the book which are above the current market will be executed if the stock rises. Those open orders above the current market are buy stops (including buy stop limits) and sell limits.

Front 118

Which of the following scenarios would be TRUE about a step-down CD?


Initially purchased the CD at a lower rate.

Initially purchased the CD at a higher rate.

Later the interest rate adjusts to a lower rate than when it was purchased.

Later the interest rate adjusts to a higher rate than when it was purchased.

Back 118

Initially purchased the CD at a higher rate.

Later the interest rate adjusts to a lower rate than when it was purchased.

Front 119

Which of the following competitive bids on a new municipal issue is most likely to be awarded the bid?

A) 6% coupon with no premiums over par.
B) 8% coupon with premiums over par.
C) 7% coupon with no premiums over par.
D) 6% coupon with premiums over par.

Back 119

D) 6% coupon with premiums over par.

In a competitive bid bond sale, the winning bid is the one that provides the issuer with the lowest net interest cost. If the syndicate pays the issuer more than par for the bonds, the issuer is taking in more money than it must pay out at maturity. Therefore, its net interest cost is lower than the 6% coupon on the bonds.

Front 120

A 52-year-old dentist has a balance of $150,000 in his Keogh plan, composed of $100,000 of contributions and $50,000 of earnings. If the dentist withdrew $100,000 from the Keogh plan, which of the following statements are TRUE?

The entire withdrawal is taxable.
The entire withdrawal is not taxable.
The entire withdrawal is subject to a 10% penalty tax.
A portion of the withdrawal is taxable.

Back 120

The entire withdrawal is taxable.
The entire withdrawal is subject to a 10% penalty tax.

Keoghs are qualified plans made with pretax dollars with earnings that grow on a tax-deferred basis. So, any distributions are taxed as ordinary income

Front 121

If a customer subscribes to a $20,000 public limited partnership interest, which of the following is the maximum underwriting compensation that may be charged?

A) 2,000.
B) 1,850.
C) 18,000.
D) 4,000.

Back 121

A) 2,000.

The FINRA rules for limited partnership offerings limit underwriting compensation to 10% of the total money raised

Front 122

XYZ Corp. has set Friday, January 23rd, as the record date for its next quarterly dividend distribution. To receive the dividend, a customer, long 1 XYZ Feb 40 call, must issue exercise instructions on or before:

A) Friday, January 23rd.
B) Tuesday, January 20th.
C) Monday, January 19th.
D) Tuesday, January 27th.

Back 122

B) Tuesday, January 20th.

Dividends are paid to investors who are owners of record as of the close of business on the record date. When a call option is exercised, money and stock are exchanged on the third business day after notice is given to the OCC. Therefore, an investor who wishes to receive a dividend must exercise a call no later than the third business day prior to the record date (i.e., before the ex-date).

Front 123

The value of the Dow Jones Composite average would be most affected by a change in the value of which of the following market sectors?

A) Industrial.
B) Transportation.
C) Utility.
D) Growth.

Back 123

A) Industrial.

The Dow Jones Composite Average consists of 65 stocks: 30 industrial, 20 transportation, and 15 utilities issues.

Front 124

If an individual fails a FINRA qualification exam three consecutive times, a fourth attempt may NOT be made for:

A) 60 days.
B) 6 months.
C) 30 days.
D) 90 days.

Back 124

B) 6 months.

Front 125

Which of the following best describes a nominal municipal bond quotation?

A) Subject bid or offer that must be reconfirmed before a trade.
B) Firm bid or offer.
C) Likely bid or offer.
D) Approximate price reflecting current market value with no bid or offer.

Back 125

D) Approximate price reflecting current market value with no bid or offer.

A nominal quote is an indication of the approximate market value of a municipal bond, provided for informational purposes only. A nominal quote does not represent an actual bid or offer.

Front 126

Under Regulation A, when must a broker/dealer furnish an offering circular to purchasers?

A) 24 hours before the confirmation.
B) 72 hours before the confirmation.
C) Concurrently with the mailing of the customer confirmation.
D) 48 hours before the confirmation.

Back 126

D) 48 hours before the confirmation.

Front 127

T-bills are quoted:

A) on an annualized discount yield basis.
B) in 32nds.
C) in 16ths.
D) as a percentage of par.

Back 127

A) on an annualized discount yield basis.

Front 128

Which of the following statements regarding the interest deduction for bank-qualified municipal bonds is TRUE?

A) Banks are entitled to an 80% deduction of interest expense associated with buying the bonds.
B) Investors are entitled to a 20% deduction of interest expense associated with buying the bonds.
C) Banks are entitled to a 20% deduction of interest expense associated with buying the bonds.
D) Investors are entitled to an 80% deduction of interest expense associated with buying the bonds.

Back 128

A) Banks are entitled to an 80% deduction of interest expense associated with buying the bonds.

Front 129

The sale of securities in a restricted margin account affects all of the following EXCEPT:

A) market value.
B) equity.
C) debit balance.
D) SMA.

Back 129

B) equity.

Equity is not affected unless the customer elects to withdraw half the proceeds of the sale.

Front 130

An underwriting spread is the:

A) amount a managing underwriter receives.
B) amount a syndicate receives.
C) amount a selling group receives.
D) difference between an offering price and the proceeds to an issuer.

Back 130

D) difference between an offering price and the proceeds to an issuer.

Front 131

Securities in an UGMA account are sold at a profit. Who is liable for the current year taxes on the sale?

A) The minor.
B) No one; they are deferred to the age of majority.
C) The guardian.
D) The donor.

Back 131

A) The minor.

Front 132

Which of the following may only be accomplished after applying the additional bonds test for a revenue bond?

A) Spending revenues already allocated for project expansion.
B) Issuing new bonds with an equal lien on the project's revenues.
C) Increasing the project's user charges.
D) Prerefunding an outstanding bond issue.

Back 132

B) Issuing new bonds with an equal lien on the project's revenues.

Front 133

If there are no priced quotations on the OTCBB or in the electronic "OTC Pink" for a security and a member receives an order to buy the securities, to determine the prevailing market, the member must contact a minimum of:

A) 4 dealers.
B) 3 dealers.
C) 2 dealers.
D) 1 dealer.

Back 133

B) 3 dealers.

A member must contact a minimum of 3 dealers (or all dealers if 3 or less) to determine the prevailing market. If 2 or more priced quotations are available, this requirement is waived.

Front 134

All of the following identify exemptions from the registration statement and prospectus provisions of the Securities Act of 1933 EXCEPT:

A) Regulation U.
B) Rule 147.
C) Regulation A.
D) Regulation D.

Back 134

A) Regulation U.

Regulation U regulates loans from lenders other than broker/dealers for the purpose of purchasing securities and is not related to exempt transactions under the Securities Act of 1933.

Front 135

All of the following are true regarding Section 529 college savings plans EXCEPT:

A) tax-deductible contributions at the federal level.
B) not subject to income limitations.
C) high contribution limits.
D) tax-free withdrawal at the federal level for qualified education expenses.

Back 135

A) tax-deductible contributions at the federal level.

Contributions are made with after-tax dollars and are not deductible.

Front 136

A board of directors member for a mutual fund must serve a minimum term of:

A) 3 months.
B) 2 years.
C) 1 year.
D) 6 months.

Back 136

C) 1 year.

Mutual fund board of directors members must serve a term of at least 1 year, and cannot serve more than 5 years without being reelected.

Front 137

For Put spreads, the higher strike price is the _____________ premium

For Call spreads, the higher strike price is the _____________ premium

Back 137

higher;

lower

Front 138

A customer buys an 8% bond on an 8.20 basis. If the bond is callable in 5 years at par and matures in 10 years, which of the following statements is TRUE?

A) Nominal yield is higher than YTC.
B) Nominal yield is higher than YTM.
C) YTC is higher than YTM.
D) YTC is lower than YTM.

Back 138

C) YTC is higher than YTM.

A bond with a YTM (basis) greater than its coupon is trading at a discount. When a bond is trading at a discount, the YTC is greater than the YTM. Nominal yield is lower than both YTM and YTC.

Front 139

Sell orders sent to an exchange:

A) do not need to be marked, only executed in accordance with the appropriate rules.
B) must be marked long or short.
C) must be marked only if they are long sales.
D) must be marked only if they are short sales.

Back 139

B) must be marked long or short.

Front 140

The bond resolution includes all covenants between the:

A) issuer and the trustee acting for the bondholders.
B) issuer and the MSRB.
C) bond counsel and the bondholders.
D) issuer and the bond counsel.

Back 140

A) issuer and the trustee acting for the bondholders.

Front 141

A member firm receives an order from an investment adviser to purchase shares in a common stock IPO. Regarding restricted persons, the member must:

A) obtain a list of all of the adviser's clients to determine eligibility.
B) obtain a list of the client(s) whose account(s) will be credited with the shares in order to determine eligibility.
C) obtain a representation from the conduit that the purchaser is not a restricted person.
D) refuse to accept the order.

Back 141

C) obtain a representation from the conduit that the purchaser is not a restricted person.

Front 142

You have decided to open an UTMA account for your 10-year-old son. As you are completing the application to open the account, you are asked for a Social Security number. Whose Social Security number will be used to open the account?

A) The donor's.
B) The parents' Social Security number.
C) The custodian's.
D) The beneficial minor's.

Back 142

D) The beneficial minor's.

Front 143

All of the following would be considered when evaluating a municipal revenue bond's creditworthiness EXCEPT:

A) management expense.
B) coverage ratio.
C) collection ratio.
D) competing facilities.

Back 143

C) collection ratio.

Front 144

If ALFA Securities, a broker/dealer, is a position-trading firm, which of the following statements is TRUE?

A) It is trading for its own account.
B) It is violating NYSE rules.
C) It is underwriting securities in the primary market.
D) It is acting as a broker for customers.

Back 144

A) It is trading for its own account.

Position trading is simply trading as principal, or dealer, for a firm's own account.

Front 145

One broker/dealer receives a don't know (DK) notice from another. Which of the following would be a reason for a DK to be sent?

A) The broker/dealer who sent the DK wants to know if the other broker's customer wants to trade more stock at the same price.
B) The broker/dealer who sent the DK is alerting the other broker that one of their clients has opened a new account with them.
C) The broker/dealer who sent the DK is confirming that the trade specifications are good.
D) The broker/dealer who sent the DK was expecting 200 shares of ABC common stock and received 200 shares of ABC preferred shares.

Back 145

D) The broker/dealer who sent the DK was expecting 200 shares of ABC common stock and received 200 shares of ABC preferred shares.

DKs are sent between brokers when delivery is made that is either not expected or where the specifications of the delivery do not match what was expected.

Front 146

The breakeven point for covered call writers is:

A) cost of stock less premiums.
B) cost of stock plus premiums .
C) strike price less premiums.
D) strike price plus premiums.

Back 146

A) cost of stock less premiums.

The breakeven point for an investor who owns the underlying stock and writes a call is the cost of that stock less the premium received from the sale of the call.

Front 147

If a customer fails to return a proxy statement to a member firm by the 10th day before the annual meeting, the member may vote the shares:

A) with the permission of the issuer.
B) under no circumstances.
C) provided the matters to be voted on are of minor importance.
D) without restriction.

Back 147

C) provided the matters to be voted on are of minor importance.

Front 148

In a discretionary account where the investment objective is preservation of capital and growth, all of the following practices are unsuitable EXCEPT:

A) frequent and profitable short-term trading in volatile stocks.
B) marking order tickets solicited or unsolicited when discretion is used.
C) maintaining a fixed asset allocation mix which includes under-performing sectors.
D) marking the investment objective on the new account form as high risk.

Back 148

C) maintaining a fixed asset allocation mix which includes under-performing sectors.

Front 149

Compensation paid to research analysts may:

be tied to specific investment banking transactions.

not be tied to specific investment banking transactions.

be tied to the firm's investment banking revenue.

not be tied to the firm's investment banking revenue.

Back 149

not be tied to specific investment banking transactions.

be tied to the firm's investment banking revenue.

Front 150

A transfer agent is responsible for all of the following EXCEPT:

A) canceling shares.
B) safeguarding the physical assets of the investment company.
C) distributing dividends and capital gains.
D) issuing new shares.

Back 150

B) safeguarding the physical assets of the investment company.

The custodian, not the transfer agent, is responsible for safeguarding the physical assets of the investment company.

Front 151

If a stock's ex-dividend date is Tuesday, January 13, when is the record date?

A) Thursday, January 15.
B) Tuesday, January 20.
C) Wednesday, January 7.
D) Thursday, January 8.

Back 151

A) Thursday, January 15.

The record date is two business days after the ex-dividend date (Thursday, January 15).

Front 152

The writer of an IRX yield based option, if exercised, must:

A) deliver T-bills.
B) receive T-notes.
C) deliver cash.
D) receive cash.

Back 152

C) deliver cash.

Yield based options settle in cash if the option is exercised. The writer must deliver the in-the-money amount in cash.

Front 153

A registered person leaves the securities industry and 18 months later reassociates with another member firm. FINRA requires that this person's cycle for determining the dates for the regulatory element portion of continuing education be based on:

A) the date on his application for reregistration.
B) his initial registration date.
C) his original hire date.
D) his date of reassociation with his new firm.

Back 153

B) his initial registration date.

If reassociation occurs within 2 years, the cycle date remains associated with his original registration date. If it occurs after 2 years have elapsed, the new cycle is based on the reassociation date.

Front 154

Which of the following describes when debt is used to acquire a firm?

A) Spin-off.
B) Hostile takeover.
C) Leveraged buyout (LBO).
D) Takeover arbitrage.

Back 154

C) Leveraged buyout (LBO).

Front 155

Which of the following statements regarding the good faith deposit submitted by interested bidders are TRUE?

It is usually 1% to 2% of the total par value of the bonds offered.
It is usually 10% of the total par value of the bonds offered.
If the bid is unsuccessful, it is returned to the underwriting syndicate.
If the bid is unsuccessful, it is retained by the issuer.

Back 155

It is usually 1% to 2% of the total par value of the bonds offered.

If the bid is unsuccessful, it is returned to the underwriting syndicate.

Front 156

An investor interested in monthly interest income should invest in:

A) corporate bonds.
B) utility company stock .
C) GNMAs.
D) Treasury bonds.

Back 156

C) GNMAs.

GNMAs pay monthly interest and principal, treasury bonds pay semiannual interest, utility stocks pay quarterly dividends, and corporate bonds pay semiannual interest.

Front 157

A Japanese manufacturer sells recorders to a U.S. retailing firm. The manufacturer is to receive $1 million (U.S. dollars) in 90 days. How can he best protect himself against a decline in the dollar?

A) Buy yen calls.
B) Sell yen puts.
C) Sell yen calls.
D) Buy yen puts.

Back 157

A) Buy yen calls.

Front 158

Dealer-to-dealer transactions in U.S. government securities settle:

on trade date.
on the business day following trade date.
in fed funds.
in clearing house funds.

Back 158

on the business day following trade date.
in fed funds.

Front 159

The regular way ex-dividend date for cash dividends is the:

A) 2nd business day following the record date.
B) 2nd business day preceding the settlement date .
C) 3rd business day preceding the record date.
D) 2nd business day preceding the record date.

Back 159

D) 2nd business day preceding the record date.

The regular way ex-dividend date is 2 business days before the record date.

Front 160

An ABC 40 call is quoted at 4.25 - 4.50 and an ABC 45 call is quoted at 1.50 - 2.00. What is the cost of establishing a debit spread?

A) 300.
B) 250.
C) 225.
D) 275.

Back 160

A) 300.

To establish a debit spread, an investor buys a 40 call at the ask price of 4.50, and sells a 45 call at the bid price of 1.50. The net premium paid is (4.50 less 1.50) × 100 shares which equals $300.

Front 161

In which of the following types of offerings does a brokerage firm have no financial obligation for unsold securities?

All-or-none.
Best efforts.
Standby.

Back 161

All-or-none.
Best efforts.

Front 162

If an investor establishes a call spread, and buys the lower exercise price and sells the higher exercise price at a net debit, he anticipates that the:

A) spread will narrow.
B) exercise prices will change.
C) spread will widen.
D) price of the underlying stock will not change.

Back 162

C) spread will widen.

Debit spreads are profitable when both sides are exercised or the spread widens between the premiums. Credit spreads are profitable when both sides expire or the spread narrows between the premiums.

Front 163

Which of the following accounts would a CMO Z-tranche be best suited for?

A) a joint account with a non working spouse
B) a custodial account set up under the uniform transfer to minors act (UTMA)
C) a professionally managed hedge fund specializing in real estate portfolio securities
D) an IRA account for a middle aged client

Back 163

C) a professionally managed hedge fund specializing in real estate portfolio securities

A zero tranche (Z-Tranche) CMO is considered to be among the most volatile CMO tranches because they receive no payments until all preceding tranches of the CMO are retired. Generally CMO tranches are not suitable for smaller or unsophisticated investors which is why customers are required to sign a suitability statement before purchasing any CMO tranche. Of the answer choices given the best suited account would be the one that is professionally managed and already specializing in real estate investments.

Front 164

Which of the following would be found on a when-, as-, and if-issued confirmation?

Trade date.
Settlement date.
Price.
Accrued interest.

Back 164

Trade date.
Price.

Information that does not appear on a when-issued confirmation can easily be remembered as SAT (settlement date, accrued interest, and total amount due). The trade date and price per bond are included on the when-issued confirmation.

Front 165

A broker/dealer can rehypothecate (repledge) up to:

A) 50% of the equity balance in a customer’s margin account.
B) 50% of the debit balance in a customer’s margin account.
C) 140% of the debit balance in a customer’s margin account.
D) 140% of the equity in a customer’s margin account.

Back 165

C) 140% of the debit balance in a customer’s margin account.

In a margin account, hypothecation is the pledging of customer securities as collateral for the margin loan the customer will receive. The broker/dealer re-pledges (rehypothecates) the securities as collateral to the lending bank. Broker/dealers are permitted to pledge up to 140% of the debit balance in the customer’s account.

Front 166

Rank the following in the usual sequence of order allocation.

i) Syndicate.
ii) Member at the take down.
iii) Presale.
iv) Designated.

Back 166

iii
i
iv
ii

The standard order priority for allocation of municipal bond issues is (as stated within the syndicate letter): presale, syndicate, designated, and member. Orders that benefit all syndicate members have the highest priority.

Front 167

The interest on which of the following municipal securities may be considered preference income for alternative minimum tax purposes?

A) TANs.
B) Private purpose bonds.
C) Original issue discount bonds.
D) PHAs.

Back 167

B) Private purpose bonds.

Interest on private activity municipal bonds is included in the taxable income of an investor who is subject to the alternative minimum tax.

Front 168

Transactions involving which of the following would NOT be reported to the Consolidated Tape System (CTS) by an exchange or FINRA?

A) NYSE-listed rights and warrants.
B) Listed securities traded through an electronic communication network (ECN).
C) Listed options.
D) NYSE-listed securities traded on the Chicago and Philadelphia exchanges.

Back 168

C) Listed options.

The Consolidated Tape System (CTS) receives and validates the last sale price and size of listed equity securities transactions on the NYSE and other regional exchanges and FINRA. Options transactions are not reported to the CTS.

Front 169

An abstract of a municipal securities issue official statement must be maintained on file for:

A) 3 years.
B) There is no requirement to file abstracts of official statements.
C) 5 years.
D) 12 months.

Back 169

A) 3 years.

Front 170

In a restricted account, a customer bought $5,000 worth of securities and sold $7,000 worth of securities on the same day. The customer may:

A) withdraw $7,000, the proceeds of the sale.
B) withdraw $2,000.
C) withdraw $1,000.
D) be required to deposit $2,500 on the purchase because his account is restricted.

Back 170

C) withdraw $1,000.

The customer may withdraw 50% of the net sale proceeds ($1,000). Keep in mind that withdrawal of the sale proceeds in a restricted account is restricted to 50%. In this case, there is a same day substitution regarding $5,000 of the sale because of the $5,000 purchase. The net sale proceeds are $2,000, of which he may only withdraw $1,000 because of the restricted account rule.

Front 171

As the initial transaction in a new margin account, your customer shorts 100 shares of DMF at 30. With Regulation T at 50%, he will receive a margin call for:

A) 3000.
B) 750.
C) 2000.
D) 1500.

Back 171

C) 2000.

Because the total market value of the transaction is $3,000, the initial margin would be $1,500 (50% of $3,000). However, minimum initial margin is $2,000.

Front 172

All of the following are included in Nasdaq EXCEPT:

A) ADRs.
B) U.S. government securities.
C) convertible bonds.
D) closed-end investment companies.

Back 172

B) U.S. government securities.

Nasdaq is an equity market and includes common stock, preferred stock, ADRs, and convertible bonds. Publicly traded funds can be quoted over Nasdaq. U.S. government securities are not part of Nasdaq, although they do trade OTC.

Front 173

All of the following may be cited to justify a markup on a stock sold from a broker/dealer's inventory EXCEPT:

A) the security's price.
B) overall value of the transaction.
C) availability.
D) dealer's cost.

Back 173

D) dealer's cost.

Front 174

FINRA rules require that, if a customer redeems mutual fund shares within 7 business days of purchase:

A) the customer is entitled to receive the original NAV or the current NAV, whichever is higher.
B) the representative who sold the shares will be subject to a Code of Procedure hearing.
C) the member firm must forfeit the concession earned.
D) the fund must report the redemption promptly to the SEC.

Back 174

C) the member firm must forfeit the concession earned.

If a customer redeems mutual fund shares within 7 business days of purchase, any concession earned by the member firm that sold it to him must be returned to the underwriter. The same rule applies to variable annuities.

Front 175

Gargantuan Computers, Inc. (GCI) conducts a rights offering to its current shareholders at $50 per share, plus 1 right. If the current market price of GCI is $70, what is the value of one right before the stock trades ex-rights?

A) 5
B) 3
C) 15
D) 10

Back 175

D) 10

The stock is trading cum rights (before the ex-date). The formula to calculate the value of one right before the ex-date is follows: CMV − subscription price / Number of rights to purchase 1 share + 1. Therefore one right is valued at $10, computed as ($70 − $50) / 2 = $10.

Front 176

Once a customer annuitizes a variable annuity, which of the following statements are TRUE?

The number of annuity units is fixed.
The number of annuity units varies.
The value of the annuity units is fixed.
The value of the annuity units varies.

Back 176

The number of annuity units is fixed.
The value of the annuity units varies.

Front 177

All of the following are true about LEAPS EXCEPT they:

A) are available only on index options.
B) have a longer life than other listed options.
C) cease trading at 4:00 pm ET.
D) may be exercised at any time after execution.

Back 177

A) are available only on index options.

Front 178

Which of the following is a defensive stock?

A) Steel company stocks.
B) Airline company stocks.
C) Food company debentures.
D) Utility company stocks.

Back 178

D) Utility company stocks.

Front 179

The marketability of a block of bonds being sold by participants in a secondary market joint trading account can be affected by all of the following EXCEPT:

A) block size.
B) maturity.
C) rating.
D) denominations.

Back 179

D) denominations.

Front 180

Which of the following statements regarding a municipal variable rate demand obligation are TRUE?

Interest payments are tied to the movements of another specified interest rate.

Interest payments are tied to the movements of an underlying stock or index.

the coupon rate stays the same for the life of the demand obligation and the price fluctuates.

the coupon rate of the bond changes and the price remains stable.

Back 180

Interest payments are tied to the movements of another specified interest rate.

the coupon rate of the bond changes and the price remains stable.

Front 181

A bond convertible at $50 is selling at 105% of parity, while the common stock has a current market value of $45. What is the market value of the bond?

A) $945.
B) $1,000.
C) $1045.
D) $900.

Back 181

A) $945.

Each $1,000 bond would allow conversion into 20 shares of stock ($1,000 divided by $50). Parity is 20 × $45 (CMV) or $900; 105% of parity is $945.

Front 182

A customer in the 28% tax bracket owns a 9% ABC Corporation 20-year bond that currently is yielding 8.7%. He is considering buying tax-exempt securities. What is the comparable yield for a municipal bond?

A) 0.1208.
B) 0.0626.
C) 0.0648.
D) 0.125.

Back 182

B) 0.0626.

When comparing the yield of a taxable corporate bond to a tax-free municipal bond, use the formula: interest on corporate bond × (100% − tax bracket). In this case, 8.7% × .72 = 6.264%. Remember to use the yield to maturity, not the coupon rate. The bond is currently priced to yield 8.7%. In this case, a tax-exempt bond yielding more than 6.264% will provide a higher after-tax return.

Front 183

Which of the following is the least suitable mutual fund transaction?

A) Encouraging a mutual fund shareholder to switch from one fund family to another while a deferred load is in existence.
B) Encouraging an investor in his early 30s to invest in an emerging markets mutual fund.
C) Encouraging a retired 65-year-old investor to invest a small percentage of his savings in a large-cap growth fund.
D) Encouraging an investor in a high-tax bracket with an income objective to invest in a municipal bond fund.

Back 183

A) Encouraging a mutual fund shareholder to switch from one fund family to another while a deferred load is in existence.

Front 184

One of your clients enters a sell stop order at $42.40, limit $42.15. Assume that the trades occur in the following sequence: 42.45, 42.40, 42.75, 42.27, and 41.91. At which of the following prices could this order be executed?

$41.91.
$42.27.
$42.40.
$42.75.

Back 184

$42.27.

$42.75.

As a sell stop order with a limit of $42.15, no order may be executed below the limit price of $42.15. This order will be triggered at the price of $42.40. The only remaining prices that will meet the limit requirement after it is triggered are $42.27 and $42.75. Remember, it takes two trades for any stop order: one to trigger the order, the other for execution.

Front 185

If an investor in the 27% federal marginal income tax bracket invests in municipal general obligation public purpose bonds nominally yielding 4.5%, what is the tax equivalent yield?

A) 0.1667.
B) 0.0572.
C) 0.0329.
D) 0.0616.

Back 185

The formula for computing tax equivalent yield is: nominal yield divided by (1 − federal marginal income tax rate)

.045 / (1 − .27) = 6.16%.

Front 186

ABC Corporation, whose common stock is trading at $32, has issued $40 million of 8-1/8% debentures due 10-1-14. Each bond issued has a warrant attached enabling the holder to buy 4 shares of ABC common at $40 per share. If all of the warrants are exercised, ABC Corporation will receive:

A) $6.4 million.
B) $10 million.
C) $12.8 million.
D) $20 million.

Back 186

A) $6.4 million.

There are a total of 40,000 warrants outstanding ($40 million of debentures / $1,000 par value per bond). Each warrant entitles the holder to buy 4 shares of common stock. Therefore, if all warrants are exercised, holders will be purchasing 160,000 shares (4 × 40,000) at $40 per share. 160,000 × $40 = $6.4 million.

Front 187

Which of the following statements regarding a death in a tenants in common account are TRUE?

The decedent's interest in the account goes to his estate.

The decedent's interest in the account goes to the remaining tenant.

The member firm must freeze both the account and acceptance of orders until the required documents are presented.

The member may immediately accept orders from the remaining tenant.

Back 187

The decedent's interest in the account goes to his estate.

The member firm must freeze both the account and acceptance of orders until the required documents are presented.

Front 188

If a customer believes the Swiss franc will depreciate against the U.S. dollar, which of the following option strategies may best take advantage of the expected depreciation?

A) Uncovered call writing.
B) Uncovered put writing.
C) Credit put spread.
D) Debit call spread.

Back 188

A) Uncovered call writing.

Call writing is bearish, while credit put spreads, debit call spreads, and uncovered put writing are bullish.

Front 189

A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client?

A) A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis.
B) Capital gains taxation on the earnings withdrawn in excess of the owner's basis.
C) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis.
D) A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn.

Back 189

C) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis.

Contributions to a nonqualified annuity are made with the owner's after-tax dollars. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. Since the client is older than 59½ at the time of distribution, the additional 10% penalty tax is not incurred.

Front 190

Which of the following is NOT a factor when a communication to be distributed to the public is either being reviewed or approved within the broker/dealer?

A) Whether the piece will be distributed in written form or via electronic media
B) The nature of the audience to which the communication is intended to be distributed
C) Whether statements of benefits are balanced with statements of potential risks
D) Whether achieving past performance results has been implied

Back 190

A) Whether the piece will be distributed in written form or via electronic media

Front 191

Your client wishes to convert a 401k plan administered by your broker/dealer into a Roth 401k plan. Which of the following statements regarding a 401k conversion is TRUE?

A) In the new Roth 401k the funds will grow tax deferred.
B) All taxes are waived by the IRS at the time of conversion.
C) Taxes will be due on the funds when the rollover takes place.
D) Taxes are due on the funds rolled over when distributions from the new Roth 401k are made.

Back 191

C) Taxes will be due on the funds when the rollover takes place.

Like a traditional IRA to Roth IRA conversion, 401(k) account holders pay the taxes on the funds when they are rolled over into the Roth 401(k). There is no waiver from the IRS. In the Roth 401(k), the funds now grow tax free and they can be withdrawn without tax liability in the future.

Front 192

An investor who is long TCB stock for 6 months buys 1 call on TCB. If the call expires in 8 months and the investor sells the stock 3 months after the call expires, what does he realize on the stock?

A) Long-term gain or short-term loss.
B) Long-term gain or loss.
C) Short-term gain or long-term loss.
D) Short-term gain or loss.

Back 192

B) Long-term gain or loss.

The purchase of a call has no effect on a long stock position's holding period. The call only allows more stock to be purchased; it does not allow the stock to be sold. The investor held the stock for 17 months, exceeding the holding period required for long-term capital gains treatment (more than 1 year).

Front 193

With no other positions, a customer sells short 100 TIP at 40 and sells 1 TIP Oct 40 put at $5. At what stock price will the customer break even?

A) 40.
B) 45.
C) 35.
D) 50.

Back 193

B) 45.

On the downside, the short position fully covers the short put and the profit is the $500 premium. On the upside above 40, the short put expires and the short stock position loses money. The first 5 points of loss (40 to 45) on the short stock position are offset by the premiums received. Above 45, losses begin and are potentially unlimited.

Front 194

A covered call could be written to:

A) improve the return on a portfolio.
B) protect a short stock position.
C) lock in a profit.
D) purchase future securities.

Back 194

A) improve the return on a portfolio.

Writing a call will not necessarily lock in the profit. In the form of increased cash flow, it will improve the return on the portfolio.

Front 195

Under MSRB rules, which of the following call provisions can affect the yield shown on a customer's confirmation?

In-whole call.
In-part call.
Catastrophe call.

Back 195

In-whole call.

MSRB rules require that yield to call based on an entire issue (in-whole call) be disclosed on a customer's confirmation. With a partial call, the bond being purchased may or may not be included in the call and with a catastrophe call provision a call would only occur if an unpredictable event requires the issuer to call the bonds.

Front 196

The Securities Act of 1934 deals with all of the following EXCEPT:

A) filing an updated prospectus .
B) monitoring accounts for insider trading violations.
C) filing of financial statements by broker/dealers.
D) marking sales long or short on an order ticket.

Back 196

A) filing an updated prospectus .

Prospectus filing is a requirement of the Securities Act of 1933.

Front 197

Which of the following securities are eligible for inclusion on Nasdaq?

Listed common stock.
Unlisted common stock.
Listed convertible bonds.
Unlisted convertible bonds.

Back 197

Unlisted common stock.
Unlisted convertible bonds.

Nasdaq includes OTC securities only, which means that unlisted securities including stocks and convertible bonds are eligible.

Front 198

A customer purchases a municipal bond on the secondary market and settles the trade in cash on August 1. If the next interest payment is September 1, which of the following statements regarding interest on this bond are TRUE?

The bond pays interest on March 1 and September 1 each year.

The seller must pay accrued interest no later than settlement day.

Accrued interest on this bond is computed using actual days elapsed.

On September 1, the buyer will receive from the issuer interest for the period March 1 through August 31.

Back 198

The bond pays interest on March 1 and September 1 each year.

On September 1, the buyer will receive from the issuer interest for the period March 1 through August 31.

Front 199

A customer buys 100 XYZ at $30. Two years later, with the stock trading at $70, the customer makes a gift of the securities to his son. Which of the following statements are TRUE?

For gift-tax purposes, the value of the gift is $3,000.
For gift-tax purposes, the value of the gift is $7,000.
The son's cost basis on the stock is $3,000.
The son's cost basis on the stock is $7,000.

Back 199

For gift-tax purposes, the value of the gift is $7,000.
The son's cost basis on the stock is $3,000.

Front 200

DWQ declares a quarterly cash dividend of $.20. After the ex-dividend date, what will be the exercise price of a listed DWQ May 25 call option?

A) 24.75.
B) 25.
C) 24.8.
D) 25.25.

Back 200

B) 25.

Because a listed option is not adjusted for a cash dividend, the exercise price of a DWQ May 25 call option remains the same: $25.

Front 201

All of the following could be a redeemable security under the Investment Company Act of 1940 EXCEPT a(n):

A) security issued by an open-end investment company.
B) investment company security sold as a continuous initial public offering.
C) security sold on an exchange at the market price buyers and sellers have established.
D) security that pays out each investor's proportionate share of the company's assets.

Back 201

C) security sold on an exchange at the market price buyers and sellers have established.

A redeemable security is purchased from and redeemed by the security's issuer. A security that can be traded on a secondary market is not redeemable. Open-end shares are redeemable securities, closed-end shares are not.

Front 202

All of the following characteristics are advantages of a REIT EXCEPT:

A) professional management.
B) tax deferral.
C) liquidity.
D) diversification.

Back 202

B) tax deferral.

Front 203

An offering of securities in compliance with Rule 144A is sold primarily to:

A) qualified institutional buyers.
B) All of these.
C) American individual investors.
D) foreign individual investors.

Back 203

A) qualified institutional buyers.

Rule 144A allows securities to be sold to (qualified) institutional buyers without having to meet the holding period or volume requirements of Rule 144.

Front 204

If one of your customers has been making weekly cash deposits of $6,000 into his account, your firm would likely file a(n):

A) Form 4.
B) Form 112.
C) FOCU.S. Report.
D) SAR.

Back 204

D) SAR.

A SAR (suspicious activity report) would likely be filed with FinCEN, a unit of the U.S. Treasury. This report is filed when a transaction or a pattern of transactions is suspicious and a possible indication of money laundering. FinCEN Form 112 is filed for any cash deposit, on a single day, of more than $10,000.

Front 205

When a broker/dealer makes a market, it acts as a(n):

A) principal.
B) agent.
C) underwriter.
D) broker.

Back 205

A) principal.

Front 206

Which of the following factors is (are) considered when determining whether underwriting compensation is fair and reasonable?

The size of the offering.
The type of underwriting commitment.
The market conditions.
The profitability of the underwriter.

Back 206

The size of the offering.
The type of underwriting commitment.

Relevant factors considered by FINRA in determining the fairness of underwriting compensation include the size of the offering (total dollar amount), the type of commitment (firm commitment or best efforts), the type of securities (i.e., stocks or bonds), the form of compensation (i.e., cash or stock), the total value of all forms of compensation, the underwriter's relationship to the issuer, and any form of potential conflicts of interest.

Front 207

An investor long 100 shares of stock writes a call against the long stock position. If the call is exercised and the investor must deliver the stock, which of the following tax consequences will occur?

A) Sales proceeds are adjusted for the stock.
B) There are no adjustments for cost basis or sales proceeds for tax purposes.
C) Both cost basis and sales proceeds must be adjusted.
D) Cost basis is adjusted for the stock.

Back 207

A) Sales proceeds are adjusted for the stock.

When the call is exercised the owner of the stock will be obligated to sell the shares owned at the strike price. The sales proceeds for the stock will be adjusted upwards by the amount of the premium received when the call was sold.

Front 208

The real value of property within the city limits is $100 million. The city uses a 50% assessment rate. A 10 mill tax rate will provide tax revenues of:

A) 500000.
B) $1 million.
C) 5000.
D) 50000.

Back 208

500000.

1 mill = $.001 or $1 per $1,000 assessed value. $100 million × 50% = $50,000,000. $50,000,000 / $1,000 = $50,000 × 10 mills = $500,000.

Front 209

Currently, a company issues 5% Aaa/AAA debentures at par. Two years ago, the corporation issued 4% AAA-rated debentures at par. Which of the following statements regarding the outstanding 4% issue are TRUE?

The dollar price per bond will be higher than par.

The dollar price per bond will be lower than par.

The current yield on the issue will be higher than the coupon.

The current yield on the issue will be lower than the coupon.

Back 209

The dollar price per bond will be lower than par.

The current yield on the issue will be higher than the coupon.

Interest rates in general have risen since the issuance of the 4% bonds, so the bond's price will be discounted to produce a higher current yield on the bonds. Remember that as interest rates go up, the price of outstanding debt securities goes down.

Front 210

If a mutual fund's net asset value is $9.30 and its sales charge is 7%, its offering price is:

A) 9.95.
B) 9.97.
C) 10.7.
D) 10.

Back 210

D) 10.

To determine the selling price of the shares when given the NAV, divide the NAV by 100% minus the sales load: NAV / (100% - SL%) = public offering price. In this case, $9.30 divided by 93% (.93) = $10.

Front 211

The letter of intent in a corporate underwriting is typically signed by which of the following parties?

Issuer.
Managing underwriter.
Syndicate members.
Selling group members.

Back 211

Issuer.
Managing underwriter.

The letter of intent initiates the underwriting process and is signed by the issuer and managing underwriter.

Front 212

Which of the following responsibilities did the MSRB receive through the Securities Acts Amendments of 1975?

Regulation of municipal issuers.

Establishment of recordkeeping requirements for municipal broker/dealers.

Enforcement of any municipal regulations it adopts.

Creation of regulations for participants in the municipal securities secondary market.

Back 212

Establishment of recordkeeping requirements for municipal broker/dealers.

Creation of regulations for participants in the municipal securities secondary market.


The MSRB creates rules for municipal trading and issues interpretations of its rules. It does not regulate issuers or have any enforcement capability. For broker/dealers, MSRB rules are enforced by FINRA.

Front 213

The symbol OPD appearing on the Consolidated Tape System indicates:

A) a cross.
B) short sale.
C) a delayed opening print.
D) an execution of a block trade.

Back 213

C) a delayed opening print.

Front 214

Industrial production is what kind of economic indicator?

A) Coincident.
B) Leading.
C) Lagging.
D) Coterminous.

Back 214

A) Coincident.

Front 215

An investor has accumulated 3000 shares of XYZ common stock over several years via several separate purchases. If the investor sells 1000 shares and chooses to identify the specific shares sold for tax purposes, he must:

A) Identify the specific shares to be sold prior to the transaction.
B) Notify the IRS no later than the last business day of the month the trade occurred in.
C) Notify FINRA on the trade date.
D) Notify the broker dealer who handled the sell transaction within 3 business days of the trade date.

Back 215

D) Notify the broker dealer who handled the sell transaction within 3 business days of the trade date.

The IRS mandates that when an investor wishes to identify the specific shares sold for tax purposes the broker dealer who handled the sell transaction must be notified within 3 business days of the sale. For stock transactions this means by the settlement date.

Front 216

In discussing a direct participation program with your customer, rank the following items in order of importance from: most to least.

Tax write-offs.
Liquidity and marketability.
Potential for economic gain.

Back 216

Potential for economic gain.
Tax write-offs.
Liquidity and marketability.

A program's economic viability is the first priority in the assessment of DPPs. The IRS considers programs designed solely to generate tax benefits abusive. Because there is a very limited secondary market for DPPs, liquidity and marketability should be a low priority.

Front 217

When discussing mutual funds with a customer, each of the following statements are prohibited EXCEPT:

A) The income yield of the fund consists of both dividends and capital gains.
B) Buy the shares on record date in order to receive the dividend. .
C) Buy shares of different funds in the same fund family and you may qualify for a breakpoint on the total purchase.
D) Get a few friends to join with you to form an investment club and you may qualify for a breakpoint.

Back 217

C) Buy shares of different funds in the same fund family and you may qualify for a breakpoint on the total purchase.

Most funds provide a combination privilege, allowing investors to aggregate purchases made in different funds in the same family to qualify for a breakpoint. The income yield of a mutual fund includes dividends only. A group of friends is not eligible for a breakpoint (investment clubs are not eligible). "Selling dividends" is a prohibited practice because of the immediate tax liability incurred with the dividend and share price adjustment that results after the dividend distribution.

Front 218

Exchange-traded notes (ETNs)

are unsecured debt securities
are unsecured equity securities
are issued by financial institutions such as banks
have no credit risk associated with them

Back 218

are unsecured debt securities
are issued by financial institutions such as banks

Front 219

If a registered representative is opening a brokerage account for a partnership, in which order, from first to last, would the following events ordinarily take place?

Representative obtains the partnership agreement

Principal gives written acceptance of the account

Representative fills out a new account card

First trade is executed.

Back 219

Representative fills out a new account card

Representative obtains the partnership agreement

Principal gives written acceptance of the account

First trade is executed.

Front 220

NASDAQ market makers are required to report trades

A) no later than the end of the business day in the time zone of the seller
B) no later than the end of the business day in the time zone of the buyer
C) within 1 minute of the transaction
D) within 30 seconds of the transaction

Back 220

D) within 30 seconds of the transaction

Front 221

Your customer, a small business owner likes investments that are short term, relatively safe from credit risk and liquid. He’s heard that higher rates of return can be realized from auction rate securities than the rates he is currently getting on the Treasury bills in his portfolio. He asks you to explain them to him. Which of the following would you note as being reasons why they are not suitable for your customer?

Auction rate securities are intended as long-term investments.

Interest or dividend rates are reset at established intervals based on a Dutch auction.

If the auction fails, holders of ARSs may not have immediate access to his funds.

The interest or dividend rate is set as the lowest rate to match supply and demand at the time of the auction.

Back 221

Auction rate securities are intended as long-term investments.

If the auction fails, holders of ARSs may not have immediate access to his funds.

Auction rate securities (ARSs) are long-term variable rate bonds with maturities of 20 to 30 years tied to short-term interest rates. As long-term instruments they are not suitable for an investor favoring short-term investments. Additionally, interest rates are reset using a Dutch auction method at predetermined intervals, typically 7, 28, or 35 days. A failed auction can occur due to lack of demand and hence no bids are received to reset the rate. This risk would not align with investment objectives such as safety and liquidity.

Front 222

Priority and precedence rules of bids and offers manage trading activity on the:

A) NYSE.
B) OTC market.
C) third market.
D) NYSE and the OTC.

Back 222

A) NYSE.

The auction rules of priority, precedence, and parity allow for the efficient execution of orders when several bids or offers are made at the same price at a given time on the NYSE floor.

Front 223

On February 13, your customer buys an 8% Treasury bond maturing in 2009 for settlement on February 14. If the bonds pay interest on January 1 and July 1, how many days of accrued interest are added to the buyer's price?

A) 14.
B) 44.
C) 45.
D) 43.

Back 223

B) 44.

Accrued interest for government bonds is figured on an actual-days-elapsed basis. The number of days begins with the previous coupon date and continues up to, but not including, the settlement date. The bonds pay interest on January 1. There are 31 days of accrued interest for January. The bonds settle February 14. There are 13 days of accrued interest for February. Do not count the settlement date (31 + 13 = 44 days).

Front 224

Which of the following permits the highest annual contributions?

A) A SEP IRA.
B) A Coverdell Education Savings Account.
C) A traditional spousal IRA for which the contribution has been deducted.
D) A traditional nondeductible IRA.

Back 224

A) A SEP IRA.

Under most circumstances, the annual contribution to a SEP IRA will be higher than those allowed for ESAs or traditional or Roth IRAs.

Front 225

Which of the following mortgage-backed securities would provide investors with the most predictable maturity date?

A) TACs.
B) Ginnie Maes.
C) PACs.
D) Fannie Maes.

Back 225

C) PACs.

PACs are planned amortization class CMOs and have established maturity dates. Prepayment risk is transferred to the PAC companion, or support, class bonds.

Front 226

A customer purchases an ABC 6-½% convertible preferred stock at $80. The conversion price is $20. If the common stock is trading 2 points below parity, the price of ABC common is:

A) $12.
B) $14.
C) $16.
D) $18.

Back 226

B) $14.

The conversion ratio is computed by dividing par value by the conversion price ($100 par / $20 = 5). Parity price of the common stock is computed by dividing the market price of the convertible by the conversion ratio ($80 / 5 = $16). $16 − 2 = $14.

Front 227

All of the following are minimum requirements for listing on the NYSE EXCEPT:

A) earnings per share.
B) number of shareholders.
C) number of publicly held shares.
D) market value of publicly held shares.

Back 227

A) earnings per share.

While the numerical values are not tested, it is important to know that there is no minimum earnings per share requirement. However, there is a minimum earnings requirement.

Front 228

Your next-door neighbor approaches you with a proposed security offering, knowing that you are a registered representative with a large, affluent client base. If he asks you to present this investment opportunity to your clients, you must tell him that:

A) you must first show the offering to your broker/dealer and receive permission to proceed with it.
B) you may make recommendations on the offering only after you have done a due diligence determination.
C) you will present the offering to your clients only after you have established that it is either registered or exempt from registration requirements.
D) you will present the offering only to those clients whose investment objectives make it a suitable purchase for them.

Back 228

A) you must first show the offering to your broker/dealer and receive permission to proceed with it.

Front 229

Which of the following is TRUE regarding option contracts that expire weekly?

A) They tend to have lower premiums than standard contracts or long-term equity anticipation (LEAP) contracts.
B) They are issued every week of every month.
C) They expire on Mondays.
D) They can only be traded for a single day.

Back 229

A) They tend to have lower premiums than standard contracts or long-term equity anticipation (LEAP) contracts.

Weekly contracts or "weeklies" tend to have lower premiums than other types of contracts due to the short period of time between when they are issued and when they expire (1 week). They can be traded anytime during their week-long life cycle, expire on Fridays, and are issued each week of the month except the week that standardized contracts would be expiring.

Front 230

If a customer who has granted a durable power of attorney to her son dies, which of the following statements regarding the power of attorney is TRUE?

A) It remains in effect only if the son is the sole heir to the estate.
B) It remains in effect until the son cancels it.
C) It is canceled on the death of either principal.
D) It remains in effect until the executor of the estate cancels it.

Back 230

C) It is canceled on the death of either principal.

When the customer or her son dies, the power of attorney also expires. However, a durable power of attorney will survive a declaration of mental incompetence and is useful in those cases where a parent suffers from dementia.

Front 231

Alpha Securities is the managing underwriter for a new issue of 1 million shares of ABC common on a firm-commitment basis. If part of the ABC issue remains unsold and results in a loss, the loss will be divided proportionately among the:

A) underwriting firms.
B) selling group firms.
C) underwriting firms and the issuer.
D) underwriting firms and the selling group firms.

Back 231

A) underwriting firms.

In a firm-commitment arrangement, any losses incurred are divided among the underwriters' syndicate members according to the terms in the agreement among underwriters.

Front 232

Which of the following are qualified plans?

Payroll deduction.
Deferred compensation.
Defined benefit.
Keogh.

Back 232

Defined benefit.
Keogh.

Front 233

Your client has a margin account. Interest on that client's debit balance will be based on the:

A) broker call loan rate.
B) discount rate.
C) prime rate.
D) federal funds rate.

Back 233

A) broker call loan rate.

The broker call loan rate is the rate a broker/dealer pays to borrow money to finance its margin accounts. Clients pay the firm an interest charge based on that rate.

Front 234

Which of the following strategies would most effectively protect an investor with a short stock position?

A) Sell a put.
B) Buy a call.
C) Sell a call.
D) Buy a put.

Back 234

B) Buy a call.

Front 235

The following items are all correct statements regarding liquidity EXCEPT:

A) the most liquid of assets is cash.
B) liquid assets include CDs and Treasury bills.
C) a liquid asset can easily be converted to cash.
D) it is the inability to find willing buyers for an asset.

Back 235

D) it is the inability to find willing buyers for an asset.

Liquidity and marketability are often used synonymously. Liquidity is the ability to turn an asset into cash whereas marketability is the ability to easily find buyers for an asset. If an asset is easily marketable this would imply that it is also liquid.

Front 236

If an investor maintaining a short equity option is assigned an exercise notice, which of the following statements is TRUE?

A) He may offset his obligation with a closing transaction within 3 days.
B) He may refuse exercise under certain circumstances.
C) He may offset his obligation with a closing transaction until the end of trading on the same day.
D) He must accept the exercise notice.

Back 236

D) He must accept the exercise notice.

Once exercised, a contract may not be traded to another individual. The exercised party must either deliver (call) or buy (put) the stock in 3 business days.

Front 237

A firm 1-sided quote is permitted for:

A) Over-the-counter Bulletin Board stocks.
B) Nasdaq Capital Market stocks.
C) Nasdaq Global Market stocks.
D) Nasdaq Global Select stocks.

Back 237

A) Over-the-counter Bulletin Board stocks.

Front 238

All of the following statements regarding the short sale of a listed security are true EXCEPT:

A) a short sale can be effected at any time in the trade sequence.
B) the buyer must be advised that he is purchasing borrowed shares.
C) short sales may take place at the opening.
D) short sales may take place at the closing.

Back 238

B) the buyer must be advised that he is purchasing borrowed shares.

On an exchange floor, short sales can be effected at any time in the trade sequence. In addition, short sales may be effected at either the opening or closing. The buyer is never informed that shares being purchased represent borrowed shares.

Front 239

Which of the following persons must sign a stock or bond power to effect good delivery of securities sold from an account set up under the Uniform Transfer to Minors Act?

A) Custodian.
B) Minor.
C) Parent.
D) Donor.

Back 239

A) Custodian.

Front 240

A married couple are both employed by firms that cover them under the company pension plans, and each earns approximately $150,000 annually. If they both open a traditional IRA and make the maximum contribution, how much of their contribution could they deduct?

A) Both may deduct the entire contribution.
B) Neither is eligible to make a contribution in any amount (deductible or not).
C) They are ineligible to deduct any contribution made.
D) One spouse only is eligible to deduct their entire contribution.

Back 240

C) They are ineligible to deduct any contribution made.

While each are eligible to make the maximum contribution, at this income level, neither spouse, both covered under employer sponsored plans, would be eligible to deduct their contributions to their respective IRAs.

Front 241

Pertinent information required for disclosure to customers in a Regulation A offering is delivered in a(n):

A) offering circular.
B) registration statement.
C) letter of intent.
D) Form 144 filing statement.

Back 241

A) offering circular.

An offering circular must be delivered to all potential Regulation A buyers to satisfy full and fair disclosure requirements of the Act of 1933.

Front 242

Which of the following is NOT a money market instrument?

A) Treasury bills.
B) Banker's acceptances.
C) Commercial paper.
D) Newly issued Treasury notes.

Back 242

D) Newly issued Treasury notes.

Commercial paper, Treasury bills, and banker's acceptances are debt instruments with maturities of 1 year or less and are therefore money market instruments. A newly issued Treasury note would have a maturity of 2 to 10 years and therefore would not be a money market instrument.

Front 243

An investor owns $100,000 of convertible bonds with a conversion price of $50. By depositing these bonds into his account, how many covered calls could he write?

A) 50.
B) 2000.
C) None.
D) 20.

Back 243

D) 20.

These bonds are convertible into 20 shares for each $1,000, making a total of 2,000 shares. That's enough stock to cover 20 calls.

Front 244

If a buyer cannot pay for a trade within five business days from the trade date, the broker/dealer may request an extension from its designated examining authority (DEA). Regarding extensions, all of the following are TRUE EXCEPT:

A) if the broker/dealer chooses to close out the position the account will be frozen for 90 days.
B) if the customer cannot pay by the end of the extension, the broker/dealer has the option to either request an additional extension from its DEA or sell the securities to close the position.
C) the broker/dealer has the option of ignoring amounts due of $1,000 or less without violating Regulation T requirements.
D) introducing broker/dealers who do not clear their own trades may request extensions for their customers directly from the DEA.

Back 244

D) introducing broker/dealers who do not clear their own trades may request extensions for their customers directly from the DEA.


Introducing broker/dealers, those not clearing their own trades, may not request extensions directly from their DEA. Such requests must be made by the clearing firm.

Front 245

A mutual fund's unrealized loss last month results in which of the following?

Lower NAV per share.

Lower dividend payments to shareholders.

Reduction in the proceeds payable to shareholders who liquidate their shares.

Higher tax liability to shareholders.

Back 245

Lower NAV per share.
Reduction in the proceeds payable to shareholders who liquidate their shares.

An unrealized loss is the same as a decrease in net asset value. An investor receives less at redemption than she would have received if the redemption had taken place before the asset's depreciation.

Front 246

Regular way settlement for U.S. government bonds is:

A) three business days.
B) two business days.
C) same day.
D) next business day.

Back 246

D) next business day.

Front 247

Your broker/dealer has prepared a piece for distribution to its retail customers regarding options. Filing the piece with FINRA is

A) required within 10 business days of first use or publication
B) required before first use or publication
C) required to occur no later than the end of the month during which it was used
D) not required

Back 247

A) required within 10 business days of first use or publication

Filing with FINRA is required within 10 business days of first use or publication for retail communications having to do with options.

Front 248

Regarding FINRA spot-checks of a member firm's communications with the public, which of the following statements is CORRECT?

Only written communications are subject to spot-checks.

Both written and electronic forms of communication are subject to spot-checks.

Upon written request from FINRA, the member must submit the material requested within the time frame specified by FINRA.

Upon written request from FINRA, the member has 10 business days to submit the requested material.

Back 248

Both written and electronic forms of communication are subject to spot-checks.

Upon written request from FINRA, the member must submit the material requested within the time frame specified by FINRA.

Front 249

Which of the following is a characteristic associated with I bonds?

A) Pay interest payments monthly to the holder.
B) Issued by municipalities.
C) A variable, semi annually adjusted inflation rate, based on changes in the CPI.
D) Generally considered highly speculative and suitable for sophisticated investors only.

Back 249

C) A variable, semi annually adjusted inflation rate, based on changes in the CPI.

bonds are nonmarketable U.S. government securities which have a variable semiannually adjusted inflation rate that is based on the Consumer Price Index (CPI). They were designed for investors wishing to protect the purchasing power of their investment. They are sold at face value and they grow in value with the addition of the inflation-adjusted interest.

Front 250

Which of the following statements regarding warrants are TRUE?

They pay dividends.
They are attractive to speculators because of the leverage.
They allow for the purchase of common stock at a fixed price.
They are equity-equivalent securities.

Back 250

They are attractive to speculators because of the leverage.
They allow for the purchase of common stock at a fixed price.
They are equity-equivalent securities.


Holders of warrants have the right to buy stock from the issuer at a stated price for a specific time period. Warrants are attractive to speculators because the subscription price is higher than the current market price at issuance; therefore, the warrants' purchase price is low, as they are out-of-the-money. Dividends are only paid to stockholders.

Front 251

Which of the following are functions of the transfer agent?
I Mailing dividend payments to shareholders
II Canceling old shares and issuing new shares
III Preparing and mailing proxies
IV Setting the Declaration Date

A. I and II
B. III and IV
C. I, II, III
D. I, II, III, IV

Back 251

C. I, II, III


The declaration date is set by the Board of Directors of the company. The transfer agent cancels old shares and issues new shares; and mails voting materials (proxies), annual reports, and dividend payments to the shareholders.

Front 252

Preferred stock has all of the following features as compared to common stock EXCEPT:

A. fixed rate of return
B. fixed maturity
C. priority claim to dividends declared
D. priority claim to assets upon dissolution

Back 252

The best answer is B. Preferred stock does not have a stated maturity - it has an indefinite life. Preferred stock does have a stated dividend rate and priority claim to both dividends and corporate assets over common stock.

Front 253

Which of the following best describes the duties of a "Rights Agent"? The Rights Agent:

A. insures that all common shareholders have voting rights
B. insures that the right number of shares are canceled and issued by the transfer agent whenever a transfer occurs
C. repurchases company Treasury Stock when market conditions are favorable
D. accepts shareholder subscriptions to a rights offering

Back 253

D. accepts shareholder subscriptions to a rights offering

The rights agent handles the mechanics of a rights offering. In a rights offering, a company is attempting to sell additional shares directly to its existing shareholders. The company hires a "rights agent" to perform these duties.

Front 254

Which of the following terms describe rights?
I Exercisable
II Negotiable
III Redeemable
IV Giftable

A. I and IV only
B. II and III only
C. I, II, IV
D. I, II, III, IV

Back 254

C. I, II, IV

Rights are exercisable, negotiable (as they can be sold), and giftable (as they can be given to someone as a gift). Rights are not redeemable with the issuer.

Front 255

Long minimum maintenance requirement formula =

Back 255

Dr/(1-maintenance requirement)

Front 256

Short minimum maintenance requirement formula =

Back 256

Cr/(1+maintenance requirement)

Front 257

In a new margin account, a customer must pay 50% of the value of the stock unless securities are _____________ and ________________, which are nonmarginable and must be paid for in full

Back 257

mutual funds & options

Front 258

Short calls and Short call spreads are
A)Bullish
B)Bearish

Back 258

bearish

Front 259

Breakevens of combinations and straddles:

Back 259

net premium + call strike price

put strike price - net premiums

Front 260

To determine the number of options contracts to hedge,

Back 260

=portfolio value/market value of index * Beta