07/20 80% Flashcards
Regarding primary offerings, which of the following is true?
A) A corporation can have only one primary offering—the initial public offering (IPO).
B) A corporation can have two primary offerings—the initial public offering (IPO) and an additional public offering (APO).
C) After its initial public offering (IPO), a corporation can have only one more primary offering—its subsequent primary offering (SPO).
D) There is no limit to the number of primary offerings a corporation can issue.
D: While a corporation can have only one IPO, there is no limit to the number of SPOs or APOs it can issue. IPOs, SPOs, and APOs are all primary offerings—those where the offering proceeds go to the issuer.
Your firm must provide a privacy notice describing its privacy policies to customers:
A) every third year after the account has been opened.
B) whenever a new account is opened and annually thereafter.
C) only when the customer indicates a change be made in information previously supplied.
D) whenever a new account is opened only.
B: Privacy Notifications under Regulation S-P must be provided to customers whenever a new account is opened and annually thereafter.
GOT RIGHT BUT NEED MORE REVIEW
An investor establishes the following position: Long 1 XYZ September 40 call at 2. Utilizing this position, the maximum potential gain for the investor is:
A) $40 per share
B) unlimited
C) $42 per share
D) $38 per share
B: Long calls are bullish positions. The investor wants to see the stock go up in price. The maximum gain on a long call is unlimited because, in theory, the underlying stock’s price can go to infinity and is, therefore, also unlimited.
A buy stop order at 39 could fill at which of the following prices?
- 38
- 39
- 40
- 41
A) 1, 2, 3, and 4
B) 2 and 4
C) 3 and 4
D) 1 and 3
A: A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.
A registered representative has a customer who is interested in using options strategies such as spreads and straddles. The registered representative’s firm does not offer options transactions as part of their existing business model. As such, the registered representative directs the customer to another broker-dealer that allows for option trading. This is:
A) an example of selling away.
B) a private securities transaction.
C) an example of placing away.
D) an acceptable practice.
D: A private securities transaction is any sale of securities outside an associated person’s regular business and his employing member. Private securities transactions are also known as selling away. However, in this example, the representative simply directed the customer to a firm that could handle the customer’s request. As long as the representative received no compensation for this activity, the recommendation to go to another firm does not violate any industry regulation.
Which of the following are true of nonqualified plans but not true of qualified plans?
- Contributions are not tax deductible
- Contributions are tax deductible
- Plan need IRS approval
- Plan does not need IRS approval
A) 1 and 3
B) 2 and 4
C) 1 and 4
D) 2 and 3
C: Qualified plans require IRS approval and the contributions are tax deductible. Because nonqualified plans’ contributions are not deductible they do not require IRS approval.
GOT RIGHT BUT NEED MORE REVIEW
Your client, Janice Thomas, is an active trader and wants to invest in a managed equity portfolio that she can trade intraday. Which of the following should you recommend?
A) A closed end fund
B) An exchange-traded note (ETN)
C) A mutual fund
D) An exchange-traded fund (ETF)
A: A closed end fund is actively traded and most of them are equity funds. They trade on the exchanges like stocks. Mutual funds can be equity funds and can be actively managed, but because they only trade once per day, they are not good for active trading. ETF are actively traded but are not actively managed. ETNs are debt securities, not equities.
Which type of shares allow the investor to buy and sell the shares at NAV and have a 12b-1 fee of 0.25% or less?
A) No Load
B) Class A shares
C) Class C shares
D) Class B shares
A: No load funds have no sales charge and are limited to a 12b-1 fee of 0.25% annually. Class C shares charge a level load built into the expense ratio, usually as a 12b-1 fee. Class B shares have back-end loads that reduce over time (Contingent deferred sales charge, or CDSC). Class A shares charge an upfront load.
GOT RIGHT BUT NEED MORE REVIEW
Which of the following pairs of options contracts is not in the money if the strike price is 40 and the market price is 30?
A) short call and short put
B) Short call and long put
C) Long call and short call
D) Long call and long put
C: All calls are in the money when the market price is above the strike price. Therefore, calls with a strike price of 40 when the market price is 30 are out of the money. The put options, long or short, in the other three pairs are all 10 points in the money (40 – 30).
GOT RIGHT BUT NEED MORE REVIEW
Selling long is equivalent to which of the following?
A) Selling to close
B) Selling to open
C) Selling to open then buying to close
D) Selling short
A: When a customer owns a position and then sells that position, that is referred to as selling long or selling to close.
A registered person has left the securities industry and now holds a manufacturing job. Under what circumstances may this formerly registered person continue to receive commissions from work done at the person’s old firm?
A) The person may only receive commissions from current trades done by those who were the person’s customers during employment at the firm.
B) Once the registered person has left the industry, the person must be treated like any member of the public and may not receive any further commissions.
C) A contract must have been signed by the registered person and the firm specifying what commissions are still to be paid.
D) Any contract regarding continuing commissions must include the provision that the person’s spouse must receive them in the event of the person’s death.
C: A registered person who has left the industry, whether through retirement or otherwise, is no longer registered and may not receive commissions for any new work from a Financial Industry Regulatory Authority (FINRA) member firm. If there are commissions from work done when the person was registered that have not yet been paid, they may be paid, provided that a written contract was signed by both parties specifying precisely what is due. The contract may, but is not required to, direct that continuing commissions be paid to the person’s spouse in the event of the formerly registered person’s death.
