All Units - 50 Questions

Question 1

which of the following retirement plans does not require minimum distributions once the participant has reached age 70.5 
A. traditional IRA 
B. 401(k)
C. Roth IRA 
D. 403(b)

Answer 1

Roth IRA

the Roth IRA has no specific requirement that the participant receive distributions.

all other retirement plans upon reaching age 70.5, minimum distributions commence beginning april 1

Question 2

Fiscal Policy
I. is the most efficient means for solving short term economic issues.
II. is not considered the most efficient means to solve ST economic issues.
III. reflect in budget decisions enacted by our president and congress
IV. money supply decisions enacted by FRB

a. II and IV
b. I and IV
c. II and III
d. I and III

Answer 2

II and III

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

Question 3

CDT corporation has issued 4.5% callable preferred shares. if these shares are ever called in, stockholders should expect that the shares will be called in at?

a. par value or higher
b. par value
c. current market value
d. par value or lower

Answer 3

a. par value or higher

in return for the call privilege, the corporation may pay a premium exceeding the stocks par value at the time of the call. it’s reasonable that a shareholder would expect to receive at least par value or higher in the event of a call.

Question 4

US government securities are

a. issued by US Treasury in book entry form
b. issued by UST with physical certificates evidencing ownership
c. issued by the FRB in book entry form
d. issued by FRB with physical evidencing ownership

Answer 4

a. issued by UST in book entry form

all us government securities issued by UST are book entry form with no paper certificates.

Question 5

as interest rates rise, prices of preferred stock will

a. remain unaffected
b. rise
c. become volatile
d. fall

Answer 5

d. fall

because preferred stock pays a fixed dividend, preferred stock is interest rate sensitive.

as rates rise, prices fall
as rates fall, prices rise

Question 6

FINRA requires that members firms provide as least how many names as emergency contacts as a part of their business continuity plan. \

a. two
b. one only if that person is a principal of the firm
c. one
d. three

Answer 6

a. two

FINRA requires that member firms provide at least two individuals who will act as emergency contacts as part of their business continuity plan. there rule requires both these people to be principles

Question 7

select two distinctive types of polices that impact the US economy.

a. monetary and fiscal
b. balance of payments and balance of trade
c. m1 and m2
d. federal and municipal

Answer 7

a. monetary and fiscal

two distinctive types of policies that impact our economy are monetary and fiscal
monetary - FRB influence money supply via FOMC

fiscal- government budget decisions enacted by congress including increase and decreases in federal spending, taxes, federal budget

Question 8

An investor owns a bond purchased several years ago yielding 3%, which at the time was considered a fair return. However, these fixed 3% interest payments have not kept up with the inflation rate. This situation presents the investor with
a. purchasing power risk 
b. currency risk 
c. financial risk 
d.

Answer 8

a. purchasing power risk

Inflation can generally be associated with diminished purchasing power—purchasing power risk. During times of inflation, a dollar will not be able to purchase what it had previously in the way of goods and services. Investments such as bonds paying fixed rates of return are negatively impacted during these times.

Question 9

A weak U.S. dollar leads to more

a. us exports, bap surplus
b. exports, bap deficit
c. imports, bap surplus
d. exports, bap deficit

Answer 9

a. US Exports and Balance of Payment Surplus

When the dollar is weak relative to other currencies, it makes U.S. goods more affordable for foreign consumers to buy, so U.S. exports increase. As more goods flow out of the U.S., more money flows in—surplus.

Question 10

the performance if listed options is guaranteed by

a. US Treasury
b. FRB
c. OCC
d. SEC

Answer 10

c. OCC

The OCC guarantees the performance of listed options contracts

Question 11

The Business Cycle Includes all of the following classifications EXCEPT

a. trough
b. waves
c. peak
d. expansion

Answer 11

b. waves

Throughout modern history, periods of economic expansion have been followed by periods of contraction in a pattern referred to as the “business cycle” or “economic cycle”. Business cycles go through four stages; expansion, peak, contraction, and trough.

Question 12

which of the following is not found in a final prospectus?

a. agreement among underwriters
b. statement SEC neither approves nor disapproves
c. effective date and offering price
d. business plan and use of proceeds

Answer 12

a. agreement among underwriters

The agreement among underwriters is not a part of a prospectus.

Question 13

economic reports show that there is a general rise in price for consumer goods and high unemployment rate occurring simultaneously. this combination can best be described as

a. stagnation
b. stagflation
c. inflation
d. deflation

Answer 13

b. stagflation

Stagflation is the term used to describe the unusual combination of inflation (a rise in prices) and high unemployment (stagnation). This generally occurs when the economy isn’t growing (there is a lack of consumer demand and business activity), yet prices for goods are still rising.

Question 14

The USA PATRIOT Act’s required Customer Identification Program is designed chiefly to prevent I.real estate fraud
II.funding of terrorist activities
III.use of insider information
IV.money laundering

a. I and III
b. II and III
c. II and IV
d. I and IV

Answer 14

c. II and IV

The Customer Identification Program (CIP) that must be in place at every broker-dealer firm is designed to ensure that all customers are who they say they are. Accurate identification makes it more difficult to fund terrorist activities or launder money for those who might intend to.

Question 15

all of the following actions must be completed before a customer enters the first option order EXCEPT

a. completion of new account form
b. approval by branch office manager or registered options principal
c. delivery of an OCC disclosure document
d. completion of (signing of) the options agreement

Answer 15

d. completion of options agreement

Customers do not have to complete (sign) the options agreement before entering an order, although under the rules, the agreement must be signed and returned by the customer within 15 calendar days of account approval.

Question 16

the coupon of a bond can be described as its

a. basis yield
b. nominal yield
c. current yield
d. yield to call

Answer 16

b. nominal yield

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

Question 17

a mutual fund has been in existence for 25 years. the prospectus must disclose the funds performance

a. broken out as an average over the last 10 years
b. over the last 1, 5, 10
c. over last 1,5,10,15,20,25 years
d. for each year over the last 10 years

Answer 17

b. over the last 1, 5 , and 10 years

The prospectus of a mutual fund must show the fund’s performance over the last 10 years or the life of the fund, whichever is shorter. The data must be shown as the last year’s performance, the performance over the last 5 years, and the performance over the last 10 years. With this fund, the 15-, 20-, and 25-year performances need not be shown.

Question 18

just as markets can be influenced by many factors, so can the market price of a company’s stock. while all of the following could impact a company’s stock price to some extent, which would be least likely to have a direct immediate impact.

a. the company’s earnings
b. federal reserve FRB policies
c. political elections
d. changes in the business cycle

Answer 18

c. political elections

The price of a company’s stock will be impacted directly by the company’s earnings and changes in the business cycle. Less directly impactful would be FRB policies to loosen or tighten credit, and least likely to have a direct impact would be the outcome of political elections. It should be noted, however, that the outcome of political elections can influence FRB policies over time and, therefore, where the economy stands in relation to the business cycle. Still, however, elections would have less of an immediate impact.

Question 19

the regulatory element of training requires that all registered persons complete a computer based training session how frequently

a. 90 days of third registration anniversary and 2 years after
b. 90 day of second registration anniversary and 3 years thereafter
c. 120 days of third registration anniversary, 2 years thereafter
d. 120 days of second registration anniversary, 3 years thereafter.

Answer 19

d. within 120 days of persons second registration anniversary and every three years after

The regulatory element of training requires that all registered persons complete a computer-based training session within 120 days of the person’s second registration anniversary and every 3 years thereafter (i.e., within 120 days of the person’s 2nd, 5th, 8th, 11th registration anniversary, and so on).

Question 20

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

a. 100k and larger time deposits and repurchase agreements
b. all currency in circulation
c. gold and silver from france
d. savings and checking accounts

Answer 20

a. 100k

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

Question 21

During the cooling-off period, underwriters of new securities may
i.accept orders to purchase shares
II.not accept orders to purchase shares
III.not accept indications of interest regarding potential purchases of shares
IV.accept indications of interest regarding potential purchases of shares

a. II and III
b. I and IV
c. II and IV
d. I and III

Answer 21

c. II and IV

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

Question 22

which of the following is TRUE regarding a member firm operating under FINRA membership or the membership of another SRO

a. MF must always accommodate dealing with retail investors and not limit business that is done with other industry professionals.
b. MF may never incorporate proprietary trading into their business model
c. mf call offer all types of investment products such as stocks, bonds, mutual funds, options, other, limit the products they offer to only a few.
d. MF required to be full service brokers.

Answer 22

c. Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options and others, or limit the products they offer to only a few.

Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, and derivatives like options and others (be full service), or limit the products they offer to only a few. They need not adopt proprietary trading into their business model but can if they wish to. Likewise, they need not accommodate doing business with retail customers if they wish to deal only with other industry professionals, such as institutional investors.

Question 23

A toy company is experiencing sudden strong demand for a game. Purchasing this company’s stock may prove profitable in the short run. This company’s stock might BEST be termed as a(n)

a. special situation
b. growth
c. short sale
d. cyclical

Answer 23

a. special situation
Special situations arise when a company shows unusual profit potential resulting from nonrecurring circumstances. These situations might include new management, the discovery of a valuable natural resource on corporate property, patents pending, or the introduction of a new product.

Question 24

Someone who is short 1 August 35 put at 3 will breakeven at

a. 32
b. 38
c. 35
d. 30

Answer 24

a. 32

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

Question 25

A customer has a significant amount of money in bank deposit accounts: $225,000 in a savings account titled in the customer’s name; $240,000 in a checking account titled jointly with a spouse; and $100,000 in an account where the customer is custodian for a grandchild. Should that bank fail, the Federal Deposit Insurance Corporation (FDIC) insurance would cover

a. 250 for savings and checking, 100 for custodial
b. 225 for savings, 100 custodial, nothing checking
c. entire 565
d. total of 250, divided among three accounts

Answer 25

c. the entire 565,000

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

Question 26

which of the following constitute a private securities offering transaction, or “selling away”
I.A registered representative executes a trade for a customer in securities of a type normally handled by the representative’s broker-dealer.
II. A registered representative’s sibling has some old bonds that the representative sells as a favor through a municipal securities broker.
III.A registered representative helps an old school friend issue securities for a small business under formation.
IV.A registered representative helps an acquaintance sell some inherited stock certificates without the acquaintance becoming a customer of the firm.
a. I and III
b. III and IV
c. II and IV
d. I and II

Answer 26

b. III and IV

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

Question 27

when a company wants to issue additional shares of stock, the preemptive right given to existing shareholders allows those shareholders to.

a. maintain their proportionate
b. pass on their proportionate ownership in corporation to an heir
c. decrease their proportionate ownership in the corporation
d. increase their proportionate ownership in the corporation

Answer 27

a. maintain their proportionate ownership in the corporation

In the event a corporation wants to issue additional shares of stock, the preemptive right given to existing shareholders allows the shareholders to maintain their proportionate ownership in the corporation by purchasing shares before the shares are available to new investors.

Question 28

which of the following records must by kept by a broker dealer for 3 years ?

a. customer account records
b. trial balances
c. form BD and amendments
d. blotters

Answer 28

b. trial balances

Trial balances, usually run at the end of a reporting period to ensure that the firm’s credit and debit columns arrive at identical sums, must be kept for 3 years after the trial balance was run. Form BD and amendments are lifetime records, whereas blotters and customer account records are 6-year records.

Question 29

distinguish between a sell stop order and a sell top limit order, which of the following are TRUE
I.The sell stop limit order becomes a sell limit once triggered.
II.The sell stop order becomes a sell limit order once triggered.
III.The sell stop limit order becomes an order to sell at the market triggered.
IV.The sell stop order becomes an order to sell at the market triggered.
a. I and IV
b. II and IV
c. I and III
d. II and III

Answer 29

a. I and IV
Stop orders become market orders once triggered, and stop limit orders become orders to sell at the specified limit once triggered. Stop or stop limit orders can be either buys or sells.

Question 30

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

a. less than the nominal yield
b. less than current yield
c. same as current yield
d. greater than nominal yield

Answer 30

d. greater than nominal yield

A bond whose price is below par (priced at a discount) has a higher yield to maturity than current yield, which in turn is higher than the nominal yield.

Question 31

when is electronic filing of all information on customer complaints by broker dealers with FINRA due?

a. semiannualy, june and December
b. within 30 calendar days of receipt of the complain
c. within 15 days of the end of each calendar quarter
d. within 15 days of each calendar quarter

Answer 31

c. within 15 days of the end of each calendar quarter

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

Question 32

industry rules regarding contributions intended to preserve investor confidence and market integrity apply to contributions made to

a. political parties only
b. political parties and third parties with connections to them
c. political parties, candidate for office, and elected officials
d. elected officials and political candidates only

Answer 32

c. political parties, candidates for office, and elected officials

All business should be awarded on the basis of merit only and not political favor gotten via contributions to political parties, elected individuals or candidates, or third parties with connections to those with political affiliations.

Question 33

there are several types of investment risks that generally fall into 2 categories. these categories are known as

a. higher return and low return
b. averse and nonaverse
c. systematic and nonsystematic
d. investment and investor

Answer 33

c. systematic and nonsystematic

The 2 categories of investment risks are systematic (the risk that change in overall economy will impact individual securities) and nonsystematic (those risks that are unique to a particular industry, business, or investment type).

Question 34

exempt from penny stock rules are

a. both solicited and unsolicited transactions
b. unsolicited transactions
c. solicited transactions
d. all transactions

Answer 34

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

Question 35

passive investments do not fall under the definition of an outside business activity. which of the following investments would be considered a passive investment?

a. a partnership interest in a local credit union
b. limited partnership unit
c. partial ownership in car dealership
d. partnership interest in a real estate brokerage firm

Answer 35

b. limited partnership unit

A passive investment, such as the purchase of a limited partnership unit, is not considered an outside business activity. An associated person may make a passive investment for his own account without providing written notice to the employing broker-dealer.

Question 36

all of the following are possible actions of an investor who has received stock rights except?

a. allow the rights to expire unexercised
b. exercise rights to purchase new stock at a discount
c. sell the rights for a short term capital gain or loss
d. hold the rights for a possible long term capital gain

Answer 36

d. hold the rights for a possible longer term capital gain

A long-term capital gain would require a holding period of more than 1 year. Rights expire 4 to 6 weeks after issue, so this would not be possible.

Question 37

an investor is short a January 30 call at 5 
breakeven is? 
a. 25 
b.35
c. 30 
d. 500

Answer 37

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

Question 38

an investor owning 500 shares of MES stock received notice that the stock had undergone 2:1 forward split when the stocks market price was $10 per share. the investor now owns.

a. 250 share worth $20
b. 1000 shares worth $10
c. 500 shares worth $20
d. 100 shares worth $5

Answer 38

d. 1000 shares worth 5

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

Question 39

all of the following statements about securities purchases are true EXCEPT

a. in a cash account, the customer pays in full for securities
b. in a short margin account, customer borrow securities for short sales
c. securities may not be purchased with borrowed money
d. in a long margin account, customers borrow money for securities purchases

Answer 39

c. securities may not be purchased with borrowed money

Borrowing is a perfectly acceptable practice when buying and selling securities, whether it is cash that is borrowed for purchases or securities that are borrowed, chiefly from other investors who have signed a loan consent agreement, allowing their securities to be borrowed for short sales.

Question 40

Six days into the cooling-off period, an issuer receives a deficiency letter from the SEC requesting clarification and corrections. Once the issuer submits these, and assuming that they satisfy the deficiency, the cooling-off period will resume. With no other deficiencies arising, the issue should become effective in

a. 14 days
b. 20 days
c. 15 days
d. 8 days

Answer 40

a. 14 days
When the issuer submits the corrections necessary to satisfy the deficiency letter, the 20-day cooling-off period picks up where it left off; in this case, from 6 days, which means that the issue should be effective 14 days later.

Question 41

A shareholders’ meeting for ABC Corporation will take place in 8 days. A customer whose stock is being held in street name has not returned the proxy statements. Which of the following is TRUE?

a. MF must ascertain how investor wishes to vote
b. MF votes shares as recommended by issuers management
c. MF may not vote shares under any circumstances
d. MF may vote shares as it wishes on minor matters

Answer 41

d. member firm may vote the shares as it wishes on minor matters

If an owner of shares held in street name has not returned proxy statements earlier than 10 days before a shareholders’ meeting, the member firm holding the shares may vote them as it sees fit, provided the matters voted on are minor. If they are major—for example, changing the direction of the business, offering additional stock, effecting a merger—the member firm may not vote the shares at all.

Question 42

which of the following regarding Treasury STRIPS, receipt, bills, notes, and bonds is TRUE?

a. they are all sold at a discount to par
b. they all pay semiannual interest payments
c. they all mature at par value
d. they are all backed by the good faith and credit of US government

Answer 42

c. they all mature at par value

The only commonality for all of these is that each matures at par. Only T-bills, receipts and STRIPS are sold at a discount to par. Only T-notes and bonds make semiannual interest payments, and though STRIPS, bills, notes, and bonds are all backed by the good faith and credit of the U.S. government, Treasury receipts issued by broker-dealers are not.

Question 43

when a registered person leaves the securities business, FINRA retains jurisdiction over that person for how long?

a. in perpetuity
b. 1 year
c. 30 days
d. 2 years

Answer 43

d. 2 years

If a terminated person becomes subject to a customer complaint or charges are brought against that person by FINRA, that person remains subject to FINRA jurisdiction for two years following termination.

Question 44

when an employee is either terminated from, or willfully leave, member firm, U-5 must be filed. under these circumstances which of the following is TRUE?

a. the employing firm is responsible for filing form U-5 only if it has terminated
b. under either, employee responsible for filing
c. employee is responsible for filing
d. under either, employing firm is responsible

Answer 44

d. under with, employing is responsible

Whenever a registered employee leaves a member firm under any circumstance, it is the employing member firm that is responsible for filing Form U-5.

Question 45

a corporate stock is purchased on Friday april 2, regular way. when will the trade settle

a. Tuesday April 6
b. Friday april 2
c. Wednesday april 7
d. Monday april 5

Answer 45

a. Tuesday april 6
For corporate securities, regular way settlement is the trade date (Friday, April 2) plus two business days; therefore, the trade will settle on Tuesday, April 6.

Question 46

a market making owning 70,000 shares stocked noted that it is down .25 on day so far. near very end of the day trading the market maker enters an order to buy 100 shares at the market. this is likely an attempt to

a. front run
b. churn
c. mark the close
d. freeride

Answer 46

c. mark the close
Effecting trades at or near the close of the trading day to influence the closing price of a stock is called marking the close. In this example the buy order at the close is likely intended to push the stock up so that the MM’s position in the stock would be marked at a higher price.

Question 47

the risk when investing, where one has the potential to lose all or part of the investment due to circumstances that are unrelated to issuers financial strength or well being is known as

a. financial risk
b. business risk
c. capital risk
d. call risk

Answer 47

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

Question 48

put buyers are

a. bearish
b. neither bullish nor bearish
c. bullish
d. both bullish and bearish

Answer 48

a. bearish

Put buyers have the right to sell the stock. Being in a position to sell the stock makes them bearish.

Question 49

mr smith purchases 2% of MSE common stock. for years later purchases 9% for her own account. which of the following is TRUE

a. MR, initial, control person
b. owns more shares, ms. considered control person
c. neither is considered control
d. both are considered control

Answer 49

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

Question 50

which of the following are fixed at the time of bond issued?

a. current yield
b. nominal yield
c. yield to call
d. yield to maturity

Answer 50

b. nominal yield

Coupon, nominal, or stated yield is set at the time of issue and is a fixed percentage of the bond’s par value.