Final Exam 10 Most Difficult Flashcards Preview

Series 7 > Final Exam 10 Most Difficult > Flashcards

Flashcards in Final Exam 10 Most Difficult Deck (112):
0

Which security of the same issue or is likely to give the highest current yield?
A. Warrant
B. Common stock
C. Convertible preferred stock
D. Non-convertible preferred stock

The correct answer is D
Warrants give no yield. Common stock gives the lowest yield since there is direct growth potential in the price of the stock as reported earnings increase. Convertible preferred-year-olds are higher than common yields but not as high as nonconvertible-year-olds. And on convertible preferred stock older gets a fixed rate of return without any growth potential. The convertible preferred stock older can convert to common if the common price rises, so growth potential is included

1

The essential difference between sponsored and unsponsored ADR is:
A. SEC registration
B. issuer sponsorship
C. Exchange sponsorship
D. Broker-dealer market-making

The answer is B
Sponsored ADRs are sponsored by the issuing foreign corporation. When an ADR sponsored the insurer agrees to provide financial statements to the ADR holder in English

2

American depository receipts pay dividends in:
A. US dollars
B. Euro dollars
C. European currency units
D. Foreign currency

The correct answer is A

3

The following terms described rights except:
A. Exercisable
B. Negotiable
C. Giftable
D. Redeemable

The correct answer is D

4

Preferred stocks are often most suitable investments for the:
A. Individual investor
B. Corporate investor
C. Partnership investor
D. Fiduciary investor

The correct answer is B
The reason for this is because corporate investors get a 70% exclusion from taxation on cash dividends received

5

The bond counsel for a new municipal issue will opine on all of the following except:
A. Compliance of the issuer with treasury arbitrage regulations
B. Fairness and reasonableness of the re-offering yields
C. Legal validity of the issue as a binding obligation on the issuer
D. Federal and local tax status of the interest income to be received by holders of the issue

The best answer is B
Miscible bond counsel's give an opinion on the validity, legality and tax-exempt status of the new municipal issue. They do not give an opinion on the fairness of the yield on that issue, remember lawyers do not give economic opinions.

6

Which of the following securities has the highest level of credit risk?
A. General obligation bonds
B. Industrial development bond
C. Equipment trust certificate
D. Mortgage bond

The best answer is B
Industrial development bond is backed by the rents paid by a corporation, and the guarantee of that corporation. However there is no actual collateral pledged to back the issue if the corporation defaults the bondholders cannot claim any assets to satisfy the debt

7

Which of the following securities would be assigned a P for prime rating
A. Commercial paper
B. Tax anticipation note
C. Common stock
D. Corporate bond

Correct answer is a

8

Interest income received from a collateralized mortgage obligations is:
A. Subject to both federal and state and local income tax
B. Exempt from federal income tax, but subject to state and local
C. Subject to federal income tax, but exempt from both state and local
D. Exempt from both federal and state and local

Correct answer is a

9

Net overall debt of a municipality is equal to
A. Bonded debt plus overlapping debt
B. Net direct debt plus overlapping that
C. Bonded debt minus overlapping debt
D. Net direct debt minus overlapping debt

The correct answer is B
Net overall debt of a municipality is used as the numerator in debt per capita and debt to assessed value ratios. These ratios measure the relative size of the municipalities debt level. That overall debt is net debt plus overlapping

10

All the following statements regarding collateralized mortgage obligations are true except
A. Varying maturities are available to meet a wide variety of investor needs
B. In some issues, investors may choose between PAC and TAC trenches, aside from regular trenches
C. Differing trenches will be offered at different yields
D. Each trench has the same level of market risk

Correct answer is D

11

All the following statements are true regarding a 5% municipal bond purchase to par that has a put option at par except
A. investors yield cannot rise above 5%
B. The put would be exercised if interest rates rise
C. The put option will not affect the market risk of the security
D. The investor can exercise the put at his or her discretion

The correct answer is C

12

A minimum dollar amount of a negotiable if you get a deposit is usually:
A. $10,000
B. $100,000
C. $1 million
D. $10 million

Correct answer is B

13

In a period When the yield curve is normal:
A. Short-term rates are more volatile than long-term rates
B. Long-term rates are more volatile than short-term rates
C. Short-term and long-term rates are equally volatile
D. No relationship exists between short-term and long-term rate volatility

The correct answer is a

14

During a period When the yield curve is normal
A. Short-term bond prices are more volatile them long-term bond prices
B. Long-term bond prices are more volatile than short-term bond prices
C. Short-term and long-term bond prices are equally volatile
D. Relationship exists between short-term and long-term bond price changes

The correct answer is B

15

A company that has issued first mortgage bonds is declared in default by the trustee. Which statement is true?
A. The bondholders have legal claim to the property backing the bond, and may sell that property to satisfy the unpaid obligation
B. The bondholders have legal claim to all of the property of the failed company, and may attach and sell any or all of the property
C. The bondholders have first claim to all assets of the failed company that have not been pledged
D. The bondholders our general creditors of the failed company

Correct answer is a

16

Which of the following insures municipal bonds?
A. Securities investor protection Corporation
B. FDIC
C. Private security's investors
D. Private insurance companies

The correct answer is D

17

LIBOR is the commonly used term for the:
A. Long-term bond offer rate
B. London Interbank offered rate
C. Last in best offered rate
D. Lowest interest borrowing offered rate

The correct answer is B

18

Customer wishes to buy a $50,000 certificate of deposit offered by your firm. The customer wishes to know if the CD is FDIC insured. As the broker handling the account, you should tell the customer that:
A. The CD is insured because the amount is less than $250,000 maximum permitted amount that qualifies for FDIC coverage
B. CDs sold through brokerage firms do not qualify for FDIC insurance regardless of amount, but they are S IPC covered
C. As long as the CD is titled in the customers name and the customer does not have accounts at the issuing bank totaling more than $200,000, then the CD is FDIC insured
D. as long as the CD is held in the custody of the FDIC member bank and the amount is $250,000 or less then the FDIC insurance covers the CD

The best answer is C
Brokered CDs are sold by brokerage firms that are representing issuing banks. FDIC insurance of $250,000 maximum covers bank deposits- but only if the deposit is titled in the customers name. If the CD is titled in the brokerage firms name then the insurance company would not apply coverage. This customer wishes to buy a $50,000 CD long as the customer does not have deposits at the issuing bank in excess of $200,000 and the CD is in the customers name it would be insured by the FDIC

19

Statements are true about brokered CDs
A. The secondary market is active
B. The secondary market is limited
C. The market value of the CD will decline if interest rates rise
D. The market value of the CD is unaffected by interest-rate movements

Correct answers are B and C

20

Which statements are true regarding brokered CDs
A. There is a penalty for early withdrawal
B. There is no penalty for early withdrawal
C. There can be a loss of principal upon an early withdrawal
D. There can be no loss of principal upon an early withdrawal

The correct answers are B and C

21

Which Of the following are exchange traded?
A. Foreign currencies
B. Foreign-currency options
C. Stocks
D. Stock options

The best answer is B C and D

22

PHLX world currency option contracts are available on all of the following currencies except:
A. British pound
B. US dollar
C. Australian dollar
D. Canadian dollar

Correct answer is B

23

A customer has a long OEX call contract position in his account and wishes to exercise the option. Which statement is true?
A. The holder will receive an amount of cash that is equal to the strike price times the contract multiplier
B. The holder will receive an amount of cash that is equal to the intrinsic value times the contract multiplier
C. The holder will receive index equivalent units upon exercise
D. The holder will receive a representative basket of securities in the index upon exercise

The best answer is B
If an index option is exercised, the writer must pay the holder thought in the money amount. There is no physical delivery of the securities that are in the index

24

A customer would receive protection on the long stock position from which two of the following?
A. Buy a call
B. Sell a call
C. Buy a put
D. Sell a put

The answer is B and C

25

A customer who is long one ABC jan 50 call wishes to re-create a "long straddle." The second option position that the customer must take is?
A. Long 1 ABC jan 50 call
B. Long 1 ABC jan 50 put
C. Short 1 ABC jan 50 call
D. Short 1 ABc jan 50 put

The best answer is B

26

A customer who is short one ABC Jan 40 call wish is to create a " bear call spread. "the second option position that the customer must take is?
A. Long one ABC's Jan 50 call
B. Long one ABC jan50put
C. Short one ABC Jan 50 call
D. Short one ABC Jan 50

The best answer is a

27

To create a credit time spread, which statement is true?
A. The near expiration is purchased and the far expiration is sold
B. The near expiration is sold and the far expiration is purchased
C. The near expiration is purchased and the far expiration is purchased
S. The near expiration is sold and the far expiration is sold

The best answer is a

28

In which of the following choices are both the stock and options positions on the same side of the market?
A. Long call/long stock
B. Short call/long stock
C. Long put/short stock
D. Short put/short stock

The best answer is a and C

29

A customer buys one XMI June 215 call at four dollars and sells one XMI June 195 call at $19 when the major market index close at 210. A Profit will be realized when:
A. The spread between the premiums Narrows
B. The index remains at 2:10
C. The index declines Below 210
D. Both contracts are exercised

The best answer is a and C

30

All of the following would be considered to be opening option transactions except:
A. Assuming a long ABC dec 50 call position
B. Assuming a short ABC DEC 50 call position
C. Going long a ABC DEC 50 put as a initial option transaction
D. Going long a ABC DEC 50 put after going short a abc DEC 50 put

The best answer is D

31

Of the following securities deliveries are "good" except:
A. Trust securities with the assignment performed by the trustee
B. Guardian securities with a assignment performs by the legal guardian
C. Custodian securities with a assignment performed by the recipient of the gift
D. Partnership securities with the assignment performed by a partner designated in the partnership agreement

The best answer is C

32

Last sale information is available for:
A. NYSE listed issues
B. NASDAQ listed issues
C. Municipal securities
D. Pink sheet securities

The best answer is all of the above

33

Which callable municipal bond issue must be priced to "refunding calls"?
A. Premium bond callable in five years at 100
B. Premium bond callable in five years at 105
C. Discount bond callable in five years at 100
D. Discount bond callable in five years at 105

The best answer is a

34

Which of the following is not a feature of the NASDAQ system?
A. Both agency and proprietary orders are excepted
B. Orders may be split to get the best execution
C. A reserve quote allows automatic quote refreshing
D. 30 seconds must elapsed between each automatic trade execution

Best answer is D

35

A corporation buys the stock of another company. Which percentage of dividends received from the investment in the acquired company shares are excluded from tax to the corporate purchaser of those shares?
A. 0%
B. 30%
C. 70%
D. 100%

The best answer is C

36

The "after hours" trading market for exchange listed and NASDAQ securities:
A. Is a more liquid market than the regular hours trading session
B. Is a less liquid market then the regular hours trading session
C. Typically has wider dealer bid-ask spread then the regular trading sessions
D. Typically has narrow dealer bid ask spread than a regular trading sessions

The best answer is B and C

37

The secondary market is divided into the:
A. First market
B. second
C. Third market
D. Fourth market

The best answer is all of the above

38

A customer purchases a reverse convertible note. Under which scenario will the customer receive less than par value at maturity?
A. The market price of the reference stock has declined, but is not below the knock in price
B. The market price of the reference stock has declined and is below the knock in price
C. The market price of the reference stock has risen above the knock in price but is below par
D. The market price of the reference stock has risen above the knock in price and is above par

The best answer is B

39

When comparing specialist (DMM's) on the NYSE to market makers on NASDAQ?
A. The specialist is obligated to make a continuous competitive market in the stock
B. The specialists is not obligated to make a continuous competitive market in the stock
C. The market maker is obligated to make a continuous competitive market in the stock
D. The market maker is not obligated to make a continuous competitive market in the stock

The best answer is a and d

40

A registered representative has been prospecting for new customers in neighboring states, and has contacted a individual who wishes to open a account with a $15,000 stock purchase. The customer is located 400 miles away from the representatives branch office. In order to open the account:
A. The customer must physically appear at the registered Representatives branch office with government issued identification documents such as a passport or drivers license
B. The registered representative must visit the customers residence and obtain a copy of government issued identification documents such as a passport or drivers license
C. No physical contact is required between the customer and the registered representative, but the branch manager must speak to the customer prior to account opening and verify the account information provided by the customer
D. No physical contact is required between the customer and the registered representative, but the broker-dealer must verify the customers identity by comparing information provided by the customer to a public database

The best answer is D

41

A potential customer has visited the registered Representatives branch office and is ready to open a account. The representative asks to see the customers drivers license and the customer says "I will show it to you, but you cannot photocopy it – I am worried about identity theft." Which statement is true?
A. The account cannot be open unless a photocopy of the drivers license is maintained in the customers account
B. The account cannot be opened unless the branch manager signed a statement that he or she examined the customers drivers license information and matched it to the new account form record
C. The account cannot be open unless the firm independently verify the customers identity using the drivers license information or another non-documentary method
D. The account can be opened with no additional documentary procedures required

The best answer is C

42

A investor has a $1 million portfolio that is split evenly between "blue-chip" Stocks and treasury securities. The current economic environment is characterized by low interest rates and flat stock prices – and this is expected to remain unchanged for a number of years. However, the residential and commercial real estate market is expected to be strong. The investor would like to diversify the portfolio and enhance returns without adding much additional risk. Which of the following investment purchase recommendations would help achieve this objective?
A. Mortgage REITs
B. Mortgage bonds
C. Equity REITs
D. Fannie Mae pass through certificates

The best answer is c

43

A 65-year-old customer wishes to invest part of his retirement funds with the dual objectives of enhanced income and safety of principal. The customer notice that "c" rated corporate bonds yield significantly more then equivalent maturity treasury issues and asks you, the registered representative, whether these would be a appropriate investment. The best response is to tell the customer that this is:
A. Good idea since corporate bonds are extremely safe investments since they are guaranteed by the issuing corporation
B. Good idea because they yield spread between corporate and treasuries guarantees a superior return
C. Bad idea because "C" rated corporate bonds have a much higher risk of default than treasury issues
D. Bad idea because "C" rated corporate bonds are not permitted investment vehicles for retirement fund proceeds

The best answer is C

44

A registered representative has a customer, age 50, in the 35% tax bracket, who just sold his house for a one time gain. The customer intends to downsize, and after buying a smaller home, will have $400,000 to invest. The customer intends to retire in 15 years. The registered representative could recommend that the customer purchased a variable annuity separate account with a growth objective because:
A. Once the customer reaches retirement age, there is no tax due on distributions taken
B. Variable annuity investment held long term will always out perform a fixed annuity contract
C. The contribution will be tax deductible, giving the customer a substantial one time tax savings
D. The earnings build tax-deferred during the 15 year. Until retirement

The best answer is D

45

A customer purchases $4000 of "when, as, and if issued" common stock in a margin account. The customer must deposit:
A. Zero
B. $1000
C. $2000
D. $4000

The best answer is C

46

A customer buys stock in a existing margin account, and fails to meet the reg. T call within the specified time limit. The actions that may be taken are:
A. The broker-dealer can request an extension for payment from the self-regulatory organization
B. The broker-dealer can sell securities from the account in an amount to satisfy the call
C. The customer can sell "short against the box" enough securities held in the account to meet the reg T call
D. The entire account must be liquidated by the broker-dealer

The best answer is A and B

47

Shares are purchased in a custodian account, and are later sold at a profit. Tax liability rests with the:
A. Custodian
B. minor
C. minor at the age of majority
d. custodian at the age of majority

The best answer is B

48

A registered representative is notified that a customer has just died. The registered representative must do all of the following except:
A. Mark account deceased
B. Cover all short positions
C. Notify the branch manager
D. Cancel all open orders

The best answer is B

49

As compared to a cash account, margin accounts have:
A. Greater volatility
B. Less volatility
C. Greater leverage
D. Less leverage

The best answer is C

50

A registered representative solicits a customer to buy a stock, explaining that "because the trade settles in three business days, if the stock rises, you can sell at a any time during this time. And we will send you a check for the net profit, on the other hand, if the stock falls, you can sell at any time during this period And only have to pay for the net loss." This statement is:
A. True
B. Misrepresentation of the requirements of regulation T
C. Permitted if the security or transaction is exempt
D. Permitted only if the security or transaction is nonexempt

The answer is B

51

Transfer on death registration would likely be used by which of the following?
A. Elderly father and adult son
B. Middle aged mother and minor daughter
C. Unrelated business partners
D. Limited partnerships

The answer is a

52

Under MSRB rules, written notice must be given to the employer for which of the following person to open a account at a municipal securities firm?
A. Employees of the municipal securities firm
B. Employees of other municipal securities firms
C. Employees of municipal issuers
D. Employees of municipal bond counsel's

The only answer is B

53

A customer has an existing margin account that shows the following:
Long market value: $100,000
Debit balance $60,000

If the market value declines to $60,000, the customer will receive a maintenance call for:
A. $5000
B. $10,000
C. $15,000
D. $20,000

The answer is C

54

A pattern day trader is defined as a person who:
A. Effects a minimum of four day trades
B. Effects a minimum of 10 day trades
C. In any given business day
D. In five business days

The best answer is a and D

55

A customer buys 10 OEX feb 600 calls with 24 months to expiration at six dollars in a margin account when the OEX is at 601. The customer must deposit:

The answer is $4500

56

Under the provisions of the USA patriot act of 2001, if a member firm suspect that a account is engaging in money-laundering, the firm is obligated to file a:
A. Focus
B. 10K
C. SAR
D. 13 D

The answer is C

57

Which of the following best describes "structuring"?
A. Depositing or withdrawing bond certificate to or from an account in amounts just below federal reporting requirements
B. Depositing or withdrawing stock certificates to or from a account in amounts just below federal reporting requirements
C. Depositing or withdrawing cash to or from a account in amounts just below federal reporting requirements
D. Depositing or withdrawing bank checks to or from a account in amounts just below federal reporting requirements

The answer is C

58

A branch manager "gives" five accounts of a departing registered representative to another registered representative in that office. The registered representative that receives the accounts should:
A. Contact each customer immediately to update the information on the new account form
B. Review the suitability information received from each customer
C. Review the securities positions that are being held by the member firm for the customer
D. Solicit a order from each customer

The best answers are a B and C

59

A woman in the 15% tax bracket wishes to buy a municipal bond. The registered representative tells her that such a investment is not appropriate. The registered representative can execute the trade:
A. If the principal approves
B. if the manager approves
C. under no circumstances
D. at this specific direction of the customer

The answer is D

60

Unless specific authorization is given, all of the following accounts cannot be opened as margin accounts except a(n)
A. Trust account
B. custodian account
C. guardian account
D. joint tenants account

The answer is D

61

To satisfy MSRB disclosure requirements for new municipal issues, a customer would be provided with a copy of the:
A. Legal opinion
B. official notice of sale
C. feasibility study
D. official statement

The answer is D official statement

62

Which statements are true regarding bids placed at the treasury auction?
A. Competitive bids are always filled
B. Non-competitive bids are always filled
C. Competitive bids are not always filled
D. Noncompetitive bids are not always filled

The only answers are B and C

63

A corporation decides to distribute wholly owned subsidiary in another line of business to it shareholders as stock of a separate operating company. This is known as:
A. Break up
B. spin off
C. leverage buyout
D. friendly take over

The answer is B

64

The visible supply includes:
A. Competitive bid general obligation bonds issues
B. Negotiated revenue bond issues
C. Competitive bid short-term note issues
D. Negotiated short-term note issues

The only answers are a and B

65

During the "20 day cooling off period," a new issue in registration may be:
A. Advertised by the underwriter
B. sold by the underwriter
c. recommended by the underwriter
d. priced by the underwriter

The answer is D

66

Once registration is effective for a nonexempt new issue, customers that previously received preliminary prospectus during the 20 day cooling off period Are:
A. Automatically confirmed with the purchase of issue
B. Contacted by the underwriter to see if they wish to purchase the issue
C. Obligated to buy a amount of the issue determined by the underwriter
D. Permitted to make a competitive bid for the issue

The answer is B

67

Which of the following are characteristics of defined-benefit plans?
A. Annual contribution amounts are fixed
B. If the corporation has a unprofitable year, the contribution may omitted
C. The annual benefit amount is fixed at retirement
D. The adoption of this type of plan benefits key employees who are nearing retirement

The answer is C and D only

68

403B plans are permitted to invest in which of the following?
A. Common stocks
B. mutual funds
C. fixed annuities
D. variable annuities

The answer is BC and D

69

REITs receive preferential tax treatment based upon:
A. Portfolio of real estate investments
B. Distribution of income to shareholders
C. Registration with the securities and exchange commission
D. Listing on the New York Stock Exchange

The answer is B

70

Which statements are true regarding roth IRAs?
A. Roth IRA is allowed for higher annual contributions than conventional IRAs
B. Roth IRAs allow for the same annual contribution as conventional IRAs
C. Maximum annual contributions can be made to both a Roth IRA and conventional IRA
D. Maximum annual contributions can be made to either Roth IRA or conventional IRA

The answer is B and D

71

Section 529 plans are established by the:
A. IRS
B. SEC
C. state
D. MSRB

The answer is C

72

High earning parents would like to invest in equities to fund their child's higher education expenses. The best investment choice would be:
A. 529 college savings plan
B. Coverdell education savings account
C. Uniform gift to minors account
D. Series EE treasury bonds

The answer is a

73

Which of the following is a term that is not associated with mutual funds?
A. LOI
B. ROA
C. CDSC
D. SIPC

The answer is D

74

Which statements are true when comparing UTMA custodian account to coverdell education savings accounts?
A. Contributions to UTMA accounts are deductible for federal income tax purposes
B. Contributions to UTMA accounts are not deductible for federal income tax purposes
C. Contributions to Coverdell education savings accounts are deductible for federal income tax purposes
D. Contributions to Coverdell education savings accounts are not deductible for federal income tax purposes

The answer is B and D

75

A customer that earns $50,000 per year wishes to set aside funds for his 12-year-old daughters future college expenses. Which statements are true?
A. The customer can open a UTMA account for the daughter to deposit the funds
B. The customer cannot open a UTMA account for the daughter to deposit the funds
C. The customer can open a coverdell ESA account for the daughter to deposit the funds
D. The customer cannot open a coverdell accounts for the daughter to deposit the funds

The answer is a and C

76

A high earning individual can open and contribute to which of the following accounts?
A. UGMA account
B. ROtH IRA
C. Coverdell ESA

Only a

77

In order to defer taxation on a IRA that is inherited from a deceased spouse, the surviving spouse can:
A. Roll over the IRA proceeds into a existing IRA owned by the surviving spouse
B. Elect to receive the entire IRA proceeds as a immediate a lump sum
C. Roll over the IRA proceeds into a new IRA set up by the surviving spouse
D. Elect to receive the entire proceeds over the next five years under the "five-year rule"

The answer is a and C

78

Your customer, age 68, that has a IRA account at your firm valued at $500,000, passes away. The customer leaves the account to his son, age 38. He has no need for current income as he is still working, and wishes to know his best option to minimize taxes. He expects to retire in 22 years, at which time, he will need the funds to pay for annual living expenses. You should advise the son to:
A. Roll the funds over into a new IRA in the sons name
B. Transfer the IRA funds to a beneficiary distribution account
C. Cash out the inherited IRA account
D. Disclaim the inherited IRA account

Answer is B

79

Which of the following are included in the taxable income of a corporation?
A. Dividends received from foreign investments
B. Gain on the scale of a capital asset
C. Proceeds received from a initial public offering
D. Refunds of tax overpayment

The answer is A and B

80

A Customer buys kingdom of Sweden bonds in the secondary market at a discount. Which statements are true?
A. If the bonds are held to maturity, the discount is taxed as a capital gain
B. If the bonds are held to maturity, the discount is taxed as ordinary income
C. The interest received is exempt from federal, state and local tax
D. If the bonds are sold prior to maturity, the investor may have a capital gain or loss

The answer is B and D

81

A non- leveraged district participation program has all of the following risks except:
A. Liquidity risk
B. management risk
C. legislative risk
D interest rate risk

The answer is D

82

Which of the following are not depletable?
A. Machinery
B. Timberland
C. real estate
D. Coal

The answer is a and C

83

When recommending a direct participation program to a customer, a registered representative must consider which of the following information?
A. Customers investment objective
B. Customers other investments
C. Customers financial situation and needs

The answer is a B and C

84

In a new limited partnership offering, the general partner selects limited partners based upon:
A. Geographic location
B. track record
C. net worth standards
D. historic relationships

The answer is C

85

All of the following fees associated with the limited partnership syndications are nondeductible from partnership income except:
A. Organization cost
B. Commissions paid to syndicate members
C. Registration and associated accounting and legal cost
D. Management fees

The answer is d

86

A customer buys 100 shares of a 200% leveraged ETFs and a margin account and deposit the required margin. If the reference index increases by 10%, customers equity will increase by how much?
A. 10%
B. 20%
C. 40%
D. 80%

The best answer is C
Leveraged ETFs are designed to have volatile price movements and because of this FINRA sets higher minimum margins, FINRA sets the minimum margin for leveraged ETFs at the leverage percentage times the minimum maintenance margin requirement. Since this is a 200% leveraged ETFs, the minimum margin is two times the FINRA a 25% minimum equals 50%, which is the same as the regulation T requirement

ASSUME THAT A CUSTOMER BUYS $20,000 OF A 200% LEVERAGED ETFS THE ACCOUNT WOULD BE SET UP WITH A LONG MARKET VALUE OF $20,000, DEBIT WOULD BE $10,000 EQUITY WOULD ALSO BE $10,000

if the reference index increases by 10%, this ETF value will go up by 20% the new market value will be 20% higher than $20,000 equals 24,000.

87

A customer buys a $1000 par reverse convertible note with a one year maturity and a 6% coupon rate. At the time of purchase, the reference stock is trading at $50 and the knocked in price is set at $40. If that maturity the reference stock is trading at $25, the customer will receive how much
A. $1000 par
B. 20 shares of the reference stock
C. 25 shares of the reference stock
D. 40 shares of the reference stock

The correct answer is B

88

Most of the registration statement filed with the SEC is information that is found in the:
A. Preliminary prospectus
B. Underwriting agreement
C. Trust indenture
D. Annual report

The best answer is a

89

Which of the following must be recorded on unexecuted order tickets?
A. Time of order receipt
B. Time of order execution
C. Time of order cancellation if canceled

The best answers are a and C

90

A issuer is required to make an 8K filing with the SEC for which of the following events?
A. Election of new members of the Board of Directors
B. Declaration of bankruptcy
C. Declaration of a cash dividend
D. Proposal of a merger with another corporation

The best answers are A B and D
An 8K filing with the SEC is required by a corporation if there is a change in the composition of a Board of Directors, if the company declares bankruptcy, if there is a major acquisition. The notice must be filed no later than four business days after the event

91

Under regulation D, issuers must file which of the following with the SEC to obtain a private placement exemption?
A. Copy of the proposed prospectus
B. Copy of the official notice of sale
C. Copy of the proposed offering circular or private placement memorandum
D. Copy of the proposed official statement

The best answer is C

92

To find the disciplinary history of a registered representative, a customer may make an inquiry to the:
A. SEC
B. CRD
C. FBI
D. FRB

The best answer is B

93

The FINRA regulatory element continuing education requirement must be completed by each registered representative:
A. annually
B. Bi annually
C. On the second anniversary of registration and every three years thereafter
D. Only if there is a disciplinary action taken against that registered representative

The best answer is C
The regulatory element of the continuing education requirement must be completed on the second anniversary of registration and every three years thereafter. If the regulatory element is not completed then the registered Representatives license lapses and he or she can no longer perform any of the functions of the registered representative until completion occurs

94

A registered representative with a FINRA member firm is opening a new margin account for a client, after the customer has left the office, the registered representative notices that the customer has failed to sign the margin agreement. The registered representative should:
A. sign of the margin agreement on the customer's behalf
B. Have the branch manager sign the margin agreement on the customer's behalf
C. Send the margin agreement to the customer for him or her to sign
D. Close the margin account immediately

The best answer is C

95

An existing customer of a brokerage firm wishes to buy an initial public offering that he has heard good things about. Registered representative only has a limited number of shares to sell and explains to the customers that the offering is already sold out. The customer tells the representative "if you can get me some of the stocks, I will drop off cash payment in full today, with a little extra for you" the registered representative:
A. Can accept the customers offer
B. Cannot accept the customers offer because cash payment for securities purchases cannot be excepted from a customer
C. Can except the customers offer if the extra cash payment does not exceed $500
D. Cannot except the customers office

The correct answer is D

96

A registered representative sends a letter to a customer that states that since options trading is not for everyone this creates an enormous profit opportunity for the select few who do trade options. This statement is
A. Permitted if it is accompanied by the latest options disclosure document
B. Permitted if the customer has previously traded options
C. A misrepresentation of the options trading market
D. Permitted without restriction

The correct answer is C

97

An electronic communication that recommends securities that is sent by registered representative to her entire list of 50 customers is defined as:
A. Advertising
B. Sales literature
C. Correspondence
D. Educational material

The best answer is B
Munication sent to more than 25 existing or prospective customers is defined as sales literature. Every piece of sales literature must be approved in advance by a principal in the member firms compliance department before it can be distributed. Communication to the general public is defined as advertising

98

All of the following may be purchased on margin Except:
A. Listed Stocks
B. Listed bonds
C. Listed stock options
D. Listed Leap stock options

The best answer is C

99

Research analysts that are putting out a by recommendation on a security or bring a bid from buying that security drain the window of time that encompasses:
A. Five days prior to making the recommendation
B. 30 days prior to making the recommendation
C. Five days after making the recommendation
D. 30 days after making the recommendation

The correct answers are B and C

100

A customer wishes to open an account that will be used primarily to buy initial public offering's. Which statement is true regarding the proper procedure for prequalifying the account?
A. The customer must sign a representation letter that he or she is not restricted from buying IPOs
B. The registered representative must determine that the customer is not restricted from buying IPOs and must sign the new account form to demonstrate compliance
C. The branch manager must determine that the customer is not restricted from buying IPOs and must sign the new account form to demonstrate compliance
D. There are no special procedures to follow when opening an account that will purchase IPOs

The correct answer is a

101

A research analyst at a member firm has issued a buy recommendation on ABC stock. The analyst has an existing securities account at his member firm and places in order to buy ABC shares, six days after the release of the recommendation. Which statement is true?
A. The analyst can buy the stock
B. The analyst is prohibited from buying the stock
C. The analyst can place the order but it can only be filled after 30 days from the release of the recommendation
D. The analyst can only buy the stock with the permission of the issuer

Correct answer is a

102

Fines assessed for convictions involving violations of insider trading laws are paid to the:
A. International revenue service
B. Department of treasury
C. Securities and Exchange Commission
D. Department of justice

The correct answer is B

103

Which of the following Stocks is considered to be defensive
A. Washing machine manufacture
B. Homebuilder
C. Utility
D. Gold mining

The correct answer is C

104

Upon receipt of a large customer order that is likely to have positive market impact, a registered representative first places in order to buy that stock for his or her personal account. This is:
A. A permitted practice
B. A prohibited practice
C. Known as front running
D. Known as shadowing

Correct answers are B and C

105

Under regulation SHO, in order to sell short a stock for a customer, the member firm must:
A. Determine that the securities to be sold short can be borrowed and delivered on settlement
B. Determined that the issuer of the securities can be sold short is current units SEC filings
C. Buy in the securities sold short 10 business days from settlement if the trade was not effected on an uptick or up bid
D. Buy in the securities sold short 10 business days from settlement if there is a fail to deliver and the security was on the threshold list

The correct answers are a and D

106

A municipal GAN could be backed by all the following except:
A. Federal transit assistance money
B. Federal pollution control assistance money
C. Federal energy conservation assistance monies
D. Federal tax collection monies

Correct answer is D
A municipal GAN is a grant anticipation note. They are used by municipalities to pull forward federal grant money that are received to support mass transit involvements in cities

107

A consolidated quotation services open during the hours of what?

The correct answer is 9 AM Eastern time to 6:30 PM Eastern time

108

If a customer buys a fully paid security that is enrolled in DTCs DRS system, the customer will receive a:
A. Physical certificate
B. Escrow receipt
C. Statement of ownership
D. Depository receipts

The correct answer is C
ETCs stands for depository trust Corporation has a relatively new book entry regulation system for Stocks, where there are no more physical certificates issued saves time and money. This is called DRS the direct registration system instead of getting a physical certificate the customer gets a statement of ownership essentially an account statement

109

All of the following statements are true about build America bonds except
A. The issuer gets a federal tax credit equal to 35% of the stated interest rate on the issue
B. The interest is federally tax exempt
C. The bond gives municipal issuers access to the conventional corporate debt market
D. The proceeds of the bond issues can only be used for infrastructure improvements

The best answer is B
Build America bonds can only be issued by municipalities in 2009 and 2010. They are taxable municipal bonds that get a 35% federal interest rate subsidy and the bond proceeds must be used for capital improvements, this is part of the economic stimulus program after the 2008 2009 great recession. These bonds are meant to create jobs and make it easier for municipalities to access the broader corporate debt market

110

A fund of hedge funds:
A. Must invest at least 75% of its assets and hedge funds
B. Must invest at least 90% of its assets and hedge funds
C. Must invest in at least 10 different hedge
D. Can invest in any number of hedge funds

The best answer is D

111

The price or yields listed by maturity, at which municipal securities are offered to the public by underwriters, is called the:
A. Scale
B. Production
C. Take down
D. Yield curve

The best answer is a