Final Exam #5 Flashcards Preview

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Flashcards in Final Exam #5 Deck (101):
0

A customer has a long margin account with $12,000 of stock and a $6000 debit. Below which market value will the account receive a maintenance call?
A. $10,000
B. $9000
C. $8000
D. $6000

The best answer is C

1

The customer sells short 100 shares of PDQ at $28 as the initial transaction and a new margin account. Subsequently, PDQ declined to $23 per share in the market. What is accounts equity after the change in market value?
A. $1400
B. $1900
C. $2000
D. $2500

The best answer is D

2

Individual retirement account contributions can be made with:
A. Cash
B. Exempt securities
C. Non-exempt securities
D. Money market fund shares

The best answer is only a

3

A 7% general obligation bond matures in one year. Municipal dealer quoting the bond has just changed his quote from 6.85 basis to a 6.95 thesis. The approximate dollar change in price per $1000 bond is:
A. $.10
B. One dollar
C. $10
D. $100

The best answer is B

4

Which statements are true regarding Roth IRAs?
A. Annual contributions are tax deductible
B. Annual contributions are not tax deductible
C. Distribution at retirement age are taxable
D. Distributions at retirement age are not taxable

The best answer is B and D

5

Which of the investments listed below offers the greatest protection against market risk?
A. Common stocks
B. Treasury bills
C. Preferred stocks
D. Treasury bonds

The best answer is B

6

The physical securities which are the underlying collateral for treasury receipts are:
A. Treasury bills
B. Treasury notes
C. Series EE bonds
D. Treasury stock

The best answer is B

7

Under the rules of the options exchanges, if there is a material change in a customer's financial condition:
A. They account must be restricted from options trading until the effect of the change is ascertained
B. The customer new account form must be updated and the option agreement amended to reflect the change
C. The customer can only place closing orders in the account, opening transactions are prohibited
D. No special procedures need to be followed

The best answer is B

8

A registered representative, about to retire, is transferring his "book" to a younger representative at his firm. The representative that is assigned these accounts must:
A. Complete transfer of account forms for each customer, listing all securities positions
B. Update the customer account records
C. Treat each account has a new account, including a new account form that must be approved in writing by the principal
D. Forward all commissions received from these accounts during the next year to the retired representative

The best answer is B

9

A customer owns $20,000 of a money market mutual fund. The customer exchanges the money fund shares for growth shares within the same family of funds. Which statement is true?
A. The exchange is treated as a "nontaxable" swap
B. The exchange is a "taxable event" for that year
C. The exchange results in a deferral of tax as long as shares within the "family of funds" are purchased
D. The exchange results in a deferral of tax as long as the full $20,000 is used to purchase the growth fund shares

The best answer is B

10

The discount on a municipal bond purchased in the secondary market is:
A. Tax-free
B. Taxable as a long-term capital gain
C. Taxable as ordinary income
D. Partially taxed as ordinary income and partially tax as long-term capital gain

The best answer is C

11

When limited partnerships taxable income exceeds partnership losses, this is known as the:
A. Breakeven point
B. Cross over point
C. Break point
D. Basis point

The best answer is B

12

Which of the following securities has the greatest level of credit risk?
A. Equipment trust certificate
B. General obligation bonds
C. Industrial revenue bonds
D. Treasury bond

The best answer is C

13

I registered representative prepares firms standard options worksheet for a customer, detailing an income strategy for writing covered calls against "blue-chip" Stocks the customer holds in his cash account. Which statement is true?
A. No additional steps are required before sending the completed worksheet to the customer
B. The customer must receive a options disclosure document before receiving, or with the completed standard options worksheet
C. The completed worksheet must be approved in writing by the firm's compliance department prior to being sent to the customer
D. The worksheet must be filed with the options exchange 10 business days prior to it being forwarded to the customer

The best answer is B

14

The trading of securities on regional stock exchanges is most similar to trading, as it takes place, on the:
A. NYSE
B. CBOE
C. NASDAQ
D. MSRB

The best answer is a

15

A woman is divorced and collects $25,000 of alimony and child support annually as her sole source of income. The woman wishes to make a contribution to individual retirement account for 2013. Which statement is true?
A. No contribution can be made because the woman does not have earned income
B. The contribution of up to $5500 is permitted, the contribution is not tax deductible.
C. A tax-deductible contribution of up to $5500 is permitted
D. A tax-deductible contribution of up to $11,000 is permitted

The best answer is C

16

Securities that rise in price, when the market, as measured by the Standard & Poor's index, falls, are said to have a:
A. Positive beta
B. Negative beta
C. Positive delta
D. Negative delta

The best answer is B

17

A customer wishes to open a options account with your firm. Which of the following procedures are required prior to the first trade?
A. The new account form must be completed
B. The customer must be sent an options disclosure document
C. The customer must complete an options agreement
D. The registered options principal must approve the account before the first trade

The best answer is a B and D

18

BA's are:
A. Money Market Instruments
B. Capital Market Instruments
C. Exempt Securities
D. Non-Exempt Securities

The best answer is a and C

19

A registered representative has written a script that will be used to make unsolicited calls to customers. Which statement is true?
A. The script needs no approval from the general principle since it is not a written communication to customers
B. The script must be pre-filed with FINRA prior to use
C. The script must be pre- filed with the SEC prior to use
D. The script must be approved by the general principle prior to use

The best answer is D

20

The customer buys 200 shares of ABC common stock at $50 and buys 20 XYZ October 50 calls @ five dollars on the same day in a margin account. The customer wishes to meet the margin call by depositing fully paid PDQ stock, currently valued at $50 per share. How many shares at PDQ must be deposited?
A. 200
B. 300
C. 400
D. 600

The best answer is D

21

Rank the following interest rates from the lowest to the highest:
A. Federal funds rate
B. Discount rate
C. Broker loan rate
D. Prime rate

The answer is a BC & d

22

Increasing inventory levels are a indication that:
A. Consumer demand is increasing
B. Economic conditions are deteriorating
C. Economic expansion is occurring
D. Central bank intervention is occurring

The best answer is B

23

The advance/decline ratio shows all of the following except:
A. Breadth of the market
B. Market sentiment
C. Share overturn
D. Number of issues that increased in price versus number of issues that decreased in price

The best answer is C

24

If the interest rates are rising rapidly, which US government debt prices would be most volatile?
A. Treasury bills
B. Treasury notes
C. Treasury bonds
D. Series EE bonds

The best answer is C

25

A mother, aged 60, wishes to withdraw monies from her variable annuity to pay for her son's college education. Which statement is true regarding the taxation of the withdrawal?
A. The withdrawal is 100% taxable
B. Any amount withdrawn above the cost basis is taxable
C. Any amount withdrawn above the cost basis is taxable, and is subject to a 10% penalty tax
D. The withdrawal is not subject to tax

The best answer is B

26

Economic theory that postulates that production and economic growth are stimulated by the lower interest-rate levels, and can be managed by Federal Reserve actions.
A. Supply side theory
B. Monetarist theory
C. Keynesian theory
D. Demand-side theory

The best answer is B

27

XYZ common stock is currently trading at $96 per share. Last year, XYZ common stock earned eight dollars per share, getting the company a price/earnings ratio of 12:1. XYZ splits 3 for 1, the new P/E ratio will be:
A. 4:1
B. 6:1
C. 12:1
D. 24:1

The best answer is c

28

Which statements are true about structured products?
A. The bond component pays interest based on a index rate such as the performance of the NASDAQ 100 index
B. The interest rate paid is typically Capped to annual maximum rate
C. The derivative component establishes the payment at maturity and protects principle
D. The security may be listed on a national securities exchange

The answer is a BC and D

29

Two brothers wish to open an account to trade stocks, with one brother depositing $100,000, and the other brother depositing $200,000. When opening the accounts, the brothers specify that they want their respective interest to go to their beneficiaries if they should die. The account should be open as a:
A. Individual account in the name of the larger contributor, with the trading authorization granted to the smaller
B. Joint account with rights of survivorship
C. Joint account with tenancy in common
D. Partnership account requiring a signed copy of the partnership agreement

The best answer is C

30

Under the securities act of 1933, new issues are not marginable until how many days have elapsed from the effective date?
A. 30 days
B. 45 days
C. 60 days
D. 90 days

The best answer is a

31

Employees of nonprofit organizations are permitted to establish tax-deferred retirement plans, similar to keogh, by making investments in a:
A. 401(k) plan
B. Tax sheltered annuity
C. Profit-sharing plan
D. Defined-benefit plan

The best answer is b

32

A Municipal variable rate demand note is:
A. Municipal note that may be retired prior to maturity On any interest payment date at the demand of the issuer
B. Municipal note that gives the holder a tender option feature, usually at par, as of the reset date
C. Municipal note that requires the issuer to reset the interest rate to current market rates upon the demand of the holder
D. Municipal note that allows the issuer to vary the repayment date, upon giving written notice to the holder

The best answer is B

33

The last time to trade expiring equity options is:
A. 4 PM Eastern standard time, three central time, on the day prior to expiration
B. 4 PM Eastern standard time, three central time, on the expiration date
C. 5:30 PM Eastern standard time, 430 central time, on the day prior to expiration
D. 5:30 PM Eastern standard time, 430 central time, on the expiration date

The best answer is a

34

A trade where security is purchased in the first market and sold in the fourth market at the same time, is most likely a:
A. Arbitrage transaction
B. Proceeds transaction
C. Exchange distribution
D. Secondary distribution

The best answer is a

35

A husband owns 20% of the equity of a listed corporation, with his wife holding a 5% equity position in the corporation. If the wife wishes to sell her holding:
A. She is considered to be a "affiliate" under will 144
B. She is not considered to be a "affiliate" under rule 144
C. She must file a form 144 to sell
S. She does not have to file a form 144 to sell

The best answer is a and C

36

The greater the leverage in a long margin account:
A. The greater the percentage increase in equity as market prices rise
B. The greater the percentage increase in equity as market prices fall
C. The lesser the percentage increase in equity as market prices rise
D. The lesser the percentage increase in equity as market prices fall

The best answer is a

37

All of the following statements are true regarding stop orders except:
A. Stop orders can protect a profit on a long stock position
B. Stop orders can limit a loss on a long stock position
C. Stop orders allow a specific execution price to be "locked in"
D. Stop orders are placed "away" from the current market

The best answer is C

38

A customer holds a very large, diversified portfolio of high-grade municipal bonds with varying maturity. This customer has minimized all of the following risks except:
A. Default risk
B. Interest rate risk
C. Marketability risk
D. Legislative risk

The best answer is D

39

Which of the following statements are true regarding the transfer of individual retirement accounts from one trustee to another?
A. Each transfer is considered to be a "IRA rollover" and thus is permitted only once per year
B. The funds can be transferred by having the trustee or custodian make a check payable to the account holder, who will then deposit the check with the new trustee your custodian
C. The transfer can be affected by wiring the funds directly between trustees or custodians
D. The transfer can be affected by having the predecessor trustee or custodian make a check payable to the successor trustee or custodian

The best answer is C and D only

40

A new customer comes to your firm to open a cash account, wishing to deposit a $20,000 cashiers check. When completing the new account form, you discover that the customer is 14 years old. The action that should be taken is to:
A. Use whatever other information you can obtain from the customer to determine if it is appropriate to open the account. If you were satisfied, the account can be opened
B. Deposit the check and freeze the account until the customer reaches legal age in that state
C. Appoint yourself as custodian, and open the account as a regular custodian account
D. Inform the minor that the account cannot be open unless a custodian affects the transaction

The best answer is D

41

Transactions in the interbank market cause direct movements in the prices of:
A. Currencies
B. Currency options
C. Equities
D. Equity options

The best answer is a

42

Shareholder proxies on stock held" Street" name by a broker-dealer:
A. Are sent by the issuer to the beneficial owner
B. Are sent by the broker-dealer to the beneficial owner
C. Maybe voted by the broker-dealer if the beneficial owner does not return the proxy within 10 days of the annual meeting
D. May not be voted by the broker-dealer if the beneficial owner does not return the proxy with in 10 days of the annual meeting

The best answer is B and D

43

Which of the following are purchase and payout options for variable annuity contracts?
A lump some payment, immediate annuity
B. Lump some payment,deferred annuity
C. Periodic payments,immediate annuity
D. Periodic payments, deferred annuity

The best answer is a B and D

44

Net asset value per share for a mutual fund can be expected to decrease if the:
A. Securities in the portfolio have appreciated in value
B. Securities in the portfolio have made dividend distributions
C. Fund has made a dividend distributions to the shareholders
D. Fund has experienced net redemptions of shares

The correct answer is C
This is a tricky question. If a fund distributes a dividend to shareholders, and exit date is set by the Board of Directors of the fund. On this date the fund shares are reduced by the value of the distribution. If the securities in the fund portfolio pay dividends, these are received by the fund. The receipt of these monies into the fund increases NAV per share.

45

Which risk is not associated with long-term negotiable certificates of deposit?
A. Market risk
B. Call risk
C. Reinvestment risk
D. Prepayment risk

The correct answer is D
Prepayment risk does not exist with long-term negotiable CDs it only exists with mortgage back to securities, where the mortgage can be prepared before the expected maturity if interest rates fall

46

The Securities and Exchange Commission was created by the:
A. Securities act of 1933
B. Securities exchange act of 1934
C. Trust indenture act of 1939
D. Investment Company act of 1940

The correct answer is B

47

Which of the following would be most likely to hedge using foreign currency options?
A. Public utility
B. Public sewage company
C. Tool and die company
D. Railroad Company

The best answer is C
Foreign currency options would be used by a corporation to hedge exposure to currency exchange risk. This would be applicable to companies that import or export goods

48

Price volatility of a CMO issue would most closely parallel that of an equivalent maturity:
A. Treasury bond
B. Mortgage backed pass through certificate
C. Treasury strip
D. Collateral trust certificate

The best answer is a
Because CMO issues are divided into trenches, each specific trench as a more certain repayment date. As compared to owning a mortgage backed passed through certificate. The price movement of the specific tranche in response to interest rates changes more closely parallels that of a regular bond with a fixed repayment date

49

Information regarding new issue municipal offerings can be obtained from all of the following sources accept:
A. Bond buyer
B. Munifacts wire
C. EMMA
D. RTRS

The correct answer is D
R TR S stands for real time reporting system it is the tape of traders of municipal bonds occurring in the secondary market

50

All of the following provide fundamental analytical information about municipal issues except:
A. Moody's
B. Fitch's
C. MorningStar
D. Standard and poors

Correct answer is C
Fundamental analysis of municipal bond credit risk is performed by Moody's. Standard & Poor's and finches investor services. MorningStar is a rating service that rates mutual funds not municipal bonds

51

A customer owns 1000 shares of ABC Corporation. Which of the following actions will dilute the shareholders equity?
A. ABC declares a 10% stock dividend
B. ABC declares that it will call it's convertible bonds, which are currently trading at a premium
C. ABC declares a 2:1 stock
D. ABC declares that it will issue an additional 1 million common shares

The correct answers are B and D
dilution of of an individual stockholders equity does not occur if there is a stock dividend or a stock split. The shareholder receives more shares worth proportionately less. However in total the shareholder has the same percentage of interest in the corporation. If yes you are forces conversion of convertible securities additional common shares are issued to the individuals who tender the convertible securities. This dilutes common equity. similarly if the corporation issues additional common shares common equity will be diluted unless the existing shareholders exercise their preemptive rights

52

All of the following statements are true about commercial paper except:
A. Commercial paper is a funded debt of the issuer
B. Commercial paper matures on a preset date and at a preset price
C. Commercial paper is quoted on a yield basis
D. Commercial paper is an unsecured from promissory note

The correct answer is a
Corporate funded debt represents long-term debt financing of a corporation with at least five years to maturity. Since commercial paper has a maximum maturity of 270 days it is not a funded debt

53

The vice president of Acme corporations, a New York Stock Exchange listed firm, places in order to buy 10,000 shares of Acme common at the market. Three months later, Acme Stocks price is increased by 20% and the officer places in order to sell. Which of the following statements are true?
A. The sale of the stock is subject to rule 144
B. The stock cannot be sold unless it has been held, fully paid, for six months
C. The sale is prohibited into a waiver of liability has been obtained from the issuer
D. The officer must forfeit the profit on the sale

The correct answers are a and D
Since the seller is an officer of that company he is a Control person on the rule 144. And any sales must conform with rule 144. The rule requires that restricted shares be held for six months fully paid before being sold. Since the shares are registered they are not restricted and the six-month holding. Requirement does not apply. There is no requirement for a waiver of liability from the issuer since the officer did not hold the appreciated securities for at least six months he has a short swing profit that must be paid back to the issue or under the securities exchange act of 1934 insider rules

54

Customer wishes to place a buy order for a security that has not been registered in the state the security may be purchased if:
A. The security is exempt from state registration
B. The security falls under a blue-chip exemption by being listed on a recognized national Stock exchange
C. The security is traded by at least two marketmakers
D. The security has been trading in the market for at least 1 year

The best answer is A and B

55

Quotes published in the newspapers for mutual funds show:
A. Bid price at that asset value, ask Brice at net asset value plus an average sales charge
B. Bid price at net asset value, ask price at net asset value plus the maximum sales charge
C. Bid price at net asset value less any redemption fee, ask price at net asset value plus an average sales charge
D. Bid price at net asset value less any redemption fee, ask price at net asset value plus the maximum sales charge

The correct answer is B
Newspaper quotes for mutual fund shares show the bid price as net asset value. The ask price is net asset value plus the maximum sales charge imposed by that fund

56

Foreign currency values are affected by all of the following except:
A. currency devaluation
B. Central-bank intervention
C. Floating exchange rates
D. Fixed exchange rate

The best answer is D
Fixed exchange rates have no effect on foreign currency values. For example the exchange rate for Hong Kong dollars is fixed against the US dollar at approximately seven to Hong Kong dollars per US dollar. There is no market mechanism for adjusting the value of this currency, it's value is solely determined by that of the US dollar. Currency values are affected by currency devaluation imposed by governments by central-bank intervention directing The buying or selling of that currency, and by floating exchange rates. A floating exchange is one that changes in response to market conditions. All major Western currencies have floating exchange rates

57

Federal Reserve actions can directly influence which of the following
A. Discount rate
B. Federal funds rate
C. Money multiplier
D. Money velocity

The correct answers are all of the above

58

A registered representative has been marking each order ticket he completes as unsolicited, even when this is not the case this action:
A. Violates securities and exchange commission recordkeeping rules
B. Is prohibited by the FINRA know your customer rule
C. VIOLATES THE REGISTERED REPRESENTATIVES AGENCY RELATIONSHIP WITH HIS FIRM
D. is allowed under FINRA recordkeeping rules

Correct answer is a

59

Which of the following investors are likely to trade foreign currency options?
A. US corporations with multi national operations
B. Foreign corporations with multinational operations
C. Individuals with large foreign currency holdings
D. Individuals with Large US dollar Holdings

Best answers are A B and C
Any multinational corporation will trade foreign currency either to acquire currency for payment in a particular country or two heads transactions against fluctuations in currency value. Similarly individuals with large foreign currency holdings are likely to use the foreign currency markets to hedge their position. Individuals with US dollar holdings have no need for the foreign currency markets

60

All of the following statements are true about overnight repurchase agreements except:
A. There is virtually no liquidity risk
B. There is virtually no interest rate risk
C. There is virtually no risk of principal
D. There is virtually no credit risk

The best answer is B

61

A registered representative wishes to place an announcement in the newspaper that simply includes the firm's name, the representatives name, and the following statement; "for information on investing in options, please call 1-800-options." In order to place the advertisement:
A. Approval must be obtained from the BOM prior to use
B. Approval must be obtained from the options exchange at least 30 days before use
C. Approval must be obtained from the firms designated registered options principal prior to use
D. No prior approval is required

The best answer is C

62

A customer with a long margin account receives a call for minimum maintenance margin on Tuesday morning. The call notice states that the funds are to be deposited by Thursday. If the funds do not arrive the firm has the right to sell out:
A. The entire account on Thursday at the market close
B. The entire account on Friday at the market opening
C. Enough securities from the account to meet the call on Thursday at the market close
D. Enough securities from the account to meet the call on Friday at the market opening

The best answer is D
Calls for maintenance margin must be met promptly this call requires that the customer deposit the funds on Thursday. If the monies are not deposited on Thursday at the opening on Friday morning enough securities will be sold out of the account to satisfy the maintenance call

63

Which of the following are acceptable methods for opening an investment advisor account?
A. Each individual client of the advisor opens an account under the clients name
B. Each individual client of the advisor opens in account under the advisers name
C. The advisor opens a third-party account for each client
D. The advisor opens an Omnibus account holding all of his clients

The best answer is a and D

64

The Federal Reserve will loan funds at the discount rate to
A. Savings and loans
B. Commercial banks
C. Investment banks

The correct answer is B

65

To smooth out tax collections, a municipality would issue a:
A. Ban
B. Tan
C. Ran
D. Tran

The correct answer is B

66

Types of direct participation programs include what?
A. Condominium investments
B. Oil drilling
C. Agricultural production
D. Equipment leasing

All of the above are correct answers

67

Registered representative is registered as an agent in the state of California. He wishes to prospect customers in the state of New York, in which he is not registered. Which statement is true?
A. Prospecting is permitted in any state once an individual has been registered in one state
B. The individual must be registered in the state of New York before contacting potential customers in that state
C. The individual must be registered in the state of New York before writing orders from that state
D. The individual must be registered in the state of New York before any orders can be confirmed to customers in that state

The best answer is B

68

Which of the following ratings agencies listed below would most likely write a municipal hospital revenue bond issue for credit risk?
A. Moody's
B. Bests
C. Fitchs
D. MorningStar

The correct answer is a
Moody's and Standard & Poor's are by far the largest of the rating firms. Both rate municipal revenue bonds, Standard & Poor's rates issues if the issuer pays, Moody's rates issue is whether the issuer pays or not, their stance is that they are Moody's Investors Service is and their ratings are a service to the investor.

Fitches is a much smaller rating agency and concerns itself mainly with rating corporate issues. MorningStar rates mutual funds not municipal bonds

69

In a real estate limited partnership the general partner refinances an existing 5 million Dollar mortgage on a $10 million property to the original amount of $8 million. The interest-rate on both mortgages is the same. The purpose of this action by the general partner is to:
A. increase the limited partners cost basis in the property
B. increase the operating and maintenance expenses of the property
C. Increase operating cash flow
D. Increase interest deductions for the limited partners

The correct answer is D
The general partner is increasing the mortgage on the property to increase interest deductions to the limited partners since the new loan is for a larger amount at the same interest rate. The basis in the property remains unchanged do you do this transaction. The basis in the property is the original cost, less accumulated depreciation. How the property is financed does not affect its cost basis for tax purposes.

70

And over-the-counter brokerage firm receives a customer order to buy 100 shares of ABC stock in another customer order to sell 100 years of ABC stock at the same time. If the firm crosses the orders it:
A. Acts as an agent in the transactions
B. Acts as a principal in the transactions
C. Charges a commission on each transaction
D. Chargers a mark up on each transaction

The correct answers are a and C

71

For institutional investors to qualify as QIB under rule 140 4A the institution must have at least:
A. $1 MILLION OF ASSETS THAT IT INVESTS ON A DISCRETIONARY BASIS
B. $10 million of assets that invests on a discretionary basis
C. $100 million of assets that it invests on a discretionary basis
D. $1 billion of assets that it invests on a discretionary basis

Correct answer is C

72

What's statements are true regarding ETFs?
A. They are available on broad-based stock indexes
B. They are available on narrow-based stock indexes
C. They are available on international stock indexes
D. They are available on bond indexes

The best answer is all of the above
ETFs have been increasing in popularity as compared to traditional mutual funds because of their low cost. Ease of buying and selling like any other stock, no mandatory annual long-term capital gains distributions. ETFs are now available based on sector indexes narrow-based stock indexes broad-based stock indexes bond index is an international stock indexes

73

He registered representative primarily services institutional hedge fund customers the direct a large volume of trades to that brokerage firm. One of the hedge fund customers tells the representative "I would like you to talk to the administrative people at the Jeffersonian fund group. If they allow me to place redemption orders for their fund shares at 4:10 PM each day, at that days NAV, I will invest $200 million in the Jeffersonian fun family" that customer should be informed that:
A. Because of the large dollar amount involved there will be no sales charge assessed on any fund purchases with in the Jeffersonian family
B. This is a reasonable request because of the large dollar investment to be made and that you will contact the administrative personnel at the family fund
C. Such an activity is illegal and any redemption request placed at 4:00 PM must be processed based upon the next days NAV
D. Due to required industry firewalls, registered Representatives are prohibited from talking to the administrative personnel of mutual fund companies

The best possible answer is C

74

All of the following statements are true about the activities of an investment banker except
A. The investment banker helps the issue or structure the offering, advising on the type and amount of securities to be sold
B. The investment banker analyzes the prospectus for the industry in which the issuer operates before handling the offering
C. The investment banker can either act as an agent or principal in the underwriting
D. The investment banker can except time deposits from customers who buy new issue offerings

The correct answer is D

75

In the municipal trading market, a secondary market joint account could be formed for all of the following reasons except
A. To purchase a block of bonds offered AON in bloomberg
B. To purchase securities offered in an official notice of sale in the daily bond buyer
C. To purchase a block of bonds offered through bond desk
D. To purchase a block of bonds offered through a municipal broker-dealer

The best answer is B

76

Interest income from which of the following municipal issues would likely be subject to federal taxation?
A. School district bond
B. Industrial revenue bond
C. Public housing bond
D. Redevelopment bond

The correct answers are B and D
The interest income from nonessential private use municipal bond issues is either included as a tax preference item in the alternative minimum tax or if the issue is too large is subject to regular income tax. Both school district bonds in public housing bonds are considered to be essential public uses

77

All of the following are functions of the Federal Reserve Board except
A. Acting as fiscal agent for the US treasury
B. Auditing commercial banks for compliance with banking and MSRb regulations
C. Lending funds to member banks through the discount window
D. Setting margins on municipal securities

Correct answer is D
Federal Reserve has the power to set margins for non-exempt securities only.

78

A corporate investor holds a diversified portfolio of preferred stocks. To hedge the portfolio against loss, investor should
A. Buy xmi puts
B. Buy OEx puts
C. Buy IRX calls
D. Buy TYX calls

Best answer is D
This portfolio hold preferred stocks, which are fixed income securities with no stated maturity. The closest vehicle with which to head is a treasury bond interest rate options contracts, the TYX call contract to be exact

79

A customer places an order to sell 500 shares of ABC at $50 on the New York Stock Exchange, immediate or cancel. The order to sell reaches the trading post at the same time as a buy order for 300 shares of ABC at $50 assuming that the specialist DMM does not fill the remaining 200 shares at that price, which statement is true?
A. The customers order will not be executed since all 500 shares cannot be sold and is canceled
B. The customers order will not be executed since all 500 shares cannot be sold, but the floor trader can attempt reexiccution at a later time
C. The customers order will be executed for 300 shares, with the on executed portion remaining open on the specialist book
D. The customers order will be executed for 300 shares, with the unexcused it portion canceled

Correct answer is D
If an order is placed immediate or cancel it must be filled in its entirety him or in part at that time, with any unfilled portion being canceled

80

What percentage of the interest expenses incurred on funds used to buy qualified bonds is deductible to a bank investor?
A. 0%
B. 20%
C. 80%
D. 100%

Correct answer is C

81

Alpha is a measure of
A. Systematic risk
B. Nonsystematic risk
C. Credit risk
D. Liquidity risk

Correct answer is B
Alpha measures nonsystematic risk, that is stock specific risk

82

Dream periods of rising unemployment claims, following consumer spending, and decreased business spending, the Federal Reserve would attempt to minimize the chance of what?
A. Inflation
B. Deflation
C. Recession
D. Expansion

The best answer is C

83

US government agency securities are
A. Quoted in 1/8ths
B. Quoted in 32nds
C. Traded with accrued interest computed on an actual day month actual day year basis
D. Traded with accrued interest computed on 30 day month/360 day year basis

Correct answer is B and D

84

US government agency securities are:
A. Nonnegotiable
B. Guaranteed by the US government
C. Exempt securities under the securities act of 1933
D. Sold through competitive bid at the weekly treasury auction

The best answer is C

85

Call options on interest rates are in the money when
A. Interest rates fall
B. Interest rates rise
C. Fixed income securities prices rise
D. Fixed income securities prices fall

The best answer is B and D

86

In a period of deflation, all of the following statements about fixed income securities are true except
A. Holders receive payments on fixed income securities that buy more in real terms
B. Holders are likely to realize capital appreciation on fixed income securities that are not close to maturity
C. Issuers are less likely to sell fixed income securities because interest rates will rise
D. Issuers are likely to sell non-callable issues

The best answer is C

87

New issues of treasury securities are:
A. Bearer instruments
B. Registered to interest-only
C. Registered to principle only
D. Fully registered in book entry form

The correct answer is D

88

Which of the following is an example of a derivative products
A. Common stock
B. Corporate bond
C. Collateralized mortgage obligations
D. Mutual fund

The best answer is C

89

During periods when the yield curve is inverted, all of the following statements are true except
A. Debt defaults are probably at historically high levels
B. Debt investors expect that interest rates will fall in the future
C. Debt investors expect that economic activity will decline
D. Issuers are likely to sell non-callable bonds

Best answer is D

90

In a liquidation of a limited partnership, rank the following creditors in priority of claim?
A. Limited partner
B. General partner
C. General creditor
D. Secured creditor

The correct answer is secured creditor, general creditor, limited partner, general partner

91

Under FINRA rule 5130 all of the following are defined as immediate family have a person associated with a broker-dealer and are prohibited from purchases of equity IPOs except
A. Children
B. Spouses
C. Parents
D. Uncles

The correct answer is D

92

Which of the following information appears on the municipal bond trade confirmation?
A. Accrued interest
B. Agency or principal capacity
C. Paying agent name
D. Broker-dealer name

Correct answer is A B and D

93

The setting of specific goals for an investment plan to be created for a customer is known as:
A. Strategic asset management
B. Tactical asset management
C. Dollar cost averaging
D. Portfolio rebalancing

The correct answer is A

94

If they withdraw will not take a margin account below minimum maintenance margin, any cash dividends received:
A. Can be withdrawn
B. Cannot be withdrawn
C. Can be used solely to reduce the debit balance
D. Can be used solely to pay interest on the debit balance

Best answer is a

95

Which characteristic is not common to both treasury strips and treasury notes?
A. Minimum $100 denominations
B. Quoted as a percent of par in 32nds
C. Pay interest at maturity
D. Guaranteed by the US government

The best answer is C

96

Which of the following is not a tangible asset on a companies balance sheet?
A. Equipment
B. Real estate
C. Mineral reserves
D. Oil royalties

Correct answer is D

97

Maximum income limits that reduce permitted contributions do not apply to:
A. IRAs
B. Spousal IRA is
C. Roth IRAs
D. Coverdale ESA's

Correct answers are a and B

98

Email sent by a representative to a customers considered to be:
A. Advertising
B. Sales literature
C. Correspondence
D. Occasional material

Answer is C

99

ECn's trade securities:
A. During regular New York Stock Exchange market hours
B. 24 hours a day
C. On an agency basis
B. On a principal basis

The correct answers are B and C

100

Which two of the following customer activities should make a registered representative suspicious of potential money laundering?
A. Refusal to disclose information about his or her business activities
B. Ordering of wire transfers to an account in the same name at another broker dealer
C. Acting as agent for another account without providing proper supporting documentation
D. Ordering frequent withdrawals of funds from a money market account

The correct answers are a and C