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Flashcards in Final Exam Missed Questions Deck (34):

Which of the following indicators would be considered by a technical analyst?
A. Quick ratio
B. Price earnings ratio
C. 200 day stock price moving average
D. Advanced decline ratio

The correct answer is C and D
Technical analysts make decisions based on factors such as trading volume breadth of market movement and the movement of market averages.
Fundamental analysts are concerned with the fundamentals of a company such as the quality of its management earnings balance sheets etc. therefore fundamental analysts would examine a company's quick ratio as well as its price per earnings ratio


The manager in a competitive municipal syndicate must disclose which of the following to the syndicate members prior to the first offering of securities?
A. Allocations of securities given priority over members takedown orders
B. Order priority provisions
C. Statement of syndicate expenses
D. Names of the persons from whom orders have already been received

The correct answer is B


A corporation is preparing a registration statement for a new issue offering consisting of 300,000 new shares and 200,000 existing shares held by officers. Profits from which will go to the Corporation?
A. The 300,000 new shares
B. The 200,000 existing shares held by officers
C. The total 500,000 shares being offered
D. None of the shares

Which of the following statements is also true?
A. Only the 300,000 new shares can be purchased on margin
B. Only the 200,000 shares previously held by officers can be purchased on Margin
C. All of the 500,000 shares can be purchased on margin
D. None of the shares can be purchased on margin

The correct answer is A
The correct answer is D
Under FRB rules "new" issues are not eligible for margin until 30 days after the offering. The definition of a "new" issue for the purpose of this rule is a prospectus offer. Both the primary and secondary shares held by officers are being offered through the prospectus


Which of the following will be changed as a result of the offering of 500,000 shares, of which 300,000 are new issues and 200,000 are existing shares held by officers?
A. Net working capital
B. the number of outstanding shares
C. Retained earnings
D. Net worth

The correct answer is A B and D
The company receives the profits of over $8 million from the offering this increases the networking capital

An additional 300,000 shares will be outstanding increasing common stock and capital in excess of par amounts

Retained earnings remains unaffected. The items that effect retained earnings are income or loss for the year and dividend payouts


All of the following statements are true for both mutual funds and variable annuities except:
A. Both are regulated by the investment Company act of 1940
B. Both have portfolios that are managed
C. Dividend and capital gains distributions are text about each year for both
D. Asset appreciation is untaxed for both

The correct answer is C
Dividend and capital gains distributions made by variable annuity separate accounts must be reinvested and our tax deferred. Dividends and capital gains distributions from other investment companies do not have to be reinvested and are always taxable. Weather reinvested or not.


The interest income earned on which of the following municipal bonds would be taxable?
A. School district bonds
B. Turnpike revenue bond
C. Industrial revenue bond
D. Water District revenue bond

The correct answer is C
The interest income derived from "nonessential use" private purpose revenue bonds is taxable. Industrial revenue bonds fall into this category, public purpose bonds, such as general obligation bonds are not subject to any taxation of their interest income. Qualified private activity bonds, which would include water district bonds and turnpike revenue bonds, are not subject to regular income tax, but their interest income may be included as a tax preference item under the alternative minimum tax


A blind pool limited partnership is one where:
A. The Limited partners are not known at the time the partnership is being formed
B. The general partners are not known at the time the partnership is being formed
C. The partnership assets are unknown at the time the partnership is being formed
D. The tax status of the partnership is not known at the time the partnership is being formed

The correct answer is C
A blind pool is one where the specific investments of the partnership are not known at the time the partnership is formed. The actual investments are selected later


Below is a listing of municipal bonds with the same credit rating and maturities. Arrange the bonds in order of highest yield to lowest yield
A. General obligation bond
B. Public purpose revenue bond
C. Nonessential use private purpose revenue bond

The correct answer is C a B
The nonessential use private purpose revenue bond would have the highest yield because the interest income is taxable at regular rates. A public purpose revenue bond would have a lower yield because it's interest income Walmart subject to regular tax is subject to alternative minimum tax and the general obligation bonds would have the lowest yield because it is backed by texting power and is not subject to any taxation


A NYSE listed issue is currently quoted on a $16.50 bid, and a $16.75 ask. A customer wishes to place an order to buy 1000 shares of the stock at $16.701. Which statement is true?
A. The order is acceptable
B. the order must be rejected
C. The registered representative should around the order to $16.70 for entry into the display book
D. The order must be routed to an ECN

The correct answer is B
Rule 612 of regulation NMS does not permit the New York Stock Exchange American stock exchange index or NASDAQ to accept orders or display "" sub pennies quote. The SCC interpretation is securities must post and display quotes and orders in pennies. The actual feel of the order can occur in sub pennies


In an existing margin account a customer sell short 100 shares of ABC at $24 per share. The customer must deposit how much?
A. $2500
B. $1200
C. $2400
D. $2000

The correct answer is B $1200
Since the margin account already exists it must be meeting the $2000 minimum margin requirement. To sell short $2400 of stock a customer must only deposit regulation T margin amount of 50% or $1200


Which of the following are actively traded in the secondary market?
A. Open end funds
B. Closed end funds
C. Real estate investment trusts
D. Direct participation programs

The correct answer is B and C
Closed end funds and real estate investment trusts are listed on exchanges and are traded like all other stocks. Open end funds or mutual funds are redeemable with the sponsor they do not trade. Direct participation programs which are limited partnerships also do not trade the investor is in the program for the life of the partnership.


All of the following statements are true regarding defined benefit plans except:
A. Contributions made it to the plan can vary from year-to-year
B. Employees with the highest salaries in fewest years to retirement benefit the most
C. Benefits paid to employees consist of a tax-free return of capital and a taxable return of earnings
D. Actuarial tables are used to determine contribution rates for each employee

The correct answer is C
Since defined-benefit plans are tax qualified retirement plans, contributions are tax deductible and earnings build up is tax-deferred. When distributions commands, since none of the funds were ever taxed the distribution amounts are 100% taxable


When comparing a variable rate demand obligation to an auction rate securities, which statement is false?
A. Both our long-term bonds that have interest rates reset weekly or monthly
B. Both are issued by corporations and municipalities
C. Both can be put back to the issue or at par at the reset date
D. Both have minimal market risk

The correct answer is C
Both are considered long-term issues that have interest rates that reset weekly or monthly

Auction rate securities typically do not have the option to put back to the issue


Under the FINRA rule on initial public offering purchases, which of the following individuals is/are generally prohibited from buying a new issue for their personal accounts at the offering price?
A. Employee of a broker-dealer
B. Mutual fund portfolio manager
C. clerk employed at a bank
D. Independent insurance agent

The correct answers are A and B


Which of the following receives dividend payments?
A. Warrants
B. Treasury stock
C. ADR's
D. rights

The correct answer is C
American depository receipts are issued by domestic banks held against foreign securities, the dividends paid by the foreign securities are passed through to the holder of the ADR


The purchase price of each of the following can be negotiated except:
A. Commercial paper
B. Variable annuity
C. Certificate of deposit
D. Bankers acceptance

The correct answer is b
The purchase of a variable annuity or mutual fund share is sold at the public offering price as stated in the prospectus. This is the next computed net asset value plus the appropriate sales charge. There is no negotiation because there is no trading of these securities


The interest earned from which of the following is exempt from state and local tax?
A. Fannie Mae certificates
B. Ginnie Mae certificate
C. Real estate investment trust
D. Federal intermediate credit bank note

The correct answer is D
Interest income on US government obligations and agency obligations is subject to federal income tax but is exempt from state and local tax, however the interest income on mortgage pass-through certificates issued by Ginnie Mae is fully taxable. The interest income on all of Fannie Mae and Freddie Mac is taxable since they have been privatized. Income from real estate investment trusts is fully taxable as well


Which of the following trades settle in "clearinghouse" funds?
A. US government bonds
B. Agency bonds
C. General obligation bonds
D. Ginnie Mae pass-through certificates

The correct answer is C general obligation bonds.
Trades of corporate and municipal bonds settle in clearinghouse funds. These are funds payable at the registered clearinghouse, which are usually not good funds for at least two business days. US government in agency bonds trades settle in federal funds, which are good funds next business day. GNMA pass-through certificates are US government guaranteed so trades settle and fed funds


The customer has entered a day order to buy 500 shares of ABC stock at $21 on the New York Stock Exchange. Later in the same day, the customer tells the broker to change the order to GTC Registered representative should do what?
A. Immediately cancel the old order and enter the new order
B. Immediately enter the new order, leaving the old order on disturbed
C. Enter a change order directing the specialist/DMM to change the order duration
D. Wait until the end of the day, and if the existing order was not executed, enter the new order

The correct answer is D
The proper procedure is to leave the existing day order in tact. If it is executed that day, the customer buys the stock at the price she wishes. Otherwise the orders canceled. Then, at the end of the day if the trade is not executed, enter the new GTC order at the same price


Shareholder approval is required if a corporation wishes to make a:
A. Dividend distribution
B. Rights distribution
C. Repurchase of stock for treasury
D. Stock split

Correct answer is D
Shareholder approval is required if a corporation wishes to split it stock. Because this will change the par value of the shares. It is not required for the corporation to make it dividend distribution or a rights distribution, since the accounting for these does not affect par value. Stockholder approval is not required for repurchases to reduce the number of shares outstanding, which increases reported earnings per-share. This tends to increase the price of common stock in the marketplace, benefiting all common shareholders


A municipal bond dealer gives a quote on a new issue 20 year, 7% general obligation bond. The quote includes a 20 basis point markup. Because of the markup, which statement is true
A. The dollar price of the bond will increase and the yield of the bond will decrease
B. The dollar price of the bond will decrease and the yield of the bond will increase
C. Both the dollar price and the yield of the bond will decrease
D. Both the dollar price and the yield of the bond will increase

The correct answer is a
Any "markup" of a new issue purchased by a dealer at a net offering price less a concession, as defined by the MSRB as in a remuneration (money paid for work done) in addition to the concession received by the dealer as a result of increasing the offering price on the securities. If the offering price is increased the yield on the bond must decline


The Federal Reserve would permit which of the following to be primary US government securities dealers
A. Commercial banks
B. Domestic broker-dealers
C. Foreign broker-dealers
D. Thrift institutions

The correct answer is A B and C
The Federal Reserve allows commercial banks, domestic broker-dealers and foreign broker-dealers to be primary dealers in the secondary market in all US government issues. There are approximately 20 such firm thrift institutions that are not permitted to be primary dealers. Their focus is on obtaining deposits that are then used to make mortgages to homeowners


The effective federal funds rate is composed of what?
A. Rates offered by selected commercial banks across the United States
B. Rates offered by selected thrift institutions across the United States
C. Rates offered by the designated primary US government securities dealers

The correct answer is a


The "right of rejection" in a municipal bond sale refers to what?
A. The refusal buying municipal securities dealer to accept a delivery of bonds tendered to that firm by another municipal securities dealer
B. The return of municipal securities that have been previously accepted on a delivery
C. The procedure that permits a municipal securities dealer which has purchased securities from another dealer but has not yet received them to close out the transaction
D. The method of settlement whereby payment is made upon delivery of the securities, or if the buying the dealer does not have the monies available, the delivery may be rejected

The correct answer is a


Dividends on stock that has been sold short:
A. Are credited to the short sellers account
B. Are debited to the short sellers account
C. Credited to the short sellers SMA balance
D. Have no effect on the short sellers account

Correct answer is B
Short sellers owe any dividends paid on shares that they have borrowed to the actual owners of the stock. The dividends are credited to the owners account and debited to the short sellers account


Specialist (DMMs) on the New York Stock Exchange floor can perform all of the following functions except which?
A. Handle odd lot transactions
B. Act as a market maker
C. Act as an underwriter
D. Act as a brokers broker

The correct answer is C
The specialist cannot deal with the public so they cannot act as underwriters. They are wholesale members of the New York Stock Exchange who deal only with other retail member firms. Specialist act as marketmakers and brokers brokers


A customer has a three-year-old child and wishes to begin saving for the child's college education using a tax advantage instrument. The best investment option to meet the customers objective is what?
A. Zero-coupon bond investment
B. Age waited 529 plan
C. Coverdell ESA
D. UGMA account

The correct answer is B
Any of the choices offered could be used to save for a kids college education however the annual accretion on a zero-coupon bond is taxable, unless the investment is held in a tax-deferred account such as an IRA. Earnings in UGMA or custodian accounts are also taxable each year. So we have narrowed down the best choices to either a Coverdell ESA or an age waited 529 plan

Coverdale ESA's allow a maximum annual contribution of $2000 per year per child nondeductible and no information is given in the question about the customers income. So this is not a consideration here state proposed 529 plans allow much bigger contributions to be made. They grow tax-free as well and are not subject to income limitations. Since college is expensive, socking away more money is definitely better


A Canadian dollar is trading at 89 a customer takes the following position by one January CD 90 put and sell one January CD 85 put this is what position?
A. A bear put spread
B. A bull put spread
C. Horizontal put spread
D. Diagonal put spread

The best answer is a the long 60 put is in the money when the market is at 59 while the short 55 put is out the money therefore the premium on the long put will be higher than the premium on the short put so this is a debit spread long premium higher than short premium. Any debit spread the customer is a net buyer of the position so this is a long put spread long put spread's are profitable if the market drops so this is a bear market strategy.


Treasury bills are issued in all of the following maturities except which?
A. 52 weeks
B. 26 weeks
C. 13 weeks
D. One week

The correct answer is D


Which two of the following securities can be purchased on a margin?
A. Listed stocks
B. OTCBB Stocks
C. Listed stock options
D. Listed warrants

The correct answer is a and D


Underwriting selling group members:
A. Share in both selling responsibility for the new issue and liability for any unsold portion of the new issue
B. Share in selling responsibility for the new issue but are not liable for any unsold portion of the issue
C. Do not share in selling responsibility and are not liable

The correct answer is B


A representative is asked by the local PTA to make a speech on investing. But 100 people are expected to attend. If the representative includes analysis of specific stock in the speech and the attendees use this information to determine whether to invest in those securities, then the speech is considered to be what?
A. Advertising
B. Sales literature
C. Public forum
D. A research report

The correct answer is D


Which of the following is most susceptible to interest rate risk?
A. Common stock
B. Utility common stock
C. Preferred stock
D. High-tech, stock

The correct answers Are B and C
Interest rate risk is the risk that if market interest rates rise security prices will fall. Prices of bonds and preferred stocks that pay either a fixed interest rate or fixed dividend rate our direct Lee interest rate sensitive. As market interest rates rise their prices fall regarding common stocks companies that use a lot of leverage in their capital base are also interest rate sensitive. If market interest rates go up as these companies refund their maturing outstanding debt their interest rates their cost will rise in earnings per common share will drop. Utilities typically have 90% of their capital base as debt, so their common stock prices are interest rate sensitive high-tech companies typically have no debt in their capital base


Portfolio margining:
A. Is suitable for unsophisticated investors
B. Is unsuitable for sophisticated investors
C. Requires a minimum account equity of $2000
D. Requires a minimum account equity of $100,000

The correct answers are B and D