Main Deck Flashcards
(477 cards)
1
Q
Which of the following would constitute improper use of a customer’s securities or funds?
- Agreeing to a stock purchase the representative thinks is beyond the client’s means
- Selling a bond at the client’s insistence during a period of high interest rates
- Lending securities for a short sale when the client has agreed to it on the phone
- Borrowing a client’s funds without permission, though it will be repaid the same day
A
3 and 4
2
Q
Within what time frame must suspicious activity reports be filed?
A
30 days
3
Q
What is the tax rate on short term gains (a year or less)?
A
Taxed as ordinary income
4
Q
Who benefits most from a defined benefit plan?
A
Older employees
5
Q
If the beneficiary of a custodian account dies, who do the securities pass on to?
A
The minor’s estate
6
Q
Are reinvested dividends from mutual funds taxed?
A
Yes
7
Q
What is a select group of companies organized to underwrite corporate or municipal securities?
A
A syndicate
8
Q
What securities are exempt from registration under the Securities Act of 1933?
A
Government securities, financial institution securities, non-profit securities, intrastate offerings, private placements, commercial paper, railroad equipment trust certificates, and Rule 144
9
Q
In investor is short a 30 call at 5. What is breakeven?
A
35
10
Q
Each of the following activities would require prior written notification by an associated person to the employing broker-dealer except
- Offering to sell a limited partnership interest in an oil and gas drilling program
- Becoming a limited partner in an oil and gas drilling program
- Acting as a real estate sales agent
- Part-time work on the weekends
A
- Becoming a limited partner in an oil and gas drilling program
Passive investments are not considered outside business activity
11
Q
When is the electronic filing of customer complaints with FINRA due?
A
Within 15 days of the end of each calendar year
12
Q
What can a member firm do if a customer has not returned a proxy statement for a shareholders’ meeting?
A
The member firm may vote the shares as it wishes on minor matters
13
Q
Are fixed annuities exempt from registering as securities?
A
Yes, because they are life insurance products, not securities
14
Q
What taxes are paid on ADR capital gains?
A
US capital gains taxes only
15
Q
What are restricted securities?
A
Those initially acquired through some means other than a registered public offering
16
Q
What are the rules for affiliates and non affiliates when selling unregistered stock?
A
Both must hold for 6 months
Nonaffiliates have no volume limit
Affiliates are subject to volume limits of Rule 144
17
Q
What is the Rule 144 volume limit?
A
The amount that can be sold is the greater of 1% of the total outstanding shares or the average weekly trading volume over the past 4 weeks
18
Q
What are preemptive rights?
A
Granted to existing shareholders to allow them to maintain their proportionate % of ownership by buying newly issued shares before they go public. They usually expire after 30-45 days and can be exercised below the market price.
(Benefit of common stock)
19
Q
What are warrants?
A
The right to purchase shares at a specific price. They are long term, exercisable above the marker price, and are offered as a sweetener to attract buyers.
20
Q
Can rights and warrants be sold or purchased on margin?
A
Warrants can, rights can not
21
Q
What debt security has a fixed maturity date where the entire principal is repaid at the end of the term?
A
Term bonds
22
Q
What debt security has a schedule for proportions of the principal to mature at intervals over a period of years until the entire balance has been repaid?
A
Serial bonds
23
Q
What debt security has a maturity schedule where the issuer repays part of the bond’s principal in intervals and then the remainder at maturity?
A
Balloon bonds
24
Q
What are other terms used for coupon rate?
A
Stated yield or nominal yield
25
What is the relationship between bond prices and interest rates?
Inverse
26
What measures a bond's annual coupon payment relative to the market price and is found by dividing the annual coupon payment by the market price?
Current yield
27
How do you calculate current yield?
Annual coupon payment / CMV
28
What reflects the annualized return of a bond if held to maturity and accounts for the difference between the price paid and par value received at maturity?
Yield to maturity
29
What reflects a callable bond's early redemption date and acceleration of the discount gained or the premium lost?
Yield to call
30
Is a bond with a coupon rate higher than what it is trading at currently at a premium or discount?
Premium
31
Is a bond with a coupon rate lower than what it is trading at currently at a premium or discount?
Discount
32
When a bond is trading at a discount, what is the relationship between the coupon rate, CY, YTM, and YTC?
At a discount: YTC > YTM > CY > Coupon
33
When a bond is trading at a premium, what is the relationship between the coupon rate, CY, YTM, and YTC?
At a premium: Coupon > CY > YTM > YTC
34
What is the relationship between coupon rate and volatility?
The lower the coupon rate, the higher the volatility
35
What does Moody's consider investment grade debt?
Aaa, Aa, A, and Baa
36
What does Moody's consider non-investment grade debt?
Ba, B, Caa, Ca, C
37
What does S&P and Fitch consider investment grade debt?
AAA, AA, A, BBB
38
What does S&P and Fitch consider non-investment grade debt?
BB, B, CCC, CC, C, D
39
What is the relationship between debt rating and yield?
The higher the rating, the lower the yield
40
What is the order of liquidation?
Secured debt
Unsecured debt
Subordinated Debt
Preferred stock
Common stock
SUSPC
41
What is also known as the New Issues Act, Paper Act, and Prospectus or Truth in Securities Act?
The Securities Act of 1933
42
Where do treasury STRIPS, receipts, bills, notes, and bonds mature?
Par value
43
What is the bid price?
The highest price someone is willing to pay and what the seller receives
44
What is the ask price?
The lowest price someone is willing to sell at and what the buyer pays
45
Do mutual funds trade on the secondary market?
No, they are only redeemable through the issuer and can not be sold or bought on margin
46
When would buying calls be the most risky?
In a strong bear market
47
What is an underwriting with a fixed minimum dollar amount to be sold in order to move forward with the entire offering?
Mini-max
A type of best efforts
48
What is a mini-max?
A best efforts underwriting with a fixed minimum dollar amount to be sold in order to move forward with the entire offering
49
What is the main benefit associated with a real estate DPP?
Tax deductions and credits
50
What is hypothecation?
The initial process where a borrower pledges an asset as collateral to secure a loan
51
What is rehypothecation?
When a lender uses an asset pledged by a borrower as collateral to secure their own obligations or financing
52
Is a signature endorsement required on a stock certificate for good delivery if it is held in street name?
No, street name is book entry
53
What types of securities would have intraday price changes due to normal market forces?
Closed-end fund shares and ETFs
54
What is the purpose of raising interest rates?
To contract the economy
55
What option strategy would benefit a customer with a large cash position who is interested in purchasing stock at lower prices?
Writing covered puts that are currently out of the money
56
When does a put have intrinsic value?
When the XP is more than the CMV
57
When does a call have intrinsic value?
When the CMV is more than the XP
58
Which of the following would cause a change in the NAV of a mutual fund share?
1. Many shares are redeemed
2. Securities in the portfolio are sold for a capital gain
3. The fund pays a small dividend
4. The market value of the portfolio declines
1 and 4
59
How often may funds be rolled over from one state's Section 529 plan to another's?
Once every 12 months
60
When a limited partnership is liquidated (dissolved), the priority of payments to settle accounts are made from first to last in which order?
General partners
Limited partners
General creditors
Secured creditors
Secured creditors
General creditors
Limited partners
General partners
61
What is the rate of interest charged by the Fed for short term loans to its member banks?
The discount rate
62
How does raising interest rates affect bond prices?
It would push bond prices lower in the open market
63
Which education savings account types phase people at higher income levels out?
Coverdell ESA's
(Income level has no effect on contributions to a 529 plan)
64
Under the Investment Company Act of 1940, do mutual funds have to register at the federal level, the state level, or both?
Only the federal level. Federal covered securities are not required to register at the state level.
65
What is the bureau of the Treasury Department that combats money laundering and international and domestic terrorist financing called?
FinCEN
66
How long must written complaints be held?
4 years
67
Are treasury receipts backed by the government?
No
68
To receive a dividend, the owner's name must appear in the transfer agent's books by which date?
The record date
69
What are the benefits of using a prime broker?
Consolidation of records, multiple executing brokers, and cost savings
70
An investor has been putting aside funds for retirement in a nonqualified variable annuity for over five years. She is now age 66 and takes a lump-sum distribution. How are the earnings taxed?
As ordinary income
71
Corporate bonds are most likely to trade in which market center?
OTC
72
After terminating from a securities firm and leaving the industry, regulators retain jurisdiction for a former representative for how long?
2 years
73
What act provides criminal penalties for fraud?
The Securities Act of 1933
74
How long is the aftermarket prospectus requirement for the IPO of non-listed securities?
90 days
75
What type of firm would be expected to perform back office functions and take custody of customer funds and securities
Carrying firm
(They carry the customer's securities)
76
What are European style options contracts?
They may only be exercised on the final trading day and options expiring in the money will be automatically exercised
77
What are American style options contracts?
They may be exercised at any time prior to expiration and do not automatically exercise
78
What are the tax consequences for a failure to meet RMD?
25% tax on the amount not distributed that was required to be
79
How many days in the month and year are used to calculate accrued interest on corporate bonds?
30 day months and 360 day years
80
How often are T-bills issued?
Weekly for 4, 8, 13, and 26 week maturities
Monthly for 52 week maturities
81
What can margin calls be met with?
Deposits of cash or fully paid marginable securities
82
Who is responsible for the adequacy and accuracy of a registration?
The issuer
83
What kind of US backed debt security is issued with maturities of 4, 8, 13, 26, and 52 weeks?
T-bills
84
What US backed securities are issued at a discount and mature at par?
T-bills
85
What US backed securities are issued at par and pay periodic interest?
T-notes
86
What US backed securities can be issued at either par, a discount, or a premium?
T-bonds
87
Are treasury receipts exempt?
No, they are issued by BDs from T-notes and T-bonds, so they are not US backed or exempt
88
Which of the following transactions may be made on margin?
A) The purchase of listed stock in a custodial account
B) The purchase of option contracts
C) The purchase of NYSE-listed closed-end fund shares
D) The purchase of open-end funds
C) The purchase of NYSE-listed closed-end fund shares
Closed-end company shares may be purchased on margin like other listed securities that trade in the secondary market. Open-end shares (mutual funds) are continuous primary offerings, and new issues of securities are not marginable. Option contracts, like mutual funds, may be purchased in a margin account but may not be purchased on margin. (They must be paid for in full.) Margin trading is not allowed in a custodial account.
89
At what age must an individual begin taking Required Minimum Distributions (RMDs) from a traditional IRA?
73
90
In an irrevocable trust a grantor may or must do which of the following?
1. May change the terms of the trust
2. Must give up ownership of items placed in the trust
3. May reduce estate taxes
4. May retain ownership of items placed in the trust
2 and 3
The grantor may be able to avoid some of the tax consequences because he gives up ownership of items in the trust and cannot change the terms of the trust once established.
91
Which bond is likely to be the most volatile in response to changes in interest rates?
A long-term, low-coupon bond
Long-term, low-coupon bonds are more sensitive to changes in interest rates and thus have higher price volatility. This is because their payments are spread over a longer period, and the lower coupon means investors receive less interest in the near term, making the bond more susceptible to market fluctuations. Short-term and higher-coupon bonds are less volatile because they pay back the investor sooner and with more regular income, which helps stabilize their price.
92
The Securities Exchange Act of 1934 covers all of the following except
A) trading of corporate securities
B) manipulative, deceptive devices
C) broker-dealers and associated persons
D) issuance of corporate securities
D) issuance of corporate securities
The Securities Exchange Act of 1934 (the People and Places Act) regulates the secondary market, including strict prohibitions from using manipulative, deceptive, or other fraudulent tactics. The Securities Act of 1933 (the Paper Act) regulates the primary market.
93
Who is typically responsible for facilitating the sale of new securities in the primary market?
Underwriters
94
What is the difference in the types of stocks that can be issued by open and closed end companies?
Open end can only issue common, closed end can issue common and preferred
95
At what age can an ABLE account be opened?
Any age
The disability just has to have onset by age 26
96
After rule 144 stock is held for 6 months and sold, is it still unregistered?
No, it is now registered and there are no holding limits anymore
97
What kind of broker provides custody and clearing services and may share execution services with other broker-dealers?
Prime brokers
98
Which of the following is not reported on Form U4?
A) Aliases
B) Employment history
C) Residency history
D) Marital status
D) Marital status
99
A new registered representative working for a broker-dealer is taking a part-time job at a restaurant on evenings and weekends to supplement current income. Regarding this activity,
A) No prior written notice must be made to the member firm because the firm has no authority to reject or restrict the affiliation.
B) Prior written notice must be made to the member firm, who could reject or restrict the affiliation
C) Prior written notice must be made to the member firm, and the firm must expressly grant permission, in writing, prior to acceptance of the position
D) No prior notice is required, but the rules allow the firm to retain the right to prohibit all paid activity unrelated to the broker-dealer’s business
B) Prior written notice must be made to the member firm, who could reject or restrict the affiliation
If a registered person wants to be employed by or accept compensation from an entity other than the member firm, that person must provide prior written notice to the member. Note that although the employing member's permission is not required, the firm does have the right to reject or restrict any outside affiliation if it feels a conflict of interest exists.
100
What must a customer do to open a short position in a security?
Borrow the shares and sell them in the market.
101
All of the following regarding a trust set up for the purpose of holding commercial property or mortgages on commercial property are true except
A) Investors may never purchase shares in these trusts on an exchange or over the counter (OTC)
B) Ownership of these shares may provide for the receipt of dividends
C) Gains can pass through to the owners of these shares
D) These investments could not be considered open- or closed-end funds
A) Investors may never purchase shares in these trusts on an exchange or over the counter (OTC)
This is a REIT. REIT shares can trade on exchanges or over the counter (OTC). Owners of these shares may receive dividend distributions and have capital gains pass through to them for tax purposes as well. REITS, organized as trusts, are not investment companies (open- or closed-end funds). Shares in REITs are equity securities.
102
What is the difference between the portfolios of UITs and management companies?
UIT portfolios are fixed while management company portfolios are managed
103
What are shares that have been sold to investors and are still in the hands of those investors?
Outstanding stock
104
What action must a broker-dealer take when a customer's margin account equity falls below the required minimum of 25%?
Issue a maintenance call requiring the customer to deposit additional funds
105
If an investor purchases an 8% corporate bond at 93, and the bond is scheduled to mature in 2028, what will the investor receive at maturity?
$1,040
The investor will receive $1,040 at maturity. This amount is comprised of the principal repayment of $1,000 plus the final semiannual interest payment of $40. Remember that par value is always $1,000 for a bond unless stated otherwise. The purchase price is not relevant for this question and is only there as a distraction.
106
What does the forward pricing rule apply to?
Purchases and redemptions of the shares of open-end investment companies
107
What is required for a trade to be considered nondiscretionary?
The customer must agree to the Action, Asset, and Amount before the trade is executed
108
What is the primary purpose of a reverse stock split?
To increase the share price by reducing the number of outstanding shares.
109
Which of the following accurately describes Treasury STRIPS?
A) They are securities that pay interest semiannually
B) They are backed by a broker-dealer, not the U.S. government
C) They are not backed by the full faith and credit of the U.S. government
D) They are U.S. Treasury securities where the interest and principal components are separated and traded individually
D) They are U.S. Treasury securities where the interest and principal components are separated and traded individually
Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) are created by separating the interest and principal components of Treasury bonds or notes and trading them individually. STRIPS are direct obligations of the U.S. Treasury and are backed by the full faith and credit of the U.S. government. Unlike regular bonds, STRIPS are zero-coupon securities, meaning they do not pay periodic interest but are sold at a discount and redeemed at face value at maturity.
110
What is the primary role of a market maker in the OTC market?
To provide liquidity by buying and selling securities from their inventory.
111
What is the maximum annual contribution allowed per student for a Coverdell Education Savings Account (ESA)?
2000
112
What is the minimum percentage of net investment income that a mutual fund must distribute to qualify as a conduit and avoid taxation at the corporate level?
90%
113
When does the Telephone Consumer Protection Act mandate that unsolicited sales calls must occur?
Between 8am and 9pm in the recipient's time zone
114
What is the breakeven for a 50 put at 3?
47
115
Who are ETN's backed by?
The issuer
116
What includes rules that govern the interactions between firms and their customers, covering aspects like fair dealing, compensation, and communication standards?
Conduct rules
117
At what levels is GNMA interest income taxed?
Both state and federal
118
If a bond is trading at 95 in the secondary market, is it at a premium or discount?
Discount
119
What is regular way firm-to-firm settlement under Regulation T?
T+3
120
Can ETFs be bought on margin?
Yes
121
Why might ETFs be preferable to mutual funds?
They can be purchased on margin, have no sales charge, lower expense and operating costs, and they can be traded throughout the day like stocks on an exchange
122
Which act created the SEC?
The Securities Exchange Act of 1934
123
Which of the following is a type of investment company security as defined by the Investment Company Act?
A) Variable life insurance subaccount
B) Hedge fund
C) Grant anticipation note
D) Exchange-traded note
A) Variable life insurance subaccount
The subaccounts of a variable life's separate account are organized as an investment company: either a UIT or an open-end managed company. Hedge funds are not covered by the Investment Company Act. ETNs and GANs are fixed income securities.
124
The Securities Act of 1933 protects investors who buy new issues by doing all of the following except
A) Regulating the underwriting and distribution of primary and additional offerings
B) Providing criminal penalties for fraud in the issuance of new securities
C) Requiring an issuer to provide full and fair disclosure.
D) Requiring the licensing of persons affiliated with broker-dealers
D) Requiring the licensing of persons affiliated with broker-dealers
Licensing of individuals associated with broker-dealers is mandated under the Securities Exchange Act of 1934. The Securities Act of 1933 protects investors who buy new issues regulating, among other things, registration of new issues, underwriting, full disclosure, and the potential for fraud in the issuance of securities.
125
By whom is the statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" mandated by?
The SEC for final prospectuses
126
The Investment Company Act of 1940 classified all the following as investment companies except
A) Management companies
B) Unit investment trusts
C) Private investment companies
D) Face-amount certificate
C) Private investment companies
The three classifications established under the Investment Company Act of 1940 are face-amount certificates, unit investment trusts, and management companies (open and closed-end funds). Private investment companies do not come under the Act of 1940.
127
When opening a new account with margin, all of the following documents are required except
A) Hypothecation agreement
B) Credit agreement
C) Account agreement
D) Consent to loan agreement
D) Consent to loan agreement
The consent to a loan agreement is not a regulatory requirement. Note this is a new account, so the regular account agreement is required in addition to the margin documents.
128
A customer who is bullish on ABC would most likely
A) Sell ABC short
B) Buy ABC long
C) Sell ABC long
D) Buy ABC short
Buy ABC long
When a customer is bullish, the customer expects the price to go up. Because trades are profitable when purchases are made at low prices and sales are made when prices are high, a customer would want to buy ABC long. Buying stock short is not a real trading strategy.
129
What happens to prices of preferred stock when interest rates rise?
They fall
Because it pays a fixed dividend, preferred stock is interest-rate sensitive. As rates rise, prices of preferred stocks tend to fall and vice versa.
130
Which type of underwriting is characterized by the broker-dealer buying the entire issue from the issuer and then reoffering it to the public?
Firm commitment
In a firm commitment, the underwriter buys the entire offer into inventory and then redistributes it to the public.
131
BigBox Stores, Inc., common stock is a New York Stock Exchange-listed security. If an over-the-counter dealer makes a market in the stock, this activity is taking place in which market center?
Third market
132
How long are records of principal designations kept?
Six years
133
Newsies Publishing, Inc., trades over the counter, and the board declared a $0.25 per share dividend on Tuesday, May 6. The dividend will be paid to holders of record of Newsies common stock as of Friday, June 23, and will be paid out on Wednesday, July 12. What is the most likely ex-dividend date?
Friday, June 23
134
An amended Form U5 must be filed and a copy sent to the former employee within how many days of discovery of the inaccuracy?
30
135
Are underwriters in a firm commitment acting as principals or agents?
Principals
In a firm commitment, the underwriters contract with the issuer to buy the securities from them and thus are acting as principals rather than agents. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately all of the securities will be sold and all of the capital needed will be raised.
136
What department of the federal government is FinCEN a bureau of?
The Treasury
137
Which of these is not backed by the full faith and credit of the U.S. government?
A) Treasury bonds
B) Treasury receipts
C) Treasury STRIPS
D) Treasury bills
B) Treasury receipts
138
Ensuring that the investing public is fully informed about a security and its issuing company when shares are first sold in the primary market is covered under which federal act?
Securities Act of 1933
139
In a joint account, can certificates be registered to one person?
No, they must be registered in the names of all parties in an account
140
What is a 12b-1 fee?
Part of the expense ratio of a fund. A 12b-1 fee is deducted each quarter from a mutual fund's assets to cover the costs of marketing and distributing the fund to investors.
141
When is the ex-dividend date for a mutual fund?
The day after the record date
142
What will the writer of an index option be required to deliver to the buyer if the buyer exercises the option?
Cash equal to the intrinsic value
There is no underlying stock to deliver in an index option, nor does the writer deliver a basket of stock. The writer delivers cash equal to the intrinsic value of the contract. If all an investor could get back was the original premium, then profit would be impossible.
143
What happens if a registered individual fails to complete the regulatory element continuing education requirement?
Their registration will be deactivated until requirements are met
144
How many days is the aftermarket prospectus requirement following an APO for exchange-listed securities?
Zero
For exchange-listed additional public offerings, there is no aftermarket prospectus requirement.
145
Which options position has the greatest potential risk if the price of the underlying stock goes up?
Short call
146
What is a person who looks to provide advice to a city government concerning the issuance of municipal debt securities?
A municipal advisor
147
All of the following regarding a trust set up for the purpose of holding commercial property, or mortgages on commercial property, are true except
A) These investments could not be considered open- or closed-end funds
B) Ownership of these shares may provide for the receipt of dividends
C) Gains can pass through to the owners of these shares
D) Investors may never purchase shares in these trusts on an exchange or over-the-counter (OTC)
D) Investors may never purchase shares in these trusts on an exchange or over-the-counter (OTC)
This is a REIT. REIT shares can trade on exchanges or over the counter (OTC). Owners of these shares may receive dividend distributions and have capital gains pass through to them for tax purposes as well. REITS, organized as trusts, are not investment companies (open- or closed-end funds). Shares in REITs are equity securities.
148
Which of the following are true of qualified plans but not true of nonqualified plans?
1. Contributions are not tax deductible
2. Contributions are tax deductible
3. Plan needs IRS approval
4. Plan does not need IRS approval
2 and 3
Qualified plans require IRS approval, and the contributions are tax deductible. Because nonqualified plans' contributions are not deductible, they do not require IRS approval.
149
What is the max gain potential for an investor short a January 30 call at 4?
$400
Maximum gain for any short option position (call or put) is the premium initially received when the contract was written. In this case, it is 4 points or $400. This would occur if, at expiration, the contract was at or out of the money and, therefore, left unexercised.
150
Which requires voter approval: GO bonds or municipal revenue bonds?
GO bonds
Municipal general obligation (GO) bonds require voter approval because the debt service for these bonds (principal and interest payments) is funded by the taxes collected by the municipal issuer. Voters pay these taxes.
151
What is considered a benefit for broker-dealers offering margin accounts to their customers?
The additional income generated from the payment of margin interest
Margin interest paid by customers is considered a source of income for broker-dealers and pledging the customer's securities as collateral for the loan is simply a necessary part of offering margin to customers. The need for more operational staff is a cost, not a benefit, and margin accounts are not typically attractive to conservative investors.
152
If a broker-dealer suspects that a transaction involves funds derived from illegal activity, a suspicious activity report (SAR) would be triggered at what threshold amount?
At least $5,000 in funds or other assets
153
Selling long is equivalent to which of the following?
A) Selling to close
B) Selling short
C) Selling to open
D) Selling to open then buying to close
A) Selling to close
When a customer owns a position and then sells that position, that is referred to as selling long or selling to close.
154
What statement is true regarding mutual fund dividend payments?
A) Mutual funds must be held for a month to receive dividends
B) They are processed in the secondary market
C) They do not involve secondary market transactions
D) Shareholders must trade in the secondary market to receive dividends
C) They do not involve secondary market transactions
Mutual fund transactions do not occur in the secondary market, and purchases and redemptions are directly with the fund.
155
How is growth in a variable annuity taxed?
Tax on growth is deferred until withdrawn. Once withdrawn, the growth is taxed as investment income.
156
A broker-dealer may extend credit under Regulation T for which of these transactions?
A) A mutual fund purchase
B) A closed-end investment company purchased on the NYSE
C) The purchase of an IPO that went public 25 days ago
D) A variable annuity purchase
B) A closed-end investment company purchased on the NYSE
Regulation T governs customer payment and the extension of credit to clients in margin accounts. A closed-end fund is an existing listed security and is eligible for purchase on credit. IPOs and other new issues, such as mutual fund purchases, may only receive loan value (and credit) after 30 days from issuance. Variable annuities may not be purchased with margined funds. These products are hybrid insurance and investment contracts that must be fully funded at time of purchase.
157
Each of the following are likely to be found on a trade confirmation except
A) Commission
B) Bond credit rating
C) CUSIP
D) Description
B) Bond credit rating
158
Which type of security is most susceptible to business risk?
Common stock
159
Last year Brownstone Properties, LP distributed $200 per unit to investors and reported a $500 business loss per unit on the K-1. For tax purposes what did the investors receive?
A $500 per unit passive loss
160
All of the following are advantages of using American depositary receipts (ADR) when investing in the stock of a foreign corporation except
A) ADRs provide a hedge against currency risk
B) ADRs pay dividends in U.S. dollars
C) ADRs make it significantly easier to invest in a foreign security
D) ADR issuers provide financial reports in English
A) ADRs provide a hedge against currency risk
161
What are the two basic types of return on an investment?
Capital gains and income
162
Which of the following investments has a predetermined termination date?
A) Open-end management company
B) Mutual fund
C) Unit investment trust
D) Closed-end management company
C) Unit investment trust
163
What is the federal funds rate?
Rate that the commercial money center banks charge each other for overnight loans of $1 million or more
164
What is the rate that the commercial money center banks charge each other for overnight loans of $1 million or more?
Federal funds rate
165
Who sets the federal funds rate?
The banks
166
What is the prime rate?
The interest rate that large US money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans
167
What is the interest rate that large US money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans
The prime rate
168
Who sets the prime rate?
The banks
169
What is the broker call loan rate?
The interest rate that banks charge BDs on money they borrow to lend to margin customers
170
What is the interest rate that banks charge BDs on money they borrow to lend to margin customers
Broker call loan rate
171
Who sets the broker call loan rate?
The banks
172
What is the discount rate?
The interest rate that the Fed charges banks for loans they need in order to meet reserve requirement
173
What act includes the Prospectus Act, Truth in Securities Act, and Paper Act?
Securities Act of 1933
174
Who sets the discount rate?
The Federal Reserve
175
What is a PIPE offering?
The corporation offers additional shares of their stock to institutions or accredited investor. It stands for Private Investment in Public Equity.
176
What NAV are mutual fund orders processed at?
The next NAV calculated after the close of the trading day
177
John, a customer, purchases 500 shares of the Sierra Verde Coffee Company at $22 a share in a margin account. What is John's initial margin requirement for this purchase?
$5,500
178
In an effort to safeguard customer information which regulation specifies securing desktop and laptop computers and encrypting email?
Regulation S-P
179
What is the effective date?
When the SEC clears securities for sale to the investing public
180
Which of the following may be purchased in the secondary market?
A) Common shares of an open-end investment company
B) Units of a unit investment trust
C) Common shares of a closed-end investment company
D) Face-amount certificates
C) Common shares of a closed-end investment company
Closed-end investment companies are often called publicly traded funds. After the stock is sold in the initial offering, anyone can buy or sell shares in the secondary market (i.e., on an exchange or over the counter) in transactions between private investors.
181
How long is the required delivery period for a listed IPO?
25 days
182
How long is the required delivery period for a listed APO?
Zero days
183
How long is the required delivery period for an unlisted IPO?
90 days
184
How long is the required delivery period for an unlisted APO?
40 days
185
What is a characteristic shared by both corporate debentures and income bonds?
Both must pay principal as it comes due
186
What debt instrument pays no periodic interest?
Treasury STRIPS
STRIPS are Treasury bonds with the coupons removed. With no coupons, STRIPS do not make regular interest payments. Instead, they are sold at a deep discount and mature at par value.
187
How do limited partnerships end?
They must end on a predetermined date or can be dissolved earlier by vote
188
Can a limited partnership exist in perpetuity?
No, they must end on a predetermined date or can be dissolved earlier by vote
189
All of the following are true of negotiable commercial paper except
A) It is typically issued by banks
B) The issuers typically have strong credit ratings
C) It is considered a money market instrument
D) It has a maximum 270-day maturit
A) It is typically issued by banks
Commercial paper is short-term unsecured debt issued by corporations having very good credit ratings. With a maximum 270-day maturity, it is considered a money market instrument.
190
How are contributions to a traditional 401(k) plan treated for tax purposes?
Contributions are made with pre-tax dollars, reducing taxable income for the year.
191
Which class of shares use a CDSC as the main sales charge?
Class B shares
192
What kind of indicator is household income?
Coincident
193
What kind of indicator is employment levels?
Coincident
194
What kind of indicator is industrial production?
Coincident
195
What kind of indicator is GDP?
Coincident
196
What kind of indicator is manufacturing and trade sales?
Coincident
197
What kind of indicator is M2 money supply?
Leading
198
What kind of indicator is housing starts?
Leading
199
What kind of indicator is stock prices?
Leading
200
What kind of indicator is changes in inventory?
Leading
201
What kind of indicator is new orders for consumer goods?
Leading
202
What kind of indicator is unemployment claims?
Leading
203
What kind of indicator is corporate profits?
Lagging
204
What kind of indicator is ratio of inventory to sales?
Lagging
205
What kind of indicator is average duration of unemployment?
Lagging
206
What kind of indicator is the ratio of consumer installment credit to personal income?
Lagging
207
How does the sale of portfolio securities affect the NAV per share of a mutual fund?
It doesn't.
Selling securities out of the portfolio, whether for a gain or a loss, simply replaces the securities with an equivalent amount of cash, leaving the NAV per share unchanged. The other choices involve changes in net assets with no accompanying change in the number of shares outstanding, which would change the NAV per share.
208
Which of the following regarding established customers of a broker-dealer and the purchase of penny stocks are true?
1. They are exempt from the suitability statement requirement
2. They are not exempt from suitability statement requirement
3. They are exempt from the disclosure rules
4. They are not exempt from the disclosure rules
1. They are exempt from the suitability statement requirement
and
4. They are not exempt from the disclosure rules
209
What is the max gain on a short call?
Premium
210
What theory postulates that market forces should be allowed to freely determine the price of goods with minimal government intervention?
Supply-side theory
211
In what capacity is a best efforts underwriter acting as?
Agent
212
In what capacity is a firm commitment underwriter acting as?
Principal
213
What form of underwriting agreement states that the underwriter must sell all the securities offered or cancel the underwriting?
AON best efforts
214
What form of underwriting agreement states that the underwriter must sell a minimum amount of securities offered or cancel the underwriting?
Mini max best efforts
215
What is the difference between firm commitment and best efforts underwriting?
In best efforts, the underwriter doesn't own the stocks
In firm commitment, the underwriter personally buys the shares and has to sell them
216
What organization mandates record retention time periods?
The SEC
217
How long is the record retention period for corporate charters?
Indefinite
218
How long is the record retention period for stock certificate books?
Indefinite
219
How long is the record retention period for organizational records?
Indefinite
220
How long is the record retention period for blotters?
6 years
221
How long is the record retention period for general ledger?
6 years
222
How long is the record retention period for stock record?
6 years
223
How long is the record retention period for customer ledgers such as customer statements?
6 years
224
How long is the record retention period for customer account records such as new account forms?
6 years
225
How long is the record retention period for written complaints?
4 years
226
How long is the record retention period for advertising?
3 years
227
How long is the record retention period for correspondence?
3 years
228
How long is the record retention period for U4 and U5 forms?
3 years
229
How long is the record retention period for customer confirmations?
3 years
230
How long is the record retention period for order tickets?
3 years
231
How long is the record retention period for associated persons' compensation records?
3 years
232
How long is the record retention period for other ledgers, such as borrowed and loaned securities and dividends receieved?
3 years
233
How long is the record retention period for the list of every office where each associated person regularly conducts business?
3 years
234
How long is the record retention period for the firm's compliance and procedures manual?
3 years
235
What three organizations are NOT self regulating?
SEC, NASAA, OFAC
236
Which part of FINRA's conduct rules covers the enforcement of rules and punishments for violation?
Code of Procedure
237
Which part of FINRA's conduct rules covers trading and payment for securities transactions?
Uniform Practice Code (UPC)
238
Which part of FINRA's conduct rules covers the dispute resolution process?
Code of Arbitration (COA)
239
Is FINRA a self regulating organization?
Yes
240
What self regulating organization covers underwriting and trading of state and municipal securities?
Municipal Securities Rulemaking Board (MSRB)
241
Does the MSRB have enforcement powers?
No, they only make the rules
242
Who enforces the MSRB's rules on banks?
Comptroller, Fed, and FDIC
243
Who enforces the MSRB's rules on BDs?
SEC and FINRA
244
As SROs, what do exchanges have the power to do?
List and delist securities, suspend trading, and establish rules about order priority, capital requirements, and more
245
What are the three stages of money laundering in order?
Placement, layering, and integration
246
Who maintains the list of specially designated nationsals?
OFAC
247
What is an offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time known as?
A secondary offering
248
A client opens a new margin account and, as the initial trade, purchases 300 shares of MS Corporation common stock at $10 per share. What would the firm send the client a margin call for?
$2,000
249
What can a hedge fund do that a mutual fund can not?
Trade on margin
250
Which of the four dividend disbursement dates are set by FINRA for OTC stocks or the exchange for listed stocks?
Ex-dividend date
251
What is the maximum that SIPC covers?
$500,000, of which no more than $250,000 can be cash
252
What is the max cash amount that can be covered by SIPC?
$250,000
253
If left unexecuted, a day order will automatically be canceled when?
On the close of the business day
254
What is the type of an account with a broker-dealer who provides a group of services, such as asset allocation, portfolio management, trade executions, and administration, for a single fee?
A wrap account
255
Who in a limited partnership can be held personally liable for business losses and debts?
General partners, not limited partners
256
A 40-year-old individual is not covered by a retirement plan at work. What is the maximum contribution this individual can make to a traditional IRA this year?
The current maximum allowed by the IRS, which will all be deductible.
257
What is true about interactive social media posts under FINRA rules?
They do not need pre-approval
258
Can closed-end companies issue bonds and preferred stock?
Yes
259
Can a bond mutual fund issue bonds?
No
A bond mutual fund invests in the bonds of other companies. It may not itself issue bonds or preferred stock. They can only issue common shares. Closed-end companies are much like any other company. They may issue bonds and preferred stock, once they have sold common stock and become a publicly traded company.
260
What types of securities can bond mutual funds issue?
Only common stock
261
When is a CTR filed for suspicious activity?
Within 15 days
262
The maximum number of common shares that may be issued is found in the corporation's charter. What are these shares called?
Authorized shares
263
What does securitization achieve for financial institutions?
Conversion of non-tradable assets into liquid, marketable securities
264
Great Plains Investment is a member firm that maintains an inventory in BigBox Stores, Inc., common stock. When transacting business in BigBox stock, the firm is most likely acting in what capacity?
Market maker
265
How do you calculate the intrinsic value of a call?
IV = CMV - XP
266
How do you calculate the intrinsic value of a put?
IV = XP - CMV
267
Does the value exist to the person who is long or short an option?
Long - they have the right to buy or sell
268
What is the primary use for a revocable trust?
To use as a substitute for a will
269
How long are warrants typically good for?
5 years or more
270
What is the difference between open and closed end companies in terms of what markets their shares can be purchased on?
Closed end company shares can be purchased on secondary market
Open end shares can only be purchased directly from the issuer
271
A contract between an investor and an issuer in which the issuer guarantees payment of a stated sum to the investor at some set date in the future is defined by the Investment Company Act as what?
Face amount certificate
272
What securities can trade above or below their NAV?
Common shares of a closed-end investment company
273
Are dividends considered ordinary income or capital gains?
Ordinary income
274
Are rents received from income properties considered ordinary income or capital gains?
Ordinary income
275
Are gains from the sale of securities considered ordinary income or capital gains?
Capital gains
276
What would a company that offers sales of another company's securities in a primary market transaction best be described as?
An underwriter
277
Which class of shares have a 12b-1 fee as the primary sales charge?
Class C shares
278
What must a customer do in order to qualify to invest in a Regulation A Tier 2 offering?
Self-certify that they meet the requirements
279
What securities trade at a price determined by a formula?
Common shares of a mutual fund
280
What is a bond that is structured so that a portion of the principal is scheduled to mature at intervals over several years?
Serial bond
281
If a 40-year-old customer earns $85,000 a year and his 38-year-old spouse earns $140,000 a year, how much may they contribute to individual retirement accounts (IRAs)?
They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less.
282
Are Treasury receipts sold at a premium, par, or discount?
Discount
283
When is interest paid on Treasury receipts?
At maturity
284
An investor owns a municipal bond fund. What is the tax status of distributions from the fund?
Dividends will be tax free, but capital gains distributions are taxable.
285
286
What do ETFs and mutual funds have in common?
Both can be open end management companies
287
What is the spread a dealer makes best described as?
The ask minus the bid
288
An investor holds a 4% bond, callable in 8 years, and maturing in 12 years. The bond's current yield (CY) measures its annual coupon payment relative to what?
Its market price
289
For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are made by who?
The clearing firm
290
Can REITs trade OTC?
Yes
291
When a corporation issues a mortgage bond, should the issue's total value be greater than, equal to, or less than that of the real estate it is backed by?
Less than
Mortgage bond issues represent the amount the issuer is borrowing that is backed by its real estate assets. Just as with a home mortgage, the amount borrowed shouldn't exceed the value of the property. Hence, the issue's total value should be less than that of the real estate by which it is backed. Backed by real property, these are secured debt instruments.
292
At what levels are treasury issues taxed?
Only federal
293
Which type of DPP would be least likely to enable the investor to claim a deduction for depreciation?
Raw land
294
A customer sells shares of the ABC Growth Fund and invests the proceeds into the Windmill Income Fund. Both investments are in Class A shares. What are the tax consequences for these transactions?
The customer will realize any capital gains or losses and will pay a new sales charge.
The exchange (conversion) privilege would waive the new sales charge if this transaction was between funds within the same fund family (sponsor). In this question the funds are at different sponsors; any sales charges will apply to the new purchase.
295
How long is the record retention period for CTRs?
5 years
296
What is the largest SRO?
FINRA
297
Do Treasury STRIPS make interest payments?
No, the coupon is removed
298
What is the current yield of a $1,000 par value bond with a 6.5% coupon trading at 110?
65 / 1100 = 5.9%
299
Do REITs pass both gains and losses?
No, only gains and dividends
300
What would be found in a final prospectus but not a tombstone advertisement?
Intended use of the proceeds
301
Who set Regulation T?
The Federal Reserve Board
302
What states that the initial margin requirement is 50%?
Regulation T, set by the FRB
303
An investor has asked a mutual fund company for a copy of its Statement of Additional Information (SAI). How long does the fund have to comply with the request?
3 business days from the date of the request
304
Which regulatory body oversees trading in the over-the-counter (OTC) market?
Financial Industry Regulatory Authority (FINRA)
305
What has negotiated pricing?
Only the OTC market
306
Who sets the ex-dividend date for a mutual fund?
The BOD after the record date
307
How long is the time period for rule 144 stock selling?
90 days
Rule 144 stipulates that after holding restricted stock fully paid for six months, an affiliate may begin selling shares but is subject to volume restrictions within any 90-day period.
308
How is growth in a variable annuity taxed?
Growth is tax-deferred
309
Which of the following can raise funds in the capital markets?
1. Municipalities
2. The federal government
3. Corporations
All of them
310
What kind of offering is used for a deal that will be sold exclusively to residents of one state?
Rule 147
311
Are REITs registered as investment companies?
No
312
Is a grantor of a living trust subject to tax implications?
Yes
313
Is a UIT a type of investment company?
Yes
314
What legislation determines investment company status?
The Investment Company Act of 1940
315
Is a corporate bond fund an investment company?
No
316
What are the two downsides to ETFs?
1. Commission
2. Liquidation may be less than NAV per share
317
Can open end company shares be purchased on margin?
No
318
Can ETFs be purchased on margin?
Yes
319
What is another term for purchasing power risk?
Inflation risk
320
What is the intrinsic value of a put with a XP of $50 and a CMV of $52?
None
321
What is a corporate debt instrument secured by a pledge by the issuer of property that consists of stocks or bonds of other corporations?
Collateral trust certificate
322
What share class is best for small dollar investors with long time frames?
B class (back-end load)
323
What share class is best for large dollar investors with long time frames?
A class (front-end load)
324
What share class is best for short time frames?
C class (level-load)
325
A customer of a broker-dealer holding two penny stocks in her account, purchased on unsolicited trades, should expect to receive an account statement how frequently?
Monthly
326
What is the maximum contribution for 529 plans?
It varies by state
327
What is the age limit for 529 plans?
They can be opened for someone at any age
328
All of the following are issuer transactions where the proceeds of the offering go to the issuing company except
A) A repurchase agreement (REPO)
B) A subsequent public offering (SPO)
C) An initial public offering (IPO)
D) An additional public offering (APO)
A) A repurchase agreement (REPO)
APOs, IPOs, and SPOs all result in funds going to the issuer and are, therefore, issuer transactions. A REPO is a money market instrument where money changes hands between the buyer and the seller.
329
What does current yield equal?
The annual income divided by the market price
330
What yield is determined by dividing the annual income by the market price?
Current yield
331
Who are LGIPs established by?
States
332
Who invests in LGIPs, and are they long term or short term?
Municipalities, short term
333
Which of the following elements must be included in a discretionary trade authorization?
A) Approval from another registered representative
B) Verbal client consent
C) Notification to the client after each trade
D) Written client consent
D) Written client consent
334
If the current yield is more than the coupon rate, what is the bond trading at?
A discount
335
What type of firm introduced its business to a clearing agent?
Fully disclosed firm, aka introducing broker dealer
336
What type of firm can not hold customer funds, perform BO duties, or clear transactions?
Fully disclosed/introducing
337
How often do common stock holders have the right to access financial statements of a company?
Annually
338
What is the cooling off period for private placements?
There is none, they are exempt from registration requirements
339
A registered representative sends a note to 22 prospective customers touting the value of investing in the Windmill Value Fund. This is an example of what type of communication?
Correspondence
340
What is the max gain on a short put?
Premium
341
What is the reserve rate?
The amount that member banks need to keep on deposit
342
Does a weak US dollar increase or decrease exports?
Increase
343
Does a weak US dollar lead to a balance of payments surplus or deficit?
Surplus
344
Does a strong US dollar increase or decrease exports?
Decrease
345
Does a strong US dollar lead to a balance of payment surplus or deficit?
Deficit
346
Who is in charge of fiscal policy?
The president and congress
347
Would an increase in purchases of US securities by foreign investors cause an increase or decrease in the balance of payments?
Increase
348
Will the banks raise or lower their prime rates when the FRB eases the money supply?
Lower
349
What is the minimum maintenance for a long margin account under FINRA rules?
25%
350
What is the minimum maintenance for a short margin account under FINRA rules?
30%
351
What is the initial margin requirement under regulation T?
50%
352
What type of broker dealer can execute and settle trades?
Carrying/clearing
353
What FINRA code governs the resolution of violations of the Code of Conduct, including written complaints?
Code of Procedure
354
How long must monthly and quarterly statements be kept for?
6 years
355
How long are order tickets (buy and sell orders) kept for?
3 years
356
What method is used to assign exercise notices to broker-dealers with short positions by Options Clearing Corporation (OCC)?
Random-selection basis
357
What types of securities and investment products are issued or disclosed with an official statement?
Anything state sponsored: municipal bonds, 529 plans
358
What diagnostic tool includes cash and checking accounts?
M1
359
What diagnostic tool includes savings accounts, retail CDs, mutual funds, and short-term small-denomination deposits?
M2
360
What diagnostic tool includes jumbo CDs, institutional money market funds, and multi day repos?
M3
361
On what market do ECN trades take place?
Fourth market in dark pools by institutional investors without an intermediary
362
Can a tombstone include the type and quantity of securities offered?
Yes
363
Can a tombstone include the offer price?
Yes
364
Can a tombstone include underwriter names?
Yes
365
Can a tombstone include syndicate members?
Yes
366
Can a tombstone include prospectus information?
Yes
367
Can a tombstone include the availability date of an offering?
Yes
368
What is the rule that allows tombstone ads?
Omitting Prospectus Rule 482
369
What is included in the tombstone ad but not the preliminary prospectus?
POP, release date, and underwriter names
370
What is included in the final prospectus but not the tombstone ad?
Inherent risks associated with the offering, SEC disclaimer, and intended use of proceeds
371
What is the maximum number of nonaccredited investors allowed in a Regulation D exempt transaction under Rule 506(b)?
35
372
What can be used in place of a customer's signature on a stock certificate?
A stock power
373
Are private placements subject to the cooling-off period?
No, they are exempt from the Securities Act of 1933 registration requirements
374
Regarding oil and gas DPPs, tangible drilling costs are associated with items that
1. Have no salvage value at the end of the program
2. Have some salvage value at the end of the program
3. Can be depreciated
4. Cannot be depreciated
2 and 3
Costs for items that will have some salvage value at the end of the program are considered tangible drilling costs. These items, such as equipment, can be depreciated and written off over the life of the program.
375
Would the intended purpose of the proceeds be found in a tombstone ad?
No
376
Do political donation rules include all of the following: political parties, candidates for office, elected officials, and connected third parties?
Yes
377
When selling away, must a member provide notice to their employing firm if they do not receive compensation?
Yes, unless the selling is done on behalf of an immediate family member
378
Can an employing firm prohibit selling away for compensation if they so choose?
Yes
379
What must a member firm do if a member is selling away for compensation?
Record and supervise the transaction a if it were their own
380
What is the exception to FINRA's private securities transaction (selling away) rules?
Trades with immediate family members for not compensation
381
For a new customer opening an account, assuming there are no physical or mental impairments, what age would trigger the registered representative to request that the name of a trusted contact person for the account be given?
65
382
What dollar limit is placed on damages if a suit is filed based on allegations of manipulative practices?
There is no dollar limit
383
Regarding the purchase of a new equity issue, an account where a restricted person has a beneficial interest would be allowed to purchase the new shares at the public offering price only if the interest does not exceed what percentage?
10%
384
Can securities be purchased in an account that is frozen?
Yes, but the funds to pay in full must be available before the buy order is entered
385
Who does an MFP (municipal finance professional) work for?
FINRA member firms
386
Is the $250 political donation limit for MFP's per person or per election?
Per election
387
Can an MFP donate to an elected official's campaign that they can't vote for?
No
388
A form of market manipulation that attempts to keep the price of the stock from falling is called what?
Supporting
389
What is the max prison sentence for insider trading?
20 years
390
What is the max criminal penalty dollar amount for broker dealers who engage in insider trading?
$25 million
391
How much might someone pay in civil damages for insider trading?
$1 million or treble (triple) the damages, whichever is greater
392
What is it called when a customer purchases a stock then sells it before paying for it?
Freeriding
393
Is permission required for OBA?
No, but the firm has the right to reject it
394
Can an investment club purchase a new issue at the POP?
Yes
395
Who enforces pay to play rules?
FINRA
396
Do you need approval to give gifts to another member firm's employee even if it costs less than $100?
Yes, permission is always needed
397
What three activities are associated with MFPs?
Research, communications, and underwriting regarding municipal securities
398
Are mother and father in laws considered immediate family?
Yes
399
Are grandparents considered immediate family?
No
400
Are aunts and uncles considered immediate family?
No
401
What is the de minimis exemption?
An initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest as long as their interest in the account does not exceed 10%
402
What rule protects the public offering process from insiders having advantages?
Rule 5130
403
Are repos and reverse repos considered money market instruments?
Yes
404
What is the nominal yield on a bond that pays $20 interest semianually?
4%
405
Accrued interest on US government bonds is calculated using how many days in the month and year?
Actual days and months
406
What is the difference between how accrued interest is calculated on government bonds vs corporate bonds?
Government bonds use actual day in the year while corporate bonds use 30 day months and 360 day years
407
What would a C rating from Moody's indicate about the issuer?
That they are in default
408
What does a Moddy's C equate to for S&P?
D
409
Do banks issue commercial paper?
No, only corporations
410
What is the max time frame for commercial paper?
270 days
411
In order to meet federal budget needs, the types and quantity of government securities to be issued are determined by who?
The US Treasury Department
412
What is the lowest investment grade rating?
BBB or Baa
413
What kind of municipal notes finances current operations in anticipation of future tax receipts?
Tax anticipation notes (TANs)
414
What kind of municipal note is offered periodically to finance current operations in anticipation of future revenues from revenue producing projects or facilities?
Revenue anticipation notes (RANs)
415
What kind of municipal note is a combination of the characteristics of both TANs and RANs?
Tax and revenue anticipation notes (TRANs)
416
What kind of municipal note is sold as interim financing that will eventually be converted to long-term funding through a sale of bonds?
Bond anticipation notes (BANs)
417
What kind of municipal security is issued with the expectation of receiving grant money, usually from the federal government?
Grant anticipation notes (GANs)
418
What kind of municipal securities are issued to provide interim financing for the construction of housing projects?
Construction loan notes (CLNs)
419
What is the federal tax on municipal notes?
None
420
A statutory debt limitation imposed on a municipality would restrict is authority regarding what type of bonds?
GO bonds
421
A company reorganizing with the intent to emerge from a bankruptcy is likely to issue which of the following type of bonds to accomplish that goal?
Adjustment bonds/income bonds
These bonds allow the issuer to only pay interest if the corporation has enough income to meet the interest payment obligations. This allows the corporation some flexibility while attempting to reorganize and emerge from bankruptcy.
422
U.S. government securities are issued by who and in what form?
The US Treasury in book entry form
423
Are collateral trust bonds/certificates considered secured?
Yes, because the backing assets are safe in a trust
424
What type of bond is a debt backed by another company, such as a parent company?
A guaranteed bond
425
Are guaranteed bonds considered secured?
No, the guarantee is only as good as the strength of the company making that guarantee
426
At what levels are mortgage bonds such as GNMA and FNMA taxed at?
Both state and federal
427
What what levels are Treasury bonds taxed at?
Only federal
428
Yield to call (YTC) calculations reflect the early redemption date and
1. Acceleration of the discount gain if the bond was originally purchased at a premium
2. Acceleration of the discount gain if the bond was originally purchased at a discount
3. Accelerated premium loss if the bond was originally purchased at a premium
4. Accelerated premium loss if the bond was originally purchased at a discount
2 and 3
YTC calculations reflect the early redemption date and consequent acceleration of the discount gain if the bond was originally purchased at a discount (less than what will be received at maturity), or the accelerated premium loss if the bond was originally purchased at a premium discount (more than what will be received at maturity).
429
What are the two classifications for corporate bankruptcies?
Liquidation and reorganization
430
What Treasury debt instrument pays all interest at maturity?
T-bills
431
Is a market maker acting as a principal or agent?
Principal
432
Which of the interest rates do large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans?
Prime rate
433
The statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" is mandated by who to be in the final prospectus?
The SEC
434
Which equity index measures the broadest portion of the U.S. market?
Wilshire 5000
435
When is the electronic filing of all information on customer complaints by broker-dealers with Financial Industry Regulatory Authority (FINRA) due?
Within 15 days of the end of each calendar quarter
436
Are 529 plans deductible at the state level, federal level, or both?
State level only
437
What kind of company would maintain count of a company's shares, cancel old and issue new certificates, maintain records of ownership, and ensure proper registration of certificates?
Transfer agents
438
All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities except
A.) Credit unions
B.) National Securities Clearing Corporation (NSCC)
C.) Depository Trust Company (DTC)
D.) Carrying firms
A.) Credit unions
439
What is the order of dividend dates for a mutual fund?
Declaration date, record date, ex-dividend rate, payable date
440
When does the ownership status of an investor change after they sell mutual fund shares?
They cease to be the owner the day of the redemption
441
Are banker's acceptances short-term or long-term?
Short term, usually between 1 and 180 days and no more than 270 days
442
What do corporations use banker's acceptances for?
Used to finance international trade
443
Who are banker's acceptances issued by and to?
Issues by banks to corporations
444
Is a hypothecation agreement required to open an account?
Yes
445
Is a consent to loan agreement required to open an account?
No
446
What form does not need to be signed before a customer can enter their first options trade?
The options agreement
Customers do not have to complete (sign) the options agreement before entering an order, although under the rules, the agreement must be signed and returned by the customer within 15 calendar days of account approval.
447
A corporate issuer of common stock has decided that it wants an agreement that its underwriter must either raise all of the capital needed or cancel the underwriting. To best accommodate this the underwriting should be what kind?
All-or-non (AON), a type of best efforts
The underwriting agreement states that the underwriter must sell all the securities offered or cancel the underwriting. All funds collected during the offering period are held in escrow until all shares are sold.
448
Who has residual claim to assets at dissolution?
Common stockholders
449
How often do common stockholders have the right to review an audited financial report?
Annually
450
What allows the shareholder to vote on their shares without attending the annual meeting?
Proxy voting
451
Who sets the ex-dividend date on an unlisted stock?
FINRA
452
Who sets the ex-dividend date on a listed stock?
The exchange it is listed on
453
During times when interest rates are rising, which type of preferred stock is likely to pay a higher annual dividend?
Adjustable rate
Adjustable-rate preferred dividends are tied to benchmark interest rates such as Treasury securities. As these rates fluctuate up and down, so do the dividends on the adjustable shares.
454
How many days before a meeting must a proxy statement be returned?
10 days
455
A corporation divests itself of all of the shares of another company it owns. This is known as what?
A spin-off
456
Are the names of the underwriters required to be named in the final prospectus?
No
457
Is the intended use of proceeds required to be in the final prospectus?
Yes
458
Is the history of the business including any unique risks to purchasers required to be in the final prospectus?
Yes
459
On whose website is the final prospectus available to see?
SEC
460
What are the primary tasks of the FRB?
Maximize employment and control inflation
461
Does a higher current ratio indicate high or low liquidity?
High
The higher the ratio, the more liquid the company. This has no bearing on whether high or low price-to-earnings ratios are desirable.
462
Does inflation cause interest rates to increase or decrease?
Increase
463
What impact would the FOMC directed the Treasury to buy open market securities have on interest rates?
It would lower them
464
What is another name for Keynesian theory?
Demand-side theory
465
What theory postulates that active government involvement in the economy is vital to the health and stability of a nation's economy?
Keynesian theory
466
What is the difference between fiscal and monetary policy?
Fiscal is the president and congress, monetary is the FRB and FOMC
467
Who sets margin maintenance requirements?
FINRA
468
To qualify as an exempt transaction under Tier 1 of Regulation A, an issuer may offer a maximum of how much money in a 12 month poeriod?
Up to $20 million
Securities offerings up to $20 million in a 12-month period will be allowed in Tier 1. Of the $20 million, no more than $6 million can be sold on behalf of existing selling shareholders (similar to a combination offering). The offering would be subject to a coordinated review by individual states and the SEC.
469
Who determines which securities to sell if a maintenance call is not met?
The broker dealer
470
Who set regulation T?
The Federal Reserve Board
471
Is the deficiency letter during the cooling-off period sent to the issuer or the underwriter?
The issuer
472
Do blue sky laws refer to securities regulations at the federal or state level?
State level
These are state laws that pertain to the issuance and trading of securities within that state. They are known as blue-sky laws because of a statement made by a Kansas Supreme Court justice who referred to "speculative schemes that have no more basis than so many feet of blue sky."
473
Is the intended purpose for the sales proceeds included in the tombstone advertisement?
No
474
Are the names of the issuers and underwriters included in the tombstone advertisements?
Yes
475
Who is responsible for the accuracy and adequacy of the filing of the registration statement?
The issuer
476
The sales charge for Class A shares may not exceed what percentage of the total investment?
8.5%
477
What type of investment company has a predetermined termination date?
Unit investment trusts
