Mock test 06/28

Question 1

DEFLATION

Answer 1

general decline in prices occurring during severe recessions and the unemployment rate is rising

Question 2

With money market securities, the risks are

1. lack of liquidity.
2. a lower return than with longer-term instruments.
3. relative safety compared with other longer-term debt instruments.
4. the potential reinvestment of principal at different rates over short periods of time.

A: 1 and 4
B: 2 and 4
C: 1 and 3
D: 2 and 3

Answer 2

B: Because of their short-term maturities, money market instruments are relatively liquid and safe compared with other debt securities. These are considered advantages. The risks, however, would be lower returns (a trade-off for the safety) and potentially having to reinvest one’s funds at a different rate each time the instrument matures (short intervals). In this light, not only is income minimal, but it will fluctuate with each new instrument purchased.

Question 3

A 72-year-old customer has a $30,000 required minimum distribution (RMD) calculated to be taken from an IRA. If the customer is in the 20% income tax bracket and only withdraws $25,000 from the account, how much in taxes and penalties will be owed?

A: $8,500
B: $10,000
C: $12,500
D: $5,000

Answer 3

A: Failure to meet the required minimum distribution (RMD) results in a 50% penalty tax on the shortfall. In this case, taking only $25,000 when $30,000 should have been taken leaves $5,000 exposed to the 50% penalty tax. $5,000 × 50% equals $2,500. Note that the IRS will force the distribution of the RMD shortfall ($5,000). In addition to the penalty, the ordinary income tax on the amount withdrawn must also be paid (20% × $30,000 = $6,000). Total tax liability on this withdrawal equals $8,500 ($2,500 penalty tax plus $6,000 ordinary income tax).

Question 4

Which of the following sets of FINRA rules focuses on how member violations will be handled?

Answer 4

Code of Procedures

Question 5

Considered the most volatile of the benchmark interest rates in the economy would be

Answer 5

The federal funds rate

Question 6

Your client, Mary Quinn, wants to place an order to sell a stock in her portfolio when the current price is 45, but she is only willing to sell if she can sell for at least 47. Which order should she place?

A; A market Order
B: A sell limit order
C: A sell stop limit order
D: A sell stop order

Answer 6

B: Sell limit orders are placed above the current market price and fill at the stated price or higher. Market orders fill at the next available price. Sell stop and sell stop limit orders are not triggered until the market drops to or through the stop price

Question 7

Any sale of securities outside an associated person’s or the employing member firm’s regular business is recognized as:

Answer 7

A private securities transaction

Question 8

All of the following are true of Roth IRAs except:

A: Contributions are made after tax
B: Contributions may be deductible depending on income limits
C: Withdrawals are not required at age 72
D: Contributions may be able to be made after 72

Answer 8

B: Contributions are not deductible. They are made with after-tax dollars and may continue past age 72 if still working. ROTHS ARE NOT SUBJENT TO RMD’S

Question 9

Which of the following investments would be most susceptible to inflation risk?

A: 30- Year Treasury Bond
B: Growth Stock
C: Value Stock
D: 10-year corporate bond rated BBB

Answer 9

A: Stocks generally have had performance that outpaces inflation. Lower quality bonds with shorter maturities would pay a higher rate than government bonds and have the potential to keep up with inflation. Treasuries have very low yields and do not keep pace with inflation.

Question 10

Which if the following may not be purchased on margin but can be used as collateral for a margin loan after being held for 30 days?

A: Equities
B: Mutual Funds
C: Warrants
D: Options

Answer 10

B: