SIE EXAM (MISSED QUESTIONS) Flashcards
1
Q
Which of the following is not part of a mutual fund’s expense ratio?
A
Sales load. Sales charges (loads) are not part of the expense ratio
2
Q
What is apart of mutual fund’s expense ratio?
A
*Managers fees
*Transfer agent’s cost
* 12b-1 Fees
3
Q
Growth in a variable annuity is which of the following?
A
Growth in a variable annuity is tax deferred.
No tax is due until the growth is withdrawn.
Once withdrawn, the growth is taxed as investment income.
4
Q
Broker-dealer acted as a principal in the trade.
A
Broker-dealers must always indicate their capacity on the confirmation.
If the client had looked, there would have been a statement something to the effect of “we acted as principals in this trade.”
When the firm does that, there is no commission; there is a markup (in the case of a buy) or a markdown (in the case of a sell).
In this instance, the actual price of the stock would have been lower than $50 per share and the broker-dealer marked it up to $50. (e.g., price of $49.50 with a 0.50 markup = $50).
5
Q
Acting as an agent
A
When the firm is acting as an agent however, commissions are always disclosed.
6
Q
A FINRA maintenance call will occur in a long account if the equity drops below
A
In a long account, equity must be maintained at 25% or $2,000, whichever is greater.
7
Q
Redeem shares
A
Face amount certificates
unit investment trusts
open end funds
8
Q
Closed end funds
A
Do NOT redeem their shares
9
Q
Margin Maintenance requirements are set by
A
FINRA.
Maintenance requirements are set by the governing SRO. FINRA is the best answer of this set. FRB sets the initial margin requirement along with the SRO minimum. The FRB does not set maintenance requirements.
10
Q
European style
A
Contracts may only be exercised on the last day the contract trades before expiration
11
Q
American style
A
May be exercised by the owners at any time. American style is much more common.
12
Q
Coverdell & 529 Plans
A
Contributions into a Coverdell Education Savings Account (ESA) are phased out at high income levels for a donor, whereas the income level of a donor has no impact on contributions made into a Section 529 plan.
The features of Section 529 plans, including their contribution limits and fees, vary widely from state to state. Section 529 plans have no age limits as to participation; they are open to both children and adults who plan to attend college or graduate school. For college savings plans, there is no state residency requirement for owners or beneficiaries of Section 529 plans.
13
Q
A customer purchased 200 shares of ABC common stock for a total of $5,000. After one year, they sell the position for $5,400. ABC paid $0.50 per share in dividends over the year. What is the total return?
A
The formula for calculating total return is (income + gains or – losses) / cost basis. For this question ($100 + $400) / 5000 = 500 / 5000 = 0.10 (10%).
14
Q
Which of the following is true of closed end funds but not of open end funds?
A
Open end funds can issue an unlimited number of shares. Closed end funds have a fixed number of shares.
15
Q
Which of the debt issued listed here would produce tax-free interest at all levels?
A
Issues from a territory of the United States (like Puerto Rico) produce interest that is tax free at the federal, state, and local level.
16
Q
Municipal bond
A
Interest is tax free at the federal level and tax free at the state level if the bondholder is a resident of the same state as the issuer
17
Q
Treasury issues
A
Taxed at the federal level.
18
Q
Deficiency letter
A
When a deficiency letter is issued by the SEC to an issuer, the 20-day cooling-off period is halted.
It resumes where it left off when the corrected registration statement is filed. In other words, the days that the cooling-off period are suspended do not count toward the 20 days.
19
Q
U4 forms must be kept for how long after the associate leaves the firm?
A
3 years after the associate leaves the firm.
20
Q
Occasionally our economy experiences an unusual combination of rising prices and high unemployment. Economists have given this unusual pairing what name?
A
Stagflation is the term economists use to describe the combination of inflation (a rise in prices) and stagnation (high unemployment). While unusual, this generally occurs when the economy is not growing and there is a lack of consumer demand and business activity, and yet prices for goods are still rising.
21
Q
How long must customer complaints be kept on file by the broker-dealer?
A
The rule requires customer complaints to be kept on file for 4 years.
22
Q
The primary purpose of American depositary receipts (ADRs) is to facilitate the trading of…
A
ADRs facilitate the trading of foreign stocks in U.S. markets.
23
Q
Warrants!
A
A warrant grants its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market price at the time the warrants are issued and at some time in the future.
A warrant is usually a long-term instrument, normally five years or more until expiration.
Warrants are usually offered in connection with other securities, such as debt instruments (bonds) or preferred stock, to make those securities more attractive.
24
Q
Callable preferred stock is advantageous to the issuing company because it allows the company to
A
Replace a higher, fixed-rate issue with a lower issue after the call date. By issuing a callable preferred stock, a corporation can call in a high dividend payment issue and replace it with a lower one when interest rates have fallen. This feature allows the company to take advantage of reduced interest rates by calling in high-rate preferred issues and replacing them with lower ones.
25
Information on a tombstone
Those advertisements allowed to be placed prior to the effective date, is limited to;
-name of issuer
-type of security
-number of shares to be sold
-public offering price or expected range
-names of the underwriters or group.
26
Regulation T, the initial margin requirement, is set by
FRB. Regulation T, the initial margin requirement currently at 50%, is set by the Federal Reserve Board (FRB).
27
A municipal finance professional (MFP) is
As per the Municipal Securities Rulemaking Board (MSRB), a municipal finance professional (MFP) is an associated person of a member firm who is primarily engaged in municipal securities representative activities, including underwriting, sales and trading, or any other activity that involves communications with the public regarding municipals
28
CLOSED END
DO NOT REDEEM
29
NAV
30
Treasury Stock
Issued shared- outstanding shares
31
Corporations (dividends)
If they receive dividends then they can exclude 50% of that income from taxation.
32
Rule 144
If the stock is bought in the open market, there is no holding period required.
Rule 144 allows the selling of 1% of the outstanding shares every three months or the average weekly trading volume of the last four weeks, whichever is greater.
33
Investor who relies heavily on fixed interest payments from long-term (25-30 years) bond should be most concerned with....
Inflation risk (purchasing power risk) is the effect of rising prices over a long period while an investor is collecting fixed interest payments.
34
Statutory Prospectus
****Must be provided ***no later than confirmation of the sale.***
35
Mutual Funds
Mutual fund shares may be purchased in either full or fractional shares.
36
Upon termination a form U5 must be filed withing how many days?
30 days
37
Keynesian Theory
Believes that the government can use its resources to stimulate or discourage economic activity through the use of tax and spending policies.
38
Monetarist theory
Is employed by a central bank (The Federal Reserve in the US) and uses interest rates to stimulate or discourage economic activity.
39
Supply side theory
Focuses on the use of tax and regulatory policies to stimulate the economy.
40
The holder of an-in the money option contract gives a do not exercise instruction (notice) to your broker-dealers.
This notice is used to avoid automatic exercise at expiration.
41
Broker-dealers who transact securities business with other broker-dealers or customers must be registered with..
SEC
42
Day Order
If a day order does not execute, is is cancelled as of the end of the day.
43
MONEY LAUNDERING
1) PLACEMENT
2) LAYERING
3) INTEGRATION
44
OFAC
ORGANIZATION MAINTAINS THE SPECIALLY DESIGNATED NATIONALS LIST!
45
RIGHTS OFFERING
-Allows stockholders to purchase common stock below the current market price.
-The rights are valued separately from the stock and trade in the secondary market during the subscription period (30 to 45 days).
-Existing shareholders receive one right per share owned.
- The number of rights required to purchase one share of the new issue depends on the number of outstanding shares and the number of new shares offered.
46
Calculation for gains or losses for tax purposes.
Proceeds - cost basis = capital gains
The dividends are not part of the calculation for capital gains.
47
MFP- Municipal Finance Professional
48
Cooling off period
It lasts 20 CALEDNAR DAYS
49
All CORPORATIONS issue...
-Common stock, of which there can be only one class.
-BUT not all CORPORATIONS issue preferred stock.
-Corporations that choose to issue preferred shares can issue more than one class.
50
MUTUAL EXPENSE RATIO
51
MUTUAL EXPENSE RATIO
Includes: Transfer agent's cost, Board of Directors Cost, Legal fees, Manager's Fee, 12b-1 fees
DOES NOT INCLUDE: sales charge or loads
52
FIXED PORTFOLIO (UIT)
-A fixed UIT's portfolio is static, so there is no need for active management and little or no portfolio turnover.
-
UIT's do not generally assess management fees bc there is no need to hire an investment adviser monitor and trade positions within the portfolio.
53
Nonsystematic risk
Those that are unique to a specific industry, business enterprise, or investment type.
Risk that is specific to an issuer is called nonsystematic risk (also unsystematic).
54
Amendment for statutory disqualification.
Firm has 10 days to make an amendment if the information involves statutory disqualification.
55
A temporary hold on disbursements of cash and securities from the account
The rule specifies that the temporary hold on disbursements if one is placed should be for no longer than 15 business
days. A state regulator or agency of jurisdiction can terminate it sooner or extend it longer if they deem it warranted
56
What is the penalty, if any, for overcontribution to an IRA?
6%
57
Indications of interest.
Nonbinding on all parties.
58
Restricted person
As restricted persons, officers of broker-dealer firms or other institutional investors are prohibited from purchasing a
new issue (IPO) at the public offering price.
59
Investigations and hearings into alleged violations of FINRA's Code of Procedure are performed by
the Department of Enforcement.
60
The primary use for a revocable living trust is to
use as a substitute for a will.
In a revocable living trust the grantor has complete control over the trust while alive, and because of this, the grantor is also subject to any tax implications of the trust.
- Grantor can remove items from the trust
- Grantor can add items to the trust
- Grantor is subject to the tax consequences of the trust while alive.
61
A mutual fund's share class determines...
Individual mutual funds are often available to investors as Class A, Class B, or Class C, and there are other classes varying from fund to fund.
The share class determines when and how the sales charge is paid. Class A shares have it paid when the shares are purchased
Class B shares have it paid when the shares are redeemed,
Class C shares have a small charge removed from the investor's account every quarter.
62
Deflation
Stagnation
Stagflation
63
Legislative Risk
legislative risk.
64
Options Clearing Corporation (OCC).
While the OCC can assign exercise notices using only the random-selection basis, a member firm may use any method
that is fair and reasonable. The two most common methods are first in, first out (FIFO) and random selection.
65
Amended U5
An amended U5 form must be filed and a copy sent to the affected former employee within 30 days of discovery of the inaccuracy. It does not matter how long it has been since the employee's termination.
66
SRO
All U.S. exchanges
FINRA
MSRB
CBOE
67
LONG TERM CAPITAL GAIN
MORE THAN ONE YEAR
68
UIT
69
Correspondence Communication
The limit for correspondence is 25 retail customers.
70
The Municipal Securities Rulemaking Board (MSRB)
Municipalities DOES NOT REGULATE issuing municipal securities.
While the MSRB writes its own rules and regulates all matters related to the underwriting and trading of state and local municipal securities, **it does not regulate municipal issuers (municipalities). **
In addition, the MSRB has no enforcement powers for its own rules and regulations. Enforcement is left to other SROs, such as FINRA.
71
Defined Contribution Plans
* Profit sharing
* 401(k)
* Money purchase plans
72
Defined Benefit Plans
A traditional pension plan
73
The Windmill Alternative Energy Fund offers its shares to the public at the fund's net asset value (NAV) based on the next calculation of that figure.
Based on this, you can say that the fund is
Offering shares at the next NAV calculation is a characteristic of mutual funds and other open-end management companies (called forward pricing).
If a mutual fund has a public offering price equal to its NAV, it has no sales charge and is therefore a no-load fund
74
Achieving a Better Life Experience (ABLE) accounts may be opened for beneficiaries at what age?
Any age.
The age limit for ABLE accounts is based on the onset of disability, not their current age. The onset must be before they turn 26 years old.
75
Municipal securities can be issued by
Municipal securities can be issued by state or local governments or by U.S. territories, authorities, and special districts.
76
You quote ABC stock to a customer 72 bid for 1,000 shares, 700 offered at 72.10. Which of the following is true?
The quote’s inside spread is $0.10.
Explanation
72 bid for, offered at 72.10 is the quote.
The spread is the difference between the bid and offer,0.10.
The bid (72) is the highest price any buyer is willing to pay, and the offer (72.10) is the lowest price any seller is willing to accept.
The offer is also known as the ask price.
77
The forward pricing rule applies to
Purchases, but not redemptions, of the shares of open-end investment companies.
Forward pricing is the valuation process for open-end investment company (mutual fund) shares, whereby an order to purchase or redeem shares is executed at the next price calculated after the order is received.
The valuation occurs as mandated in the fund's prospectus and no less frequent than once per business day.
78
The SEC can do all of the following except
approve broker-dealers to participate in the securities business.
The SEC does not approve anyone; they "allow" them to become reregistered.
79
In an irrevocable trust a grantor may or must do which of the following?
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.
80
Diversifying a portfolio may help mitigate which of these types of risk?
Legislative Risk.
Diversification does little to mitigate systematic risks like market and interest rate risk. It can be very helpful in lowering the overall risk from nonsystematic risks like business and legislative risk.
81
(GNMA) certificates
The interest is taxable at both the federal and state level.
Interest from GNMA certificates is subject to income tax at all levels. Principal payments are not subject to tax because they represent a return of principal.
82
Ordinary income
can be defined as the earned income (from interest, wages, rents, royalties, and similar income streams), investment income (interest and dividends), and several other sources.
83
Open end vs. Closed end
Open-end investment companies can issue only one class of security-redeemable common stock.
Closed-end companies can issue both common and preferred shares.
Both can lend money under certain circumstances and can operate as either diversified or nondiversified companies.
84
Index and foreign currency options must be settled in
cash.
Explanation
Index and foreign currency options are cash settled. Instead of shares of stock being delivered as a result of the exercise, cash must be delivered by the party assigned (short the contract). This is because delivering all of the components of an index is not possible and delivering foreign currency would require exchanging one currency for another, and possibly having banking relationships abroad. Settling in cash (U.S. dollars) facilitates the exercise and assignment process much easier for U.S. investors.
85
A corporate retirement plan that defines the employee's income from the plan would be which of these?
Defined benefit plan
A corporate plan that defines the benefit from the plan (retirement income) is a defined benefit plan.
Defined contribution plans—like a 401(k) plans—define the amount that may be deposited in the plan annually. An IRA is not a corporate plan.
86
Supply-side economists believe that the government should
Allow market forces to determine prices of all goods.
Supply-side economics holds that the government should allow market forces to determine prices of all goods.
Monetarists believe the quantity of money—the money supply—is the major determinant of price levels
Keynes, a government's fiscal policies determine the country's economic health. Fiscal policy involves adjusting the level of taxation and government spending.
87
Prime rate
Set by individual banks and is the rate of interest charged to a bank's best customers.
88
Federal Funds Rate
Member-to-member borrowing and lending is made at the federal funds rate.
89
The discount rate
Member banks borrow from the Federal Reserve Bank's "discount window" at the discount rate.
90
In a prime brokerage account, the prime broker
In a prime brokerage account, the prime broker provides custody and clearing services and may share execution services with other broker-dealers.
91
A client buys stock on Monday, May 2, in a cash account. Under Regulation T, when is the client's payment due?
In four business days.
Regular-way firm-to-firm settlement is two business days after the trade date (T+2). Under Regulation T, payment must be made two business days after the settlement date (S+2 or T+4).
92
A broker-dealer firm's registration to do business in a given state may be revoked by
the state’s administrator.
Actions taken against a broker-dealer in a specific state will be taken by that state's securities administrator. The Federal Reserve and the SEC are national-level regulators and any actions taken will not be state specific. NASAA is an association of state securities administrators. NASAA writes model rules but has no regulatory authority.
93
ETN'S
ETNs are debt securities backed by the issuer.
ETNs are senior, unsecured debt securities. Always associate the word note with debt. They are issued by banks or financial institutions, and therefore, are backed only by the good faith and credit of the issuer.
94
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,
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.
95
A registered representative (RR) wants to give employees of another broker-dealer located in the same office building $20 boxes of chocolates for the holiday season. Which of the following is true?
The gifts are permitted if no condition of sales or reciprocal business is expected, and the RR’s employing firm gives prior approval.
Broker-dealers or their associated persons may not distribute business-related gifts or gratuities to the employees of other member firms. However, a broker-dealer may give other firms' employees gratuities without violating the rules, provided the compensation is not conditional on sales or promises of sales, the employing member has given prior approval, and the compensation's value given to any one person does not exceed the annual limit set by the regulatory bodies (currently $100 per year).
96
Churning
Churning is excessive trading for a particular customer's circumstances or exceeding what would normally be considered suitable. This is equally true for both discretionary and nondiscretionary accounts.
97
The Federal Reserve Board (FRB)
The FRB determines monetary policy (not fiscal) and takes actions to implement its policies, including but not limited to regulating the U.S. money supply and supervising the printing of currency.
98
A 529 prepaid tuition plan
529 prepaid tuition plans are designed to protect against inflation in tuition costs.
Both the college savings and ESA are likely exposed to market risk, as is the custodial account.
Additionally, the custodial account is not earmarked for education, and the minor may take control of the account when she reaches the age of majority.
99
direct participation program.
A limited partnership (LP) is the most common form of direct participation program (DPP).
LPs are business entities allowing for the economic consequences of the business to flow through to the individual investors (partners).
100
REIT
To qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, a REIT must pass at least 90% of its net investment income on to the shareholder.
In this case, it is distributing only 85% and must therefore pay taxes on all of its net investment income (100%).
101
Regarding the third and fourth markets, which of the following is true?
The fourth market is for institutional investors and eliminates the need for brokers to act as intermediaries.
The third market, or Nasdaq Intermarket, is a trading market in which exchange-listed securities are traded in the OTC market.
In the third market, brokers registered as OTC market makers are used to do the transactions.
The fourth market is for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers. These transactions take place through ECNs.
102
An investment that allows for a share in the income, gains, losses, deductions, and tax credits of the business entity to pass through to investors while protecting the investors from liability is known as
A limited partnership.
Both general and limited partnerships pass through to investors (partners) a share in the income, gains, losses, deductions, and tax credits of the business entity.
Limited partnerships shield the limited partners from liablility incurred by the partnership; general partners have no such protection.
103
Registered Representative Jim Terry recently purchased a list of potential investors and plans to begin to cold call them soon. In addition to the other rules of the TCPA of 1991, Jim needs to consult
the national and the firm’s do-not-call registries and not call any number that appears on either list.
The TCPA only refers to the national and the firm's DNC registries. It is unlawful to cold call any number that appears on either list.
104
Capital Markets
Capital markets are a source of financing for corporations, municipalities, and governments.
105
SIPC
SIPC is not a regulatory body; rather it provides insurance protection for investors of failed broker-dealers.
106
Regulatory Bodies
Depending on their lines of business, broker-dealers are subject to a variety of regulatory bodies, such as FINRA, the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (CBOE), state administrators, and others.
Those broker-dealers that have a municipal securities line of business must comply with Municipal Securities Rule Board (MSRB) rules which are enforced by FINRA.
107
REIT
REITs have many similarities to investment companies but are not classified as an investment company under the Investment Company Act of 1940.
-Listed REITS are liquid investments.
- They can pass through gains but not losses.
- They can be registered under subchapter M.
108
The Investment Company Act of 1940
The Investment Company Act of 1940 classified investment companies into three types: face-amount certificate, unit investment trust, or management. The act required that they be registered with the SEC.
Under the Investment Company Act of 1940, an investment company may take all of the following forms except a limited partnership with partners as passive investors.
Investment companies are organized as open-end companies (mutual funds), closed-end companies, unit investment trusts, or face-amount certificate companies.
109
Penny Stocks
Regardless of activity in the account, if the account holds any penny stocks, broker-dealers must provide an account statement to the customer monthly.
110
A breakpoint sale is defined as the sale of mutual fund shares in an amount
just below the dollar amount at which the sales charge is reduced.
A breakpoint sale refers to a sale made just below the point at which the investor would otherwise receive the reduced sales charge. The unethical practice may earn a higher commission for the salesperson, but it is not in the best interest of the customer.
111
If a 40-year-old customer earns $65,000 a year and his 38-year-old spouse earns $40,000 a year, how much may they contribute to an individual retirement account (IRA)?
They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less.
No matter how much income individuals or couples receive, they may contribute to their IRAs if they have earned income. Each is entitled to contribute 100% of earned income up to the maximum allowed. However, if either or both of them are covered under a qualified plan, limits may exist on the deductibility of the contributions.
112
A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as
Market makers are broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to FINRA that they can manage the operational and financial risk.
113
unincorporated businesses
Sole proprietorship accounts, partnership accounts, and limited liability companies are not incorporated. Corporations are incorporated.
114
A registered representative is required to participate in an annual training plan prepared by the broker-dealer, which takes into account—among other things—recent regulatory developments, the scope of the broker-dealer's business activities, and its supervisory needs to comply with FINRA's
firm element requirement.
FINRA's firm element requirements mandate that member firms prepare annual training programs that take into account such factors as recent regulatory developments, the scope of the member's business activities, the performance of its personnel in FINRA's regulatory element training, and its supervisory needs. This annual in-house training must be given to all registered persons who have direct contact with the public.
115
accredited investors
An accredited investor is defined as someone having a net worth greater than $1 million or an annual income greater than $200,000 in each of the two most recent years. If a joint purchase, the income requirement rises to $300,000.
$1 million or had an annual income greater than $300,000 in each of the two most recent years.
116
Representative Gary Willikers recently passed his licensing exams and was hired by Seacoast Securities, Inc., a broker-dealer member firm. He was recommended to the position by his Uncle George, who has worked for the firm for over a decade. Gary would like to send out a mail advertisement to help generate new customers. In order to do this, Gary will need approval from a principal of the firm, and the communication must be filed with
FINRA within 10 days of use.
New member firms (not new representatives) must file a copy of all public communication at least 10 days before use. Seacoast is an established firm and is required to file within 10 days of use. This is a FINRA rule, and all such filings go to FINRA, not the SEC.
117
Regular way settlement for the purchase of an equity option occurs
An equity option trade settles the next business day (T+1).
118
Local government investment pools (LGIPs) are established by
States to provide municipalities a place to invest funds short term.
LGIPs are established by states to provide other government entities, such as cities, counties, school districts, or other state agencies, with a short-term investment vehicle to invest funds.
119
In general, a corporation assumes the least risk when it obtains funds from the sale of
preferred stock.
Remember that issuing equities is less risky than issuing debt because when issuing debt, the issuer is obligated to pay the creditor back! When issuing equities such as preferred stocks, the issuer has no obligation to ever pay any of the money back; therefore, it is less risky for the issuer.
120
Someone responsible only for training associated persons at a Financial Industry Regulatory Authority (FINRA) member firm
must be registered as a principal of the firm.
Anyone who manages or supervises any part of a member firm's investment banking or securities business must be registered as a principal with FINRA, including people involved solely in training associated persons.
121
The residents of the city of Sandy Place, California, recently voted in favor of issuing a bond. The proceeds of the bond will be used to build a baseball stadium for the local minor league baseball team. Though the bond's costs are expected to be covered by the ticket revenue from the stadium, the bond contains a provision that requires the city to pay the bond's interest payments as well as pay the principal at maturity if the ticket sales are insufficient. This bond is an example of
a general obligation municipal bond.
This is a type of municipal bond called a double-barrel bond. Though revenue from ticket sales will be used to pay for the bond, ultimately, the cost of the bond may fall back on the taxpayer. That makes this a GO and is why, unlike a revenue bond, the issue had to be approved by the residents of Sandy Place in a vote.
122
Tax credits for partners in a real estate program can come primarily from
government-assisted housing and historic rehabilitation properties.
For partners in a real estate programs, tax credits would come primarily from programs concentrating on properties designated for government-assisted housing or historic rehabilitation. These are credits offered by the federal government.
123
An investor who commits a sizable portion of her portfolio to long-term AAA rated bonds would be exposing herself to
purchasing-power risk.
Long-term AAA rated bonds by definition have very low credit risk, but because they offer fixed income over an extended period, they subject their owner to inflation, or purchasing power, risk.
124
Variable annuities include which of the following attributes?
Guaranteed life income.
Variable annuities will pay an income for the life of the annuitant if annuitized. Annuities are generally illiquid investments that grow tax deferred. The tax-deferred growth will be taxed on withdrawal, so it is not tax free. Qualified variable contracts are funded with pretax contributions, but these are limited to annual maximums similar to those found in 401(k) plans.
125
All of the following are issuer transactions where the proceeds of the offering go to the issuing company except
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.
126
A customer submits a written complaint disputing monetary charges assessed against an account held at a member broker-dealer. Resolution of this complaint will take place by
the Code of Arbitration (COA).
The Code of Arbitration (COA) governs the resolution of disagreements and claims between members, registered representatives, and the public; it addresses monetary claims. Written complaints may come in any form, including instant messages, tweets, texts, and emails.
127
Under the Uniform Transfers to Minors Act (UTMA), a custodian may invest in all of the following except
blue-chip stocks on margin.
A custodian may not purchase securities in an account on margin or pledge them as collateral for a loan.
128
Your broker-dealer is a fully disclosed firm. This means that it
introduces its business to a clearing agent.
Fully disclosed firms introduce their business to clearing firms. Thus, a fully disclosed firm is also known as an introducing broker-dealer. Introducing broker-dealers cannot hold customer funds or securities, nor can they perform as their own back office, or clear, process, and settle transactions. All of these functions would be performed by the carrying (clearing) firm.
129
Regarding delivery for listed option contracts when exercised, which of the following is true?
Currency and index options are cash settled in U.S. dollars.
When exercised, equity options are settled in the underlying security. This means that the underlying shares must be delivered by the short party assigned. However, when currency and index options are exercised, they are settled in cash. This means that U.S. dollars must be delivered by the short party assigned.
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