Term
A customer enters an order to buy 100 ABC at 47 stop GTC. After the order is elected, the order may be executed at
A) at 47 only
B) above 47 only
C) any price
D) below 47 only |
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Definition
C - any price
Once a stock trades at or through the stop price, the order is ELECTED.
Once elected (triggered), a stop order becomes a market order and is executed at the first opportunity, which could be any price. |
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Term
A variable-rate municipal bond investment's main advantage is that:
A) its interest is exempt from all taxes.
B) it is noncallable.
C) it is likely to increase in value.
D) its price should remain relatively stable. |
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Definition
D
Because the interest paid reflects changes in overall interest rates, the bond price remains relatively close to its par value. Its coupon is always representative of the current market rate. As rates rise, the coupon is adjusted upward. As rates fall, the coupon is adjusted downward. |
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Term
The 5% markup policy applies to which of the following?
Exempt transactions.
Agency transactions.
Principal secondary market trade.
New issues.
A) III and IV.
B) I and III.
C) II and III.
D) I and II. |
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Definition
C- II and III
The 5% markup policy applies to all secondary market transactions. It does not apply to exempt transactions, transactions requiring the delivery of a prospectus, or issues sold at a fixed offering price. |
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Term
All of the following events will affect the NAV per share of a mutual fund EXCEPT:
A) The fund receives cash dividends on the securities in its portfolio .
B) Changes in the market value of the fund's portfolio of securities .
C) Wholesale redemption of fund shares .
D) The fund pays dividends to its shareholders. |
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Definition
C
While share redemption will reduce total net asset value, the number of shares outstanding decreases in proportion, so the NAV per share stays the same. |
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Term
A customer buys AC Growth Fund and enjoys a substantial paper capital gain. When he believes the market has reached its peak, he switches into AC Income Fund within the AC family of funds. He incurs a small service fee but is not charged an additional sales charge. What is the tax effect?
A) Any gain in AC Growth Fund is taxable because the exchange is treated as a sale and a purchase.
B) The tax basis of AC Income Fund is adjusted to reflect the gain in AC Growth Fund.
C) Any gain or loss is deferred until he liquidates the AC Income Fund.
D) It is a tax-free exchange. |
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Definition
A
Despite the fact that they are shares in the same family of funds, it is still considered a SALE AND PURCHASE |
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Term
A self-employed individual has 2 full-time employees and makes the maximum allowable contribution to his own Keogh (HR-10 plan). What percentage of each employee's earned income must he contribute to their plans as eligible employees?
A) 15%
B) 10%
C) 25%
D) There is no requirement to contribute to the employees' plans |
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Definition
C - 25%
When a self-employed individual makes the maximum contribution to his own Keogh (HR-10 plan), he must contribute 25% of any eligible employees' earned income to their plans. |
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Term
A hedge fund has contracted with your broker/dealer to handle all of its clearing functions and provide all back office support functions while it is executing transactions through numerous other broker/dealers whom your broker dealer will have agreements with. This type of account is known as
A) a prime account
B) a numbered account
C) a custodial account
D) a joint account |
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Definition
A - a prime account
In a prime account, a customer contracts with one broker, the prime broker, to provide a list of support services, such as clearing and settlement of transactions, while contracting with numerous other brokers for executions services. |
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Term
A client invests $100,000 in a tax shelter as a limited partner, giving him a 10% interest in the program. However, the general partners cannot meet the program's expenses. A mortgage balance remains of $3 million, and the property of the program is liquidated for $1 million. How much does the investor get back from his original investment?
A) 33,000.
B) 0.
C) 100,000.
D) 10,000. |
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Definition
B - 0
The limited partner will not receive any return of his investment. In a failed program, the partnership's creditors are paid first with any sale proceeds, before the limited partners receive any money. Because the limited partners had not signed a recourse agreement, even though the partnership still owes $2 million on the mortgage, the limited partners are not liable for any money beyond their original investments. |
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Term
Nonmembers of a syndicate who are assisting in its sale of bonds buy the bonds at a discount called:
A) a net designated price.
B) a concession.
C) a takedown.
D) the basis price. |
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Definition
B - a concession
MEMBERS buy at the offering price minus the takedown, NONMEMBERS buy at offering price minus a concession.
The basis price is the yield to maturity. |
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Term
A direct participation program shows the following operation results:
Revenues: $3 million
Operating expense: $1 million
Interest expense: $200,000
Management fees: $200,000
Depreciation: $3 million
CASH FLOW from program operation is:
A) $3 million.
B) $1.6 million.
C) a loss.
D) $1.4 million. |
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Definition
B) 1.6m
Add back depreciation |
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Term
If a customer's margin account shows a long market value of $6,000 and a debit balance of $5,000, the maintenance margin call will be for:
A) 500.
B) 3000.
C) 2000.
D) 1000. |
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Definition
A - 500
The account equity is $1,000 which is below the minimum maintenance requirements of 25% of market value. The maintenance call will be an amount necessary to bring the account back to minimum, which is $1,500 (25% × $6,000), therefore, the call will be for $500. |
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Term
All of the following statements regarding customer confirmations are true EXCEPT:
A) the confirmation must disclose whether the broker/dealer is a market maker in the security sold.
B) the confirmation must disclose if a control relationship exists.
C) the customer must receive the confirmation no later than the business day after the trade.
D) the confirmation must disclose commissions if the firm acted as agent. |
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Definition
C
The customer must be sent or receive a confirmation from the broker/dealer no later than completion of the transaction. |
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Term
The prospectus of the ABC Fund contains the phrase "will have at least one-quarter of common stock investments in the field of business machines." The ABC Fund is:
A) a balanced fund.
B) a growth and income fund.
C) a diversified fund.
D) a specialized fund. |
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Definition
D
25% or more of assets in one specific sector = SPECIAL |
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Term
If ALFA Securities, a broker/dealer, is a position-trading firm, which of the following statements is TRUE?
A) It is violating NYSE rules.
B) It is trading for its own account.
C) It is acting as a broker for customers.
D) It is underwriting securities in the primary market. |
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Definition
B
POSITION TRADING = trading as a principal (dealer) for a firm's own account |
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Term
A mutual fund's expense ratio is found by dividing its expenses by its:
A) public offering price.
B) income.
C) dividends.
D) average annual net assets. |
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Definition
D
EXPENSE RATIO = Expenses/Avg net assets |
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Term
Which of the following are characteristics of commercial paper?
Registered with the SEC
Short-term debt instrument.
Issued by commercial banks.
Unsecured debt.
A) III and IV.
B) I and II.
C) II and IV.
D) I and III. |
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Definition
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Term
Which of the following would NOT be examples of overlapping debt?
Debt to build a state office building within city limits.
Debt to maintain a county park district serving a municipality.
Debt backed by two states cooperating in the construction of a bridge.
Debt for a high school district within city limits.
A) II and IV.
B) I and II.
C) II and III.
D) I and III. |
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Definition
D - I and III
State debt cannot overlap with any other municipal entity |
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Term
An individual who has worked as a registered representative must requalify for registration if he subsequently takes a job outside the securities industry for more than:
A) 24 months.
B) 6 months.
C) 18 months.
D) 12 months. |
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Definition
a - 24 months
A resigned registered representative may reenter the industry without passing an examination if his resignation lapse is less than 2 years; after 2 years, he must requalify by examination. |
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Term
All of the following must be included in a testimonial made on behalf of a member firm and distributed to potential clients EXCEPT:
A) qualifications of the person giving the testimonial if a specialized or an expert opinion is implied.
B) whether compensation of more than $100 in cash or value was paid to the person giving the testimonial.
C) that the returns and investment performance cited in the testimonial may not be duplicated.
D) length of time the testimonial covers. |
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Definition
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Term
An investor has a diversified portfolio of common stock with a market value of $1.7 million and a beta of 1.20. If the OEX (S&P 100) is currently quoted at 680, to protect the portfolio against a decline in value, the investor's best strategy is to buy:
A) 30 calls.
B) 25 puts.
C) 30 puts.
D) 25 calls. |
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Definition
C
Buying puts is the most effective strategy to hedge the risk of decline in a stock portfolio's market value.
To determine the number of option contracts necessary to hedge:
portfolio value ($1.7 million)/market value of the index (68,000).
Multiply the result (25) by the beta of 1.20. The result is 30 contracts. |
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Term
A customer has been following several investment company quotes in the newspaper. She notices that the GEM Fund has an NAV of $12 and a POP of $12.50, and that the ABC Fund has an NAV of $11.50 and a POP of $10.98. The customer should conclude that:
A) both are open-end funds.
B) GEM may be an open- or closed-end fund and ABC is a closed-end fund.
C) ABC is an open-end fund and GEM is a closed-end fund.
D) ABC and GEM are both unit investment trusts. |
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Definition
B
An open-end fund can never have a POP less than its NAV, therefore ABC cannot be an open-end fund. |
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Term
Disintermediation is a movement of funds which could result from all of the following EXCEPT:
A) the money supply tightens.
B) the discount rate is decreased by FRB.
C) money market rates are higher than typical savings account rates.
D) the Federal Reserve Board increases reserve requirements. |
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Definition
B
Disintermediation = money flowing from banks INTO MONEY MARKETS
Happens when money is tight, causing rates to rise and MM funds to be more attractive than savings rates. |
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Term
A customer interested in a collateralized mortgage obligation (CMO) might look to which of the following for historical data or projections regarding mortgage prepayments?
A) PSA.
B) FINRA.
C) Daily Bond Buyer.
D) DEA. |
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Definition
A - PSA
PUBLIC SECURITIES ASSOCIATION (PSA) uses historical data and projections of mortgage prepayments to estimate yield and maturity of different CMO tranches. |
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Term
While looking at a chart for QRS common stock, a technical trader wants to have an order in position in the event that QRS moves higher and breaks out on the chart. A buy stop order would be placed:
A) just above the resistance level.
B) just below the support level.
C) just above the support level.
D) just below the resistance level. |
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Definition
D
Once it breaks thru the ceiling of the resistance level, it enters a new realm. |
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Term
Closed-end investment company shares can be purchased and sold:
A) in the secondary market.
B) from the sponsor.
C) only over the counter.
D) from the closed-end company. |
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Definition
A - in the secondary market
A closed-end company share is bought and sold in the secondary market. |
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Term
Which of the following statements regarding ADRs are TRUE?
I. They are issued by large domestic commercial banks.
II. They are issued by foreign banks.
III. They facilitate U.S. trading in foreign securities.
IV. They facilitate a foreign investor who wants to trade U.S. securities.
A) II and III.
B) II and IV.
C) I and III.
D) I and IV. |
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Definition
C - I and III
ADRs are issued by large domestic commercial banks to facilitate U.S. investors who want to trade in foreign securities. |
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Term
An official statement has a dated date of March 1, but the first interest payment is October 15. This most likely reflects:
A) a long coupon.
B) a normal payment cycle on the bond of 7-½ months.
C) a when-issued transaction.
D) a misprint in the official statement. |
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Definition
A - a long coupon
This is a long coupon, and, after the first payment, subsequent payments will be made every 6 months. |
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Term
The portion of a municipal bond underwriting spread that remains after the syndicate manager subtracts the management fee is:
A) the additional takedown.
B) the total spread.
C) the total takedown.
D) the concession. |
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Definition
C - the total takedown
TOTAL TAKEDOWN = Additional takedown + concession |
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Term
A couple's home has an assessed value of $40,000 and a market value of $100,000. What will the tax be if a rate of 5 mills is used?
A) 500.
B) 2000.
C) 5000.
D) 200. |
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Definition
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Term
A corporation authorized to issue 1 million shares of common stock originally issued 600,000 shares and later repurchased 40,000 shares for its treasury. How many shares of common stock will remain outstanding?
A) 960,000.
B) 600,000.
C) 560,000.
D) 40,000. |
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Definition
C
Stock issued minus stock reacquired equals the amount of stock outstanding. Shares repurchased are called treasury stock. |
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Term
A customer is long 100 XYZ currently trading at $40 per share. To generate income, the customer writes 2 XYZ Aug 40 calls at 4 for a maximum loss potential of:
A) 4000.
B) 3600.
C) 3200.
D) unlimited. |
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Definition
D - unlimited
Writing more options than he can cover |
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Term
Which of the following would be considered funded debt?
A) Municipal revenue bonds maturing in 10 years.
B) U.S. Treasury bonds maturing in 20 years.
C) Commercial paper maturing in 270 days.
D) Corporate debt maturing in 10 years. |
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Definition
D
Funded Debt = medium/long term corporate debt |
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Term
If an indenture has a closed-end provision, this means that
A) the bonds must be called before maturity
B) additional issues have no lien on the revenue stream
C) a sinking fund must be established
D) additional issues will have junior liens |
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Definition
D
These additional issues are also known as junior lien bonds. Under a closed-end indenture, additional bonds issued against the same stream of revenues have a junior (subordinate) claim to those already outstanding unless the funds are required to complete construction of the facility. |
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Term
If a customer holds certificates of beneficial interest in a REIT, each of the following statements regarding this investment is true EXCEPT:
A) the certificates are publicly traded.
B) the issuer must redeem certificates on shareholder request.
C) investors receive dividends periodically.
D) a mortgage REIT represents pooled capital for real estate financing. |
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Definition
B
REITs are not redeemed by the issuer. REITS are publicly traded units that represent either an interest in pooled capital for real estate financing or an interest in real property and that pass through income and capital gains distributions to investors. Investors who wish to liquidate their interests must sell them in the secondary market. |
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Term
If your client has a certificate registered in his own name, to be a good delivery, the certificate must be accompanied by:
A) the legal opinion, unless the client is selling municipal bonds.
B) a buyer's option.
C) the promise that it has not been called for redemption.
D) a properly-executed assignment to the brokerage firm on the reverse side of the certificate. |
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Definition
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Term
All of the following securities trade in the over-the-counter market EXCEPT:
A) Government and agency securities.
B) Nasdaq securities.
C) American depositary receipts.
D) Open-end investment companies. |
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Definition
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Term
SEC regulation SHO mandates a locate requirement for short sales that is applicable to
corporate bonds.
NYSE issues.
Nasdaq securities.
Municipal bonds.
A) I and III.
B) II and IV.
C) II and III.
D) I and IV. |
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Definition
C
This regulation mandates a locate requirement: before the short sale of any equity security, firms must locate the securities for borrowing to ensure that delivery will be made on settlement date. |
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Term
An immediate-or-cancel order (IOC):
I. must be executed in its entirety.
II. may be executed in part or in full.
III. must be executed in one attempt.
IV. may be executed after several attempts.
A) I and III.
B) II and III.
C) I and IV.
D) II and IV. |
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Definition
B
In an immediate-or-cancel order, the firm handling the order has one attempt to fill the order but a partial execution is binding on the customer. |
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