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SIE Exam Prep

Terms in this set (94)

Mortgage Real Estate Investment Trusts generally invest in which of the following?
A) Properties handled by developers or builders
B) Income Producing Properties
C) Residential Mortgage Loans
D) Oil and Gas Properties
A) Properties handled by developers or builders

Key word: MORTGAGE
Under the SEC's "Pay-to-Play" rules, which of the following contributions by a covered associate is permitted to an elected official's campaign in which the covered associate may NOT vote?
A) Contributions of $350 or less per election, per covered associate
B) Contributions of $350 or more per election, per covered associate
C) Contributions of $150 or less per election, per covered associate
D)Contributions of $150 or more per election, per covered associate
C) Contributions of $150 or less per election, per covered associate
Associate is NOT permitted to vote so limit goes down to $150
What is the obligation of a put writer upon exercise of the put?
A) The writer must purchase the underlying security at the strike price
B) The writer must purchase the underlying security at the current market value
C) The writer must sell the underlying security at the strike price
D) The writer must sell the underlying security at the current market price
A) The writer must purchase the underlying security at the strike price
If an investor spreads his mutual fund investments over several different fund families, his registered representative should disclose to the investor that the investor will probably forfeit which of the following privileges?
A) Exchange privileges
B) Sales charge breakpoint
C) Systematic withdrawal program
D) Automatic reinvestments of dividends and distributions
B) Sales charge breakpoint

Breakpoints are given within the same Fund Family. Investing in multiple fund families hinders breakpoints
An investor expects the market value of ABC to remain neutral over the next few months. He is long ABC. How could this investor utilize the expectation that ABC will remain neutral?
A) He could put on a long straddle
B) He could sell a call
C) He could buy a put
D) He could go short against the box
B) He could sell a call

Investor is long the stock and expects market stability, the investor would increase rate of return by selling a call option on underlying security
Under the JOBS Act, an issuer that is an emerging growth company or a broker-dealer representing the issuer may engage in the following communications before a registration statement is filed with the SEC EXCEPT

A) Contact potential investors that are Qualified Institutional Buyers (QIBs) to ascertain investor interest
B) Contact potential investors that are Accredited Investors (AIs) to ascertain investor interest.
C) Contact potential investors that are Retail Investors to ascertain investor interest
D) Engage in oral or written communications with potential investors.
C) Contact potential investors that are Retail Investors to ascertain investor interest

Communication is limited to sophisticated investors: QIBs and IAs. Not the general public AKA potential investors
Susan Smith has a large portfolio of blue chip common stocks and is expecting the market value of her stocks to remain about the same or decline modestly in price and would like to improve the rate of return on her portfolio. Which of the following option positions would be best for her?
A) Short Calls
B) Long Calls
C) Short Puts
D) Long Puts
A) Short Calls

Covered call writing would provide her with income and some downside protection
Which of the following statements regarding "inflation" and "interest rates" would be true?
A) Interest rates will remain unchanged during periods of inflation
B) Interest rates will decline in periods of inflation
C) Interest rates will increase in periods of inflation
D) Interest rates and inflation have no correlation
C) Interest rates will increase in periods of inflation

During periods of inflation interest rates are expected to increase
How often must a member firm send a customer an account statement showing the cash and securities positions in the account if there is no activity in the account?
A) Monthly
B) Quarterly
C) Semi-Annually
D) Annually
B) Quarterly

Statements must be sent quarterly regardless of trading activity
Which of the following callable bonds trading at an 8% basis would most likely be refunded?
A) 5 1/2% of 2025, callable at 100
B) 8 1/2% of 2035, callable at 100
C) 8% of 2035, callable at 103
D) 6 1/2% of 2025, callable at 103
B) 8 1/2% of 2035, callable at 100

Highest coupon rate. When a company is refunding, it wants to get rid of a high paying coupon
All of the following could be applied to fixed UITs EXCEPT:
A) The term "diversified"
B) The fact they are registered
C) The fact they are managed
D) The fact they are regulated
C) The fact they are managed

A FIXED UIT would not have an investment manager or be managed since the securities are fixed
Mr. & Mrs. Jones have a joint account. Mr. Jones enters an order to sell 300 XYZ which is held in their joint account, and requests that the check be made payable to him. As the registered representative you should

A) Follow Mr. Jones' instructions as requested.
B) Not take the order.
C) Execute a cash transaction.
D) Tell Mr. Jones that the check must be issued in joint name.
D) Tell Mr. Jones that the check must be issued in joint name.

Funds withdrawn in a joint account must be made to both parties
Which of the following statements is generally accurate regarding securities issued by agencies of the U.S. Government?
A) Though these securities pay interest, only the principal is considered to be safe and liquid
B) They generally do not trade in the secondary market
C) Both the principal and interest payments are considered to be safe
D) The U.S. Government fully backs the issues of federal agencies
C) Both the principal and interest payments are considered to be safe
A client is evaluating purchasing corporate bonds versus purchasing municipal bonds. In their evaluation, the client wishes to evaluate the equivalent yield required by a corporate to compensate for the tax benefits of the municipal bonds. Which of the following is the formula used to determine tax-equivalent yield?
A) The client should multiply the tax-exempt yield of the muni by their tax rate
B) The client should divide the tax-exempt yield of the muni by their tax rate
C) The client should multiply the tax-exempt yield of the muni by (100%-their tax rate)
D) The client should Divide the tax-exempt yield of the muni by (100%-their tax rate)
D) The client should Divide the tax-exempt yield of the muni by (100%-their tax rate)

Ex: Muni = 5% | Tax Bracket = 28% |
5% / (100% - 28%) = 0.05 / 0.72 = 0.0694 or 6.94%
While working one day, a 17 year old walks into the office. He has already graduated high school and wishes to open an account at the firm. How should this situation be handled?
A) If the office manager is willing to approve the account, the RR should proceed as with any other customer
B) Unfortunately, the RR has no choice but to refuse to open an account for the 17 year old
C) No extra approvals would be required and the RR can immediately open the account
D) If the 17 year old's parents give permission for the account, then the RR can proceed as with any other customer
B) Unfortunately, the RR has no choice but to refuse to open an account for the 17 year old

No account may be opened for a minor. An alternative would be an UGMA account
Some broker-dealers allow their registered representative to be "independent contractors" of the firm. When handling the sale of equity securities and mutual funds all of the following about independent contractors are correct EXCEPT:
A) They are required to submit all securities transactions for approval by a principal of the member firm
B) They are not required to adhere to the member firm's supervisory requirements
C) They may be required to register as the principal of the firm
D) Their office must be registered as a branch office of the member firm if it is advertised as such
B) They are not required to adhere to the member firm's supervisory requirements

They are considered employees and would be subject to all supervisory rules of the firm
An Open-end Mortgage Bond issued by a corporation is one in which the property used to secure the bonds:

A) Cannot be used to secure a later loan unless the later loan is lesser in claim.
B) Can be used to secure additional debt as long as the additional bonds are subordinated.
C) Can be used to secure additional bonds and all bonds rank equally.
D) Can be used to secure additional debt and in the event of bankruptcy bonds would be repaid by earliest maturities first.
C) Can be used to secure additional bonds and all bonds rank equally.
When disciplinary action is taken against a broker-dealer, final authority is in the hands of the

A) SEC - Securities Exchange Commission
B) FINRA- Financial Industry Regulatory Association
C) State Administrator in the state where the violation occurred
D) Broker-dealers supervisory committee
A) SEC - Securities Exchange Commission

All disciplinary actions by SROs are subject to SEC review and has final authority
When a bond is trading at a discount, the current yield on the bond is:
A) unrelated to its yield to maturity
B) less than its yield to maturity
C) equal to its yield to maturity
D) more than its yield to maturity
B) less than its yield to maturity
Which of the following statements is false when discussing the Federal Funds Rate?
A) Changes to the supply of money and demand for money cause fluctuations in the federal funds rate
B) The Federal Reserve directly sets the Federal Funds Rate
C) Historically, the discount rate has been lower tan the Federal Funds Rate
D) The calculation of the Federal Funds Rate takes place daily
B) The Federal Reserve directly sets the Federal Funds Rate

Fed Funds Rate is set by banks. It is the excess funds banks lend to other banks who fall short of meeting reserve requirements
Which of the following statements about Roth IRA plans is TRUE?
A) Roth IRA plans are not permitted to invest in individual stocks
B) Maximum contributions for a single year for an individual with a Roth IRA would be $5,000.
C) The original owner of the plan must receive minimum distribution by the age of 70 1/2
D) The qualified distributions of a Roth IRA plan are not taxable
D) The qualified distributions of a Roth IRA plan are not taxable
A Registered Representative thoroughly reads a preliminary prospectus and then writes a brief review of the prospectus which he wants to send to clients he believes are suitable.
A) This may be done with the Branch Office manager's approval
B) This may be done without restriction
C) This may only be done with the approval of a supervisory analyst
D) This may not be done under any circumstances
D) This may not be done under any circumstances

Preliminary Prospectus' must be sent to clients without any attachment, comment or review
An investor wants to exchange shares of one fund with shares of another fund that is within the same family of funds. Which of the following is NOT an important consideration when making such an exchange?
A) The fund's investment objectives
B) The investment risk profile of the fund
C) Tax consequences
D) The sales load of the new fund
D) The sales load of the new fund

When doing a conversion or switching shares within the same family there would generally not be any sales load imposed
Which of the following would NOT be considered a Money Market Instrument?
A) Jumbo Certificates of Deposit
B) Bankers Acceptances
C) Treasury Bills
D) ADRs (American Depository Receipts)
D) ADRs (American Depository Receipts)

Money Market Instrument would have a maturity of 12 months or less. ADRs trade like common stock and do not have set maturities
A broker-dealer has fired a registered representative (RR) for cause related to a violation of securities regulations. This RR will continue to be subject to FINRA jurisdiction for what period of time following the filing of the Form U-5?

A) 1 year
B) 2 years
C) 3 years
D) 4 years
B) 2 years
When an investor buys either a corporate or municipal bond, how frequently is interest paid?
A) Interest is paid every week
B) Interest is paid every month
C) Interest is paid on a quarterly basis
D) Interest is paid on a semi-annual basis
D) Interest is paid on a semi-annual basis

Interest on both corporate and municipal bonds is normally paid semi-annually. Remember it is dividend payments that are made quarterly
All of the following are defensive except:
A) Automobile repair service
B) Tool and Die Manufacturer
C) Natural Gas Supplier
D) Supermarket Chain
B) Tool and Die Manufacturer
Which of the following statements by an RR is TRUE regarding dividends?
A) "It is possible for a long term-equity anticipation security to pay dividends"
B) "An investor can expect to receive dividends on the underlying security in the event that they own a call option"
C) "An investor who owns an ADR can expect to receive dividends from their investment when declared and paid
D) "When an investor owns a warrant or right, they are entitled to receive dividends in accordance with these securities"
C) "An investor who owns an ADR can expect to receive dividends from their investment when declared and paid

ADRs are the only ones that pay dividends
All of the following are true regarding IRA contributions EXCEPT:
A) Although a tax return is filed prior to April 15th, the IRA contribution may be delayed until April 15th
B) Contributions may be made at any time between Jan. 1st and April 15th of the following year
C) If an extension for a tax return is obtained, the IRA contribution may be delayed until the date the tax return is filed
D) Persons not participating in any other type of retirement plan may deduct their IRA contributions up to certain limits
C) If an extension for a tax return is obtained, the IRA contribution may be delayed until the date the tax return is filed

If an extension is granted for the filing of a tax return, the IRA contribution must still be made no later than Apr 15
Which of the following describes the computation to arrive at NAV per share?
A) NAV per share is calculated by finding the average value on a per share basis over the previous quarter
B) NAV per share is calculated by subtracting the liabilities of the find from the total assets of the fund, then dividing this number by the total number of shares currently outstanding
C) NAV per share is calculated by taking the total value of the portfolio of the fund, adding sales charges received, and then dividing this figure by the total shares currently outstanding
D) NAV per share is calculated by finding the total appreciation of the portfolio and dividing this figure by the total number of shares outstanding
B) NAV per share is calculated by subtracting the liabilities of the find from the total assets of the fund, then dividing this number by the total number of shares currently outstanding
Which of the following is generally NOT TRUE in relation to Corporate Commercial Paper?
A) Commercial paper is normally offered in book-entry form
B) Commercial paper is normally issued in callable form
C) Commercial paper is normally sold at a discount
D) Commercial paper is normally unsecured debt of a corporation
B) Commercial paper is normally issued in callable form

Commercial paper is short term and is not callable
A basis point equals:
A) 1/1000 of 1%
B) 1/100 of 1%
C) 1/10 of 1%
D) 1%
B) 1/100 of 1%
When a customer opens a margin account at a broker/dealer, they are required to sign certain documents. Which of the following best describes the agreement between the customer and the broker/dealer related to the terms and conditions of financing involved in purchasing on margin?
A) This is covered in the customer's new account form.
B) This is covered in a consent by the client to the loan from the broker/dealer.
C) This is covered in the customer's hypothecation agreement.
D) This is covered in the Credit Agreement for a line of credit with the customer.
D) This is covered in the Credit Agreement for a line of credit with the customer.
Which of the statements below on open-end funds is FALSE?
A) At least once annually, shareholders should receive distributions of any capital gains on the fund
B) 8.5% is the largest allowable sales charge
C) The secondary market is where such funds are traded
D) Some customers may qualify
C) The secondary market is where such funds are traded
An investor, Mrs. Smith, is seeking a mutual fund offering a high yield. Which of the following is the best choice for Mrs. Smith?

A) Aggressive Growth Fund
B) Hedge Fund
C) Income Fund
D) Emerging Growth Fund
C) Income Fund
Which of the following would determine the current value of a variable annuity's accumulation units?
A) The number of purchased units multiplied by the assumed interes rate of the annuity
B) The holder's life expectancy determines the value
C) The holder's anticipated date of annuitization
D) The underlying securities' value as seen in the variable annuity separate account
D) The underlying securities' value as seen in the variable annuity separate account

Current value of an accumulation unit of a variable annuity is always determined from the value of the separate account
The Alternative Minimum Tax (AMT) may be applied to shareholders of a mutual fund that has which of the following securities contained within?
A) U.S. Treasury Bills
B) Convertible Bonds
C) Municipal bonds issued for private industry purposes
D) Investments in blue chip securities
C) Municipal bonds issued for private industry purposes
In order for a firm to effectively enforce an anti-money laundering program, which of the following would be most important
A) Not allowing cash deposits
B) Filing a SAR report on time
C) Knowing its customers
D) Reviewing accounts for churning
C) Knowing its customers
Predictions about the future performance of mutual funds and variable annuities are
A) Permitted if the basis of the prediction is provided
B) not permitted, regardless of the situation
C) permitted if prepared by an outside and unbiased analyst
D) not permitted unless reviewed by FINRA 10 days before first use
B) not permitted, regardless of the situation

Predictions or guarantees about future performance of variable products and investment companies are not permitted under any circumstances
What is the amount of interest payable per year on a $1,000 par value 5% bond selling at 80 and redeemable at par in 10 years?
A) $10
B) $40
C) $45
D) $50
D) $50
Annual interest is the coupon rate (5%) times par ($1,000) or in this case $50
Which of the following is an accurate statement regarding the delivery of trade confirmations to clients?
A) Confirmations need NOT be delivered to clients in most cases
B) Confirmations MUST be delivered as requested by the client
C) Confirmations MUST be delivered at or prior to completion of the trade
D) Confirmations MUST be delivered no later than 4 business days after trade date
C) Confirmations MUST be delivered at or prior to completion of the trade

Confirmations must be sent out to customers at or before the completion of any transaction
According to anti-money laundering regulations, which of the following must be reported to federal authorities
A) Cash and wire transfers combined that total $10,000 per week
B) Cash deposits of more than $10,000 per week
C) Cash deposits of more than $10,000 per day
D) Wire transfers that total $10,000 per week
C) Cash deposits of more than $10,000 per day
Which of the following could be used to meet a Reg T call on an initial transaction in a customer's margin account?
I. A cash deposit equal to the amount of the call
II. An escrow receipt with a value that is equal to the amount of the call
III. Listed securities which have a loan value that is equal to the amount of the call
IV. Listed securities which have a market value that is equal to the amount of the call
A) I & III
B) II & III
C) II & IV
D) I & IV
A) I & III

Must have a LOAN VALUE equal to the margin purchase
Cash Deposit equal to call would also work but not an escrow
Regarding FINRA rules, if an RR will be paid to find investors for a limited partnership that he is affiliated with, which of the following is TRUE?

A) The member firm must contact the limited partnership to notify it that the RR is employed by the member firm.
B) No action is needed unless the RR is a limited partner.
C) If the member firm approves of this activity it must record it and supervise it.
D) If approved, FINRA has 10 business days to review the activity.
C) If the member firm approves of this activity it must record it and supervise it.
Which of the following indicates if the yield of a zero-coupon bond is currently trading at a premium or at a discount to its compound accreted value?
A) Original Dollar Price
B) Original Yield
C) Maturity Date
D) Dated Date
B) Original Yield

Always work from original yield
A broker should disclose all of the following characteristics of a Section 529 Prepaid Tuition Plan to clients who are the parents of a college bound child and who are trying to make advance provision for the costs of college EXCEPT:
A) These plans do not have investment risk
B) These plans do provide a hedge against increases in tuition cost
C) Contributions to these plans are tax deductible for federal income tax purposes
D) These plans typically charge enrollment and administrative fees
C) Contributions to these plans are tax deductible for federal income tax purposes
KEYWORDS: PREPAID TUITION
Understand this is different than an Education Savings plan (529 plan)
Which of the following is CORRECT about a JTWROS Account (Joint Tenants with Rights of Survivorship)?
A) Securities transactions may be placed by any individual listed on the account
B) The account must be limited to two individuals only
C) These accounts are generally taxed at a higher rate than individual accounts
D) If one of the account owners dies, the surviving member(s) of the account will receive all of the assets of the account unless the deceased individual's will states otherwise
A) Securities transactions may be placed by any individual listed on the account

Can be more than 2
Any tenants interest is automatically passed to the surviving members
Which of the following is true when the holder of put decides to exercise the put and the broker-dealer sends the exercise notice to the OCC Options Clearing Corporation? The OCC would
A) Forward the exercise notice on a FIFO basis to another clearing member who has a short position that satisfies the exercise notice
B) randomly choose another clearing member who is short that series to satisfy the exercise notice
C) Assign the exercise notice to the clearing member who wrote the option
D) pay the money required to satisfy the exercise price directly to the person who exercised the option
B) randomly choose another clearing member who is short that series to satisfy the exercise notice
When a member firm receives a sell long order for a customer account the member must have reasonable assurance that the customer will deliver the securities within
A) 2 business days
B) 2 calendar days
C) 4 business days
D) 4 calendar days
A) 2 business days
Settlement date is trade date plus 2 business days
The type of policy which advocates that the federal government uses taxation and increasing spending programs to foster a growing economy is called
A) Fiscal Policy
B) Monetary Policy
C) Supply-Side Policy
D) Trade Policy
A) Fiscal Policy

Includes federal taxation and spending policies intended to level out business cycles
When a Registered Representative is Determining suitability for a customer, all of the following are included in this determination EXCEPT the
A) customer's net worth
B) historic performance of a fund
C) customer's risk tolerance
D) customer's retirement or education goals
B) historic performance of a fund
Suitability rules are also known as the "know your customer" rules. Suitability relates to the customer, not the past performance of a prospective fund
The Investment Company Act of 1940 requires that certain transactions use "forward pricing" (the valuation of mutual fund share prices as of the next computation). Which of the following transactions does NOT require "forward pricing"?
A) Shares are purchased directly from the principal underwriter by individual investors
B) Shares are sold on behalf of an investor by the investor's broker-dealer through a wire order
C) Shares are redeemed directly to the fund by a customer
D) ETF shares are purchased by a customer in the secondary market
D) ETF shares are purchased by a customer in the secondary market
Forward pricing is required for all purchases and redemptions of mutual fund shares
Investors who purchase ETFs in the secondary market pay the market price at the time of purchase. No forward pricing involved
The calculation of the contingent deferred sales load upon the redemption of a mutual fund is based on
A) the NAV at the time the fund shares are redeemed
B) the NAV at the time the fund shares were purchased
C) either the NAV at the time of purchase or the NAV at the time of redemption, whichever is greater
D) a percentage of either the NAV at the time of purchase or the NAV at the time of redemption, whichever is less
D) a percentage of either the NAV at the time of purchase or the NAV at the time of redemption, whichever is less
An investor who is interested in purchasing Class A mutual fund shares would have which of the following characteristics?
A) A small amount of money to invest
B) A short-term time horizon
C) A moderate to large amount of money to invest
D) Speculation as an investment objective
C) A moderate to large amount of money to invest
Broker dealer's charge their margin customers interest on the debit balances held in the customer's margin accounts. What is the interest rate called that is the basis for margin rates charged to customers?
A) The current federal funds rate
B) The current broker call rate
C) The discount rate established by the FED
D) The going prime rate found in the open market
B) The current broker call rate
Which of the following would not be a consideration in determining whether a customer account has been excessively traded (churned) by the RR?
A) RR discretionary authority over the account
B) The quality of the securities
C) The RR's reasons for the trades
D) The account turnover
B) The quality of the securities
Quality of trades show suitability not a factor for churning
Which of the following is FALSE about the Interbank Market
A) It is a centralized market
B) It is essentially free from government regulation
C) Governments may take actions that affect their own currencies
D) Trading is generally conducted in large units
A) It is a centralized market
Interbank Market is unregulated, decentralized global market, trading is done in large units, and govts can affect their own currencies
Under FINRA Rules related to opening new accounts for people that work with another member firm, disclosure would be required for all of the following EXCEPT?
A) an insurance agent which offers only Fixed Annuities to his clients
B) a registered rep employed by another broker dealer
C) a clerk employed by another broker dealer
D) a trader employed by another broker dealer who only trades govt securities
A) an insurance agent which offers only Fixed Annuities to his clients
He would be employed by an insurance firm not another member firm so he would not be regulated.
Eurodollar bonds generally have interest rates or coupons which are:
A) lower than bonds which are issued in the U.S.
B) higher than bonds which are issued in the U.S.
C) equivalent to bonds issued in the U.S.
D) zero coupon which pay all of the interest and principal at maturity
A) lower than bonds which are issued in the U.S.
Eurodollar bonds are generally offered at rates lower than U.S. rates due to lesser regulation and taxation
An open buy order entered above the current market price of a security would be a:

A) Limit order
B) Not held order
C) All or none order
D) Stop order
D) Stop order
The only buy order above current market price are Buy Stops. Remember BLSS chart
A broker-dealer bought ABC stock at 8 for its inventory position. A month later when the inter-dealer market for ABC was 10.50 -- 11.25, the broker-dealer sold the stock to a customer. The dealer's markup will be based on:
A) 8.00
B) 8.75
C) 10.50
D) 11.25
D) 11.25
Must trade based on current bid/ask
10.50 Bid for customers selling
11.25 Ask for customers buying
Which would NOT be a reason an investor buys a call option?
A) Diversify the investor's portfolio
B) Hedge a short stock position
C) Provide additional leverage
D) Sell stock at above the current market price
D) Sell stock at above the current market price
A put, not a call, gives the holder the right to sell stock at a premium above the current market price
One prime objective of the Investment Company Act of 1940 is to
A) ensure that practices on stock exchanges are similar throughout the country
B) mandate that Treasury securities be included in money market portfolios
C) ensure that individual investors are provided with full and fair disclosure regarding corporate securities
D) ensure that individuals investing in investment company shares are fully informed and fairly treated
D) ensure that individuals investing in investment company shares are fully informed and fairly treated
All of the following are true regarding the conduct of customer accounts except:
A) Stock held in a custodian account may not be held in street name
B) A customer may open a numbered account provided a statement attesting to the ownership of the account is signed
C) Stock held in joint tenancy with rights of survivorship (JTWROS) escapes federal estate tax liability in the estate of the first to die.
D) Margin trading in a fiduciary account requires documentation starting that such trading is permitted
C) Stock held in joint tenancy with rights of survivorship (JTWROS) escapes federal estate tax liability in the estate of the first to die.
JTWROS are still taxable
Which of the following is false regarding stop orders?
A) They assure an execution at a specific price
B) They protect the profit on a long position of a customer
C) They limit the loss on a short position for a customer
D) They influence the size of price fluctuations of a particular stock
A) They assure an execution at a specific price
CANNOT guarantee a specific price
Mr. Elderly has reached retirement age and is about to exchange his accumulation units in a variable annuity for annuity units. His cash flow will be greatest if the payment he selects is
A) Unit Refund Life Annuity
B) Life Annuity
C) Life Annuity, period certain
D) Joint and Last Survivor Life Annuity
B) Life Annuity
Life annuity investors receive regular payments until death, regardless of how long the investor lives. This payout method gives the investor the largest payment of all methods of payout
A single 25-year-old investment banker has income of $300,000 and net worth in excess of a million dollars. Her investment objective is capital appreciation. All of the following would be appropriate for this investor EXCEPT:

A) equities in emerging markets
B) small cap equity securities
C) high yield preferred stocks
D) aggressive growth funds
C) high yield preferred stocks
Since her objective is capital appreciation, the high yield preferred stock would be the least appropriate since preferred stocks are generally less volatile than common stocks
Instruments with short-term maturities of less than two years issued by banks outside the U.S. which pay all of their interest and principal in U.S. dollars are known as which of the following?
A) Eurodollar bonds
B) Eurodollar certificates of deposit
C) Eurodollars
D) Eurocurrency
B) Eurodollar certificates of deposit
Eurodollar "CDs" are short term instruments issued outside the U.S. which pay principal and interest in U.S. dollars
The customer Identification Program CIP requires a broker-dealer who opens an account for a new customer to do all of the following except:
A) Verify the identity of the customer
B) Maintain customer identity records
C) To check that the customer does not appear on any terrorist list or on a list of embargoed countries
D) Verify that the customer has sufficient knowledge and experience to understand the risks relating to investments
D) Verify that the customer has sufficient knowledge and experience to understand the risks relating to investments
This choice is required in determining suitability but not a CIP
A stock dividend would be paid on which of the following securities?
A) Common stock
B) Preferred stock
C) Treasury notes
D) Treasury bills
A) Common stock
Shares of stock can be paid on CS
Pref stock may pay cash dividends at a fixed dividend rate
Treas. notes and bills are both forms of debt and never pay dividends
All of the following are typically services provided in a prime brokerage account EXCEPT:
A) Investment Advice
B) Securities lending
C) Centralized trade settlement while still using multiple executing brokers
D) Calculating a total return on all investments
A) Investment Advice
Prime brokerage acct is a bundled package of services offered by a broker dealer to hedge funds. Investment Advice is not part of the package
Which of the following would be the best choice if a client has $30,000 to invest by needs monthly income?
A) An aggressive growth fund
B) Blue chip stocks
C) A sector fund
D) A money market fund
D) A money market fund
Money market fund is most appropriate because it offers income, safety and liquidity.
Excess reserves of commercial banks which are deposited with Federal Reserve Banks are referred to as:
A) Discount Funds
B) Certificates of deposit
C) Excess equity funds
D) Federal Funds
D) Federal Funds
When a new bond issue begins to trade in the market following the underwriting it is then trading in the:
A) Primary market
B) Secondary market
C) Third market
D) Fourth market
B) Secondary market
Key words in the question are "following the underwriting". During underwriting it is in the Primary Market, however after would be in the secondary market
An investment banker can engage in all of the following activities EXCEPT:
A) Underwrite a security issue
B) Accept time and demand deposits
C) Sell large blocks of stock to institutions
D) Assist the issuer in preparing the prospectus and in the public distribution of shares
B) Accept time and demand deposits
Investment bankers handle the distribution of new issues to the public. Commercial banks accept time and demand deposits
Which of the following issues is not exempt under the 1933 Act?
A) State and federal government
B) Industrial loan company
C) Benevolent association
D) Small business investment company
B) Industrial loan company
Non-exempt entities would have to file and all choices except B are exempt from SEC filing requirements
Of the following statements, which is FALSE about mutual fund information services?
A) Many services require a paid subscription to access the information
B) The performance results listed by such services will not always follow SEC and FINRA guidelines
C) The performance of funds is often reliability projected by these services
D) The information services can be a resource for investors to research funds
C) The performance of funds is often reliability projected by these services
Predicting performance on funds is prohibited
Which of the following is TRUE of warrants?
A) When the warrants are issued, the market price of the underlying stock would be below the exercise price
B) They are all issued as perpetual warrants
C) They pay dividends
D) The market price of the stock is considerably above the exercise price when they are issued
A) When the warrants are issued, the market price of the underlying stock would be below the exercise price
Warrants are an incentive. Their exercise prices are set higher and as time passes and the stock appreciates the warrants become valuable
A municipal general obligation bond has which of the following characteristics?
A) Revenues generated by the users of the project pay all expenses related to the bonds
B) They trade on listed exchanges
C) GO bonds are backed by the full faith and credit of the municipality issuing the bonds
D) GO bonds can be exempt from federal taxation only
C) GO bonds are backed by the full faith and credit of the municipality issuing the bonds
General obligations are backed by the full faith and credit of the issuing municipality. "A" refers to industrial revenue bonds. They do not trade on exchanges, and can be triple tax-free.
All of the following are characteristics of commercial paper EXCEPT:
A) It is normally issued at a discount
B) It is a non-negotiable promissory note issued by a corporation
C) It can be issued directly by the issuer
D) The maximum maturity is normally 270 days
B) It is a non-negotiable promissory note issued by a corporation
Commercial paper is an unsecured promissory note issued by corporations that can be traded negotiable in the secondary market. All of the other choices are correct
Which of the following is CORRECT in relation to one-time withdrawals from a non-tax qualified variable annuity by individuals over age 59 1/2?
A) A one-time withdrawal would not be taxable, because the investor has cost basis in the variable annuity and withdrawals would be made on a FIFO basis
B) A one-time withdrawal would be at least partially taxable, since earnings in the variable annuity are taxed on a LIFO basis
C) Since individuals over 59 1/2 are of retirement age and have cost basis in the variable annuity, the withdrawal would be tax-free
D) Individuals are never permitted to make one-time withdrawals from variable annuities
B) A one-time withdrawal would be at least partially taxable, since earnings in the variable annuity are taxed on a LIFO basis
The duty of a broker-dealer firm and its individual brokers to ensure that investment recommendations made to customers are suitable based on a specific customer's investment profile includes all of the following except:
A) Have a reasonable basis for the belief that the recommendation is suitable
B) The belief is based on customer-specific information
C) The size of the recommended trade must not be excessive
D) Refrain from making an investment recommendation if the customer refuses to provide certain customer specific information
D) Refrain from making an investment recommendation if the customer refuses to provide certain customer specific information
Which of the following is TRUE about the taxation of municipal bond funds?
A) The investor will only pay taxes on capital gains when the fund is sold
B) Distributions of capital gains are subject to taxation at the federal level, but dividend from municipal funds is not subject to federal taxes
C) All income from such a fund, including capital gains and dividend distributions, is exempt from taxation at the federal level.
D) All income from such a fund, including capital gains and dividend distributions, is tax-deferred until shares of the fund are sold.
B) Distributions of capital gains are subject to taxation at the federal level, but dividend from municipal funds is not subject to federal taxes
A person who performs which of the following functions must be registered as a Financial and Operations Principal (FINOP)>
A) Accepts clients' investments orders
B) Reviews and approves research reports
C) Prepares customer account statements and confirmations
D) Prepares firm financial statements and net capital computations
D) Prepares firm financial statements and net capital computations
Economic reports show that disposable personal income has been declining for 2 consecutive quarters. Which industry will be most adversely affected:
A) Utilities
B) Supermarkets
C) Household Appliances
D) Energy (oil and gas)
C) Household Appliances
A broker at a FINRA member firm prepares sales literature for a new product that the firm is introducing. She intends to send the sales literature to 30 of her best customers in the next couple of weeks. Before sending the sales literature, the following is required:
A) The internal review and approval of a registered principal of the firm
B) The filing of sales literature with FINRA prior to use
C) Both the internal review and approval and the filing with FINRA prior to use
D) A content checklist form must be completed and singed by the broker
A) The internal review and approval of a registered principal of the firm
Municipal security issuers and market participants are subject to which of the following?
A) Anti-fraud provisions of the Securities Exchange Act of 1934
B) Prospectus delivery requirements to purchasers of new issues (the Securities Act of 1933)
C) Issuer reporting requirements to the SEC under the Securities Exchange Act of 1934
D) Securities registration requirements to the SEC before selling to the public
A) Anti-fraud provisions of the Securities Exchange Act of 1934
What of the following would be the effect on a collateralized mortgage obligation (CMO) if interest rates declined?
A) An increase in the market price of the CMO
B) Decrease the market price of the CMO
C) Lengthen the average life by 5 years or more
D) Lengthen the average life by 10 years or more
A) An increase in the market price of the CMO
Subject to same effect that interest rates have on bonds
Several years ago, a client had a few investment options and the decision was made that the client would invest in a non-qualified variable annuity. How are contributions to this type of investment product treated for tax purposes?
A) When the contributions are withdrawn, the amount withdrawn is added to the individual's ordinary income for that year.
B) When the contributions are withdrawn, the full amount will result in a tax deduction for anyone with overall ordinary income of less than $60,000.
C) When the contributions are withdrawn, the amount withdrawn will not be subject to taxation.
D) When the contributions are withdrawn, they are deducted from the amount of earnings within the investment vehicle.
C) When the contributions are withdrawn, the amount withdrawn will not be subject to taxation.
Contributions are after tax. For this reason withdrawals of contributions will not be subject to taxation. Earnings typically grow on a tax-deferred basis but taxed when withdrawn
Customers that buy securities and hold their positions for long period of time could benefit from all of the following EXCEPT?
A) Blue Chip common stock
B) Variable Annuities
C) Long Term Growth Fund
D) Non-managed Fee-based Account Program
D) Non-managed Fee-based Account Program
Would not benefit since they are not active traders
A conservatively optimistic investor who wants to participate in a possible upward move of the market and at the same time limit her downside risk would most likely
A) buy LEAPS puts
B) buy LEAPS calls that are out of the money and sell LEAPS calls that are in the money.
C) sell LEAPS Puts that are out of the money
D) buy LEAPS calls and buy Treasury Notes.
D) buy LEAPS calls and buy Treasury Notes.
Calls for upward movement
Notes for safety of downside protection
An investor living on a fixed income has $10,000 to invest. His investment objectives are safety of principal and capital appreciation. Which of the following would be the most suitable investment?
A) Common stock in a growth company
B) A convertible corporate bond, rated grade A or better
C) U.S. Savings Bonds
D) Money Market fund
B) A convertible corporate bond, rated grade A or better
Convertible feature allows for safety while offering accumulation through underlying common stock
The calculation of the Gross National Product (GNP):
A) Includes the value of all imports
B) Includes the value of net exports (exports minus imports)
C) Excludes government purchases
D) Excludes foreign investments in the United States
B) Includes the value of net exports (exports minus imports)
Under the regulations of the security industry, can unlisted securities be sold short by an OTC trader?
A) Yes, there is no restriction on such transactions
B) No, because they are not marginable
C) No, because it is against Federal Regulations
D) Yes, but only on an uptick or zero plus tick
A) Yes, there is no restriction on such transactions
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