Question 1

Which of the following is not required to be included in a management company's prospectus?

Accepted Answer

A) the various fees charged by the company 
B) the potential risks to which the company's investors are exposed 
C) a statement of the investment objective of the company 
D) the financial statements of the company 
A) the various fees charged by the company 
B) the potential risks to which the company's investors are exposed 
C) a statement of the investment objective of the company 
D) the financial statements of the company

Question 2

Callie has a new client who wants to begin investing in mutual funds with the $5,000 she has pulled out of her savings account. The client has indicated she wants to set this money aside in a separate account so that her baby girl, now 2 years old, can have the "wedding of her dreams" when she grows up. Based on the information the client has provided, Callie believes the client would benefit most by purchasing shares of a certain fund that offers Class A, Class B, and Class C shares. Given these facts, Callie's client is probably best off purchasing the shares of which class?

Accepted Answer

A) Class A 
B) Class B 
C) Class C 
D) None of that above. Based on the facts, Callie's client would be better off buying a Treasury STRIP that matures in 20 to 30 years. 
A) Class A 
B) Class B 
C) Class C 
D) None of that above. Based on the facts, Callie's client would be better off buying a Treasury STRIP that matures in 20 to 30 years.

Question 3

Which of the following relationships regarding shares of common stock are necessarily true?
I. shares outstanding > issued shares
II. authorized shares ≥ issued shares
III. issued shares = treasury shares
IV. issued shares ≥ shares outstanding

Accepted Answer

A) I and II only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only 
A) I and II only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only

Question 4

A preemptive right:

Accepted Answer

A) is a call option that is usually attached to a bond as a sweetener. 
B) gives a bond owner the option to sell the bond back to the issuer at a pre-specified price. 
C) entitles its owner to buy shares of stock at a specified price within a specified time period in order to maintain his proportionate ownership in the firm. 
D) is a feature on some preferred stock issues that allows the preferred shareholders to exchange their preferred shares for shares of the common stock of the firm. 
A) is a call option that is usually attached to a bond as a sweetener. 
B) gives a bond owner the option to sell the bond back to the issuer at a pre-specified price. 
C) entitles its owner to buy shares of stock at a specified price within a specified time period in order to maintain his proportionate ownership in the firm. 
D) is a feature on some preferred stock issues that allows the preferred shareholders to exchange their preferred shares for shares of the common stock of the firm.

Question 5

The mortality guarantee of a variable annuity contract:

Accepted Answer

A) guarantees a fixed death benefit amount will paid to your beneficiaries upon your death. 
B) guarantees that you can receive a monthly check of a specified amount as long as you live. 
C) guarantees that both you and a person you specify as your beneficiary will continue to receive payments as long as one of the two of you is alive. 
D) None of the above is a true statement about the mortality guarantee of a variable annuity contract. 
A) guarantees a fixed death benefit amount will paid to your beneficiaries upon your death. 
B) guarantees that you can receive a monthly check of a specified amount as long as you live. 
C) guarantees that both you and a person you specify as your beneficiary will continue to receive payments as long as one of the two of you is alive. 
D) None of the above is a true statement about the mortality guarantee of a variable annuity contract.

Question 6

In mid-September, the stock of Amazon.com, Inc. (AMZN) is selling for $147.A January call option on the stock is selling for $6.10 and has a strike price of $160. This call option is:

Accepted Answer

A) at the money. 
B) in the money. 
C) out of the money. 
D) overpriced. No one should pay $6.10 for the right to buy a share of stock for $160 when its current market price is only $147. 
A) at the money. 
B) in the money. 
C) out of the money. 
D) overpriced. No one should pay $6.10 for the right to buy a share of stock for $160 when its current market price is only $147.

Question 7

When a client purchases a variable contract through you, he should be informed that his money will be invested:

Accepted Answer

A) at the most recent price for which the contract sold. 
B) at the next price that is computed after the contract application is accepted by the insurance company. 
C) at the previous day's close price for the contract. 
D) in a product with a guaranteed cash value. 
A) at the most recent price for which the contract sold. 
B) at the next price that is computed after the contract application is accepted by the insurance company. 
C) at the previous day's close price for the contract. 
D) in a product with a guaranteed cash value.

Question 8

Big of HiGrow Corporation needs more money to support the exceptional growth rate that his firm is enjoying. He meets with BigFee Investment Banker, who agrees to handle the IPO for HiGrow. Subsequently, InTheLoop Brokerage is tapped to be part of the selling group that will handle the sale of the new stock to the public. In this example, the issuer is:

Accepted Answer

A) Mr. Big 
B) HiGrow Corporation 
C) BigFee Investment Banker 
D) InTheLoop Brokerage 
A) Mr. Big 
B) HiGrow Corporation 
C) BigFee Investment Banker 
D) InTheLoop Brokerage

Question 9

HiTop Investments main office is located in the state of Colorado. A registered representative of the firm sent out an e-mail to his clients, some of whom reside in other states, promoting the firm's Colorado Municipal Bond Fund, which invests exclusively in bonds offered by the state and local governments of Colorado. In the e-mail, the representative states, "These bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if any exists." Is this e-mail in violation of any securities' laws?

Accepted Answer

A) No. Since the fund invests exclusively in bonds offered by the state and local governments of Colorado, the representative's statement contains no misstatement of fact. 
B) Yes. Advertisements referring to a specific fund may not be distributed by electronic means. 
C) Yes. A fund that invests only in bonds offered by state and local governments of one state may not be sold to investors who reside in other states. 
D) Yes. The representative's statement that the "bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if any exists," is untrue. 
A) No. Since the fund invests exclusively in bonds offered by the state and local governments of Colorado, the representative's statement contains no misstatement of fact. 
B) Yes. Advertisements referring to a specific fund may not be distributed by electronic means. 
C) Yes. A fund that invests only in bonds offered by state and local governments of one state may not be sold to investors who reside in other states. 
D) Yes. The representative's statement that the "bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if any exists," is untrue.

Question 10

Simple Simon owns 1,000 shares in the Pasty Pie Corporation, which has just declared a stock dividend of 5%.Just prior to this announcement, Pasty Pie was selling for $10 a share. This announcement will:

Accepted Answer

A) increase Pasty's shares outstanding and reduce Simple's proportionate ownership in the firm. 
B) increase the number of shares that Simple owns to 1,050, which will increase the market value of the shares that he owns from $10,000 to $10,500. 
C) increase the number of shares that Simple owns to 1,050, but this will not affect the market value of Simple's holdings. 
D) increase Simple's cash by the amount of the dividend paid: 0.05 x $10 = $0.50 x 1,000 shares = $500. 
A) increase Pasty's shares outstanding and reduce Simple's proportionate ownership in the firm. 
B) increase the number of shares that Simple owns to 1,050, which will increase the market value of the shares that he owns from $10,000 to $10,500. 
C) increase the number of shares that Simple owns to 1,050, but this will not affect the market value of Simple's holdings. 
D) increase Simple's cash by the amount of the dividend paid: 0.05 x $10 = $0.50 x 1,000 shares = $500.

Question 11

The MaxFee Mutual Fund has a front-end load of 8.5%. If its net asset value (NAV) per share is currently $32, for what price can an investor buy shares of the fund?(Round your answer to the nearest cent.)

Accepted Answer

A) $29.49 
B) $34.97 
C) $34.72 
D) $29.28 
A) $29.49 
B) $34.97 
C) $34.72 
D) $29.28

Question 12

Which of the following statements regarding both a Uniform Gifts to Minors account (UGMA) and a Uniform Transfers to Minors account (UTMA) is false?

Accepted Answer

A) There can be only one custodian named on the account. 
B) The account must be established in the name of one minor child only. 
C) Once established, the account is irrevocable. 
D) The assets must be re-registered in the minor child's name when the child turns 18. 
A) There can be only one custodian named on the account. 
B) The account must be established in the name of one minor child only. 
C) Once established, the account is irrevocable. 
D) The assets must be re-registered in the minor child's name when the child turns 18.

Question 13

R. Retired recently turned 61 and has decided to annuitize a variable annuity contract in which he had been investing. When he does so:

Accepted Answer

A) he will have to pay a 10% penalty for annuitizing the contract before he turned 62 ½. 
B) his accumulation units will be converted into a fixed number of annuity units. 
C) the value of his annuity units becomes fixed. 
D) Both B and C are true statements. 
A) he will have to pay a 10% penalty for annuitizing the contract before he turned 62 ½. 
B) his accumulation units will be converted into a fixed number of annuity units. 
C) the value of his annuity units becomes fixed. 
D) Both B and C are true statements.

Question 14

Tex Payor purchased his shares of Invest4U Mutual Fund 30 days prior to its ex-dividend date. In order for any dividends he receives from the fund to be qualified, Tex cannot sell his shares until:

Accepted Answer

A) one day after the fund's ex-dividend date. 
B) thirty-one days after the fund's ex-dividend date. 
C) six months after the settlement date of his purchase. 
D) twelve months after the settlement date of his purchase. 
A) one day after the fund's ex-dividend date. 
B) thirty-one days after the fund's ex-dividend date. 
C) six months after the settlement date of his purchase. 
D) twelve months after the settlement date of his purchase.

Question 15

Big of HiGrow Corporation needs more money to support the exceptional growth rate that his firm is enjoying. He meets with BigFee Investment Banker, who agrees to handle the IPO for HiGrow. Subsequently, InTheLoop Brokerage is tapped to be part of the selling group that will handle the sale of the new stock to the public. In this example, the underwriter is:

Accepted Answer

A) Mr. Big 
B) HiGrow Corporation 
C) BigFee Investment Banker 
D) InTheLoop Brokerage 
A) Mr. Big 
B) HiGrow Corporation 
C) BigFee Investment Banker 
D) InTheLoop Brokerage

Question 16

Which of the following statements regarding zero-coupon bonds is true?

Accepted Answer

A) An advantage of investing in zero-coupon bonds is that the bondholder does not receive interest income that he must pay taxes on each year and instead receives profits from the bond investment in the form of tax-preferred capital gain income when the bond matures. 
B) Only governments at the federal, state, or local levels, or government agencies are permitted to issue zero-coupon bonds. 
C) All else equal, zero-coupon bonds will have less price fluctuation when interest rates change. 
D) Although the bondholder receives no interim interest payments from his investment in zero-coupon bonds, the difference between the purchase price and the maturity value of the bond is considered to be interest income, and the bondholder must pay taxes on a percentage of this amount each year. 
A) An advantage of investing in zero-coupon bonds is that the bondholder does not receive interest income that he must pay taxes on each year and instead receives profits from the bond investment in the form of tax-preferred capital gain income when the bond matures. 
B) Only governments at the federal, state, or local levels, or government agencies are permitted to issue zero-coupon bonds. 
C) All else equal, zero-coupon bonds will have less price fluctuation when interest rates change. 
D) Although the bondholder receives no interim interest payments from his investment in zero-coupon bonds, the difference between the purchase price and the maturity value of the bond is considered to be interest income, and the bondholder must pay taxes on a percentage of this amount each year.

Question 17

After three warnings, Honest Broker-Dealer was forced to terminate Sly Conman, one of its representatives, for making inaccurate statements when offering its mutual fund products to customers. After his registration is terminated:

Accepted Answer

A) Mr. Conman can apply for reinstatement of his license after 12 months. 
B) Mr. Conman remains under the jurisdiction of FINRA for a period of 1 year. 
C) Mr. Conman remains under the jurisdiction of FINRA for a period of 2 years. 
D) Mr. Conman can apply for reinstatement of his license after 6 months, but will have to pay any applicable fees and retake a test. 
A) Mr. Conman can apply for reinstatement of his license after 12 months. 
B) Mr. Conman remains under the jurisdiction of FINRA for a period of 1 year. 
C) Mr. Conman remains under the jurisdiction of FINRA for a period of 2 years. 
D) Mr. Conman can apply for reinstatement of his license after 6 months, but will have to pay any applicable fees and retake a test.

Question 18

Pete Prophet, the manager of a bond mutual fund, is expecting interest rates to increase. All else equal, which of the following bonds would be the best investment under this assumption?

Accepted Answer

A) a Treasury strip with 15 years to maturity 
B) a bond with a 10% coupon and 5 years to maturity 
C) a bond with a 5% coupon and 10 years to maturity 
D) a zero-coupon corporate bond with 12 years to maturity 
A) a Treasury strip with 15 years to maturity 
B) a bond with a 10% coupon and 5 years to maturity 
C) a bond with a 5% coupon and 10 years to maturity 
D) a zero-coupon corporate bond with 12 years to maturity

Question 19

Scatty is a registered representative with a well-known family of mutual funds. When selling one of the funds, she forgets to give her buyer a prospectus. Which of the following statements is true?

Accepted Answer

A) Ms. Scatty can be held civilly liable under the Securities Act of 1933. 
B) Ms. Scatty can be held criminally liable under the Securities Act of 1933. 
C) Since mutual funds are not covered under the Securities Act of 1933, there is no liability in this instance. 
D) Both A and B are true statements. 
A) Ms. Scatty can be held civilly liable under the Securities Act of 1933. 
B) Ms. Scatty can be held criminally liable under the Securities Act of 1933. 
C) Since mutual funds are not covered under the Securities Act of 1933, there is no liability in this instance. 
D) Both A and B are true statements.

Question 20

Your client has recently heard about "principal-protected funds" and has asked your advice. You should tell her that:
I. the majority of principal-protected funds guarantee the investor's initial investment, less any front-end load, even if the stock market falls.
II. it would not be a good investment if she thinks she will need the money within the next five to ten years.
III. it will beat the returns she could earn on an S&P 500 Index fund in most years.
IV. if she sells her shares at any time other than the maturity date specified, she could lose money if the price per share has fallen.

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) I, II, and IV only 
A) I only 
B) I and II only 
C) I and III only 
D) I, II, and IV only

Which of the following is not required to be included in a management company's prospectus?

Which of the following relationships regarding shares of common stock are necessarily true? I. shares outstanding > issued shares II. authorized shares ≥ issued shares III. issued shares = treasury shares IV. issued shares ≥ shares outstanding

A preemptive right:

The mortality guarantee of a variable annuity contract:

In mid-September, the stock of Amazon.com, Inc. (AMZN) is selling for $147.A January call option on the stock is selling for $6.10 and has a strike price of $160. This call option is:

When a client purchases a variable contract through you, he should be informed that his money will be invested:

Simple Simon owns 1,000 shares in the Pasty Pie Corporation, which has just declared a stock dividend of 5%.Just prior to this announcement, Pasty Pie was selling for $10 a share. This announcement will:

The MaxFee Mutual Fund has a front-end load of 8.5%. If its net asset value (NAV) per share is currently $32, for what price can an investor buy shares of the fund?(Round your answer to the nearest cent.)

Which of the following statements regarding both a Uniform Gifts to Minors account (UGMA) and a Uniform Transfers to Minors account (UTMA) is false?

R. Retired recently turned 61 and has decided to annuitize a variable annuity contract in which he had been investing. When he does so:

Tex Payor purchased his shares of Invest4U Mutual Fund 30 days prior to its ex-dividend date. In order for any dividends he receives from the fund to be qualified, Tex cannot sell his shares until:

Which of the following statements regarding zero-coupon bonds is true?

After three warnings, Honest Broker-Dealer was forced to terminate Sly Conman, one of its representatives, for making inaccurate statements when offering its mutual fund products to customers. After his registration is terminated:

Pete Prophet, the manager of a bond mutual fund, is expecting interest rates to increase. All else equal, which of the following bonds would be the best investment under this assumption?

Scatty is a registered representative with a well-known family of mutual funds. When selling one of the funds, she forgets to give her buyer a prospectus. Which of the following statements is true?

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Exam 1: Investment and Bond Market

Which of the following is not required to be included in a management company's prospectus?

Which of the following relationships regarding shares of common stock are necessarily true? I. shares outstanding > issued shares II. authorized shares ≥ issued shares III. issued shares = treasury shares IV. issued shares ≥ shares outstanding

A preemptive right:

The mortality guarantee of a variable annuity contract:

In mid-September, the stock of Amazon.com, Inc. (AMZN) is selling for $147.A January call option on the stock is selling for $6.10 and has a strike price of $160. This call option is:

When a client purchases a variable contract through you, he should be informed that his money will be invested:

Simple Simon owns 1,000 shares in the Pasty Pie Corporation, which has just declared a stock dividend of 5%.Just prior to this announcement, Pasty Pie was selling for $10 a share. This announcement will:

The MaxFee Mutual Fund has a front-end load of 8.5%. If its net asset value (NAV) per share is currently $32, for what price can an investor buy shares of the fund?(Round your answer to the nearest cent.)

Which of the following statements regarding both a Uniform Gifts to Minors account (UGMA) and a Uniform Transfers to Minors account (UTMA) is false?

R. Retired recently turned 61 and has decided to annuitize a variable annuity contract in which he had been investing. When he does so:

Tex Payor purchased his shares of Invest4U Mutual Fund 30 days prior to its ex-dividend date. In order for any dividends he receives from the fund to be qualified, Tex cannot sell his shares until:

Which of the following statements regarding zero-coupon bonds is true?

After three warnings, Honest Broker-Dealer was forced to terminate Sly Conman, one of its representatives, for making inaccurate statements when offering its mutual fund products to customers. After his registration is terminated:

Pete Prophet, the manager of a bond mutual fund, is expecting interest rates to increase. All else equal, which of the following bonds would be the best investment under this assumption?

Scatty is a registered representative with a well-known family of mutual funds. When selling one of the funds, she forgets to give her buyer a prospectus. Which of the following statements is true?

Investment and Securities

Assorted Securities and Investments

Uniform Securities Act USA and State Registration Requirements

Filters