Question 1

Asset allocation involves:

Accepted Answer

A) selecting the investments that are expected to offer the highest return over your client's investment horizon. 
B) determining the percentages that your client should be investing in various types of investments (e.g., stocks, bonds) based on his investment objectives. 
C) selecting the investments that will expose your client to the least amount of risk. 
D) determining the specific stocks and bonds in which your client should invest his funds. 
A) selecting the investments that are expected to offer the highest return over your client's investment horizon. 
B) determining the percentages that your client should be investing in various types of investments (e.g., stocks, bonds) based on his investment objectives. 
C) selecting the investments that will expose your client to the least amount of risk. 
D) determining the specific stocks and bonds in which your client should invest his funds.

Question 2

Steel Dynamics (STLD) has a convertible bond issue that matures in four years. The bond has a face value of $1,000 and pays a coupon of 5.125%, with interest paid semiannually. The conversion ratio is 56.9801.If the stock of Steel Dynamics is currently priced at $15 a share, what is the conversion value of this bond, to the nearest cent?

Accepted Answer

A) $854.70 
B) $569.80 
C) $175.50 
D) Until it matures, the conversion value of the bond is equal to its face value of $1,000. 
A) $854.70 
B) $569.80 
C) $175.50 
D) Until it matures, the conversion value of the bond is equal to its face value of $1,000.

Question 3

Yvette is a recently-widowed 63-year-old. The couple had no children, and when her husband died, she was the beneficiary of his $45,000 life insurance policy. She also receives benefits from his retirement plan and social security, but this income falls about $300 short of covering her regular monthly expenses, which includes a sizeable amount for health insurance. In the months since her husband's death, she sold their larger home and purchased a condominium, netting $80,000 from the combined transactions. Yvette was a homemaker all her life, and her husband
Handled all their finances, so Yvette is just learning how to balance her checkbook. One thing she does know is that she is going to have to purchase a new car within the next few months. Yvette is in good health and expects to live at least another 25 years. Which of the following types of investments should be included in recommending an asset allocation to Yvette?

Accepted Answer

A) life insurance policy 
B) money market fund 
C) aggressive growth stock fund 
D) municipal bond fund 
A) life insurance policy 
B) money market fund 
C) aggressive growth stock fund 
D) municipal bond fund

Question 4

The subaccounts into which Mr. Sumrisk directed his variable life premiums have earned a 6% return. If the assumed interest rate was 7%:
I. the cash value of his policy increased.
II. the death benefit associated with his policy decreased.
III. the cash value of his policy decreased.
IV. the death benefit associated with his policy increased.

Accepted Answer

A) both I and II 
B) both I and IV 
C) both II and III 
D) both III and IV 
A) both I and II 
B) both I and IV 
C) both II and III 
D) both III and IV

Question 5

A feature that gives a bondholder or the owner of preferred stock of a corporation the option to exchange his security for shares of the common stock of the firm is called a:

Accepted Answer

A) call feature. 
B) warrant. 
C) convertible feature. 
D) right. 
A) call feature. 
B) warrant. 
C) convertible feature. 
D) right.

Question 6

Anna Vestor placed an order to sell 100 shares of Microsoft through the on-line site of her broker, GetErDone Broker-Dealers. GetErDone sold her shares for $24.59 a share and charged her a commission of $8.95.Among other things, the trade confirmation that Anna receives must stipulate:
I. the time and date of the transaction.
II. that GetErDone served as a principal in the transaction.
III. the number of shares sold and the price at which they were sold.
IV. the exchange or ECN on which the transaction was executed.

Accepted Answer

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

Question 7

Mix always assures her clients that she will be calling them with quarterly recommendations for rebalancing their portfolios if there are any changes that she feels are appropriate. This has worked out well for her pocketbook since she has always been able to tweak each of her clients' investment portfolios a little each quarter by recommending that they redeem their shares in one fund that hasn't performed as well in the last quarter and use the proceeds to invest in another that has. Her clients feel cared for since she is in such regular contact with them. Is Ms. Mix violating any securities regulations with this policy of hers?

Accepted Answer

A) No. Ms. Mix is merely providing good service to her customers. 
B) Yes. Mutual funds are not designed to be short-term investments. 
C) It depends. There is no violation as long as her clients' portfolios are increasing in value. 
D) Yes. Any recommendation that benefits a registered representative is deemed to be in violation of FINRA's rules regarding fair dealing. 
A) No. Ms. Mix is merely providing good service to her customers. 
B) Yes. Mutual funds are not designed to be short-term investments. 
C) It depends. There is no violation as long as her clients' portfolios are increasing in value. 
D) Yes. Any recommendation that benefits a registered representative is deemed to be in violation of FINRA's rules regarding fair dealing.

Question 8

The investment banker bears the risk if the securities do not sell in a(n):

Accepted Answer

A) firm commitment underwriting agreement. 
B) best efforts agreement. 
C) all-or-nothing commitment. 
D) None of the above selections are correct. The investment banking firm is never exposed to risk if the securities don't sell. 
A) firm commitment underwriting agreement. 
B) best efforts agreement. 
C) all-or-nothing commitment. 
D) None of the above selections are correct. The investment banking firm is never exposed to risk if the securities don't sell.

Question 9

Floss has just earned his dental degree and wants to establish a private dental practice. He has had a bit of sticker shock at the price of all the equipment this will require him to purchase. Because he still has a large student loan to repay, he has been unable to borrow any money from his financial institution. To raise capital, he decides to sell fifty ownership interests of $1,000 each to interested investors and takes out a full page ad in a local newspaper to advertise this investment. In this scenario:

Accepted Answer

A) Dr. Floss has not violated any laws since the notes have a face value of only $1,000 and he is selling them to a maximum of 50 different investors. 
B) Dr. Floss can be charged with criminal fraud under the provisions of the Securities Exchange Act of 1934. 
C) Dr. Floss has violated the provisions of the Securities Act of 1933 and may face civil penalties. 
D) Dr. Floss has not violated any laws since these ownership interests do not fall under the definition of a security. 
A) Dr. Floss has not violated any laws since the notes have a face value of only $1,000 and he is selling them to a maximum of 50 different investors. 
B) Dr. Floss can be charged with criminal fraud under the provisions of the Securities Exchange Act of 1934. 
C) Dr. Floss has violated the provisions of the Securities Act of 1933 and may face civil penalties. 
D) Dr. Floss has not violated any laws since these ownership interests do not fall under the definition of a security.

Question 10

12b-1 fees refer to:

Accepted Answer

A) the front-end or back-end load that a mutual fund charges. 
B) the management fees of a mutual fund. 
C) fees that some mutual funds charge to pay for certain of its marketing expenses. 
D) fees that mutual funds pay the broker-dealers that execute their trades. 
A) the front-end or back-end load that a mutual fund charges. 
B) the management fees of a mutual fund. 
C) fees that some mutual funds charge to pay for certain of its marketing expenses. 
D) fees that mutual funds pay the broker-dealers that execute their trades.

Question 11

A type of preferred stock for which any dividends missed in prior years must be paid before common shareholders may receive any dividends is referred to as:

Accepted Answer

A) cumulative preferred. 
B) participating preferred. 
C) convertible preferred. 
D) adjustable rate preferred. 
A) cumulative preferred. 
B) participating preferred. 
C) convertible preferred. 
D) adjustable rate preferred.

Question 12

Total Investments, a family of mutual funds, has prepared some new PowerPoint slides that it will use at a free financial planning seminar it offers to the general public. The new slides:
I. must be signed and dated by a registered principal of Total Investments.
II. must be filed with FINRA 10 business days prior to their first use.
III. must be kept in a separate file by Total for three years after the date of their first use.

Accepted Answer

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

Question 13

A. D. Venturer owns 10,000 shares of Risky Corporation, which is currently selling for $8 a share. He is leaving shortly for an extended trip to Antarctica and will be out of communication for that time. He doesn't want to liquidate his investment in Risky before he goes, but he doesn't want to return to find that his $80,000 investment is worth little to nothing. Which of the following options would make sense for Mr. Venturer?

Accepted Answer

A) buy a call option on Risky stock with an $8 strike price and an expiration date that occurs after his return 
B) place a stop sell order at a price less than $8 a share-perhaps $6 or $7 a share 
C) place a limit order to sell Risky at either $8 a share or a price slightly less than $8 a share 
D) enter a good 'til cancelled (GT
C)  market order to sell Risky 
A) buy a call option on Risky stock with an $8 strike price and an expiration date that occurs after his return 
B) place a stop sell order at a price less than $8 a share-perhaps $6 or $7 a share 
C) place a limit order to sell Risky at either $8 a share or a price slightly less than $8 a share 
D) enter a good 'til cancelled (GT
C)  market order to sell Risky

Question 14

Chandler is a registered representative with GetErDone Broker-Dealers, a FINRA member-firm. His friend, Phoebe, is employed by FlyByNight Investments, which is not a member of FINRA, or any other securities association for that matter. Given these facts:

Accepted Answer

A) If Chandler executes any transactions for Phoebe, he is required to charge her the same commission that he charges any member of the general public. 
B) Chandler is prohibited from engaging in any financial transactions with Phoebe. 
C) Chandler is prohibited from splitting any commissions with Phoebe. 
D) Both A and C are true. 
A) If Chandler executes any transactions for Phoebe, he is required to charge her the same commission that he charges any member of the general public. 
B) Chandler is prohibited from engaging in any financial transactions with Phoebe. 
C) Chandler is prohibited from splitting any commissions with Phoebe. 
D) Both A and C are true.

Question 15

Which of the following payout options would provide an annuity owner with the biggest monthly check?

Accepted Answer

A) joint and last survivor 
B) straight life 
C) life with period certain 
D) unit refund life 
A) joint and last survivor 
B) straight life 
C) life with period certain 
D) unit refund life

Question 16

In order for the Invest4U Mutual Fund to qualify as a regulated investment company under Internal Revenue Code Subchapter M, it must:

Accepted Answer

A) distribute at least 90% of its net investment income to its shareholders. 
B) distribute at least 98% of its net income from capital gains to its shareholders. 
C) invest at least 75% of its monies in diversified securities. 
D) Both A and B are required for Invest4U to qualify as a regulated investment company. 
A) distribute at least 90% of its net investment income to its shareholders. 
B) distribute at least 98% of its net income from capital gains to its shareholders. 
C) invest at least 75% of its monies in diversified securities. 
D) Both A and B are required for Invest4U to qualify as a regulated investment company.

Question 17

Which of the following would not be required to display prominently the name of the member firm issuing it?
I. sales literature distributed to an institutional investor
II. correspondence by a registered representative with her client
III. an advertisement to recruit new registered representatives

Accepted Answer

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

Question 18

Sam's neighbor has just inherited some bonds from his uncle. The neighbor, knowing that Sam is a registered representative with a brokerage firm, asks Sam if he would like to handle the sale of these securities. Sam agrees to do so and calls his existing clients with an offer to sell the bonds at a price that he researches to be the average "ask" price of dealers in the same bonds. In this situation:

Accepted Answer

A) Sam has engaged in the illegal practice of "front running." 
B) Sam has engaged in the illegal practice of "selling away." 
C) Sam has engaged in no illegal practices as long as he markets the bonds only to existing clients. This is referred to as a private placement. 
D) Sam has engaged in no illegal practices since he is licensed to sell bonds and is doing so at an established "ask" price. Sam is a good neighbor. 
A) Sam has engaged in the illegal practice of "front running." 
B) Sam has engaged in the illegal practice of "selling away." 
C) Sam has engaged in no illegal practices as long as he markets the bonds only to existing clients. This is referred to as a private placement. 
D) Sam has engaged in no illegal practices since he is licensed to sell bonds and is doing so at an established "ask" price. Sam is a good neighbor.

Question 19

Phil Anthropy wrote his cousin a $15,000 check to pay for medical bills the cousin had accumulated. He also distributed $5,000 checks to three nephews who were in college, and gave his mother a check for $12,000. Have Phil's actions triggered any gift taxes?

Accepted Answer

A) Yes, $19,000 of his total distributions is subject to the gift tax. 
B) Yes, $2,000 of his total distributions is subject to the gift tax. 
C) Yes, $7,000 in distributions is subject to the gift tax. 
D) No. None of Phil's distributions is subject to the gift tax. 
A) Yes, $19,000 of his total distributions is subject to the gift tax. 
B) Yes, $2,000 of his total distributions is subject to the gift tax. 
C) Yes, $7,000 in distributions is subject to the gift tax. 
D) No. None of Phil's distributions is subject to the gift tax.

Question 20

The Invest4U Mutual Fund is a regulated investment company under Internal Revenue Code Subchapter M. This means that:

Accepted Answer

A) Invest4U must submit an annually-updated prospectus to the IRS as well as to the SEC. 
B) Invest4U does not itself have to pay taxes on any dividend or capital gain income it receives and distributes to its shareholders. 
C) Invest4U is a UIT. 
D) Invest4U is a non-diversified management company. 
A) Invest4U must submit an annually-updated prospectus to the IRS as well as to the SEC. 
B) Invest4U does not itself have to pay taxes on any dividend or capital gain income it receives and distributes to its shareholders. 
C) Invest4U is a UIT. 
D) Invest4U is a non-diversified management company.

Asset allocation involves:

A feature that gives a bondholder or the owner of preferred stock of a corporation the option to exchange his security for shares of the common stock of the firm is called a:

The investment banker bears the risk if the securities do not sell in a(n):

12b-1 fees refer to:

A type of preferred stock for which any dividends missed in prior years must be paid before common shareholders may receive any dividends is referred to as:

Chandler is a registered representative with GetErDone Broker-Dealers, a FINRA member-firm. His friend, Phoebe, is employed by FlyByNight Investments, which is not a member of FINRA, or any other securities association for that matter. Given these facts:

Which of the following payout options would provide an annuity owner with the biggest monthly check?

In order for the Invest4U Mutual Fund to qualify as a regulated investment company under Internal Revenue Code Subchapter M, it must:

Which of the following would not be required to display prominently the name of the member firm issuing it? I. sales literature distributed to an institutional investor II. correspondence by a registered representative with her client III. an advertisement to recruit new registered representatives

Phil Anthropy wrote his cousin a $15,000 check to pay for medical bills the cousin had accumulated. He also distributed $5,000 checks to three nephews who were in college, and gave his mother a check for $12,000. Have Phil's actions triggered any gift taxes?

The Invest4U Mutual Fund is a regulated investment company under Internal Revenue Code Subchapter M. This means that:

Investment and Securities

Assorted Securities and Investments

Uniform Securities Act USA and State Registration Requirements

Filters

Exam 1: Investment and Bond Market

Asset allocation involves:

A feature that gives a bondholder or the owner of preferred stock of a corporation the option to exchange his security for shares of the common stock of the firm is called a:

The investment banker bears the risk if the securities do not sell in a(n):

12b-1 fees refer to:

A type of preferred stock for which any dividends missed in prior years must be paid before common shareholders may receive any dividends is referred to as:

Chandler is a registered representative with GetErDone Broker-Dealers, a FINRA member-firm. His friend, Phoebe, is employed by FlyByNight Investments, which is not a member of FINRA, or any other securities association for that matter. Given these facts:

Which of the following payout options would provide an annuity owner with the biggest monthly check?

In order for the Invest4U Mutual Fund to qualify as a regulated investment company under Internal Revenue Code Subchapter M, it must:

Which of the following would not be required to display prominently the name of the member firm issuing it? I. sales literature distributed to an institutional investor II. correspondence by a registered representative with her client III. an advertisement to recruit new registered representatives

Phil Anthropy wrote his cousin a $15,000 check to pay for medical bills the cousin had accumulated. He also distributed $5,000 checks to three nephews who were in college, and gave his mother a check for $12,000. Have Phil's actions triggered any gift taxes?

The Invest4U Mutual Fund is a regulated investment company under Internal Revenue Code Subchapter M. This means that:

Investment and Securities

Assorted Securities and Investments

Uniform Securities Act USA and State Registration Requirements

Filters