Question 1

Which of the following persons is not subject to the fingerprinting requirements of the Securities Exchange Act of 1934?
I. a registered transfer agent of a securities exchange
II. a firm that engages only in the sale of mutual fund shares
III. a receptionist at a brokerage firm who answers phones and directs calls to the agents employed by the firm
IV. a market maker in the over-the-counter market

Accepted Answer

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

Question 2

Tex Payor bought shares of the Stocks4U Mutual Fund on February 26th.During the year, the fund sold some of the stocks in which it was invested, generating long-term capital gain income for the fund. Tex received a distribution of some of these gains at the end of the year, based on his proportionate ownership of the fund. Which of the following statements is true regarding the tax consequences of this distribution to Tex?

Accepted Answer

A) Tex will have to pay tax on the distribution at his marginal tax rate. Since Tex had not been invested in the fund for over 12 months when the distribution occurred, it is considered to be short-term capital gain income for him, which is taxed as ordinary income. 
B) Tex will have to pay tax on the distribution unless he opts to reinvest the distribution in the fund, in which case the income will not be taxable. 
C) Tex will have to pay tax on the distribution at the tax rate for long-term capital gains, which are currently taxed preferentially. 
D) There are no tax consequences to Tex. Mutual fund investors are taxed only on dividend distributions and on capital gains realized when they sell shares of a fund that they own. Capital gains earned by the fund when securities are bought and sold by the fund's manager are taxed to the fund.

Question 3

Newbie has recently become licensed as a registered representative and is disappointed to discover no clients standing in line at the door to her office at Savvy Investments. She decides she simply must take on a second job in order to pay the rent. The fitness club to which she belongs is advertising for a weekend receptionist, and the club manager has told her the job is hers if she wants it. Given this scenario, Ms. Newbie:

Accepted Answer

A) can accept the job since it only entails weekend work, which does not conflict with the hours she works as a registered representative. 
B) can accept the job only if she tells her supervisor at Savvy that she will be working weekends. 
C) must provide a written notice to Savvy Investments and await the firm's approval before accepting the job. 
D) can accept the job without any restrictions. She is not tied to Savvy by ball and chain, and her work as a receptionist at a fitness club does not have anything to do with the financial industry.

Question 4

Connie Serve placed an order to purchase five, $1,000 Treasury bonds in the secondary market on Tuesday, October 12th.Connie will be required to pay for this purchase on which day?

Accepted Answer

A) Tuesday, October 12th. 
B) Wednesday, October 13th. 
C) Thursday, October 14th. 
D) Friday, October 15th.

Question 5

Joan is a customer of GetErDone Broker-Dealers. Her twin sister, Jean, has accompanied her to GetErDone's office and has gathered some information regarding opening an account with the firm, giving it her contact information at the same time. Under Regulation S-P, which of the following statements regarding GetErDone's handling of Joan's and Jean's personal information is true?

Accepted Answer

A) GetErDone must provide Joan with a notification of its privacy policies annually and provide her with information on how to mandate that it not share her nonpublic personal information with nonaffiliated third parties. 
B) GetErDone can disclose any information that Jean provided them to nonaffiliated third parties since Jean is not a customer of the broker-dealer. 
C) GetErDone is required to have provided Jean with a copy of its privacy policy when she inquired about opening an account with the broker-dealer. 
D) All of the above are true statements.

Question 6

Steve Sharp sees a quote for a mutual fund that indicates the fund has a net asset value (NAV) of $26.60 and a public offering price (POP) of $28.00. Based on this, Mr. Sharp quickly ascertains that this fund must have:

Accepted Answer

A) a front-end load of 5.0%. 
B) a front-end load of 5.3%. 
C) either a front-end or rear-end load of 5.0%. 
D) either a front-end or rear-end load of 5.3%.

Question 7

Main Street Capital Corporation (MAIN) is registered as a non-diversified investment company under the Investment Company Act of 1940.Based on this, which of the following statements regarding MAIN are true?
I. MAIN may not invest more than 5% of its investment monies in any single issuer.
II. The net asset value of MAIN's shares is likely to fluctuate more than that of a diversified investment company.
III. MAIN's returns are more likely to be affected by any single, specific economic occurrence or regulatory change.

Accepted Answer

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

Question 8

Which of the following correctly describe differences between a profit-sharing plan and a money purchase plan?
I. An employer can elect to make no contribution to a profit-sharing plan in a bad year, but the employer must make contributions to a money purchase plan, regardless.
II. Only employers make contributions to profit-sharing plans whereas both employers and employees can contribute to a money purchase plan.
III. A profit-sharing plan is a defined benefit plan whereas a money purchase plan is a defined contribution plan.

Accepted Answer

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

Question 9

Which of the following would not constitute a "public appearance," as defined by FINRA?

Accepted Answer

A) A registered representative gives a free seminar on the topic of asset allocation to members of her church. 
B) A registered representative starts a blog that discusses the pros and cons of various types of investments. 
C) The investment adviser of a tech fund that has had phenomenal returns in the past 12 months responds to some questions from a business newscaster via a remote monitor. 
D) All of the above constitute public appearances as defined by FINRA.

Question 10

The stock of eBay, Inc. (EBAY) currently has a beta of 1.67. Based on this, which of the following statements are necessarily true?
I. If the market is up 5%, an investor can expect the returns on eBay to increase by 1.67 times this amount, or 8.35%.
II. eBay would be a particularly good investment for an investor with a short investment horizon.
III. The returns on eBay are more volatile than the returns on the market in general.
IV. eBay has more unsystematic risk than the market in general.

Accepted Answer

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

Question 11

Clem Shyster is a registered representative with a family of mutual funds. A married couple in their 50s sought his advice about how they should best invest an $80,000 profit that they had received when they sold a rental property they owned for a number of years. Their investment profile indicated to Clem that their main investment objective was capital appreciation and that they were willing to accept moderate levels of risk. Clem advised them to invest $10,000 in eight different growth funds, each of which had a 7% front-end load. Has Clem violated any securities laws with his recommendation?

Accepted Answer

A) No. Growth funds invest in stocks that are selected to provide the capital appreciation that Clem's clients need, and an investment in eight such funds will provide them with maximum risk diversification. 
B) Yes. Although growth funds provide some amount of capital appreciation, Clem should have recommended that they spread their money among eight different aggressive growth funds instead, to achieve even greater capital appreciation. 
C) Yes. Clem should have advised them to invest in funds that had a deferred sales charge instead of a front-end load. 
D) Yes. There is a lot of overlap of the individual stocks in which growth funds invest, so recommending that they spread their funds among eight different growth funds has not provided them with significantly more diversification, and it has cost them more to do so, which will benefit Clem.

Question 12

MoeMoney Investments is a diversified management company. This means that:

Accepted Answer

A) it is a closed-end company 
B) it is a mutual fund 
C) it may invest no more than 5% of its investment monies in one issuer 
D) it must be invested in a variety of industries and geographic regions

Question 13

Which of the following portfolios best represents a suitable asset allocation for a risk-averse investor?
I. Cash/money market fund: 20%; government bonds: 10%; investment-grade bonds: 15%; foreign stocks: 10%; blue-chip stocks: 25%; high-yield bonds: 10%; small cap stocks: 10%
II. Cash/money market fund: 30%; government bonds: 20%; investment-grade bonds: 15%; foreign stocks: 3%; blue-chip stocks: 25%; high-yield bonds: 0%; small cap stocks: 7%
III. Cash/money market fund: 10%; government bonds: 5%; investment- grade bonds: 10%; foreign stocks: 15%; blue-chip stocks: 25%; high-yield bonds: 10%; small cap stocks: 25%

Accepted Answer

A) I 
B) II 
C) III 
D) None of the above; a risk-averse investor should be entirely invested in government securities and/or money market funds.

Question 14

Investor has purchased 100 shares of the common stock of the Everyman Corporation. As such, which of the following is not a right that Mr. Investor has?

Accepted Answer

A) the right to receive dividends, if declared 
B) the right to vote on the members of Everyman's board of directors 
C) the right to vote on any proposed changes to the corporate bylaws 
D) the right to vote on the purchase of a major piece of property that Everyman is considering

Question 15

Which of the following describes a difference between a unit investment trust (UIT) and a mutual fund?

Accepted Answer

A) UITs have a fixed number of shares; mutual funds do not. 
B) UITs are not required to distribute dividends and capital gains to their shareholders as mutual funds must. 
C) UITs must hold non-diversified portfolios; mutual funds may be either non-diversified or diversified. 
D) All of the above describe differences between a UIT and a mutual fund.

Question 16

The stock of Nutrisystem, Inc. (NTRI) is selling for $17.70 when Miss Piggy places a limit order to buy the stock at $17.65. During the period the order is open, NTRI falls to $17.60 and then increases to $17.67.Which of the following statements is most likely to be true in this scenario?

Accepted Answer

A) Miss Piggy bought NTRI at $17.67 a share. 
B) Miss Piggy bought the stock for no more than $17.65 a share. 
C) Miss Piggy bought the stock for no more than $17.60 a share. 
D) Miss Piggy bought the stock for $17.66 a share.

Question 17

George Geek is 30 years old, single, and earns $103,000 a year as a software engineer for a small, start-up IT company. George's company does not itself offer a retirement plan, and George is considering his options. The current contribution limits for both the traditional IRA and Roth IRA plans is the lesser of $5,000 or 100% of earned income. Which of the following statements applies to George's situation?

Accepted Answer

A) George's contributions to a traditional IRA will be tax-deductible. 
B) George's contributions to a Roth IRA will be tax-deductible as long as his income is below the threshold specified by the IRS for the current year. 
C) Assuming that George can contribute to both the traditional IRA and the Roth IRA under the current income thresholds, he will be allowed to contribute $5,000 to each of the plans. 
D) Assuming that George can contribute to both a traditional IRA and a Roth IRA under the current income thresholds, his combined contribution to the two plans cannot exceed $5,000.

Question 18

The American Funds family of funds offers numerous funds to investors. Among these are a U.S. government bond fund, a high-yield corporate bond fund, a diversified emerging markets fund, and a large stock growth fund. Of these four, the one that would expose the investor to the most social and political risk is its:

Accepted Answer

A) U.S. government bond fund. 
B) diversified emerging markets fund. 
C) large stock growth fund. 
D) high-yield corporate bond fund.

Question 19

The Federal Reserve announces that it plans to buy $3.89 billion in Treasury securities on the open market. All else equal, which of the following is a likely result of this Fed action?

Accepted Answer

A) Interest rates will rise, causing security prices to fall. 
B) Money supply will increase, causing interest rates to fall. 
C) Stock and bond prices should increase. 
D) Both B and C are likely results of this Fed action.

Question 20

As her college graduation present, Jennifer's grandmother gave her 200 shares of the stock of IBM. Her grandmother had purchased the shares for $54 a share in October 2002, and the stock was selling for $132 a share on the day of Jennifer's graduation eight years later. Eight months after her graduation, Jennifer decides to sell the shares to get money to help with the down payment on a condo she is purchasing. If IBM is selling for $125 on the day of the sale, what are the tax consequences of this sale for Jennifer?

Accepted Answer

A) Jennifer will have taxable income of $15,600, which will be taxed as long-term capital gain income at a tax-preferred rate. 
B) Jennifer will have taxable income of $14,200, which will be taxed as long-term capital gain income at a tax-preferred rate. 
C) Jennifer will have a loss of $1,400, which will be treated as a short-term capital loss for tax purposes.

Exam 1: Investment and Bond Market

Connie Serve placed an order to purchase five, $1,000 Treasury bonds in the secondary market on Tuesday, October 12^th.Connie will be required to pay for this purchase on which day?