Question 1

Under FINRA's rules regarding proper supervision, member firms must:
I. have clear written procedures to supervise the activities of its principals, registered representatives, and other associated persons.
II. designate as an office of supervisory jurisdiction (OSJ) any office of the member that engages in maintaining custody of the funds and/or securities of the member's customers.
III. prohibit the use of any electronic communication method, including personal electronic devices, for business-related communications unless the use of the devices can be properly supervised and the communications retained.
IV. regularly evaluate the effectiveness of its supervisory policies.

Accepted Answer

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

Question 2

Regulation D:
I. enables smaller firms to raise capital more quickly and more cheaply.
II. exempts the issuing firm from all disclosure requirements as long as the issue is being sold to no more than five investors.
III. has restrictions regarding the resale of the securities being sold.

Accepted Answer

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

Question 3

Tex Payor bought 1,500 shares of the Bonds4U Mutual Fund, a no load fund, on June 12th for $28 a share and sold the shares the following year on June 11th for $40 a share. This will result in which of the following tax consequences for Tex?

Accepted Answer

A) Tex will have to pay tax on $18,000, taxed as ordinary income at his marginal tax rate. 
B) Tex will have to pay tax on $40,000, taxed as ordinary income at his marginal tax rate. 
C) Tex will have to pay tax on $18,000 of capital gain income, taxed at the preferential rate for long-term capital gains. 
D) Tex will have to pay tax on $40,000 of capital gain income, taxed at the preferential rate for long-term capital gains.

Question 4

Nat Informed places a market order to buy 200 shares of Abercrombie & Fitch (ANF) on Thursday, September 16th.When will Nat be required to pay for this Transaction?

Accepted Answer

A) by the end of the trading on September 15th. 
B) on the next trading day, September 16th. 
C) on Tuesday, September 21st. 
D) on Friday, September 17th.

Question 5

Which of the following would qualify as accredited investors for a Regulation D offering?
I. your 45-year-old, spinster aunt who has earned in excess of $200,000 annually over the last ten years as a pediatric surgeon
II. your Uncle Miserly, who is reputed to have a net worth of $1.2 million
III. Tiny Brokers, a small broker-dealer with a single office in the state of Kentucky
IV. a trust containing assets that are valued between $3.5 and $4 million

Accepted Answer

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

Question 6

Which of the following securities is not exempt from registration requirements?

Accepted Answer

A) private-placement variable universal life insurance 
B) a revenue bond issued by the state of Florida to raise money to build an airport 
C) a bond issued by the U.S. post office 
D) a new issue of stock issued by a corporation that already has shares of its stock trading on the NYSE

Question 7

Cashout recently sold some mutual fund shares that he owned. The sale resulted in long-term capital gain income of $6,000. He also sold some shares of a stock he had purchased during the year and realized a short-term capital gain on the sale of $2,000. The sale of another individual stock resulted in a short-term capital loss of $3,500. Mr. Cashout also had some bonds that he had bought at a premium mature, resulting in a long-term capital loss of $500. What is Mr. Cashout's net capital gain or loss from these transactions?

Accepted Answer

A) a net long-term capital gain of $4,500 
B) a net long-term capital gain of $4,000 
C) a net short-term capital loss of $4,000 
D) a net long-term capital gain of $8,000

Question 8

Which of the following is not one of the rules stipulated by the Securities Exchange Act of 1934?

Accepted Answer

A) All securities' exchanges and SROs are required to register with the SEC. 
B) All brokers and dealers are required to be members of a national securities association. 
C) Investment companies are prohibited from using any sales literature that contains an omission of a material fact. 
D) Firms are required to send copies of their annual reports to investors before an annual meeting at which directors are to be elected.

Question 9

Jill worked as a registered representative with GoForBroke Broker-Dealers for 8 years. She is married to Jack, whose job made it necessary for them to relocate to Thailand for 3 years. They have now returned, and Jill would like to begin working as a registered representative with GoForBroke again after her 3-year hiatus. Given this scenario:

Accepted Answer

A) Jill can begin working in her previous position with GoForBroke immediately, but GoForBroke will have to register her as one of its representatives with FINRA within 30 days of her hire date, and Jill will have to pay the applicable filing fees within that same period of time. 
B) Jill will have to retake the qualifying FINRA exams for her position, and after she has done so successfully, GoForBroke must register her with FINRA as one of its representatives. 
C) As long as GoForBroke maintained Jill as a registered representative for its firm during her hiatus, Jill can begin working in her previous position immediately. There is no need to file additional paperwork or pay any fees to FINRA. 
D) Both A and C are true statements.

Question 10

The MaxCharge fund has a 5% front-end load and a 12b-1 fee that is 0.25% of its average net assets. Under these conditions, any rear-end load it may have is limited to:

Accepted Answer

A) 2.00%. 
B) 4.25%. 
C) 4.75%. 
D) 3.25%.

Question 11

Which of the following persons would not fall under the definition of "investment adviser," under federal guidelines?

Accepted Answer

A) an individual who advises only Oprah Winfrey on her investment portfolio and receives a nice salary for doing so 
B) a Denver-based, broker-dealer that is registered as a broker-dealer with the SEC and provides investment advice to members of the Denver Broncos, the Colorado Rockies, the Denver Nuggets, and the Colorado Avalanche organizations in exchange for box seats at their games. No monetary compensation is expected or given. 
C) an individual who works as an agent for a broker and occasionally gives investment advice to clients who request it, but receives no additional compensation for doing so 
D) None of the above would fall under the definition of "investment adviser," as defined by the Investment Advisers Act of 1940.

Question 12

Which of the following correctly describes how the holding period of a security is calculated when determining whether its sale will result in a short-term or a long-term capital gain?

Accepted Answer

A) The holding period begins the day after the buy order is submitted and ends the day the sell order is submitted. 
B) The holding period begins on the settlement day of the purchase and ends on the settlement day associated with the sale. 
C) The holding period begins on the settlement day of the purchase and ends on the day the sell order is submitted.

Question 13

Your 53-year-old client, Ms. Antsy, just inherited $80,000 from her aunt and has decided to retire immediately. She wants to invest in something that will allow her to begin making withdrawals immediately, and she wants to be certain that she will continue to receive payments at least until she turns 62 ½ and begins drawing social security. You should recommend Ms. Antsy invest in:

Accepted Answer

A) a single-payment deferred annuity. 
B) a periodic-payment deferred annuity. 
C) a single-payment immediate annuity. 
D) none of the above.

Question 14

A fund's 12b-1 fees may not be used to pay which of the following?

Accepted Answer

A) printing prospectuses 
B) compensating brokers who sell shares of the fund 
C) mailing sales literature to existing and prospective customers 
D) administrative expenses of the fund's investment adviser

Question 15

You have just become a licensed registered representative with Fine, Howard, Fine and Associates, a broker-dealer.(Congratulations!) You have had a brokerage account with Anon Brokerage for the past ten years. In this instance, you are required to:

Accepted Answer

A) transfer the assets in your account with Anon to a Fine, Howard, Fine account and close your account with Anon. 
B) provide Fine, Howard, Fine with written notification of this fact. 
C) provide Anon Brokerage with written notification of your association with Fine, Howard, Fine. 
D) The actions described in both B and C are requirements.

Question 16

SuperDOT is:

Accepted Answer

A) an electronic communication network (ECN). 
B) an electronic system whereby trades are executed on NASDAQ. 
C) an electronic system used to place orders on the NYSE. 
D) both A and C.

Question 17

A fund's transfer agent is responsible for:
I. calculating and distributing the capital gain and dividend income of the fund.
II. mailing shareholder account statements.
III. paying fund expenses.

Accepted Answer

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

Question 18

Mandatory guidelines for the prospectuses of which of the following are dictated by the Investment Company Act of 1940?
I. mutual funds
II. closed-end investment companies
III. unit investment trusts
IV. variable contracts

Accepted Answer

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

Question 19

In 2008, Mr. Conservative bought a 1-year Treasury bill that was yielding 1.63%.The average annual rate of inflation in 2008 was 3.85%.In this case:

Accepted Answer

A) Mr. Conservative earned a nominal return of +3.85% on his T-bill investment. 
B) Mr. Conservative earned a real return of -2.22% on his investment. 
C) Mr. Conservative earned a real return of +1.63% on his investment. 
D) Mr. Conservative earned a nominal return of +2.22% on his investment.

Question 20

Which of the following do not fall under the category of "advertisement," as defined by FINRA?
I. scripts used in telemarketing the products of the member firm
II. a website maintained by the member firm
III. research reports that the member firm distributes to both its existing clients and its prospective clients
IV. sales material that a member firm distributes only to its institutional clients

Accepted Answer

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

Exam 1: Investment and Bond Market

Regulation D: I. enables smaller firms to raise capital more quickly and more cheaply. II. exempts the issuing firm from all disclosure requirements as long as the issue is being sold to no more than five investors. III. has restrictions regarding the resale of the securities being sold.

Tex Payor bought 1,500 shares of the Bonds4U Mutual Fund, a no load fund, on June 12^th for $28 a share and sold the shares the following year on June 11^th for $40 a share. This will result in which of the following tax consequences for Tex?

Nat Informed places a market order to buy 200 shares of Abercrombie & Fitch (ANF) on Thursday, September 16^th.When will Nat be required to pay for this Transaction?