Question 1

As an agent, which of the following statements about the Securities Investor Protection Corporation (SIPC) can you legitimately make to your client?

Accepted Answer

A)  The SIPC is the FDIC of the stock and bond markets."
B)  "The SIPC was established to restore funds to investors when the brokerage firm they have been using is bankrupt or in financial distress."
C)  "The SIPC is a government agency created by an Act of Congress to combat fraud."
D)  "The SIPC is a government agency that was created by an Act of Congress to protect investors against losses in the stock and bond market." B

Question 2

If a person has had its license revoked by the Administrator of the state and has appealed the decision to a court of law, that person

Accepted Answer

A)  can continue business as usual pending the resolution of the appeal.
B)  must notify the Administrator of the state that it has appealed the decision.
C)  is considered to have a revoked license until the courts rule otherwise.
D)  Both B and C are true statements. D

Question 3

Iggy recently started his own company. He soon discovered it required more cash to keep it going than he had anticipated. He ran an ad in the local paper for investors and got a response. He found a template for a promissory note on the internet, filled in the requisite information specific to the agreement he and the investor had worked out, and printed it out. On it, he promised to make monthly interest payments of 2% on the loan and to repay the principal amount at the end of 18 months. A few months after the arrangement, Iggy read an article in a small business publication that indicated that promissory notes had to be registered with the state unless they were sold in an exempt transaction, such as one enacted with a financial institution, prior to being offered for sale. The article indicated that a seller who had sold an unregistered note in error could remedy the situation by sending the buyer a formal offer to buy the security back, with interest. Iggy turned to the computer once again, found a form that could be used for a formal offer of rescission, filled it out, and sent it to the investor. Having done this,

Accepted Answer

A)  Iggy cannot be sued for civil damages if the investor fails to respond to the offer within 30 days.
B)  Iggy must follow up with a second notice sent via registered mail if he has not heard from the investor within 30 days.
C)  Iggy must wait 6 months for a response from the investor. If no response is received by the end of 6 months, Iggy is off the hook.
D)  Iggy will not be assessed any penalties by the Administrator of the state, but the investor can still sue for damages in civil court. A

Question 4

Which of the following is not a prohibited practice for a broker-dealer?

Accepted Answer

A)  waiting 36 hours before mailing a check after receiving a request for a cash withdrawal from a client if the client has that much cash available in his account
B)  requiring that a client who is engaged in margin transactions leave the securities with the broker-dealer in "street name"
C)  recommending a security to a new client without first ascertaining that client's level of risk tolerance
D)  executing a trade for an account holder based on instructions from the account holder's spouse

Question 5

Which of the following does not describe a prohibited practice for broker-dealers under the NASAA Model Rules?
I. SecureMoney Broker-Dealers has received a request from a client who wants SecureMoney to "identify a few solid firms in the Asian market and invest up to $20,000 in them." SecureMoney executes the purchases and receives the requisite signed discretionary authorization from the client before the settlement date.
II. CanDo Broker-Dealers executes a margin transaction for a client, promptly receiving a signed, written margin agreement from the client after the transaction takes place.
III. GetErDone Broker-Dealers receives a call from a client who wants to purchase some securities on margin. GetErDone has the client come into the office to sign a properly executed margin agreement prior to effecting the transaction.

Accepted Answer

A)  None of the selections are prohibited practices.
B)  I and III only
C)  II and III only
D)  III only

Question 6

You have recently discovered that a security you purchased has not been registered with the state, nor is it exempt from registration. You can file a civil claim against the seller as long as you do so within

Accepted Answer

A)  five years.
B)  three years from discovery or five years from the event, whichever comes first.
C)  two years from discovery or three years from the event, whichever comes first.
D)  one year from discovery.

Question 7

Which of the following entities would be required to register with the state as a broker-
Dealer under the guidelines of the Uniform Securities Act (USA)?

Accepted Answer

A)  an underwriter with no offices in the state that is helping a firm that is incorporated within the state with the sale of its new bond issue to insurance companies
B)  a credit union that operates within the state and provides loans to its members
C)  an agent who executes the purchase and sale of stocks and bonds for his clients
D)  None of the above entities would be required to register with the state as a broker-dealer under the guidelines of the Uniform Securities Act.

Question 8

According to the NASAA Model Rules, which of the following institutions would not be considered a qualified custodian?

Accepted Answer

A)  a broker-dealer that is registered with the state
B)  a bank that is insured by a private, state-sponsored insurance company
C)  a foreign financial institution
D)  a savings institution that is insured by the FDIC

Question 9

Under the Uniform Securities Act, which of the following does not need to be included when filing to register a security issue with the state?

Accepted Answer

A)  a copy of the firm's articles of incorporation and bylaws, or the equivalent
B)  copies of the underwriter agreements
C)  a copy of any indenture applying to the security being registered
D)  All of the above documents must be included when filing to register a security with the state.

Question 10

According to the NASAA Model Rules, a broker-dealer is not permitted to allow a customer to engage in margin transactions unless

Accepted Answer

A)  the broker-dealer already has a margin agreement signed by the client in hand.
B)  the broker-dealer receives a margin agreement signed by the client promptly after the client's first margin transaction.
C)  the client has a net worth of at least $500,000.
D)  the client has been a customer of the firm for at least 6 months.

Question 11

Once a person has filed an application with the Administrator, and in doing so has truthfully disclosed every material fact, how long does the Administrator have after the effective date of the registration to commence a proceeding to deny, suspend, or revoke that person's license based on those facts?

Accepted Answer

A)  30 days.
B)  60 days.
C)  90 days.
D)  one year.

Question 12

Which of the following practices would be prohibited in connection with the sale of investment company shares?
I. selling a client shares of a load stock fund when a no load stock fund with the same investment objective exists
II. selling the client shares of five S&P 500 Index mutual funds, offered by different fund families
III. encouraging a client to swap his money between two funds in the same family without informing him that this creates a taxable event

Accepted Answer

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

Question 13

Newbie Corporation is considering the possibility of an interstate initial public offering (IPO) of its stock. In the initial meetings with BigFee Investment Bankers, Newbie has learned that the underwriting spread will be 15%. Although the actual offering price won't be set until Newbie's registration statement is approved by the SEC, BigFee has indicated that the offer price will probably be between $3 and $4 a share and that the stock will initially be listed on the OTC Bulletin Board. What methods for state registration does Newbie have available?
I. registration by coordination
II. registration by notification
III. registration by qualification

Accepted Answer

A)  Newbie may elect to register by any one of the above methods although registration by qualification would be the most burdensome choice.
B)  Method I only
C)  Methods I and III only
D)  Method II only

Question 14

After passing the necessary exams, you must submit which of the following to the state Administrator when applying for registration as an agent?

Accepted Answer

A)  U-4
B)  Form ADV
C)  a recent photograph of yourself
D)  proof that you meet the state's minimum net capital requirement

Question 15

An agent cannot tell a client that a mutual fund is "no load" if the fund has
I. a front-end load
II. a contingent deferred sales load
III. 12b-1 fees

Accepted Answer

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

Question 16

Teche is an agent with broker-dealer CanDo, and his only compensation is the commissions he earns on trades he executes. He has applied for and been granted an adjunct teaching position with a local university that will allow him to earn money while he is establishing himself. Which of the following statements are true?

Accepted Answer

A)  As an agent with broker-dealer CanDo, Mr. Teche must notify CanDo in writing of this position prior to accepting it.
B)  CanDo can deny Mr. Teche permission to accept the adjunct teaching position.
C)  Mr. Teche is, in essence, an independent contractor with broker-dealer CanDo and can engage in any other business activity at will.
D)  Both A and B are true.

Question 17

Which of the following actions is the Administrator of a state empowered to take?

Accepted Answer

A)  gather evidence
B)  require restitution for the victims of a scam
C)  impose civil penalties in cases of fraud
D)  The Administrator of a state has the authority to take all of the above actions.

Question 18

BondsRUs is a broker-dealer that (unsurprisingly) specializes in bonds. The firm has found that it is able to sell Treasury bonds that it buys for $90 per $100 of par value for $99 per $100 of par value to some of its more naïve clients, who never pay attention to the confirmation statements BondsRUs sends them. BondsRUs is guilty of

Accepted Answer

A)  nothing. It is acting as a dealer in bonds and, as such, can charge its clients whatever the clients are willing to pay.
B)  overcharging its clients by unreasonable markups. A $9 dealer's spread on Treasury bonds is unwarranted.
C)  fraud.
D)  both B and C.

Question 19

Which of the following is not one of the criteria for a security to be eligible for registration by notification?

Accepted Answer

A)  The issuer must have preferred stockholders as well as common stockholders.
B)  The issuer must have a net worth of $4 million, or its net income before tax for at least two of the
C)  The issuer must never have defaulted on any bond or long-term lease obligation.
D)  If the security to be issued is an equity interest in the firm, its offer price has to be at least $5 a

Question 20

The Administrator of a state will deny the registration of a security if
I. the mandated filing fee has not been paid.
II. the compensation of the underwriters is excessive.
III. the registration statement is incomplete.
IV. the issuer is registering the security through the registration by coordination process and has not complied with all the stipulated requirements.

Accepted Answer

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

Exam 4: Uniform Securities Act USA and State Registration Requirements