Final Exam 8 (SIE)

An issuer wants to give existing shareholders the opportunity to purchase additional shares at a fixed price. The securities expire in 30 days. What security is being used?

Rights

Rank these from longest life to shortest life:

• Rights

• Warrants

• Options

Warrants → Options → Rights

Which security may have a perpetual life?

Warrants

An investor wants dividend income and protection if dividends are skipped. Which type of preferred stock is most suitable?

Cumulative preferred stock

Which type of preferred stock gives holders the ability to share in excess corporate profits?

Participating preferred stock

A bondholder benefits most from call protection during which interest-rate environment?

Declining interest rates

A corporation misses an interest payment on its bonds. Which risk has occurred?

Credit (default) risk

A long-term corporate bond is purchased and held for one year. Which risk is likely to have the greatest impact on market value?

Interest-rate risk

A bond with an 8.5% coupon is issued at 99.5% of par. How does yield to maturity compare to the coupon?

Yield to maturity is greater than the coupon.

An investor wants a security commonly used to facilitate foreign trade between importers and exporters.

Banker's Acceptance

Which agency security is NOT backed by the full faith and credit of the United States?

FNMA

Which security is commonly exposed to prepayment risk?

Asset-backed securities

A VRDO and an ARS are similar except one has a feature allowing investors to receive par value on demand. Which one?

VRDO

An investor signs a Letter of Intent. In most cases, how long does the investor have to satisfy the commitment?

13 months

A customer redeems shares of a mutual fund at 1:00 PM. Which price is used?

Next calculated NAV

Which investment would NOT normally be found inside a money-market fund?

Common stock

A money-market fund portfolio is primarily invested in what type of securities?

Short-term debt instruments

When a variable annuity is annuitized, which characteristic remains fixed?

Number of annuity units

After annuitization, what causes payment amounts to fluctuate?

Value of annuity units

Which annuity payout option generally provides the largest periodic payment?

Life Annuity (Straight Life)

A grandfather wants payments to continue for either his son or grandchild for as long as either lives. What settlement option best fits?

Joint and Last Survivor

An S&P Index Call is exercised. What must the writer deliver?

Cash equal to the intrinsic value

Can an index option writer ever be required to deliver securities?

No

What type of settlement applies to index options?

Cash settlement

A clearing firm carries customer positions for another broker-dealer but is not provided specific customer information. What type of account exists?

Omnibus account

Which firm maintains customer records in an omnibus arrangement?

Introducing broker-dealer

A broker-dealer publishes a firm bid and later refuses to honor it. What prohibited practice occurred?

Backing Away

A firm wants to purchase its own publicly traded stock for a customer's discretionary account. What is required?

Customer's prior written consent

A customer buys $3,500 of stock in a new margin account. What deposit is required?

$2,000

An RR contributes 25% of the assets in a joint account with a customer. If the account is liquidated, what percentage of gains may the RR receive?

25%

Can FINRA grant extensions for maintenance margin calls?

No they can not.

May proceeds from a short sale be used to pay for a stock purchase?

No the proceeds can not.

A handout is distributed to 20 retail investors at a seminar. What communication category applies?

Correspondence

How many retail investors must receive a communication before it becomes retail communication?

More than 25 within 30 days

A registered representative volunteers for a local charity. Is outside business activity notice required?

This activity does not require notice.

A person is indicted for felony theft unrelated to securities. Must the event be reported?

Yes, it must always be

Can the person remain employed while merely indicted?

Yes

Failure to complete Regulatory Element results in what status?

CE Inactive

Can a CE Inactive individual perform functions requiring registration?

Must be active

By signing Form U4, an applicant agrees to resolve disputes through what process?

Arbitration

Which FINRA tool allows investors to review information on both registered representatives and broker-dealers?

BrokerCheck

How long ago must a felony conviction be disclosed on Form U4?

Regardless of when it occurred

A seller transfers stock after the record date but before receiving a dividend that belongs to the buyer. What document accompanies the securities?

Due Bill

An investor wants to receive a dividend. By when must the purchase be made?

Before the ex-dividend date

Which account primarily offers tax-deferred growth and taxable withdrawals?

Traditional IRA

Which account is neither tax-deferred nor tax-free merely because of the account structure?

UTMA

An analyst reviews earnings, management quality, balance sheets, and industry trends. What method is being used?

Fundamental Analysis

A stock trades at $55 and pays a quarterly dividend of $0.60. What is the current yield?

4.36% (annual x quarterly $)

Formula for current yield on common stock?

Annual Dividend ÷ Market Price

A corporation purchases securities using Rule 147. What condition must be true?

Principal office must be located in the offering state

What disclosure document is generally used for municipal offerings?

Official Statement

Which relatives are considered immediate family under FINRA's New Issue Rule?

Spouse, parents, children, siblings, and in-laws

A DPP requests additional contributed capital from existing investors. What is this called?

Assessment (Capital Call)

What may happen if a limited partner refuses an assessment?

Loss of investment interest