FINRA Practice Exam

A savings account at a bank is guaranteed by which of the follow entities?

A) FDIC
B) SIPC
C) FED RES
D. Department of the treasury

A

A firm is a participant in a public offering. To sell a Substantial amount of the securities to its customers, the firm agrees to repurchase the shares at no less than the original sales price.

A. Prohibited as fraudulent and manipulative
B. Permissible if the securities are deposited into escrow
C. Prohibited unless the firm immediately sets aside funds for the repurchase
D. Permissible if the customers retain the right to sell the securities into the open market

A

The computation of dollar prices and accrued interest on municipal bonds is normally on what calendar basis?
A. 30/360
B. 30/365
C. Actual 360
D. Actual 365

A

Which of the following comparisons BEST describes the essential difference between a primary distribution and a secondary distribution?

A. A primary distribution can only be made for equity issues while a secondary distribution can be made for both equity and debt issues
B. A primary distribution can only be made of issues that exceed a specified dollar amount while a secondary distribution can be made for issues of all sizes
C. A primary distribution must be made at a fixed public offering price (POP) while a secondary distribution must be made at the current market price
D. A primary distribution involves a sale of newly issued shares by the issuer while a secondary distribution involves the sale of already issued and outstanding shares.

D

Which of the following investments are generally traded according to their average life rather than their stated maturity dates?
A. Corporate bonds
B. Government bonds
C. Assets-backed securities
D. Fixed-rate capital securities

C

Under normal circumstances, a customer's letter of intent on a mutual fund purchase is valid for what maximum period of time?
A. 3 months
B. 6 months
C. 13 months
D. 24 months

C

A customer buys 1 ABC Jan 35 put for a premium of $3 and simultaneously buys 100 shares of ABC stock for $35 per share. The customer will break even when the stock is selling at what price per share at expiration?

A. $3
B. $32
C. $35
D. $38

D

Which of the following form U4 reportable events results in a statutory disqualification?

A. A personal bankruptcy filing
B. A written customer complaint alleging misappropriation of assets
C. A felony theft charge
D. A felony conviction for a driving under the influence (DUI) charge

D

To offer its shareholders a privilege to obtain its shares at a fixed price, which of the following products does a corporation issue?
A. Puts
B. Rights
C. Futures
D. Preferred Stock

B

When a broker-dealer charges a commission on a securities transaction, it has acted as:
A. an agent
B. a principal
C. an underwriter
D. a market maker

A

Which of the following considerations should a registered representative explain to a customer when recommending a 529 college savings plan?
A. The potential deductibility of contributions from state taxes
B. The potential deductibility of contributions from federal taxes
C. The income eligibility restrictions to contribute to the account
D. The rights of the account beneficiary to the assets at the age of majority

A

Under a system of statutory voting, a common stockholder has as many votes for each vacancy on the board of directors as the number of:

A. Positions vacant on the board
B. Directors present at the meeting
C. Shares owned by the stockholder
D. Proxies available for voting by the board

C

Which of the following stakeholders has first claim priority in a chapter 11 proceeding?
A. Equity holders
B. Secured debt holders
C. Unsecured debt holders
D. Administrative claim holders

B

Under Federal Reserve Regulation T, a 90-day restriction is imposed when a customer opens and closes which of the following positions?
A. The same stock on the same day in a margin account
B. The same stock in different accounts on same day
C. The same stock in different accounts in the same household
D. The same stock in a cash account without paying for the stock in full

D

The redemption value of an open-end investment company's shares is based on the:
A. Previous offering price
B. previous closing net asset value (NAV)
C. NAV computed after the order is received
D. Offering price computed after the order is received

C

UTMA accounts are opened under the tax ID of the:
A. Minor
B. Donor
C. Parent
D. Custodian

A

A married couple who earned income that exceeded $300,000 in each of the prior two years and reasonably expects the same for the current year is:
A. a qualified investor
B. an accredited investor
C. an institutional investor
D. a qualified institutional buyer (QIB)

B

When is interest on Treasury notes paid?
A. Quarterly
B. Semiannually
C. Annually
D. At maturity

B

The last transaction in XYZ 5.50s 2030 was at 102. The bond is selling at:
A. par
B. a premium
C. a discount
D. asset value

B

Blue-sky laws are regulated by which of the following entities?
A. SEC
B. MSRB
C. FINRA
D. State securities regulators

D

Upon expiration, all in-the-money S&P 100 index call options are settled by the delivery of which of the following?
A. Cash
B. S&P 100 index stocks
C. S&P exchange-traded fund (ETF)
D. The same number of S&P 100 index put options

A

The owner of which of the following products is MOST exposed to inflationary risk?
A. Utility stocks
B. T-bills
C. T-bonds
D. Blue chip industrials

C

Which of the following actions violates FINRA Rules regarding selling away?
A. Recommending to a customer the services of another broker-dealer
B. Sharing commissions with another registered representative in the same Broker-Dealer
C. Advising customers to buy mutual funds at amounts just below a discount level
D. Engaging in private securities transactions without written prior consent of the employing Broker-Dealer

D

A customer is an officer of a company that is involved in some significant changes. All of the following items are examples of corporate affairs that could be considered inside information if the customer shares them with his registered representative except:
A. Pending transactions
B. declared stock dividend
C. Top management changes
D. Imminent financial liquidity problems

B

Which of the following statements is true about all US gov agency issues?
A. They are exempt from federal taxes
B. They are exempt from registration under the securities act of 1933
C. They are issued in bearer form only
D. They are general obligations of the federal government

B

Which of the following investment risks is the greatest risk in a variable life insurance policy?
A. Credit risk
B. Market risk
C. Inflation risk
D. Interest rate risk

B

An associated person who is not a registered representative is permitted to engage in which of the following activities?
A. Accept an unsolicited customer order
B. Provide account opening forms to a new customer
C. Discuss the attributes of a particular investment product
D. Prequalify prospective customers as to investment objectives

B

Which of the following represents the effect of a stock split?
A. The price per share of common stock increases
B. The price per share of common stock decreases
C. Each stockholder's proportionate ownership decreases
D. Each stockholder's proportionate ownership increases

B

At the time of issuance, which of the following securities normally has the longest period to expiration?
A. Rights
B. Options
C. Warrants
D. Repurchase Agreements

C

FinCEN accomplishes its mission to safeguard the financial system from the abuses of financial crime, including terrorist financing the money laundering, by enforcing:
A. SEC regulations
B. The Bank Secrecy Act
C. The Securities Act of 1933
D. The investment company act of 1940

B

Which of the following security types provides investors with a stated maturity date, a floating interest rate, and an option to put the security back to a financial intermediary on a daily or weekly basis?
A. Equity put option
B. Perpetual preferred stock
C. Variable rate demand note
D. Tax-deferred variable annuity

C

Under the Securities act of 1933, registration is required for which of the follow securities?
A. Eurodollar bonds
B. Municipal securities
C. American Depositary Receipts (ADRs)
D. Securities issued by the federal government

C

Call protection is MOST valuable to bond owner when bond prices are generally:
A. rising
B. falling
C. stable
D. Fluctuating

A

Which of following actions is required of a broker-dealer's anti-money laundering (AML) program?
A. Designating an AML compliance officer
B. Filing of the firm's AML program with FINRA
C. Conducting background checks of all employees
D. Identifying to regulators the employees responsible for Currency Transition Reports (CTRs)

A

A registered representative is reviewing the following portfolio:
30% energy company
30% health care company
30% Exchange-traded fund (tracks the S&P 500)
10% Money market funds
Which of the following risks is inherent in this portfolio?

A. Credit
B. Liquidity
C. Political
D. Nonsystematic

D

When selling a fixed amount of a base currency to purchase a counter currency, which of the following factors is primarily used to determine how much of the counter currency the customer will receive?

A. The spot exchange rate
B. The counter currency's inflation rate
C. The trade balance between the two countries
D. The credit rating of the counter currency's government

A

Under the industry regulations, an initial purchase of $3,000 of common stock in a margin account requires a cash deposit of:

A. $750
B. $1,500
C. $2,000
D. $3,000

C

In the event of a stock split, which of the following parties is required to maintain a record of the shareholders eligible to receive the additional shares?

A. DTC
B. Issuer
C. Custodian
D. Transfer agent

D

Direct participation programs (DPPS) provides:
A. Liquidity and transparency
B. Exposure to non-correlated assets with steady returns
C. Market-related correlations with higher average returns
D. Investors with direct purchases of stock from public companies

B

A registered representative (RR) wants to participate in a private securities transaction. Which of the following actions must RR take?

A. Request a meeting with his supervisor to lay out the structure of the deal
B. Call his supervisor and inform her of the deal and the RR's potential involvement
C. Send written notice to his supervisor outlining the activity and compensation structure
D. Initiate the paperwork required by the policies of the firm once the activity has begun

C

A decline in the GDP must last for at least how many quarters to be considered a recession?

A. 1
B. 2
C. 3
D. 4

B

Stability in the value of a debt portfolio is greatest when:
A. interest rates are rising
B. interest rates are falling
C. Maturities of the securities are long
D. Maturities of the securities are short

D

A registered rep who wants to replace a mutual fund advertisement must obtain written approval from which of the following parties?

A. FINRA
B. Each state's securities administrator
C. A registered principal of the RR's firm
D. The investment management division of the appropriate regional SEC office

C

A transaction in which a writer covers a position by purchasing an option is called:

A. A closing sale
B. A closing purchase
C. An opening sale
D. An opening purchase

B

Which of the following products is adversely impacted if the issuer's credit rating is downgraded?

A. Mutual funds
B. Unit investment trusts (UITs)
C. Exchange-traded funds (ETFs)
D. Exchange-traded notes (ETNs)

D

Under FINRA rules, noncash compensation connected with the sale of variable contracts includes all of the following items except:
A. gifts
B. meals
C. lodging
D. commissions

D

All of the following risk apply to both foreign and domestic debt instruments except:
A. Political
B. Exchange
C. Repayment
D. Interest rate

B

Under SEC Regulation S-P (Consumer Privacy), which of the following information must a firm include in its customer privacy and opt-out notices?
A. The address of the firm's website
B. The fee to opt out from the privacy program
C. The deadline by which to opt out from the privacy program
D. The policies to protect the security of nonpublic information

D

No-load mutual funds may have lower expense ratios than load mutual funds which of the following reasons?
A. No-load funds do not charge 12b-1 fees
B. No-load funds are not permitted to charge a 12b-1 fee greater than 25 basis points
C. Sales charges for load mutual funds increase their annual expense ratios
D. Fund management fees for no-load funds are always lower than load funds

B

Under FINRA rules, which of the following activities by a registered representative requires written notification to her firm?

A. Volunteering as a youth soccer league coach
B. Gambling resulting in winnings in excess of $10,000
C. Driving part time for a transportation network company on weekends
D. Selling nonproprietary investment company securities products through her firm

C

What is the cost basis of an inherited mutual fund?

A. The net asset value (NAV) of the shares when the owner dies
B. The NAV 30 days after the owner's death
C. The same cost basis as the deceased
D. The same cost basis as the decreased plus capital gains distribution

A

A customer has a cash balance in her account together with long positions in several securities. She has made no securities transactions in the account during the past 18 months. How often must the firm send her an account statement?

A. Monthly
B. Quarterly
C. Semiannually
D. Annually

B

A broker-dealer is permitted to accept payment for a new issue from a new customer when the:

A. registration is effective
B. Red herring is delivered
C. preliminary prospectus is amended
D. transaction takes place during the cooling-off period

A

If a market maker posts a quote of 10.00-10.10 [25X10], which of the following actions is the market maker willing to make?

A. Sell 1000 shares at 10 and buy 2500 shares at 10.10
B. Buy 2500 shares at 10 and sell 1000 shares at 10.10
C. Sell 100 shares at 10 and buy 250 shares at 10.10
D. Buy 250 shares at 10 and sell 100 shares at 10.10

B

A member of a stock exchange responsible for providing liquidity in a security by being willing to buy and sell at all times is known as:

A. a broker
B. an underwriter
C. a market maker
D. a transfer agent

C

In which of the following situations is an employee of a public company permitted to trade upon information without violating insider trading laws?

A. An independent securities analyst explains to the employee why the earnings for the company next quarter could be markedly poorer than expected/
B. The employee's neighbor works for the government and informs him that the government will award a major contract to the company next month.
C. The employee's spouse works in the corporate headquarters and shares with him a conversation overheard at working regarding possible acquisition targets.
D. A coworker informs the employee of a conversation he had with the administrative assistant to the company's general counsel regarding key developments in an ongoing class action lawsuit

A

Roth 401k and Roth individual retirement account (IRA) plan share which of the following features?
A. Contributions are made pretax
B. Neither account has maximum contribution limits
C. Neither accounts is subject to early distribution penalties
D. Qualified distributions are excluded from the federal income tax

D

Which of the following responses describes an advantage of index funds?
A. The protection of principal during bearish markets
B. High turnover to take advantage of market opportunities
C. Higher management fees due to active management of the fund
D. Lower management fees due to passive management of the fund

D

Company ABC announces a 20% stock dividend for its common shareholders. If a customer holds 1000 shares at $50, what is the new price and number of shares following the payment of the stock dividend?

A. 800 shares at 62.50
B. 1000 shares at 41.67
C. 1200 share at 41.67
D. 1200 share at 50

C

At issue, which of the following debt securities mature in one year or less?
A. FNMA Bonds
B. GNMA Bonds
C. Treasury Notes
D. Money Market Instruments

D

Under Rule 144A, an issuer of restricted stock is permitted to sell to which of the following investors?
A. Financial institutions
B. Accredited investors
C. Qualified institutional buyers (QIBS)
D. Nonaccredited investors who have previously purchased restricted stock

C

Which of the following statements is true about treasury stock?
A. It has voting rights
B. It receives dividends
C. It is issued stock that has been subsequently reacquired by the corporation
D. It is authorized stock that has not been issued and is held in corporation's treasury.

C

Which of the following communications with the public is considered misleading?
A. Historical illustrations based on factual performance
B. Product comparisons that illustrate material differences
C. A research report that includes a buy recommendation for a specific security
D. Literature providing 10-year performance information to support predictions of future performance.

D

In a period of low inflation and economic recession, the Fed Res is expected to take which of the following actions?
A. Decrease Taxes
B. Raise the feral funds rate
C. Buy bonds in the open market
D. Require banks

C

Which of the following actions is required when a firm receives cash in excess of 10000 from one customer in one business day?
A. File Currency Transaction Report (CTR)
B. File a Suspicious Activity Report (SAR) with the SEC
C. Issue a cash transfer receipt to the customer
D. Place a five-day hold on the consumer's account for the funds received

A

The call provision of a bond stipulates which of the following factors?
A. Maturity date
B. Call date and call price
C. Original issue discount
D. Coupon rate and call date

B

Which of the following statements is true regarding a customer account held as tenants in common?

A. The owner must equally share the assets
B. The ownership of the decedent's assets is governed by their will or state law
C. Tenants in common is permitted for use only for two individuals
D. Tenants in common is permitted for use only for married couples or family members

B

The primary purpose of a syndicate desk in the context of an equity offering is to:
A. Determine the list if selling shareholders
B. Build an order book and allocate the stock
C. Solicit interest from investors in the stock offering
D. Chaperone company management during the road show

B

Which of the following statements is true regarding the concept of an annuity contract?

A. Payouts of investment in a nonqualified annuity are all income tax-free
B The kind of annuity selected partly determines the payment amounts to the annuitant
C. In the case of life annuity contracts, the age the sex of the annuitant do not affect the payment amounts
D. The amounts of the periodic payments to the annuitant are determined by the performance of the insurance company's investment returns

B

Which of the following outcomes are possible for the writer of a covered call option?

A. Profit limited and loss limited
B. Profit limited and loss unlimited
C. Profit unlimited and loss limited
D. Profit unlimited and loss unlimited

A

Regular way settlement on T-bonds is?

A. Same day
B. Next business day
C. second business day (skip day)
D. fifth business day

B

A company announces a tender offer to its shareholders with the intent to buy a maximum of 1 million shares of its outstanding stock at $10 per share and sets no minimum number of shares to be purchased. An investor wants to particiapte in this offer and tenders his 1000 share position. At the close of the offer period, only 900,000 shares have been tendered. How many if any of the investor's shares will the company purchase?

A. 0
B. 100
C. 900
D. 1000

D

A clearing corporation agent or depository for securities transactions

A)

can never be a corporation.

B)

can be a bank or corporation only if they are also a broker-dealer.

C)

can be a commercial bank.

D)

must be a broker-dealer.

C

Explanation

A clearing agent can be a broker-dealer but doesn't have to be. In addition to broker-dealers, commercial banks can act as clearing agencies and depositories, as can corporations that are set up specifically to clearing securities transactions and taking custody of funds and securities.

For a callable bond priced at a discount,

A)

yield to call (YTC) will be lower than the current yield (CY).

B)

yield to maturity (YTM) will be lower than the yield to call (YTC).

C)

yield to call (YTC) will be lower than the coupon.

D)

yield to maturity (YTM) will equal yield to call (YTC).

B

Callable discounts --> Maturity lower than Current Yield

Explanation

For callable bonds trading at a discount, YTC will be the highest possible yield, higher than YTM, CY, and the coupon (stated or nominal) yield.

Which of the following is not a type of real estate direct participation program?

A)

Raw land

B)

Income

C)

New construction

D)

Existing properties

B

Explanation

Direct participation real estate programs come in three types: raw land, new construction, and existing properties. Income is a type of oil and gas program.

Which of the following must be signed by a customer wanting to open a margin account?

A)

Risk disclosure document and credit agreement

B)

Credit and hypothecation agreements

C)

Loan consent and hypothecation agreements

D)

Credit and loan consent agreements

B

Explanation

Opening a margin account requires that the customer sign the credit agreement and the hypothecation agreement. The loan consent form (agreement) is optional. While the risk disclosure document must be received and attested to as read by signing the credit agreement, it need not be signed.

When interest rates are falling, which bonds are most likely to expose holders to call risk?

A)

All bonds, regardless of the coupon rate

B)

Callable bonds with higher coupons

C)

Callable bonds with lower coupons

D)

All bonds, regardless of whether or not they are callable

B

When interest rates fall, issuers will call in their callable debt issues with the highest coupon rates first.

These are the ones currently costing the issuer the most in interest payments. Therefore, when interest rates are falling, holders of higher coupon bonds are more exposed to call risk than are those investors holding lower coupon bonds.

An investor has some stock held in street name and has just received proxy statements forwarded by the broker-dealer for an upcoming shareholders' meeting. If the investor wishes the shares to be voted as recommended by the issuer's management, which of the following must the investor do?

A)

Sign and return the proxy statements by the fifth day before the meeting

B)

Inform the broker-dealer by letter or phone call how the shares are to be voted

C)

Nothing in this case

D)

Sign and return the proxy statements by the tenth day before the meeting

D

Explanation

Signing and returning proxy statements to a broker-dealer for stock held in street name is enough to get the shares voted as recommended by the issuer's management, as long as the broker-dealer receives the statements by the tenth day before a shareholders' meeting. If the shares are to be voted in some other way, the investor must specify the desired changes.

A municipality wants to issue general obligation (GO) bonds that will put it over its statutory debt limit. Which of the following is true?

A)

This is statutorily forbidden.

B)

This is prohibited by the federal government.

C)

They may do so with the approval of their state senators.

D)

They may do so with voter approval.

D

Explanation

The amount of GO debt that a municipal government may incur can be limited by state or local statutes to protect taxpayers from excessive taxes.

In order to issue bonds that would exceed this borrowing limit voter approval would be needed—that is, the approval of those who would be paying the taxes.

While a branch office manager can initially approve an options account for trading, it must ultimately be approved by
A)
the registered representative opening the account.
B)
the firm's registered options principal (ROP).
C)
the forms trading department.
D)
the Options Clearing Corporation (OCC).

B

Explanation

Initially, a branch office manager (BOM) can approve an options account. However, all options accounts must ultimately be approved by the firm's ROP, and done so promptly.

Which of the following records must be kept for six years?

Customer statements

Customer new account forms

Customer confirmations

Customer order tickets

A)

III and IV

B)

I and IV

C)

II and III

D)

I and II

D

Explanation

The buy and sell and quantity information on the order tickets and confirmations statements will show up on the customer's monthly or quarterly statements.

Monthly and quarterly statements must be kept six years.

If a married couple have a joint account with a market value of $1 million and a debit balance of $600,000, all of which is in securities, how much coverage would this account have?

A)

$600,000

B)

$500,000

C)

$1 million

D)

$400,000

D

Explanation

A joint account has a maximum coverage of $500,000; however, in a margin account only the equity is covered, so the debit balance is subtracted from the market value, leaving $400,000 equity.

A certificate stating a borrower's obligation to pay back a specific amount of money on a specific date to an investor is

A)

an ownership certification.

B)

a stock certificate.

C)

a bond.

D)

a bond or stock power.

C

Explanation

A bond is best described as a certificate stating a borrower's obligation to pay back a specific amount of money on a specific date to an investor. A bond certificate also states the borrower's obligation to pay the investor a specific rate of interest for the use of the funds.

When XYZ is trading at 40, an XYZ 30 put sold at 3 would be

A)

at the money.

B)

out of the money.

C)

in the money.

D)

at parity.

B

All puts are in the money when the market price is below the strike price.

They are out of the money when the market price is above the strike price.

They at the money when the market price equals the strike price. They are at parity when the premium equals the intrinsic value.

Fingerprint cards are required by the Securities and Exchange Commission (SEC) to be filed with

A)

the U.S. Attorney General.

B)

Financial Industry Regulatory Authority (FINRA).

C)

any self-regulatory organization (SRO) approved by the SEC.

D)

the SEC.

A

Explanation

The SEC upon application for registration requires that fingerprint cards be filed with the U.S. Attorney General.

An individual who purchases securities for a personal account is called

A)

an accredited investor.

B)

a market maker.

C)

a retail investor.

D)

an institutional investor.

C

Explanation

An individual who makes investments such as the purchase of securities for his account rather than for an organization is a retail investor. This investor may be accredited, but there is no way to know for sure given the limited information.

Which of the following characteristics are typical of an exchange-traded product (ETP)?

A)

The value of an ETP is derived from other investment instruments, and it trades on a national securities exchange.

B)

An ETP is marginable but may not be sold short.

C)

The value of an ETP is derived by formula disclosed in the prospectus and it trades on an exchange only after normal trading hours.

D)

An ETP is an ineligible investment for retail customers, and may not be purchased on margin.

A

Explanation

ETPs are priced so that the value of the product is derived from other investment instruments, such as a commodity, a currency, a share price or an interest rate. ETPs are benchmarked to stocks, commodities or indices. They are marginable and may be sold short.

Which of the following is a lagging indicator?

A)

Increase in hours worked

B)

Decrease in industrial production

C)

Raw materials orders

D)

Increase in the consumer loans to personal income ratio

D

Explanation

Changes in the ratio of consumer installment credit to personal income is a lagging indicator.

Changes in industrial production and hours worked are coincident indicators.

Changes in raw materials orders is a leading indicator.

A tombstone advertisement would be expected to include all of the following information except

A)

an advisory that the advertisement is neither an offer to sell nor a solicitation of an offer for any of these securities.

B)

the price or price range at which the securities are expected to be offered.

C)

any inherent risks associated with the offering or the issuer offering the securities.

D)

the name of the issuer and underwriters if they are being used to assist in the offering.

C

Explanation

While any inherent risks associated with the issuer or the securities the issuer is offering would be expected to be shown in a prospectus, they would not be expected to be found nor is it required that they be shown in a tombstone advertisement. Each of the remaining answer choices shows information expected to be shown in these ads.

All of the following are part of Financial Industry Regulatory Authority (FINRA)'s manual regarding employee conduct and reportable events except

A)

Uniform Practice Code (UPC).

B)

Conduct Rules.

C)

Sales Practice Code.

D)

Code of Arbitration Procedure.

C (EXCEPT)

Explanation

FINRA publishes the Conduct Rules, the UPC, the Code of Procedure, and the Code of Arbitration Procedure to regulate employee conduct and reportable events. There is no Sales Practice Code.

Treasury bills (T-bills) are

A)

short-term debt obligations issued weekly.

B)

short-term debt obligations issued monthly.

C)

intermediate-term debt obligations issued monthly.

D)

intermediate-term debt obligations issued weekly.

A

Explanation

Treasury bills are short-term debt obligations of the U.S. government issued weekly.

Someone who purchases shares of a corporation's common stock has

A)

limited liability and voting rights.

B)

unlimited liability and voting rights.

C)

neither liability nor voting rights.

D)

no liability and no voting rights.

A

Explanation

Common stockholders enjoy limited liability in that they can only lose what was invested. They are in no way responsible for any debt of the corporation. Voting rights are one of the key benefits for common shareholders.

Which of the following has the greatest influence on the money supply within the United States?

A)

The Federal Open Market Committee (FOMC)

B)

The Depository Trust Corporation (DTC)

C)

The Internal Revenue Service (IRS)

D)

The Securities Exchange Commission (SEC)

A

Explanation

The Federal Reserve Board (FRB) influences the money supply by buying and selling U.S. government securities in the open market which expand or contract the money supply. The Federal Open Market Committee (FOMC) consists of the Board of Governors of the Federal Reserve System and several Reserve Bank presidents. The committee meets regularly to direct the government's open-market operations. For example, when the FOMC directs the purchase of securities, it increases the supply of money in the banking system, and when it sells securities, it decreases the supply.

All of the following would be included in the expense ratio of a fund except

A)

portfolio management fee.

B)

salaries and administrative fees.

C)

12b-1 fee.

D)

front-end or back-end load.

D

Explanation

The expense ratio includes ongoing operating expenses but not sales charges.

A front- or back-end load is a sales charge.

A customer has purchased a stock and then sold it before paying for the purchase. This is generally known as

A)

freeriding.

B)

pegging.

C)

a wash sale.

D)

backing away.

A

Explanation

Freeriding is a term used when securities are purchased and then sold before making payment for the purchase. Freeriding is generally prohibited in both cash and margin accounts.

Which option has an obligation and is bearish?

Which option has rights and are bullish?

Which option has an obligation and are bullish?

Which option has rights and are bearish?

Short calls have an obligation and are bearish.

Long calls have a right and are bullish.

Short puts have an obligation and are bullish.

Long puts have a right and are bearish.


(short=obligation)
(long=right)

For tax purposes, investment income is

A)

always taxed at an investor's ordinary income tax rate.

B)

never taxable at ordinary income tax rates.

C)

taxed at either ordinary income tax or capital gains tax rates.

D)

always taxed at the capital gains tax rate.

C

Explanation

Investment income is that which is earned from one's investments. Sometimes called portfolio income, it would include dividends, interest, and capital gains derived from the sale of securities.

For tax purposes, investment income will generally be taxed at one of two rates: ordinary income tax rate or capital gains tax rate.

All the following are cyclical industries except

A)

home appliances.

B)

heavy equipment.

C)

automobiles.

D)

precious metals.

D

Explanation

Cyclical industries are those that grow during expansions and shrink during declines. Automobiles, home appliances, and heavy equipment are all cyclical industries.

Precious metals are the exact opposite—they grow during declines and contract during expansions in the business cycle, and are termed countercyclical.

Money market instruments guaranteed by a bank that are used to provide capital for international trade are called

A)

banker's acceptances (BAs).

B)

American depository receipts (ADRs).

C)

foreign bills.

D)

Eurodollars.

A (international banker)

Explanation

BAs provide short-term financing for importers and exporters.

A bond with 10 years to maturity and callable in five years at par is sold at a discount. Rank the following yields from lowest to highest.

Nominal yield

Current yield

Yield to call (YTC)

Yield to maturity (YTM)

A)

I, II, III, IV

B)

I, II, IV, III

C)

II, I, IV, III

D)

IV, II, III, I

B

The bond is trading at a discount.

The lowest of all yields for a discount bond is the nominal or stated yield (coupon rate), which is a fixed percentage of par.

Next would be the current yield and then YTM. The highest possible return to the owner of a bond purchased at a discount would occur if the bond were called before maturity, because less time must elapse for the investor to receive the discount.