chapter 2 all three sets

What is the lowest rating a bond must receive to be considered investment grade?

Baa/ BBB

An order to buy a stock at a specific price or better is what type of order

Limit order

A stop limit order to sell 1,000 shares of ABC Corporation stock at $35 is entered when the current market price of ABC stock is $45.  The company announces lower-than-expected earnings and the stock price falls dramatically.  Under which of the following scenarios will the order not execute?

The market price immediately falls to $35 and continues to fall without rebounding.

How often must customers receive account statement from a brokerage firm?

Monthly, if activity, otherwise quarterly

If an option expires without hitting its strike price, what happens to the buyer and seller?

The seller keeps the premium received and the buyer loses the premium paid

What is the amount of the “catch-up” contribution to a traditional or Roth IRA that individuals aged 50 and over may make in 2026

$1,100

What is the tax consequence to an individual under the age of 59 ½ who withdraws a lump sum from his 401(k)

he amount that is withdrawn is considered income and is subject to income taxes at the individuals marginal tax rate.  Plus, he may be subject to a 10% penalty

Contributions made to a traditional or Roth IRA may consist of ________

Cash only

What is the tax consequence to an individual who converts her traditional IRA into a Roth IRA

The amount converted is counted as income and is subject to her marginal tax rate

What is the current yield of a 5% bond that is priced at 80?

6.25%

What is the buying power in a margin account?

The amount of available cash plus the amount able to be borrowed

If an investor writes a covered call and wishes to close the transaction, he needs to enter which of the following trades

Both a sell to close and a buy to close

All of the following are true of an investor’s rights in a right offering except that

the investor’s rights expires after 35 days due to the current market price dropping below the offering subscription price

Which of the following describe characteristics of a shareholder’s preemptive right

Current shareholders are given the first option to purchase any new shares sold by a corporation.

c.

Only after current shareholders have declined the offer to purchase shares from the corporation’s new offering can the shares be offered for sale to the general investing public.

d.

In the event that the number of new shares proposed to be sold by the corporation causes the number of outstanding shares to outnumber the number of shares they are authorized to sell, the current shareholders must approve the increase to authorized shares before the sale can proceed.

Which of the following terms can be described as the day the decision is made by the corporation’s board of directors to provide the common stockholder’s with a dividend

Declaration date

What are some characteristics of preferred stock?

Ownership of these shares provides a means of fixed income for an investor through dividend payments.

All of the following are true of the transferability of securities except the

securities can be transferred between parties by physically exchanging stock certificates.

Of the different types of preferred stock, which one has the feature of enabling its owner to receive both the preferred and common dividend

Participating preferred

Of the following, which is the least likely to be utilized by economists in analyzing the overall condition of the economy

Oil prices

The stock market will be negatively impacted by all of the following except

an interest rate reduction

When considering the four stages of an economic business cycle, which of the following are characteristics of the expansion stage?

I.             Decline in savings

II.            Real estate prices on the rise

III.           An increase in gross domestic product (GDP)

IV.            Rise in inventories

II and III

Which of the following is an example of a company in the defensive sector?

Pharmaceutical

What does a buy limit order do?

Allows an investor to set a maximum price he or she is willing to pay for a security

A specialist can handle all of the following types of orders except for

market orders

What does security arbitrage involve?

Simultaneously buying and selling both a stock and a security that may be converted into that same underlying stock

A corporate bond would be least suitable for which of the following investors?

A 25-year-old interested in speculative investments

In a community property state, how are assets divided between a husband and wife in a divorce?

50% belongs to the husband and 50% belongs to the wife

Which of the following documents may be used to give a third party trading authorization on an account?

POA

Which of the following information is not required as part of the requirement to know your customer?

Level of education

After what event was the USA PATRIOT Act created?

The attack on the World Trade Center on September 11, 2001

All of the following are true regarding a suspicious activity report (SAR) except:

You must tell the person involved in the transaction that a SAR has been filed.

A type of mutual fund or unit investment trust (UIT) whose investment objective is to achieve approximately the same return as a specific market index, such as the S&P 500, is called a(n) __________.

Index fund

Unsystematic risk is also known as __________.

Diversifiable risk

The risk that a security will be redeemed prior to its maturity is known as __________.

Call risk

What type of bonds are high-risk securities that have received low ratings and produce high yield?

Junk bonds

What is another name for an unrealized gain?

Paper profit

If a company declares a 3:2 stock split, how many additional shares will an investor with 200 shares receive?

100 shares

When interest rate increase, what happens to bond prices?

Bond prices decrease

An option to buy shares of a new issue of common stock at a specified price, over a specified, fairly short period of time, is a ________.

Right

Which of the following statements is false regarding short selling?

Short selling carries low risk and an unlimited return

What is the dividend amount that a shareholder who owns 1 round lot of ABC Corporation shares will receive from the following example?  On December 5, after trading for that day ceased, ABC Corporation declared that it would pay a $0.25 dividend, payable on December 15.  The December 5 closing price of ABC Corporation stock is $25.34

$25.00

Which of the following types of stocks are considered defensive stock

Both public utilities and gold mining

What is the maximum taxable rate on a long-term gain if you are in the highest income tax bracket

20%

________ represents the debt of a company

Liabilities

Which financial statement provides a financial summary of the operating results of the company

Income statement

__________ are municipal bonds backed by the revenue-generating capacity of the issuer.

Revenue bonds

Which of the following statements is true regarding a downward-sloping yield curve

It indicates that short-term rates are higher than long-term rates

If interest rates are expected to rise in the near future, which of the following statement is true regarding duration?

A shorter duration would be preferred.

Net Profit after taxes: $18,000

Total revenues: $615,000

Total assets: $340,000

Current assets: $280,000

Earnings per share: $4.75

Stockholder’s equity: $170,000

Preferred dividends: $5,000

# of common shares outstanding: 3,800

Current liabilities: $85,000

Market price: $49.50

 

What is the net profit margin using the information above?

2.92%

Net Profit after taxes: $18,000

Total revenues: $615,000

Total assets: $340,000

Current assets: $280,000

Earnings per share: $4.75

Stockholder’s equity: $170,000

Preferred dividends: $5,000

# of common shares outstanding: 3,800

Current liabilities: $85,000

Market price: $49.50

 

What is the P/E ratio using the information above?

10.42%

A registered principal or registered representative must retake the qualifying exam if his or her registration has been revoked or terminated for a period of _________ or more.

2 years

An options contract that gives the holder the right to purchase the number of shares of the underlying securities is a _____________.

Call

An options contract that gives the holder the right to purchase the number of shares of the underlying securities is a _____________.

Time of Day Restriction, National- Do-Not-Call List, and Firm-Specific-Do-Not-Call List

Excessive trading in a customer’s account for no apparent reason other than to generate commission is _____________.

Churning

Any material for use in any newspaper, magazine, or other public medium, or by radio, television, or telephone recording is referred to as ____________.

An advertisement

Which of the following is not a prohibited activity?

Rebalancing

What is the minimum time period that may be used in material promoting past records of research recommendations in connection with purchase or sales?

One year

Annual continuing education training provided by member firms is known as __________.

Firm Element Training

Which of the following items does not need to be reported on a U-4?

Medical condition

Which of the following statements are true with respect to options communications that include historical performance?

They must state that the results presented should not and cannot be viewed as an indicator of future performance

All relevant costs, including commission, fees, and daily margin obligations, are disclosed and reflected in the performance

A Registered Options Principal determines that the records or statistics fairly present the status of the recommendations or transactions reported upon

Which of the following is false regarding collateralized mortgage obligation (CMO) advertisements?

Advertisements may contain comparisons with CDs.

Which of the following items are required in a research report that contains ratings?

he percentage of all securities rated by the member to which the member would assign a “buy”, “hold/neutral”, or “sell” rating must be disclosed.

b.

The meaning of each rating must be defined.

c.

All of the other three choices are required in a research report that contains ratings?

d.

The member must disclose the percentage of subject companies within the “buy”, “hold/neutral”, or “sell” ratings for whom the member has provided investment banking services within the previous 12 months.

Which of the following written communications is considered a research report?

An email that includes an analysis of equity securities of individual companies

What is the limit of SIPC protections if a brokerage firm fails?

500,000

Which of the following could be considered a “Breakpoint Sale”?

A customer purchasing $150,000 in multiple mutual funds.

What is the cost basis of securities received as an inheritance?

The average of the high and the low prices on the date of death

Which of the following securities are exempt from registration under the Securities Act of 1933?

Municipal bond

__________ has the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as SROs.

SEC

Which of the following item(s) can affect an investor’s risk tolerance?

Time frame

Age

Personal experience

Which of the following investments would not be considered appropriate for an investor with an objective of current income?

Growth stock

What is the tax advantage of owning municipal bonds?

No state or federal taxes

_________ is the process of buying investment vehicles that have a high degree of uncertainty regarding their future value and expected earnings.

Speculation

Which of the following scenarios would be considered an unsuitable recommendation?

Recommending a speculative stock to a recently retired investor who is risk averse

If a registered representative receives a customer complaint, what should he or she do first?

Notify the branch manager or designated compliance individual

Which of the following investments would be most suitable for a young investor who can only invest a small amount each month?

Mutual fund