Series 7

A broker dealer is NOT required to maintain a record of which of the following:

A) Institutional communication

B) Final prospectuses

C) Customer complaints

D) Research reports

B) Final prospectuses

The primary purpose of an exchange is for:

Creating a marketplace that brings buyers and sellers together

What is the FINRA filing requirements for communication that’s exclusively made available to institutions?

It’s NOT required to be filed with FINRA

Warrants are most likely issued to:

A) Replace outstanding common shares

B) Create an incentive to purchase a bond which is offering a lower interest rate

C) Compensate the underwriting syndicate

D) Reduce the issue price of securities

B) Create an incentive to purchase a bond which is offering a lower interest rate

A form 4 must be filed:

A) Within 2 business days of the date on which a director buys or sells securities

B) Within 10 days of the date on which a director buys or sells securities

A) Within 2 business days of the date on which a director buys or sells securities

What are two characteristics of a warrant?

They’re issued with a premium subscription price and they’re relatively long term

A municipal tombstone advertisement must be approved by:

A) The MSRB

B) A municipal securities principal

C) A municipal securities principal and the branch manager

D) A municipal securities financial and operations principal

B) A municipal securities principal

When describing accounts for customers, all of the following are TRUE except:

A) Social security numbers are not required for non- US residents

B) The uniform gifts to minors act does not provide for joint accounts

C) Joint account information will be reported for both social security numbers on form 1099

D) A certified copy of a death certificate is acceptable documentation of a customer’s passing

C) Joint account information will be reported for both social security numbers on form 1099

An RR has a potential customer who is interested in international investing and sends the person a prospectus for an international equity fund. The customer then visits the RR’s office to ask some questions about the types of risks that are associated with the fund. In order to help the client understand the risks of the fund, which of the following actions may the RR perform?

A) Highlight the relevant sections of the prospectus

B) Create a summary of the fund’s risks and provide it to the client

C) Provide the client with supplemental sales literature regarding the fund

D) Tell the client to ignore the prospectus

C) Provide the client with supplemental sales literature regarding the fund

Common and preferred stock are similar in that:

The dividends for both must be declared by the board of directors

When liquidating a corporation’s assets, in which order are claims satisfied?

Secured bondholders, general creditors, preferred stockholders, common stockholders

What statement if included in an investment company retail communication is likely to be considered misleading?

A) A statement that past performance is a good guide to future performance

B) A comparison of a fund’s returns to an index

C) A mention of the risks of a fund along with its potential benefits

D) A disclosure of only the maximum sales charge assessed by the fund

A) A statement that past performance is a good guide to future performance

What are the characteristics of the dividends on Series K preferred stock?

They begin at a fixed rate, but then switch to a floating rate AND the dividend is non-cumulative

An employee wants to invest funds into a 401(k) that is sponsored by his employer. Assuming the employee waits until he reaches the age of 60 to begin taking distributions from the plan, what is the tax treatment of these funds?

100% is taxable since the plan has a zero cost basis

What factor is most important to consider when deciding to recommend a municipal bond unit investment trust to a client?

Tax bracket - municipal bonds are most advantageous to clients in higher tax brackets. For lower tax bracket clients, a taxable investment is often more appropriate than a tax-exempt security.

A broker dealer is NOT required to maintain a record of which of the following?

A) The first research report issued after the firm managed an issuer’s IPO

B) Instant messages

C) Red herrings

D) Order tickets

C) Red herrings

The balancing of asset classes according to an investor’s financial objectives in order to maximize returns for a given level of risk is known as:

Asset allocation

A regulations A exemption is allowed for an issuer that’s offering:

Securities with a value not exceeding $75M

What is TRUE about REITs?

They must distribute 90% of their earnings to shareholders

A customer wants to purchase an investment that will allow him to profit from his belief that interest rates will decline over the next 15 years. The recommendation of which of the following securities is NOT consistent with the customer’s belief?

A floating rate note (bc if interest rates go down the note’s interest will also go down)

A facility is created by the issuance of industrial development revenue bonds. The bonds are backed by:

The corporation that leases the facility

Securities purchased under a Rule 147 exemption may be sold to an out of state resident:

After 6 months

Which of the following positions is considered a covered option?

A) Long the stock, short a put

B) Long the stock, long a call

C) Short the stock, short a put

D) Short the stock, long a put

C) Short the stock, short a put

A U.S. importer needs to purchase British pounds to pay for a shipment of goods. The exchange of U.S. dollars for British pounds would occur:

In the Interbank market

The credit rating agencies have downgraded an issuer of an exchange traded note. Which of the following statements is TRUE?

It will have a negative impact on the security. - ETNs are a type of unsecured debt security and the risk is tied to the creditworthiness of the issuer.

How can an individual move the securities from a retirement account to a regular brokerage account at the same broker dealer?

Rollover. The key is that we are going from a retirement account to a regular brokerage account.

Who must give their approval before a municipality can begin making payments on a moral obligation bond?

Approval by the state legislature

Rule 145 applies to a(n):

Merger or acquisition. This rule requires a company to provide written disclosures to shareholders in connection with the previously listed corporate actions.

A level debt service bond issue is one in which:

Combined annual interest and principal payments are equal

A municipal bond trader does NOT:

Commit to underwritings

A customer is moderately aggressive and has a long term investment horizon. If the customer is also looking for tax-advantaged savings, in what should she invest?

Variable annuity

ABC Corporation has issued a call notice on its 5% convertible preferred stock. The preferred stock, which is convertible at $20, is being called at $110 and is currently trading at $111. If ABC’s common stock is currently trading at $23, what should you recommend to the investor who holds the preferred stock?

Convert the preferred stock into common stock and sell the common stock - the preferred stock may be converted into 5 shares of common stock ($100 par value / $20 conversion price). The 5 common shares may then be sold at the market price of $23, providing the investor with a total of $115.

An issuer currently has an S&P A- rating. If the ratings service notifies the firm that it has been upgraded by two notches, its new rating would be:

A+

A retirement housing program has just been completed in a small town. The income generated by the program will most likely be used to pay the debt service on a(n):

Revenue bond

An investor owns a $100 convertible preferred stock that is convertible into 2 shares of common stock. The common is selling at $52 and the preferred is selling at $104. The preferred stock is called at 105. What should the investor do?

Allow the preferred to be called.

The value of the preferred $104) equals the value of converting to common (2 shares at $52 per share). The investor will receive the greatest amount ($105) by allowing the preferred to be called.

When the market price of ABC stock is $49 per share, a customer buys 10 ABC January 50 calls paying a premium of $3. The buyer’s TWO breakeven points are:

$44 and $56

The customer paid a combined premium of $600 ($3 per call + $3 per put) for each straddle position. The breakeven point on the call is determined by adding the combined premium of $6 to the $50 strike price, which equals $56. The breakeven point on the put is determined by subtracting the combined premium of $6 from the $50 strike price, which equals $44.

A state agency revenue bond does not have sufficient revenue to meet debt service. A provision of the indenture allows the agency to request funds from the state legislature. The legislature has the option of providing or not providing the additional funds. This is a:

Moral obligation bond

What is TRUE about the tax treatment of municipal bonds?

If the bond was purchased as an original issue discount (OID), the discount will be accredited based on a constant yield method.

An investor writes an XYZ October 70 call at 3 and an XYZ October 70 put at 1. This strategy is referred to as a:

Short straddle