Finance Concepts Quiz

Questions and Answers

What is the maximum potential gain on a customer who writes an MMM January 70 put at 6?

600

What is the maximum gain potential for a customer who is long 1 October 75 put at 2?

7300

Large time deposits of more than $100,000 are part of which segment of the money supply?

By purchasing shares of stock in a company, investors can benefit from which of the following? (Select all that apply)

An increase in the price of the shares Signup and view all the answers

What is an offering in which stockholders in a corporation sell their own shares to the public for the first time called?

a secondary offering Signup and view all the answers

Which of the following is an example of an unsecured debt security? (Select all that apply)

Debenture Signup and view all the answers

What are mutual funds that market directly to the public, using no underwriter and charging no sales charge called?

No load funds Signup and view all the answers

During the cooling-off period, underwriters of new securities may: (Select all that apply)

Accept indications of interest regarding potential purchases of shares Signup and view all the answers

What is the USA PATRIOT Act's required Customer Identification Program chiefly designed to prevent? (Select all that apply)

Funding of terrorist activities Signup and view all the answers

Who must undergo the firm element of a broker-dealer's continuing education requirement?

All registered persons who have direct contact with the public Signup and view all the answers

What happens to the writer of an August 15 call written at 4 if the call expires without being exercised?

Keeps the $400 received when the call was written Signup and view all the answers

What is the one thing a mutual fund must NOT offer to investors?

Physical custody of the fund's portfolio cash and securities Signup and view all the answers

In a Limited Partnership (LP), the partnership entity is responsible for paying taxes on gains.

False Signup and view all the answers

What additional dividend will participating shareholders receive if the preferred, participating to 6% shares pay the full participating dividend?

2% Signup and view all the answers

In order to borrow money for a security purchase from a broker-dealer, the customer must pay interest based on what rate?

The broker call loan rate Signup and view all the answers

Which critical date in the dividend disbursement process is determined by either FINRA or the exchange?

Ex dividend Signup and view all the answers

If an investor owns 500 shares of stock valued at $20 per share and then experiences a split, ending up with 400 shares, what is the new price per share?

$25 per share Signup and view all the answers

On what date do listed options typically expire?

The 3rd Friday of the expiration month Signup and view all the answers

What type of bond has successive maturities set from 2020 through 2030?

Serial Signup and view all the answers

If an investor is given fraudulent information about a security that led to a loss, how long do they have to bring action?

3 months Signup and view all the answers

After a branch office manager approves an options account for trading, who must ultimately approve it?

The firm's ROP Signup and view all the answers

A member firm may vote shares on minor matters if the proxy statements have not been returned.

True Signup and view all the answers

If an investor is notified of a stock split from 400 to 600 shares, how must the split have occurred?

A forward, uneven split Signup and view all the answers

Which organization does the MSRB rely on for enforcement of its rules?

Financial Industry Regulatory Authority Signup and view all the answers

Under what circumstances could a broker-dealer share in a financial loss with a customer?

If the loss was due to an error on the part of the firm Signup and view all the answers

Under the UTMA, what can a custodian NOT do?

Sell short and write uncovered call options Signup and view all the answers

Which actions are required by the Telephone Consumer Protection Act of 1991 when an individual expresses disinterest in future investment calls? (Select all that apply)

The prospect's number must be removed from call lists Signup and view all the answers

Regarding mutual fund sales charges, which statements are TRUE? (Select all that apply)

They are not an expense to the fund, but to the investor. Signup and view all the answers

What type of bonds would an investor likely buy if they anticipate falling interest rates?

Noncallable bonds Signup and view all the answers

What describes the results of a 1 for 2 reverse stock split?

Half as many shares at twice the original price Signup and view all the answers

Notice is NOT required for associated persons involved in extensive fundraising for a charitable institution.

True Signup and view all the answers

Which of the following stocks are classified as penny stocks? (Select all that apply)

Bulletin Board stock trading at $4 per share Signup and view all the answers

When investing in foreign securities, what risk must investors be aware of?

Currency risk Signup and view all the answers

What is required before a registered representative can place advertisements in a youth athletic league's sponsorship booklet?

Pre-approval by a principal of the broker-dealer Signup and view all the answers

On margin, which rate is a customer expected to pay for borrowing funds?

The broker call loan rate Signup and view all the answers

What type of offering might a company employ to raise capital without going through the registration process mandated by the Securities Act of 1933?

Private (nonpublic) securities offering Signup and view all the answers

In a corporate bankruptcy liquidation, which is paid first and which is paid last? (Select all that apply)

Subordinated debenture holders last Signup and view all the answers

What is allowed for a registered representative who has remodeled their home and wishes to work remotely?

This would be permitted with FINRA's approval Signup and view all the answers

Who guarantees the performance of listed options contracts?

OCC Signup and view all the answers

Fingerprint cards are required by the SEC to be filed with whom?

The US attorney general Signup and view all the answers

Voting rights are a privilege afforded to which type of shareholders?

Common shareholders only Signup and view all the answers

What are allowable deductions to compensate for decreasing natural resources in an oil and gas DPP called?

Depletion allowances Signup and view all the answers

Which characteristics are common to penny stocks? (Select all that apply)

Market price less than $5 per share Signup and view all the answers

Which records must be kept for the life of a broker-dealer firm?

Stock certificate books Signup and view all the answers

What is TRUE regarding U.S. Treasury-issued securities?

T-bills are purchased at a discount, while T-bonds are purchased as a percentage of par Signup and view all the answers

If an investor owns MMS call options, what is this investor's outlook?

Bullish, hoping the stock will rise Signup and view all the answers

Accusations of FINRA Conduct Rule violations will be handled under what system?

Code of procedure Signup and view all the answers

Who must a party wishing to solicit proxy authority register with?

The Securities and Exchange Commission Signup and view all the answers

What is the term for selling a stock before actually paying for the purchase?

Freeriding Signup and view all the answers

Who is responsible for implementing monetary policy and maintaining the stability of the U.S. financial system?

The Federal Open Market Committee (FOMC) Signup and view all the answers

How are securities issued by the U.S. federal government classified? (Select all that apply)

Bills Signup and view all the answers

In which direct participation programs (DPP) are deductions for depletion most likely to apply?

Oil and gas income program Signup and view all the answers

When should your firm provide a privacy notice to customers?

Whenever a new account is opened and annually thereafter Signup and view all the answers

Which items must be included on the cover page or beginning of a summary prospectus of a mutual fund? (Select all that apply)

The past performance of the fund Signup and view all the answers

Class C mutual fund shares are also known as what?

Level load shares Signup and view all the answers

What is included in secured corporate debt?

Mortgage debt Signup and view all the answers

Of the following risks, which is most closely associated with reinvestment risk? (Select all that apply)

Prepayment risk Signup and view all the answers

Which retirement plan does NOT require minimum distributions once the participant reaches age 70½?

Roth IRA Signup and view all the answers

General partners (GPs) in a limited partnership should participate in day-to-day management.

True Signup and view all the answers

How long does an investor have to bring action if they discover they were given fraudulent information on a security two years and nine months ago?

Until October 7th of the following year Signup and view all the answers

What do member firm communications need to comply with according to FINRA standards? (Select all that apply)

The nature of the audience needs to be considered Signup and view all the answers

Which of the following would be considered earned income?

Bonus received from employment Signup and view all the answers

What does a broker-dealer do to finance a margin loan when a client purchases stock?

Rehypothecates the stock to the bank Signup and view all the answers

How is Mr. Smith classified in relation to the trade that coincides with Mr. Jones who has insider information?

A contemporaneous trader Signup and view all the answers

What must a member firm report if an associated person is suspended by the SEC?

The exchanges where the firm is a member Signup and view all the answers

If an investor requests a preliminary prospectus for a new issue, what is true about this document?

It is made available between the registration date and the effective date Signup and view all the answers

Under the Investment Company Act of 1940, which of the following is NOT considered an investment company? (Select all that apply)

Hedge fund Signup and view all the answers

What is true during the 20-day cooling-off period? (Select all that apply)

Solicitations of sales may not be made Signup and view all the answers

What feature does a bond having a call option have?

Can be redeemed before maturity at the issuer's option Signup and view all the answers

Which strategy is considered most risky in a strong bull market?

Writing calls Signup and view all the answers

Which item cannot be traded on an exchange?

Life insurance Signup and view all the answers

What is it called when a corporation divests itself of all shares of another company it owns?

A spin-off Signup and view all the answers

How is interest paid on a 7% corporate bond to the investor?

2 semiannual checks for $35 each Signup and view all the answers

Private placements are primarily sold to whom?

Institutional investors Signup and view all the answers

Which of the following transactions constitute a private securities transaction, or 'selling away'? (Select all that apply)

A registered representative helps an acquaintance sell some inherited stock certificates without the acquaintance becoming a customer of the firm. Signup and view all the answers

Study Notes

Options and Derivatives

Maximum potential gain on writing an MMM January 70 put at 6 is $600.
Long 1 October 75 put at 2 has a maximum gain potential of $7,300.
A written August 15 call at 4 that expires unexercised allows the writer to retain $400.

Money Supply and Securities

Large time deposits greater than $100,000 fall under M3 category in the money supply.
Securities issued by the U.S. federal government are classified as receipts, STRIPS, and bills.

Mutual Funds

No-load funds are mutual funds marketed directly to the public with no sales charge.
Class C mutual fund shares are also recognized as level load shares.
Mutual fund sales charges are not an expense to the fund but to the investor and compensate underwriters.

Corporate Actions and Shareholders

A secondary offering involves stockholders selling their own shares to the public.
Voting rights are typically granted to common shareholders only.
Spin-off refers to a corporation divesting all shares of another company it owns.

Regulatory and Compliance

Customer Identification Programs, per the USA PATRIOT Act, mainly prevent the funding of terrorist activities and money laundering.
Registered representatives require pre-approval for advertisements, including sponsorships.
All communications from member firms must align with FINRA standards.

Debt Instruments

Examples of unsecured debt securities include debentures and income bonds.
Secured corporate debt includes mortgage debt.
A bond with a call feature can be redeemed by the issuer before maturity.

Trading and Market Activities

Listed options expire on the third Friday of the expiration month.
Solicitations during the cooling-off period of securities may not be made, but indications of interest can be accepted.

Investor Rights and Actions

An investor who bought securities based on fraudulent information has three months to bring a complaint.
A registered representative is considered a contemporaneous trader if trading at the same time as someone with insider information.

Tax and Earnings Considerations

Depletion allowances are tax deductions for compensating natural resource depletion.
A Roth IRA does not require minimum distributions after age 70½.

Investment Risks

Reinvestment risk is mostly associated with call risk.
An investor should understand currency risk when investing in foreign securities.

Other Key Concepts

Freeriding occurs when a customer sells stock before paying for the purchase.
Under the UTMA, custodians cannot engage in selling short or writing uncovered call options.
Interest on a 7% corporate bond is received as two semiannual payments of $35 each.

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Description

Test your knowledge on key finance concepts, including options, derivatives, money supply, and mutual funds. This quiz covers essential terms and practices that every finance student should know. Get ready to dive deep into the intricacies of corporate actions and securities.