Podcast
Questions and Answers
A deterioration in the issuer's financial condition would impact the value of the ETN negatively.
A deterioration in the issuer's financial condition would impact the value of the ETN negatively.
True
Which statement is TRUE about customer verification for a client who is a resident of Mexico?
Which statement is TRUE about customer verification for a client who is a resident of Mexico?
In a direct participation program, which party is the last to be paid in a liquidation?
In a direct participation program, which party is the last to be paid in a liquidation?
What would a municipality issue to borrow for a short-term period to finance a capital project?
What would a municipality issue to borrow for a short-term period to finance a capital project?
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Which statement is EXCEPT concerning both auction rate securities (ARSs) and variable-rate demand obligations (VRDOs)?
Which statement is EXCEPT concerning both auction rate securities (ARSs) and variable-rate demand obligations (VRDOs)?
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As a customer's tax bracket increases, an RR is likely to allocate more of a customer's portfolio to:
As a customer's tax bracket increases, an RR is likely to allocate more of a customer's portfolio to:
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If a registered representative discovers that a customer is on the Office of Foreign Assets Control (OFAC) list, who must be notified?
If a registered representative discovers that a customer is on the Office of Foreign Assets Control (OFAC) list, who must be notified?
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Which of the following bonds would increase most in price if interest rates decline?
Which of the following bonds would increase most in price if interest rates decline?
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To find the number of shares the bond is convertible into, divide the conversion price into the par value ($1,000 divided by what?)
To find the number of shares the bond is convertible into, divide the conversion price into the par value ($1,000 divided by what?)
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If interest rates increase, which of the following securities has the largest price change?
If interest rates increase, which of the following securities has the largest price change?
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Which of the following approvals is required before a municipality can begin making payments on a moral obligation bond?
Which of the following approvals is required before a municipality can begin making payments on a moral obligation bond?
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Real estate investment trusts (REITs) invest in all of the following, EXCEPT:
Real estate investment trusts (REITs) invest in all of the following, EXCEPT:
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The minimum maintenance requirement for this account is:
The minimum maintenance requirement for this account is:
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A municipal bond trader does NOT:
A municipal bond trader does NOT:
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A broker-dealer is acting as a principal in which of the following scenarios?
A broker-dealer is acting as a principal in which of the following scenarios?
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Mike is long a yield-based put option in his account. Mike would like to see interest rates:
Mike is long a yield-based put option in his account. Mike would like to see interest rates:
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A call premium is best described as the amount the:
A call premium is best described as the amount the:
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A variable annuity would be most suitable for which of the following customers?
A variable annuity would be most suitable for which of the following customers?
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Which of the following factors is the most important to consider when analyzing a client's investment portfolio with retirement as a primary objective?
Which of the following factors is the most important to consider when analyzing a client's investment portfolio with retirement as a primary objective?
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What capacity is reported by a member firm that has conducted a net basis transaction?
What capacity is reported by a member firm that has conducted a net basis transaction?
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A client wants to invest $250 a month and have broad exposure to the U.S. equity market. Which of the following recommendations is the most suitable for this client?
A client wants to invest $250 a month and have broad exposure to the U.S. equity market. Which of the following recommendations is the most suitable for this client?
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A breakpoint sale is best defined as:
A breakpoint sale is best defined as:
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ABC Corporation has issued a call notice on its 5% convertible preferred stock. If the common stock is currently trading at $23, what should an RR recommend to an investor holding the preferred stock?
ABC Corporation has issued a call notice on its 5% convertible preferred stock. If the common stock is currently trading at $23, what should an RR recommend to an investor holding the preferred stock?
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The penny stock rules apply under which of the following circumstances?
The penny stock rules apply under which of the following circumstances?
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If an individual reinvests all distributions from a mutual fund, what will the cost basis be when selling those shares?
If an individual reinvests all distributions from a mutual fund, what will the cost basis be when selling those shares?
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Which of the following choices is a feature of the Nasdaq Level II System?
Which of the following choices is a feature of the Nasdaq Level II System?
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How would preferred stock most likely be affected by an increase in interest rates?
How would preferred stock most likely be affected by an increase in interest rates?
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Which of the following choices represent logical strategies for a technical analyst?
Which of the following choices represent logical strategies for a technical analyst?
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On Thursday October 7th, a customer purchases 1,000 shares of stock. The trade would settle on:
On Thursday October 7th, a customer purchases 1,000 shares of stock. The trade would settle on:
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Which of the following statements is NOT TRUE regarding the purchaser of a put option?
Which of the following statements is NOT TRUE regarding the purchaser of a put option?
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Which of the following choices makes a financial commitment in the distribution of a new issue of securities?
Which of the following choices makes a financial commitment in the distribution of a new issue of securities?
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The credit rating agencies have downgraded an issuer of an exchange-traded note. Which of the following statements is TRUE?
The credit rating agencies have downgraded an issuer of an exchange-traded note. Which of the following statements is TRUE?
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What is true about the current yield of a bond selling at a premium?
What is true about the current yield of a bond selling at a premium?
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The income generated by a retirement housing program will most likely be used to pay the debt service on a(n):
The income generated by a retirement housing program will most likely be used to pay the debt service on a(n):
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Which choice is the least attractive alternative for a client with a convertible bond called at 104?
Which choice is the least attractive alternative for a client with a convertible bond called at 104?
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If an issuer with an S&P A- rating has been upgraded by two notches, its new rating would be:
If an issuer with an S&P A- rating has been upgraded by two notches, its new rating would be:
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Which of the following statements is FALSE regarding a broker-dealer acting as a market maker in a stock?
Which of the following statements is FALSE regarding a broker-dealer acting as a market maker in a stock?
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The PSA Model is used when pricing:
The PSA Model is used when pricing:
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How much can a customer withdraw after selling $1,000 of securities from a restricted margin account?
How much can a customer withdraw after selling $1,000 of securities from a restricted margin account?
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Upon selling a municipal bond at a loss, what is the TRUE tax result?
Upon selling a municipal bond at a loss, what is the TRUE tax result?
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What tax treatment occurs upon full withdrawal of a nonqualified variable annuity?
What tax treatment occurs upon full withdrawal of a nonqualified variable annuity?
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What is the price/earnings ratio if a stock sells at $48 and has earned $1.10 per share for four quarters?
What is the price/earnings ratio if a stock sells at $48 and has earned $1.10 per share for four quarters?
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Which security provides protection against purchasing-power risk?
Which security provides protection against purchasing-power risk?
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If an individual sells short shares and the stock price increases, which statement is TRUE?
If an individual sells short shares and the stock price increases, which statement is TRUE?
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Industrial development revenue bonds are backed by:
Industrial development revenue bonds are backed by:
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To diversify a portfolio with domestic equity and bond funds, which investment would be the best option?
To diversify a portfolio with domestic equity and bond funds, which investment would be the best option?
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Two types of stock that may contain a stock legend are:
Two types of stock that may contain a stock legend are:
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Regulation NMS applies to which TWO choices?
Regulation NMS applies to which TWO choices?
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For a preferred stock dividend of $1.20 per share after a week, how will it be taxed?
For a preferred stock dividend of $1.20 per share after a week, how will it be taxed?
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What happens when a corporation purchases machinery with cash?
What happens when a corporation purchases machinery with cash?
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Upon the death of the insured, the proceeds of a variable life policy:
Upon the death of the insured, the proceeds of a variable life policy:
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If an investor is bearish on small-cap stocks, which product should be avoided?
If an investor is bearish on small-cap stocks, which product should be avoided?
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For each penny stock transaction, a broker-dealer must provide all of the following items, EXCEPT:
For each penny stock transaction, a broker-dealer must provide all of the following items, EXCEPT:
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Under Rule 10b-10, a confirmation sent to a customer must disclose which items?
Under Rule 10b-10, a confirmation sent to a customer must disclose which items?
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Which of the following positions/strategies is NOT bullish?
Which of the following positions/strategies is NOT bullish?
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Which of the following positions would be considered a covered option?
Which of the following positions would be considered a covered option?
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Which of the following statements is NOT TRUE concerning the Student Loan Marketing Association (Sallie Mae)?
Which of the following statements is NOT TRUE concerning the Student Loan Marketing Association (Sallie Mae)?
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A new issue of municipal bonds has an aggregate par value of $10,000,000. The syndicate received $5,000,000 in designated orders, $5,000,000 in group orders, and $5,000,000 in member orders. How will the issue be allocated?
A new issue of municipal bonds has an aggregate par value of $10,000,000. The syndicate received $5,000,000 in designated orders, $5,000,000 in group orders, and $5,000,000 in member orders. How will the issue be allocated?
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An investor purchases the following bonds: State of Florida 8% bond due 2020, State of California 8 1/2% bond due 2020, State of New York Housing Finance Agency 9% Revenue bond due 2030, and Wayne County, Michigan 8 1/2% Water and Sewer Revenue bond due 2030. This portfolio offers:
An investor purchases the following bonds: State of Florida 8% bond due 2020, State of California 8 1/2% bond due 2020, State of New York Housing Finance Agency 9% Revenue bond due 2030, and Wayne County, Michigan 8 1/2% Water and Sewer Revenue bond due 2030. This portfolio offers:
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Two individuals hold $100,000 in assets in a JTWROS account. Each party's ownership in the account may be described as:
Two individuals hold $100,000 in assets in a JTWROS account. Each party's ownership in the account may be described as:
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Which of the following statements is TRUE regarding spreads?
Which of the following statements is TRUE regarding spreads?
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In a large private placement, an investment banking firm has purchased securities directly from an oil and gas company based in Houston, Texas. These securities may be resold immediately to:
In a large private placement, an investment banking firm has purchased securities directly from an oil and gas company based in Houston, Texas. These securities may be resold immediately to:
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A Regulation A+ exemption is allowed for an issuer that's offering:
A Regulation A+ exemption is allowed for an issuer that's offering:
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Which TWO of the following statements are TRUE about real estate investment trusts (REITs)? 1. They must distribute 90% of their earnings to shareholders 2. They may invest only in short-term construction loans 3. They must invest in mortgages and securities 4. Their profits are derived from the difference between the payments made on outstanding mortgages and the amount received in rental income.
Which TWO of the following statements are TRUE about real estate investment trusts (REITs)? 1. They must distribute 90% of their earnings to shareholders 2. They may invest only in short-term construction loans 3. They must invest in mortgages and securities 4. Their profits are derived from the difference between the payments made on outstanding mortgages and the amount received in rental income.
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A bond with a 6% coupon is priced at a 7.20 basis. If the bond's yield-to-maturity increases by 40 basis points, the yield would be:
A bond with a 6% coupon is priced at a 7.20 basis. If the bond's yield-to-maturity increases by 40 basis points, the yield would be:
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Which of the following statements is TRUE concerning Modern Portfolio Theory?
Which of the following statements is TRUE concerning Modern Portfolio Theory?
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Ms. Green buys 300 shares of RSW at $15 per share. She then writes 3 RSW July 20 calls at 1 and writes 3 RSW July 10 puts at 50 cents. Ms. Green's maximum potential loss on the entire position is:
Ms. Green buys 300 shares of RSW at $15 per share. She then writes 3 RSW July 20 calls at 1 and writes 3 RSW July 10 puts at 50 cents. Ms. Green's maximum potential loss on the entire position is:
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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?
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?
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You are the portfolio manager for Home Fund, Inc., a mortgage-backed securities mutual fund. Which type of risk concerns you in a falling interest rate environment?
You are the portfolio manager for Home Fund, Inc., a mortgage-backed securities mutual fund. Which type of risk concerns you in a falling interest rate environment?
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On December 16, a Mr. Smith purchased 2 listed XYZ May 70 calls and paid a $4 premium for each call when the current market price of XYZ Corporation was $69 per share. If, in May, the market price of XYZ Corporation is $67 and the calls expire, Mr. Smith loses:
On December 16, a Mr. Smith purchased 2 listed XYZ May 70 calls and paid a $4 premium for each call when the current market price of XYZ Corporation was $69 per share. If, in May, the market price of XYZ Corporation is $67 and the calls expire, Mr. Smith loses:
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A mortgage-backed security that is available in several 'tranches,' each with different cash flow characteristics, is a:
A mortgage-backed security that is available in several 'tranches,' each with different cash flow characteristics, is a:
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An investor has made the following purchases of XAM stock: Shares bought at $39 in May 2013, Shares bought at $56 in September 2013, Shares bought at $36 in January 2014, and Shares bought at $36 in June 2014. The investor sells some of his XAM shares in March 2015 at $51. Based on the various purchases, which shares may be sold to result in the greatest gain with the lowest tax liability?
An investor has made the following purchases of XAM stock: Shares bought at $39 in May 2013, Shares bought at $56 in September 2013, Shares bought at $36 in January 2014, and Shares bought at $36 in June 2014. The investor sells some of his XAM shares in March 2015 at $51. Based on the various purchases, which shares may be sold to result in the greatest gain with the lowest tax liability?
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A customer buys 10 ABC January 50 calls paying a $3 premium and 10 ABC January 50 puts also paying a $3 premium when the market price of the stock is $49 per share. The buyer's TWO breakeven points are:
A customer buys 10 ABC January 50 calls paying a $3 premium and 10 ABC January 50 puts also paying a $3 premium when the market price of the stock is $49 per share. The buyer's TWO breakeven points are:
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Securities purchased under a Rule 147 exemption may be sold to an out-of-state resident:
Securities purchased under a Rule 147 exemption may be sold to an out-of-state resident:
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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:
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:
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The maximum underwriting compensation for selling limited partnerships in public offerings is:
The maximum underwriting compensation for selling limited partnerships in public offerings is:
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If a bond is currently selling for less than par value, then:
If a bond is currently selling for less than par value, then:
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Which of the following statements is TRUE regarding the cost covered by a broker-dealer?
Which of the following statements is TRUE regarding the cost covered by a broker-dealer?
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Which of the following statements is TRUE when a client buys 100 shares of MTB at $58 per share and writes 2 MTB October 60 calls at 3?
Which of the following statements is TRUE when a client buys 100 shares of MTB at $58 per share and writes 2 MTB October 60 calls at 3?
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Which of the following securities does NOT trade with accrued interest?
Which of the following securities does NOT trade with accrued interest?
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A bond counsel will issue an unqualified legal opinion for a municipal bond issue to state that?
A bond counsel will issue an unqualified legal opinion for a municipal bond issue to state that?
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A margin disclosure document must be provided to customers:
A margin disclosure document must be provided to customers:
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A customer's margin account has a current market value of $10,000, a debit balance of $8,000, and SMA of $1,000. The customer could meet a maintenance call with:
A customer's margin account has a current market value of $10,000, a debit balance of $8,000, and SMA of $1,000. The customer could meet a maintenance call with:
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Which of the following investment allocations is the BEST recommendation for a customer with an aggressive risk tolerance?
Which of the following investment allocations is the BEST recommendation for a customer with an aggressive risk tolerance?
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If an equity option is exercised, when is the settlement date for the stock transaction?
If an equity option is exercised, when is the settlement date for the stock transaction?
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A customer has sold stock but failed to complete the transaction by delivering the securities. The latest date on which the broker-dealer may buy in the securities is:
A customer has sold stock but failed to complete the transaction by delivering the securities. The latest date on which the broker-dealer may buy in the securities is:
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A municipal bond that is issued at par is later purchased at a discount and redeemed for par at maturity. The investor's profit on the transaction is taxed as:
A municipal bond that is issued at par is later purchased at a discount and redeemed for par at maturity. The investor's profit on the transaction is taxed as:
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A registered representative receives text messages on a mobile device from one of her customers. Which of the following is TRUE?
A registered representative receives text messages on a mobile device from one of her customers. Which of the following is TRUE?
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ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a customer's buy order. ABC has acted as a:
ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a customer's buy order. ABC has acted as a:
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The call premium of a bond refers to the amount:
The call premium of a bond refers to the amount:
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A registered representative should update a client's financial condition or status:
A registered representative should update a client's financial condition or status:
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Which of the following communications does not qualify as a complaint under FINRA rules?
Which of the following communications does not qualify as a complaint under FINRA rules?
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According to MSRB rules, a municipal bond dealer will NOT consider which of the following factors when determining a markup?
According to MSRB rules, a municipal bond dealer will NOT consider which of the following factors when determining a markup?
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When comparing long-term bonds to short-term bonds, all of the following statements about long-term bonds are TRUE, EXCEPT:
When comparing long-term bonds to short-term bonds, all of the following statements about long-term bonds are TRUE, EXCEPT:
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A bond is selling at a discount and yields have remained constant. As the bond gets closer to maturity, what happens to its price?
A bond is selling at a discount and yields have remained constant. As the bond gets closer to maturity, what happens to its price?
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An investor is interested in selling 500 shares of her listed REIT. The sale will be handled in a manner that's similar to the:
An investor is interested in selling 500 shares of her listed REIT. The sale will be handled in a manner that's similar to the:
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On Monday, June 15, an investor purchases for regular-way settlement, $20,000 face value of 8% municipal bonds that mature on November 1, 2035. How many days of accrued interest is the investor required to pay?
On Monday, June 15, an investor purchases for regular-way settlement, $20,000 face value of 8% municipal bonds that mature on November 1, 2035. How many days of accrued interest is the investor required to pay?
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Dividends and capital gain distributions in a variable annuity are:
Dividends and capital gain distributions in a variable annuity are:
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An investor purchases 200 shares of STC at $35 and subsequently purchases 2 STC Jan 35 puts at 2. If the puts expire, what is the investor's profit or loss?
An investor purchases 200 shares of STC at $35 and subsequently purchases 2 STC Jan 35 puts at 2. If the puts expire, what is the investor's profit or loss?
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A prime brokerage account would MOST likely be established for a(n):
A prime brokerage account would MOST likely be established for a(n):
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Which of the following statements is TRUE concerning Trade Reporting and Compliance Engine (TRACE) reports?
Which of the following statements is TRUE concerning Trade Reporting and Compliance Engine (TRACE) reports?
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An individual purchases 10 ABC June 90 calls @ 4 and writes 10 ABC June 95 calls @ 2. The individual's maximum loss is:
An individual purchases 10 ABC June 90 calls @ 4 and writes 10 ABC June 95 calls @ 2. The individual's maximum loss is:
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At what price should the common stock be selling for it to be at parity with a convertible bond that is convertible at $25 and is selling in the market at 108?
At what price should the common stock be selling for it to be at parity with a convertible bond that is convertible at $25 and is selling in the market at 108?
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Study Notes
Bullish Strategies
- Writing a Straddle: This strategy is not bullish; it expects a neutral market and profits if options expire worthless.
- Other methods like married puts, short puts, and certain call combinations indicate bullish sentiment.
Covered Options
- Short the Stock, Short a Put: This is the only covered strategy, where the writer can fulfill the obligation if the put is exercised by using the short stock position.
- Covered options imply the ability to meet contractual obligations without excessive risk.
Student Loan Marketing Association (Sallie Mae)
- Purpose: Provides liquidity by purchasing federally sponsored student loans but does not issue redeemable securities for education.
- Securities issued are not backed by the U.S. government.
Municipal Bond Allocation
- Prioritization: Allocation favors designated and group orders, with designated receiving $5 million and group also $5 million; no allocation for member orders.
Geographical Diversification
- Portfolio Composition: A mix of bonds from different states provides geographical diversification for the investor.
Joint Tenancy with Right of Survivorship (JTWROS)
- Ownership Description: Each party's ownership in a JTWROS account is equal and undivided, meaning all assets are jointly owned.
Option Spreads
- Put Spread: A bearish strategy when created for a net debit, involving selling a lower exercise price option and buying a higher one, reflects bearish sentiment.
Securities Placement
- Qualified Institutional Buyers (QIBs): Securities from private placements can only be resold immediately to QIBs according to SEC Rule 144A.
Regulation A+ Exemption
- Offering Limit: Issuers can offer securities not exceeding $50 million during a 12-month period, exempting them from the registration requirements.
Real Estate Investment Trusts (REITs)
- Distribution Requirement: Must pay out 90% of earnings to shareholders, focusing on real estate investment and profit from rental income and mortgage repayment differences.
Bond Yield Calculations
- Yield-to-Maturity Increase: If a bond's yield increases by 40 basis points from 7.20%, the new yield-to-maturity is 7.60%, indicative of price adjustments.
Modern Portfolio Theory
- Focus: Emphasizes diversification across various asset classes over individual security management in portfolio management.
Options Maximum Loss Calculation
- Ms. Green's Position: The maximum potential loss from her option positions totals $7,050 if the underlying stock becomes worthless.
Convertible Preferred Stock Decision
- Allowance for Calling: Preferred stock should be allowed to be called for $105, as this yields the highest return compared to conversion or sale.
Mortgage-Backed Securities Risk
- Prepayment Risk: In falling interest rates, MBS are subject to increased prepayments, creating challenges for reinvestment of proceeds in lower-yielding securities.
Tax Liability on Stock Sales
- Lowest Tax Liability Strategy: Selling shares from January 2014 provides the greatest gain with lower tax implications because they result in long-term gains.
Breakeven Points in Options
- Breakeven Calculation: For the straddle, the breakeven points are $44 (put) and $56 (call), factoring in the premium paid.
Rule 147 Exemption
- Selling Restrictions: Securities under Rule 147 may only be sold to out-of-state residents after a six-month holding period.
Foreign Currency Exchange
- Exchange Context: The purchase of British pounds with U.S. dollars occurs primarily in the Interbank market, where foreign currency transactions are conducted.
Underwriting Compensation Limit
- Maximum for Partnerships: The cap for underwriting compensation on public offering of partnership units is 10% of the gross amount raised.
Bond Pricing and Yields
- Price Relation: If a bond is selling below par, its current yield will be higher than its nominal yield due to the inverse relationship between bond prices and yields.
Revenue Bonds
- Income Application: Income from a housing program will usually cover the debt service on revenue bonds rather than general obligation bonds.
Client Alternatives for Callable Bonds
- Least Attractive Option: Allowing the convertible bond to be called at 104 is the least favorable choice given market conditions and stock performance.### Bond Conversion and Comparison
- Conversion ratio calculated as par value ($1,000) divided by conversion price ($40), resulting in 25 shares.
- Selling converted stock at $41 per share yields $1,025, which is less than selling the bond for $1,070 or allowing it to be called for $1,040.
- Therefore, converting the bond represents the least attractive alternative.
Rating Upgrades
- An issuer with an S&P A- rating upgraded by two notches would achieve an A+ rating.
- S&P rating scale ranges from AAA (highest) to D (lowest), with notches indicating minor adjustments in ratings.
Broker-Dealer Market Maker Roles
- A broker-dealer as a market maker trades for its own account, acting as a principal rather than an agent.
- Market makers profit from the spread between bid and ask prices, not from commissions which are earned when acting as brokers.
- Must honor quoted prices unless they are clearly qualified.
PSA Model Application
- The PSA Model is used for pricing collateralized mortgage obligations (CMOs).
- CMOs have uncertain cash flows due to mortgage prepayments, leading to prepayment risk.
- The model estimates the prepayment rate of mortgage-backed securities.
Margin Account and Withdrawals
- In a restricted margin account with a market value of $15,000 and a debit balance of $8,000, maximum withdrawal after selling $1,000 of securities is $1,500.
- 100% of sale proceeds reduce the debit balance while SMA increases according to Reg T requirements.
Tax Implications on Bond Sales
- Selling a municipal bond at 103 after purchasing it at 105 results in a $10 long-term capital gain after amortizing the premium.
- Amortization reduces the cost basis over the bond’s life.
Tax Treatment of Variable Annuities
- Withdrawal from a nonqualified variable annuity is taxed as ordinary income on the earnings above the original investment.
Price/Earnings Ratio Calculation
- Price/Earnings (P/E) ratio for a stock selling at $48 with annual earnings of $4.40 is 10.9.
- Dividend payout not relevant for P/E ratio calculation.
Securities Against Purchasing-Power Risk
- Treasury Inflation-Protected Securities (TIPS) provide protection against purchasing-power risk due to inflation adjustments.
Short Selling and Margin Maintenance
- Selling short shares incurs a margin maintenance call when market prices rise significantly, thus requiring regular account adjustments.
Investment Backing for Industrial Development Revenue Bonds
- Industrial development revenue bonds are backed by the corporation leasing the facility, not the issuing municipality.
Diversification in Investment Portfolios
- An international fund, which invests in foreign securities, offers the best diversification for a couple already holding domestic funds.
Transfer Restrictions on Stocks
- Control stock and restricted stock both carry transfer restrictions, requiring compliance with specific conditions for lawfully selling securities.
Regulation NMS Compliance
- Regulation NMS applies to listed equity trades and quotes available for electronic execution, ensuring clients receive best available prices.
Dividend Taxation on Preferred Stock
- Dividends from preferred stock held for less than 60 days are taxed as ordinary income, rather than at the favorable capital gains rates.
Impact of Machinery Purchase on Financials
- Purchasing machinery with cash reduces working capital while total assets remain unchanged, as an increase in fixed assets offsets a decrease in current assets.
Tax-Free Proceeds from Variable Life Policies
- Proceeds from a variable life policy transfer to beneficiaries without incurring federal income tax, although they’re included in the policy owner's estate for estate tax.
Products to Avoid for Bearish Investors
- Investors expecting small-cap declines should avoid Russell Index ETFs, which track small-cap performance.
Disclosure Requirements in Penny Stock Transactions
- A risk disclosure document for penny stocks is only required prior to the first transaction, unlike other disclosures which are required for each trade.
Confirmation Disclosure Requirements
- Broker-dealer confirmations for transactions must disclose the transaction time, the capacity of the broker-dealer, and markup amounts on principal trades.
Permitted Soft-Dollar Arrangements
- A broker-dealer's payment for attendance at a relevant conference is a permissible soft-dollar arrangement, enhancing investment advice quality.
Maximizing Risk in Uncovered Call Options
- Writing two calls against a single long stock position results in unlimited loss potential, making this a risky strategy.
Accrued Interest in Securities Trading
- Treasury STRIPS do not trade with accrued interest, contrasting with other bonds that do, due to the nature of their interest payments.
Unqualified Legal Opinions for Municipal Bonds
- An unqualified legal opinion confirms no pending litigation or restrictions affecting bond issuance, ensuring legality.
Margin Disclosure Document Requirements
- A margin disclosure document is mandatory at account opening and annually, informing clients of the risks involved with margin trading.### Maintenance Call
- The maintenance call can be met by $500 cash, as SMA cannot be used to increase the debit balance.
- A long margin account requires equity of at least 25% of the market value; if equity is below $2,500, a maintenance call is triggered.
Investment Allocation for Aggressive Risk Tolerance
- The best investment allocation for aggressive risk tolerance is 50% large-cap equity, 20% small-cap equity, 20% international equity, 5% bond funds, and 5% cash.
- Aggressive investors seek high growth with a willingness to accept volatility and potential principal loss.
Equity Options Settlement
- When an equity option is exercised, stock transaction settlement occurs within two business days.
Broker-Dealer Buy-In Rules
- If a customer fails to deliver securities after selling, the broker-dealer has ten business days from the settlement date to buy in the securities.
Tax Implications on Municipal Bonds
- Profit from purchasing a municipal bond at a discount and redeeming it at par is taxed as ordinary income.
Communication Record-Keeping Requirements
- Broker-dealers must maintain a record of all communications with customers, regardless of the device used for communication.
Role of Broker-Dealer
- ABC Brokerage acted as an agent when purchasing stock from a market maker to fill a customer's buy order.
- Clients pay a commission for this service.
Call Premium of Bonds
- The call premium represents the amount over par that an issuer pays to call a bond prior to maturity.
Updating Client Financial Status
- A registered representative should update a client's financial status upon observing changes in the client's purchasing or selling activities.
FINRA Complaint Definition
- A telephone call does not qualify as a complaint under FINRA rules, which require written statements for grievances.
Markup Considerations for Municipal Bond Dealers
- Coupon rate does not influence the determination of the markup on municipal bonds.
Long-Term vs. Short-Term Bonds
- Long-term bonds tend to offer higher yields and are more sensitive to interest rate changes, but they do not provide greater liquidity compared to short-term bonds.
Price Behavior of Discount Bonds
- A discount bond's price will increase as it approaches maturity, assuming no default.
Secondary Market for REITs
- REITs are traded similarly to stocks on the NYSE, with a secondary market available for transactions.
Days of Accrued Interest Calculation
- For the purchase of municipal bonds, 46 days of accrued interest is owed, based on a 30-day month calculation.
Tax-Deferred Growth in Variable Annuities
- Variable annuities allow dividends and capital gains to grow on a tax-deferred basis until distributions begin.
Loss from Expiring Options
- If puts expire, the holder loses the entire premium paid for the options, resulting in a $400 loss for the example provided.
Prime Brokerage Accounts
- Prime brokerage accounts are primarily established for hedge funds, providing a range of services tailored to active trading firms.
TRACE Reporting
- TRACE reports are specifically used for corporate bond transactions to increase market transparency.
Maximum Loss for a Debit Spread
- In a debit spread, where more is paid for the purchased call than received for the written call, the maximum loss is the total premium paid.
Conversion Price and Parity
- A convertible bond's parity price is calculated based on the conversion ratio and the market price of the bond.
Interest Rate Impact on Bond Prices
- Treasury bonds trading at a premium exhibit the largest price changes when interest rates rise.
Approval for Moral Obligation Bonds
- State legislative approval is necessary before a municipality can begin making payments on a moral obligation bond.
REIT Investment Restrictions
- REITs do not invest in undeveloped land, focusing instead on income-generating real estate properties.
Minimum Maintenance Requirement for Accounts
- A margin account’s minimum maintenance requirement is calculated as 25% of the total market value, which sums to $3,000 in the provided example.
Municipal Bond Trader Duties
- A municipal bond trader does not commit to underwritings, centralizing their role on secondary market activities.
Principal Role of Broker-Dealers
- Broker-dealers operate as principals when buying for their inventory or selling from it, including fulfilling orders while retaining excess for themselves.
Interest Rate Effects on Yield-Based Options
- Yield-based puts become profitable when interest rates fall, as lower yields increase the intrinsic value of such options.
Description of Call Premium
- A call premium is the excess amount above par that an issuer pays when redeeming bonds prior to maturity.
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Test your knowledge on financial instruments, customer verification for Mexican residents, and liquidation priorities in direct participation programs. This quiz covers essential concepts in investment securities, including auction rate securities and tax bracket implications for portfolio management.
