SIE Exam III (89%)

FINRA, the Financial Industry Regulatory Authority, is responsible for all of the following, EXCEPT
[A] Setting the amount of commissions, mark-up/mark-downs, and other transaction costs on securities-related transactions
[B] Establishing and enforcing st

[A] -
FINRA is NOT responsible for setting the amount of commissions, mark-ups/mark-downs, and other transaction costs on securities-related transactions, though FINRA may step in when such costs are deemed excessive and unreasonable.
The basic purposes o

Which of the following would be illustrated when viewing a chart showing the business cycle?
(i) Downturns typically result in a trough before a recovery takes place.
(ii) Upward trends typically result in a peak before a recession takes place.
(iii) Infl

[A] -
A chart showing the business cycle will show recovery periods, peaks, recessionary periods, and troughs. Inflation numbers and the yield curve are NOT demonstrated by a view of the business cycle.

American Depositary Receipts are used to facilitate
[A] the trading of domestic stocks abroad.
[B] the trading of foreign stocks domestically.
[C] currency exchange for transactions from the US to foreign nations.
[D] currency exchange for transactions fr

[B] -
Most foreign company stocks are traded domestically in the US with the use of American Depositary Receipts (ADRs). The ADR represents the ownership of or right to acquire the foreign stock. ADRs are not used in relation to foreign currency exchange.

The "spread" in an over-the-counter trade is
[A] the difference between today's closing bid and yesterday's closing bid.
[B] the difference between today's closing ask and yesterday's closing ask.
[C] the difference between the current bid and ask prices.

[C] -
The "spread" in an over-the-counter trade is the difference between the current bid and ask prices.

Mortgage Real Estate Investment Trusts generally invest in which of the following?
[A] properties handled by developer or builders
[B] income producing properties
[C] residential mortgage loans
[D] oil and gas properties

[A] -
Mortgage Real Estate Investment Trusts lend money to builders and developers and then pass the income on to shareholders.

All of the following could be applied to fixed UITs EXCEPT:
[A] The term "diversified"
[B] The fact that they are registered
[C] The fact that they are managed
[D] The fact that they are regulated

[C] -
A FIXED unit investment trust would not have an investment manager or be managed since the securities in the portfolio are fixed.

Which of the following statements regarding warrants is not true?
[A] They allow the owner to purchase additional shares of common stock.
[B] They can be used to increase the attractiveness of a new issue.
[C] They are generally long-term.
[D] They are an

[D] -
Warrants are always "want to" by a corporation, not a "have to.

If a customer requests a registered representative to exercise discretion in his account, which of the following must be obtained?
(i) The firm's approval
(ii) A trading authorization signed by the customer
(iii) Essential facts about the customer
[A] I a

[D] -
All choices are required.

In the sale of a mutual fund, which of the following documents is the primary and most important sales document?
[A] The fund's prospectus
[B] The annual report of the mutual fund
[C] The auditor's opinion of the fund
[D] The Morningstar rankings of the f

[A] -
The prospectus is the best source of information needed by a prospect to make an informed purchase decision. Also, the prospectus represents the legal offer to sell the fund shares and must be provided to customers who indicate an interest in the fu

What is the obligation of a put writer upon exercise of the put?
[A] The writer must purchase the underlying security at the strike price.
[B] The writer must purchase the underlying security at the current market value.
[C] The writer must sell the under

[A] -
Remember your action chart from Chapter 3, Section 2. When a put is exercised, the writer of the put is obligated to buy 100 shares of the underlying security at the strike price.

Reg T governs the extension of credit for which of the following:
(i) Listed common stock
(ii) NASDAQ national market system OTC securities
(iii) Government securities
[A] I and II
[B] I and III
[C] II and III
[D] I, II, and III

[A] -
III Government securities are exempt from Reg T.

Which regulator determines which securities can be purchased on margin when the securities are non-exempt securities trading on the OTC market?
[A] FINRA - Financial Industry Regulatory Authority
[B] FRB - Federal Reserve Board
[C] SEC - Securities Exchan

[B] -
The Federal Reserve Board determines which securities can be purchase on margin when the securities are non-exempt OTC securities. Exchange traded securities are determined by the exchange on which they trade.

Which of the following statements pertaining to fiduciary accounts is FALSE?
[A] Generally, "Prudent Investor" rules apply to such accounts.
[B] Speculation is typically prohibited in such accounts.
[C] Unless the documents which establish the account spe

[D] -
The fiduciary of an account may not share in the profits of such an account. This statement is false. The other statements are true. Typically, fiduciary accounts are going to be subject to the "Prudent Investor" rules, meaning that the fiduciary mu

One of your clients has large holdings of a few blue-chip corporations. The investor wishes to hold onto the stock for multiple reasons, but she is uncertain about price fluctuations in the short-term future. How can she use options to provide the MOST do

[C] -
If an investor is looking for the "most" or "maximum" amount of protection on the downside and currently has holdings in a security, the investor should purchase put options on the securities in question. This will allow the investor to "put" the st

One of your clients owns an individual account and does not want any outside influence over the account. The client would like to ensure that probate is avoided in the event that they unexpectedly pass away and has named an immediate family member as the

[C] -
The customer wishes to maintain control of the account and avoid probate. The only item listed that provides these two objectives is the transfer on death agreement/registration.

Which would be a counter-cyclical industry?
[A] The computer software industry
[B] The pharmaceutical industry
[C] The gold mining industry
[D] The automobile industry

[C] -
Counter-cyclical industries are industries that either perform equal or better during down times in the economy. Gold mining and silver mining companies are companies would likely remain stable or perform better during a down economy.

Which of the following would NOT be considered a "contribution" under the Pay-to-Play rules?
[A] A donation of time by an individual at campaign headquarters
[B] A donation of time by an individual where the member's empty office is being used for campaig

[A] -
A donation of time by an individual, provided the covered member has not solicited the individual's efforts and the covered member's resources such as office space and telephones are not used, would not be classified as a contribution but if such re

Which of the following is NOT commonly associated with UITs (Unit Investment Trusts)?
[A] Unit redeemability
[B] Management company structure
[C] Portfolio diversification
[D] Investment income

[B] -
UITs generally have a fixed portfolio of diverse municipal or corporate bonds. They do not typically have investment or portfolio managers. The securities in a UIT are supervised, but they are NOT managed.

Paul and Mary Smith own a small candy shop. Both Paul and Mary have established traditional IRA's, contribute to them annually to provide for their retirement and have designated each other as beneficiary to their accounts. Paul and Mary have two grown ch

[B] -
The surviving spouse would become the owner of the IRA since they have named each other as beneficiary and the account would be placed in the name of the surviving spouse.

One of your clients is a sophisticated 40 year old investor and has recently changed jobs. The client is considering rolling over his $100,000 401(k) plan with his former employer to an IRA. He invests conservatively in his personal brokerage account whic

[D] -
As a general rule, IRA assets are for retirement and should be invested conservatively... but not "always". IRA assets should be viewed in the context of the customer's total investment portfolio and risk profile. This customer's personal account is

Under the JOBS Act, an issuer that is an emerging growth company or a broker-dealer representing the issuer may engage in the following communications before a registration statement is filed with the SEC EXCEPT
[A] Contact potential investors that are Qu

[C] -
The permitted communications to ascertain investor interest are limited to financially sophisticated investors i.e. QIBs and IAs, not "retail" investors i.e. members of the general public. The permitted communications to ascertain investor interest

Which of the following statements regarding "inflation" and "interest rates" would be true?
[A] Interest rates will remain unchanged during periods of inflation.
[B] Interest rates will decline in periods of inflation.
[C] Interest rates will increase in

[C] -
During periods of inflation, interest rates are expected to increase. During periods of deflation, interest rates are expected to decline.

The ratio at which one country's currency can be converted into another country's currency is known as the:
[A] Federal funds rate
[B] Deficit rate
[C] European currency rate
[D] Exchange rate

[D] -
The Exchange rate is the ratio at which one country's currency can be converted into another country's currency. It is determined by the intervention of central banks and general market forces.

While working one day, a 17-year old walks into the office. He has already graduated from high school and wishes to open an account at the firm. How should this situation be handled?
[A] If the office manager is willing to approve the account, the RR shou

[B] -
Regulations state that no account may be opened in the name of a minor. Here, the 17-year-old is not yet of age and must wait until turning 18 to own their own account. An alternative would be an UGMA account for the benefit of the minor, but the 17

All of the following statements are true about a registered person who is called to active duty in the military except:
[A] Their registration will be put on "inactive" status
[B] They will not have to re-register or take a qualification exam upon their r

[D] -
Registered persons who enlist or are called to active duty in the military will be placed on "inactive" status. They will not have to re-register or take a qualification exam upon their return. They can return to their former employer or a new emplo

All of the following are purposes of the 1933 Act EXCEPT to
[A] require registration of securities with the SEC before distribution.
[B] disclose important information to prospective investors by means of a prospectus.
[C] authorize the SEC to determine w

[C] -
The SEC does NOT:
- Approve of issues
- Disapprove of issues
- Review merits
- Pass on accuracy of statements filed with it
- Pass on adequacy of statements filed with it

If a customer's cash account is frozen due to the failure to make prompt payment:
[A] Additional purchases (except for exempt securities) are not permitted unless sufficient funds are already in the account before the order is processed.
[B] He may not ma

[A] -
If a customer's cash account is frozen due to the failure to make prompt payment any additional purchases are not permitted unless sufficient funds are already in the account before the order is processed.(except for exempt securities)

All of the following are components of the calculation to find compound accreted value (CAV) on zero-coupon bonds EXCEPT?
[A] the maturity date of the bond
[B] the dated date of the bond
[C] the bond's original yield at offering
[D] the bond's current mar

[D] -
Compound Accreted Value (CAV) of a municipal bond is used as the starting point in determining the value of a zero coupon bond. CAV would consider the date from which interest begins to accrue on the bond (the dated date), the bond's maturity date,

Under the SEC's "Pay-to-Play" rules, which of the following contributions by a covered associate is permitted to an elected official's campaign in which the covered associate may NOT vote?
[A] Contributions of $350 or less per election, per covered associ

[C] -
In an election where the covered associate is NOT permitted to vote, the limitation for political contributions is $150 or less. In an election where the covered associate IS permitted to vote, the limitation for political contributions is $350 or l

Changes to the investment objectives of a mutual fund must be approved by the
[A] The fund's shareholders
[B] The fund's board of directors
[C] The fund's transfer agent
[D] Any changes to investment objectives must be approved by FINRA.

[A] -
The board of directors has the authority to establish and change the investment objective and policies of the fund ONLY with the approval of the shareholders. Neither FINRA nor the SEC approves investment policy changes.

A variable annuity contract is similar to a life insurance policy because it may contain all of the following EXCEPT
[A] death benefits.
[B] beneficiary designation.
[C] loan provisions.
[D] guaranteed cash values

[D] -
Variable annuities do not have guaranteed cash values.

Mr. & Mrs. Jones have a joint account. Mr. Jones enters an order to sell 300 XYZ which is held in their joint account, and requests that the check be made payable to him. As the registered representative you should
[A] follow Mr. Jones' instructions as re

[D] -
Funds withdrawn (check or wire transfer) in a joint account must be made to both parties.

Regulation T Settlement for corporate securities such as common stocks, preferred stocks, and bonds is:
[A] Trade date plus 2 business days
[B] Trade date plus 3 business days
[C] Trade date plus 4 business days
[D] Trade date plus 5 business days

[C] -
Reg T Settlement is trade date plus four business days, or T+4. Regular way settlement is T+2.

The following are all characteristics of variable annuities EXCEPT:
[A] The investment portfolio is insured against loss.
[B] The holders may vote to change investment objectives.
[C] The portfolio is professionally managed.
[D] The portfolio may contain

[A] -
Holders of variable annuity contracts have investment risk. The investment portfolio is not insured against loss.

When telemarketing, a registered representative must provide the called party with the
[A] RR's email address.
[B] name of the RR's broker-dealer firm.
[C] name of the RR's supervising principal.
[D] the time the RR can be contacted.

[B] -
The Telephone Consumer Protection Act (aka the "Cold Calling Act") requires the caller to disclose the identity of the caller and the firm that the caller represents. The other information is not required to be disclosed.

One of your friends is excited to inform you that they have decided to open up an IRA account. They are doing so in late April and starting the account with a deposit of $1,750. Consideration for this deposit to the IRA account MUST be for
[A] only the pr

[C] -
For tax purposes and considerations, contributions to IRA accounts that are made by April 15th of one year could be used for the prior year but when the deposit is made late in April it could not be used for the prior year but could only be used for

When discussing rights offerings, which of the following statements is ACCURATE?
[A] Rights offerings allow a third party to vote an investor's shares in the event that the shareholder cannot be reached.
[B] Rights offerings cause an increase in market pr

[D] -
Rights or preemptive rights are securities that are issued in accordance with a preemptive rights clause. The preemptive rights clause allows existing shareholders the ability to subscribe to additional shares before the shares are sold to the publi

A registered representative (RR) is also a reserve in the armed forces. He is called to active duty and deploys. This RR's registration status is
[A] terminated and the RR will be required to re-qualify upon returning from active duty.
[B] deemed to be in

[C] -
Registered persons who enlist or are called to active duty shall be placed on inactive status and would not have to re-qualify or re-register upon their return. These persons are permitted to receive commissions while on active duty in the military,

An Open-end Mortgage Bond issued by a corporation is one in which the property used to secure the bonds:
[A] Cannot be used to secure a later loan unless the later loan is lesser in claim.
[B] Can be used to secure additional debt as long as the additiona

[C] -
An Open-end Mortgage Bond issued by a corporation is one in which the property used to secure the bonds can be used to secure additional bonds and all bonds rank equally.

Which of the following are true about a cash account versus a cash transaction?
(i) A cash account is where purchases are always paid for in full.
(ii) A cash transaction is a transaction which settles on the same day the transaction occurs.
(iii) A cash

[A] -
A cash account is where a customer can buy securities but must pay for purchases in full.
A cash transaction is when a customer buys or sells a security which settles on the same day as trade date.

An exchange privilege in a mutual fund means the investor can
[A] switch from an open-end company to closed-end company.
[B] exchange shares of one mutual fund for those of another.
[C] convert short-term capital gains into long-term capital gains.
[D] ex

[B] -
The conversion or switching privilege allows investors to exchange shares of one fund for those of another fund within the same family of funds at the fund's net asset value (no sales load is charged).

You work at ABC Broker/Dealer. A corporation approaches you and wants to open a margin account with your firm. Which of the following documents would be required by your new accounts department to open such an account?
(i) Corporate resolution
(ii) Custom

[D] -
In addition to the typical customer margin agreement and loan consent agreement required when opening a new margin account, corporations must file their corporate resolution and a certified copy of their corporate by-laws when opening new accounts.

Which of the following is true concerning the over-the-counter market?
[A] It is where customers buy and sell securities publicly with each other on an exchange floor.
[B] It is an auction market.
[C] Listed securities are never traded in this market.

[D] -
The OTC market is a negotiated market where listed and non-listed securities trade. When listed securities trade OTC, it is called the "Third Market".

A bond which carries a credit rating of BB or lower is referred to as a(an):
[A] low yield bond
[B] subordinated debenture
[C] junk bond
[D] investment grade bond

[C] -
Junk Bonds or high yield bonds are issued by companies that have little or no track record of sales or earnings, have a BB rating or lower or no rating, or are issued by companies that are in financial distress.

When does settlement take place on cash transactions?
[A] The fourth business day after trade date
[B] The second business day after trade date
[C] The next business day after trade date
[D] The same day as the trade date

[D] -
Cash settlement takes place on the same day as the trade. Trade date plus 2 business days is a regular-way settlement, while trade date plus 4 business days is a Regulation T settlement.

A wife owns a small business and has net income of $100,000 for the year. Her husband was hired by her as an accountant for her business and was paid $30,000. Which of the following is true concerning the amount that can be contributed to an IRA?
[A] The

[D] -
The IRS allows a maximum of $5,500 to be deposited into an IRA in a given year.

An unregistered individual may perform all of the following functions EXCEPT:
[A] Call a client to clear up an administrative inquiry made on the account.
[B] Hold a semi-annual meeting with a registered representative's client and update the investment o

[B] -
Holding a semi-annual meeting with an RR's clients to update their investment objectives or goals would not fall under activities that are permissible by an unregistered individual. Administrative and clerical duties would not require registration,

Which is TRUE of the spreads in OTC stock quotations?
[A] Stocks with a narrow spread are more active than stocks with the wider spread.
[B] Stocks with a wider spread are more active than stocks with the narrower spread.
[C] Stocks with a wider spread ar

[A] -
As a rule of thumb regarding stock quotes: the wider the spread the less active the stock, the narrower the spread the more active the stock.

An investor who is "bullish" should invest in all of the following EXCEPT:
[A] buy calls
[B] buy stock
[C] sell naked calls
[D] sell naked puts

[C] -
A "bullish" investor expects the market to rise. Therefore, the investor should buy stock or buy the call option. The investor could also sell puts because the buyer won't exercise the option if the price of the underlying stock goes up and the inve

Susan Smith has a large portfolio of blue chip common stocks and is expecting the market value of her stocks to remain about the same or decline modestly in price and would like to improve the rate of return on her portfolio. Which of the following option

[A] -
Covered Call writing would provide the customer with income and some downside protection which would be the best choice when the customer has a large portfolio of blue chips stocks and is looking for additional income.

Of the following assets, which are most likely to be included in the investment portfolio of a real estate investment trusts:
[A] Farmland and parks
[B] Airports and stadiums
[C] Single family housing and raw land
[D] New apartment houses and shopping cen

[D] -
Shareholders in a REIT look for income from rents received from apartment buildings and shopping centers as well as capital gains as buildings are sold at a profit. Funding for airports and stadiums would generally come from the issuance of municipa

A mutual fund breakpoint occurs when
[A] redemptions equal the purchases
[B] the sales load is reduced because a specified dollar amount has been invested
[C] the sales charges to the customer equal the customer's return from their investments
[D] there i

[B] -
The schedule of breakpoint discounts found in a prospectus for a mutual fund shows the levels at which sales charges are reduced for quantity purchases.

Which of the following would NOT be true about a Variable Annuity?
[A] The investment objectives may be changed after a vote by those holding the variable annuity.
[B] Management of such portfolios is performed by a professional in the industry.
[C] Holde

[C] -
When an investor invests in a Variable Annuity, they bear the investment risk associated with the portfolio of securities and are NOT insured against loss.

When disciplinary action is taken against a broker-dealer, final authority is in the hands of the
[A] SEC - Securities Exchange Commission
[B] FINRA- Financial Industry Regulatory Association
[C] State Administrator in the state where the violation occurr

[A] -
All disciplinary actions taken by SRO's are subject to SEC review and the SEC has final authority over disciplinary events.

What type of order would an investor enter if they wanted to buy 1 ABC May 50 Call when the premium for the option declined from its current value?
[A] Buy at the opening
[B] Debit Spread
[C] Limit order to buy
[D] Market order

[C] -
Of the choices offered the best choice would be the limit order. The client could enter an order to buy at a set price below the current premium value and when the market reaches or falls below the specified price the order would be executed.

When determining position limits an investor that is short XYZ calls would be affected by which of the following?
[A] Short XYZ puts
[B] Long XYZ calls
[C] Long XYZ puts
[D] Long XYZ shares

[C] -
The position limits apply to options which are on the "same side of the market". Short calls are on the same side of the market as long puts.

How often must a member firm have to send a customer a statement showing the cash and securities positions in the account if there is no activity in the account?
[A] Monthly
[B] Quarterly
[C] Semiannually
[D] Annually

[B] -
According to FINRA Rule 2340, regardless if there is trading activity in a customer's account, statements must be sent to customers at least QUARTERLY.

An investor expects the market value of ABC to remain neutral over the next few months. He is long ABC. How could this investor utilize the expectation that ABC will remain neutral?
[A] He could put on a long straddle.
[B] He could sell a call.
[C] He cou

[B] -
Based on the fact that the investor is long the stock and expects the market to remain stable, the investor would increase his rate of return by selling a call option on the underlying security.

The Trust Indenture Act of 1939 regulates corporate debt issues and requires the designation of a trustee. What duty does this trustee have?
[A] The trustee is charged with ensuring that the proper filing procedures take place with relation to the issue a

[C] -
The Trust Indenture Act of 1939 pertains to corporate debt issues and requires that each corporate debt issue has an indenture and a trustee. The trustee's main function is the representation of bondholders and ensuring the safeguarding of bondholde

Which of the following is true of cumulative voting?
[A] It is advantageous to majority shareholders.
[B] Minority shareholders have a better chance of electing a director of their choice.
[C] Majority shareholders can always elect the entire board of dir

[B] -
Because shareholders can "block" their votes and cast them for the director of their choice, minority stockholders benefit most from cumulative voting.

Under the SEC's Pay-to-Play Rules, a "Covered Member" is BEST described as a person or firm that
[A] is not included in the rules.
[B] has previously made political contributions.
[C] solicits a government entity in relation to investment advisory service

[C] -
Cover Members and Covered Associates are any member that solicits a government entity for investment advisory services. Pay-to-Play Rules cover situations where investment advisers seek to influence the award of advisory business by making or solici

Which of the following bonds currently trading at an 8% basis would most likely be refunded?
[A] 5 1/2% of 2020, callable at 100.
[B] 8 1/2% of 2030, callable at 100.
[C] 8% of 2030, callable at 103.
[D] 6 1/2% of 2020, callable at 103.

[B] -
The bonds callable at par, with the highest coupon would most likely be called by the issuer. The highest coupon callable at par would be the best situation for the issuer since it would eliminate the high coupon payment and are callable at par rath

A registered person who fails to complete the Regulatory Element of the industry's Continuing Education Program will
[A] have his registration suspended until the program is completed.
[B] be able to perform only a limited number of registered duties.

[A] -
If a registered person does not complete the Regulatory Element of the industry's Continuing Education Program within the required time period, that person's registration will be suspended (or made inactive) until the program is completed. As a resu

A client is evaluating purchasing corporate bonds versus purchasing municipal bonds. In their evaluation, the client wishes to evaluate the equivalent yield required by a corporate to compensate for the tax benefits of the municipal bonds. Which of the fo

[D] -
Finding the taxable equivalent yield of a municipal bond is important in determining whether a corporate has a comparable or adequate return in relation to the level of risk and taxation. To find it, take the tax-free yield of the muni and divide th

Prior to offering shares to the public, an investment company must
[A] hire investment bankers to manage the offering.
[B] complete and file the appropriate SEC registration documentation.
[C] meet the listing requirements of Nasdaq.
[D] file advertisemen

[B] -
The Investment Company Act of 1940 requires that investment companies complete and file registration statements with the SEC (Securities Exchange Commission). All of the other items listed are not required or are not required prior to offering share

A limited partner in a non-leveraged, non-assessable limited partnership assumes all of the following risks EXCEPT:
[A] lack of liquidity
[B] changes in the tax code
[C] the general partner(s) management ability
[D] losses in the excess of the limited par

[D] -
A limited partner is only liable for a limited partnership's losses to the extent of his/her investment. Legally, a limited partner has limited liability.

One of your friends works for a company that has established a profit-sharing plan that is company-sponsored. Which of the following statements on this type of plan is FALSE?
[A] In this type of plan, deductions allowed to employers from one year can be c

[A] -
Deductions cannot be carried forward from one year to the next.

An organization that owns and operates income producing property like shopping centers and apartment buildings and distributes most of its taxable income to its shareholders would be a:
[A] Sub-Chapter S Corporation
[B] Real Estate Limited Partnership

[D] -
REITs are companies that own and operate income-producing property such as apartment buildings, shopping centers, and office buildings. REITs also pay most of their taxable income to its shareholders.

All of the following securities may be purchased on margin in a customer's margin account EXCEPT?
[A] Municipal bonds
[B] U.S. Treasury Bonds
[C] Corporate bonds
[D] Call options on equities

[D] -
Standard or Traditional options can be purchased IN a margin account but they CANNOT be purchased on margin - the premiums must be paid for in full.

Which of the following statements are generally accurate regarding securities issued by agencies of the U.S. Government?
(i) Though these securities pay interest, only the principal is considered to be a safe and liquid.
(ii) The U.S. Government does not

[C] -
Issues of government agencies are not fully backed by the U.S. Government. These issues are backed, however, by the federal agencies that issue them. Federal agencies are considered to be safe investments and this is with regards to both the interes

Self-regulatory organizations (SROs) are required by federal securities laws to do all of the following EXCEPT:
[A] established rules of fair practice
[B] determine fair market prices
[C] establish arbitration procedures
[D] establish standards of profess

[B] -
The Self-regulatory organizations (SROs) are required by the federal securities laws to establish and enforce minimum standards and rules of fair & ethical conduct. Some examples of SROs are the NASD, the NYSE and the MSRB. They do not determine fai

If an investor spreads his mutual fund investments over several different fund families, his/her registered representative should disclose to the investor that the investor will probably forfeit which of the following privileges?
[A] exchange privileges

[B] -
A sales charge breakpoint is the dollar investment required to qualify for a lower sales charge. A fund family is a mutual fund sponsor offering many funds with different investment objectives. Sales charge breakpoints are typically given for invest

All of the following are true of a corporate bond with a call feature EXCEPT:
[A] Interest payments cease after the bond is called.
[B] It limits the upside potential on the bond.
[C] If the bond has a call premium, it normally declines in later years.

[D] -
Call features are less desirable to the investor so the bonds usually sell for a lower price.

Which of the following factors is the LEAST important in analyzing the investment quality of a mortgage bond?
[A] The collateral held by the trustee bank
[B] The current phase of the economic cycle
[C] The trustee bank holding the title to the collateral

[C] -
The trustee bank is merely the legal owner of the real estate being pledged as collateral for the loan. In the event of default by the issuer, the trustee would initiate foreclosure proceedings against the property.

Some broker/dealers allow their registered representatives to be "independent contractors" of the firm. When handling the sale of equity securities and mutual funds all of the following about independent contractors are correct except?
[A] They are requir

[B] -
Independent contractors are considered to be employees of the broker/dealer and therefore would be subject to all of supervisory rules of the firm.

Gross Domestic Product (GDP) differs from the Gross National Product (GNP) in that the GDP measures:
[A] The value of goods and services produced inside and outside the U.S. by Americans.
[B] The value of goods and services imported into the U.S.
[C] The

[C] -
The GDP (Gross Domestic Product) measures the value of goods and services produced within its own boundaries. The GDP is a more accurate measure of the U.S. economy than the GNP (Gross National Product) since the GNP measures goods and services with

A customer enters an order to Buy 100 shares of ABC @49 stop. This order will be activated by which of the following?
[A] a trade executed at $49 or higher
[B] a trade executed at $49 or lower
[C] Buy stop orders are not allowed
[D] Buy stop orders are ex

[A] -
Buy stop orders are always entered ABOVE the current market price of the stock and will become a MARKET order as soon as a trade is executed at $49 or higher. Buy stops are used to protect short stock positions and to take advantage of an upward bre

Which of the following would be expected to increase during an expansionary period in a business cycle?
(i) Profits
(ii) Production
(iii) Employment
(iv) Demand for goods
[A] I and III only
[B] II and IV only
[C] III and IV only
[D] I, II, III, and IV

[D] -
During an expansionary or recovery period in a business cycle, demand for goods increases which causes an increase in production which causes an increase in employment, all of which causes an increase in profit.

Harvey had his registration revoked last year. If he wants to re-join the securities industry as a licensed person, who can approve it?
[B] The SEC
[C] The member firm's executive committee by unanimous vote only
[D] The U.S. Justice Department

[B] -
If a registration is revoked, the individual cannot be licensed again unless approved by the SEC.

If a covered member or covered associate makes a political contribution that exceeds the limitations provided in the SEC's "Pay-to-Play" rules, that member is the prohibited from engaging in distribution or solicitation activities with or for that governm

[B] -
A 2-year prohibition applies in relation to engaging in the distribution of or solicitation of any offering with or for a government entity after a contribution is made by a covered member or covered associate that exceeds the political contribution

Which of the following is TRUE regarding Traditional IRAs?
[A] Money contributed to a Traditional IRA is always after-tax.
[B] Beginning date for first required minimum distributions (RMDs) is April 1st of the year following the calendar year in which the

[B] -
Under IRS Regulations for Traditional IRAs, Required Minimum Distributions (RMDs) must begin by April 1st of the year following the calendar year in which the account holder reaches age 70 1/2. A person wishing to open a Traditional IRA does NOT nee

The buyer of a put option expects that the price of the underlying security will:
[A] increase significantly in value
[B] decrease significantly in value
[C] remain unchanged or with little change in value
[D] fluctuate greatly during the life of the opti

[B] -
A put is an option to sell the underlying security. A buyer of a put expects the price of the underlying security to decline significantly in value. If the price does decline significantly, the investor can profit.

Repurchase Agreements are characterized by all of the following EXCEPT:
[A] Repo rates are negotiated by the parties involved.
[B] Banks and thrifts use Repos to raise temporary capital funds
[C] The FRB uses Repos as instruments of monetary policy
[D] Th

[D] -
Repurchase agreements (aka Repos or RPs) are sale-and-buyback agreement whereby the seller agrees to repurchase securities (usually U.S. Government securities) at an agreed price and, usually, at a stated price. They are widely used as a money marke

An over-the-counter stock trader is given a quote of "14-15 workout." This quote is:
[A] bona fide.
[B] firm.
[C] subject to confirmation.
[D] approximate.

[C] -
Workout quotes are subject quotes.

Mr. Smith calls his broker to sell 400 of XYZ and sends the stock certificates to his broker unsigned. How should the broker handle this?
[A] Return the unsigned certificate under registered mail.
[B] Sign the certificate on behalf of the customer, after

[C] -
An unsigned certificate should never be returned to a customer. The customer should be sent a stock power, which when signed by the customer and attached to the certificate makes it negotiable.