WorksheetsSeries 7 set 1
Total questions: 40
Worksheet time: 20mins
A registered representative has been granted limited discretion over a customer's account. In this case, the registered representative:
May freely remove money from the account
May place orders before the order has been approved by a principal
Cannot enter buy stop orders
May have all confirmations of transactions sent only to himself
If a registered representative holds full trading authorization (full power of attorney), she's permitted to do all of the following, EXCEPT:
Borrow assets from the customer's account
Withdraw money from the account
Withdraw securities from the account
Buy or sell securities in the account without consulting with the customer
All of the following statements are TRUE regarding a custodial account, EXCEPT:
The account is opened under the minor's Social Security number.
The custodian of the account may authorize investment discretion to a competent third party.
Gifts to the account cannot exceed $18,000 per year.
Gifts of an unlimited dollar amount are permitted.
A client recently opened a new account with a broker-dealer and provided all of the requested information. One month later, the client received a copy of the new account form in the mail, but called her registered representative (RR) to ask why it was sent. How should the RR respond?
That it's firm policy to send the client a copy of her supplied information within 30 days so that she can verify that all of the information is correct
That the information is required to be sent within 30 days of the opening for information verification purposes
That the firm is under FINRA surveillance and must send all documentation it collects for the next 30 days
That the firm provides this service as a means of building goodwill with its clients
From a customer perspective, which of the following is NOT an advantage to a prime brokerage relationship?
It enables them to centralize their clearing and custodial services.
It requires them to combine the information they receive from various accounts to understand their overall positions.
It allows them to receive one set of comprehensive reports regarding their portfolios.
If they use margin, it allows them to lower their cost of funds by concentrating their margin positions in one single account.
A broker-dealer should file a Suspicious Activity Report (SAR):
Only if it has actual knowledge that a client is laundering money
If a transaction equals or exceeds $5,000 and the broker-dealer suspects illegal activity
Only for transactions that exceed $10,000
Only for transactions involving parties that are listed on the Specially Designated Nationals (SDN) List
An individual owns 800 shares of stock at an original cost of $55 per share. If the company distributes a 15% stock dividend, what's the client's cost basis per share?
$63.25
$55.00
$47.83
$47.75
When engaged in penny stock transactions, a member firm must disclose all of the following, EXCEPT:
The stock's current quote
The total number of penny stock transactions the firm has executed during the day
The compensation that the broker-dealer will receive for the transaction
The compensation that the registered representative will receive for the transaction
Which of the following bonds will generally have the LOWEST interest rate?
A five-year bond with an AA- rating
A 20-year bond with an AA- rating
A five-year bond with an A+ rating
A 20-year bond with an A+ rating
An investor is seeking to profit on falling interest rates and purchases a 30-year, 7% corporate bond at 130. Five years later, interest rates have risen and the investor decides to sell the bond for 108. What's the investor's taxable capital gain or loss on the trade?
$22 loss
$170 loss
$2,200 gain
$170 gain
A Treasury note has a three-year maturity, a 3% coupon rate, $1,000 par value, and it pays semiannual interest on May 1 and November 1. If the bond was sold in the secondary market on Monday, February 7th, how many days of accrued interest does the buyer owe the seller?
97 days
98 days
99 days
100 days
XYZ Corporation has recently issued $50 million of 20-year bonds. When the bonds were issued, the coupon rate was set at 5%. Each bond in the issue has a $1,000 par value and the bonds are callable in five years at 104. If an investor owns one bond and holds it to maturity, what will the investor receive at maturity?
$1,000
$1,025
$1,050
$1,040
A corporate bond is trading at a price of 92. The bond's coupon rate is 7% and it makes interest payments on January 1 and July 1. If the bond is purchased on Monday, September 19, for regular-way settlement, what's the total purchase price of the bond?
$920
$15.36
$904.64
$935.36
A municipal tombstone advertisement must be approved by:
The MSRB
A municipal securities principal
A municipal securities principal and the branch manager
A municipal securities financial and operations principal
Common and preferred stock are similar in that:
Both have a fixed dividend
The dividends for both must be declared by the board of directors
Both are guaranteed to receive an annual dividend
Both have an equal vote on corporate issues
A Form 4 must be filed:
Within two business days of becoming a director
Within two business days of the date on which a director buys or sells securities
Within 10 days of becoming a director
Within 10 days of the date on which a director buys or sells securities
A broker-dealer is NOT required to maintain a record of which of the following items?
The first research report issued after the firm managed an issuer's IPO
Instant messages
Red herrings
Order tickets
What's the FINRA filing requirements for communication that's exclusively made available to institutions?
It must be filed within 10 days of first use.
It must be filed 10 business days prior to first use.
It is NOT required to be filed with FINRA.
If it doesn't promote a product or service of the firm, it must be filed within 10 days of the end of the calendar quarter.
The sponsor of the ABC Funds wants to publish some advertisements in several personal finance magazines which describe the past performance of ABC's Balanced Fund. Which of the following documents can contain the fund's performance?
Only an omitting prospectus
A tombstone and generic advertising
An omitting prospectus and supplemental sales literature
A tombstone ad, an omitting prospectus, generic advertising, and supplementary sales literature
When analyzing the benefits of a nonqualified deferred compensation plan, an individual would consider that the plan would have all of the following characteristics EXCEPT:
The plan may be offered to a select group of employees
Income taxes are due only when compensation has been paid to the employee
The accumulated funds can be used as collateral when purchasing a new home
The IRS need not approve the creation of the plan
For customers who are subject to the alternative minimum tax, a registered representative should understand the implications of investing in:
Corporate bonds
Common stock
Variable annuities
Limited partnerships
For a corporation that's in the 21% tax bracket, which of the following choices will provide the best return if the corporation wants to invest some of its surplus cash?
A preferred stock paying a 7.50% dividend
A corporate bond yielding 8%
A common stock yielding 6%
A municipal bond yielding 6%
Several years ago, an investor bought a $1,000 par value municipal bond in the secondary market for 90. If the bond matures this year, what's the tax treatment of the discount?
The $100 discount is taxed as a long-term capital gain.
The $100 discount is taxed at the investor's ordinary income rate.
The $100 discount needs to be amortized over the life of the bond and the investor may deduct the final year's amortization against other taxable income.
The $100 discount is tax-free interest.
A municipal revenue bond is secured by the net revenue of a toll road system. The bonds have an annual debt service of $4 million and annual gross revenue of $6 million. In addition, the toll road system has annual operating and maintenance expenses of $2 million. Based on this information, the annual debt service coverage ratio is:
1.5 to 1
2-to-1
1-to-1
3-to-1
A municipality issues a bond that's backed by the revenue from a project. If the municipality also has bonds outstanding that have the same claim against revenue, which of the following statements is TRUE?
This is a double-barreled bond.
This is a parity bond.
This type of bond requires voter approval.
This type of bond is taxable for any investor that's subject to the alternative minimum tax.
An investor purchases a $100,000 face value municipal bond with a five-year maturity at 105. After two years, the bond is sold at 95. For tax purposes, the investor has a(n):
$2,000 loss
$4,000 loss
$8,000 loss
$10,000 loss
If an individual is in a high federal income tax bracket, and is also subject to state and local taxes, she would benefit by purchasing:
Double-barreled bonds
U.S. Virgin Islands Power Authority bonds
Moral obligation bonds
Zero-coupon Treasury STRIPS
Which of the following factors is LEAST useful when analyzing the credit risk of the issuer of a revenue bond?
Engineering reports
The ratio of the amount of net overall debt to assessed valuation
Debt service coverage ratio
Special taxes
Distributions from a 529 ABLE plan are:
Taxable since the contribution was tax-deductible
Tax-free only if they're used for qualified educational expenses
Tax-fee if they're used for qualified medical expenses
Always tax-free
Mortgage-backed securities (MBS) may be issued by all of the following, EXECPT:
A U.S. government agency
A municipality
An investment bank
A commercial bank
A Treasury bond has a 15-year maturity, a 5% coupon rate, $1,000 par value, and pays semiannual interest on January 1 and July 1. If the bond was sold in the secondary market on Tuesday, November 7, how many days of accrued interest does the buyer owe the seller?
131 days
129 days
128 days
130 days
A Treasury bond has increased in value from 98.4 to 98.8. The bond has increased by:
$.40 per $1,000 par value
$.50 per $1,000 par value
$1.25 per $1,000 par value
$5.00 per $1,000 par value
All of the following events will decrease the NAV of an equity fund, EXCEPT:
The securities positions of the portfolio fall in value due to an overall market decline.
New shares being issued to investors who are buying into the fund.
The fund's payment of a large dividend or capital gains distribution.
An increase in the fund's expenses.
Although alternatives are available to a mutual fund sponsor regarding redemption procedures, the issuer must:
Make payment for shares within seven calendar days of tender
Make payment for shares within seven business days of tender
Redeem shares at the net asset value plus the sales charge
Inform the investor of any profit or loss on the transaction
A customer buys 100 shares of an investment company and pays the market price plus a commission. The investor has purchased shares of what type of entity?
Closed-end investment company
Open-end investment company
Unit investment trust
Face-amount certificate company
If an individual places an order to purchase $1,000 worth of mutual fund shares at 4:30 p.m., what amount will she pay per share?
The NAV at close of that day
The NAV at close of the next business day
The POP at close of the next business day
The POP at close of that day
Under what circumstances will the payout from a variable annuity increase?
If the rate of inflation exceeds the AIR
If the performance of the separate account exceeds the AIR
If the performance of the separate account exceeds the rate of inflation
If the performance of the separate account for the current period exceeds the performance of the separate account for the previous period
Which of the following is NOT considered an advantage of variable annuities?
Expenses and fees tend to be lower for variable annuities than for most mutual funds.
Variable annuities may provide an income guarantee when a rider is added to the contract.
Annuitants can move money from one subaccount to another within the separate account without tax consequences.
Variable annuities offer annuitants a death benefit if death occurs during the accumulation phase.
A retired investor decides to surrender a qualified variable annuity that she had purchased 20 years ago. Her total contributions are $100,000 and, at the time of surrender, she receives a lump-sum payment of $190,000. How is the distribution taxed?
All $190,000 is taxable as ordinary income
$90,000 is taxed as long-term capital gain and $100,000 is returned to her as a tax-free return of her cost basis.
$100,000 is taxed as ordinary income and $90,000 is taxed as a capital gain.
All $190,000 is tax-free return of her cost basis.
An individual has been investing in a variable annuity for many years and has decided to take a small withdrawal. What are the tax implications of this withdrawal?
The withdrawal is considered a return of capital and is not taxed.
The withdrawal is first considered earnings and taxable as ordinary income.
The withdrawal is first considered earnings and is tax-free.
The withdrawal is considered part return of cost basis and part earnings, with the earnings portion taxable as ordinary income.
