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What is the Do-Not-Call list/registry?
A )Similar to a wedding registry, it is a list of numbers that are available for new telephone subscribers.
B)Telephone numbers that immediately go to voicemail and are never answered.
C) It is a list of phone numbers that companies cannot call unless they have an established business relationship with the owner of the number.
D) It is a number that is restricted from cell phones.
C
What advantage does the common stock shareholder have over the preferred stock shareholder?
A)Stock certificate is larger
B)Votes on Board of Directors
C)Purchase stock in open market
D)Gets paid First
B
Common stock shareholders have a right to vote on how the company is operated, by voting on who will hold positions on the board of directors.
What is a trustee?
A)The owner of the property in a trust
B)A person who trusts others
C)The beneficiary of the trust
D)The person who is responsible for management of trust assets
D
Explanation
A trustee holds the authority to manage the trust according to the terms of the trust. A trustee is also responsible for managing and distributing trust assets.
Preemptive rights allow the common stockholder to
A) maintain warrants on common stock.
B) purchase additional common stock to maintain his or her percentage/portion of the company.
C) receive fixed or guaranteed dividends.
D) get out of an arrest for road rage.
B
Explanation
Preemptive rights allow a common stockholder to maintain his or her percentage of ownership in the company by purchasing additional common stock. An arrest ticket has no relationship with preemptive rights.
What is the Financial Industry Regulatory Authority?
A) A group of private companies that oversee the securities industry.
B) An individual company that sells investments.
C) A group of companies that recommend investments to customers.
D) A regulator that oversees the securities industry.
D
Explanation
The Financial Industry Regulatory Authority is a regulatory body that creates and enforces the rules that govern the securities industry.
For a call option, the strike price is:
A. The market value of the underlying security at which the option must be exercised
B.The price at which the call holder can buy the underlying security from the call writer
C.The price at which the call writer must buy the underlying securities from the call holder
D.The breakeven point for the holder of the option
B
The strike price for a call option is the price at which the call seller is obligated to sell the underlying security to the call holder if the option is exercised. When the call option hits the strike price, it is said to be in the money; however, the call holder is not obligated to buy the underlying securities when they reach the strike price. Additionally, the strike price added to the option’s premium, and not simply the strike price, is the breakeven point for both the holder and writer of a call option. Finally, the strike price for a put option, and not a call option, is the price at which the call writer must buy the underlying securities from the call holder when the put is exercised.
A particular issuer of bonds chooses to engage a managing underwriter under a negotiated, firm-commitment underwriting contract. The underwriter chooses to sell the bonds using a selling group rather than a syndicate. Who bears the financial risk of unsold bonds?
A. Selling group members
B.The issuer
C.The institutional investors
D.The managing underwriter
D
Instead of forming a syndicate, an underwriter may choose to form a selling group. A selling group member has no obligation to buy the bonds. The financial risk of unsold bonds is borne entirely by the managing underwriter when a selling group is used in lieu of a syndicate.
If a mutual fund purchaser signs a letter of intent in order to take advantage of a breakpoint discount, how long does he have to buy enough shares to reach the breakpoint?
A. 13 months
B.25 months
C.90 days
D.9 months
A
If an investor plans to reach a breakpoint within the next 13 months, he can write a letter of intent (LOI) to his broker. The LOI is a signed, nonbinding statement of the investor’s intent to invest enough over the next 13 months to reach the breakpoint. In response, the broker will charge the investor the discounted sales charge on current purchases. The additional shares the customer is able to purchase due to the discount will be held aside by the mutual fund until the customer actually reaches the breakpoint.
Which of the following investors would be most subject to inflation risk?
A. Kim, whose portfolio is a mix of blue chip and small cap stocks
B.Bill, whose portfolio is composed primarily of U.S. Treasury bonds
C.Steve, whose portfolio consists mainly of U.S. Treasury bills
D.Sarah, 75% of whose portfolio consists of dividend-paying stocks
B
Fixed-income investors are more exposed to inflation risk than equity investors. Thus, both Steve and Bill will be exposed to this type of risk. However, the degree of inflation risk is higher for longer term investments. Since Steve’s portfolio consists of treasury bills that have a maximum term of just one year and Bill’s treasury bonds mature in 20 or 30 years, Bill’s portfolio is exposed to more inflation risk than Steve’s.
Which of the following pay interest on a semiannual basis?
A. Treasury bills
B.Treasury bonds
C.STRIPS
D.Treasury stock
B
Treasury bonds pay interest semiannually (twice a year). In contrast, Treasury bills are bought at a discount and redeemed for par value at maturity. STRIPS are long-term zero coupon bonds consisting of U.S. Treasury securities. As zero-coupon bonds, they are bought at a discount and then redeemed for par value at maturity. Finally, treasury stock is issued stock that is repurchased by the issuing company. It is not issued by the U.S. Treasury and pays neither dividends nor interest.
Of the following, which is the correct definition for open market operations?
A. When the Fed buys and sells U.S. treasury bonds on the primary market
B.When the Fed buys and sells foreign bonds on the secondary market
C.When the Fed buys and sells foreign bonds on the primary market
D.When the Fed buys and sells U.S. treasury bonds on the secondary market
D
Open market operations is when the Fed buys and sells U.S. treasury bonds on the secondary market. Open market operations (OMOs)--the purchase and sale of securities in the open market by a central bank--are a key tool used by the Federal Reserve in the implementation of monetary policy. The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC). Historically, the Federal Reserve used OMOs to adjust the supply of reserve balances so as to keep the federal funds rate--the interest rate at which depository institutions lend reserve balances to other depository institutions overnight--around the target established by the FOMC.
Limited liability means that a common shareholder:
A. Can never lose his entire investment
B.Can never lose an amount in addition to his entire investment
C.Is guaranteed to lose no less than a designated percentage of his investment
D.Cannot be charged any more than a designated amount in addition to his initial investment
B
A defining feature of a corporation is that it offers limited liability to its investors, meaning that investors are held liable for only the amount of money they invest in the company. This means that investors’ other assets are not at risk for the company’s debts; nor are investors personally liable for any lawsuits that might be brought against the company. The most they can ever lose by the purchase of a company’s stock is its purchase price.
Registered persons must complete the regulatory element of their continuing education no later than:
A. Three years after their initial registration date
B.The end of each year
C.Five years after their initial registration date
D.Two years after their initial registration date
B
The regulatory element of continuing education requires that all registered persons complete a computer-based training session by the end of each year. The content of the regulatory element is determined and provided by FINRA and is appropriate to the class of registered representative or principal. If a person does not complete the regulatory element during the prescribed period, the person’s license will become inactive, and they will not be able to perform any of the activities that require registration, and they will not be compensated for any of those activities.
Note that prior to 2023, a registered person was required to complete the regulatory element no later than 120 days after the second anniversary of their registration date and then every three years thereafter.
At withdrawal, pre-tax contributions and earnings in a traditional IRA are:
A. Taxed at the investor’s long-term capital gains rate
B.Not taxed
C.Not taxed if the investor is at least 59½ years old
D.Taxed at the investor’s ordinary income rate
D
Contributions to a traditional IRA are usually made with pre-tax dollars, and thus they are taxed upon withdrawal. Additionally, although earnings in an IRA grow tax free, they are taxed upon withdrawal. Taxation of both pre-tax contributions and earnings occurs at the investor’s ordinary tax rate, and the investor’s age has no bearing on whether or not his withdrawals will be taxed.
Front-running refers to the practice of:
A. Trading ahead of a customer’s block order
B.Trading ahead of research reports
C.Inter-positioning
D.Trading ahead of marketable customer orders
A
Front-running is the practice of trading for one’s own account in front of a large customer trade (for example a block trade of 10,000 or more shares), because you believe the order will impact the market price of the security. It is a form of insider trading.
Which corporate voting procedures entitles a shareholder to one vote per share, and votes must be divided evenly among the candidates being voted on?
Statutory voting
What market refers to the trading of exchange-listed securities in the over-the-counter market? These trades allow institutional investors to trade blocks of securities directly, rather than through an exchange, providing liquidity and anonymity to buyers.
Third Market
The term ‘disclaimer’ is most often associated with
A) The fact that no agent can guarantee a customer against loss
B) The fact that unregistered securities are more risky than registered ones
C) The fact that the government cannot guarantee the accuracy of the information in a prospectus
D)None of the above
C
The SEC reviews the information in a registration statement, it does not approve or disapprove of the information, nor does it guarantee the accuracy of the information disclosures. Therefore no sales agent can say to a prospect that these are ‘government approved’ securities.
SIPC, the securities investor protection corporation is:
A) An insurance entity which protects investors investments again market losses up to $500,000
B) An insurance entity which protects investors who are sold worthless securities
C) A Congressional guarantee against losses in the securities markets
D)None of the above
D
SIPC was set up to protect customer ACCOUNTS in the event of a broker-dealer bankruptcy, not protect investments against loss. Be careful of the wording in this question. Cash & securities in customer accounts are ‘insured’ up to $500,000 in the event the B/D goes bankrupt and the cash and securities can’t be located and properly returned to the customer.
In most cases, Federal Securities Laws:
A) Supersede State securities laws
B) Are subordinate to State securities laws
C)Are given the same weight as State securities laws
D)None of the above
A
Federal securities laws typically supersede State laws.
Which of the following are not considered money market securities?
A) T-bills
B)Commercial Paper
C)Reverse Repos
D)ADRs
D
Since the ‘money market’ includes short term debt instruments only, and since ADRs represent ownership (equity) in foreign stocks, ADRs are not debt.
When a corporation goes public, it is issuing:
A) Common stock
B) Preferred stock
C) Convertible bonds
D) Any of the above
A
Going public means sharing equity ownership (common stock) with public investors, for the first time (Initial public offering, IPO).
The term ‘issuer’ most often refers to:
A) A corporation seeking to raise additional capital for expansion or modernization purposes
B) A business which prints up securities certificates such as bonds and stocks
C) A business which has satisfied the listing requirements of one or more approved stock exchanges
D) A business, a municipality, or a federal governmental entity which is seeking to raise capital from the sale of securities.
D
Whether one considers answers A, B, or C partially accurate, the last answer, D is the most complete therefore best answer.
Every publicly-traded corporation is required to have a transfer agent and a registrar. The primary distinction between the two is:
A) They are not different --- they perform the same function
B) The registrar keeps the record of all stock and bond holders
C) The transfer agent transmits the payment for securities from the purchaser to the seller in all secondary market trades.
D) The transfer agent ensures that dividend payments go out to all registered owners of record on the payable date.
D
This is one of the functions of a Transfer Agent. Registrars make sure that a company does not issue more shares than authorized in the Charter.
One of the more attractive features of common stock is that:
A) One cannot lose more than one's investment
B) The stockholders have the right to vote on quarterly dividends
C) The stockholders have the right to choose Officers
D) Any of the above
A
You cannot lose more than you’ve put at risk. A common stockholder cannot be held liable for any debts of the corporation, therefore they have limited liability.