Chapter 17
This chapter is where you get your chance to shine like a star.
This practice exam has 125 questions in random order, just as they are in the actual Series 7 exam. Please read carefully — many test-takers make careless mistakes because they miss key words or read too quickly. Focus on the information you do need to know and ignore the information that you don’t need. Read the last sentence twice to make sure you know what the question is asking.
Mark your answers on the answer sheet provided or on a separate piece of paper. You may use a basic calculator and scrap paper for notes and figuring. As you’re taking the exam, be sure to circle the questions you find difficult. This step can help you determine what you really need to review.
To simulate the real exam, try to finish in three hours or less. Please resist the urge to look at the answers and explanations as you work through the exam; save the grading for later. After you finish, check your answers (you can find the answers and detailed explanations in Chapter 18 along with an answer key at the end of that chapter). You should thoroughly review your questions and explanations before proceeding to the next practice exam (Chapter 19).
Good luck!
1. If a bond’s YTM is 6 percent, which of the following would MOST likely be refunded by the issuer?
(A) I and II
(B) II and IV
(C) II only
(D) IV only
2. Which of the following have ownership positions in a corporation?
(A) II and III
(B) I, II, III, and IV
(C) II and IV
(D) II only
3. Common stockholders of PXPX Corporation have which of the following rights and privileges?
(A) The right to receive an audited financial report weekly
(B) The right to vote for cash dividends to be paid
(C) A residual claim to assets at dissolution
(D) The right to vote for stock dividends to be paid
4. Which of the following types of preferred stock allows the investor to reduce inflation risk?
(A) Cumulative
(B) Noncumulative
(C) Convertible
(D) Participating
5. CSA common stock presently has an earnings per share of $3 and pays a $0.30 quarterly dividend. If CSA’s market price is $48, what is the current yield?
(A) 0.67 percent
(B) 2.5 percent
(C) 5.0 percent
(D) 5.25 percent
6. Which of the following U.S. government securities are quoted on a discount yield basis?
(A) Treasury bills
(B) Treasury bonds
(C) Treasury notes
(D) Both A and C
7. On Wednesday, March 16, one of your customers purchases ten 6 percent Treasury bonds maturing in 2030. If the bonds pay interest on January 1 and July 1, how many days of accrued interest are added to the purchaser’s price?
(A) 75
(B) 76
(C) 79
(D) 80
8. Jake Hanson lives in New York and is considering purchasing a bond. He has settled on either a 5 percent municipal bond offered by New York or a 7 percent corporate bond offered by The Greenhorn Corporation, which has headquarters in New York. Jake needs some guidance and would like you to help him determine which bond will provide him with the greatest return. Which of the following information do you need to obtain before you can make the appropriate recommendation?
(A) The business of his employer
(B) His current tax bracket
(C) How long he has lived in New York
(D) His other holdings
9. An investor who is long a call option will realize a profit if exercising the option when the underlying stock price is
(A) below the strike price minus the premium paid
(B) above the strike price
(C) above the strike price plus the premium paid
(D) below the strike price
10. One of your clients is new to investing and has limited resources. Which of the following investments would you least likely recommend to this investor?
(A) Growth funds
(B) T-bills
(C) Blue-chip stock
(D) Collateralized debt obligations
11. Which of the following is required on the registration statement for a new issue?
(A) I, II, and III
(B) I, III, and IV
(C) I, II, and IV
(D) I, II, III, and IV
12. Under the Securities Act of 1933, which of the following securities must be registered with the SEC?
(A) Closed-end funds
(B) Variable annuities
(C) Open-end funds
(D) All of the above
13. Which of the following are exempt transactions?
(A) I and IV
(B) III and IV
(C) I, II, and III
(D) I, II, III, and IV
14. A customer’s confirmation must include
(A) I and III
(B) II and IV
(C) I, III, and IV
(D) I, II, III, and IV
15. Which of the following would qualify as management companies?
(A) Mutual funds
(B) Unit investment trusts
(C) Closed-end funds
(D) Both A and C
16. Which of the following is TRUE regarding qualified retirement plans?
(A) Contributions are made with 100 percent pretax dollars.
(B) Contributions are made with 100 percent after-tax dollars.
(C) Distributions are taxable only prior to age 59½.
(D) Distributions are subject to a 10 percent penalty.
17. Variable annuities must be registered with the
(A) I and II
(B) I and III
(C) I and IV
(D) III and IV
18. All of the following items must be included on a trade confirmation EXCEPT
(A) the customer’s account number
(B) the customer’s signature
(C) the price of the security
(D) the commission, if the trade took place on an agency basis
19. The safeguarding of customer's non-public information is covered under
(A) Regulation T
(B) Regulation D
(C) Regulation A
(D) Regulation S-P
20. An agent’s recommendations to a customer
(A) I and IV
(B) II and III
(C) II, III, and IV
(D) I and II
21. If one of your clients wants to order municipal securities that you believe to be unsuitable for her investment objectives, what should you do?
(A) Execute the order as long as you mark the order ticket as “unsolicited.”
(B) You must refuse the order unless the client changes her investment objectives.
(C) You must obtain the permission of the firm’s compliance officer before executing the order.
(D) You may only execute the order with prior permission of a principal of the firm.
22. Mr. T. Jefferson bought ten municipal bonds at 105 with ten years to maturity. Three years later, he sold the bonds for 102. His tax consequence is a
(A) $150 gain
(B) $150 loss
(C) $300 gain
(D) $300 loss
23. Qualified cash dividends are currently taxed at which rates?
(A) I and II
(B) I, III, and IV
(C) III and IV
(D) II, III, and IV
24. All broker-dealers need to maintain customer identification programs and should check the names of all new clients against
(A) a list maintained by the SEC
(B) a do-not-call list maintained by the firm
(C) a list compiled by FINRA
(D) a list of specially designated nationals (SDNs) maintained by OFAC
25. Which of the following statements is NOT true of life-cycle funds?
(A) As life-cycle funds get nearer to their target date, the portfolio holdings will be adjusted to purchase more equity securities and less fixed-income securities.
(B) These funds are usually set up as funds of funds.
(C) The asset allocation of the fund will be rebalanced on a regular basis to make sure that the risk/reward balance is correct given the target date of the fund.
(D) The objective of the fund assumes that most investors cannot tolerate as much risk as they get older.
26. Mutual fund account statements must be sent out at least
(A) monthly
(B) quarterly
(C) semiannually
(D) annually
27. Which of the following securities are subject to systematic risk?
(A) I and II
(B) II and III
(C) I and III
(D) I, II, and III
28. Secured bonds include
(A) I and II
(B) I and III
(C) III and IV
(D) I, II, III, and IV
29. This type of municipal fund security is also know as a qualified tuition plan.
(A) ABLE accounts
(B) LGIPs
(C) Section 529
(D) TANs
30. An investor with no other position in XYZ writes 1 XYZ Aug 30 put at 2.75. If the put option is exercised when XYZ is trading at 27.50 and the investor immediately sells the stock in the market, what is his gain or loss?
(A) $25 gain
(B) $25 loss
(C) $250 gain
(D) $250 loss
31. Mrs. Smith purchases 100 shares of ABC at 35 and writes a 40 call at 5.50. If ABC stock increases to 60 and the call is exercised, Mrs. Smith has a
(A) $2,500 gain
(B) $3,050 loss
(C) $2,000 loss
(D) $1,050 gain
32. Which of the following are factors that affect the marketability of municipal GO bonds?
(A) I and II
(B) II and III
(C) I, II, and III
(D) I, II, III, and IV
33. If a customer wants to open a new account but refuses to provide some of the financial information requested by the member firm, which of the following statements is TRUE?
(A) The firm may open the account for the customer and make recommendations freely.
(B) The firm may open the account if it can determine from other sources that the customer has the financial means to handle the account.
(C) The firm may open the account and take unsolicited trades only.
(D) The firm may not accept any trades for the account until the information is received from the customer.
34. Mr. Mayvis has a margin account with a current market value of $20,250 and a debit balance of $3,000 with Regulation T at 50 percent. How much excess equity does the investor have in the account?
(A) $20,250
(B) $3,000
(C) $17,250
(D) $7,125
35. Which of the following is included in a preliminary prospectus?
(A) I and II
(B) I, II, and III
(C) II and IV
(D) I, II, III, and IV
36. Which of the following is true of accredited investors?
(A) They have had an annual income in excess of $200,000 for at least the last three years.
(B) They have had an annual income in excess of $100,000 for at least the last two years.
(C) They have a net worth of at least $1,000,000, excluding any equity they have in their primary residence.
(D) They have a net worth in excess of $200,000.
37. ADMM acts as a
(A) broker and dealer
(B) broker only
(C) dealer only
(D) neither a broker nor dealer
38. The maximum potential gain for a long combination is
(A) the premiums received
(B) the average of the call strike price and put strike price multiplied by 100 shares
(C) the difference between the call strike price and the put strike price multiplied by 100 shares
(D) unlimited
39. The SEC and FINRA require customer statements to be sent out for inactive accounts at least
(A) monthly
(B) quarterly
(C) semiannually
(D) annually
40. Which of the following securities is traded on an exchange and is an entity that makes mortgage loans to developers and has a portfolio of properties?
(A) DPPs
(B) ETNs
(C) Hybrid REITs
(D) Mutual funds
41. Which of the following are needed to open a margin account for a corporation?
(A) I and II
(B) I and IV
(C) III and IV
(D) I, II, III, and IV
42. The Municipal Bond Index is
(A) the average yield on 25 revenue bonds with 30-year maturities
(B) the average yield on 20 selected municipal bonds with 20-year maturities
(C) the average dollar price of 40 highly traded GO and revenue bonds
(D) the average yield on 11 selected municipal bonds with 20-year maturities
43. Which of the following oil and gas DPPs has the highest capital appreciation potential?
(A) Exploratory
(B) Developmental
(C) Income
(D) Combination
44. Martina Martin is new to investing but has determined that her primary objective is making sure that she is prepared for retirement. Which of the following is the MOST important factor for you to consider when helping her set up her investment portfolio?
(A) Age
(B) Net worth
(C) Education level
(D) Previous investment history
45. An investor buys 100 shares of common stock of T-Prompters, Inc. at $15 per share. Six months later, T-Prompter, Inc. is trading at 12.40–12.65, and the registered representative offers to purchase the 100 shares back from the investor for his own account at $15 per share. This procedure is
(A) permitted by FINRA rules
(B) permitted with the written permission of a manager of the firm
(C) prohibited because it violates the Code of Procedure
(D) prohibited because it is a guarantee against a loss
46. Which of the following is rated by most securities rating services?
(A) Market risk
(B) Investment risk
(C) Quantity
(D) Quality
47. Under federal law, stock CANNOT be tendered from which of the following accounts?
(A) Short margin accounts
(B) Margin accounts with no excess equity
(C) Cash accounts
(D) Long margin accounts
48. Which of the following items are required on an order ticket?
(A) I, III, and IV
(B) I and III only
(C) I, II, and IV
(D) I, II, III, and IV
49. Which of the following are important factors when determining the markup or commission on a municipal bond trade?
(A) I and II
(B) I and III
(C) II and III
(D) I, II, and III
50. When compared to statutory voting, cumulative voting provides an advantage to
(A) I only
(B) II and IV
(C) III only
(D) II and III
51. Which of the following is NOT a benefit of investing in ADRs?
(A) The dividends are received in U.S. currency.
(B) The transactions are done in U.S. currency.
(C) ADRs are subject to antifraud rules.
(D) Currency risk is minimized.
52. CMOs are typically rated
(A) AAA
(B) AA
(C) BBB
(D) SP1
53. All of the following are types of state securities registration EXCEPT
(A) Notification
(B) Coordination
(C) Qualification
(D) Quantification
54. Keith Coalburner has written a letter of complaint regarding his recent purchase of municipal bonds to his broker-dealer. Upon receipt of the complaint, the broker-dealer must first
(A) immediately repurchase the securities at a price at or slightly above Keith’s purchase price
(B) guarantee to make the customer whole
(C) return any markup or commission charged
(D) accept the complaint and write down any action taken
55. An online site that provides detailed information to nonprofessional investors relating to municipal securities, including up-to-the-minute prices, is called
(A) The Blue List
(B) OPRA
(C) EMMA
(D) NASDAQ
56. Under which of the following circumstances would an investor face an unlimited maximum loss potential?
(A) I and II
(B) I and III
(C) II and III
(D) II and IV
57. A registered representative executes the following trades for a speculative investor:
Are these trades suitable for this investor?
(A) It is impossible to tell with the information given.
(B) Probably not, because the risk is not high enough for a speculative investor.
(C) Yes, buying and selling options are always appropriate for speculative investors.
(D) No, because it is impossible to make a profit with these positions.
58. Fred Freedom has held 100 shares of UPP stock for six months and decides to purchase a nine-month call on UPP. If the UPP call option expires and Fred decides to sell the UPP stock four months after the expiration of the call, what is Fred’s tax position?
(A) Short-term capital gain or long-term capital loss
(B) Long-term capital gain or short-term capital loss
(C) Long-term capital gain or long-term capital loss
(D) Short-term capital gain or short-term capital loss
59. John Dow and Jane Dough, who are engaged but unmarried, want to open a new account registered as joint tenants with rights of survivorship. Which of the following should occur?
(A) A principal of the firm should be notified immediately about the account registration so that a report can be filed with FINRA.
(B) The agent must refuse to open the account.
(C) The agent must notify a principal of the firm and a report must first be filed with the SEC.
(D) The agent may open the account, but should first discuss the rules of a JTWROS account with the unmarried couple.
60. Advertisements including recommendations must include all of the following EXCEPT
(A) If the firm is a market maker in the security being recommended
(B) If the firm acted as an underwriter in a recent public offering of the security being recommended
(C) If the firm participated in the selling group for a recent public offering of a security
(D) If partners of the firm hold options or warrants to buy the security being recommended
61. If a client has a margin account with $18,000 in securities and a debit balance of $7,000, and Regulation T is 50 percent, which of the following statements is FALSE?
(A) The account has a buying power of $4,000.
(B) If the client withdraws any excess equity, the debit balance decreases by the amount of the withdrawal.
(C) The account has excess equity of $2,000.
(D) The securities held in the account most likely increased in value.
62. Which type of margin account requires a minimum equity of $25,000?
(A) A portfolio margin account
(B) A short account
(C) A day-trading account
(D) A corporate account
63. Prior to buying or selling options, a customer must first receive a(n)
(A) ODD
(B) OCC
(C) margin agreement
(D) OPRA
64. Priority, precedence, and parity rules of bids and offers dictate trading activity on the
(A) OTC pink market
(B) fourth market
(C) New York Stock Exchange
(D) OTC market
65. Who maintains a fair and orderly market on the New York Stock Exchange trading floor?
(A) Floor brokers
(B) Two-dollar brokers
(C) Designated market makers
(D) Order book officials
66. Prior to a customer opening an options account, he or she must receive a(n)
(A) credit agreement
(B) OCC
(C) OAA
(D) ODD
67. The settlement date for municipal bonds is
(A) T+1
(B) T+2
(C) T+3
(D) Up to 5 business days at the purchaser’s discretion
68. Regulation SHO covers
(A) margin requirements for municipal and U.S. government securities
(B) the short sale of securities
(C) margin requirements for commodities
(D) portfolio margining rules
69. Which of the following is NOT an advantage for a customer adding REITs to her portfolio?
(A) Having a professionally managed portfolio of real estate assets
(B) Preferential dividend treatment
(C) Being able to use a REIT as a potential hedge against a negative price movement in other equity securities
(D) Liquidity
70. All of the following items would be found on the official statement of a municipal bond issue EXCEPT
(A) the markup
(B) a description of the issuer
(C) the coupon rate
(D) a legal opinion
71. Which of the following are true about the annuitization of a variable annuity?
(A) I and II
(B) II and III
(C) II and IV
(D) None of the above
72. Which of the following investments requires a registered representative to obtain written verification of an investor’s net worth?
(A) Hedge funds
(B) Variable annuities
(C) Direct participation programs
(D) Triple-tax-free municipal bonds
73. One of your clients is interested in purchasing a stock with a beta of 1.6. You can tell him that
(A) the stock is equally as volatile as the market
(B) the stock is less volatile than the market
(C) the stock is more volatile than the market
(D) cannot be determined
74. A head and shoulders bottom formation indicates
(A) the reversal of a bullish trend
(B) the reversal of a bearish trend
(C) that the stock is moving sideways
(D) that it might be a good time to sell short
75. Michael Moneybags purchased 1,000 shares of WOW common stock at $26 per share. Six months later, WOW is trading at $60 and Michael expects a slight decline in the market price for a short period of time. However, Michael has a lot of confidence that WOW is a great company and he remains bullish on WOW’s common stock overall. Providing Michael is correct in his assessment, which of the following positions would provide Michael a level of protection while still being able to generate additional income?
(A) Sell 1,000 WOW short and purchase 10 WOW Dec 65 calls for $300 each
(B) Buy 10 WOW straddles at 60
(C) Sell 10 WOW Dec 65 calls for $300 each and place a 1,000-share sell-stop order for WOW at 57
(D) Buy 10 WOW Oct 60 puts for $500 each
76. One of your customers purchases 100 shares of ARGH at 44.10 and 1 OEX Sep 360 put at 4.50. A few months later, ARGH is trading at 42.55 and the OEX index is trading at 349. If your customer closes the stock position and exercises his OEX put, what is his gain?
(A) $155
(B) $495
(C) $1,100
(D) $35,395
77. All-or-none orders must be
(A) executed in their entirety immediately or the order is cancelled
(B) executed in their entirety or the order is cancelled
(C) at least partially executed immediately or the order is cancelled
(D) at least partially executed or the order is cancelled
78. To process an ACAT, a brokerage firm must be a member of the
(A) FINRA
(B) NSCC
(C) SIPC
(D) DRS
79. All of the following increase SMA in a long account EXCEPT
(A) I and III
(B) II and IV
(C) I, III, and IV
(D) II, III, and IV
80. DEF Corporation issued stock to the public at $9 per share. If the manager’s fee was $0.15 per share, the takedown was $0.50 per share, and the concession was $0.30 per share, what was the spread?
(A) $0.45
(B) $0.65
(C) $0.80
(D) $0.95
81. Which of the following customer orders are discretionary?
(A) I and II
(B) II and III
(C) I and III
(D) I, II, and III
82. Which of the following is true regarding dark pools of liquidity?
(A) I and IV
(B) I, III, and IV
(C) I, II, and III
(D) II and III
83. Mutual funds must send financial statements to shareholders at least
(A) monthly
(B) bimonthly
(C) quarterly
(D) semiannually
84. Which of the following needs to be filled out on a new account form?
(A) I and II
(B) I, II, and III
(C) I, II, and IV
(D) I, II, III, and IV
85. What is the minimum amount of assets your client must have in order to establish a prime brokerage account?
(A) $100,000
(B) $500,000
(C) $1,000,000
(D) $5,000,000
86. Investing in a real-estate DPP program includes which of the following advantages?
(A) I and II
(B) III and IV
(C) I, II, and IV
(D) I, II, III, and IV
87. A client owns a large amount of Treasury bonds and long-term investment grade corporate bonds. His main risk concern should be
(A) credit risk
(B) inflationary risk
(C) systematic risk
(D) timing risk
88. If LMN common stock has a $2.20 dividend, a current yield of 5.0%, a PE ratio of 6, and is trading at $44, its approximate earnings per share is
(A) $0.44
(B) $2.73
(C) $7.33
(D) $8.80
89. PE ratio equals
(A) the market price divided by the earnings per share
(B) annual dividends per common share divided by the market price
(C) annual dividends per common share divided by the earnings per share
(D) net income minus preferred dividends divided by the number of common shares outstanding
90. An investor owns the following investments:
What type of diversification does this represent?
(A) Maturity
(B) Quality
(C) Quantity
(D) Geographical
91. A customer buys 1 DUD Jun 55 put at 4.50 when DUD is trading at 53.40. Just prior to expiration, the option is trading at 4.55 bid-4.65 asked. If the customer closes his position with a market order, what is the gain or loss?
(A) $5 gain
(B) $5 loss
(C) $160 gain
(D) $160 loss
92. An investor has shorted XYZ common stock at 55. XYZ common stock has recently dropped to 30 and the investor expects that the price will continue to decrease over the long term. If the investor would like to hedge against a possible increase in the price, the investor should
(A) buy an XYZ call
(B) sell an XYZ call
(C) buy an XYZ put
(D) buy an XYZ combination
93. Grant Goldbarr purchased 1 ABC 60 put at 3.50 and purchased 100 shares of ABC at 62. Six months later, with ABC trading at 64, Grant closes his put for 0.75 and sells his stock at the market price. What is Grant’s gain or loss as a result of these transactions?
(A) $75 loss
(B) $75 gain
(C) $275 loss
(D) $275 gain
94. If an investor buys a three-year LEAPS contract on issuance, which expires unexercised, what is the investor’s tax consequence at expiration?
(A) Short-term capital loss
(B) Long-term capital gain
(C) Long-term capital loss
(D) Short-term capital gain
95. A customer, without giving written authorization, may permit a registered representative to exercise his judgment as to
(A) whether to buy or sell
(B) the security
(C) the price and timing to enter the order
(D) the number of shares
96. Which of the following are nonexempt securities?
(A) I and II
(B) III only
(C) III and IV
(D) I, II, and III
97. If Buddy Seagull has a limited amount of funds and wants to invest in the pharmaceutical industry but does not want to limit his investments to only one or two companies, which type of fund would be MOST suitable?
(A) A hedge fund
(B) A sector fund
(C) A balanced fund
(D) A money-market fund
98. What is the principal tax benefit for investing as a limited partner in an exploratory oil and gas drilling program?
(A) Tax credits
(B) Depreciation expenses
(C) Recourse loans
(D) Intangible drilling costs
99. One of your 60-year-old clients has a portfolio that consists of 60% invested in stocks, 30% in bonds, and 10% in cash equivalents. Using a standard strategic asset allocation model, he should:
(A) sell some of his bonds and purchase more stocks
(B) sell some of his stocks and purchase more bonds
(C) sell his cash equivalents and purchase more stocks and bonds
(D) cannot be determined with the information given
100. Ginny Goldbarr purchased 2 LMN 50 calls and paid a premium of 3 for each option. Ginny also purchased 2 LMN 50 puts and paid a premium of 2 for each option. At the time of purchase, LMN was trading at $50.25. Just prior to expiration, LMN was trading at $44.50, and Ginny decided to close her options for their intrinsic value. Excluding commission, Ginny had a
(A) $50 profit
(B) $50 loss
(C) $100 profit
(D) $100 loss
101. You have a new client who is in a high tax bracket and is looking for investments with a tax advantage. Which of the following securities would you LEAST likely recommend?
(A) Municipal bonds
(B) Collateralized mortgage obligations
(C) Retirement plans
(D) Direct participation programs
102. An investor wants to generate some income on a stock that she believes will remain at relatively the same price for the next year or so. Which of the following option positions would meet her goal?
(A) Buying a combination
(B) Writing a straddle
(C) Buying a call
(D) Buying a put
103. Adjustable-rate preferred stock has a dividend that adjusts according to
(A) prevailing interest rates
(B) the amount of dividend given to common stockholders
(C) the coupon rate on the issuer’s bonds
(D) the rate on CMOs
104. Regulation SHO covers the
(A) resale of restricted securities
(B) short sale of securities
(C) resale of ETFs
(D) margin requirement for listed options
105. Which of the following items are found on an indenture of a bond?
(A) II, III, and IV
(B) I, II, and III
(C) II and III
(D) I, II, III, and IV
106. As part of the USA Patriot Act of 2001, all financial institutions must maintain:
(A) Customer Identification Programs
(B) a fidelity bond
(C) SIPC coverage
(D) All of the above
107. Which of the following are important to investors evaluating direct participation programs?
(A) I, II, and III
(B) I, II, and IV
(C) II, III, and IV
(D) I, II, III, and IV
108. What is the required beginning date (RBD) for traditional IRAs?
(A) The year after the investor reaches the age of 59½
(B) The year the investor turns the age of 70½
(C) April 1st of the year after the investor reaches the age of 70½
(D) April 15th of the year after the investor reaches the age of 70½
109. The initial maturity for Treasury Inflation Protected Securities is
(A) 2, 3, 5, 7, and 10 years
(B) 10 to 30 years
(C) 6 months to 30 years
(D) 5, 10, and 30 years
110. One of your clients is expecting to receive a lot of money over the next three years. Your client would like to shelter some of that money by investing in a DPP. Which of the following types of DPPs will help your client shelter the most money?
(A) Oil and gas income
(B) Oil and gas developmental
(C) Oil and gas combination
(D) Oil and gas wildcatting
111. Which of the following governmental bodies receives no revenue from ad-valorem taxes?
(A) County governments
(B) State governments
(C) School districts
(D) Local municipalities
112. According to MSRB rules, a customer confirmation must include
(A) the markup or markdown
(B) the location of the indenture
(C) the maturity date
(D) whether the trade was done on an agency or dealer basis
113. John believes that the market is about to become bearish and would like to be able to profit in the event that he is correct. Which of the following investments would meet John’s needs?
(A) I and II
(B) II and IV
(C) I, II, and III
(D) I, II, and IV
114. Ferret Enterprises pays a quarterly dividend of $0.25 per share and has an EPS of $2.50. What is the dividend payout ratio?
(A) 10 percent
(B) 40 percent
(C) 57 percent
(D) 100 percent
115. Gerry Goldbar purchases a new OID municipal zero-coupon for 80. If Gerry holds the bond to maturity, what is his tax consequence?
(A) $0
(B) $200 ordinary income over the time the bond is held to maturity
(C) $200 capital gain
(D) None of the above
116. Which of the following securities are exempt from the Trust Indenture Act of 1939?
(A) I, II, and III
(B) I, II, and IV
(C) I and III
(D) II and IV
117. Which of the following disputes must be resolved using the Code of Arbitration?
(A) IV only
(B) II and IV
(C) I and III
(D) I, III, and IV
118. Duke Wallwalker purchased an LTSBR Corporation convertible bond at 95 on January 20, 2018. The bond is convertible at $40, and the investor converts his bond into stock on January 21, 2021. If the bond is trading at 104 and the common stock is trading at $42, for tax purposes, these transactions will result in
(A) a $10 gain
(B) a $10 loss
(C) a $90 gain
(D) neither a gain nor a loss
119. XYZ is currently trading at 24.10–24.25. A designated market maker in XYZ could enter a bid at which of the following prices?
(A) 24.10
(B) 24.12
(C) 24.25
(D) 24.27
120. RANs, BANs, TANs, and CLNs are issued by municipalities seeking
(A) to insure their municipal securities
(B) the approval of the SEC
(C) long-term financing
(D) short-term financing
121. If an official statement has a dated date of May 1st, but the first coupon payment is set at December 1st, it means that the first payment is a
(A) long coupon
(B) mistake printed on the official statement
(C) short coupon
(D) normal payment for a seven-month bond
122. Which of the following statements regarding municipal revenue bonds is NOT true?
(A) Revenue bonds are not subject to a debt ceiling.
(B) Revenue bonds may be issued by interstate authorities.
(C) The maturity date of the issue will usually exceed the useful life of the facility backing the bonds.
(D) Debt service is paid from revenue received from the facility backing the bonds.
123. One of your customers feels she was overcharged for a trade and sends your firm a written complaint. What must happen with regards to the complaint?
(A) The complaint must be forwarded to the SEC.
(B) The complaint must be handled by a principal.
(C) The overcharged amount in dispute must be credited to the customer's account until a decision has been reached.
(D) The complaint must be forwarded to the arbitration committee.
124. All of the following may be sources of revenue for a revenue bond EXCEPT
(A) property taxes
(B) user fees
(C) tolls
(D) airports
125. One of your clients would like to add some municipal bonds to his portfolio. Since your client has enough cash to diversify, you should let him know that some of the ways he could diversify would be
(A) II, III, and IV
(B) I, III, and IV
(C) I and II
(D) II and IV