Simulation Test Answers Series 7

Simulation Test Answers Series 7 1. According to the FINRA rules on Prviate Security transactions. An asso- ciated person entering into a series of private transactions without compen- sations must provide to the member firm all of the following except: A written notice on each transaction 2. Long 1000 Shares at 20, short 1000 shares at 10, What is the minimum maintenance on these positions?: $10,000 3. Bill took a loan against his variable life policy several years ago. Because of poor investment performance the policy's cash value has dropped to a negative value, what are Bill's options?: He has 31 days to pay back enough of the loan to bring the cash value positive. 4. According to MSRB rules, a control relationship exists between a munic- ipal b/d and an issuer when: An officer of the underwriter is in a position of authority over the issuer 5. An account under the UGMA earned $8500 in interest income from bonds. Minor is 13 y/o. How is this interest income taxed?: A portion is taxed at the minor's rate and a portion is taxed at the parent's rate 6. Is there a maximum award to a full arbitration hearing?: No 7. An investor wishes to invest $50,000 into a diversified portfolio of stocks, bonds and money market securities, he wants to shift the percentages invested in each category as market conditions change but does not believe he has the time or resources to make appropriate adjustments, which of the following mutual funds would best suit him?: Asset allocation fund 8. How are funds contributed to a 403(b) treated for taxation?: Not included as income for the employee but taxed as income upon distribution 9. The market value is $12,000. Debit balance is $5500, what is the buying power?: $1000 10. Variable life policy provisions allow for: Changing among investment alter- natives in separate account with tax liabilities. Converting to a whole life policy 11. What is not included in a fund's prospectus?: The fund's current portfolio of securities 12. If the market price of the underwriting securities remains the same, which two investors will realize a loss? Buyer or Seller of at-the-money put. Buyer or seller of a straddle?: Buyer of put and straddle 13. A limited partner invests $10,000 in a DPP program and signs a recourse loan for $40,000. What's cost basis?: $50,000 14. A grandfather gifts $1 million to his grandson. Mother is in the 28% tax bracket and the son is less than 19 years old, Any unearned income is taxed to?: The mother at 28 percent 15. A municipal securities buys $500,000 of 6% revenue bonds at par. The dealer immediately re-offers the bonds. Under MSRB rules which of two of the following would be considered bona fide quotes under the circum- stances described? 4.10 net; 5.8, less 1/2; 101; 108: 5.8 less 1/2 and 101 16. a DPP and a REIT have which in common? Professional management; pass through of loss; pass through of gain; recourse debt: professional man- agement and pass through of gain 17. What do a DPP and a REIT have in common?: Central records keeping 18. What trades freely on an exchange or OTC? Real estate Limited Partner- ship; Master Limited; UIT; REIT: Master Limited Partnership 19. Duties of a transffer agent include: Maintain a record of shareholder Issuing new certificates Cancelling old certificiates 20. If yield curve is inverted, compare short term yields to long term yields- : Short term yields are higher than long term yields 21. If a mutual fund publishes investment performance charts the informa- tion presented must include: Maximum sales charges 22. on behalf of a client, you enter an order to write 5 ABC Jan 30 Puts this order is an: Opening Sell order 23. True or false: BANS are repaid from general tax collections and direct government obligations: False 24. What are the rights of a mutual share holder associated with the own- ership interests they hold in the company: Approval of investment advisory agreement Voting rights regarding company issues Election of board 25. After receiving an initial privacy notice, subsequent privacy notices should be provided to customers: Annually 26. True or False: Ginnie Mae offers timely payment of principal and interest guaranteed: True 27. True or False: Employees can make contributions to an SEP account: - False 28. Atlanta has $100 million of a existing debt and makes up 60% of Fulton County's assessed valuation. County's debt has $20 million. What is ATL's direct debt per capita assuming 2 million people: $50 29. The currency ratio is approximately the same as: Total working capital 30. True or false: There are liberal loan provisions for hardships in SIMPLE plans?: False 31. if the FRB switched from a tight money policy to easy, which of the following bonds would increase the most in price?: Long term bonds 32. What ratio would an analyst consider when evaluating a corporation's ability to service its debt?: Interest coverage ratio 33. The FRB is purchasing securities through open market, what are the likely effects on bonds and yields?: Bond prices increase, yields decrease 34. What securities act governs the variable annuity separate account?: In- vestment Company Act of 1940 35. Prior to writing an option in a newly-opened account, what must be completed and delivered?: Margin agreement and Options disclosure 36. As initial transaction in a margin account you sell 100 shares of XYZ at 30 and the market drops to 25, what is your equity?: $2500 37. If certain requirements are met a corporation can offer securities sold within the borders of one state using the Intrastate offering exemption also known as:: Rule 147 38. Sell short 100 shares of XYZ at 50 and sell a XYZ may 40 put for 3, what is the maximum loss?: Unlimited. The maximum loss for a covered put is unlimited due to a short sale of stock 39. Taxing and spending policies are: Keynesianism 40. A customer margin account has market value of $10,000, debit balance of $8000 and SMA of $1000. Margin call can be met with: $500 cash 41. A coffee producer, an OTC traded company did an APO, the prospectus must be delivered within: 40 days of the effective date 42. True or False: A written verification of a customer's financial conditions is required when purchasing a REIT: False 43. Which government agency offers highest monthly payment guaranteed?- : GNMA 44. A customer writes an XYZ May 70 call for 1 and purchases an XYZ May 60 call for 4. At what market price is every dollar of gain on the 60 call offset by a dollar of loss on the 70: 70 45. The corporate charter referred to as Articles of Incorporation Includes: - Name of the corporation, a statement of the debt structure of the corporation and the names and addresses of the directors 46. Your customer buys one XYZ 160 put at 10 and shorts one XYZ 150 put at 3. Which two words describe this spread: Debit Bearish 47. The 1975 MSRB act allows it: Create rules concerned with municipal se- curities recordkeeping and establish regulations requiring disclosure in sales of municipal new issues 48. Who would ensure that the number of shares printed on the stock cer- tificates are equal to the number of shares that are outstanding for the corporation: Registrar 49. XYZ stock has a market price of $62. Client writes an XYZ Sept 60 call for $5. A month later XYZ stock is $68. Client makes a closing purchase of the XYZ Sept 60 call at $10. What is his gain or loss?: $500 loss 50. Which partnership does not provide limited liability for the owners?: Real estate partnership 51. When a RR retires and his accounts are reassigned to a new representa- tion. What must the new rep do?: Must update client suitability 52. Which is true of Instinet?: Institutional investors trade on Instinet. Does not involve use of a broker/dealer 53. Alfred is long $276,000 in his portfolio. It has a beta of 1.25. He wants to hedge his position. The OEX S&P is at 230. Alfred should do what?: Buy 15 puts 54. An investors wants more detailed information than what he can find in the prospectus with respect to the calculation of the net asset value. This information can be found in: Statement of additional information 55. A market order to sell at the close is placed with a registered represen- tative. The resulting trade is executed and later confirmed to the customer at 14. The trade actually occurred at 13. What prices does the customer receive?: 13 56. Cash values in Variable life policies are required to be made available to the policyholder if the premium payments stop under what provision?: Non- forfeiture Provision 57. An RR of a NYSEfirm has written a research report and wishes to mail to the customer the RR cannot do so without the approval of: A supervisor analyst 58. Least active secondary market exists in: Commercial Paper 59. Triple witching involves the expiration of which of the following four times a years?: Equity options and Equity Options indexes 60. True of False: Number of shares and the growth stock are statements that correctly describe when an RR uses discretion: True 61. A prospectus is no longer valid after how long: 16 months 62. What type of annuity contract could act as a hedge against inflation or deflation?: Combination 63. Any retail communication relating to investment companies must be filed with FINRA within how many days of initial use?: 10 days 64. True or false: The Federal Reserve board regulates the OTC securities for which is or is not marginable. The FINRA regulates trading practices in the OTC market.: True 65. A customer has a portfolio of treasury securities. In order to increase investment income: Write calls 66. Which entity within a mutual fund's structure is responsible for customer name and address changes?: Transfer agent 67. True or false: Accounts payable are part of a corporation's capital struc- ture?: False 68. An order for a security trade that directs the broker to buy or sell "at the market" but only when a certain price level has been reached is known as: A stop order 69. When A stock crosses on the NYSE floor and then appears on the tape after execution, the transaction is a: Exchange distribution 70. Which type of investment company issues debt instruments that offer the investor a predetermined rate of interest?: Face amount certificates 71. Who has the responsibility to investigate the accuracy of the information contained in a DPP prospectus: Syndicator 72. True or false: Major users of the Interbank market are banks and large multi-national companies. The foreign currencies are usually traded in blocks of $1 and $ 5 million: True 73. How often must performance statistics in a prospectus be updated: Every 12 months 74. True or false: According to the FINRA the issuer selling shares below POP to the underwriter for its own account and giving syndicate members warrants that enable the purchase for the next 10 years at a set price are examples of unfair compensation: True 75. A limited partner exerts some control over partnership business activi- ties, which of the following are potential consequences?: Limited liability could be jeopardized 76. A customer purchased one XYZ July 50 put for $2.50 with the price of stock at $55. What is the maximum profit?: $4750 77. According to the MSRB rules what would not be considered advertising- : Listing of offerings, Preliminary and Final Official statements 78. In opening an options account, what doesn't need to be completed at the time of opening?: The received signed options agreement from the customer 79. The writer of a call opens with a premium of $8 and closes option positions at $0.25. What is the loss or gain?: 775 gain 80. In early may a customer buys 100 SOP at 27 and writes one SOP Oct 30 for 3. THis is his first option transaction and takes place in his cash account. What is breakeven and profit>: 24 and $600 81. GO index contains: 20 bonds with 20 years 82. You sell short 100 shares of ABC at 25 and buy an ABC june 25 call for 4. You close your position with ABC at 20 and the call premium at $1. What is gain or loss: Gain of $200 83. The cyclical and constantly fluctuating nature of interest rates has the most direct impact on: Market values of fixed income securities 84. ABC equity charges a 12b-1 fee. The fund's board of directors must be made up of at least: 51% unaffiliated directors 85. Buy 100 shares of XYZ at 24 and sell an XYZ Dec 25 call for 2. XYZ trading at 30, what's gain or loss?: Gain of $300 86. Which of the following is true regarding private securities for compen- sation? I. They must be approved by a person's member firm. II. They must be recorded on the member's firm boos. III. A person acts on behalf of the member firm: I, II, III 87. According to the MSRB, the following determine customer suitability: In- vestment experience, tax status, investment objectives and financial capacity 88. An investor is long XYZ stock at 50 and writes a 55 call for 3. What is the result when the investor closes his position at the current market price of 57?: $800 gain 89. A RR of a managing underwriter enters an order for the broker/dealer's customer's account. What priority will it have?: Member 90. True or False. A written letter is an appropriate method a customer can use to opt out of Reg-S privace rule?: False 91. Advance refunding is Issuing new debt in order to: Extinguish old debt at the first opportunity 92. When a member is liable for its percentage of unsold securities. The syndicate is known as: Eastern and undivided 93. What is the security for senior subordinated debentures?: General Assets 94. Bob is short 20 DEF april 70 puts. Bob enters an order to buy 10 DEF april 70 puts. This order is: A closing buy order 95. When is a policy holder allowed to surrender a variable annuity contract?- : During the accumulation period