Master Test #3

The purpose of depreciation is to:
A) Spread the cost of an asset over the recovery period of the asset
B) Increase the cash flow of a corporation
C) Reduce taxes
D) Increase net income
A) Spread the cost of an asset over the recovery period of the asset
The exchanges requires customers to exercise their listed equity option positions with member firms no later than:
A) 2:30 p.m. Eastern Time on the business day prior to the expiration date of the option
B) 3:30 p.m. Eastern Time on the business day prior to the expiration date of the option
C) 4:30 p.m. Eastern Time on the business day prior to the expiration date of the option
D) 5:30 p.m. Eastern Time on the business day prior to the expiration date of the option
D) 5:30 p.m. Eastern Time on the business day prior to the expiration date of the option
A customer owns an Eastman Kodak October 50 listed call option. Eastman Kodak has declared a $1.00 cash dividend. When Eastman Kodak sells ex-dividend, which of the following will reflect the price and the number of shares of the Eastman Kodak October 50 option?
Strike Number
Price of shares
A) $49 100
B) $50 95
C) $50 100
D) $50 105
C) $50 100
Which of the following transactions would require a customer to be considered a pattern day trader?
A) 3 day trades executed in one week
B) 3 day trades executed in one day
C) 4 day trades executed in one week
D) 10 day trades executed in one month
C) 4 day trades executed in one week
An investor writes a Treasury bond call option contract. He would be considered covered by a deposit of:
A) A basket of bonds
B) Specific T-bonds
C) One hundred shares of the underlying stock
D) The required margin
B) Specific T-bonds
The securities that are deposited in an escrow account for an advanced refunding are:
A) Revenue bonds
B) General obligation bonds
C) Federal agency bonds
D) Treasury bonds
D) Treasury bonds
On a when issued municipal bond transaction, the interim confirmation would show which of the following?
A) Settlement date
B) Final money amount
C) Accrued interest amount
D) Capacity in which the broker-dealer acted
D) Capacity in which the broker-dealer acted
Mr. Smith holds a portfolio of blue chip stocks which have appreciated in value. To generate additional current income from his holdings, Mr. Smith would:
A) Write covered puts
B) Write covered calls
C) Buy puts
D) Buy calls
B) Write covered calls
All of the following will be found in the Official Notice of Sale Except:
A) Call provision
B) The name of the bond counsel writing the legal opinion
C) The date, time, and place of sale where the bidding procedure will take place
D) The bond rating
D) The bond rating
A municipal dealer gives another dealer a firm quote of par for a block of municipal bonds. The dealer that gave quote:
A) Must do the trade at par
B) Must give the other dealer ten minutes to accept the quote
C) Has given a nominal quote to the other dealer
D) Has given a subject quote
A) Must do the trade at par
When doing a municipal bond swap, to avoid the wash rule you should alter all of the following EXCEPT:
A) Issuer
B) Maturity
C) Rating
D) Coupon
C) Rating
The conditions of an Eastern account provides that a syndicate members:
A) Have no liability if they have sold their allotted commitment
B) Have a liability in proportion to their participation even if they have sold their allotted commitment
C) Have the same percentage liability as all other members of the syndicate
D) Belong to the New York Stock Exchange
B) Have a liability in proportion to their participation even if they have sold their allotted commitment
A company has $50,000,000 par value convertible bonds outstanding. The coupon rate is 8%. The bonds are currently selling at 96. What is the current yield?
A) 7.0%
B) 7.5%
C) 8.0%
D) 8.3%
D) 8.3%
Which of the following is an indicator of the demand for municipal bonds in the primary market?
A) The Wilshire Index
B) The Visible Supply
C) The Placement Ratio
D) The bond Buyers Index
C) The Placement Ratio
The managing underwriter of a new municipal issue has an obligation to provide:
I. An Official Statement to all selling members
II. An Official Statement to all purchasers of the issue
III. The name of all the syndicate members to all purchasers of the issue

A) I and II only
B) I and III only
C) II and III only
D) I, II, and III only

A) I and II only
An investor is convinced that a stock will decline in value. If the investor wishes to act on that conviction, which investment strategy will allow him to take advantage of a decline with the smallest amount of cash outlay?
A) The investor should sell the stock short
B) The investor should buy a call
C) The investor should buy a put
D) The investor should sell a put
C) The investor should buy a put
Your client owns a portfolio of blue chip equity securities and would like to increase the overall rate of return through the use of options. The most conservative strategy to achieve this objective is to:
A) Write covered calls
B) Buys calls
C) Write covered puts
D) Buy puts
A) Write covered calls
The city of Phoenix, Arizona has established an advertisement stating that it is willing to accept bids for the sale of $20,000,000 Sewer Revenue Bonds. The advertisement is called:
A) An Official Statement
B) An indenture
C) An Official Notice of Sale
D) A tombstone ad
C) An Official Notice of Sale
When referring to call option contracts, the term open interest would mean:
A) The number of contracts that have not been closed put though a sale or by expiration
B) Only the number of contracts with the same expiration date that have not been closed out
C) Only the number of contracts with the same exercise price that have not been closed out
D) The total number of contracts of the same series that were traded on a given day
A) The number of contracts that have not been closed put though a sale or by expiration
A put option may be written in a cash account if the investor:
A) Is long the underlying security in the account
B) Is short the underlying security in the account
C) Has cash in the account equal to the exercise price
D) Is long a call option on the same underlying security
C) Has cash in the account equal to the exercise price
On a municipal revenue issue, money put aside for the betterment and improvement of the facility would be placed in the:
A) Sinking Fund
B) Renewal and replacement fund
C) Operating and maintenance fund
D) Debt service fund
B) Renewal and replacement fund
A call is purchased in February and exercised in June. The following April the stock is sold. Which two of the following statements are correct?
I. The resulting gain or loss is short term
II. The resulting gain of loss is long-term
III. The cost basis of the stock is the same as the strike price
IV. The cost basis of the stock is the call premium plus the strike price

A) I and III
B) I and IV
C) II and III
D) II and IV

B) I and IV
All of the following statements about municipal revenue bonds are true EXCEPT:
A) There is no debt limitation set by the issuing municipality
B) The maturity of the revenue bond usually coincides with useful life of the facility being built
C) They can be issued by states, political subdivisions, interstate authorities, and intrastate authorities
D) The interest and principal are paid from the revenue received from the facility
B) The maturity of the revenue bond usually coincides with useful life of the facility being built
The Federal Intermediate Credit Bank (FICB) makes:
A) Agricultural loans to farmers
B) Loans to finance residential mortgages
C) Business loans to veterans
D) Loans to railroads
A) Agricultural loans to farmers
When a manager of a municipal underwriting syndicate determines the priority of orders to be allocated, the orders would include all of the following EXCEPT:
A) Group net
B) Designated
C) Member takedown
D) Opening purchase
D) Opening purchase
Three bonds all have the same coupon rate of 6%. Bond A has a five year maturity. Bond B has a one year maturity. Bond C has a six month maturity. If interest rates change, which bond would have the greatest dollar change in price?
A) Bond A
B) Bond B
C) Bond C
D) All of the bonds would change equally in price
A) Bond A
Municipal bond unit investment trusts have all of the following characteristics EXCEPT:
A) Investors can buy units in the fund, usually in multiples of $1,000
B) The certificates have coupons attached and are in bearer form
C) Investors can redeem the unit’s at any time through the fund’s trustee
D) The value of the unit will decline if interest rates rise
B) The certificates have coupons attached and are in bearer form
A customer’s initial trade in a margin account is the short sale of 500 shares of DEF stock at $20. After making the required deposit, the credit balance in the account is:
A) $ 5,000
B) $10,000
C) $15,000
D) $20,000
C) $15,000
The American Telephone Company announced in an ad in the Wall Street Journal that it intends to call for redemption all of its outstanding 10% callable bonds at 103 1/4 plus accrued interest. The market price of the bond was 102 3/4 at the time of the announcement. All of the following are TRUE about this redemption EXCEPT:
A) The company’s outstanding debt will be reduced
B) The company’s interest expense will be reduced
C) Dividends to the stockholders will be increased
D) Investors redeeming the bonds receive a premium to the market price
C) Dividends to the stockholders will be increased
An easing of money and credit in the economy would be the probable result of which two of the following?
I. An increase in reserve requirement
II. An increase in the discount rate
III. A decrease in the discount rate
IV. A decrease in reserve requirements

A) I and II
B) I and III
C) II and IV
D) III and IV

D) III and IV
A municipal bond issue with an inverted yield scale would have:
A) Lower yields on the shorter maturities than on the longer maturities
B) Higher yields on the shorter maturities than on the longer maturities
C) Yields the same on all maturities
D) Prices higher on the shorter maturities than the longer maturities
B) Higher yields on the shorter maturities than on the longer maturities
Which of the following would increase most in price if interest rates decline?
A) Short-term bonds selling at a discount
B) Long-term bonds selling at a discount
C) Short-term bonds selling at a premium
D) Long-term bonds selling at a premium
B) Long-term bonds selling at a discount
In the Interbank Market, foreign currency transactions:
A) May settle on a spot or forward basis
B) Occur on exchange throughout the world
C) Are regulated by the SEC
D) Are reported on the Nasdaq system
A) May settle on a spot or forward basis
According to MSRB rule, each broker-dealer engaging in municipal securities activities must have a municipal securities principal promptly review and/or approve in writing:
I. Each customer account for trading in municipal securities
II. Every transaction for municipal securities
III. All written customer complaints
IV. All advertising and other written correspondence pertaining to municipal securities activities

A) I and II only
B) III and Iv only
C) I, III, and IV
D) I, II, III and IV

D) I, II, III and IV
An investor owns $100,000 face value of a T-bond and writes a covered T-bond call. At expiration, if interest rates have risen, the:
A) Call most likely will expire
B) Call will be exercised and the writer will deliver $100,000 to the holder
C) Call will be exercised and the writer will deliver the bonds to the holder
D) OCC will close out the position
A) Call most likely will expire
A husband and wife have a joint account. If the husband instructed his RR to sell securities and send a check, the check could be made payable to:
A) The husband only
B) The wife only
C) Either the husband or the wife
D) The husband and the wife jointly
D) The husband and the wife jointly
All of the following are fixed by the exchange on which an option contract trades EXCEPT:
A) The strike price
B) The expiration date
C) The premium
D) The contract size
C) The premium
An investor purchases 100 shares of XYZ at 60 and also writes an XYZ 65 call @ 3

If the call is exercised when the market price of XYZ is 70, what is the investor’s profit?
A) $700
B) $800
C) $1,000
D) $1,200

B) $800
The FRB initial margin requirement is 50%. A customer opening a new margin account with the purchase of 100 shares of XYZ at $15 per share would have to deposit:
A) $375
B) $750
C) $1,500
D) $2,000
C) $1,500
Which of the following municipal issues would most likely be brought to market as a negotiated issue?
A) General Obligation Bond
B) Special Tax Bond
C) School District Bond
D) Industrial Development Revenue Bond
D) Industrial Development Revenue Bond
When purchasing a new issue of stock in a cash account when must payment be made under Reg T?
A) On settlement date
B) Two business days after the trade date
C) When the securities are delivered
D) Two business days after the settlement date
D) Two business days after the settlement date
All of the following would create a conflict of interest for a general partner EXCEPT if the general partner:
A) Accepts a payment not to compete with the program
B) Holds partnership monies in his personal bank account
C) Sells property that he owns to the partnership
D) Lends money to the partnership at a prevailing interest rates
D) Lends money to the partnership at a prevailing interest rates
ABC Corporation has filed a registration statement with the SEC. A registered representative would be prohibited from doing all of the following EXCEPT:
A) Sending a research report about ABC to prospective clients
B) Sending a preliminary prospectus to clients to obtain indications of interest
C) Accepting orders from clients
D) Accepting money from clients to buy the securities
B) Sending a preliminary prospectus to
Which of the following is an example of a stabilizing bid by the syndicate manager of a new issue?
Public Bid
Offering price
A) $15 $15
B) $21 $21.13
C) $25 $25.25
D) $35 $35.25
A) $15 $15
On Tuesday May 1st, XYX Corporation’s Board of Directors announce a dividend payable on Friday, May 25th to stockholders of record on Monday, May 14th.The ex-dividend date would be:
A) Wednesday, May 23rd
B) Thursday, May 10th
C) Monday, May 14th
D) Tuesday, May 1st
B) Thursday, May 10th
An investor is looking for an investment that will generate deductions but also provide the potential for future cash flow. All of the following would be appropriate investments EXCEPT:
A) Raw land program
B) Existing properties real estate program
C) Oil and gas drilling program
D) Oil and gas exploratory programs
A) Raw land program
A doctor, who is covered under a corporate pension plan, retires. The doctor can roll over the distribution received from the pension plan into the IRA, with no tax consequence, within:
A) 30 days
B) 60 days
C) 90 days
D) 1 year
B) 60 days
Which of the following would most likely have a mandatory sinking fund?
A) Serial issue
B) Balloon issue
C) Term issue
D) Convertible issue
C) Term issue
When a broker-dealer is not acting for its own account but is making securities transactions for the account of others, the firm is acting as a(n):
A) Broker
B) Principal
C) Underwriter
D) Dealer
A) Broker
When interest rates decrease, which two of the following are TRUE regarding the value of Treasury Bond options?
I. Call options increase
II. Call options decrease
III. Put options increase
IV. Put options decrease

A) I and III
B) I and IV
C) II and III
D) II and IV

B) I and IV
When a sale takes place in a long margin account, which of the following occurs?
I. The market value of the account will be reduced
II. The equity of the account will be increased
III. The loan value of the account will be reduced
IV. The debit balance will be reduced

A) I and II only
B) II and IV only
C) I, III,, and IV only
D) II, III, and IV only

C) I, III,, and IV only
A customer purchases $10,000 of stock on margin. Before depositing the required amount, the stock raises to a market value of $12,000. How much will the customer be required to deposit?
A) $4,000
B) $5,000
C) $6,000
D) $7,000
B) $5,000
An investor writes an XYZ Aug 90 put at 4.50. If the put is exercised when XYZ is trading at 84.50, the investor would have:
I. A cost basis of 84.50
II. A cost basis of 85.50
III. A loss of $100 if the stock is sold at the current market price
IV. A gain of $100 if the stock is sold at the current market price

A) I and III
B) I and IV
C) II and III
D) II and IV

C) II and III
All of the following are TRUE regarding dividends EXCEPT:
A) A growth company normally has a low dividend payout ratio
B) A stock dividend creates a current tax liability when received
C) A blue chip company has a long history of paying dividends
D) The market price of a preferred stock is influenced by its dividend payout
B) A stock dividend creates a current tax liability when received
The fluctuations in the value of a variable annuity will correspond with the fluctuations in the:
A) Dow Jones Industrial Average
B) Value of the index or average on which the payout is based
C) Value of the securities held in the separate account of the annuity
D) Cost of the living index
C) Value of the securities held in the separate account of the annuity
Where would a listing of allocation of bonds for a new municipal issue be found?
A) Notice of Sale
B) Underwriting Agreement
C) Account Summary Report
D) Official Statement
C) Account Summary Report
All of the following are typical characteristics of a 401(k) plan EXCEPT:
A) Employee contributions are fully and immediately vested
B) Employers must match employee contributions
C) An employe’s taxable income is reduced by employee contributions
D) Employee contribution grow on a tax-deferred basis
B) Employers must match employee contributions
An investor would purchase an oil and gas limited partnership for all the following reasons EXCEPT:
A) The oil depletion allowance
B) Intangible drilling costs
C) Tax incentives
D) Recapture provision
D) Recapture provision
Relative to a convertible bond, which of the following would produce a desirable arbitrage situation?
A) Stock at parity with the bond
B) Stock at a premium to parity and the bond is trading at par
C) Stock at a discount to parity and the bond is trading at par
D) Yield on the bond equals the yield on the stock
B) Stock at a premium to parity and the bond is trading at par
The manager of a new issue municipal syndicate wants to allocate securities in a different manner than specified in the syndicate agreement. He may do this if he:
A) Notifies the SEC
B) Amends the syndicate agreement
C) Is prepared to justify the change to the syndicate members
D) Assume any losses incurred by the syndicate members
C) Is prepared to justify the change to the syndicate members
The federal tax exemption of municipal bonds was established by:
A) The Internal Revenue Service
B) The U.S. Treasury Department
C) An Act of Congress
D) Supreme Court decisions
D) Supreme Court decisions
All of the following would be found in a municipal revenue bond resolution EXCEPT:
A) Restrictions on the sale of additional bonds
B) Rate covenants
C) Sinking fund provisions
D) The yield-to-maturity of the bonds
D) The yield-to-maturity of the bonds
A syndicate manager in the sale of a new municipal bond issue would normally allocate bonds in which of the following orders of priority?
I. Member orders
II. Orders for the benefit of the syndicate account
III. Designated orders

A) I, II, and III
B) III, II, and I
C) II, III, and I
D) III, I, and II

C) II, III, and I
An investor purchases a 20-year 5% bond at par value which will yield 5 3/4% if called at the first call date in five years. The yield-to-maturity on bond is:
A) 5%
B) More than 5%
C) Between 5% and 5 3/4%
D) 5 3/4%
A) 5%
Various tranches of a long-term speculative bond issue are called by the issuer. The effect on the remaining outstanding bonds is likely to be:
A) Improved quality
B) Decreased quality
C) Making them eligible for investment by banks
D)Increased interest payments
A) Improved quality
Which of the following settlement dates does not concern to standard industry procedures?
A) Preferred stock settling in 3 business days
B) Government securities settling next business day
C) Municipal bonds settling in 3 business days
D) Options settling in 3 business days
D) Options settling in 3 business days
A block of bonds is offered firm by Dealer A to Dealer B for one hour with a five minute recall. Dealer A calls Dealer B and says “fill or kill.” Dealer B:
A) Has five minutes to take the bonds
B) Must take the bonds if he does not call Dealer A back with in five minutes
C) Has one hour to take the bonds
D) Must take the bonds if he does not call Dealer A back within one hour
A) Has five minutes to take the bonds
The MSRB does all of the following EXCEPT:
A) Regulate municipal securities dealers
B) Regulate municipal securities salesmen
C) Regulate municipal securities advertising
D) Regulate municipal securities issuers
D) Regulate municipal securities issuers
Term bond quotes are based on:
A) Yield-to-maturity
B) Current yield
C) Nominal yield
D) Dollar price
D) Dollar price
All of the following securities which are exempt from state and local taxes EXCEPT the:
A) U.S. Government
B) Federal Home loan Bank
C) Commonwealth of Puerto Rico
D) State of Hawaii
D) State of Hawaii
A municipal broker-dealer would be acting as a principal in which of the following scenarios?
I. Selling bonds from inventory to an individual
II. Selling binds from inventory to a broker’s broker
III. Buying bonds from another broker-dealer for inventory
IV. Buying 500 bonds to fill an insurance company’s order for 250 bonds

A) I and III only
B) II and III only
C) I, II, and III only
D) I, II, III and IV only

D) I, II, III and IV only
A woman wishes to open an account at a municipal securities firm. She identifies herself as the spouse of a trader at another municipal securities firm. Which if the following is(are) correct?
I. The rep must follow all instructions from the trader’s employer
II. The MSRB must be notified
III. The carrying broker-dealer must send written notification of each transaction to the trader’s employer

A) I only
B) II only
C) I and III only
D) I, II and III only

C) I and III only
All of the following are TRUE about discretionary accounts EXCEPT:
A) Account must be approved by a Principal
B) Orders must be reviewed on the day they are entered
C) Written power of attorney signed by the customer must be kept on file by the firm
D) Orders must be confirmed with the customer before being entered
D) Orders must be confirmed with the customer before being entered
All of the following are taken into consideration when determining the markup on a municipal securities transaction EXCEPT:
A) The dollar amount of the trade
B) The best judgment of the dealer
C) The fact that the dealer is entitled to make a profit
D) The financial condition of the customer
D) The financial condition of the customer
A municipal bond with a 6% coupon is priced to a 7% basis. If the bond’s yield-to-maturity increased by 40 basis points:
A) The yield-to-maturity would be 5.60%
B) The yield-to-maturity would be 6.40%
C) The yield-to-maturity would be 6.60%
D) The yield-to-maturity would be 7.40%
D) The yield-to-maturity would be 7.40%
A customer sells a Brunswick April 20 straddle and receives a premium of $800. The put side of the straddle expires unexercised but the call exercised. The customer is uncovered on the call and must purchase the stock in the market to effect delivery to the buyer of the call. The current market price of Brunswick Corporation is $29. The net result to the customer will be a:
A) $100 loss
B) $100 profit
C) $2,100 profit
D) $2,100 loss
A) $100 loss
The subscription agreement for a limited partnership would specify all of the following EXCEPT:
A) Suitability standards
B) Priority provision upon liquidation
C) To whom the check must be made payable
D) Who must sign the agreement
B) Priority provision upon liquidation
Advertisements regarding options:
I. Must be submitted to the exchange 15 days prior to initial use
II. Must be submitted to the exchange 10 days prior to initial use
III. Must be kept on file by the member firm for six years
IV. Must be kept on file by the member firm for three years

A) I and III
B) I and IV
C) II and III
D) II and IV

D) II and IV
A brokerage firm is holding $600,000 of securities for a customer. The securities are registered in the name of the customer. If the firm was being liquidated by SIPC, the customer would:
A) Be insured for $500,000 of securities
B) Receive the entire $600,000 of securities
C) Be insured for $250,000 of securities
D) Lose the entire $600,000
B) Receive the entire $600,000 of securities
Which of the following securities would provide an investor with protection against purchasing power risk?
A) Treasury Bills
B) Treasury Notes
C) TIPS
D) STRIPS
C) TIPS
When a municipality is allocating funds for a net revenue issue, the first priority will be satisfying the:
A) Operation and maintenance of the facility
B) Debt service
C) Reserve for retirement of the bonds
D) Surplus for expansion of the facility
A) Operation and maintenance of the facility
All of the following are true regarding the role of a transfer agent EXCEPT that the transfer agent:
A) Keeps a record of each stockholder’s name and shares owned
B) Issues and cancels stocks certificates
C) Resolves problems due to mutilated certificate
D) Makes sure that outstanding shares do not exceed authorized shares
D) Makes sure that outstanding shares do not exceed authorized shares
Which best describes the Revenue Bond Index?
A) Average yield on a list of bonds with 30 years maturities
B) Average yield on a list of 11 bonds
C) Average yield on a list of 20 bonds
D) Average yield on a list of new revenue issues
A) Average yield on a list of bonds with 30 years maturities
MSRB rules state that a dealer must try to obtain all the following information from a customer EXCEPT the customer’s:
A) Financial condition
B) Investment history
C) Investment objective
D) Date of birth
D) Date of birth
A sales breakpoint of a mutual fund is:
A) The minimum dollar amount of a purchase of a mutual fund where a volume discount is given
B) The minimum share amount of a purchase of a mutual fund where a volume discount is given
C) The point at which a letter of intent can be obtained
D) The point at which a letter of intent can be backdated
A) The minimum dollar amount of a purchase of a mutual fund where a volume discount is given
All of the following statements are true about closed-end investment companies EXCEPT that the:
A) Number of outstanding shares is constant
B) Shares are sold at the current market price
C) Shares may not sell below the current net asset value
D) Shares may be listed on the NYSE
C) Shares may not sell below the current net asset value
An investor buys $10,000 par value of 8% Treasury bonds due July 1, 2014. For tax purposes, the interest earned on these bonds is:
I. Subject to federal income tax
II. Exempt from federal income tax
III. Subject to state income tax
IV. Exempt from state income tax

A) I and III
B) I and IV
C) II and III
D) II and IV

B) I and IV
Which of the following would not require a majority vote of a mutual fund’s shares?
I. Changing the fund from open-end to closed-end
II. Changing the investment objectives of the fund
III. Increasing the capital gain distribution paid by the fund
IV. Decreasing the dividend paid by the fund

A) I and II only
B) I and III only
C) III an IV only
D) I, II, III, and IV

C) III an IV only
Which of the following rates is set by the Federal Reserve Board?
A) Broker loan rate
B) Federal funds rate
C) Discount rate
D) Prime rate
C) Discount rate
Which of the following statements is true regarding a custodian account?
A) Margin transaction are permitted
B) Taxes are a liability of the minor
C) The minor and the custodian must both endorse all certificates
D) A custodian may give a registered representative discretion over the account
B) Taxes are a liability of the minor
Federal funds are:
I. Excess reserves loaned by commercial banks to other commercial banks
II. A lagging money market indicator
III. A leading money market indicator

A) I only
B) II only
C) I and II only
D) I and III only

D) I and III only
A MIG rating applies to a:
A) Convertible bond
B) Pre-refunded utility bond
C) ADR
D) BAN
D) BAN
Which of the following may be reasons for a revenue bond issue to be called?
I. A change in the tax status of the issuer
II. Surplus funds are available
III. Interest rates rise dramatically
IV. Destruction of the facility by fire

A) III and IV only
B) II, III, and IV only
C) I, II, and IV only
D) I, II, III and IV

C) I, II, and IV only
The State of North Carolina is offering $50,000,000 5 1/2% sewer improvement bonds

The bonds are:
I. Exempt from the margin requirements of Regulation T
II. Exempt from the Securities Act of 1933
III. Exempt from the Trust Indenture Act of 1933

A) I only
B) I and II only
C) II and III only
D) I, II, and III

D) I, II, and III
When comparing long-term bonds and short-term bonds, all of the following are true EXCEPT:
A) Long-term bonds generally have higher yields
B) Fluctuations in the dollar price of long-term bonds are usually greater than short-term bonds when the general level of interest rates change
C) Long-term bonds generally provide greater liquidity than short-term bonds
D) There is more purchasing power risk with long-term bonds when compared to short-term bonds
C) Long-term bonds generally provide greater liquidity than short-term bonds
All of the following are TRUE concerning private activity bonds EXCEPT:
A) The interest on these bonds might not be tax-exempt for some investors
B) The interest on these bonds might be subject to the alternative minimum tax
C) The possibility that the bonds might be subject to taxation would be reflected in the yield at which the bond trades
D) These types of municipal bonds are generally GOs
D) These types of municipal bonds are generally GOs
An investor purchases an ABC Jan 40 call @4 and sells an ABC April 30 call @9
This is an example of a:
A) Variable hedge
B) Vertical spread
C) Horizontal spread
D) Diagonal spread
D) Diagonal spread
An announcement in the financial section of the newspaper states that the money supply (M1) has dropped for the week. This means that:
A) Demand deposits and currency in circulation in the banking system have declined
B) Savings deposits and currency in circulation in the banking system have declined
C) Stock transactions have declined
D) U.S. government bond sales have declined
A) Demand deposits and currency in circulation in the banking system have declined
The 5% policy applies to which of the following?
A) Shares of a mutual fund purchased with a sales charge
B) A registered secondary distribution requiring a prospectus
C) Securities found on Nasdaq
D) Municipal securites
C) Securities found on Nasdaq
Regarding cash dividends, which of the following statements is correct?
A) A cash dividend becomes a current liability when it is declared
B) The amount of the dividend may never exceed the current earnings of the corporation
C) Cash dividends must be paid if the earnings for the year exceed the amount of the stated dividend
D) Dividend income may be offset by capital losses
A) A cash dividend becomes a current liability when it is declared
An investor who has owned XYZ stock for two years buys an XYZ October put. This will:
A) Have no effect on his holding position
B) End the holding period and cause any gain or loss to be short-term
C) Require the client to pay tax immediately
D) End the holding period and cause any loss to be long-term and any gain to be short-term
A) Have no effect on his holding position
All of the following statements apply to long-term (brokered) CDs EXCEPT:
A) They may have limited liquidity
B) Investors may be subject to interest rate risk
C) They may be callable
D) The total amount of the investment is FDIC insured
D) The total amount of the investment is FDIC insured
A customer’s combined long and short margin account appears as shown below:
Long Market Value =$30,000
Short Market Value =$18,000
Debit Balance =$ 8,000
Credit Balance =$15,000

What is the customer’s combined equity?
A) $15,000
B) $19,000
C) $22,000
D) $35,000

B) $19,000
A 10% New York City GO bond matures in 20 years. The bond is callable in 8 years at 103. All of the following are true regarding this bond EXCEPT:
A) The investor has 8 years of call protection
B) The issuer must pay investor a 3-point call premium to exercise the call privilege on the bonds
C) The investor will receive more for the bond if it is call versus holding the bond to maturity
D) The investor may exercise the call provision any time after the 8th year
D) The investor may exercise the call provision any time after the 8th year
An increase in which of the following would cause an increase in the expense ratio for an investment company?
A) Redemption
B) Management fees
C) NAV
D) Shareholder
B) Management fees
When a corporation goes bankrupt, which of the following creditors would be the last to be paid?
A) Internal Revenue Service
B) Debenture Holders
C) Preferred stockholders
D) Common stockholders
B) Debenture Holders
What effect will the declaration of a cash dividend have on a company’s balance sheet?
I. Cash will be reduced
II. Dividends Payable will increase
III. Net Working Capital will remain the same
IV. Retained Earnings is reduced

A) I and III only
B) II and IV only
C) I, II, and IV only
D) I, II, III, and IV only

B) II and IV only
Margin requirements established by the FRB can be:
A) Increased by broker-dealers in the form of in-house rules
B) Decreased by broker-dealers in the form of in-house rules
C) Disregarded by institutional investors
D) Replaced by SRO rules
A) Increased by broker-dealers in the form of in-house rules
When preparing a bid for a new municipal issue, the underwriting syndicate would first determine the:
A) NIC
B) Reoffering yields
C) Bid price
D) Coupon rates
B) Reoffering yields
Which of the following statements are correct regarding a bull call spread?
I. It involves buying the lower exercise price and selling the higher exercise price
II. It involves selling the lower exercise price and buying the higher exercise price
III. It is entered as a debit spread
IV. It is entered as a credit spread

A) I and III
B) I and IV
C) II and III
D) II and IV

A) I and III
All of the following are TRUE of FNMA bonds EXCEPT they:
A) Can be issued in registered form
B) Can be issued in book entry form
C) Are a direct obligation of the U.S. government
D) Are generally a low-risk investment
C) Are a direct obligation of the U.S. government
Regarding a head and shoulder chart pattern, a technical analyst feels that:
A) A top formation is bullish
B) A bottom formation is bearish
C) It signifies that a trend is reversing
D) It signifies that a trend is continuing
C) It signifies that a trend is reversing
Corporations repurchase their own stock in the open market to:
I. Increase the number of voting shares that the corporation holds
II. Increase earnings per share
III. Have stock available for stock options plans for key employees
IV. Make the stock more marketable

A) I only
B) II and III only
C) II, III, and IV only
D) I, II, III, and IV

B) II and III only
The Federal Reserve Board was given the authority to set margin requirements according to the provisions of the:
A) Securities Act of 1933
B) Securities Exchange Act of 1934
C) Securities Investors Protection Act of 1970
D) Investment Company Act of 1940
B) Securities Exchange Act of 1934
The purchase price of a no-load fund is determined by:
A) The net asset value plus a sales charge
B) The net asset value plus a commission
C) The net asset value as computed at the end of the business day
D) The supply and demand for the fund
C) The net asset value as computed at the end of the business day
A correspondence used in detailing the terms of a municipal syndicate is called the:
A) Offering Notice
B) Bond Buyer New Issue Worksheet
C) Syndicate Agreement
D) Official Notice of Sale
C) Syndicate Agreement
A corporation has raised money to use for expansion of its plant within the next six months. In which of the following securities should the corporation invest the funds until they are utilized?
A) Commercial paper
B) Long-term municipal zero-coupon bonds
C) U.S. Treasury bonds
D) High-quality preferred stocks
A) Commercial paper
Which of the following are true concerning stop orders?
I. A buy stop can be placed above an area of resistance
II. A sell stop can be placed below an area of support
III. All stop orders must be executed at a specific price or better
IV. Floor brokers may execute stop orders whenever they wish

A) I and II only
B) II and III only
C) III and IV only
D) I, II, And IV only

A) I and II only
As far as stop-limit orders are concerned:
A) The activating round-lot sale is also the execution price
B) The order will become a market order as soon as it is activated
C) The order can be activated but many or may not be executed
D) The customer is guaranteed an execution at the limited price after the order is activated
C) The order can be activated but many or may not be executed
A mutual fund investor who redeems shares will receive the:
A) Bid price of the previous day’s close
B) Current offering price
C) Next computed bid price on the day the shares are redeemed
D) Next computed asked price on the day the shares are redeemed
C) Next computed bid price on the day the shares are redeemed
A registered representative finds the most of his customers are reluctant to buy stocks due to extreme market volatility. Until the volatility subsides, which of the following would NOT be suitable strategy to recommend to these nervous clients?
A) Invest in money market funds
B) Invest in Treasury securities
C) Offer to reimburse customers who lose money ins stocks
D) Invest in CDs
C) Offer to reimburse customers who lose money ins stocks
When examining an earning report for National Corporation, a registered representative sees that earnings per share is reported on both a primary and fully diluted basis. This indicates that:
I. The company has convertible bonds or convertible preferred stock outstanding
II. The company has cumulative and participated preferred stock outstanding
III. Earnings per share is calculated using current shares outstanding and also assuming that all convertible securities were converted
IV. Earnings per share is calculated on a pretax and after-tax basis

A) I and III only
B) II and IV only
C) I, III, and IV only
D) I, II, III, and IV

A) I and III only
When a market maker gives a quote for a stock without qualification, the quote is a:
A) Subject quote for 100 shares
B) Workout quote for 100 shares
C) Nominal quote for 100 shares
D) Firm quote for 100 shares
D) Firm quote for 100 shares
The advance-decline theory states that:
A) A bull exists if the Dow industrials and transportations make new highs
B) A bear market exists if more put options have been purchased by investors than call options
C) It is bullish if more stocks go up than go down during the day
D) A large number of shares sold short is bullish
C) It is bullish if more stocks go up than go down during the day
All of the following takes pace during the cooling-off period EXCEPT:
A) The due diligence meeting
B) The issuance of a red herring
C) Stabilizing the issue
D) Blue-Skying the issue
C) Stabilizing the issue