Series 7: Wrong answers part two

The Taft Food Company intends to distribute shares of its grocery business to existing stockholders. The shares of this company will be traded separately from Taft. This is an example of a(n
Spin-off
A registered representative enters an order for a client. In error, the RR purchases shares of the wrong security. Which of the following statements is TRUE?
The shares must be placed in the broker-dealer’s error account
Foremost Corporation has declared a quarterly dividend of 25 cents payable to stockholders of record on Friday, December 1. The dividend will be paid to all stockholders whose names appear on the record books of Foremost Corporation on
December 1st-the record date
A charity has received restricted stock from the director of a corporation. The director owned the stock for two years before giving it to the charity. According to SEC Rule 144, the charity may sell the stock:
Freely under Rule 144; already been held more than 6 months by the director
An individual who owns STC stock could provide protection against a decrease in market value by
Buying puts and selling calls
Which of the following direct participation programs is associated with low costs to obtain the property and high up-front costs?
An exploratory oil and gas program
Which of the following statements is NOT TRUE regarding the similarities between variable annuities and mutual funds?
Variable annuity companies will retain any dividends paid, but the owner of the variable annuity must pay taxes on the dividends each year
A registered representative employed by the research department of a member firm is NOT permitted to be supervised by which department of a broker-dealer?
Investment banking to avoid conflicts of interest
When buying listed put options versus selling the underlying stock short, which of the following choices is NOT an advantage?
The put has a time value beyond an intrinsic value that gradually dissipates
In which TWO of the following situations is a customer NOT considered covered when writing a put option?
The customer is long a call option and The customer is long the underlying security
If an auction for auction rate securities were to fail, the holder would:
Continue to hold the securities and the interest rate would be set to the maximum rate
In a Rule 144A transaction, which of the following statements is NOT TRUE?
The only documentation acceptable for establishing that the purchaser is a QIB is audited financial statements (or their equivalent, for foreign issuers)
The Founders Income Fund has declared a dividend payable to stockholders of record Friday, May 29. This mutual fund would typically sell ex-dividend on:
The date set by the fund or its principal underwriter (sponsor)
Which of the following calculations describes the payout on a variable annuity?
A fixed number of annuity units multiplied by a variable dollar amount
A municipal dealer purchased $100,000 face value of 6.00% bonds at a 6.00 basis. If the dealer reoffered the bonds, which TWO of the following choices will be considered reasonable?
101 and 5.08 basis; The dealer purchased the bonds at par (6% coupon at a 6.00 basis). When reoffering the bonds, the dealer’s markup should be reasonable. A one-point markup (101) is considered reasonable, whereas an eight-point markup (108) is not. An offering of 5.80 represents a reduction in yield of 20 basis points and is considered reasonable. A reduction in yield of 200 basis points (6.00 basis minus 4.00 basis reoffering) is excessive.
Which of the following securities is an example of a collateralized time draft?
Bankers’ acceptances; used to facilitate foreign trade. It is a time draft that has been guaranteed (collateralized) by a bank
An individual who is considering an investment in a DPP should be most concerned with:
The economic viability of the programs
A customer has a long margin account with a market value of $30,000 and a debit balance of $20,000. His short margin account has a $7,000 market value and a $10,000 credit balance. The FRB margin requirement is 50%. What is the minimum equity requirement for the short position?
$2,100; The SRO minimum maintenance requirement for a short position is 30% of the market value. The market value is $7,000, and 30% of $7,000 equals $2,100
In terms of the number of stocks in each category, rank the components of the Dow Jones Composite Index from greatest to least
Industrial, transportation, utility
Duties of the ROP include:
Reviewing selected customer accounts
Establishing option training programs for registered representatives and ROPs
Reviewing retail communications
When computing the dollar price of a municipal bond sold on a yield basis, which of the following call features will be used?
In whole call; allowed to call the entire issue
A customer contacts a registered representative and wants to invest a large sum of money in four different mutual fund families. Which of the following statements is the MOST important disclosure the RR should make to the client?
The customer will not be able to receive sales breakpoints
Which TWO of the following choices are characteristics of GNMA pass-through certificates?
Interest and principal payments are received monthly and Timely payment of interest and principal is guaranteed by the U.S. government
A customer sold short 1,000 shares of XYZ Corporation that is presently selling at $2 per share. Industry rules require a minimum maintenance margin of:
$2.50 per share; When a stock that has been sold short has a market value of less than $5, industry rules require a minimum maintenance margin of $2.50 per share or 100% of the value of the securities, whichever is greater. In this example, $2.50 per share is greater and the customer would have to deposit $2,500 in the account to meet the requirement
Municipal bearer bonds that are in default of interest, trade:
With unpaid coupons attached
In a custodian account, which of the following choices would determine when a minor takes control of the account?
The state in which the minor is a resident
Your client owns a portfolio of blue-chip equity securities and wants to increase the overall rate of return through the use of options. The most conservative strategy to achieve this objective is to:
Write covered calls
In which of the following retirement plans is an actuarial calculation used to determine the employer’s contribution?
Defined benefit plan
An investor who has purchased shares of a money-market fund is NOT looking for:
Obtaining capital gains
A municipal finance professional (MFP) and her spouse make a political contribution of $400 from a joint account. Only the MFP signs the check. According to the MSRB political contribution rules, the contribution would be viewed as a:
$400 contribution from the MFP bc he was the only one to sign the check
A municipality issues a bond backed by revenue from a project. If the municipality also has bonds outstanding that have the same claim against revenue, which of the following statements is TRUE?
This is a parity bond
A broker-dealer is acting as a principal in which of the following scenarios?
Selling bonds from inventory to an individual
Selling bonds from inventory to another broker-dealer
Buying bonds from another broker-dealer for inventory
Buying 500 bonds to fill an insurance company’s order for 250 bonds
Which of the following choices may write calls covered by XYZ stock?
The president of XYZ Corporation
The trustee of XYZ Corporation’s pension fund
XYZ Corporation
A 28-year-old single investor has funds saved at a bank. He contacts an RR and wants to begin allocating funds to a retirement account. Which of the following choices is the most appropriate asset allocation?
80% stocks and 20% bonds; Long-term, risk-tolerant investors, such as those saving for retirement, are usually looking for growth of capital as an objective. They are also usually concerned about the effects of inflation. Over long periods, stocks usually keep pace or offer higher returns as measured against inflation. Inflationary risk is also referred to as purchasing-power risk. Since the investor is many years from retirement, a large percentage of his portfolio should be allocated to stocks
Promotional material made available to the public may compare collateralized mortgage obligations (CMOs) to:
Any type of promotional communication made available to customers may not compare CMOs to any other security. This is due to the uniqueness of this product
One of your clients, Kona Okemo, has a long-term objective of capital appreciation. Which of the following investment strategies will MOST closely achieve this goal?
30% in an ETF that follows the S&P 500, 20% in an emerging markets fund, 15% in a REIT fund, 15% in a biotechnology fund, and 20% in a U.S. government bond fund; asset allocation in mostly equities
A project financed through revenue bonds is experiencing difficulty in that revenues are not sufficient to meet debt service payments. If, through legislative approval, the state pays interest and principal in a timely manner, the issue is most likely
Moral obligation bonds
An investor has been saving for her child’s college education using a 529 plan. If her child will be attending college in a few years, which TWO of the following actions are MOST suitable?
Moving money from equity and bond investments to money-market funds and Moving money from equity funds to bond funds
An advertisement for municipal securities states the following:
“15-year 10% tax-free bond priced to yield 12% to maturity. Call us now for more details.”

According to MSRB rules, this advertisement should also state that

A portion of the yield to maturity is taxable if the bond is held to maturity, making the after-tax return between 10% and 12%
The turnover that a dollar experiences over a given period is known as the:
Velocity of money
Which choice BEST describes The Bond Buyer’s Revenue Bond Index?
Average yield on a list of bonds with 30-year maturities
The current yield on a municipal bond with a coupon rate of 4.50%, purchased at par and currently trading at $1,055, is:
4.26%; The current yield is found by dividing the yearly interest payment of $45 by the market price of $1, 055. This equals 4.26%. The fact that the bond was purchased at par is not relevant.
A customer has realized a capital gain from the sale of a municipal bond. To reduce the customer’s tax liability, the capital gain can be offset against a capital loss from which of the following investments?
A general obligation bond
An equity security
A corporate bond
A real estate investment trust
During a deflationary period, interest rates:
Decrease, causing bond prices to rise
The minimum denomination for negotiable certificates of deposit is:
$100,000
Total operating costs divided by average net assets is the formula used to find the expense ratio of a(n):
Equity mutual funds
A securities market is considered efficient if which TWO of the following conditions are present?
Small differences between the bid and offer prices and A large number of transactions
Which of the following statements is NOT TRUE concerning the Student Loan Marketing Association (Sallie Mae)?
It issues securities that can be redeemed to pay for college education
Which TWO of the following choices are types of securities issued by the Federal Home Loan Bank?
Discount notes with maturities of less than 1 year
Consolidated bonds with maturities of up to 30 years
Under MSRB rules, which of the following documents do NOT need to be retained for a specific period?
Issuers’ official statements
Repurchase agreements (repos) and reverse repos would MOST likely be used by:
Institutions that have a need to borrow on a short-term basis, or have money to lend on a short-term basis
From the issuer’s perspective, when comparing term bonds and serial bonds, serial bonds have:
Declining interest payments and declining principal amounts
A customer’s account does not require approval to trade penny stocks if the:
Trade is not recommended
Account is established
A client wants all trade confirmations sent to his investment adviser. This will require:
A written letter from the client