Investments MCQ: June 2020

Archive for June 2020

Under both federal and state law, the concept of a discretionary account is defined. It would be considered discretion when an agent:

A) picks the specific security that is the subject of a transaction.
B) can decide the specific price.
C) can decide the specific time at which the transaction will be made.
D) makes the decisions in the account once the client assures the agent that the proper authorizations are in the mail.

Answer: A) picks the specific security that is the subject of a transaction.

Which of the following statements is TRUE about sales of new issues under the Securities Exchange Act of 1934?

A) Credit may be used in purchasing new issues.
B) Installment payments are allowed on purchases.
C) The SEC determines what issues may be purchased on margin.
D) The use of credit to purchase new issues is prohibited for the first 30 days.

Answer: D) The use of credit to purchase new issues is prohibited for the first 30 days.

Which of the following statements is (are) TRUE regarding the jurisdiction of the SEC under the Securities Exchange Act of 1934?

I. The SEC has jurisdiction over exchanges and SROs.
II. The SEC has jurisdiction over broker/dealers, agents, investment advisers, and representatives that III. are required to be registered under federal law.
IV. The SEC has jurisdiction over banks and savings and loans regarding their securities activities.

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

Answer: C) I and II.

What is the purpose of the Securities Exchange Act of 1934?

A) It regulates the persons involved in the secondary market.
B) It provides requirements relating to new issues.
C) It provides policies relating to unethical business practices.
D) It provides standards among the states.

Answer: A) It regulates the persons involved in the secondary market.

Which of the following is TRUE of SEC Commissioners under the Securities Exchange Act of 1934?

A) They are appointed by a senate panel.
B) They are appointed for life.
C) They may not invest in any securities other than those issued or guaranteed by the U.S. government.
D) Their political affiliation is of no concern.

Answer: C) They may not invest in any securities other than those issued or guaranteed by the U.S. government.

The Securities Exchange Act of 1934 calls for the registration of many different entities involved in the securities business, such as exchanges and broker/dealers. The Act also requires registration of securities information processors such as:

I. CNBC.
II. "Investor's Business Daily" .
III. Reuters.
IV. The "Pink Sheets".

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

Answer: D) III and IV.

Under the Securities Exchange Act of 1934, which body regulates the extension of credit for nonexempt securities?

A) The SEC.
B) The New York Stock Exchange.
C) The Federal Reserve Board.
D) The Comptroller of Currency.

Answer: C) The Federal Reserve Board.

Which of the following qualifies as discretionary trading under the Securities Exchange Act of 1934?

A) Determining which securities to buy for a client.
B) Purchasing securities at the discretion of a client.
C) Obtaining authorization from a client to purchase a particular security if the price hits a specific level.
D) Receiving oral authority from a client to make a specific purchase at a price to be decided by the broker/dealer.

Answer: A) Determining which securities to buy for a client.

Under the Securities Exchange Act of 1934, which of the following would NOT be grounds for disqualification of a broker/dealer's registration?

A) Violating a securities act.
B) Being sued by a client.
C) Conviction of misappropriation of client funds.
D) Prohibition by court order from practicing as an investment adviser.

Answer: B) Being sued by a client.

The Securities and Exchange Commission does NOT have any regulatory jurisdiction over which of the following?

A) National securities exchanges.
B) FINRA.
C) Federal Reserve Board.
D) Municipal Securities Rulemaking Board.

Answer: C) Federal Reserve Board.

Seven years ago, Ivan was found guilty of embezzling securities from clients. He now wishes to join another brokerage firm. Which of the following statements is TRUE regarding this situation?

A) He cannot be employed because he is still subject to statutory disqualification provisions.
B) He may be employed in a sales position, provided the firm agrees to be liable for any losses due to his misconduct.
C) He may be employed by a brokerage firm, provided he is not involved directly in any dealings with clients.
D) There are no provisions restricting his employment because the restriction time period has elapsed.

Answer: A) He cannot be employed because he is still subject to statutory disqualification provisions.

Under the Securities Exchange Act of 1934, commissioners of the SEC:

I. are appointed by a joint House/Senate panel.
II. are appointed by the President.
III. may not engage in any other business.

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

Answer: C) II and III.

Under section 13(d) of the Securities Exchange Act of 1934, a person who acquires more than 5% of a class of securities registered under the act must, within ten days, file a report of beneficial ownership with:

I. the SEC.
II. the issuer.
III. the exchange where traded.

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

Answer: A) I, II and III.

Mary bought 1,000 shares in the morning and sold 1,000 shares of the same security in the afternoon. Under the Investment Advisers Act of 1940 rules on unethical business practices of investment advisers, which of the following statements is TRUE?

A) She has violated the act.
B) She has violated the act if a profit was made.
C) Her broker has violated the act.
D) She has violated the act only if she was trying to create market activity for the security to give a misleading appearance.

Answer: D) She has violated the act only if she was trying to create market activity for the security to give a misleading appearance.

According to the Securities Exchange Act of 1934, a report of beneficial ownership must be filed with the SEC by interested persons when their ownership of a security registered on a national exchange exceeds what level?

A) 2%.
B) 10%.
C) 12%.
D) 5%.

Answer: D) 5%.

When an IAR submits an order ticket to purchase securities for a client, all of the following would appear EXCEPT:

A) the IAR's name.
B) the details of the order.
C) the current market price of the security.
D) the broker dealer's name.

Answer: C) the current market price of the security.

Under the rules of the Investment Advisers Act of 1940, trading in a client's account would be considered excessive if:

I. the investment adviser receives a commission from trading.

II. trading was conducted without considering the client's investment objectives.

III. trading is inappropriate in view of a client's resources.

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

Answer: B) II and III.

Which of the following would be considered when determining whether excessive trading has occurred in a client's account?

A) The size of the companies issuing the securities.
B) The number of years the account has been opened.
C) The nature of the client's financial objectives.
D) The performance of the account in comparison to other client's accounts.

Answer: C) The nature of the client's financial objectives.

The Investment Advisers Act of 1940 requires written authority for a discretionary account, unless the investment adviser's discretionary authority is limited to determining:

the price of the stock.
the amount of the stock.
the time of the order.

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

Answer: B) I and III.

Which of the following is considered an associated person of a broker/dealer?

A) A secretary to a general partner of a broker/dealer.
B) A secretary who assists brokers with clerical tasks.
C) A clerical person who is not authorized to accept or execute orders for clients.
D) A broker/dealer's officer who represents the broker/dealer in effecting or attempting to effect the purchase or sale of securities.

Answer: D) A broker/dealer's officer who represents the broker/dealer in effecting or attempting to effect the purchase or sale of securities.

Under the Securities Exchange Act of 1934, which of the following statements is NOT TRUE about registration of broker/dealers?

A) Registrations become effective in 45 days, unless delayed by the SEC.
B) The SEC may require minimum standards of recordkeeping and financial responsibility.
C) A sole proprietorship may not register as a broker/dealer.
D) The SEC may require written examination for all registered personnel.

Answer: C) A sole proprietorship may not register as a broker/dealer.

Under the Securities Exchange Act of 1934, which of the following is a securities information processor?

"The New York Times" .
The Municipal Securities Rulemaking Board.
The National Quotation Bureau (NQB), publisher of the Pink Sheets.

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

Answer: C) III only.

Which of the following is (are) TRUE regarding the Securities Exchange Act of 1934?

The act bars the use of credit to purchase new issues.
The act prohibits the simultaneous purchase and sale of a security to create the appearance of trading.
The act prohibits the spread of false rumors to induce others to trade.

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

Answer: B) I, II and III.

Which of the following is regulated by the Securities Exchange Act of 1934?

A) Exemptions of new issues from registration requirements.
B) Requirements for the provisions of a prospectus.
C) Registration of new issues of stock.
D) Regulation of exchanges.

Answer: D) Regulation of exchanges.

The Securities Exchange Act of 1934 prohibits:

I. a member firm of a registered stock exchange from effecting transactions for its own account as principal.

II. a broker/dealer from exercising discretion in a client's account unless written discretionary authority is received prior to the first trade for the client.

III. the purchase of a security on one exchange and the simultaneous sale of that security at a higher price on another exchange.

IV. the use of fraudulent or manipulative devices in the sale of an exempt security.

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

Answer: A) II and IV.

Under the Securities Exchange Act of 1934, which of the following is a government security?

Bonds issued by the state of Indiana.
Bonds issued by the US Postal Service.
Treasury bills.

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

Answer: A) II and III.

Under the Securities Exchange Act of 1934, which of the following would result in statutory disqualification from association with an NASD member broker/dealer?

A) Engaging in a course of business that requires one to be registered as an investment adviser.
B) Court injunction prohibiting the individual from acting as an underwriter.
C) Loss of a civil lawsuit involving securities.
D) A lack of experience in the securities business.

Answer: B) Court injunction prohibiting the individual from acting as an underwriter.

Under the Securities Exchange Act of 1934, which of the following is TRUE regarding the jurisdiction of the SEC over a person who violates the rules of the Municipal Securities Rulemaking Board?

A) The SEC has the authority to investigate such violations only if the person is a financial institution.
B) Only the MSRB has the authority to investigate violations of its rules.
C) The SEC has the authority to investigate such violations unless the person is a financial institution.
D) The SEC has the authority to investigate such violations even if the person is a financial institution.

Answer: C) The SEC has the authority to investigate such violations unless the person is a financial institution.

Under the Securities Exchange Act of 1934, SEC Commissioners:

A) are nominated by NASD and elected by a committee of state securities administrators.
B) must not be affiliated with any political party.
C) must not have any other business or employment besides their commission.
D) must have professional experience as prosecuting attorneys as well as knowledge of the securities business.

Answer: C) must not have any other business or employment besides their commission.

Under the Securities Exchange Act of 1934, which of the following would NOT be considered associated with XYZ Corp., a broker/dealer?

A) Brian, an XYZ vice president.
B) Robust, Inc., a tiny fraction of whose stock XYZ has purchased for its own account.
C) Paula, who is on XYZ's board of directors but who has no other connection with the firm.
D) Arvin, one of XYZ's agents.

Answer: B) Robust, Inc., a tiny fraction of whose stock XYZ has purchased for its own account.

Margin regulations are determined by the Board of Governors of the Federal Reserve System. The authority for them to do so is found in the:

A) Securities Act of 1933.
B) Maloney Act of 1938.
C) Securities Exchange Act of 1934.
D) Federal Reserve Act of 1913.

Answer: C) Securities Exchange Act of 1934.

The Securities Exchange Act of 1934 granted the SEC the authority to register a number of participants in the securities markets. One of those entities is a securities information processor (SIP). Which of the following statements best describes a SIP?

A) Any person who acts as an intermediary in making payments or deliveries or both in connection with transactions in securities or who provides facilities for comparison of data respecting the terms of settlement of securities transactions, to reduce the number of settlements of securities transactions, or for the allocation of securities settlement responsibilities.
B) Any person engaged in the business of collecting, processing, or preparing for distribution or publication; or assisting, participating in, or coordinating the distribution or publication of information with respect to transactions in or quotations for any nonexempt security.
C) Any person who engages on behalf of an issuer of securities or on behalf of itself as an issuer of securities in countersigning such securities upon issuance.
D) Any person who uses a clearing agency to clear or settle securities transactions or to transfer, pledge, lend, or hypothecate securities.

Answer: B) Any person engaged in the business of collecting, processing, or preparing for distribution or publication; or assisting, participating in, or coordinating the distribution or publication of information with respect to transactions in or quotations for any nonexempt security.

The Securities Exchange Act of 1934 granted the SEC the power to regulate all of the following EXCEPT:

A) broker/dealers.
B) securities information processors (SIPs).
C) transfer agents.
D) margin requirements.

Answer: D) margin requirements.

Which of the following are regulated under the Securities Exchange Act of 1934?

Broker/dealers.
Investment advisers.
Pension plans.
Transfer agents.

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

Answer: D) I and IV.

Which of the following statements regarding SEC Commissioners are CORRECT?

The maximum number that may serve at any one time is five
Political affiliation plays a role in limiting who may be appointed
They are appointed by the POTUS with the advice and consent of the SCOTUS
Upon confirmation, other than holdings in U.S. government securities, all securities positions must be liquidated.

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

Answer: D) I and II.

Among the many definitions found in the Securities Exchange Act of 1934 is that of "associated person of a broker/dealer". Which of the following individuals would fall into that definition?

I. A registered representative possessing a Series 6 limited registration
II. A university president who sits on the broker/dealer's board of directors
III. The newest member of the firm's research department who has not yet passed the licensing exam
IV. The receptionist at the front desk who directs visitors to the carousel where mutual fund prospectuses are available.

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

Answer: C) I, II, and III.

The XYZ corporation, listed on the NYSE, has 100 million shares of common stock outstanding. Mr. Warren Trump has owned 4 million shares since 1999. If Mr. Trump were to acquire 1.1 million additional shares, which of the following statements is CORRECT?

A) Form 144 would have to be filed concurrent with the transaction.
B) Because Mr. Trump does not own more than 10% of the outstanding shares, no form is required to be filed.
C) Schedule 13D would have to be filed within 10 business days of the transaction.
D) Schedule 13D would have to be filed before the end of the 2nd business day following the transaction.

Answer: C) Schedule 13D would have to be filed within 10 business days of the transaction.

In order to come under the SEC's requirement to file a Form 13F, an institutional manager must have discretion over:

A) a portfolio of at least $100 million.
B) more than 10% of the outstanding voting securities of a reporting company.
C) a portfolio of at least $100 million of 13(f) securities.
D) a portfolio of at least $50 million.

Answer: C) a portfolio of at least $100 million of 13(f) securities.

Under the Securities Exchange Act of 1934, the SEC is granted to power to regulate the activities of:

I. custodian banks.
II. federal covered investment advisers.
III. securities information processors.
IV. transfer agents.

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

Answer: D) III and IV.

The Securities Exchange Act of 1934 would consider it a fraudulent and prohibited business practice for an order ticket for a transaction in shares of a common stock to exclude all of the following EXCEPT:

A) the account number.
B) an indication as to whether the order was solicited, unsolicited, or discretionary.
C) if a sale, whether long or short.
D) the customer's name.

Answer: D) the customer's name.

All of the following must register with the Securities Exchange Commission EXCEPT:

A) state securities Administrators.
B) securities information processors.
C) securities listed on the Pacific Stock Exchange and the Nasdaq Stock Market.
D) issuers of NYSE exchange-listed securities.

Answer: A) state securities Administrators.

The SEC has jurisdiction over all of the following EXCEPT:

A) the MSRB.
B) FINRA.
C) the stock exchanges and broker/dealers.
D) the Federal Reserve System.

Answer: D) the Federal Reserve System.

All of the following statements regarding corporate insiders are true EXCEPT:

A) short selling is prohibited.
B) only public information can be used to make transactions.
C) purchases may not be made through the exercise of options.
D) reports of changes in holdings must be filed with the SEC.

Answer: C) purchases may not be made through the exercise of options.

States may require investment advisers who are federal registered to do each of the following EXCEPT:

A) file any documents with the state that are filed with the SEC.
B) pay state fees.
C) file a consent to service of process.
D) maintain net capital requirements.

Answer: D) maintain net capital requirements.

A customer tells his investment adviser representative to purchase $20,000 worth of stock in whatever company looks good. In what type of account could the IAR accept this type of order?

A) Discretionary.
B) Custodial account managed by an administrator for the client's deceased cousin.
C) Margin.
D) Cash.

Answer: A) Discretionary.

Which of the following statements regarding discretionary accounts is TRUE?

A) A branch manager must approve discretionary orders before entry.
B) A principal must approve discretionary orders before entry.
C) An order in which an investor designates the security's name, the number of shares, and whether to buy or sell and gives the agent discretion as to time and price only is not considered discretionary.
D) The rules regarding churning of accounts do not apply to discretionary accounts.

Answer: C) An order in which an investor designates the security's name, the number of shares, and whether to buy or sell and gives the agent discretion as to time and price only is not considered discretionary.

The term "discretionary" refers to an:

A) order that specifies size, security, or action but leaves the choice of time and price up to the agent.
B) account in which the agent has the power to decide which securities to buy or sell without customer authorization for those specific trades.
C) account in which someone has been given custodial power over another individual's account.
D) account in which a person has power of attorney over an incompetent individual's account.

Answer: B) account in which the agent has the power to decide which securities to buy or sell without customer authorization for those specific trades.

Which of the following regarding the SEC under the Securities Exchange Act of 1934 are TRUE?

It regulates the securities exchanges.
It requires the registration of broker/dealers.
It prohibits inequitable and unfair trade practices.
It regulates over-the-counter markets.

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

Answer: D) I, II, III and IV.

The Securities Exchange Act of 1934 covers all of the following EXCEPT:

A) trading on exchanges.
B) trading of corporate securities.
C) issuance of financial reports by corporations.
D) issuance of corporate securities.

Answer: D) issuance of corporate securities.

Which of the following acts requires publicly traded corporations to issue annual reports?

A) Investment Company Act of 1940.
B) Securities Exchange Act of 1934.
C) Securities Act of 1933.
D) Trust Indenture Act of 1939.

Answer: B) Securities Exchange Act of 1934.

The Securities Exchange Act of 1934 regulates or mandates each of the following EXCEPT:

A) full and fair disclosure on new offerings.
B) creation of the SEC.
C) manipulation of the secondary market.
D) extension of credit to customers.

Answer: A) full and fair disclosure on new offerings.

The federal Securities Act of 1933 has certain requirements for those selling new issues. One of those requirements is to:

A) deliver a copy of the prospectus prior to the sale.
B) be properly licensed prior to making the offering.
C) deliver a final prospectus no later than with confirmation of the sale.
D) deliver a preliminary prospectus to any person who has purchased the new issue.

Answer: C) deliver a final prospectus no later than with confirmation of the sale.

An issuer wishing to comply with Regulation D of the Securities Act of 1933 must file a Form D with the SEC:

A) no later than 15 days after the first sale.
B) no later than the time of the first sale.
C) no later than 30 days after the first sale.
D) no less than 20 days prior to the first expected date of sale.

Answer: A) no later than 15 days after the first sale.

An issuer properly files Form D in accordance with Rule 503 of Regulation D of the Securities Act of 1933. As such, the securities that are the subject of any transaction are:

A) required to register with the state(s) in which they are sold.
B) required to register with the SEC.
C) federal covered securities.
D) available only to institutional purchasers.

Answer: C) federal covered securities.

Under the Securities Act of 1933, an accredited investor may be:

I. a bank, insurance company, investment company, or II. employee benefit plan valued in excess of $5 million .
a wealthy person in some cases.

III. partners, officers, and directors of the issuer for a particular issue.

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

Answer: A) I, II and III.

Jim is buying stock through a private placement. Under the Securities Act of 1933, which of the following statements is TRUE?

A) Jim will receive a letter stating his ownership.
B) Jim must notify the SEC that he is buying private placement securities.
C) The stock need not be registered with the SEC.
D) The stock must first be fully registered with the SEC.

Answer: C) The stock need not be registered with the SEC.

Under the Securities Act of 1933, which of the following are accredited investors?

Insurance companies.
Banks.
Employee benefit plans with over $5 million in assets.
Investment companies.

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

Answer: B) I, II, III and IV.

Rule 501 of the Securities Act of 1933 creates a category of person known as an accredited investor. Included in that definition would be all of the following EXCEPT:

A) investment adviser representatives.
B) banks.
C) insurance companies.
D) pension plans.

Answer: A) investment adviser representatives.

For purposes of the definition found in Rule 501 of Regulation D of the Securities Act of 1933, the term accredited investor would not apply to:

A) an investment company registered under the Investment Company Act of 1940.
B) an officer of the company involved in the underwriting.
C) a large employee benefit plan.
D) an investment adviser representative.

Answer: D) an investment adviser representative.

Which of the following are accredited investors?

An individual whose net worth, excluding the value of her principal residence, is greater than $1 million.
An individual whose income was greater than $200,000 in each of the 2 most recent years with a reasonable expectation of reaching that level again this year.
Any organization not formed for the purpose of purchasing securities with a net worth in excess of $5 million.
A newly formed open-end investment company with net assets of $600,000.

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

Answer: C) I, II, III and IV.

An investment adviser representative may exercise his judgment as to which of the following without written authorization from the customer?

Quantity.
Time.
Security.
Price.

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

Answer: B) II and IV.

Charlotte is an agent of Gibraltar Securities. Her most active customer told Charlotte that he is thinking about buying 10,000 shares of a retailer's stock for which Gibraltar will be participating in the underwriting syndicate. The SEC release date for the stock is anticipated within 10 business days. What may Charlotte send to the client today?

A) The preliminary prospectus and a reprint of a popular advertisement placed by the issuing corporation.
B) An order request.
C) The final prospectus.
D) The preliminary prospectus.

Answer: D) The preliminary prospectus.

A broker/dealer is the lead underwriter in a new issue. During the period this new security issue is in registration, which of the following will usually be distributed?

Subscription forms enabling clients to place a down payment on the issue.
A red herring prospectus.
The company's latest research report on that stock.
Indication of interest forms.

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

Answer: D) II and IV.

The first of the federal securities acts was the Securities Act of 1933. This act requires persons selling a new offering to their clients to:

A) deliver an effective (final) prospectus no later than with confirmation of the sale.
B) deliver a preliminary (red herring) prospectus prior to the sale.
C) deliver a copy of the registration statement no later than with confirmation of the sale.
D) be properly registered prior to making the offer.

Answer: A) deliver an effective (final) prospectus no later than with confirmation of the sale.

A customer requests information on a new mutual fund and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted:

A) if approved by a principal.
B) if accompanied by an unmarked prospectus.
C) without restriction.
D) under no circumstances.

Answer: D) under no circumstances.

Under federal law, a registered agent could offer securities for sale during the underwriting period and before the effective date of registration in which of the following circumstances?

A) Never.
B) With the use of a red herring.
C) If the securities are not exempt.
D) Only if a bona fide registration statement has been properly filed with the state Administrator and the SEC.

Answer: A) Never.

Under the USA, each of the following materials may be distributed if an issuing company has applied for registration but is not yet cleared for sale EXCEPT:

A) an application with a request for a down payment.
B) tombstone advertising.
C) a red herring.
D) a preliminary prospectus.

Answer: A) an application with a request for a down payment.

Under the Securities Act of 1933, the Securities and Exchange Commission has the authority to:

issue stop orders.
approve new issues.
review standard registration forms.

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

Answer: D) I and III.

In reviewing prospectuses and registration statements, the SEC:

A) guarantees the adequacy of the disclosures made in a prospectus.
B) certifies the accuracy of the disclosures made in a prospectus.
C) passes on the merits of a particular security covered by a registration statement.
D) does not approve or disapprove of the issue.

Answer: D) does not approve or disapprove of the issue.

Which of the following is NOT included in a preliminary prospectus?

A) Final offering price.
B) A written statement in red citing that the prospectus may be subject to change and amendment and that a final prospectus will be issued.
C) The intended purpose for the funds being raised.
D) Financial statements and history of the company.

Answer: A) Final offering price.

Which of the following statements regarding a red herring is NOT true?

A) The final offering price does not appear in a red herring.
B) Additional information may be added to a red herring at a later date.
C) An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser.
D) A red herring is used to accept indications of interest from investors.

Answer: C) An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser.

Which of the following securities are exempt from the registration and disclosure provisions of the Securities Act of 1933?

I. Any interest in a railroad equipment trust certificate.
II. Municipal bonds.
III. U.S. government securities.
IV. Commercial paper maturing in 270 days or less.

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

Corporate debt securities (such as commercial paper) are exempt from registration under the Securities Act of 1933 if their maturities do not exceed how many days?

A) 365 days.
B) 270 days.
C) 30 days.
D) 90 days.

Answer: B) 270 days.

Which of the following securities is NOT exempt from the Securities Act of 1933?

A) U.S. government issues.
B) Real estate investment trusts.
C) Municipal issues.
D) U.S. government agency issues.

Answer: B) Real estate investment trusts.

Under the Securities Act of 1933, which of the following would be considered a prospectus?

I. Tombstone advertisement.
II. Television advertisement that makes full disclosure of all material facts.
III. Offer communicated over the telephone.

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

Answer: A) II only- Television advertisement that makes full disclosure of all material facts.

Under the Securities Act of 1933, which of the following is NOT a security?

A) A stock right.
B) Convertible stock.
C) A fixed life insurance contract.
D) A stock warrant.

Answer: C) A fixed life insurance contract.

Which of the following are NOT exempt from the antifraud provisions of the Securities Act of 1933?

U.S. government securities.
Investment contracts issued by employee benefit plans.
Securities issued by federal banks.

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

Answer: C) I, II and III.

Under the Securities Act of 1933, which of the following does not meet the definition of a prospectus?

A) An advertisement in a newspaper describing the benefits of a certain mutual fund
B) A telephone call from an agent of a broker-dealer to a client advising the purchase of a security
C) A publicity release that describes a security
D) A newsletter from a brokerage firm announcing the availability of a security

Answer: B) A telephone call from an agent of a broker-dealer to a client advising the purchase of a security

Under the Securities Act of 1933, the definition of an issuer would include:

I. a government entity issuing exempt securities.
II. a corporation issuing securities in an exempt transaction.
III. an antique dealer selling items from a collection of rare books.

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

Answer: B) I and II.

Under the Securities Act of 1933, the definition of a prospectus includes:

an offer of a security made orally.
a tombstone advertisement for a security.
an offer of a security made in a personal letter.

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

Answer: D) III only.
D) III only-an offer of a security made in a personal letter.

Which of the following does NOT have a federally imposed exemption from registration with the SEC?

A) Securities issued or guaranteed by a state or political subdivision of a state.
B) Commercial paper with maturities of 9 months or less where the proceeds are not used for capital expenditures.
C) Shares of bank holding companies traded on the New York Stock Exchange.
D) Securities issued or guaranteed by the U.S. government.

Answer: C) Shares of bank holding companies traded on the New York Stock Exchange.

Which of the following securities issues must be registered with the SEC under the Securities Act of 1933?

Publicly traded DPPs.
Variable annuities.
Open-end funds.
Closed-end funds.

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

Answer: A) I, II, III and IV.

All of the following must be sold with prospectus EXCEPT:

A) an open-end common stock fund.
B) an open-end U.S. government bond fund.
C) a primary offering of a closed-end fund.
D) a closed-end fund in the secondary market.

Answer: D) a closed-end fund in the secondary market

Which of the following are characteristics of the Securities Act of 1933?

I. Requires registration of exchanges.
II. Called the Truth in Securities Act.
III. Requires full and fair disclosure of material facts.
IV. Enabled the Federal Reserve Board to determine margin requirements.

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

Answer: B) II and III.
II. Called the Truth in Securities Act.
III. Requires full and fair disclosure of material facts.

One of the benefits of receiving incentive stock options from your employer rather than non-qualified stock options is:

A) it is not necessary to hold ISOs as long as NSOs.
B) the opportunity to receive long-term capital gains tax treatment.
C) the exercise price is usually below the current market price.
D) that more shares are generally available through ISOs than NSOs.

Answer: B) the opportunity to receive long-term capital gains tax treatment.

A corporation would like to offer their employees an opportunity to participate in the future growth of the company. Among the methods you might suggest are:

A) subordinated debentures.
B) employee stock options.
C) pre-emptive rights.
D) voting trust certificates.

Answer: B) employee stock options.

When one invests in a common stock, the opportunity cost of doing so exposes him to all of the following risks EXCEPT:

A) market risk.
B) systematic risk.
C) credit risk.
D) business risk.

Answer: Opportunity cost is the opportunity given up when an economic decision is made. In the investment field, it generally refers to the risks taken versus keeping money in a risk-free investment such as the 90-day Treasury bill. When one invests in common stock, there is no credit risk because there is no credit - stock is equity, not a debt.

Which of the following is responsible for administration of the Bank Secrecy Act?

A) The Financial Crimes Enforcement Network.
B) Securities and Exchange Commission.
C) Department of Health and Human Service.
D) Security Services.

Answer: A) The Financial Crimes Enforcement Network.

Which of the following statements regarding nonqualified stock options (NSOs) is(are) CORRECT?

I. The exercise of NSOs does not create taxable income.

II. The NSO is taxable to the recipient at the time of exercise to the extent of the difference between the fair market value of the stock and the exercise price.

A) Neither I nor II.
B) II only.
C) I only.
D) Both I and II.

Answer: B) II only.

Under the Securities Act of 1933, which of the following would be considered a prospectus?

I. Tombstone advertisement.
II. Television advertisement that makes full disclosure of all material facts.
III.Offer communicated over the telephone.

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

Answer: C) II only.

Under the Securities Act of 1933, which of the following is NOT a security?

A) A stock right.
B) Convertible stock.
C) A fixed life insurance contract.
D) A stock warrant.

Answer: C) A fixed life insurance contract.

Under the Securities Act of 1933, which of the following would NOT be considered a bona fide sale?

A loan of stock.
A bonus of stock given in conjunction with the purchase of another stock.
A gift of stock.

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

Answer: C) I and III.

Which of the following are NOT exempt from the ANTIFRAUD PROVISIONS of the Securities Act of 1933?

U.S. government securities.
Investment contracts issued by employee benefit plans.
Securities issued by federal banks.

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

Answer: B) I, II and III.

Under the Securities Act of 1933, which of the following does not meet the definition of a prospectus?

A) A newsletter from a brokerage firm announcing the availability of a security.
B) An advertisement in a newspaper describing the benefits of a certain mutual fund.
C) A telephone call from a broker to a client advising the purchase of a security.
D) A publicity release that describes a security.

Answer: C) A telephone call from a broker to a client advising the purchase of a security.

Under the Securities Act of 1933, the definition of an issuer would include:

I. a government entity issuing exempt securities.
II. a corporation issuing securities in an exempt transaction.
III. an antique dealer selling items from a collection of rare books.

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

Answer: D) I and II.

Under the Securities Act of 1933, the term "person" could refer to which of the following?

A subdivision of a government.
An unincorporated amateur athletic club.
A nonprofit, charitable corporation.

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

Answer: B) I, II and III.

Under the Securities Act of 1933, the definition of a prospectus includes:

I. an offer of a security made orally.
II. a tombstone advertisement for a security.
III. an offer of a security made in a personal letter.

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

Answer: D) III only.

Which of the following securities issues must be registered with the SEC under the Securities Act of 1933?

I. Public DPPs.
II. Variable annuities.
III.Open-end funds.
IV. Closed-end funds.

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

Answer: A) I, II, III and IV.

All of the following must be sold with prospectus EXCEPT:

A) a closed-end fund in the secondary market.
B) an open-end common stock fund.
C) an open-end U.S. government bond fund.
D) a primary offering of a closed-end fund.

Answer: A) a closed-end fund in the secondary market.

Which of the following acts requires full and fair disclosure of all material information about equity and debt securities offered for the first time to the public?

A) Securities Exchange Act of 1934.
B) Trust Indenture Act of 1939.
C) Securities Investor Protection Act of 1970.
D) Securities Act of 1933.

Answer: D) Securities Act of 1933.

Which of the following are characteristics of the Securities Act of 1933?

I. Requires registration of exchanges.
II. Called the Truth in Securities Act.
III.Requires full and fair disclosure of material facts.
IV. Enabled the Federal Reserve Board to determine margin requirements.

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

Answer: B) II and III.

A broker/dealer that is a financial advisor to a municipal issuer:

I. Cannot act as an underwriter of the issuers bonds in a negotiated underwriting and receive compensation for both services.
II. Cannot act as an underwriter of the issuers bonds in a competitive bid underwriting and receive compensation for both services.
III. May always act as an underwriter of the issuers bonds in a negotiated underwriting and receive compensation for both services.
IV. May always act as an underwriter of the issuers bonds in a competitive bid underwriting and receive compensation for both service.
A) II and IV.
B) I and II.
C) I and III.
D) II and III.

Answer: B) I and II.

Before a firm distributes a prepared summary official statement for a new issue of municipal bonds to customers, it must have the written approval of the:

A) firm's municipal securities principal.
B) MSRB.
C) issuer.
D) bond attorney.

Answer: A) firm's municipal securities principal.

The function of a broker's broker in the municipal bond business is to do which of the following?

Help sell municipal bonds that a syndicate has been unable to sell.
Protect the identity of the firm on whose behalf the broker's broker is acting.
Help prepare bids for an underwriting syndicate.
Serve as a wholesaler, offering bonds at a discount from the current bid and offer.
A) I and II.
B) I and IV.
C) II and III.
D) III and IV.

Answer: A) I and II.

A resident of Minnesota is in the 28% federal tax bracket and the 4% state tax bracket. This person must pay both federal and state taxes on:

A) Treasury bills.
B) Federal National Mortgage Association pass-throughs.
C) Minneapolis Housing Authority bonds.
D) Federal Home Loan Bank notes.

Answer: B) Federal National Mortgage Association pass-throughs.

Interest received on a California general obligation bond purchased by a San Francisco resident is exempt from:

A) capital gains taxes only.
B) state and federal income taxes.
C) federal income tax only.
D) state income tax only.

Answer: B) state and federal income taxes.

All of the following must be considered by an investment adviser representative before recommending a municipal security to a customer EXCEPT:

A) Municipal security's rating.
B) The municipality's coverage ratio.
C) Customer's state of residence.
D) Customer's tax status.

Answer: B) The municipality's coverage ratio.

The interest from which of the following bonds is subject to federal income tax?

State of Nebraska.
City of Duluth.
Treasury notes.
FNMA.
A) III and IV.
B) I and II.
C) I and III.
D) II and IV.

Answer: A) III and IV.

Which of the following statements regarding municipal bonds with call provisions are TRUE?

Call provisions are advantageous to the issuer.
Call provisions are advantageous to the investor.
Bonds are likely to be called in a falling interest rate environment.
Bonds are likely to be called in a rising interest rate environment.
A) I and III.
B) I and IV.
C) II and III.
D) II and IV.

Answer: A) I and III.

An investor is considering purchasing a bond. He has settled on either a 6% municipal bond offered by the state in which he lives or an 8% corporate bond offered by a company with headquarters in his state. He would like you to help him decide which bond will get him the greatest return for his investment. Which of the following items of information must you obtain before you can make a specific recommendation?

A) What other securities he owns.
B) His net worth.
C) His tax bracket.
D) How long he has been a resident of his state.

Answer: C) His tax bracket.

An insured municipal bond is purchased by your client in the secondary market. After the sale, MSRB rules would require you to:

A) send a copy of the Official Statement.
B) indicate that the bonds are insured on the confirmation because this is the only requirement.
C) make delivery of the certificates accompanied by evidence of insurance, either on the face of the certificates or in a separate document.
D) include a copy of the insurance policy with delivery of the certificates.

Answer: C) make delivery of the certificates accompanied by evidence of insurance, either on the face of the certificates or in a separate document.

In analyzing a municipal government obligation bond, an increase in all of the following would be a negative indication EXCEPT:

A) unemployment.
B) property values.
C) delinquent taxes.
D) municipal operating expenses.

Answer: B) property values.

All of the following would be indications of a deteriorating credit situation EXCEPT:

A) an increase in the per capita debt.
B) an increase in tax delinquencies.
C) an increase in personal bankruptcies.
D) an increase in municipal assessed valuations.

Answer: D) an increase in municipal assessed valuations.

The ratio of taxes collected to taxes levied might be used in the analysis of which of the following bonds?

A) IDR.
B) GO.
C) Pollution control.
D) Water control.

Answer: B) GO

All of the following might affect the credit rating of a municipal revenue issue EXCEPT:

A) the quality of the facilities management.
B) the tax rates of nearby municipalities.
C) the rate covenants set forth in the indenture.
D) the debt service coverage ratio.

Answer: B) the tax rates of nearby municipalities.

In the analysis of a general obligation bond issued by a county, negative factors would include

an increase in assessed property values.
an increase in the county's unemployment rate.
an increase in the percentage of tax payment delinquencies.
an increase in the number of office buildings being rehabilitated.
A) I and II.
B) I and IV.
C) III and IV.
D) II and III.

Answer: D) II and III.

All of the following would be considered when evaluating a municipal revenue bond's creditworthiness EXCEPT:

A) management expense.
B) competing facilities.
C) collection ratio.
D) coverage ratio.

Answer: The collection ratio shows the percentage of property taxes that are actually collected. This would be relevant in evaluating GO bonds, which are backed by the taxing authority of the issuer. Revenue bonds, however, are backed by user fees, not taxes.

Which of the following is NOT considered when trying to diversify a municipal bond portfolio?

A) Maturity.
B) Price.
C) Quality.
D) Geographical location.

Answer: B) Price.

All of the following statements regarding a municipality's collection ratio are true EXCEPT:

A) the collection ratio measures the municipality's property tax collections.
B) a poor collection ratio might mean the municipality is likely to default on its revenue bonds.
C) the collection ratio is calculated as follows: taxes collected divided by taxes assessed.
D) a high collection ratio is more favorable than a low collection ratio.

Answer: B) a poor collection ratio might mean the municipality is likely to default on its revenue bonds.

All of the following should be considered when creating a diversified municipal bond portfolio EXCEPT:

A) credit rating.
B) geographic location of the issuer.
C) revenue source backing the bonds.
D) denomination of the bonds included in the portfolio.

Answer: The denomination of the bonds in a portfolio is not relevant to diversification.

Which of the following is the computation for the coverage ratio for a municipal revenue bond issue?

A) Net revenue divided by annual interest and principal expense.
B) Revenues collected divided by annual interest expense.
C) Revenues collected divided by annual principal expense.
D) Annual interest and principal expense divided by revenues collected.

Answer: A) Net revenue divided by annual interest and principal expense.

Net overall debt of a municipality is:

A) net direct debt plus overlapping debt.
B) net direct debt minus overlapping debt.
C) funded debt plus overlapping debt.
D) funded debt minus overlapping debt.

Answer: A) net direct debt plus overlapping debt.

Which of the following would be considered in analyzing the credit worthiness of a revenue bond issuer?

Per capita debt.
Debt service coverage.
Management.
Debt to assessed valuation.
A) III and IV.
B) II and III.
C) I and II.
D) I and IV.

Answer: B) II and III.

For which of the following would the net revenue to debt service ratio be applicable?

A) School bonds.
B) Hospital bonds.
C) GO bonds.
D) Tax anticipation notes.

Answer: B) Hospital bonds.

An aluminum recycling plant has been financed via a revenue bond issued under a net pledge. All of the following costs would be deducted from gross revenue to determine the amount available for debt service EXCEPT:

A) treatment costs.
B) depreciation.
C) plant maintenance costs.
D) transportation costs.

Answer: B) depreciation.

Moody's Investment Grade (MIG) rating would be applicable to:

A) a New York State revenue anticipation note.
B) a New York state revenue bond.
C) a New York State GO bond.
D) a New York State university bond.

Answer: A) a New York State revenue anticipation note.

A municipal issuer's total debt is made up of which of the following?

Direct debt.
Defeased debt.
Overlapping debt.
Paid-up debt.
A) I and III.
B) I and II.
C) II and III.
D) III and IV.

Answer: A) I and III.

Which of the following ratios is normally considered adequate coverage of interest and principal charges for a municipal revenue bond?

A) 2 to 1.
B) 1 to 1.
C) 3 to 1.
D) 7.5 to 1.

Answer: A) 2 to 1.

Which of the following is least important to a municipal bond analyst?

A) Tax collection ratio.
B) Legality of the issue.
C) Debt service to annual revenues.
D) Revenue collection record.

Answer: B) Legality of the issue.

When a municipality is allocating funds from a revenue-producing facility under a net revenue pledge, the first priority is to:

A) pay operations and maintenance.
B) pay debt service, including principal and interest.
C) establish a reserve for bond retirement.
D) accumulate a surplus for facility expansion.

Answer: A) pay operations and maintenance.

A municipal revenue bond indenture contains a net revenue pledge. The following are reported for the year: $30 million of gross revenues, $18 million of operating expenses, $4 million of interest expenses, and $2 million of principal repayment. What is the debt service coverage ratio?

A) 9:1.
B) 3:1.
C) 2:1.
D) 5:1.

Answer: C) 2:1.

In rating a general obligation (GO) bond, all of the following factors would be considered by an analyst EXCEPT

A) the flow of funds
B) the total outstanding debt
C) the tax collection ratio
D) the public's attitude toward debt

Answer: A) the flow of funds

After an extensive feasibility study on the viability of a new shopping mall, the City of Mt. Vernon decided to issue bonds that depend on the earning requirements of the facilities. All of the following statements are true EXCEPT that:

A) rental revenues collected from shop owners within the mall will pay the bonds debt service.
B) the bonds are backed by the full faith and credit of the City of Mt. Vernon.
C) the city is issuing revenue bonds.
D) investor risk depends on the specific characteristics of the project.

Answer: B) the bonds are backed by the full faith and credit of the City of Mt. Vernon.

With bonds subject to a gross revenue pledge, the first priority will be to pay:

A) the sinking fund.
B) bond interest and principal.
C) operation and maintenance .
D) the first lien on the property.

Answer: B) bond interest and principal.

All of the following statements regarding a municipality's debt limit are true EXCEPT that:

A) revenue bonds are not affected by statutory limitations.
B) unlimited GO bonds may be issued when a community's taxing power is not restricted by statutory provisions.
C) the debt limit is the maximum amount a municipality can borrow in any one year.
D) the purpose of debt limits is to protect taxpayers from excessive taxes.

Answer: C) the debt limit is the maximum amount a municipality can borrow in any one year.
The debt limit is the maximum amount of debt a municipality can have outstanding.

All of the following statements regarding municipal revenue bonds are true EXCEPT:

A) no debt limitation is set by the issuing municipality .
B) revenue bonds can be issued by inter- or intrastate authorities.
C) the maturity of the revenue bond will usually exceed the useful life of the facility being built.
D) the interest and principal are paid from revenue received from the facility.

Answer: C) the maturity of the revenue bond will usually exceed the useful life of the facility being built.

A municipal bond rating service would consider all of the following when evaluating a revenue bond EXCEPT:

A) operating revenues.
B) the public's attitude toward debt.
C) the debt service coverage ratio.
D) feasibility studies.

Answer: Debt service coverage ratio, feasibility studies, and projected operating revenues are important to the analysis of a municipal revenue bond. The public's attitude toward debt is relevant in evaluating GO bonds, which are backed by the taxing authority of the issuer.

Moody's Investment Grade (MIG) Ratings are applied to:

A) corporate bonds.
B) money market instruments.
C) municipal notes.
D) municipal bonds.

Answer: C) municipal notes.

Which of the following choices is least similar to the others?

A) Financial Guaranty Insurance Corp.
B) Standard & Poor's.
C) Moody's.
D) Fitch.

Answer: A) Financial Guaranty Insurance Corp.

Which of the following statements regarding callable municipal bonds are TRUE?

Call premiums tend to increase over time.
Call premiums tend to decrease over time.
Call prices are stated as a percentage of the principal amount to be called.
Call prices are stated as a percentage of the market value of the bonds to be called.
A) II and IV.
B) II and III.
C) I and III.
D) I and IV.

Answer: B) II and III.

Municipal bonds are not normally sold short because:

A) short sales are prohibited by municipal statute.
B) short sales are prohibited by MSRB rules.
C) the transaction is expensive to execute.
D) the municipal bond market is illiquid.

Answer: D) the municipal bond market is illiquid.

In what order are distributions paid under a net revenue pledge?

The surplus fund.
The debt service account.
The operations and maintenance fund.
The debt service reserve account.
A) III, IV, II and I.
B) III, II, I and IV.
C) III, II, IV and I.
D) I, II, III and IV.

Answer: C) III, II, IV and I.

A municipality is allocating the revenues from an industrial revenue bond under a net revenue pledge. The first priority is:

A) reserve funds.
B) operation and maintenance.
C) bond interest.
D) sinking fund payment.

Answer: B) operation and maintenance.

Which of the following would be most likely to require a mandatory sinking fund?

A) A PHA.
B) A water and sewer revenue bond.
C) A GO.
D) A TAN.

Answer: B) A water and sewer revenue bond.

The purchaser of a GO municipal bond should be concerned with

property tax assessments
the maintenance covenant
market risk
feasibility studies
A) I and IV
B) II and III
C) II and IV
D) I and III

Answer: D) I and III

The call premium on a municipal bond trading above par is best described as the difference between:

A) the market price and the call price.
B) the amortized premium and the annual interest.
C) par and the call price.
D) the market price and par.

Answer: C) par and the call price.

Which of the following insures general obligation bonds?

A) Syndicate manager.
B) National Public Finance Guarantee Corp. and AMBAC.
C) SIPC.
D) FDIC.

Answer: B) National Public Finance Guarantee Corp. and AMBAC.

Which of the following governmental bodies receive the least amount of their revenues from property taxes?

A) Municipalities.
B) School districts.
C) State governments.
D) County governments.

Answer: State governments generally do not assess property (ad valorem) taxes. These are assessed by local governments. Generally, state governments receive most of their income from sales and income taxes.

Debt service is best described as the:

A) net interest on a new issue of a municipal bond .
B) total of interest and principal payable by the issuer plus any amount required to be deposited into a sinking fund.
C) services provided by the paying agent for a bond issue.
D) total of the direct debt of a municipality and the debt of its political subdivisions.

Answer: B) total of interest and principal payable by the issuer plus any amount required to be deposited into a sinking fund.