Institutional investors are typically large entities that pool their money to purchase securities. Institutional investors include banks, insurance companies, pension plans, endowments, and hedge funds. Some accredited investors may also be institutional investors, but not all Show FINRA defines institutional investors as: Under Regulation D, the definition of an accredited includes individuals who meet either one of the following two criteria: Have a net worth of at least $1 million (excluding their primary residence) or, In a limited partnership, a general partner's minimum participation in profits and losses is: ___ % According to tax law, a general partner must have at least a 1% participation in profits and losses for a business to maintain limited partnership status. The payout on a variable annuity is based on a: Fixed number of annuity units with a fluctuating value per unit If mutual fund has a breakpoint at $100,000, which of the following purchases is a breakpoint sale? A solicited purchase at $99,000 A change in which of the following choices does NOT require the broker-dealer to send a notice to the customer? A person pleaded guilty to a charge of
counterfeiting and bribery five years ago. He has now been released from prison and is applying for an investment banking position with your firm. Which of the following statements is TRUE regarding his eligibility for current employment in the securities industry? B He is subject to statutory disqualification and is not currently eligible to be hired Anyone who has been convicted of a misdemeanor related to securities, or any felony during the last 10 years, is subject to statutory disqualification. A guilty plea is the equivalent of a conviction. Thus, Harry would not be allowed to reenter the securities industry until another 5 years have elapsed. An employee at your firm is scheduled to meet for dinner with an employee of another firm to discuss a joint business venture. Your firm's employee is unable to attend and agrees to pay for dinner without attending. This would be considered: A gift Since your firm's employee did not attend the event, the dinner is considered a gift and subject to FINRA's $100 gift limitation. Which of the following statements is NOT TRUE concerning the opening an account for a
new client? The client must sign the new account form. The untrue statement is that the client must sign the new account form. Although many firms have internal rules which require the customer's signature, FINRA doesn't require it. Each of the other statements are true. Which of the following is not subject to the Investment Company Act of 1940? Hedge fund In a 529 plan, can an individual be both the donor and the beneficiary? A person of legal age can contribute and also be the beneficiary of a 529 plan. The funds can be withdrawn tax-free for qualifying education expenses. An IRA that allows for non-deductible contributions, limits the amount able to be contributed to the lesser of 100% of earned
income or $6,000 per year, and allows for qualified distributions to be taken tax-free after age of 59 1/2 is a/an: Roth IRA non-deductible contributions mean deductible contribution mean Funds collected from 12b-1 fees cannot be used to pay for which of the following fund expenses? Commissions paid for executing trades in the fund's portfolio For mutual funds, 12b-1 fees are charged to cover the costs of distributing the shares. This includes sales concessions that are paid to registered representatives (also referred to as trailers), printing the fund's prospectus, and expenses related to creating the fund's website. However, 12b-1 fees are not used to cover the cost of executing trades in the fund's portfolio. (17534) Which of the following investors typically are entitled to vote? Common stockholders only While both common and preferred stockholders are considered owners of the company, typically only the common stockholders may vote. Bondholders do not typically have voting rights. ABC Brokerage,
a broker-dealer, purchases 600 shares of stock from a market maker to fill a customer's buy order. ABC has acted as a: C) Agent When a broker-dealer buys a security from a market maker (dealer) on behalf of its customer, it is acting as a broker (agent).The client is charged a commission on the transaction. If the firm bought the security for its own account, or sold the security to a client from its inventory, it is acting as a dealer (principal). The client in this case is charged a markup or markdown. it is a statistics that tracks all money coming in verus going out of the economy. So, it counts both imports vs. exports and investments and other financial
transactions. Foreigners are paying off loans to Americans banks since money in coming in then it would lead to a balance of payments surplus for US Which of the following choices helps the U.S. balance of payments? Foreign investments in the U.S. will direct money into the country, helping the U.S. balance of payments. An individual wants a real estate investment that offers tax benefits and provides the ability to share directly in the earnings of the business. Which of the following BEST meets those objectives? DPP Direct participation programs (DPPs) can be businesses that invest directly in real estate programs. Investors in these programs are considered owners of the business. These owners benefit from various tax benefits (tax deductions and credits) and also from the ability to share directly in the revenues. REITs invest in real estate properties and/or debt, but deductions and revenues don't flow through the trust. ETNs and ETFs are products that trade like debt or equity investments. May a brokerage firm place a temporary hold on a securities transaction? No, since this is beyond the scope of SRO rules. An uncle would like to invest for his nephew's college education. Which of the following factors is a benefit of a 529 plan? The owner of a 529 plan may change beneficiaries. Contributions are made on an after-tax basis, and are based on state rules, which vary from state to state. Contributions are limited, and vary by state. Which of the following is NOT a characteristic of preferred stock? It carries voting rights The board of directors must declare dividends for both common and preferred stock. Neither common nor preferred stockholders are guaranteed a dividend. Preferred stock normally has a fixed dividend. Preferred stock does not have voting rights, only common shares may vote. Which of the following statements describes the greatest risk associated with
mortgage-backed securities? Falling interest rates might accelerate early repayment of principal 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 are municipal revenue bonds that are payable by the state if revenues from the project do not satisfy debt service payments. However, in order for the state to service the debt, approval of the state legislature is required. Double-barreled bonds are issued as revenue bonds that are additionally backed by the general obligation of the full faith and credit of the issuing municipality. If a bond is selling at a premium and is callable at a premium, the yield would be calculated based on: A The yield-to-worst If a bond is selling at a premium and callable at a premium, the yield may be calculated to the final maturity or to the call date, whichever is less. Industry rules require broker-dealers to quote the lower estimate of the yield-to-call or the yield-to-maturity. In each case, the investor would receive a quote based on the most conservative scenario, which is referred to as the yield-to-worst. For a bond that is selling at a premium and is callable at par, the yield is calculated to the call date. The yield-to-call measures the yield that would be earned if the bonds were called at the call price, rather than being held to the maturity date. If a bond is selling at a discount and callable at par, it is quoted on a yield-to-maturity basis. If a bond is selling at a discount and callable at par, it is quoted on a yield-to-maturity basis. A reverse repurchase agreement is sometimes referred to as: C A matched sale A reverse repurchase agreement is also referred to as a matched sale and is created when the Federal Open Market Committee (FOMC) sells securities to dealers with the intention of buying the securities back at a future date. This activity has the short-term effect of absorbing (removing) funds from the money supply. Federal funds or fed funds are the monies that are borrowed overnight on a bank-to-bank basis. Three-month and six-month Treasury bills are auctioned by the Federal Reserve
Board: When selling a security for a customer, all of the following items MUST be included on the sell order ticket, EXCEPT: C The customer's Social Security number An sell order ticket doesn't include the customer's Social Security number. An order ticket must include the customer's account number, the number of shares or par value (for a bond), a description of the security, limitations (e.g., limit, stop), and whether it is a buy or sell order. If it's a sell order, the location of the security (long or short) must be indicated. For discretionary accounts, the ticket must indicate whether discretion was exercised. A limited partner would be in jeopardy of losing her limited liability if the partner: B Assisted in the decision of which properties to acquire Limited partners have the right to receive their portion of income and losses, examine books and records, and make loans to the partnership. If they get involved in the management of the program, such as deciding which properties to acquire, they could be considered general partners and lose their limited liability. Within a brokerage firm, a registered representative solicits customers to purchase securities, another person works in the firm's cashier's department as a clerk, a managing director supervises the research department, and a consultant has been brought in to work on an accounting project. Which of these persons is NOT required to be fingerprinted? C The consultant Fingerprints are required of any securities industry person who is engaged in the sale, recommendations, or transactions of securities, or any person who regularly has access to the keeping, handling, or processing of securities, monies, or the original books and records relating to securities or monies. In addition, any person who has direct supervisory responsibility over any persons who are engaged in these activities is required to comply with these regulations. The consultant is neither engaged in the sale or handling of securities nor responsible for the firm's books and records and is therefore not required to be fingerprinted. Fingerprints are required of any securities industry person who 1 is engaged in the sale, recommendations, or transactions of securities 2 or any person who regularly has access to the keeping, handling, or processing of securities, monies, or the original books and records relating to securities or monies. 3 In addition, any person who has direct supervisory responsibility over any persons who are engaged in these activities is required to comply with these regulations. Increasing the yield on a portfolio is a benefit of doing what to an option? writing, not purchasing, call options. Increasing the yield on a portfolio is a benefit of writing, not purchasing, call options. mutual fund's operating expense includes The operating expenses include management fees (which is usually the largest expense) and the fee paid to the fund's custodian. mutual fund's expense ratio (operating expenses divided by total net assets) mutual fund's Total net assets are Total net assets are the fund's assets minus liabilities. what's not considered in mutual fund's The relative of an 85-year-old account holder contacts the registered representative of the account and requests that funds be transferred to her account which is also held at the same firm. If the RR suspects financial exploitation, which of the following is the BEST course of action? Attempt to resolve the matter with the customer prior to placing a temporary hold. According to FINRA, if an RR suspects financial exploitation of a senior investor, he should first attempt to resolve the matter prior to placing a temporary hold on the account. The fact that both accounts are held at the same firm is irrelevant. For the buyer of an option, the premium paid is considered the: Maximum risk For the buyer of an option, the premium paid represents the maximum loss (risk). On the other hand, for the seller of an option, the premium received represents the maximum gain. May a brokerage firm place a temporary hold on the transfer of securities? Yes, for the account of a senior investor. FINRA rules permit a brokerage firm to put a temporary hold on the disbursements or transfers of funds and securities, but not on securities transactions. The temporary hold only applies to the account of a specified adult. A specified adult is a person who is age 65 or older or a person who is age 18 or older and who the firm reasonably believes has a mental or physical impairment that renders her unable to protect her own interests. Regarding communications, which of the following statements is TRUE concerning the responsibilities of a principal of a broker-dealer? A principal must approve retail communications prior to use. A principal must approve retail communications prior to use. However, institutional communications and correspondence are subject to review and supervision by a principal, but not pre-approval. A brokerage firm will generally distribute which of the following to employees of the firm? Restricted and watch lists include securities that employees are either restricted or prohibited from trading, or issues that are subject to closer scrutiny by the brokerage firm. The restrictions or limitations associated with the lists apply to employee transactions and to solicited transactions with customers. The restricted list must be distributed to employees; however, the content of the watch list is generally known only to selected members of the legal and compliance departments. A brokerage firm creates an in-house, non-cash incentive program. This is permitted if it's tied to the RR's sale of which of the following products? A All securities products that are sold by the RR A All securities products that are sold by the RR A broker-dealer is permitted to create its own internal sales programs that offer non-cash incentives, such as merchandise and vacation trips. However, FINRA places some restrictions on these arrangements. One of the restrictions requires that non-cash incentive programs be based on an RR’s total production for all securities products sold, rather than being based on the sale of any specific products. The products may be created by a different broker-dealer, such as a mutual fund sponsor. Which of the following is a reduction in the rate of inflation? C Disinflation Disinflation is considered a slowing down in the increase in the level of prices. A significant decline in the general level of prices is referred to as deflation. On the other hand, inflation is an increase in the level of prices. Expansion is the phase of the business cycle during which inflation is a characteristic. All of the following are features of a Roth IRA, EXCEPT: A Roth IRA is a non-deductible type of IRA that offers various benefits to individuals who are preparing for retirement. If a distribution is considered qualified, it is tax-free. A qualified distribution must satisfy a five-year holding period and must be made: after age 59 1/2 The maximum annual contribution is the lesser of $6,000 or 100% of earned income for both Roth and traditional IRAs. Which characteristic is shared by both fixed and variable annuities? Both fixed and variable annuities provide for the tax-deferral of earnings (i.e., investors are not required to pay taxes on income or gains until they withdraw from the annuity). Unless an annuity is specifically identified as qualified, it doesn't allow for tax-deductible (pre-tax) contributions. Fixed annuities offer a fixed rate of return, while variable annuities offer a variable (i.e., non-guaranteed) rate of return. Which of the following activities is NOT performed by a transfer agent? C Maintaining the issuer's ownership register for each issuance of securities The transfer agent is responsible for the issuance and cancellation of certificates to reflect changes in ownership, acting as the company’s paying agent for interest payments on bonds and for cash or stock dividends on equities, acting as proxy agent (sending voting materials) and mailing agent (mailing the company’s financial reports to shareholders), as well as handling lost, destroyed, or stolen certificates. However, maintaining the issuer's ownership register for each issuance of securities is the role of the registrar. An Operations Professional is notified by a registered representative (RR) that he has received a written complaint from a customer. The RR informs
the Operations Professional that the issue is now rectified and no further action is required. What is the MOST appropriate action for the Operations Professional to take? Notify the principal of the complaint Registered representatives are not permitted to take action on complaints. The complaint should be forwarded immediately to the principal/supervisor to determine what, if any, action should be taken. What is a breakpoint in mutual funds?Breakpoint discounts are volume discounts to the front-end sales load charged to investors who purchase Class A mutual fund shares. The extent of the discount depends on the amount invested in a particular family of funds.
What purchase amount would constitute a breakpoint sale?A breakpoint sale is the sale of fund shares just below the point where a sales charge is reduced in order to maintain the higher commission.
What is the breakpoint calculation for mutual funds based on?Breakpoints are determined by the mutual fund and integrated within the fund distribution process. Rights of accumulation (ROA) grant existing holders of mutual fund shares the potential for reduced loads (commissions) when purchasing more fund shares to reach breakpoints.
Which of the following statements best describes a breakpoint sale?Which of the following statements best describes a breakpoint sale? The correct answer was: Sale of investment company shares in dollar amounts slightly below the point at which the sales charge is reduced on quantity transactions, to make a higher commission. A breakpoint sale is a violation of the Conduct Rules.
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If mutual fund has a breakpoint at $100,000, which of the following purchases is a breakpoint sale?
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