Security Industry Essentials Practice Test 21

1. Investment company financial statements are sent to shareholders

A. semiannually.

B. annually.

C. quarterly.

D. monthly.

2. When a broker-dealer acts on an agency basis to help a customer complete trades, the firm normally is compensated through

A. mark-ups.

B. commissions.

C. transaction surcharges.

D. asset-based fees.

3. When opening a margin account, the agreement that customers sign to pledge their securities as collateral for a loan from the broker-dealer is the

A. hypothecation agreement.

B. loan agreement.

C. re-hypothecation agreement.

D. margin agreement.

4. The credit quality of an exchange-traded note is

A. always difficult to determine owing to the lack of disclosure required when selling these products to the public.

B. usually very strong, since they are commonly sold by broker-dealers who must meet minimum capital standards.

C. based on the credit worthiness of the issuer, typically the investment bank that structures the note.

D. primarily connected to the strength of the underlying security.

5. A registered representative located in California makes a 7:30pm cold call to a potential customer in New Jersey. This is

A. permitted because the call occurred between the hours of 8am and 9pm.

B. permitted as long as the registered rep had prior verbal consent from the potential customer.

C. permitted as long as the potential customer is not on the do-not-call-list.

D. prohibited because cold calls can only be made between 8am and 9pm in the potential customer's time zone.

6. When comparing rights and warrants, which of the following statements is TRUE?

A. Rights are often added to bond issues as sweeteners; warrants are offered to existing shareholders to permit them to maintain their proportionate interest in the company when additional shares are issued

B. Warrants have shorter expiration periods than rights

C. Warrants protect shareholders against dilution, rights do not

D. The exercise price of a right is generally below the price of the stock when the right is issued; the exercise price of the warrant is generally above the price of the stock when it is issued.

7. Helen opened a Roth IRA last year and wants to know what part of this year's contributions she can deduct. The answer is

A. she can't deduct any amount.

B. she can deduct 100%.

C. it depends on her age.

D. it depends on her income.

8. Investors whose bonds have been called as interest rates have fallen are now facing

A. capital risk.

B. reinvestment rate risk.

C. inflation risk.

D. credit risk.

9. Dollar limits on 529 plan contributions per beneficiary are set by

A. the Municipal Securities Rulemaking Board.

B. the federal government.

C. the College Board.

D. various states.

10. During the accumulation phase of a variable annuity, dividends, interest, and capital gains

A. may be reinvested without any current tax liability.

B. may be withdrawn with no tax implications.

C. are taxed as capital gains if the contract is non-qualified.

D. are taxed as ordinary income if the contract is non-qualified.

11. A customer requests in writing that his account statements be held by the firm while he spends the winter in Florida. In response to the customer's request, the firm is permitted to honor the request

A. for a maximum of three months.

B. for the time period specified by the customer.

C. for a maximum of two months.

D. for a maximum of one month.

12. With regard to the price of closed-end fund shares held by investors which of the following statements is TRUE?

A. Shares are sold at a discount when the securities in the fund have increased in value relative to their NAV

B. Shares are sold at the price calculated at the close of business on that day

C. Shares may be sold at a discount or premium to their NAV

D. The price is set by formula each business day

13. The order of liquidation in a limited partnership is

A. general partner, secured bondholder, limited partner, unsecured bondholder.

B. secured bondholder, unsecured bondholder, limited partner, general partner.

C. secured bondholder, general partner, unsecured bondholder, limited partner.

D. general partner, limited partner, unsecured bondholder, secured bondholder.

14. Which of the following is not an example of a restricted person under FINRA rules?

A. The brother-in-law of a restricted person

B. The child of a restricted person

C. The uncle of a restricted person

D. The spouse of a restricted person

15. Which of the following interest rates is established by the Federal Reserve Board?

A. Money Market rate

B. Discount rate

C. Prime rate

D. Fed Funds rate

Security Industry Essentials Practice Test 21

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