securities backed by the general credit of the issuers but no specific collateral. And in the case of some issuers, that may be fairly worthless.

White’s. White’s ratings are based on trading market data as opposed to the financial data of the issue, which is used by Moody’s as well as S&P.

when the new issue of securities is purchased pursuant to a best effort basis. All the other choices are allowable under the rule “except” this one.

selling the security he already owns. A “covered” call is written on stock already owned.

5.88%. The current yield is the annual interest divided by the price. The bond will pay $50 of interest per year ($1,000 face amount times 5%). Dividing by the price of $850 equals 5.88%.

the company files regular financial data with the SEC. Rule 144 transactions may use either agency or principal methods.

earnings retained after payment of dividends to shareholders. The other choices are clearly incorrect. Earned surplus is also referred to as retained earnings.

deductions from gross income to offset lower value of equipment. The cost of equipment is deducted from gross income over the life of the equipment, as its value declines.

new housing authority bonds issued by a public housing authority. Only housing bonds are backed by the US government if municipalities are unable to meet the obligations for payment.

predictions of recession in the economy. All of the other choices are technical market indicators. An economic forecast is “fundamental” market data.

they are adjusted for cash dividends. This is the statement that is “not” true.

accepting compensation from any other partnership. A general partner may be the partner is more than one partnership.

$200. Since XYZ is trading at 72, a November 65 call has an intrinsic value of $700. A sale at that value compared to the cost of $300 is a profit of $400. Subtract the loss of $200 on the expired put to obtain the profit of $200.

a public school. Schools are typically financed by general obligation bonds. The other choices are examples of revenue bonds.

flow of funds. This is the definition of the term flow of funds.

regulated. The term “regulated” refers to tax status under Subchapter M of the Internal Revenue Code. This simply means that if a mutual fund or other investment company qualifies for regulated status, the threat of taxation at multiple levels is eliminated.

$500. Bubba sold short at $58. The call with a strike price of 60, gives him the right to buy back the stock at $60. If the stock rises, the call can be used to limit the loss to 2 points. Bubba can lose $200 on the stock. Bubba also paid a $300 premium. Loss potential is $500.

a SIMPLE. IRAs are for any individuals, not just small employers. The other choices do not exist.

the buyer is given one-day notice in writing. A contract made on a “seller’s option” may be terminated by the seller at an earlier date, provided that he gives the buyer one-day notice.

they are not secured by collateral. Equity is ownership, which has no collateral security…or any other kind of security such as a guaranteed return, maturity, or marketability.

investment advisor. The custodial bank is usually also selected for other functions, but not as investment advisor. That assignment is generally performed by a special advisory firm or the mutual fund management company.

the registered representative. Assuring that limited partners meet net wroth and income requirements is the responsibility of the registered representative.

a little less than 49.38. Bubba needs a calculator to divide the par value of the preferred stock by the price of the common stock. He then divides the result into the price at which the preferred stock is trading.50 divided by 47.50 = 1.05352 divided by 1.053 = 49.38.

net income from dividend and interest paid on securities in the fund portfolio. This is the definition of net investment income, which excludes gains on sales of securities.

only time and price of execution are involved. The only exception to the discretionary rule is when the customer gives discretion regarding time and price of execution.

higher than the strike price of the option. The premium paid is not relevant. All that matters are the strike price of the option relative to the market value of the underlying stock.

breakpoint. This is the dollar value at which the sales charge is reduced.

all of the above. All of the choices are normal ways for the broker to fill the customer’s order.

firm commitment. The term underwriting means a guarantee to the issuing corporation. This is a firm commitment, unlike a best efforts offering where there is no guarantee.

a fundamental analyst. These analysts are guided by computations about a company’s performance using data in annual reports.

the custodian may perform an essential clerical service for the fund and its shareholders. The custodian holds the cash and securities of the investment company and performs the bookkeeping functions. It does not have a supervisory role.

stay the same. The SMA does not decline as the market value declines.

balance sheet. This report reflects the entire condition of the company by showing all assets, liabilities, and components of net worth.

a penalty of 10% of the withdrawn is assessed. Bubba also owes regular income tax on the withdrawn amount in addition to the 10% penalty for early withdrawal.

$3,900. The requirement for short accounts is 30% of the current market value. The market value is $13,000 ($28,000 - $15,000). Multiplying by 30% equals $3,900.

a balanced fund. A balanced fund varies its investments among these categories of holdings.

warrants. All of the other choices receive dividends if they are declared. But only warrants are a specific security that never pays dividends.

dividends. Net income is determined before dividends.

36,000. Under Rule 144 up to one percent of the outstanding shares or the average weekly volume for the preceding four weeks, whichever is greater. The total volume for the last four seeks was 144,000 shares. The average is therefore 36,000 shares. This is greater than one percent of the shares outstanding (35,000).

FINRA. Sales literature regarding investment company shares must be filed with FINRA within three days after the first use.

US Treasury bill. T-bills are quoted by yield. Therefore, the bid is higher than the asking price. A higher yield means a lower price.

$100 profit. The long position in the June call is a $200 profit ($1,200 - $1,000). The short position in the March call is a $300 loss ($900 - $300). Combining the gain and loss results in a $100 loss.

public utility companies. Interest rates most affect the companies with the greatest amount of debt. Public utility companies are highly leveraged. Hence, they most likely incur the largest effect of rising interest rates.

after the bills are paid and the bank is paid, but before the preferred shareholders. As a creditor, Bubba is paid before any of the shareholders. But his position is subordinated to other creditors, like the bank and accounts payable.

financing charges. In a triple net lease, the tenant is responsible for taxes, insurance, and maintenance.

all of the above. A broker/dealer must demonstrate that what is said or printed about a product is not fraudulent. Representing a mutual fund as safer than any of the choices above is likely fraudulent.

90 days. To avoid a forced sale, stock many be sold under Rule 144 over a 90-day period.

$2,000. Bubba started with $6,000 of equity and a debit balance of $4,000. The market value of his XYZ stock increased by $5,000 ($15,000 - $10,000). Therefore, his equity increased to $11,000. Since Bubba only needs 60% equity, his Reg T requirement is $9,000 ($15,000 x 60%). His equity exceeds the requirement by $2,000.

cash. Index options are settled by payment of cash.

secured lenders, general creditors, limited partners, general partners. Creditors first, in order of their security, then partners. General partners are last.

$9,000. Credit balances in short accounts do not change because of fluctuation in market prices. The initial deposit of $3,000 ($6,000 x 50%) plus the $6,000 from the short sale leave a credit balance of $9,000.

under no circumstances. An FINRA member firm may not, under any circumstances, allocate shares to itself, any of its employees, or to any employee of a firm that underwrites securities.

all of the above. Each of these actions by a limited partner causes the loss of limited liability.

no later than the fifth business day after the trades. Bubba should pay up no later than the fifth business day.

$79. Bubba’s breakeven is his cost of the stock less the premium he received ($83 - $4).

results in compounding of shares, which can be an important factor for investment growth. Reinvesting dividends and capital gains increases the number of shares owned. Occasionally, these programs permit purchases at net asset value, but never below that price. Shareholders do not avoid current tax liability on the amount of dividends and capital gains reinvested.

25. The conversion ratio is how many shares of common stock Bubba obtains by converting. Divide the bond price - $1,000 for a single bond - by the $40 conversion price.

agency sales OTC. Markup policy applies to basically all securities other than government and municipal offerings expect where the security is offered under a current prospectus. Choices C and D are offered under a prospectus. Choice B involves municipal securities. Therefore, choice A is the only correct answer.

the selling group’s determination of value in the prevailing market conditions. The offering price is determined by factors related to the issuer.

in-whole calls. Price to call computations are based upon in-whole calls only. These calls will result in all bondholders being called simultaneously, thus guaranteeing a minimum yield to all.

the custodian can also be the transfer agent. This has become increasingly common. None of the other choices are correct.

unit investment trust company. This is an example of a fixed trust, which is a type of unit investment trust.

machinery and pipe. These are tangible fixed assets and not associated with intangible drilling costs.

restricted stock acquired via open market purchase. The two-year holding period does not apply when the security is acquired in the open market. However, if the security is owned by a control person, the other provisions of Rule 144 do apply.

500 votes. Under cumulative voting, the number of directors is multiplied by the number of shares owned. The votes may be cast all for a single director or divided in any manner among the directors.

10. If a customer fails to deliver securities within ten days after settlement, the broker must repurchase the securities.

it must be sold only to bona fide residents of one state. Under Rule 147 intrastate offerings are sold only to residents of one state and cannot be sold outside that state for nine months. All the other choices are incorrect about the rule.

six months after the date of death. A second evaluation is made six months from the date of death. The estate may then use either value in determining estate tax.

bylaws. The bylaws of a condominium association provide general details about management.

regulated. Investment companies regulated by the Internal Revenue Code Subchapter M are required to pay out a minimum of 90% of their net income annually to their shareholders.

19 7/8. The markup is always based on the current market price, not upon cost. Therefore, the markup is based on the offering side of the current quotation.

98.96. A calculator is not required for this. Even Bubba knows the bond is obviously trading at a slight discount by yielding 5.10% instead of the coupon rate of 5%. If the yield was the same as the coupon rate, the price is 100.00.

liquidate the securities or otherwise cancel the transaction. Reg T requires the position closed if the customer fails to comply with the rules. An extension may be granted, but not by the member firm. Only an exchange or the FINRA grants extensions for bona fide reasons.

reclamation. In a reclamation a dealer requests that another dealer reclaim an improper delivery.

a Western account. In a Western account each underwriter has a divided liability and is responsible only for his portion of the issue. In Eastern accounts, generally used for municipal issues, the underwriter is responsible for a percentage of any unsold portion. This is called an undivided liability.

$3,000. The maximum contribution is 25% of compensation. That percentage of $12,000 is $3,000.

money spread. Since the strike prices are different, but not the expiration date, this is a money spread (sometimes called a “price spread” or a “vertical spread”).

NAV=$28.14 and Asked Price=$27.75. In this case the ask price is less than NAV, which is never true of an open-end investment company.

preemptive rights. Holders of ADRs do not have preemptive rights, although they have most other rights of shareholders, including the right to vote for board members-even a mother-in-law

the customer becomes a general creditor of the insolvent firm for the amount of deficiency. After the SIPC coverage is exhausted, the customer becomes a general creditor. Due to the insolvency of the broker/dealer, there is no likelihood of the customer receiving restitution.

they mature one to three years from the date of issuance. Remember the question asks what is “not” a characteristic of treasury bills. The other choices are aspects of treasury bills, which most commonly have maturities of 90 days but never longer than one year.

$1,500. The NYSE minimum requirement is the lower of $2,000 or 100% of the account.

8%. The sales charge in this case is $1.44. Dividing that into the offering price of $18.04 results in 8%.

commodities account in Bubba’s name only. SIPC does not cover commodities accounts.

face value. The price is 100.00 if the yield is the same as the coupon rate. A price of less than 100.00 means the yield is higher than the coupon rate. A price of more than 100.00 means the yield is lower than the coupon rate. The prices are a percentage of 100.00. However, treasury bonds and municipal bonds are not quoted in this way.

$180,000. Subtract current liabilities from current assets. Current liabilities are $170,000 ($460,000 - $290,000).

$100. This is the maximum per FINRA rules.

providing short-term capital needs to client companies. The short-term capital needs of companies are normally the function of commercial bankers, not investment bankers.

$8.50. Subtract the preferred dividend of $800,000 (100,000 x 8% x 100) from the net income. Divide the result of $3,400,000 ($4,200,000 - $800,000) by the 400,000 common shares to obtain $8.50.

expected average life. The average life of a CMO is the length of time that each dollar of invested principal is expected to remain outstanding. Pricing of CMOs is based upon this factor.

only after the SEC specifically clears the issue in writing to the principal underwriter. The registration statement becomes effective when notice is received in writing from the SEC.

$3,000. With Reg T at 50%, Bubba’s equity should be half of the $30,000 account value, which is $15,000. Since his equity is $18,000 Bubba has $3,000 of excess equity.

determined by a method set forth in the prospectus of the issuer. The method is described in the prospectus. It uses the net asset value plus any sales charge

next computed after receipt of the order by the dealer. This is called “forward pricing”.

Generally, the price is computed as of the close of the market on the day of the order. However, if the order is received after this computation, the order is executed based upon the next day calculation.

60 days. ERISA permits 60 days for rollovers.

the official notice of sale. All bid requirements are found in the official notice of sale.

Regulation U. Regulation T is the extension of credit by broker/dealers. Reg U relates to the extension of credit by banks on securities.

270 days. A characteristic of commercial paper is relatively short duration, normally not exceeding 270 days.

take no action as a result of the tax increase. Excise taxes normally are not important to the typical investor. They generally have little relative effect on securities prices.

$10. Interest rates increased by 20 basis points. One basis point is 10 cents. So 20 basis points is $2. But…since there are five bonds, that $2 x 5 = $10.

a $600 loss. The strike price and Bubba’s purchase price are the same. He has a $600 loss on the option for the premium he paid.

expense ratio. Custodial fees are negligible and the sales charge is a one-time expense. The “best” reflection of mutual fund costs is the expense ratio.

ease credit. A lower reserve requirement permits member banks to have more money available for lending, thus ease credit.

yield to maturity. The premium or discount in the security price relative to par value is considered when computing the yield to maturity.

$7,500. The short sale transaction is $5,000. The Reg T required deposit is $2,500 ($5,000 x 50%). Adding both results in $7,500.

all of the above. All of the choices are required information for the registered representative to obtain.

money laundering. Potential money laundering activities include excessive wiring of money between accounts.

under no circumstances. No guarantees may be made against loss of market value because no one can guarantee the direction of the market. Insured bonds are protected against loss of principal and interest but not against market value depreciation.

it includes a markup. A market-maker acts as principal. Therefore, Bubba pays a markup but not a commission.

American Depository Receipts. American Depository Receipts are used to facilitate transfer of ownership in foreign securities. They are not money market instruments.

tax anticipation bill. These obligations pay no interest and their maturity comes after corporate tax payment dates. They are accepted for redemption at face value prior to maturity on corporate tax payment dates to encourage purchase by corporations.

a contractual plan. The other choices are not suitable. In a voluntary accumulation plan, the load is level. In an automatic withdrawal plan, the load is front -end because the bulk of the sales charge is taken early in the life of the plan.

in a community property state a married woman must open a brokerage account with her husband. All of the other choices are true. Only choice A is “not” true.

premium. That’s the term for the option cost.

a pension fund. Since the pension fund does not pay income tax, the tax benefits of the municipal bonds are not realized.

21,000. The underwriter is permitted to retain 70% of the 30,000 shares. The remaining 9,000 shares are kept in the pot by the manager.

commercial paper. The sizes of secondary markets for these securities are listed in order with treasuries first, then banker’s acceptances, followed by certificates of deposit. There is only a very small secondary market for commercial paper.