Practice Exam 1

A registered representative wants to cold call prospective clients about investment opportunities. According to Do-Not-Call regulations, which of the following individuals may the rep call?

• A) Anyone not on the national Do-Not-Call registry
• B) A person who has had a business relationship with the firm in the past 18 months
• C) A person on the state Do-Not-Call list but not the national list
• D) Anyone during business hours

Which of the following requires principal pre-approval before first use?

• A) A letter to an existing customer about their account
• B) Sales literature sent to 30 retail investors
• C) An email to an institutional customer
• D) Internal training materials

Under FINRA rules, which entity is automatically considered an institutional customer regardless of its assets under management?

• A) A hedge fund with $30 million in assets
• B) A corporation with $40 million in assets
• C) A registered investment adviser
• D) A wealthy individual with $100 million net worth

An investor opens a joint account with the right of survivorship (JTWROS). If one owner dies, what happens to the account?

• A) The account is frozen until probate is complete
• B) The deceased owner's share passes to their estate
• C) The surviving owner automatically inherits the entire account
• D) The account must be closed and assets distributed

Which of the following is NOT a component of the three-part suitability obligation under FINRA Rule 2111?

• A) Reasonable-basis suitability
• B) Customer-specific suitability
• C) Product-specific suitability
• D) Quantitative suitability

Before a customer can trade options, the firm must:

• A) Obtain a signed options agreement within 15 days of account approval
• B) Verify the customer has at least $50,000 in liquid assets
• C) Ensure the customer has passed the Series 7 exam
• D) Wait 30 days after account opening

An investor buys 1 XYZ Jan 50 call at $4. What is the breakeven point?

• A) $46
• B) $50
• C) $54
• D) $58

An investor writes 1 ABC Dec 40 put at $3. The stock falls to $32 at expiration. What is the investor's profit or loss?

• A) $500 profit
• B) $500 loss
• C) $800 profit
• D) $800 loss

A covered call position has which of the following risk/reward characteristics?

• A) Limited gain potential, unlimited loss potential
• B) Limited gain potential, limited loss potential
• C) Unlimited gain potential, limited loss potential
• D) Unlimited gain potential, unlimited loss potential

An investor buys 1 XYZ Jan 60 call at $5 and sells 1 XYZ Jan 70 call at $2. This is a:

• A) Bear call spread with max gain of $300
• B) Bull call spread with max gain of $700
• C) Bear call spread with max loss of $300
• D) Bull call spread with max loss of $300

Which position has UNLIMITED maximum loss potential?

• A) Long call
• B) Long put
• C) Short put
• D) Short call (uncovered)

A general obligation bond is backed by:

• A) Revenue from a specific project
• B) The full faith, credit, and taxing power of the issuer
• C) Federal government guarantees
• D) User fees and charges

An investor in the 32% federal tax bracket is comparing a 4.5% municipal bond to taxable alternatives. What taxable yield would be equivalent?

• A) 5.88%
• B) 6.62%
• C) 6.25%
• D) 7.50%

Under MSRB Rule G-37, a municipal securities professional who makes a political contribution to an issuer official can:

• A) Continue doing business with the issuer with principal approval
• B) Do business with the issuer after a 6-month cooling off period
• C) Not do business with the issuer for 2 years
• D) Do business if the contribution was under $500

An investor buys 200 shares of XYZ at $80 per share in a margin account. Under Regulation T, what is the initial margin requirement?

• A) $4,000
• B) $8,000
• C) $12,000
• D) $16,000

An investor has a long margin account with a market value of $60,000 and a debit balance of $25,000. The SMA is:

• A) $0
• B) $2,500
• C) $5,000
• D) $35,000

In a long margin account, at what price would a margin call be triggered if the debit balance is $30,000 and the maintenance requirement is 25%?

• A) $35.00
• B) $40.00
• C) $50.00
• D) $60.00

A 6% corporate bond is trading at 105. The current yield is approximately:

• A) 5.00%
• B) 5.71%
• C) 6.00%
• D) 6.30%

When interest rates rise, what happens to bond prices?

• A) Bond prices rise
• B) Bond prices fall
• C) Bond prices remain unchanged
• D) Only short-term bonds are affected

For a bond trading at a premium, which yield is highest?

• A) Nominal yield
• B) Current yield
• C) Yield to maturity
• D) All yields are equal

A mutual fund has total assets of $100 million, liabilities of $5 million, and 5 million shares outstanding. What is the NAV?

• A) $18.00
• B) $19.00
• C) $20.00
• D) $21.00

Which of the following is TRUE about closed-end funds?

• A) They continuously issue and redeem shares at NAV
• B) They trade on exchanges and may trade at a premium or discount
• C) They cannot issue bonds or preferred stock
• D) They must redeem shares upon request

Which of the following is TRUE about a Roth IRA?

• A) Contributions are tax-deductible
• B) Qualified distributions are tax-free
• C) Required minimum distributions must begin at age 72
• D) There is no income limit for contributions

During the accumulation phase of a variable annuity, earnings are:

• A) Taxed annually as ordinary income
• B) Taxed annually as capital gains
• C) Tax-deferred until withdrawal
• D) Tax-free if held for more than one year

A company declares a 3:2 stock split. An investor owns 200 shares at $90 per share. After the split, the investor will have:

• A) 300 shares at $60
• B) 300 shares at $90
• C) 133 shares at $135
• D) 200 shares at $60

Which type of preferred stock allows the investor to exchange the shares for common stock?

• A) Callable preferred
• B) Convertible preferred
• C) Cumulative preferred
• D) Participating preferred

In a limited partnership, the general partner has:

• A) Limited liability for partnership debts
• B) Unlimited liability for partnership debts
• C) No management responsibilities
• D) Liability limited to their investment

A high P/E ratio typically indicates:

• A) The stock is undervalued
• B) Investors expect high future growth
• C) The company has high dividend payments
• D) The company has declining earnings

A customer places a buy limit order at $45 when the stock is trading at $48. This order will be executed:

• A) Immediately at $48
• B) At $45 or lower
• C) At any price between $45 and $48
• D) Only at exactly $45

Regular way settlement for corporate stocks is:

• A) Same day
• B) T+1 (trade date plus one business day)
• C) T+2 (trade date plus two business days)
• D) T+3 (trade date plus three business days)