Master Series 7 Exam Practice (Questions And Answers )

Master Series 7 Exam Practice (Questions And Answers ) A customer buys AC Growth Fund and enjoys a substantial paper capital gain. When he believes the market has reached its peak, he switches into AC Income Fund within the AC family of funds. He incurs a small service fee but is not charged an additional sales charge. What is the tax effect? A) Any gain or loss is deferred until he liquidates the AC Income Fund. B) Any gain in AC Growth Fund is taxable because the exchange is treated as a sale and a purchase. C) It is a tax-free exchange. D) The tax basis of AC Income Fund is adjusted to reflect the gain in AC Growth Fund. - Correct Answer-Your answer, Any gain in AC Growth Fund is taxable because the exchange is treated as a sale and a purchase., was correct!. The exchange is treated as a sale of the growth fund shares followed by a purchase of the income fund shares. The gain or loss is determined by comparing the cost basis of the growth fund shares with the net asset value at the time of exchange. Any difference is a capital gain or loss, even though the proceeds were immediately used to purchase the income fund. Reference: 10.7.5.4.1 in the License Exam Manual. Which of the following statements regarding qualified retirement plans are TRUE? Contributions are made with pretax dollars. Contributions are made with after-tax dollars. Distributions are 100% taxable. Distributions are taxable only to the extent of earnings. A) I and IV. B) II and IV. C) II and III. D) I and III. - Correct Answer-Your answer, I and III., was correct!. With qualified plans, participants receive a tax deduction for contributions to their plan. As earnings accumulate tax-deferred, distributions, which consist of tax-deferred earnings and contributions for which the participant received a tax deduction, are 100% taxable. Reference: 11.1.1 in the License Exam Manual. A client of your broker/dealer is interested in collateralized mortgage obligations (CMOs). While determining suitability for the client all of the following should be discussed EXCEPT A) how currency exchange rates may affect the value of the securities B) the tax consequences of CMOs C) the relationship between mortgage loans and mortgage securities D) how changing interest rates may affect the prepayment rates - Correct Answer-Your answer, how currency exchange rates may affect the value of the securities, was correct!. Currency exchange rates are not applicable to the risks associated with CMOs. However, when determining suitability, a discussion of all of the characteristics and risks of CMOs, should occur. This would include how changing interest rates may affect prepayment rates and therefore the average life of the security, tax considerations (CMOs are taxable at all levels), and the relationship between actual mortgage loans and mortgage-backed securities. Reference: 2.8.2 in the License Exam Manual. Which of the following are required to be given to retail customers at settlement in municipal new issue transactions? Confirmation showing the purchase price. Official statement. Names of syndicate members with their participation amounts. Copy of the agreement among underwriters. A) I and III. B) II and IV. C) III and IV. D) I and II. - Correct Answer-Your answer, I and II., was correct!. MSRB rules state that a confirmation and an official statement must be sent to the investor no later than at settlement. Reference: 3.2.8.1 in the License Exam Manual. Which of the following statements regarding UGMA accounts are NOT true? Only one custodian may be appointed for an UGMA account in the name of a minor. A gift under UGMA can be revoked. A custodian is liable for imprudence. Short sales are permitted in an UGMA account. A) II and IV. B) I and II. C) I and IV. D) II and III. - Correct Answer-Your answer, II and IV., was correct!. An UGMA account is allowed only one custodian and one minor. Short selling is prohibited in UGMA accounts. Once a gift is given, it is irrevocable. The custodian has fiduciary responsibility toward the minor to invest conservatively, and the custodian is liable for imprudence in handling the entrusted funds. Reference: 5.3.1.5 in the License Exam Manual. The latest issue of a newsletter your firm subscribes to is especially relevant to one of your firm's investment products. If you decide to send it to clients and prospects, you must disclose that: A) the newsletter's purpose is to provide your clients with a choice of products that are suitable for all of their portfolios. B) the newsletter discusses only those products which you have available through your firm . C) the newsletter is written and produced by a third party. D) future articles sent will provide similar discussions and information. - Correct Answer-Your answer, the newsletter is written and produced by a third party., was correct!. If a third party is the creator of the newsletter, that fact must be disclosed together with the name of the third party and the date of publication. Reference: 17.5.3.1 in the License Exam Manual. Which of the following entities was created to protect investors who have money and/or securities on deposit at member firms? A) ERISA. B) CU.S.IP. C) AGA. D) SIPC. - Correct Answer-Your answer, SIPC., was correct!. The Securities Investor Protection Act of 1970 created the Securities Investor Protection Corporation (SIPC) to protect securities investors against losses resulting from the financial failure of broker/dealers. SIPC does not provide protection against securities losses arising from decreases in market value. Reference: 16.1.6 in the License Exam Manual. Revenue bond rate covenants require the user fees to be high enough to cover all of the following obligations of the issuing authority EXCEPT: A) the optional call provisions. B) the operations and maintenance. C) the debt service. D) the debt service reserve fund. - Correct Answer-Your answer, the optional call provisions., was correct!. Optional call provisions are at the option of the issuer. Rate covenants of an issue will not require enough to be collected to cover a call on the bonds. Reference: 3.1.2.2.4 in the License Exam Manual. The letter of intent in a corporate underwriting is typically signed by which of the following parties? Issuer. Managing underwriter. Syndicate members. Selling group members. A) I and II. B) I and III. C) III and IV. D) II and IV. - Correct Answer-Your answer, I and II., was correct!. The letter of intent initiates the underwriting process and is signed by the issuer and managing underwriter. Reference: 7.5.1 in the License Exam Manual. A margin account customer buys 100 shares of HEX at $70 and writes a HEX Oct 70 call for a premium of 8. What must he deposit? (Regulation T is 50%.) A) 3700. B) 4500. C) 2700. D) 2000. - Correct Answer-Your answer, 2700., was correct!. The normal call would be 50% of $7,000 or $3,500. In this example, subtract the premium of $800 that the customer received. (Remember, in a covered call situation, no margin is required for the call.) Reference: 6.1.3.1 in the License Exam Manual. All of the following statements regarding the over-the-counter market are true EXCEPT: A) it is an auction market. B) it trades listed securities. C) more issues trade OTC than on the exchanges. D) it trades unlisted securities. - Correct Answer-Your answer, it trades unlisted securities., was incorrect. The correct answer was: it is an auction market. The OTC market is a negotiated market. The exchanges are auction markets. Reference: 8.8.1.1 in the License Exam Manual. Letters of intent may be backdated up to how many days? A) 120. B) 60. C) 90. D) 30. - Correct Answer-Your answer, 90., was correct!. The time limit for a letter of intent is 13 months, but the letter may be backdated up to 90 days from the date it was filed. In that case, the investor has 10 months to complete the letter. Reference: 10.7.5.1.1 in the License Exam Manual. An ADR represents a: A) foreign security trading in both the U.S. and a foreign market. B) foreign security trading in the U.S. market. C) U.S. security trading in a foreign market. D) U.S. security trading in both the U.S. and a foreign market. - Correct Answer-Your answer, foreign security trading in the U.S. market., was correct!. ADRs are receipts issued by U.S. banks that represent ownership of a foreign security and are traded in U.S. securities markets. Reference: 1.8.1 in the License Exam Manual. Nonmembers of a syndicate who are assisting in its sale of bonds buy the bonds at a discount called: A) the basis price. B) a concession. C) a takedown. D) a net designated price. - Correct Answer-Your answer, a concession., was correct!. Members of the syndicate buy the bonds at the offering price minus the takedown, nonmembers buy at offering price minus a concession. The basis price is the yield to maturity. Reference: 3.2.6.3 in the License Exam Manual. Under SEC rules, a customer short sale on an exchange floor can be executed on which of the following? Plus tick. Zero-plus tick. Minus tick. Zero-minus tick. A) I and III. B) I, II, III and IV. C) I and II. D) II and IV. - Correct Answer-Your answer, I, II, III and IV., was correct!. On an exchange floor, a customer short sale can be executed at any time in the trade sequence. Reference: 8.4.4 in the License Exam Manual. A tombstone for a new bond issue announces that 5-year warrants to purchase shares of the company's common stock at $75 are attached to the bonds. The current market value of the company's stock is $45. For what reason were the warrants attached to the bonds by the issuer? A) To increase the dilution of the current shareholders. B) To improve the marketability of the bond issue. C) To make the bonds convertible into the issuer's common stock. D) To decrease the dilution of the current shareholders. - Correct Answer-Your answer, To improve the marketability of the bond issue., was correct!. Warrants are often issued as a bonus (or sweetener) to entice investors to purchase new bond issues. Dilution may occur at the time the warrants are exercised (if ever), but this would not be a reason for their issuance. A warrant has nothing to do with the bond's convertibility into the underlying common stock. Reference: 1.7.2.1 in the License Exam Manual. In a repurchase agreement between a broker/dealer and a large institutional customer, the broker/dealer: A) sells securities to the customer with an agreement to buy them back. B) buys securities from the customer with an agreement to sell them back. C) sells securities to the customer who, with prior agreement, resells the securities to an unrelated third party. D) buys securities from the customer who, with prior agreement, repurchases the securities from an unrelated third party. - Correct Answer-Your answer, buys securities from the customer with an agreement to sell them back., was incorrect. The correct answer was: sells securities to the customer with an agreement to buy them back. The dealer agrees to buy back the securities at a specified date at a higher price than they were sold for. The difference represents interest to the party who bought the securities (the lender). Reference: 2.10.2.1 in the License Exam Manual. Under SEC rules, which of the following events require a broker/dealer to furnish a copy of the account record to a customer? The opening of a new account. Change of customer's name or address. Change of customer's investment objectives. Change in customer's employment or financial status. A) II and III B) I, II, III and IV C) I and II D) I only - Correct Answer-Your answer, I, II, III and IV, was correct!. Any change in a customer's status that may impact the suitability of recommendations requires a broker/dealer to update customer account records. Reference: 5.1.1.3 in the License Exam Manual. An individual is employed as a research analyst for a member firm that specializes in investment banking and has just completed a research report comparing two companies in the semiconductor business. Which of the following would be considered prohibited activities by this analyst, under FINRA rules? Purchasing shares of a semiconductor company before that issuer's IPO. Trading in these two stocks or their derivatives in a manner inconsistent with that analyst's recommendation. Purchasing shares of either of these two stocks for a personal account after the research report has been issued. Purchasing shares of the XYZ Semiconductor Fund, a fund qualifying as a diversified management investment company under the Investment Company Act of 1940 but not covered or analyzed in the research report. A) I and IV. B) II and III. C) III and IV. D) I and II. - Correct Answer-Your answer, I and II., was correct!. FINRA rules restrict personal trading by research analysts. They are never permitted to acquire shares in advance of an IPO in a company in the same type of business that the analysts research. They are never permitted to engage in trading contrary to their opinions, as published in their firm's research reports. Once the report has been issued, they may trade in accordance with their recommendations. Purchasing shares of a mutual fund, even one that specializes in their field of research, is permitted. Reference: 17.5.5.1.4 in the License Exam Manual. Policies and procedures regarding instructions received from customers by email should identify as red flags which of the following scenarios? An email received that can not be verified by the registered representative as having actually come from the customer An emailed request to liquidate certain account holdings and transfer the sales proceeds to a third party A request by email regarding a joint account with instructions to sell all securities and to forward a check made payable to only one party to the account An urgent request that funds be sent to an overseas bank account not previously known to be associated with the client A) I, II, III and IV B) II and IV C) I and IV D) I and III - Correct Answer-Your answer, I, II, III and IV, was correct!. Each of the scenarios should raise a red flag regarding unusual instructions received by email or otherwise. All firms must have in place written supervisory policies and procedures for reviewing and monitoring the transmittal of funds and a method of verifying that instructions received by email came from the customer and not an unknown third party. Urgency that might be intended to circumvent or deter broker/dealer verification procedures should always be viewed with extreme caution. Reference: 5.1.2.4 in the License Exam Manual. Which of the following statements about warrants is NOT true? A) Warrants may not be traded in the secondary market. B) Warrants have longer lifetimes than rights. C) Warrants have an exercise price above the current market price of the common stock when issued. D) Warrants may be attached to another of the issuer's securities. Your answer, Warrants have an exercise price above the current market price of the common stock when issued., was incorrect. The correct answer was: Warrants may not be traded in the secondary market. - Correct Answer-Warrants usually have lifetimes of 2-10 years; rights expire in 30-45 days. A corporation may attach warrants to other securities, such as bonds, to make the bonds more marketable. Warrants have no intrinsic value when issued and may expire without ever having intrinsic value. Before expiration, they may be, and often are, traded in the secondary market. Reference: 1.7.2 in the License Exam Manual. All of the following records must be kept for 6 years EXCEPT A) customer account records, like monthly statements B) the general ledger C) blotters D) communications with the public - Correct Answer-Your answer, communications with the public, was correct!. Of the answer choices listed, it is important to recognize that communications with the public must be maintained on file for 3 years by a member firm, and therefore, would not fall under the 6-year record retention requirement. Reference: 17.5.3.1 in the License Exam Manual. In a single day, a customer purchases 15 ACM Sep 50 puts at 6 and 15 ACM Sep 50 calls at 1. The customer would profit from the positions if ACM traded: A) between $43 and $57. B) either below $38 or above $52. C) either below $43 or above $57. D) between $38 and $52. - Correct Answer-Your answer, either below $43 or above $57., was correct!. The customer paid $6 for the Sep 50 puts and $1 for the Sep 50 calls. A long straddle is profitable on the call side if the price rises above the strike price plus the combined premiums paid ($57). On the put side, it is profitable if the price falls below the strike price minus the combined premiums paid ($43). Reference: 4.4.2.1 in the License Exam Manual. A customer owns 10M of 7% U.S. Treasury bonds. He is in the 28% federal tax bracket and the 10% state tax bracket. What is his annual tax liability on these bonds? A) $196. B) $266. C) $70. D) $98. - Correct Answer-Your answer, $196., was correct!. His tax liability is as follows: $1,000 × 7% = $70 annual interest per bond; $70 × 10 = $700 annual interest, which is taxable only by the federal government; $700 × 28% = a $196 tax liability. Reference: 15.5.4.1.1 in the License Exam Manual. Which of the following statements regarding red herrings are TRUE? They may be used to obtain indications of interest. They may be sent out with sales literature. They contain the final offering price. Their use ends when the offering becomes effective. A) II and III. B) I and IV. C) I and III. D) II and IV. - Correct Answer-Your answer, I and IV., was correct!. A preliminary prospectus, or red herring, is used only during the cooling-off period. The red herring does not contain the final price; offerings are priced immediately before the effective date. Reference: 7.2.2.1 in the License Exam Manual. In its notice of sale in the "Bond Buyer", an issuer states that it will take into consideration the timing of interest payments when evaluating bids. The issuer will be using which of the following methods in its bid selection? A) Net interest cost. B) Real interest cost. C) Low interest cost. D) True interest cost. - Correct Answer-Your answer, Net interest cost., was incorrect. The correct answer was: True interest cost. The true interest cost method (TIC) takes into consideration the time value of money. The issuer discounts future interest payments to arrive at a present value. Reference: 3.2.5.1 in the License Exam Manual. If the holder of a call tenders an exercise notice after the ex-dividend date for a cash dividend, which of the following statements is TRUE? A) He is not entitled to the dividend. B) He is entitled to the dividend. C) He must pay the dividend to the writer. D) He is entitled to the dividend only if he sells the underlying stock. - Correct AnswerYour answer, He is entitled to the dividend., was incorrect. The correct answer was: He is not entitled to the dividend. If the holder of a call exercises before the ex-date, the trade settles on or before the record date and he is on record for the dividend. If the holder exercises on or after the ex-date, the trade settles after the record date and he is neither on record for the dividend nor entitled to it. Reference: 4.6.1.3 in the License Exam Manual. At which stage of the money-laundering process are illicit funds most susceptible to detection? A) Relocation. B) Placement. C) Layering. D) Integration. - Correct Answer-Your answer, Placement., was correct!. Placement, the first step in laundering money, when no attempt is made to hide its origins, is recognized as the step during which the illegal funds are most vulnerable to detection. There is no step called relocation. Reference: 16.1.10.1.1 in the License Exam Manual. U.S. government securities that are deposited with a trustee against which certificates are sold representing principal payments only on the securities are: clipped bonds. stripped bonds. subject to annual taxation on the per year accreted amount. subject to taxation at maturity. A) II and IV. B) I and IV. C) I and III. D) II and III. - Correct Answer-Your answer, I and III., was incorrect. The correct answer was: II and III. U.S. government securities that are deposited with a trustee and against which certificates are sold representing principal payments only on the securities are referred to as Treasury STRIPS. These are zero-coupon bonds issued by the U.S. government and are subject to annual taxation on the per-year accreted amount. Reference: 2.6.1.4.1 in the License Exam Manual. If a married couple with a long-term growth objective is considering a mutual fund and they are concerned about the fund's annual expenses, they should select a: A) preferred stock fund. B) common stock fund with a low portfolio turnover. C) common stock fund with a high portfolio turnover. D) long-term corporate bond fund. - Correct Answer-Your answer, common stock fund with a low portfolio turnover., was correct!. Of the choices given, common stock is the only vehicle capable of providing long-term growth. Preferred stock will provide dividends, but it will not provide much growth as it trades like a bond in line with interest rate changes. Of the two common stock funds, the one with the lower portfolio turnover will have lower annual expenses. Reference: 10.5.1.1 in the License Exam Manual. If an investor is long 5 Dec puts on the Canadian dollar, these options will expire in December on: A) the Friday preceding the third Wednesday. B) the Saturday after the third Friday. C) the Wednesday after the third Saturday. D) the third Friday of the month. - Correct Answer-Your answer, the Saturday after the third Friday., was correct!. Currency options, like equity options, expire on the Saturday following the third Friday of the expiry month. Reference: 4.5.3.1.5 in the License Exam Manual. Which of the following documents sets forth the priority of sale of securities? A) A tombstone. B) An offering circular. C) The official notice of sale. D) The syndicate letter. - Correct Answer-Your answer, The syndicate letter., was correct!. The syndicate letter lists the terms under which members will conduct the sale of the bonds. It also describes each member's sharing of profits and expenses, the type of business entity (i.e., joint venture or partnership), and the good faith deposit required. Reference: 3.2.4 in the License Exam Manual. All of the following statements are true of the risks of investing in an oil and gas limited partnership EXCEPT: A) development programs have higher risk than exploratory programs. B) income programs have fewer tax benefits than exploratory programs. C) wells may not have sufficient reserves to return drilling costs. D) development programs may involve acquisition of expensive leases - Correct Answer-Your answer, development programs have higher risk than exploratory programs., was correct!. Exploratory programs have the highest risks, rewards, and tax benefits. Development wells are drilled to develop a reserve that is already known to be present. Reference: 13.2.2.5 in the License Exam Manual. A technical analyst has been charting XYZ stock and notes that it fluctuates between $36 and $41. If the analyst expects a breakout through resistance, which of the following orders should be placed? A) Buy XYZ 35 GTC. B) Buy XYZ 42 Stop GTC. C) Buy XYZ 35 Stop GTC. D) Buy XYZ 42 GTC. - Correct Answer-Your answer, Buy XYZ 42 Stop GTC., was correct!. A buy stop order is placed above a resistance level. It is triggered if and when the stock trades at or above the stop price. This allows an investor to participate in a bullish breakout through resistance. Reference: 8.4.2.4.1 in the License Exam Manual. Which of the following order types is permitted in Nasdaq markets but NOT in NYSE equity markets? A) Fill or kill (FOK). B) Limit. C) Market. D) Immediate or cancel (IOC). - Correct Answer-Your answer, Market., was incorrect. The correct answer was: Fill or kill (FOK). Fill-or-kill (FOK) and all-or-none (AON) orders may no longer be entered in the NYSE equity market but are still accepted in both the bond market and Nasdaq. Reference: 8.4.3.5 in the License Exam Manual. A zero-coupon callable revenue issue has been pre-refunded. Under the rules of the MSRB, which of the following are required to be on a customer's confirmation? Zero coupon. Callable provisions. Pre-refunded. Yield. A) II, III and IV. B) I and IV. C) I, II, III and IV. D) II and III. - Correct Answer-Your answer, I, II, III and IV., was correct!. On a customer's confirmation, it is necessary to include the zero-coupon rate, the yield, callable provisions, and whether or not it is pre-refunded, because all of these affect the price of a bond. Reference: 3.4.5.1.2 in the License Exam Manual. A retail customer purchases a municipal bond from your firm. According to MSRB rules, the confirmation must disclose which of the following? Where your firm acquired the bonds. Whether your firm acted as agent or principal. Your firm's address. The price your firm paid for the bonds. A) II and III. B) II and IV. C) I and IV. D) I and III. - Correct Answer-Your answer, II and III., was correct!. The broker/dealer must always disclose the capacity in which it acted (principal or agent). The confirmation must show the name of the person for whom the trade was executed (the customer). The name, address, and telephone number of the broker/dealer must be shown so the customer may easily contact the firm. The settlement date is also required. The broker/dealer is not required to disclose where it acquired the bonds or the price it paid. Reference: 3.4.5.1.2 in the License Exam Manual. Mutual fund shares represent an undivided interest in the fund, which means that: A) the fund can only hold securities of certain companies . B) the number of shares outstanding is limited to a predetermined maximum. C) investors can only purchase full shares. D) each investor owns a proportional part of every security in the portfolio. - Correct Answer-Your answer, each investor owns a proportional part of every security in the portfolio., was correct!. Each mutual fund shareholder owns an undivided interest in the investment company's portfolio. Because each share represents one class of voting stock, the investor's interest in the fund is reflected by the number of shares owned. Reference: 10.5 in the License Exam Manual. Which of the following is limited in the case of a limited tax municipal bond? A) Type of tax that can be used to service the debt. B) Number of bonds issued. C) Number of taxpayers. D) Number of buyers. - Correct Answer-Your answer, Type of tax that can be used to service the debt., was correct!. A general obligation (GO) bond may be backed by a specific tax. For example, a limited tax GO may be serviced only from sales tax revenue, not income tax revenue. As the source of debt service is limited (it is not backed by the full taxing authority of the issuer), these bonds are sold with higher yields than conventional GOs. Reference: 3.1.2.1.2 in the License Exam Manual. Which of the following orders are NOT placed on the order display book? Buy stop limit. Buy stop. Market. Not held. A) II and III. B) I and IV. C) III and IV. D) I and II. - Correct Answer-Your answer, I and IV., was incorrect. The correct answer was: III and IV. Market orders are executed immediately and are not placed on the order book. Not held orders are not presented to the order book. Reference: 8.4.2.5 in the License Exam Manual. FINRA's Trade Reporting Facility (TRF) electronically facilitates the reporting of trade data such as price and volume for A) brokers acting as agents in all order execution scenarios B) trades in Nasdaq-listed securities and exchange-listed securities when they occur off of the exchange trading floor C) trades in NYSE-listed securities occurring on the NYSE D) brokers executing orders as agents in an auction market on any exchange trading floors Your answer, brokers executing orders as agents in an auction market on any exchange trading floors, was incorrect. The correct answer was: trades in Nasdaq-listed securities and exchange-listed securities when they occur off of the exchange trading floor - Correct Answer-FINRA's Trade Reporting Facility (TRF) is an automated electronic system that facilitates the reporting of data for transactions that occur in Nasdaq-listed stocks or in exchange-listed stocks when they occur off of the exchange trading floor. It is used for transactions that are negotiated between brokers, therefore acting as a dealer, rather than as an agent. Reference: 8.2.2.5 in the License Exam Manual. ABC Corporation, whose common stock is trading at $32, has issued $40 million of 8- 1/8% debentures due 10-1-14. Each bond issued has a warrant attached enabling the holder to buy 4 shares of ABC common at $40 per share. If all of the warrants are exercised, ABC Corporation will receive: A) $12.8 million. B) $6.4 million. C) $10 million. D) $20 million. - Correct Answer-Your answer, $6.4 million., was correct!. There are a total of 40,000 warrants outstanding ($40 million of debentures / $1,000 par value per bond). Each warrant entitles the holder to buy 4 shares of common stock. Therefore, if all warrants are exercised, holders will be purchasing 160,000 shares (4 × 40,000) at $40 per share. 160,000 × $40 = $6.4 million. Reference: 1.7.2 in the License Exam Manual. Which of the following underwriting arrangements is associated with an invitation, typically found in The Bond Buyer, directed at investment bankers and broker dealers, intended to solicit interest in underwriting a new municipal issue? A) Negotiated. B) All or none. C) Competitive bid. D) Best efforts. - Correct Answer-Your answer, Competitive bid., was correct!. With a competitive bid underwriting a municipality publishes invitations to bid in The Bond Buyer or other municipal bond publication. Investment bankers and broker/dealers interested in underwriting the new municipal issue would respond to the invitation to bid. Reference: 3.2.2 in the License Exam Manual. Which of the following affects the holding period of XYZ stock, a position that has been held for 6 months? Buying an in-the-money put Buy an out-of-the-money put Writing an in-the-money call Writing an out-of-the-money call. A) III and IV. B) II and III. C) I and IV. D) I and II. - Correct Answer-Your answer, I and II., was correct!. Buying a put (in or out-of-the-money) on a stock held short term (one year or less) stops the holding period until the put is disposed of. Reference: 4.7.1 in the License Exam Manual. A couple in their early 30s has been married for 4 years, their disposable income is relatively high, and they are planning to buy a condominium. If they need a safe place to invest their down payment for about 6 months, which of the following mutual funds is the most suitable for these customers? A) XYZ Investment-Grade Bond Fund. B) LMN Cash Reserves Money Market Fund. C) ABC Growth & Income Fund. D) ATF Capital Appreciation Fund. - Correct Answer-Your answer, LMN Cash Reserves Money Market Fund., was correct!. These customers are preparing to make a major purchase within the next few months, so they require a highly liquid investment to keep their money safe for a short amount of time. The money market fund best matches this objective. Reference: 15.2.1.2 in the License Exam Manual. A corporate insider may profitably sell the stock of his company, without penalty, after the stock has been held for more than: A) 3 months. B) 9 months. C) 12 months. D) 6 months. - Correct Answer-Your answer, 9 months., was incorrect. The correct answer was: 6 months. If corporate insiders sell their stock at a profit, they must do so after having held the stock for at least 6 months. This is termed the short swing profit rule. If they sell at a profit without having met the holding period requirement, any profit earned must be disgorged to the company. Reference: 7.6.2.4 in the License Exam Manual. Which of the following statements regarding Coverdell ESAs is TRUE? A) Contributions are tax deductible, and distributions for any reason are tax free. B) Contributions are tax deductible, and distributions are always taxable. C) Contributions are not tax deductible, and distributions for any reason are tax free. D) Contributions are not tax deductible, and distributions are tax free when used for qualified educational expenses. - Correct Answer-Your answer, Contributions are not tax deductible, and distributions are tax free when used for qualified educational expenses., was correct!. Coverdell ESAs offer after-tax contributions of up to $2,000 per student per year for children under age 18. Distributions are tax free as long as the funds are used for education. Reference: 11.2.5.1 in the License Exam Manual. Stop orders may be used for each of the following EXCEPT: A) lock in a specific price to close out a position. B) protect profits on long positions. C) protect profits on short positions. D) establish positions. - Correct Answer-Your answer, protect profits on long positions., was incorrect. The correct answer was: lock in a specific price to close out a position. Stop orders are contingent orders that are triggered when the stock trades at or through a stated price. When triggered, they become market orders to buy or sell. They are used by technical traders to establish positions above or below resistance and support levels, respectively. Stop orders never guarantee a specific execution price. Reference: 8.4.2.4 in the License Exam Manual. All of the following are true regarding nonqualified deferred compensation plans EXCEPT: A) the plans need not be offered to all employees. B) income taxes on compensation are not due until constructive receipt. C) IRS approval is not needed for deferred compensation plans. D) employees may use accumulated funds as collateral for a bank loan - Correct Answer-Your answer, the plans need not be offered to all employees., was incorrect. The correct answer was: employees may use accumulated funds as collateral for a bank loan. Deferred compensation is a promise made by an employer to defer a certain amount of an employee's salary upon retirement. The employee has no rights to the money until retirement, death, or disability, and thus cannot use it as collateral. Continues....