Exam 2 MOCK - Series 7 UPDATED
ACTUAL Exam Questions and CORRECT
Answers
New issue municipal bond orders are allocated according to priorities the syndicate sets in
advance. The MSRB requires syndicates to establish priority allocation provisions for orders.
Which of the following is the most common priority?
A)
Group net, presale, designated, member
B)
Member, designated, presale, group net
C)
Presale, group net, designated, member
D)
Presale, designated, group net, member - CORRECT ANSWER - C- Remember our
abbreviation: PGDM (Pro Golfers Don't Miss) and that will get you the correct answer to any of
these order allocation questions.
A direct participation program (DPP), organized as a limited partnership, must avoid at least two
characteristics of a corporation. Which two characteristics are the easiest to avoid?
A)
Continuity of life and decentralized management
B)
Continuity of life and freely transferable interests
C)
Freely transferable interests and centralized management
D)
Centralized management and continuity of life - CORRECT ANSWER - B-- Continuity of
life and freely transferable interests are the easiest to avoid. The limited partnership is formed to
exist for a limited time, and general partner (GP) must approve any transfer of interests.
,Centralized management is the hardest characteristics to avoid because management of the
program is the responsibility of the general partner (GP), so management is centralized.
A registered representative of a FINRA member firm has developed a LinkedIn friendship with a
registered investment adviser. This has resulted in the investment adviser directing transactions
for many of their clients to this representative's broker-dealer. The broker-dealer is promoting an
all-day seminar with presentations to be delivered by a number of outstanding economists and
securities analysts. The seminar location is in a hotel ballroom down the street from the member
firm's office. The firm has invited the investment adviser to attend as its guest. That location
requires the adviser to fly in the night before and stay at the hotel. As the broker-dealer's guest,
which of the following expenses are reimbursable by the broker-dealer without violating the safe
harbor provisions of Section 28(e)?
C)
The registration fees for the seminar
D)
The registration fees for the seminar plus the hotel room for the night - CORRECT
ANSWER - C--Under the safe harbor provisions of Section 28(e) of the Securities
Exchange Act of 1934, broker-dealers are permitted to extend seminar invitations to investment
advisers with whom they do or hope to do business. The only expense reimbursable by the
broker-dealer is the fee to attend the seminar.
A customer purchases 200 shares of Pyrrhic Trophy Manufacturing Corporation (PTMC) at $105
per share. With the stock at $122 per share, the customer sells one PTMC Jan $120 call option
for 3.50. One week prior to expiration, PTMC is selling for $132 per share, and the customer is
assigned an exercise notice. The tax consequence of this is
A)
a capital gain of $1,500.
B)
a capital gain of $2,050.
C)
a capital gain of $1,850.
D)
,a capital gain of $3,700. - CORRECT ANSWER - C-- Even though the investor purchased
200 shares, only one call option was written. When exercised, it is only 100 shares that are sold.
The numbers are: Bought 100 shares for $10,500. Sold them at the strike price of 120 (100 times
$120) bringing in $12,000. That is a capital gain of $1,500. In addition there is the $350
premium received when the option was sold. That makes the total $1,850.
One of your customers owns 100 shares of GTS common stock. The purchase was made two
years ago at a price of $51 per share. GTS has recently declared a 3:2 stock split. At the
customer's request, as soon as the new shares are in the account, you sell them and $2,000 from
the proceeds of the sale is credited to the customer's account. Based on this information, the tax
impact of this transaction is
A)
a long-term capital loss of $1,400.
B)
a long-term capital loss of $1,333 and a short-term capital loss of $667.
C)
a short-term capital gain of $300.
D)
a long-term capital gain of $300. - CORRECT ANSWER - D--Immediately after the stock
split, the total investment of the initial position remains unchanged at $5,100 (100 shares at $51
per share). After the stock split, the customer owns 150 shares (3/2 times 100 = 150 shares).
Therefore, the adjusted cost basis per share is $34 ($5,100 divided by 150 shares). Those 50
shares were sold for $2,000 and have a cost basis of $1,700 ($34 times 50). That is a profit of
$300. Alternatively, you could say that 50 shares sold for $2,000 represents a selling price of $40
per share ($2,000 divided by 50 shares), which is a $6 per-share profit ($40 minus the $34 cost
basis). Fifty shares times $6 equals a profit of $300. The gain is long-term because the holding
period of securities received through a stock split (or stock dividend) is that of the original
purchase. If you have to guess, or are running out of time, when you see two identical numbers
with the only difference being short- or long-term gain, in almost all questions, one of those two
is the correct answer. Now you have a 50% change of guessing correctly and, if you remember
that the holding period always begins with the initial purchase, then the odds are 100% in your
favor.
An investor purchased 100 shares of a stock three years ago at $38 per share. Disappointed with
the stock's performance, the investor sells it for $35 per share. Two weeks later, after the
, company announced higher-than-expected earnings, the investor purchased 100 shares at $44 per
share. When this investor decides to sell the newly purchased shares, the cost basis will be
A)
$44 per share.
B)
$38 per share.
C)
$41 per share.
D)
$47 per share. - CORRECT ANSWER - D--This is a wash sale situation. Selling a stock at
a loss and repurchasing it within 30 days "washes" out the loss for current tax purposes. The loss,
in this case $3 per share, is added to the cost of the repurchased stock. Thus, $44 plus $3 equals a
new cost basis of $47 per share.
A portion of the OTC market where companies that have been delisted for regulatory reasons are
usually traded is
A)
the third market.
B)
the "pink" market.
C)
the fourth market.
D)
the grey market. - CORRECT ANSWER -D
Planned amortization class (PAC) collateralized mortgage obligation were designed to provide
which of the following benefits, compared to plain vanilla tranches?
A)
Reduce prepayment risk for tranche holders
B)
ACTUAL Exam Questions and CORRECT
Answers
New issue municipal bond orders are allocated according to priorities the syndicate sets in
advance. The MSRB requires syndicates to establish priority allocation provisions for orders.
Which of the following is the most common priority?
A)
Group net, presale, designated, member
B)
Member, designated, presale, group net
C)
Presale, group net, designated, member
D)
Presale, designated, group net, member - CORRECT ANSWER - C- Remember our
abbreviation: PGDM (Pro Golfers Don't Miss) and that will get you the correct answer to any of
these order allocation questions.
A direct participation program (DPP), organized as a limited partnership, must avoid at least two
characteristics of a corporation. Which two characteristics are the easiest to avoid?
A)
Continuity of life and decentralized management
B)
Continuity of life and freely transferable interests
C)
Freely transferable interests and centralized management
D)
Centralized management and continuity of life - CORRECT ANSWER - B-- Continuity of
life and freely transferable interests are the easiest to avoid. The limited partnership is formed to
exist for a limited time, and general partner (GP) must approve any transfer of interests.
,Centralized management is the hardest characteristics to avoid because management of the
program is the responsibility of the general partner (GP), so management is centralized.
A registered representative of a FINRA member firm has developed a LinkedIn friendship with a
registered investment adviser. This has resulted in the investment adviser directing transactions
for many of their clients to this representative's broker-dealer. The broker-dealer is promoting an
all-day seminar with presentations to be delivered by a number of outstanding economists and
securities analysts. The seminar location is in a hotel ballroom down the street from the member
firm's office. The firm has invited the investment adviser to attend as its guest. That location
requires the adviser to fly in the night before and stay at the hotel. As the broker-dealer's guest,
which of the following expenses are reimbursable by the broker-dealer without violating the safe
harbor provisions of Section 28(e)?
C)
The registration fees for the seminar
D)
The registration fees for the seminar plus the hotel room for the night - CORRECT
ANSWER - C--Under the safe harbor provisions of Section 28(e) of the Securities
Exchange Act of 1934, broker-dealers are permitted to extend seminar invitations to investment
advisers with whom they do or hope to do business. The only expense reimbursable by the
broker-dealer is the fee to attend the seminar.
A customer purchases 200 shares of Pyrrhic Trophy Manufacturing Corporation (PTMC) at $105
per share. With the stock at $122 per share, the customer sells one PTMC Jan $120 call option
for 3.50. One week prior to expiration, PTMC is selling for $132 per share, and the customer is
assigned an exercise notice. The tax consequence of this is
A)
a capital gain of $1,500.
B)
a capital gain of $2,050.
C)
a capital gain of $1,850.
D)
,a capital gain of $3,700. - CORRECT ANSWER - C-- Even though the investor purchased
200 shares, only one call option was written. When exercised, it is only 100 shares that are sold.
The numbers are: Bought 100 shares for $10,500. Sold them at the strike price of 120 (100 times
$120) bringing in $12,000. That is a capital gain of $1,500. In addition there is the $350
premium received when the option was sold. That makes the total $1,850.
One of your customers owns 100 shares of GTS common stock. The purchase was made two
years ago at a price of $51 per share. GTS has recently declared a 3:2 stock split. At the
customer's request, as soon as the new shares are in the account, you sell them and $2,000 from
the proceeds of the sale is credited to the customer's account. Based on this information, the tax
impact of this transaction is
A)
a long-term capital loss of $1,400.
B)
a long-term capital loss of $1,333 and a short-term capital loss of $667.
C)
a short-term capital gain of $300.
D)
a long-term capital gain of $300. - CORRECT ANSWER - D--Immediately after the stock
split, the total investment of the initial position remains unchanged at $5,100 (100 shares at $51
per share). After the stock split, the customer owns 150 shares (3/2 times 100 = 150 shares).
Therefore, the adjusted cost basis per share is $34 ($5,100 divided by 150 shares). Those 50
shares were sold for $2,000 and have a cost basis of $1,700 ($34 times 50). That is a profit of
$300. Alternatively, you could say that 50 shares sold for $2,000 represents a selling price of $40
per share ($2,000 divided by 50 shares), which is a $6 per-share profit ($40 minus the $34 cost
basis). Fifty shares times $6 equals a profit of $300. The gain is long-term because the holding
period of securities received through a stock split (or stock dividend) is that of the original
purchase. If you have to guess, or are running out of time, when you see two identical numbers
with the only difference being short- or long-term gain, in almost all questions, one of those two
is the correct answer. Now you have a 50% change of guessing correctly and, if you remember
that the holding period always begins with the initial purchase, then the odds are 100% in your
favor.
An investor purchased 100 shares of a stock three years ago at $38 per share. Disappointed with
the stock's performance, the investor sells it for $35 per share. Two weeks later, after the
, company announced higher-than-expected earnings, the investor purchased 100 shares at $44 per
share. When this investor decides to sell the newly purchased shares, the cost basis will be
A)
$44 per share.
B)
$38 per share.
C)
$41 per share.
D)
$47 per share. - CORRECT ANSWER - D--This is a wash sale situation. Selling a stock at
a loss and repurchasing it within 30 days "washes" out the loss for current tax purposes. The loss,
in this case $3 per share, is added to the cost of the repurchased stock. Thus, $44 plus $3 equals a
new cost basis of $47 per share.
A portion of the OTC market where companies that have been delisted for regulatory reasons are
usually traded is
A)
the third market.
B)
the "pink" market.
C)
the fourth market.
D)
the grey market. - CORRECT ANSWER -D
Planned amortization class (PAC) collateralized mortgage obligation were designed to provide
which of the following benefits, compared to plain vanilla tranches?
A)
Reduce prepayment risk for tranche holders
B)
