STC Series 7 Greenlight Exam 2
Questions and Answers
Your firm is the managing underwriter of an initial public offering. How many days must
the firm's research analyst wait before issuing a research report on this IPO?
A. There is no waiting period and research may begin anytime after the effective date
B. Three days
C. 10 days
D. 25 days - Answer- C. 10 days
If a firm is involved in an underwriting of an initial public offering and is the manager or
comanager, it must maintain a quiet period of 10 days following an IPO or three days
following a secondary offering. During this time, the firm may not issue research reports
on its investment banking clients' stock. If the firm was a syndicate member or selling
group member, the firm would need to wait 10 days.
A customer contacts his RR to discuss whether selling short is a suitable strategy. If the
customer inquires as to when borrowed stock must be returned, the RR should respond:
A. There's no specific time limit, but the broker-dealer can demand that the shares be
returned at any time
B. There's no specific time limit and the broker dealer cannot demand that the shares be
returned at any time
C. Within two business days
D. Within five business days - Answer- A. There's no specific time limit, but the broker-
dealer can demand that the shares be returned at any time
In order for a customer to sell short, the shares must be borrowed from the broker-
dealer. There's no specific time limit by which the shares must be returned; however,
the broker-dealer reserves the right to demand the return of the shares at any time.
Which of the following is NOT monitored by a technical analyst?
A. Advance/decline data
B. Chart patterns
C. Market momentum
D. Dividend payout ratios - Answer- D. Dividend payout ratios
Asset allocation based on a client's risk tolerance and investment objectives is called
strategic asset allocation. In theory, it is the best mix of assets given the client's goals
and level of risk aversion, giving it a long-term outlook. Strategic asset allocators tend to
view the market as efficient and market timing as ineffective. By contrast, those who
believe securities markets are not perfectly efficient may try to use an active strategy to
alter the portfolio's asset mix, to take advantage of anticipated economic events. This
market timing approach is sometimes called tactical asset allocation.
Stocks are considered in good deliverable form if:
A. Both the certificates and the stock power are included with a signature guarantee
B. The stock power has been notarized
,C. The stockholder endorses the certificate with his legal name without a signature
guarantee
D. Validated by the broker-dealer - Answer- A. Both the certificates and the stock power
are included with a signature guarantee
Technical analysts use price and trading volume information. Advance/decline data,
chart patterns, and market momentum calculations are all methods used in analyzing
this type of information. Dividend payout ratios would be important to a fundamental
analyst
Which of the following statements is TRUE concerning gift and estate taxes paid by a
husband and wife?
A. Gifts between spouses are unlimited and no gift or estate taxes will be paid when one
spouse passes away
B. Gifts between spouses are unlimited and there is no gift tax, but estate taxes must be
paid when one spouse passes away
C. Tax-free gifts between spouses are limited to $15,000 per year, but taxes are not due
on any excess until one spouse passes away
D. Tax-free gifts between spouses are limited to $15,000 per year and taxes must be
paid on any excess in the year the gift is given - Answer- A. Gifts between spouses are
unlimited and no gift or estate taxes will be paid when one spouse passes away
There is no limit on the amount of a gift between spouses. A husband or wife may give
any amount to a spouse without incurring a tax liability. An estate tax may be levied on
the value of a decedent's assets, but there will not be any estate tax due when one
spouse dies if all the assets are passed along to the surviving spouse. The entire estate
may pass tax-free to the survivor. If assets are distributed to persons other than the
decedent's spouse, the estate may be taxed if the amount exceeds the allowable limits
established by current tax law. Gift taxes must be paid by a donor, not the recipient of
the gift. An individual may give a gift of $15,000 per person, per year ($30,000 for joint
returns) without incurring a gift tax. The donor must pay the gift tax on amounts given
over this figure.
All of the following actions may create a taxable event Except?
A. An investor liquidates her mutual fund shares and reinvests the proceeds in a
different fund in the same family
B. A dividend is paid but the investor forgoes the cash and chooses to reinvest the
funds in additional shares of the same fund
C. An individual receives the death benefit from her father's variable annuity
D. Rolling the funds of one annuity into another annuity - Answer- D. Rolling the funds
of one annuity into another annuity
Switching from one mutual fund to another in the same family is considered by the IRS
to be a sale of an existing asset and a new purchase. This would generate a taxable
event. Reinvestments in the same fund are still taxable but add to a client's cost basis.
An annuity death benefit may generate a taxable event for the recipient if she receives
an amount above the contributions put into the contract by the deceased. Section 1035
of the IRS code does allow the transferring of assets from one annuity contract into
another annuity contract without tax liability.
,Which of the following statements is NOT considered misleading regarding a variable
annuity communication?
A. Telling a client that a variable annuity is a mutual fund
B. Representing that a variable annuity will meet short-term liquidity needs
C. Telling a client about the negative impact of an early redemption
D. Making a representation that a death benefit guarantee applies to the investment
return of the annuity - Answer- C. Telling a client about the negative impact of an early
redemption
FINRA is concerned about misleading communications regarding product identification,
liquidity, and claims regarding guarantees. A firm should not imply that the underlying
account is a mutual fund. Annuities should be purchased with long-term goals in mind,
not short-term liquidity needs. Death benefits may be guaranteed, but investment
results may not. It would be advisable to inform a potential investor of surrender
charges incurred as a result of early redemption.
All of the following documents must be accompanied or preceded by an OCC risk
disclosure document, EXCEPT:
A. Options research reports
B. A standardized options worksheet discussing straddles
C. Options advertising that appears in the newspaper
D. Options sales materials discussing projections - Answer- C. Options advertising that
appears in the newspaper
Options advertising is a type of retail communication, which must make the offer to send
the OCC risk disclosure document upon the customer's request. Options retail
communications must be approved by a registered options principal (ROP) prior to use.
Options-related retail communications that discuss projections, must be approved by a
ROP prior to use and preceded or accompanied by a risk disclosure document.
Which of the following statements is TRUE about revenue bonds?
A. Interest is usually paid from the earnings of the facility for which the bond was issued
B. Interest is subject to federal taxes
C. Revenue bonds are considered safer than general obligation bonds
D. The state public utility commission must approve each interest payment - Answer- A.
Interest is usually paid from the earnings of the facility for which the bond was issued
The interest on a revenue bond is usually paid from the earnings of the facility for which
the bonds were issued. The interest is exempt from federal income tax and revenue
bonds are considered riskier than general obligation bonds. State public utility
commissions set utility rates within the state but they do not approve municipal revenue
issue payments.
Relative to a corporate bond purchased at a discount, place the following in the proper
order from lowest to highest yield.
I. Current yield
II. Nominal yield
III. Yield to maturity
, A. I, II, and III
B. II, I, and III
C. III, I, and II
D. III, II, and I - Answer- A bond trading at a discount has a nominal yield that is less
than its yield to maturity. Current yield falls between the nominal yield and yield to
maturity. A bond trading at a premium has a nominal yield which is higher than the yield
to maturity, with the current yield in between the other two yields.
Which of the following choices would be LEAST suitable for an investor seeking
liquidity?
A. Preferred stock of a financial services company
B. A mutual fund that invests in international markets
C. A real estate investment trust (REIT)
D. A hedge fund using leverage - Answer- D. A hedge fund using leverage
Of the choices listed, the hedge fund would be the least suitable since it does not offer
liquidity. Hedge funds are not subject to the same regulations for requiring access to
their funds as are mutual funds. The shares are not redeemable on a daily basis and
are not suitable for an investor requiring a certain degree of liquidity. The preferred
stock and REIT are exchange-traded and may be sold at any time
A registered representative uses text messaging on a cell phone in order to
communicate with customers of her firm when she's out of the office. In this case, which
of the following is TRUE?
A. This type of communication with customers is prohibited.
B. The broker-dealer is required to approve any communication with customers when
the RR uses this type of device.
C. The broker-dealer is permitted to allow its RRs to use this type of communication as
long as the records are maintained by the firm.
D. The broker-dealer is not required to maintain any records of the messages. - Answer-
C. The broker-dealer is permitted to allow its RRs to use this type of communication as
long as the records are maintained by the firm.
According to FINRA rules, broker-dealers must supervise all written and electronic
correspondence that their RRs have with customers (including text, e-mail, and instant
messages). Additionally, these records must be maintained by the firm for a minimum of
three years. If a firm permits its RRs to communicate with customers through non-firm
email addresses and other electronic devices, it's required to supervise and retain those
communications. In fact, some firms prohibit or block its RRs from accessing non-firm
electronic platforms for business purposes.
An increase in which of the following metrics would cause the price of a bond to drop?
A. The bond's rating
B. The bond's liquidity
C. The issuer's financial strength
D. The general level of interest rates - Answer- D. The general level of interest rates
Questions and Answers
Your firm is the managing underwriter of an initial public offering. How many days must
the firm's research analyst wait before issuing a research report on this IPO?
A. There is no waiting period and research may begin anytime after the effective date
B. Three days
C. 10 days
D. 25 days - Answer- C. 10 days
If a firm is involved in an underwriting of an initial public offering and is the manager or
comanager, it must maintain a quiet period of 10 days following an IPO or three days
following a secondary offering. During this time, the firm may not issue research reports
on its investment banking clients' stock. If the firm was a syndicate member or selling
group member, the firm would need to wait 10 days.
A customer contacts his RR to discuss whether selling short is a suitable strategy. If the
customer inquires as to when borrowed stock must be returned, the RR should respond:
A. There's no specific time limit, but the broker-dealer can demand that the shares be
returned at any time
B. There's no specific time limit and the broker dealer cannot demand that the shares be
returned at any time
C. Within two business days
D. Within five business days - Answer- A. There's no specific time limit, but the broker-
dealer can demand that the shares be returned at any time
In order for a customer to sell short, the shares must be borrowed from the broker-
dealer. There's no specific time limit by which the shares must be returned; however,
the broker-dealer reserves the right to demand the return of the shares at any time.
Which of the following is NOT monitored by a technical analyst?
A. Advance/decline data
B. Chart patterns
C. Market momentum
D. Dividend payout ratios - Answer- D. Dividend payout ratios
Asset allocation based on a client's risk tolerance and investment objectives is called
strategic asset allocation. In theory, it is the best mix of assets given the client's goals
and level of risk aversion, giving it a long-term outlook. Strategic asset allocators tend to
view the market as efficient and market timing as ineffective. By contrast, those who
believe securities markets are not perfectly efficient may try to use an active strategy to
alter the portfolio's asset mix, to take advantage of anticipated economic events. This
market timing approach is sometimes called tactical asset allocation.
Stocks are considered in good deliverable form if:
A. Both the certificates and the stock power are included with a signature guarantee
B. The stock power has been notarized
,C. The stockholder endorses the certificate with his legal name without a signature
guarantee
D. Validated by the broker-dealer - Answer- A. Both the certificates and the stock power
are included with a signature guarantee
Technical analysts use price and trading volume information. Advance/decline data,
chart patterns, and market momentum calculations are all methods used in analyzing
this type of information. Dividend payout ratios would be important to a fundamental
analyst
Which of the following statements is TRUE concerning gift and estate taxes paid by a
husband and wife?
A. Gifts between spouses are unlimited and no gift or estate taxes will be paid when one
spouse passes away
B. Gifts between spouses are unlimited and there is no gift tax, but estate taxes must be
paid when one spouse passes away
C. Tax-free gifts between spouses are limited to $15,000 per year, but taxes are not due
on any excess until one spouse passes away
D. Tax-free gifts between spouses are limited to $15,000 per year and taxes must be
paid on any excess in the year the gift is given - Answer- A. Gifts between spouses are
unlimited and no gift or estate taxes will be paid when one spouse passes away
There is no limit on the amount of a gift between spouses. A husband or wife may give
any amount to a spouse without incurring a tax liability. An estate tax may be levied on
the value of a decedent's assets, but there will not be any estate tax due when one
spouse dies if all the assets are passed along to the surviving spouse. The entire estate
may pass tax-free to the survivor. If assets are distributed to persons other than the
decedent's spouse, the estate may be taxed if the amount exceeds the allowable limits
established by current tax law. Gift taxes must be paid by a donor, not the recipient of
the gift. An individual may give a gift of $15,000 per person, per year ($30,000 for joint
returns) without incurring a gift tax. The donor must pay the gift tax on amounts given
over this figure.
All of the following actions may create a taxable event Except?
A. An investor liquidates her mutual fund shares and reinvests the proceeds in a
different fund in the same family
B. A dividend is paid but the investor forgoes the cash and chooses to reinvest the
funds in additional shares of the same fund
C. An individual receives the death benefit from her father's variable annuity
D. Rolling the funds of one annuity into another annuity - Answer- D. Rolling the funds
of one annuity into another annuity
Switching from one mutual fund to another in the same family is considered by the IRS
to be a sale of an existing asset and a new purchase. This would generate a taxable
event. Reinvestments in the same fund are still taxable but add to a client's cost basis.
An annuity death benefit may generate a taxable event for the recipient if she receives
an amount above the contributions put into the contract by the deceased. Section 1035
of the IRS code does allow the transferring of assets from one annuity contract into
another annuity contract without tax liability.
,Which of the following statements is NOT considered misleading regarding a variable
annuity communication?
A. Telling a client that a variable annuity is a mutual fund
B. Representing that a variable annuity will meet short-term liquidity needs
C. Telling a client about the negative impact of an early redemption
D. Making a representation that a death benefit guarantee applies to the investment
return of the annuity - Answer- C. Telling a client about the negative impact of an early
redemption
FINRA is concerned about misleading communications regarding product identification,
liquidity, and claims regarding guarantees. A firm should not imply that the underlying
account is a mutual fund. Annuities should be purchased with long-term goals in mind,
not short-term liquidity needs. Death benefits may be guaranteed, but investment
results may not. It would be advisable to inform a potential investor of surrender
charges incurred as a result of early redemption.
All of the following documents must be accompanied or preceded by an OCC risk
disclosure document, EXCEPT:
A. Options research reports
B. A standardized options worksheet discussing straddles
C. Options advertising that appears in the newspaper
D. Options sales materials discussing projections - Answer- C. Options advertising that
appears in the newspaper
Options advertising is a type of retail communication, which must make the offer to send
the OCC risk disclosure document upon the customer's request. Options retail
communications must be approved by a registered options principal (ROP) prior to use.
Options-related retail communications that discuss projections, must be approved by a
ROP prior to use and preceded or accompanied by a risk disclosure document.
Which of the following statements is TRUE about revenue bonds?
A. Interest is usually paid from the earnings of the facility for which the bond was issued
B. Interest is subject to federal taxes
C. Revenue bonds are considered safer than general obligation bonds
D. The state public utility commission must approve each interest payment - Answer- A.
Interest is usually paid from the earnings of the facility for which the bond was issued
The interest on a revenue bond is usually paid from the earnings of the facility for which
the bonds were issued. The interest is exempt from federal income tax and revenue
bonds are considered riskier than general obligation bonds. State public utility
commissions set utility rates within the state but they do not approve municipal revenue
issue payments.
Relative to a corporate bond purchased at a discount, place the following in the proper
order from lowest to highest yield.
I. Current yield
II. Nominal yield
III. Yield to maturity
, A. I, II, and III
B. II, I, and III
C. III, I, and II
D. III, II, and I - Answer- A bond trading at a discount has a nominal yield that is less
than its yield to maturity. Current yield falls between the nominal yield and yield to
maturity. A bond trading at a premium has a nominal yield which is higher than the yield
to maturity, with the current yield in between the other two yields.
Which of the following choices would be LEAST suitable for an investor seeking
liquidity?
A. Preferred stock of a financial services company
B. A mutual fund that invests in international markets
C. A real estate investment trust (REIT)
D. A hedge fund using leverage - Answer- D. A hedge fund using leverage
Of the choices listed, the hedge fund would be the least suitable since it does not offer
liquidity. Hedge funds are not subject to the same regulations for requiring access to
their funds as are mutual funds. The shares are not redeemable on a daily basis and
are not suitable for an investor requiring a certain degree of liquidity. The preferred
stock and REIT are exchange-traded and may be sold at any time
A registered representative uses text messaging on a cell phone in order to
communicate with customers of her firm when she's out of the office. In this case, which
of the following is TRUE?
A. This type of communication with customers is prohibited.
B. The broker-dealer is required to approve any communication with customers when
the RR uses this type of device.
C. The broker-dealer is permitted to allow its RRs to use this type of communication as
long as the records are maintained by the firm.
D. The broker-dealer is not required to maintain any records of the messages. - Answer-
C. The broker-dealer is permitted to allow its RRs to use this type of communication as
long as the records are maintained by the firm.
According to FINRA rules, broker-dealers must supervise all written and electronic
correspondence that their RRs have with customers (including text, e-mail, and instant
messages). Additionally, these records must be maintained by the firm for a minimum of
three years. If a firm permits its RRs to communicate with customers through non-firm
email addresses and other electronic devices, it's required to supervise and retain those
communications. In fact, some firms prohibit or block its RRs from accessing non-firm
electronic platforms for business purposes.
An increase in which of the following metrics would cause the price of a bond to drop?
A. The bond's rating
B. The bond's liquidity
C. The issuer's financial strength
D. The general level of interest rates - Answer- D. The general level of interest rates
