Mastery Exam ALL VERSIONS 2025 | LATEST AND ACCURATE REAL EXAM QUESTIONS WITH DETAILED ANSWERS | VERIFIED FOR GUARANTEED PASS | LATEST UPDATE

A company is engaging in a securities offering that is a combination of a primary and secondary offering. Which of the following is true?: A) This combination is known as an APO where existing shareholders receive all of the proceeds of the sale. B) This combination is known as a split offering where the issuer receives some of the proceeds and existing shareholders receive some of the proceeds from the sale. C) This combination is known as an IPO where the issuer receives all of the proceeds from the sale. D) This combination is known as a split offering where the issuer receives all of the proceeds from the sale. - ANSWER B) This combination is known as a split offering where the issuer receives some of the proceeds and existing shareholders receive When an offering is a combination of a primary and secondary offering, it is known as a split offering. In a split offering the corporation issues a portion of the shares offered to the public and receives the sales proceeds from those shares, while existing shareholders offer the balance of the shares to the public and receive the proceeds from those shares. How long is a letter of intent valid: A) 9 months B) 3 months C) 6 months D) 13 months - ANSWER D) 13 months How long can you backdate a letter of intent: A) 30 days B) 90 days C) 15 days D) 60 days - ANSWER B) 90 days Which of the following option contracts is in the money if ABC stock is currently trading at $45 per share?: A) Jan. 50 call B) Feb. 45 call C) Mar. 40 put D) Jan. 55 put - ANSWER D) Jan. 55 put In, at, or out of the money has only to do with the option contract's strike price and the current market value of the stock. A call is in the money when the price of the stock exceeds the strike price of the call. A put is in the money when the price of the stock (45) is lower than the strike price of the put (55). Therefore, a Jan. 55 put is in the money when the stock is trading at 45. Regarding a tombstone advertisement, all of the following are accurate statements except: A) all such advertisements must contain an advisory stating that the ad is neither an offer to sell nor a solicitation of an offer. B) they are required by and filed with the SEC in order to announce a new issue to the investing public. C) they are limited to the information that may be contained in them. D) it is the only type of advertisement permitted between the time the registration statement is filed with the SEC and the effective date. - ANSWER B) they are required by and filed with the SEC in order to announce a new issue to the investing public. While tombstone ads are the only type of advertisement that may run to announce a new issue during the cooling-off period, they are not required and do not need to be filed with the SEC. When they are used, they are neither an offer to sell nor a solicitation of an offer and must state so and are limited to the information that may be contained in them. Underwriters have been taking indications of interest for shares of an upcoming new issue. Indications of interest are: A) nonbinding on all parties. B) binding on the underwriters only to make available the shares once the effective date is reached. C) binding on all parties. D) binding only on the parties who tendered the indications to purchase the shares once the effective date is reached. - ANSWER A) nonbinding on all parties. Indications of interest are not binding on either buyers (investors) or sellers (underwriters). Your customer is long one DFG July 35 call at two. You explain to the customer that in order to breakeven, DFG stock must be trading at: A) 33. B) 37. C) 0. D) 35. - ANSWER B) 37. Breakeven (BE) for a call is calculated by adding the premium (two) to the strike price (35). In this case, a July 35 call purchased at 2 will be at BE when the stock is at 37. A customer of your broker-dealer has invested in a variable annuity (VA). She makes several comments about them, but one of the statements is inaccurate and needs to be corrected. Which is it?: A) VAs are not securities. B) VAs guarantee an income stream for life. C) Premiums are invested in a diversified portfolio with an investment objective that the purchaser gets to choose. D) VAs are actually insurance company products. - ANSWER A) VAs are not securities. All annuity contracts guarantee an income stream for life, but there is an investment component to a VA that makes it different from a fixed annuity. These insurance company products invest in diversified portfolios offering a number of objectives for the investor to choose from. Investment in the diversified portfolio (a.k.a. the separate account) means that the investor is assuming the investment risk. This is the definition of a security. A basis point is valued at: A) 1/100th of 1%. B) 1% of face value or $10. C) 1/1000th of 1%. D) 1% of market value. - ANSWER A) 1/100th of 1%. A basis point is a measurement of yield equal to 1/100 of 1%. A full percentage point is made up of 100 basis points (bps). A point is a measurement of the change in a bond's price which equals 1% of face value or $10 per bond. One of your new clients explains that she prefers investments paying income with a fixed rate of return, but also allows for the possibility of realizing greater gain potential. She would likely favor investments in: A) convertible preferred shares. B) adjustable rate preferred shares. C) common shares. D) corporate bonds. - ANSWER A) convertible preferred shares. Preferred dividends, though not guaranteed, are calculated as a fixed percentage of PAR value rather than fluctuating with amounts to be paid contingent upon the approval of the board of directors like common dividends are. Convertible preferred shares allow the owner to exchange the shares for a fixed number of shares of the issuing corporation's common stock. Common shares enjoy a greater gain potential than preferred shares. Therefore, convertible preferred shares have both of the features favored by this investor. A client has just purchased a ZZZ June 35 call at eight when the stock is trading at 41. What is the contract's premium?: A)Two points of intrinsic value and six points of time value B) Eight points of intrinsic value C) Six points of intrinsic value and two points of time value D) Eight points of time value - ANSWER C) Six points of intrinsic value and two points of time value Intrinsic value has to do with the option contract's strike price and the current market value of the stock. A call is in the money (has intrinsic value) when the price of the stock exceeds the strike price of the call. In this case, the contract has six points of intrinsic value. The extra two points paid in premium are time value. A corporation deposits T-bonds it owns into a trust in order to secure a loan. The loan for this type of arrangement would be facilitated by the corporation issuing: A) mortgage bonds. B) treasury guaranteed bonds. C) collateral trust bonds. D) equipment trust certificates. - ANSWER C) collateral trust bonds. When issuing collateral trust bonds or certificates, an issuing corporation deposits marketable securities it owns into a trust in order to secure the loan. The securities it deposits can be securities in other corporations or those of partially or fully owned subsidiaries as long as the securities are marketable. The securities become the lender's (bondholder's) collateral. In a cash account, an investor must pay for a purchase by: A) depositing at least 50% of the purchase price by settlement. B) depositing the entire amount of the trade by the settlement day. C) having at least 50% of the trade in the account. D) having the cash available in the account. - ANSWER C) having at least 50% of the trade in the account. In a cash account, 100% of the funds required to pay for a purchase must be deposited in the account by the settlement day. Funds are only required beforehand if the account is frozen. A registration statement disclosing material information about a new issue must be filed with the Securities Exchange Commission. The accuracy and adequacy of the registration statement is the responsibility of: A) the issuer. B) the Securities Exchange Commission (SEC). C) the exchanges where the shares will trade. D) the underwriters. - ANSWER A) the issuer. Even though the underwriters assist the issuer in preparing the registration statement that must be filed with the SEC, the issuers are ultimately responsible for the accuracy and adequacy of these documents. Remember that the SEC neither approves nor disapproves of anything within the registration statement. To facilitate a public offering where securities are offered and sold to the investing public, issuers will utilize the services of all of the following except: A) investment bankers. B) underwriters. C) U.S. stock exchanges. D) broker-dealers. - ANSWER C) U.S. stock exchanges. To facilitate a public offering, issuers will utilize the services of investment bankers and broker-dealers known as underwriters of the securities. Which of the following statements regarding open-end and closed-end funds is true?: A) Both issue equity and debt securities. B) Both pay dividends when declared. C) Both issue full and fractional shares. D) Both are priced using the same method. - ANSWER B) Both pay dividends when declared. Both open- and closed-end funds can pay dividends to shareholders when declared by the fund's board of directors. Only open-end funds can issue fractional shares and onl closed-end funds can issue debt securities. Open-end fund shares are priced by formula (NAV + sales charge = POP) and closed-end fund shares are priced by supply and demand. y If the U.S. balance of payments is currently running at a surplus, all of the following are likely to be occurring except: A) the balance of trade shows a credit. B) more dollars are flowing out of the United States than into the United States. C) the value of the U.S. dollar is currently down against other currencies. D) exports are currently exceeding imports. - ANSWER B) more dollars are flowing out of the United States than into the United States. When the U.S. balance of payments is running at a surplus, the balance of trade shows a credit; that is, exports are greater than imports, meaning more dollars are flowing into the U.S. economy than out. When the value of the U.S. dollar is down, foreign goods become more expensive to U.S. buyers, but U.S. goods become more attractive to those with foreign currency in hand. This also leads to more exports of U.S. goods. The Federal Reserve Board (FRB) can have an impact on the money supply utilizing all of the following except: A) raising or lowering the discount rate. B) raising or lowering the prime rate. C) raising or lowering the reserve requirement. D) buying and selling government securities in the open market. – ANSWER B) raising or lowering the prime rate. The prime rate is the rate that large U.S. commercial banks charge their most creditworthy corporate customers for unsecured loans. It is not a tool that the FRB can utilize to ease or tighten the money supply. The business cycle is best characterized as: A) expansion, peak, contraction, and trough. B) expansion, prosperity, contraction, and depression. C) depression, recovery, prosperity, and peak. D) inflation, stagflation, deflation, and stagnation. - ANSWER A) expansion, peak, contraction, and trough. The business cycle is recognized as having four components: expansion, peak, contraction, and trough. Because it is a cycle, there is no standard beginning point or ending point, but there is a logical order to the components. During the cooling-off period, underwriters may: A) accept binding indications of interest from public investors B) take orders from institutional investors only C) take nonbinding indications of interest from public investors D) distribute sales literature to interested existing clients - ANSWER C) take nonbinding indications of interest from public investors While taking indications of interest is permitted during the cooling-off period, taking orders from anyone, or making bona fide offers of sale and distributing sales literature is not. There is no binding indication of interest.