Which of the following terms describes an offer to purchase some or all shareholders' shares in a
corporation, usually at a premium to the market price?
A
Explanation:
Step by Step Explanation:
Tender Offer Definition: A tender offer is an offer to purchase a certain number of shares from
shareholders, typically at a price above the current market value. This is often part of mergers,
acquisitions, or corporate takeovers.
Stock Split: A stock split increases the number of shares but decreases the price per share without
affecting the total value of an investor's holdings.
Redemption: Redemption refers to the repayment of a bond or preferred stock at maturity or at a
predetermined date.
Class Action: A class action is a lawsuit filed by a group of people with similar grievances.
Reference:
SEC Rule 14e on tender offers: SEC Tender Offers.
Which of the following statements best describes a characteristic of 529 savings plan accounts?
C
Explanation:
Step by Step Explanation:
529 Savings Plans: These plans allow tax-advantaged savings for education expenses. They can be
used for both undergraduate and graduate studies, as well as certain K-12 expenses.
Contribution Limits: Contributions are subject to gift tax limits but have no specific statutory
maximum under federal law.
Tax Treatment: Earnings grow tax-deferred and are tax-free if used for qualified education expenses.
Reference:
IRS Section 529 Guidance: IRS 529 Plans.
Which of the following statements is true regarding the ownership of investment company shares
held as tenants in common?
C
Explanation:
Step by Step Explanation:
Tenants in Common: In this arrangement, each tenant owns a fractional interest in the account's
assets, which can be unequal depending on the agreement.
Income Distribution: Income is distributed based on ownership percentage, not necessarily equally.
Redemption Requests: Only the owner of the fractional interest has authority to request redemption
for their portion.
Estate Taxation: Upon the death of a tenant, only their fractional interest is taxable in their estate.
Reference:
FINRA Guidelines on Joint Accounts: FINRA Joint Accounts.
A broker-dealer (BD) creates a marketing postcard that includes a statement regarding FINRA's
endorsement of the BD. Which of the following responses is true?
A
Explanation:
Step by Step Explanation:
FINRA Rule 2210: Firms are prohibited from suggesting or implying FINRA's endorsement or approval
in any advertising materials.
Approvals: Even if a principal or FINRA approves the content, such a statement remains
impermissible.
Key Point: FINRA's role is to regulate, not to endorse firms or their marketing.
Reference:
FINRA Rule 2210 (Communications with the Public): FINRA Rule 2210.
According to FINRA rules, under which of the following circumstances, if any, is a member firm
permitted to send gifts to a registered representative of another member firm?
B
Explanation:
Step by Step Explanation:
FINRA Rule 3220: This rule limits gifts to $100 per person annually to prevent conflicts of interest.
Aggregate Limit: There is no provision for exceeding the $100 annual limit, regardless of the number
of gifts.
Purpose: The rule ensures that gifts do not influence decisions or create unethical relationships.
Reference:
FINRA Rule 3220 (Influencing or Rewarding Employees of Others): FINRA Rule 3220.
The cash value of a variable life insurance policy is affected by which of the following factors?
C
Explanation:
Step by Step Explanation:
Variable Life Insurance: The cash value depends on the performance of the underlying investment
options.
Fluctuating Market Conditions: Since the cash value is linked to market performance, fluctuations
directly impact its value.
Beneficiary/Death Benefit Changes: These do not directly impact the cash value unless they involve
additional costs or changes to premiums.
Reference:
SEC Bulletin on Variable Life Insurance: SEC Variable Insurance.
An investor wants to purchase additional mutual fund shares with income distributed by the fund.
Which of the following fund options permits this?
C
Explanation:
Step by Step Explanation:
Dividend Reinvestment Plans (DRIPs): These allow investors to automatically reinvest income
distributed by the mutual fund to purchase additional shares.
Dollar Cost Averaging: Refers to systematic investments over time, not directly tied to income
distributions.
Capital Gains Reinvestment: Involves reinvesting profits from the sale of fund holdings, which is
distinct from dividend reinvestment.
Reference:
FINRA Mutual Fund Features: FINRA Mutual Funds.
An investor generally purchases an open-end mutual fund from which of the following parties?
C
Explanation:
Step by Step Explanation:
Open-End Mutual Funds: Shares are purchased directly from the fund or its underwriter at the
current Net Asset Value (NAV), plus any applicable sales charges.
Custodian: Holds the fund's assets but does not sell shares.
NYSE and Shareholders: Open-end funds do not trade on exchanges or between individual
shareholders.
Reference:
SEC Mutual Fund Basics: SEC Mutual Funds.
Shares in a private investment in public equity (PIPE) offering are priced:
B
Explanation:
Step by Step Explanation:
PIPE Offerings: Typically priced below the current market value to incentivize institutional investors
to participate in these transactions.
Discount: The discounted price compensates for the potential illiquidity and risk associated with PIPE
offerings.
POP/Market Value: These do not apply to private offerings structured as PIPE transactions.
Reference:
SEC PIPE Offering Guidance: SEC PIPE Offerings.
Rising economic activity is most likely to increase revenues of which of the following sectors?
D
Explanation:
Step by Step Explanation:
Consumer Discretionary Sector: Includes products and services that are not essential, such as luxury
items, travel, and entertainment. Revenues increase as disposable income rises during economic
expansion.
Consumer Staples and Utilities: These sectors are defensive and less impacted by economic cycles.
Healthcare: Also less correlated with economic cycles due to its essential nature.
Reference:
SEC and FINRA Guidance on Sectors: Investopedia Sector Overview.
The provision that allows a bond issuer to purchase bonds from customers prior to the maturity date
on the bond is known as a:
B
Explanation:
Step by Step Explanation:
Call Provision: This allows the issuer to redeem bonds before their maturity date, usually at a
premium to the par value, which benefits the issuer in a declining interest rate environment.
Put Provision: Allows bondholders, not issuers, to sell the bond back to the issuer.
Conversion: Relates to convertible bonds that can be converted into equity.
Defeasement: Refers to the removal of a bond issuer’s obligation by setting aside cash or securities
to cover the debt.
Reference:
SEC Guide on Callable Bonds: SEC Callable Bonds.
Which of the following types of accounts permits an investor to borrow money from a broker-dealer
to help pay for a trade?
B
Explanation:
Step by Step Explanation:
Margin Accounts: Allow investors to borrow funds to purchase securities, with the securities serving
as collateral for the loan.
Cash Accounts: Require full payment for securities purchased.
IRAs: Do not permit borrowing due to their tax-advantaged status.
DVP/RVP: Settlement mechanisms, not account types for borrowing.
Reference:
FINRA Rule 4210 (Margin Requirements): FINRA Rule 4210.
A rating agency downgrades a corporation's credit rating. Which of the following effects is this action
most likely to have on the yield and price of the corporation's outstanding bonds?
C
Explanation:
Step by Step Explanation:
Credit Downgrade: Increases perceived risk, causing bond prices to drop and yields to rise.
Yield-Price Relationship: Yields move inversely to bond prices. Lower prices lead to higher yields as
investors demand more return for increased risk.
Reference:
SEC Guidance on Bond Ratings: SEC Bond Ratings.
Which of the following responses best describes a short sale?
B
Explanation:
Step by Step Explanation:
Short Sale Definition: Involves selling borrowed securities with the expectation of repurchasing them
at a lower price.
Investor Ownership: Short sales do not involve securities already owned by the seller.
Other Options: None of the other choices accurately define a short sale.
Reference:
SEC Regulation SHO (Short Selling): SEC Short Sales.
A registered representative who is terminated from a broker-dealer must notify FINRA of a
residential address change for what period of time after termination?
B
Explanation:
Step by Step Explanation:
FINRA Rule 1122: Requires that registered representatives update their residential address with
FINRA for two years post-termination.
Purpose: This ensures accurate records for potential regulatory inquiries during the statutory two-
year period when a terminated individual remains subject to FINRA’s jurisdiction.
Reference:
FINRA Rule 1122 (Filing False or Misleading Information): FINRA Rule 1122.