I. FNMA
II. GNMA
III. FHLMC
IV. CMO
A. I only
B. II only
C. I and II
D. II and IV
2. Rising interests rates will generally affect existing bond holders by:
A. raising their interest payments
B. lowering the market value of their bond
C. raising the par value of their bond
D. causing their bonds to be “called”
3. Which type of bonds do not make interest payments to investors?
A. STRIPS
B. revenue bonds
C. CMO’s
D. I-Bonds
4. What is the current yield for a bond with a 5% coupon selling for 75?
A. 2.50%
B. 3.33%
C. 5.00%
D. 6.66%
5. Which of the following bond ratings would be considered investment grade?
I. AAAA
II. A A
III. BBB
IV. B
A. I only
B. I and II
C. II and III
D. II and IV
6. The Fed (Federal) Funds rate refers to:
A. the rate banks have to pay when borrowing from the Federal Reserve
B. the rate broker-dealers pay when borrowing on behalf of customers
C. the rate that the most credit worthy customers pay when borrowing
D. the rates banks charge each other for overnight loans over $1,000,000
7. All of the following are true about shares of preferred stock EXCEPT:
A. they have a stated rate of return
B. they have good growth potential
C. they receive bankruptcy priority
D. they have voting rights
8. The economic term “GDP” refers to:
A. the rate at which the cost of goods and services rise
B. the effect of foreign currencies on the domestic stock market
C. the effects of changes made by the Federal Reserve Board to the discount rate
D. the total output of the US economy
9. What is the current annual maximum contribution to a Coverdell ESA?
A. $500
B. $2,000
C. $5,000
D. determined by each state
10. None of the following are considered securities EXCEPT:
A. fixed annuities
B. commodities
C. fully insured bank CD’s
D. a mutual fund that buys fully insured bank CD’s
11. When an investment advisor hires a representative, the firm must submit whichof the following to the SEC or state?
A. U-4 form
B. U-5 form
C. 1099 form
D. W-4 form
12. Which of the following would be considered a “defined benefit” plan?
A. 401k
B. pension
C. Roth IRA
D. Keogh
13. All of the following are true regarding an employer-sponsored retirement planEXCEPT:
A. a 401k can be used by companies with as few as one employee
B. to qualify for favorable IRS treatment, the employer must make a minimumcontribution each year
C. a SIMPLE IRA makes it easier for lower paid employees to still save the maximumamount
D. a Keogh is a type of defined contribution plan
14. All of the following are considered securities EXCEPT:
A. a put option
B. an index mutual fund
C. a universal life policy
D. a money market fund
15. How long does an investor have to complete an IRA rollover?
A. until their tax filing deadline plus extensions
B. until December 31st of the year in which the rollover is started
C. 30 days
D. 60 days
16. All of the following are criteria used to determine if someone is an investmentadvisor EXCEPT:
A. they hold custody of client assets
B. they provide investment advice
C. they are in the business of providing advice
D. they receive compensation for providing advice
17. In a “Joint Tenants in Common” account, who does a deceased account holder’sassets pass to?
A. their estate
B. the other account holders
C. their spouse
D. their children
18. All of the following are exceptions that would allow an investor to avoid the 10%penalty on IRA early withdrawals EXCEPT:
A. withdrawals for certain educational expense
B. death
C. for living expenses if unemployed
D. first-time home purchase up to $10,000
19. What is the maximum contribution a 55-year old person might be able to maketo a Roth IRA in 2008?
A. $2,000
B. $4,000
C. $5,000
D. $6,000
20. Which of the following must be paid when converting a Traditional IRA to aRoth IRA?
A. a 10% penalty
B. Federal and state income taxes
C. a 10% penalty plus Federal and state income taxes
D. nothing if the conversion is completed within 60 days
21. In calculating the holding period of a security, you use which of the following?
I. the trade date
II. the day after the trade date
III. the sale date
IV. the day after the sale date
A. I and III
B. I and IV
C. II and III
D. II and IV
22. All of the following would be considered violations of the Investment CompanyAct of 1940 EXCEPT:
A. a 10% sales charge on a mutual fund
B. giving “shelf space” to certain mutual funds who do other business with the firm
C. delaying the execution of an order to increase a firm’s profit, even if it doesn’t cost theclient anything
D. using 14-point font for all required disclosures in a prospectus
23. All of the following can be funded with pre-tax dollars EXCEPT:
A. a Section 457 plan
B. a traditional 401k plan
C. a Keogh plan
D. a Section 529 plan
24. A prospectus must be delivered at or before the time of sale for which of thefollowing investment products?
I. certificate of deposit
II. money market fund
III. variable life insurance
IV. whole life insurance
A. I only
B. I and II
C. II and III
D. II, III, and IV
25. To be considered “substantially equal periodic payment,” a 72t distributionmust meet which of the following standards?
I. begin no later than age 50
II. begin no later than age 55
III. be taken over at least 5 years
IV. be taken over at least 10 years
A. III only
B. IV only
C. I and III
D. II and IV
26. An investment advisor with $28 million dollars in individual client assets undermanagement:
A. must register with the SEC
B. may register with the SEC
C. must register with the SEC
D. must register with the FRB
27. All of the following are considered “investment companies” under the Investment Company Act of 1940 EXCEPT:
A. management company
B. broker-dealer
C. unit investment trust
D. face amount certificate company
28. Which of the following distributions from a life insurance policy would occurincome tax-free?
I. a loan against a policy’s cash value
II. a withdrawal for educational expenses
III. a death benefit paid to a named beneficiary
IV. a redemption of a policy’s cash value and reinvestment within a similar policywithin 60 days
A. III only
B. I and IV
C. I and III
D. II, III, and IV
29. Which of the following will likely be subject to ordinary income tax?
I. an annuity
II. an OID bond
III. a variable life death benefit
IV. a money market fund
A. I only
B. I and II
C. I, II, and III
D. I, II, and IV
30. A high grade investment bond fund comprised of AAA-rated corporate andmunicipal bonds, as well as GNMA’s, could potentially be taxed on which of thefollowing levels?
I. Federal
II. state
III. gift
IV. estate
A. I and II
B. I and IV
C. I, II, and IV
D. I, II, III, and IV
31. To be considered a “qualified plan”, a retirement plan must meet guidelines setby which of the following acts or agencies?
I. IRS
II. SEC
III. AARP
IV. ERISA
A. II only
B. I and IV
C. I, II, and III
D. I, II, III, and IV
32. What is the latest that a registered representative may generally call a prospect’shome?
A. 6:00 PM
B. 7:00 PM
C. 8:00 PM
D. 9:00 PM
33. Regarding its telemarketing efforts, a firm or its representative must do which ofthe following?
I. identify themselves and the purpose of their call
II. compare potential prospects against the FTC’s Do Not Call List
III. be licensed by the NASD as a telemarketer
IV. establish a 900 number for potential complaints
A. I only
B. I and II
C. I, II, and III
D. II, III, and IV
34. All of the following are true of a firm’s communication with the publicEXCEPT:
A. independently prepared reprints of articles do not need to be retained
B. a computer slideshow is considered “sales literature”
C. a discussion in a chat room is considered a public appearance
D. firms must keep a log of which firm principal approves each piece of literature
35. Which of the following would be considered communication with the public bythe NASD?
I. advertisements
II. sales literature
III. a radio interview
IV. independently prepared reprints
A. I and II
B. I,II, and III
C. I, II, and IV
D. I, II, III, and IV
36. NASD Rule 3030 regulates:
A. private security transaction of an associated person
B. the distribution of sales literature
C. the maintenance of a member’s books and records
D. outside business activities of an associated person
37. A member firm may hold customer mail for a maximum of:
A. 1 month
B. 2 months
C. 3 months
D. 6 months
38. All of the following are considered “institutional investors” EXCEPT:
A. a qualified plan with 50 participants
B. a bank with less than $50 million in assets
C. a savings and loan with more than $50 million in assets
D. a person acting on behalf of another institutional investor
39. Which of the following is true regarding the use of paid telemarketers?
A. non-registered telemarketers may not be used
B. telemarketers employed by a member firm are not subject to rules regardingacceptable calling hours
C. the member firm bears liability only for violations of the don-not-call list
D. the member firm bears all the liability for violations of NASD rules by thetelemarketer
40. All of the following activities would qualify an office of a member firm as anOffice of Supervisory Jurisdiction EXCEPT:
A. telemarketing
B. order execution
C. custody of a customer funds or securities
D. approval of sale literature
41. The NASD Conduct Rules state that a member firm and its employees must actin which of the following ways?
I. observe the high standards of commercial honor
II. to balance the for-profit nature of the firm with the needs of clients
III. observe the just and equitable principles of trade
IV. as they would treat a member of their own family
A. I and II
B. I and III
C. II and III
D. I, III, and IV
42. A member firm cannot open a margin account for a client without obtaining theclient’s:
A. age
B. place of employment
C. credit history
D. income verification
43. Which term refers to the practice of soliciting a client or prospect to buy sharesof ownership in a business you’ve started separate from your member firm?
A. front running
B. blind dealing
C. selling away
D. fencing
44. Which of the following would qualify as a “business relationship” fortelemarketing purposes?
A. you have had extensive discussions about a mutual fund with a prospect
B. you were contacted by email for more information about your services
C. you call members from your church directory whom you have not personally met
D. the person you are contacting made a transaction through a former representative atyour firm 15 months ago
45. Which of the following records must be kept in writing at each office ofsupervisory jurisdiction?
A. a list of all prospects contacted by phone within the last 30 days
B. written supervisory procedures
C. copy of the FTC’s do-not-call list
D. copy of every registered representatives’ fingerprints
46. Which of the following is true regarding “stable value” money market funds?
A. they are not government guaranteed
B. they are considered government guaranteed if they only own Treasury securities
C. they can only be sold in one share class
D. they are sold in $1, $5, $10, and $100 increments
47. All of the following must be provided upon request by a member firm’stelemarketing representative EXCEPT:
A. name of the individual caller
B. the name of the member firm
C. the training and education of the solicitor
D. that the purpose of the call is to solicit an investment
48. Which term refers to the unethical practice of buying or selling shares of stockimmediately prior to executing an order for your customer?
A. front running
B. back-loading
C. market making
D. twisting
49. Which of the following may be paid out of an investment company’s 12b-1 fees?
I. sales charges
II. marketing expenses
III. administrative expenses
IV. a “shelf fee” to broker-dealers
A. I and IV
B. II and III
C. I, II, and III
D. II, III, and IV
50. You have a client who actively invests in the technology sector through certainmutual funds. Earlier this week, your client went into surgery and will beunavailable for another 3-5 days. Your firm’s new research shows that the techsector is going to experience a sharp decline in the next few days, so you decide tosell a portion for your client’s position to help them minimize their risk. Which ofthe following best addresses this situation?
A. You acted appropriately and in your client’s best interest.
B. You acted improperly since the loss of upside potential from selling the funds couldupset your client.
C. You acted improperly because an investor who was going to be unavailable shouldhave already been moved into a cash position.
D. You acted improperly because this was an unauthorized transaction.
51. Michelle is a newly registered representative who lives in a community heavilypopulated by retirees. Hoping to build a new clientele as fast as possible, Michellebegins cold calling non-customers to tell them about a bond fund that only buysinvestment grade bonds from large European companies. What type of risk shouldMichelle be sure to help her clients understand?
A. inflation risk
B. currency exchange risk
C. call risk
D. default risk
52. The stated investment objective of an investor who wants to grow the value oftheir investment at 9-10% annually over the next decade would most likely be:
A. speculation
B. capital appreciation
C. income
D. capital preservation
53. Which of the following might violate fair dealing rules created by the NASD?
I. selling deeply-discounted zero coupon Treasury bonds
II. recommending penny stocks to clients
III. helping a client open a fake account to get more shares of a hot issue
IV. recommending a great fund to a client even though they don’t have the ability tobuy it
A. II and III
B. I, III, IV
C. II, III, and IV
D. I, II, III, and IV
54. Which of the following facts would make a mutual fund an attractive choice fora more risk-averse investor?
I. the fund has a high beta
II. the fund has a low beta
III. the stocks in the fund have a high price to earnings ratio
IV. the stocks in the fund have a high dividend yield
A. I and III
B. II and III
C. II and IV
D. II, III, and IV
55. Mutual funds are primarily regulated by the:
A. The Securities Act of 1933
B. The Securities Exchange Act of 1934
C. The Investment Company Act of 1940
D. The Investment Advisor Act of 1940
56. Which of the following services provide quality ratings on bonds?
I. Standard and Poor’s
II. Moody’s
III. AMBAC
IV. A.M. Best
A. I and II
B. I and III
C. I, II, and III
D. I, II, and IV
57. The risk that a bond might be redeemed by its issuer prior to the maturity dateis know as:
A. interest rate risk
B. default risk
C. credit risk
D. call risk
58. All of the following are types of risk EXCEPT:
A. inflation risk
B. reinvestment risk
C. allocation risk
D. specific risk
59. According to the NASD, which of the following mutual fund shares are matchedwith the appropriate situations?
I. “A” shares in a solid mutual fund family owned in a Roth IRA
II. “B” shares for a sector fund the client thinks he will sell during the next 12months
III. “C” shares for a college fund that will be used in 8 years
IV. “D” shares for a situation in which tax consequences need to be minimized
A. I only
B. II only
C. I and III
D. I, III, and IV
60. Sarah, aged 66, was a high school English teacher her whole life. Until a coupleof years ago, her now-deceased husband handled all the financial decisions in thehousehold. Sarah receives a pension that covers most of her needs, but also received
some life insurance proceeds from her husband’s death. Which type of investmentwould likely be most suitable for Sarah?
A. a convertible bond fund yielding 7%
B. a municipal bond fund paying 3.5%
C. a variable annuity with a bonus feature
D. an investment grade bond fund paying 5.5%
61. Which of the following characteristics should be considered when evaluating thesuitability of an investment for a client?
I. the client’s income
II. the client’s investment objectives
III. the client’s age
IV. the client’s gender
A. II only
B. I,II, and III
C. II, III, and IV
D. I, II, III, and IV
62. All of the following may violate the Fair Dealing provisions ofI.-2310-2 EXCEPT:
A. the use of discretionary accounts
B. unauthorized transactions
C. excessive trading of mutual funds shares
D. borrowing funds from a customer
63. All of the following would be permitted under Regulation S-P EXCEPT:
A. a registered representative giving a list of his clients to a CPA as potential referrals
B. a broker-dealer corresponding with a client’s mutual fund management company
C. reporting clients under the Patriotic Act for actions that do not match one of the Act’scriteria
D. turning a margin client’s information over to a collection agency
64. Someone holding full discretionary authority would be permitted to makedecisions regarding which of the following?
I. when to buy and sell
II. which securities to buy or sell
III. the amount to be purchased
IV. deposits and withdrawals
A. I only
B. I and II
C. I, II, and III
D. I, II, III, and IV
65. Rule 10B-10 requires which form to be mailed to clients in a timely manner?
A. IRS form 1099-INT
B. IRS form 1099-DIV
C. independently reprinted articles
D. statements
66. All of the following are required of member firms when an associated personopens an account EXCEPT:
A. notifying the member employer in writing
B. provide duplicate confirmations to member employer if requested
C. reporting all transactions to FinCEN
D. notifying the person opening the account of the intention to notify their employer’sfirm
67. Which of the following are types of trading authorization?
I. limited
II. spousal
III. blue-chip restricted
IV. full
A. I and II
B. I and IV
C. II and III
D. I, II and IV
68. A Joint Tenants with Rights of Survivorship account:
A. is only permitted between spouses
B. allows assets to be transferred simply upon death to the surviving account holder
C. avoids estate tax
D. passes rights to the assets on to the deceased account holder’s surviving heirs
69. All responses to requests from the NASD for information stemming from a clientcomplaint must be made in writing within:
A. 10 days
B. 25 days
C. 60 days
D. 6 months
70. Which of the following are broker-dealers permitted to do under Regulation T?
A. use client cash deposits to invest in short-term and liquid investments
B. loan certain investment clients additional funds to purchase securities
C. act as both a broker and a dealer on the same client trade
D. purchase securities from the Federal Open Market Committee
71. All of the following are potential NASD disciplinary actions EXCEPT:
A. imprisonment
B. censure
C. fine
D. expulsion
72. Reimbursing customers for their investment losses is a violation of:
A. Rule 2330
B. Rule 2370
C. Rule 2420
D. Rule 3050
73. SIPC is backed by which of the following groups?
A. the U.S. Treasury
B. the U.S. Federal Reserve
C. the FDIC
D. broker-dealers that choose to become members of SIPC
74. The Bank Secrecy Act requires reporting cash transactions over:
A. $1,000
B. $3,000
C. $5,000
D. $10,000
75. Bob Jones has $400,000 total, including $80,000 in cash at ACME brokerage.Jane, Bob’s wife, has an additional $430,000 with ACME, including $320,000 in cash. Which of the following are true regarding their SIPC coverage?
I. their entire balances are covered under SIPC
II. they are only covered for a combined total of $500,000
III. all of Bob’s cash is protected
IV. all of Jane’s cash is covered
A. II only
B. III only
C. I and IV
D. I, III, and IV
76. Which of the following is true regarding an annuity’s assumed interest rate(AIR)?
A. when a contract is annuitized, it locks in the dollar amount of monthly payments
B. it does not affect the actual dollar amount paid out to an annuitant
C. an annuity owner is allowed to choose between 3-5 assumed interest rates whendeciding on their withdrawal rate
D. if the actual return is smaller than the AIR, an annuity guarantees that a minimumamount is paid
77. Which of the following would be considered advantages of buying an open-endmutual fund?
I. diversification
II. liquidity
III. protection of principal
IV. tax-deferral
A. I only
B. I and II
C. I and IV
D. I, II, and IV
78. All of the following are types of permanent insurance EXCEPT:
A. variable life
B. guaranteed renewable term
C. universal life
D. whole life
79. Which of the following are considered advantages of variable annuities?
I. tax-deferral
II. tax-free withdrawals
III. protection of principal during an annuitant’s life
IV. death benefit
A. I and III
B. I and IV
C. I, II, and III
D. I, II, and IV
80. Which of the following are types of annuities issued by an insurance company?
I. variable
II. fixed
III. universal
IV. periodic-payment immediate annuity
A. I and II
B. I and III
C. I, II, and III
D. I, II, III, and IV
81. All of the following are considered low-cost methods of investing in a broadstock market portfolio EXCEPT:
A. open-end mutual funds
B. variable annuities
C. ETF’s
D. closed-end funds
82. All of the following are generally taken into consideration when an insurancecompany calculates a potential annuity payout EXCEPT:
A. annuitant’s age
B. annuitant’s health
C. annuitant’s gender
D. the assumed interest rate
83. Which of the following are deducted from the initial purchase price of anannuity?
I. front-end sales charge
II. surrender charge
III. federal premium tax
IV. state premium tax
A. I only
B. I and III
C. I and IV
D. I, III, and IV
84. All of the following are methods of making systematic withdrawals from amutual fund EXCEPT:
A. fixed-NAV periodic payments
B. fixed-dollar periodic payments
C. fixed-percentage periodic payments
D. fixed-share periodic payments
85. Which of the following options results in the largest annuity payout?
A. life only
B. unit refund life annuity
C. life with period certain
D. joint and last survivor
86. All of the following are methods of selling an open-end mutual fund EXCEPT:
A. a phone call to an investor’s registered representative
B. a phone call to the mutual fund company
C. a written redemption request mailed to the company
D. an email to the investment company
87. Which of the following is true of a “principal protected” fund?
A. they are a low-cost way to limit the downside of a portfolio
B. they trade similar to closed-end funds
C. they do not invest in stocks or other higher risk investments
D. they guarantee a return of an investor’s original principal
88. Who of the following is responsible for paying the premiums on a life insurancepolicy?
A. the insured
B. the beneficiary
C. the policyholder
D. the insurance company
89. An annuity from which an investor starts receiving immediate payments iscalled a:
A. variable annuity
B. fixed annuity
C. immediate annuity
D. deferred annuity
90. Rights of accumulation refers to an investor’s right to:
A. reinvest their capital gains and dividends without paying a new sales charge
B. accumulate new shares of a mutual fund before other investors who did not previouslyown the fund
C. receive a lower sales charge if their existing investment appreciates past the next breakpoint
D. combine different mutual funds from the same family when they’ve accumulated aminimum amount
91. Which of the following would be appropriate for an investor who may wish tochange investments within a year of purchase?
I. “A” share mutual fund
II. “C” share mutual fund
III. money market mutual fund
IV. principal-protected fund
A. III only
B. II and III
C. II and IV
D. III and IV
92. A diversified mutual fund provides all of the following benefits to an investorEXCEPT:
A. diversification between a minimum of 10-15 stocks
B. automatic reinvestment
C. simplified record keeping
D. ease of purchase
93. All of the following are paid for out of a mutual fund’s 12b-1 fees EXCEPT:
A. management fees
B. distribution fees
C. marketing expenses
D. legal fees
94. Which of the following is the primary drawback associated with “bonus”annuities?
A. fixed rate of return
B. longer surrender period
C. fewer investment options
D. loss of death benefit
95. Which of the following accounts do not allow for the account owner to borrowagainst them without incurring a 10% penalty from the IRS?
A. Traditional IRA
B. 401k plan
C. 403b plan
D. whole life insurance contract
96. All of the following help an investor lower their sales load on mutual fundpurchases EXCEPT:
A. break points
B. letter of intent
C. conversion privileges
D. rights of accumulation
97. A “contractual plan” for a mutual fund:
A. allows investors to withdraw regular, periodic amounts without a surrender charge
B. is available in all 50 states
C. allows an investor to receive break point pricing for all purchases made over anextended period
D. commits an investor to investing regularly in a mutual fund for an extended period oftime
98. All of the following are methods of buying an annuity EXCEPT:
A. single-payment deferred annuity
B. periodic-payment deferred annuity
C. single-payment immediate annuity
D. periodic-payment immediate annuity
99. Which of the following is generally included in an annuitant’s estate value upondeath?
A. their original investment amount
B. anything above the annuitant’s cost basis in the contract
C. the entire value of the contract
D. none of it
100. Which of the following terms are associated with open-end mutual funds?
I. premium
II. POP
III. accumulation units
IV. NAV
A. IV only
B. II and IV
C. III and IV
D. II, III, and IV