10. According to Regulation A (Small Issue Exemption), A new issue of _____________ or less during a 12-month period is exempt under the Act. But the issuer must file an offering statement with the SEC and an offering circular must be given to prospective purchasers.
A. $5,000,000
B. $4,000,000
C. $2,000,000
D. $6,000,000
Answer: A
Explanation: A new issue of $5,000,000 or less during a 12-month period is exempt under the Act. But the issuer must file an offering statement with the SEC and an offering circular must be given to prospective purchasers. The small exemption are the lower legal and filing fees, as well as the shorter time needed for documentation preparation.

11. Regulation D(Private Replacement), Issuer can avoid the registration requirements of the SEC by engaging in a private placement under this, where a buyer must receive an offering memorandum, not to be sold more than_____ non-accredited investors.
A. 35
B. 40
C. 50
D. 23
Answer: A
Explanation: Regulation D(Private Replacement), Issuer can avoid the registration requirements of the SEC by engaging in a private placement under this, where a buyer must receive an offering memorandum, not to be sold more than 35 non-accredited investors.

12. General solicitation of investors is normally not allowed. Furthermore the issuer must be assured that the buyer does not intend to make a quick sale of the securities. This is usually accomplished by means of an investment letter. For an individual to qualify as an accredited investor that person would need a net worth of ___________ or gross income of $200,000 for each of the past two years with the anticipated continuation of that income level.
A. $100,000
B. $200,000
C. $300,000
D. $400,000
Answer: A
Explanation: General solicitation of investors is normally not allowed. Furthermore the issuer must be assured that the buyer does not intend to make a quick sale of the securities. This is usually accomplished by means of an investment letter. For an individual to qualify as an accredited investor that person would need a net worth of $1,000,000 or gross income of $200,000 for each of the past two years with the anticipated continuation of that income level.

28. Permits the use of ad that describes, in general terms, how investment companies work. The communication must be limited to information re. Investment companies in general, or to the nature of investment companies.
A. SEC Rule 134
B. SEC Rule 135A
C. SEC Rule 144
D. SEC Rule 144A
Answer: B
Explanation: SEC Rule 135A Permits the use of ad that describes, in general terms, how investment companies work. The communication must be limited to information re. Investment companies in general, or to the nature of investment companies.

29. Restricted stock is stock that is not registered and is typically acquired by an individual through a private replacement (Regulation D). Control stock is stock that is acquired by an affiliated(control) person such as an officer or director.
A. SEC Rule 134
B. SEC Rule 135A
C. SEC Rule 144
D. SEC Rule 144A
Answer: C
Explanation: The SEC Rule 144, Restricted stock is stock that is not registered and is typically acquired by an individual through a private replacement (Regulation D). Control stock is stock that is acquired by an affiliated(control) person such as an officer or director.

64. If the individual purchased "substantially the same security" within 30 days of the sale, it will be considered a____________ and the loss will be disallowed. The 30 day period is both before and after the sale date. If a security is sold at a loss and repurchased within 30 days, the loss is disallowed and added to the investor's cost basis.
A. Net Sale
B. Gross Sale
C. Wash Sale
D. Total Sale
Answer: C
Explanation: If the individual purchased "substantially the same security" within 30 days of the sale, it will be considered a wash sale and the loss will be disallowed.

65. The IRS does NOT generally consider the common stock of a corporation to be the same as the preferred stock or bonds. A convertible bond, convertible __________, or a call option would be considered "substantially the same security" with common stocks since they could be converted into common shares.
A. Common shares
B. Common stock
C. Preferred stock
D. Convertible bonds
Answer: C
Explanation: The IRS does NOT generally consider the common stock of a corporation to be the same as the preferred stock or bonds. A convertible bond, convertible preferred stock, or a call option would be considered "substantially the same security" with common stocks since they could be converted into common shares.

66. An individual may give a gift of ________ per person, per year without incurring any gift tax. Gift taxes must be paid by a donor, not the recipient of the gift.
A. $10,000
B. $100
C. $1,000
D. $12,00
Answer: A
Explanation: The donor would pay the gift tax on amounts given over this figure. Gift taxes must be paid by a donor, not the recipient of the gift. An individual may give a gift of $10,000 per person, per year without incurring any gift tax.

33. According to Classifications and Qualification Standards of MRSB, Any person who is directly engaged in the management, direction or supervision of any activities which involve communication with public investors in municipal securities, must qualify as a:
A. Syndicate manager
B. Municipal securities Sales principal
C. Municipal securities principal.
D. Financial & Operations Principal
Answer: C
Explanation: According to Classifications and Qualification Standards of MRSB, Any person who is directly engaged in the management, direction or supervision of any activities which involve communication with public investors in municipal securities, must qualify as a Municipal securities principal.

34. Any person whose supervisory activities are limited to supervising sales to and purchases from customers of municipal securities may qualify as a :
A. Syndicate manager
B. Municipal securities Sales principal
C. Municipal securities principal.
D. Financial & Operations Principal
Answer: B

Explanation: Municipal securities Sales principal is a person whose supervisory activities are limited to supervising sales to and purchases from customers of municipal securities may qualify.

35. The person who supervises the preparation of, and is responsible for the approval of the financial reports that are filed with the SEC must qualify as a:
A. Syndicate manager
B. Municipal securities Sales principal
C. Municipal securities principal.
D. Financial & Operations Principal
Answer: D
Explanation: Financial & Operations Principal is the person who supervises the preparation of, and is responsible for the approval of the financial reports that are filed with the SEC.

36. Any person other than a municipal securities principal, municipal securities sales principal, or a person whose functions are purely clerical or ministerial, who functions in any activities which involve communication with public investors in municipal securities, must qualify as a:
A. Municipal securities Sales principal
B. Municipal securities principal.
C. Financial & Operations Principal
D. Municipal Securities Representative
Answer: D
Explanation: Any person other than a municipal securities principal, municipal securities sales principal, or a person whose functions are purely clerical or ministerial, who functions in any activities which involve communication with public investors in municipal securities, must qualify as a Municipal Securities Representative.


1238. Mr. Smith , age 45, has a salary of $30,000 and withdraws $3,000 from an IRA established and maintained by him. Since he made an early withdrawal from the IRA, he will have to pay a penalty tax of $300(10% of the $3,000 early withdrawal) and will have taxable income for the year of:
A. $55000.
B. $25000.
C. $33,000.
D. $75000.
Answer: C
Explanation: Mr. Smith, age 45, has a salary of $30,000 and withdraws $3,000 from an IRA established and maintained by him. Since he made an early withdrawal from the IRA, he will have to pay a penalty tax of $300(10% of the $3,000 early withdrawal) and will have taxable income for the year of $33,000.

1239. If the account owner becomes _______________________, withdrawal may be made without penalty. IRA funds also may be withdrawn penalty free by the beneficiary when the owner has died.
A. disabled or is declared mentally incompetent
B. Mature
C. Literate and knowledgeable
D. Aware of financials
Answer: A
Explanation: IRA funds also may be withdrawn penalty free by the beneficiary when the owner has died. If the account owner becomes disabled or is declared mentally incompetent, withdrawal may be made without penalty.

1240. Withdrawals used to pay medical expenses or medical insurance premiums may be made penalty free prior to the attainment of age:
A. 59 ½ .
B. 70 ½.
C. 53
D. 78 ½
Answer: A
Explanation: Withdrawals used to pay medical expenses or medical insurance premiums may be made penalty free prior to the attainment of age 59 ½ .

1241. If an individual's contribution into an IRA exceeds the maximum allowable amount, a penalty of _____is assessed on the excess contribution.
A. 20%
B. 16%
C. 15%
D. 6%
Answer: B
Explanation: The excess contribution is not tax deductable. Income derived on an excess contribution will not accumulate tax-deferred. If an individual's contribution into an IRA exceeds the maximum allowable amount, a penalty of 6% is assessed on the excess contribution.

1242. Anyone who receives compensation for working during a year is eligible to establish an_________ even if covered under an employer's retirement plan.
A. IRAs for Married Couples
B. Individual Retirement Account(IRA)
C. Spousal IRA
D. Separate account
Answer: B
Explanation: Anyone who receives compensation for working during a year is eligible to establish an IRA even if covered under an employer's retirement plan.

1243. If a husband and wife are both employed, each may contribute money into their own IRA and a maximum deduction of $4,000 would be allowed. This IRA is known as:
A. Individual Retirement Account(IRA)
B. Spousal IRA
C. IRAs for Married Couples
D. Separate account
Answer: C
Explanation: Under IRAs for Married Couples, If a husband and wife are both employed, each may contribute money into their own IRA and a maximum deduction of $4,000 would be allowed. Under the current provisions of the IRS, only individual accounts are allowed. A joint account is not allowed.

78. The Market Maker, Buy and sell for their own profit, at their own risk. Unlike an exchange market where there is only 1 market maker per security (the specialist), there may be any number of market makers for an OTC security. But there must be:
A. at least 7 market makers for initial listing on the system.
B. at least 10 market makers for initial listing on the system.
C. at least 2 market makers for initial listing on the system.
D. at least 3 market makers for initial listing on the system.
Answer: D
Exp: The Market Maker, Buy and sell for their own profit, at their own risk. Unlike an exchange market where there is only 1 market maker per security (the specialist), there may be any number of market makers for an OTC security. But there must be at least 3 market makers for initial listing on the system.

79. Responsible for maintaining a broker-dealers inventory as well as trading the firm's account is known as :
A. Value Trader
B. Margin Trader
C. Position Trader
D. Market Trader
Answer: C
Exp: Responsible for maintaining a broker-dealers inventory as well as trading the firm's account is known as Position Trader.

857. All index option writers are considered to be uncovered and must deposit margin. The margin requirement for purchasing stock index options is __________ of the premium.
A. 50%
B. 75%
C. 100%
D. 60%
Answer: All index option writers are considered to be uncovered and must deposit margin. The margin requirement for purchasing stock index options is 100% of the premium.

858. All index option writers are considered to be uncovered and must deposit margin. These transactions must be executed in a margin account with an initial equity requirement of :
A. $1000
B. $2000
C. $3000
D. $4900
Answer: B
Explanation: All index option writers are considered to be uncovered and must deposit margin. These transactions must be executed in a margin account with an initial equity requirement of $2000.


859. ________________ that are automatically exercised when the underlying index reaches a predetermined price (capped price).
A. Vertical index spreads
B. Broad-Based Index
C. Narrow-Based Index
D. Opening Index
Answer: A
Explanation: Vertical index spreads that are automatically exercised when the underlying index reaches a predetermined price (capped price).

860. CAPS are created with a strike price that is ATM and a capped price that is a specified number of points OTM. The number of points between the option's strike price and capped price is called:
A. The capped interval.
B. Capped price
C. Strike price.
D. Specific price
Answer: A
Explanation: CAPS are created with a strike price that is ATM and a capped price that is a specified number of points OTM. The number of points between the option's strike price and capped price is called the capped interval.


881. Being bullish on the DM, the investor buys 1 DM Sep 42 call at a premium of 0.36. The DM contract size is 62,500 DM. He must pay _________ for the option.
A. $225
B. $300
C. $ 400
D. $ 500
Answer: A
Explanation: Being bullish on the DM, the investor buys 1 DM Sep 42 call at a premium of 0.36. The DM contract size is 62,500 DM. He must pay $225 for the option(62,500 x $0.0036).

882. The spot price for the DM increases to 45.00. The premium for his option increases to 3.20. If the option is sold, he will receive $2,000(62,500 DM x $0.032). He will have a profit of
A. $1300
B. $1 450
C. $ 1500
D. $1775
Answer: D
Explanation: The spot price for the DM increases to 45.00. The premium for his option increases to 3.20. If the option is sold, he will receive $2,000(62,500 DM x $0.032). He will have a profit of $1,775($2,000 sale - $225 cost).

831. The client's broker is required to settle the trade with the OCC prior to 10:00 ET on the next business day(TD+1). Similar to T-bills, an investor holding an option does not receive any certificate indicating ownership. This activity is known as:
A. Band trading
B. Future trading
C. Floor trading
D. Business trading
Answer: C
Explanation: The client's broker is required to settle the trade with the OCC prior to 10:00 ET on the next business day(TD+1). Similar to T-bills, an investor holding an option does not receive any certificate indicating ownership. This activity is known as floor trading.


840. An investor owning 10,500 ABC calls when 10,500 contracts is the position limit for ABC, has reached the maximum on the bullish(long) side of the market. The investor may not buy additional ABC calls or write any ABC puts. But the investor is allowed to purchase calls or write puts on any other underlying stock. He is also permitted to buy up to _________ABC puts or write up to 10,500 ABC calls since these transactions are on the other side of the market.
A. 15,000
B. 10,500
C. 12,000
D. 10,000
Answer: B
Explanation: An investor owning 10,500 ABC calls when 10,500 contracts is the position limit for ABC, has reached the maximum on the bullish(long) side of the market. The investor may not buy additional ABC calls or write any ABC puts. But the investor is allowed to purchase calls or write puts on any other underlying stock. He is also permitted to buy up to 10,500 ABC puts or write up to 10,500 ABC calls since these transactions are on the other side of the market.