Chapter 4 Practice Question Answers
1. Answer: C. Midnight Marauders’ stock is listed on the NYSE, and thus investors must be presented with a copy of the prospectus for any purchase that takes place within 25 days after its IPO. When prospectus delivery is required, it must occur no later than the trade settlement date, which is two business days after the trade date for equity securities.
2. Answer: A. Research prepared by a third party must be accurately represented as such and should not be passed off as the research of an investment adviser or investment adviser representative. Securities that are new offerings must be disclosed as such and purchasers must be provided with a prospectus by the confirmation due date. Previously working for a securities issuer and filing a personal bankruptcy would not require disclosure unless they somehow caused a current conflict of interest.
3. Answer: B. When its delivery is required, a preliminary prospectus must be delivered to clients at least 48 hours prior to the confirmation of a sale. When its delivery is required, a final prospectus must be delivered by the date of purchase confirmation.
4. Answer: D. It is unethical for professionals to misrepresent that they or their practice is somehow approved by the state securities administrator. Communicating that professionals have passed the Series 63, are registered to sell securities, or have never had a complaint are not unethical as long as the statements are true.
5. Answer: A. Performance guarantees cannot be offered to customers, since performance can never truly be guaranteed. This is different than communicating that the principal and interest payments of U.S. Treasury securities are guaranteed by the U.S. Treasury, since such a communication makes no direct guarantee of the performance of the actual security based on the price at which it