Category: Series 66

Study Question of the Week: April 24, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 62, Series 65, Series 66, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 6, Series 7, Series 62, Series 65, Series 66, and Series 82):

Ten years ago, Janice bought 100 shares of Humdrum Inc. at $70 per share.  The price of the stock has declined and this year she decides to sell the stock at $25.  A week after she sells the stock, Humdrum announces an exciting new product called Humdinger and Janice decides Humdrum is a stock she wants to own after all and she buys 100 new shares of Humdrum at $30.  Which of the following is true?

Answers:

A. Janice can claim a $45 per share loss on her tax return

B. Janice can claim a $40 per share loss on her tax return

C. The basis of the new shares will be $75

D. The basis of the new shares will be $55

Correct Answer: C

Rationale: According to IRS rules, if you sell a security at a loss and then buy back the same securities within 30 days, any loss on the sale of the original securities is disallowed. This is called a Wash Sale. However, you are permitted to capture the loss by adding it to the basis of the new shares. Therefore, the basis of the new shares will be $30 (purchase price) + $45 (per share loss on sale of old shares) = $75.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

 

 

Exam Alert: Enrollment fees for NASAA exams to increase

Effective June 1, 2013, the fee to enroll in a NASAA exam (Series 63, Series 65, or Series 66) will go up. The new enrollment fees will be as follows:

Series 63: $115,

Series 65: $155,

Series 66: $145 Continue reading

Effective June 1, 2013, the fee to enroll in a NASAA exam (Series 63, Series 65, or Series 66) will go up. The new enrollment fees will be as follows:

Series 63: $115

Series 65: $155

Series 66: $145

 

Source: Important Announcement Regarding Fees for the Series 63, 65, and 66 Exams

 

This alert applies to the Series 63, Series 65, and Series 66.

Study Question of the Week: April 9, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 24, Series 62, Series 65, Series 66, and Series 79. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 24, Series 62, Series 65, Series 66 and Series 79):

From an owner’s perspective which business structure offers the most flexibility in profit retention?

Answers:

A. S corporation

B. LLC

C. Partnership

D. C corporation

Correct Answer: D. C corporation

Rationale: S corporations, LLCs and partnerships are pass-through tax entities. This means that profits and losses are allocated to the owners and reported on their individual tax returns, regardless of whether earnings have been distributed or retained. In contrast, a C corporation, the traditional corporate entity, may distribute earnings via dividends or keep the profits in the business as retained earnings without the earnings being taxed to the owners’ individual returns.

Weekly study questions are from Solomon's industry-leading Online Exam Simulator.

Study Question of the Week: April 3, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 62, Series 65, Series 66, and Series 79. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 62, Series 65, Series 66 and Series 79):

All of the following are true of futures contracts except:

Answers:

A. A futures contract is an agreement to buy or sell an asset at a future date

B. Futures contracts are traded on exchanges

C. Futures contracts trade in standard units

D. Purchasing a futures contract represents a right to do something rather than an obligation to do something

Correct Answer: D

Rationale: A futures contract is an agreement to buy or sell an asset at a future date. Futures contracts trade on exchanges in standard amounts. For example, 5,000 bushels of soybeans is one futures contract. Futures contracts are different from options contracts because they always involve an obligation on both sides of the contract. For example, purchasing a futures contract represents an obligation to deliver or receive an asset on a future date. If the buyer does not want to receive the asset on this date, he can trade the position before the exercise date.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: February 13, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 65, and Series 66. — ANSWER POSTED — Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 6, Series 7, Series 65, and Series 66):

Which of the following situations would avoid the 10% penalty on an early withdrawal from an annuity?

I. Setting up a SEPP program and staying on it for at least 5 years

II. Utilizing IRS rule 72(t)

III. Withdrawal for first time home purchase up to $10,000

IV. The annuitant turning 55 1/2 years old

Answers:

A. II

B. I and II

C. III and IV

D. I, II, and IV

Answer:  B

Rationale: Setting up a SEPP (Substantially Equal Periodic Payment) program and staying on it for 5 years and utilizing IRS rule 72(t) are essentially the same thing. When an individual takes a series of substantially equal and periodic payments for a minimum of 5 years or until the individual turns 59 1/2, whichever comes last, he is not subject to the 10% penalty for an early withdrawal. An investor does not get a 10% penalty for withdrawing up to $10,000 for a first home purchase out of an IRA, but this is not true for a withdrawal from an annuity.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: February 7, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 62, Series 65, Series 66, and Series 99. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 7, Series 62, Series 65, Series 66, and Series 99):

Your client is short 100 XOM at $75, and wants to hedge his position. To protect him from the risk that XOM’s stock price may rise, you recommend that he:

Answers:

A. Buy a put

B. Sell a put

C. Sell a call

D. Buy a call

Correct Answer: D, Buy a call

“To hedge” means to put limits on how much you can gain or lose from an investment by taking the opposite position from your current position.

When it comes to options, an investor can hedge a position in two ways:

  1. Buying an option to buy protection. In this specific question, buying a call buys protection from a rise in the share price. If it were a long position, the investor could buy a put to protect against a decline in the share price.
  2. Selling an option to gain income. In this question, by selling an option the investor gains income, which may mitigate losses, but he also limits how much he can gain from the short sale.

If an exam question says “to hedge risk and get the best protection” go for buying an option (puts for long positions, calls for short positions)

If the exam questions says “to hedge risk and increase income” go for selling an option (calls for long positions, puts for short positions)

In this question, the investor is going for protection and is not seeking income so the best answer is to buy a call. While selling a put is a possible hedge it is not the most appropriate hedge for this investor’s goal.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: January 30, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 65 and Series 66. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 65, and Series 66):

Daredevil Dave, a famous skydiver, is your client.  “Double D“ as he is known, comes to you and tells you that in 18 months he is planning on doing his most dangerous dive yet: a free fall from an orbiting space station. Double D says that he doesn’t have life insurance and in case he doesn’t survive this space dive, he wants to make sure his family will be provided for.  He wants them to receive a monthly payment of $5,000 in perpetuity.  He asks you how much money he will need to pay now in order to achieve this.  Assuming a 2% rate of return, and assuming this is going to be Double D’s last dive, you tell him that he will need to contribute:

Answers:

A. $3 million

B. $6 million

C. $9 miillion

D. $12 million

Correct Answer: A. $3 million

Rationale: A perpetuity is an annuity or stream of payments without end.  To calculate the present value of a perpetuity, you divide the periodic payment by the rate of return (also known as interest rate or yield). In this case there are two ways to reach the answer: (1) Divide the 2% rate of return by 12 to get the monthly rate of return: 0.001667, then divide the monthly payment by the monthly rate of return: $5,000/0.001667 = $2,999,400 or (2) Multiply $5,000 times 12 months to get a $60,000 annualized payment to the family and then divide that by the 2% yield or $60,000/.02 = $3 million.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: January 3, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 62, Series 65, Series 66, Series 79, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 7, Series 62, Series 65, Series 66, Series 79, and Series 82):
Two corporate bonds have different durations, but are equivalent in other ways. Bond A has a duration of 6. Bond B has a duration of 4. Interest rates go down by 50 basis points. Which of the following is true?

Answers:

A: The price of Bond A will increase more than the price of Bond B

B: The price of Bond A will decrease more than the price of Bond B

C: The price of both bonds will increase by a similar amount

D: The price of both bonds will decrease by a similar amount

Correct Answer: A

Rationale: Duration is a measure of the sensitivity of a bond’s price to changes in interest rates. A price of a bond with a higher duration will be influenced more by a change in interest rates than a bond with a lower duration. Bond A has a higher duration so it will be influenced by a change in interest rates more than Bond B. When interest rates go down, the prices of existing bonds go up. Thus, a decline in interest rates will cause the price of both bonds to increase, but because Bond A has a higher duration than Bond B, its price will go up more than Bond B.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Exam Alert: FINRA requires orders with alternative triggers to be clearly distinguished from stop orders

Effective January 21, 2013, FINRA will revise its rules relating to stop orders in equity securities. The new rule provides that any market or limit order that triggers off of an alternative condition (any condition other than a transaction occurring at a specified price) must be clearly distinguished from a “stop order” or “stop limit order.” Continue reading

Effective January 21, 2013, FINRA will revise its rules relating to stop orders in equity securities. The new rule provides that any market or limit order that triggers off of an alternative condition (i.e., any condition other than a transaction occurring at a specified price) must be clearly distinguished from a “stop order” or “stop limit order.” For example, an order that triggers when a quote occurs at the stop price may be referred to as a “stop quotation order” or “stop quote order.”

If a firm provides orders that trigger off of alternatives conditions, the firm must disclose the nature of these orders in paper or electronic format to its customers prior to the customer placing such an order. For example, this disclosure could occur when a customer first opens an account with the firm. A firm that routes an order triggered by alternative conditions to another broker-dealer or to an exchange must take “reasonable steps” to ensure that the order is handled or executed in the correct manner.

Source: FINRA Regulatory Notice 12-50: SEC Approves Amendments Relating to Stop Orders

This alert applies to the Series 7, Series 65, Series 66, and Series 24.

Study Question of the Week: December 26, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 24, Series 55, Series 62, Series 65, and Series 66. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 7, Series 24, Series 55, Series 62, Series 65, and Series 66):

ABCD is an actively traded security with an inside market of 19.25 – 19.95. A market maker receives an order to sell 100 shares and buys the security from the customer at a net price of ______________. Choose the net price that makes the most sense given what you know about markups, markdowns, and net prices.

Answers:

A: 18.75
B: 19.25
C: 19.95
D: 20.45

Correct Answer: A

Rationale: On a sell order in an active competitive market, the net price will contain a markdown from the best bid. In this case the only price that is lower than the best bid is the $18.75. The markdown amount is calculated by taking $19.25 – $18.75 = $.50. The markdown is $.50/$19.25 = 2.60%.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.