January Study Question of the Month

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

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

***Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the SIE, Series 6, 7, 22, 24, and 82 exams.

Question:

Which of the following people would be considered a specified adult?

Answer Choices:

A. A 16 year old with autism

B. A 30 year old

C. A 60 year old with a heart condition

D. An 18 year old in a coma

December Study Question of the Month

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

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

***Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the Series 6, 7, 14 and 79 exams.

Question: 
 
Which of the following is not typically part of an underwriting agreement?
 
Answer Choices:
 
A. Description of the per-share underwriting spread
 
B. Description of a Greenshoe option
 
C. Terms between syndicate members and selling group dealers
 
D. Terms under which the underwriter can terminate the contract
 
 

Correct Answer: C

Explanation: The underwriting agreement, which is typically signed the evening before or the morning of the effective date of a securities issue typically includes the per-share underwriting spread, an over-allotment (Greenshoe) option if granted, and the underwriter’s termination rights. It also is the document that contains the public offering price or a formula to derive it.

 

November Study Question of the Month

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

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

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This question is relevant for the SIE and Series 7, 14, 24, 26, 27, 28, 51, 53, 65, 66, and 99 exams.

Question:

Which situation would a CTR need to be filed?

Answer Choices:

A. When a customer regularly, but on different days, deposits $9,900 into their account in cash.

B. When a person deposits checks for $11,000 every week.

C. A customer withdraws $10,500 from their account in cash.

D. A customer makes a $20,000 Venmo transaction.

Correct Answer: C

Explanation: A currency transaction report (CTR) is filed with FinCEN on cash transactions that exceed $10,000 in a single day, whether conducted in one transaction or several smaller ones. The transactions can be either deposits or withdrawals and they must be in cold, hard cash.

October Study Question of the Month

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

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

***Submit your answer to info@solomonexamprep.com or comment below to be entered to win a Solomon temporary tattoo.***

Question:

Frank and Wilma Fertig are snowbirds. They spend periods of time in Arizona each winter and then return to their home in Wisconsin. They have been doing business with their broker-dealer and their agent, Michael, for almost 10 years. The broker-dealer is registered in Wisconsin but not in Arizona. This year Frank and Wilma left early for Arizona, in early October rather than their usual late October. On October 12, the broker-dealer contacted the Fertigs to ask them about using some of their current cash position to purchase shares of QRS Company. The Fertigs agreed. What happened next?

Answer choices:

  1. The Fertigs went back to their golf game.
  2. The Wisconsin state securities Administrator issued a cease and desist order against the Fertigs’ broker-dealer for conducting a securities transaction outside Wisconsin, where the broker-dealer is registered.
  3. The Arizona state securities Administrator issued a cease and desist order against the Fertigs’ broker-dealer for conducting a securities transaction for Arizona residents without the broker-dealer being registered in Arizona.
  4. Michael realized he misled the Fertigs about being able to complete the transaction in a state where neither he nor the broker-dealer is registered and had to call them to apologize and tell them the deal could not be completed.

Correct Answer: A. The Fertigs went back to their golf game.

Explanation: After agreeing to the transaction Michael proposed, the Fertigs went back to their golf game and the transaction was completed without negative consequences. The Uniform Securities Act allows broker-dealers to complete transactions for existing customers who are out of their state of residence temporarily, as the Fertigs are. That is, the broker-dealer is excluded from the requirement to register in a state if he/she has no place of business in the state, they are registered in another state, and they have an existing client who is in that state temporarily.  In this case, they can continue to make trades for their vacationing client for up to 30 days.  Hence, Michael can make this trade.  Once a month has passed, however, he will not be able to make similar transactions for the Fertigs until they return to Wisconsin.

September Study Question of the Month

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This question comes from the Solomon Exam Prep Online Exam Simulator question database for Series 65 & 66:
 
Under modern portfolio theory, which of the following is the most efficient set?
 
A. Expected return 9%,  Standard deviation 8
B. Expected return 9%,  Standard deviation 9
C. Expected return 11%, Standard deviation 8
D. Expected return 11%, Standard deviation 9
 

Correct Answer: C. Expected return 11%, Standard deviation 8

Rationale: According to modern portfolio theory (MPT), the investment opportunity set consists of all available risk-return combinations. Standard deviation is the measure of volatility used in MPT. Assuming a normal distribution of returns, 68% of all returns will fall within one standard deviation of the mean return and 95% of all returns will fall within two standard deviations of the mean return. An efficient portfolio is a portfolio that has the highest possible expected return for a given standard deviation.  In this question, the highest expected return with the lowest standard deviation is 11% and 8.

August Study Question of the Month

Question

 

 

 

Some brokers and dealers registered with the SEC do not have to become SIPC members. Which of the firms below need not belong to SIPC? 

 

  1. Firms whose principal business is conducted outside the United States
  2. Firms that deal exclusively in the distribution of shares of registered open-end investment companies or unit investment trusts.
  3. Broker-dealers that deal exclusively in the sale of municipal securities
  4. Firms that deal exclusively in transactions in security futures products
  1. I and II
  2. I and III
  3. I, II, and III
  4. I, II, and IV

July Study Question of the Month

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Question

 

 

 

 

 

 

A publicly traded company solicits private investors through a PIPE transaction. After the shares are sold, the company does not register them with the SEC. Which of the following negative consequences is it most likely to face?
 
  1. Disciplinary action by the SEC
  2. Disciplinary action by FINRA
  3. Damages paid to the holders of the privately placed shares
  4. Conversion of the privately placed shares to regular shares at a conversion ratio unfavorable to the company

Answer: C. Because a PIPE transaction is a private placement, the SEC does not require the company to register the shares. It is standard for the company to register the shares anyway, to remove their status as restricted securities. The company typically will have agreed to pay damages to the holders of the privately placed shares if this is not done within a reasonable time, usually 1% to 1.5% per month.

June Study Question of the Month

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Question

 

 

 

 

 

 

There are basically four things you can do with a short-term capital loss. Which of the following is the order in which you would typically do them?
 
  1. Offset a short-term capital gain, offset a long-term capital gain, deduct up to $3,000 from income, carry over for a future year
  2. Offset a long-term capital gain, offset a short-term capital gain, deduct up to $3,000 from income, carry over for a future year
  3. Deduct up to $3,000 from income, offset a short-term capital gain, offset a long-term capital gain, carry over for a future year
  4. Deduct up to $3,000 from income, carry over for a future year, offset a long-term capital gain, offset a short-term capital gain
Answer: A. Capital losses can be used to offset capital gains on a tax return. The taxpayer must first offset short-term gains with short-term losses and long-term gains with long-term losses. If there are any long-term or short-term gains remaining, these can be offset with any remaining losses. If there are any losses remaining after all gains have been offset, up to $3,000 of the losses can be deducted from a person’s taxable income each year. If there are still losses remaining after that, they can be carried over to the following year.
 

May Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.

Question

 

 

 

 

 

 

Through a private placement, Teddy purchases a 20% equity stake in Big Stick Industrial Adhesives. Are his shares considered control securities? Are they considered restricted securities?
 
A. Restricted only
B. Control only
C. Both control and restricted
D. Neither control nor restricted
 
Answer: C. A restricted security is one that cannot normally be sold by its current owner, for a certain period of time after it is acquired. A security may be restricted for a couple reasons, all having to do with how the security was acquired. The most common reason is that securities acquired through private placements are restricted.

A control security is simply one owned by an affiliate of the issuer (also called an insider). Insiders include officers, directors, and shareholders who own more than 10% of the company.

April Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.

Question

 

 

 

 

 

 

When inherited, the basis of a depreciated asset is?
 
A. Stepped up
B. Stepped down
C. Carried over
D. Carried under
 
Answer: B. Typically, when an asset is inherited, the value of the asset has increased since it was purchased and the heir gets to “step up” (raise) the basis of the inherited property to the fair market value at the date of death. So, for example, if Grandpa bought shares of XYZ  for $1,000 in the previous century, and the shares are worth $1 million on the date of Grandpa’s death, the basis for tax purposes is stepped up to $1 million to the lucky recipient. This means that capital gain escapes any federal taxation. 
The basis “step-up” rule can become a “step-down” rule as well. So if an asset’s value has declined and someone inherits the asset, for the sake of taxes, the basis of the asset is stepped down (lowered) to the fair market value on the date of the owner’s death. This loss of basis can be avoided by the owner selling any depreciated property before death, so he or she can reap the tax losses.