Category: Study Question

Study Question of the Week: August 20, 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): 

Over a five year period, the annual returns on a particular investment were 15%, -10%, -5%, 10%, 10%. What is the most appropriate measure of central tendency for this investment?

Answers:

A. arithmetic mean

B. geometric mean

C. median

D. mode

Correct Answer: B. geometric mean

Rationale: Central tendency is a single value that summarizes a set of scores. The geometric mean is the most accurate measure of central tendency for a set of returns because the returns for each year on an investment are not independent of one another. Each year your total capital is shrinking or growing depending on the performance of the previous year, so that a 10% increase one year may be different than a 10% increase in another year. The arithmetic average does not account for this fact. The geometric mean does account for this, and thus gives the investor a truer representation of the central tendency of their returns.

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

Study Question of the Week: August 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 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 6, Series 7, Series 62, Series 65, and Series 66): 

Your father bought 200 shares of stock in Acme Holdings in 1982 at $20 per share. On the day he died and left the shares to you, the stock was worth $45 per share. You sold all of the shares one month later for $48 per share. What is your tax burden on this sale?

Answers:

A. You pay long-term capital gains tax on $5600.

B. You pay long-term capital gains tax on $5000 and short-term capital gains on $600.

C. You pay long-term capital gains tax on $600.

D. You pay short-term capital gains tax on $5600.

Correct Answer: C. You pay long-term capital gains tax on $600.

Rationale: Your basis in these shares is their value on the day your father died (200 X $45 = $9000). Your proceeds from the sale are $9600. Your capital gain is $600, and the IRS treats this as a long-term capital gain.

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

Study Question of the Week: July 23, 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 24, Series 26, 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 6, Series 7, Series 24, Series 26, Series 62, Series 65, and Series 66): 

Roth IRAs are more liquid than traditional IRAs in what way?

Answers:

A. they offer tax-free distribution

B. they allow for the withdrawal of all principal contributions at any time without tax or penalty

C. there are a larger number of exceptions available to the early withdrawal penalty

D. there are no mandatory minimum distributions required

Correct Answer: B. they allow for the withdrawal of all principal contributions at any time without tax or penalty

Rationale: Although Roth IRAs do offer tax-free distributions and have no mandatory minimum distributions, their advantage in liquidity lies in the ability of the account owner to withdraw all principal contributions at any time, including before age 59 1/2.

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

Study Question of the Week: July 17, 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 24, Series 26, 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 6, Series 7, Series 24, Series 26, and Series 99): 

Under FINRA Rule 2830, an associated person may accept which of the following gifts from a mutual fund distributor?

Answers:

A. Reimbursement for out-of-pocket expenses incurred by the associated person and his spouse in attending an educational conference

B. Occasional meals and NFL tickets tied to a stated annual sales quota

C. A crisp new $100 bill delivered once every year on Christmas eve

D. None of the choices listed

Correct Answer: D. None of the choices listed

Rationale: Rule 2830 prohibits all of these gifts from a mutual fund distributor to an associated person; specifically, any cash compensation (unless described in a current prospectus of the investment company), meals and tickets tied to a sales target, and reimbursement for meeting expenses incurred by anyone other than the associated person.

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

Study Question of the Week: July 10, 2013 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, 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 7, Series 24, Series 55, Series 62, and Series 79): 

An issuer would like to buy back shares and has already made a once-per-week block transaction this week. The inside quote for the security is 18.30 – 18.34. The last transaction was 18.32. Under SEC Rule 10b-18, which two of the following statements are true?

I. The maximum number of shares the issuer could buy in a day is 25% of the ADTV for the previous four weeks.

II. The maximum number of shares the issuer could buy in a day is 30% of the ADTV for the previous four weeks.

III. The highest price the issuer could buy at would be $18.32.IV. The highest price the issuer could buy at would be $18.34.

Answers: 

A. I and III

B. II and IV

C. I and IV

D. II and III

Correct Answer: A. I and III

Rationale: Under SEC Rule 10b-18,when an issuer buys back their own shares, the bid may not be higher than the last transaction or the highest independent bid, whichever is greater. The maximum daily purchase cannot exceed 25% of the ADTV (average daily trading volume) over the previous four weeks.

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

Study Question of the Week: July 2, 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 24, Series 26, Series 62, Series 79, Series 82 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 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82 and Series 99): 

A registered representative wishes to participate in a securities transaction outside of the jurisdiction of his firm. He does not receive compensation for the transaction. Which of the following is true?

Answers:

A. The registered representative needs to inform his firm prior to participating and adhere to any conditions that the firm puts on the rep in connection with the rep’s participation

B. The registered representative does not need to inform his firm because he is not receiving compensation

C. The registered representative needs to inform his firm and await permission before participating in the securities transaction

D. The registered representative cannot participate in any outside securities transactions because it is considered selling away and it is prohibited

Correct Answer: A.

Rationale: A “private securities transaction“ shall mean any securities transaction outside the regular course or scope of an associated person’s employment with a member. A registered representative who wishes to participate in private securities transactions needs to notify his firm and await permission if he will be receiving compensation. If he will not receive compensation, he must notify his firm. The firm shall provide the representative prompt written acknowledgement of the notice and at the firm’s discretion require the person to adhere to specified conditions in connection with the rep’s participation in the transaction.

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

Study Question of the Week: June 26, 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, and Series 62. –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, and Series 62): 

Which type of risk would a registered representative be least likely emphasize to their clients about inverse leveraged ETFs?

Answers:

A. The underlying securities of leveraged ETFs are more likely to default

B. Managers rely on complicated investment strategies such as derivatives, swaps, and futures contracts that can lead to high volatility in returns

C. They are designed to meet their goals on a daily basis, and their goals are reset daily which can lead to large tracking errors

D. The  fund is betting the opposite direction of the market that they are tracking

Correct Answer: A.

Rationale: Leveraged exchange traded funds (ETFs) are ETFs that try to deliver a multiple of the performance of the index or benchmark that they track. For example, if the S&P 500 returned 2% in a day, a leveraged ETF’s objective might be to return 4%. Some leveraged ETFs are “inverse” or “short” funds, meaning the leveraged ETF is seeking to deliver a multiple of the opposite performance of the tracked index. In order to achieve the high required returns, the managers rely on complicated investment strategies such as derivatives, swaps, and futures contracts. Another risk of leveraged ETFs is that they are designed to meet their goals on a daily basis, and their goals are reset daily. This strategy can compound gains and losses, leading to large tracking errors over time. FINRA gives the following sobering 2009 example, “The Dow Jones U.S. Oil & Gas Index gained 2 percent (over a 5 month period), while an ETF seeking to deliver twice the index’s daily return fell 6 percent and the related ETF seeking to deliver twice the inverse of the index’s daily return fell 26 percent.”

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

Study Question of the Week: June 19, 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 24, Series 26, 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 6, Series 7, Series 24, Series 26, and Series 99): 

Under FINRA Rule 2830, an associated person may accept which of the following gifts from a mutual fund distributor?

Answers:

A. Reimbursement for out-of-pocket expenses incurred by the associated person and his spouse in attending an educational conference

B. Occasional meals and NFL tickets tied to a stated annual sales quota

C. A crisp new $100 bill delivered once every year on Christmas eve

D. None of the choices listed

Correct Answer: D.

Rationale: Rule 2830 prohibits all of these gifts from a mutual fund distributor to an associated person; specifically, any cash compensation (unless described in a current prospectus of the investment company), meals and tickets tied to a sales target, and reimbursement for meeting expenses incurred by anyone other than the associated person.

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

Study Question of the Week: June 11, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 63, 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 63, Series 65, and Series 66): 

Which of the following are likely to be exempt from state registration as an investment adviser under the Uniform Securities Act?

I. A certified public accountant (CPA) who reviews client asset allocations upon request

II. An individual representative of a firm that offers investment advice and management for a fee

III. A federally covered investment adviser

Answers: 

A. I and II

B. I and III

C. I, II, and III

D. II and III

Correct Answer: C.

Rationale: Federal law and the Uniform Securities Act define investment advisers as people who provide investment advice in exchange for compensation of some kind, but there are several types of exemptions, including: an investment adviser representative (IAR) working for an investment adviser (so II is exempt); a bank, savings institution, or trust company; a lawyer, accountant, teacher, or engineer whose provision of investment advice is incidental to their profession (so the CPA is exempt); a broker-dealer or its agents if the provision of investment advice is incidental to its business of buying and selling securities and not directly compensated; a publisher of a bona fide publication of general and regular circulation; a federally covered investment adviser (III is exempt). If the RIA is federally covered (registered with the SEC as an RIA), then it does not have to register at the state level. However, any of its IARs doing business in the state are required to register.

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

Study Question of the Week: June 4, 2013 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 26, Series 62, 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 24, Series 26, Series 62, and Series 82): 

FINRA considers institutional communications to be written communications sent solely to institutional investors. FINRA considers an “institutional investor“ to be any of the following except:

Answers:

A. An individual with total assets of $55 million

B. An insurance company

C. A corporation with net assets of $20 million

D. A qualified plan that has 100 participants

Correct Answer: C

Rationale: Institutional communications are written communications sent to institutional investors. FINRA Rule 2210, Communication with the Public, defines “institutional investor“ as any of the following:

(A) a bank,savings and loan association, insurance company, or registered investment company;

(B) an investment adviser registered either with the Securities and Exchange Commission under Section 203 of the Investment Advisers Act of 1940 or with a state securities commission (or any agency or office performing like functions);

(C) any other entity (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million;

(D) governmental entity or subdivision thereof;

(E) employee benefit plan, or multiple employee benefit plans offered to employees of the same employer, that meet the requirements of Section 403(b) or Section 457 of the Internal Revenue Code and in the aggregate have at least 100 participants, but does not include any participant of such plans;

(F) qualified plan, as defined in the Exchange Act, or multiple qualified plans offered to employees of the same employer,that in the aggregate have at least 100 participants, but does not include any participant of such plans;

(G) member or registered person of such a member; and

(H) person acting solely on behalf of any such institutional investor.

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