NASAA

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 17, 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 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 7, Series 62, Series 65, Series 79, Series 82, and Series 99):

A reverse stock split:

I. Reduces the value of shareholder equity

II. Requires SEC approval

III. May be done to maintain an exchange listing and to attract institutional investors

IV. Can result in fewer shareholders

Answers:

A. II, III

B. III, IV

C. I, II

D. I, IV

Correct Answer: B. III, IV

Rationale: A reverse stock split is the opposite of a stock split, so instead of ending up with more shares in the case of a stock split, in a reverse stock split shareholders end up with fewer shares. For example, in a 1 for 3 reverse split, shareholders receive one new share for three old shares, but the value of each share increases proportionately resulting in an increase in the value of each share but no change in the value of shareholder equity. The increase in the share price is a primary reason for reverse stock splits; a common reason for the reverse split is to keep a share price above some exchange-required minimum share price, such as $1. A higher share price is also desirable because it can broaden the base of potential investors to include institutions which may be prohibited from purchasing low-priced stocks. Stock splits are governed by state law and by company bylaws, they do not require SEC approval. Reverse stock splits that involve large reductions in the number of shares, for example a 1 for 100 reverse split, may result in shareholders not having enough of the old shares to exchange in return for the new shares, when this happens the shareholders are paid cash for their shares. This results in an overall reduction in the number of shareholders.

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

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: March 27, 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 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, and Series 82):

“Phantom tax exposure” is a characteristic of:

I. T-bonds

II. Treasury STRIPS

III. Zero-coupon bonds

IV. Municipal revenue bonds

Answers:

A. I and III

B. I and II

C. II and III

D. II and IV

Correct Answer: C

Rationale: Treasury STRIPS, which are sold at a discount and don’t pay annual interest to owners, are a type of zero coupon bond. Zeroes are taxed each year based upon the imputed annual value of the cumulative interest earned. “Phantom tax exposure” means you pay taxes each year on interest you don’t receive. Zeros do not pay interest each year, instead interest is paid in a lump sum at maturity. For this reason, investors in zeros do not have to worry about the risk of having to reinvest their interest payments at a lower rate (reinvestment risk).

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:

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.
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 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: NASAA identifies compliance violations, best practices

A NASAA report outlines the most common broker-dealer violations and offers best practices in ten areas to help broker-dealers avoid mistakes. Continue reading

A NASAA report outlines the most common broker-dealer violations and offers best practices in ten areas to help broker-dealers avoid mistakes.

The most common areas of violations involved books and records, supervision, and sales practices. Less common were violations related to licensing and registration, and the most uncommon type of violations were those related to operations. The top five violation types were as follows: “failure to follow written supervisory policies and procedures, suitability, correspondence/e-mail, maintenance of customer account information, and internal audits.”

NASAA identified best practices in ten areas – summaries of those practices follow.

-Suitability: Know your customer, know your products.

-Staffing and Expertise: Make sure there is enough staff with appropriate training/experience for the size of the firm and the scope of business activities. Also, have and enforce written supervisory procedures.

-Exception Reports: Introducing brokers must get exception reports from clearing brokers and deal with any red flags that come up.

-Branch Office Audits: Have a good, well-documented audit program with unannounced visits.

-Selling Away: Monitor agents selling away. If an agent applies to sell away and gets denied, make sure they don’t do so anyway.

-Outside Business Activity: Outside business requests must be approved before the activity occurs and must be reported on the agent’s U4.

-Advertisements: Ads must be fair and approved by the broker-dealer and/or FINRA. Seminars must be approved by the broker-dealer.

-Correspondence: Keep copies of outside communications on record.

-Customer Complaints: Investigate and respond appropriately to any complaint. Update the U4 of involved agents if necessary.

-Working with Seniors: Develop practices for working with elderly customers.

Source: Coordinated Examinations Identify Top BD Compliance Violations

This alert applies to the Series 24, Series 26, Series 7, Series 65, and Series 66.

Solomon Exam Prep attending WIFS National Conference in October

This year, Solomon Exam Prep will feature a booth at the Women in Insurance & Financial Services (WIFS) National Conference in Portland, OR on October 20-22. Continue reading

This year, Solomon Exam Prep will feature a booth at the Women in Insurance & Financial Services (WIFS) National Conference in Portland, OR on October 20-22. WIFS is a great organization dedicated to encouraging women in the financial services sector and helping them develop their talents and careers. Stop by the Solomon Exam Prep booth in the exhibit hall or meet with Professor Karen Solomon at 1 pm on Thursday the 20^th for her one hour session on the NASAA Series 65 exam.

To find out more information about the WIFS National Conference this year, please click here. Learn more about WIFS as an organization by checking out their website: www.wifsnational.org.