Series 62

Study Question of the Week: June 12, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 52, Series 62, Series 65, 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.

Study ? of the Week

Question (Relevant to the Series 7, Series 52, Series 62, Series 65, Series 79, and Series 82):

All of the following is true of the Securities Act of 1933 except?

Answers:

A. One of its purpose is to prohibit fraud and deceit in the marketing of securities

B. It requires that all securities are registered with the federal government prior to offering them for sale

C. The Act requires that a company’s financial statements are certified by independent accountants

D. It regulates how securities are issued and first sold to the public

Correct Answer: B. It requires that all securities are registered with the federal government prior to offering them for sale

Rationale: The Securities Exchange Act of 1933 has two main purposes: (1) to require that companies publicly disclose all relevant financial information about their securities prior to offering them for sale, and (2) to prohibit fraud and deceit in the marketing of securities. The Act requires that most securities be registered with the
federal government prior to their sale, but there are securities that are exempt from registration. The Act regulates how securities are issued and first sold to the public.

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Study Question of the Week: June 4, 2014 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 62, 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.

Study ? of the Week

Question (Relevant to the Series 7, Series 24, Series 62, Series 79, and Series 82):

Under Rule 144, which of the following persons would be subject to holding period limits on a re-sale?

Answers:

A. A C.E.O who holds 10,000 shares of the publicly traded company he runs

B. A C.E.O who purchased 10,000 shares of restricted securities two years ago of the company that he runs

C. A person who is not an affiliate purchased 10,000 shares in a private placement 1 year ago

D. A person who is not an affiliate purchased 10,000 shares of a company’s stock 2 months ago from an affiliate of the company

Correct Answer: D. A person who is not an affiliate purchased 10,000 shares of a company’s stock 2 months ago from an affiliate of the company

Rationale: If a person purchases shares from an affiliate, the shares are considered restricted, even if they were not restricted in the affiliates’ hands and therefore subject to holding period limits. Holding period limits are 6 months for reporting companies and 1 year for non-reportng companies.

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Study Question of the Week: May 28, 2014 Edition

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Question (Relevant to the Series 7, Series 24, Series 62, Series 79, and Series 82):

Which of the following is not exempt from the registration requirements of the Securities Act of 1933?

Answers:

A. State bonds

B. Insurance company variable annuities

C. Municipal bonds

D. Common carrier (e.g., railroad) securities

Correct Answer: B. Insurance company variable annuities

Rationale: State and municipal bonds are backed by the full faith of the respective governments. Common carrier securities are reviewed by the ICC. If variable annuities were not registered, no authority would have jurisdiction over them.

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Study Question of the Week: May 7, 2014 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 52, 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.

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Question (Relevant to the Series 6, Series 7, Series 52, Series 62, Series 65, and Series 66):

Concerning municipal bonds issued by the city of Baltimore, Maryland:

Answers:

A. If you live in the state of Maryland, you will pay state tax on the interest you earn

B. If you live in the state of Virginia, you will not pay state tax on the interest you earn

C. If you live in the state of Maryland, you will pay federal capital gains tax on any profits you realize when you sell the bonds

D. If you live in the state of Virginia, you will not pay federal capital gains tax on any profits you realize when you sell the bonds

Correct Answer: C. If you live in the state of Maryland, you will pay federal capital gains tax on any profits you realize when you sell the bonds

Rationale: Interest income earned on municipal bonds is not taxable at the federal level, and only taxable at the state level outside the state of their issuance. Capital gains realized upon the sale of such bonds are subject to capital gains tax regardless of the taxpayer’s state of residence.

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Study Question of the Week: April 30, 2014 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.

Study ? of the Week

Question (Relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99):

XYZ stock is trading at $10/share. ABC Co. makes a partial tender offer for XYZ stock at $11/share. John Johnson holds 1000 shares of XYZ stock. After ABC Co. announces the tender offer, John writes 10 calls of XYZ stock at $10.50/share. John then tenders as many shares of XYZ stock as he is legally permitted to. How many shares of XYZ does John tender?

Answers:

A. 0

B. 500

C. 1000

D. 2000

Correct Answer: A. 0

Rationale: John sold 10 calls after the tender offer was announced at a strike price lower than the tender offer price. As a result, the call is considered a short position for the purposes of calculating how many shares he can tender. John can tender up to his net long position in the stock, which is his long position (1000 shares) minus his short position (10 calls * 100 shares each = 1000 shares). 1000 – 1000 = 0, so John can tender 0 shares.

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Study Question of the Week: April 23, 2014 Edition

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

Study ? of the Week

Question (Relevant to the Series 24, Series 55, Series 62, and Series 79):

The price of a 10b-18 repurchase transaction:

Answers:

A. Must not exceed the highest independent bid or the last independent transaction price, whichever is higher

B. Must not exceed the highest independent bid or the last independent transaction price, whichever is lower

C. Must not exceed the lowest independent offer or the last independent transaction price, whichever is higher

D. Must not exceed the lowest independent offer or the last independent transaction price, whichever is lower

Correct Answer: A. Must not exceed the highest independent bid or the last independent transaction price, whichever is higher

Rationale: Rule 10b-18 provides a safe harbor for issuer repurchase transactions. It allows the issuer to repurchase its own stock without being liable for manipulation based solely on the manner, timing, price, and volume of the repurchase transactions. In order to qualify, the transaction must be at a price equal to or less than the highest independent bid and the last independent transaction price, whichever is higher. The transaction must comply with broker usage restrictions, timing restrictions, and volume limitations as well.

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Study Question of the Week: April 16, 2014 Edition

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Question (Relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99):

For the question below, assume that each of the answers is solely for the benefit of the recipient and are classified as gifts, not business entertainment.

Which of the following gifts would be a violation under Rule 3220:

Answers:

A. A $20 giftcard given to a salaried employee

B. A holiday fruit basket valued at $80 paid for, or provided by, a third party vendor

C. A vase valued at $120, given as a wedding present and paid for by the employee

D. A dinner cruise valued at $120, if written consent was provided by the recipient’s employer

Correct Answer: D. A dinner cruise valued at $120, if written consent was provided by the recipient’s employer

Rationale: FINRA Rule 3220 is a broad rule with few exceptions. In the above examples, a $20 gift card given to a salaried employee would not violate the rule because it is not over the $100 limit. Regardless of the entity that pays for it, an $80 fruit basket would not violate the rule because it is not over $100. A dinner cruise valued at $120, even if written consent was provided by the recipient’s employer, is a violation because a flat $100 standard is applied, whether or not the recipient’s firm deems it appropriate. Note that in prior years, employees of NYSE firms were able to make such gifts under this scenario.

Even though it exceeds the $100 standard, a vase valued at $120, given as wedding present and paid for the by the employee is not a violation because it falls outside of the Rule 3220 restrictions. If a gift is given in commemoration of a life event (wedding, birth, etc.) and it is paid for by the individual employee, it is classified as a personal gift that is not “related to the business“ of the recipient’s employer. It is important to recognize that if the giver is ultimately reimbursed by their firm for the price of the present, the gift would be reclassified as a business-related gratuity and would then be in violation of the Rule’s $100 limitation.

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Study Question of the Week: April 2, 2014 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 79, and Series 82. –ANSWER POSTED– Continue reading

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

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Question (Relevant to the Series 6, Series 7, Series 62, Series 65, Series 79, and Series 82):

CMOs were primarily created to distribute the amount of ___________________ risk to investors with various risk tolerances. Choose the BEST answer.

Answers:

A. default

B. credit

C. prepayment

D. interest rate

Correct Answer: C. prepayment

Rationale: Unlike a traditional mortgage backed security that has a single coupon rate and maturity date, a collateralized mortgage obligation is a pool of mortgage-backed securities and/or individual mortgages which is structured into several classes of bondholder, each with a different interest rate and term. With a CMO, streams of interest and principal payments are sliced up and distributed to different classes of investors in separate tranches (slices, in French). CMOs were first introduced in 1983 to offer MBS investors a greater variety of maturities and certainty of cash flow. By redistributing prepayment risk away from some tranches and toward others, CMOs allow investors to choose how much of this type of risk they are willing to accept over a given time horizon. Tranches with the lowest exposure to prepayments offer lower yields to investors wanting to reduce their risk exposure. Tranches that accept higher prepayment risks attract investors seeking higher yields.

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Study Question of the Week: March 19, 2014 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, 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.

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Question (Relevant to the Series 6, Series 7, Series 62, Series 65, Series 66, Series 79 and Series 82):

Which of the following statements concerning REITs (real estate investment trusts) and RELPs (real estate limited partnerships) are true?

I. REITs pass through income, but not losses, to shareholders

II. RELPs pass through both income and losses to shareholders

III. REITs are highly illiquid

IV. RELPs are highly liquid

Answers:

A. I and III

B. II and IV

C. I and II

D. I, II, III and IV

Correct Answer: C. I and II

Rationale: Statements I and II are both true, but statements III and IV are reversed. Limited partnership investments are almost always illiquid, while REITs are highly liquid.

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Study Question of the Week: March 5, 2014 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 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.

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Question (Relevant to the Series 7, Series 24, Series 62, Series 65, Series 66, and Series 99):

All the following statements regarding Roth IRAs are correct EXCEPT:

Answers:

A. Contributions to a Roth IRA are tax deductible up to specified limits

B. Earnings in a Roth IRA accrue income tax-free

C. Distributions from a Roth IRA may be tax-free

D. Roth IRAs are subject to the same contribution limits as regular IRAs

Correct Answer: A. Contributions to a Roth IRA are tax deductible up to specified limits

Rationale: Roth IRAs are individual retirement accounts that are funded with after-tax contributions. Individuals can contribute to their Roth IRAs up to the IRS maximum contribution limit. Earnings within the Roth IRA accrue tax-free and distributions from the Roth IRA may also be tax-free when certain criteria are met.

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