Study Question of the Week: December 11, 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, 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 7Series 24, Series 26Series 62, Series 82, and Series 99)

Jenny and Sam each have an individual account, and they have a joint account, and an UGMA account for their daughter Sarah. What is the combined maximum amount that is covered by the SIPC for the four accounts?

Answers:

A. $500,000

B. $1,000,000

C. $1,500,000

D. $2,000,000

Correct Answer: D. $2,000,000

Rationale: SIPC covers a maximum of $500,000 per “separate customer” at a broker-dealer or clearing firm including up to $250,000 in cash.  Total coverage can be higher for multiple accounts if the accounts are considered to be held by separate customers. There are five categories of separate customers defined by the SIPC. These categories include 1) individual accounts, 2) joint accounts, 3) accounts held by executors, administrators, and guardians/custodians/conservators (such as UGMA accounts), 4) accounts held by corporations, partnerships, or unincorporated associations, and 5) trust accounts. Thus, two individual accounts held by two different people, one joint account, and one UGMA account would be considered four separate customers by the SIPC, and therefore subject to a maximum of $2,000,000 of coverage.

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

Study Question of the Week: October 16, 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.

Study ? of the Week

Question (Relevant to the Series 7Series 62, Series 65, Series 79, Series 82, and Series 99)

Branch Environmental Industries is trading at $2 per share and there are 35 million shares of common stock outstanding. The management and board of directors have decided that in order to make the stock more attractive to institutional investors, the share price needs to rise to $5. In order to accomplish that, the company could do which of the following?

Answers:

A. Initiate a 2.5 for 1 stock split which will increase the number of common shares outstanding to 87.5 million.

B. Initiate a 2.5 for 1 stock split which will reduce the number of common shares outstanding to 14 million.

C. Initiate a 1 for 2.5 reverse stock split which will increase the number of common shares outstanding to 87.5 million.

D. Initiate a 1 for 2.5 reverse stock split which will reduce the common shares outstanding to 14 million.

Correct Answer: D. Initiate a 1 for 2.5 reverse stock split which will reduce the common shares outstanding to 14 million.

Rationale: In order to increase the share price to $5, the company would initiate a reverse stock split, that is reduce the number of shares. A stock split would have the opposite effect, it would increase the number of shares and proportionately lower the share price even further which is not what the company wants. In this case, the reverse stock split would be 1 for 2.5 . Mathematically it would be $2 per share/.4 = $5 per new share price. Thus shareholders would give up two-and-one-half $2 shares and they would receive one $5 share in return. The number of shares common shares outstanding would decrease likewise from 35 million to 14 million (35/2.5 = 14).

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

Study Question of the Week: October 9, 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 62, 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 7Series 24, Series 62, and Series 99)

Which of the following agreements allows the broker-dealer to use the customer’s securities as collateral on a loan?

Answers: 

A. loan consent agreement

B. hypothecation agreement

C. credit agreement

D. prime broker agreement

Correct Answer: B. hypothecation agreement

Rationale: The hypothecation agreement allows the broker-dealer to use the customer’s securities as collateral on a loan. The credit agreement details the terms and conditions for the credit that the broker-dealer is extending to the customer. This agreement will include how the firm will calculate the interest charged on the credit and what interest rate the loan rate it will be tied to (e.g., broker call rate). The loan consent agreement permits the broker-dealer to lend the customer’s securities to other customers wishing to execute short sales. This agreement is not required of customers opening a margin account, but strongly encouraged by the broker-dealer.

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 6Series 7Series 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 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 6Series 7, Series 24, Series 26Series 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 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: 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 7Series 62Series 65Series 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: February 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, 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 6Series 7Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99):

Richard had just returned to the States from his third tour of duty in Afghanistan. After relaxing with family and friends for a couple of months, he re-registers with his old employer where he had worked as a broker. In the meantime his license:

Answers:

A. Expired after his second year-long tour of duty

B. Expired ninety days after completing his second tour of duty

C. Remains current

D. Expires in 30 days unless Richard successfully completes his continuing education program

Correct Answer: C

Rationale: FINRA provides licensing relief to registered representatives who are called into or volunteer for active military service. Richard’s license will expire ninety days after completion of active service, unless he re-registers with a member firm before that time. Since he took only two months off before re-registering, Richard’s license is still current and will remain so.

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 62Series 65Series 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.

ANSWER – Study Question of the Week: October 23, 2012 Edition

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale. Relevant to Series 6, Series 7, Series 65, Series 66, Series 24, Series 26 and Series 99. Continue reading

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale:

Question (Relevant to Series 6, Series 7, Series 65, Series 66, Series 24, Series 26 and Series 99):

Which of the following is true of UGMA/UTMA accounts?

I. Only family members may contribute to a UGMA/UTMA
II. Annual contribution limit of $13,000 per year, per child
III. Assets may only be used for education expenses
IV. Earnings reported under adult custodian’s tax identification

Answers:

A: I, II

B: III, IV

C: II, III

D: None of the choices listed

Correct Answer: D

Rationale: Anyone may contribute to a Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) account and there are no contribution limits. Assets in UGMA/UTMA accounts may be used for any purpose and earnings are reported on the minor’s social security account, not the custodian’s.

*Questions featured in the weekly study question series are sampled from Solomon’s industry-leading Online Exam Simulator.