Series 79 Practice Exam

1. In a leveraged buyout model, a sponsor invests 400 million dollars of equity and exits five years later with equity proceeds of 1,200 million dollars. What is the multiple of invested capital?

• A. 8.0 times
• B. 2.0 times
• C. 0.33 times
• D. 3.0 times

2. An analyst computes a terminal value using the perpetuity growth method with final-year free cash flow of 100 million dollars, a WACC of 10 percent and a perpetual growth rate of 2 percent. What is the terminal value?

• A. 1,250 million dollars
• B. 1,000 million dollars
• C. 1,275 million dollars
• D. 5,000 million dollars

3. A firm's investment banking department must be separated from its sales and trading desk to prevent the flow of material nonpublic information. What is this separation commonly called?

• A. An information barrier, historically called a Chinese wall
• B. A firewall exemption under Regulation S-P
• C. A safe harbor under Rule 10b5-1
• D. A prudent man standard

4. A firm maintains a list of issuers about which it possesses material nonpublic information, and monitors employee and proprietary trading in those names without publishing the list internally. What is this list called?

• A. A watch list
• B. A restricted list
• C. A grey market list
• D. A selling group list

5. A company with 40 million shares outstanding trading at 25 dollars announces a two-for-one stock split. Ignoring market reaction, what are the shares outstanding and price immediately after?

• A. 80 million shares at 12.50 dollars
• B. 20 million shares at 50 dollars
• C. 80 million shares at 25 dollars
• D. 40 million shares at 12.50 dollars

6. A registered representative of a member firm wants to participate in a private securities transaction outside the scope of employment. What must the representative do?

• A. Provide prior written notice to the member and, if compensated, obtain written approval before participating
• B. Notify the SEC directly within thirty days after the transaction
• C. Nothing, provided the transaction involves only accredited investors
• D. Resign from the member firm before participating

7. A banker receives material nonpublic information about a pending acquisition and mentions it to a friend, who trades on it. Under insider trading law, how is the banker best described?

• A. A tipper, who may be liable along with the tippee who traded
• B. A temporary insider with no liability because he did not trade himself
• C. A constructive insider immune from liability absent a personal benefit to the tippee
• D. A market maker exempt under an affirmative defense

8. Two bonds carry the same coupon rate and credit quality, but Bond X matures in three years and Bond Y matures in twenty years. If market interest rates rise by the same amount for both, which statement about their price change is most accurate?

• A. Bond Y will fall in price by a larger percentage because its longer maturity gives it greater duration and interest-rate sensitivity
• B. Neither bond's price will change because their credit quality is identical
• C. Both bonds will fall by exactly the same percentage because their coupon rate is identical
• D. Bond X will fall in price by a larger percentage because it has less time to maturity

9. A company issues securities convertible into common stock. When computing diluted earnings per share, how are in-the-money convertible instruments treated?

• A. They are assumed converted, increasing the share count and adjusting the numerator for foregone interest or dividends
• B. They are ignored until actual conversion occurs
• C. They reduce the share count because conversion retires debt
• D. They are added to the numerator as additional net income

10. An internal review finds that a customer's account has generated commissions far exceeding what the customer's stated investment objectives and account size would justify, driven by a pattern of frequent, unnecessary trades. This pattern most closely describes which prohibited practice?

• A. Parking securities to conceal ownership
• B. Marking the close to influence a security's closing price
• C. Churning the account to generate commissions
• D. Front running a large institutional order

11. A company has a cost of equity of 12 percent, a pre-tax cost of debt of 6 percent, a 25 percent tax rate, and a capital structure of 60 percent equity and 40 percent debt. What is its weighted average cost of capital?

• A. 9.0 percent
• B. 9.6 percent
• C. 10.8 percent
• D. 7.2 percent

12. A branch supervisor discovers that a customer's spouse, who has no trading authorization on file, has been entering orders in the customer's account for several months. What should the firm require before permitting the spouse to continue placing orders?

• A. Nothing further, since a spousal relationship implies authority to trade the account
• B. A verbal acknowledgment from the customer during the next phone call
• C. Written trading authorization from the customer naming the spouse, filed before further orders are accepted
• D. Conversion of the account to a joint account without further documentation

13. A registered representative is reviewing why firms treat prohibited activities (such as unauthorized trading in a customer account) as serious conduct matters. Which of the following best describes the general rationale, reasoned from principles rather than a specific rule citation?

• A. Prohibited activities are penalized only when the customer complains in writing first.
• B. Conduct that undermines customer trust and market integrity is restricted to protect investors and the fairness of the market.
• C. Prohibited activities are acceptable if the representative later reimburses any losses.
• D. Firms disregard prohibited activities as long as trades are ultimately profitable for the customer.

14. A banker prepares a document sent to prospective buyers before any confidentiality agreement is signed, describing the opportunity without naming the client. What is this document called?

• A. A teaser
• B. A confidential information memorandum
• C. A definitive proxy statement
• D. A comfort letter

15. Under FINRA rules, a registered representative wishes to open a securities account at another member firm. What is generally required?

• A. Approval from the SEC before the account is opened
• B. Prior written notice to the employing member, and notice to the executing member of the association
• C. The account may only be opened at the employing firm
• D. No notice, because outside accounts are the representative's private affair

16. A company reports net income of 60 million dollars, depreciation of 25 million, an increase in working capital of 15 million, and capital expenditures of 30 million. What is unlevered free cash flow, ignoring tax adjustments to interest?

• A. 40 million dollars
• B. 70 million dollars
• C. 100 million dollars
• D. 25 million dollars

17. A sales trader learns that the firm's institutional desk is about to execute a large block order expected to move the market price of a stock. Before the block is placed, the trader executes a personal trade in the same stock to profit from the anticipated price move. What is this conduct called?

• A. Front running
• B. Riskless principal trading
• C. Legitimate proprietary hedging
• D. Permissible pre-hedging disclosed to the client

18. A supervisor is explaining, in general terms, why unauthorized transactions in a customer account are treated as a prohibited activity. Which explanation is most consistent with investor-protection principles and free of any specific rule number?

• A. Executing transactions without the customer's authority disregards the customer's control over their own account and is therefore treated as improper conduct.
• B. Unauthorized transactions are acceptable as long as they occur before the market closes.
• C. Unauthorized transactions are permitted whenever the representative believes them to be in the customer's interest.
• D. Unauthorized transactions are only a concern if they exceed a fixed dollar threshold.

19. An analyst is valuing a target company using comparable company analysis. Which multiple is generally preferred over price-to-earnings when comparing firms with materially different capital structures?

• A. Enterprise value to EBITDA, because it is capital-structure neutral
• B. Price to book, because book value ignores leverage
• C. Dividend yield, because payouts are unaffected by debt
• D. Price to earnings, because net income already reflects interest expense

20. Which valuation methodology typically produces the highest indicated value range for a target company?

• A. Precedent transaction analysis, because it includes a control premium
• B. Comparable company analysis, because it uses current trading multiples
• C. Book value analysis, because it reflects historical cost
• D. Liquidation analysis, because assets are sold individually

21. A company's income statement shows revenue of 500 million dollars, cost of goods sold of 300 million, operating expenses of 80 million excluding depreciation, depreciation and amortization of 40 million, and interest expense of 20 million. What is EBITDA?

• A. 120 million dollars
• B. 80 million dollars
• C. 160 million dollars
• D. 60 million dollars

22. A company files a Form 8-K. What does this filing generally report?

• A. A material current event occurring between periodic reports
• B. Audited annual financial statements
• C. Unaudited quarterly financial statements
• D. Beneficial ownership by a 5 percent holder

23. An exam administrator confirms the total time window for a candidate sitting the Series 79. What is the permitted duration?

• A. 120 minutes
• B. 150 minutes
• C. 180 minutes
• D. 90 minutes

24. A customer verbally tells his registered representative to 'use your judgment' on timing and price for trades in his account going forward, without specifying particular securities or amounts in advance. What must be in place before the representative may exercise this discretion?

• A. Written authorization from the customer and the firm's prior acceptance of the account as discretionary
• B. Nothing further, since the customer's verbal statement itself grants full discretion
• C. A one-time email confirmation sent after each trade is placed
• D. Approval from a second registered representative on the same desk

25. A company has an equity market capitalization of 800 million dollars, total debt of 300 million dollars, and cash of 50 million dollars. What is its enterprise value?

• A. 1,050 million dollars
• B. 1,150 million dollars
• C. 800 million dollars
• D. 550 million dollars

26. A public company's investor relations officer privately tells a group of favored research analysts about a significant unannounced change in expected quarterly earnings, without making the same disclosure to the public. Which regulatory principle does this conduct most directly implicate?

• A. Regulation FD's prohibition on selectively disclosing material nonpublic information without simultaneous public disclosure
• B. Regulation M's restrictions on trading during a distribution
• C. The Williams Act's tender offer disclosure requirements
• D. Regulation D's exemption conditions for private placements

27. Which of the following is generally the least reliable indicator of value when analyzing a mature manufacturing business?

• A. Comparable company trading multiples
• B. Book value of equity, because it reflects historical cost rather than economic value
• C. Precedent transaction multiples
• D. Discounted cash flow, because it is based on projected cash generation

28. To pass the Series 79 exam, a candidate must achieve at least what score?

• A. 65 percent
• B. 70 percent
• C. 73 percent
• D. 80 percent

29. When opening a new customer account, why is accurate and complete customer information generally important? Answer using conceptual reasoning only.

• A. Because incomplete information automatically raises the exam passing score.
• B. Because complete account information supports appropriate handling of the account and reduces the risk of unsuitable or improper activity.
• C. Because accounts with missing information are exempt from all conduct standards.
• D. Because customer information is only used to calculate the firm's registration fees.

30. Under Regulation AC, a research analyst who publishes a research report on a covered company must generally include a certification addressing what?

• A. That the views expressed reflect the analyst's own personal views and whether the analyst's compensation was tied to specific recommendations in the report
• B. That the SEC has reviewed and approved the substance of the report
• C. That the recommendations in the report are guaranteed to be accurate
• D. That the analyst has no prior relationship of any kind with the company covered

31. In a discounted cash flow analysis, an analyst discounts unlevered free cash flow. Which discount rate is appropriate?

• A. The after-tax cost of debt
• B. The weighted average cost of capital
• C. The cost of equity
• D. The risk-free rate

32. An analyst compares two firms and finds Company A has a beta of 1.4 while Company B has a beta of 0.7. Holding other inputs constant, what does this imply for the cost of equity under the capital asset pricing model?

• A. Company A has the higher cost of equity because its returns are more sensitive to market moves
• B. Company B has the higher cost of equity because lower beta signals distress
• C. Both have identical costs of equity because beta affects only the debt component
• D. Neither cost of equity can be estimated without the dividend payout ratio

33. An acquirer proposes an all-stock acquisition of a target. The acquirer's shares trade at a higher price-to-earnings multiple than the price it is offering for the target, expressed as a multiple of the target's earnings. Ignoring synergies, transaction costs and any purchase accounting adjustments, what does a first-pass accretion/dilution analysis indicate?

• A. The deal is dilutive, because issuing new shares always increases the share count faster than earnings
• B. The deal is accretive, because the acquirer is effectively buying earnings more cheaply than the market values its own earnings
• C. The deal is neutral, because in an all-stock deal the combined earnings are simply divided among the combined shares
• D. The deal is dilutive, because the target's lower multiple signals lower-quality earnings that the market will discount

34. A private issuer is choosing between a follow-on public equity offering and a private placement of convertible preferred stock to a single institutional investor. Which consideration argues most strongly for the private placement?

• A. The issuer wants to close quickly with a negotiated structure and limited public disclosure of its financial condition
• B. The issuer wants the widest possible distribution of its securities to build trading liquidity
• C. The issuer wants the securities to be freely tradable by the purchaser immediately on issuance
• D. The issuer wants to avoid granting any governance rights to the purchaser

35. A private equity sponsor evaluates a leveraged buyout. Which target characteristic is generally most attractive for supporting a high debt load?

• A. Stable, predictable free cash flow
• B. High revenue growth with negative operating margins
• C. Heavy ongoing research and development requirements
• D. Highly cyclical earnings tied to commodity prices

36. An investment bank commits to purchase a block of a client's shares at a negotiated price and then resell them into the market, taking the resale risk. What is this transaction called?

• A. A bought deal or block trade
• B. An agency cross
• C. A rights offering
• D. An at-the-market program

37. An underwriting syndicate agrees to purchase an entire issue from the issuer and resell it to the public, bearing the risk of unsold shares. What type of commitment is this?

• A. A firm commitment underwriting
• B. A best efforts underwriting
• C. An all-or-none offering
• D. A mini-maxi offering

38. A corporation issues a bond that it may redeem prior to maturity once market interest rates decline enough to make refinancing attractive. From the perspective of an investor holding this callable bond, which risk is most directly increased by the call feature?

• A. Reinvestment risk, because the bond is more likely to be redeemed early when rates have fallen, forcing the investor to reinvest proceeds at lower yields
• B. Currency risk, because early redemption changes the currency of the cash flows
• C. Default risk, because callable bonds inherently carry weaker credit protections
• D. Liquidity risk exclusively, with no effect on interest rate exposure

39. A company completes an initial public offering. Insiders sign agreements restricting sales of their shares for a period after pricing. What is this restriction called and what is its usual purpose?

• A. A lock-up agreement, which limits aftermarket supply while the stock establishes trading
• B. A standstill agreement, which prevents insiders from voting their shares
• C. A no-shop provision, which prevents the issuer from soliciting other underwriters
• D. A market-out clause, which lets underwriters terminate the offering

40. An issuer sells securities to accredited investors without registration under Regulation D. What restriction generally applies to the securities the purchasers receive?

• A. They are restricted securities that cannot be freely resold absent registration or an exemption such as Rule 144
• B. They are freely tradable immediately upon issuance
• C. They may be resold only to the issuer
• D. They convert automatically into registered shares after 30 days

41. A company sells newly issued common shares directly to investors through an underwritten public offering, with the sale proceeds credited to the company's balance sheet. In which market does this initial sale of shares occur?

• A. The dealer-only over-the-counter market
• B. The secondary market
• C. The primary market
• D. The dark pool market

42. An issuer files a registration statement that allows it to offer securities from time to time over a period without a separate filing for each offering. What is this called?

• A. Shelf registration under Rule 415
• B. Intrastate exemption under Rule 147
• C. Regulation A tier 2 offering
• D. Rule 144A resale to qualified institutional buyers

43. In a large underwritten securities offering with multiple syndicate members, one firm is responsible for maintaining the order book, allocating shares among syndicate members, and coordinating aftermarket stabilization activities. What is this firm's role commonly called?

• A. Lead bookrunner
• B. Prime broker
• C. Selling group member
• D. Transfer agent

44. Rules governing research analysts restrict the relationship between research and investment banking. Which practice is prohibited?

• A. Publishing a research report that recommends selling a banking client's stock
• B. Disclosing the firm's ownership position in a covered issuer
• C. Having analysts attend meetings with issuer management
• D. Tying an analyst's compensation to specific investment banking transactions

45. Regulation M restricts the activities of underwriters and other distribution participants. What is its principal purpose?

• A. To prevent manipulation of the market price of a security during its distribution
• B. To require equal allocation of shares among all retail investors
• C. To set the maximum underwriting spread on a public offering
• D. To require research coverage for a stated period after an offering

46. An issuer conducts a rights offering. What are existing shareholders receiving?

• A. The right to purchase additional shares, usually below market price, in proportion to current holdings
• B. An obligation to purchase additional shares at market price
• C. A cash distribution equal to the offering proceeds
• D. The right to sell shares back to the issuer at a premium

47. A firm places an issuer on its restricted list while the firm is engaged to underwrite the issuer's public offering. Which activity is generally curtailed for the firm during this period?

• A. Executing unsolicited customer orders in unrelated securities
• B. Publishing new research coverage or recommendations on the restricted issuer
• C. Opening new brokerage accounts for existing retail customers
• D. Processing routine account transfers for unrelated customers

48. A floating-rate note pays a coupon that resets periodically to a reference rate plus a fixed spread. Compared with a fixed-rate note of the same maturity and credit quality, how does the floating-rate note's price generally react to a rise in market interest rates?

• A. It falls by roughly the same percentage as the fixed-rate note
• B. It falls by a larger percentage than the fixed-rate note
• C. It is unaffected by changes in the reference rate
• D. It fluctuates much less than the fixed-rate note, because periodic coupon resets keep the note's yield close to current market rates

49. During the period between filing a registration statement and its effectiveness, an underwriter distributes a preliminary prospectus. What is it commonly called, and what may it not contain?

• A. A red herring; it omits the final offering price and may not be used to accept orders
• B. A tombstone; it omits the issuer's audited financials
• C. A final prospectus; it omits only the underwriting syndicate list
• D. A comfort letter; it omits management's discussion and analysis

50. FINRA rules address conflicts when a member firm participates in a public offering of its own securities or those of an affiliate. What is the general requirement in such a conflicted offering?

• A. The offering may proceed with no disclosure if the affiliate owns less than 50 percent
• B. Prominent disclosure of the conflict, and in defined cases a qualified independent underwriter must participate
• C. The SEC must set the offering price
• D. The offering must be abandoned entirely

51. An underwriting agreement includes an over-allotment option permitting the syndicate to purchase additional shares from the issuer. What is this option commonly called and what is its typical maximum size?

• A. A greenshoe, typically up to 15 percent of the base offering
• B. A greenshoe, typically up to 50 percent of the base offering
• C. A poison pill, typically up to 15 percent of shares outstanding
• D. A lock-up, typically covering 15 percent of insider holdings

52. A public company wants to repurchase shares in the open market with a safe harbor against manipulation claims. Which rule provides conditions on manner, timing, price and volume?

• A. Rule 10b-18
• B. Rule 10b5-1
• C. Rule 144A
• D. Rule 415

53. A special purpose acquisition company raises capital in an IPO and places the proceeds in a trust account to fund a future business combination. If the company fails to complete an acquisition within its specified deadline, what generally happens to the trust proceeds attributable to public shareholders?

• A. They are returned to public shareholders on a pro rata basis as the company liquidates
• B. They are forfeited entirely to the sponsor
• C. They automatically convert into equity of a shell successor company
• D. They are donated to a charitable foundation designated by the sponsor

54. An issuer's offering is exempt under Rule 506(b) of Regulation D. Which restriction applies?

• A. No general solicitation or general advertising is permitted
• B. The offering is capped at 5 million dollars in any twelve-month period
• C. All purchasers must be non-accredited investors
• D. The securities become freely tradable immediately

55. An investor purchases convertible preferred stock issued by a growth company. Which combination of features generally describes this security?

• A. A pure equity instrument carrying voting control with no fixed payment
• B. A fixed dividend payment with the ability to convert into common stock and participate in equity upside
• C. A senior secured claim with mandatory principal redemption and no equity feature
• D. A variable dividend tied to the issuer's common stock price with no conversion right

56. An investor is deciding between purchasing an American depositary receipt representing shares of a foreign company or purchasing the underlying foreign ordinary shares directly on the foreign exchange. Which consideration is reduced, though not eliminated, by choosing the depositary receipt?

• A. Currency risk from the underlying shares being denominated in a foreign currency
• B. The settlement, custody and cross-border trading complexity of holding the foreign shares directly
• C. The issuer's underlying business and credit risk
• D. General market risk affecting the underlying company's stock price

57. An issuer's underwriters conduct due diligence before an offering. What is the principal legal significance of that process for the underwriters?

• A. It transfers all liability for the registration statement to the issuer
• B. It guarantees SEC declaration of effectiveness
• C. It supports a due diligence defense against Securities Act liability for material misstatements or omissions
• D. It substitutes for the independent audit of the financial statements

58. During the period before a registration statement for an IPO becomes effective, the underwriters avoid issuing research reports or making public statements about the issuer beyond the information contained in the filed registration statement. What regulatory concern does this practice primarily address?

• A. Complying with withholding tax requirements on offering proceeds
• B. Avoiding 'gun jumping' by conditioning the market with information outside the registration statement before it is effective
• C. Avoiding antitrust concerns among competing underwriters
• D. Preventing insider trading by underwriter employees ahead of the offering

59. An issuer intends to raise capital under Regulation A rather than through a fully registered offering. Which statement best captures how Regulation A differs from a Regulation D Rule 506 private placement?

• A. Regulation A permits general solicitation and produces securities that are generally freely tradable, but requires an offering statement qualified by the SEC
• B. Regulation A is available only to issuers whose securities are already listed on a national securities exchange
• C. Regulation A securities are restricted securities that may be resold only under Rule 144
• D. Regulation A offerings require no SEC filing of any kind because the securities are exempt securities

60. After an equity offering prices, the syndicate department must make the required notifications to FINRA about the distribution's status and about any penalty-bid or syndicate-covering transactions. These notification duties arise principally under which rule?

• A. FINRA Rule 2262
• B. FINRA Rule 4511
• C. FINRA Rule 6130
• D. FINRA Rule 5190

61. A member firm is a selling group member in the distribution of a new issue. To close a sale, a registered representative tells a customer that the firm is offering the shares "at the market," although the only quotations for the stock are being made by the firms participating in the distribution. Under SEC Rule 15c1-8, how is this representation treated?

• A. It is permitted, because the representative quoted the actual price at which the syndicate was then filling orders
• B. It is a manipulative or deceptive device, because no independent market exists apart from the distribution participants
• C. It is permitted so long as the customer receives a preliminary prospectus before the trade settles
• D. It is permitted for institutional customers but prohibited for retail customers

62. An investment banker explains the gross spread on a firm commitment equity offering to the issuer's CFO. Which breakdown correctly identifies the components of the spread?

• A. The management fee, the underwriting fee, and the selling concession
• B. The management fee, the transfer agent fee, and the road show expense allowance
• C. The greenshoe, the stabilization reserve, and the selling concession
• D. The filing fee, the legal fee, and the exchange listing fee

63. An issuer preparing a Regulation D Rule 506(b) offering asks whether it may advertise the offering on its public website and in a trade magazine. The correct response is that:

• A. It may not, because Rule 506(b) prohibits general solicitation and general advertising
• B. It may, provided every purchaser is verified as accredited before the sale
• C. It may, provided the advertisement contains the preliminary prospectus legend
• D. It may, because Regulation D offerings are exempt transactions and therefore exempt from all SEC advertising restrictions

64. A closely held company wants to raise capital from investors located only in the state where it is incorporated and does substantially all of its business, relying on the intrastate exemption under Rule 147 or Rule 147A. The key practical difference between the two rules is that Rule 147A:

• A. Permits offers to reach out-of-state persons and does not require the issuer to be incorporated in the state, while sales remain limited to in-state residents
• B. Eliminates the resale restrictions that otherwise apply to securities sold under the intrastate exemption
• C. Allows sales to a limited number of out-of-state accredited investors
• D. Replaces the state-law registration requirement with a federal filing with the SEC

65. An investment banking representative is reviewing the underwriting compensation arrangements for a member firm's participation in a public offering of equity securities. Which statement best describes the firm's obligation under FINRA Rule 5110?

• A. The firm must file the offering documents and information about underwriting terms and arrangements with FINRA, which reviews them for fairness and reasonableness
• B. The firm must cap total compensation at the percentage that FINRA sets for each industry sector in the offering circular
• C. The firm must obtain SEC approval of the gross spread before the registration statement is declared effective
• D. The firm must disclose the spread only in the final prospectus and need not submit anything to FINRA

66. An underwriter has completed a firm commitment IPO and must retain the deal file — the engagement letter, the AAU, allocation records, and syndicate communications. Which framework establishes how long and in what manner those records must be preserved?

• A. Regulation S-X, which prescribes retention of all underwriting records supporting the financial statements
• B. Exchange Act Rules 17a-3 and 17a-4, together with FINRA Rule 4511, which require the records to be made, preserved for the prescribed period, and kept in a permitted format
• C. Securities Act §11, which requires retention until the statute of limitations for purchaser claims expires
• D. Regulation M, which requires retention of restricted-period records until the distribution is complete

67. An institutional client that meets the SEC's published qualifications for a qualified institutional buyer wants to purchase unregistered securities of a domestic issuer from a broker-dealer that acquired them in a private placement. Rule 144A is available for this resale primarily because it:

• A. converts the securities into freely tradable shares for all subsequent holders
• B. eliminates the issuer's ongoing reporting obligations under the 1934 Act
• C. provides a safe harbor from Securities Act registration for resales to qualified institutional buyers
• D. registers the securities for the limited purpose of institutional trading

68. An investment banker is preparing a fairness opinion for a target company's board. What does the opinion address?

• A. Whether the consideration to be received is fair, from a financial point of view, to the shareholders
• B. Whether the board has satisfied its fiduciary duties under state law
• C. Whether the transaction will receive antitrust clearance
• D. Whether the target's audited financial statements are free of material misstatement

69. A target company's board receives an unsolicited tender offer. Which schedule must the target file to state its position on the offer?

• A. Schedule 14D-9
• B. Schedule TO
• C. Schedule 13E-3
• D. Form S-4

70. A parent company distributes shares of a subsidiary to its own shareholders pro rata, creating a separately traded public company without receiving cash. What is this transaction?

• A. A spin-off
• B. A carve-out
• C. A leveraged buyout
• D. A reverse merger

71. Under the purchase method of accounting for an acquisition, the excess of purchase price over the fair value of identifiable net assets acquired is recorded as what?

• A. Goodwill, an intangible asset tested for impairment rather than amortized
• B. A deferred tax liability amortized over fifteen years
• C. An immediate charge to retained earnings
• D. Additional paid-in capital

72. In a stock-for-stock merger, the agreement fixes the exchange ratio but provides that the ratio adjusts if the acquirer's share price moves outside a defined band. What is this mechanism called?

• A. A collar
• B. A greenshoe
• C. A standstill
• D. A go-shop

73. A company's capital structure includes senior secured debt, senior unsecured notes, subordinated notes, preferred stock and common equity. In a liquidation, which claim is satisfied last?

• A. Common equity
• B. Preferred stock
• C. Subordinated notes
• D. Senior unsecured notes

74. Two companies of comparable size combine, with neither treated as clearly acquiring the other and shareholders of both retaining substantial ownership. How is this transaction typically described?

• A. A merger of equals, though accounting rules still require identification of an acquirer
• B. A tender offer, because both sets of shareholders tender shares
• C. A leveraged recapitalization
• D. A spin-off, because two entities result

75. A merger agreement permits the target's board to change its recommendation if required by fiduciary duty in light of a superior proposal. What is this provision called?

• A. A fiduciary out
• B. A material adverse change condition
• C. A no-shop covenant
• D. A tail provision

76. A leveraged buyout is financed with a senior secured term loan, senior unsecured notes, and subordinated mezzanine debt. Relative to the senior secured term loan, which statement about the mezzanine tranche is generally true?

• A. It carries a lower interest rate because it is repaid first in a default
• B. It has identical priority of claim and identical collateral protection
• C. It carries a higher interest rate to compensate for its lower priority of claim in a default
• D. It has no interest cost because it is treated as equity for all purposes

77. A merger agreement contains a provision requiring the target to pay the bidder a fee if the target's board terminates to accept a superior proposal. What is this provision called?

• A. A break-up fee
• B. A reverse termination fee
• C. An earn-out
• D. A collar

78. In a restructuring, the point in the capital structure at which the enterprise value is exhausted and claims below receive nothing is commonly called what?

• A. The fulcrum security
• B. The senior tranche
• C. The stalking horse
• D. The debtor in possession facility

79. Parties to a proposed acquisition exceeding statutory size thresholds must notify US antitrust agencies and observe a waiting period before closing. Under which statute?

• A. The Hart-Scott-Rodino Antitrust Improvements Act
• B. The Sarbanes-Oxley Act
• C. The Investment Company Act of 1940
• D. The Trust Indenture Act of 1939

80. A bank is advising on a sale where the buyer will pay part of the price only if the acquired business hits defined performance targets after closing. What is this structure called?

• A. An earn-out
• B. A stock swap
• C. A recapitalization
• D. A tender offer

81. An investment bank agrees to sell a client's business through a process in which multiple potential buyers receive a confidential information memorandum and submit bids by a deadline. What is this process called?

• A. A controlled auction
• B. A Dutch auction tender offer
• C. A rights offering
• D. A private investment in public equity

82. Which document in an M&A transaction is a non-binding outline of principal terms signed before definitive documentation, typically with a few binding provisions such as exclusivity and confidentiality?

• A. A letter of intent or term sheet
• B. The definitive merger agreement
• C. The disclosure schedules
• D. The proxy statement

83. A banker is asked whether a proposed acquisition should be paid for in cash or stock, all else equal. Which consideration favors stock from the acquirer's perspective?

• A. The acquirer believes its own shares are richly valued
• B. The acquirer wants to avoid diluting existing shareholders
• C. The acquirer has substantial idle cash earning little
• D. The acquirer wants to avoid a shareholder vote

84. A bidder acquires beneficial ownership of more than 5 percent of a class of registered equity securities with the intent to seek board representation. Which filing is required and within what general timeframe under the Williams Act framework?

• A. Schedule 13D, promptly after crossing the threshold
• B. Schedule 13G, only at the end of the calendar year
• C. Form 4, within two business days
• D. Schedule 14D-9, before acquiring any shares

85. A bank's engagement letter provides for a fee if the client completes a sale to any party contacted during the engagement, even if closing occurs within twelve months after termination. What is this provision?

• A. A tail provision
• B. A retainer credit
• C. An indemnity
• D. A right of first refusal

86. In an accretion/dilution analysis of an all-stock acquisition, the transaction is generally accretive to the acquirer's earnings per share when which condition holds?

• A. The acquirer's price-to-earnings multiple is higher than the target's effective purchase multiple
• B. The target's revenue exceeds the acquirer's revenue
• C. The acquirer funds the deal entirely with newly issued debt
• D. The target has a higher price-to-book ratio than the acquirer

87. A distressed debt investor buys bonds of a financially troubled company at a steep discount to par, expecting recovery through a restructuring. Which factor most directly determines the investor's ultimate recovery on those bonds?

• A. The length of time the investor holds the bonds before restructuring concludes
• B. The stated coupon rate printed on the bonds at issuance
• C. The enterprise value available for distribution in the restructuring relative to the bonds' priority of claim in the capital structure
• D. The original purchase price the investor paid relative to par value

88. A target adopts a shareholder rights plan permitting existing holders other than a hostile bidder to buy shares at a discount once the bidder crosses an ownership threshold. What is this defense called?

• A. A poison pill
• B. A white knight
• C. A crown jewel defense
• D. A Pac-Man defense

89. A hostile bidder launches an unsolicited exchange offer. The target's board meets and instructs its banker on the board's immediate obligation to shareholders under the tender offer rules.

• A. The board must file a Rule 14d-9 statement disclosing its position — recommend, oppose, remain neutral, or state it is unable to take a position — and its reasons
• B. The board must recommend rejection whenever it has adopted a shareholder rights plan
• C. The board may stay silent indefinitely so long as it does not solicit against the offer
• D. The board must deliver a fairness opinion to shareholders before the offer expires

90. A company emerging from a court-supervised reorganization asks its banker to explain the ordering of recoveries in the plan. Which statement best describes the principle that governs whether a junior class may receive value while a senior class is impaired and objecting?

• A. Absolute priority requires the senior class to be satisfied in full before a junior class retains or receives value over that class's objection
• B. Trade creditors are always paid ahead of secured lenders in a reorganization
• C. Existing equity holders retain their stake unless every class votes to eliminate it
• D. All impaired classes must receive identical treatment regardless of seniority

91. A public company's board authorizes a buyback of its own common stock through open-market purchases while no third-party tender offer is pending. The company's banker is asked which disclosure regime governs the repurchase.

• A. Rule 13e-1, which restricts an issuer's repurchase of its own securities while a third-party tender offer for those securities is pending
• B. Rule 13e-3, because any issuer repurchase is treated as a going-private transaction
• C. Rule 14d-9, because the issuer must file a recommendation statement for its own purchases
• D. No tender offer rule applies to an ordinary open-market buyback; the issuer relies on its periodic reporting and any safe harbor for repurchases

92. A banker is drafting the teaser that will go to a broad list of potential buyers for a family-held distributor whose owner insists that employees and customers learn nothing until signing. Which of the following best describes how the teaser should be constructed?

• A. A no-names profile with industry, size range and investment highlights, sent without an NDA
• B. An abbreviated CIM identifying the company, released only after NDA execution
• C. The audited financial statements with the customer schedule redacted
• D. A binding summary of the terms the seller will accept, distributed to the full buyer list

93. A sell-side client's board asks its banker to deliver a fairness opinion on the merger consideration. The banker's firm will also earn a success fee contingent on closing and has a financing relationship with the buyer. What is the appropriate handling?

• A. Decline the opinion engagement, since any contingent fee disqualifies the firm from rendering a fairness opinion
• B. Disclose the contingent compensation and the material relationships with the parties in the opinion and the related disclosure document, and follow the firm's procedures for approval of the opinion by a fairness committee
• C. Deliver the opinion without disclosure, because the opinion addresses price only and not the firm's compensation
• D. Replace the opinion with the valuation report already prepared for the auction, which serves the same legal function

94. A banker joining the Investment Banking Representative category asks what continuing education obligation attaches to the registration once the Series 79 is passed.

• A. The Regulatory Element must be completed annually by December 31 for each registration category held
• B. The Regulatory Element is due only in the second year after registration and every three years thereafter
• C. Completing the Regulatory Element for any one category satisfies the requirement for all categories held
• D. The Regulatory Element is satisfied by passing the Securities Industry Essentials exam a second time

95. A strategic buyer and a target sign a stock-for-stock merger agreement. Target shareholders will vote, and the buyer will register the shares it issues. A banker is asked why this structure was chosen over a tender offer.

• A. A one-step merger requires a target shareholder vote and a proxy or registration process, but avoids the tender offer timetable and the risk of a partial take-up leaving a public minority
• B. A one-step merger avoids any SEC filing because no securities are being sold
• C. A tender offer is unavailable whenever stock is the consideration
• D. A one-step merger eliminates the need for antitrust clearance because the target board has consented

96. A private equity buyer will pay for a target using a combination of cash on hand, a new term loan, and a revolver draw. The banker is preparing sources and uses. Which item belongs on the USES side?

• A. Refinancing of the target's existing debt that must be repaid at closing under its change-of-control provisions
• B. The new term loan commitment provided by the lead arranger
• C. Rollover equity contributed by the target's continuing management team
• D. Cash on the target's balance sheet that the buyer will use to fund part of the purchase price

97. A sell-side banker is preparing to circulate a confidential information memorandum to a list of strategic and financial parties. Before any CIM goes out, the banker's process requires each party to sign a non-disclosure agreement that also contains a standstill provision. From the seller's perspective, what is the principal purpose of the standstill provision within that NDA?

• A. It obligates the recipient to submit a binding bid by the first-round deadline
• B. It restricts the recipient from accumulating the seller's securities or launching an unsolicited offer for a negotiated period
• C. It transfers responsibility for the accuracy of the CIM's projections from the seller to the recipient
• D. It grants the recipient exclusivity over the diligence process until the auction closes

98. Two strategic bidders in the same end market reach signing. Antitrust counsel expects an extended review. The sell-side banker is advising the board on how to allocate regulatory risk in the merger agreement.

• A. Require the buyer to waive the closing condition that the waiting period expire, so regulatory risk disappears
• B. Negotiate the efforts standard for obtaining clearance, any divestiture commitment, and a reverse termination fee payable by the buyer if the deal fails on antitrust grounds
• C. Close into the review period and unwind later if the agencies object, which shifts the risk to the agencies
• D. Rely on the outside date alone, since the parties can always extend it if review runs long

99. A banker is preparing marketing materials for a confidential auction of a specialty chemicals business. Which sequencing of documents and gates is consistent with standard sell-side practice?

• A. A no-name teaser goes out first; parties that sign an NDA receive the confidential information memorandum and the bid procedures letter; management presentations and data room access follow for parties that submit acceptable indications of interest
• B. The CIM goes out first to maximize the buyer universe, with NDAs collected only from parties that submit final bids
• C. Management presentations are held before any NDA so that buyers can assess the team before committing to confidentiality
• D. Bid procedures are disclosed only after final bids are received, to preserve the seller's flexibility

100. A target's compensation committee reviews change-in-control payments to five executives and asks whether any of the payments risk being treated as excess parachute payments. The banker should explain that the relevant Internal Revenue Code provision operates by:

• A. Requiring the acquirer to assume all outstanding executive employment agreements at closing
• B. Denying the payor a deduction for excess parachute payments and imposing an excise tax on the recipient once the statutory threshold is exceeded
• C. Prohibiting any cash severance payment to an officer in connection with a change in control
• D. Requiring shareholder ratification of all severance arrangements before a merger vote