Series 79 Practice Exam

1. 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.

2. 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.

3. 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

4. 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

5. 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.

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. An analyst is assembling the data set for a fairness opinion on a target company. The target sold common stock to the public in a registered offering several years ago, but its shares have never been listed on a national securities exchange and it has never registered a class of securities under Section 12 of the Securities Exchange Act of 1934. The analyst still finds annual and quarterly reports for the target in the SEC's filing system. Under which provision is the target most likely filing those periodic reports?

• A. Section 13(a), because any company that has sold securities to the public must register under Section 12
• B. Section 14(a), because periodic reports are a form of proxy solicitation material
• C. Section 15(d), because the obligation arises from the effective Securities Act registration statement rather than from exchange listing
• D. Section 16(a), because the company is an insider with respect to its own securities

34. A junior banker is building a target's cash flow from operations using the indirect method, starting from net income. The target recorded a large depreciation charge during the year, and its accounts receivable balance rose substantially because customers paid more slowly. How should each item be treated in the reconciliation?

• A. Add back depreciation; subtract the increase in accounts receivable
• B. Subtract depreciation; add the increase in accounts receivable
• C. Add back both depreciation and the increase in accounts receivable
• D. Ignore depreciation because it is non-cash; subtract the increase in accounts receivable

35. An associate is comparing two companies in the same industry. Company X is financed almost entirely with equity, while Company Y carries significant debt and holds little cash. The associate wants a multiple that allows an apples-to-apples comparison of the two businesses' operating performance regardless of how they are financed. Which multiple best serves that purpose, and why?

• A. Price-to-book, because book equity captures the accumulated financing decisions of each company
• B. Price-to-earnings, because net income already reflects each company's interest expense
• C. Enterprise value to EBITDA, because both the numerator and the denominator are measured before the effects of capital structure
• D. Equity value to EBITDA, because EBITDA excludes interest and so neutralizes leverage on its own

36. A banker has projected a target's unlevered free cash flows and a terminal value, and discounted them at the target's weighted average cost of capital. A managing director asks what the resulting present value represents and what further step is needed to arrive at a per-share value for the target's common stock.

• A. The result is equity value; divide directly by diluted shares outstanding
• B. The result is enterprise value; subtract net debt and other non-equity claims, then divide by diluted shares outstanding
• C. The result is enterprise value; add net debt to capture the debt holders' claim, then divide by diluted shares outstanding
• D. The result is equity value; subtract net debt because the cash flows were measured before interest

37. 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

38. 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

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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

46. 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

47. 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

48. 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

49. 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

50. 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

51. 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

52. 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

53. 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

54. 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

55. 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

56. 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

57. 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

58. 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

59. 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

60. 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

61. 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

62. 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

63. 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

64. 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

65. 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

66. 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

67. 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

68. 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

69. 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

70. 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

71. 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

72. 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

73. 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

74. 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

75. 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

76. 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

77. 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

78. 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

79. 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

80. 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

81. 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

82. 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

83. A registered representative at an underwriting firm is preparing to contact institutional clients about an upcoming IPO. The registration statement has been filed with the SEC but has not yet been declared effective. Which document may the representative send to these prospective purchasers during this period?

• A. A preliminary prospectus that includes a legend stating the registration statement has not yet become effective
• B. A final prospectus reflecting the offering price agreed with the issuer
• C. A written confirmation of sale, provided the customer signs an acknowledgment of risk
• D. No written material of any kind may be distributed until the registration statement is effective

84. An investment banking representative is assembling the syndicate for a corporate bond offering. The issuer wants certainty that the entire issue will be sold and is willing to pay a higher spread to get it. Which underwriting commitment type matches the issuer's stated priority?

• A. Best efforts, because the syndicate agrees to use reasonable diligence to place the entire issue
• B. All-or-none, because the underwriters guarantee that every share is placed or the deal is cancelled
• C. Mini-maxi, because the offering closes only after a stated minimum is reached
• D. Firm commitment, because the underwriters purchase the securities and bear the risk of unsold inventory

85. An investor purchased restricted securities in a private placement and now wants to resell them. Which characteristic of Rule 144 most directly determines whether the resale may proceed?

• A. Whether the issuer consents in writing to the resale and amends its registration statement
• B. Whether the resale is made to a qualified institutional buyer, which is the only permitted route
• C. Whether the purchaser was accredited at the time of the original private placement
• D. Whether the applicable holding period has run and, for affiliates, whether the volume and manner-of-sale conditions are satisfied

86. 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

87. A company's registration statement has been filed with the SEC but has not yet been declared effective. During this waiting period, a registered representative at the lead underwriter wants to send a prospective institutional client something about the deal. Which of the following may the representative use during the waiting period?

• A. A preliminary prospectus, with any oral offers, but no written confirmations of sale
• B. A final prospectus, because the registration statement is already on file
• C. Nothing in writing or orally, because all offers are prohibited until effectiveness
• D. A signed subscription agreement, so long as funds are not accepted until effectiveness

88. An issuer discloses material nonpublic information about its upcoming quarter to a small group of sell-side analysts on a private call. No public announcement has been made. Regulation FD most directly requires which of the following?

• A. The issuer's underwriters to file a Regulation M notice with FINRA
• B. The issuer to make public disclosure of that information, with the timing depending on whether the selective disclosure was intentional
• C. The analysts on the call to refrain from publishing research on the issuer for the rest of the fiscal year
• D. The issuer to amend its most recent registration statement to add the information

89. An underwriter serving as stabilizing manager for a follow-on equity offering places a bid to support the market price after the offering commences. Under Regulation M, a permissible stabilizing bid is characterized by which of the following?

• A. It may be effected only by one stabilizing agent at a time, must be disclosed, and may not be at a price above a permitted reference price
• B. It may be placed by any syndicate member at any price, because stabilization is exempt from Regulation M
• C. It may be effected only after the restricted period has ended and the offering has fully closed
• D. It is permitted only if the underwriter has exercised the overallotment option in full

90. A syndicate is formed for a firm commitment equity offering. Which statement best describes the risk allocation created by that commitment type, as documented in the Agreement Among Underwriters?

• A. Each underwriter purchases its allotment from the issuer and bears the risk of unsold shares in its allotment
• B. The underwriters act as agents and return any unsold shares to the issuer without financial exposure
• C. The offering is cancelled and all funds returned unless the entire issue is sold
• D. The issuer indemnifies each underwriter against any loss on shares the underwriter is unable to resell

91. 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

92. A United States issuer conducts an offering of its equity securities exclusively to non-U.S. investors outside the United States in reliance on Regulation S. A syndicate member asks whether it may simultaneously place the same securities with U.S. institutional buyers. The most accurate response is that:

• A. It may, but only under a separate available exemption for the U.S. tranche, such as Rule 144A or Section 4(a)(2), because Regulation S covers only the offshore sales
• B. It may, because Regulation S sales and U.S. sales are treated as a single integrated exempt offering
• C. It may not, because any concurrent U.S. placement destroys the Regulation S exemption for the offshore tranche
• D. It may, provided the U.S. buyers certify that they will hold the securities for the applicable Regulation S distribution compliance period

93. An issuer that qualifies as a well-known seasoned issuer uses a free writing prospectus in connection with a shelf takedown. An investment banking representative at the underwriter asks what distinguishes a free writing prospectus from the statutory prospectus. Which statement is most accurate?

• A. A free writing prospectus is a written offer that falls outside the Section 10 statutory prospectus format and is permitted only under conditions the SEC's rules impose, including filing and legending requirements
• B. A free writing prospectus replaces the registration statement for shelf takedowns
• C. A free writing prospectus may only be used after the registration statement has become effective
• D. A free writing prospectus is exempt from the antifraud provisions of the Securities Act because it is not a statutory prospectus

94. An issuer conducting a public offering wants to raise capital without the full reporting burden of a registered offering and asks its banker about Regulation A. Which statement best captures how Regulation A differs from a Securities Act Section 5 registered offering?

• A. Regulation A is an exemption under which the issuer files an offering statement that the SEC must qualify, and the securities sold are generally freely tradable rather than restricted
• B. Regulation A permits sales only to accredited investors and produces restricted securities
• C. Regulation A eliminates any SEC filing because the offering is exempt
• D. Regulation A is available only to issuers already reporting under Exchange Act Section 12

95. During the book building process for an IPO, the lead underwriter gathers indications of interest from institutional investors before the registration statement is declared effective. Which statement best describes the legal status of those indications?

• A. They are binding only for investors who receive a preliminary prospectus
• B. They are non-binding and do not create a contract to buy, because sales may not be made until the registration statement is effective
• C. They become binding contracts once the underwriter records them in the book
• D. They constitute sales that must be confirmed in writing within one business day

96. 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

97. A member firm is acting as an underwriter in a registered follow-on offering for a reporting issuer that the firm already covers. The research analyst wants to publish her regular update on that issuer during the offering period. Under Securities Act Rule 139, what determines whether that publication is deemed not to be an offer for sale of the security?

• A. Whether the issuer's general counsel signs off on the report before distribution
• B. Whether the issuer meets the eligibility conditions in the rule and the firm publishes such reports in the regular course of its business
• C. Whether the analyst avoids any recommendation and confines the report to historical financial data
• D. Whether the underwriting agreement expressly permits research during the distribution

98. A member firm has agreed to act as lead managing underwriter on a public offering of common stock by a corporate issuer. Before the offering may commence, which of the following best describes the firm's obligation under FINRA Rule 5110?

• A. File documents and information about the proposed underwriting terms and arrangements with FINRA for review of the underwriting compensation
• B. Obtain the SEC's written confirmation that the gross spread is reasonable for the size of the offering
• C. Submit the offering to a state securities administrator in each state where shares will be sold
• D. Certify to the issuer's board that no member of the syndicate holds any equity in the issuer

99. An underwriter is allocating shares of a hot initial public offering. One requested allocation is for the personal brokerage account of a portfolio manager at an unaffiliated asset management firm. Under FINRA Rule 5130, what must the underwriter determine before filling that order?

• A. Whether the account holder has held a brokerage relationship with the firm for a minimum period
• B. Whether the account holder is a restricted person for whom a new issue may not be sold, absent an applicable exemption
• C. Whether the issuer's board has consented to the allocation of shares to industry professionals
• D. Whether the account holder intends to hold the shares rather than flip them in the aftermarket

100. During a follow-on offering, both a broker-dealer serving as a co-manager and the issuer itself would like to bid for the issuer's common stock in the open market. Under Regulation M, what distinguishes how these two parties are regulated?

• A. Rule 101 applies to both, because both are engaged in the same distribution
• B. Rule 101 applies to the co-manager as a distribution participant, while Rule 102 applies to the issuer and its selling security holders
• C. Neither is covered until the registration statement is declared effective
• D. Rule 102 applies to the co-manager, while the issuer is exempt from Regulation M entirely