Series 7 Practice Exam.
Free practice test — 200 quality-checked questions, instant feedback.

1. An investor owns 500 shares of DEF stock and buys a put option to protect against downside loss. This strategy is known as:

• A. A married put (or protective put)
• B. A covered call
• C. A collar
• D. A spread

2. An investor executes a bull call spread by buying a call with a $50 strike and selling a call with a $55 strike. Both expire in 60 days. What is the maximum profit potential on this position?

• A. Unlimited, as long as the stock rises above $55
• B. Limited to the net debit paid for the spread
• C. Limited to the difference between the two strike prices minus the net debit
• D. Equal to the strike price of the long call only

3. A customer receives a dividend while holding a short stock position. How is the dividend treated in the account?

• A. The customer must pay the dividend to the lender of the borrowed shares
• B. The dividend is held in escrow until the short position closes
• C. Dividends are not applicable to short positions
• D. The customer receives the dividend as a credit to the account

4. A company issues cumulative preferred stock with a $100 par value and 6% dividend. If the company skips dividend payments for two years and resumes payments in year three, which statement is TRUE regarding the preferred shareholders' rights?

• A. Preferred shareholders may vote to force the company into bankruptcy if all accumulated dividends are not paid within 90 days.
• B. Accumulated unpaid dividends are forgiven once the company's credit rating improves.
• C. Preferred shareholders are entitled to receive interest on unpaid cumulative dividends at the prime rate.
• D. The company must pay accumulated dividends before any common stock dividends can be distributed.

5. An investor purchases a corporate bond with a 5% coupon rate at a price of 95 (expressed as a percentage of par). Which of the following is correct?

• A. The current yield is higher than the coupon rate.
• B. The coupon payments will increase as the bond approaches maturity.
• C. The yield to maturity equals the coupon rate of 5%.
• D. The bond is trading at a premium to par value.

6. A municipal bond is issued with a 4% coupon. An investor in the 35% federal tax bracket purchases the bond. Assuming no state or local taxes, what is the approximate taxable-equivalent yield?

• A. 6.2%
• B. 3.2%
• C. 5.4%
• D. 2.6%

7. A convertible bond has a conversion price of $50 and a market price of 105. The common stock is currently trading at $48. Which statement best describes the bond's conversion feature?

• A. The investor should convert if the stock price drops further.
• B. The bond's market price is below parity and therefore cannot be converted.
• C. The bond is in-the-money, and conversion should occur immediately.
• D. The bond's conversion premium indicates the bond is trading above its conversion value.

8. A closed-end fund has a net asset value of $18 per share and is trading at $16 per share. A broker recommends that a new investor purchase shares in the fund. Which statement is most accurate?

• A. The fund is trading at a premium, and the investor should buy before the NAV rises further.
• B. The discount guarantees the investor will earn a profit once the fund dissolves.
• C. The fund is trading at a discount, which may offer better value, but the discount could narrow or widen.
• D. The investor should wait until the NAV equals the market price before purchasing.

9. Which of the following statements about depository receipts (ADRs) is correct?

• A. An ADR represents ownership of foreign shares held in custody by a U.S. depositary bank.
• B. ADR dividend payments are exempt from U.S. federal income tax.
• C. ADRs allow foreign companies to raise capital in the U.S. while bypassing SEC registration.
• D. ADR prices are always equal to the price of the underlying foreign stock in its home market.

10. A customer wants to invest in a company with strong fundamentals but is concerned about downside risk. Which equity security would BEST address this concern?

• A. Warrants to purchase common stock.
• B. Growth stock with a low current yield.
• C. Common stock with a high beta coefficient.
• D. Cumulative participating preferred stock with a fixed dividend.

11. A zero-coupon bond is purchased for $400 (per $1,000 par value) and matures in 10 years. The investor does not receive cash payments until maturity. Which issue must the investor address for tax purposes?

• A. The investor must defer all tax liability until the bond is sold before maturity.
• B. The investor owes taxes only on gains realized if the bond is sold above the purchase price.
• C. The investor must report the annual accretion of discount as ordinary income each year, even though no cash is received.
• D. The investor can choose to amortize the discount over 5 years instead of 10 years.

12. A bond's duration is 7 years and its modified duration is 6.5 years. If interest rates rise by 100 basis points, which of the following best estimates the bond's price change?

• A. The bond price will remain unchanged because duration is positive.
• B. The bond price will fall by approximately 0.65%.
• C. The bond price will rise by approximately 7%.
• D. The bond price will fall by approximately 6.5%.

13. A publicly traded company announces a 3-for-2 stock split. A shareholder holds 100 shares purchased at $60 per share. Immediately after the split, which statement is accurate?

• A. The shareholder's total basis increases to $9,000.
• B. The shareholder's cost basis per share remains $60.
• C. The shareholder now holds 150 shares at an original cost of $40 per share.
• D. The shareholder now holds 67 shares at an original cost of $90 per share.

14. An investor holds a bond with a maturity of 10 years and a coupon of 6%. The issuer calls the bond at 102 in 5 years, and market interest rates have fallen to 3%. Which scenario is most likely?

• A. The issuer will allow the bond to mature because the call price is below par.
• B. Rising yields have made the bond less attractive to the issuer for refinancing.
• C. The issuer will call the bond because lower rates allow refinancing at a lower cost.
• D. The investor should expect the bond to trade at 98, discounting for call risk.

15. An investor is considering a dividend-paying common stock and a corporate bond from the same company. The investor is in the 32% federal tax bracket and subject to the 3.8% net investment income tax (NIIT). Which statement compares the after-tax yields correctly?

• A. The bond's coupon income is exempt from NIIT, while dividend income is fully subject to NIIT.
• B. Qualified dividends are taxed at 32% plus 3.8%, whereas bond interest is taxed at 32% only.
• C. The bond's after-tax yield is identical to the stock's after-tax yield because both are corporate securities.
• D. The stock's qualified dividend yield receives more favorable tax treatment, resulting in a higher after-tax yield than the bond on equivalent pre-tax yields.

16. A customer purchases 100 shares of XYZ stock at $50 per share in a margin account. Under Regulation T, what is the minimum amount of equity the customer must deposit to open this position?

• A. $5,000
• B. $3,500
• C. $2,500
• D. $2,000

17. A customer writes a covered call on 100 shares of ABC stock that she owns outright. What is the effect on the customer's margin requirement?

• A. The margin requirement decreases because the position is hedged
• B. The stock must be pledged to the firm as collateral for the short call
• C. The margin requirement increases by 10-15%
• D. The margin requirement remains unchanged

18. A customer writes a short straddle (sells both a call and a put at the same strike). If the underlying stock remains near the strike price at expiration, what is the outcome?

• A. A loss equal to the sum of both premiums collected
• B. Maximum profit, as both options expire worthless
• C. Breakeven, since one option offsets the other
• D. Maximum loss, as both options are in-the-money

19. A customer sells 100 shares of MNO stock short in a margin account. Under Reg T, what is the minimum equity the customer must deposit?

• A. 25% of the sale proceeds
• B. 100% of the sale proceeds
• C. No deposit is required; the proceeds serve as collateral
• D. 50% of the sale proceeds

20. A customer owns 100 shares of GHI stock purchased on margin. The stock declines significantly, and the customer's equity falls below the maintenance requirement. What action does the firm typically take if the customer fails to meet the margin call?

• A. The firm has no authority to take action; it is the customer's sole responsibility
• B. The firm must wait 30 days and then close the account entirely
• C. The firm may liquidate positions without customer consent to restore the account to maintenance level
• D. The firm must suspend trading but cannot liquidate without written authorization

21. An RR opens a new account for a customer who states she is a retired teacher with modest savings, stable income from a pension, and minimal investment experience. Which of the following pieces of information is NOT required for the RR to establish suitability?

• A. The customer's risk tolerance and previous investment experience
• B. The customer's tax bracket and expected tax filing status
• C. The customer's investment objectives and time horizon
• D. The customer's favorite color and media consumption habits

22. A customer opens a margin account with a broker-dealer and receives the margin disclosure statement. The RR explains that the customer will be charged interest on any borrowed funds and that the broker-dealer's margin requirement is higher than the Regulation T minimum. The customer proceeds with the account opening. Which statement is most accurate regarding the broker-dealer's margin requirement?

• A. The broker-dealer may set margin requirements higher than Regulation T minimums at its discretion as a risk management measure
• B. The broker-dealer is prohibited from setting margin requirements above Regulation T minimums without Federal Reserve approval
• C. The broker-dealer may set its margin requirement above Regulation T minimums, but the firm must justify this to FINRA on an annual basis
• D. House margin requirements higher than Regulation T may only be imposed on customers with account balances exceeding $100,000

23. An RR recommends a speculative technology stock to a customer with a conservative investment objective and a 10-year time horizon. The RR documents that the customer has high risk tolerance and substantial investment experience. When questioned by the firm's compliance officer, the RR claims the recommendation is suitable based on the documented information. Which of the following is the most significant concern with this recommendation?

• A. The recommendation is unsuitable because the customer's investment objective is conservative, regardless of risk tolerance or experience
• B. The RR may recommend speculative securities as long as they are documented properly in the customer's file
• C. The recommendation is suitable because the customer has a 10-year time horizon, which is sufficiently long for speculative holdings
• D. The recommendation is unsuitable because speculative stocks should only be recommended to institutional investors

24. A customer with a joint account (husband and wife) gives the RR permission to discretionary trading authority that is limited to 'purchases of blue-chip dividend-paying stocks.' Three weeks later, the RR exercises this discretion by purchasing a small-cap growth stock in the account without contacting either account owner. When the stock declines 15%, the customer objects. Which of the following is correct?

• A. The RR must obtain written consent from both account owners before any exercise of discretionary authority
• B. The RR has violated the terms of the discretionary authority because the purchase was outside the scope of the granted authorization
• C. The RR's action is permissible because discretionary authority includes the right to make any equity purchases at the RR's judgment
• D. The RR's action is permissible because a 15% decline is within acceptable market risk for any discretionary account

25. A customer calls her RR and asks him to 'do whatever you think is best' for her account without specifying any restrictions or parameters. The RR interprets this as a grant of full discretionary authority and begins trading in options and futures. The customer later claims she did not intend to give discretionary authority. Which statement best describes the RR's exposure?

• A. The RR has likely violated FINRA rules requiring written discretionary authority even if the customer consented orally
• B. The RR may trade in any securities the customer holds an account for, including options and futures, without prior authorization
• C. Oral discretionary authority is enforceable as long as both parties agree it covers all securities including derivatives
• D. The RR is protected from liability because the customer's oral statement grants apparent authority to trade

26. A firm receives notice that a customer has been declared legally incompetent and a guardian has been appointed. The account is now held in the guardian's name. The RR, who knows the customer personally, continues to execute trades based on the original customer's oral instructions. Which of the following is correct?

• A. The RR may continue executing the customer's instructions because a long-standing relationship creates an exception to fiduciary duty
• B. The RR must cease trading based on the original customer's instructions and obtain authorization from the legally appointed guardian
• C. The firm may continue the same trading pattern without explicit new authorization as long as prior transactions were suitable
• D. The RR may execute trades if the customer verbally asserts that he remains competent, regardless of the legal guardianship

27. A customer requests a recommendation for a municipal bond suitable for her tax situation. The customer is in a high federal tax bracket but lives in State X and is subject to State X income tax. The RR recommends a municipal bond issued by State Y without reviewing the customer's state tax situation. The customer later learns that the bond interest is subject to State X income tax. Which of the following is most accurate?

• A. The RR should recommend only federal municipal bonds or Treasury securities to ensure tax efficiency
• B. The suitability review is complete once the customer confirms he is in a high federal tax bracket
• C. The RR has met the suitability standard because municipal bonds are tax-advantaged at the federal level for all customers
• D. The RR failed to gather information necessary to assess suitability because state-of-residence matters for tax-exempt bond selection

28. A firm's supervisory procedures require annual suitability reviews for all customer accounts. An RR has documented that a customer's investment objective is 'growth,' but recent conversations suggest the customer now seeks 'income' to fund retirement in 2–3 years. The RR intends to wait until the next annual review to update the file. Which of the following is the most significant compliance risk?

• A. The RR may continue recommending growth securities because the annual review has not yet occurred
• B. A material change in investment objective requires prompt documentation; delaying the update creates a gap in suitability oversight
• C. The annual review schedule is the only mechanism for updating customer information; no interim changes are necessary
• D. The RR should recommend income securities regardless of timing because the customer's time horizon has become shorter

29. A customer who is a widow, age 72, with limited investment experience, opens an account stating she wants to preserve capital for living expenses. An RR recommends a portfolio of low-correlation real-estate investment trusts, emerging-market bonds, and leveraged commodity ETFs. When questioned by the firm's compliance officer, the RR points to recent conversations in which the customer expressed interest in 'higher returns' and claims this justifies the recommendation. Which of the following is correct?

• A. The RR's recommendation is unsuitable because it conflicts with the documented primary objective of capital preservation and the customer's age and experience level
• B. The recommended portfolio diversifies across asset classes and therefore is suitable for any retiree
• C. A customer's offhand comment about 'higher returns' overrides her documented objective of capital preservation
• D. An RR may recommend complex, illiquid, or leveraged products to elderly customers if the customer has expressed a vague desire for returns

30. A customer places a buy order for corporate bonds. Settlement occurs T+1. On settlement date, the customer's broker fails to deliver the bonds. What is the customer's recourse against SIPC?

• A. SIPC will reimburse the full value of the undelivered bonds immediately upon the broker's insolvency
• B. SIPC protects only cash balances and securities positions held in the customer's account, not failed deliveries
• C. SIPC will cover the loss only if the broker is deemed insolvent before T+2
• D. The customer must wait 5 business days before SIPC can intervene in failed deliveries

31. A registered representative learns that her firm's chief financial officer will announce major cost-cutting layoffs next week. The representative immediately recommends to several customers that they sell their positions in the firm's stock. Has the representative violated insider trading rules?

• A. Yes, the representative traded on material non-public information obtained in a fiduciary capacity
• B. No, if the customers agree to the trades and sign a disclaimer
• C. No, because the news will eventually be public, so there is no unfair advantage
• D. Yes, but only if the customers are institutional investors, not retail customers

32. A customer wants to sell covered call options against her long stock position. Her representative explains that the premium received reduces her cost basis and allows her to profit if the stock rises above the strike price. Is this explanation accurate?

• A. The premium does reduce cost basis, but profit is capped at the strike price plus premium
• B. Yes, and the customer has unlimited upside with no downside risk
• C. Yes, the premium reduces cost basis and profit is unlimited if the stock exceeds the strike
• D. No, covered calls never reduce cost basis; the premium is held as collateral

33. A firm discovers that one of its registered representatives has been recommending high-commission proprietary mutual funds to unsuitable customers for the past six months to boost his commissions. What must the firm do?

• A. Issue a warning letter to the representative and allow him to continue trading
• B. Report the conduct to FINRA and implement supervisory measures to prevent recurrence
• C. Require the representative to return all commissions earned on unsuitable sales
• D. Quietly terminate the representative's employment without reporting to regulators

34. A registered representative receives an email from a client asking for a recommendation on cryptocurrency mining company stock. The rep has no training in cryptocurrency valuation, no firm guidance on crypto securities, and the firm's compliance department has not approved any communications about crypto. What should the rep do?

• A. Respond that she does not have adequate knowledge or firm approval to make a recommendation, and refer the customer to compliance
• B. Recommend that the customer consult a financial advisor outside the firm instead
• C. Recommend the stock based on recent positive news articles about the crypto market
• D. Execute an unsolicited order without a recommendation to avoid liability

35. A customer enters a standing order to buy 100 shares of DEF stock whenever it drops below $40. The stock falls to $39, and the order triggers automatically. The customer calls two days later angry that the trade was executed without explicit permission. The representative explains that the standing order was the customer's own instruction. Is the representative's explanation sufficient?

• A. Yes, but only if the customer signed a written agreement authorizing automatic orders
• B. No, the rep should have called the customer before execution to re-confirm the order
• C. No, standing orders are not legally binding and the rep violated the customer's consent requirements
• D. Yes, a standing order is sufficient authorization; the customer approved the trade in advance

36. A corporation is liquidated in bankruptcy. Its capital structure contains secured mortgage bonds, straight debentures, subordinated debentures, preferred stock and common stock. After wages and taxes are satisfied, in what order are the remaining claims paid?

• A. Straight debentures, mortgage bonds, subordinated debentures, preferred stock, common stock
• B. Mortgage bonds, straight debentures, subordinated debentures, preferred stock, common stock
• C. Preferred stock, mortgage bonds, straight debentures, subordinated debentures, common stock
• D. Mortgage bonds, subordinated debentures, straight debentures, common stock, preferred stock

37. A customer purchases an adjustment (income) bond in the secondary market. The trade confirmation shows no accrued interest added to the contract price, and the customer asks the representative why nothing was added.

• A. Income bonds pay interest only if the board declares it out of sufficient earnings, so they trade flat
• B. Corporate accruals use a 30/360 calendar, which produced a zero accrual for this calendar month
• C. Accrued interest on corporate issues is billed separately by the trustee after settlement date
• D. Accrued interest is waived whenever a bond trade is settled regular way rather than for cash

38. A customer buys a 6% corporate bond at a price of 108 that the issuer may call at par in three years. The customer asks which of the four yields shown on the confirmation will be the lowest number.

• A. Nominal yield
• B. Yield to maturity
• C. Yield to call
• D. Current yield

39. A customer living in a high income tax state wants interest income that is fully taxable at the federal level but exempt from state and local income tax. Which recommendation meets that requirement?

• A. United States Treasury notes
• B. Ginnie Mae pass-through certificates
• C. Investment-grade corporate debentures
• D. Bank-issued negotiable certificates of deposit

40. A risk-averse customer is comparing mortgage-backed securities and asks the representative which of the agency issuers stands behind its pass-through certificates with the full faith and credit of the United States government.

• A. None of the three carries a government guarantee; each is backed solely by its mortgage pool
• B. Fannie Mae and Freddie Mac certificates carry the guarantee, while Ginnie Mae certificates do not
• C. Ginnie Mae, Fannie Mae and Freddie Mac certificates all carry the full faith and credit guarantee
• D. Only Ginnie Mae pass-through certificates carry the full faith and credit guarantee

41. A corporation intends to sell additional common shares and wants its existing shareholders to be able to preserve their proportionate ownership before the shares reach the public. Which instrument does the corporation distribute, and how is its subscription price normally set?

• A. A warrant, priced below the current market price of the stock and exercisable for several years
• B. A warrant, priced at the current market price of the stock and exercisable immediately
• C. A subscription right, priced below the current market price of the stock and exercisable for a short period
• D. A subscription right, priced above the current market price so the issuer raises the maximum capital

42. On the same day, a customer buys $50,000 face amount of a corporate debenture and $50,000 face amount of a Treasury note. The representative notes that accrued interest is computed differently on the two confirmations. Which statement is accurate?

• A. Both accrue on a 30/360 calendar; only municipal issues use actual days
• B. The debenture accrues actual/actual and the Treasury note accrues 30/360
• C. The debenture accrues 30/360 and the Treasury note accrues actual/actual
• D. Both accrue on an actual/actual calendar because both pay interest semiannually

43. A corporate treasurer needs roughly four months of financing to build seasonal inventory and wants to avoid the cost and delay of registering the offering with the SEC. Which instrument fits the need?

• A. A revenue bond issue
• B. Commercial paper
• C. A five-year medium-term note program
• D. A convertible debenture offering

44. A customer expects interest rates to fall sharply over the coming year and wants the greatest possible price appreciation from a single bond position, accepting the corresponding loss if rates instead rise. Which bond should the representative recommend?

• A. A 30-year zero-coupon bond
• B. A 3-year bond with a 9% coupon
• C. A 3-year zero-coupon bond
• D. A 30-year bond with a 9% coupon

45. A customer owns Treasury Inflation-Protected Securities and points out that the stated rate on the certificate never changes. She asks what happens to the dollar amount of her semiannual interest checks during a sustained inflationary period.

• A. The principal is adjusted upward for inflation and the fixed rate is applied to the higher principal, so the checks increase
• B. The checks decrease, because the fixed coupon is discounted by the reported inflation rate
• C. The stated rate is reset upward each period against an inflation index, so the checks increase
• D. The checks stay constant and the entire inflation adjustment is paid as a lump sum at maturity

46. A customer holds a portfolio of fixed-rate preferred stock and is concerned about a sustained rise in interest rates, but she still wants preferred-stock income. Which alternative most directly addresses her concern?

• A. Participating preferred stock
• B. Adjustable-rate preferred stock
• C. Convertible preferred stock
• D. Cumulative preferred stock

47. A customer wants mortgage-backed exposure but says the single most important attribute is a predictable average life. She is comparing tranches within one collateralized mortgage obligation. Which tranche should the representative identify, and on what reasoning?

• A. The Z-tranche, because its interest accrues rather than being paid out currently
• B. The most junior tranche, because it carries the highest stated coupon
• C. The companion tranche, because it is scheduled to be retired before the other classes
• D. The planned amortization class tranche, because a companion tranche absorbs prepayment variation

48. Short-term Treasury yields have moved above long-term Treasury yields. A customer holding a laddered Treasury portfolio asks the representative what this curve shape has historically signaled and what it means for her ladder.

• A. It signals accelerating inflation, so she should extend maturities to lock in high long-term rates
• B. It reflects a temporary shortage of short-term Treasury supply and carries no economic meaning
• C. It signals that corporate credit spreads are widening, so she should switch from Treasuries into corporates
• D. It signals expectations of slower growth and lower future rates, so maturing short rungs may be reinvested at lower yields

49. A customer's long listed call is about to be exercised. She asks the representative who actually stands behind the contract and how one particular writer ends up being chosen to deliver the shares.

• A. The executing broker-dealer guarantees performance and selects the writer holding the oldest open position
• B. The Options Clearing Corporation issues and guarantees the contract and assigns the notice to a randomly selected member firm
• C. The exchange where the contract traded guarantees performance and selects a writer by lottery among all member firms
• D. The clearing firm of the exercising customer guarantees performance and may select any writer at the same strike

50. A registered options principal approves a new customer's options account on a Monday. The customer asks when she may begin trading and what paperwork she still owes the firm. Which statement is accurate?

• A. Both the options disclosure document and the signed options agreement must be in the firm's hands before any order may be entered
• B. The options disclosure document may accompany the confirmation of the first trade, and the signed agreement is due within 15 days
• C. Neither document is required unless and until the customer writes an uncovered contract
• D. The options disclosure document must be delivered at or before approval, and the signed options agreement must be returned within 15 days of approval

51. A customer buys 100 shares of QRS at $58 and at the same time buys 1 QRS 55 put for a premium of 3. Ignoring commissions, what are the customer's maximum loss and breakeven point on the combined position?

• A. Maximum loss $600; breakeven $52
• B. Maximum loss $5,800; breakeven $58
• C. Maximum loss $600; breakeven $61
• D. Maximum loss $300; breakeven $55

52. Expecting a pending court ruling to move a stock violently without knowing which way, a customer buys 1 LMN 70 call at 4 and 1 LMN 70 put at 3. At expiration, at what underlying prices does the combined position begin to show a profit?

• A. Above 74 only
• B. Above 73 or below 66
• C. Above 77 or below 63
• D. Between 67 and 74

53. A bearish customer buys 1 XYZ 60 put at 7 and simultaneously sells 1 XYZ 50 put at 2. Ignoring commissions, what are the maximum gain and the maximum loss on this position?

• A. Maximum gain $700; maximum loss $200
• B. Maximum gain $500; maximum loss $500
• C. Maximum gain $1,000; maximum loss $500
• D. Maximum gain $500; maximum loss unlimited

54. A customer is short 1 RST 60 call. RST declares a 3-for-2 forward split of its common stock. How is the customer's outstanding contract adjusted on the ex-date?

• A. The contract is cancelled and the writer is cash-settled at the pre-split strike price
• B. The strike becomes 90 and the contract continues to cover 100 shares
• C. The strike becomes 40 and the single contract covers 150 shares
• D. The position becomes 2 contracts covering 100 shares each, with the strike reduced to 40

55. A company whose shares underlie listed options declares its regular quarterly cash dividend. A customer who is short one of those calls asks whether her strike price will be reduced by the amount of the dividend.

• A. No; ordinary cash dividends are not an adjustment event for standard listed equity options
• B. No; instead the writer is required to pay the dividend over to the holder of the long call
• C. Yes, but only when the dividend exceeds ten percent of the share price
• D. Yes; the strike is reduced by the dividend amount on the ex-dividend date

56. A customer buys a call on a broad-based stock index and asks the representative what he will actually receive on an in-the-money exercise and whether he can exercise before the expiration date.

• A. He receives cash equal to the in-the-money amount times the multiplier, and he may generally exercise only at expiration
• B. He receives an offsetting short index futures position, and he may exercise only at expiration
• C. He receives the basket of underlying component shares, and he may exercise on any business day
• D. He receives cash equal to the full index level times the multiplier, and he may exercise on any business day

57. A member firm receives an exercise notice from the Options Clearing Corporation for a series in which several of its customers hold short positions. Which approach may the firm use to determine which of those customers is assigned?

• A. It must assign the customer holding the largest short position in the series
• B. It must assign the customer whose position is closest to the money
• C. It may assign at random, on a first-in first-out basis, or by any other method that is fair and disclosed to customers
• D. It must spread the assignment pro rata across every short customer in the series

58. A customer buys 1,000 shares of a stock at $40 per share in a margin account and satisfies the Regulation T requirement in full with cash. Below approximately what market price would the account violate the 25% minimum maintenance requirement?

• A. $20.00 per share
• B. $30.00 per share
• C. $26.67 per share
• D. $33.33 per share

59. A customer sells short 100 shares at $50 per share and deposits the required Regulation T amount. Above approximately what market price will the position violate the 30% minimum maintenance requirement applicable to short accounts?

• A. $57.69 per share
• B. $65.00 per share
• C. $50.00 per share
• D. $71.43 per share

60. A prospective customer wishes to open a margin account and make an initial purchase of $3,000 of marginable stock. What deposit does the firm require to establish the account and the position?

• A. $1,500, which is the Regulation T requirement on the purchase
• B. $3,000, because a newly opened account must be fully paid for the first thirty days
• C. $750, which is the FINRA minimum maintenance requirement on the purchase
• D. $2,000, which is the minimum equity required to establish a margin account

61. A customer who owns none of the underlying shares writes an uncovered call in order to collect premium income. The representative is required to explain the risk profile of the position. Which description is accurate?

• A. Maximum gain and maximum loss are both limited to the premium received
• B. Maximum gain is the premium received and the potential loss is theoretically unlimited
• C. Maximum gain is the strike price minus the premium and maximum loss is the premium
• D. Maximum gain is the premium received and maximum loss is the strike price times 100

62. A customer wants to buy ten listed call contracts inside her existing margin account and asks whether she may borrow half of the premium the same way she borrows against a stock purchase.

• A. Yes; contracts may be financed at fifty percent provided they have more than nine months to expiration
• B. No; options may never be held in a margin account and the position must be moved to a cash account
• C. Yes; Regulation T permits fifty percent financing on any listed security, options included
• D. No; listed options with nine months or less remaining have no loan value and must be paid for in full

63. A customer is long 4,000 XYZ calls and short 3,000 XYZ puts and wants to add more long calls. In measuring his exposure against the position limit for XYZ, how are these contracts counted?

• A. Each series is measured separately against its own limit rather than in aggregate
• B. The long calls and short puts offset one another, leaving a net of 1,000 contracts
• C. Only the long calls count, because a short put is a separate obligation rather than a position
• D. The long calls and short puts are aggregated, because both are on the same side of the market

64. A customer holds a large low-cost-basis stock position, wants meaningful downside protection, and does not want to spend much out of pocket to obtain it. She is willing to surrender appreciation above a specified level. Which strategy fits her requirements?

• A. Write a put below the market and write a call above the market; the trade-off is that downside remains unlimited
• B. Buy a put and buy a call at the same strike; the trade-off is a doubled premium outlay
• C. Sell short an equal number of shares against the box; the trade-off is losing the dividend
• D. Buy a protective put and finance it by writing a call above the market; the trade-off is capped appreciation

65. A customer places an order at 2:00 p.m. to purchase shares of an open-end investment company that computes its net asset value once each day at the close of the New York Stock Exchange. At what price is the order executed?

• A. At the net asset value in effect at the exact moment the order was received, plus the sales charge
• B. At the next net asset value computed after the order is received, plus the applicable sales charge
• C. At the net asset value struck at the previous day's close, plus the applicable sales charge
• D. At the average of the previous close and the next close, plus the applicable sales charge

66. A customer tells his representative he wants to place $24,000 into a fund family whose next sales-charge breakpoint begins at $25,000. The representative writes the ticket for $24,000 without mentioning the breakpoint or the letter of intent. What has occurred?

• A. A documentation deficiency only, curable by noting the customer's instruction in the file
• B. Breakpoint selling, a prohibited practice, because the customer was denied a reduced sales charge he was on the verge of earning
• C. Free-riding, because the firm retained compensation to which it was not entitled
• D. Nothing improper, because the customer named the dollar amount himself

67. A customer invests $12,000 in a mutual fund and signs a letter of intent in order to obtain the sales charge available at the $25,000 level. Which statement about that letter is correct?

• A. It covers a 24-month period and may not be backdated under any circumstances
• B. It is non-binding, covers a 13-month period, and may be backdated up to 90 days to capture an earlier purchase
• C. It legally obligates the customer to complete the purchase, and the fund may pursue the shortfall as a debt
• D. It reduces the sales charge only on purchases made after signing and only within the same calendar year

68. A customer intends to invest $150,000 with a single fund family and expects to hold the position for at least fifteen years. Which share class should the representative recommend, and on what reasoning?

• A. Class B shares, because a purchase of this size eliminates the front-end load entirely
• B. Class A shares, because the purchase qualifies for a substantial breakpoint and carries the lowest ongoing expenses
• C. Class C shares, because the level load avoids any front-end sales charge
• D. Class B shares, because the contingent deferred sales charge declines to zero over the holding period

69. An investment company wants to hold itself out to the public as a diversified company under the Investment Company Act of 1940. Which portfolio test must it satisfy?

• A. At least 75% of assets in equity securities, no more than 5% of assets in any one industry and no more than 10% in any one issuer
• B. At least 90% of assets spread across at least ten issuers, with no single position exceeding 5% of the portfolio
• C. At least 75% of assets in cash, government securities and other issuers, with no more than 5% of total assets in any one issuer and no more than 10% of any issuer's voting stock
• D. No more than 25% of assets in any one issuer and no more than 10% of assets in any one industry

70. A customer submits a request to redeem her open-end investment company shares. At what price is the redemption processed, and how quickly must the fund pay the proceeds?

• A. At the public offering price, with payment due within three business days
• B. At whatever price a market maker is bidding, with payment due on settlement date
• C. At the prior day's net asset value, with payment due within 30 days
• D. At the next computed net asset value less any applicable redemption charge, with payment due within seven calendar days

71. A customer receives monthly income from a variable annuity carrying a 4% assumed interest rate. In the most recent month the separate account earned a net return of 3%. What happens to the customer's next monthly payment?

• A. It decreases, because the return fell short of the assumed interest rate
• B. It increases, because the separate account produced a positive return
• C. It remains unchanged, because payments are fixed once annuitization has occurred
• D. It remains unchanged, because the return was positive rather than negative

72. A customer has contributed monthly to a variable annuity for eleven years and is now preparing to begin receiving income from the contract. What happens to the units held in her contract at annuitization?

• A. Accumulation units are exchanged for shares of the mutual funds held inside the separate account
• B. Accumulation units are converted into a fixed number of annuity units whose value continues to fluctuate
• C. Accumulation units continue to be credited and are redeemed as needed to fund each payment
• D. Accumulation units are converted into a fluctuating number of annuity units, each of fixed value

73. A customer age 52 withdraws $20,000 from a non-qualified variable annuity funded with after-tax dollars. The contract holds $60,000 of contributions and $40,000 of accumulated earnings. How is the withdrawal treated for federal tax purposes?

• A. Entirely as a return of cost basis, and therefore not taxable
• B. Entirely as ordinary income, plus a 10% penalty on the taxable amount
• C. Entirely as long-term capital gain, with a penalty assessed on the full amount
• D. Proportionately, so that $12,000 is a tax-free return of basis and $8,000 is ordinary income

74. Two customers of the same age and health annuitize identical contract values on the same day. One elects a straight life payout and the other elects a joint and last survivor payout. Which statement about their monthly income is correct?

• A. The straight life payout is larger, because it guarantees a minimum number of payments
• B. The two payouts are identical, because the annuitized contract values are equal
• C. The joint and last survivor payout is larger, because two lives are covered by the contract
• D. The straight life payout is larger, because the insurer's obligation ends at the annuitant's death

75. A customer over age 59 and a half who has held a Roth IRA for more than five years also owns a traditional IRA to which every contribution was deducted. She asks the representative how withdrawals from the two accounts will be taxed.

• A. Both are taxed at long-term capital gains rates on the growth portion of the account
• B. Both are fully taxable as ordinary income; the two accounts differ only in the contribution year
• C. The Roth distribution is taxed on its earnings portion, while the traditional IRA distribution is tax-free
• D. The Roth distribution is entirely free of federal income tax, while the traditional IRA distribution is ordinary income

76. A customer is leaving her employer and wants to move her retirement plan balance into an individual retirement account. She asks whether the check should be made payable to her or sent directly to the receiving custodian.

• A. A check payable to her is preferable, because it starts a fresh 60-day holding period for the whole account
• B. The two methods are identical for tax purposes because both are completed within the same plan year
• C. Neither method is permitted, because employer plan balances may not be moved before age 59 and a half
• D. A direct trustee-to-trustee transfer avoids mandatory withholding, while a distribution paid to her must be redeposited within 60 days

77. A customer seeking real estate exposure asks the representative to compare a publicly traded equity real estate investment trust with a real estate limited partnership. Which statement is accurate?

• A. Both pass operating losses through to investors, but only the trust trades on an exchange
• B. The trust is a direct participation program and shares the partnership's illiquidity
• C. The trust distributes at least 90% of its taxable income to avoid entity-level tax but does not pass losses through
• D. The trust passes losses through to shareholders while the partnership retains them at the entity level

78. A customer is evaluating an interest as a limited partner in a real estate program. He asks what his exposure would be if partnership obligations exceeded partnership assets and what role he would play in operating decisions.

• A. His exposure is unlimited, and he shares management authority with the general partner
• B. His exposure is limited to his investment, and he votes on every operating decision the program makes
• C. His exposure is unlimited unless the partnership agreement expressly limits it, and he has no management role
• D. His exposure is limited to his investment plus any recourse debt he assumed, and he may not participate in management

79. A customer with substantial passive income and a high tolerance for risk asks which category of oil and gas program offers the greatest potential return together with the greatest chance of total loss.

• A. A developmental program, which drills adjacent to proven reserves
• B. An income program, which acquires wells that are already producing
• C. An exploratory program, which drills in areas with no established reserves
• D. A balanced program, which combines developmental drilling with producing properties

80. A municipality intends to finance construction of a toll bridge and asks its financial advisor how the debt will be secured and whether a voter referendum will be needed.

• A. A revenue issue secured by bridge tolls, supported by a feasibility study rather than a referendum
• B. A general obligation issue secured by ad valorem taxes, requiring no referendum
• C. A revenue issue secured by the full faith and credit of the municipality, requiring a referendum
• D. A general obligation issue secured by bridge tolls, requiring no referendum

81. A municipal issue is payable first from the revenues of a water and sewer system, but if those revenues fall short the issuer's ad valorem taxing power stands behind the debt. How should the representative classify and analyze it?

• A. As a double-barreled bond, generally analyzed as a general obligation
• B. As a moral obligation bond, because the tax backing is discretionary rather than legally binding
• C. As a revenue bond, analyzed solely on the feasibility of the water and sewer enterprise
• D. As an industrial development bond, because an identified facility produces the revenue

82. A customer purchasing a new municipal issue asks the representative for a copy of the prospectus. The representative explains that municipal issuers generally do not produce one. What is the correct explanation?

• A. Municipal securities are exempt from the registration and prospectus requirements of the Securities Act of 1933, and disclosure is made through an official statement
• B. Municipal securities are exempt from the federal antifraud provisions, so no offering disclosure is prepared at all
• C. A prospectus is required only when an issue exceeds the issuer's statutory debt limit
• D. The MSRB prohibits issuers from delivering offering documents directly to retail purchasers

83. A new municipal issue is delivered together with an opinion of bond counsel. What does that opinion address, and what does it mean for the opinion to be described as unqualified?

• A. Counsel addresses the validity of the issue and the tax status of the interest; unqualified means the opinion carries no reservations
• B. Counsel certifies the reasonableness of the underwriting spread; unqualified means no MSRB filing was required
• C. Counsel assesses the economic feasibility of the project; unqualified means the feasibility study raised no reservations
• D. Counsel guarantees the issuer's ability to pay; unqualified means the credit rating is investment grade

84. A customer subject to the alternative minimum tax asks the representative to compare a public-purpose general obligation bond of her home state with a private activity bond financing a privately operated facility. Which statement is correct?

• A. Interest on the general obligation issue is a preference item, while the private activity issue is fully exempt
• B. Interest on the private activity issue may be a tax preference item for alternative minimum tax purposes, while the general obligation interest generally is not
• C. Interest on both issues is subject to regular federal income tax but excluded from the alternative minimum tax
• D. Interest on both issues is fully excluded from the alternative minimum tax computation

85. A customer buys a municipal bond in the secondary market at a price of 108 and holds it until it is redeemed at par on the maturity date. What is the federal tax consequence of the eight-point decline in value?

• A. An ordinary loss of $80 per bond, deductible against the exempt interest received
• B. A capital loss of $80 per bond recognized in the year of maturity
• C. A capital loss of $80 per bond, but only if the bond was bought within one year of maturity
• D. No loss at all, because the premium must be amortized against cost basis over the holding period

86. A customer buys a municipal bond in the secondary market at a price of 92 and holds it until redemption at par. How is the eight-point difference treated when the bond matures?

• A. As long-term capital gain, taxed at the customer's applicable capital gains rate
• B. As ordinary income, because market discount on a municipal bond is not exempt interest
• C. As tax-exempt interest, because all income produced by a municipal bond is exempt
• D. As a return of capital that reduces the basis of the customer's other municipal holdings

87. A registered representative wants to know who writes the rules that govern municipal securities dealers and who actually examines her firm for compliance with those rules.

• A. The SEC writes the rules and the MSRB examines broker-dealers for compliance
• B. FINRA writes the rules for broker-dealers while the MSRB writes rules only for bank dealers
• C. The MSRB writes the rules, while examination and enforcement are carried out by FINRA, the SEC and the bank regulators
• D. The MSRB writes the rules and also examines every municipal securities dealer

88. A municipality expects a large property tax collection in roughly four months but must meet payroll obligations now. Which short-term instrument fits the situation, and from what source is it retired?

• A. A tax anticipation note, retired from the property tax receipts the issuer is awaiting
• B. A bond anticipation note, retired from the proceeds of a future long-term bond sale
• C. A construction loan note, retired from the completed project's operating revenues
• D. A revenue anticipation note, retired from state or federal aid already appropriated

89. A municipal finance professional at a dealer makes a personal political contribution above the de minimis amount to a candidate for office with an issuer in a jurisdiction where the professional is not entitled to vote. What follows for the dealer?

• A. The dealer is barred from negotiated municipal securities business with that issuer for two years
• B. Nothing, because personal contributions made by individuals fall outside the rule
• C. The individual is barred for two years, but the dealer may continue doing business with that issuer
• D. The dealer must disclose the contribution but may continue soliciting the issuer without restriction

90. A municipal underwriting syndicate has received more orders than the issue can satisfy. Under customary syndicate priority provisions, in what sequence are those orders allocated?

• A. Group net orders, then member orders, then presale orders, then designated orders
• B. Designated orders, then presale orders, then member orders, then group net orders
• C. Member orders, then presale orders, then designated orders, then group net orders
• D. Presale orders, then group net orders, then designated orders, then member orders

91. A revenue bond indenture contains a net revenue pledge. In what order are the gross revenues of the financed enterprise applied under the flow of funds?

• A. Reserve funds first, then debt service, then operation and maintenance
• B. Operation and maintenance and debt service simultaneously, then everything remaining to surplus
• C. Debt service first, then operation and maintenance, then reserve funds
• D. Operation and maintenance first, then debt service, then reserve and surplus funds

92. An issuer arranges insurance on a new bond issue from a municipal bond insurance company. What effect should the representative expect on the issue's credit rating and on the yield offered to investors?

• A. The rating falls to the level of the insurer, and the yield rises accordingly
• B. The rating rises, and the yield also rises because insured issues trade less actively
• C. The rating generally rises toward the insurer's rating, and the yield is correspondingly lower
• D. The rating is unaffected, and the yield rises to compensate investors for the insurance premium

93. A corporation has filed a registration statement for an initial public offering and the issue is in the cooling-off period. Which activity may the syndicate lawfully undertake during that period?

• A. Accepting a customer's funds together with a signed order ticket for the new shares
• B. Confirming an allocation to a customer who has already read the preliminary prospectus
• C. Sending prospective purchasers the firm's own research report recommending the shares
• D. Distributing the preliminary prospectus and recording indications of interest

94. An issuer wants assurance that it will receive a fixed amount of proceeds on a specified date regardless of how investors respond to the offering. Which underwriting arrangement provides that, and who absorbs the risk of unsold shares?

• A. A standby arrangement, in which the issuer repurchases whatever the syndicate cannot place
• B. A best efforts arrangement, in which the syndicate undertakes to sell the whole issue and bears the risk
• C. A firm commitment, in which the syndicate buys the entire issue and bears the risk of any unsold shares
• D. An all-or-none arrangement, in which the syndicate purchases whatever the public does not take

95. A member firm is distributing a common stock initial public offering. Which of the following prospective buyers may lawfully purchase shares at the public offering price?

• A. A portfolio manager of an unaffiliated fund, buying for her own personal account
• B. A registered representative employed at a different member firm, buying for her own account
• C. A finder acting in connection with the offering, buying for his own account
• D. A retail customer with no securities industry affiliation whose account is carried at a syndicate member

96. An affiliate of a reporting issuer wishes to sell control stock. The company has 4,000,000 shares outstanding and average weekly trading volume over the preceding four weeks was 32,000 shares. What is the maximum she may sell in the 90-day period, and what filing is required?

• A. 32,000 shares, with a notice filed after the sale has settled
• B. 32,000 shares, with no notice filing required for a sale of this size
• C. 200,000 shares, with a notice filed at the time the sell order is placed
• D. 40,000 shares, with a notice filed at the time the sell order is placed

97. An issuer intends to conduct a private placement in reliance on the traditional Regulation D exemption and asks whether it may run an advertisement in a regional newspaper to locate investors.

• A. Yes; advertising is acceptable provided that only accredited investors ultimately purchase
• B. No; but the issuer may advertise if it caps the offering at 35 accredited investors
• C. No; the traditional exemption is conditioned on the absence of general solicitation and general advertising
• D. Yes; Regulation D places no restriction on the methods used to locate investors

98. A representative drafts a market commentary piece and intends to email it to 60 retail customers over the course of a single month. How is that communication classified, and what approval does it require before it goes out?

• A. An institutional communication, which requires no principal approval at any stage
• B. A retail communication, requiring approval by a registered principal before first use
• C. Correspondence, but requiring principal approval before it is sent
• D. Correspondence, subject only to post-use review under the firm's supervisory procedures

99. A customer makes three separate currency deposits of $4,000 each over two days and remarks to the representative that splitting them up should keep the money off any government report. How should the representative handle this?

• A. Confirm that no report is required, since no individual deposit reached the $10,000 threshold
• B. Refuse the deposits and close the account, taking no further action
• C. Recognize the pattern as possible structuring and escalate it for suspicious activity reporting
• D. Aggregate the deposits and file a currency transaction report only if the customer objects

100. A representative wants to send a valued institutional client a gift to mark the award of a large mandate. Under FINRA's gifts rule, what limitation applies to gifts given in connection with the business of the recipient's employer?

• A. Gifts are capped at $300 per person per year, while ordinary business entertainment is evaluated separately
• B. Gifts of any amount are permitted where the recipient is an institutional rather than a retail client
• C. There is no dollar limit as long as the gift is disclosed to the recipient's employer
• D. Gifts are capped at $100 per person per year, and business entertainment counts against that same cap

101. A representative is approached by a friend raising capital for a private start-up. She arranges investments for four of her customers, accepts a finder's fee, and tells no one at her firm on the theory that nothing went through the firm's books.

• A. She has engaged in a private securities transaction, which requires prior written notice to the firm and the firm's approval
• B. Her conduct is acceptable, because the firm has no interest in transactions executed away from it
• C. She has engaged in an outside business activity, which requires written notice to the firm but not its approval
• D. Her conduct is acceptable, because she disclosed her role to each participating customer

102. A representative passes material non-public information to a friend, who trades on it and realizes a $50,000 profit. Setting aside criminal exposure, what civil liability may the representative face under the insider trading statutes?

• A. A civil penalty capped at $50,000, matching the profit the friend realized
• B. A civil penalty of up to three times the profit gained or the loss avoided
• C. Disgorgement of the friend's profit only, since the representative placed no trades herself
• D. No civil liability, because the representative did not personally profit from the trading

103. A grandmother wants to open a custodial account for her eight-year-old grandson. She asks whether she can name both of her grandsons on the one account, buy securities on margin in it, and take the money back if she later changes her mind.

• A. She may name both grandsons and may reclaim the gift, but may not trade on margin
• B. She may name only one minor and may trade on margin, but may not reclaim the gift
• C. She may name only one minor, may not trade on margin, and may not reclaim the gift
• D. She may name both grandsons, but may not trade on margin and may not reclaim the gift

104. Two unrelated business partners hold a joint brokerage account and want each partner's share to pass to his own family rather than to the surviving partner. Which registration achieves that, and what happens when one of them dies?

• A. Joint tenants with right of survivorship, under which the decedent's interest passes to his own estate
• B. Tenants in common, under which the decedent's proportionate interest passes to his own estate
• C. Tenants in common, under which the surviving partner takes the entire account
• D. Joint tenants with right of survivorship, under which each interest passes according to the partnership agreement

105. A representative learns that a customer holding several open good-till-cancelled orders has died. What is the firm required to do first?

• A. Leave the orders working until the executor supplies written instructions
• B. Liquidate the account to cash and hold the proceeds pending documentation
• C. Execute any order already partially filled and cancel only the unfilled balance
• D. Cancel all open orders, mark the account deceased, and await the required legal documents

106. A representative notices that an 81-year-old customer has requested three large wire transfers within two weeks to an unfamiliar third party and seems confused about the purpose. What does FINRA permit the firm to do?

• A. The firm must close the account immediately and return all assets to the customer
• B. The firm may contact the trusted contact person only after first obtaining a court order
• C. The firm may place a temporary hold on the disbursement while it investigates suspected financial exploitation
• D. The firm must process the transfers, because the customer is competent and the funds are hers

107. A representative is opening a new individual cash account. Which set of information must the firm obtain and verify in order to satisfy its customer identification program?

• A. Name, outside bank account number, prior brokerage relationships, and estimated tax bracket
• B. Name, date of birth, a residential or business street address, and a taxpayer identification number
• C. Name, investment objective, risk tolerance, and time horizon
• D. Name, employer, annual income, and approximate net worth

108. A representative recommends a fund share class that is suitable for the customer but carries materially higher ongoing expenses than another class of the very same fund for which the customer plainly qualifies. Under Regulation Best Interest, what is the defect?

• A. There is no defect, because the recommendation satisfies the traditional suitability standard
• B. The care obligation requires weighing cost and reasonably available alternatives, and the costlier class is not in the customer's best interest
• C. A defect arises only if the representative is paid more on the class that was recommended
• D. The defect is one of disclosure only, cured by delivering a fee schedule at or before the recommendation

109. A firm must deliver its customer relationship summary to a retail investor. By what point does that delivery have to occur?

• A. At or before the earliest of a recommendation, the opening of an account, or the placement of an order
• B. Annually, delivered together with the fourth-quarter account statement
• C. Only when the retail investor submits a written request for it
• D. Within 30 days after the account has been opened

110. A 63-year-old customer tells his representative that he will need roughly half of his portfolio in cash in about eighteen months to buy a house. The representative recommends a non-traded real estate program for that portion because its distribution rate is attractive.

• A. The recommendation is appropriate, because the distribution rate matches the customer's stated income need
• B. The recommendation is inappropriate, because the product's illiquidity conflicts with a stated need for the funds in eighteen months
• C. The recommendation is inappropriate only if the customer's net worth falls below the program's stated suitability standard
• D. The recommendation is appropriate provided the customer signs a written risk acknowledgment

111. A member firm makes a recommendation to an institutional account. Under what circumstances may the firm be relieved of the customer-specific component of its suitability obligation for that recommendation?

• A. Whenever the institutional customer's total assets exceed the threshold for accredited investor status
• B. Whenever the account is registered to an institution rather than to a natural person
• C. When the firm reasonably believes the customer can independently evaluate investment risks and the customer affirmatively states it is exercising independent judgment
• D. Never; the customer-specific obligation applies identically to every account the firm carries

112. A corporation wants to open a margin account at a member firm and trade listed options in it. What documentation must the firm obtain beyond the standard new account paperwork?

• A. A corporate resolution naming who may trade, plus the charter or bylaws showing margin and options trading are authorized
• B. A personal guarantee signed by every shareholder holding more than five percent
• C. Only the corporation's most recent audited financial statements
• D. Only a current list of the corporation's officers and directors

113. A customer bought shares at $30 and the stock now trades at $52. She wants to protect the bulk of her gain if the stock reverses, while continuing to participate if it keeps climbing. Which order should the representative enter?

• A. A sell stop order at 48
• B. A buy stop order at 48
• C. A sell limit order at 56
• D. A sell limit order at 48

114. A customer sold shares short at $70 and the stock now trades at $61. He wants to cap his loss in case the stock reverses upward. Which order accomplishes that?

• A. A sell stop order at 66
• B. A buy limit order at 66
• C. A buy limit order at 74
• D. A buy stop order at 66

115. A customer sells stock on a Monday and needs the sale proceeds available that same Monday to fund an unrelated obligation. What is the default settlement and what alternative may the representative arrange?

• A. Regular way settlement is three business days, and cash settlement takes one business day
• B. Regular way settlement is the next business day, and no faster alternative is available for equities
• C. Regular way settlement is already the same day, so no alternative is necessary
• D. Regular way settlement is the next business day, but the trade may be marked for cash settlement, which settles the same day

116. An insurance company negotiates the purchase of a large block of an exchange-listed stock directly with a pension fund over an electronic network, with no broker-dealer acting as intermediary. In which market did that trade take place?

• A. The second market
• B. The third market
• C. The first market
• D. The fourth market

117. A customer asks her representative when she will receive written confirmation of a trade and what that document must disclose about the role her firm played in the transaction.

• A. With the next quarterly account statement, and capacity is disclosed only on request
• B. Within five business days after settlement, and the firm's capacity need not be stated
• C. At or before completion of the transaction, and it must disclose whether the firm acted as agent or as principal
• D. Only where the firm acted as principal; agency transactions require no confirmation

118. A member firm is holding an unexecuted customer limit order to buy 5,000 shares at $20. While that order sits unfilled, the firm's trading desk buys the same security for the firm's own account at $20.

• A. This is permitted only if the proprietary trade is disclosed on the customer's next confirmation
• B. This is trading ahead of a customer order, and the firm must generally execute the customer's order at that price or better
• C. This is permitted, because the firm's proprietary account is maintained separately from customer order flow
• D. This is permitted, because the customer entered a limit order rather than a market order

119. Before accepting and executing a customer's short sale order in an equity security, what is the broker-dealer required to do?

• A. Have reasonable grounds to believe the security can be borrowed and delivered by settlement, and document that determination
• B. Confirm that the customer holds an offsetting long position in a related security
• C. Wait for an uptick in the security's price before routing the order to the market
• D. Obtain the customer's written acknowledgment that short selling carries unlimited risk

120. A portfolio manager routinely enters aggressive buy orders in a thinly traded holding during the final minutes of trading on the last business day of each quarter, and that holding's closing price rises noticeably on precisely those days.

• A. This is acceptable provided the trades are disclosed in the fund's next quarterly report
• B. This is legitimate portfolio management, because the manager is buying securities he genuinely wants to own
• C. This is front-running, because the manager knows the closing valuation will be affected
• D. This is marking the close, a manipulative practice, because the orders are timed to influence the closing price

121. A representative exercises effective control over a customer's account and produces annual turnover far beyond anything the customer's stated objectives would call for, with commissions consuming a large share of the account's average equity. Each individual trade was in a liquid, well-known security.

• A. No violation occurred unless the account actually lost money over the period
• B. This is churning, because excessive trading in a controlled account to generate commissions is prohibited regardless of the merit of any single trade
• C. No violation occurred, because every individual trade was in a suitable and liquid security
• D. This is a books and records deficiency only, because the trades themselves were suitable

122. A customer enters an order to sell 500 shares with a stop price of 40 and a limit of 39.50. After a disappointing earnings release, the stock closes at 41 and then opens the next session at 38, never trading above 38.60 all day. What becomes of the order?

• A. It is cancelled automatically, because the stock gapped past the stop price without trading there
• B. It executes at 39.50, because that is the price the customer specified as the limit
• C. It is elected but goes unexecuted, because the stock never trades at or above the 39.50 limit
• D. It executes at the opening price of 38, because the stop price was penetrated

123. During a rights offering, the issuer hires an underwriter to purchase whatever shares existing holders decline to subscribe. What arrangement is that?

• A. A standby underwriting
• B. A best-efforts underwriting
• C. A private placement
• D. A tender offer

124. A corporation opens a trading account. Which document establishes which officers may enter orders for it?

• A. The company's annual report
• B. Any officer's business card
• C. A shareholder vote filed with the SEC
• D. The corporate resolution

125. A customer sells 1 KLM 45 call at 4 and buys 1 KLM 50 call at 1, both same expiration. What is the maximum gain, and when is it earned?

• A. Unlimited, because a call is involved
• B. $300 — if KLM finishes at or below 45 and both calls expire worthless
• C. $500 — the difference between the strikes
• D. $400 — the premium received on the short leg

126. A customer holds 1,000 appreciated shares, buys 10 protective puts below the market and finances them by writing 10 covered calls above it. What is this position called and what does it accomplish?

• A. A reverse conversion — locking in an arbitrage profit
• B. A collar — downside is floored by the puts, upside capped by the calls, at little or no net premium
• C. A box spread — eliminating all market exposure
• D. A straddle — profiting from a large move in either direction

127. A customer buys 100 shares of TUV at $62 and writes 1 TUV 70 call at 2. What is her maximum possible gain?

• A. $1,000 — 8 points of stock appreciation to the strike plus the 2-point premium
• B. $200 — the premium alone
• C. $800 — the run from cost to strike
• D. Unlimited, since she owns the stock

128. A customer writes 1 uncovered NOP 40 put at 3. At what stock price does the position break even at expiration, and what is the most she can lose?

• A. Breakeven at 37; maximum loss $300
• B. Breakeven at 37; maximum loss $3,700 if the stock goes to zero
• C. Breakeven at 40; maximum loss the premium
• D. Breakeven at 43; maximum loss unlimited

129. By what point must a new options customer receive the Options Clearing Corporation's disclosure document (the ODD)?

• A. Within 15 days after the first trade
• B. At or before the account's approval for options trading
• C. Only if the customer requests it
• D. With the first monthly statement

130. Holding a broad-index option two weeks before expiration, a customer wants to exercise early to capture intrinsic value. The contract is European-style. What does that mean for her?

• A. She may exercise on any business day
• B. Exercise requires delivering the index stocks
• C. Exercise is possible only at expiration — before then she can sell the option instead
• D. The contract can never be closed before expiration

131. A customer exercises an equity call on Wednesday. When does the resulting stock purchase settle?

• A. Wednesday — exercises settle same day
• B. The following Wednesday
• C. At expiration Friday
• D. Thursday — exercise creates a regular-way stock trade settling T+1

132. Securities in a customer's long margin account appreciate substantially. What does the rise do to the account's SMA?

• A. Creates SMA equal to half the appreciation, usable even if the market later falls
• B. Converts SMA into a maintenance requirement
• C. Reduces SMA in proportion to the gain
• D. Nothing; SMA only changes with deposits

133. A margin customer has $4,000 of SMA available. How much additional marginable stock can she buy using it, without depositing new funds?

• A. $8,000 — SMA provides buying power of two-to-one under 50% Reg T
• B. $16,000 — four times the SMA
• C. $4,000 — SMA converts dollar for dollar
• D. $2,000 — half the SMA

134. A long margin account shows $16,000 market value and a $13,000 debit. At the 25% house minimum, where does the account stand?

• A. The account is at exactly 25%; no call
• B. Equity is $3,000 against a $4,000 requirement — a $1,000 maintenance call
• C. Equity exceeds the requirement; no call
• D. The firm must liquidate the entire account immediately

135. A customer wants to short $1,500 of stock in a new margin account. Reg T at 50% would call for $750. What must she actually deposit?

• A. $2,000 — the minimum equity floor for short accounts
• B. $750 — half the short value
• C. Nothing until the position moves against her
• D. $1,500 — the full short value

136. A customer executes four same-day round trips within five business days, and day trades dominate her activity. What minimum equity must her account then maintain?

• A. $5,000, the day-trading base
• B. $25,000, as a pattern day trader
• C. $2,000, like any margin account
• D. No minimum if trades close by 4 p.m.

137. A customer buys $100,000 of Treasury notes in a margin account and expects to deposit $50,000 under Reg T. Why is the actual requirement far smaller?

• A. Government securities are exempt from Reg T; only a modest maintenance requirement applies
• B. The firm waived the requirement as a courtesy
• C. Reg T drops to zero for any bond
• D. Treasuries cannot be purchased on margin at all

138. A customer sells 1 GHI 55 put at 5 and buys 1 GHI 45 put at 1, same expiration. Where is the maximum profit realized?

• A. With GHI at or above 55 at expiration — both puts expire and the $400 credit is kept
• B. With GHI at zero — the spread widens fully
• C. The position cannot profit; it is a debit spread
• D. With GHI exactly at 50 — between the strikes

139. A corporate bond trade settles on March 10. Interest was last paid March 1. Using the corporate day-count convention, how many days of accrued interest does the buyer owe?

• A. 31 days, using actual calendar days
• B. 10 days, including the settlement date
• C. None; interest starts fresh at settlement
• D. 9 days, counted on a 30-day-month basis from March 1 up to but not including settlement

140. The same customer then buys a Treasury note. How does its accrued interest calculation differ from the corporate bond's?

• A. Treasuries use 360-day years like corporates
• B. Treasuries accrue no interest between coupons
• C. Treasuries accrue on actual calendar days over the actual period, not 30/360
• D. The buyer receives accrued interest instead of paying it

141. An individual enters a noncompetitive bid in a Treasury auction. What does that choice guarantee, and at what price?

• A. Nothing; noncompetitive bids are often rejected
• B. A full allocation of the amount bid, at the auction's single clearing yield
• C. The lowest yield submitted by any bidder
• D. An allocation only if competitive bids fall short

142. One ADR trades on the NYSE with the issuer's cooperation and full SEC reporting; another trades only over the counter, created by a bank without the issuer's involvement. What is the distinction?

• A. The first is a sponsored ADR; the second unsponsored
• B. The first is unsponsored; the second sponsored
• C. The difference is only the exchange fee schedule
• D. Both must be sponsored to exist

143. A shareholder owns 600 shares at a $2 market price. The company executes a 1-for-10 reverse split. What does the position look like afterward?

• A. 6,000 shares at roughly 20 cents
• B. The position is cashed out automatically
• C. 600 shares at $20 — a tenfold gain
• D. 60 shares at roughly $20 — total value essentially unchanged

144. A customer fears rising rates but wants corporate exposure. Why does a floating-rate note suit the concern?

• A. It cannot lose value under any conditions
• B. Its coupon resets with market rates, so its price stays near par as rates climb
• C. Its coupon is fixed unusually high
• D. It converts to stock when rates rise

145. A convertible bond's stock has collapsed far below the conversion price. How does the market now value the bond?

• A. Strictly at conversion value
• B. As straight debt — on its yield and credit, the conversion feature being nearly worthless
• C. At par, by definition
• D. At zero, since conversion is unattractive

146. With its stock riding high, an issuer calls a convertible bond at 102 while the bond's conversion value is 128. What will rational holders do?

• A. Accept the 102 call price
• B. Hold the bond and ignore the call
• C. Convert into stock — the call forces the choice, and conversion is worth far more
• D. Sue to block the call

147. In a CMO structured with PAC and support tranches, what does the support tranche holder absorb so the PAC holder doesn't have to?

• A. The prepayment and extension variability that would otherwise disturb the PAC schedule
• B. The issuer's operating expenses
• C. The credit losses on defaulted mortgages
• D. Nothing; all tranches share cash flows equally

148. A customer holds TIPS in a taxable account. Inflation adjusts the principal upward this year, though no adjustment is paid out. How is she taxed?

• A. Only state tax applies to the adjustment
• B. TIPS adjustments are permanently tax-free
• C. Tax waits until the bond matures
• D. The principal increase is taxable federally this year even though not received in cash

149. One railroad bond is secured by the company's holdings of another firm's stock; a second is secured by its locomotives, with title held by a trustee. Name the two.

• A. A mortgage bond and a debenture
• B. A revenue bond and a GO bond
• C. A collateral trust bond and an equipment trust certificate
• D. Two debentures with different maturities

150. A subsidiary issues bonds and its parent corporation promises to pay if the subsidiary cannot. What does the holder own, and how strong is the promise?

• A. A government-insured bond
• B. A guaranteed bond — its quality rests on the guarantor's credit as well as the issuer's
• C. A secured mortgage bond on the parent's property
• D. A convertible into the parent's stock

151. As recession fears build, high-yield bond prices fall much harder than Treasuries of the same maturity. What is the market repricing?

• A. The coupon dates of the junk bonds
• B. The credit spread — compensation for default risk widens when the economy weakens
• C. Nothing; the moves must be random
• D. The tax treatment of corporate interest

152. When a firm opens an account for a senior customer, it asks for the name of a person it may contact about possible exploitation or diminished capacity. What is this request?

• A. The trusted contact request — a person the firm may reach with concerns, who gains no authority over the account
• B. A joint account registration
• C. A power of attorney appointment
• D. A beneficiary designation

153. A 529 account's beneficiary finishes college with money left over. What can the account owner do without tax consequences?

• A. Nothing; leftover funds are forfeited to the state
• B. Withdraw the balance for any personal use tax-free
• C. Change the beneficiary to another qualifying family member
• D. Convert the account into a margin account

154. The minor named on an UTMA account reaches the age of majority under state law. What must happen to the account?

• A. The custodian keeps control until age 30
• B. The assets transfer to the former minor's sole control as an individual account
• C. The account converts to a trust automatically
• D. The assets revert to the donor

155. A new customer declines to disclose her finances, investment experience or objectives. What may the firm do with the account?

• A. Open it with recommendations after 90 days
• B. Open it and recommend conservative products only
• C. Refuse to open it; a profile is mandatory
• D. Open it and accept unsolicited orders, but make no recommendations

156. An operations employee of another FINRA member wants to open a brokerage account at your firm. What does opening it require?

• A. Nothing beyond normal account opening
• B. The SEC's written consent
• C. Refusing the account; such accounts are barred
• D. Notifying her employer, which may request duplicate confirmations and statements

157. An institutional customer instructs that securities be delivered to its custodian bank against simultaneous payment. What arrangement is being used?

• A. A prime brokerage margin loan
• B. Transfer and ship to the customer's home
• C. Delivery versus payment (DVP) through the customer's custodian
• D. A discretionary account

158. A check is drawn from a joint tenants account for a withdrawal. To whom must the firm make it payable?

• A. Either tenant, at the firm's discretion
• B. Whichever tenant asked for the money
• C. Only the tenant who deposited the funds
• D. All account holders jointly, whichever one requested it

159. One of two tenants-in-common dies holding 60% of their account. Where does that interest go?

• A. It is split equally regardless of ownership shares
• B. To the surviving tenant automatically
• C. To the deceased tenant's estate — not to the survivor
• D. To the state as unclaimed property

160. Two share classes of the same fund would both serve a retail customer's objective, but one costs meaningfully more over her expected holding period. Under Regulation Best Interest, what must the recommending representative weigh?

• A. Nothing; cost is the customer's problem to research
• B. The firm's payout grid
• C. Only whether the fund itself is suitable
• D. Costs — recommending the pricier class needs a reason grounded in her interest, not the firm's

161. A stock's record date for a dividend is Thursday. With regular-way settlement at T+1, what is the last day to BUY and still receive the dividend?

• A. Monday — three days ahead is required
• B. Friday — the day after record
• C. Thursday — buying on the record date always qualifies
• D. Wednesday — a Wednesday trade settles Thursday, making the buyer a holder of record

162. A customer's GTC buy limit at 40 is on the book when the stock goes ex-dividend by $0.50. The order carries no special instruction. What happens to it?

• A. It is raised to 40.50
• B. It is cancelled automatically
• C. The limit is reduced to 39.50 on the ex-date
• D. It is left at 40 unless the customer calls

163. Two dealers compare records before settlement and one has no knowledge of the trade the other alleges. What does the confirming dealer send?

• A. Nothing; unmatched trades settle anyway
• B. A DK ('don't know') notice to reconcile or cancel the questioned trade
• C. A margin call
• D. A rescission letter to the customer

164. To fill a customer's buy order in a stock it doesn't hold, a dealer buys the shares in the market and immediately resells them to the customer at a markup. What is this, and what must the confirm show?

• A. A prohibited practice in all cases
• B. A riskless principal trade — the markup must be disclosed like a commission
• C. An agency cross with no disclosure
• D. Front running of the customer order

165. A tender offer at a premium is announced, and a customer wants to tender shares she has sold short against the box. Why can't she?

• A. Tender offers accept only round lots
• B. Nothing prevents it if her broker consents
• C. Tendering requires a net long position — short tendering is prohibited
• D. Short positions tender automatically

166. In an ACATS transfer, the carrying firm receives the transfer instruction. What are its options, and on what timetable?

• A. Validate or take exception within one business day, then complete the transfer within three
• B. Call the customer to talk them out of leaving
• C. Liquidate everything and send a check
• D. Hold the account for 30 days pending review

167. A customer wants to trade in the pre-market session. Which realities must the firm's risk disclosure cover before she does?

• A. Guaranteed identical pricing to the 9:30 open
• B. Thinner liquidity, wider spreads and prices that may diverge from the regular session
• C. The absence of any order types
• D. Nothing; extended hours carry ordinary risks only

168. Two orders arrive: one says fill what you can instantly and cancel the rest; the other says fill everything instantly or nothing at all. Name them in order.

• A. Market-on-close, then stop-limit
• B. Fill-or-kill, then immediate-or-cancel
• C. All-or-none, then good-till-cancelled
• D. Immediate-or-cancel, then fill-or-kill

169. A sell stop at 38 rests on the book. The stock prints 38.00, then 37.90, then 38.10. At which print did the order become live, and what did it become?

• A. The 37.90 print elected it as a limit order at 38
• B. The 38.10 print elected it
• C. Stops activate only at the close
• D. The 38.00 print elected it, converting it into a market order to sell

170. Before an order ticket can be marked 'long,' what must be true of the customer's position?

• A. She owns any security of similar value
• B. Nothing; marking is a formality
• C. She intends to own it someday
• D. She owns the security and it is or will be in deliverable form by settlement

171. A fund markets itself as 'no-load.' What is the cap on its annual 12b-1 fee for that label to be lawful?

• A. There is no cap tied to the label
• B. 1.00% of average net assets
• C. 0.25% of average net assets
• D. Zero — no 12b-1 fee of any size is allowed

172. A customer will hold a fund position for roughly two years. Between Class A with a front-end load and Class C with a level annual charge, which typically fits, and why?

• A. Class C — over a short horizon the level charge usually costs less than a full front-end load
• B. Either; share class costs never differ
• C. Class A — front-end loads always cost less
• D. Neither; short holders may not buy funds

173. A customer exchanges shares of a growth fund for shares of the income fund within the same family, paying no new sales charge. What has she triggered anyway?

• A. Nothing; family exchanges are invisible to the IRS
• B. A new holding-period requirement of ten years
• C. A penalty tax of 10%
• D. A taxable event — the exchange is a sale of the old shares for tax purposes

174. A customer reinvests every dividend and capital gains distribution her fund pays. What is the tax consequence in the year of each distribution?

• A. Reinvestment converts income into capital gains
• B. Reinvested amounts are tax-deferred until redemption
• C. Only cash distributions are ever taxable
• D. The distributions are taxable that year even though taken in shares, and they add to her cost basis

175. To avoid paying tax at the fund level, a mutual fund distributes at least 90% of its net investment income to shareholders. What is this arrangement called?

• A. A tax shelter election
• B. Mark-to-market accounting
• C. The wash sale rule
• D. The conduit (pipeline) treatment under Subchapter M

176. A high earner covered by a workplace plan makes a traditional IRA contribution she cannot deduct. What must she track, and why?

• A. Her basis in the IRA — nondeductible contributions come out tax-free later
• B. Her employer's matching schedule
• C. The contribution converts to a Roth automatically
• D. Nothing; nondeductible contributions are lost money

177. A self-employed consultant with strong income and no employees wants the simplest retirement plan with high contribution room. Which fits?

• A. A SEP IRA
• B. A 457(b) deferred compensation plan
• C. A defined benefit pension only
• D. A 403(b) tax-sheltered annuity

178. Which employers may offer their staff a 403(b) tax-sheltered annuity?

• A. Sole proprietorships
• B. Any publicly traded corporation
• C. Only federal agencies
• D. Public schools and 501(c)(3) nonprofit organizations

179. A 50-year-old leaves government employment and takes money from her governmental 457(b). Her twin takes the same amount from a 401(k). Who owes the 10% early-withdrawal penalty?

• A. Neither; the penalty ends at 50
• B. Only the 401(k) twin — governmental 457(b) withdrawals carry no early-distribution penalty
• C. Both equally
• D. Only the 457 participant

180. A 76-year-old holds both a traditional IRA and a Roth IRA she funded herself. Which account demands required minimum distributions during her lifetime?

• A. Neither after age 75
• B. The traditional IRA only — owner Roth IRAs have no lifetime RMDs
• C. Both accounts equally
• D. The Roth only

181. A variable annuity holder dies during the accumulation phase with the account worth $80,000 after investing $100,000. What does the standard death benefit pay the beneficiary?

• A. Nothing; annuities end at death
• B. $80,000 — the market value only
• C. Twice the account value
• D. $100,000 — at least the premiums contributed, despite the market loss

182. A city needs interim financing now for a project whose permanent bonds will be sold next year. Which instrument bridges the period?

• A. Revenue anticipation notes
• B. Bond anticipation notes, repaid from the coming bond sale
• C. Tax anticipation notes
• D. Commercial paper is the only option

183. Before a school district can issue general obligation bonds, what hurdle commonly applies that a revenue issuer never faces?

• A. A feasibility study of project revenues
• B. Voter approval, because the debt is backed by taxing power
• C. A corporate-style indenture with the Fed
• D. SEC registration of the bonds

184. A serial municipal bond is quoted at '4.20 basis.' What does the figure express?

• A. The spread over Treasuries
• B. The yield to maturity at which the bond is offered
• C. The coupon rate
• D. A dollar price of $42 per bond

185. The long term-maturity portion of a municipal offering is quoted at 98 3/8 rather than on a yield basis. What is this style of quote called?

• A. A when-issued yield
• B. A discount rate quote
• C. A dollar bond quote — a percentage-of-par price used for term maturities
• D. A basis quote

186. An outstanding municipal bond is advance refunded, with Treasuries deposited in escrow to cover it to the call date. What happens to its credit standing and price?

• A. Both collapse, since the issuer abandoned it
• B. Nothing changes until the call occurs
• C. Both improve — the bond is now backed by the escrowed Treasuries
• D. The bond defaults by definition

187. One call provision lets the issuer redeem on any payment date after ten years; another triggers only if the financed facility is destroyed. Distinguish them.

• A. Neither provision is legal in municipal debt
• B. The first is an optional call; the second a catastrophe (calamity) call
• C. The first is mandatory; the second optional
• D. Both are sinking fund calls

188. A state agency's bonds carry a provision that if reserves run short, the legislature MAY appropriate funds — but is not required to. What backing is this?

• A. A full faith and credit pledge
• B. A double-barreled pledge
• C. A moral obligation — a non-binding legislative backstop
• D. Federal insurance

189. A revenue bond indenture permits new bonds with an equal claim only if revenues cover existing and proposed debt service by a stated multiple. What is this protection?

• A. The additional bonds test of an open-end indenture
• B. A sinking fund schedule
• C. A closed-end indenture barring all new debt
• D. A catastrophe call provision

190. A water authority covenants to keep rates high enough to produce 120% of annual debt service. What covenant is this, and whom does it protect?

• A. A rate covenant, protecting bondholders' coverage margin
• B. A flow-of-funds amendment
• C. An insurance covenant
• D. A ratepayer covenant, capping customer bills

191. Where does the investing public find official statements and ongoing disclosures for municipal issues, free of charge?

• A. Nowhere; municipal disclosure is private
• B. The Federal Reserve's website
• C. The MSRB's EMMA system
• D. The SEC's EDGAR system

192. During an IPO's distribution, the syndicate manager posts a bid to buy shares in the aftermarket. At what level may that bid lawfully sit?

• A. At least 5% above the offering price
• B. Anywhere the manager chooses
• C. Stabilizing bids are illegal in all cases
• D. At or below the public offering price — never above it

193. Demand for an IPO runs hot, and the underwriters sell 15% more shares than the base deal, with an option to buy those extra shares from the issuer at the offering terms. What is that option?

• A. A shelf takedown
• B. The overallotment (green shoe) option
• C. A standby commitment
• D. A rights offering

194. Six months after an IPO, the stock slumps on no news at all. A customer asks what calendar event could explain the selling. What is a common answer?

• A. The green shoe was exercised
• B. The lock-up period expired, freeing insiders to sell for the first time
• C. The exchange rebalanced its listing fees
• D. The prospectus ceased to exist

195. A seasoned issuer registers a large amount of securities today intending to sell pieces over the next three years as conditions allow. Which mechanism permits this?

• A. A best-efforts underwriting
• B. Regulation D
• C. An intrastate exemption
• D. Shelf registration, with takedowns off the shelf when the issuer chooses

196. An institution wants to resell privately placed bonds it bought last month, without any holding period. To whom can it sell freely under Rule 144A?

• A. Only the original issuer
• B. No one; private paper never trades
• C. Qualified institutional buyers (QIBs)
• D. Any retail customer

197. A small company wants to raise a modest amount from the general public with scaled-down disclosure instead of full registration. Which pathway is built for that?

• A. A firm-commitment IPO only
• B. Rule 144A resales
• C. Regulation A's mini-registration tiers
• D. Regulation SHO

198. A registered representative's spouse wants to buy shares in a common stock IPO through her own account. What does FINRA's new-issue rule say?

• A. Spouses may always buy new issues
• B. She is a restricted person by family relation — the purchase is barred
• C. She may buy up to 100 shares
• D. Only the SEC can approve her purchase

199. Days before its registration statement is filed, an issuer's CEO gives a television interview touting the coming offering. What problem has the company created?

• A. Insider trading by the CEO
• B. Gun-jumping — impermissible offers before the filing
• C. A violation only if the interview was paid
• D. None; publicity is always legal

200. A contingency offering states that unless the minimum is sold, investors get their money back. Where must subscriber funds sit until the contingency is met?

• A. Anywhere, provided records are kept
• B. In the underwriter's operating account
• C. In the issuer's payroll account
• D. In a separate escrow account with an independent bank