FINRA Series 63 Exam Practice Questions (P. 3)
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Question #11
Which of the following would not fall under the classification of "institutional investor"?
- APrudential Insurance
- BChase Bank
- CNeuring Investment Advisers
- DFranklin Templeton Mutual Funds
Correct Answer:
C
Nuering Investment Advisers would not fall under the classification of "institutional investor." Institutional investors are defined as banks, insurance companies, mutual funds, some pension plans, and broker-dealers registered under the Securities Exchange Act of 1934. Investment advisers are not part of this group.
C
Nuering Investment Advisers would not fall under the classification of "institutional investor." Institutional investors are defined as banks, insurance companies, mutual funds, some pension plans, and broker-dealers registered under the Securities Exchange Act of 1934. Investment advisers are not part of this group.
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Question #12
Which of the following is an example of a non-issuer transaction?
- AIBM sells a new issue of bonds to an insurance company.
- BJose purchases a 10-year bond issued by Progress Energy when it has 6 years remaining to maturity.
- CGoogle offers more shares of its stock for sale to the public.
- DNewCorp, which has been a privately held company, is engaging in an initial public offering (IPO) of its stock.
Correct Answer:
B
When Jose buys a 10-year bond that has 6 years remaining to maturity, it is a non-issuer transaction since he is buying it in the secondary market from another investor, and Progress Energy does not benefit from the transaction. If a firm receives money when its securities are sold, it is considered an issuer transaction; otherwise it is a non-issuer transaction. When Progress Energy originally issued the bond, it had ten years to maturity, and Progress Energy received the proceeds from the bond issue; that was an issuer transaction. When Jose buys the bond, another investor is receiving the proceeds. When IBM sells new bonds, regardless of whether it is to the general public or to an institutional investor, IBM receives the proceeds from the transaction, so it is an issuer transaction.
Similarly, when a firm that is already publicly held, like Google, sells more shares, the firm receives money from the sale, just as when a firm that is going public for the first time, like NewCorp, receives the proceeds generated through the IPO. Those are examples of issuer transactions.
B
When Jose buys a 10-year bond that has 6 years remaining to maturity, it is a non-issuer transaction since he is buying it in the secondary market from another investor, and Progress Energy does not benefit from the transaction. If a firm receives money when its securities are sold, it is considered an issuer transaction; otherwise it is a non-issuer transaction. When Progress Energy originally issued the bond, it had ten years to maturity, and Progress Energy received the proceeds from the bond issue; that was an issuer transaction. When Jose buys the bond, another investor is receiving the proceeds. When IBM sells new bonds, regardless of whether it is to the general public or to an institutional investor, IBM receives the proceeds from the transaction, so it is an issuer transaction.
Similarly, when a firm that is already publicly held, like Google, sells more shares, the firm receives money from the sale, just as when a firm that is going public for the first time, like NewCorp, receives the proceeds generated through the IPO. Those are examples of issuer transactions.
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Question #13
Which of the following is not considered to be a security, as defined by the Uniform Securities Act (USA)?
- Aa debenture
- Ba certificate of deposit (CD)
- Ca put option
- Dan annuity contract wherein an insurance company promises to pay a fixed sum, either in a lump amount or through periodic payments.
Correct Answer:
D
The Uniform Securities Act excludes annuity contracts wherein an insurance company promises either to pay a fixed sum, either in a lump amount or through periodic payments, from its definition of a security. Debentures, CDs, and option contracts are all classified as securities under the USA.
D
The Uniform Securities Act excludes annuity contracts wherein an insurance company promises either to pay a fixed sum, either in a lump amount or through periodic payments, from its definition of a security. Debentures, CDs, and option contracts are all classified as securities under the USA.
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Question #14
Which of the following scenarios would not be considered a "sale," as defined by the Uniform Securities Act (USA)?
I. Yoshito owned shares of Minnow Corporation and received shares of Whale Corporation from Whale when it merged with Minnow.
II. Olivia's uncle, an agent with SecureMoney Brokers, sold Olivia ten call options on the stock of Microsoft.
III. Hans purchased a bond of Indebted Corporation that had detachable warrants and subsequently sold the warrants.
IV. Tom pledged some shares of stock he owned personally to secure a business loan for his company.
I. Yoshito owned shares of Minnow Corporation and received shares of Whale Corporation from Whale when it merged with Minnow.
II. Olivia's uncle, an agent with SecureMoney Brokers, sold Olivia ten call options on the stock of Microsoft.
III. Hans purchased a bond of Indebted Corporation that had detachable warrants and subsequently sold the warrants.
IV. Tom pledged some shares of stock he owned personally to secure a business loan for his company.
- ANeither I nor II would be considered sales.
- BNeither II nor III would be considered sales.
- CNeither I nor IV would be considered sales.
- DNeither III nor IV would be considered sales.
Correct Answer:
C
Neither Scenario I nor Scenario IV describes sales as defined by the USA. When an investor receives securities from Company X when Company X merges with a company in which the investor owns stock, Company X is not considered to have sold those securities to the investor. Likewise, when a person uses securities he owns as collateral for a loan, the USA does not consider this to be a sale of the securities.
C
Neither Scenario I nor Scenario IV describes sales as defined by the USA. When an investor receives securities from Company X when Company X merges with a company in which the investor owns stock, Company X is not considered to have sold those securities to the investor. Likewise, when a person uses securities he owns as collateral for a loan, the USA does not consider this to be a sale of the securities.
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Question #15
Jeremy Sly considered himself somewhat of an inventor. The only problem was that his day job interfered with his opportunity to exercise his creativity. He came up with a plan to get outside investors to support his inventive activities. To this end, he produced and distributed a brochure advertising partnership interests with a guaranteed return on investment of at least 15% after the first 12 months, based on what he had allegedly generated from his other (non-existent) inventions.
Given these facts, is Jeremy guilty of any security violations under the Uniform Securities Act (USA)?
Given these facts, is Jeremy guilty of any security violations under the Uniform Securities Act (USA)?
- ANo. The facts don't indicate whether any partnership interests were actually sold, and there can be no violation unless there is a sale.
- BNo. An interest in a partnership is not considered a security.
- CNo. It is not against the law to believe in oneself and promote one's ideas.
- DYes. Even an "offer" to sell securities must not contain any untruths.
Correct Answer:
D
Yes. Jeremy is guilty of security violations under the Uniform Securities Act when he provides misleading information when offering securities for sale, even if no securities are actually sold. Partnership interests fall under the definition of securities, and Jeremy's claim to have generated a return of at least
15% on other inventions that he never created is an absolute falsehood.
D
Yes. Jeremy is guilty of security violations under the Uniform Securities Act when he provides misleading information when offering securities for sale, even if no securities are actually sold. Partnership interests fall under the definition of securities, and Jeremy's claim to have generated a return of at least
15% on other inventions that he never created is an absolute falsehood.
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