Which of the following statements is true about a corporation's balance sheet?
Correct Answer: C
Step by Step Explanation: * Balance Sheet Definition: Shows a company's financial position at a specific point in time, listing assets, liabilities, and shareholders' equity (net worth). * Other Financial Statements: * Profit and Loss Statement: Summarizes revenues and expenses over a period. * Cash Flow Statement: Tracks cash inflows and outflows. : SEC Guide to Financial Statements: SEC Financials.
Question 72
Which of the following types of investment companies typically have surrender fees?
Correct Answer: A
Variable annuities typically include surrender charges (surrender fees), especially during the early years of the contract. A surrender charge is a fee assessed if the owner withdraws funds above permitted free-withdrawal amounts or terminates the contract during a specified surrender period. This feature is common because variable annuities are insurance products that often involve significant distribution costs, and insurers structure surrender schedules to recoup those costs if the investor exits early. On the SIE, variable annuities are treated as packaged products/variable contracts with unique fee structures, including surrender charges and separate account expenses. By contrast, no-load mutual funds are designed specifically to have no sales charge (no front-end load and typically no deferred sales charge), though they may still have operating expenses in the expense ratio. UITs may involve sales charges at purchase, and they have a fixed portfolio that does not actively trade; they are not commonly characterized by surrender fees in the way variable annuities are. ETFs trade intraday on an exchange like stocks, and investors generally pay brokerage commissions and incur bid-ask spreads (and internal fund expenses), but ETFs do not impose surrender fees as an inherent product feature for secondary- market trades. The concept being tested is recognition of product-specific fees. Variable annuities commonly include multiple layers of cost: mortality and expense (M&E) charges, administrative fees, underlying subaccount expenses, and surrender charges. Surrender charges are a key distinguishing characteristic and a frequent exam point because they affect liquidity and time horizon suitability.
Question 73
A customer owns 100 shares of ABC with a current market value of $5.00 per share. The company undergoes a 1-for-2 reverse split of the stock. Which of the following statements is true of the customer's holdings and the price of the stock?
Correct Answer: D
Step by Step Explanation: * Reverse Split Calculation: A 1-for-2 reverse split reduces the number of shares by half while doubling the price per share. * Pre-Split Holdings: 100 shares at $5.00 = $500. * Post-Split Holdings: 50 shares at $10.00 = $500. * Incorrect Options: The total value remains unchanged; only the number of shares and price per share adjust. : FINRA Corporate Actions Guidance: FINRA Reverse Splits.
Question 74
Under which of the following circumstances, if any, is it permissible for an individual without a Power of Attorney (POA) to sign a customer's name on their behalf?
Correct Answer: D
Step by Step Explanation: * Prohibition on Signing Customer Names: It is never permissible to sign a customer's name without written authorization (POA) due to legal and ethical concerns. Unauthorized signing constitutes forgery and violates FINRA rules. * Incorrect Options: * A: Firm principal approval does not override this prohibition. * B: Verbal authorization is insufficient. * C: Discretionary authority does not allow unauthorized signing. FINRA Rule 4512 (Customer Account Information): FINRA Rule 4512.
Question 75
The price of a company's stock falls several points because of the estimated costs of complying with pending regulations. For the company's stockholders, this is an example of which of the following types of risk?
Correct Answer: C
This situation is best classified as political risk, specifically regulatory risk, because the stock's decline is driven by the anticipated impact of government action-pending regulations-on the company's future profitability. Political risk includes changes in laws, rules, regulatory enforcement, tax policy, or other governmental decisions that can alter an issuer's operating environment. When a company expects higher compliance costs, investors may reduce expected earnings or cash flow projections, which commonly leads to a lower valuation and therefore a lower stock price. That cause-and-effect relationship-government-driven change leading to a market value adjustment-is the core idea of political risk. It is not credit risk, which focuses on whether a debt issuer can meet interest and principal payments. Stockholders are affected by equity value changes, and the prompt does not indicate an increased likelihood of default or missed payments on debt. It is not liquidity risk, which concerns the ability to sell the stock quickly at a fair price without significantly moving the market; the question does not mention thin trading, wide bid-ask spreads, or difficulty finding buyers. While capital (principal) risk broadly applies to most equity investments because market prices can decline, the question is asking for the specific type of risk causing the decline. Here, the driver is regulatory costs from pending government rules, which points directly to political risk. This aligns with the SIE focus on identifying risk types and recognizing how external forces-especially governmental or regulatory developments-can affect securities markets and issuer valuations.
