FINRA Series 79 Exam Review 162 Questions with Verified Answers,100% CORRECT, Exams of Business Economics

Download FINRA Series 79 Exam Review 162 Questions with Verified Answers,100% CORRECT and more Exams Business Economics in PDF only on Docsity! FINRA Series 79 Exam Review 162 Questions with Verified Answers A person who has not been registered for the past three years has now become newly registered with another broker-dealer. With regard to Regulatory Element, this representative... - CORRECT ANSWER 1) Must take the appropriate module as if subject the program for the first time 2) Must complete the Regulatory Element within a 120-day period that begins with the second anniversary of their registration NOTE: - have to re-do if you have left the securities industry for more than 2 YEARS - the program is completed 120 days after the second anniversary after initial registration but THREE YEARS thereafter At what point during the sale process does the financing provider typically commit to the final staple terms and conditions? - CORRECT ANSWER During the second round of the sale process, prior to submission of final bids. When is a Schedule 14-D9 supposed to be filed? - CORRECT ANSWER Within 10 business days of a Schedule TO Filing - Proxy statement - CORRECT ANSWER In a one-step merger transaction, the target obtains approval from its shareholders through a vote at a shareholder meeting - prior to the vote, the target provides appropriate disclosure to the shareholders via a proxy statement. Contains a summary of the background/terms of the transaction, a description of the financial analysis underlying the fairness opinions of the financial advisers, a copy of the definitive agreement, and summary and pro forma financial data. Proxy statement is filed with the SEC under the codes PREM14A and DEFM14A Schedule TO - CORRECT ANSWER Filing made after the acquirer mails an offer to purchase to the target's shareholder's for a tender offer. In response to the tender offer, the target files a Schedule 14D-9 within 10 business days of commencement which contains a recommendation from the target's board of directors on how to respond to the tender offer, typically includes a fairness opinion NOTE: Schedule TO filed by ACQUIRER vs. Schedule 14-D9 filed by TARGET Schedule 13D - CORRECT ANSWER Required for anyone who acquires more than 5% of a voting class of a public company's common stock. In addition to acquirers, it may be required of traders and arbitrageurs who participate in tenders for profit Schedule 14(d) - CORRECT ANSWER Required under the '33 Act, provides public information about entities involved in tenders, other than the acquirer Regulation A - CORRECT ANSWER A public offering is EXEMPT from SEC registration if the amount of securities offered does not exceed $5 million in any 12 month period - permits shareholders to sell up to 1.5 million of securities - this sale counts against the 5 million total - if you claim this exception you must file an offering statement with the SEC for review (consists of notification, offering circular, and exhibits) Advantages: financial statements are simpler & do not need to be audited, there are no Exchange Act reporting obligations unless the company has more than $10mm in total assets, Filing with the SEC is less expensive than with the normal process Regulation A+ - CORRECT ANSWER Two tiers of registration exempt offerings: The lead underwriter must notify FINRA of the restricted period Regulation M-A - CORRECT ANSWER Regulation S - CORRECT ANSWER S for SEA Offshore offerings are not subject to SEC registration. They are exempt as along as 1) no offer is made to any person physically located in the US and 2) no directed selling efforts are made in the US Regulation S-K - CORRECT ANSWER Regulation S-X - CORRECT ANSWER Rule 144 - CORRECT ANSWER For restricted securities: - A restricted stock must be held for a minimum of 6 months before being sold - there must be adequate current info about the issuer before the sales can be made For control securities: - Control securities = those held by an affiliate of the issuing company - An affilait can sell within a 3 month period only 1% of the outstanding shares of the same class being sold or the average reported weekly trading volume during the FOUR WEEKS preceding the sale A corporate insider intending to sell shares under Rule 144 must file Form 144 no later than the DATE OF SALE Who are affiliates of the issuing company? - CORRECT ANSWER - offer of the company - member of the board of directors - an individual owning at least 10% of the voting shares Rule 144A - CORRECT ANSWER Permits companies to buy/sell unregistered securities through a broker dealer as long as they are classified as QUALIFIED INSTITUTIONAL BUYERS Qualified institutional buyer - CORRECT ANSWER Must control a DISCRETIONARY securities portfolio of at least $100mm The cooling off period after the filing of a registration statement ends - CORRECT ANSWER When the SEC declares the registration effective According to Regulation M Rules 101 and 102, FINRA must receive notification from offering participants - CORRECT ANSWER For listed and unlisted securities, whether or not a restricted period applies A company declares a dividend. Which of following occurs on the balance sheet: - CORRECT ANSWER 1) Dividends Payable increases 2) Retained Earnings decreases A declaration of a dividend does not mean cash is actually given out. HSR Filing - CORRECT ANSWER Hart-Scott-Rodino act governs regulatory approval for US M&A transactions - the HSR filing must be made directly following the execution of a definitive agreement HSR filing is required for all transactions where the assets of voting securities are worth at least $303.4mm Transactions smaller than this amount must still be filed if all 3 criteria are satisfied: 1) Value of transaction is $75.9mm 2) One party had assets or sales of at least $15.2 in the prior fiasco year 3) The other party had assets or ales of $151.7mm during the prior fiscal year Which securities are quoted as a percentage of par in 32nd of a point? - CORRECT ANSWER T-notes and T-bonds How are T-bills quoted? - CORRECT ANSWER They are quoted as an annualized discount percentage, or basis In which case would a buyer need to make Representations ("Reps") and Warranties about its business? - CORRECT ANSWER In a stock-for-stock transaction In a stock-for-stock transaction, the buyer needs to make reps about its own business because the seller will be receiving the buyer's stock as purchase consideration. This is not necessary in an all-cash transaction. Transaction size is also not relevant for reps in this case, nor would an established public European company need to make reps Which of the following are "fiduciaries" covered under FINRA Rule 2060's restrictions on using information about the ownership of an issuer's securities to solicit transactions? - CORRECT ANSWER Specified types of fiduciaries are covered under FINRA Rule 2060. They consist of transfer agents, paying agents, trustees and others who have privileged access to information about ownership of the issuer's securities. Company A enters into a definitive agreement to purchase Company B. Immediately after signed the Definitive Agreement, the two companies issue a joint press release announcing the transaction. Which of the following are true regarding the press release? - CORRECT ANSWER - The press release is defined as a prospectus. - The press release is required to be filed with the SEC Under SEC Rule 425, communications regarding a business combination transaction may be distributed to the public but are defined as a prospectus and must be filed with the SEC no later than the date of first use. Underwriting spread - CORRECT ANSWER The difference between what the underwriters pay an issuing company per share and the public offering price Three components: - Manager's fee (10-20%) - Underwriting fee (20-30%) - Selling concession (50-60% of spread) Full takedown: underwriting fee + selling concession Registered representatives are required to re-qualify by examination if their registrations are not sponsored by a member firm for a period of - CORRECT ANSWER 2 years Records of office inspection and reviews must be retained by member firms for at least - CORRECT ANSWER 3 years Which of the following are included in the organization and offering expenses (O&O) of a Direct Participation Program - CORRECT ANSWER There are three components of O&O expenses: bona fide issuer expenses, underwriting compensation and due diligence expenses connected to the offering. Total O&O expenses are limited to 15% of gross offering proceeds. Dividend payout ratio - CORRECT ANSWER Annual dividend / basic earnings per share Operating leverage is best described as: - CORRECT ANSWER The extent to which sales growth results in growth at the operating income level At which point in an M&A sale process is a fairness opinion typically rendered? - CORRECT ANSWER Just prior to Board approval and execution of the definitive agreement Joe, an investor in ABC Corp's IPO, learns that the SEC has fined the issuer and officers for misrepresentations and false statements in the registration statement statement for its IPO. If Joe would like to recover the cost of his investment, he would have the option to - CORRECT ANSWER If an investor would like to recover the cost of an investment on account of fraudulent info in a registration statement, the investor would need to sue the issuer. Filing a claim with the SEC is not possible. Also, SIPC only covers investors in the case of a broker-dealer's insolvency. It does not guarantee the value of a stock position. Filing date for a Schedule 8K - CORRECT ANSWER Within 4 business days of the event for all issuers When evaluating the value of a company, is a high or low PEG ratio preferable? - CORRECT ANSWER Low Are bonds usually traded at a centralized location or exchange? - CORRECT ANSWER Unlike equity trading, bond trading usually takes place between dealers in decentralized over-the-counter markets. Accounts Payable Turnover - CORRECT ANSWER Accounts Payable Turnover = COGS/Average Accounts Payable The statute of limitations for arbitration is - CORRECT ANSWER The statute of limitations for an arbitration proceeding is 6 years from the occurrence or event giving rise to the claim. Joe Schmo recently acquired unregistered stock of a company as compensation for consulting services. Four months later, Joe queries his registered representative as to how he can subsequently sell the shares in the market. The rep could accurately reply that Joe can - CORRECT ANSWER sell the shares to a Qualified Institutional Buyer (QIB) under Rule 144A. Rule 144 permits the sale of unregistered stock of an existing public company after a six-month holding period. In this case, the shares have only been held for four months, making them ineligible for sale under Rule 144. Rule 144A allows the sale of unregistered securities to Qualified Institutional Buyers (QIBs) with no holding period. A QIB is generally defined as an institutional investor with $100mm in assets. What is the size requirement for registration with the SEC? - CORRECT ANSWER The size requirement for registration with the SEC or with an exchange has two components: 1) number of shareholders (2,000 or more); and 2) an asset threshold ($10 million or above). Which of the following refers to a stock sale which is treated as an asset sale for tax purposes thereby allowing the target's assets to be written up and depreciated over time? - CORRECT ANSWER §338 (including its various subsections such as §338(h)(10) of the Internal Revenue Code permits, if all conditions are met, a stock sale to be treated as an asset sale for tax purposes. This allows the seller the benefits of a stock sale (i.e. clean exit of the business) and provides the buyer with potential value enhancement from the tax shield generated from the asset step-up. Dividend discount formula - CORRECT ANSWER Under the dividend discount model, Stock Price = last year's dividend x (1 + growth rate) / (discount rate - growth rate) = $0.15 x (1 + 0.05) / (0.09 - 0.05) = $3.94. Under the rules of SEC 10b-18, when is an issuer with an average trading volume less than $1 million per day or a public float value below $150 million not advised to repurchase its own securities? - CORRECT ANSWER An issuer with an average trading volume of less than $1 million per day or a public float value below $150 million is not covered under the safe harbor within the last 30 minutes of trading. Companies with higher average daily trading volume or public float value are within the safe harbor up until the last 10 minutes of trading. Who is required to sign-off on the final registration statement, after any deficiencies have been addressed? - CORRECT ANSWER For securities registration, the final sign-off is required of corporate officers of the issuer and underwriters. Stapled financing - CORRECT ANSWER "Stapled financing" is a "pre-packaged," committed financing structure offered to buyers in support of the target being sold. The staple, which is targeted toward sponsors, was a mainstay in auction processes during the LBO boom of the mid-2000s. When issuers include warrants in bond offerings, the issuer Can... - CORRECT ANSWER When warrants are added as sweeteners to a bond offering, the issuer is able to attract greater investor interest. The bond is more marketable and the issuer can sell it with a lower interest rate. In an M&A scenario, the acquirer typically needs to receive shareholder approval if the shares offered as part of the purchase consideration exceed what threshold of the acquirer's pre-deal common shares outstanding? - CORRECT ANSWER U.S. public acquirers listed on a major exchange typically need to obtain shareholder approval if stock is being offered as a form of consideration and the new shares issued represent over 20% of the acquirer's pre-deal common shares outstanding. What is the trading venue of sponsored ADRs? - CORRECT ANSWER Exchange Always: firm must provide SUPERVISION What must an individual do when opening a personal account? - CORRECT ANSWER - NOTIFY employer and provide employer duplicate trade confirmation and account statements - notify employee that employer is being contracted When must an individual notify an employer regarding a personal account? - CORRECT ANSWER Prior to the execution of the initial trade in the account When do loans need permission? - CORRECT ANSWER - when they loan is for outside personal or business relationship - when the loan is to someone registered at the same firm DO NOT need permission when the customer is a bank or a family member What are the two COINCIDENT economic indicators to remember? - CORRECT ANSWER Monthly non-agricultural payroll Industrial production index When must a recorded road show first be made available? - CORRECT ANSWER It must be made available no later than the date of first use Does a recorded road show need to be filed with the SEC? - CORRECT ANSWER Yes, before viewing Can variations of road shows exist? - CORRECT ANSWER Yes, as long as the investors receive the same "core presentation" Is the SEC filing of a recorded road show considered a free-writing prospectus? - CORRECT ANSWER Yes, since it uses written communication Graphic communication - CORRECT ANSWER Include audiotapes, videotapes, faxes, CD-ROMS, emails, websites, computer networks, computer data files, blast voicemail messages - if it falls under this definition it is treated as WRITTEN COMMUNICATION does NOT include real-team oral communication Simulcasts of live road show presentations is a live presentation, not written communication When must a preliminary prospectus be deliver to a potential purchaser? - CORRECT ANSWER 48 hours prior to the mailing of the confirmation of the sale What does "know-your-customer" rule apply to? - CORRECT ANSWER Customer accounts Why is the size premium added to WACC? - CORRECT ANSWER It is added to the WACC of smaller companies to account for risk not reflected in the stock's beta due to a lack of liquidity What is the clearing bid in a Dutch auction tender? - CORRECT ANSWER It is the accepted bid - it establishes the price that the company pays for all accepted bids When does an individual have a duty of trust? - CORRECT ANSWER When he has assured or led the communicating party to believe that he can be trusted to keep information confidential. Ex. employee who learns of material inside information while engaged in an assignment for his employer has a duty of trust - information communicated by a spouse or family member is not always subject to this duty of trust When does the prudent man burden of proof standard apply? - CORRECT ANSWER On the effective date Where must a registered representative be registered? - CORRECT ANSWER Wherever he or she transacts business When must firms report to FINRA after receiving a written customer complaint? - CORRECT ANSWER No later than 10 business days after the firm or a representative becomes the subject of any written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery. This incident would be reported to FINRA on an amended U-4. For whom must a broker dealer conduct an annual compliance meeting? - CORRECT ANSWER For registered reps and registered principals What are the key characteristics of an a annual compliance meeting? - CORRECT ANSWER - it may be held at a branch office - it can include a discussion of non-compliance matters - it can be recorded and delivered on-demand but only if participants have opportunity to discuss the issues raised with compliance personnel Does purchasing and selling limited partnership units for ones own account require notification of the firm? - CORRECT ANSWER No, this passive investment is not considered an OBA. When should an individual report to OFAC? - CORRECT ANSWER After any transaction with or transfer of funds from a country on OFAC's SDN list, or a country that has embargoes or sanctions in place against it (I.e. Iran, North Korea) Must be blocked and reported to OFAC within 10 days How can repricing risk be reduced? - CORRECT ANSWER Issue bonds with a floating interest rate based on a benchmark (I.e. LIBOR) What is greater: a T-bill's bond equivalent yield or discounted yield? - CORRECT ANSWER Bond equivalent yield How many copies of the preliminary prospectus must be filed with SEC? - CORRECT ANSWER 5 Must be delivered by delivery of each copy to potential investors If the deal is not expected to close on the settlement date, it must notify FINRA no later than the expected closing date What must an issuer do if it is deemed to have a conflict of interest? - CORRECT ANSWER It must hire a qualified independent underwriter to assist in preparing the registration statement and prospectus When does a conflict of interest occur? - CORRECT ANSWER - if the issuer is a broker dealer - if the issuer intends to become a broker dealer - if the issuer is 10% or more owned by a broker dealer or its employees Must verbally disclose their conflict of interest to clients prior to the sale of the new issue and disclose via written communication no later than upon completion (settlement) of the transaction Who is restricted from investing in an IPO? - CORRECT ANSWER - Employees of a broker-dealer and their family members (spouses, parents, in-laws, children) - a person who owns more than 25% of a broker dealer Who is an exception to the IPO investing rule? - CORRECT ANSWER - employees of the issuer or their family members - an account that has no more than 10% ownership by restricted persons What is the effect of a sale leaseback? - CORRECT ANSWER Company A sells an asset to Company B which then leases it back The result is an increase in Company A's rent expense and decrease in its depreciation resulting in a lower EBITDA If the firm does a sale leaseback and then distributes the proceeds from the sale as a dividend, its debt/equity ratio will be negatively impacted Economic value added - CORRECT ANSWER Measures the surplus value generated by an investment (EBIT*(1-tax)) - (investment amount * WACC) Earned surplus - CORRECT ANSWER Earnings that are retained after all dividends have been paid from net income. It is also referred to as RETAINED EARNINGS If a firm does NOT execute transactions for clients or hold customer account, how often does AML compliance testing need to be done? - CORRECT ANSWER Every 2 years (usually every year) What is credit arbitrage? - CORRECT ANSWER When an investor borrows money at a low rate and invests it to earn a higher return What suitability requirement is an institutional investor subject to? - CORRECT ANSWER They are subject to PRODUCT SUITABILITY, not customer specific suitability Can a mutual fund be a WKSI? - CORRECT ANSWER No When is soliciting the public allowed under Reg D? - CORRECT ANSWER When the issuer is willing to forego the 35 non-accredited investors If a dividend is declared for a stock trading on NYSE, when must the NYSE be notified by? - CORRECT ANSWER Within 10 business days prior to the record date How long does an individual have to pass the appropriate qualification exam once they must function in a principal capacity? - CORRECT ANSWER 90 days To appeal a decision of the National Adjudicatory Council against the membership of a firm, a written request for review must be filed within how many days? - CORRECT ANSWER 25 days When must a control relationship be disclosed to a client? - CORRECT ANSWER In writing, before completion of the transaction If a company has a tax-advantaged deferred compensation plan for its senior execs, where will its executives stand in claiming their benefits? - CORRECT ANSWER The executives must be treated on par with other unsecured creditors. Their claims in bankruptcy are not secured and any funding set aside to pay benefits many be made available for all creditor claims When might a company file for bankruptcy rather than negotiate with its creditors? - CORRECT ANSWER A company that is expecting to pay a large legal settlement or has operational challenges - bankruptcy restructuring could allow the company to renegotiate its capital structure and contracts What isn't required of a company to continue listing on Nasdaq? - CORRECT ANSWER A minimum price to book value A minimum daily trading volume A seasoning period What does a sinking fund provision allow an investor to do? - CORRECT ANSWER Because the issuer is making payments in advance to a trustee to redeem the bonds, bonds that are retired through a sinking fun have less default risk This reduces the principal risk and allows the issuer to offer these bonds at a lower interest rate What is the terminology for a tender offer in which stock is offered to target company shareholders in lieu of cash? - CORRECT ANSWER Exchange offer What are civil penalties for insider trading? - CORRECT ANSWER Treble damages = 3x profits made or loss avoided - brought by investor What are criminal penalties for insider trading? - CORRECT ANSWER Max $5mm fine, 20 years in prison Can restricted shares be rendered without compliance with Rule 144? - CORRECT ANSWER Yes, they may in the event of a tender When would a seller conduct thorough due diligence on a buyer? - CORRECT ANSWER When stock is a large part of the purchase consideration