SERIES-6 Practice Questions

A tombstone advertisement may not contain the price of the offering under SEC rules. The final price

would not have been set at this point anyway.

Explanation: Mr. Investor does not have the right to vote on the purchase of a major piece of

property that Everyman is considering or any decision involving business operations. He does have

the right to receive dividends, if dividends are declared, based on his proportionate ownership of the

firm. He also has the right to vote on the members of the firm’s board of directors and to vote on any

proposed changes to the corporate by laws.

All of the entities can be sued for misleading statements found in HiGrow’s financial statements. The Securities Act of 1933 holds any individual who participates in bringing the new issue to the public civilly liable for misrepresentations found in the prospectus.

Commercial paper is short-term, unsecured debt issued by large corporations. It generally has a

maturity of less than 270 days so that it does not need to be registered with the SEC in order to be

offered for sale.

If Hasbro is selling for $44.50 and pays a dividend of $1.00 a share, its dividend yield is 2.25%. The

dividend yield is the dividend divided by the market price: $1.00/$44.50 = 2.25%.

Any person who willfully acts in violation of the Securities Act of 1933, or any SEC rule, is subject to a

penalty of 5 years in prison or a $10,000 fine, or both.

Statement D is the false statement. A callable bond does not protect the investor by allowing him to

sell his bond back to the issuer and invest in another, similar-risk bond that pays a higher rate of

interest should the investor choose to do so. The investor does not have the option to redeem or not

in the case of a callable bond. It is the issuing firm that has the option. Therefore, a callable bond

must offer a higher-yield than similar non-callable bonds, and the investor in a callable bond is

subject to prepayment risk. The bond is most likely to be redeemed when interest rates fall, in which

case the issuer will want to call it in and replace it with a bond with a lower coupon rate.

The false statement is that CMOs are zero-coupon bonds that are backed by real estate. CMOs are

not zero-coupon bonds; they make payments that include both interest and principal.

The entity that serves as the auctioneer for trades conducted on an organized exchange floor is

known as a specialist. The specialist is assigned stocks by the exchange and is a market maker in

those stocks. A registered trader is a private individual who buys and sells on his own account only.

Floor brokers and commission brokers execute trades for other investors.

NASDAQ is not an auction market. NASDAQ is a computerized system of geographically dispersed

securities’ dealers. As such, it is a negotiated market. The NYSE (New York Stock Exchange) and the

CHX (Chicago Stock Exchange) are both auction markets.