Answer: D

Rationale: When a customer opens an individual account, the following must be present on the new account form: • Customer name and address • Whether the customer is of legal age • Name of registered rep who will handle the account • Principal’s signature

Answer: C

Rationale: The Securities Act of 1933 is sometimes called the Paper Act because it deals with the registration of securities themselves, rather than the registration of those who work with securities. New issues of securities must be registered with the SEC, unless they are exempt from the Securities Act.

Answer: B

Rationale: The custodian bank always safekeeps the assets and usually acts as both paying agent and transfer agent. Therefore, sending dividends and proxies to shareholders would fall to the custodian. The custodian does not manage the fund, nor does it choose the manager. The manager's contract is voted on annually by the shareholders.

Answer: A

Rationale: The purchaser of a call (long call) has the right to buy stock at a fixed price, no matter how high the market price of the stock may go. This strategy has unlimited gain potential.

Answer: A

Rationale: A dividend is the payment of a portion of a company’s earnings to its shareholders. Although they are typically paid in cash, dividends can also be distributed in additional shares of stock. Because corporations are not required to issue them, dividends may or may not be paid to common stockholders. When they are paid, dividends are taken out of a company’s after-tax earnings, and they are most often paid on a quarterly basis (every three months).

Answer: C

Rationale: Inflation risk, also called purchasing power risk, is the risk that the security's value will not keep pace with inflation, resulting in the investor losing purchasing power over time. Fixed-income investments, such as bonds, CDs, and preferred stock, tend to be negatively impacted by inflation. Securities whose prices can rise with inflation, such as stocks, tend to perform well during inflationary periods. Note that inflation risk is a type of systematic risk, because it affects the entire market.

Answer: D

Rationale: The financial statements in a registration statement must be audited. These audited financial statements are included in Part I of the registration statement, which constitutes the offering’s prospectus—first the preliminary and then the final prospectus. The financial statements in a reporting issuer’s annual report to the SEC (Form 10-K) must also be audited. However, the financial statements in a quarterly report (Form 10-Q) may be unaudited.

Answer: D

Rationale: When prices are increasing but trading volume is decreasing, technical analysts believe this means that the bull market will soon end and a bear market will begin. Technical analysts call this sort of market “overbought.”

Answer: B

Rationale: Mary Ellen is a capital appreciation investor with a moderate risk tolerance. She also has a relatively long-term investment timeline. Such an investor’s portfolio should be a mix of equities and fixed-income securities, but it should contain a higher percentage of equities. An investor who has 80% or more in equities would be considered a high-risk or speculative investor, and this description does not fit Mary Ellen. On the other hand, leaning heavily toward fixed-income securities is not consistent with Mary Ellen’s moderate risk tolerance.