Securities Multiple Choice Questions

Multiple Choice
1. Securities are important because:

a. they are the financial backbone of the U.S. economy
b. business operations rely on securities for financing operations
c. they are the major form of investment for pension funds
d. all of the other specific choices are correct
e. none of the other specific choices are correct
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Analytic
STATE STANDARDS: United States - Universal - DISC: AICPA: BB-Legal
TOPICS: A-Head: The Elements of Securities
KEYWORDS: Bloom's: Analysis
2. Which of the following is NOT a reason why securities are important:

a. they are the financial backbone of the U.S. economy
b. business operations rely on securities for financing operations
c. they are the major form of investment for pension funds
ANSWER: e
POINTS: 1
3. The financial future of most people is tied to securities because:

a. securities are the major form of investment for pension funds
b. securities are a major source of scholarships
c. securities are the main method of getting out of bankruptcy
d. securities lower taxes for most Americans
e. none of the other choices are correct
ANSWER: a
POINTS: 1
4. Securities are important to businesses because:
a. securities are an important source of financing for operations
b. securities can lower export taxes
c. securities can lower import taxes
d. securities are crucial when dealing with unionized workers
ANSWER: a
POINTS: 1
5. A security can be which of the following:

a. money borrowed by a corporation
b. a stock traded on the New York Stock Exchange
c. an agreement between friends
d. both a and b are correct
e. a, b, and c are all correct
ANSWER: d
POINTS: 1
6. Securities differ from other assets in that they:

a. are valuable in and of themselves
b. have a fixed value
c. have no intrinsic value in themselves
d. are tangible assets
e. all of the other choices
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Communication
KEYWORDS: Bloom's: Knowledge
7. Securities differ from other assets in that they:
a. are valuable in and of themselves
b. have a fixed value
c. are tangible assets
d. all of the other specific choices
e. none of the other choices
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
8. When bonds are sold, there is often a(n) of a certain amount.

a. capital value
b. issue
c. promise
d. agreement
e. debt registration
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
9. Bonds issued by a company to raise money:

a. mean that the company has incurred debt that is to be repaid to the holders of the bonds
b. can be traded on the securities market
c. are securities
d. both a and b are correct
e. a, b, and c are correct
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
10. A corporate debt instrument usually specifies:
a. the length of the debt period
b. the debt repayment method and rate of interest
c. how many shares may be sold to investors
d. the length of the debt period and the debt repayment method and rate of interest
e. the length of the debt period and the debt repayment method and rate of interest and how many shares may
be sold to investors
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
11. A corporate debt instrument usually specifies:

a. the length of the debt period
c. the amount of the debt
d. the length of the debt period and the debt repayment method and rate of interest
e. the length of the debt period and the debt repayment method and rate of interest and the amount of the debt
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
12. Corporate equity financing instruments generally specify:

a. the amount of the debt and length of the debt period
c. the amount of bonds that may be sold to investors
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
13. A new or an existing company may be financed by:
a. debt only by law
b. U.S. Treasury bonds
c. equity only by law
d. debt and equity
e. debt and equity and U.S. Treasury bonds
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
14. A debt is a financial obligation a firm. It is:

a. an asset to the corporation
b. often incurred by selling bonds
c. financed by buying stocks back from the shareholders
d. an asset to the corporation often incurred by selling bonds
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
15. A debt is a financial obligation a firm. It is:

a. an asset to the corporation
b. not subject to securities law, which focuses on equity instruments
c. financed by buying stocks back from the shareholders
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
16. Which of the following is NOT specified in a debt instrument issued by a corporation:
a. amount of the debt
b. length of debt period
c. debt repayment method
d. rate of interest charged to the sum borrowed
e. all of the other specific choices are specified
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
17. is the raising of funds through the sale of company stock.

a. Debt financing
b. Debt incurrence
c. Securities financing
d. Equity financing
e. Stock fund raising
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
18. is the raising of funds through the sale of company stock.

a. Debt financing
b. Debt incurrence
c. Charity fund raising
d. Treasury financing
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
19. Securities financing is:
a. the raising of funds through the sale of company stock
b. the raising of funds through borrowing money from banks
c. the raising of money through trades of bonds
d. the raising of money through donations
e. the raising of money through purchasing bonds
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
20. Securities financing is:

a. the raising of money through purchasing bonds
b. the raising of funds through borrowing money from banks
c. the raising of money through trades of bonds
d. the raising of money through donations
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
21. A share of stock:

a. is a share in the future profits (if any) of a company
b. must be guaranteed a minimum rate of return by the issuer
c. may be redeemed for purchase price
d. is a share in the future profits (if any) of a company and may be redeemed for purchase price
e. all of the other specific choices
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
22. A share of stock:
a. may be redeemed by the owner for other company assets
b. must be guaranteed a minimum rate of return by the issuer
c. may be redeemed for purchase price
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
23. A share of stock represents the right to:

a. receive cash from the issuing company equal to the market value of the stock
b. an equal share of the assets of a firm
c. participate in active management decisions of a firm
d. a share of future profits of a firm
e. a fixed rate of return each year
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
24. A share of stock represents the right to:

a. receive cash from the issuing company equal to the market value of the stock
b. an equal share of the assets of a firm
c. participate in active management decisions of a firm
d. a fixed rate of return each year
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
25. Equity financing differs from security financing in that, with equity financing, a company:
a. has no liability to repay shareholders the amount they have invested
b. must pay back at least half a shareholder's investment
c. has complete liability to repay shareholders the amount they have invested
d. must repay all investments, but has no specific time limit for doing so
e. must pay at least 1.5% interest on all investments
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
26. Equity financing differs from security financing in that, with equity financing, a company:
a. must pay at least 1.5% interest on all investments
b. must pay back at least half a shareholder's investment
c. has complete liability to repay shareholders the amount they have invested
d. must repay all investments, but has no specific time limit for doing so
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
27. The first regulation of securities in the U.S. was the:

a. Uniform Securities Act
b. Kansas blue sky law
c. Securities Exchange Act
d. Interstate Commerce Act
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
28. The first regulation of securities in the U.S. was the:
a. Uniform Securities Act
b. Clayton Act
c. Federal Trade Commission Act
d. Interstate Commerce Act
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
29. The first state to have securities regulation was:

a. Illinois
b. Ohio
c. California
d. Kansas
e. Texas
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
30. The first state to have securities regulation was:

a. Illinois
b. Ohio
c. California
d. Texas
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
31. Kansas enacted the first securities statute in:
a. 1900
b. 1911
c. 1950
d. 1955
e. 1957
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
32. The most important federal statutes regulating securities were enacted in:
a. the early 1920s
b. the early 1930s
c. the early 1960s
d. the early 1970s
e. the early 1950s
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
33. The Securities Act of 1933 regulates:

a. private offerings of securities
b. public offerings of securities when they are first sold
c. corporations with more than $100,000 in securities
d. banks
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
34. The requires that investors be given material information about new securities and it prevents
misrepresentation in the
sale of securities. a.
Securities Act of 1933
b. Securities
Exchange Act of
1934 c. Financial
Security Act of 1935
d. Security
Representation Act of
1933 e. Security
Stability Act of 1933
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
35. requires that investors be given material information about new securities and it
The prevents
misrepresentation in the
sale of securities. a.
Security Stability Act of
1933
b. Securities
Exchange Act of
1934 c. Financial
Security Act of 1935
d. Security
1933 e. none of the
other choices are correct
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
36. regulates trading in existing securities and imposes disclosure requirements on

The corporations that have
issued publicly held securities.
a. Security Stability Act of 1933
b al Security Act of
. 1935
d. Security
S Representation Act of
e 1933 e. none of the
c other choices are correct
u
ANSWER: b
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POINTS: 1
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DIFFICULTY: Easy
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37. The regulates trading in existing securities and imposes disclosure requirements on corporations that have
issued publicly held securities.
a. Security
Stability Act of
1933 b.
Securities Act of
1933
c. Financial Security Act of 1935
d. Security
1933 e. none of the
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
38. The federal agency that has the most to do with regulation of the securities markets is the:
a. Securities and
Exchange Commission b.
Federal Reserve Board
c. Federal Securities Commission
d. Interstate
Securities
Commission e.
Department of
Justice
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
39. The federal agency that has the most to do with regulation of the securities markets is the:
a. Securities Division,
Department of Justice b.
Federal Reserve Board
c. Federal Securities Commission
d. Interstate
Securities
C TS: 1
o DIFFICULTY: Easy
m NATIONAL STANDARDS: United States - BUSPROG: Communication
m STATE STANDARDS: United States - Universal - DISC: AICPA: BB-Legal
i TOPICS: A-Head: The Elements of Securities
s KEYWORDS: Bloom's: Knowledge
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40. Which of the following is NOT true about the Securities and Exchange Commission:
a. the agency is charged with the responsibility for the enforcement and administration of the federal securities
laws
b. the agency is bi-partisan
c. the agency is independent
d. the agency has five members appointed by the President for five-year terms
e. all the other choices are true of the Securities and Exchange Commission
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
laws
d. the agency has three members appointed by Congress for three-year terms
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
laws
b. the agency is not bi-partisan
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
laws
c. the agency is not independent
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
44. Which of the following would be unlikely to be on the Securities and Exchange Commission staff:
a. an attorney
b. an accountant
c. a financial analyst
d. both a and c are unlikely to be on the SEC staff
e. a, b and c are all likely to be on the SEC staff
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
45. The definition of securities subject to federal regulation is:

a. common and preferred stocks only
b. defined in the 1940 Trust Indenture Act
c. any financial instrument reviewed by the SEC
d. any "investment of money"
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
TOPICS: A-Head: What Is a Security?
46. Which of the following is not considered a security under the 1933 Securities Act:
a. a certificate of interest in a profit-sharing agreement
b. a transferable share
c. an investment contract
d. a certificate of deposit for a security
e. all of the other choices are considered securities under the 1933 Act
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
47. Which of the following is not considered a security under the 1933 Securities Act:
a. a treasury stock
b. a bond
c. an a collateral-trust certificate
d. a certificate of deposit for a security
e. all of the other choices are considered securities under the 1933 Act
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
48. In SEC v. Howey, the Supreme Court:

a. defined a security as an investment of money in a common enterprise with the expectations of profits being
earned by the efforts of the investor
b. was concerned with penalizing a case of fraud of investors in a large stock scam; it resulted in federal
securities legislation being passed
c. defined a security as an investment of money in a common enterprise with the expectation of profits being
earned by the efforts of other persons
d. held the sale of plots of land in a development to be a security
ANSWER: c
POINTS: 1
49. In SEC v. Howey, the Supreme Court:
a. defined a security as an investment of money in an enterprise with the expectations of profits earned by the
efforts of the investor
b. was concerned with penalizing a case of fraud of investors in a large stock scam; it resulted in federal
securities legislation being passed
c. held all "for profit" investments to be subject to securities regulation
d. held the sale of plots of land on a development to be a security
ANSWER: e
POINTS: 1
50. The elements of a security, as the Supreme Court ruled in the SEC v. Howey case include:
a. an investment of money
b. an investment in a common enterprise
c. the expectation that profits from an investment will be generated by the efforts of others
d. an investment of money in a common enterprise
e. an investment of money in a common enterprise with the expectation that profits will be generated by the
efforts of others
ANSWER: e
POINTS: 1
51. The elements of a security, as the Supreme Court ruled in the SEC v. Howey case include:
b. an investment in a common enterprise
c. a role in managerial control
d. an investment of money in a common enterprise
e. an investment of money in a common enterprise with a role in managerial control
ANSWER: d
POINTS: 1
52. What is not an element in the Supreme Court's SEC v. Howey definition of securities:
b. in a common enterprise
c. where profits are earned
d. enterprise is managed by others
e. all of the other choices are part of the definition
ANSWER: c
POINTS: 1
53. What is not an element in the Supreme Court's SEC v. Howey definition of securities:
b. in a common enterprise
c. with an expectation of profits
d. enterprise is managed by others
e. all of the other choices are part of the definition
ANSWER: e
POINTS: 1
54. The 1946 case Securities and Exchange Commission v. Howey, the Supreme Court established a test to
determine when an investment is a security for the purposes of federal regulation. The test has:
a. four basic elements
b. convoluted and difficult to understand terms
c. no practical applications
d. one basic element
e. two basic elements
ANSWER: a
POINTS: 1
55. Scott invests money in fixing up his house, an endeavor that he expects will generate profits because he will be able
to rent it out as a bed and breakfast run by his sister. This is not a security subject to federal regulation because:
a. Scott cannot actually make money from a bed and breakfast
b. Scott's investment is in his own property and not in a common enterprise
c. there are fewer than five people involved in the business endeavor
d. Scott's investment is in a common enterprise, since his sister is involved
ANSWER: b
POINTS: 1
56. Having an undivided interest in a company means that:

a. shareholders may divide up company property among themselves at any time
b. shareholders may demand a company's product equal to their investment
c. shareholders may not divide company property amongst themselves unless they liquidate the company
d. shareholders may only sell their shares if they sell all of them at once
ANSWER: c
POINTS: 1
57. If you own a security in a company, such as common stock in IBM, you have:
a. an undivided interest in the company
b. the right to sell the security back to IBM for cash
c. the right to sell the security back to IBM in exchange for cash or other assets
d. an undivided interest in the company and the right to sell the security back to IBM for cash
e. an undivided interest in the company and the right to sell the security back to IBM in exchange for cash or
other assets
ANSWER: a
POINTS: 1
58. If you own a security in a company, such as common stock in IBM, you have:
a. an undivided interest in the company
b. a security subject to federal regulation
c. the right to sell the security back to IBM in exchange for other assets
d. an undivided interest in the company and a security subject to federal regulation
e. an undivided interest in the company and a security subject to federal regulation and the right to sell the
security back to IBM in exchange for other assets
ANSWER: d
POINTS: 1
59. Securities offerings on the Internet are:

a. prohibited by the SEC unless secondary to a regular offering
b. permitted by the Capital Markets Efficiency Act but are not common
c. permitted by the Capital Markets Efficiency Act, which preempts normal regulatory rules
d. not subject to any controls because they evade the rules of the securities acts
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
60. Which class of securities is (are) exempt from the federal securities laws?
a. issues by governments
b. issues by corporations with assets under $1 million
c. issues by corporations with over $1 billion in assets
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
61. Which class of securities is (are) exempt from the federal securities laws?
a. issues by companies with ten-year profit records
b. issues by corporations with assets under $1 million
c. issues by corporations with over $1 billion in assets
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
62. Which of the following securities would be exempt from regulation:

a. debts issued by the federal government
b. debts issued by a state government
c. debts guaranteed by a state government
d. debts issued by a local government
e. all of the other specific choices are correct
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
63. Which of the following securities would NOT be exempt from regulation:
b. debts issued by a state government
e. all of the other specific choices are exempt from regulation
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
64. Which of the following securities would NOT be exempt from regulation:
b. debts issued by a corporation with assets of more than $1 billion
e. all of the other specific choices are exempt from regulation
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
65. Which of the following are exempt from the Securities Exchange Act of 1933:
a. securities issued by banks
b. securities issued by religious and other charitable organizations
c. insurance policies
d. securities issued by religious and other charitable organizations and insurance policies
e. securities issued by banks and securities issued by religious and other charitable organizations and insurance
policies
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
66. The registration requirement of the Securities Act of 1933 applies to:
a. charitable or religious organizations' securities
b. government bonds
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
67. The registration requirement of the Securities Act of 1933 applies to:
a. charitable or religious organizations' securities
b. securities issued by mutual funds
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
68. The truth-in-securities law refers to:

a. the Securities Act of 1933
b. the Securities Exchange Act of 1934
c. the Howey Act of 1933
d. the Fraudulent Securities Act of 1934
e. the Securities Exchange Commission Act of 1934
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
TOPICS: A-Head: Offering Securities for Investors
69. All the relevant information that an investor would want to know about a company before investing in it is
known as:
a. real information
b. investment information
c. material information
d. informed information
e. security information
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
70. The idea behind the disclosure provisions contained in federal securities law is that:
a. investors will not collect information about securities unless the government makes the information available
b. investors need sufficient and accurate information on material facts concerning securities they might buy
c. securities are generally overvalued in the absence of such information
d. the sellers of stock will rarely disclose financial data without the disclosure requirement
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
71. The idea behind the disclosure provisions contained in federal securities law is that:
a. investors will not collect information about securities unless the government makes the information available
b. the sellers of stock will not disclose financial data without the disclosure requirement
c. securities are generally overvalued in the absence of such information
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
72. A(n) is a document providing the legal offering of the sale of a security.
a. prospectus
b. registration statement
c. issue
d. Howey document
e. sale form
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
73. A(n) is a document providing the legal offering of the sale of a security.
a. sale form
b. Security and Exchange document
c. issue
d. Howey document
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
74. A red herring:

a. is also known as an 8-K report
b. is also called a prospectus
c. represents an offer to sell a security
d. is a preliminary version of a prospectus
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
75. Before the final version of a prospectus is approved by the SEC, the document is called a(n):
a. red herring
b. preliminary prospectus
c. initial prospectus
d. ghost document
e. shadow prospectus
ANSWER: a
POINTS: 1
76. Before the final version of a prospectus is approved by the SEC, the document is called a(n):
a. shadow prospectus
b. preliminary prospectus
c. initial prospectus
d. ghost document
ANSWER: e
POINTS: 1
77. The term "red herring" that is used for a prospectus before it is approved by the SEC comes from:
a. the traditional red ink and reddish paper used in writing a prospectus
b. ancient Roman law traditions
c. a reference to being "in the red"
d. no one knows
e. the red paper used when the Securities Act of 1933 was enacted
ANSWER: a
POINTS: 1
78. Which of the following is NOT included in a prospectus:
a. the security issuer's finances and business
b. the purpose of the offering
c. the plans for the funds collected
d. the risks involved in the business venture
e. all of the other specific choices would be included in a prospectus
ANSWER: e
POINTS: 1
79. A securities registration statement consists of:

a. information about risks involved in a business venture
b. a prospectus
c. 8-K reports
d. information about risks involved in a business venture and a prospectus
e. information about risks involved in a business venture and a prospectus and 8-K reports
ANSWER: d
POINTS: 1
80. The securities registration process requires all the following information to be provided to prospective investors
except:
a. the security issuer's finances
b. the background of the promoters
c. plans for the funds collected from the sale
d. financial statements by certified public accountants
e. all of the other choices are required
ANSWER: e
POINTS: 1
except:
b. the background of the promoters
c. plans for the funds collected from the sale
d. the background of the promoters and plans for the funds collected from the sale only
e. all of the other specific choices are required
ANSWER: e
POINTS: 1
except:
b. the purpose of the offering
c. SEC analysis of the offering
d. financial statements by certified public accountants
ANSWER: c
POINTS: 1
83. When the SEC reviews a prospectus for a new stock offering it may not:
a. rule on the merits of the offering
b. issue a deficiency letter ordering the issuer to amend the prospectus
c. issue a stop order to prevent the issue from going out for sale until corrections are made to the prospectus
d. none of the other choices may be done; the SEC only records the prospectus for public inspection
e. all of the other specific choices may be done
ANSWER: a
POINTS: 1
84. When the SEC reviews a prospectus for a new stock offering it may not:
a. demand more information from the promoters
b. issue a deficiency letter ordering the issuer to amend the prospectus
c. issue a stop order preventing the issue from going forward
d. none of the other choices may be done; the SEC only records the prospectus for public inspection
e. all of the other specific choices may be done
ANSWER: e
POINTS: 1
85. Registration of a prospectus for a new stock offering becomes effective:

a. 20 days after it is filed
b. 30 days after it is filed
c. between 15 and 20 days after it is filed
d. within a week of being filed
e. 60 days after being filed
ANSWER: a
POINTS: 1
86. Registration of a prospectus for a new stock offering becomes effective:

a. 60 days after being filed
b. 30 days after it is filed
c. between 15 and 20 days after it is filed
d. within a week of being filed
ANSWER: e
POINTS: 1
87. The Securities and Exchange Commission has the power to:
a. issue a deficiency letter ordering the security issuer to amend the filing before sales
b. rule on the merits or financial soundness of a security offering
c. determine the number of shares of stock that a corporation may sell in any given offer
d. issue a deficiency letter ordering the security issuer to amend the filing before sales and rule on the merits or
financial soundness of a security offering
e. all of the other specific choices
ANSWER: a
POINTS: 1
88. In the event that the SEC staff believes that a prospectus that has been submitted for review does not adequately
explain the high-risk factors of an offering, it can:
a. do nothing so long as the required elements have been provided
b. issue a deficiency letter delaying the offering until more detail is provided
c. obtain a Commission order barring the sale of the security
d. obtain a court order barring the sale of the security
e. require shelf registration proceedings to begin
ANSWER: b
POINTS: 1
89. In the event that the SEC staff believes that a prospectus that has been submitted for review does not adequately
explain the high-risk factors of an offering, it can:
a. do nothing so long as the required elements have been provided
b. require shelf registration proceedings to begin
c. obtain a Commission order barring the sale of the security
d. obtain a federal court order barring the sale of the security
ANSWER: e
POINTS: 1
90. A prospective issuer of securities must hire which of the following:
a. a securities attorney
b. a certified public accountant
c. a printer for the prospectus
d. an underwriter
e. all of the other specific choices must be hired
ANSWER: e
POINTS: 1
91. A prospective issuer of securities need NOT hire which of the following:
a. a securities attorney
b. a certified public accountant
d. an underwriter
e. all of the other specific choices must be hired
ANSWER: e
POINTS: 1

a. a publicity agency
b. an advertising agency
d. all of the other specific choices must be hired
e. none of the other specific choices must be hired
ANSWER: c
POINTS: 1
c. a securities attorney
ANSWER: c
POINTS: 1

c. a certified public accountant
ANSWER: c
POINTS: 1

c. an underwriter
ANSWER: c
POINTS: 1
96. In a public security offering, the party hired to market the securities to the public is called:
a. the issuer
b. a stock brokerage
c. the distributor
d. the underwriter
ANSWER: d
POINTS: 1
97. A possible way to save the expenses of registering a new security offering is to keep a security exempt from
registration. One of these exemptions is called:
a. a shelf registration exemption
b. a risky venture exemption
c. a private placement exemption
d. a blue sky exemption
ANSWER: c
POINTS: 1
98. A possible way to save the expenses of registering a new security offering is to keep a security exempt from
registration. One of these exemptions is called:
a. a shelf registration exemption
b. a risky venture exemption
c. a 401k exemption
d. a blue sky exemption
ANSWER: e
POINTS: 1
99. The SEC allows for a private placement exemption because:
a. registration of "blue chip" securities is not necessary
b. small investors have insufficient information about the background of such offerings, so they need additional
protection
c. small issuers need a break in the costs of the process to be able to compete effectively with large securities'
issuers
d. purchasers of these securities are sophisticated and more able to protect themselves when purchasing
unregistered securities
e. issuers need greater flexibility when dealing with large numbers of small investors
ANSWER: d
POINTS: 1
100. The SEC allows for a private placement exemption because:

a. registration of "blue chip" securities is not necessary
b. small investors have insufficient information about the background of such offerings, so they need additional
protection
c. small issuers need a break in the costs of the process to be able to compete effectively with large security
issues
d. issuers need greater flexibility when dealing with large numbers of small investors
ANSWER: e
POINTS: 1
101. Under Rule 144A, the SEC permits an exemption from:
a. registration for security issuers selling to institutions worth $100 million or
more b. the 1933 Act for foreign security issuers who sell to U.S. investors
c. the 1934 Act for issuers with annual sales income over $1 billion
d. registration of securities for all U.S. issuers who issue only bonds
ANSWER: a
POINTS: 1
102. Some securities are sold under the provisions of Rule 144A. About what fraction of securities offerings have
recently been offered subject to this Rule?
a. one in a hundred
b. one in twenty
c. one in ten
d. one in five
e. one in two
ANSWER: d
POINTS: 1
103. U.S. and foreign security issuers are exempt from registration requirements for the sale of bonds and stocks to
institutions with a portfolio of at least $100 million in securities under the provisions of:
a. the Howey Rule
b. Rule 144A of the 1933 Securities Act
c. Rule 14 of the 1933 Securities Act
d. Rule 144A of the 1934 Securities Exchange Act
e. the Qualified Institutional Buyers Rule
ANSWER: b
POINTS: 1
104. U.S. and foreign security issuers are exempt from registration requirements for the sale of bonds and stocks to
institutions with a portfolio of at least $100 million in securities under the provisions of:
a. the Howey Rule
b. the Qualified Institutional Buyers Rule
c. Rule 14 of the 1933 Securities Act
d. Rule 144B of the 1934 Securities Exchange Act
ANSWER: e
POINTS: 1
105. Accredited investors, under SEC Regulation D for private placements include:
a. banks and insurance companies
b. individuals with accounts with registered stock brokers
c. individuals with annual incomes over $200,000 or a net worth of at least $2.5 million
d. banks and insurance companies and individuals with annual incomes over $200,000 or a net worth of at least
$2.5 million
e. banks and insurance companies and individuals with annual incomes over $200,000 or a net worth of at least
$2.5 million and individuals with accounts with registered stock brokers
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
106. Accredited investors, under SEC Regulation D for private placements include:
a. banks and insurance companies
b. individuals with accounts with registered stock brokers
c. individuals registered with the SEC
d. banks and insurance companies and individuals registered with the SEC
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
107. Which of the following would be considered an accredited investor under Regulation D:
a. a bank
b. a private business with fewer than 5 employees
c. an individual investor
d. a foreigner
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
108. Which of the following would be considered an accredited investor under Regulation D:
a. an insurance company
b. a private business with fewer than 5 employees and annual income of $150,000
c. an individual investor with a $100,000 annual income
d. a foreigner with a $150,000 annual income
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
109. An investor who is presumed sophisticated and wealthy enough to evaluate investment opportunities without an
SEC-approved prospectus is known as a(n):
a. accredited investor
b. knowledgeable investor
c. reasonable investor
d. real investor
e. legitimate investor
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
110. An investor who is presumed sophisticated and wealthy enough to evaluate investment opportunities without an
SEC-approved prospectus is known as a:
a. legitimate investor
b. knowledgeable investor
c. reasonable investor
d. real investor
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
111. To be considered an accredited, investor an individual must have an annual income of at least:
a. $50,000
b. $100,000
c. $150,000
d. $200,000
e. $300,000
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
112. To be considered accredited investors, a couple must have an annual income of at least:
a. $50,000
b. $100,000
c. $150,000
d. $200,000
e. $300,000
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
113. To be considered an accredited, investor an individual must have a net worth of at least:
a. $50,000
b. $100,000
c. $1 million
d. $2.5 million
e. $5 million
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
114. The most common Regulation D offerings for private placements are called:
a. Accredited Investors Offering Registration
b. Small Corporate Offering Registration
c. Large Corporate Offering Registration
d. EDGAR Registrations
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
115. Under Regulation D and Rule 504, Small Corporate Offering Registrations can be used for stock issues sold
without full registration if the money being raised:
a. is no more than $1 million
b. is no more than $10 million
c. is more than $100 million
d. will come only from corporations with net asset values under $10 million
ANSWER: a
POINTS: 1
116. Securities sold in private placements:
a. require no action with the SEC
b. only require the SEC to be notified of the sale, there are no other specific rules
c. require no action with the SEC but require the investors be given a private-placement memorandum
d. require the SEC to be notified and the investors to be given a private-placement memorandum
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
117. A private-placement memorandum is:

a. a notice to the SEC about a non-registered security sale that is occurring
b. a contract signed by the buyer of an unregistered security in which they recognize they are buying risky,
c. information to investors in unregistered securities that is similar to a prospectus
d. a note placed in the permanent files of an unregistered security offering detailing the offer
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
118. A private-placement memorandum is:

a. a notice to the SEC about a non-registered security sale that is occurring
b. a contract signed by the buyer of an unregistered security in which they recognize they are buying risky,
c. a notification to stock brokers about the availability of an unregistered stock offering
d. a note placed in the permanent files of an unregistered security offering detailing the offer
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
119. Although securities sold under a private placement exemption are exempt from registration, the law requires that
investors be given a , which is similar to a prospectus.
a. private-placement memorandum
b. semi-prospectus
c. non-registration prospectus
d. casual prospectus
e. casual memorandum
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
120. Although securities sold under a private placement exemption are exempt from registration, the law requires that
investors be given a , which is similar to a prospectus.
a. risk analysis memorandum
b. semi-prospectus
c. non-registration prospectus
d. casual prospectus
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
121. Most securities are issued by firms that can use a quicker registration process. These are:
a. well-known seasoned issuers that have issued at least $1 billion in securities previously
b. private placement specialists registered with the SEC
c. self-registration offering brokerages that work only with accredited investors
d. Regulation D offering specialist firms that are accredited by the SEC
e. none of the other choices; there is no such process
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
122. Most securities are issued by well-known seasoned issuers who have the right to:
a. file registration statements the day they announce a new offering
b. use a free-writing prospectus that is continuously updated on a website
c. use shelf registration and sell a security over several years
e. none of the other choices; there is no such process
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
123. Most securities are issued by well-known seasoned issuers who do not have the right to:
a. file registration statements the day they announce a new offering
b. use a free-writing prospectus that is continuously updated on a website
c. sell without SEC notification
d. use shelf registration and sell a security over several years
e. none of the other choices; there are no such special privileges
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
124. Securities that are on shelf registration:

a. cannot be sold to the public
b. may be sold at any time over the next three years
c. must be sold within a year of registration
d. cannot be sold for more than $5 per share
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
TOPICS: A-Head: Regulation of Securities
125. Which of the following laws regulates the buying and selling of traded securities?
a. The Taft-Hartley Act
b. The 1933 Securities Act
c. the 1934 Securities and Exchange Act
d. the Federal Trade Commission Act
e. none of these
ANSWER: c
POINTS: 1
126. Which of the following conditions would lead to a security needing to be registered under the 1934 Securities
Exchange Act:
a. the security is listed on a securities exchange
b. the security is traded over the counter
c. the company has $5 million in assets
d. the company has 500 shareholders
e. all of the other specific choices would lead to a security needing to be registered under the 1934 Act
ANSWER: e
POINTS: 1
127. Under SEC rules, a "publicly held company" is a company:

a. with all its securities held by public, not private, investors
b. that has issued securities that are publicly traded
c. that is owned by the New York Stock Exchange
d. with financial assets belonging only to public institutions
e. that only sold its securities initially to public, as opposed to private, investors
ANSWER: b
POINTS: 1
128. Under SEC rules, a "publicly held company" is a company:
a. with all its securities held by public, not private, investors
b. that only sells its securities to public, as opposed to private, investors
c. owned by the New York Stock Exchange
d. with financial assets belonging only to public institutions
ANSWER: e
POINTS: 1
129. According to the SEC rules, a company that has issued securities that are publicly traded is a:
a. publicly traded company
b. publicly held company
c. privately held company
d. part of the New York Stock Exchange
ANSWER: b
POINTS: 1
130. Under SEC rules, a "private company" is a company:

a. with all its securities held by investment firms
b. with fewer than 500 shareholders and shares not openly traded
c. that does not allow foreign investors to own its stock
d. with financial assets belonging only mutual funds
ANSWER: b
POINTS: 1
131. Under SEC rules, a "private company" is a company:
a. with all its securities held by investment firms
b. with no more than 1,000 shareholders and shares not traded openly
c. that does not allow foreign investors to own its stock
d. with financial assets belonging only mutual funds
ANSWER: e
POINTS: 1
132. According to SEC rules, a company that has fewer than 500 shareholders and does not allow its securities to be
openly traded is called a:
a. private company
b. publicly traded company
c. publicly held company
d. private enterprise
e. semi-private company
ANSWER: a
POINTS: 1
133. What financial disclosure report is not required of traded securities regulated by the SEC?
a. a monthly 8-K report
b. a quarterly 10-Q report
c. a biannual 8-Q report
d. an annual 10-K report
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
134. A 10-K report is:
a. an extensive audited annual financial statement
b. a prospectus issued prior to an initial stock sale
c. the registration statement held for public inspection by the SEC
d. also called a red herring
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
135. A 10-K report is:

a. an explanation of unexpected or unusual financial events
b. a prospectus issued prior to an initial stock sale
c. the registration statement held for public inspection by the SEC
d. also called a red herring
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
136. The is an extensive audited financial statement similar in content to the information provided in the
registration process under the 1933 Act.
a. 10-K annual report
b. 8-K report
c. biannual 8-E report
d. prospectus
e. Howey report
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
137. The is an extensive audited financial statement similar in content to the information provided in the
registration process
under the 1933 Act. a.
I-9 annual report
b. 8-K report
c.
biann
ual 8-
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d.
prosp
ectus
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
138. According to SEC rules, 8-K reports must be filed:

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139. According to SEC rules, 10-K reports must be filed:
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ON DIFFICULTY: Easy
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140. According to SEC rules, 10-Q reports must be filed:
a. annually
b. weekly
c. monthly
d. quarterly
e. whenever significant financial developments occur
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
141. The SEC rule that requires public companies to release material information to the public rather than release the
information on a selective basis, such as in meetings with security analysts, is called:
a. Regulation Fair Disclosure (FD)
b. Rule 8-K
c. Insider Trading Rule (ITR)
d. OTC Rule
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
142. The SEC rule that requires public companies to release material information to the public rather than release the
information on a selective basis, such as in meetings with security analysts, is called:
a. the 10-Q Report Regulation
b. Rule 8-K
d. OTC Rule
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
143. Regulation Fair Disclosure (FD) requires:
a. public companies to release material information to the public rather than to selected individuals
b. public companies to release information about significant information within 24 hours of the event or when it
first becomes known
c. public companies to release information about securities trades by all senior executives and board members
d. public companies to provide explanations about all significant changes in the price of securities
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
144. Regulation Fair Disclosure (FD) requires:

a. insiders in companies to release reports on all securities trades
b. public companies to release information about significant information within 24 hours of the event or when it
first becomes known
c. public companies to release information about securities trades by all senior executives and board members
d. public companies to provide explanations about all significant changes in the price of securities
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
145. Companies are required to release material information to the public, rather than to reveal such information
selectively under:
b. Regulation Fair Disclosure (FD)
d. OTC Rule
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
146. Companies are required to release material information to the public, rather than to reveal such information
selectively under:
b. Rule 8-K
d. OTC Rule
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
147. A proxy is best described as:

a. an elaborate audited report
b. a registration statement
c. permission by a stockholder to someone else to vote their shares a certain way
d. permission for a stockholder to file a proposal with the board at the annual meeting
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
148. A proxy is best described as:

a. a detailed audited financial report
b. a registration statement
c. an unaudited financial report
d. permission for a stockholder to file a proposal with the board at the annual meeting
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
149. Since it is not practical for many stock owners to attend corporate meetings at which shareholders vote to approve
major decisions, shareholders are sent to be voted on their behalf.
a. proxies
b. substitutes
c. informants
d. secret ballots
e. open ballots
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
150. Corporations must have annual stockholder meetings at which major business decisions of the firm are determined.
Since many stockholders are not at meetings, the way they vote their shares is called:
a. a tender offer
b. absentee ballot
c. a proxy
d. a security stake
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
151. Corporations must have annual stockholder meetings at which major business decisions of the firm are determined.
Since many stockholders are not at meetings, the way they vote their shares is called:
a. a tender offer b.
absentee ballot c.
a security stake
d. none of the other choices because those shares may not be voted
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
152. When a company wants to take over another, it may issue:
a. a tender offer
b. a proxy
c. a merit regulation offer
d. a margin requirement
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
153. When a company wants to take over another, it may issue:

a. a shelf listing offer
b. a proxy
c. a merit regulation offer
d. a margin requirement
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
154. A tender offer takes place when:

a. a corporation dissolves
b. a partnership terminates
c. one company attempts to take over another company
d. one party makes their securities available for sale
e. the government refuses to regulate an industry
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
155. A tender offer takes place when:
a. a corporation dissolves
b. a partnership terminates
c. the government refuses to regulate an industry
d. one party makes their securities available for sale
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
156. Most securities fraud cases arise from:

a. false and misleading information in the registration materials
b. information obtained during later disclosure, such as public statements made by corporate representatives
c. failure to register properly
d. government issued securities
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
TOPICS: A-Head: Securities Fraud
157. Under , any person who buys a security covered by a registration statement that contains false or misleading
information, or that omits information that was important to a decision to purchase, may sue to recover losses
incurred in that purchase.
a. Section 11 of the 1933 Securities Act
b. Section 11 of the 1943 Securities Exchange Act
c. the common law
d. Section 13 of the 1933 Securities Act
e. Section 35 of the 1933 Securities Act
ANSWER: a
POINTS: 1
158. Section 11 of the 1933 Securities Act imposes civil liability for:
a. misleading statements in securities registration material
b. poorly run businesses
c. unsuccessful investment schemes
d. late registration of securities
e. unreasonable risk in investment
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
159. In a suit for fraud against the issuer of a security, which element would not have to be shown?
a. a security was involved
b. there was a misleading statement or material omission
c. bad information was contained in an SEC filing
d. all elements must be shown
e. none of these elements are necessary, but make for a stronger case
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
160. In a suit for fraud against the issuer of a security, which element would not have to be shown?
a. a security was involved
b. there was a misleading statement or material omission
c. a financial loss was suffered
d. all elements must be shown
e. none of these elements are necessary, but they make for a stronger case
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
161. A security is sold to the public under a private placement exemption. Later a suit is filed under federal securities
law claiming securities fraud. This suit will:
a. fail since the security is not subject to the federal law since it was sold under an exemption
b. fail since the security is not subject to the federal law since it was sold under an exemption⎯unless there
were subsequent financial disclosures to the SEC
c. fail since the security is not subject to the federal law since it was sold under an exemption⎯unless a private
common law fraud suit has already prevailed
d. be allowed since all securities are subject to the law
ANSWER: d
POINTS: 1
162. A security is sold to the public under a private placement exemption. Later a suit is filed under the federal securities
law claiming securities fraud. This suit will:
a. fail since the security is not subject to the federal law since it was sold under an exemption
b. fail since the security is not subject to the federal law since it was sold under an exemption⎯unless there
were subsequent financial disclosures to the SEC
c. fail since the security is not subject to the federal law since it was sold under an exemption⎯unless a private
common law fraud suit has already prevailed
d. be allowed only if there was a blue sky law violation
ANSWER: e
POINTS: 1
163. The SEC's Rule 10b-5:
a. was adopted under Section 10(b) of the 1934 Act
b. concerns securities fraud and prohibits "manipulative" deceptive device
c. applies to registered and unregistered securities
d. was adopted under Section 10(b) of the 1934 Act concerns securities fraud and prohibits "manipulative"
deceptive device
e. was adopted under Section 10(b) of the 1934 Act concerns securities fraud and prohibits "manipulative"
deceptive device and applies to registered and unregistered securities
ANSWER: e
POINTS: 1
164. The SEC's Rule 10b-5:

a. applies to registered securities only
b. concerns securities fraud and prohibits "manipulative" deceptive device
c. applies to registered and unregistered securities
d. applies to registered securities only and concerns securities fraud and prohibits "manipulative" deceptive
device
e. concerns securities fraud and prohibits "manipulative" deceptive device and applies to registered and
ANSWER: e
POINTS: 1
165. Fraud in securities dealings may be litigated under:
a. common law fraud rules
b. SEC Rule 10b-5
c. SEC Rule 246
d. common law fraud rules or SEC Rule 10b-5
e. common law fraud rules or SEC Rule 10b-5 or SEC Rule 246
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
166. Fraud in securities dealings may be litigated on the basis of:

a. SEC Rule 14g
b. SEC Rule 10b-5
c. SEC Rule 246
d. SEC Rule 14g or Rule 10b-5
e. SEC Rule 14g or Rule 10b-5 or Rule 246
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
167. SEC Rule 10b-5 holds it illegal for anyone involved in securities dealings to:
a. employ any device, scheme, or artifice to defraud
b. make any untrue statement of a material fact or to omit to state a material fact
c. engage in any sale of property that would impose deceit upon any person
d. employ any device, scheme, or artifice to defraud or make any untrue statement of a material fact or to omit
to state a material fact
e. employ any device, scheme, or artifice to defraud or make any untrue statement of a material fact or to omit
to state a material fact or engage in any sale of property that would impose deceit upon any person
ANSWER: d
POINTS: 1
168. SEC Rule 10b-5 holds it illegal for anyone involved in securities dealings to:
a. sell any security without registration
b. make any untrue statement of a material fact or to omit to state a material fact
c. engage in any sale of property that would impose deceit upon any person
d. sell any security without registration or make any untrue statement of a material fact or to omit to state a
material fact
e. sell any security without registration or make any untrue statement of a material fact or to omit to state a
material fact or engage in any sale of property that would impose deceit upon any person
ANSWER: b
POINTS: 1
169. Suppose there has been securities fraud in the preparation of materials sent to investors, who then lose money.
Potentially, which of the following may be liable?
a. directors of the company
b. high-level officers of the company
c. accountants, lawyers and other professionals who helped prepare the material
d. directors of the company and high-level officers of the company
e. directors of the company and high-level officers of the company and accountants, lawyers and other
professionals who helped prepare the material
ANSWER: e
POINTS: 1
170. Suppose there has been securities fraud in the preparation of materials sent to investors, who then lose money.
Potentially, which of the following may be liable?
b. high-level officers of the company
c. SEC reviewing staff that committed "significant errors"
d. directors of the company and high-level officers of the company
e. directors of the company and high-level officers of the company and SEC reviewing staff that committed
"significant errors"
ANSWER: d
POINTS: 1
171. Which of the following would never be liable for securities fraud in the preparation of materials sent to investors:
b. accountants
c. lawyers who helped prepare disclosure materials
d. all of the other specific choices could be liable
e. none of the other specific choices could ever be liable
ANSWER: d
POINTS: 1
172. The SEC may sue those alleged to be violating securities laws. Most SEC actions in these cases are:
a. public and so expose the involved parties to publicity
b. not public and so do not expose the involved parties to publicity
c. only known to a few individuals
d. generally kept quiet and rarely heard of by the public
e. highly restricted
ANSWER: a
POINTS: 1
173. Under the 1934 Securities Exchange Act liability may be imposed on corporate officials for misstatements or
omissions made in which of the following?
a. public statements by the officials
b. SEC disclosure documents
c. press releases issued by the company
d. public statements by the officials and SEC disclosure documents
e. public statements by the officials and SEC disclosure documents and press releases issued by the company
ANSWER: e
POINTS: 1
174. Under the securities law, liability for misstatements:

a. can be imposed on securities offerors, but not corporate officials
b. can be imposed for overly optimistic statements made by executives that are not soundly grounded
c. would not be imposed for misstatements in press releases due to First Amendment protection of media
d. none of the other choices
ANSWER: b
POINTS: 1
175. Under the securities law, liability for misstatements:

a. can be imposed on securities offerors, but not corporate officials
b. cannot be imposed for overly optimistic statements made by executives
c. would not be imposed for misstatements in press releases due to First Amendment protection of media
d. none of the other choices
e. can only be imposed by the SEC, not by private party litigation
ANSWER: d
POINTS: 1
176. Under securities law, misleading information that would reasonably affect investment decisions by securities
owners includes:
a. overly optimistic statements by executives
b. cautious speculation by shareholders about future profits
c. commentary from an unbiased stock analyst
d. a newspaper reporter's speculation that the price of a stock will increase
e. an independent website's prediction that a company will have a successful quarter
ANSWER: a
POINTS: 1
177. Overly optimistic statements by executives are:

a. occasionally the grounds for private suits seeking damages based on a claim of securities fraud
b. rarely the cause of private suits for damages based on a claim of securities fraud
c. one of the most common grounds for private suits seeking damages based on a claim of securities fraud
d. encouraged by stock brokers
ANSWER: c
POINTS: 1
178. The president of a company says that new products to be introduced are sure to double company profits. Based on
this, investors buy stock in the company, pushing up its price. The products flop, the company loses money, so the
stock price falls. Investors are most likely to sue the president of the company under what theory provided by the
securities law?
a. liability for mismanagement
b. liability for insider trading
c. liability for misstatements
d. liability for securities negligence
e. none of the other choices; there is no basis for a lawsuit here
ANSWER: c
POINTS: 1
179. The president of a company says that new products to be introduced are sure to double company profits. Based on
this, investors buy stock in the company, pushing up its price. The products flop, the company loses money, so the
stock price falls. Investors are most likely to sue the president of the company under what theory provided by the
securities law?
a. liability for mutual securities fraud
b. liability for insider trading
c. liability for securities negligence
d. liability for proxy fraud
ANSWER: e
POINTS: 1
180. The Securities Litigation Reform Act of 1995:
a. makes companies strictly liable for misstatements
b. makes it safer for firms to make careful predictions about profits and success
c. imposes greater liability on companies that make predictions about future performance
d. changes the liability standard in securities fraud cases to negligence
e. does none of these things
ANSWER: b
POINTS: 1

b. gives companies and executives a safe harbor when making forecasts about the future
e. does none of these things
ANSWER: b
POINTS: 1

b. increases the prison terms for securities violators
ANSWER: e
POINTS: 1
183. Companies that make forecasts that are accompanied by "meaningful cautionary statements identifying important
factors that could cause actual results to differ materially from those in the forward-looking statement" are
protected from litigation by:
a. the Securities Litigation Reform Act of 1995
b. the Securities Act of 1933
c. the Securities Exchange Act of 1934
d. the Howey Act
e. the Safe Harbor Act of 1995
ANSWER: a
POINTS: 1
184. Companies that make forecasts that are accompanied by "meaningful cautionary statements identifying important
factors that could cause actual results to differ materially from those in the forward-looking statement" are
protected from litigation by:
a. the Safe Harbor Act of 1995
c. the Securities Exchange Act of 1934
d. the Howey Act
ANSWER: e
POINTS: 1
185. The Securities Litigation Uniform Standards Act of 1998 requires:
a. securities litigation to be part of the federal criminal code
b. securities litigation involving nationally-traded securities to be in federal court
c. all state securities laws to come into conformance with federal standards
d. internationally traded securities to come under the rules of the London Treaty
ANSWER: b
POINTS: 1
186. The Securities Litigation Uniform Standards Act of 1998 requires:

a. securities litigation to be part of the federal criminal code
b. the SEC to issue stronger, consistent rules against insider trading
c. all state securities laws to come into conformance with federal standards
d. internationally traded securities to come under the rules of the London Treaty
ANSWER: e
POINTS: 1
187. Under the , securities suits involving nationally traded securities must be brought exclusively in federal court
under federal law.
a. Safe Harbor Act of 1995
b. Securities Act of 1933
c. Securities Exchange Act of 1934
d. Securities Litigation Uniform Standards Act of 1998
e. Securities Litigation Reform Act of 1995
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
188. Under the , securities suits involving nationally traded securities must be brought exclusively in federal court
under federal law.
a.
Safe
Harbo
r Act
of
1995
b.
Securi
ties
Act of
1933
d. Securities
Litigation Reform Act
of 1995 e. none of
the other choices are
correct
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
189. In City of Livonia Employees Retirement System v. Boeing Co., City sued Boeing on
behalf of all persons who bought Boeing stock in a certain time period on the basis that
the company was overly optimistic about the time schedule for the new 787 aircraft.
When problems with the plane developed, the stock fell ten percent. Suit claimed that
company executives made false statements about the plane, so committed securities
fraud. The appeals court held that Boeing was:
a. liable for securities fraud because the reports about the plane were not sufficiently
identified as a forward- looking statement
b. not liable for securities fraud because the Private Securities Litigation Reform Act
requires that plaintiffs
"demonstrate fraud" in company statements,
which did not happen
c. Not liable for securities fraud because there is no evidence Boeing knew of the
problems in advance d. American Express was liable for all damages due to its
overly optimistic statements
e. American Express was liable for securities fraud because it did not have a separate
section of the report that identified it as a forward looking statement
ANSWER: c
POINTS: 1
DIFFIC
ULTY:
Moderate
NATION
AL
STANDA
RDS:
United
States -
BUSPRO
G:
Analytic
STATE
STANDA
RDS:
United
States -
Universal
- DISC:
AICPA:
BB-Legal
TOPICS:
A-Head:
Securities
Fraud
KEYWO
RDS:
Bloom's:
Analysis
190. In City of Livonia Employees Retirement System v. Boeing Co., City sued Boeing on behalf of all persons
who bought Boeing stock in a certain time period on the basis that the company was overly optimistic about
the time schedule for the new 787 aircraft. When problems with the plane developed, the stock fell ten
percent. Suit claimed that company executives made false statements about the plane, so committed securities
fraud. The appeals court held that Boeing was:
a. liable for securities fraud because the reports about the plane were not sufficiently identified as a
forward- looking statement
b. liable for securities fraud because the Private Securities Litigation Reform Act requires that plaintiffs
"demonstrate fraud" in company statements, which was
done
c. was liable for securities fraud because it did not have a separate section in its report that identified it
as a forward looking statement
d. was liable for all damages due to "actual knowledge" of overly optimistic statements
ANSWER: e
POINTS: 1
191. The Sarbanes-Oxley Act requires large companies with publicly traded stock to:
a. have the CEO personally certify the company's financial reports to the SEC
b. file all litigation in federal court, not state court
c. provide the SEC with a report of all insider trades by company managers
d. have the CEO personally certify the company's financial reports to the SEC and file all litigation in federal
court, not state court
e. have the CEO personally certify the company's financial reports to the SEC and file all litigation in federal
court, not state court and provide the SEC with a report of all insider trades by company managers
ANSWER: a
POINTS: 1
192. The Sarbanes-Oxley Act:
a. requires large companies with publicly traded stock to have the CEO personally certify the company's
financial reports to the SEC
b. requires all securities litigation to be filed in federal court, not state court
c. provides whistle-blower protection from those reporting securities violations
d. requires large companies with publicly traded stock to have the CEO personally certify the company's
financial reports to the SEC and provides whistle-blower protection fro those reporting securities violations
e. requires large companies with publicly traded stock to have the CEO personally certify the company's
financial reports to the SEC and requires all securities litigation to be filed in federal court, not state court and
provides whistle-blower protection fro those reporting securities violations
ANSWER: d
POINTS: 1
193. The requires that the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of large companies
that have publicly traded stock personally certify that financial reports made to the SEC comply with SEC rules and
that the information in the reports is accurate.
b. Sarbanes-Oxley Act of 2002
d. Securities Litigation Reform Act of 1995
ANSWER: b
POINTS: 1
194. The requires that the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of large companies
that have publicly traded stock personally certify that financial reports made to the SEC comply
with SEC rules and that the information in the reports is accurate.
a. Safe
Harbor Act
of 1995 b.
Securities
Act of
1933
c. Securities
Exchange Act of
1934
d. Securities Litigation
Reform Act of 1995 e.
none of the other choices
are correct
ANSWER:
e
POINTS:
1
DIFFICULTY:
Moderate
NATIONAL STANDARDS: United States -
BUSPROG: Analytic
STATE STANDARDS: United States - Universal - DISC:
AICPA: BB-Legal
TOPICS: A-Head:
Securities Fraud
KEYWORDS:
Bloom's: Analysis
195. Under securities law, knowingly making a misstatement in company reports is a:

a. criminal offense with fines up to $5 million and up to
20 years in prison
b. criminal offense with fines up to $2 million, but no
possibility of prison time c. criminal offense with fines up to
$5 million, but no possibility of prison time d. criminal
offense with up to 20 years in prison, but no possibility of
fines
e. criminal offense with up to 30 years in prison and
$4 million in fines
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
B l - DISC: AICPA: BB-Legal
U TOPICS: A-Head:
S Securities Fraud
P
R KEYWORDS:
O Bloom's: Analysis
G
196. Under securities law, knowingly making a misstatement in company reports is punishable by which
:
of the following:
A a. fines
n up to $5
a million
l
b. fines
y
t up to
i $10
c million
S c. up to
T
A 20 years
T in prison
E d. up to
S 30 years
T in prison
A e. both a
N and c are
D possible
A
R ANSWER:
D e
S POINTS:
: 1
U DIFFICULTY:
n Moderate
i NATIONAL STANDARDS: United States -
t BUSPROG: Analytic
e STATE STANDARDS: United States - Universal - DISC:
d AICPA: BB-Legal
S TOPICS: A-Head:
t Securities Fraud
a KEYWORDS:
t Bloom's: Analysis
e
s
U
n
i
v
e
r
s
a
197. The Public Company Accounting Oversight Board, which has authority to set accounting standards and discipline
CPAs for misconduct, was established by the:
b. Sarbanes-Oxley Act of 2002
ANSWER: b
POINTS: 1
198. The Public Company Accounting Oversight Board, which has authority to set accounting standards and discipline
CPAs for misconduct, was established by the:
b. Securities Act of 1933
ANSWER: e
POINTS: 1
199. The , which was established by the Sarbanes-Oxley Act of 2002, has authority to set accounting standards
and discipline CPAs for misconduct.
a. Public Executive Oversight Board
b. Public Company Accounting Oversight Board
c. Public Corporation Regulation Board
d. Public and Private Accounting Monitoring Board
ANSWER: b
POINTS: 1
200. The , which was established by the Sarbanes-Oxley Act of 2002, has authority to set accounting standards
and discipline CPAs
for misconduct. a.
Public Executive
Oversight Board b.
Public Investment
Oversight Board
c. Public Corporation
Regulation Board
d. Public and Private Accounting
Monitoring Board e. none of the
ANSWER:
e
POINTS:
1
DIFFICULTY:
Moderate
BUSPROG: Analytic
AICPA: BB-Legal
TOPICS: A-Head:
Securities Fraud
KEYWORDS:
Bloom's: Analysis
201. Which of the following is an important impact of the Sarbanes-Oxley Act:

a. it made private equity markets more attractive compared to
public markets
b. it raised the cost of listing a stock in the U.S. relative to other
stock exchanges c. it had a chilling effect on managers'
willingness to take risks
d. it threatens U.S. listed companies with more lawsuits and brings criminal liability
into civil disputes e. all of the other specific choices are correct
ANSWER:
e
POINTS:
1
DIFFICULTY:
Moderate
BUSPROG: Analytic
AICPA: BB-Legal
TOPICS: A-Head:
Securities Fraud
KEYWORDS:
Bloom's: Analysis
ck exchanges b. led to lower costs
202.
for small businesses
Studies
indicated c. led to corporate business shifting away from the U.S. to competitors
that the such as London d. led to corporate business shifting away from places
enactme like London and to the U.S.
nt of the
Sarbanes e. an increase in purchases of
-Oxley government bonds
Act has:
ANSWER:
a c
. POINTS:
1
l DIFFICULTY:
e Moderate
d NATIONAL STANDARDS: United States -
BUSPROG: Analytic
t
AICPA: BB-Legal
o
TOPICS: A-Head:
Securities Fraud
m KEYWORDS:
o Bloom's: Analysis
r
e
i
n
v
e
s
t
m
e
n
t
i
n
U
.
S
.
s
t
o
203. Insider trading is:
a. the buying or selling of stock by persons who have access to information, not yet revealed to the public, that
affects the value of the stock
b. only the buying of stock by persons who have access to information, not yet revealed to the public, that
c. only the selling of stock by persons who have access to information, not yet revealed to the public, that
d. stock trades inside a one-year time period by directors
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
TOPICS: A-Head: Insider Trading

a. stock trades inside a thirty-day time period by corporate insiders
b. only the buying of stock by persons who have access to information, not yet revealed to the public, that
c. only the selling of stock by persons who have access to information, not yet revealed to the public, that
d. stock trades inside a one-year time period by directors
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
205. The buying or selling of stock by persons who have access to information affecting the value of the stock that has
not yet been revealed to the public is called:
a. outsider trading
b. insider trading
c. false trading
d. preemptive trading
e. unreasonable trading
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
206. The buying or selling of stock by persons who have access to information affecting the value of the stock that has
not yet been revealed to the public is called:
a. outsider trading
b. unreasonable trading
c. false trading
d. preemptive trading
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
207. The rationale behind prohibiting insider trading is that:

a. it gives the public an unfair advantage
b. it puts people with inside information at a competitive disadvantage
c. it gives people in high positions in a company an unfair advantage
d. it reduces the compensation packages of executives
e. it is a perk of the job for executives
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
208. The rationale behind prohibiting insider trading is that:
a. it gives the public an unfair advantage
b. it puts people with inside information at a competitive disadvantage
c. it is a perk of the job for executives
d. it reduces the compensation packages of executives
ANSWER: e
POINTS: 1
DIFFICULTY: Easy

a. legal if no profit is made
b. legal if the insider gets an outsider to buy or sell
c. illegal because insiders are strictly prohibited from stock trading under SEC Rule 10b-5
d. illegal when insiders trade based on information they have a fiduciary duty not to trade on
e. illegal because employment contracts for insiders prohibit trading in the securities issued by their employer
ANSWER: d
POINTS: 1
DIFFICULTY: Easy

a. legal if no profit is made
b. legal if the insider gets an outsider to buy or sell
c. illegal because insiders are strictly prohibited from stock trading under SEC Rule 10b-5
d. illegal because employment contracts for insiders prohibit trading in the securities issued by their
employer e. none of the other choices
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
211. You are on the subway in New York when you overhear two people you do not know talking about an upcoming
merger, news not yet public. They seem to know their stuff. If you buy stock based on this information, and profit
when the information turns out true, you have:
a. profited, but are an outsider and so your actions are probably not illegal
b. engaged in insider trading that is probably illegal
c. not engaged in insider trading because you are not a corporate officer
d. not engaged in insider trading because once you overheard the information it was public
e. violated the Insider Trading Sanctions Act and could face criminal charges
ANSWER: a
POINTS: 1
212. You are on the subway in New York when you overhear two people you do not know talking about an upcoming
merger, news not yet public. They seem to know their stuff. If you buy stock based on this information, and profit
when the information turns out true, you have:
a. violated the Insider Trading Sanctions Act and are likely to face criminal charges
b. engaged in insider trading that is probably illegal
c. not engaged in insider trading because you are not a corporate officer
d. not engaged in insider trading because once you overheard the information it was public
ANSWER: e
POINTS: 1
213. The CEO of Big Ships knows his company has won a $2 billion contract to build ships for the Navy. He is told
by the Navy to keep this quiet until the official announcement. Knowing that Big Ships stock will rise when the
announcement is made, he tells his children to buy as much Big Ships stock as they can right away. He does not
buy any stock. The CEO may:
a. not be sued for insider trading since he did not engage in trades; his relatives can be sued
b. not be sued for insider trading because he did not engage in trades; his relatives may not be sued because
they have no relation to the company
c. not be sued for insider trading under the Supreme Court rule in the Dirks case
d. be sued for insider trading because he gave out inside information he had a fiduciary duty to keep secret
e. be sued only if his employment contract or contract with the Navy prohibits trading
ANSWER: d
POINTS: 1
214. The CEO of Big Ships knows his company has won a $2 billion contract to build ships for the Navy. He is told
by the Navy to keep this quiet until the official announcement. Knowing that Big Ships stock will rise when the
announcement is made, he tells his children to buy as much Big Ships stock as they can right away. He does not
buy any stock. The CEO may:
a. not be sued for insider trading since he did not engage in trades; his relatives can be sued
b. not be sued for insider trading because he did not engage in trades; his relatives may not be sued because
they have no relation to the company
c. not be sued for insider trading under the Supreme Court rule in the Dirks case
d. be sued only if his employment contract or contract with the Navy prohibits trading
ANSWER: e
POINTS: 1
215. Someone who engages in insider trading:
a. may be prosecuted by the SEC
b. may lose their U.S. citizenship
c. may be required to serve a certain number of community service hours
d. may be prosecuted by the governor of their state
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
216. Chiarella worked at a company that printed financial documents. In one documents, he read confidential information
that allowed him to buy stock and make a nice profit because of his knowledge. When sued by the SEC for insider
trading, the Supreme Court found Chiarella:
a. guilty of violating Rule 10(b)-5 because he failed in his duty to disclose relevant information
b. guilty of violating Rule 10(b)-5 because he traded in securities based on inside information
c. guilty of violating Section 16(b) because he engaged in short-swing trading for profit
d. guilty of securities fraud based on common law fraud
ANSWER: e
POINTS: 1
217. Chiarella worked at a company that printed financial documents. In one documents, he read confidential information
that allowed him to buy stock and make a nice profit because of his knowledge. When sued by the SEC for insider
trading, the Supreme Court found Chiarella:
a. guilty of violating Rule 10(b)-5 because he failed in his duty to disclose relevant information
b. guilty of violating Rule 10(b)-5 because he traded in securities based on inside information
c. guilty of violating Section 16(b) because he engaged in short-swing trading for profit
d. not guilty of insider trading because he had no fiduciary duty not to use the information
ANSWER: d
POINTS: 1
218. Someone who does not have a fiduciary duty to the shareholders of a company and uses inside information to make
a profit with company stocks:
a. is probably guilty of insider trading
b. is probably not guilty of insider trading
c. can only be guilty of insider trading if he shares the information with others
d. is guilty of insider trading if he makes more than $50,000 in profits
ANSWER: b
POINTS: 1
219. Jones works at an investment firm that helps corporations merge with other companies. Because of her work, she
knows that two clients of her firm are going to merge. She also knows that when the announcement is made, the
price of stock in these companies will jump. She buys stock in the companies before the announcement. She is:
a. probably guilty of insider trading
b. not guilty of insider trading under the Dirks case because she is outside of the companies
c. not guilty of insider trading under the Chiarella case because she owes no fiduciary duty to the companies
d. probably not guilty of insider trading because, under SEC Rule 10b-5, one must be a director or manager of
the firms in question for the law to apply
ANSWER: a
POINTS: 1
220. In SEC v. Ginsburg, Ginsburg was CEO of a company that merged with another company, and he told his
relatives that the merger might occur. Knowing that the stock price might then rise, the relatives bought stock in the
company and profited. Ginsburg was prosecuted by the SEC for insider trading. The appeals court held that:
a. Ginsburg was guilty and would pay a $1 million fine
b. Ginsburg had misappropriated company information by passing information on to his relatives, but that was
not insider trading, so he could not be convicted
c. Ginsburg may have used poor judgment but his relatives have no obligation to the company, so there is
no legal issue here
d. Ginsburg had violated his fiduciary obligation and can be sued for any losses that the company suffers as a
result, but has not violated the rule against insider trading
ANSWER: a
POINTS: 1
company and profited. Ginsburg was prosecuted by the SEC for insider trading. The appeals court held that
Ginsburg:
a. violated the criminal statute against insider trading and was sent to five years in prison
b. had misappropriated company information by passing information on to his relatives, but that was not insider
trading, so he could not be convicted of insider trading
c. may have used poor judgment but his relatives have no obligation to the company, so there is no legal
issue here
d. had violated his fiduciary obligation and can be sued for any losses that the company suffers as a result, but
has not violated the rule against insider trading
ANSWER: e
POINTS: 1
a. there was not enough evidence to reasonably permit the inference that Ginsburg conveyed nonpublic
information to his family members
b. there was enough evidence to reasonably permit the inference that Ginsburg conveyed nonpublic information
to his family members, so he was liable for securities fraud
c. Ginsburg did not have a fiduciary obligation to the company, so could not be guilty of insider trading
d. Ginsburg had a fiduciary obligation to the company, but his conduct could not be proven to have violated it
e. Ginsburg did not use the information himself so there was no fraud
ANSWER: b
POINTS: 1
a. there was not enough evidence to reasonably permit the inference that Ginsburg conveyed nonpublic
information to his family members, so he was not liable for securities fraud
b. Ginsburg did not use the information himself so there was no fraud
c. Ginsburg did not have a fiduciary obligation to the company, so could not be guilty of insider trading
d. Ginsburg had a fiduciary obligation to the company, but his conduct could not be proven to have violated it
ANSWER: e
POINTS: 1
224. Insider trading laws in Europe:

a. do not exist
b. exist, but their constitutionality is not certain
c. exist, but are generally not enforced as much as the law is in the U.S.
d. are generally tougher than U.S. insider trading laws
e. lead to about 100 criminal prosecutions per year for violations
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
225. Federal statutes provide for a maximum fine of $2.5 million per criminal action for violations of the law against
insider trading. A person may also:
a. not be sent to prison
b. receive up to six months in prison per violation
c. receive up to one year in prison per violation
d. receive up to ten years in prison per violation
ANSWER: d
POINTS: 1
226. If a person is convicted under the Insider Trading Sanctions Act he or she may face:
a. treble damages payments
b. payments of the traders' illegal profits to those persons who suffered losses
c. criminal penalties
d. all of the other choices
e. none of the other choices; the Act provides injunctive relief only
ANSWER: d
POINTS: 1
227. What law gives the SEC a basis for prosecuting insider trading?
a. Securities Act of 1933
b. Insider Trading Sanctions Act
c. Merit Regulations Act
d. Investment Advisers Act
e. none of the other choices; these matters are governed by state law
ANSWER: b
POINTS: 1
228. The gave the SEC a statutory basis for prosecuting insider trading.
b. Securities Exchange Act of 1934
c. Securities Fraud Regulation Act of 1995
d. Insider Trading Sanctions Act of 1984
e. Insider Trading Regulation Act of 1994
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
229. The gave the SEC a statutory basis for prosecuting insider trading.
d. Insider Trading Regulation Act of 1994
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
230. The Investment Company Act (ICA):

a. holds investment companies liable to private parties for violations of the Act
b. holds investment companies liable to the SEC for violations of the Act
c. makes the activities of investment companies subject to regulation
d. requires investment companies to register with the SEC
e. all of the other choices apply under the ICA
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
TOPICS: A-Head: The Investment Company Act
231. The Investment Company Act of 1940 regulates:
a. open-end companies (mutual funds)
b. closely held companies
c. stock exchanges
d. over-the-counter (OTC) exchanges
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
232. The requires investment companies to register as such with the SEC, which then makes the companies
subject to regulations of their activities and holds them liable to the SEC, and to private parties, for
violations. a. Investment Company Act of 1940
e. Insider Trading Regulation Act of 1994
ANSWER: a
POINTS: 1
233. The requires investment companies to register as such with the SEC, which then makes the companies
subject to regulations of their activities and holds them liable to the SEC, and to private parties, for
violations. a. Investment Regulation Act of 1944
ANSWER: e
POINTS: 1
234. Which of the following is a type of investment company as defined by the Investment Company Act:
a. face-amount certificate company
b. unit investment trust
c. management company
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
235. Which of the following is NOT a type of investment company as defined by the Investment Company Act:
d. all of the other specific choices are types of investment companies
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
236. Which of the following is NOT a type of investment company as defined by the Investment Company Act:
b. "no-load" company
d. all of the other specific choices are types of investment companies
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
237. A company that issues debt securities paying a fixed return would be defined by the Investment Company Act as
a(n):
d. "no load" company
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
238. A company that issues debt securities paying a fixed return would be defined by the Investment Company Act as
a(n):
a. face-value certificate company
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
239. A company that offers a fixed portfolio of securities would be defined by the Investment Company Act as a(n):
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
240. A company that offers a fixed portfolio of securities would be defined by the Investment Company Act as a:
b. fixed investment company
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
241. The most common investment management company is the:

a. mutual fund
b. face-amount certificate company
c. free portfolio company
d. fixed fund
e. real fund
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
242. are sold through a securities dealer and have a sales commission of some percentage of the price.
a. open mutual funds
b. load mutual funds
c. no-load mutual funds
d. fixed mutual funds
e. limited mutual funds
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
243. are sold through a securities dealer and have a sales commission of some percentage of the price.
b. limited mutual funds
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
244. are sold directly to the public through the mail or Internet with no sales commission.
e. limited mutual funds
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
245. are sold directly to the public through the mail or Internet with no sales commission.
c. limited mutual funds
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
246. Investment companies (that are in the business of investing or trading in securities) are:
a. not subject to the Investment Company Act
b. not subject to the Investment Company Act if they are insurance companies
c. not subject to the Investment Company Act if they are only involved in internal investing, such as banks
d. not subject to the Investment Company Act if they are insurance companies or if they are only involved in
internal investing, such as banks
e. all subject to the Investment Company Act
ANSWER: d
POINTS: 1
247. "No-load" mutual funds:

a. are sold directly to the public
b. are sold by mail or Internet
c. involve a sales commission
d. are sold directly to the public and involve a sales commission
e. are sold directly to the public by mail or by the Internet
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
248. Under the Investment Company Act, investment companies must:

a. pay dividends to investors equal to at least 20 percent of their taxable ordinary income
b. certify their employees with the SEC
c. hold their capital and debts in ways approved by the SEC
d. pay dividends to investors equal to at least 20 percent of their taxable ordinary income and hold their capital
and debts in ways approved by the SEC
e. pay dividends to investors equal to at least 20 percent of their taxable ordinary income and certify their
employees with the SEC and hold their capital and debts in ways approved by the SEC
ANSWER: c
POINTS: 1
249. To reduce possible conflicts of interest, the Investment Company Act requires that boards of directors:
a. be composed entirely of outsiders
b. be composed of at least 40% outsiders
c. be composed of at least 20% outsiders
d. be composed entirely of corporate managers
e. hire corporate attorneys to advise them on possible issues of conflicts of interest
ANSWER: b
POINTS: 1
250. The Investment Company Act requires that at least 40% of the board of directors of an investment company must
be outsiders to:
a. reduce possible conflicts of interest
b. prevent insider trading
c. reduce the possibility of insider trading
d. make sure the board is very diverse
ANSWER: a
POINTS: 1
251. Merrill Lynch and other brokerage firms, in an effort to reduce conflicts of interest inside the company, have
established policies:
a. restricting the sale of securities they underwrite
b. not trading securities for clients in which the company will not invest
c. restricting trading in securities by analysts who comment on those securities
d. restricting the sale of securities they underwrite and restricting trading in securities by analysts who comment
on those securities
e. not trading securities for clients in which the company will not invest and restricting trading in securities by
analysts who comment on those securities
ANSWER: c
POINTS: 1
252. Investment advisers:

a. manage pension funds and insurance portfolios
b. have a fiduciary duty towards the investment companies they work for
c. manage several trillion dollars' worth of investments
d. are usually paid a fee based on the net asset value of the funds they manage
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
TOPICS: A-Head: The Investment Advisers Act
253. Which of the following securities professionals must be registered with the SEC to be able to engage in business?
a. brokers
b. dealers
c. corporate officers
d. brokers and dealers
e. brokers, dealers and corporate officers
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
254. A securities professional who engages in the business of buying and selling securities for their own account is a(n):
a. broker
b. dealer
c. investment adviser
d. scalper
e. churner
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
255. A securities professional who engages in the business of buying and selling securities for their own account is a(n):
a. broker
b. churner
d. scalper
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
256. A securities professional who engages in the business of buying and selling securities for the accounts of others is
a(n):
a. broker
b. dealer
d. scalper
e. churner
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
257. A securities professional who are in the business of charging fees for recommendations on investments is a(n):
a. broker
b. dealer
d. scalper
e. churner
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
258. A securities professional who are in the business of charging fees for recommendations on investments is a:
a. broker
b. dealer
c. churner
d. scalper
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
259. Which of the following is a securities professional:

a. a broker
b. a dealer
c. an adviser
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
260. Which of the following is NOT a securities professional:
a. a broker
b. a dealer
c. an adviser
d. a scalper
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
261. Which of the following is NOT a securities professional:

a. a broker
b. a dealer
c. an adviser
d. all of the other specific choices are securities professionals
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
262. The SEC does not allow markups of more than above their market value on securities.
a. 5%
b. 10%
c. 1%
d. 1.5%
e. 2%
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
263. When a securities professional buys stock for her own account, then urges investors to buy the same stock so that
the price will rise, and benefit her, has engaged in:
a. kiting
b. churning
c. dealing
d. scalping
ANSWER: d
POINTS: 1
264. When a securities professional buys stock for her own account, then urges investors to buy the same stock so that
the price will rise, and benefit her, has engaged in:
a. kiting
b. churning
c. dealing
d. schmoozing
ANSWER: e
POINTS: 1
265. When a securities professional buys and sells excessive amounts of stock for a client's account to make extra-large
commissions from the trades, she is:
a. kiting
b. churning
c. dealing
d. scalping
ANSWER: b
POINTS: 1
266. When a securities professional buys and sells excessive amounts of stock for a client's account to make extra-large
commissions from the trades, she is:
a. kiting
b. insider trading
c. dealing
d. scalping
ANSWER: e
POINTS: 1
267. The stock exchanges are:

a. not regulated by the SEC
b. self-regulating but subject to SEC control
c. directly regulated by the SEC
d. directly regulated by the SEC only when problems arise
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
TOPICS: A-Head: Stock Market Regulation
268. Since 1970 the volume and value of stock transactions has:
a. declined rapidly
b. slowly declined in favor of more foreign transactions
c. increased by about 80%
d. increased by about 30 times
e. increased slightly
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
269. You work for a securities firm matching orders to buy and sell stocks in small companies. A customer places an
order to buy 100 shares of X Corp. when they sell for $40 a share. You find a seller at $39 per share. May you buy
the shares yourself at $39 and then sell them for $40 to you client?
a. yes, there is no legal or ethical constraint on this since the order was $40 per share
b. so long as you regard this as ethical, there is no legal constraint since the order was $40 per share
c. the SEC places no constraint on this, but in equity the law would require you to sell to your client at
$39 d. no, specialists cannot deal for their own benefit
ANSWER: d
POINTS: 1
270. Which of the following is a self-regulating organization that the SEC has the power to monitor:
a. the New York Stock Exchange
b. the American Stock Exchange
c. the NASDAQ
ANSWER: d
POINTS: 1
271. The Financial Industry Regulatory Authority (FINRA):

a. governs the OTC market
b. governs the New York Stock Exchange
c. is an independent regulatory authority
d. a, b, and c are correct
e. only a and b are correct
ANSWER: d
POINTS: 1
272. Members who violate the rules of a stock exchange can face:
a. suspension of from the exchange
b. expulsion from the exchange
c. a warning, but no permanent expulsion
d. a and b are correct
ANSWER: d
POINTS: 1
273. Firms that generally do not deal directly with the public and instead handle transactions for brokers are known as:
a. specialist firms
b. private firms
c. broker firms
d. unregulated firms
e. specialty firms
ANSWER: a
POINTS: 1
274. The primary dispute resolution mechanism between investors and brokers is:
a. adjudication
b. small claims court
c. arbitration
d. litigation
e. court-sponsored negotiation
ANSWER: c
POINTS: 1
275. The primary dispute resolution mechanism between investors and brokers is:
a. adjudication
b. small claims court
c. court-sponsored negotiation
d. litigation
ANSWER: e
POINTS: 1
276. When investors establish accounts with investment firms or stockbrokers, they usually sign a standard form that
states that disputes must be:
a. litigated
b. settled in small claims courts
c. arbitrated
d. settled for no more than treble damages
ANSWER: c
POINTS: 1
277. The detailed arbitration records from disputes involving investment firms or stockbrokers are:
a. public
b. secret
c. easily viewed if requested
d. destroyed after the decision is made
ANSWER: b
POINTS: 1
278. The arbitration decisions from disputes involving investment firms or stockbrokers are:
a. made public
b. kept secret
c. only allowed to be viewed by a court official
d. only accessible through a lengthy application process
ANSWER: a
POINTS: 1
279. The Supreme Court held that binding arbitration agreements between investors and investment firms:
a. violate basic rights of investors
b. defraud investors under the securities law
c. are legal only if the investors may first litigate claims
d. are unconscionable
e. are legal
ANSWER: e
POINTS: 1
280. The increases regulatory oversight of financial markets, but not the way securities are issued or generally
handled.
a. Dodd-Frank Act
b. Howey Act
c. Financial Oversight Act
d. Financial Regulation Act
e. Amended Securities Exchange Act
ANSWER: a
POINTS: 1
281. The increases regulatory oversight of financial markets, but not the way securities are issued or generally
handled. a. Amended
Securities Exchange
Act b. Howey Act
c.
Financial
Oversight
Act d.
Financial
Regulation
Act
ANSWER: e
POINTS: 1
282. The buying and selling of futures and

options is called:
a.
trading
of
derivati
ves b.
trading
of
prospe
cts c.
stock
trading
d. trading of intangibles
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
Fact Pattern 21-1
In 2005, Bettina opened Bettina Brownies in a shopping mall. The brownies were a hit and soon Bettina was
operating shops in several malls in Illinois. By 2012 she had expanded operations to Indiana and she decided that
it was time to finance expansion through the equity markets. With an investment banker, she prepared for the
initial offering of Bettina Brownies. She sold 50,000 shares of stock at $10 a share.
Expansion continued. Keebler determined that Bettina was a well-run company with an attractive financial position.
It began secret negotiations with Bettina to buy her interest in the business. News of the negotiations leaked. Mr.
Little, CEO of Keebler, denied that they were pursuing a deal with Bettina. A month later Bettina sold her share of
the business to Keebler.
Shortly before Bettina sold her interest to Keebler, Joe Kelso, a carpet cleaner was working at Bettina office when
he overheard discussion of the sale to Keebler. Joe bought a large number of shares in Bettina. After the Keebler
sale was completed, Joe sold his stock for a substantial profit.
283. Refer to Fact Pattern 21-1. If Bettina received financing for her expansion by selling bonds rather than stock,
which of the following items would Bettina bonds need to include?
a. the rate of interest to be charged on the amount borrowed
b. the length of the period of indebtedness
c. the amount of the debt
d. the method of repayment of the debt
e. the bond would need to specify all of these items
ANSWER: e
POINTS: 1
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
TOPICS: A-Head: Fact Pattern Questions
KEYWORDS: Bloom's: Synthesis
284. Refer to Fact Pattern 21-1. Bettina chose to seek financing by a sale of stock. Which of the following statements
about stock is true?
a. each person who bought a share of Bettina now has an ownership interest in the company
b. each share of Bettina's represents a proportional right to the past profits of the company
c. each share of stock will specify what repayment method it will use
d. Bettina is under a legal obligation to the stockholders to make an exceptional effort to make a profit
e. Bettina must repay each stockholder in future dividends at least an amount of money equal to what they
spent for shares
ANSWER: a
POINTS: 1
285. Refer to Fact Pattern 21-1. When Bettina first sells stock to the public, which legislation will she need to follow?
a. the Investment Advisors Act
c. the Insider Trading Sanctions Act
d. the Securities Exchange Act of 1934
e. the Trust Indenture Act
ANSWER: b
POINTS: 1
286. Refer to Fact Pattern 21-1. Rob DuMase, Bettina's investment banker, told her it costs a lot to comply with the
federal securities laws. Rob suggested Bettina might avoid these requirements by calling the shares in her company
something other than a "stock," for example "brownie squares," since they are not mentioned in the securities law.
If Bettina took Rob's advice, what would the consequences be?
a. under the Supreme Court decision in Howey Bettina would be exempt from securities laws
b. under the Howey test, Bettina would be exempt from the federal securities laws
c. under the Howey decision, Bettina would be subject to the federal securities laws
d. Bettina would be exempt from the federal securities laws if she could used a term for her security that was
not listed in Section 2(1) of the 1933 Securities Act
e. Bettina would be exempt from the federal securities laws because Congress specified what a security is, and
anything not called a stock may not be considered a security for purposes of the federal laws
ANSWER: c
POINTS: 1
287. Refer to Fact Pattern 21-1. Suppose Bettina took Rob's advice and called her offerings "brownie squares" rather
than a stock. The SEC decided to sue Bettina for failure to follow federal securities laws. To prove that the
"brownie squares" were securities for purposes of federal regulation, the SEC must show that:
a. the investors expected to make a profit
b. the investors actually invested money
c. the investors controlled the work that makes Bettina a success or failure
d. the investors expected to make a profit and the investors controlled the work that makes Bettina a success
or failure
e. the investors expected to make a profit and the investors actually invested money
ANSWER: e
POINTS: 1
288. Refer to Fact Pattern 21-1. Bettina decides that Rob's advice is not very good and opts to offer stock for sale.
What must Bettina do in order to insure that her offering is legal?
a. fully disclose all material information concerning her company and the stock she is selling
b. prepare a prospectus as part of her registration statement
c. prepare a Contingency Plan to explain how she would react in the event of a sudden downturn in business
d. fully disclose all material information concerning her company and the stock she is selling and prepare a
prospectus as part of her registration statement
e. fully disclose all material information concerning her company and the stock she is selling and prepare a
prospectus as part of her registration statement and prepare a Contingency Plan to explain how she would
react in the event of a sudden downturn in business
ANSWER: d
POINTS: 1
289. Refer to Fact Pattern 21-1. The SEC discovers that Joe Kelso made a lot of money on the sale of his stock in
Bettina Brownies. Under what provision of the federal securities laws might Joe be prosecuted?
a. under Rule 10-K
b. under Rule 10b-5
c. under Rule 8-K
d. under Rule 144A
e. under Regulation D
ANSWER: b
POINTS: 1
290. Refer to Fact Pattern 21-1. If Joe is prosecuted for insider trading, the SEC will need to prove that he had a
fiduciary duty to not use the information he heard at Bettina offices. Which case will Joe be most likely to rely upon
to prove that he was simply a lucky outsider who did not have a fiduciary duty to not use the information he
acquired?
a. Chiarella v. United States
b. U.S. v. Johnson
c. SEC v. Ginsburg
d. SEC v. Howey
e. SEC v. Levine
ANSWER: a
POINTS: 1

Securities Multiple Choice Questions

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Securities Multiple Choice Questions

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Multiple Choice

1. Securities are important because:

2. Which of the following is NOT a reason why securities are important:

3. The financial future of most people is tied to securities because:

5. A security can be which of the following:

6. Securities differ from other assets in that they:

8. When bonds are sold, there is often a(n) of a certain amount.

9. Bonds issued by a company to raise money:

11. A corporate debt instrument usually specifies:

12. Corporate equity financing instruments generally specify:

14. A debt is a financial obligation a firm. It is:

15. A debt is a financial obligation a firm. It is:

17. is the raising of funds through the sale of company stock.

18. is the raising of funds through the sale of company stock.

20. Securities financing is:

21. A share of stock:

23. A share of stock represents the right to:

24. A share of stock represents the right to:

27. The first regulation of securities in the U.S. was the:

29. The first state to have securities regulation was:

30. The first state to have securities regulation was:

33. The Securities Act of 1933 regulates:

36. regulates trading in existing securities and imposes disclosure requirements on

45. The definition of securities subject to federal regulation is:

48. In SEC v. Howey, the Supreme Court:

56. Having an undivided interest in a company means that:

59. Securities offerings on the Internet are:

62. Which of the following securities would be exempt from regulation:

68. The truth-in-securities law refers to:

74. A red herring:

79. A securities registration statement consists of:

85. Registration of a prospectus for a new stock offering becomes effective:

86. Registration of a prospectus for a new stock offering becomes effective:

92. A prospective issuer of securities must hire which of the following:

94. A prospective issuer of securities must hire which of the following:

95. A prospective issuer of securities must hire which of the following:

100. The SEC allows for a private placement exemption because:

117. A private-placement memorandum is:

118. A private-placement memorandum is:

124. Securities that are on shelf registration:

127. Under SEC rules, a "publicly held company" is a company:

130. Under SEC rules, a "private company" is a company:

135. A 10-K report is:

138. According to SEC rules, 8-K reports must be filed:

144. Regulation Fair Disclosure (FD) requires:

147. A proxy is best described as:

148. A proxy is best described as:

153. When a company wants to take over another, it may issue:

154. A tender offer takes place when:

156. Most securities fraud cases arise from:

164. The SEC's Rule 10b-5:

166. Fraud in securities dealings may be litigated on the basis of:

174. Under the securities law, liability for misstatements:

175. Under the securities law, liability for misstatements:

177. Overly optimistic statements by executives are:

181. The Securities Litigation Reform Act of 1995:

182. The Securities Litigation Reform Act of 1995:

186. The Securities Litigation Uniform Standards Act of 1998 requires:

195. Under securities law, knowingly making a misstatement in company reports is a:

201. Which of the following is an important impact of the Sarbanes-Oxley Act:

204. Insider trading is:

207. The rationale behind prohibiting insider trading is that:

209. Insider trading is: