Series 79 Exams 2023-2024 Q&A
When a customer requests access to FINRA's rule manual, it is permissible for the firm
to - ANS-Firms must provide a
... [Show More] current copy of the FINRA Manual for examination by
customers upon request. Firms may comply with this rule by maintaining electronic
access to the FINRA Manual and providing access to the electronic version. Written
request is not required.
Rule 144 applies - ANS-Corporate insiders owning more than 10 % of company's
securities
All customers must receive written statements of account no less than - ANS-quarterly.
If there has been any recent activity in the account, statements are required to be
provided monthly
A firm's procedures to protect the free flow of material, non-public information to trading
and sales departments
I. Prohibit or restrict the purchase or sale of securities on watch lists
II. Permit the purchase or sale of securities on watch lists but subject the transactions to
scrutiny
III. Prohibit or restrict the purchase or sale of securities on restricted lists
IV. Permit the purchase or sale of securities on restricted lists but subject the
transactions to scrutiny - ANS-II and III
In which of the following situations would it be appropriate for a registered
representative to lend money to a client? - ANS-A registered representative can lend
money to, or borrow money from, a client if the client is a bank or a family member, or
there is some type of outside personal or business relationship. If the client and rep
have been friends for a long time that would potentially qualify. It is important to note
though, that it would still require permission from the firm. If the client happens to be a
bank or family member, permission from the firm would not be required.
Misappropriation - ANS-Misappropriation occurs when persons steal information from
their employer and trade on that information in any stock, not just their employer's stock.
The misappropriation theory broadens the liability for misuse of inside information and is
illegal.
A firm's request to delist its stock from the NYSE is effective only if - ANS-To delist its
stock from the NYSE, a firm must notify the NYSE and file with the SEC. Delisting will
take place if the SEC does not deny the request.
Personal incomes are an example of an economic indicator that is - ANS-Procyclic
indicators move in the same direction as the general economy: they increase when the
economy is thriving and decrease when it is performing poorly. Gross Domestic Product
(GDP) is another example of a procyclic indicator.
At which point in an M&A sale process is a fairness opinion typically rendere - ANS-Just
prior to Board approval and execution of the definitive agreement
Mini-max and firm commitment - ANS-In a mini-max, a minimum amount must be sold
or the offering is called off. If the minimum is sold, any unsold portion is returned to the
issuer. In a firm commitment, the underwriters will purchase the entire issue.
Call schedule - ANS-A call schedule as defined in a bond's indenture lists each call date
of an existing issue and the corresponding price at which the issue can be called. A
bond's call schedule and call prices depend on its term and coupon. They are typically
set at four years ("Non call-4" or "NC-4") for a seven/eight-year fixed rate bond and five
years ("NC-5") for a ten-year fixed rate bond.
JaneDoe Securities is the lead underwriter in an IPO for NewElectronicsCo.
NewElectronicsCo plans on selling 7.5mm shares at an offering price of $18. The
manager's fee is $.30, the full takedown is $1.20 and the selling concession is $.90. Jim
Securities, Inc. and Joe Securities, Inc. are syndicate members. Allocations are 40%,
35% and 25% for JaneDoe, Jim Securities and Joe Securities, respectively. Out of its
allocation, JaneDoe Securities sells 60% of the shares and the selling group sells the
rest. What is the total compensation to JaneDoe Securities, Inc.? - ANS-The total
spread to the syndicate is the manager's fee of $.30 plus the $1.20 full takedown, for a
total of $1.50. The selling concession is a component of the full takedown, so is not
taken into account in the calculation. The selling concession is $.90 and the
underwriting fee is $.30, for a total takedown of $1.20. JaneDoe Securities has an
allocation of 40% of the total offering, or 3.00 million shares. As the manager, JaneDoe
receives the manager's fee for all 7.5mm shares. For its 40% allocation it receives the
underwriting fee, and for the 60% of the allocation that it sells it receives the selling
concession:
7.5mm shares x $.30 manager's fee = $2.25mm
3.0mm shares x $.30 underwriting fee = $0.9mm
60% x 3.00mm shares x $.90 selling concession = $1.62mm
Total = $4,770,000
- ANS-Normally, audited income statements and cash flows statements are required for
the three most recent fiscal years. However, if the company lacks such history, it must
include these audited statements in the registration for those fiscal years it has been in
operation. There is no requirement to include projections of future performanc
To qualify for confidential treatment, a preliminary proxy filing must fulfill which of the
following requirements? - ANS-Preliminary proxies can be kept from public disclosure
until they become definitive, but only if they adhere to certain rules. They must be
marked confidential and public communication must have been limited to a basic Rule
135 announcement. Confidentiality is not allowed in going private and rollup
transactions.
What is the highest price at which the firm can enter a stabilization bid? - ANS-Under
Regulation M Rule 104, an underwriter can stabilize a new issue no higher than the
most recent transaction price or the best independent bid, whichever is greater.
Company A enters into a definitive agreement to purchase Company B. Immediately
after signing the Definitive Agreement, the two companies issue a joint press release
announcing the transaction. Which of the following is true regarding this action? - ANSUnder SEC Rule 425, communications regarding a business combination transaction
may be distributed to the public, but are defined as a prospectus and must be filed with
the SEC no later than the date of first use.
The Termination Provisions of the Definitive Agreement detail the circumstances under
which one party may terminate - ANS-the agreement rather than complete the deal. In
some circumstances, one party may owe a termination fee ("breakup fee") to the other
party. Examples include:
• if the seller terminates the deal to take a better offer, the seller pays a breakup fee to
the buyer
• if the seller terminates because the buyer cannot come up with financing, the buyer
may owe a breakup fee to the seller
The circumstances under which one party may terminate the agreement are clearly
defined. Business trends do not typically constitute grounds for termination and receipt
of a break-up fee post-signing.
Jones Securities, Inc. is the lead underwriter for NewCo, which plans to sell 5 million
shares of stock to the public at an offering price of $27.00 per share. The manager's fee
is $.25, the underwriting fee is $.20 and the full takedown is $.85. Jones Securities
successfully places 20% of the issue, with the remaining securities sold by other
underwriters. What is the total compensation to Jones Securities? - ANS-The total
spread is the manager's fee of $.25 plus the $.85 full takedown, for a total of $1.10. The
underwriting fee is a component of the full takedown, so is not taken into account in the
calculation. As the syndicate manager, Jones Securities receives the full spread for the
1 million shares it sells and the manager's fee of $.25 for the remaining 4 million shares:
1 million shares x $1.10 = $1.1 million
4 million shares x $.25 = $1.0 million
Total = $2.1 million
In order to start doing business as a broker dealer, a firm must - ANS-have
appropriately qualified associated persons, must have filed Form BD, satisfied
appropriate state requirements and become a member of SIPC and an SRO.
Registration with the SEC, not approval from the SEC, is required to begin business as
a broker-dealer.
SEC Regulation M, Rule 100, defines the principal market as having - ANS-he largest
aggregated reported trading volume for the class of securities during the full 12 calendar
months immediately preceding the filing of the registration.
n affiliate must file notice with the SEC on Form 144 if - ANS-e/she wishes to sell 5,000
shares or $50,000 in aggregate in any three-month period. In addition, the sale must
take place within three months of filing the Form.
The valuation analysis in a fairness opinion typically includes - ANS-Comparable
companies, precedent transactions, DCF analysis, and LBO analysis (if applicable), as
well as other relevant industry and share price performance benchmarking analyses,
including premiums paid (if the target is publicly traded). It does not advise shareholders
on whether to accept the transaction and it dies not need FINRA approval.
- ANS-FINRA requires that registered representatives provide prior written notice to
their firms before accepting outside employment or positions as officers, directors, or
partners. Written permission from the firm is not required.
Firm element training program steps - ANS-A firm is required to administer a firm
element program annually to address the training needs of covered persons. The first
step in the process is to conduct a needs analysis and develop a written training plan
based on the findings of the needs analysis. Next, the program must be delivered to the
firm's covered persons, and finally, records must be kept of program completion.
Insiders= - ANS-Directors, officer, employees
In an improving economic environment, one would expect a company to trade at a
I. Higher multiple of FY1 (Forward Year 1) earnings than LTM earnings
II. Lower multiple of FY1 (Forward Year 1) earnings than LTM earnings
III. Higher multiple of LTM earnings than FY2 (Forward Year 2) earnings
IV. Lower multiple of LTM earnings than FY2 (Forward Year 2) earning - ANS-In an
improving environment, earnings are expected to increase. Therefore, multiples of
trailing earnings should be higher than forward earnings.
Return on invested capital - ANS-ROIC=(EBIT - Taxes)/Average Invested Capital
EBIT = "Income (loss) from operations" = 12,786
Taxes = "(Provision for) benefit from income taxes" = 5,037
Average Invested Capital = Average of "Total stockholders' equity" + average net debt
(total debt - cash) = [(81,137 - 45,572) + (63,583 - 25,500)]/2 = 36,824
So RoIC = (12,786 - 5,037)/36,824 = 21.04%
Note that debt would usually be included in Invested Capital but Goodperson Inc shows
no debt on its balance sheet.
There are three components of O&O expenses: - ANS-bona fide issuer expenses,
underwriting compensation and due diligence expenses connected to the offering. Total
O&O expenses are limited to 15% of gross offering proceeds.
Waiting period after HSR approval - ANS-30 days
Why might a seller prefer a stock sale to an asset sale? - ANS-A stock sale is generally
a cleaner process for the seller as the buyer assumes ownership of all assets and the
liabilities (both existing and contingent), thereby allowing the seller to have no residual
interest in the business. In an asset sale, on the other hand, the seller transfers
ownership of individual assets, which often adds complexity, expense and length to the
transaction and the buyer does not assume any of the liabilities. If an asset sale occurs,
the seller could be responsible for contingent liabilities although they have no on-going
interest in the business. Furthermore, in an asset sale where the buyer does not
assume ownership of all the assets, the seller may not receive a clean exi
Company A enters into a definitive agreement to purchase Company B. Immediately
after signed the Definitive Agreement, the two companies issue a joint press release
announcing the transaction. Which of the following are true regarding the press
release? - ANS-Under SEC Rule 425, communications regarding a business
combination transaction may be distributed to the public but are defined as a prospectus
and must be filed with the SEC no later than the date of first use
If an equity holder in a Chapter 11 bankruptcy filing wishes to be treated as a creditor
and participate in the vote on a restructuring plan they can go to the bankruptcy court
and file a - ANS-proof of interest
Trust indenture - ANS-Corporate issues of $5 million and above, and requires a formal
written agreement (an indenture), signed by both the bond issuer and the bondholder,
that fully discloses the particulars of the bond issue. The act also requires that a trustee
be appointed for all bond issues, so that the rights of bondholders are not compromised.
In issuer's offering document states that it proposes to offer 500,000 shares at $20 per
share. In addition, the document states that if all of the offering is not sold within 90
days, the proceeds will be returned to investors. Under Rule 15c2-4, the offering
document must also state which of the following? - ANS-Under Rule 15c2-4, the
prospectus must state that offering proceeds will be moved to an escrow account or
specified bank account until the all-or-none provision is satisfied.
Who assumes the share price movement risk in a floating exchange ration, assuming
no structural protection - ANS-Chapter 6: Due to the guaranteed value implicit in a
floating exchange ratio, the acquirer assumes all share price risks
Chapter 2: Standby underwriting - ANS-Used in a rights offering
In a standby underwriting, a bank stands ready to sell any unsold shares after all
shareholders have exercised their right to maintain a proportionate interest in the
company
Chapter 12: Penalty bid - ANS-A penalty bid is a stabilization bid that is launched by the
syndicate manager or another underwriter. If a stabilization is identified as a penalty bid,
a syndicate member loses their compensation for shares that are flipped back to the
stabilization agent. This encourages underwriters to offer shares to investors who are
likely to hold them rather than immediately trade them
Chapter 18: If a registered representative is arrested for theft, but claims innocence, and
hasn't been guilty through court yet - ANS-Incident would be reported to compliance and
the firm can choose to delay the action until the legal process has run its course
Chapter 3: Who pays income taxes on profits earned by a limited partnership? - ANS-All
profits and losses are distributed to individual partners and reported to the IRS on
person income tax returns. The partnership files only an "information return," called a
Schedule K-1, with IRS
Chapter 14: Regulation D - ANS-A company seeking to avoid registration in the US and
targeting accredited investors would issue securities via a Regulation D private
placement. Regulation D private placements can be sold to an unlimited number of
accredited investors and ,for deals in excess of $1 mm, up to 35 non-accredited
investors. This type of offering would allow the issuer to avoid filing an SEC registration
statement
Chapter 4: When an issuer repurchases stock for a price in excess of par value, what is
the impact to capital surplus? - ANS-Reduced by acquisition cost of par value share,
less par value of the acquired shares
When a company repurchases stock for a price in excess of par value, the par value
account is reduced by: par value per share x number of shares repurchased. The
excess of the acquisition price over par is deducted from the capital surplus
Chapter 12: Regualtion M Rule 104
Can underwriters enter a stabilization bid without notifying the SEC?
Selling short days - ANS-No
Requires underwriters to notify the SEC prior to entering a stabilization bid. The
notification requirement does not apply to syndicate covering transactions, however.
Investors are prohibited from investing in a follow-on offering if the stock was sold short
within five days prior to pricing...
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