Series 62 Test Breakdown

The Series 62 exam, otherwise known as the Corporate Securities Limited Representative Qualification Exam, is taken by candidates interested in becoming limited agents for corporate equities and debt securities. No prerequisite license or qualifications are required prior to taking the Series 62 exam. It is provided by the Financial Industry Regulatory Authority (FINRA), and a candidate must have a FINRA member firm sponsor him or her to take the exam. Upon passing this exam, the registered representative may trade all stocks and bonds, warrants, rights, real estate investment trust (REITS), mortgage-backed securities, money markets, and closed-end investment companies.

The Series 62 is a comprehensive exam consisting of 120 multiple-choice questions. Candidates are given two and a half hours to complete the test, and a 70% is required for a passing grade. Testing centers by Prometrics administer the test electronically around the country with exam results provided immediately upon completion. As with most tests, the center administrator provides scratch paper and calculators if needed. The Series 62 is sometimes compared to the Series 7 exam, although you should not expect any questions on mutual funds, options, or municipal bonds. A Series 62 license is not sufficient to trade open- and closed-end mutual funds or exchange traded funds. A person interested in taking this test usually wants to transact in corporate securities and or private placements. The Series 7 exam has almost double the question as the Series 62 (250 questions, with a passing score of 72%); however, both tests are equally as challenging. The Series 62 exam is a more detailed exam, with topics on the NASDAQ marketplace, orders, and executions. The test questions for the Series 62 are based upon National Association of Securities Dealers (NASD) guidelines, whereas the Series 7 test is New York Stock Exchange (NYSE)-based.

Preparing for the test can be done many different ways, from buying or borrowing test books to paying a training center or private tutoring. There are typically four sections to the test, which cover topics on securities and investments, corporate securities in the marketplace, evaluations and customer accounts, and industry regulations. To perform well on the test, a person should have solid equity securities knowledge and experience. An equity security is either a common or preferred stock. In some cases, the test will use different words to describe the same thing (i.e., NASDAQ Market Center Execution System vs. NMCES), so be prepared to know your acronyms. Of course, as with taking any exam, make sure you read the question properly and look for key words or phrases that might be clues to the correct answer.

Series 62 Study Guide

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Series 62 Practice Questions

1. What following statement defines the term “participating preferred” as it pertains to types of preferred stock?

a. The investors who hold this type of preferred stock retain the right of conversion or exchange of the preferred shares they own for shares of common stock at a fixed conversion price.

b. The investors who hold this type of preferred stock may have their preferred shares called away from them by the issuing company either at a time that is particularly beneficial to them, or after a stated period of time has passed.

c. The investors who hold this type of preferred stock have the right to receive both the preferred rate dividend stated at the time of purchase and the dividend that is paid to the common stockholders.

d. The investors who hold this type of preferred stock retain the right to be owed any dividends that go unpaid during a company's period of financial hardship and whereby the dividends accumulate until said company is able to pay them.

2. When considering an underwriter's due diligence with regards to a securities offering involves their undertaking a “reasonable investigation” into all of the pertinent information related to the issuer of that offering, which of the following should be included in that investigation?

I. Interviewing management to obtain information regarding their business, operations, and industry.

II. Obtaining data from the issuer related to their finances and operations.

III. Utilizing management insight to gain perspective regarding the issuer's future development plans and expansions.

IV. Referencing the conclusions and opinions of the issuer's independent auditors as final without need of the underwriter's own independent verification.

a. I, II, III, and IV

b. I and II

c. I, II, and III

d. I, II, and IV

3. Given the following financial statement information, calculate this company's EBITDA:

Revenues

Service Fees $ 14,236

Financing Income 10,002

Sales 489,333

Total Revenues 513,571

Expenses

Advertising $ 15,917

Insurance Expense 11,487

Interest Expense 8,228

Payroll Taxes Expense 19,415

Supplies 5,223

Salaries 189,445

Total Expenses 249,715

Net Income $ 263,856

Depreciation $ 18,111

Amortization $ 17,238

a. $291,499

b. $299,205

c. $256,150

d. $326,848

4. Which of the following are associated with an investor purchasing securities on margin?

I. The investor must pledge as collateral for the loan the securities they purchase.

II. To establish a margin account, an investor must deposit 50% of the security's purchase price.

III. To establish a margin account an investor must deposit EITHER $2,000 or 50% of the security's purchase price, whichever is greater.

IV. The securities purchased on margin will be held in the name of the investor by the lending broker-dealer.

a. I, II, and IV

b. I and II

c. I and III

d. I, III, and IV

5. Of the following organizations, which one or more are considered to be a self-regulatory organization (SRO)?

I. SEC

II. NYSE

III. FINRA

IV. NASD

a. I and II

b. II only

c. II, III, and IV

d. III and IV

Answers

1. C: Participating preferred stockholders retain the right to receive both the preferred dividend as well as the common. Convertible preferred stockholders retain the right of conversion to common stock, callable preferred stockholders assume the risk that their shares may be called away by the company that issued them, and cumulative preferred stockholders' have their unpaid dividends accumulate until the time when the issuing company is able to pay them.

2. C: An underwriter's due diligence should include interviewing management regarding their business and operations, obtaining data from management regarding their finances, and gaining insight from them regarding their future plans for their business. Additionally, their “reasonable investigation” should include their own independent investigation into verifying all of the information given to them by management or by the issuer's independent auditors.

3. D: EBITDA is a measure utilized in evaluating a company's operating performance and stands for earnings before interest, taxes, depreciation, and amortization. Using the company's financial statement information the EBITDA calculation would be:

Total Revenues $ 513,571

Total Expenses (except interest and taxes) (222,072)

EBIT 291,499

Depreciation 18,111

Amortization 17,238

EBITDA $ 326,848

4. C: When establishing a margin account an investor must pledge as collateral for the loan the securities they purchase, and deposit the GREATER of either $2,000 or 50% of the security's purchase price per Regulation T, NYSE, and FINRA requirements. The securities purchased on margin must be held in the name of the broker-dealer NOT the investor.

5. C: A self-regulatory organization is one that has the ability and responsibility to regulate its own members and whose goal it is to protect investors from unethical practices and unequal treatment in the markets. Examples of a self-regulatory organization are NYSE, FINRA, and NASD. The SEC is NOT a self-regulatory organization.

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Last Updated: 04/18/2018


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