FINRA Series 7 — All Questions

For a bond purchased at a premium that is also callable, the most conservative (lowest) yield used to price the bond is the:

• a.Nominal yield
• b.Yield to maturity
• c.Current yield
• d.Yield to call✓

On a premium bond, yield to call is the lowest measure because the premium is lost more quickly if the bond is called early. Dealers price premium callable bonds to this yield to worst to protect the investor. On a premium bond the order is YTC < YTM < current yield < coupon.

For a bond purchased at a discount, which yield measure is the highest?

• a.Current yield
• b.Yield to maturity
• c.Yield to call✓
• d.Nominal yield

For a bond bought at a discount the yield ranking from lowest to highest is nominal (coupon) < current yield < yield to maturity < yield to call. Yield to call is highest because a call returns par (above the discounted purchase price) sooner, so the gain is earned over a shorter period, raising the annualized yield. (YTM is the yield to worst on a discount bond; the ranking flips for a premium bond, where YTC is lowest.)

The nominal yield of a bond refers to:

• a.The total return earned if the bond is held all the way to maturity
• b.The yield calculated using the current secondary-market trading price of the bond
• c.The single lowest of all the standard bond yield measures for the security
• d.The fixed coupon rate stated on the bond✓

Nominal yield is simply the stated coupon rate, fixed as a percentage of par when the bond is issued. Current yield uses market price, and yield to maturity reflects total return to maturity, so those measures change as the bond's price moves.

Duration is best described as a measure of:

• a.A bond's price sensitivity to changes in interest rates✓
• b.The likelihood the issuer will call the bond
• c.The bond's coupon payment frequency
• d.A bond's credit quality and the probability that the issuer will default on its scheduled interest or principal payments

Duration measures how much a bond's price will change for a given change in interest rates; longer maturities and lower coupons produce higher duration and greater price volatility. It is an interest-rate (market) risk gauge, not a credit or call measure.

A bond quoted 'on a yield basis' (a basis price) rather than as a dollar price is most characteristic of:

• a.U.S. Treasury notes and bonds, quoted in 32nds of par
• b.Corporate bonds, traded at a stated percentage of par plus accrued interest computed on a 30/360 basis
• c.Zero-coupon corporate bonds, quoted as a percentage of par
• d.Municipal bonds, which are commonly quoted by yield✓

Municipal bonds, especially serial maturities, are typically quoted on a yield (basis) basis. Corporate bonds, including zero-coupon corporates, are quoted as a percentage of par (a dollar price), and Treasury notes and bonds are quoted in 32nds of par. Quoting by yield reflects the way municipal bonds trade and are compared.

A special tax bond, backed by a specific excise tax such as one on gasoline or tobacco, is best classified as a:

• a.Revenue bond, since it is backed by a specific tax rather than the issuer's general taxing power✓
• b.Corporate debenture
• c.Moral obligation bond of the federal government
• d.A general obligation bond, since any dedicated tax pledge automatically brings the issuer's full faith, credit, and ad valorem taxing power behind the bond

A special tax bond is a type of revenue bond: it is serviced by a dedicated excise or special tax, not by the issuer's full faith, credit, and ad valorem taxing power. That distinguishes it from a general obligation bond backed by property taxes.

The debt service coverage ratio on a municipal revenue bond is:

• a.Net revenue available divided by annual debt service; a higher ratio indicates greater safety✓
• b.The issuer's assigned letter credit rating from a nationally recognized statistical rating organization, expressed as a single numeric score
• c.The bond's coupon divided by its market price
• d.The ratio of a municipality's property taxes to its population

Debt service coverage = net revenue available for debt service / annual debt service (principal + interest). A higher ratio means more cushion to pay bondholders, which is central to analyzing revenue bonds backed by a project's income.

An 'additional bonds test' in a municipal revenue bond indenture is:

• a.A federal limit on total municipal issuance
• b.A protective covenant restricting new bonds of equal lien unless earnings coverage tests are met✓
• c.A rule requiring that bonds be sold only at par
• d.A requirement that the issuer double its property tax rate before it may sell any additional revenue or general obligation bonds

The additional bonds test is a covenant protecting existing revenue bondholders by permitting new parity (equal-lien) debt only if projected or historical revenues meet a specified coverage level. It guards against dilution of the existing bondholders' claim on revenues.

An investor buys an original issue discount (OID) municipal bond. The accretion of the discount each year is generally:

• a.Taxed as a long-term capital gain at maturity on the full difference between the discounted purchase price and par value
• b.Always fully taxable at the federal level
• c.Treated as tax-exempt interest, with the cost basis accreted upward each year toward par✓
• d.Taxed as ordinary income each year

On an OID municipal bond, the discount is treated as tax-exempt municipal interest and is accreted (added to cost basis) each year, so at maturity there is no taxable gain if held to par. This differs from a market discount on a muni, which is generally taxed as ordinary income.

BANs, TANs, and RANs are examples of:

• a.Federal agency securities
• b.Long-term revenue bonds that finance permanent capital projects and are repaid over twenty to thirty years from facility income
• c.Short-term municipal notes issued in anticipation of future bond proceeds or revenues✓
• d.Corporate commercial paper

Bond, tax, and revenue anticipation notes (BANs/TANs/RANs) are short-term municipal notes that provide interim financing, repaid from anticipated bond proceeds, tax collections, or other revenues. Their interest is generally federally tax-exempt like other munis.

An investor in the 32% federal tax bracket is choosing between a 4% municipal bond and a 5.5% taxable corporate bond of similar quality. Which is better after tax?

• a.Cannot be determined without the maturity date
• b.The corporate bond, because its stated 5.5% coupon is higher than the municipal's 4% and coupon rate alone determines after-tax return
• c.The municipal bond, because its taxable-equivalent yield of about 5.88% exceeds 5.5%✓
• d.They are exactly equal after tax

The muni's taxable-equivalent yield = 4% / (1 - 0.32) = 4% / 0.68 = 5.88%, which exceeds the 5.5% corporate yield, so the municipal gives the better after-tax return. Comparing pre-tax coupons alone (choice a) ignores the muni's tax exemption.

A resident of the issuing state who buys that state's general obligation bond generally receives interest that is:

• a.Exempt from federal tax but taxable by the resident's own state
• b.Exempt only from local tax
• c.Taxable at all three levels
• d.Generally exempt from federal, state, and local income tax ('triple tax-exempt')✓

Municipal interest is federally tax-exempt and, for a resident of the issuing state, usually exempt from that state's and locality's income tax as well, the 'triple tax-exempt' feature. Out-of-state residents typically owe their home state's tax on the interest.

A feasibility study prepared for a proposed municipal revenue bond is:

• a.A detailed study of the issuer's assessed property tax base, debt per capita, and historical tax collection rates used to size the levy
• b.A federal audit of the municipality
• c.An engineering and economic study projecting whether the facility's revenues will cover debt service✓
• d.A rating agency's periodic credit report

A feasibility study, prepared by independent consultants, projects the demand, revenues, and expenses of a proposed project to gauge whether it can generate enough net revenue to service the debt. It is central to evaluating a revenue bond, which lacks general taxing-power backing.

Which of the following is a municipal fund security sold under an official statement and MSRB rules?

• a.A 529 college savings plan✓
• b.A Treasury bond
• c.A corporate bond
• d.A bank certificate of deposit

529 college savings plans (and local government investment pools) are municipal fund securities regulated by the MSRB and offered via an official statement, not a prospectus. Although they invest in mutual-fund-like portfolios, they are not registered investment companies.

A mutual fund has total assets of $250 million, total liabilities of $10 million, and 12 million shares outstanding. Its net asset value (NAV) per share is:

• a.$20.00✓
• b.$19.17
• c.$21.67
• d.$20.83

NAV per share = (total assets - total liabilities) / shares outstanding = ($250M - $10M) / 12M = $240M / 12M = $20.00. Forgetting to subtract the $10M liability (choice a) is the common error.

A mutual fund share has an NAV of $9.50 and a maximum sales charge of 4.5% (as a percentage of the public offering price). What is the public offering price?

• a.$9.93
• b.$9.95✓
• c.$9.05
• d.$9.50

POP = NAV / (1 - sales charge rate) = $9.50 / (1 - 0.045) = $9.50 / 0.955 = $9.95. The sales charge of about $0.45 equals 4.5% of the $9.95 offering price (Investment Company Act of 1940 pricing).

A mutual fund share has a public offering price of $10.00 and an NAV of $9.20. What is the sales charge percentage?

• a.4.5%
• b.8.7%
• c.0.8%
• d.8.0%✓

Sales charge % = (POP - NAV) / POP = ($10.00 - $9.20) / $10.00 = $0.80 / $10.00 = 8.0%. The sales charge is always measured as a percentage of the public offering price, not of NAV.

A letter of intent (LOI) on a front-end load mutual fund is:

• a.A statement letting an investor obtain a breakpoint discount by committing to invest a set amount within 13 months, and it may be backdated up to 90 days✓
• b.A promise never to redeem shares
• c.A binding legal guarantee from the fund's sponsor that the shares will achieve a stated minimum annual rate of return over the coming thirteen-month holding period
• d.A required minimum distribution schedule

An LOI lets an investor qualify for a reduced sales charge (breakpoint) by pledging to invest a stated amount over 13 months; it can be backdated up to 90 days. If the amount is not met, the fund retains additional shares to cover the higher load owed.

Rights of accumulation on a mutual fund allow an investor to:

• a.Receive a guaranteed dividend reinvestment
• b.The right to vote the fund's portfolio shares in the underlying companies' corporate elections and proxy contests
• c.Reach breakpoints by counting the current value of existing holdings toward new purchases✓
• d.Take a federal tax deduction for contributions

Rights of accumulation let existing holdings (at current value) count toward reaching a breakpoint on new purchases, reducing the sales charge. Unlike a letter of intent, they apply as the account grows over time rather than requiring a prospective commitment.

Class B mutual fund shares are typically characterized by:

• a.A front-end sales load paid at the time of purchase that is deducted from the investor's initial contribution before any shares are bought
• b.No sales charge of any kind
• c.A level annual load that never ends
• d.A back-end contingent deferred sales charge that declines the longer shares are held, often converting to Class A✓

Class B shares carry a contingent deferred sales charge (CDSC) that decreases each year and eventually reaches zero, at which point the shares often convert to lower-cost Class A. They also generally carry higher 12b-1 fees than Class A during the CDSC period.

A closed-end investment company is best characterized by:

• a.Shares that are continuously issued and redeemed at net asset value calculated once per day after the market close under forward pricing
• b.A guaranteed return of principal
• c.A fixed number of shares that trade on an exchange at a market price which may be above (premium) or below (discount) NAV✓
• d.An unmanaged, fixed portfolio held to a termination date

A closed-end fund issues a fixed number of shares in an IPO that then trade in the secondary market at supply-and-demand prices, which can be at a premium or discount to NAV. Open-end funds, by contrast, continuously issue and redeem shares at NAV.

The assumed interest rate (AIR) in a variable annuity is:

• a.The sales load on the contract
• b.A guaranteed minimum interest rate that the insurer credits to the separate account during the accumulation phase regardless of subaccount performance
• c.The mortality and expense charge
• d.A benchmark used to set the initial annuity payout, against which actual separate-account performance is measured to raise or lower future payments✓

During the payout (annuitization) phase, the AIR is a conservative benchmark used to compute the first payment. If the separate account earns more than the AIR, the next payment rises; if it earns less, the payment falls. The AIR itself is not a guaranteed return.

Which annuity payout option generally provides the largest periodic payment to the annuitant?

• a.A straight life (life-only) annuity, because payments stop at death with no beneficiary guarantee✓
• b.A joint-and-last-survivor annuity, because covering two lives lets the insurer pay a larger amount than covering only a single life
• c.A lump-sum withdrawal
• d.Life with 20-year period certain

A straight life annuity pays the most per period because the insurer's obligation ends at the annuitant's death, with nothing to a beneficiary. Options that add survivor or period-certain guarantees spread the payout over a longer expected period, lowering each payment.

How do equity REITs differ from mortgage REITs?

• a.Equity REITs own and operate income-producing real estate, while mortgage REITs invest in real-estate loans and mortgage-backed securities✓
• b.Both are limited partnerships
• c.Both types invest only in residential and commercial mortgages and mortgage-backed securities, differing solely in their chosen geographic focus
• d.Equity REITs lend money while mortgage REITs own buildings

Equity REITs generate income mainly from rents on properties they own, while mortgage REITs earn interest by investing in real-estate debt and mortgage-backed securities. Both must distribute at least 90% of taxable income to keep their favorable tax status.

A 12b-1 fee charged by a mutual fund is:

• a.A guaranteed return paid to shareholders
• b.A one-time front-end sales load
• c.A federal excise tax on fund dividends and capital gain distributions that the fund collects from shareholders and remits to the IRS each year
• d.An annual fee deducted from fund assets to cover distribution and marketing (and sometimes servicing) costs✓

A 12b-1 fee is an ongoing annual charge against fund assets for distribution, marketing, and shareholder-servicing expenses. A fund charging more than 0.25% generally may not call itself 'no-load'; the fee reduces the investor's net return each year.

A 'no-load' mutual fund is one that:

• a.Is sold without a front- or back-end sales charge, though it may still deduct a 12b-1 fee of up to 0.25%✓
• b.Charges the maximum 8.5% sales load
• c.Is guaranteed by an agency of the federal government against any loss of the investor's original principal contribution
• d.Is a closed-end fund trading on an exchange

A no-load fund has no front-end or contingent deferred sales charge and may charge a 12b-1 fee no greater than 0.25% of average net assets while still being called no-load. FINRA caps total sales charges on funds at 8.5% under the Investment Company Act framework.

The discount rate set by the Federal Reserve is:

• a.The rate banks charge one another for overnight loans
• b.The rate on 3-month Treasury bills
• c.The prime rate banks charge their best customers
• d.The interest rate the Fed charges member banks that borrow directly from it✓

The discount rate is the rate the Federal Reserve charges depository institutions that borrow directly from the Fed's discount window. It is distinct from the federal funds rate (bank-to-bank overnight) and the prime rate (set by banks for customers).

If the Federal Reserve raises bank reserve requirements, the likely effect is to:

• a.Reduce the funds banks can lend, tightening money and tending to raise interest rates✓
• b.Have no effect on bank lending
• c.Directly set the level of stock prices
• d.Increase the money supply available for lending and push short-term market interest rates lower over time

Raising reserve requirements forces banks to hold more reserves and lend less, contracting the money supply and putting upward pressure on interest rates. Lowering the requirement does the opposite. It is one of the Fed's monetary-policy tools.

The federal funds rate is:

• a.The yield on long-term Treasury bonds
• b.The rate banks charge one another for overnight loans of reserves✓
• c.A rate set directly by Congress
• d.The rate the Fed charges banks at the discount window

The federal funds rate is the interest banks charge each other for overnight loans of reserve balances. It is a key indicator of monetary conditions and is influenced by the Fed's open market operations, but it is a market-determined bank-to-bank rate.

An accommodative ('easy money') monetary policy is typically carried out when the Federal Reserve:

• a.Sells securities in the open market to drain reserves from the banking system, tightening the availability of money and credit
• b.Raises the discount rate sharply
• c.Raises reserve requirements
• d.Buys securities in the open market, adding reserves and tending to lower short-term rates to stimulate the economy✓

To ease money, the Fed buys securities through open market operations, injecting reserves into the banking system, which tends to lower short-term interest rates and stimulate borrowing and spending. Selling securities or raising the discount rate/reserve requirements tightens instead.

A normal (positive) yield curve exists when:

• a.Short-term interest rates are higher than long-term rates all along the maturity spectrum of the curve
• b.Municipal yields exceed corporate yields
• c.All maturities yield the same amount
• d.Longer maturities carry higher yields than shorter maturities✓

A normal yield curve slopes upward because investors demand higher yields to lend for longer periods, compensating for greater interest-rate and inflation risk. An inverted curve (short rates above long) is the opposite and can signal an expected slowdown.

Which of the following are considered leading economic indicators?

• a.Building permits, new manufacturing orders, and stock prices, which tend to change before the broad economy✓
• b.The prime rate and the average duration of unemployment, both lagging
• c.Corporate profits and GDP, which are coincident measures
• d.The unemployment rate, a lagging figure

Leading indicators, such as building permits, new orders, stock prices, and initial jobless claims, tend to move ahead of the overall economy. GDP and corporate profits are coincident, while unemployment duration and the prime rate are lagging indicators.

M2 is best described as:

• a.A broad measure of the money supply including currency, checking and savings deposits, and retail money-market funds✓
• b.The monetary base: currency in circulation plus bank reserve balances at the Federal Reserve
• c.The reserves that banks are required to hold against their checking deposits, a ratio the Federal Reserve now sets at zero percent
• d.M1 alone: currency, demand deposits, and other liquid deposits, with no time deposits or retail funds

M2 is a broad monetary aggregate: it consists of M1 (currency, demand deposits and other liquid deposits) plus small-denomination time deposits and balances in retail money market funds, as the Federal Reserve defines it in the H.6 release. The monetary base is a narrower measure of currency in circulation plus bank reserve balances. Required reserves are a regulatory ratio, not a measure of the money supply. M1 by itself leaves out the small time deposits and retail money market funds that make up the rest of M2.Federal Reserve Statistical Release H.6 (Money Stock Measures)

Demand-pull inflation occurs when:

• a.Aggregate demand outpaces the economy's productive capacity, pushing prices up✓
• b.Prices broadly fall because the supply of goods persistently exceeds total consumer demand in the economy
• c.A one-time tax increase reduces spending
• d.Unemployment rises while prices fall

Demand-pull inflation results from total demand for goods and services exceeding the economy's ability to produce them, bidding prices upward. It contrasts with cost-push inflation, which stems from rising input costs such as wages or raw materials.

Purchasing power (inflation) risk most seriously affects:

• a.A basket of physical commodities
• b.Long-term fixed-income securities with level payments, whose real value erodes as prices rise✓
• c.A broadly diversified portfolio of common stocks whose earnings and dividends tend to rise along with the general price level
• d.Directly owned real estate

Inflation risk is the danger that rising prices erode the real value of fixed cash flows. Long-term bonds and fixed annuities are most exposed because their payments do not increase with inflation, while equities, real estate, and commodities may adjust with price levels.

A customer buys $24,000 of marginable stock in a margin account. Under Regulation T at 50%, how much must the customer deposit?

• a.$6,000
• b.$24,000
• c.$12,000✓
• d.$2,000

Regulation T (Federal Reserve, under the Securities Exchange Act of 1934) requires a 50% initial deposit on marginable equities: 50% x $24,000 = $12,000. The broker-dealer may lend the remaining $12,000, which becomes the debit balance.

A customer's long margin account shows a market value of $60,000 and a debit balance of $40,000. Using the 25% maintenance requirement, the account is:

• a.Not subject to a call; equity of $20,000 exceeds the $15,000 minimum✓
• b.Subject to a maintenance call of $5,000
• c.Subject to an immediate maintenance call for $2,000 because the account's equity has dropped beneath the required level
• d.Exactly at the requirement with no excess

Equity = market value - debit = $60,000 - $40,000 = $20,000. Minimum maintenance = 25% x $60,000 = $15,000. Because $20,000 equity exceeds $15,000, no maintenance call is triggered and the account has a $5,000 cushion (FINRA maintenance rule).

A customer's long margin account has a debit balance of $18,000. At what market value would a maintenance call be triggered under the 25% requirement?

• a.$60,000
• b.$13,500
• c.$24,000✓
• d.$18,000

A long account hits the maintenance minimum when equity = 25% of market value, i.e., market value = debit / 0.75 = $18,000 / 0.75 = $24,000. Below $24,000 in market value, equity falls under 25% and a maintenance call is issued.

A customer sells short $30,000 of stock and meets the Reg T 50% requirement. If the stock's market value later rises to $35,000, the equity in the short account is:

• a.$10,000✓
• b.$5,000
• c.$15,000
• d.$45,000

The credit balance = short sale proceeds + Reg T deposit = $30,000 + $15,000 = $45,000 (fixed). Equity in a short account = credit balance - current short market value = $45,000 - $35,000 = $10,000. Rising prices reduce a short seller's equity.

FINRA's minimum maintenance requirement for a short stock position is:

• a.35% of the short market value
• b.50% of the short market value
• c.25% of the short market value
• d.30% of the short market value✓

For short positions FINRA requires maintenance equity of at least 30% of the current market value of the securities sold short, higher than the 25% used for long positions because a short's loss potential is unlimited as prices rise.

A short margin account has a credit balance of $45,000. A maintenance call would be triggered when the short market value rises to approximately:

• a.The credit balance divided by 1.30, about $34,615✓
• b.Equal to the credit balance, $45,000
• c.Zero
• d.The credit balance divided by 0.75

A short account reaches the 30% maintenance minimum when equity = 30% of short market value, i.e., short market value = credit balance / 1.30 = $45,000 / 1.30 = about $34,615. Above that value, equity falls below 30% and a call is issued.

A long margin account has a market value of $50,000 and a debit balance of $20,000. How much SMA (excess equity) does the account have?

• a.$10,000
• b.$5,000✓
• c.$25,000
• d.$30,000

Equity = $50,000 - $20,000 = $30,000. The Regulation T requirement is 50% x $50,000 = $25,000. SMA (special memorandum account / excess equity) = equity - Reg T requirement = $30,000 - $25,000 = $5,000.

An account has $5,000 of SMA. Under Regulation T at 50%, the additional buying power this SMA provides is:

• a.$2,500
• b.$10,000✓
• c.$5,000
• d.$20,000

Buying power = SMA / Reg T rate = $5,000 / 0.50 = $10,000. Each dollar of SMA supports two dollars of new marginable stock because the customer need only post 50% of the purchase. Multiplying by 50% halves the figure instead of doubling it, treating SMA as dollar-for-dollar ignores that the loan covers half, and dividing by the 25% maintenance rate uses the wrong requirement.Regulation T, 12 CFR 220.12 (50 percent initial margin)

To open a margin account, a customer must generally deposit minimum equity of:

• a.$2,000, or 100% of the purchase price if the purchase is less than $2,000✓
• b.$5,000, the minimum the Federal Reserve sets under Regulation T for any new margin account
• c.50% of the purchase price, with no dollar minimum at all
• d.$25,000, the minimum equity that FINRA requires in every margin account

FINRA rules require minimum equity of $2,000 to open a margin account, but a customer is never required to deposit more than 100% of the purchase price. Regulation T sets the 50% initial requirement but no dollar minimum, so neither a $5,000 Federal Reserve minimum nor a bare 50% rule is the answer. The $25,000 figure belonged to the pattern day trading rule, not to opening an account, and FINRA has since eliminated that rule.

Under Regulation T, standard listed options with nine months or less to expiration:

• a.Must be paid for in full because such options are not marginable✓
• b.Are entirely exempt from Regulation T and may be carried in the account with no deposit whatsoever
• c.Require only a 25% deposit
• d.May be purchased on 50% margin

Listed options with nine months or less until expiration are not marginable and must be paid for in full under Regulation T. Only long-term options (LEAPS with more than nine months) may be purchased on margin, at a higher requirement.

A pattern day trader must maintain minimum equity in the margin account of at least:

• a.$25,000✓
• b.$10,000
• c.$100,000
• d.$2,000

FINRA rules require an account flagged as a pattern day trading account (four or more day trades within five business days meeting the threshold) to keep minimum equity of $25,000, which must be in the account before day trading may continue.

A customer buys $10,000 of marginable stock in a new margin account. The Regulation T call amount is:

• a.$10,000
• b.$5,000✓
• c.$2,500
• d.$2,000

The Regulation T initial requirement is 50% of the purchase: 50% x $10,000 = $5,000. The customer deposits $5,000 and the firm may lend the remaining $5,000 as the debit balance.

A transfer on death (TOD) registration on an individual brokerage account:

• a.Freezes the account during the owner's lifetime
• b.Is available only for retirement plans
• c.Lets account assets pass directly to named beneficiaries at death, avoiding probate, while the owner keeps full control during life✓
• d.Immediately makes each named beneficiary a current co-owner of the account with full authority to place trades during the owner's lifetime

A TOD designation names beneficiaries who receive the account at the owner's death without probate, but the beneficiaries have no rights and no control while the owner is alive. The owner may change the beneficiaries or trade freely at any time.

To open a corporate cash account, a firm generally must obtain:

• a.The personal income tax return of the chief executive officer along with a signed statement of that officer's personal net worth
• b.Nothing beyond a verbal approval from an officer
• c.A corporate resolution or authorization identifying who is empowered to trade for the corporation✓
• d.A margin agreement in every case

A corporate account requires documentation, typically a corporate resolution or account authorization, naming the individuals authorized to act on the corporation's behalf. Margin trading by a corporation additionally requires that the charter or bylaws permit it.

In a trust account, the person who enters transactions must:

• a.Provide no documentation to the firm
• b.Let the beneficiary place all trades
• c.Avoid holding any marketable securities, since trust accounts are legally restricted to holding cash and bank deposits only
• d.Act as a fiduciary, following the trust document and the prudent-investor standard✓

The trustee is a fiduciary who must manage the account solely for the beneficiaries' benefit, in accordance with the trust instrument and applicable prudent-investor standards. The firm obtains the trust documents to confirm the trustee's authority and any investment limits.