The bond is more suitable given the client’s primary income goal and concern about dividend stability. Bond interest is a contractual obligation, and in a company’s capital structure, bondholders have a senior claim to assets and cash flows compared to common stockholders. Dividends are discretionary and can be reduced or eliminated by the board of directors, especially during financial hardship. The callable feature is a secondary consideration here.

To compare a tax-exempt municipal bond yield to a taxable Treasury yield, you must calculate the municipal bond’s equivalent taxable yield. This tells the investor what taxable yield she would need to earn to match the after-tax return of the municipal bond. The formula is: Tax-Equivalent Yield = Municipal Yield / (1 – Tax Rate). Here, it would be 3% / (1 – 0.32) = 4.41%. This shows the 3% muni is actually a better after-tax deal than the 4% Treasury for her specific tax bracket.

A registered representative has a fundamental obligation to know their customer (Rule 2090) and ensure recommendations are suitable (Rule 2111). Frequent, short-term trading in a long-term account for a growth-oriented investor raises a red flag for potential unsuitability (e.g., excessive trading or “churning”). The rep must proactively engage the client to understand the reasoning, reconfirm objectives, and document the conversation. If the activity is unsuitable, the rep must not continue executing the strategy. Simply following orders without question violates suitability obligations.

The most efficient action is to sell the option to close the position. At expiration with the stock at $55, a Jan 50 Call has an intrinsic value of $5 ($55 – $50). By selling it, the customer receives $500. Since they initially paid $300 ($3 premium x 100 shares), their profit is $200 ($500 – $300). Exercising (Option C) would create a cost basis of $5,300 ($5,000 exercise + $300 premium) for stock worth $5,500, also yielding a $200 profit, but it adds unnecessary steps, transaction costs, and capital requirement to buy the shares.

The sales charge (load) is the difference between the POP and the NAV: $52.00 – $49.28 = $2.72. As a percentage of the POP (the amount the investor pays), it is $2.72 / $52.00 = 5.25%. This is a classic front-end load, meaning it is deducted immediately from the investment, so only $49.28 of each $52 invested goes to work buying shares. Choice D calculates the load as a percentage of the NAV ($2.72/$49.28 ≈ 5.5%), which is the percentage of the net amount invested, not the standard industry calculation for the published sales charge.

A stock split is a corporate action that increases the number of shares outstanding by issuing more shares to current shareholders. It is not a taxable event. In a 2-for-1 split, for every share owned, the shareholder receives one additional share. The price per share adjusts downward proportionally (approximately halved) so that the total market capitalization of the company, and thus the total value of the shareholder’s investment, remains fundamentally the same. The shareholder’s percentage ownership is also unchanged.

A UIT is a fixed, unmanaged portfolio of securities (like Treasury bonds) with a defined termination date. While it offers predictability and high credit quality in this case, a key disadvantage is that when the UIT terminates and returns principal, the investor faces reinvestment risk. They may have to reinvest the proceeds in a lower interest rate environment. UITs are not actively managed (A is wrong). While Treasury interest is exempt from state/local tax (B is true), this is an advantage, not a disadvantage. UIT shares typically trade close to NAV, not at a significant discount (D is wrong).

A bond price of “85” means 85% of par value, or $850 for a $1,000 bond. This is a discount. Bonds trade at a discount when their fixed coupon rate (5% here) is lower than the prevailing market interest rate (yield) for bonds with similar risk and maturity. To compensate a new buyer for the below-market coupon, the bond’s price falls below par, which increases its yield to maturity above the 5% coupon rate. If the coupon equaled the market rate, the price would be near par (100).

This violates FINRA rules governing the public offering process. The period between filing the registration statement and the securities becoming effective (the cooling-off period) includes a “quiet period.” During this time, the underwriter and its personnel are restricted from publishing research reports, making promotional offers, or engaging in other activities that could condition the market for the new issue. The purpose is to ensure all information comes from the statutory prospectus. This prohibition exists regardless of disclosures or distribution method.

The bond is more suitable given the client’s primary income goal and concern about dividend stability. Bond interest is a contractual obligation, and in a company’s capital structure, bondholders have a senior claim to assets and cash flows compared to common stockholders. Dividends are discretionary and can be reduced or eliminated by the board of directors, especially during financial hardship. The callable feature is a secondary consideration here.0