Chapter 5 Review Questions


Which of the following is the least unethical practice?

Churning
Rebating
Misrepresentation
Replacement

The practice of excessive trading in a client’s securities account for the primary purpose of generating commissions is known as:

churning
rebating
misrepresentation
boiler-rooming


Jim Whelan promised his golf partner that he would pay the fees for the next round of golf if his partner would buy a life insurance policy.  Realizing he needed life insurance anyway, his partner bought a policy.  What, if any, ethical issues are involved?

Jim is guilty of rebating, which is both unethical and illegal
Jim is guilty of rebating only if he actually paid the golf fees
Since the partner needed life insurance anyway, no ethical or legal issue is involved
Jim would be guilty of rebating only if the golf fees exceeded $100


For misrepresentation to be unethical, it must be:

oral
written
either a or b
neither a nor b


Which of the following would NOT be a possible result of a life insurance replacement?

Suicide and incontestable provisions begin anew
Original policy’s cost basis could be lost
Death benefit proceeds would become income taxable
Any gain might need to be immediately recognized