General Securities Sales Supervisor (Series10) Practice Exam

What is calculated based on contemporaneous purchases or sales of that security?

1. Commission charges

2. Mark-up and mark-down

3. Credit ratings

4. Investment risks

The correct answer is: Mark-up and mark-down

The concept of mark-up and mark-down is central to the trading of securities and is closely related to contemporary market practices. When a broker-dealer engages in the purchase or sale of a security, the prices at which these transactions occur are instrumental in determining the mark-up (the amount added to the cost of a security) for sales or the mark-down (the amount deducted from the price) for purchases. These calculations are based on the prices obtained in recent transactions, reflecting the current market conditions. For example, if a broker buys shares of a stock at a market price and then sells them to a client at a higher price, the difference represents the mark-up. Conversely, if they are selling a security that they purchased at a higher price, and the current market price has decreased, they might apply a mark-down. These practices ensure that the pricing reflects the most recent trends in the security’s market value, ensuring that the transactions are fair and transparent. The other choices do not fit this specific context. Commission charges are fees for execution but are not directly calculated based on contemporaneous market transactions. Credit ratings are assessments made by agencies based on an issuer's default risk and do not reflect recent trades. Investment risks involve factors that can affect the performance of