A fixed annuity is not considered a security because the insurance company guarantees the stated payments and assumes the investment risk. By contrast, a variable annuity is a security because its value depends on the performance of the separate account investments.

Why the Other Answers Are Incorrect

An option contract on a commodity is included in the definition of a security under the Uniform Securities Act.

Common stock is a security, even when issued by a national bank.

A variable annuity is a security because the investor bears investment risk.

All of the listed items are securities under the Uniform Securities Act. The definition of a security is broad and includes items such as stock, treasury stock, voting-trust certificates, preorganization subscription agreements, and interests in real estate investment trusts.

Why the Other Answers Are Incorrect

Any answer that excludes one of the listed items is incomplete. Each item listed falls within the definition of a security under the Uniform Securities Act.

A nonissuer transaction is a transaction in which the proceeds do not go to the issuer. In a secondary offering by existing shareholders, the selling shareholders receive the proceeds, so the transaction is generally a nonissuer transaction.

Why the Other Answers Are Incorrect

When a corporation sells newly issued shares to raise capital, the proceeds go to the issuer, making it an issuer transaction.

A private placement by the issuer is an issuer transaction because the issuer receives the proceeds.

A preemptive rights offering is an issuer transaction because the issuer is offering additional shares to existing shareholders.

An option contract on a commodity is considered a security under the Uniform Securities Act. Treasury stock is also included in the definition of a security.

A self-employed retirement plan, such as a Keogh plan, is not itself a security. It is an account or plan that may hold securities, but the plan itself is not classified as a security.

Why the Other Answers Are Incorrect

Any answer including the self-employed retirement plan is incorrect because the plan is only an investment vehicle, not a security.

Any answer excluding the commodity option contract or treasury stock is incomplete because both are securities under the Uniform Securities Act.

A nonissuer transaction is a transaction that does not directly or indirectly benefit the issuer. It generally involves previously issued securities being traded between investors in the secondary market. These transactions may occur either on an organized exchange or in the over-the-counter market.

Why the Other Answers Are Incorrect

A nonissuer transaction may take place on an exchange or OTC, so it is not limited to one market.

A secondary market transaction between parties other than the issuer is a typical nonissuer transaction.

Nonissuer transactions generally involve securities that have already been issued.

Variable annuity contracts are securities because their value depends on the performance of the separate account investments, meaning the investor bears investment risk. Under the Uniform Securities Act, variable insurance products are generally treated as securities.

Why the Other Answers Are Incorrect

A fixed life insurance policy is not a security because the insurance company guarantees the contractual benefits.

A mortgage on a personal residence is not a security in this context.

Collectibles, such as rare stamps, coins, or currency, are not securities under the Uniform Securities Act.

A fixed annuity is not considered a security because the insurance company guarantees the payments and assumes the investment risk. The purchaser is relying on the insurer’s contractual promise rather than the performance of a securities portfolio.

Why the Other Answers Are Incorrect

A corporate debenture is a debt security.

A listed stock option is included in the definition of a security.

A bond is a security, even when the interest payments are guaranteed by the federal government.

The Howey decision established that an investment contract exists when there is an investment of money in a common enterprise with an expectation of profit based primarily on the managerial or entrepreneurial efforts of others. This is an important test for determining whether something that is not labeled as a traditional stock or bond may still be treated as a security.

Why the Other Answers Are Incorrect

A guaranteed loan is not the Howey test for an investment contract.

If the investor personally manages the business, the expected profit is not primarily dependent on the efforts of others.

Property purchased for personal use without an investment profit motive generally does not meet the Howey test.

A primary transaction occurs when the issuer sells securities and receives the proceeds. The key distinction is whether the money from the sale goes to the issuer. When a corporation sells newly issued shares directly to investors, the transaction is primary.

Why the Other Answers Are Incorrect

Selling previously issued shares to another investor is a secondary, or nonissuer, transaction because the issuer does not receive the proceeds.

Selling inherited stock to a family member is also a nonissuer transaction because the seller, not the issuer, receives the proceeds.

Purchasing outstanding shares in the secondary market is a nonissuer transaction because the securities have already been issued and the proceeds go to another investor.

A traditional whole life insurance policy is not a security because the insurance company guarantees the policy benefits and assumes the investment risk. Variable insurance products, by contrast, are securities because their value depends on the performance of separate account investments.

Why the Other Answers Are Incorrect

A variable life insurance contract is a security because the policy value varies with investment performance.

A condominium interest sold with a rental pool can be treated as an investment contract because the purchaser expects profit from the efforts of others managing the property.

Commercial paper is included in the definition of a security under the Uniform Securities Act, even though some commercial paper may be exempt from registration.