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373 Cards in this Set
- Front
- Back
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Carly notices in the financial statements for ACME Company, of which she is a common stockholder, that the company has surplus capital of over $1 million. This means:
A. ACME had a profitable year B. ACME has not invested the proceeds of its stock offering C. ACME is holding stock in its Treasury D. ACME sold common stock for a price above its par value |
ACME sold common stock for a price above its par value
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The Consolidated Widget Company charter authorized 1,000,000 shares of stock. The company issued 750,000 shares of stock, which it sold to over 7,000 shareholders. Later on, the company repurchased 200,000 of these shares. Which of the following terms applies to the 550,000 shares that remain in the hands of shareholders?
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Outstanding stock
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When a person has an equity stake in a corporation, that person most likely owns: |
Common Stock
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Preferred Stock
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*preferred stock is an equity security like common stock *for common stockholders to receive any dividend, preferred stockholders must receive the full amount of their dividend *dividends on preferred stock are not a legal obligation of the corporation |
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A year ago, Calvin bought at par the 6% preferred stock of the Mick's Mousetrap Company. When he needed cash to buy a new car, he considered selling his shares. Upon contacting his broker, Calvin learned that the shares were now selling for $110. What is a likely cause for this change in price?
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Interest rates have fallen
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Reason companies likely to issue convertible preferred stock?
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Convertibility means preferred stockholders will accept a lower stated dividend |
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ABEL Company issued 8%, $100 par preferred stock. This stock pays dividends quarterly, so each dividend payment per share will be:
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$2
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A corporation will repay the face amount of a bond on which of the following dates? |
Maturity Date
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Which of the following features are found in both bonds and preferred stock? I They can be callable and convertibleII They have a fixed maturity dateIII The issuer makes fixed payments periodically to ownersIV They represent a debt of the corporation
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1 and 3 Callable and convertible and issuer makes fixed payments periodically to owners |
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When are Series EE bonds subject to U.S. federal income tax?
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Upon redemption
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The payment of interest and principal on which of the following issuers' securities is directly guaranteed by the full faith and credit of the U.S. government?
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Ginnie Mae
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Which statements are true regarding collateralized mortgage obligations? I CMOs are backed by agency pass-through securities held in trustII CMOs have investment grade credit ratingsIII CMOs give the holder a limited form of call protection that is not present in regular pass-through obligationsIV CMOs are issued by government agencies |
1, 2, 3 CMO backed by agency pass-through securities held in trust CMO have investment grade credit ratings CMO give holder a limited form of call protection that is not present in regular pass-through obligations |
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Typically, who are the parties to repurchase agreements? I Commercial banks with other commercial banksII Federal Reserve Bank with commercial banksIII Federal Home Loan Bank with commercial banksIV Department of the Treasury with Federal Reserve Banks
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Commercial banks with other banks and Fed Reserve with commercial banks
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Which of the following securities have an expiration date? I Stock rightII DebentureIII Preferred stockIV Warrant
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1 and 4 stock right and warrant |
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Name 3 things that are common of letter stock:
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Securities that have not been registered with the SEC B. Securities purchased at a discount by means of an investment letter C. Securities that cannot be resold for a specific period of time |
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Which of the following options positions are bearish?
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Long put, short call
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3 things that are true about Hedge funds
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A. Hedge funds are less regulated B. Hedge funds are less liquid C. Hedge funds are only suitable for high net worth clients |
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An AAA municipal bond has a current yield of 7%. For an investor in the 33% tax bracket, an AAA corporate bond must have what minimum yield to make it a more desirable investment than the AAA municipal bond?
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More than 10.4%
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Which of the following reports trades of NYSE issues?
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The Consolidated Network A Tape
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A firm commitment underwriting is a(n): I principal relationship between the issuer and the underwriterII agency relationship between the issuer and the underwriterIII commitment where the underwriter takes full financial liabilityIV commitment where the underwriter takes no financial liability
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1 and 3 principal relationship between issuer and underwriters commitment where the underwriter takes full financial liability |
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ZYX Corporation sets the record date for a cash dividend distribution for Wednesday, April 25th. The exchange will set the ex-dividend date as:
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2 business days prior Monday April 23rd |
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FINRA member firms that act only as a broker can: (3 things)
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A. brings together buyers and sellers B. acts as agent when executing trades for customers C. charges a commission to its customers for services performed
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A company that acts only as a dealer can: (3 things) |
A. earns the spread when it completes a round turn trade in a stock (a buy and sell) B. buys securities into its inventory from customers and sells securities out of its inventory to customers C. engages in principal transactions
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Which is correct concerning the prices at which dealers buy and sell securities?
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The dealer buys at the bid and sells at the ask
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What occurs with duration? |
as maturity lengthens or the coupon rate drops, duration increases
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what is true concerning reinvestment risk? (2 things)
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A growth stock will have lower reinvestment risk than a U.S. Treasury bond Reinvestment risk for bonds arises due to the possibility that interest rates may decline over the investment's time horizon |
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An investor that buys securities issued by companies based in Third World countries would be MOST concerned with:
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Political Risk
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A fully diversified portfolio eliminates:
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Non-systematic risk
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Which bond has the lowest level of interest rate risk? A.) 1 year maturity; 6% coupon B.) 10 year maturity; 6% coupon C.) 1 year maturity; 9% coupon D.) 10 year maturity; 9% coupon |
1 year maturity; 9% coupon short maturity and high interest rate |
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Which of the following investments are likely to appear in a portfolio for an investor pursuing an aggressive strategy?
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Growth stocks, technology stocks, and high yield corporate bonds |
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Which of the following circumstances is preferable for a U.S. export company? (2 things) I The dollar has strengthened against the EuroII The dollar has weakened against the EuroIII The yen has strengthened against the dollarIV The yen has weakened against the dollar |
II The dollar has weakened against the EuroIII The yen has strengthened against the dollar
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The primary tools used by the Federal Reserve Board (the Fed) include: (3 things)
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raising or lowering the reserve requirement cutting or raising the discount rate expanding or shrinking the money supply |
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A trader who wishes to go long the British Pound and short the U.S. Dollar would do so:
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Interbank Market
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Fiscal policy sets:
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government spending levels
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What is the likely effect on the dollar of low interest rates in the U.S.?
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the dollar will become cheaper
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A drop in the Gross Domestic Product (GDP) for two consecutive quarters called a(n):
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Recession
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Which investment company is formed as a trust and issues "Shares of Beneficial Interest" (SBIs)?
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UIT
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Which of the following types of investment companies may issue senior securities (bonds and preferred stock)?
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Closed-end investment companies
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Exchange traded index funds: (2 things)
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Ihave comparable or lower expense ratios than index mutual fundsII can be traded anytime during exchange trading hours at net asset value
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The exchange traded fund(s) based on indexes by industry sector or country are known as:
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I shares
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A management company has a net asset value of $8.59 per share. The fund's ask price is 5.3% lower than the net asset value. Which statement is true?
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Closed-end fund ($ may be higher or lower than NAV)
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Stock exchanges do not list open-end management companies because open-end funds:
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MUST BE SOLD THROUGH a prospectus offering |
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Which of the following statements concerning the compensation received by the underwriter for a mutual fund are correct?
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III The underwriter receives a selling concession from the sales chargesIV The underwriter shares the sales charges with the selling group
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A custodian bank that has no transfer agent function will do which of the following for a mutual fund?
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II
Receive interest and dividends from investments IV Safeguard securities and cash belonging to the fund |
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Under the Investment Company Act of 1940, a diversified investment company may invest in Sherwood Corporation only to the extent of:
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5% of the investment company's assets
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Which of the following statements concerning a mutual fund's distributorship agreement are correct?
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I The contract must be in writingII
The contract must be approved by either majority vote of the outstanding shares or by a majority of the board of directors that are independent of the fund distributor The contract must be renewed annually |
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Which of the following statements concerning a mutual fund's investment advisory agreement are correct?
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I The contract must be in writingII The contract must be approved annually by a majority of shares or by a majority of the board of directors that are independent of the investment adviserIII The contract will generally set a limit on fees for the adviser
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Which of the following statements concerning the advantages of professional managers for an investment portfolio are correct? (3 things)
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I Professional managers make a full time commitmentII
Professional managers have skill and experience in the task of investing a portfolio IV Professional managers have greater resources for conducting research than the average investor |
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Which statements are true about investment advisory contracts?
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II The maximum term for the initial contract is 2 yearsIII Renewal of the contract requires an annual vote
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If a management company does not qualify as a diversified fund, then the fund:
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must call itself a non-diversified fund in its advertising and prospectus
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Which of the following is a sector (specialized) fund?
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Precious metals funds
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Growth funds what?? (2 things)
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invest in common stocks in rapidly expanding industries and are appropriate for customers with long term investment time horizons
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All of the following are typical characteristics of money-market funds: (3 things)
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are no-load impose 12b-1 fees charge management fees |
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Which of the following investments can be purchased for a mutual fund's investment portfolio? I Real estateII Shares of other mutual fundsIII Limited partnershipsIV REITs
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Shares of other mutual funds REITs |
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Which of the following mutual funds will generally involve the lowest level of risk for an investor?
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Balanced fund or Money market
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The portfolio of a high yield fund will primarily be invested in which of the following investments?
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Corporate Bonds
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Which of the following mutual funds will generate income that is exempt from Federal income tax?
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Municipal Bond Fund
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All of the following funds may invest in securities of foreign companies
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B. Asset allocation fund C. Global fund D. Specialized fund
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The sales charge on a fund with a Net Asset Value of $9.50 and a Public Offering Price of $10.00 is:
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5% (Ask-Bid/Ask)
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Which mutual fund share class generally converts over time to another class?
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B shares
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An investor is making monthly purchases of mutual fund shares over the course of 1 year at a lower sales charge under a Letter of Intent provision. Which statement is true regarding the deduction of sales charges?
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Sales charges are deducted from each monthly payment based on the lower rate
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If a mutual fund has a Net Asset Value of $24.25 per share, what is the maximum Public Offering Price?
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26.50 (NAV/(100%-Sales charge)
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Breakpoints are allowed for when buying a fund in:
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the same family of funds regardless of the investment objective
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The front-end sales load for a mutual fund is the:
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public offering price less the net asset value
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An open-end management company is limited to a maximum sales charge of 7¼% under FINRA rules if the fund does NOT offer its shareholders:
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II rights of accumulationIII quantity discounts (breakpoints) as prescribed by FINRA
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The maximum permitted annual 12b-1 fee under FINRA rules for a "no-load" fund is:
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25 basis points |
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Which of the following statements concerning changes in net asset value (NAV) are correct? I NAV will increase when the market value of securities in the fund’s portfolio increasesII NAV will increase at the time of capital gains distributions by the fundIII NAV will increase at the time of dividend distributions by the fund |
1 Only
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Which of the following are advantages of a mutual fund investment?
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II An investor can invest any dollar amount above a minimum purchase amountIII Minimum purchases are generally in smaller amounts than for other investments
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A mutual fund wishing to terminate a 12b-1 plan must obtain majority vote of the:
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non-interested members of the board of directors
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Which of the following statements concerning automatic reinvestment of dividends and capital gains by mutual fund shareholders are correct? I Shareholders are required to reinvest either dividends or capital gains, but cannot reinvest bothII Shareholders that choose automatic reinvestment must reinvest both dividends and capital gainsIII Shareholders must pay sales charges on distributions that are reinvestedIV Shareholders who reinvest distributions must report them for income taxes
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2 and 4
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Describe the exchange privilege.
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The privilege allows an investor to sell shares and buy shares in another fund in the same family at no sales charges
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Describe a withdrawal plan.
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A systematic withdrawal plan provides for payments from fund shares as well as from dividend distributions
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A customer redeems 1,000 shares of ABC Fund. The customer must be paid the money within:
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7 days
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Which of the following statements concerning forward pricing of mutual fund shares are correct?
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II Forward pricing means an investor will not know his or her purchase or redemption price at the time the investor requests such transactionsIII Forward pricing means that orders to purchase fund shares are filled only after the NAV has been recalculated to reflect the current value of securities held in the portfolio
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If a customer establishes a withdrawal plan, which of the following statements is correct?
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Most funds will not permit the customer to continue an accumulation program
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An investor purchases 1,000 mutual fund shares with a Net Asset Value of $10 each, where the fund imposes a 5% contingent deferred sales charge if the shares are redeemed within the first year. The sales charge decreases by 1% for each year the investor remains invested in the fund. If the investor were to redeem his shares during the fourth year of holding the fund, based upon the NAV of $10, he or she will receive:
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$9,800
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3 things that must be shown in a mutual fund performance chart for Total Return:
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the chart covers time periods of 1, 3, 5 and 10 years 12b-1 fees are included as a reduction of Total Return dividends and capital gains distributions are considered as reinvested to compute Total Return |
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What item is not found in the mutual fund fee table included in the prospectus? |
Dividend Distributions
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Total Return takes into account all of the following: (3 things)
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Dividends, capital gains, share appreciation
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True or False: In the prospectus, the fund must disclose sales charges and redemption charges
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True: In the prospectus, the fund must disclose sales charges and redemption charges |
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All of the following are required before a mutual fund can register and offer shares to the public: (3 things)
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100 shareholders $100,000 of net worth clearly defined investment objectives |
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Before a management company can register with the SEC, it must have how many shareholders?
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minimum of 100
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The Investment Company Act of 1940 specifies that a majority of the outstanding shares must vote to change investment policies of an investment company. Which of the following also require a majority vote of the shares?
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I A change in the investment company's subclassificationII
A change in the investment company's borrowing and loan policies IV A change in the nature of the company's business |
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A customer reads in an investment company prospectus that the company must maintain a "coverage ratio" of assets to bank borrowing of 300%. This company must be a(n):
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Open-end management company
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All of the following statements concerning unrealized appreciation and depreciation of fund investments: (3 things)
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A. The fund's increased share price reflects unrealized appreciation of portfolio securities B.
A registered representative must warn investors about the possibility that fund investments may depreciate in value D. The investor may realize the unrealized depreciation in a fund's portfolio by selling fund shares |
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3 things concerning the ways investors may profit from buying mutual fund shares |
A. buying and selling of securities by the fund may result in capital gains B.
the fund will distribute dividends received from securities in its investment portfolio as dividends to its shareholders D. fund shares may increase in value as the portfolio increases in value |
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an open-end investment company which has not made a 12b-1 election, would include all of the following as operating expenses
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audit fees, custodial fees, management fees
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A customer leaves each of his grandchildren shares of XYZ Fund in his will. The customer purchased the shares 20 years ago for $4.50 a share. At the time of the customer's death, they are worth $15.50 a share. If the grandchildren redeem their shares immediately at $15.50 per share, what is the tax treatment of the gain?
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no capital gain or loss
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When a mutual fund distributes more than 90% of its net investment income, who is responsible for the tax liability on the undistributed net investment income?
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The fund
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A customer has $12,000 of capital losses and $4,000 of capital gains in a tax year. On that year's tax return, the investor has a:
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$3,000 capital loss deduction and a $5,000 loss carryforward
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Is this true: A distribution that is a “return of capital” is not taxable to the shareholder
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yes it is true
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When a mutual fund shareholder calculates cost basis, which of the following will increase cost basis?
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Reinvested dividends
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Cash dividends received on stock investments are:
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taxable at preferential rates that are lower than ordinary income tax rates
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Describe the tax treatment of an investor's capital losses are correct?
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The losses will offset income dollar–for–dollar to a maximum of $3,000 per year for an individual
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Which statement is true about taxation of distributions reported on Form 1099-DIV? I Distribution of dividends that come from interest payments on bonds held in a mutual fund portfolio are taxed at ordinary income tax rates of up to 15% or 20%II Distribution of dividends that come from interest payments on bonds held in a mutual fund portfolio are taxed at ordinary income tax rates of up to 39.6%III Distribution of dividends that come from dividend payments on stocks held in a mutual fund portfolio are taxed at ordinary income tax rates of up to 15% or 20%IV Distribution of dividends that come from dividend payments on stocks held in a mutual fund portfolio are taxed at ordinary income tax rates of up to 39.6%
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2 and 3
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To qualify as a regulated investment company, a mutual fund must:
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distribute at least 90% of net investment income to shareholders
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When a member offers an investment analysis tool to retail customers, it must make the investment analysis tool available to:
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FINRA within 10 business days of its first use by the public
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A security is defined as an investment enterprise
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for profit with another company performing the management
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An associated person of a member cannot accept compensation from anyone other than:
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The member with which the person is associated or a nonmember, assuming that a compensation agreement has been reached
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Under what circumstances could an associated person of a member accept compensation from anyone other than the member with which the person is associated?
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When a nonmember pays the member and the member agrees to the compensation agreement
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If a complaint is deemed to be of a minor nature by the District Business Conduct Committee, it may offer the respondent:
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A summary complaint procedure
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The Federal Act that established procedures for the protection of customer funds and securities in the event that a broker/dealer becomes insolvent is called
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The Securities Investor Protection Act of 1970
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What are 3 things that are Retail Communication?
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1.) Performance reports 2.) Public Appearances 3.) Market letters |
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It is permissible to use hypothetical illustrations of rates of returns in variable life insurance retail communication to do which of the following?
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Illustrate the affects of various investment returns on the cash value and death benefit
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Sally divorces Andrew at age 35 and collects distributions on their retirement plan. What taxation/penalties will she have to pay?
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None (divorce is an exception reason)
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Broker/dealers can do what 3 things?
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1.) A principal is a dealer and sells securities from its own inventory 2.) an agent is a broker and sells securities for a customer 3.) Securities firms may act in the capacity of both a principal and an agent and are referred to as broker/dealers |
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What is the maximum coverage under SIPC if Cheryl has an individual retirement account as well as a joint account with her husband at her brokerage firm?
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$1,000,000 ($500,000 for each separate customer) |
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In order to qualify for Subchapter M of the Internal Revenue Code, an investment company must distribute to shareholders:
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at least 90% of its net investment income
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What are 3 things that are general requirements of a qualified plan?
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1.) the plan must be permanent, written and legally binding 2.) The plan must be communicated to all employees 3.) The plan must be for the exclusive benefits of the employees and their beneficiaries |
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An underwriter of the securities of an investment company is allowed to sell securities to a member firm at a price other than the public offering price when what kind of agreement is in effect?
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Selling agreement
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The purpose of the Bank Secrecy Act: (3 things)
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1.) To identify the source and volume of currency deposited in financial institutions 2.) To authorize the maintenance of records of financial transactions 3.) To identify the source of currency transported into or out of the US |
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A decision that comes from the FINRA Board of Arbitration is:
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Binding on all parties involved
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The reason "selling dividends" is disallowed is because:
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The distribution is already calculated into the price of the fund
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Name 3 type of "separate customer accounts" for the purpose of SIPC coverage
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1.) a parent listed as the custodian on his children's accounts 2.) An individual account and a joint account with a spouse 3.) An individual customer account |
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What is true regarding variable life contracts?
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Partial surrenders are subject to "interest first" taxation
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Violations of SEC rules or the Act of 1934 are subject to criminal penalties. The maximum penalty for an INDIVIDUAL is:
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$1,000,000, imprisonment for 10 years or both
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FINRA will remove customer dispute information on members' and associated person's Form U4s and amendments from the CRD in which of the following circumstances?
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The member or associated person obtains an order of expungement from a competent jurisdiction that orders either the information expunged or affirms an arbitration panel's order for expungement
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If a dealer offers a nonqualified quotation and then fails to transact an order based on the quote, the dealer is guilty of the prohibited practice known as:
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Backing away
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For a regulated investment company, what is the 90% regulation test based upon?
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Gross interest and dividend income, less expenses |
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Under the Code of Procedure, violations by an associated person are punishable by which of the following sanctions?
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Censure, suspension, or revocation of registration, expulsion, fine, barring, and any other fitting sanction
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During the accumulation period of a qualified variable annuity, the earnings in the account:
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accumulate on a tax-deferred basis
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An investment company that distributes at least a minimum percentage of its investment income back to its shareholders is known as
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Regulated
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A federal court case that clarifies the definition of an investment contract, stating that a security or an investment contract exists when a person invests in a common enterprise and expects a return from the efforts of a third party is known as:
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The Howie Case |
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To calculate taxes due on mutual fund shares being sold using the average cost basis for the shares, what must the investor account for? |
the taxes paid on dividend and capital gain reinvestments made for additional shares
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The act that requires financial institutions to develop, implement and monitor procedures that prevent its agents and associates from misusing nonpublic information is:
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Securities and Exchange Act of 1934
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What is the maximum civil penalty that can be imposed to the Insider Trading Act of 1988
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3 times the profit gained or $5,000,000 and/or 20 years imprisonment
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For how long does FINRA require member firms to retain Form U4 and U4 amendments in their records?
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At least 3 years, and for the first 2 years in an easily accessible place
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FINRA Code of Procedure states that the first level of jurisdiction for a complaint against a member firm or one of its personnel is
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Department of Enforcement
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The FINRA bylaw category that defines the proper methods for handling securities violations and complaints is the:
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Code of Procedure
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What subchapter of the IRS code defines the conduit or pipeline theory that applies to investment companies?
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Subchapter M
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A distribution from a mutual fund 60 days after the initial purchase is considered which type of distribution?
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Long term capital gains
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To qualify as a regulated investment company what percentage of net investment income must be distributed to the shareholders? |
at least 90% to be regulated
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According to FINRA Rules on Private Securities Transactions, an associated person entering into a series of private transactions without compensation must provide to the member firm: (3 things)
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1.) A statement of possible compensation 2.) A description of each proposed transaction 3.) The person's proposed role in the transaction |
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Who must review institutional communication?
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A registered prinicpal
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A person who has passed the qualifying examination with FINRA and then terminated his registration must take the examination again if the termination lasted for a period longer than:
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2 years
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Name 3 things that are essential facts about a customer that should be obtained when opening an account:
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1.) Name 2.) Age 3.) Address |
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An associated person may only borrow money from a customer if:
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they are a close relative
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Are bonus annuities good recommendations for older individuals?
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No because of the longer-term surrender chargers
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A rep's client wants to place a trade that the representative believes is unsuitable. The rep should do what?
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Execute the trade but obtain a written statement from the client that the transaction was unsolicited
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For how long are member firms required to keep a customer's written authorization to withdraw money from their account after the expiration date?
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3 years
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Is there a limit for how much a donor may give for an UGMA account?
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No limit |
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What is front-running?
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A securities professional executing a trade in his own account prior to the client's to achieve a more profitable trade
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A person who has the authority to transact business on the behalf of another person is defined as:
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A Fiduciary
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An account under the UGMA earned interest income from bonds. How is this interest income taxed?
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A portion is taxed at minor's rate and a portion is taxed at the parents rate (until 19 or full time student 24) taxes split between minor and parents |
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With regard to required minimum investments, which is normally true about the differences between lump sum and systematic investors?
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Lump sum investors typically have a higher required minimum
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In compliance with FINRA conduct rules, customer recommendations should be based on:
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customer's suitability for investment
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Can a donor to an UGMA/UTMA account charge a management fee?
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No because they are the donor (custodians that are not the donor may)
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With regard to mutual funds, switching occurs when:
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the rep recommends moving assets from one fund to another to generate commissions
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What disclosures and inquiries would a rep need to make for exchanging a variable annuity? (3 things)
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1.) Surrender charge may apply and be longer than current 2.) Fee may be higher 3.) another exchange in a VA within last 36 months |
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In a stock trading account "churning" is defined as effecting transactions solely to generate commissions. A similar practice with regard to mutual funds is known as:
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Switching
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Mortgage bonds, equipment trust certificates and collateral trust bonds are all examples of what type of bonds?
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Secured bonds
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Long-term unsecured corporate debt offerings are defined as what?
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debentures
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A shareholder owns 100 shares of stock with cumulative voting rights. If there are 4 vacancies being voted upon, what is the maximum number of votes the shareholder may cast for any one vacancy?
|
400
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What phrase describes the date when the Board of Directors authorizes a dividend
|
Declaration date
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What term describes the lowest price at which a dealer will sell a stock to the investor?
|
ask
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An investor receives a confirmation for the purchase of a foreign company's shares that was executed on a US exchange. What type of shares has the investor purchased?
|
American Depositary Receipts (ADRs)
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Proceeds from the sale of a security went directly to the issuer of the security. In which market did this transaction occur?
|
primary market
|
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|
what type of risk is involved when an investor may sustain a loss if a security must be sold quickly?
|
liquidity risk
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|
what effect will falling interest rates have on the price of bonds trading in the secondary market?
|
bond prices will rise
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|
|
if an investor wanted to purchase an unlisted security where would the order be entered?
|
OTC market
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|
Which type of municipal bond is backed by the full faith, credit and taxing power of the issuer?
|
GO bonds (general obligation)
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What is the maximum number of days allowed for a COD/DVP trade settlement?
|
35 days
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|
If a customer purchases securities and does not settle the account in 5 business days, what is the brokerage firms first order of business?
|
1.) sell of purchased securities 2.) freeze account for 90 days |
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|
What type of rights allow stockholders to maintain the same percentage of ownership when new shares are issued?
|
preemptive rights
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|
which type of preferred stock must pay all dividends that are in arrears before any common stockholders can receive a dividend?
|
cumulative preferred
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What is another name for the exercise price of an option?
|
strike price
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|
|
what type of securities are directly impacted by changes in interest rates?
|
fixed income securities
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what term describes the difference between the bid price and the ask price of a security?
|
spread
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|
what type of prospectus may be distributed during the cooling off period of a primary offering?
|
Red Herring
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A bond trading below its par value is trading at what?
|
discount
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|
The quote "Bid 1.50 and Ask 1.45" is for what type of US Treasury security? |
T-Bills (can buy at a discount)
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What kind of bond is issued at a deep discount to par, pays no period interest and is redeemed at par at maturity?
|
Zero coupon bond
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What is the highest yield for a bond trading at a discount?
|
Yield to Maturity
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A municipality issued bonds to finance improvements to its sewer system. Bondholders will be repaid through increased rates for water and sewer services. What type of bonds are these?
|
revenue bonds
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what is the name for an issuer's first distribution of securities to the public?
|
Initial Public Offering (IPO)
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|
Who is responsible for establishing the rules of incorporation for a business enterprise?
|
Individual states |
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Name 2 statements are true about a business that wishes to incorporate?
|
1. To incorporate, the business must file with the State 2. To remain incorporated, annual reports and filing fees can be required to be sent to the State |
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When the Consolidated Widget Company incorporated, it received a charter that allowed it to issue 1,000,000 shares of common stock. Thus, 1,000,000 is the amount of:
|
Authorized stock |
|
|
The definition of Treasury Stock is:
|
Issued shares minus outstanding shares
|
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A corporation sells its common stock to the public, receiving $49 per share. The par value per share has been set at $1. The $48 per share received above par is called the:
|
Capital Surplus |
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|
Which one of the following is the key determinant of the market value of common stock?
|
Expectations for future earnings |
|
|
What is the market value of common stock?
|
Market value is based on investor expectations for the company's earnings |
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|
In the securities industry, proxies are defined as
|
ballots authorizing someone to vote on a shareholder's behalf (a power of attorney)
|
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|
What happens when corporations distribute dividends?
|
They reduce the amount of a company's retained earnings
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|
Name 3 things that are true concerning common stockholders rights:
|
2. receive property dividends the board declares 3. vote for the board of directors |
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|
If a company declares and pays a 10% stock dividend, an existing shareholder with 100 shares will have:
|
more than 100 shares and a reduced price per share |
|
|
When a corporation declares a stock split, the:
|
2. market price per share decreases |
|
|
If a corporation's stock price rises to an extremely high level:
|
2. the corporation is likely to split its stock to reduce the market price |
|
|
A customer owns common stock in the Safe Canning Company. She may transfer her shares:
|
|
|
|
When a minority corporate shareholder dies, the corporation:
|
continues as before and the deceased shareholder's stock becomes part of the shareholder's estate |
|
|
Corporations issue common stock in order to:
|
raise start-up money for the corporation |
|
|
In order to form a corporation as a legal operating entity, a(n):
|
corporate charter must be issued by the State
|
|
|
Name 2 things regarding common stock
|
Common stock is an equity security and has no maturity date |
|
|
In its corporate charter, ACME Corporation is authorized to sell 2,000,000 common shares and has issued 1,500,000 shares to the public. ACME's authorized stock is equal to:
|
2,000,000 shares |
|
|
When the Consolidated Widget Company incorporated, it received a charter that allowed it to issue 1,000,000 shares of common stock. Consolidated then issued 600,000 shares. Which statements are true? I Consolidated has 400,000 issued sharesII Consolidated has 600,000 issued sharesIII Consolidated has 400,000 unissued sharesIV Consolidated has 600,000 unissued shares
|
2 and 3 II Consolidated has 600,000 issued sharesIII Consolidated has 400,000 unissued shares |
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|
The Consolidated Widget Company charter authorized 1,000,000 shares of stock. The company issued 750,000 shares of stock, which it sold to over 7,000 shareholders. At this point in time, the company has 550,000 shares outstanding. Which of the following terms applies to the 200,000 share difference between issued shares and outstanding shares?
|
Treasury stock |
|
|
The definition of Outstanding Stock is:
|
Issued shares minus Treasury shares
|
|
|
What is true regarding par value for common stock?
|
It is the value placed on the stock when the State of incorporation authorizes the issue
|
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|
Kodak issues new stock, with a par value of $1 per share and receives $38 per share upon issue. From this issue, Kodak receives, in addition to par value, $37 per share of:
|
Surplus capital |
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|
A customer has invested for a number of years in the ZZBOTTOM Company. He understands that his common stock makes him an owner and has asked for an explanation of the owner's equity line in ZZBOTTOM's financial statement. You may tell the customer that the owner's equity is:
|
the residual value left in the company after it pays all debts and claims |
|
|
what is true regarding market value of common stock
|
Market value is a price generally above book value and based on expectations for the corporation's earnings
|
|
|
Statutory voting means:
|
the majority shareholders can elect all of the directors
|
|
|
Cumulative voting tends to favor:
|
Smaller shareholders |
|
|
In order to cast a vote at the annual meeting, a common shareholder:
|
can either be physically present or can complete and sign a proxy
|
|
|
George has decided to purchase common stock in the ALFA Corporation. When he approaches his broker with the request, the broker asks which class of stock he wants to purchase. This means:
|
ALFA has more than one kind of common stock
|
|
|
Which of the following events require a vote of the common stockholders?
|
Declaration of a merger |
|
|
Among the rights of common stockholders is (are) the right to: I vote on the amount of dividends for the yearII determine whether the company will retain earnings this yearIII dividends once the board of directors declares themIV retained earnings after the company dissolves and pays its creditors and “senior” securities
|
3 and 4 III dividends once the board of directors declares themIV retained earnings after the company dissolves and pays its creditors and “senior” securities |
|
|
Jon owns 100 shares of COSMO Company common stock. He receives a notice that COSMO has declared a 10% stock dividend. What does this mean to Jon?
|
He will receive 10 additional shares of COSMO stock
|
|
|
X Corporation stock has been trading at $120 per share recently and trading volume has fallen to record lows. To increase trading volume, the X Corporation may:
|
split the stock three-for-one to make its price more attractive
|
|
|
A corporation whose stock price has fallen to an extremely low level would:
|
declare a stock buy-back program |
|
|
A common stockholder's right to maintain proportionate ownership in a corporation is a:
|
Preemptive right |
|
|
The shareholder's right to inspect records means an investor:
|
can obtain the names and addresses of other shareholders
|
|
|
An investor pays $10,000 for a listed stock. If the company should go bankrupt, the investor's maximum loss would be:
|
$10,000 |
|
|
What is the effect of a shareholder selling shares of a corporation?
|
II The corporation continues as beforeIII The new shareholders have all the preemptive and voting rights that the previous owner had
|
|
|
Name 3 things about Treasury Stock:
|
2. it does not have dividend rights 3. it reduces the number of shares outstanding |
|
|
Name 3 rights of common stockholders
|
2. transfer shares at will 3. Receive dividends |
|
|
Name something true about preferred stock?
|
Preferred shareholders may receive no dividend unless the board of directors votes to declare a dividend on the preferred stock
|
|
|
Name 3 things concerning preferred stock:
|
2. for common stockholders to receive any dividend, preferred stockholders must receive the full amount of their dividend 3. preferred stock is an equity security like common stock |
|
|
Which of the following securities must first receive a regular dividend in order for a corporation to pay a common stock dividend?
|
I Noncallable preferred stockII Convertible preferred stockIII Cumulative preferred stockIV Participating preferred stock
|
|
|
The Home Run Fund purchased 1,000 shares of IBEX 5%, $100 par preferred stock for its portfolio. If IBEX pays its full dividend this year, the Home Run Fund may expect a dividend of:
|
5,000 |
|
|
ZBZ Corporation paid $5 in dividends on its 8% cumulative preferred stock last year. If common shareholders are to receive a dividend by the end of this year, what amount of dividends must ZBZ pay the preferred shareholders?
|
$11 per share |
|
|
Quincy has a 6% preferred stock in his portfolio. He has noticed several times in the past five years that this stock has paid more than the stated $6 per share. Quincy most likely has:
|
Participating preferred stock |
|
|
A customer owns $100 par convertible preferred stock, convertible at $25 per share. The convertible preferred is trading at $120. What is the parity price of the common stock?
|
$30 |
|
|
Which of the following rights do preferred shareholders have?
|
to receive dividends ahead of common shareholders |
|
|
For the past year, the yields on new issues of preferred stock have been rising. Which of the following statements concerning preferred stock issued last year are correct?
|
II Prices are now lowerIII Yields are now higher
|
|
|
A year ago, Calvin bought at par the 6% preferred stock of the Mick's Mousetrap Company. When he needed cash to buy a new car, he considered selling his shares. Upon contacting his broker, Calvin learned that the shares were now selling for $110. What is a likely cause for this change in price?
|
Interest rates have fallen |
|
|
ABEL Company issued 8%, $100 par preferred stock. This stock pays dividends quarterly, so each dividend payment per share will be:
|
$2 |
|
|
A customer owns 9% cumulative preferred stock. Last year, a 6% dividend was paid to all shareholders. This year, in the 4th quarter, the common shareholders were paid a 10 cent dividend. What did the cumulative preferred shareholders receive in the current year?
|
$12.00 |
|
|
Participating preferred stock differs from cumulative preferred stock because participating preferred stock:
|
may receive dividends beyond the stated dividends if the board of directors declares them
|
|
|
Which of the following reasons make companies likely to issue convertible preferred stock?
|
Convertibility means preferred stockholders will accept a lower stated dividend
|
|
|
A customer owns $100 par convertible preferred stock, convertible at $50 per share. The convertible preferred is trading at $120. What is the parity price of the common stock?
|
$60 |
|
|
Which of the following rights do preferred shareholders have? I To vote to declare dividends in arrearsII Preemptive rightsIII To vote for the board of directors, if there is a tieIV To receive dividends ahead of common shareholders
|
IV To receive dividends ahead of common shareholders
|
|
|
For the past year, the yields on new issues of preferred stock have been falling. Which of the following statements concerning preferred stock issued last year are correct?
|
Yields are now lower |
|
|
SMART Investors, Inc. owns 100% of the preferred stock of Merrie Maids, Inc., a firm specializing in cleaning residences. SMART Investors received $1,000,000 in dividends from this stock last year. When preparing its tax return:
|
SMART may exclude $800,000 of dividends
|
|
|
Name 3 things that are true regarding preferred stock:
|
2. can be convertible 3. has a fixed dividend rate |
|
|
Corporate bonds appear on the issuer's balance sheet as:
|
Debt |
|
|
Which of the following statements concerning corporate bonds is correct?
|
They represent a debt owed by the corporation to investors
|
|
|
All of the following methods that could be used to retire bonds before maturity EXCEPT:
A. Sinking fund call B. In whole call C. Amortization D. Repurchase in the open market |
Amortization
|
|
|
If market interest rates have risen, a corporation with excess funds could retire bonds at a price that is less than par by which of the following methods?
|
2. Repurchase in the open market |
|
|
Which method will most likely enable a corporation to retire its bonds for less than face value?
|
Repurchase in the open market
|
|
|
Which of the following statements concerning equipment trust certificates are correct? I Equipment Trust Certificates are securedII Equipment Trust Certificates are unsecuredIII Equipment Trust Certificates pledge a company's rolling stock as collateralIV Equipment Trust Certificates pledge the shares of a company’s wholly owned subsidiary as collateral.
|
1. Equipment Trust Certificates are secured 3. Equipment trust certificates pledge a company's rolling stock as collateral |
|
|
What is the main reason companies issue bonds with a conversion feature?
|
The companies are able to offer the bonds at a lower rate of interest
|
|
|
Why is the conversion feature of a convertible bond desirable from the investor's point of view?
|
II Investors may realize capital gains if the market price of the stock should appreciate sufficientlyIII The market price of the bond will likely appreciate should the market price of the stock appreciate significantly
|
|
|
I II III When a convertible bond is converted to common stock, what is the typical effect on the common stock?
|
The market price of the common will tend to fall due to the dilution of earnings per share
|
|
|
When a corporation issues new income bonds for previously issued bonds, how do the bonds compare? I The face amount is decreased for the income bondsII The interest rate is increased for the income bondsIII The interest rate is reduced for the income bondsIV The face amount is increased for the income bonds
|
The interest rate is increased for the income bonds The face amount is increased for the income bonds |
|
|
Name 3 things that are true about zero-coupon bonds.
|
2. the discount is subject to annual accretion 3. the bonds sell at a deep discount from par value |
|
|
Which statement explains why a corporate bond issued at par will sell at a premium in the market?
|
The bond was issued before interest rates fell
|
|
|
Which of the following statements concerning premium corporate bonds are correct? I Bonds sell at a premium when the issuer’s credit rating improvesII Bonds sell at a premium when the issuer’s credit rating worsensIII Bonds sell at a premium when interest rates fallIV Bonds sell at a premium when interest rates rise
|
Bonds sell at a premium when the issuer’s credit rating improves Bonds sell at a premium when interest rates fall |
|
|
Your client owns ABC Corporation bonds with a coupon rate of 8 percent. After finding out that the current market rate of interest has risen to 9 percent, she calls you to sell the bonds. As her registered representative, you should tell the client that when current yield rises, the price of outstanding bonds generally:
|
declines |
|
|
A customer has purchased $100,000 of long-term 10% bonds at par. If the current yield for this security rises to 12%, which statements are true? I The market value of the bond will remain at parII The market value of the bond will fallIII The annual income received by the bondholder will remain the sameIV The annual income received by the bondholder will increase
|
II The market value of the bond will fallIII The annual income received by the bondholder will remain the same
|
|
|
As market interest rates move down, one would expect the current yield and yield to maturity on any particular fixed-income security to:
|
move in the same direction |
|
|
Which statement concerning bonds that trade below par value is correct?
|
Current yields will be higher than nominal yields
|
|
|
If a client sees that bond prices are at a premium, which of the following statements are correct? I The nominal yield of outstanding issues has decreasedII The nominal yield of outstanding issues remains the sameIII The yield to maturity of outstanding issues has decreasedIV The yield to maturity of outstanding issues remains the same
|
II The nominal yield of outstanding issues remains the sameIII The yield to maturity of outstanding issues has decreased
|
|
|
If an investor expects market interest rates to rise, which bonds should the investor buy?
|
Short term bonds selling at a premium
|
|
|
Which of the following securities issued by a corporation is a debt security?
|
Bond |
|
|
Which statement concerning corporate debt instruments is correct?
|
Funded debt is due in 5 years or more |
|
|
An 8%, $1,000 par, corporate bond pays which of the following? I $40 of annual interestII $80 of annual interestIII $40 per interest paymentIV $80 per interest payment
|
II $80 of annual interestIII $40 per interest payment
|
|
|
A corporation may be forced into bankruptcy if it fails to make regular payments on which of its securities?
|
Bonds |
|
|
The maturity date of a bond is the date on which the company:
|
must repay the face amount of the bond
|
|
|
An issuer will most likely call its fixed income securities during periods when interest rates have:
|
declined |
|
|
For which of the following bonds will the owner's name and address appear on a bond certificate?
|
Registered bonds |
|
|
Which of the following statements concerning mortgage bonds are correct? I Mortgage bonds are securedII Mortgage bonds are unsecuredIII Mortgage bonds pledge the company’s land and buildings as collateral.IV Mortgage bonds pledge the company’s wholly owned subsidiary as collateral.
|
I Mortgage bonds are securedIII Mortgage bonds pledge the company’s land and buildings as collateral.
|
|
|
Which statement concerning equipment trust certificates is correct?
|
Equipment trust certificates pledge the company's moveable equipment as collateral
|
|
|
If a corporation pledges shares of a wholly-owned subsidiary as the backing for a bond issue, the bond is known as a(n):
|
Collateral trust bond
|
|
|
Which of the following statements concerning debentures are correct? I Debentures are securedII Debentures are unsecuredIII Debentures pledge a company's assets as collateral backing the issueIV Debentures pledge a company's faith and credit to back the issue
|
II
Debentures are unsecured IV Debentures pledge a company's faith and credit to back the issue |
|
|
Which of the following are "secured" bonds? I Equipment trust bondsII Subordinated debenturesIII Mortgage bondsIV Collateral trust bonds
|
everything but debentures
|
|
|
Which of the following factors is LEAST likely to influence the price of a convertible bond?
|
The dividend rate on the common stock into which the investor may convert the bond
|
|
|
Which statement concerning conversion of convertible bonds to common stock is correct?
|
Conversion can cause a dilution of shareholder equity
|
|
|
A customer owns $1,000 par convertible bond, convertible at $25 per share. The convertible bond is trading at $1,200. What is the parity price of the common stock?
|
$30 |
|
|
All of the following statements concerning income bonds are correct
|
A. backing is the corporation's future earnings B. bondholder forfeits the legal right to interest C. principal amount may be adjusted above par value
|
|
|
Which of the following statements correctly describe attractive features of zero coupon bonds? I A small investment can lead to a large redemption valueII The rate of return is fixed, except in the case of defaultIII Taxes need not be paid until the investment maturesIV Zero coupon bonds are less likely to be called than other corporate bonds
|
1,2,4
|
|
|
Which of the following statements comparing bonds and preferred stock is correct?
|
Bonds have a maturity date; preferred stock does not
|
|
|
A bond where par is in excess of the purchase price is defined as a:
|
discount bond |
|
|
A customer places an order to purchase a corporate bond selling at a premium. The customer could pay which of the following amounts? I $975II $1,000III $1,100IV $1,200
|
III $1,100IV $1,200
|
|
|
Which statements are true? I A bond will trade at a discount if its credit quality improves after it has been issued at parII A bond will trade at a discount if its credit quality declines after it has been issued at parIII A bond will trade at a premium if its credit quality improves after it has been issued at parIV A bond will trade at a premium if its credit quality declines after it has been issued at par
|
II A bond will trade at a discount if its credit quality declines after it has been issued at parIII A bond will trade at a premium if its credit quality improves after it has been issued at par
|
|
|
Yields on new issues of long-term bonds have been rising over the last year. Which of the following statements regarding those bonds issued at the beginning of last year are correct?
|
II Prices are now lowerIII Yields are now higher
|
|
|
If current yields on bonds have increased, which statements concerning previously issued bonds are correct?
|
Bond prices have fallen
|
|
|
If a bond is trading at a premium, which statement is TRUE?
|
The Yield to Maturity will be lower than the Current Yield
|
|
|
Which of the following bonds will offer an investor the most potential for capital gains when interest rates are expected to decline?
|
Long-term bonds selling at a discount
|
|
|
Renee is preparing to retire in two months. She has decided to use her accumulated retirement funds to buy bonds to provide her retirement income. Renee is not a risk taker. Which of the following bonds should you suggest for Renee to include in her portfolio? I CMAX Corporation - AII XOME Corp - CaIII ABEX Corp - BBIV XRX - Aaa
|
1 and 4
|
|
|
If a corporation goes into liquidation, what is the order for making payment to stockholders, bondholders, and creditors?
|
Common stockholders receive payments after all creditors, bondholders, and preferred stockholders.
|
|
|
Which of the following do corporations include in capitalization? I Preferred and common stockII Corporate debtIII Retained earnings
|
All
|
|
|
Name 2 things that are true regarding T-bills
|
I They are issued with 1, 3, 6 or 12 month maturitiesII They are sold to investors at a discount from par
|
|
|
Which of the following risks are LEAST significant for an investor who purchases Treasury Receipts?
|
Default risk and reinvestment risk
|
|
|
Which statements are true? I Treasury Receipts are issued at par and pay interest semi-annuallyII Treasury Receipts are issued at a discount and pay interest only at maturityIII Treasury STRIPs are issued at par and pay interest semi-annuallyIV Treasury STRIPs are issued at a discount and pay interest only at maturity
|
II
Treasury Receipts are issued at a discount and pay interest only at maturity IV Treasury STRIPs are issued at a discount and pay interest only at maturity |
|
|
Name 3 bonds that are sold at a stated rate of interest
|
B. Treasury Bonds C. Treasury Notes D. Series HH Bonds
|
|
|
On their federal income tax returns, investors must report interest annually from which of the following securities? I Treasury STRIPSII Treasury BondsIII Treasury NotesIV Series EE bonds
|
I Treasury STRIPSII Treasury BondsIII Treasury Notes
|
|
|
Which of the following agencies making a secondary market in mortgages has shares that trade publicly?
|
Frannie Mae Freddie Mac |
|
|
What is true regarding collateralized mortgage obligations
|
CMOs are issue by local government agencies
|
|
|
What is an appropriate investment bond for a client who is interested in monthly income?
|
Ginnie Mae Certificates
|
|
|
For which of the following investors is a Ginnie Mae pass-through certificate suitable?
|
The investor has a large portfolio and is interested in a high level of monthly income with safety of principal
|
|
|
A customer wishes to make an investment that provides minimal credit risk with monthly income. Which of the following is the best recommendation?
|
GNMA Pass-Through Certificates
|
|
|
U.S. Government agency bonds are subject to income taxes at what levels?
|
Federal
|
|
|
Which of the following statements concerning the income tax consequences of investing in mortgage backed securities issued by GNMA is correct?
|
II
Interest income is subject to federal income tax IV Interest income is subject to state and local income taxes. |
|
|
Interest from which of the following securities is subject to income tax at the federal, state, and local levels? I Fannie Mae Pass Through CertificatesII Ginnie Mae Pass Through CertificatesIII Treasury BondsIV Agency bonds
|
I Fannie Mae Pass Through CertificatesII Ginnie Mae Pass Through Certificates
|
|
|
A "Reverse Repo" is a debt instrument that evidences that the Federal Reserve has:
|
II
borrowed funds from banks IV given government securities to banks as collateral |
|
|
A "Repo" is a debt instrument that evidences that the Federal Reserve has:
|
lent funds to banks taken government securities from banks as collateral |
|
|
Name 3 US government debt instruments that are marketable
|
1. treasury bills 2. treasury bonds 3. treasury notes |
|
|
Walter wants to sign up for the payroll savings bond plan at work. Which of the following statements concerning an investment in Series EE bonds is correct?
|
Walter can wait until he redeems the bonds to report any interest income for his taxes
|
|
|
Which of the following statements concerning Series HH bonds is correct? I HH bonds pay interest semi-annuallyII HH bonds are sold at a discount to face valueIII HH bonds earn a stated rate of interest throughout the life of the bondIV HH bonds are marketable and trade in the over-the counter market
|
HH bonds pay interest semi-annually HH bonds earn a stated rate of interest throughout the life of the bond |
|
|
Name 3 things that are true regarding T-Bills
|
1. short-term with little risk of default 2. sold to investors at a discount from par 3. marketable and highly liquid |
|
|
Name 3 things that are true regarding T-Notes
|
1. the term for T-Notes is 2 years to 10 years 2. they pay interest semi-annually 3. they are highly liquid and marketable securities |
|
|
Treasury Receipts: I are issued at parII are issued at a discount from parIII pay interest semi-annuallyIV pay interest at maturity
|
are issued at a discount from par pay interest at maturity |
|
|
Which of the following U.S. government securities pay interest semi-annually? I Treasury BondsII Treasury STRIPSIII Treasury BillsIV Treasury Notes
|
T-Bonds Treasury Notes |
|
|
Income received from debt instruments of the federal government is:
|
exempt from both state and local income taxes
|
|
|
On their federal income tax returns, investors must report interest annually from all of the following
|
B. Treasury Bonds C. Treasury Notes D. Series HH bonds
|
|
|
Which of the following are agency issuers of mortgage backed securities? I Sallie MaeII Fannie MaeIII Freddie MacIV Ginnie Mae
|
II Fannie MaeIII Freddie MacIV Ginnie Mae
|
|
|
of the following statements concerning agency bonds
|
B. The interest rate is generally higher than for U.S. Treasury bonds C. Fannie Mae (FNMA) is a private corporation that issues agency bonds D. Agency bonds are not issued directly by the federal government
|
|
|
A mortgage-backed pass-through certificate offers which of the following features?
|
Monthly payment of principal and interest A maturity date that will vary depending on market interest rate movements |
|
|
Which of the following is an example of a derivative product?
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Collateralized mortgage obligation
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Which of the following is a disadvantage of collateralized mortgage obligations?
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The proceeds need to be continually reinvested
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All of the following statements concerning municipal bonds are correct
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B. Interest income is exempt from federal income tax C. Interest income is exempt from state income tax for residents of the state where the bond was issued D. Capital gains are subject to tax upon sale of an appreciated bond
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A municipal issue of a State backed by that State's income and sales taxes, is a:
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General obligation bond
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The city of Grand Aire issued municipal bonds to finance a major upgrade of its water treatment plant. Grand Aire plans to pay the interest and principal for the bonds by installing new water meters in all properties that use the water supply and sending out water bills to these users. These bonds are:
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Revenue bonds
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Which of the following municipal bonds will generate interest that is free of federal income tax? I Revenue bondsII General obligation bondsIII Industrial revenue bondsIV Private purpose bonds
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Revenue Bonds General Obligation Bonds |
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The yield on a private activity revenue bond is likely to be less for a(n):
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person that is subject to the AMT
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Which of the following are municipal securities? I General obligation bondsII Revenue bondsIII Convertible bondsIV Industrial development bonds
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I, II, IV
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Which of the following statements concerning corporate debt instruments is correct?
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Money-market debt is due in one year or less
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Which of the following securities are money market instruments? I New issues of Treasury BillsII New issues of Treasury NotesIII New issues of Treasury BondsIV Outstanding Treasury Bonds that will mature in 9 months
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New issues of Treasury Bills Outstanding Treasury Bonds that will mature in 9 months |
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Fed-Dealer repos are used to __________ credit; Fed Dealer reverse repos are used to ________ credit.
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loosen; tighten
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Arrange the following money market interest rates from lowest to highest? I Federal Funds RateII Call Loan RateIII Prime Rate
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I Federal Funds RateII Call Loan RateIII Prime Rate
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Commercial paper has all of the following characteristics
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A. it is unsecured debt B. only firms with high credit ratings issue it C. it has a maximum life of 9 months
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Bankers' acceptances are issued to help:
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firms finance imports and exports
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Which of the following statements describe characteristics of Negotiable CDs?
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Banks negotiate the terms of the CD
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All of the following are money market instruments
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A. Repurchase agreement B. Commercial paper C. Treasury bond maturing in 6 months
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What is the benefit to a stockholder of receiving stock rights?
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The stockholder can buy stock at a discounted price
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An investor received stock rights from 200 shares of common stock that she owned in a technology company. She needs 10 rights to subscribe for each new share offered. If she decides not to subscribe, how many stock rights will she be able to sell?
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200
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Which statement comparing newly issued stock rights and warrants is correct?
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Rights are issuer-granted options to buy below the market; warrants are issuer-granted options to buy above market
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If an investor writes an option, which of the following statements are correct? I The investor is the holder of the optionII The investor has a short option positionIII The investor has the obligation to buy or sell the underlying securityIV The investor has the right to exercise the option in a certain amount of time
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II The investor has a short option positionIII The investor has the obligation to buy or sell the underlying security
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The writer of a put option on securities has the:
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obligation to buy securities at a fixed price for a limited time
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What are the reasons investors buy put options?
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To profit from a decline in the market price To leverage a small investment into a large gain |
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What are the reasons investors buy call options?
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To profit from a rise in the market price To leverage a small investment into a large gain |
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Which of the following owners of the securities of ABC Corporation will be entitled to subscribe to stock rights for a new issue of common stock? The holders of ABC:
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common stock
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An investor owns 100 shares of common stock in a company that is making a rights offering. Owners of the stock will need 10 rights to subscribe for one new share. The new shares are offered at 10% below the market price. How many rights will the investor receive?
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100
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A customer owns a security that gives the right to purchase ABC Inc. common stock at $50 per share at any time during the next 5 years. The current market price of ABC common stock is $40 per share. This customer's security is a:
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Stock warrant
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Which statement comparing rights and warrants is correct?
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Rights are issuer-granted options that are short-term; warrants issuer-granted options that are long-term
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If an investor sells an option, which of the following statements are correct? I The investor is the writer of the optionII The investor has a long option positionIII The investor has the right to buy or sell the underlying security by exercising the optionIV The investor has the obligation to either buy or sell the underlying security if the option is exercised
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The investor is the writer of the option The investor has the obligation to either buy or sell the underlying security if the option is exercised |
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The holder of a call option on securities has the:
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right to buy securities at a fixed price for a limited time
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An investor purchased a stock put option with an exercise price of $40. The stock is selling at $42. If the option is going to expire, should she exercise the put?
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No, because she could buy the stock at $42 in the open market and would have to sell the stock to the writer at $40 if she exercised the option
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Which of the following options positions are bullish?
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Long Call Short put |
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All of the following statements concerning ADRs are correct
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B. ADR holders receive dividends C. ADRs may trade OTC D. ADRs may trade on an exchange
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What is the main reason investors may not resell restricted or letter stock for a specified period of time?
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The stock has not been registered with the SEC
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Under Regulation D, who is defined as an accredited investor?
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C. Trust account with $5,000,000 of assets D.
Broker-dealer
Individual with a net worth of $1,000,000 |
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Which of the following statements about hedge funds is true?
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Hedge funds are basically private investment pools for wealthy investors Hedge funds are intended for financially sophisticated investors Hedge funds may use investment strategies that increase the investor's risk |
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On this day, the daily stock listings show that ABC stock closed at $36.25, a change of +$.25. At what price did ABC stock close the preceding day?
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$36.00
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A customer owns a portfolio that holds 500 shares of ABC stock common stock and 500 shares of DEF preferred stock. If both ABC and DEF stock rises in value by 1 point, the portfolio's value will change by:
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$1,000
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A customer owns a portfolio that holds 500 shares of ABC stock common stock and 500 shares of DEF preferred stock. If ABC stock rises in value by 1 point and DEF stock falls in value by 1 point, the portfolio's value will change by:
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$0
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New York Stock Exchange
Composite Transaction Monday, April 152 Wk Hi/LoDivP/E RatioSales 100'sHighLowLastNet Chg100/25IOU, Inc.259.01262525-.5050/2Lunder, Int'l.0530.020492449+1 Using the sample stock report above, which of the following statements concerning IOU, Inc. is correct? I The earnings per share were approximately $2.78II The market price of the stock has shown a severe drop from its 52-week highIII Only one share traded on April 1 |
I & II only
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If a stock has a P/E Ratio of 20 and the stock closed at $40 per share, then the company's Earnings Per Share is:
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$2.00
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A customer has placed an order to buy a corporate bond at 97¾. The broker confirmed the purchase at that price. At the end of the next week, the quote for the bond is now 101¾. The dollar change in price for the bond is:
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$40.00
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U.S. Government bonds are quoted as a percentage of par, in minimum price increments of:
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1/32nds
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What is the nominal yield of a corporate bond with a 10% coupon selling for $960.00?
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10.0%
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A 6% preferred stock on which the directors declare a full dividend will pay:
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$6 per year
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The nominal yield of a bond is the:
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coupon interest rate stated on the bond
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John Smith purchases an XYZ Corporate bond for $920 with a nominal rate of 6 percent. John will earn a Current Yield of:
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6.5 percent
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Which statements are true when a bond sells at a discount? I The nominal yield is less than the yield to maturityII The nominal yield is more than the yield to maturityIII The current yield is less than the yield to maturityIV The current yield is more than the yield to maturity
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The nominal yield is less than the yield to maturity The current yield is less than the yield to maturity |
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Arrange the following yields from lowest to highest for a premium bond? I Nominal YieldII Current YieldIII Yield To Maturity
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III, II, I
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A customer in the 28% tax bracket owns a corporate bond yielding 9%. The customer is considering the purchase of a municipal bond. What yield would the client need on a municipal bond to equal the yield on the corporate bond?
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6.48%
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A mutual fund sponsor has three different income funds holding AAA-rated debt securities with similar maturities and similar expense ratios. Which choice lists the funds in order from highest expected yield to lowest expected yield?
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Corporate Bond Fund, Government Bond Fund, Municipal Bond Fund
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On this day, the daily stock listings show that DEF stock closed at $56.50, a change of -$.50. At what price did DEF stock close the preceding day?
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$57.00
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A customer owns a portfolio that only holds 1,000 shares of ABC stock. If ABC stock rises in value by 1 point, the portfolio's value will change by:
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$1000
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A customer owns a portfolio that only holds 1,000 shares of ABC stock. If ABC stock rises in value by 1 point, the portfolio's value will change by:
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$1000
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A stock with a P/E Ratio of 10 has just closed at $50 per share. This means that the approximate EPS for this company is:
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$5.00
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Corporate bonds are quoted based on:
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dollar price
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1 point on a corporate bond is: I .01% of $1,000 parII 1% of $1,000 parIII $1.00IV $10.00
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1% of $1,000 par $10.00 |
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When a Government securities dealer offers a government bond as 100.31, this means an investor buying the bond will pay which of the following?
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$1,009.69
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100 basis points equals:
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1%
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Colleen owns 100 shares of CBC stock. Last year she received four quarterly dividends of 24 cents each, and the stock's current market value is $25 per share. What is Colleen's current yield? |
3.8%
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The annual interest divided by the current market price of the bond is the bond's:
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current yield
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Which statements are true when a bond sells at a premium? I The nominal yield is less than the yield to maturityII The nominal yield is more than the yield to maturityIII The current yield is less than the yield to maturityIV The current yield is more than the yield to maturity
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The nominal yield is more than the yield to maturity The current yield is more than the yield to maturity |
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What is the formula for computing the taxable equivalent yield for a municipal bond?
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Current Yield divided by (1 - Tax Bracket)
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An investor in the 30% tax bracket buys a corporate bond yielding 10%. The equivalent tax-free yield for a taxable investment is:
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7%
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Which statement is TRUE about the yields of bonds of the same maturity and credit rating?
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U.S. Government bond yields are lower than corporate bond yields
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