Series 6 Exam

Front 1

Exam 2:

Which of the followig types of stock tend to do well in a good economy and poorly in a weak?

A: Defensive
B: ADR
C: Cyclical

Back 1

*Cyclical*

Cyclical rise when economy is up and fall when it's down. Good investment if economy is in an upswing.

Front 2

Exam 2:

Tom owns a CONVERTIBLE DEBENTURE with a 6.4% coupon. This bond is callable in 2010 @ 103, matures in 2015 & currently yielding @ 6.8%. How much interest will be paid on a semi-annual basis?

A: $64
B: $34
C: $32

Back 2

*$32.00*

Bonds pay interest @ the coupon rate. Coupon rate here is 6.4% which = $64/year and divided by two $32.00/ semi annual.

Front 3

Exam 2:

Who can vote in a corporate director election/ choose all that may apply.

A: Preferred stockholders
B: Common stockholders
C: Secured bondholders
D: Warrant holders

Back 3

*Common Stockholders*

Common stockholders = have voting rights.

Preferred stockholders = not likely to have rights.

Secured bondholders = these are creditors and have no voting rights.

warrant holders = only have rights to become owners @ a fixed price. They must excercise their warrant to vote.

Front 4

Exam 2:

Which of the following securities are not marketable securities?

A: Treasury Bills
B: GNMA pass through securities
C: Series EE bonds

Back 4

*Series EE Bonds*

Securities are only marketable if they can be sold to other parties. Series EE bonds cant be sold only redeemed back to the US Govt.

Front 5

Exam 2:

For what purpose do companies issue warrants?

A: to borrow money from the public?
B: to make a bond issue more marketable?
C: to hedge against a declien in the issuers stock price?

Back 5

* To make a bond issue more marketable *

Warrants are used as "sweetners" in a bond on preferred stock offerings.

Front 6

Exam 2:

Telegraph recently issued 8% convertible debenture @ par. The debentures can be converted into 20 shares of telegraph common stock & are currently offered in the market @ 90. What is the conversion price?

A: $20
B: $45
C: $50

Back 6

* $50.00 *

The conversion price is set @ bond issuace and it is the # of dollars of par value that converts into one share of common stock. this is found by taking par value - not the market value & dividing it by the conversion ratio > since the CR is 20:1 (the debentures can be converted into 20 shares) the conversion price is $50.00.

Front 7

Exam 2:

A bond closed yesterday w/ a offerig yield of 7.21. Currently the bond is being offered at a yield of 7.18. Which of the followig statements is true?

A: the yield has fallen by 3% points
B: the bond has risen in price
C: the yield has fallen by 3 basis points or bps

Back 7

* B and C *

When the yield of a bond drops as it has in this question that means the dollar value or price has increased. There is an inverse relationship between a bonds value and its yield. the yield has moved from 7.21 to 7.18 which is 3/100ths of 1% not 3 perentage points. remember a 1% move is = to the yield rising or falling 100 bps.

Front 8

Exam 2:

Which of the following entities does not issue municiple bonds?

A: state of GA
B: port of authority of NY and NJ
C: federal government

Back 8

* Federal Government *

Municiple bonds are issued by the state, city, local govt and political. Bonds issued by the fed govt are not municple.

Front 9

Exam 2:

A port manager is looking to produce additional income against an existing long position. Which of the following options strategies would be smart to achieve her goal?

A: sell calls
B: purchase calls
C: purchase warrants

Back 9

* Sell Calls *

the most likely strategy for a conservative investor seekig income would be to sell calls against the existing long position. This is referred to as a covered call writing.

Front 10

Exam 2:

A bond is currently offered in the market at 95 (discounted from 100). Rank the following yields from the highest to the lowest.

A: Nominal Yield
B: Current Yield
C: Yield to Maturity

Back 10

* C, B, A *

Bonds trading at a discount (less than 100) the yield ranks from highest to lowest: (ytm, cy, ny)

Front 11

Exam 2:

Herbies electronics has issued 8% subordanent debentures due 1/1/19. the bonds have a mandatory sinking fund for which the Seventh National Bank holds the escrow accout to ensure there is sufficient money to facilitate a possible call. the bond is callable for the first time at 102 on 1/1/14. the issue was purchased by North Dakota State Pension Fund. Who is the borrower?

A: North Dakota Pension Fund
B: Seventh National Bank
C: Herbies electronics

Back 11

* Herbies Electronics *

In corporate bond issue the borrower is the corporation.

Front 12

Exam 2:

How are treasury bonds quoted?

A: as a % of par & 32nds
B: as a % of par in 8ths
C: at a discounted yield

Back 12

* as a % of par in 32nds *

treasury bonds and notes quoted as a % of par & in 32nds. remember to move the decimal one place to the right put a % of par into dollar terms. Tbills are quoted on a dicount yield basis.

Front 13

Exam 2:

Teddy Harris owns a 30 year treasury bond w/ 16 years until maturity. The bond was purchased at 103 & it has a 6% coupon. Which of the folowing risk factors shown do not concern teddy.

A: reinveestment risk
B: credit risk
C: interest rate risk

Back 13

* Credit Risk *

Treasury bonds are guarenteed by the us govt to pay interest and principle as scheduled. therefore teddys investment does not have any credit risk. it is subject to price flucuation based on market risk falling prices due to rising interest rate risk & reinvested interest payments.

Front 14

Exam 2:

Which two of the following statements are true regarding treasury notes?

A: They are issued at a discount
B: The maximum security is 10 years
C: They pay semiannual interest

Back 14

* B and C *

Treasury notes are issued at par and mature at face value. The semiannual interest at the stated coupon and trade with accrued interest. the maturities of tnotes rage between two and ten years and the minimum denomination is 1,000.