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899 Cards in this Set
- Front
- Back
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To determine the equity in a combined margin account
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long market value (LMV) + the credit balance (CR), - the debit balance (DR) - the short market value (SMV).
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NYSE Composite Index is composed of
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only common stocks
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The bond has been called at 103
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. = 1030
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Most brokerage firms do not charge for the collection of dividends, holding of securities, and other services, but if they do charge
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the amount must be reasonably fair and not discriminate between customers.
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SIPC does not insure
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creditors
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If a stock is held short-term (one year or less) and a put is purchased
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holding period is terminated
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The settlement date on a transaction
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is three business days following the trade date.
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Regulation T requires payment by customers for purchases in
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two business days following the settlement date
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According to Regulation T, when purchasing an option contract the transaction must be paid for within
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5 days
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According to Regulation T, securities must be paid for
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within 2 business days of the standard (regular-way) settlement date
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SRO require settlement between the buying and selling brokers in
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three business days from the trade date.
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Regulation NMS prohibits a trade-through of
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a protected quote. A protected quote is the highest bid and lowest offer (the inside market)
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Moodys Short Term Ratins
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P1, 2, 3,, NP
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The yield disclosed is the lower of the
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yield to maturity or yield to call. In other words, the yield to worst.
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A bear spread always involves
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buying the higher exercise price and selling the lower exercise price.
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A bull spread always involves buying
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the lower exercise price and selling the higher exercise price
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A narrow-based index gives a measurement of stocks in
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a particular industry or sector of the economy.
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A broad-based index option would be used to hedge
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a diversified stock portfolio.
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The primary benefit of a 1035 exchange is that
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it is not taxable. However, the new annuity may come with new restrictions making it unsuitable for the investor.
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Call options are issued by the
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Options Clearing Corporation (OCC) and not by an issuer of securities.
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The SEC or FINRA enforce rules for broker-dealers
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broker-dealers
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Comptroller of the currency enforces rules for
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federal banks
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The FRB enforces rules for
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state banks that are members of the FRB
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The FDIC enforces rules for
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member banks of the FDIC
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Any broker-dealer or registered representative selling securities in a particular state
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must be registered in that state - Firm being registered doesnt matter
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The Wilshire Associates Equity Index shows the market value in dollars of
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7,000 NYSE, NYSE MKT (formally NYSE Amex), and Nasdaq stocks. It contains the most stocks of the choices listed.
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There is no prohibition restricting an RR to contact
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an investment banker at the firm.
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municipal bond offers the best tax advantage because
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the interest income is completely free from U.S. government taxes
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28% tax rate. The taxable equivalent yield of the 5% municipal bond is
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6.9% (5% municipal yield divided by 72% (100-28)
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The earnings on an IRA account grow
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tax-deferred.
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If an investor maintains an IRA account that has pretax and after-tax contributions and makes withdrawals,
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the IRS considers withdrawals to come from both sources.
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investor sells a portion of his holdings, unless specfied, the IRS will assume that
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first-in, first-out (FIFO) will be the method to be used.
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Regular-way settlement for stock transactions is
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in three business days.
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In most cases, settlement occurs electronically through DTCC, NON DTCC
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settlement takes place at the buyer's premises.
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The bond paying interest annually will have a yield to maturity that is
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less than the bond paying interest semiannually.
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Yields to maturity assume
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a reinvestment and compounding of interest.
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The compounding of interest will be greater for the bond
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paying semiannual interest.
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only VRDOs have
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a put feature that permits the holder to sell the securities back to the issuer or third party.
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In periods of easy money, there is availability of money. Therefore,
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interest rates will decline or be lower.
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In periods of easy money, bonds of similar quality generally will have
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short-term yields lower than long-term yields.
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Both short-term and long-term yields will be
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below normal.
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This situation creates a
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positively sloped yield curve where yields rise from short to long term.
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easy money when interest rates are declining,
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yields on shorter maturities would be less than those on longer maturities
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A saucer is a chart pattern indicates that a stock
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has formed a bottom in its trading cycle and is ready to rise.
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Stagflation is a prolonged period of a
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high rate of inflation together with a high rate of unemployment
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high unemployment usually leads to a period of
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low inflation or even deflation (falling prices) and the possibility of a recession.
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A period of low unemployment usually leads to
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rising prices and increased inflation.
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A deflationary period is characterized by a
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sluggish economy where goods and services decline in value.
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Interest rates tend to trend
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downward, causing bond prices to rise
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ETNs do not usually pay
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an annual coupon or specified dividend. They are a type of unsecured debt security.
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When interest rates are rising, industrial corporations that market big-ticket items as well as utilities that are heavy borrowers will be
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adversely affected
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A shelf registration under Rule 415
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provides liquidity and fast re-sale (avoid full registration)
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GTC orders below the current market on the designated market maker's (DMM) book (buy limit, sell stop, and sell stop-limit orders) will be
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reduced by the amount of the dividend when the stock sells ex-dividend.
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Municipal bond insurance guarantees
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the timely payment of principal and interest.
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If a municipal bond has 10 years to maturity, the insurance company is obligated to make
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20 interest payments as they come due and a lump sum at maturity.
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profit is treated as a capital gain in
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the year the transaction is closed out.
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In August, an investor sells an uncovered listed option and receives a $1,100 premium. The following February, the customer makes a closing purchase transaction at 3. The result of the transaction is
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$800 Capital Gain
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Time value is calculated by
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taking the difference between an option's premium and its intrinsic value.
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Intrinsic value in options is
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the in-the-money portion of the option's premium (Calls=Market Price-Strike Price) (Puts=Stikes-Market)
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If ABC stock is currently trading at 35.25 and the October 35 put option has a premium of 2.25, what is the time value of this option?
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Since the market price of the stock is greater than the strike price of the put option, this option is out-of-the money and has no intrinsic value. The entire premium of this option, $225, is considered the time value.
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Reverse convertible securities are short-term notes issued by banks and broker-dealers that
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usually pay a coupon rate above prevailing market rates.
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An investor purchasing a reverse convertible security is
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seeking an above-market coupon rate - high income
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The issuer agrees to pay this higher coupon rate since it has an option to
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sell a security to the investor if the price of the security falls below a specified value known as the knock-in level.
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If the price of the underlying asset stays above the knock-in level, the investor will receive
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the high coupon and the full return of her principal (the most beneficial option)
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A corporation purchases new machinery using cash
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Working capital is reduced, Total assets remain the same
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When purchasing machinery with cash, current assets (cash) are
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reduced and fixed assets (machinery) are increased by the same amount.
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total assets do not change.
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Since total assets (TA) and total liabilities (TL) remain the same, stockholders' equity (TA - TL) does not change.
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Working capital (current assets minus current liabilities)
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is reduced since current assets are reduced.
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Withdrawals in traditional IRAs must begin by age
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70 1/2
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investor expects interest rates (yields) to decline, she is anticipating
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rising bond prices.
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The bonds that will rise (fluctuate) the most are
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long-term, discount bonds.
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Treasury stock is
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previously outstanding stock that has been repurchased by a corporation.
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If the performance of the separate account of a variable life insurance policy is less than the assumed interest rate (AIR), the death benefit will
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decline
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the death benefit can never
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drop below the face value of the policy.
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The cash value may also decline. However, there is
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no guaranteed minimum.
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desirable arbitrage situation
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stock is at a premium to parity and the bond is trading at par
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Treasury arbitrage restrictions, that prevent state and local governments from
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misusing the tax exemption.
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Treasury arbitrage restrictions generally prohibit issuers of municipal securities from
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Investing bond proceeds in higher-yielding Treasury securities
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economic theory stating that government intervention in the marketplace is necessary for controlling economic growth
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Keynesian theory
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Recapture is a situation where
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tax benefits previously taken should be paid back to the government
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Overlapping debt involves only
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general obligation borrowing - A park district, A library district, A school district
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A turnpike authority would typically issue only
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revenue bonds
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Volume and holding-period restrictions do NOT apply to the resale of private placements when
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The purchaser is a qualified institutional buyer
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Rule 144A of the Securities Act of 1933, the owner of securities obtained through a Private Placement may resell those securities to a
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qualified institutional buyer (QIB) without the volume and holding-period restrictions of Rule 144.
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Qualified institutional buyers must have
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at least $100 million dollars of investable assets.
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The 30-Day Visible Supply is
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all municipal bonds that are expected to be brought to market in the next 30 days.
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The 30-Day Visible Supply is computed daily and includes
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all competitive and negotiated offerings that are anticipated to be brought to market. does not include short-term notes or auction rate securities
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The 30-Day Visible Supply of municipal securities refers to the
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face amount of new municipal bonds that will be sold in the next 30 days through competitive and negotiated sales of general obligation and revenue bonds
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A mutual fund investor most interested in current yield (i.e., regular dividend checks) as an investment objective will most likely purchase
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an income fund
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are needed to open a new discretionary account
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A new account form, a basic customer margin agreement, and a power of attorney
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The Johnsons want to purchase life insurance that will provide the potential for appreciation of future benefits, but are uncertain how much to purchase due to the unpredictable nature of Alan's income.
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called variable universal life or flexible premium variable life, is most appropriate.
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Universal life insurance will allow the customer to
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vary their premiums based on current income levels and insurance requirements,
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while variable life insurance will provide
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returns based on the performance of a separate account.
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The equity in a long margin account equals
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market value minus the debit balance.
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SMA does
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not enter into the calculation of equity.
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TANs and BANs are
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short-term municipal notes and, if their maturities extend four months, these securities can easily be sold in the secondary market.
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An auction rate security (ARS) does not have a Put feature and, if the auction fails,
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the investor may not have immediate access to his funds
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The 5% Markup Policy applies to
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Securities quoted on Nasdaq
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a not-held order allows a floor broker to
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use discretion in executing an order
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DMMs can not accept a
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Not Held Order
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The Interbank market is an
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unregulated over-the-counter market in which currencies of different countries are bought and sold.
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Foreign currency transactions may settle
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on a spot or forward basis.
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Spot transactions settle in
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two business days from the trade date.
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In a forward transaction, the exchange rate is
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established on the trade date but settlement occurs in more than two business days.
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high put/call ratio
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Bullish Indicator
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low put/call ratio
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Bearish Indiactor
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Technical analysts view the put/call ratio as a
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contrarian indicator. The higher the ratio, the more oversold the market, and the higher the probability that the market will reverse course
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When the wash sale rule is activated, the investor must
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add the loss to the new cost of the stock regardless of whether the stock is repurchased at a price that is higher or lower than the original cost.
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On February 22, an investor sells ABC stock at $31 for a 3-point loss. On March 10, the investor purchases ABC stock at a price of $27. For tax purposes, the investor's cost basis for the stock purchased on March 10 is
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$30 (27 + 3 point Wash Sale Rules Loss)
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A defined benefit plan is designed to provide employees with a
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fixed monthly stipend at retirement. generally a percentage of the employee's salary, the exact amount of which is determined by the employee's age and years of service.
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Who may not trade on the floor of the NYSE
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An institutional block trader. may forward orders to the NYSE trading floor from the brokerage firm's trading desk but is not physically located and trading on the floor of the NYSE
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The required equity for a short sale where the stock is less than $5 per share is
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the greater of $2.50 per share or 100% of the market value.
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An investor selling 1,000 shares of JonCo stock short at 3.5 must deposit
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$3,500 because the market value (1,000 shares x $3.50) is greater than $2.50 per share (1,000 shares x $2.50).
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sales tax is
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regressive tax, affects low income individuals the most
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A regressive tax applies the
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same tax rate regardless of a person's income. This has an adverse effect on a low-income person since the tax represents a higher percentage of income.
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Fiscal policy is enacted by
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Congress. Fiscal policy is the use of the government's power to tax and spend
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A customer without a discretionary account gives a registered representative the following verbal instructions: Buy 1,000 shares of General Electric whenever you think the price is right. Under current regulations:
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The order may be executed by the RR only on the same trading day
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The customer indicated to the registered representative the name of the specific stock (GE), the action (to buy), and the amount (1,000 shares), so this is
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a not-held order.
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Allowing the RR to make decisions limited to
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price and time does not constitute discretion.
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Absent written instructions from the client, this type of time and price discretion is
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only valid the same trading day.
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The Federal Farm Credit Banks issue consolidated systemwide notes that are
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issued at a discount (as with T-bills) and are non-interest-bearing.
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By buying a put option, an investor
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Can avoid selling a security for a large capital gain and yet participate in additional gains if the security continues to increase in price, be assured of selling the security at the strike price during the term of the option, an protect a profit on his current stock position
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Before accepting a DVP (delivery versus payment) or RVP (receipt versus payment) order from a customer, a broker-dealer must receive
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the name of the customer's agent and the customer's account number
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In a divided account (Western account), the member is
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responsible for its own participation in the syndicate. If any bonds remain unsold, it is the responsibility of that member.
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In an undivided or Eastern account, any unsold bonds are
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the responsibility of the entire syndicate. Each member would then be liable for the same proportion as his original participation.
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Commercial paper has a maximum maturity of 270 days in order to
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be exempt from the registration requirements of the Securities Act of 1933.
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Most commercial paper is purchased by
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institutional investors.
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The margin requirement when purchasing options
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is 100% of the purchase price (premium).
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Since the purchase price of the options is $2,000, Mr. Blue may use the $1,000 SMA and will be required to deposit an additional $1,000. The SMA is found
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by subtracting the required equity, $10,000 ($20,000 x 50%) from the current equity in the account ($11,000).
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If the customer is short RST calls, he anticipates
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that the market price of RST stock will decline.
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Since he is bearish on the stock, he could also be
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long puts on RST. This is considered on the same side of the market.
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The prices of preferred stocks are
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inversely related to the movement of interest rates, as are bonds
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Therefore, if the investor is concerned that rising interest rates will erode the value of the preferred stock portfolio, the purchase of an option that does well when interest rates rise will provide an effective hedge.
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Yield-based calls (which are yield-based options) increase in value when interest rates rise, also creating a viable hedge.
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Yield-based options are
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cash-settled options based on the movement in yield on a particular Treasury security.
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If an investor expects yields (interest rates) to rise, he will
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buy calls or sell puts
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A corporation's shareholders must vote for
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Stock splits
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The Federal Reserve Board does
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not issue securities, but will purchase and sell securities to influence U.S. monetary policy
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A standby underwriting is associated with
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a rights offering of common stock.
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Fill-or-kill is a type of
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order placed to buy or sell a security in the secondary market.
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Treasury bills and bankers' acceptances are typically sold
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at a discount
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An underwriter can stabilize a new issue
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at or below the offering price
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The project feasibility and financial statements are found in a municipality's
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official statement
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The amount of good faith deposit and expenses to be borne by the purchaser or issuer would be found in a
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notice of sale.
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a company that becomes delisted from the NYSE or Nasdaq
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may be quoted (not listed) on the OTC Bulletin Board or in the OTC Pink Market, quotes generally are firm.
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Firm quotes obligate the offering dealer to
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buy or sell the amount quoted
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When a cash dividend is paid, it reduces the
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debit balance
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sales charge is always expressed as a percentage of the
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offering price
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sales charge of the a Fund (5.25 Bid 5.5 Offer) is
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4.5% - difference between the bid price of $5.25 and the offer price of $5.50, equals $.25 ($5.50 - $5.25 = $.25) - then divide the DIfference .25/5.50 to get the Sales Charge of 4.5%
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A client sells short 1,000 shares of KPL at $46 a share. Fourteen months later the client covers the short and on the same day delivers the stock to close out the short position at $35 a share. For tax purposes, the client will report:
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A short-term capital gain - The customer closed out the short position the same day, so the holding period was less than one day -
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The gain or loss on a short sale is typically treated as a
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short-term capital gain or loss, since a holding period for the security is not established
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Financial service companies (banks, broker-dealers, and insurance companies) are usually highly leveraged (a high percentage of capital is borrowed) and are, therefore, most affected by
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interest-rate swings
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`ex-dividend date is
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two business days preceding the record date
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Interest on an adjustment (income) bond needs to be paid
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only if the corporation has sufficient income
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regular-way transaction
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three-business-day regular-way settlement date (DO NOT COUNT HOLIDAYS)
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According to the rules of the options exchanges, when a customer refuses to provide Financial Information, the brokerage firm must record the customer's refusal on its records, and
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must use whatever information it can obtain on its own in determining whether it should accept the account for options trading
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Common Stock Shareholders have the right to vote for the board of directors, but not
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to appoint officers of the corporation
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A written disclosure must be made to the customer regarding a control relationship
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at or prior to the settlement date
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Customers must be informed about the existence of a control relationship regardless of the type of account or type of transaction
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prior to the trade
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The price/earnings ratio is found by
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dividing the current market price by the earnings per share
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RSR Corporation has earned $4 per share and has paid a 75 cent dividend per share. If the stock is selling at $38 a share, what is its price/earnings ratio
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9.5 ($38 / $4)
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a broker-dealer or RR buys or sells stock or options before the public release of proprietary information concerning a large block order, it is considered
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front-running
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a business development company (BDC)
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invests in private small and medium-size companies
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An RR should not take action, for a client showing signs of dementia without
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informing the client first
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A nondilutive feature requires that the conversion features be adjusted should there be a stock split or stock dividend.
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The conversion ratio will be increased and the conversion price will be reduced
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A 7% convertible bond has a conversion ratio of 40. The bond has a nondilutive feature and the common is selling at $43 a share. If the company distributes a 10% stock dividend
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he new conversion ratio will be 44 [the old ratio (40) plus the old ratio times the percentage dividend (40 x 10% = 4)]. The new conversion price will be the par value of the bond divided by the new conversion ratio ($1,000 divided by 44 equals $22.73)
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subordinated debenture holders are paid after everyone
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except preferred and common stockholders
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RELP (A direct participation program in real estate does) does not pay
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cash dividends
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The interest on a revenue bond is usually paid
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from the earnings of the facility for which the bonds were issued
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revenue bonds are considered
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riskier, than GO Bonds
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interest rates increased, tight monetary policy, the yield curve inverted, causing
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short-term rates to be higher
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interest rates decrease, easy money policy, normal yield curve, causing
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long term rates to be higher
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equity in a margin account formula
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long market value plus the credit balance minus the short market value minus the debit balance
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Any entity is permitted to write call options except
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the corporation itself
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The margin requirement for a short sale of stock
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is 50%
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An investor sold 100 shares of STC short at $40 per share and wrote an STC Oct 40 put at 4. How much cash did the investor need to deposit?
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$1,600 (2000-400) (200 is half of the 4k requirement for short sale)
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REITs are regulated as
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securities under the Securities Act of 1933.
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An investor purchasing a REIT in the primary market must receive a.
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prospectus
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is needed to open a margin account and gives the brokerage firm the right to pledge customer securities to a bank as collateral for a loan
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hypothecation agreement
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The transfer of bonds from one party to another may be accomplished by an endorsement on the back of the bond certificate or through a
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Bond power
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Municipal notes are used mostly for
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interim (temporary) financing
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A customer can meet the a call Margin by either depositing in his account
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cash equal to the amount of the call or marginable stock with a LOAN VALUE equal to the dollar amount of the call
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Regardless of when a person files a tax return, the IRA contribution must be made no later than
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April 15 of the FOLLOWING year
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In a margin account, the customer's equity is insured up to the
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$500,000 maximum
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SIPC provides maximum protection of
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$500,000 for each customer (for each different account title)
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Unit investment trusts are not usually issued at a
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discount. They are issued at par and mature at par
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Advertising must be approved
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prior to first use by a municipal securities principal
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dealer-prepared summary or abstract of the official statement is considered
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advertising
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Zero-coupon bonds are issued at a discount and do not pay semiannual interest. Therefore, there are no interest payments to reinvest, eliminating
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reinvestment risk
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An investor may transfer funds from one retirement account to an IRA or other retirement account
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without incurring taxes or penalties
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According to SIPC, if a client has a margin account, the net equity is
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covered (the long market value minus the debit balance).
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A client is also permitted (but not required) to
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pay off the debit balance and receive the full value of the securities
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an RR using Facebook to permit real-time communication is considered
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public appearance
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correspondence is any written or electronic communication distributed or made available to
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25 or fewer retail investors.
|
|
|
The performance of a variable annuity is related to the
|
performance of the separate account
|
|
|
The holder of a call will get a dividend only if the option is exercised
|
prior to the ex-dividend date
|
|
|
On the day prior to the ex-dividend date for an ordinary cash dividend, a holder of a call tenders an exercise notice. The investor will be:
|
Entitled to the dividend
|
|
|
An individual considering the purchase of an equity-indexed annuity should understand that
|
The return over long periods of time will equal the greater of the participation rate of the underlying index (adjusted rate of return) or the guaranteed minimum
|
|
|
Equity indexed annuities (EIAs) are a hybrid product that combines
|
the elements of fixed and variable annuities
|
|
|
EIAs provide a guaranteed minimum rate of return, but their performance is
|
linked to a securities stock market index
|
|
|
CDs sold by registered representatives are insured from bankrupcy by
|
FDIC for Issuer, SIPIC for B/D
|
|
|
WRAP accounts charge
|
one overall fee (1-3%)
|
|
|
A WRAP account is usually managed by an
|
investment adviser.
|
|
|
A brokerage firm erroneously confirms to a customer a purchase of 100 shares of XYZ Corporation at 28.25. The firm later finds that the purchase was actually made at 28.75. The customer
|
Must pay 28.75
|
|
|
In a variable universal life policy, the performance of the separate account could
|
increase or decrease the cash value.
|
|
|
Loans against the variable universal life policy will
|
reduce the cash value available.
|
|
|
The redemption of bonds will not affect
|
dividends paid to stockholders
|
|
|
ETNs carry issuer risk that is tied to the
|
creditworthiness of the financial institution backing the note
|
|
|
All bonds, regardless of the issuer's location, are subject to
|
interest-rate risk
|
|
|
declares that a municipality may legally issue bonds
|
The issuer's bond counsel
|
|
|
order of priority investors rank if a company declares bankruptcy
|
(1) secured bondholders, (2) unsecured bondholders, (3) preferred shareholders, and (4) common shareholders.
|
|
|
Municipal bonds purchased at a Premium are
|
Amortized based on a constant yield method.
|
|
|
Municipal bonds purchased at a Discount are
|
Accreted, on a constant yield method, uses the bond's yield to maturity
|
|
|
Municipal bonds that are in default, trade
|
flat (without accrued interest) and must be delivered with all unpaid coupons attached.
|
|
|
If the bonds begin paying interest, the present holder is entitled to the
|
past interest payments
|
|
|
Municipal bearer bonds that are in default of interest, trade
|
With unpaid coupons attached
|
|
|
An at-the-opening order is an order placed for execution at the
|
opening price of the day. If it is not executed, it will be cancelled
|
|
|
MSRB rules state that subject or nominal quotes may be given for
|
Informational purposes
|
|
|
Individuals generally purchase preferred stock for
|
income
|
|
|
Cumulative preferred stock will add all unpaid dividends to a future payment if
|
a cash dividend is to be paid to common shareholders
|
|
|
Participating preferred stock allows the owners to
|
share in the extraordinary earnings of a company.
|
|
|
An inverse ETN would pay
|
the opposite of the benchmark that is being tracked, suitable for short-term trading
|
|
|
If a municipal bond has a basis of 6.35 and a coupon rate of 6.15%, the bond is selling at
|
discount - yield to maturity (6.35%) is greater than the nominal yield (6.15%) - / (curve)
|
|
|
alpha is often considered to represent the value that
|
a portfolio manager adds or subtracts from a fund portfolio's return.
|
|
|
beta is a measure of the
|
volatility of a security or a portfolio in comparison to the market as a whole
|
|
|
To find the dividend payout ratio $5/sh common stock, $2 common stock div, divide the yearly dividend on
|
the common stock ($2.00) by the earnings per share on the common stock ($5.00). This equals a dividend payout ratio of 40%.
|
|
|
ABC Corporation has net income of $10,000,000 and 5,000,000 common shares outstanding. ABC Corporation pays out $1,000,000 in dividends annually. ABC Corporation's dividend payout ratio is
|
The EPS is $2.00 ($10,000,000 divided by 5,000,000 shares). ABC pays a $0.20 dividend per share ($1,000,0000 dividends divided by 5,000,000 shares). The $0.20 dividend divided by the $2.00 EPS equals a 10% dividend payout ratio
|
|
|
A writer or seller of an uncovered call option does
|
not own the underlying stock
|
|
|
Federal funds are
|
excess reserves loaned by commercial banks to other commercial banks and are a leading money-market indicator
|
|
|
federal funds rate fluctuates daily, making it the
|
most volatile money-market (short-term) rate
|
|
|
a decline in Real GDP for two consecutive quarters indicates a
|
recession
|
|
|
Real GDP is the Gross Domestic Product adjusted for.
|
inflation
|
|
|
Economic indicators are classified as
|
leading, coincident, or lagging.
|
|
|
Leading indicators
|
precede the change in the economy as a whole.
|
|
|
Coincident indicators change
|
with the economy as a whole,
|
|
|
lagging indicators change
|
After the economy as a whole.
|
|
|
New orders for consumer goods and materials (also referred to as new orders for durable goods) are a leading
|
economic indicator
|
|
|
industrial production is a
|
coincident indicator
|
|
|
The average prime rate charged by banks and the average duration of unemployment are l
|
lagging indicators
|
|
|
An investor buys an 8% municipal bond in the secondary market at a 10.00 basis. If the bond is held to maturity, the investor's after-tax return will be:
|
Between 8% and 10% - Since the yield (10%) is higher than the coupon (8%), the bond was purchased at a discount
|
|
|
MSRB rules relate to quotes that are communicated or published in
|
any manner - can be verbal or written, dont have to be one or other or both
|
|
|
A derivative is a financial product that derives its value from movements in
|
another financial product - options, Collateralized mortgage obligations
|
|
|
The amount of new issues sold, compared to those offered for sale, as of the close of business each Friday is reported in the The Bond Buyer's
|
Placement ratio
|
|
|
when yields in the market increase, the market price of outstanding bonds
|
decreases
|
|
|
A customer bought an 8% debenture at a 7.20 basis. If the bonds are currently trading 15 basis points higher
|
The bond's market price has decreased
|
|
|
FNMA(Federal National Mortgage Association) bonds are
|
not guaranteed by the U.S. government.
|
|
|
Wireless Communications is offering 2,000,000 common shares (par value $.10) at $15, the financial impact on the company
|
An increase in paid-in capital, A reduction in the long-term debt ratio
|
|
|
Immediate family members include a
|
spouse, children, parents, siblings, in-laws, and any other person who is materially supported by an employee of a member firm
|
|
|
A registered representative's broker-dealer is an underwriter of an initial public offering of stock. The RR's father-in-law may purchase
|
The IPO from a different broker-dealer
|
|
|
A customer is considered a pattern day trader if
|
4 or more day trades are executed over any 5-business-day period.
|
|
|
The minimum equity required for a pattern day trader
|
is $25,000
|
|
|
A company in France will be importing California wines. The company must pay in U.S. dollars and is, therefore, concerned that the U.S. dollar will appreciate in value. To provide protection in the event that the U.S. dollar does appreciate, the company could buy
|
Euro puts - there are no US Dollar Options
|
|
|
Industrial development revenue bonds are secured by a lease agreement with a corporation and are only as secure
|
as the corporation
|
|
|
Soft dollars are products and services that an investment adviser receives from a broker-dealer in exchange for
|
customer order flow
|
|
|
If a rollover is done within 60 days, it will be
|
tax-free
|
|
|
Under Rule 144, the amount that may be sold during any 90-day period is
|
1% of the outstanding shares or the average weekly volume of trading for the four weeks prior to the sale, whichever is greater
|
|
|
On a standby underwriting, the underwriting syndicate agrees to
|
purchase any shares that the corporation does not sell
|
|
|
Debt issued between two states is
|
not considered overlapping debt
|
|
|
company is refunding bonds at 106.75% of its par value. bondholders who own the 6 1/4% bonds will receive
|
106.75% of the $1,000 par value (106.75% x $1,000) for a total of $1,067.50 plus accrued interest
|
|
|
An apprentice may function as a representative in all activities except
|
contact with the public and being compensated on the basis of transactions (i.e., receiving commissions)
|
|
|
The apprentice may execute transactions with other firms, but
|
not with customers, even institutional customers.
|
|
|
Brokerage firms are required to send customer statements
|
quarterly for no activity, monthly for active
|
|
|
municipal bonds issued in a serial maturity on a
|
yield basis - trader may quote a serial bond at a basis price of 5.35, which means a yield to maturity of 5.35%
|
|
|
Term bonds are normally quoted using
|
the dollar pricing (percentage of par), dollar bonds - term bond would be quoted at a price of 98, which means that the bond is quoted at 98% of par value, or $980 ($1,000 par x 98%)
|
|
|
Serial bonds mature in
|
successive years and are priced on a yield-to-maturity basis. par).
|
|
|
As a serial issue nears its final maturity, the outstanding principal and total interest payments
|
decrease.
|
|
|
Term bonds mature at
|
one date in the future and are priced at a dollar price (percentage of par)
|
|
|
Serial bonds have different maturity dates with lesser amounts of debt outstanding as time goes by. The bonds have declining interest payments and principal amounts.
|
Term bonds, by comparison, mature at the same time and have stable interest payments with the principal paid on one maturity date
|
|
|
If a stock index option is exercised against the writer, the writer is obligated to deliver
|
the cash difference between the exercise price and the index value as of the close of trading on that day if the option is in-the-money.
|
|
|
The exercise of a stock index option is settled by
|
cash - instead of the delivery of securities.
|
|
|
An index will not be affected if
|
one of its components should split.
|
|
|
index options are both
|
American style (may be exercised any day up to expiration) and European style (may only be exercised on the last trading day prior to expiration).
|
|
|
Stock index options have a
|
monthly expiration cycle
|
|
|
Under the UTMA, when the minor reaches the age of majority as determined by the state, the custodian
|
must transfer the account to the owner's individual name.
|
|
|
The state in which the minor is a resident
|
determines when a minor takes control of the account
|
|
|
The marketability of a municipal bond would NOT be affected by the
|
Dated date
|
|
|
The dated date of a municipal bond is the
|
date that interest begins to accrue and will not affect its marketability
|
|
|
A registered investment adviser is a type of institutional customer, and any communication directed only to institutional customers does
|
not need to be filed with FINRA
|
|
|
Federal funds are short-term funds (usually overnight) that
|
one bank lends to another to correct a deficit reserve position.
|
|
|
Federal funds are
|
not traded in the secondary market since they are not securities
|
|
|
An investor purchased stock at $40/share that currently has a market price of $60/share. The investor thinks that the long-term prospects for the stock are attractive, but that the price will decline temporarily. The customer could take advantage of the temporary decline, by
|
Selling a call
|
|
|
A firm may use electronic communications to verify account eligibility for new issues, but may not
|
rely on oral statements
|
|
|
The PSA Model is used when pricing
|
Collateralized mortgage obligations - standard model for estimating the prepayment rate for mortgage-backed securities including CMOs
|
|
|
A revenue bond and a special tax bond are both considered
|
debt obligations of a municipal government
|
|
|
A special tax bond is a type of
|
revenue bond, backed only by a specific tax source, such as an excise tax
|
|
|
An investor expects the market price of a security to fluctuate widely over a short period. The investor will most likely
|
Buy a straddle
|
|
|
If the market moved up sharply the
|
call could be exercised and
|
|
|
if the market moved down sharply the
|
put could be exercised, resulting in a profit
|
|
|
Wide you
|
Buy a Spread - Call Bull, Put Bear
|
|
|
Narrow you
|
Sell a Spread - Call Bear, Put Bull
|
|
|
According to FINRA Rule 2330, suitability requirements for recommendations concerning the purchase of variable annuities apply to
|
New purchases, Exchanges, Initial subaccount allocations
|
|
|
In a credit spread, the investor will profit if the spread (difference in premium)
|
narrows
|
|
|
An investor purchases an EPG Jan 40 put at 5 and writes an EPG Jan 50 put at 13. The investor would profit in all of the following situations, EXCEPT
|
The spread widens
|
|
|
the expiration date for standardized option contracts, including European-style options, is the
|
third Friday of the expiration month
|
|
|
Growth stocks have
|
high price-earnings ratios and low dividend payout ratios
|
|
|
A short-swing profit is a profit made on stock held by insiders for
|
less than six months
|
|
|
On May 25, the president of MaxCo bought 3,000 shares of MaxCo stock in the open market at $33. Two months later, the stock has increased to $40. If the president now wants to sell the shares
|
The profit from the trade must be forfeited according to the short-swing profit rule
|
|
|
A writer of a put option is covered if he is long
|
another put on the same underlying stock, with an equal or greater exercise price, having the same or later expiration date
|
|
|
According to industry regulations, a writer of an ABC March 50 put is considered covered for margin purposes if the writer is long an ABC
|
March 60 put
|
|
|
A minor may not
|
endorse a stock certificate
|
|
|
Private label mortgage-backed securities are issued by
|
Financial institutions
|
|
|
A private label MBS is not
|
an obligation of the U.S. government or any GSE and its credit rating is assigned by an independent credit agency.
|
|
|
A private label MBS has a
|
higher degree of credit risk and is generally not given a AAA rating.
|
|
|
A real estate investment trust (REIT) that owns properties (e.g., office buildings) and also makes loans to real estate developers is a
|
hybrid REIT
|
|
|
While GPs are not allowed to borrow from the partnership, they can
|
Lend Money
|
|
|
To apply for a securities registration, a person must file
|
Form U4 with FINRA
|
|
|
A business development company (BDC) raises capital by
|
selling securities to investors and is similar in structure to a closed-end investment company
|
|
|
The SRO minimum maintenance requirement for a stock sold short at $5 per share or above is
|
$5 per share or 30% of the market value, Whichever is Greater
|
|
|
Ms. Brown owns a variable annuity that has a life annuity payout option with a 20-year period certain. If Ms. Brown dies after 14 years of payments
|
Future payments will continue for 6 years to a named beneficiary
|
|
|
If the owner of a 20-year period certain annuity dies, the annuity company will
|
pay a named beneficiary for the time remaining on the 20-year period
|
|
|
When buying options,
|
100% of the purchase price (the premium) must be deposited
|
|
|
Electronic Communication Network (ECN)
|
accept only certain types of orders, such as limit orders - the system cannot match a buyer and seller, a client's order may have a limited ability to be executed
|
|
|
A registered representative may not purchase a
|
direct participation program in a discretionary account without prior written approval by the customer
|
|
|
The preferred stock is convertible into 1/2 share of common stock. The common stock is selling for 35.75. Parity (or equality in dollar value) for the preferred stock is
|
1/2 of 35.75 (17.88).
|
|
|
The dealer that gives a firm quote at Par is
|
required to do the trade at par
|
|
|
under the Uniform Transfers to Minors Act (UTMA)
|
The custodial relationship is terminated when the minor reaches majority
|
|
|
All stock in the UTMA account must be
|
registered in the name of the custodian as custodian for the minor
|
|
|
When investing in a DPP, the customer must verify that he meets all suitability standards. This can be accomplished by furnishing
|
documents such as past tax returns and a statement of net worth.
|
|
|
A broker-dealer may reject a delivery of municipal bonds if
|
The bonds are lacking a legal opinion
|
|
|
The ex-dividend date is the first day a stock trades
|
without a dividend and this date is typically two business days prior to the record date
|
|
|
A defensive stock is
|
not drastically affected by a downturn in the economy
|
|
|
companies involved in the necessary areas of life are considered
|
defensive (e.g., energy or utilities, tobacco, food, clothing, soft drink, and candy companies)
|
|
|
Construction, mining, steel, automobile, and heavy equipment manufacturing companies are
|
more affected by an economic downturn
|
|
|
There is no required minimum distribution (RMD) requirement for a
|
Roth IRA
|
|
|
Unlike a traditional IRA, contributions to a Roth IRA are not
|
tax-deductible, so the investor is contributing after-tax dollars.
|
|
|
The advantage of the Roth IRA is that all the money accumulated in the account may be withdrawn
|
tax-free after age 59 1/2 if the first contribution was made at least five years prior
|
|
|
a traditional IRA, penalty would be
|
50% of the RMD amount.
|
|
|
$470,000 IRA balance, 27.4 period of time, RMD requirment would be
|
$17,153 (the account balance divided by 27.4)
|
|
|
NOT taxable to the owner of mutual fund shares
|
Fund shares held by the investor, which have appreciated but have not yet been sold
|
|
|
cost basis using the average cost method,
|
divide the sum of all investments (including reinvested distributions) by the total number of shares owned by the investor
|
|
|
contributions to a Roth IRA are
|
nondeductible
|
|
|
According to SRO rules, the transfer of a customer account must be completed by the carrying party within
|
three business days of validation of the transfer instructions
|
|
|
The price/earnings ratio is found by dividing
|
the current Market Price by the Earnings Per Share
|
|
|
If the FRB(fed reserve board) increases the discount rate, the general level of interest
|
rates increases.
|
|
|
The member bank is charged the
|
discount rate when it borrows from the Fed
|
|
|
The prices of long-term bonds
|
decreases more in price than the price of short-term bonds
|
|
|
Due to their highly complex nature, CDOs are generally not suitable for
|
retail investors
|
|
|
A CDO (collateralized debt obligation) is a sophisticated financial instrument that begins with an individual loan (such as a mortgage or corporate debt).
|
These loans are placed in a pool, and investors then purchase a security (bond, tranche, slice) that represents an interest in that pool
|
|
|
CDOs are investment vehicles, broadly categorized as
|
asset-backed securities
|
|
|
An investor purchases a Canadian dollar September 80 call and writes a Canadian dollar September 82 call. This position is a
|
Bullish spread - A debit spread is created when the premium of the option purchased is greater than the premium of the option sold. The September 80 call, which is the right to buy the Canadian dollar at 80, is more valuable than an option that provides the right to buy at 82.
|
|
|
The immediate result of an FRB repo is
|
an increased money supply, which would have the effect of lowering interest rates
|
|
|
If the FRB engages in repurchase agreements
|
The money supply is being increased, The fed funds rate could decline
|
|
|
An individual purchases two BP (British pound) 150 calls @ 9.20, The contract size is 10,000 BP, The total cost for the contracts is
|
$1,840 - (10,000 x .0920 = 920 x 2 = 1,840)
|
|
|
The credit balance in a short margin account is determined by
|
adding the short sale proceeds and the Reg T deposit
|
|
|
A customer's initial trade in a margin account is the short sale of 500 shares of DEF stock at $20. After making the required deposit, the credit balance in the account is
|
$15,000 - the short sale proceeds are $10,000 (500 shares x $20). The Reg T requirement is $5,000 ($10,000 x 50%).
|
|
|
Auction dealers refer to bids by prospective holders as
|
buy orders
|
|
|
Auction dealers refer to bids by holders as
|
roll-at-rate orders.
|
|
|
Securities firms may charge customers for
|
all services they provide as long as the charge is fair and reasonable.
|
|
|
A customer is short 100 ABC at $120. The market is moving up sharply and the customer decides to cover her short position. The customer instructs her registered representative to cover the short position at the market on the close. The order will be executed at:
|
The closing price of the day
|
|
|
A high net worth investor seeking safety of principal would MOST likely invest in which of the following securities
|
High-grade general obligation bonds
|
|
|
High-grade generally refers to an
|
investment-grade or highly rated bond.
|
|
|
A general obligation bond would also offer a
|
high net worth investor tax-exempt income.
|
|
|
High-yield refers to
|
non-investment- grade or junk bonds that would expose the investor to the risk of not achieving safety of principal.
|
|
|
A customer owns a municipal bond that has been escrowed to maturity
|
The issuer has deposited money in an escrow account that will contain U.S. government securities used to pay off the municipal bonds at maturity
|
|
|
open interest, referring to call option contracts, means
|
the number of contracts that have not been closed out through a sale or by expiration
|
|
|
A sinking fund is used by an issuer to set aside funds that will be used for the purpose of
|
redeeming a corporation's Bonds prior to or at maturity
|
|
|
SPOT prices determined by
|
Interbank
|
|
|
SPOT trades on the
|
PHLX
|
|
|
A municipal bond pays interest on February 1 and August 1. A customer purchasing the bond on Monday, April 30 will need to pay the seller the purchase price plus accrued interest for
|
92 days - Accrued interest is calculated from the last interest payment date, up to but not including the settlement date. The settlement date is Thursday, May 3
|
|
|
dark pool is trading
|
Between investors, allowing them to buy and sell securities Anonymously Without quotes being displayed
|
|
|
A capital appreciation bond (CAB) has a similar structure to
|
a zero-coupon bond.
|
|
|
CABs do
|
not pay periodic interest and are NOT suitable for investors who seek income.
|
|
|
In a municipal bond underwriting, the difference between what the issuer receives and the public offering price is the
|
Spread
|
|
|
bid limitations for a new municipal bond issue are found in the
|
notice of sale - information pertaining to the bidding would be contained in the notice of sale
|
|
|
transfer agent is responsible for
|
issuing new certificates, cancelling old certificates, keeping a record of shareholders and the number of shares each owns, and handling problems that come about in cases of missing, lost, stolen, or mutilated securities
|
|
|
The registrar
|
makes sure that outstanding shares do not exceed authorized shares
|
|
|
Options that are listed on exchanges are issued and guaranteed by
|
the Options Clearing Corporation
|
|
|
bid and offer prices of mutual funds
|
bid price is equal to the net asset value - offer price is equal to the net asset value plus the sales charge
|
|
|
Tax anticipation notes (TANs) are
|
interest-bearing securities and trade with accrued interest.
|
|
|
Negotiable CDs
|
traded in the secondary market, minimum denominations of $100,000, typically trade in $1,000,000 denominations, expiries of less than one year are common but there is no time limit
|
|
|
The minimum denomination for negotiable CDs is
|
$100,000. Typical denominations are often $1,000,000 or more
|
|
|
Long-term brokered CDs are not
|
highly liquid since there is no active secondary market.
|
|
|
Like most fixed-income securities they are
|
subject to interest-rate risk. In addition, they may be callable and have other features such as floating rates.
|
|
|
FDIC insurance may
|
not apply to long-term CDs sold by broker-dealers if the face amount exceeds $250,000
|
|
|
research report must be approved by a
|
supervisory analyst
|
|
|
An immediate-or-cancel (IOC) order must be
|
executed immediately but does not need to be executed in its entirety
|
|
|
A customer is willing to accept a partial execution on an order to buy up to 800 shares of XYZ stock at 30. If the client does not want the unexecuted portion to be left open, this order should be entered as
|
Buy 800 XYZ at 30 IOC
|
|
|
ETNs have a
|
maturity date and ETFs do not
|
|
|
ETNs carry issuer risk that is
|
tied to the creditworthiness of the financial institution backing the note
|
|
|
ETFs do not have
|
issuer credit risk
|
|
|
If the S&P 500 Index falls by 7% from the previous trading day's closing price, it is defined as
|
a Level 1 Market Decline and triggers a 15-minute trading halt
|
|
|
"Level 2 Market Decline" means a Market Decline
|
of 13%. - The Exchange will not halt trading if a Level 1 Market Decline or a Level 2 Market Decline occurs after 3:25 p.m
|
|
|
A "Level 3 Market Decline" means a Market Decline
|
of 20%. - Exchange shall halt trading in all stocks until the primary listing market opens the next trading day.
|
|
|
securities are sold in a restricted account
|
withdraw an amount equal to the FRB initial margin requirement (currently 50%) - The full amount of the sale is used to reduce the debit balance. The market value will decrease since securities were sold. The equity will remain the same since the market price and debit balance were reduced by the amount of the sale. If the customer withdraws the amount credited to the SMA, the debit balance will increase and the equity will decrease.
|
|
|
MSRB rules require that any quote be
|
bona fide (firm at the time given)
|
|
|
writer of a combination believes price will remain
|
stable
|
|
|
buyer of a combination believes price will remain
|
volatile
|
|
|
According to the corporate dividend exclusion, corporations may exclude from taxation 70% of eligible dividends received from investments in stock of other corporations. For those corporations owning 20% or more of another corporation's outstanding common or preferred shares, the exclusion increases to 80% of dividends received. To find the after-tax return of each investment, multiply the return on the security by the complement of the tax rate. For the taxable non-equity position, this rate is 66% (100% minus 34%) or .66. For each taxable equity position, we assume an exclusion of 70%.
|
According to the corporate dividend exclusion, corporations may exclude from taxation 70% of eligible dividends received from investments in stock of other corporations. For those corporations owning 20% or more of another corporation's outstanding common or preferred shares, the exclusion increases to 80% of dividends received. To find the after-tax return of each investment, multiply the return on the security by the complement of the tax rate. For the taxable non-equity position, this rate is 66% (100% minus 34%) or .66. For each taxable equity position, we assume an exclusion of 70%.
|
|
|
The corporation's effective tax rate on the residual 30% of income from an equity investment, can be calculated by
|
multiplying the corporation's statutory tax rate of 34% by the residual percentage (34% x 30% = 10.2%). The amount the corporation would earn after tax is the complement of 10.2%, which equals 89.8% (.898).
|
|
|
Three- and six-month T-bills are auctioned
|
weekly
|
|
|
All T-bills are auctioned on
|
a discount-yield basis with noncompetitive tenders awarded first and receiving the highest yield (lowest price) of the accepted competitive tenders.
|
|
|
T-Bill securities are
|
highly liquid and may be sold by a purchaser anytime prior to maturity.
|
|
|
4.50% less 3/4 for a municipal bond selling in the secondary market =
|
$1,000 bond at 4.50 yield - $7.50
|
|
|
Total bonded debt is
|
the sum of both long-term and short-term debt of a municipality plus its applicable share of overlapping debt
|
|
|
CQS displays quotations by members for
|
NYSE and NYSE MKT (formally NYSE Amex) listed securities
|
|
|
Transactions in listed securities between FINRA members in the over-the-counter market are considered
|
third-market transactions.
|
|
|
municipality's debt limit is the maximum amount of
|
Debt a municipality may incur
|
|
|
bank-qualified municipal bonds
|
may only issue up to $10,000,000 annually - Commercial banks may receive an 80% tax deduction of the interest costs
|
|
|
When a customer buys and sells securities in a restricted margin account on the same day, it is called a
|
same-day substitution and the transactions are netted against each other
|
|
|
customer's SMA will be credited with an amount
|
equal to the net sale proceeds multiplied by the Reg T requirement (50%)
|
|
|
If desired, the customer may then
|
borrow remainder minus SMA
|
|
|
A stock is overbought at its
|
resistance level
|
|
|
A stock is oversold at its
|
support level
|
|
|
Buy calls when a stock
|
breaks through a resistance level
|
|
|
Buy puts when a stock
|
breaks through a support level
|
|
|
illegal practice is known as free-riding
|
customer would not be permitted to liquidate the stock and use the sale proceeds to pay for the margin requirement
|
|
|
acting as an agent an underwriting means
|
any unsold shares will be retained by Fred's Auto Centers
|
|
|
step-up CD offers an investor an interest rate that is initially
|
lower than current market rates will pay for that maturity period
|
|
|
A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per share. The manager of the underwriting syndicate receives $0.15 per share. The syndicate members' compensation is $0.65 per share for each share they sell. The selling group's concession is $0.40 per share for each share they sell. The syndicate is allocated 4,000,000 shares and the selling group is allocated 1,000,000 shares. Assuming that all of the shares are sold, what amount will the syndicate members receive for their risk on shares sold by the selling group
|
The members of the syndicate receive $0.25 per share for their risk. Since the selling group was allocated 1,000,000 shares, the syndicate will receive $0.25 per share on 1,000,000 shares for a total of $250,000.
|
|
|
11-Bond Index contains general obligation bonds with an average rating on
|
S&P of AA+ and on Moody's of Aa1
|
|
|
The 20-Bond Index has an average rating on
|
S&P of AA and on Moody's of Aa2.
|
|
|
the Municipal Bond Index
|
estimate of the prices of 40 long-term municipal bonds adjusted to a 6% coupon
|
|
|
The 20-Bond Index
|
AVG YTM on a particular day of 20 specific GO bonds with 20-year maturities
|
|
|
The 11-Bond Index
|
AVG YTM on a particular day of 11 of the 20 specific GO bonds from the 20-Bond Index
|
|
|
The Revenue Bond Index (Revdex)
|
The average yield to maturity on a particular day of 25 specific revenue bonds with 30-year maturities
|
|
|
Money received by a corporation when it sells its stock above its par value is called
|
capital surplus or paid-in capital
|
|
|
earned surplus (retained earnings), is
|
profits that have been retained by the company and have not been paid as dividends
|
|
|
A customer wishes to close out a short option position by liquidating the option. The registered representative should mark the order ticket
|
Closing purchase
|
|
|
Total Assets =
|
Total Liabilities + Stockholders' Equity
|
|
|
Uncovered call option may Not be executed in a
|
Cash Account
|
|
|
A customer gave his registered representative an order to buy 1,000 shares of GM at the market. If the execution report from the floor of the exchange states that 1,200 shares were purchased at 78, the
|
Customer is obligated to accept only the amount ordered, not executed
|
|
|
When a variable annuity contract holder dies during the accumulation period, the proceeds in excess of cost are taxable to the beneficiary as
|
ordinary income
|
|
|
The death benefit on a variable annuity skips the
|
probate process.
|
|
|
Probate is a
|
lengthy legal process in which the decedent's bills are paid and remaining assets distributed based on instructions generally left in a will.
|
|
|
The recipient of a death benefit from a variable annuity may need to
|
pay taxes on any amount above the contract's cost basis
|
|
|
dispute between a registered representative and his employer
|
Arbitration
|
|
|
Exercise limits relate to the maximum number of contracts that an individual may exercise during a five-business-day period for each underlying stock on
|
each side of the market
|
|
|
A registered representative who previously was the CEO of a cosmetics company wants to send a report to clients. She will include detailed information concerning individual equity securities of cosmetics companies she feels are good investments. Although the report analyzes different stocks she feels are attractive investments, it does not contain a recommendation
|
This is a research report and requires approval
|
|
|
A registered representative does not need to hold the title of
|
research analyst in order for the report to be considered a research report
|
|
|
If a report provides sufficient information concerning individual equity securities for a client to make an investment decision and is distributed to clients, it is considered a
|
research report
|
|
|
A research report must be approved by a
|
supervisory analyst and contain the proper disclosures
|
|
|
A notice of sale appears showing that RFQ corporation is selling 800,000 units at $60 per unit. Each unit consists of 2 shares of preferred stock and a warrant for 1/2 share of common stock. If all of the warrants are exercised, how many shares will be outstanding
|
1,600,000 shares of preferred and 400,000 shares of common - There will immediately be 1,600,000 (800,000 x 2) shares of preferred outstanding. If the warrants are exercised, there will be 400,000 (1/2 of 800,000) shares of common stock outstanding.
|
|
|
dividends paid on stock held by individuals for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date are taxed at
|
a maximum rate of 20%
|
|
|
held stock less than the 60-day period, the dividend is taxed as
|
ordinary income
|
|
|
There is a secondary market for
|
REITs (real estate investment trusts).
|
|
|
The vast majority of REITs
|
trade on the NYSE with prices determined by supply and demand.
|
|
|
Closed-end funds are funds that are
|
often bought and sold on the NYSE that trade in a similar manner
|
|
|
Mrs. Jones is interested in selling 500 shares of her REIT. The sale will be handled in a manner similar to the
|
Sale of a closed-end fund listed on the NYSE
|
|
|
IRA contributions may not be based on
|
rental income from properties, funds received from annuity contracts, or funds received from dividends and interest from securities in a portfolio
|
|
|
Contributions to an IRA must be based on taxable compensation which includes
|
salary or wages (part-time or full-time), bonuses, tips, commissions, net income from self-employment, and taxable alimony
|
|
|
suitability of a Section 1035 exchange
|
Exchanges made within 36 months of a previous exchange are generally considered inappropriate
|
|
|
Under industry rules, mutual funds or annuities may not be recommended as
|
short-term investments or trading vehicles
|
|
|
When an equity (stock) option is exercised, delivery of the underlying stock and payment for the stock is expected within
|
3 business days (regular-way settlement for stock).
|
|
|
If an equity option is exercised, when is the settlement date for the stock transaction
|
Within three business days
|
|
|
Bankers' acceptances (BAs)
|
help facilitate foreign trade.
|
|
|
ADRs permit the trading of
|
foreign stocks in the U.S.
|
|
|
A municipality is issuing 50,000 bonds at a public offerings price of $1,000. The manager of the underwriting syndicate receives $1.25 per bond. The total takedown is $8.75 per bond and the selling concession is $5.00 per bond, What amount will the issuer receive
|
$990.00 per bond for a total of $49,500,000
|
|
|
A client is entitled to a reduced sales charge (breakpoint) based up the value of the accounts of
|
other family members within the same fund family. Examples include joint accounts, minors' accounts, and certain retirement accounts. The accounts can be held at multiple broker-dealers
|
|
|
permitted to purchase an equity IPO.
|
RRs cousin - not considered an immediate family member
|
|
|
additional funds for retirement and would like a vehicle that does not subject her to taxation on any growth until she begins taking distributions
|
variable annuity
|
|
|
A customer is considering writing an XYZ June 70 call for a $4 premium but is concerned about the risk of an unlimited loss. Which of the following positions, when added, provides the BEST protection
|
Buying an XYZ June 75 call for a premium of 1 - The maximum risk is reduced to $200, which is the difference between the strike prices 5 (75 - 70) and the net premium received 3 (4 - 1).
|
|
|
When part of an issue of long-term speculative bonds is called, the effect on the remaining outstanding bonds will be
|
an improvement in their quality.
|
|
|
The issue will have less debt outstanding and there will be less interest charges to pay, which
|
improves the quality of the issue
|
|
|
Various tranches of a long-term speculative bond issue are called by the issuer. The effect on the remaining outstanding bonds is likely to be
|
Improved quality
|
|
|
underwriting syndicate will determine the
|
underwriting concession
|
|
|
The breakeven point for a call spread is
|
the lower strike price plus the net premium
|
|
|
An investor buys an STC May 30 call @ 8 and sells an STC May 40 call @ 2. The investor's breakeven point is
|
(30(lower strikes) + 6(net premium) = 36) 36
|
|
|
marked to the market refers to the
|
adjustment made in a customer's account due to a change in the market value of the securities.
|
|
|
A margin account is marked to the market
|
once a day
|
|
|
customer sells short 1,000 shares of DT at $60 a share on Monday, October 14 and deposits the Regulation T margin requirement. If on October 23 the stock is trading at $75 a share
|
The initial Regulation T margin requirement is 50% of $60,000, or $30,000. If the market value increases to $75 a share, the equity in the account will decline to $15,000. The current equity in the account is 20% of the short market value ($15,000 / $75,000), which is below the required 30% and, therefore, a margin maintenance call will be issued
|
|
|
Mr. Smith is associated with two other partners in an insurance partnership. He opens a cash account for the partnership. If Mr. Smith dies, what will the firm do as far as the partnership account is concerned
|
the firm would freeze the assets of the account. The firm would then await the proper legal documents needed to release the assets.
|
|
|
A customer's margin account is as follows. Long Market Value $25,000 MNO $11,000 XYZ Debit Balance $20,000 SMA $ 800 The customer sells $3,000 of stock in the account. What will the value of the SMA be after the sale?
|
This account is restricted since the equity ($16,000) is less than the Reg T requirement of the account's market value ($36,000 x 50% = $18,000). When stock is sold in a restricted account, 100% of the sale proceeds will be used by the brokerage firm to reduce the customer's debit balance. The broker-dealer will also credit the customer's SMA with an amount equal to the sale proceeds multiplied by the Reg T requirement of 50%. In this question, the sale of $3,000 worth of stock will be used to reduce the customer's debit balance to $17,000 and the SMA will be credited by $1,500 ($3,000 sale x 50% Reg T). This will bring the SMA up to $2,300 ($800 + $1,500).
|
|
|
A customer's margin account has a market value of $15,000, a debit balance of $8,000, and SMA of $1,000. If the customer sold $1,000 of securities, what is the maximum amount the customer is permitted to withdraw after the sale
|
This account is restricted since the equity ($7,000) is less than the Reg T requirement of the account's market value ($15,000 x 50% = $7,500). When stock is sold in a restricted account, 100% of the sale proceeds will be used by the brokerage firm to reduce the customer's debit balance. The broker-dealer will also credit the customer's SMA with an amount equal to the sale proceeds multiplied by the Reg T requirement of 50%. In this question, the sale of $1,000 worth of stock will result in a $500 credit to the customer's current SMA ($1,000). The customer is then at liberty to borrow the total SMA of $1,500
|
|
|
In order to qualify for a registration exemption under Rule 147, what percentage of the corporation's assets must be located in-state
|
must be 80% - In addition, to qualify for the exemption, 100% of the purchasers of the offering must be residents of PA.
|
|
|
Required minimum distributions from a traditional IRA must begin by
|
the year following the calendar year in which the individual turns 70 1/2.
|
|
|
What is a client's maximum loss if he is short KNP stock and short a KNP put
|
Unlimited
|
|
|
The maximum loss on a short sale is
|
unlimited, since there is no limit on how high the stock price may rise
|
|
|
gifts should be valued at the
|
higher of the cost or market value. For example, if tickets to a concert have a face value of $90, but the tickets were purchased at a value of $150, the higher value would be used
|
|
|
The gift rule does not apply to
|
personal gifts such as the birth of a child or a wedding gift, provided these gifts are not related to the business between the recipient and the broker- dealer
|
|
|
charged against the account to provide the death benefit found in annuities, as well as to cover the cost of potentially providing the annuitant with payments for life
|
Mortality expenses
|
|
|
Long 100 shares of XYZ at $37 per share Long 1 XYZ 35 put at 1.75 This investor breaks even when XYZ is at:
|
$38.75 ($37 purchase price of the stock + the 1.75 premium on the put)
|
|
|
Municipal bond unit investment trusts do NOT
|
have certificates have coupons attached and are in bearer form
|
|
|
UITs are funds issued in
|
book-entry form and registered form
|
|
|
unit investment trust does not charge
|
a management fee. The portfolio is fixed and there is no investment adviser since unit investment trusts are supervised, not managed
|
|
|
A customer has a federal tax rate of 35% and a state tax rate of 7%. Which of the following investments would afford him the BEST after-tax yield - A 6.25% in-state municipal bond A 6.25% out-of-state municipal bond A 9.95% investment-grade corporate bond A 10.25% mortgage bond
|
6.25% (Municipal Bond Yield) / 58% (100% - 42%) = 10.78% Equivalent Taxable Yield
|
|
|
Equivalent Taxable Yield =
|
Municipal Bond Yield / (100% - Investor's Tax Bracket)
|
|
|
To find parity (equality in dollar value) for the stock,
|
divide the market price of the bond by the conversion ratio.
|
|
|
The market price of the bond is 102 ($1,020) and the conversion ratio is 95 to 1. Therefore, $1,020 divided by 95 equals
|
approximately $10.74. This would be the parity price for the stock.
|
|
|
A corporation has issued a bond with a 5% coupon that is convertible into common stock at $40. The bond is selling currently trading at par and the stock is selling at $39.00. If the bond increased in value by 20 points, what is parity of the stock
|
If the bond increased by 20 points over its par value of $1,000, it would be selling for $1,200. The parity price for the stock is found by dividing the market value of the bond ($1,200) by the conversion ratio of 25 ($1,000 or par value ÷ $40). This is equal to $48 ($1,200 ÷ 25 = $48). The current price of the stock is not relevant
|
|
|
The SEC Order Handling Rules require that a customer's limit order be displayed in a market maker's quote if
|
it improves that quote
|
|
|
CUSIP numbers are used to
|
identify securities and to distinguish them from other securities of the same issue.
|
|
|
A bond is still considered in good deliverable form when missing the
|
CUSIP numbers
|
|
|
Cash flow (net income or loss plus depreciation expense) is found by using an
|
income statement
|
|
|
Repurchase agreements typically are not traded in the
|
secondary market
|
|
|
EPS =
|
Net Income - Preferred Dividends / Number of Common Shares Outstanding
|
|
|
A corporation has the following capital structure: 5% Convertible Bonds (conversion price is $20) $100,000 5% Preferred Stock $100,000 $1 Par Value Common Stock (5,000 shares outstanding) $ 5,000 Tax Rate is 34% Find the earnings per share after dilution, assuming earnings before interest and taxes is $50,000.
|
If the bonds are converted, there will be an additional 5,000 shares outstanding ($100,000 face value bonds divided by the conversion price of $20 equals 5,000 shares). The company will not need to pay the interest on the bonds since they were converted. The calculation is as follows. EPS = $33,000 - $5,000 / 5,000 shares of Common Stock plus 5,000 additional shares (fr/ conversion)
|
|
|
An investor purchases a municipal bond on Monday, June 6. The bond's interest payment dates are November 1 and May 1. The buyer will need to pay the seller of the bond the purchase price plus accrued interest for
|
Accrued interest is calculated from the last interest payment date (May 1) up to but not including the settlement date. The purchase is made Monday, June 6. The settlement date is three business days later, which is Thursday, June 9. Accrued interest is calculated up to but not including the settlement date, which is from May 1 to June 8. This equals 38 days as follows.
|
|
|
Only individuals are permitted to have
|
joint accounts.
|
|
|
Joint accounts may be established as
|
tenants in common or tenants with right of survivorship.
|
|
|
The broker-dealer must receive a death certificate as proof of death
|
before it may mark an account deceased, or change the account title in a joint account
|
|
|
A custodian account may be established for the benefit of
|
only one minor - cant be a joint account
|
|
|
An account for an investment club would not be a
|
joint account.
|
|
|
The sale of securities by the Federal Reserve Board in the open market results in the withdrawal of reserves from the banking system, thereby
|
decreasing the money supply
|
|
|
Accumulation units are converted to annuity units when
|
the individual chooses to begin receiving payments
|
|
|
if a limited partnership declares bankruptcy, order of payments
|
secured creditors, general or unsecured creditors, limited partners, and last, general partners
|
|
|
An individual invested $30,000 in an oil and gas balanced program as a limited partner. His portion of a recourse loan is $50,000. What is the individual's basis
|
$80,000 ($30,000 investment + $50,000 recourse loan) - recourse loan, the investor is liable for its repayment
|
|
|
Open-end companies may only issue
|
common stock.
|
|
|
Closed-end companies may issue
|
common stock, preferred stock, or bonds.
|
|
|
Currency values in a floating-rate system are established by
|
Supply and demand for the currency
|
|
|
The value of an investor's interest in a variable annuity during the accumulation period is subject to fluctuation according to the
|
Amount of money deposited, Performance of the separate account
|
|
|
The Federal Farm Credit System is composed of
|
Banks for Cooperatives, Federal Intermediate Credit Banks, and Federal Land Banks
|
|
|
placement ratio
|
total par value of new issues sold during the previous WEEK divided by the total par value of new issues issued during the previous WEEK
|
|
|
A manager with a portfolio of oil and gas stocks will most likely hedge against a downward movement by purchasing
|
Narrow-based index puts - As prices decline, the value of puts rises thus offsetting the decrease in the stock owned
|
|
|
American Depositary Receipt (ADR) issued by a British company
|
required to register with the SEC under the Securities Act of 1933 - issuing common stock
|
|
|
step-down, long-term certificates of deposit
|
initial interest rate is above market rates, The final interest rate is lower than the initial rate
|
|
|
discretionary account at a broker-dealer
|
RR can act on news and sell/buy whenever they think is right with principal approval
|
|
|
Open or good-until-cancelled (GTC) orders entered below the market
|
automatically reduced when stock sells ex-dividend unless marked Do Not Reduce (DNR).
|
|
|
Orders entered below the current market
|
buy limit orders, sell stop orders, and sell stop-limit orders.
|
|
|
Open orders above the market are
|
sell limit orders, buy stop, and buy stop-limit orders.
|
|
|
A designated market maker is permitted to hold
|
a stop, limit, and stop-limit order
|
|
|
An order that dictates to fill as much of the order as you can right now and cancel the rest is called an
|
immediate-or-cancel order.
|
|
|
Limit orders are placed as either
|
day or GTC orders and the unexecuted portions are placed on the designated market maker's book
|
|
|
GTC sell stop and sell stop-limit orders below the market and are
|
reduced on the ex-dividend date.
|
|
|
When a stock sells ex-rights (similar to ex-dividend), the designated market maker will reduce those orders on his book that were entered
|
below the market.
|
|
|
A buy limit order and a sell stop order will be
|
reduced by the amount the stock sells ex-rights since these orders are entered below the market
|
|
|
When a stock sells ex-rights what will be reduced
|
Buy limit order - Sell stop order
|
|
|
When a designated market maker stops stock, the price is
|
guaranteed
|
|
|
Stopping stock may be done only for a
|
public order
|
|
|
Registration as an investment adviser is
|
not the same as registration as a broker-dealer.
|
|
|
TRACE reports for
|
corporate bond market
|
|
|
transaction in TRACE
|
report to FINRA.
|
|
|
Muni Transactions reported in
|
Real-Time Transaction Reporting System (RTRS), operated by the MSRB.
|
|
|
reporting system for stocks listed on Nasdaq
|
TRF
|
|
|
There is no reporting system for
|
U.S. government bonds
|
|
|
Hedge funds often have higher fees than
|
mutual funds
|
|
|
A customer purchases $15,000 in convertible bonds (15 bonds at $1,000 par). The Federal Reserve Board margin requirement is 50% and the customer deposits $7,500. If the bonds increase in value to 108 ($16,200), how much excess equity will the customer have in the account
|
If the bonds increase in value to $16,200, the equity in the account will be $8,700 (market value of $16,200 - $7,500 debit balance). The initial FRB requirement on $16,200 market value is $8,100 (50% x $16,200). Since there is $8,700 of equity, there is $600 of excess ($8,700 equity - $8,100 requirement
|
|
|
Matured debt is debt of the municipality that
|
is no longer outstanding
|
|
|
Contributions to an IRA must be made in
|
Cash
|
|
|
fundamental analyst focuses on
|
information obtained in an Annual Report of a corporation
|
|
|
Technical analysts use
|
price and trading volume information
|
|
|
Margin requirements established by the FRB may be
|
increased by broker-dealers in the form of in-house rules
|
|
|
investor sells short an ETF, this transaction must be executed in a
|
margin account
|
|
|
When bonds are called for redemption, the bondholder
|
can only redeem the bonds at the callable price or otherwise sell them in the market
|
|
|
last day to buy and rexiece ex-div
|
business day prior to the ex-date
|
|
|
OTC equity securities are not
|
marginable
|
|
|
cant extend credit (marginable) on mutual fund shares until
|
30 days after their purchase.
|
|
|
Premature withdrawals of IRA or Keogh
|
10% penalty
|
|
|
foreign tax may be claimed as a
|
deduction or a credit
|
|
|
customer purchases securities and fails to pay
|
firm will sell out the securities and freeze the account for 90 days
|
|
|
Which of the following securities is MOST appropriate for an investor seeking to buy a new home within the next year
|
A long-term CD purchased in the secondary market, that matures in 12 months
|
|
|
Issuer-directed securities (new issue rule) provide an exemption for
|
parent company of the issuer, the subsidiary of an issuer, and employees and directors of an issuer, immediate family members of employees and directors, Registered representatives if the issuer is that person's employing broker-dealer or is the parent or subsidiary of the broker-dealer
|
|
|
Debt service expenses are paid first only in
|
gross revenue pledges
|
|
|
An investor purchases 100 shares of XYZ at 60 and also writes an XYZ 65 call @ 3. What is the investor's maximum potential loss? $5,700 $6,300 $6,500 $6,800 Explanation: Incorrect. The investor will suffer a loss if the price of XYZ declines. XYZ could go bankrupt and the price of the stock would decline to zero. The investor will have a loss of $6,000 (his original cost) on the stock, which will be partly offset by the $300 premium received from writing the call. His net loss is then $5,700. (71814)
|
this is wrong max loss is unlimted
|
|
|
SROs have rules designed to
|
maintain a fair and equitable market and require that firms use reasonable diligence to provide customers with best execution
|
|
|
The index increases or decreases based on the
|
expected volatility of the market.
|
|
|
If an investor expects volatility to rise, she would be
|
bullish on the VIX.
|
|
|
A bullish option strategy such as long calls, put credit spreads (executed for a net credit), or call debit spreads (executed for a net debit) would enable the investor to
|
profit if the VIX increases.
|
|
|
Many investors buy VIX call options as a
|
hedge against a possible decline in the market since the VIX usually moves inversely with the equity market.
|
|
|
municipal bond typically have the
|
lowest yield since it is exempt from federal income tax
|
|
|
GO bonds
|
lower yield than Rev - Safer than Rev
|
|
|
besttax benefit from an oil and gas program is
|
depletion deduction
|
|
|
NASDAQ
|
5% Markup
|
|
|
If an investor expects yields (interest rates) to rise, he will
|
buy yield-based calls or sell yield-based puts.
|
|
|
Yield-based options are cash-settled options based on a particular Treasury security's movement in
|
yield - Not Inverted
|
|
|
for a public offering, the spread represents the
|
difference between the price that the issuer receives from an underwriter for its IPO and the price that a customer pays for the IPO
|
|
|
RR can not have customers mail
|
forwarded to him - violation of SRO rules - can be to firm (3months) or General PO Box
|
|
|
self-employed individual Max deductible contribution in Keogh account
|
20% of self-employed income, up to a maximum of $53,000, which ever is less
|
|
|
short stock has.
|
unlimited risk potential
|
|
|
A put writer who sells the underlying stock short has
|
unlimited risk potential
|
|
|
A block of bonds is offered firm by Dealer A to Dealer B for one hour with a five-minute recall. Dealer A calls Dealer B and says, fill or kill. Dealer B
|
Has five minutes to take the bonds - invoking the five minute recall
|
|
|
Regulation T for a new issue in a cash account is due
|
two business days following the settlement date
|
|
|
If interest rates are expected to rise, the most suitable investments
|
those that can be reinvested quickly to - variable or adjustable-rate securities
|
|
|
trading based on insider information or communicating such information to others who use the information.
|
a tipper
|
|
|
GO Bonds require
|
Voter Approval
|
|
|
special tax bond financed by a tax other than an ad valorem tax, such as a tax on cigarettes, liquor, or gasoline, and would not require
|
voter approval.
|
|
|
A certificate of participation (COP) is a revenue bond backed by a lease payment does not
|
require voter approval.
|
|
|
A corporation is planning to issue new stock to the public but has not yet filed a registration statement with the SEC, RR can only
|
Discuss the offering with investment bankers at firm
|
|
|
customer can use a Number for an account only if they
|
sign the statement acknowledging their account
|
|
|
moving to the payout phase of a variable annuity payments are based on
|
performance of the subaccount products in the separate account
|
|
|
sector fund (securities of a specific industry or specific geographic location)
|
income Not a primary objective
|
|
|
acquiring $100,000 of bonds that mature each year over the next 10 years is called
|
Laddering the portfolio
|
|
|
client is considering exchanging one variable annuity for another
|
ask if within the previous 36 months, documented in writing, frequent exchanges can be considered churning, must be suitable
|
|
|
subscription agreement for a direct participation program (DPP)
|
suitability standards, who must sign the agreement, whom check must be made payable, understands risk, meet the financial requirements
|
|
|
offering documents
|
Priority provisions liquidating a limited partnership, and the tax implications
|
|
|
shorting stock trading at less than $5.00 per share, requirment is
|
the greater of $2.50 per share or 100% of the market value. stock less than $2.50 per share, the maintenance requirement is $2.50 per share, while the maintenance requirement for shorting stocks between $2.50 and $5.00 per share is 100% of the market value
|
|
|
A DMM is not permitted to
|
compete with public orders when trading for its own account.
|
|
|
The DMM may
|
buy stock at a higher price or sell stock at a lower price
|
|
|
money-market mutual funds
|
They are no-load funds - Dividends are computed daily and credited monthly
|
|
|
A withholding tax of 20% may apply when a person
|
moves funds from one retirement account to another.
|
|
|
Withholding tax can be avoided when funds are
|
transferred from one retirement account to another.
|
|
|
There are two methods of transfers,
|
funds are sent directly between custodians (trustee-to-trustee) - check is made payable to the new trustee.
|
|
|
If the check is made payable to the plan participant, it is defined as a rollover and a
|
withholding tax may apply.
|
|
|
Funds from a retirement plan may not be transferred
|
directly to the employee's personal bank account.
|
|
|
securities issued by the federal government are exempt from
|
state and local taxes
|
|
|
fed funds rate is the
|
rate charged by one bank with excess reserves to another bank needing overnight loans to meet reserve requirements - NOT controlled by FED
|
|
|
In order to charge the maximum 8.5% sales charge, mutual funds must
|
offer breakpoints and rights of accumulation
|
|
|
A stock closes at $37. The next day the stock sells ex-dividend $0.68 per share. At what price will the stock open the next day if it opens at the same level it closed the day before
|
stock is reduced by an amount sufficient to cover the dividend. The price will be reduced by 68 cents. Therefore, $37 - .68 = $36.32
|
|
|
issuing new shares through a rights offering, cust tenders (submit) rights to
|
transfer agents
|
|
|
The Federal Reserve will
|
Sell during inflationary - Buy during deflationary
|
|
|
investor is concerned about inflationary risk, wants tax-deferred growth, and is willing to accept a moderate degree of risk to his initial investment,
|
variable annuities are the most appropriate investment
|
|
|
The Consolidated Quotation System (CQS) provides subscribers
|
with bid/asked quotations for securities listed on national exchanges, including quotes from OTC market makers in those securities (the third market).
|
|
|
MSCI EAFE
|
(Morgan Stanley Capital International Europe, Australasia, and Far East) Index excludes U.S. and Canada
|
|
|
FTSE Index
|
companies trading on the London Stock Exchange
|
|
|
documents required to be sent to the purchaser of a new issue of a municipal bond
|
confirmation and An official statement of the issuer
|
|
|
municipal securities are exempt from filing an
|
offering document
|
|
|
U.S. government notes have a
|
next-business-day settlement and delivery date.
|
|
|
T Note Payment is due on the
|
next business day
|
|
|
Foreign investments in the U.S. will direct money into the country, helping the U.S.
|
balance of payments
|
|
|
A registered representative is sending an e-mail to 50 individual investors. This is defined as a(n)
|
Retail communication - any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30 calendar-day period
|
|
|
tax consequences of a variable life insurance policy holder dieing
|
value of the policy will be included in estate for tax purposes
|
|
|
stop order to sell 1,000 shares of ATT at 35. The order will be executed at
|
next trade after 35 is touched - After the order is activated at or below 35, the next trade will be the execution price.
|
|
|
Stop orders become market
|
orders once they are activated
|
|
|
An investor who holds stock in a company that is the subject of a tender offer may tender
|
only stock that he holds long.
|
|
|
If a shareholder has Written call option positions against the long stock, the options positions will
|
reduce his net long holdings in the stock
|
|
|
Company R has announced a tender offer for Company T. A shareholder of Company T is long 1,000 shares of stock and has written 5 covered calls against the stock. For the purpose of tendering shares, the shareholder may tender
|
500 Shares (1,000 long - 500 options Written)
|
|
|
Treasury STRIPS do not pay
|
periodic interest and are traded without accrued interest
|
|
|
The price-earnings ratio of the Dow Jones stocks is an indicator that a
|
fundamental analyst will examine
|
|
|
a registered representative makes a recommendation to a customer
|
concerned with Suitability not profitability
|
|
|
any gain or loss on a short (selling) position is treated as
|
short-term
|
|
|
A corporate bond has a 12% nominal yield. To be equivalent, an investor in the 28% tax bracket would need a municipal bond with a yield of
|
8.6% - multiply the yield by the complement of the tax bracket. The net yield is 8.6% (12% yield multiplied by 72%, which is the complement of the tax bracket)
|
|
|
LRR Corporation has earned $1.10 per share in each of the last four quarters and has paid out 20% of its earnings in the form of a cash dividend. If the stock is selling at $48 a share, what is its price/earnings ratio
|
$1.10 x 4(each quater) = $4.40., The price/earnings ratio is 10.9 ($48 / $4.40 = 10.9
|
|
|
S&P's best rating for notes
|
SP-1 and its worst rating is SP-3.
|
|
|
S&P's best rating for bonds
|
AAA worst is Aaa
|
|
|
A reverse convertible security would be MOST suitable for an investor who
|
Desires higher yield and is anticipating the value of the underlying asset will remain stable
|
|
|
Decisions of a Hearing Panel regarding complaints can be appealed to the
|
National Adjudicatory Council. Arbitration decisions are final
|
|
|
converting bonds to stock, bond convertible at 40
|
divide the par value of the bond by the conversion price ($1,000 divided by 40 = 25), $1,025 (25 shares x $41 = $1,025)
|
|
|
The prices of preferred stocks are inversely related to the movement of
|
interest rates, as are bonds
|
|
|
Someone who wants to hedge a portfolio of preferred stocks will buy
|
Yield-based call options
|
|
|
The maximum potential loss for a debit spread is the
|
net premium
|
|
|
An investor buys an STC May 30 call @ 8 and sells an STC May 40 call @ 2. The investor's maximum potential loss
|
is $600
|
|
|
Short interest and trading volume are
|
technical indicators
|
|
|
EPS and the P/E ratio are
|
fundamental indicators
|
|
|
trade has the symbol SLD next to it, indicating that a trade occurred
|
previously (assume prior to the other trades shown), was reported out of sequence
|
|
|
A customer enters a sell stop-limit order for 100 XYZ at 25.50. XYZ trades occur as follows: 25.50, 25.25, 25.13, SLD 25.50. The customer's order was
|
Not executed - stock must increase to at least 25.50 for an execution - SLD price was reported previously
|
|
|
A new municipal bond issue is dated January 1 and pays interest each April 1 and Oct. 1. An investor purchased bonds from the issuer with a Thursday, January 31 settlement date. How many days of accrued interest does the investor owe
|
30 - owes from January 1 to January 30 (30 days)
|
|
|
The operating profit margin and the bond coverage ratio can be calculated by examining the
|
income statement.
|
|
|
The current ratio is found by dividing the
|
current assets by the current liabilities
|
|
|
The debt-to-equity ratio is found by dividing the
|
dollar amount of debt (bonds) by the dollar amount of shareholder equity (common stock + paid-in capital + retained earnings
|
|
|
can be calculated by examining the balance sheet of a company
|
The debt-to-equity ratio - The current ratio
|
|
|
order of priorities that you would follow when opening an options account for a customer
|
Send the customer an Options Clearing Corporation risk disclosure document - Have the registered options principal approve the account - Enter the order - Have the customer sign the options agreement
|
|
|
has the highest DPP profit potential
|
wildcatting - prospecting for oil
|
|
|
Asset allocation funds
|
diversified portfolios of stocks, bonds, and money-market instruments - managed by fund manager
|
|
|
ender offer may tender only stock that is
|
held long
|
|
|
A firm needs to disclose in a report that it owns shares of the stock, but not
|
the actual number
|
|
|
If rates have declined for the past three years and reached a normal level, the present yield curve would
|
most likely be ascending, which is also referred to as positive or upward sloping.
|
|
|
term issue, bonds mature in one specific year. To accumulate monies to help retire the bonds, the issuer will deposit monies (above the amount to pay interest) in a
|
sinking fund
|
|
|
EIAs (equity-indexed annuity) are not considered
|
securities
|
|
|
risks involved in buying thin issues
|
probability of wide price fluctuations (volatility) and because of the small amount of the shares outstanding.
|
|
|
firm isinvolved in an underwriting of an initial public offering and is the manager or comanager, it must maintain a quiet period for
|
40 days following an IPO or 10 days following a secondary offering
|
|
|
syndicate member or selling group member, the firm would need to wait
|
25 days
|
|
|
Option contracts have no loan value and therefore may not be used as
|
collateral in a margin account
|
|
|
LEAPS can be bought on
|
margin - have loan value
|
|
|
LEAPS are equity options that can have a maximum life of
|
39 months
|
|
|
Advertising for municipal fund securities investments must be approved prior to its official use by
|
principal of the firm who is selling the program
|
|
|
The minimum maintenance requirement Long Account
|
25% of the market value of the securities in the account
|
|
|
Annuitants will receive the greatest cash flow from the
|
straight-life annuity payout option - greatest risk
|
|
|
This option allows an annuitant to receive payments for
|
his lifetime.
|
|
|
At death, the payments
|
cease since no beneficiary is designated and, therefore, the insurance company is relieved of its obligation to make payments.
|
|
|
Nasdaq Level I
|
the inside market - highest bid and the lowest offer for a security
|
|
|
renewal and replacement fund holds monies put aside for the
|
improvement of the facility
|
|
|
Money put aside on a municipal revenue issue for the betterment and improvement of the facility is placed in the
|
Renewal and replacement fund
|
|
|
A letter of intent (LOI) enables an investor to qualify for a reduced sales charge based on the breakpoint schedule of a mutual fund, without
|
initially depositing the entire amount required.
|
|
|
The LOI states the investor's intention to deposit the required money within
|
13 months of the inception of the letter. It may not be renewed for another 13 months.
|
|
|
The letter of intent may be backdated for up to
|
90 days, but may not be extended for 90 days
|
|
|
planned amortization class (PAC) type of CMO provides a
|
predetermined schedule of principal repayment - that is designed for more risk-averse investors
|
|
|
A leveraged ETF is designed to deliver a
|
multiple of the performance of an index or other benchmark.
|
|
|
a 3X leveraged ETF based on the DJIA seeks to deliver
|
three times the performance of that index.
|
|
|
if the DJIA rises or falls by 1%, a leveraged ETF would
|
increase or decrease by 3% before fees and expenses.
|
|
|
The term opening sale applies to the
|
seller (writer) of a listed option
|
|
|
If a client is long and short an equal number of shares of the same security, the maintenance requirement is equal to
|
5% of the long position.
|
|
|
A client is long and short 1,000 shares of the same security. If the current market value is $80,000, the client is permitted to borrow up to:
|
$4,000 (5% of $80,000). Therefore, the client is permitted to borrow 95% of $80,000, or $76,000.
|
|
|
the SEC and FINRA may discipline a
|
registered representative - for fraudulent securities activities
|
|
|
requirement for holding securities in street name is that they must be
|
segregated - Segregate the securities from the B/D's own securities
|
|
|
Ginnie Mae securities or the Government National Mortgage Association securities (GNMAs) are fully guaranteed as to principal and interest by the
|
federal government
|
|
|
GNMA pass-through certificates are
|
guaranteed by the U.S. Gov - Interest and principal payments received monthly - receive principal payments before, not at maturity - Fully Taxable
|
|
|
maximum underwriting compensation for selling limited partnerships in public offerings is:
|
10%
|
|
|
Stopping stock is done by the
|
designated market maker (specialist) to guarantee a price for a public order.
|
|
|
The designated market maker does
|
not need permission of an exchange official to Stop Stock
|
|
|
customer is considering writing an XYZ April 90 put for an $8 premium but is concerned about the risk of a large loss. Which of the following positions, when added, provides the BEST protection
|
Buying an XYZ April 80 put for a premium of 2
|
|
|
If the customer buys an XYZ April 80 put for 2, it becomes a
|
credit spread.
|
|
|
The maximum risk is reduced to $400, which is the
|
difference between the strike prices (10) and the net premium received (6).
|
|
|
Members of a secondary market joint account must
|
publish the same offering price
|
|
|
members are not permitted to disseminate
|
more than one quote relating to the account's securities
|
|
|
The largest portion of the underwriting spread in a municipal securities issue is the
|
total takedown - additional takedown plus the concession
|
|
|
duplicate account statements must be sent if an employee of a member firm opens a brokerage account at
|
another member, investment adviser, bank, or other financial institution
|
|
|
A member firm is required to send duplicate account statements to FINRA when
|
a customer of the firm is an employee of FINRA
|
|
|
Anyone may set up or deposit funds in a
|
Coverdell Education Savings Account - Max $2,000 in any one year
|
|
|
A registered representative is sending an e-mail to banks and investment advisers in anticipation of a new product being offered by the firm. This is defined as a(n):
|
Institutional communication
|
|
|
Correspondence
|
made available to 25 or fewer retail investors within any 30 calendar-day period.
|
|
|
Institutional communication
|
made available only to institutional investors. This would not include any internal communication by the broker-dealer.
|
|
|
Retail communication
|
communication that is distributed or made available to more than 25 retail investors within a 30 calendar-day period.
|
|
|
Public appearances
|
sponsor participate in a television or radio interview, seminar, or forum, or make a public appearance, or engage in speaking activities that are unscripted and are not otherwise considered retail communication. Social media sites, which permit real-time communication or interactive, electronic forums, fall under the guidelines of a public appearance (e.g., Facebook, Twitter, and LinkedIn).
|
|
|
if preferred stock is noncumulative, it means that if the dividend is not paid, it does
|
not accumulate to the next year
|
|
|
Depreciation is a non-cash expense and it is added
|
to cash flow.
|
|
|
Cash flow =
|
Net Income or Loss + Depreciation Expense
|
|
|
A corporate resolution authorizing a person to trade for the account is necessary to open a
|
corporate cash account
|
|
|
A corporation wishes to open a cash account. Which of the following documents is required
|
A corporate resolution
|
|
|
Eurodollar bonds are
|
USD$-denominated bonds issued and sold outside the U.S.
|
|
|
They may trade in the U.S. after a seasoning period of
|
40 days after issuance.
|
|
|
To be listed on the NYSE, a corporation must have
|
a minimum number of round-lot shareholders, a minimum number of publicly held shares, a minimum aggregate market value of publicly held shares, a positive earnings history, national interest in the corporation, and agreement to solicit proxies
|
|
|
prospectuses must continue to be delivered on all purchases in the aftermarket for
|
25 days
|
|
|
A broker-dealer is underwriting an initial public offering (IPO) for a company that will be listed on the NYSE. The broker-dealer is required to deliver prospectuses
|
For 25 days after the effective date
|
|
|
In a repurchase agreement (repo), a dealer sells securities to another dealer or investor and agrees to buy them back at a specific time and price.
|
In effect, the selling dealer borrows money from another party and collateralizes the transaction with the securities. The other side is lending money and is receiving interest from the dealer creating the repo.
|
|
|
BEST described as collateralized loans
|
Repurchase agreements
|
|
|
In a repurchase agreement, a firm sells securities to another firm and agrees to repurchase them at a specific time and a specific price, which produces an agreed-upon rate of return
|
one firm is borrowing money from the other with securities as collateral
|
|
|
Repurchase agreements (repos) and reverse repos would MOST likely be used by
|
Institutions that have a need to borrow on a short-term basis, or have money to lend on a short-term basis
|
|
|
MSRB rules require a syndicate member to
|
disclose to the syndicate an order for a unit investment trust or an accumulation account to be used for a unit investment trust.
|
|
|
The disclosure is accomplished by entering the order as a
|
related portfolio order
|
|
|
Investment bankers provide financing for corporations by
|
bringing an issue, whether debt or equity, to market for the issuer - Underwriting an IPO
|
|
|
investment banking department will also assist companies with
|
mergers and acquisitions
|
|
|
The investment banking department does not
|
make a secondary market for new issues
|
|
|
Easy-to-Borrow lists
|
aid in the process of locating securities - must be less than 24 hours old, provide reasonable grounds for belief that a security on the list will be available to be borrowed - expedites the fulfillment of the locate provision
|
|
|
Hard-to-Borrow list
|
securities that a clearing broker-dealer may have difficulty in borrowing
|
|
|
joint and last survivor provide the
|
longest stream of income as it guarantees payments until the last annuitant dies
|
|
|
When redeeming shares of an open-end investment company (mutual fund), an investor receives the
|
NAV (bid price) minus any redemption fee
|
|
|
An investor owns 1,000 shares of an open-end investment company. The bid price is $11.00 and the offer price is $11.58. The investment company charges a 1/2% redemption fee. If the investor redeems his 1,000 shares, how much will he receive
|
investor would receive $11,000 (1,000 shares x $11.00 NAV) minus the redemption fee of $55 ($11,000 x 1/2%), which equals $10,945
|
|
|
Outstanding shares =
|
issued shares minus treasury stock (shares repurchased by the company)
|
|
|
XYZ corporation has 7,000,000 shares of common stock ($1 par value) authorized, of which 5,000,000 shares have been issued. There are 500,000 shares of treasury stock. The current market price of XYZ is 20. The market capitalization of the outstanding common stock is
|
$90,000,000: (5,000,000 - 500,000) = 4,500,000 shares outstanding with a market value of $20.00 per share
|
|
|
An investor in the U.S. purchases the debt of a German company. The bonds are denominated in euros. Which of the following risks will the investor be exposed to
|
Interest-rate risk, Credit risk, and Currency risk
|
|
|
The theory that states that the small investor is usually wrong because he is uninformed, buying at market peaks and selling at market bottoms, is called the
|
odd-lot theory.
|
|
|
According to this theory, the small investor can afford only to buy
|
an odd-lot (less than 100 shares of stock).
|
|
|
Odd-lot buying on balance (more buying than selling) is
|
bearish
|
|
|
odd-lot selling on balance (more selling than buying) is
|
bullish
|
|
|
REITs invest in many different types of
|
residential and commercial income-producing real estate such as apartment buildings, hotels, shopping centers, office complexes, storage facilities, hospitals, and nursing homes.
|
|
|
REIT Income is received from
|
the rental income paid by the tenant leasing the real estate owned by the REIT
|
|
|
REITs must pay
|
a minimum of 90% of their taxable income and the dividends received by investors are taxed at the same rate as ordinary income.
|
|
|
The dividends paid to shareholders of REITs do
|
not qualify for the lower 20% tax rate given other types of common and preferred stock.
|
|
|
REITS can be suitable for both
|
retail and institutional investors.
|
|
|
Most REITs are traded on
|
an exchange, such as the NYSE, and offer investors a high degree of liquidity.
|
|
|
Nontraded REITs do not have
|
their shares listed on an exchange and offer very limited liquidity, similar to limited partnerships. They would not be suitable for investors seeking liquidity.
|
|
|
Both invest in various types of real estate and are subject to the same
|
tax consequences (90% distribution on taxable income).
|
|
|
Since they are both registered, they are required to make the same
|
disclosures to investors
|
|
|
in a DPP when the project's revenues exceed expenses and net income is produced
|
crossover point
|
|
|
If a customer indicates the specific stock and amount registered representative is permitted to choose the
|
time and price of execution
|
|
|
time and price of execution
|
not considered a discretionary order
|
|
|
A customer does not have a discretionary account with his brokerage firm. The firm may decide
|
The price if the customer specifies the security and quantity
|
|
|
Investment-grade (highly rated) corporate bonds offer an investor
|
safety of income and preservation of capital
|
|
|
corporate bonds risk of default is
|
minimal
|
|
|
The investor realizes income as well as
|
preservation of capital
|
|
|
the sale and purchase of bonds (or other securities) to realize a capital loss that can be offset against a capital gain
|
tax swap
|
|
|
If the holder of an industrial revenue bond is a substantial user of the facility, then the
|
federal tax exemption on the interest earned does not apply
|
|
|
A bond swap is done to
|
Increase the overall yield of the bond portfolio - Increase the current income of a bond portfolio - Establish a tax loss to offset income
|
|
|
tool most commonly used by the FRB to regulate the amount of money and credit in the banking system
|
Open market operations
|
|
|
municipal bond can be rejected if it is
|
missing a legal opinion, has missing or mutilated coupons, or the certificate is mutilated
|
|
|
municipal bond may not be rejected because
|
of a sudden change in market price.
|
|
|
buy stop is entered
|
above the current market price
|
|
|
The stop will activate on the first round-lot trade, which occurs
|
at or through (above, since this is a buy stop) the stop price.
|
|
|
Long-term, high-grade bonds are relatively safe investments, but do have
|
purchasing-power risk.
|
|
|
Because the amount of interest income is fixed, the
|
purchasing power of the interest income may decline over the long term because of inflation.
|
|
|
A rise in inflation
|
reduces the amount of goods and services that can be purchased with the fixed amount of dollars.
|
|
|
Ratings and denominations are
|
not included on the confirmation
|
|
|
MSRB rules require that a confirmation be sent to a customer
|
at or before the completion of the transaction (settlement date)
|
|
|
confirmation must include
|
whether the customer purchased or sold, the par amount, and a complete description of the securities, including the coupon and the maturity date. Any pertinent call feature must be shown as well as the principal amount, accrued interest, and the total amount of the transaction. The broker-dealer must disclose if it acted as principal or agent and, if acting as an agent, the amount of the commission must be disclosed.
|
|
|
MSRB rules do not require that the
|
name of the bond counsel be disclosed on a confirmation
|
|
|
The federal funds rate is the
|
rate that one bank charges another bank for overnight borrowing
|
|
|
borrowing is done when a bank is
|
in need of reserves
|
|
|
If the fed funds rate is steadily rising, it indicates that the Federal Reserve is
|
tightening credit
|
|
|
banks may find
|
difficulty in obtaining overnight loans to meet reserve requirements
|
|
|
An individual purchases one XYZ 40 call for 4 and one XYZ 50 call for 2. The market price of XYZ stock is currently 43. The individual's breakeven price is
|
46
|
|
|
The net borrowing cost to a municipal issuer of a Direct Pay Build America Bond (BAB) with a 7% interest rate is:
|
The Treasury will reimburse 35% of the interest payment, which results in a net borrowing cost of 4.55% (7.00% x [100% - 35%])
|
|
|
These bonds may be suitable for
|
taxable, fixed-income investors.
|
|
|
BABs allow a municipality to issue a bond with
|
a higher interest rate, but pay an equivalent tax-free rate.
|
|
|
Direct Pay Build America Bond may be used to raise capital for the same purposes as regular tax-exempt municipal debt, except for
|
refundings, working capital, and private activity bonds
|
|
|
Green Shoe clause that allows the syndicate to increase the number of shares sold by
|
15% over the original number of shares in the offering.
|
|
|
Due to their unique characteristics, CMOs may not be
|
compared to any other types of investment
|
|
|
A face-amount certificate and a management company are two types of
|
investment companies
|
|
|
The Investment Company Act of 1940 does not consider
|
holding companies and insurance companies to be investment companies
|
|
|
An RR is permitted to contact a person whose name is on the Do Not Call list if the person has
|
provided their # prior express written consent
|
|
|
A customer purchases 10 MMS May 20 puts at 2 in a cash account when the market price of MMS is 24. Settlement and Payment are
|
settlement is one business day - Regulation T payment is five business days
|
|
|
According to Regulation T, payments for transactions in cash and margin accounts must be made by the customer within
|
two business days following the regular-way settlement date
|
|
|
regular-way transactions settle in
|
three business days
|
|
|
customers have
|
five business days in which to pay for purchases
|
|
|
he process of returning securities that were previously accepted on the settlement date
|
Reclamation
|
|
|
when the brokerage firm refuses delivery of the securities on the settlement date
|
Rejection
|
|
|
make the decision to stop trading the options, when there is a halt in the trading of a security that underlies option contracts
|
Officials of the exchange on which the options trade
|
|
|
A customer enters a sell stop-limit order for 100 shares at 18.50. The last round-lot sale that took place before the order was entered was 18.88. Round-lot sales that took place after the order was entered were at 18.60, 18.25, 18.38, 18.50, and 18.63. The execution price is
|
18.5
|
|
|
After the order was activated by the round-lot sale of 18.25 (which is at or lower than 18.50), the order became a
|
limit order to sell 100 shares at 18.50 or better.
|
|
|
18.50 is the first price that
|
meets this requirement and is the execution price.
|
|
|
Spinoff transactions occur when a company is
|
seeking to divest a division.
|
|
|
In a spinoff, each shareholder of the parent retains her original shares, but is also
|
given shares in the newly created entity
|
|
|
The Taft Food Company intends to distribute shares of its grocery business to existing stockholders. The shares of this company will be traded separately from Taft. This is an example of a(n)
|
Spinoff
|
|
|
Upon the written request by the employing member firm, duplicate account statements must be sent if an employee of a member firm opens an account at
|
another member, investment adviser, bank, or other financial institution
|
|
|
A registered representative enters an order for a client. In error, the RR purchases shares of the wrong security
|
shares must be placed in the broker-dealer's error account
|
|
|
Foremost Corporation has declared a quarterly dividend of 25 cents payable to stockholders of record on Friday, December 1. The dividend will be paid to all stockholders whose names appear on the record books of Foremost Corporation on
|
12/1/2015
|
|
|
The dividend will be paid to all stockholders whose names appear on the record books of Foremost Corporation on the
|
record date, which is given in this example as December 1.
|
|
|
A charity has received restricted stock from the director of a corporation. The director owned the stock for two years before giving it to the charity. According to SEC Rule 144, the charity may sell the stock:
|
Freely under Rule 144
|
|
|
The charity may sell the stock freely (immediately) since
|
the required holding period for restricted stock has already been met by the director
|
|
|
The bid price of a mutual fund is
|
net asset value (NAV) and is the price a customer will receive if shares are sold
|
|
|
The offer price of a mutual fund is
|
the NAV plus the sales charge, if any, and is the price a customer pays to purchase shares of a mutual fund.
|
|
|
wildcatting program, also called an exploratory program, searches for oil in unproven areas. This results in a
|
lower cost of acquiring the land or mineral rights. In order to extract oil and gas, the program will incur significant start-up or up-front costs
|
|
|
All options stop trading
|
ON the third Friday of the month - not the next day
|
|
|
an owner of a variable annuity has the income tax
|
deferred
|
|
|
An owner of a mutual fund will have to pay taxes on dividends received
|
that year
|
|
|
research department must be separate from its
|
investment banking department - to avoid conflicts of interest
|
|
|
if an XYZ July 50 put is purchased for $5 when the market price is $47, the
|
intrinsic value (in-the-money value) is $3 and the time value is $2.
|
|
|
As the put nears expiration, the time value gradually
|
dissipates, which is a disadvantage to the buyer.
|
|
|
An individual who is covered by a corporate pension plan may continue to make pretax contributions of up to
|
$5,500 to an IRA providing the individual's income does not exceed specified levels
|
|
|
A failed auction occurs when there are
|
not enough bids to cover the amount of auction rate securities being sold.
|
|
|
In this situation, the holders will continue to hold the securities and the interest rate will be set to the
|
maximum rate allowed in the program documents.
|
|
|
This rate is normally
|
higher than the rate that would have cleared a successful auction.
|
|
|
The SEC has provided
|
several examples of documents that can be relied on by the seller when establishing its belief that a purchaser is a qualified institutional buyer
|
|
|
Rule 145 applies to
|
mergers, consolidations, reclassifications of securities, or transfers of corporate assets.
|
|
|
Rule 145 requires a company to provide
|
written disclosures to shareholders in connection with the previously listed corporate actions.
|
|
|
Mutual funds sell ex-dividend
|
whenever the fund or its principal underwriter (sponsor) determines.
|
|
|
The ex-dividend date for a mutual fund is usually the
|
same day as the record date
|
|
|
Regulation FD applies to
|
issuers of securities.
|
|
|
Regulation FD requires that material, nonpublic information disclosed to analysts or other investors be
|
made public
|
|
|
payout on a variable annuity
|
A fixed number of annuity units multiplied by a variable dollar amount
|
|
|
When payments begin on a variable annuity, the annuitant is
|
credited with a specific number of annuity units. This number will remain fixed.
|
|
|
The annuitant's monthly payment will
|
vary according to the value of the securities representing the units
|
|
|
The payout on a variable annuity is based on a
|
Fixed number of annuity units with a fluctuating value per unit
|
|
|
An accumulation unit in a variable annuity contract is an
|
accounting measure used to determine the contract owner's interest in the separate account.
|
|
|
The separate account is the
|
portfolio in which the customer's contributions are invested.
|
|
|
Some separate accounts consist of several
|
subaccounts, with differing objectives and portfolios
|
|
|
The 5% Markup Policy applies when a member firm
|
Acts as a dealer in a transaction with a customer
|
|
|
A municipal dealer purchased $100,000 face value of 6.00% bonds at a 6.00 basis. If the dealer reoffered the bonds, which TWO of the following choices will be considered reasonable
|
The dealer purchased the bonds at par (6% coupon at a 6.00 basis). When reoffering the bonds, the dealer's markup should be reasonable. A one-point markup (101) is considered reasonable, whereas an eight-point markup (108) is not. An offering of 5.80 represents a reduction in yield of 20 basis points and is considered reasonable. A reduction in yield of 200 basis points (6.00 basis minus 4.00 basis reoffering) is excessive.
|
|
|
A BA (banker's acceptance) is used to
|
facilitate foreign trade.
|
|
|
It is a time draft that has been
|
guaranteed (collateralized) by a bank
|
|
|
An individual purchases 10 ABC June 90 calls @ 4 and writes 10 ABC June 95 calls @ 2. The individual's maximum loss is:
|
$2,000 - Net Premium -
|
|
|
Industrial development revenue bonds are backed by
|
The corporate guarantor - credit rating of these bonds is dependent on that corporation, not on the municipality issuing the bonds
|
|
|
The SRO minimum maintenance requirement for a short position is
|
30% of the market value
|
|
|
A customer has a long margin account with a market value of $30,000 and a debit balance of $20,000. His short margin account has a $7,000 market value and a $10,000 credit balance. The FRB margin requirement is 50%. What is the minimum equity requirement for the short position
|
The market value is $7,000, and 30% of $7,000 equals $2,100
|
|
|
Dow Jones Composite Index
|
30 industrial stocks, 20 transportation stocks, and 15 utility stocks
|
|
|
primary source for a quote in the secondary market and assists the trader in finding the best price on a specific issue
|
broker's broker
|
|
|
Duties of the ROP
|
Reviewing selected customer accounts - Establishing option training programs for registered representatives and ROPs - Reviewing retail communications
|
|
|
call feature used when computing the dollar price of a municipal bond sold on a yield basis
|
In-whole call
|
|
|
credit strength of a municipal issuer
|
condition of the local economy - general capability of the fiscal officers of the municipality
|
|
|
CMO is yielding 5.95% while the Comparable Treasury is yielding 5.10%
|
yield pick-up on the CMO is 85 basis points
|
|
|
investing a large sum of money in four different mutual fund families, will not allow
|
customer to receive sales breakpoints
|
|
|
Equity options expire on
|
3rd Friday at 11:59 p.m. EST
|
|
|
convertible preferred stock that was originally purchased at $106. The stock is convertible at $25, stock is converted costs basis will be
|
$106 ÷ 4 = $26.50 - the par value of the preferred stock ($100) is divided by the conversion price ($25). As a result, four shares of common stock are received upon conversion. The cost basis of the newly acquired common shares is found by dividing the original purchase price of the preferred stock ($106) by the number of shares received (4).
|
|
|
Spiders (SPDRs) is an investment that replicates the
|
S&P 500 Index
|
|
|
Diamonds (ETF) mirrors the performance of the
|
DJIA
|
|
|
ADRs (American Depositary Receipts) issued as proxies for different types of
|
individual foreign shares
|
|
|
VRDOs (variable-rate demand obligations) municipal security structured for
|
tax-free money-market and high-net-worth investors
|
|
|
client owns a portfolio of blue-chip equity securities and wants to increase the overall rate of return through the use of options. The most conservative strategy to achieve this objective is to
|
Write covered calls
|
|
|
The most conservative strategy for the investor to achieve her objective is to
|
write covered calls.
|
|
|
The call premium received will increase the yield on her portfolio of stocks because it will
|
add to the income generated by the dividends received from the stock
|
|
|
Actuarial calculations are used to determine the
|
amount of money that an employer must deposit each year in the plan to provide for the retirement benefit specified by the plan
|
|
|
A defined benefit plan promises to pay the employee a
|
specified amount of money each year once the employee retires.
|
|
|
This benefit payment is usually based on
|
age, years of service, and salary history.
|
|
|
actuarial calculation used to determine the employer's contribution
|
A defined benefit plan
|
|
|
Options expiring in nine months or less may not be bought on
|
margin
|
|
|
They do not have
|
loan value and, therefore, must be paid in full
|
|
|
credit may be extended to purchase
|
LEAPS with more than nine months to expiration
|
|
|
redeeming mutual fund shares, the fund company must send the payment within
|
7 Days
|
|
|
A municipal finance professional (MFP) and her spouse make a political contribution of $400 from a joint account. Only the MFP signs the check. According to the MSRB political contribution rules, the contribution would be viewed as a
|
$400 contribution from the MFP
|
|
|
Knowing a client's tax bracket is particularly useful when evaluating the suitability of
|
municipal bonds.
|
|
|
The interest on municipal bonds is typically tax-exempt, which is
|
less of an advantage if the client is in a low tax bracket
|
|
|
two or more issues of revenue bonds have the same claim against revenue or are backed by the same pledged revenues
|
parity bond
|
|
|
backed by a source of revenue and the full faith and credit of an issuer that has taxing power, i.e., a general obligation (GO) bond issuer.
|
double-barreled bond
|
|
|
municipal revenue bonds that are payable by the state if revenues from the project do not satisfy debt service payments, approval required
|
Moral obligation bonds
|
|
|
General obligation bonds require
|
voter approval
|
|
|
It is a violation of federal law for anyone to tender the stock that a customer borrowed in a
|
short margin account.
|
|
|
The stock has been temporarily borrowed and does not belong to the customer and may not be
|
tendered
|
|
|
A customer has a discretionary account at a broker-dealer. The customer has received a research report and has indicated that she may want to purchase a stock on the recommended list. Which of the following actions is MOST appropriate for the registered representative to take
|
Purchase the stock on behalf of the customer and have the order approved promptly by a principal
|
|
|
An individual subject to the AMT must first calculate his taxes using the standard method, and then he must recalculate his tax liability using the AMT method.
|
The taxes due are the greater of the two calculations
|
|
|
A broker-dealer is acting as a principal when
|
buying for or selling from inventory
|
|
|
corporation may not
|
write calls covered by its own stock
|
|
|
preferred stock is a fixed-income security paying a fixed dividend each quarter, it is affected by interest rates in the same way as
|
bonds
|
|
|
An investor seeking capital appreciation would want a large percentage of his assets invested in
|
equities
|
|
|
as a child approaches college age, a suitable investment strategy is to move from
|
growth-oriented securities, such as equities, to income-oriented securities, such as bonds, and money-market funds.
|
|
|
Once a child begins to attend college, most of the funds should be invested in
|
money-market funds or other types of short-term investments that are liquid with very little risk of capital
|
|
|
Tax-qualified annuities are
|
employer-sponsored plans that are available to certain nonprofit organizations, public school, and/or state/city university/college employees.
|
|
|
TSAs may be placed into a
|
403(b) or a 501(c)(3) plan.
|
|
|
Since these plans are funded on a pretax basis, contributions are deducted from an individual's
|
taxable income.
|
|
|
An investor's cost basis is considered to be
|
zero since none of the contributions have been recognized for tax purposes - Income grows tax-deferred
|
|
|
The turnover that a dollar experiences over a given period is known as the
|
Velocity of money
|
|
|
The velocity of money represents the number of times that a dollar is
|
spent over a given period
|
|
|
The velocity of money is a measure of business
|
activity in the marketplace
|
|
|
small changes in bank deposits result in
|
large changes in the money supply
|
|
|
The current yield on a municipal bond with a coupon rate of 4.50%, purchased at par and currently trading at $1,055, is:
|
4.26%
|
|
|
The current yield is found by
|
dividing the yearly interest payment of $45 by the market price of $1, 055.
|
|
|
Capital assets include
|
stocks, bonds, options, municipal securities, real estate, and interests or shares in partnerships
|
|
|
if all investments are considered capital assets, a capital loss in any of these can
|
offset a capital gain from the sale of a municipal bond
|
|
|
Expense Ratio =
|
Total Expenses / Average Net Assets
|
|
|
Total operating costs divided by average net assets is the formula used to find the expense ratio of a(n):
|
Equity mutual fund
|
|
|
Restricted stock is stock that is
|
not registered and is typically acquired by an individual through a private placement.
|
|
|
restricted stock, purchasers must hold the stock for
|
six months
|
|
|
Control stock is registered stock that is acquired by an
|
affiliate (control) person, such as an officer or director, in the secondary market.
|
|
|
A control person who acquires stock through an open-market purchase may sell the stock.
|
anytime
|
|
|
There is no limit placed on the number of
|
registered shares an insider may purchase.
|
|
|
According to Rule 144, there is a restriction on the sale of
|
both restricted and control stock.
|
|
|
efficient secondary market for securities will exist if
|
a large number of buyers and sellers are willing to pay similar prices - small spreads, many transactions
|
|
|
The Federal Home Loan Bank issues
|
discount notes with maturities of less than 1 year - consolidated bonds with maturities of up to 30 years
|
|
|
These funds are used to lend funds to
|
FHLB member banks that, in turn, lend these funds to their customers
|
|
|
Complaints may be delivered in
|
any written format, including letters, e-mail, IMs, and text messages
|
|
|
According to SRO rules, an e-mail message complaining about excessive commissions sent to an RR's personal electronic device
|
Is a complaint and must be maintained by the broker-dealer
|
|
|
inherited securities, the value of the securities is determined
|
at the time of death - market value/basis at time of death
|
|
|
The heirs are always considered to have
|
long-term holding periods
|
|
|
acceptable securities as escrow when a bond is advance-refunded
|
Treasury obligations
|
|
|
A woman with a low income has saved $5,000 to invest for her young son's college education, suitable investment would be
|
Zero-coupon bonds - Since the son is young, a long-term investment would be most appropriate
|
|
|
401(k) plans
|
for-profit employees,
|
|
|
403(b) plans
|
nonprofit and public school employees,
|
|
|
457 plans
|
public sector workers (state and local
|
|
|
stock dividend, adjust cost basis
|
orignal shares X prices / originals shares X dividend
|
|
|
An individual owns 800 shares of stock at an original cost of $55 per share. If the company distributes a 15% stock dividend, what is the client's cost basis per share
|
$47.83 - investor would now own 920 shares (800 shares x 1.15). The new cost basis would be $47.83 (original cost of $44,000 [800 shares x $55] divided by 920 shares
|
|
|
State-sponsored 529 plans allow tax-advantaged withdrawals only for
|
postsecondary school (usually college) expenses
|
|
|
ESAs (Education Savings Accounts) (Coverdell ESA) is the ability to make tax-free withdrawals to pay for
|
private elementary, high school, and postsecondary school expenses
|
|
|
A mother wants to set up an investment account to provide funding for her child to attend private elementary and secondary schools
|
ESA Account
|
|
|
There is no anti-money laundering
|
blueprint or template supplied by either the SEC or FINRA to broker-dealers
|
|
|
ABC Corporation has net income of $6,000,000. It had $1,000,000 in interest expense and is in the 34% tax bracket. ABC has 500,000 shares of common stock and 10,000 shares of 10% preferred stock ($100 par value) outstanding. What are the earnings per share for ABC
|
Since the question gives ABC Corporation's net income, interest and taxes have already been deducted. Earnings per share is equal to net income minus the preferred dividend divided by the number of common shares outstanding. ($6,000,000 net income - $100,000 preferred dividend) divided by 500,000 shares outstanding = $11.80 earnings per share.
|
|
|
approval of an account to trade penny stocks is not required if the account
|
has been in existence for more than one year or if all transactions in penny stocks are nonrecommended
|
|
|
Municipal bonds are exempt from
|
the registration provisions of the '33 Act - Regulation T - the Trust Indenture Act of 1939.
|
|
|
Structured products are prepackaged securities that often combine
|
securities, such as a bond with a derivative.
|
|
|
Structured products security may be linked to
|
equity securities, commodities, or interest rates.
|
|
|
Structured products may also be structured to provide
|
principal protection.
|
|
|
Structured products are not
|
bank deposits and are not insured by the Federal Deposit Insurance Corporation (FDIC). This fact should be disclosed by an RR when offering this product to clients
|
|
|
A client wants all trade confirmations sent to his investment adviser. This will require
|
A written letter from the client
|
|
|
A customer owns 20 ABC Corporation October 30 calls in a margin account. The customer exercises the calls and on the same day sells the stock at $32. The customer will need to deposit what amount in the account
|
If a client exercises an option in a margin account, he is required to meet the Reg T deposit on the underlying shares. The client owns 20 ABC Corporation October 30 calls and if he exercises the contract he purchases $60,000 worth of stock. (100 shares per contract x 20 contracts = 2,000 shares. 2,000 shares x 30 strike price equals $60,000.) Under Reg T, the client must meet the deposit requirement of 50% ($30,000) on this purchase. This requirement must be met even if the shares are sold the same day the contract is exercised
|
