chap 9

Mrs. Johnson bought 200 shares of Intec at 18 in March. When she passed away in June, the market price of Intec was 21. What is the taxation to her daughter, who inherited the shares?

Her cost basis is 21 and the holding period is long-term.

The ABC European Bond fund invests in debt of european corporations and other companies doing business in Europe. Investors in this fund are subject to all of the following risks EXCEPT?

Liquidity risk

A customer placed a market order. This means?

No price is set, and the order is to be filled at the best available market price.

The act that requires financial institutions to develop, implement and monitor procedures that prevent its agents and associates from misusing nonpublic information is the?

Securities act of 1934

Which of the following is NOT true concerning physical safety of mutual fund holdings?

Securities cannot exist as electronic record on computers.

The highest price a dealer is willing to pay for a security is known as the?

bid price

What term describes the highest price a buyer is willing to pay for a security?

bid price

When a customer sells a security in the secondary market, he or she will receive the?

bid price

A corporation pays stock dividend to

conserve cash

If the prime interest rate increases, bond prices will generally?

decrease

What is the maximum civil penalty for insider trading?

3 times the profit gained or loss avoided

If an investor owns 150 shares of XYZ corporation and the stock splits 3-for-2, how many additional shares will he own after the split?

75

In June, a beneficiary inherited stock from his grandmother. She paid $35 per share in April; fair market value at the time her death was $38 per share. The beneficiary has?

A cost basis of $38.

Which of the following statements is incorrect with regard to broker/dealers?

A dealer makes a profit by charging a commission on the security transaction.

Which one of the following statements describes the market manipulation practice of "pumping and dumping?"

Artificially increasing the price of a stock by making positive statements that are false and misleading in order to sell the stock at higher price

What term describes the lowest price at which a dealer will sell a stock to the investor?

Ask

What effect will falling interest rates have on the price of bonds trading in the secondary market?

Bond prices will rise.

which of the following products might be offered by a cyclical company?

Bulldozers

What risk includes influences such as competitive pressures, market share and competence of management, and is usually managed with a long-term focus?

Business/credit risk

Which of the following statements describes the market manipulation practice of painting the tape?

Buying and selling a security among traders to create a high level of activity to influence the price of a stock

Internal procedures which limit and control the passing of sensitive, potentially nonpublic information between the departments of a corporation or firm to aid in protecting investors against violations of insider trading laws are known as?

Chinese wall

Which of the following is the risk that an issuer may not be able to meet interest or principal payments on fixed income securities? 1

Credit risk

What criminal penalties may be imposed on a person in violation of the insider trading and securities fraud enforcement act?

Criminal penalties may be up to 5$ million in fine and/ or 20 years in prison for individuals, and to $25 million in fines for a corporation.

All orders are day orders unless marked as what?

GTC good til canceled

An investor is having difficulty selling a security due to a lack of demand in the secondary market. What does that say about his investment?

It has liquidity risk

The cyclical and constantly fluctuating nature of interest rates has the most direct impact on?

Market values of fixed income securities

Which of the following represents the order in which market orders are filled?

Priority, precendence and parity

Which of the following activities would NOT be considered to be insider information if shared between an individual who is an officer of a corporation and the registered representative who manages his personal investments?

Stock dividend declared

Which of the following is synonymous with market risk/

Systematic risk

What is a regular-way settlement for treasury bonds?

T+1

A registered representative recommends several securities that he deems suitable for the customer. The customer rejects all of these recommendations and makes a request to place an order for a security that the agent feels is unsuitable. What should the agent do?

The agent may execute the order, but should obtain a written statement that the order was unsolicited and the agent did not recommend the security.

At what price are market orders filled?

The best price available price

A customer instructs his broker/dealer to purchase 200 shares of Dunham Corporation. Two days after trade date, the customer decides that he no longer wants the shares. Which statement is correct?

The customer has entered into a legally binding contract and is obligated to pay for the stock.

A customer purchased 100 shares of XYZ stock at $30 per share. Two years later, the customer donated the shares to charity. At the time of the donation, XYZ had a market value of $50 per share. What are the tax consequences for the customer?

The donor will have $5,000 income tax deduction.

A customer wants to give her daughter all of the shares in her growth mutual fund. Since the inital purchase of the shares, the value of the shares has increased steadily over the life of the investment. When the shares are gifted, the daughter's cost basis will be?

The same cost basis that Rhonda had for the shares.

All of the following investments are subject to currency exchange risk EXCEPT?

U.S treasury bonds

What does a narrow spread between the bid and ask indicate?

active trading

When a market maker does not honor a published quote, that could be considered a market manipulation practice of?

backing away

In what type of settlement is the trade date the same as the settlement dat3e?

cash settlement

The securities and exchange act of 1934 requires the separation and control of information between the investment banking activities of a broker/dealer and its trading and market making activities. What is this separation called?

chinese walls

If a customer signs a power of attorney authorizing the account executive to buy and sell securities on the customer's behalf, the customer owns what type of account?

discretionary

What types of securities are directly impacted by changes in interest rates?

fixed-income securities

The form of risk that affects one's purchasing power directly is called?

inflation risk

How does a reverse stock split affect the price of the individual shares of a stock?

it increases the price

What type of risk is involved when an investor may sustain a loss if a security must be sold quickly?

liquidity risk

In regard to executing trade orders, which kind of order has priority over limit orders?

market order

When do government trades settle?

next day

what risk is represented when rising prices erode the value of a dollar over time?

purchasing power risk

What type of risk deals with the possibility of earning a lower yield on a new bond after existing bond matures?

reinvestment risk

What term is used to described the difference between the highest bid and the lowest ask?

spread

Which of the following best describes cash settlement?

the customer pays for the securities on trade date

Realized appreciation

the net appreciated value in a security that has been sold

Of the following examples, which would be exempt from liability under insider trading laws?

there are no exceptions from liability under insider trading laws.

Which of the following statements regarding limit order is true?

there is no guarantee a limit order will be filled.