MIDTERM
An investor's portfolio includes 10 bonds and 200 shares of common stock. If both positions increase by one point, what is the appreciation?
$300 The gain would be $100 for the bonds (one point for one bond is $10 × 10 bonds) and $200 for the common stock (one point is $1 × 200 shares). The total portfolio gain is $300.
A corporate bond valued at $1,012.50 is shown in the Standard & Poor's Bond Guide as
101-1/4 Corporate bonds are quoted as a percentage of par in eighths. The quote of 101-1/4 = $1,012.50 is correct. This represents $1,010 (101% of par; $1,000) + $2.50 (1/4 of 1 bond point; $10). Each point in a corporate bond is equal to $10.
An investor unaffiliated with the issuer is permitted to sell restricted stock without being subject to volume restrictions after having held the shares, fully paid, for a period of at least:
6 months After six months, an unaffiliated investor can begin selling restricted stock and is not subject to volume restrictions.
Capital gains on municipal bond transactions are A) taxed at the federal level only B) subject to tax as would be any other capital gain C) taxed at the state and local levels only D) tax free
B Although interest earned on municipal bonds is generally exempt from federal tax and exempt from state income tax for residents in the state of issuance, capital gains are not exempt.
For U.S. investors holding American Depositary Receipts (ADRs), dividends received are A) taxed as a capital gain in the U.S. B) subject to a foreign withholding tax C) tax-free in both the country of origin and in the U.S. D) tax-free in the country of origin
B Any tax taken on dividends received from ADRs is taken in the country of origin. This is a foreign withholding tax for U.S. investors. The foreign withholding tax may later be taken as a credit against any U.S. income taxes owed by the U.S. investor.
A registered representative who learns of a customer's death should A) accept no orders to buy or sell securities unless coming from a third-party power of attorney B) cancel all open (unexecuted) orders currently working in the market C) notify FINRA and the IRS that the account holder is deceased D) liquidate all positions in the account immediately upon notification
B When a registered representative learns of a customer's death, he must mark the account deceased, cancel all open orders, and await the appropriate legal documents. He must not attempt to transfer or otherwise dispose of the assets nor can any orders be taken for the account. Third-party power of attorney authorization is revoked immediately upon death of the account holder.
A holder of an ADR assumes all of the following risks EXCEPT A) market risk B) foreign currency risk C) liquidity risk D) political risk
C An American Depository Share (ADR) represents an ownership interest in a foreign domiciled company. The shares trade on the New York Stock Exchange or in the OTC. The risk of lack of liquidity is absorbed by the presence of trading on U.S. exchanges or in the OTC market. The shares are subject to market risk, political risk, and foreign currency risk.
Which investor has the greatest potential risk if the price of QRS goes up? A) Short 10 puts on QRS B) Long 10 puts on QRS C) Short 10 calls on QRS D) Long 10 calls on QRS
C If the market is rising, the greatest potential risk that an investor can take is a short naked call because the potential loss is unlimited.
Under MSRB rules, a final official statement must be A) sent to customers on or before settlement date B) delivered to customers on or before trade date C) delivered to customers on or before settlement date D) sent to customers on or before trade date
C MSRB Rule G-32 requires that a final official statement be delivered to buyers of the new issue on or before the settlement date.
A sale made at a profit from a customer's margin account would do all of the following EXCEPT A) decrease debit balance B) reduce market value C) increase SMA D) increase equity
D Proceeds from the sale of stock are applied against the debit balance. This reduces the debit at the same rate as the CMV, leaving equity the same. The customer still has the right to withdraw at least some of the proceeds, which would reduce equity; but until a withdrawal is made, the equity remains the same.
A customer is long 300 shares of COD and simultaneously short 200 shares of COD. To sell the 300 shares held long, the order ticket must be marked A) 300 shares long B) 200 shares long and 100 shares short C) 300 shares short D) 100 shares long and 200 shares short
D The customer is long 300 shares and short 200 shares of the same stock. Therefore, the customer's net long position is 100 shares. The order ticket must be marked 100 long, 200 short. In other words, the customer is long only to the extent of his net long position.
A customer wishes to open a cash account and give trading authorization to a sibling. The required documentation would include which of the following? I) New account form II) Joint account agreement III) Customer agreement IV) Limited power of attorney
I and IV If one party wants to give discretionary privileges to a third party in a cash account, a member firm requires a new account form and a limited power of attorney. A limited power of attorney gives the third party trading authority, but prohibits that party from withdrawing assets from the account.
If a customer places an order to buy 500 ABC at 62 stop limit, after the order is elected, at which of the following prices may the order be executed? I) 61.50 II) 62 III) 62.50 IV) 63
I and II This is a stop limit order with both the stop price and limit price at 62. Once the market trades at or through 62, the order is elected and it becomes a limit order to buy at 62 or better (lower).
Which of the following statements regarding put and call features of bonds are TRUE? I) The put feature would likely be exercised if interest rates fall. II) The put feature would likely be exercised if interest rates rise. III) The issuer will likely call bonds if interest rates fall. IV) The issuer will likely call bonds if interest rates rise.
II and III A put feature on a bond benefits the bondholder. Once the bond becomes puttable, its holder has the right to put it back to the issuer at par. At this point, the bondholder is insulated from rate risk (the risk that rates will rise, putting downward pressure on bond prices). Once puttable, the bond will not trade below par. Issuers will likely call bonds if rates fall. The issuer can issue new bonds at a lower rate and use the proceeds to call in the original bond.
Ratio call writing exposes an options investor to I) limited loss II) unlimited loss III) limited gain IV) unlimited gain
II and III Ratio call writers assume unlimited loss potential in a rising market, and limited gain potential in a falling market. Maximum gain-while limited-occurs if the stock is trading at the strike price of the short calls at expiration.
A company without business operations that raises money through an IPO in order to have its shares publicly traded for the sole purpose of seeking out a business or combination of businesses is known as
a special purpose acquisition company (SPAC) Generally, with IPOs the business purpose and products or services offered by a company are clearly defined. However, both the NYSE and Nasdaq allow companies without a defined business purpose to raise capital through an IPO in order to have its shares traded for the sole purpose of seeking out a business or combination of businesses that when located would be submitted to shareholders for their approval. These types of companies are known as special purpose acquisition companies (SPACs).
Instead of signing on the back of a security sold to meet the requirements of good delivery, the registered owner could sign on a separate paper called __________________
a stock (or bond) power If the owner cannot or does not wish to sign the certificate itself, he may execute a stock or bond power instead.
The flow of funds on a municipal revenue issue is outlined in the ______________
bond indenture The indenture is the agreement between the issuer and the bond trustee that sets forth how the debt will be retired.
