Quiz Flash Cards
Are the following auction markets or negotiated Markets? 1.) OTC- 2.) Exchanges-
1.) OTC- Negotiated Market 2.) Exchanges- auction markets
If ABC Corporation reports a loss for the year, it is obligated to pay interest on all of the following EXCEPT: A) adjustment bonds. B) convertible bonds. C) variable rate bonds. D) nonconvertible bonds.
A) adjustment bond Even if a corporation reports a loss, the corporation is obligated to pay interest on all of its outstanding debt except for income (adjustment) bonds. Income, or adjustment bonds, require interest to be paid only if declared by the board of directors.
All of the following securities are exempt from the registration provisions of the Securities Act of 1933 EXCEPT: A) commercial bank holding company securities. B) national and state bank securities. C) state and municipal bonds. D) commercial paper and bankers' acceptances that have maturities of no more than 270 days.
A) commercial bank holding company securities. Commercial bank holding companies are corporations that have to register with the SEC. State and municipal bonds do not have to be registered under the Securities Act of 1933. Commercial paper and bankers' acceptances that have maturities of no more than 270 days are exempt from the registration provisions. National and state banks are regulated by various state and federal agencies.
When can European-Style options be traded?
At any time. Can only be exercised at expiration though.
The letter of intent in a corporate underwriting is typically signed by which of the following parties? Issuer. Managing underwriter. Syndicate members. Selling group members. A) III and IV. B) I and II. C) I and III. D) II and IV.
B) I and II. The letter of intent initiates the underwriting process and is signed by the issuer and managing underwriter.
Which of the following are characteristics of negotiable (sometimes referred to as jumbo) CDs? Issued in amounts of $100,000 to $1 million. Always FDIC insured to face value. Always mature in 1 to 2 years. Trade in the secondary market. A) II and III. B) I and IV. C) II and IV. D) I and III.
B) I and IV. Negotiable jumbo CDs are issued for $100,000 to $1 million and trade in the secondary market. Most jumbo CDs are issued with maturities of less than a year. The FDIC insures up to $250,000 per account.
Under OCC rules regarding options communications with the public, if an educational piece making no projected performance figures or recommendations is distributed to customers it: A) can only be distributed to retail customers. B) need not be preceded by an options disclosure document (ODD). C) need not be approved by a registered options principal. D) can only be distributed to institutional customers.
B) need not be preceded by an options disclosure document (ODD). OCC communications rules do not distinguish between retail and institutional customers. Therefore their communications rules apply to all customers. All communications pieces must be approved by a registered options principal (ROP). If the educational piece makes no recommendations or performance projections it need not be preceded by an options disclosure document (ODD) but it must be accompanied by a notice containing a name and address where the ODD can be obtained.
The requirements of ERISA apply to pension plans established by: A) both public and private sector organizations. B) private sector organizations only. C) public entities only. D) municipal governments.
B) private sector organizations only. ERISA was established to protect the retirement funds of employees working in the private sector only. It does not apply to employees of public sector entities, such as city and state governments.
Initial margin requirements on nonexempt securities are set by: A) the MSRB. B) the FRB. C) FINRA. D) the SEC.
B) the The FRB sets initial margin requirements for all nonexempt securities. Minimum maintenance requirements for nonexempt securities, as well as margin and maintenance requirements for exempt securities, are set by a firm's SRO.
An option writer liquidates a position by purchasing an option. This order must be marked as: A) an opening purchase. B) a closing purchase. C) an opening sale. D) a closing sale.
B.) A Closing Purchase Writers liquidate (close) their short positions by purchasing back an option of the same series as the one they wrote. This order is known as a closing purchase transaction.
A customer buys a municipal bond regular way on Tuesday, December 23. The transaction will settle on the following A) Thursday B) Monday C) Friday D) Tuesday
C) Friday Municipal bonds, like corporate bonds, settle 2 business days after the trade date. December 25 (Christmas) is not a business day.
All of the following are true of stripped Treasury bonds EXCEPT A) interest is received at maturity B) they are backed by the U.S. government C) interest is not taxed D) they are a form of zero-coupon bond
C) interest is not taxed Stripped U.S. Treasury bonds sell at a deep discount and mature at par like zero-coupon bonds. The gain the investor receives is treated as interest, which is taxed as ordinary income. They are fully backed by the U.S. government.
Moody's Investment Grade (MIG) rating would be applicable to: A) a New York state revenue bond. B) a New York State GO bond. C) a New York State university bond. D) a New York State revenue anticipation note.
D) a New York State revenue anticipation note A MIG rating is provided for short-term municipal debt commonly referred to as notes (revenue anticipation notes).
If a customer sells a zero-coupon bond before maturity, gain or loss will be the difference between sales proceeds and: A) par value. B) discounted value. C) original cost. D) accreted value.
D) accreted value. Zero-coupon bonds must be accreted for tax purposes. Each year, the annual accretion is taxable to the holder. In addition, the customer may adjust the cost basis of the zero upward by the amount of the annual accretion.
Who attests to the legality of a bond issue and issues a legal opinion on a proposed new municipal bond issue? A) Syndicate manager. B) Case attorney. C) State Administrator. D) Bond counsel.
D.) Bond Counsel. The issuer hires a firm or an individual to act on its behalf as bond counsel
Securities options may be best described as: A) forwards. B) futures. C) roll ups. D) derivatives.
D.) Derivatives Options are a derivative because they get their values from the underlying instrument.
Which of the following describes a quote on Nasdaq Level I? A) Lowest bid/highest offer. B) Available to traders only. C) Nominal. D) Inside market.
D.) Inside Market Nasdaq Level 1 quotes represent the highest bid and lowest asking prices of all dealers. This is known as the inside market. Reference: 8.11.1 in the License Exam Manual
Which of the following has unlimited risk if it is the only position in an account? A) Long put. B) Long call. C) Short put. D) Short call.
D.) Short Call Uncovered short calls carry unlimited risk
What is the order of bond yield if a bond is sold at: Discount: Premium
Discount: NY-CY-YTM-YTC Premium- YTC- YTM-CY-NY
A customer purchases a corporate bond at 102, paying accrued interest of $50. If he elects not to amortize the premium, his cost basis for tax purposes is: A) 102. B) 100. C) 97. D) 107.
A) 102. While most investors elect to amortize premiums, they are not required to do so. Here, the cost basis remains at the original purchase price: 102.
A customer buys an Oct 79.50 foreign currency call on the Australian dollar. The Australian dollar spot price is 89.73, and the option contract size is 10,000 Australian dollars. If the option contract is offered at 11, what was the customer's total premium paid for the contract? A) 1100 B) 10000 C) 8973 D) 11000
A) 1100 Currency options are quoted in U.S. cents per dollar and one point equals $100. A quote of 11.00 is equal to $1,100 per contract.
If a broker/dealer erroneously reports the purchase of 100 shares of ALF at 28.65 on a market order, and the firm later finds the actual price paid at execution was 29, what price does the customer pay for the shares? A) 29. B) 28.65. C) He has the option of canceling the order. D) 29.65, with the difference split between the firm and the customer.
A) 29. If the actual price was 29, the customer must accept the trade at that price even though the trade was confirmed erroneously at a different price. Note that at the execution price of 29 the transaction is still within the parameters of the order instruction given which was to purchase 100 shares at the market.
An abstract of a municipal securities issue official statement must be maintained on file for: A) 3 years. B) 12 months. C) There is no requirement to file abstracts of official statements. D) 5 years.
A) 3 years. The MSRB requires firms to retain abstracts of official statements for 3 years, the same as all pieces intended to communicate with the public.
If a customer has a securities account worth $220,000 and a money market account worth $260,000, what is this customer's coverage under SIPC? A) 480,000. B) 220,000. C) 250,000. D) 470,000.
A) 480,000. Coverage under SIPC is up to $500,000 per separate customer. Of that total, SIPC covers no more than $250,000 in cash. Because a money market share is considered an investment company security, not cash, this customer's coverage is $480,000.
If the Fed begins selling securities in the open market to tighten credit, what is the first interest rate to feel this change in the Fed policy? A) Federal funds rate. B) Discount rate. C) Interest rate on long-term debentures. D) Prime rate.
A) Federal funds rate. The Federal Reserve Board's actions to influence the money supply are first felt on the federal funds rates.
A customer has been following several investment company quotes in the newspaper. She notices that the GEM Fund has an NAV of $12 and a POP of $12.50, and that the ABC Fund has an NAV of $11.50 and a POP of $10.98. The customer should conclude that: A) GEM may be an open- or closed-end fund and ABC is a closed-end fund. B) both are open-end funds. C) ABC and GEM are both unit investment trusts. D) ABC is an open-end fund and GEM is a closed-end fund.
A) GEM may be an open- or closed-end fund and ABC is a closed-end fund. The price for open-end funds is determined by adding the sales charge to the NAV. An open-end fund can never have a POP less than its NAV, therefore ABC cannot be an open-end fund.
A working interest in an oil and gas partnership entitles the holder to: a portion of the revenue. responsibility for part of the expense of extraction. royalty interest in the revenue. royalty interest in revenue after deducting certain expenses. A) I and II. B) II and IV. C) I and III. D) III and IV.
A) I and II. A working interest is a right to revenues from production, but it also carries the responsibility for extraction costs. A royalty interest carries no responsibility for extraction costs.
A client writes 1 Apr 30 call and buys 1 Apr 40 call. This is a: bull spread. bear spread. debit spread. credit spread. A) II and IV. B) I and IV. C) I and III. D) II and III.
A) II and IV. This is a call credit spread, and bears sell calls. The 30 call is worth more because it has a lower strike price. Long the lower is bullish; short the lower is bearish.
A certificate in the name of Smith & Company may be signed: A) Smith & Company, "Smith & Co.," or "Smith and Company". B) Smith & Company or "Smith & Co.". C) Smith & Company, aka SmithCo. D) Smith & Company.
A) Smith & Company, "Smith & Co.," or "Smith and Company". Corporate signers are the exception to the general rule that endorsement of a certificate must match exactly the name on the front. The word "and "may be substituted with "&" and the word "company" may be abbreviated.
The largest portion of an underwriting spread is the: A) concession. B) underwriting fee. C) manager's fee. D) stabilizing bid.
A) concession
A sharing arrangement in which only deductible costs are apportioned to the investor with the sponsor bearing all capitalized costs is called a(n): A) functional allocation. B) overriding royalty arrangement. C) reversionary sharing arrangement. D) carried interest.
A) functional Functional allocation is a sharing arrangement in which the general partner pays for all tangible drilling costs (capitalized costs) and the limited partners pay for all intangible drilling costs (deductible costs).
A Nasdaq market maker buys 1,000 shares of stock from a customer at its bid to satisfy a customer order. This is an example of a(n): A) principal trade. B) agency trade. C) block trade. D) riskless principal trade.
A) principal trade The market maker is acting in a principal (dealer) capacity. Reference: 8.8.2 in the License Exam Manual
Debt service is best described as the: A) total of interest and principal payable by the issuer plus any amount required to be deposited into a sinking fund. B) services provided by the paying agent for a bond issue. C) total of the direct debt of a municipality and the debt of its political subdivisions. D) net interest on a new issue of a municipal bond .
A) total of interest and principal payable by the issuer plus any amount required to be deposited into a sinking fund. Debt service is the total of interest and principal payable by the issuer plus any amount required to be deposited into a sinking or surplus fund.
In a new margin account, a customer sells short $60,000 worth of ABC stock and deposits $30,000 to meet the Regulation T requirement. If the value of ABC falls to $55,000, the SMA balance in the account would be: A) 7500. B) 5000. C) 10000. D) 2500.
A.) 7500 For every $1 decrease in market value in a short account, $1.50 of SMA is created. Therefore, if the market value falls by $5,000, the SMA balance would be $7,500.
All of the following disputes may be resolved using arbitration under the Code of Arbitration EXCEPT A) class action suits against a member B) member against another member C) member against a person associated with a member D) member against a public customer with consent of the customer
A.) class action suits against a member Class actions brought against member firms are not subject to arbitration under the Code of Arbitration.
If near term liquidity were the only objective for a client, which of the following pairs of investments would represent the most/least liquid? A) Variable annuity (VA)/money market mutual funds B) Exchange listed equities/direct participation program (DPP) C) 10-year corporate bonds/U.S. T-bills D) Variable annuity (VA)/direct participation programs
B) Exchange listed equities/direct participation program (DPP) Of the pairings offered to choose from, exchange listed equities are considered liquid as they could be easily divested of, and DPPs all having predetermined (scheduled) end dates, would be the least liquid.
A prospectus for a variable annuity contract: must provide full and fair disclosure. is required by the Securities Act of 1933. must be filed with FINRA. must precede every sales presentation. A) I and III. B) I and II. C) III and IV. D) II and IV.
B) I and II. A variable annuity is a security and must be registered with the SEC, not FINRA. As part of the registration requirements, a prospectus must be filed and distributed to prospective investors. Distribution can take place before or during any solicitation for sale.
Which of the following are TRUE of the Bond Buyer Revenue Bond Index (Revdex)? It includes 30-year bonds. It includes 20 bonds. It is compiled weekly. It is compiled monthly. A) I and IV B) I and III C) II and III D) II and IV
B) I and III The Bond Buyer Revdex is computed weekly just like the Bond Buyer's GO index. Revdex consists of 25 revenue bonds with 30-year maturities. The GO index includes 20 bonds, each with approximately 20 years to maturity.
KPT, Inc. is preparing to report its net income for the past year. An increase in which of the following causes a decrease in the reported net income? Tax rate. Cash dividend. Allowance for bad debts. Retained earnings. A) II and IV. B) I and III. C) II and III. D) I and II.
B) I and III. Higher taxes mean less net income. The allowance for bad debts is an expense item; increasing it lowers operating income. Dividends are paid out of retained earnings which have no effect on the net income the company reports.
A customer calls his registered representative and asks that the firm hold his mail as he will be traveling for an extended period of time. Under the rules governing requests to hold mail, which of the following statements are TRUE? The request must be made in writing with a specific time period designated. For the sake of convenience, the customer can request any length of time for mail to be held. Under the rules, the broker dealer is obligated to grant any reasonable request to hold mail. During the time that mail is being held, the broker dealer must still be able to communicate with the customer. A) II and III B) I and IV C) II and IV D) I and III
B) I and IV All requests to hold mail must be made in writing with a specific period of time designated up to three months. While requests for longer periods can be made and granted, the rules specifically prohibit it merely for the sake of convenience. Broker dealers must still be able to communicate with customers in a timely manner and are required to apprise the customer of ways in which that can or will be done. While these requests are commonly granted, doing so is not required under the rule. It is considered a courtesy that the a broker dealer may or may not accommodate.
Under SEC Rule 145, which of the following events require(s) a corporation to receive the approval of its stockholders? Merger. Consolidation. Acquisition. Transfer of assets. A) I and IV. B) I, II, III and IV. C) I and II. D) III only.
B) I, II, III and IV. Rule 145 requires that a corporation have its stockholders' consent in the event of a merger, consolidation, acquisition, reclassification, or transfer of corporate assets.
The amount paid in excess of par value on the sale of common shares by an issuer is reflected in which of the following accounts on the corporate financial records? A) In the earned surplus. B) In the paid-in surplus. C) In the capital stock. D) In the retained earnings.
B) In the paid-in surplus. Paid-in surplus, or capital surplus, is the excess over par value that investors pay for stock on its original issue. Generally, par value on common stock is a matter of record for accounting purposes.
A customer purchases $100,000 of original issue discount municipal bonds. How will this trade be considered for tax purposes when the bonds mature? A) Taxable as long-term gain. B) No capital gain. C) Taxable as short-term gain. D) Fully taxable on capital gain.
B) No capital gain Original issue discount profit at maturity is treated as part of the tax-free interest on a municipal bond. However, for a municipal bond bought at a discount in the secondary market, the discount is considered ordinary income subject to tax.
The following is taken from the S&P Bond Guide: FLB Zr 12 87 87-½. What is the coupon rate on this bond? A) 87. B) No coupon. C) 87.5. D) 0.12.
B) No coupon FLB is the issuer, Zr means zero-coupon, 12 indicates the year of maturity (2012), 87 is the bid price ($870), and 87-½ is the asked price ($875).
Which of the following best describes book entry? A) The transfer of ownership is entered on the books of the clearing agency. B) The transfer of ownership is entered on the books of the issuer or the issuer's transfer agent. C) The transfer of ownership is entered on the books of the SRO. D) The transfer of ownership is entered only on the books of the buyer.
B) The transfer of ownership is entered on the books of the issuer or the issuer's transfer agent. For book-entry ownership, transfers of ownership are accounting functions in the records of the issuer or the issuer's transfer agent.
All of the following are included in Nasdaq EXCEPT: A) ADRs. B) U.S. government securities. C) convertible bonds. D) closed-end investment companies.
B) U.S. government securities. Nasdaq is an equity market and includes common stock, preferred stock, ADRs, and convertible bonds. Publicly traded funds can be quoted over Nasdaq. U.S. government securities are not part of Nasdaq, although they do trade OTC.
Which of the following statements regarding a Rule 144 sale of restricted stock are TRUE? Stock sold through a 144 sale is considered registered stock after the sale. After holding the stock for 6 months, nonaffiliates may sell unrestricted. After holding the stock for 6 months, there are no volume restrictions for affiliates. Form 144 must be filed with the SEC at least 10 business days before a 144 sale made by an affiliate. A) I and III. B) I and II. C) III and IV. D) II and III.
B.) I and II Stock sold through a 144 sale is considered registered stock after the sale. When required to be filed by affiliates or insiders, Form 144 must be filed with the SEC on or before the date of sale. After holding the stock fully paid
Performance of the terms of a standardized listed option contract are guaranteed by the: A) NYBOT. B) OCC. C) SEC. D) CBOT-CME.
B.) OCC The Options Clearing Corporation issues, guarantees, and handles the exercise and assignment of listed options.
The term for the annual reduction of a municipal bond's cost basis purchased at a premium is: A) compound accretion. B) straight line amortization. C) compound amortization. D) straight line accretion.
B.) Straight line Amortization Amortization is the process by which the cost basis of a bond bought at a premium is decreased during the holding period. Because the cost basis is reduced by equal amounts every year, amortization is done on a straight line basis. At maturity, the cost basis has been reduced to par.
A hedge fund has contracted with your broker/dealer to handle all of its clearing functions and provide all back office support functions while it is executing transactions through numerous other broker/dealers whom your broker dealer will have agreements with. This type of account is known as A) a custodial account B) a prime account C) a numbered account D) a joint account
B.) a Prime account In a prime account, a customer contracts with one broker, the prime broker, to provide a list of support services, such as clearing and settlement of transactions, while contracting with numerous other brokers for executions services.
A customer has filed a serious complaint against your firm and is threatening to take the firm to court. When informed that he has signed a predispute arbitration agreement, he demands to see a copy of it. How long does your firm have to supply the customer with a copy of the signed agreement upon receipt of his request? A) 7 business days. B) 5 business days. C) 10 business days. D) 3 business days.
C) 10 business days. Upon receiving a customer request for a copy of the signed predispute arbitration agreement, the member firm has 10 business days to supply it.
In which of the following strategies would the investor want the spread to widen? Buy 1 RST May 30 put; write 1 RST May 25 put. Write 1 RST Apr 45 put; buy 1 RST Apr 55 put. Buy 1 RST Nov 65 put; write 1 RST Nov 75 put. Buy 1 RST Jan 40 call; write 1 RST Jan 30 call. A) II and III. B) I and IV. C) I and II. D) III and IV.
C) I and II. An investor wants a debit spread to widen (choices I and II). As the difference between premiums increases, so does potential profit because the investor may sell the option with the higher premium and buy back the option with the lower premium. With credit spreads, investors profit if the spread between the premiums narrows.
A new customer has given you written authorization to transfer the holdings in his account at another broker/dealer to his new account at your broker/dealer. Under the Uniform Practice Code, using the automated customer account transfer system form (ACATS) the carrying broker/dealer would have how many days to validate the positions and how many days to complete the transfer after validation? 1 business day to validate. 2 business days to validate. 2 business days to transfer after validation. 3 business days to transfer after validation. A) II and III. B) I and III. C) I and IV. D) II and IV.
C) I and IV. Under the Uniform Practice Code the carrying broker/dealer has 1 business day to validate positions and 3 business days to transfer to the receiving broker/dealer after validation.
Which of the following balance sheet entries may be affected when a company pays a cash dividend? Shareholders' equity. Total assets. Total liabilities. Working capital. A) I and IV. B) II and IV. C) II and III. D) I and III.
C) II and III. When a company pays a cash dividend, the dividends payable (a current liability) and the cash account (current assets) are reduced by the same amount. Because liabilities and assets are each reduced by the same amount, working capital is not affected. Shareholders' equity, or net worth, is also not affected when the dividend is paid.
A municipal finance professional (MFP) is A) an employee of the MSRB specializing in seeing that broker/dealers adhere to the MSRB rules and regulations regarding the sales of municipal bonds to retail customers B) employed by a municipality to oversee the issuance of municipal bonds C) an employee of a broker/dealer engaged in municipal security representative activities other than retail sales or who solicits municipal securities business for the broker/dealer D) an elected official of a municipality having some decision-making authority regarding new municipal bond issues
C) an employee of a broker/dealer engaged in municipal security representative activities other than retail sales or who solicits municipal securities business for the broker/dealer As per the Municipal Securities Rulemaking Board (MSRB) a municipal finance professional (MFP) is an associated person of a broker/dealer who is primarily engaged in municipal securities representative activities other than retail sales to individuals, who solicits municipal securities business for the broker/dealer, or who is in the supervisory chain above MFPs as described.
All of the following are true regarding Section 529 education savings plans EXCEPT A) high contribution limits B) not subject to income limitations C) tax-deductible contributions at the federal level D) tax-free withdrawal at the federal level for qualified education expenses
C) tax-deductible contributions at the federal level Contributions are made with after-tax dollars and are not deductible.
The doctrine of reciprocal immunity most accurately describes: A) avoiding criminal prosecution in states outside the jurisdiction in which an illegal trade was made. B) the exemption regarding securities-related crimes committed outside the U.S. by non-U.S. citizens. C) the view that neither the states nor the federal government may tax income received from securities issued by the other. D) the prohibition of a broker/dealer from soliciting transactions in municipal securities for the account of an investment company in return for sales by the broker/dealer, of shares or units in the investment company.
C) the view that neither the states nor the federal government may tax income received from securities issued by the other. The principle that neither the states nor the federal government may tax income received from securities issued by the other is known as the doctrine of reciprocal immunity. States may, however, tax the interest on debt securities of other states. This doctrine provides the original basis for the federal income tax exemption on interest paid on municipal debt securities.
All of the following are covered under the Securities and Exchange Act of 1934 EXCEPT: A) proxy solicitation. B) short sales. C) trust indentures. D) margin.
C) trust indentures. Trust Indentures are covered under the trust indenture act of 1939. Reference: 7.1.1.2 in the License Exam Manual
A customer is considering adding a real estate investment trust (REIT) to their portfolio. They list all of the following as "plusses" or advantages. You correct your customer and point out that one of them is not an advantage of investing in REITs. Which of the following is NOT an advantage of investing in REITs? A) Having a professionally managed portfolio of commercial real estate assets B) Being able to divest of the shares easily C) Dividend treatment D) Using real estate as a potential hedge against the movement of other equity securities the customer owns
C) Dividend treatment Of those listed, only dividend treatment can be identified as not being an advantage. While the expectation of receiving dividends is inherently good, dividends paid by REITs to their shareholders are not recognized as qualified and are, therefore, taxable to the investor at their full ordinary income tax rate. The shares are traded on exchanges or OTC and considered liquid, and having professionally managed assets should be a plus. While real estate valuation and price movements are subject to many forces, historically, real estate has provided some hedge against the movements of other equity securities.
Which of the following statements regarding a unit investment trust is NOT true? A) It invests according to stated objectives. B) It charges no management fee. C) Overall responsibility for the fund rests with the board of directors. D) It is considered an investment company.
C.) Overall responsibility for the fund rests with the board of directors. A unit investment trust has no board of directors; rather, it has a board of trustees. A UIT must follow a stated investment objective (as must any investment company) and does not charge a management fee because it is not a managed portfolio.
Corporate bonds that are guaranteed are: A) insured by Assured Guaranty Corp. (AGC). B) guaranteed as to payment of principal and interest by the U.S. government. C) guaranteed as to payment of principal and interest by another corporation. D) required to maintain a self-liquidating sinking or surplus fund.
C.) guaranteed as to payment of principal and interest by another corporation. A guaranteed corporate bond is one guaranteed by another corporation that typically has a higher credit rating than the issuing corporation, and is in a control relationship with it.
As the initial transaction in a new margin account, your customer shorts 100 shares of DMF at 30. With Regulation T at 50%, he will receive a margin call for: A) 750. B) 1500. C) 3000. D) 2000.
D) 2000. Because the total market value of the transaction is $3,000, the initial margin would be $1,500 (50% of $3,000). However, minimum initial margin is $2,000. Rule= 50% of initial purchase but at least $2,000 must be deposited at a minimum.
An ABC 40 call is quoted at 4.25 - 4.50 and an ABC 45 call is quoted at 1.50 - 2.00. What is the cost of establishing a debit spread? A) 275. B) 250. C) 225. D) 300.
D) 300 To establish a debit spread, an investor buys a 40 call at the ask price of 4.50, and sells a 45 call at the bid price of 1.50. The net premium paid is (4.50 less 1.50) × 100 shares which equals $300.
If a bond has a basis price of 7%, which of the following would most likely be refunded? A) Coupon 7-½%, maturing in 2033, callable in 2013 at 103. B) Coupon 6-½%, maturing in 2033, callable in 2013 at 103. C) Coupon 6-½%, maturing in 2033, callable in 2013 at 100. D) Coupon 7-½%, maturing in 2033, callable in 2013 at 100.
D) Coupon 7-½%, maturing in 2033, callable in 2013 at 100 An issuer is most likely to refund the issue that will cost it the most money over the life of the issue. Always use the following order in making this choice: (1) highest coupon, (2) lowest call premium, (3) earliest call date, and (4) longest maturity.
Under MSRB rules regarding municipal securities, a control relationship exists when officers or employees of a broker/dealer hold positions of authority over the municipal issuer. officials of the municipal issuer hold policymaking positions at the broker/dealer. the municipal issuer is a public finance client of the broker/dealer. an employee of the broker/dealer lives in the issuer's municipality. A) III and IV. B) I and III. C) II and III. D) I and II.
D) I and II. MSRB rules state that a control relationship exists when a broker/dealer controls, is controlled by, or is under common control with the issuer of the security.
The Trade Reporting and Compliance Engine (TRACE): requires that both sides of a transaction report the trade. requires only the sell side of a transaction report the trade. is a reporting system for corporate bonds trading in the OTC market. is an execution system for corporate bonds trading on exchanges. A) I and IV. B) II and IV. C) II and III. D) I and III.
D) I and III. The Trade Reporting and Compliance Engine (TRACE) is the FINRA approved trade reporting system for corporate bonds trading in the OTC secondary market. It is not an execution system. Both sides of a TRACE eligible transaction are required to report a trade when it occurs.
Under the 1934 Securities Exchange Act, all of the following are likely to qualify under the SEC's safe harbor rule regarding soft dollar arrangements EXCEPT A) a broker/dealer providing seminars to assist in the analysis of securities in exchange for directing transactions to the broker/dealer B) a broker/dealer providing software to assist in the analysis of securities in exchange for directing transactions to the broker/dealer C) a broker/dealer providing research reports to the advisor in exchange for directing transactions to the broker/dealer D) a broker/dealer providing office furniture and computers in exchange for commissionable trades being directed to the broker/dealer
D) a broker/dealer providing office furniture and computers in exchange for commissionable trades being directed to the broker/dealer A broker/dealer providing office furniture, telephone lines, or computer equipment to any advisor or financial institution in exchange for directed commissionable transactions to the broker/dealer would generally not fall under the SEC's safe harbor rule regarding soft dollar arrangements.
Your firm is interested in submitting a bid on a forthcoming general obligation municipal bond issue. Your firm could obtain the appropriate bid worksheets through a service provided by: A) The Wall Street Journal. B) the MSRB. C) Standard & Poor's. D) the Bond Buyer.
D) the Bond Buyer. Official notices of sale announcing the offering of municipal issues to competitive bidders are published in the Bond Buyer, which offers a service to subscribers-called the New Issue Worksheet and Record Service-that summarizes each notice. It provides information about new issues put up for bid and worksheets for underwriters to determine yields and prices when bidding.
All of the following debt instruments pay interest semiannually EXCEPT: A) municipal revenue bonds. B) industrial development bonds. C) municipal General Obligation bonds. D) Ginnie Mae pass-through certificates.
D) Ginnie Mae pass-through certificates. Ginnie Maes pay interest on a monthly basis, not semiannually.
Which of the following statements regarding investors who trade options that are American-style exercise is TRUE? A) They can only close out long positions during a brief time prior to expiration. B) They can only be purchased or sold on the very first day they are issued. C) They can only exercise their contracts on the last day of trading (the business day preceding expiration). D) They can exercise their options any time prior to expiration.
D.) They can exercise their options any time prior to expiration. The American-style exercise contract allows investors to exercise their options any time before expiration. With European exercise style contracts, exercise is only permitted on the last trading day.
What does MSRB govern?
It governs practices of underwriting and trading on municipal bonds. It does not govern municipal issuers. * It does not govern- information provided y municipal issuers.
