Chapter 1 Missed July 16

How much is one bond point worth?

$10

A convertible preferred stock issue (par value $100) is selling at $125 and is convertible into five shares of common stock. The conversion price of the common stock is

$20 (100/5=20)

An investor purchased a corporate bond for 97 3/8. If the bond is sold for 99 3/8, the investor has a profit of how much?

$20.00 (one bond is worth $10)

Which of the following statements are NOT true concerning revenue bonds? 1. They are secured by a specific pledge of property 2. They are a type of general obligation bond 3. Generally, their interest is tax-exempt at the federal level 4. They are analyzed primarily on the project's ability to generate earnings.

1 and 2

A common stockholder's voting rights apply to which of the following? 1. Election of board of directors 2. Declaration of dividends 3. Authorization or issue of more common shares 4. Changing suppliers of raw material

1 and 4

The minimum face amount of a negotiable CD is

100,000

LMNs trading volume for yesterday was reported as 178. The number of shares traded was

17,800 shares (178x100)

A customer buys a long-term 10% treasury bond with a current yield of 12% and holds the bond until one year before maturity. She sells the bond when the short term Tbill rate is 8%. Which of the following statements are correct? 1. The bond was purchased at a premium 2. The bond was purchased at a discount 3. The bond was sold at a premium 4. The bond was sold at a discount

2 and 3

If an investor buys a call option with a strike price of 40, which of the following is true? 1. The investor is bearish 2. The investor is bullish 3. The investor has a right to sell the underlying stock 4. The investor has a right to buy the underlying stock

2 and 3

US government securities that are deposited with a trustee against which certificates are sold, representing principal payments only on the securities are 1. clipped bonds 2. stripped bonds 3. subject to annual taxation on the per year accreted amount 4. tax deferred until maturity

2 and 3

Which of the following statements about corporate bonds are true? 1. They represent ownership in the corporation 2. They generally involve less investment risk than common stock 3. They pay a variable rate of income 4. They are long term instruments

2 and 4

6s 2020 93:20-94:16 An investor reads this typical newspaper listing quote on a US Treasury bond with a par value of $1,000. Disregarding transaction costs, if purchased this bond, the investor would expect to pay:

945 (94:16 = 94 16/32 = 94.5 = 94.5x10=945)

Which of the following are true of Ginnie Maes but not CMOs - Collateralize by mortgages - Are pass-through securities - Backed by the full faith and credit of the US government - Yield more than t-bonds

Backed by the full faith and credit of the US government

_____ gives the investor a right to buy the underlying stock at the strike price

Buying a call

All of the following concerning CMOs are true except - some CMOs provide investors with more prepayment protection than pass-through securities - CMOs are issued by broker-dealers - CMOs are issued by government agencies - most CMOs are highly rated

CMOs are issued by government agencies

A 45 year-old investor is in the highest tax-bracket and wants to save over the next 20 years for a retirement income. Which of the following recommendations is least appropriate? - Purchase a variable annuity - Buy blue-chip stocks - Open an IRA and fund it with municipal bonds - Maximize contributions to your 401(k)

Open an IRA and fund it with municipal bonds

Which of the security has a dividend expressed either as a fixed percentage of par or as a fixed dollar amount?

Preferred Stock

What happens to outstanding fixed-income securities when market interest rates drop?

Prices increase

What kind of debt instrument pays no periodic interest?

STRIPS

Ginnie Mae issue pass-through certificates. What does this mean? - The investor receives principal and interest passed through after taxes and interest - The issuer receives principal and interest passed through from the Treasury - The investor receives principal and interest after the homeowner has made his monthly mortgage payment - The issuer will pass through all losses

The investor receives principal and interest after the homeowner has made his monthly mortgage payment

A tool that is not used by the FRB to control the money supply is: - the reserve requirement - the prime rate - the discount rate - the FOMC

The prime rate

If your customer wants to set aside $40,000 for when his child starts college, but does not want to endanger the principal, you should recommend

Treasury STRIPS

Which of the following statements regarding warrants is TRUE? - Warrants' terms are generally shorter than rights' terms - Warrants are safer than corporate bonds - Warrants give the holder a perpetual interest in the issuer's stock - Warrants are often issued with other securities to make the offering more attractive

Warrants are often issued with other securities to make the offering more attractive

An investor would like to make a long-term investment in a debt security whose duration is equal to its maturity. Which of the following AAA rated bonds should his registered representative recommend? - MNO zero-coupon maturing in eight months - XYZ zero-coupon bond maturing in five years - ABC 8% ten-year bond maturing in 5 years - DEF ten-year 8% bond maturing in eight months

XYZ zero-coupon bond maturing in five years

An investor would like to make a long-term investment in a debt security whose duration is shorter than its maturity. Which of the following AAA rated bonds should his registered representative recommend? - ABC 8% ten year bond maturing in 5 years - DEF ten year 8% bond maturing in 8 months - MNO zero coupon bond maturing in 8 months - XYZ zero coupon bond maturing in 5 years

ZBC 8% ten year bond maturing in 5 years

An investor has purchased convertible bonds issued by ABC. The common stock of ABC has risen dramatically in recent months. The price of the bonds will most likely reflect the current market value of the company's

common stock

If the current dividend of a stock remains constant while the offering price increases, the current yield of the stock

decreased

How is the current yield determined

dividing the annual dividend by the current offering price of the stock

All of the following are features of preferred stock except: - fixed maturity - priority claim to assets at the dissolution of a corporation - typically no voting rights - fixed rate of return

fixed maturity

A corporation needs shareholder approval for which of the following? - repurchase of 100,000 of the company's own shares - 10% stock dividend - Four-to-one split - cash dividend

four-to-one split

Zero coupon bonds, make no interim payments, and therefore

have duration equal to maturity

Which of the following, though issued by a municipality, is not backed by its taxing authority? - general obligation bond - industrial development bond - school bond - courthouse bond

industrial development bond

Which of the following risk factors would be least important to disclose in recommending CMO securities with an active secondary market to public customers? - interest rate risk - liquidity risk - prepayment risk - extension risk

liquidity risk

Banks pay the federal funds rate for

loans to other banks

When the yield is ___ than the coupon, this means the bond was purchased at a ___

premium, discount

As interest rates fall, prices of straight preferred stock will

rise

A bond that makes interim payment has a duration that is ___ than its maturity

shorter

Treasury stock is

stock repurchased by the issuer

When an option is trading, all of the following are fixed except - the underlying security - the premium - the strike price - the expiration date

the premium

All of the following statements describe stock rights except - they are short-term instruments that become worthless after the expiration date - they are issued by a corporation - they are most commonly offered with debentures to make the offering more attractive - they are traded in the secondary market

they are most commonly offered with debentures to make the offering more attractive