FIN450 Test 1
A corporate bond is currently selling in the market at a price of 120. The bond is convertible at $25. The parity price is
$30 per share
An investor purchasing 5 bonds priced at 102 each would expect to pay a total of (disregard commissions)
$5,100
A $1,000 bond with a nominal yield of 8% will pay how much interest each year?
$80.00
Your customer is long 10 Jul 50 calls at 4.50. How many shares of stock will change hands of the exercises his options ?
1,000
An investor in the 25% federal income tax bracket purchasing an unrated public works revenue bond issued by State A that carries a 3% coupon would have a tax equivalent yield of
4.00%
Minimum percent cash value that must be available for a policy loan after 3 years
75
Under the Securities Act of 1933, which of the following is NOT a security?
A term life insurance policy
The basis for projected annuity payouts, but not guaranteed
Assumed interest rate
Which of the following are true of GNMA securities but NOT of GMOs?
Backed by the full faith and credit of the U.S. government
One of your clients sells 100 shares of XYZ stock short at $50 per share. Although the client is quite bearish on the stock, she realizes that it is possible that good news in the overall economy could cause a surge in XYZ's price. Which of the following would you recommend to best protect her position?
Buy an XYZ 50 call
Which of the following types of preferred stock typically has the highest stated rate of dividend (all other factors being equal)?
Callable
Which of the following types of preferred stock is most influenced by the price of an issuer's common stock?
Convertible
One would expect to have checkbook access to a
DDA
All of the following debt instruments pay interest semiannually EXCEPT
Ginnie Mae pass-through certificates
The prospectus for a fund states that the minimum initial investment is $500,000. This is most likely what type of fund?
Hedge
The term issuer, as defined in the Securities Act of 1933, would include:
I and II, a government entity issuing exempt securities, a corporation issuing securities in an exempt transaction
When a bond with a 6% coupon is selling for 90
I and II, the current yield is approximately 6.67% and the bond is selling at a discount
Among the benefits of owning common stock are
I, II and IV, it has historically been a hedge against inflation, voting rights, dividends
A corporation may distribute which of the following as a dividend?
I, II, and III, Cash, Stock, and Stock of a subsidiary
Which of the following would be considered investment companies under the Act of 1940?
I,II, and III, Face-amount certificate company, Unit investment trust, Management company
Under which of the following circumstances would a purchase of mutual fund shares at a price below the public offering price be allowable?
II and III, A parent buys enough to reach the breakpoint but place half the order in his account and the other half in an account for which his wife is designated as custodian for their son. AND The receptionist for the XYZ Growth Fund purchases $100 of that fund
Which of the following represent(s) ownership in a company?
II and III, Common stock and Preferred Stock
The difference between a fixed annuity and a variable annuity is that the variable annuity
II and IV, offers a payment that may vary in amount, attempts to offer protection to the annuitant from inflation
Contract starts to pay the annuitant approximately one month after its issuance
Immediate annuity
Mimic stock market indexes to achieve performance comparable to the market overall
Index fund
Which of the following statements regarding rights is TRUE?
Preferred stockholders would not generally receive preemptive rights
Which of the following statements about accredited investors is TRUE?
Purchases of securities by accredited investors do not count toward the 35-investor limitation found in Rule 506(b) of Regulation D.
Seek investments in companies with unusual opportunities
Special situation fund
Invests in medical technology and is not risk averse
Specialized fund
It would be improper to use the term derivative to describe
a closed-end investment company
A 49-year-old customer purchases a single premium deferred variable annuity. She selects a subaccount of the separate account that is composed largely of equity securities. She is assuming all of the following risks EXCEPT
as an investor, she can be held liable for the debts incurred by the insurance company
Corporate bonds are considered safer than common stock issued by the same company because
bonds place the issuer under an obligation but stock does not
A financial reporter notices that the quoted price of one investment company's shares is at a 22% discount from the NAV. From this information, it can be deduced that the company must be a(n)
closed-end investment company
A bond offered at par has a coupon rate
equal to its current yield
An investor is reading a report that industrial demand for copper is expected to double in the next 5 years. This might lead the investor to
invest in several copper mining companies
Limited liability regarding ownership in a U.S. corporation means all of the following EXCEPT
investors might lose more than the amount of their investment
An investor who initially makes a small investment in a mutual fund may have the advantage of a lower sales charge on investments made over a 13-month period through a(n)
letter of intent
According to the Investment Company Act of 1940, an open-end investment company must compute its NAV
no less frequently than once per day
A company that has issued cumulative preferred stock
pays past and current preferred dividends before paying dividends on common stock
All of the following statements regarding a 12b-1 company are true EXCEPT
the plan may be terminated by a cote of the majority of shareholders or a majority of the board of directors
On July 15, 2013, an employee of KAPCO Manufacturing Company receives an incentive stock option to purchase 100 shares of KAPCO common stock at $21 per share when the current market price is $19. She exercises the option on June 30, 2014 and sells her shares on August 4, 2015 at $30 per share. For tax purposes, she has a
$900 long-term capital gain
Your customer is long 10 ABC Jul 50 calls at 4.50. He owns how many options?
10
A 30-year-old client indicates that he needs $500,000 of life insurance coverage for the next 20 years. The lowest out-of-pocket cost would be if he purchased a
20-year level term policy
Number of months contract exchange provision must be in place
24
Maximum sales charge allowed over life of a variable life policy
9
Your customer is long 10 ABC Jul calls at 4.50. What is the name of the underlying instrument?
ABC common stock
Determines an annuitant's interest in the insurer's separate account before distribution from the annuity begins
Accumulation unit
Invests to maximize capital gains quickly with high risk tolerance
Aggressive growth fund
Purchase different classes of investments to achieve capital gains, income, and diversification
Asset allocation fund
Invests to diversify securities and is conservative
Balanced fund
In the event of a company's insolvency, which of the following has first claim on assets?
Bondholders
Delays distributions until the owner elects to receive them
Deferred annuity
One of your clients wishes to invest in a hedge fund. You should explain which of the following?
Expenses for these funds tend to be higher than those for traditional mutual funds
Achieve safety of principal with yields slightly higher than government bond fund
Ginnie Mae fund
A man owns 15% of the stock of a company. His wife owns 5% of the stock of the same company. If the wife wishes to sell the stock she owns, which of the following statements are TRUE?
I and III, Both the husband and the wife are affiliates, she must file under Rule 144
Which 2 of the following risks would be of greatest concern to the holder of an ADR?
I and III, Currency and Market
Which of the following is considered to be an advantage of annuitization?
It guarantees income that will last for the client's lifetime.
Annuity payouts continue as long as one of the annuitants is alive
Joint and last survivor annuity
A couple in their early 30s has been married for 4 years, their disposable income is relatively high, and they are planning to buy a condominium. If they need a safe place to invest their down payment for about 6 months, which of the following mutual funds is the most suitable for these customers?
LMN Cash Reserves Money Market Fund
An investor has a portfolio diversified among many different asset classes. If there was an immediate need for cash, which of the following would probably be the most liquid?
QRS Money Market Mutual Fund
The term derivative could be used to apply to any of the following EXCEPT
REITs
Holds funds paid by variable annuity contract holders
Separate account
Which of the following statements is TRUE of a corporate bond with a call feature?
The issuing corporation has the option to redeem the bond before it matures
What would likely happen to the market value of existing bonds during an inflationary period coupled with rising interest rates?
The price of the bonds would decrease
A company realizes money from the sale of surplus equipment. It would like to invest this money but will need it in 4-6 months and must take that into consideration when selecting an investment. You would recommend
Treasury bills
A securities order that is initiated by a client is what type of order
Unsolicited
Performance of a separate account determines value
Variable annuity
Which of the following statements regarding warrants is TRUE?
Warrants have longer terms than rights
Among the reasons for investors to consider investing in real estate would be all of the following EXCEPT
a high correlation with stock market returns
Commonly traded on a regulated exchange would be any of the following EXCEPT
forward contracts
An investor looking for an open-end investment company with an objective of providing current income to its shareholders, would most likely choose a(n)
income fund
The investment company Act of 1940 prohibits registered investment companies from engaging in any of the following practices EXCEPT
issuing common stock
An open-end investment management company is also referred to as a(n)
mutual fund
Which of the following statements about zero-coupon bonds are TRUE?
I and III, Zero-coupon bonds are sold at a deep discount from face value, and The owner of a zero-coupon bond receives the face value only at maturity
Common stockholder rights include a
I and III, residual claim to assets at dissolution, vote in person at the annual meeting of shareholders
How do closed-end investment companies differ from open-end investment companies?
II and III, The only time a prospectus is used with the sale of a closed-end company is on the IPO; sales of open-end shares must always be preceded or accompanied by a prospectus. AND Closed-end companies issue a fixed number of shares; open-end companies continuously issue new shares
Pursues capital growth with less than average risk
Large cap stock fund
If the annuitant dies before a specified time expires, payouts go to the annuitant's named beneficiary
Life income with period certain
Which term best describes the following situation: A customer has the right to sell 100 shares of MNO at 60 any time between July and October.
Long put
Which of the following statements about municipal bonds is NOT true?
Municipal bonds are generally considered riskier than corporate bonds
A sector fund is one where the assets are
concentrated in a particular industry or geographical area
Each of the following debt securities would be considered investment grade EXCEPT
corporate first lien mortgage bonds with a BB rating
In the context of purchasing shares in a mutual fund, the term "breakpoint" refers to the point at which the
dollar amount of shares being purchased qualifies the investor for a lower sales charge
ADRs are used to facilitate
domestic trading of U.S. government securities
A review of the prospectus of an open-end investment company reveals that its portfolio consists entirely of CDs, Treasury bills, and repurchase agreements. This is probably a(n)
money market fund
All of the following are considered to be risks of owning common stock EXCEPT
removal of voting rights
When a corporate bond has a convertible feature, it means
the owner of the bond may exchange it for a pre-determined number of shares of the issuer's common stock
If your clients want to set aside $40,000 for when their child starts college, but do not want to endanger the principal, you should recommend
zero-coupon bonds backed by the U.S. Treasury
An investor who has purchased preferred stock with the goal of receiving steady quarterly income would be most interested in the
ability of the company to continue paying the stated dividend
An agent receives instructions from a client to buy 100 shares of KAPCO common stock at what the agent thinks is the best price. Two days later, the agent enters the order. In this case, the agent has
acted inappropriately
Options are best described as
derivatives
If ABC Fund pays regular dividends, offers a high degree of safety of principal, and appeals especially to investors in the higher tax brackets, ABC is a(n)
municipal bond fund
Among the popular methods of valuing equity securities is the dividend growth model. One could expect to see an analyst using this to value any of these EXCEPT
preferred stock
Your customer is long 10 ABC Ju 50 calls at 4.50. The contract gives him the
right to buy stock
Money market instruments are
short-term instruments
Alice Allison is the president of Podunk University and sits on the board of directors of KAPCO Securities, a broker-dealer registered with the SEC. President Allison
would be considered an associated person of KAPCO
