Final SIE #11
Who is an accredited investor under Regulation D? Correct Answer A. Officer or director of the issuer Incorrect Answer B. Individual with a $200,000 Net Worth C. Trust with $2,000,000 of Assets D. Employee Benefits Fund with $1,000,000 of assets
The best answer is A. Private placements under Regulation D can be sold to an unlimited number of accredited (generally wealthy) investors. The accredited investors are: Individual with $200,000 of annual income; Married Couple with $300,000 of annual income; Individual or Couple with a $1,000,000 net worth (excluding home); Institution with at least $5,000,000 available for investment; and Officers and directors of the issuer. Notice that there is no minimum net worth or income test for an officer or director of the issuer to be accredited when buying a private placement (and they should know what they are getting into, so that is why there is no $$$ test).
The manager of an unregistered hedge fund is typically compensated by a fee based on a: I percentage of assets under management II percentage of net investment income III performance fee based on profits IV performance fee based on exceeding a benchmark index Correct A. I and III B. I and IV C. II and III D. II and IV
The best answer is A. The typical hedge fund fee is "2 and 20" - a 2% annual management fee as a percent of assets under management, plus 20% of profits. Hedge fund managers are not subject to the Investment Company Act of 1940 that limits manager's compensation to a percentage of assets under management - no performance fees are allowed. They are structured as private placement limited partnerships that are only available to wealthy accredited investors. They are exempt from securities regulation since the general public cannot invest, except for the anti-fraud rules. Hedge funds started in the 1990s and the managers produced superior returns and were able to charge high fees. Nowadays, most hedge funds are not doing much better than the overall market, and managers are moving towards a performance fee based on return achieved over a benchmark index, as opposed to a fee based on absolute profits (which might be achieved not because of superior investment choices, but because the market simply went up). However, the majority of hedge funds still charge a performance fee based on profits, not a performance fee based on exceeding a benchmark index.
Which of the following are characteristics of ECNs? I ECNs trade listed stocks II ECNs trade OTC stocks III ECNs trade "away" from exchanges IV ECN trades are not reported Correct A. I and III B. II and IV C. I, II, III D. I, II, III, IV
The best answer is A. ECNs (Electronic Communications Networks) attempt to match large institutional orders. They only do this for listed stocks (NYSE, NYSE American (AMEX) and NASDAQ). They don't do OTC stocks (OTCBB or Pink Sheet issues) because the market is too thin. The trades take place in matching computers, so they take place "away" from an exchange floor. The trades are reported to the appropriate tape (Network A, B or C) like any other trade.
If an issuer defaults on a moral obligation bond, payment can only be made by: Correct A. legislative apportionment B. judicial edict C. legal authorization D. municipal injunction
The best answer is A. Moral obligation bonds are backed by pledged revenues and also by a non-binding pledge to report any revenue deficiencies to the state legislature. The legislature is authorized to apportion the funds necessary to service the debt, but is under no obligation to do so.
When a customer buys a new stock issue from a syndicate member, the customer pays: Correct Answer A. the Public Offering Price Incorrect Answer B. the Public Offering Price plus a commission C. a negotiated price that can be at or below the Public Offering Price D. any price because this is a negotiated market offering
The best answer is A. New stock issues are sold under a prospectus that states the Public Offering Price, which is inclusive of any compensation to the underwriter (the spread). Additional commissions or charges above the P.O.P. are not allowed.
Which of the following activities are allowed once a registration statement for a new issue is filed with the SEC? I Sending a customer a "red herring" preliminary prospectus II Accepting an indication of interest from the customer III Accepting a deposit from the customer IV Accepting a firm order from the customer Correct Answer A. I and II B. III and IV C. II and III Incorrect Answer D. I, II, III, IV
The best answer is A. Once the registration statement is filed, the issue enters the 20-day cooling off period. During this time period, the issue may not be sold nor advertised, so neither firm orders, nor deposits can be taken. It is permitted to send a preliminary prospectus (red herring) to obtain indications of interest during the cooling off period, because legally, these are not offers to sell the security. Once the registration is effective, the final prospectus is used to offer and sell the issue.
The Securities Exchange Act of 1934 regulates trading of all of the following EXCEPT: Correct Answer A. Commodities Futures B. Options Incorrect Answer C. Corporate Bonds D. Corporate Stock
The best answer is A. The Securities Exchange Act of 1934 does not regulate the trading of commodities, since these are not securities, and are not regulated under the Securities Acts. Rather, futures (commodities) are regulated by the CFTC - the Commodities Futures Trading Commission. The Securities Exchange Act of 1934 does regulate trading of all non-exempt securities, including common stocks, preferred stocks, corporate bonds, options on securities, etc.
If a customer has a gain on a long stock position that he wishes to protect, which of the following statements are TRUE? I The order will be placed below the current market price II The order will be placed above the current market price III A sell stop order will be entered IV A sell limit order will be entered A. I and III B. I and IV C. II and III D. II and IV
The best answer is A. The customer will "lose" the gain on a long stock position if the market begins to fall. To sell out the position in a falling market, the order must be a sell stop order (placed below the market). Sell limit orders are used to sell if the market rises.
Rank the following interest rates from lowest to highest: I Federal funds rate II Discount rate III Broker loan rate IV Prime rate A. IV, III, I, II B. I, II, III, IV C. II, III, IV, I D. III, I, II, IV
The best answer is B. The lowest rate is the Federal Funds Rate. This is the rate on overnight loans of reserves from bank to bank. The next highest rate is the Discount Rate. This is the rate that the Federal Reserve charges member banks for borrowing reserves from the Fed. The next highest rate is the Broker Loan Rate. This is the rate that brokerage firms can borrow from banks using securities as collateral. The highest rate is the Prime Rate. This is the rate for unsecured borrowing from banks by the best corporate customers.
Which of the following is (are) taxable in the year of receipt? I Interest earned from investments II Cash dividends from investments III Stock dividends from investments IV Stock splits on investments A. I only Correct B. I and II C. III and IV D. I, II, III, IV
The best answer is B. Cash dividends and interest are taxable each year (unless the interest is exempt). Stock dividends and stock splits are treated as a "return of capital." The cost basis of the shares is reduced proportionately and the number of shares is increased for the stock dividend or stock split.
Which of the choices given is a leading economic indicator? A. Consumer Debt Levels Correct B. Durable Goods Orders C. Index of Industrial Production D. Corporate Profits
The best answer is B. Durable goods orders are a leading economic indicator, on the assumption that the goods are yet to be produced. Thus, the economic activity associated with these orders will happen in the future. The Index of Industrial Production is a coincident indicator - it is showing economic activity at the moment. Consumer debt levels and reported corporate profits are lagging indicators. They show the results of past activity - e.g., consumers have already bought the goods on credit, thus their debt has risen.
Which statements are TRUE about adjustment (income) bonds? I Any interest payment made is predictable in amount II Any interest payment made is not predictable in amount III Timing of interest payments made is predictable IV Timing of interest payments made is not predictable A. I and III Correct B. I and IV C. II and III D. II and IV
The best answer is B. Income bonds only pay interest if the corporation earns enough "income" to make that interest payment. So, timing of payments is not predictable. However, if a payment is made, the amount received is the stated rate of interest on the bond - so the payment amount (if the payment is made) is predictable.
All of the following are types of fiduciary accounts EXCEPT: A. Receiver in Bankruptcy Correct B. Corporate Account C. Executor of Estate D. Conservator for Incompetent
The best answer is B. Receiver in Bankruptcy, Executor of Estate, and Conservator for Incompetent are all types of fiduciary accounts, where a third party is designated to manage the account in the best interests of the account owner. Corporate accounts are directly managed by the corporation, which passes a resolution authorizing the opening of the account, that designates the person(s) authorized to trade in the account.
If a customer wishes to open an account for a minor without additional documentation, the account must be opened as a: A. guardian account Correct B. cash account C. margin account D. conservator account
The best answer is B. The "default" setting of the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act is that custodian accounts can only be opened as cash accounts. They can be opened as margin accounts only if the State permits it in its version of the law (which some States do, most do not). For the exam, custodian accounts can only be opened as cash accounts, since this is the rule in most States. No additional documentation is needed for the adult to open the account, as compared to, say opening a trust account, which requires a copy of the trust document.
Which statement is TRUE about changing the beneficiary on a Coverdell Education Savings Account? A. The beneficiary cannot be changed on a Coverdell ESA Correct Answer B. The beneficiary can be changed to any relative of the same or later generation C. The beneficiary can be changed to any relative Incorrect Answer D. The beneficiary can be changed to another individual attending school
The best answer is B. The donor controls the funds in a Coverdell ESA and the funds can be transferred from one beneficiary to another beneficiary (e.g., transfer of the funds from a daughter to an account for a son). Note that the money cannot be transferred to a relative that is in an older generation, however.
All of the following statements are true about discretionary accounts EXCEPT: A. the Power of Attorney continues until the customer revokes it in writing or the customer dies Correct Answer B. each discretionary order ticket must be approved by the principal prior to entry C. each order ticket must be marked as "discretionary" Incorrect Answer D. a Power of Attorney must be obtained in writing from the customer before discretion can be exercised
The best answer is B. There is no requirement to renew a power of attorney annually with the customer. The power continues until the customer revokes it in writing or the customer dies. Discretionary order tickets must be approved by the manager "promptly," meaning by the end of the day. Every discretionary order ticket must be marked as such, and a written power of attorney from the customer is required before discretion can be exercised. There is no requirement that the orders be approved before entry.
A customer has an existing cash account that holds many different positions in blue chip stocks. The customer has an investment objective of moderate growth and income. The customer contacts his representative, stating that "I think the market will be flat for a while, but I don't want to see my portfolio return drop." The registered representative recommends that the customer sell covered calls against some of the stocks held in the customer account. The representative: A. can do so without any additional documentation as long as options positions taken do not exceed 15% of account value Correct Answer B. cannot do so unless the account is qualified to trade options Incorrect Answer C. cannot do so unless the stock positions are transferred to a margin account and the customer signs a margin agreement D. can do so without restriction because covered call writing is a conservative strategy that is permitted in a cash account
The best answer is B. This customer has a cash account holding blue chip stocks. The customer can only sell covered call options against those stock positions if the account is qualified to sell them. This means that the options new account form must be completed; the customer must be delivered the ODD (Options Disclosure Document); and the customer must be sent an Options Agreement for signature and return within 15 days of the first options transaction in the account.
In order to open a new account for a customer, the customer's name, date of birth, address and tax identification number must be: I obtained prior to account opening II obtained within a reasonable time before or after account opening III independently verified prior to account opening IV independently verified within a reasonable time before or after account opening Incorrect Answer A. I and III Correct Answer B. I and IV C. II and III D. II and IV
The best answer is B. To open an account for a new customer, 4 critical pieces of information must be obtained before the account can be opened - customer name, mailing address, social security number, and birthdate. This information must be used to independently verify the customer's identity within a reasonable time after account opening. This verification can be done by matching the 4 critical pieces of information to a valid government issued identification (which cannot be expired); or by using a database service such as Equifax to do the matching.
Which of the following statements are TRUE regarding Treasury Stock? I Treasury Stock receives dividends II Treasury Stock votes III Treasury Stock reduces the number of shares outstanding IV Treasury Stock purchases are used to increase reported Earnings Per Share A. I and II B. III and IV C. II, III, IV D. I, II, III, IV
The best answer is B. Treasury stock does not vote nor receive dividends. Treasury stock is deducted from outstanding shares, and since outstanding shares are reduced, Earnings Per Share increases.
Variable annuities are: A. exempt securities that are sold without a prospectus Correct Answer B. non-exempt securities that must be sold with a prospectus Incorrect Answer C. insurance products that are sold without a prospectus D. futures products that are sold without a prospectus
The best answer is B. Variable annuities differ from other products sold by insurance companies in that the purchaser bears the investment risk; as opposed to the insurance company bearing the investment risk. For example, if an insurance company achieves poor investment results, this does not affect the amount of death benefit that one gets from a traditional insurance policy; if the separate investment account funding a variable annuity achieves poor investment results, the annuity payment will drop. Because the purchaser bears the investment risk in a variable annuity contract, these are defined by the SEC as a non-exempt security that must be registered and sold with a prospectus.
Which is the TRUE statement about listed options contracts? A. Stock option contracts and most index options contracts are issued American style B. Stock option contracts and most index options contracts are issued European style C. Stock option contracts are issued American style while most index option contracts are issued European style D. Stock option contracts are issued European style while most index option contracts are issued American style
The best answer is C. Options contracts can either be issued as "American style" or "European style." An American style option is one that can be exercised at any time - and equity stock options are all American style. A European style option is one that can only be exercised at expiration - not before. Almost all index options, with the exception of the OEX, are European style. (The OEX was the first index option, and was modeled on existing American style stock options when it was issued. The CBOE then found that their institutional customers who used index options for income writing strategies against portfolios of stocks that they owned were concerned about unexpected exercises, so they kept the OEX as it was, but all later index options created, such as SPX, DJX and VIX, were European style.) Note that listed options contracts, whether American or European style, can be traded at any time.
Which of the following entities enforce MSRB rules for bank dealers? I Office of Thrift Supervision II Federal Deposit Insurance Corporation III Office of the Comptroller of Currency IV Federal Reserve Board A. I and II only Incorrect Answer B. III and IV only Correct Answer C. II, III, IV D. I, II, III, IV
The best answer is C. The enforcement agencies for the MSRB are: Office of the Comptroller of Currency, Federal Deposit Insurance Corporation, and the Federal Reserve Board for bank dealers that are not registered with FINRA and the SEC and thus are only subject to inspection by the bank regulators; and the SEC and FINRA for registered broker-dealers. The OTS - Office of Thrift Supervision, supervised Savings and Loans - and savings and loans do not deal in the municipal marketplace. It was created to deal with a savings and loans crisis that erupted in the 1980's and since has been folded into the Office of Comptroller of Currency.
In order to open a discretionary cash account, all of the following procedures are required EXCEPT: A. signature of manager on new account form B. signed trading authorization Correct C. signed customer's agreement D. completed customer new account form
The best answer is C. A signed customer's agreement is only required for a margin account; it is not used in a cash account. The customer's agreement is the hypothecation agreement. To open a discretionary cash account, a new account form must be completed by the registered representative and approved in writing by the manager. The customer must provide a signed trading authorization to the firm (first party trading authorization) allowing discretionary trades.
An "unqualified" legal opinion on a revenue bond is one which: A. states that the pledged revenues are subject to prior liens B. is given by an unqualified bond counsel Correct C. states that no liens have been found against pledged revenues D. states that the bond counsel is qualified in the state to render an opinion
The best answer is C. An unqualified legal opinion is a "clean" opinion, where the bond counsel has found no legal problems. For a revenue bond issue, an unqualified opinion means that the bond counsel has not found any legal claim (liens) on the revenues that have been pledged to the bondholders.
A corporate issuer is obligated to file an 8K report of significant events within how many business days of the event? A. 1 day B. 2 days Correct C. 4 days D. 10 days
The best answer is C. Corporations are required to file 8K reports within 4 business days of significant events such as a declaration of bankruptcy, merger, change in the Board of Directors, etc. The 8K is filed with the SEC, and is a public document.
For an Individual Retirement Account contribution to be deductible from that year's tax return, the contribution must be made by no later than: A. April 15th of that year B. December 31st of that year Correct C. April 15th of following year D. December 31st of the following year
The best answer is C. IRA contributions must be made by April 15th of the following year - no extensions are permitted.
All of the following statements are true about repurchase agreements initiated by the Federal Reserve EXCEPT: Incorrect Answer A. these are commonly called "repos" B. they are used in open market operations Correct Answer C. the Fed is selling securities to dealers which it promises to buy back at a later date D. it is used to ease credit and lower interest rates
The best answer is C. In a Fed-dealer repurchase agreement (a "repo"), the Federal Reserve buys (not sells) government securities from the primary dealers (mainly large commercial banks) with an agreement to sell them back the next day (at a slightly higher price). This gives the bank cash that it can lend out, easing credit and lowering interest rates. The New York Fed conducts "open market operations" with the primary dealers every day - using "repos" to loosen credit and "reverse repos" (where the Fed sells Treasury securities to the dealers, draining them of cash) to tighten credi
At the account opening stage, which of the following customer actions would NOT be an indicator of potential money laundering? Incorrect Answer A. Concern regarding the firm's government reporting requirements B. Difficulty describing his or her work or lack of industry knowledge Correct Answer C. Uncertainty about his or her investment objectives and needs D. Ordering transactions that are inconsistent with his or her stated objectives
The best answer is C. It is normal for a customer to be uncertain of his or her investment objectives and needs - it is the guidance of the registered representative that the customer is counting on to select the appropriate strategy. The other 3 choices could all be indicators of potential money laundering.
The Official Notice of Sale is: I the disclosure document used in connection with new municipal bond offerings II the advertisement soliciting bids on a new municipal issue III published in the Daily Bond Buyer IV provided to all purchasers of a new municipal issue A. I and III B. I and IV Correct C. II and III D. II and IV
The best answer is C. Municipalities solicit bids for new issues from interested persons by placing an Official Notice of Sale in the Daily Bond Buyer. Do not confuse this with the Official Statement, which is the disclosure document given to all purchasers of new municipal issues.
Which of the following statements are TRUE when comparing convertible preferred stock and non-convertible preferred stock? I Convertible preferred issues will have a higher yield than similar non-convertible yields of the same issuer II Non-convertible preferred issues will have a higher yield than similar convertible yields of the same issuer III Convertible preferred stockholders can benefit as the common stock price rises IV Non-convertible preferred stockholders can benefit as the common stock price rises A. I and III B. I and IV Correct C. II and III D. II and IV
The best answer is C. Non-convertible preferred yields are higher than convertible yields. A non-convertible preferred stockholder gets a fixed rate of return without any growth potential. A convertible preferred stockholder can convert to common if the common's price rises, so growth potential is included. Because of this, yields for convertible preferred are lower than for non-convertible preferred.
A municipality has a tax rate of 18 mills. A piece of real property in the municipality is assessed at $180,000 and has a fair market value of $165,000. The annual tax liability on the property is: A. $1,800 B. $2,970 Correct C. $3,240 D. $4,420
The best answer is C. One mill = .001; 18 mills = .018. Taxes are based on assessed valuation, not fair market value. .018 x $180,000 = $3,240. Another way to think about it is that 1 mill = $1 of tax for each $1,000 of assessed value.
Which annuity payout option usually results in the largest periodic payment? A. Unit Refund Annuity B. Joint and Last Survivor Annuity Correct C. Life Annuity D. Life Annuity-Period Certain
The best answer is C. The shorter the expected annuity period, the larger the payment. A life annuity lasts only for that person's life - this is the shortest expected period of those given. A life annuity with period certain continues to pay for a fixed time period if the person dies early; a joint and last survivor annuity pays a spouse when one person dies; a unit refund annuity pays a lump sum if a person dies early.
Which is NOT a good delivery for a 300 share trade of stock? A. One 300 share certificate B. Three 100 share certificates Correct C. Ten 30 share certificates D. Thirty 10 share certificates
The best answer is C. To be a good delivery, certificates must be in round multiples of 100 shares on one certificate or must be delivered in certificates that add up to 100 share units. Certificates of 30 shares each are not good because 30 + 30 = 60; 60 + 30 = 90; and 90 + 30 = 120. A round lot of 100 shares cannot be created from these units.
John Doe and Jane Smith own certificated securities in a joint account. If they wish to sell securities from the account: A. a stock power is only required to be signed by John Doe B. a stock power is only required to be signed by Jane Smith Correct C. a stock power must be signed by both John Doe and Jane Smith D. no signature(s) is (are) required
The best answer is C. To sell a physical stock certificate, there must be a signature (endorsement) either on the back of the certificate itself, or on a detachable "stock power." If the certificate is owned jointly, then all owners must sign to transfer ownership. (A "stock power" with the signatures means that the signatures are executed on a separate legal document that is attached to the certificate. Then the certificate does not have to be replaced - if the certificate itself were signed, it would need to be destroyed and replaced - and that is expensive.)
Which statements are always TRUE about Treasury Bonds? I Treasury Bonds are traded in 32nds II Treasury Bonds are quoted at a discount to par value III Treasury Bonds are issued in either bearer or registered form IV Treasury Bonds have minimum maturity of more than 10 years A. I and II only B. II and IV only Correct C. I and IV only D. I, III and IV
The best answer is C. Treasury Notes have maturities of 10 years or less. Treasury Bonds have maturities that are greater than 10 years - currently they are issued with 30 year maturities. Both are quoted on a percentage of par basis in 32nds. All Treasury issues are available only in book entry form. There are no bearer or registered issues.
Under Keogh rules, any distributions from a Keogh Plan must start no later than: A. April 1st of the year following the year the individual turns 59 1/2 B. December 31st of the year following the year the individual turns 69 1/2 Correct C. April 1st of the year following the year the individual turns 70 1/2 D. April 15th of the year following the year the individual turns 70 1/2
The best answer is C. Under the Keogh rules, any distributions from a Keogh Plan must start no later than April 1st of the year following the year that the individual reaches the age of 70 1/2.
An underwriting agreement where the syndicate members are not liable for any unsold securities is a(n): A. firm commitment underwriting B. unmanaged underwriting Incorrect Answer C. stand-by underwriting Correct Answer D. all or none underwriting
The best answer is D. In a firm commitment underwriting, the underwriter buys the issue outright from the issuer, with the intention of reselling the issue to the public at a profit. Thus, the underwriter is a principal in the transaction, and is taking full financial liability. In a best efforts underwriting, the underwriter acts as agent, promising to use his best efforts to sell the issue, but takes no financial liability. In a best efforts - all or none underwriting, the underwriter acts as agent, using his best efforts to sell the issue, but takes no financial liability. However, if the entire amount is not sold, then the offering is canceled. In a stand-by underwriting, the underwriter agrees to purchase any unsubscribed shares in a new issue rights offering on a firm commitment basis. All underwritings that use broker-dealers to distribute the securities are "managed" offerings - they are managed by the syndicate manager.
403(b) Plans are: I non-tax qualified plans II tax qualified plans III plans available to "for profit" organizations IV plans available to "not for profit" organizations A. I and III B. I and IV C. II and III Correct D. II and IV
The best answer is D. 403(b) plans are tax deferred annuity contracts available to non-profit employees who are not covered by qualified retirement plans. The plans allow for investment in tax deferred annuity contracts, that can be funded by mutual fund purchases, as well as by traditional fixed annuities. These plans are tax qualified; thus contributions are tax deductible and distributions are 100% taxable.
Which statements are TRUE about option contracts? I Long calls go "out the money" when the market price rises above the strike price II Long calls go "out the money" when the market price falls below the strike price III Short calls go "out the money" when the market price rises above the strike price IV Short calls go "out the money" when the market price falls below the strike price A. I and III B. I and IV Incorrect Answer C. II and III Correct Answer D. II and IV
The best answer is D. An "out the money" contract is one, that if exercised, would result in an unprofitable stock trade to the holder. These contracts are left to expire unexercised. Calls go "out the money" when the market price falls below the strike price - it makes no difference if the contract is "long" or "short." Being "out the money" is bad for the contract holder and good for the contract writer. The call holder would not exercise and buy the stock at a strike price that is higher than the current market. Puts go "out the money" when the market price rises above the strike price. The put holder will not exercise and sell stock at the strike price that is lower than the current market price.
A customer sells short 100 shares of ABC stock at $62 and sells 1 ABC Oct 60 Put @ $6. The maximum potential loss is: A. $600 Incorrect Answer B. $5,600 C. $6,000 Correct Answer D. unlimited
The best answer is D. If the market rises, the short put expires and the short stock position must be covered by making a purchase in the market. The loss potential is unlimited.
Which statement is TRUE regarding variable annuity contracts? A. The principal amount is guaranteed prior to annuitization by the insurance company that issues the contract B. The principal amount is guaranteed after annuitization by the insurance company that issues the contract C. The contract holder loses control of the principal amount prior to annuitization Correct D. The contract holder loses control of the principal amount after annuitization
The best answer is D. In a variable annuity contract, the principal amount is never guaranteed. The principal value may increase or decrease, depending on the performance of the separate account. The "investment risk" is borne by the contract holder, not the insurance company. Regarding the statement about the contract holder "losing control of the principal," this relates to the contract holder's ability to change the terms of the payout from the contract. Prior to annuitization, the contract holder is allowed to change his payout option, thus he has control over how the principal will be disbursed. However, once the contract is "annuitized," the contract holder cannot change the payout option - he or she loses control over the principal. (Please note that the term "losing control over the principal" does not refer to how the investment manager decides to invest the funds in the separate account.)
A syndicate member takes a 10% participation in a $15,000,000 issue set up as an Eastern account. At the termination of the syndicate, $2,000,000 remains unsold in the account. The syndicate member sold $1,500,000. The syndicate member's remaining liability is: Incorrect Answer A. 0 B. $50,000 C. $100,000 Correct Answer D. $200,000
The best answer is D. In an Eastern account, the syndicate member's liability is his percentage of all unsold securities. The actual sales by that member have no bearing on remaining liability. Total unsold = $2,000,000 x 10% = $200,000. Note that if this were a Western (divided) syndicate, then his selling liability would have been extinguished.
Which of the following statements are TRUE regarding REITs? I The REIT issues common shares representing a proportional interest in the investment company II The REIT issues shares of beneficial interest representing an undivided interest in a pool of real estate investments III REITs are similar to open end investment company shares IV REITs are similar to closed end investment company shares A. I and III B. I and IV Incorrect Answer C. II and III Correct Answer D. II and IV
The best answer is D. REITs issue shares of beneficial interest with each certificate representing an undivided interest in the pool of real estate investments. Other than this difference, the trust is run in a similar fashion to a corporation. REITs are registered securities under the Securities Act of 1933 and trade on an exchange or OTC. Thus, they are similar to closed-end investment companies under the Investment Company Act of 1940, except that investments are made in real estate and mortgages, instead of in securities.
The trading of listed securities over-the-counter occurs in the: A. Primary Market B. First Market C. Second Market Correct D. Third Market
The best answer is D. The "Third Market" is over-the-counter trading of exchange listed securities. Third Market Makers are OTC firms such as Jefferies and Co. and Weeden and Co. that stay open 24 hours a day and capture much of their trading volume in NYSE-listed issues when the NYSE is closed.
If it is now December, regular options contracts could be traded with all of the following expirations EXCEPT: A. January B. April C. July Correct D. November
The best answer is D. The maximum life of a regular stock option contract is 8 months (this may be tested as 9 months, though). Longer term stock options, known as LEAPs (Long Term Equity AnticiPation options) have a maximum life of 30 months.
A customer is short 1,000 shares of ABC stock, valued at $6 per share. The minimum maintenance margin requirement is? A. $1.50 per share Incorrect Answer B. $1.80 per share C. $2.50 per share Correct Answer D. $5.00 per share
The best answer is D. The minimum maintenance margin requirement for short stock positions worth $5 or more is the greater of $5 per share or 30%. Thus, a short stock position valued at $6 per share requires a minimum margin under FINRA rules of $5 per share (30% of $6 = $1.80 per share, which is not enough since $5 is the minimum). For stocks valued under $5, the minimum is the greater of 100% or $2.50 per share.
A customer buys 1,000 shares of ABCD $25 par 8% cumulative preferred stock. This preferred issue pays quarterly dividends. This year, it missed the first 3 quarterly dividends. In the 4th quarter, it paid a common dividend of $.25 per share. In order to do this, it must have paid this preferred shareholder: A. $400 B. $500 Incorrect Answer C. $1,600 Correct Answer D. $2,000
The best answer is D. This customer owns 1,000 shares of $25 par cumulative preferred, for a face value of $25,000. In order to have paid the common dividend,the company must have paid the preferred shareholder the 3 missed quarterly dividends in addition to the current quarterly dividend. Therefore, it must pay the annual dividend amount of 8% of $25,000 = $2,000 to this preferred shareholder.
A company's common stock is selling in the market at a "multiple" of 15. If the market price of the common stock is currently $15, what is the earnings per share? A. $.10 B. $.15 C. $.30 Correct D. $1.00
The best answer is D. When a stock is selling at a "multiple" of 15, this means that the market price is 15 times the current earnings per share. Since the market price is at $15 and the P/E ratio is 15, earnings per share is $1.00.
