Q&A Test 8 (Part 2)
A REIT is NOT used for a tax shelter because it does NOT:
A REIT allows the flow-through of income, but not losses. Shareholders have limited liability. While a REIT is similar in structure to a mutual fund, it is not defined as an investment company. Also, while it may invest in real estate properties, it is not considered to be a limited partnership. Partnerships can pass through losses.
When a corporation seeks a bank loan, the bank will base its charge to the corporation on the:
A corporation pays the prime rate when borrowing from a bank if it is among the bank's best-credit-rated customers. Other corporations pay a higher rate, but it is based on the prime rate.
An investor with an investment objective of speculation wants to purchase a security that will increase three times as much the Russell 2000 Index. Which of the following securities would you recommend?
A leveraged ETF is designed to deliver a multiple of the performance of an index or other benchmark. For example, a 3X leveraged ETF based on the Russell 2000 Index seeks to deliver three times the performance of that index. So, if the Russell 2000 Index rises by 1%, a leveraged ETF would increase by 3% before fees and expenses. Choice (a) would be suitable if the customer anticipated a decrease in the Russell 2000, choice (c) would be suitable if the customer wanted a return that was a multiple or higher return and anticipated a decrease in the Russell 2000, and choice (d) would be suitable if the customer only wanted to track the return of the Russell 2000.
A municipal dealer may guarantee a customer against loss:
A municipal dealer may not guarantee a customer against loss under any circumstances.
A convertible debenture is convertible at $25. It has a nondilutive feature in its indenture. If a stock dividend is distributed, which TWO of the following statements are TRUE? The conversion price will be reduced The conversion price will be increased The conversion ratio will be reduced The conversion ratio will be increased
A nondilutive feature means that if there is a stock split or stock dividend, the bond's conversion features must be adjusted. The bondholder would receive more shares upon conversion because the conversion ratio would be increased. The conversion price would be reduced to permit this increase in the conversion ratio.
The penny stock rules would apply under which of the following circumstances?
A penny stock, according to SEC rules, is a stock that sells for less than $5.00 that is not listed on Nasdaq or the NYSE. A stock quoted on the OTC Bulletin Board or OTC Pink Market (Pink Sheets) that has a bid price of less than $5.00 is defined as a penny stock. Penny stock rules would not apply under the following conditions. The customer is defined as an existing customer, which is a person who has maintained an account with a broker-dealer for more than one year, or has previously engaged in 3 or more transactions involving penny stocks (i.e., an active trader of penny stocks) In nonrecommended or unsolicited transactions In transactions by a broker-dealer that is not a market maker in that security In transactions by an institutional accredited investor
According to MSRB rules, which of the following documents need not be approved by a principal prior to being sent to a customer?
A preliminary official statement is prepared by or for the issuer. Since the MSRB does not have the power to regulate issuers, a preliminary official statement cannot be considered advertising under MSRB rules. However, an abstract (summary) of the official statement is prepared by a dealer and is, therefore, considered advertising. A final official statement and a firm's offering list are also not considered advertising.
Briana Corporation, an existing public company, is offering 500,000 shares of common stock to the public through an underwriting syndicate. The prospectus states that 250,000 shares are being offered by selling stockholders and 250,000 shares are being offered by Briana Corporation. The effect of this offering will be:
After the offering is completed, there will be 250,000 new shares outstanding (The shares sold by the selling stockholders were already outstanding.) This will result in the earnings per share being diluted because the earnings will now be divided by a greater amount (250,000 shares) of new outstanding stock.
Which TWO of the following securities will enable an investor to consistently receive interest income and also have a maturity date on which their principal will be returned in one lump sum without requiring the investor to sell the securities? A municipal bond fund that contains mostly revenue bonds Municipal bonds that are subject to the alternative minimum tax A closed-end fund that contains the municipal bonds of one state A portfolio of municipal bonds, some which have call provisions
All of the securities listed will pay interest income to investors. The municipal bond fund and the closed-end fund invest in municipal bonds that pay interest which will then be passed through to the holders of these securities, either monthly, quarterly, or semiannually. Only by investing in actual bonds will an investor be able to have her principal returned in one lump sum when the bonds mature, rather than being required to sell the securities. The type of municipal bond, whether they are callable, and whether they are subject to the AMT is irrelevant to the question. One of the major differences between investing in actual bonds versus bond funds is that the actual bonds will have a maturity date, while bond funds do not. If an investor owns shares of a bond and wants to receive her principal back, she is required to sell or redeem her shares of the fund.
Which of the following items is NOT found on a sell ticket?
All order tickets must contain the customer's account number and whether the registered representative solicited the order or it was unsolicited. A sell ticket must indicate if it is a short sale or a sale of securities owned by the client. The location of the securities must be indicated (long in the customer's account or held by the customer).
All would be considered an advantage of a Health Savings Account, EXCEPT:
An HSA is not designed to pay for college expenses. They are programs that are generally associated with a high deductible/low premium medical plan. The employer or employees can make tax-deductible contributions into the account, which grow on a tax-deferred basis. If used to offset medical expenses, the monies are received tax-free.
Which of the following option orders may be accepted by an order book official?
An order book official on the floor of an options exchange is permitted to accept limit orders only.
Which of the following statements is NOT TRUE regarding the purchaser of a put option?
Choice (d) is not true. The investor could profit by either exercising or liquidating the put. The other choices are true statements. The purchaser of a put has a right to sell stock. The maximum loss that a purchaser of an option (put or call) can sustain is the amount of the premium paid. The purchaser of a put can profit if the underlying stock declines in value.
Cash dividends received from which of the following securities will be taxed as ordinary income?
Currently, dividends paid on both common and preferred stock are taxed at a maximum rate of 20% if the stock is held for more than 60 days. Dividends from a REIT are still taxed at the same rate as ordinary income since a REIT does not pay corporate income tax if it distributes a minimum percentage of its income. The type of company that issued the shares is not relevant to the tax status of the cash dividend.
How often is a broker-dealer required to calculate the amount of margin a customer is required to deposit?
FINRA requires a broker-dealer to calculate the amount of initial and maintenance margin that must be maintained in a customer's account on a daily basis.
When looking at a newspaper listing for foreign currency options, the spot prices for the underlying foreign currencies are quoted in:
For foreign currency options, spot prices are quoted in U.S. terms (the cost in U.S. dollars to purchase one unit of the foreign currency). All of the spot prices are quoted in cents per unit except the Japanese yen (1/100th cent per unit).
A customer is interested in opening a margin account with a broker-dealer. Which of the following documents is NOT required to be completed?
In order to open a new margin account, a customer must complete a new account form, a margin customer agreement, and a hypothecation agreement. However, the completion of a loan consent agreement is voluntary, not mandatory.
In an underwriting of a new issue by a syndicate, which of the following statements is TRUE?
In the underwriting of a new issue, the underwriting spread is larger than the selling concession. The underwriting spread is larger because members of the underwriting syndicate assume the risks of the underwriting. The selling concession given to the selling group is less because the selling group acts in a best-efforts capacity and does not assume the risks involved in a firm-commitment underwriting. A reallowance is compensation given to broker-dealers who are nonmembers of the syndicate or selling group who would like to participate in the underwriting. The reallowance given is less than the amount members of the syndicate or selling group receive.
During the first year, an investment in an oil and gas drilling program will generate the largest deduction from
Intangible drilling costs may be taken as an expense item. Therefore, these costs provide a large deduction in the first year. Depletion and depreciation provide deductions that are spread out over a period of years. Production is an income item, not a deduction.
A registered representative tells a municipal bond fund manager that, in return for purchasing bonds for the fund, the representative will sell that bond fund exclusively to clients. This arrangement is:
MSRB rules prohibit a broker-dealer or registered representative from having reciprocal dealings with investment companies. A registered representative may promote the services of the firm (such as timely executions and quality research) to solicit business from a municipal bond fund manager, but may not offer to sell fund shares in return for brokerage business from the fund.
A customer has purchased a new municipal issue during the underwriting period. According to MSRB rules, the customer must receive which TWO of the following documents? The final confirmation showing the aggregate price A copy of the notice of sale A copy of the official statement, if prepared A list of syndicate members
MSRB rules require that a copy of the official statement be sent to each purchaser of a new issue. A confirmation must be sent on every transaction, whether a new issue or a secondary market trade. A copy of the indenture and a list of the syndicate members do not need to be sent.
A customer is considering an investment in a hedge fund since many of his business associates have been receiving high returns over the last few years. A registered representative may make which of the following statements?
Mutual funds and hedge funds both pool investors' money to manage assets. Unlike mutual funds, hedge funds are often exempt from regulatory oversight, use leverage, and often employ aggressive financial strategies such as short selling and placing large bets on individual companies or sectors of the market. Hedge funds typically have high minimum investment requirements that make them suitable only for professional and wealthy investors.
A customer wants preservation of capital and safety of income. Which of the following securities would best meet the customer's objectives?
Purchasing several AA- or better-rated municipal bonds with various maturity dates is more advantageous than purchasing just one municipal bond. The investor is diversifying his portfolio. If the investor purchased one bond and it were to default, he would no longer receive interest payments. The market value of the bond would decline considerably, causing a severe loss for the investor. Income bonds and debentures are not as safe as municipal bonds.
Which TWO of the following situations require written notification to an employer? A registered person is leaving the country on a business trip for more than three months A registered principal is serving on the board of directors of a private company A registered person wants to act as a consultant for a private placement of a security that is not being offered by her broker-dealer A registered principal intends to purchase corporate securities in a personal account established at her employing broker-dealer
Registered personnel who pursue outside business interests and who will be compensated, or who participate in private securities transactions, must provide their employers with prior written notification. The employer may then approve or disapprove the participation. A registered person who has an existing account at her firm does not need to provide written notification to her employer for each transaction.
Which TWO of the following activities would require special disclosure documents? Penny stock trading Trading in high-yield bonds Day trading Online trading
Regulators have singled out penny stock investing and day trading as presenting significant risks that warrant providing special risk disclosure documents.
Which of the following securities would be LEAST suitable for an investor interested in preservation of capital?
Reverse convertible securities would not be suitable for an investor interested in preservation of capital. Reverse convertible securities are short-term notes issued by banks and broker-dealers that usually pay a coupon rate above prevailing market rates. They are considered structured products because, in addition to the coupon rate, the investor may be required to purchase shares of an underlying asset at a fixed price. The underlying asset may be an equity security unrelated to the issuer, or a basket of stock, or an index. The issuer agrees to pay this higher coupon rate since it has an option to sell a security to the investor if the price of the security falls below a specified value known as the knock-in level. If the price of the underlying asset stays above the knock-in level, the investor will receive the high coupon and the full return of his principal (the most beneficial option). If the underlying asset falls below the knock-in level, the investor will be obligated to purchase shares of the underlying asset at a fixed price. The price of this asset may have depreciated below the knock-in level and the investor may receive substantially less than the original principal.
SEC regulations state that a brokerage firm must provide a current financial statement (balance sheet) to:
SEC regulations states that a brokerage firm must provide a current financial statement (balance sheet with net capital computation) to a customer upon request. The customer has the right to know the financial condition of the company with which she is doing business.
Emily and her sister Lucy have the following accounts at a brokerage firm. Emily has a cash account with $420,000 of securities. Lucy has a margin account with $665,000 of securities and a debit balance of $365,000. A cash account for Emily and Lucy as JTWROS with $290,000 in securities. If the brokerage firm were to go bankrupt, SIPC would provide a maximum of:
SIPC provides protection of $500,000 for each customer (different account title). Since each account has a different title, each would receive coverage of $500,000 of securities. Emily's cash account would receive $420,000 and the joint account would receive $290,000. SIPC will cover Lucy's current equity in a margin account of $300,000. The total coverage is $1,010,000 ($420,000 + $300,000 + $290,000).
A high net worth investor seeking safety of principal would MOST likely invest in:
Safety of principal refers to a customer being able to preserve or retain the initial amount of the investment over its life. Many bonds and bond funds offer investors this feature. The higher the rating, the greater the likelihood the investor will achieve safety of principal. An investment-grade corporate bond fund would offer more safety of principal than non-investment- grade and convertible corporate bonds. A variable annuity may fluctuate in value based on the subaccounts chosen by the investor.
A customer in his late twenties wants capital appreciation and is willing to take a moderate degree of risk in his initial investment. The customer is also concerned about the inflationary risk to his portfolio. Which of the following investments is MOST suitable?
Since the investor is concerned about inflationary risk, and is willing to accept a moderate degree of risk to his initial investment, equities would be the most appropriate investment. If the investor wanted a tax-deferred investment with the same investment objectives, variable annuities would be the most suitable choice.
The Bond Buyer's 30-day visible supply includes: Competitive municipal bond issues Negotiated municipal bond issues Treasury bill issues Corporate bond issues
The Bond Buyer's 30-day visible supply is an indication used to reflect the amount of new offerings coming to the marketplace in the next 30 days. It carries figures for both competitive and negotiated municipal bond issues and notes maturing in 13 months or more.
Which of the following statements is TRUE regarding the Interbank market?
The Interbank market is the purchase and sale of foreign currencies among large banks. The market helps establish the cash (spot) prices for foreign currencies. Spot prices are often referred to as the spot rate.
The Federal Reserve Board was given the authority to set margin requirements according to the provisions of the:
The Securities Exchange Act of 1934 gave the Federal Reserve Board the power to set margin requirements. This is done through Regulation T (for broker-dealers) and Regulation U (for banks and lenders other than broker-dealers).
SIPC is a(n):
The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation that was created by an act of Congress in 1970. SIPC insures a customer's account for up to $500,000 in the event of a brokerage firm's failure. SIPC is not a government-sponsored agency or a regulatory body.
Which item of the following information is NOT generally included on an options confirmation?
The contrabroker is the broker on the other side of the trade. The contrabroker's name is not generally included on a confirmation. All of the other items are included on an options confirmation.
If an analyst wants to determine a company's ability to pay its liabilities that will be maturing in one year with its liquid assets, he will be most interested in the:
The current ratio is a comparison of current assets to current liabilities for a one-year period and is used as an indicator of a company's ability to pay those liabilities. On the other hand, the acid-test (quick asset) ratio excludes the company's inventories and is usually for a one- to three-month period.
A customer entered a market order to purchase 100 shares of XYZ Corporation. The brokerage firm confirms to the customer the purchase of 100 shares of XYZ Corporation at 28.25. The firm later finds that the purchase was actually executed at 28.75. The customer:
The customer must pay 28.75, which was the actual purchase price, even though the brokerage firm confirmed (erroneously) to the customer that the purchase was made at 28.25
Ashton purchased 100 shares of XYZ common stock in January 2003, at a price of $25 per share. XYZ pays a quarterly dividend of $.25 per share. Today, XYZ closed at $30 per share. What is the dividend yield of XYZ common stock?
The dividend yield for a stock is equal to the annualized dividend divided by the current market price. Since dividends are paid quarterly, the annual dividend is $1 per share ($.25 x 4). The annualized dividend of $1 divided by the current market price of $30 per share results in a dividend yield of 3.33%.
What is the maximum amount a customer may withdraw from a Special Memorandum Account?
The full amount or 100% of the SMA may be withdrawn. The buying power is 2 times the SMA.
An insider of XYZ Corporation buys XYZ stock in the open market at $63 per share. Now, 10 months later, the insider intends to sell the stock at its current market price of $68 per share. Which TWO of the following statements are TRUE regarding this transaction? The sale is subject to the six-month holding period under Rule 144 This sale is not subject to the six-month holding period under Rule 144 The sale is subject to the volume limitations under Rule 144 The sale is not subject to the volume limitations under Rule 144
The key to this question is to realize that the investor is an insider who acquired his shares through an open market purchase; therefore, he is holding control stock. Under Rule 144, control stock is not subject to the holding period requirement. However, both control and restricted stock are subject to the volume limitations that are imposed by the rule. If an investor is holding restricted (unregistered) stock, Rule 144 requires that it be held for six months before it may be resold.
Which of the following choices represents the percentage of new municipal issues brought to market during a particular week that has already been sold?
The placement ratio represents the percentage of new municipal bond issues of $5,000,000 or more that has been sold in a particular week. The Bond Buyer compiles this ratio.
Which of the following bonds results in the highest real interest rate?
The real interest rate, also called the real rate of return, refers to yields adjusted for inflation (yield minus inflation rate). Choice (a) provides the highest real interest rate (8% bond yield minus 3% inflation rate equals 5% real interest rate).
A customer is most interested in safety of principal and wishes to avoid risk. List the securities you would recommend to the customer from those with the LEAST risk to those with the MOST risk. General obligation bonds Treasury notes Treasury bills Revenue bonds
The safest security with the shortest maturity is Treasury bills, followed by the longer-term Treasury notes, followed by general obligation bonds, and then revenue bonds.
Rockland County has issued industrial development revenue bonds for the benefit of the Hudson Nail and Screw Co. In evaluating the credit quality of these bonds, an investor should look primarily at
The security backing the industrial development revenue bond is the lease payment made by the corporation. An investor must assess whether Hudson Nail and Screw can meet this obligation by generating sufficient revenues from its primary business
An individual in the 28% tax bracket can purchase an 8 1/2% municipal bond at par. What taxable yield would be required to equal the yield on the municipal bond?
The taxable equivalent yield of a municipal bond equals the municipal yield divided by the complement of the tax bracket (100% minus the tax bracket). In this example, the municipal yield (8 1/2%) divided by the complement of the tax bracket (72% or 0.72) equals 11.8%.
The term fast market is characterized by which TWO of the following descriptions? An imbalance of orders A very low number of trades Highly volatile prices The quotes of market makers being updated very quickly
The term fast market is characterized by very heavy trading, fast moving prices, and high volatility. There also may be an imbalance in the number or shares clients are willing to buy or sell. For example, there are 500,000 shares to buy and only 100,000 shares to sell. Quotes may take a long time to update since prices and trades are moving so quickly. A client's order may take a longer time to execute, and if a market order is entered by a client, the price received may be significantly higher or lower then the quoted price.
A municipal bond with a 6% coupon is priced at a 7.20 basis. If the bond's yield to maturity increases by 40 basis points, the yield to maturity is:
The term priced at a 7.20 basis refers to a serial bond that is priced to yield 7.20 or a YTM of 7.20%. If the bond's basis increased by 40 basis points, the new yield to maturity is 7.60%. The 6% coupon rate is relevant if the question asked about whether the bond was trading at a discount or a premium. Since the YTM is greater than 6%, the bond is trading at a discount.
An investor purchases $25,000 of a mutual fund when the price of the fund is $13.20. In the same year, the investor receives a $400 dividend distribution and a capital gain distribution of $700. Both distributions are reinvested in additional shares at a price of $12.80. If the fund has a current value of $14.50, what is the investor's cost basis using the average cost method?
To calculate the cost basis using the average cost method, divide the total sum of all investments by the shares owned by the investor. The investor purchased $25,000 of the fund at a price of $13.20. The total number of shares purchased was 1,893.94. He also received a total of $1,100 in distributions, all reinvested in additional shares when the price was $12.80. The number of shares purchased is 85.94. The total amount invested is $26,100. The total number of shares owned is 1,979.88. Therefore, the average cost is $13.18. The current value of the fund is not relevant.
XYZ Mutual Fund, an open-end investment company, has an NAV of $20 and a public offering price of $21.40. The prospectus states that the sales charge for purchases of fund shares of $25,000 through $49,999 is 4%. Approximately how many shares can the customer buy for $35,000?
To compute the number of shares that can be purchased, first determine how much of the investment will go to the sales charge. This amount is $1,400 ($35,000 investment x 4% sales charge). This leaves $33,600 for purchasing shares. The investor will purchase 1,680 shares ($33,600 divided by $20 NAV per share). You do not divide by the public offering price since it includes a sales charge and you have already deducted $1,400 in sales charges.
A convertible bond is convertible at $25 and is selling in the market at 108. At what price should the common stock be selling for it to be at parity with the bond?
To find the number of shares the bond is convertible into (i.e., the conversion ratio), divide the conversion price into the par value ($1,000 divided by 25 = 40 shares). To be at parity, the 40 shares must be equal to the value of the bond which is 108 or $1,080. Dividing 40 shares into $1,080 gives the parity price of the stock of $27.
Which of the following statements is TRUE about treasury stock?
Treasury stock is issued stock that has been repurchased by the corporation and is retired. It is treated as a deduction from the outstanding shares of a corporation and is no longer part of the capitalization of the corporation. It has no voting rights and does not receive dividends.
According to MSRB rules, a municipal securities representative is NOT permitted to:
Under MSRB rules, any person in a supervisory position must qualify as a principal.
Lyle, Molly, and Seena have a joint account registered as Tenants in Common. In the event that Seena dies, which of the following statements is TRUE?
Upon learning of Seena's death, the brokerage firm will freeze the account. Seena's executor will then provide documentation to establish authority to act on behalf of the estate. Typically, Seena's estate will become the third joint owner in the existing Tenants in Common arrangement.
A customer fails to pay for securities by payment date. Which of the following statements is TRUE?
When a customer fails to pay for securities, the account is restricted (frozen) for 90 days. Before the customer may buy additional securities, the customer must deposit the full purchase price of the securities in the account. This is a Regulation T requirement. The other choices are incorrect.
In a new issue of municipal bonds, the syndicate manager will fill orders in which of the following priorities?
When allocating a new issue of municipal bonds, the normal priority of orders is the following: Presale Group net Net designated Member
When the stock is called away from the writer, he is obligated to sell the stock at the strike price of 50, receiving $5,000. The writer also received the premium of $400. Since the stock cost $5,600 to buy in the market, the writer incurs a loss of $200 ($5,600 cost - $5,400 received).
When an account is frozen, the customer must have in the account what is required to complete the trade before an order may be accepted. This means that the required monies or securities must be in the account prior to accepting any purchase or sale orders. Choice (d) is not permitted as the securities are not held in the account at the time of accepting the sell order.
An investor writes an uncovered ABC March 50 call for a premium of 4. At expiration, ABC is at $56 per share and the call option is exercised. If the stock is purchased by the writer at the current market price for delivery, what is the writer's profit or loss?
When the stock is called away from the writer, he is obligated to sell the stock at the strike price of 50, receiving $5,000. The writer also received the premium of $400. Since the stock cost $5,600 to buy in the market, the writer incurs a loss of $200 ($5,600 cost - $5,400 received).
Which TWO of the following statements are TRUE regarding municipal fund security performance-based advertisements? I.The minimum sales load should be stated in the ad II.The maximum sales load must be stated in the ad III.Sales charges may not be reflected in performance data IV.Sales charges must be reflected in performance data
A 529 College Savings Plan is a type of municipal fund security. If performance based advertising is used, the maximum sales charge must be disclosed and must be reflected in the performance data within the advertisement.
The security with the longest expiration date would normally be a:
A warrant generally has an expiration date longer than a put, call, or right. There are some warrants which never expire.
Which of the following services does NOT rate fixed-income securities?
AMBAC insures new municipal bond issues. Moody's, Standard & Poor's, and Fitch are credit rating services.
Which of the following municipal securities are MOST likely to be backed by ad valorem taxes?
Ad valorem tax is a tax whose amount is based on the value of property (i.e., property tax is a form of ad valorem tax). Local governments, such as school districts, secure their general obligation bonds by ad valorem taxes. On the other hand, state G.O. bonds are secured by forms of taxes other than property taxes (e.g., income and sales tax). Special assessment bonds are revenue bonds that are backed by assessments that are made on those who directly benefit from the facilities, such as developing or improving water and sewer systems, sidewalks, and streets. Certificates of participation (COPs) are lease financing agreements which are typically issued in the form of tax-exempt or municipal revenue bonds.
Which of the following choices is NOT present in an equipment leasing program?
Depletion relates to natural resources only (oil and gas, for example).
A customer buys an IBM call option and pays a 2.50 point premium. The aggregate dollar amount paid is:
Each option contract is based on 100 shares of common stock. The dollar amount paid is $250 ($2.50 x 100 shares).
Fred Brick recently requested annuitization after contributing to a variable annuity for 12 years. The actuary applied an assumed interest rate of 3% and determined his first payment. The performance of the separate account on an annualized basis for the three months following annuitization is: 5%, 3%, and 4%, respectively. Which of the following statements can be made about Mr. Brick's payments?
If the performance in the separate account is greater than the assumed interest rate (AIR), payments will increase. If performance is less than the AIR, payments will decline, and if performance equals the AIR, payments will remain the same. Comparisons are made to the previous month and not to the original month. In the third month, the performance of 4% was higher than the AIR, resulting in a payment that was greater than the previous month's payment.
Prior to being listed on an exchange, which of the following factors must be evaluated? The number of shareholders The dividend payout The earnings record The current market price
Listing requirements include: a minimum number of round-lot shareholders, a minimum number of shares publicly held, minimum market values, a positive earnings history, and national interest in the stock. The amount of dividends paid or the dividend payout ratio is not a factor.
