S66 UNIT 2
B
A European style option differs from an American style option primarily in that it: A. derives its value from some underlying asset B. can only be exercised on its expiration date C. is primarily used for options on foreign securities D. is generally offered with a limited numbers of expiration dates
A
A bond selling at a premium over par value. Therefore its: A. current yield is less than its nominal yield B. nominal yield is less than its current yield C. yield to maturity is greater than its current yield D. none of the above
C
A change in interest rates will have the most immediate impact upon: A. common stock B. ETFs C. preferred stock D. REITs
B
A client has invested $25,000 into a variable annuity which has grown to $150,000 over the accumulation period. At age 60, the account is liquidated. The tax treatment of the withdrawal would be: A. capital gains tax on $125,000 B. ordinary income tax on $125,000 C. ordinary income tax on $125,000 with a 10% tax penalty D. partly ordinary income and partly capital gains depending on the length of time the variable annuity was in force
A
A debenture is issued based on: A. the general credit of the corp. B. a pledge of real estate C. a pledge of equipment D. the ability to levy taxes
D...choice A would be correct if it was Moody's rating system
According to S&P's rating system, the 4 highest grades of bonds (from best to lowest) are: A. Aaa, Aa, A, Baa B. A, Aa, Aaa, B C. B, A, AA, AAA D. AAA, AA, A, BBB
B
All of the following are advantages of universal life insurance EXCEPT: A. ability to adjust the amount of premium payments B. the policy is guaranteed never to lapse C. ability to change death benefit amount D. when the cash value is sufficient, no premium payment is required
D
All of the following are true about GNMAs EXCEPT A. they are backed by the U.S. government B. they provide funds for residential mortgages C. interest on GNMAs is not exempt from state and local taxes D. interest is paid semiannually
B
All of the following are true of government agency bonds EXCEPT: A. they are considered relatively safe investments B. they are direct obligations of the U.S. government C. they trade openly D. older ones have coupons attached, new ones are book entry
I and IV
Among the advantages of including preferred stock in an investor's portfolio are: I. dividends must be paid before any distribution to common SH's II. a rate of return that is likely to keep pace with inflation III. the opportunity for increased income if the issuer's profits increase IV. a fixed rate of return that is likely higher than that for debt security offered by the same issuer
B
Among the purposes of purchasing derivatives would be all of the following EXCEPT: A. hedging B. income C. profits D. speculation
D
An owner of an annuitized annuity can do all the following EXCEPT: A.receive the benefits on a monthly basis until the time of death B. receive the benefits for life with a certain minimum period of time guaranteed C. have a joint life with last survivor clause with payments paid until the death of the last survivor D. receive monthly payments for a defined period and then 2 years later change the contract to payment for life
A
Holders of each of the following are creditors EXCEPT investors owning: A. preferred stock B. corporate bonds C. muni bonds D. government bonds
C
In general, the type of security offering the greatest degree of safety to an investor is: A. common stock B. debentures C. mortgage bonds D. preferred stock
A
Insurance companies selling annuities offer a variety of purchase options to owners. Which of the following definitions regarding these annuity options is NOT true? A. Accumulation annuity - an annuity that allows the investor to accumulate funds in a separate account before investment in an annuity B. Single premium deferred annuity - an annuity with a lump-sum investment, with payment of benefits deferred until the annuitant elects to receive them C. Periodic payment deferred annuity - allows a person to make periodic payments over time. The contract holder can invest money on a monthly, quarterly, or annual basis D. Immediate annuity - allows an investor to deposit a lump sum with the insurance company. Payout of the annuitant's benefits starts immediately, usually within 60 days
C
Municipal bonds are often called tax-exempts. This refers to the exemption of their income from: A. state, federal, and inheritance taxes B. state income taxes C. federal income taxes D. inheritance taxes
A
On July 15, 2013, your client purchased a variable life insurance policy with a death benefit of $500,000. The November 2015 statement showed a cash value of $30,000. If the client wanted to borrow a much as possible, the insurance company would have to allow a loan of at least: A. $0 B. $15,000 C. $22,500 D. $27,000
A
One way in which closed-end management investment companies differ from open-end investment management companies is that: A. they trade at a price independent of their NAV B. their portfolio may contain common stock, preferred stock and debt securities C. they are federally covered securities D. they were in existence prior to 1940
C
The LIBOR rate is established on a daily basis in: A. Liberia B. Libya C. London D. New York
C
The Wall Street pundits are predicting a substantial increase in interest rates. If they are correct, which of the following bonds would be most sensitive to that increase? A. 5s of 2035 B. 5s of 2040 C. 5s of 2045 D. 4s of 2020
B
The current yield on a bond with a coupon of 5.5% selling at 110 is: A. 2% B. 5% C. 5.5% D. 6%
C
The term derivative would apply to which of the following? A. DPPs B. REITs C. warrants D. UITs
C
The term derivatives would not include: A. futures on commodities B. interest rate swamps C. REITs D. LEAPS
D
When comparing mutual funds and variable annuities, it would be correct to state that: A. both offer tax-deferred growth of earnings B. both require the salesperson posses a securities and an insurance license C. the surrender charges on a mutual fund are usually higher than on a variable annuity D. the expense ratio of the variable annuity is usually higher than that of a comparable mutual fund
D
When treasury bills are issued, they are quoted at: A. a premium over par B. 100% of par value C. par value with interest coupons attached D. a discount from principal with no coupons attached
D
Which of the following is indicative of the primary difference between variable life insurance and straight whole life insurance? A. amount of insurance that can be issued B. cost of the insurance C. tax treatment of the death proceeds D. way in which the cash values are invested
I and II
Which of the following securities trade on regulated stock exchanges with their prices being determined by supply and demand? I. closed-end investment companies II. exchange-traded funds III. face amount certificate companies IV. mutual funds
D
Which of the following statements regarding derivative securities is NOT true? A. Derivatives securities can be sold on listed exchanges or in the OTC market B. An option contract is a derivative security because it has no value independent of the value of an underlying security C. An option contract's price fluctuations in relationship to the time remaining to expiration as well as with the price movement of the underlying security D. An owner of a put has the obligation to purchase securities at a designated price (the strike price) before a specified date (the expiration date)
C
Which type of investment company is most often organized as a limited partnership? A. face-amount certificate company B. exchange traded funds C. hedge fund D. unit investment trust
II, III, and IV
With an annuity: I. taxes on earned dividends, interest, and capital gains are paid annually, until the owner withdraws money from the contract II. random withdrawals are handled under LIFO tax rules III. money invested in a non-qualified annuity represents the investor's cost basis IV. upon withdrawal, the amount exceeding the investor's cost basis is taxed as ordinary income
