Series 65 Chapters 1-5
A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year or for the two previous years. How much must the company pay the customer per share before it may pay dividends to the common stockholders?
$24
An investor buys five put contracts with a strike price of $55 per share. The current price of the underlying stock is $60 and the option premium is $7. The commission schedule is as follows:
$59.50
The board of directors of DDC omitted dividends in 2020 on their $100 par 6% noncumulative preferred stock. In 2021, a $2 preferred dividend was paid. For DDC, 2022 has been a good year, and the board wishes to pay a common dividend. How much must be paid per share on the preferred for 2022 in order to pay a common dividend?
$6
A common measurement used to evaluate attitudes regarding future economic conditions is the difference in yields between U.S. Treasury bonds and corporate bonds. This is known as
A Yield Spread
The long party in a futures contract has entered the contract as
A buyer
Which of the following statements best describes a preemptive right?
A privilege extended to existing holders of a company's common stock enabling them to maintain their proportionate interest in the company when additional shares are issued
Which of the following financial instruments is not a derivative?
A share of stock
Which of the following ETFs would have a negative correlation with the underlying index?
ABC Inverse ETF
An option that may be exercised before its expiration date is said to be
American Style
Which of the following statements regarding international investing is not correct?
An emerging market is a market in a highly developed foreign economy with stable political and social institutions.
An investor will likely exercise a put option when the price of the stock is
Below the strike Price
Increases in which of the following indicators are regarded as predictors of the level of business activity?
Building permits
An investor wishing to add some diversification to his portfolio wants to purchase 200 shares of an ADR for a Japanese electronics manufacturer. The ADR is listed on the NYSE. Which of the following risks should be of most concern to this investor?
Business:Currency
If near-term liquidity is the only objective for a client, which of the following pairs of investments represents the most/leastliquid?
Common stock listed on the New York Stock Exchange/unit in a direct participation program (DPP)
Which of the following have equity positions in a corporation?
Common stockholders:Preferred stockholders
Investments in which of the following offer the best long-term protection against inflation?
Common stocks
While reviewing nationwide industrial production figures, an analyst notices that inventories have been rising. From that information, one would gather that the economy is most likely in which phase of the business cycle?
Contraction
Under Rule 144, which of the following sales are subject to volume limitations? Control person selling registered stock held for one year Control person selling restricted stock held for two year Nonaffiliate selling registered stock held for one year Nonaffiliate selling restricted stock held for two year
Control person selling registered stock held for one year:Control person selling restricted stock held for two year
Which of the following statements about dividends on common stock is not true?
Corporations are contractually obligated to pay dividends to their shareholders each year.
Which of the following is not a characteristic of American depositary receipts (ADRs)?
Dividends are declared in the foreign currency, so exchange rate, or currency, risk is completely eliminated.
If you overheard an analyst referring to an investment's indicative value, the discussion would most likely be about
ETNs.
Which of the following statements concerning equity securities is not correct?
Equity securities represent a lending interest in a corporation.
Which of the following is a risk faced by investors in foreign stocks that is not found when investing in domestic issues?
Exchange rate risk
Which of the following investments would not be considered exchange-traded derivatives?
Forwards
If a woman owns 9% of the common shares of XYZ and her spouse owns 2% and wishes to sell his shares, which of these is true?
He is considered an affiliate:He must file a Form 144 to sell.
Which of the following is a coincident economic indicator?
Industrial Production
Which of the following statements concerning international direct investing is correct?
Information is not as readily available on foreign investments as on domestic ones.
Investing in emerging market stocks is least likely to expose your client to which of the following risks?
Interest rate
Which of the statements below best describes why a normal yield curve is positively sloped?
Investors demand higher interest when lending their money for longer periods.
Which one of the following option positions would generally command the greatest time value?
LEAPS
One of your advisory clients indicates that he would like to sell forward contracts in soybeans. It would be wise to warn the client that he will be facing which of these risks? Liquidity Creditworthiness of the buyer Lack of assurance that the delivery price will remain stable Location for the delivery may change
Liquidity:Location for the delivery may change
Options are a popular tool for reducing investment risk. Which risk is hedged when a corporation buys call options on its own common stock?Market risk
Market risk
An investor would write a call option to
Obtain Income
Which of the following would be considered a precious metal?
Platinum
An investor holding which of the following equity securities would not expect to have preemptive rights?
Preferred stock
Which of the following statements regarding preemptive rights is true?
Preferred stockholders do not have the right to subscribe to a rights offering.
The term derivative would not apply to which of the following?
REITs
The writer of a call option
Receives the premium
If the Consumer Price Index (CPI) is down but consumer demand is up, the economy is likely in which stage of the business cycle?
Recovery to expansion
Generally, an inverted yield curve is caused by
Rising Interest Rates
An investor is long stock in a cash account and does not expect the price to change in the immediate future. His best strategy to generate income may be to
Sell a Call
Which of the following industries would be least cyclical?
Supermarket chain
The economic theory that says economic growth results from lower tax rates and reduced government regulation is
Supply-side theory
Which of the following is not a characteristic of owning a limited partnership?
Tax-free income
Which of the following statements regarding the general partner (GP) in a direct participation program (DPP) is not true?
The GP, as the active manager of the partnership, does not maintain a financial interest in the partnership and only receives income distributions from profits on the business prior to the limited partners.
Which of the following statements regarding ADRs are true? The securities are vehicles used to facilitate U.S. trading of foreign securities. Dividends are received in the foreign currency. Holders have foreign currency risk. The receipts are issued by a foreign branch of a domestic bank.
The securities are vehicles used to facilitate U.S. trading of foreign securities:Holders have foreign currency risk.
Which of the following statements regarding a 100% stock dividend are true? The share price is reduced by half. The total market value of the outstanding stock decreases. The total market value of the outstanding stock may increase or decrease as a result of the split. The number of shares doubles.
The share price is reduced by half.:The number of shares doubles.
If a customer owns 7% of a publicly traded company's stock and his spouse owns 6% and wants to sell her shares, which of the following statements is true?
The spouse is an affiliate and Rule 144 applies.
Which of the following is true regarding ETNs?
Their value can be impacted by changes in the issuer's credit rating.
Which of these is among the advantages of including preferred stock in an investor's portfolio?
There is an opportunity for increased income if the issuer's profits increase.
A client is considering the purchase of American depositary receipts (ADRs). She is looking to further diversify her portfolio. Which of the following is not a feature of this type of investment vehicle?
They are not subject to exchange rate, or currency, risk.
Which of the following are characteristics of newly issued warrants?
Time value and intrinsic value
All the pundits are predicting bad times ahead—not only a recession but a period where prices actually fall (deflation). If they are right, the best place for your client would probably be
U.S. Treasury securities.
An investor regularly reads financial blogs on the internet, and they are filled with articles suggesting that the economy is headed for a slump. Some are even saying that there will be price deflation. If these projections are accurate, the best place for the investor to place funds would probably be
US Treasury Bonds
All of the following pay dividends except
Warrants
The term derivative would apply to which of the following?
Warrants
One of the differences between call options, rights, and warrants is that
a corporation can't issue call options on its own stock.
One of the benefits of adding precious metals to an investor's portfolio is
a potential inflation hedge.
A number of different pooled investment vehicles are included in the term alternative investment. One of them, a synthetic investment instrument that has been created to meet a specific need that cannot be met by a standardized financial instrument, is known as
a structured product.
An investor in an equity security
acquires an ownership interest in the company.
One of your customers owns 300 shares of the 5% $100 par cumulative preferred stock issued by the Northern Atlantic Railroad (NAR). The cumulative feature provides that
all unpaid dividend arrearage must be brought current before a dividend may be paid on NAR's common stock.
An investor may expect to receive dividends from
an ADR.
An exchange-traded fund whose strategy is to generate performance opposite that of the designated index is called
an inverse fund.
If an investor was of the opinion that the market was going to have a bad day, to maximize that investor's gains, you might recommend
an inverse leveraged ETF.
Corporations have found that one way to increase employee motivation is to grant options to purchase stock in the company. Incentive (qualified) options differ from nonqualified options in all of the following respects except
at the time of the grant, the recipient of the grant of the ISO has no income tax consequences while the recipient of the NSO treats the bargain element as compensation.
All of the following statements regarding futures contracts are correct except
completing a futures contract requires the delivery of the commodity.
In order to achieve its goals, an inverse ETF uses
derivatives and debt.
The term digital assets would include all of the following except
electronic communications such as email.
A corporation would like to offer their employees an opportunity to participate in the future growth of the company. Among the methods you might suggest are A)
employee stock options.
A commodities speculator purchases a 1,000-bushel wheat futures contract at 50 cents per bushel. At expiration, the settlement price is 45 cents per bushel. This individual
has a $50 loss.
An employee wishing to obtain long-term capital gain treatment would prefer the employer to offer
incentive stock options
Among the characteristics of leveraged exchange-traded funds is that
leveraged ETFs may be purchased on margin.
One of your clients is 10 years away from retirement and is trying to decide what would be a suitable investment for this year's IRA contribution. You would probably not recommend
leveraged ETFs.
One of your clients purchases a European-style put option on a stock. The premium is $3 and the exercise price is $35. If the price of the underlying asset is $40 on the exercise date, the client has
lost $200.
Lisa is considering investing in gold. She owns a portfolio of stocks, bonds, and money market securities. Relative to her existing portfolio, the primary benefit of the gold investment is most likely
low correlation between traditional asset returns and gold.
In a DPP, a general partner is all of the following except
one who has limited liability.
Your client who owns a DPP that generated a $10,000 passive loss for the year could
only deduct the passive loss against passive income.
A company that has issued cumulative preferred stock
pays past and current preferred dividends before paying dividends on common stock.
Commodities contracts are available on
platinum
An investor who is long XYZ stock would consider going long an XYZ call to
protect against an increase in the market price of XYZ stock.
In May, an investor purchased a futures contract to purchase 5,000 bushels of wheat at $4.30 per bushel for December delivery. On settlement date, the spot price of wheat is $4.20 per bushel. For the investor, this
represents a loss of $500.
Covered call writing is a strategy where an investor
sells a call on a security he owns to reduce the volatility of the stock's returns and to generate income with the premium.
In search of higher returns, many investors have turned to alternative investments, such as structured products. Non-exchange-traded structured securities products (SSPs) typically have
some form of embedded derivatives.
In contrast with a typical forwards contract, futures contracts have
standardized terms.
An investor owns a 2x leveraged inverse ETF. If the underlying index should decrease in value,
the ETF shares will increase in value by a factor of 2.
One way in which incentive stock options (ISOs) differ from nonqualified stock options (NQSOs) is that
the bargain element of the ISO is an AMT preference item.
A business reporter claims that we are suffering from inertial inflation. This means
the current rate of inflation will remain at this level until economic shocks cause it to change.
ADRs are used to facilitate
the domestic trading of foreign securities.
Three years ago, an investor purchased 1,000 shares of stock in the Equity Protective Life Insurance Company (EPLIC). The purchase price was $53 per share. The current market value of EPLIC stock is $79 per share. If the investor is in the 24% federal income tax bracket, it is correct to state that
the investor owes tax on a $26,000 long-term capital gain.
An investor would exercise a put option when
the market price of the stock is below the strike price.
Derivatives can serve many purposes. However, investors should be aware that there are positions which can result in
unlimited loss.
All of the following pay dividends except
warrants
