Series 7 - Master Exam
Fees can have a major impact on long-term performance of an investment. Your client interested in purchasing a periodic payment deferred annuity would not be concerned about 12b-1 fees.
12b-1 fees only apply to open-end investment companies while all of the others are typical fees or charges levied against variable annuities.
A Syndicate is underwriting $200 million in municipal bonds and sets up a Western underwriting account with 10 syndicate members. Only one syndicate member, Atlas Municipal Securities sells out its 10% commitment, amounting to a total of $20 million sold by them. At the syndicate settlement date, $18million of bonds are still unsold. The financial obligation of AMS is: $0.00
A western account means divided liability where each member is responsible for his allocation only and has no liability for any remaining bonds left unsold by other syndicate members.
The calculation of accrued interest for a municipal bond: includes interest from and including the last payment date.
Accrued interest represents the amount of interest that has accrued back through and including the last interest payment date. It is computed up to, but not including, the settlement date and, for corporate and municipal bonds, is based upon a 30-day month and a 360-day year.
The official notice of sale to solicit competitive bids for a new municipal bond issue is usually published in the bond buyer.
Although some of these notices are published in the issuer's local press, substantially all are found in the Bond Buyer
Flow-through is one of the characteristics of a DPP. In general, for tax purposes, losses cannot exceed a limited partner's cost basis. Which of the following would be a way to increase that cost basis?
Assumption of recourse debt. A LLP's cost basis generally consists of the original investment, any calls for additional capital, and assumption of recourse debt - and non-recourse debt in real estate deals.
Your broker-dealer is compiling a list of investments suitable for a qualified retirement plan. The list should NOT include: investment-grade municipal bonds
Earnings in a qualified retirement plan account grow tax deferred. Municipal bonds are not a suitable investment for a qualified retirement account because the interest payments they provide are already tax exempt.
An appeal of an adverse Code of Procedure decision may be made by either party within 45 days of the decision date.
Either party may appeal a ruling from a disciplinary hearing within 25 days of the rendering of the decision. The first appeal is to the National Adjudicatory Council.
A new registered representative is a member of your team and asks you about prospectus delivery requirements. It would be correct to state that delivery of a prospectus to a customer is NOT required for the purchase of - a new issue of general obligation bonds.
GO bunds, as municipal securities, require the delivery of an official statement, NOT a prospectus.
In a direct participation program limited partnership for tax purposes, income for the general partners is earned income, but for the limited partners it is passive income.
In a direct participation program limited partnership for tax purposes, income for the general partners is earned income, but for the limited partners it is passive income.
When a limited partnership interest is sold, gain or loss to the partners is determined by the difference between the sales proceeds and the adjusted cost basis.
In the case of LLPs, the cost for ta purposes is usually subject to a number of adjustments and may be higher or lower than the original investment.
A registered representative is obligated to adhere to the prospectus delivery requirements of the Securities Act of 1933 when making a sale of - Shares of the STU open-end investment company, a fund whose portfolio makeup is exclusively U.S. Treasury issues.
Open-end investment companies (mutual funds) register their shares under the Securities Act of 1933. As a continuous new issue, a prospectus must precede or accompany any sale.
Savings incentive match plans for employees - SIMPLES are funded with pretax contributions and allow catch-up contributions for those age 50 and older.
SIMPLS are qualified plans funded with pretax contributions. Like most qualified plans, they allow catch-up contributions for those age 50 and older.
Securities exempt from regulation under the Trust Indenture Act of 1939 include short-term commercial paper and secured corporate bonds.
The Trust Indenture Act of 1939 deals only with corporate bonds. Treasury bonds and municipal bonds would be exempt from regulation under the Act of 1939. Promissory notes, such as commercial paper, would be covered if the maturity was over 270 days.
The capital asset pricing model - CAPM states that: the pricing of a stock should take into account systematic risk as well as nonsystematic risk.
The capital asset pricing model states that the pricing of a stock should take into account systematic risk as well as the expected return of a theoretical risk-free asset.
Some information found on a municipal bond confirmation is only relevant to new issues. One example of this type of information is the in-whole call dates.
The dated date is the first day that interest begins to accrue on a new issue. Once the bond makes its first interest payment, the dated date is no longer relevant.
For corporate retirement plans, which of the following characterizations is true? Defined contribution plans use actuaries to determine contribution so that the exact benefit at retirement is known well in advance. The plans favor those with longer time left to retirement.
The plans favor those with shorter time left to retirement. The plans favor those with shorter time left to retirement. By contrast, defined contribution plans use a specified contribution amount, but the benefit at retirement is unknown. These plans favor those with longer time left to retirement.
A customer asks you for a quick, accurate definition of 12b-1 fees. A good reply would be that they are often referred to as asset-based distribution fees and are used to cover the costs of marketing and distributing the fund shares to investors. They can be used to compensate registered representatives with commissions for servicing an account (trailers), but are not sales charges.
They can be used to compensate registered representatives with commissions for servicing an account (trailers), but are not sales charges.12b-1 fees are not sales charges. Often referred to as asset-based distribution fees, they are assessed to be used for covering any marketing and distribution costs for the fund. They can also be used to pay commissions to registered representatives for servicing an account in which case the commissions are known as trailers.
An investor purchases a 7% general obligation GO bond on a 7.30 basis. If the bond is callable in five years at par and matures in 10years, it is true that - yield to call (YTC) is higher than yield to maturity (YTM).
When a bond's basis (YTM) is in excess of its coupon, the bond is selling at a discount. If a bond is selling at a discount its yields in ascending order will be coupon, current yield, YTM and YTC.
The term for the annual increase of cost basis of a municipal bond purchased at a discount is "accretion."
When a municipal bond is purchased at a discount, accretion of the discount will adjust the cost basis annually.
A corporate offering of 1 million additional shares to existing shareholders is a "rights offering."
When new shares are being offered to existing shareholders before the general public, it is done under the terms of a rights offering.
An investor owns 100 shares of XYZ at $5 per share. After a 1:2 reverse split, the investor will own - fewer shares that are each individually worth more than before the split.
With a reverse split, the number of shares goes down while the price of the shares goes up.
A couple with a child 10 years away from entering college has saved $160,000 for that single purpose. Which of the following portfolio mixes would be the most suitable for meeting the investment objective? 20% T-bills, 10% corporate bonds, 70% equities and equity funds
Zero-coupon bonds, which are purchased at a discount and mature at face value, are the most suitable investment for future anticipated expenses such as college tuition. The T-notes, which are medium term U.S. government securities, would additionally be a suitable investment where risk of principal loss wouldn't be a concern as it would with equities or corporate bonds.
XYZ Corp. has issued $30 million of debentures. Each bond issued has a warrant attached enabling the holder to buy three shares of XYZ common at $30 per share. If all of the warrants are exercised, XYZ Corp. will receive $2.7 million.
$30 million of bonds with a par of $1000 is 30,000 bonds. That means a total of 90,000 shares can be issued. If all are purchased at $30 per share, the company will receive $2.7 million.
A registered representative has recently retired couple in their late sixties as her customers. They each have a modest monthly pensions and collect social security benefits putting them in the lowest tax bracket. They accumulated savings and investments totaling $175,000.00 that they want to reallocate now that they are both retired. Which of the following portfolio asset allocations is most suitable for their current circumstances?
25% domestic equities, 60% investment grade bonds, 15% cash.
An investor would like to buy a stock currently trading at $44, but is willing to pay no more that $40. Which of the following orders would be the most appropriate for a registered representative to recommend? Place a buy limit order at $40.00
A buy limit of $40 will only be executed at $40 per share or less.
If the placement ratio found within The Bond Buyer is high, this would indicate that the market for municipal bonds is strong with dealers more likely to bid on new municipal issues.
A high placement ratio, also known as the acceptance ratio, indicates that most of the bonds coming to the market are being sold—in other words, a strong market. Under those conditions, dealers would tend to bid on new issues, because they will probably be easy to sell given the current market conditions.
A local school district needs to invest funds short term. This investment vehicle is known as
A local government investment pool - LGIP
A customer writes 1 ABC July 35 put at 3 when ABC is trading at 36. Maximum potential loss is $3,200.
A short put writer loses when the market price of the underlying stock declines. The lowest ABC can go is to zero. That means the put buyer can exercise the put and the writer is obligated to purchase worthless stock at the strike price of $35. But, the writer did receive a $3 per share premium so the maximum loss is 35-3 or $32 per share i.e. $3,200
XYZ Corporation issued 7 million shares of common stock in its initial public offering. It later purchased 500,000 shares of Treasury stock. XYZ recently engaged an underwriter to raise capital by selling an additional 3 million shares through a standby rights offering. By the expiration date of the offering, only 2 million shares were sold through exercise of the rights. As a result, how many shares will XYZ have outstanding? 9.5 million
After the 500,000 issued shares were repurchased for the Treasury, there were 6.5 million outstanding. In a standby rights offering, the underwriter agrees, on a firm commitment basis, to pick up any unsold shares and bear the responsibility for selling them to the public. Therefore, all 3 million of the additional shares are now outstanding for a total of 9.5 million shares.
An issuer interested in reducing its interest cost can use the call provision to call in outstanding bond issues. The issuer is most likely to call bonds with a high coupon and low call premium.
An issuer will always try to use the call provision to lower its interest cost when it has outstanding callable bonds.
One of your clients interested in a hedge fund notes that the fund invests in blank-check companies. He seems uncertain what blank-check companies are, so you explain that they are sometimes known as special purpose acquisition companies (SPACS) and are unique in that they have no business operations but instead raise money for the sole purpose of seeking out a business to engage in.
Blank-check companies, sometimes known as special purpose acquisition companies (SPACS), are unique in that they have no business operations. Instead, they raise money for the sole purpose of seeking out a business to engage in. Once businesses are targeted, proposals will be presented to shareholders who can vote to approve or not. While a blank-check company doesn't indicate what industry or sectors might be targeted, blind-pool companies generally do.
When the Municipal bonds are callable at par. Yield to call - YTC must be displayed on which of the following confirmations? 5.5%, 5% YTM basis, maturing 2040
Callable bonds selling at a premium must be priced to call. Whenever a bond's basis - YTM is than its coupon, it is selling at a premium.
A new client, age 26, has a $15,000 inheritance to invest and notes that it is for long-term savings. He tells you that it won't be needed for many years and wants to simply see it grow over time. Given his age and the small amount to invest, your recommend a balanced fund, whut which share class would be most suitable?
Class B Shares. These shares have a back-end load - sales charge known as a contingent deferred sales charge - CDSC only payable when the shares are redeemed and those sales charges decline typically over the 1st six to eight years.
An investor holding shares of several funds from the CDS fund family has opted for a fixed dollar withdrawal plan to supplement her income each month. With this type of withdrawal plan, the amount received each month.
Could be less than, equal to, or more than the account earnings that period.
Which of the following direct participation programs typically generates a dollar-for-dollar credit against federal income taxes? Rehabilitating certified historic structures
Dollar-for-dollar reductions on taxes owed are known as tax credits. These are typically available in certain real estate direct participation programs (DPPs). Those would include rehabilitation credits for certain buildings originally placed in service before 1936 and certified historic structures and buildings located in historic districts. Another program offering tax credits is government sponsored low income housing, not just any residential housing.
You have several clients interest in a tax sheltered annuity - TSA, but one of them is not eligible to participate. Who is it? A student enrolled full time in the local community college.
Employees of 501c3 and 4063b organizations qualify for tax-sheltered annuities - TSAs. Students are NOT employees.
All of the following are characteristics associated with equity-linked exchange-linked notes except - they can be linked to a single stock or basket of stocks and re therefore, equity securities.
Even though equity-linked nots - ELNS are linked to the performance of a single stock or basket of stocks such as an indexes, they are debt instruments, not equity instruments'.
An exchange traded fund (ETF) differs from a mutual fund in that it can be sold short.
Exchange traded funds can be sold short or purchased on margin, much like any other listed stock. Almost all ETFs are open-end investment companies but so are mutual funds, so there is no difference. There are index mutual funds just as there are index ETFs, and just like mutual funds, an ETF's net asset value (NAV) is computed after the 4 pm market close.
A customer writes 1 July 40 put at 6. The put is exercised when the market price is 30. For tax purposes, what is the effective cost basis of the stock put to the writer? 34
Exercise of the put involves a cost to the writer of $40 less the $6 premium already received. Market price does not apply to this questions.
The dollar price used to compute the yield to call must be recorded on the confirmation of which of the following callable municipal bonds? 9s 25 quoted at 7.0
For callable premium bonds quoted on a yield basis, the yield computed to the near term in-whole call is used. The confirmation shows the call date and call price as the expected maturity. The only bond shown quoted at a premium is 9s 25 quoted at 7.0.
The IRS allows investors to minimize tax liability when reporting sales by limiting gains or maximizing loses in anticipation of what an investors year-end tax liability might be. Given year-end tax needs can only be anticipated when a sale occurs, which of the following reporting methods allows an investor the most flexibility? Share identification
For investors, the idea is to minimize tax liability if able by limiting gains or maximizing losses in anticipation of what one's year-end tax liability might be. The IRS allows three methods of reporting; share identification, FIFO, and average cost basis. Of the three allowable methods share identification is the most flexible. Using this method, the investor keeps track of the cost of each share purchased and specifies which shares to sell based on his anticipated year-end tax needs.
Fox tax purposes, a limited partner in a direct participation program will include in their cost basis, cash and property contributions to the partnership and any recourse and nonrecourse debt assumed for which of the following types of programs? Raw land real estate
For limited partners, typically only recourse debt can be included in cost basis for tax reporting. The one exception where nonrecourse debt is allowed to be included is in real estate programs.
A customer of a broker-dealer has opted to use share identification for tax reporting when selling shares of her mutual funds. With this method of tax reporting, she would want to identify the shares to be sold as those that have the lowest cost basis generating the least gain.
For tax reporting purposes, showing the lowest taxable gain is always the most advantageous. One way to do this when selling shares is to identify the shares that cost the most when purchased, those that give one the highest cost basis. The higher the cost basis, the lower any gains will be.
Your customer has a discretionary trading account with your municipal firm. According to Municipal Securities Rulemaking Board (MSRB) rules, customer authorization is required for a purchase of municipal securities in which there is a control relationship between the issuer and your firm.
If a control relationship exists between the issuer and the member firm, MSRB rules require consent from the client before any transactions, even in a discretionary account. An example of a control relationship might be one where your firm acts as a financial advisor to the municipality.
Your customer tells you she is very bearish on the market and thinks she can capitalize on that view by purchasing an inverse exchange traded fund (ETF) that tracks the Dow Jones Industrial Average (DJIA). In a subsequent, discussion she explains her understanding of how the fund works and makes several comments that are all accurate except one. Which is the inaccurate statement that as her registered representative you would want to correct?
If the DJIA decreases by 10%, this ETF is managed to increase by twice that amount. An inverse ETF is managed to perform the opposite of the index it is tracking. It is not managed to perform at any stated multiple of that performance as would be the case if it were a leveraged (two or three times) ETF. If the market falls, the inverse ETF is managed in such a way as to attempt to rise by the same percentage. In other words, perform the opposite. The invested amount is the most one can lose and like all other exchange traded products, shares can be sold intraday in the open market.
A popular vehicle for saving for retirement is the variable annuity. A registered representative explaining the benefits of this product would probably be making an incorrect statement by claiming that variable annuities offer the ability to exchange funds between subaccounts without incurring a tax liability under IRS Code Section 1035.
In general, variable annuity expenses are higher than those of a mutual fund with similar objectives. That doesn't mean the fund is good and the variable annuity bad, it is that there are guarantees and other features offered by the variable annuity that a fund does not have and they have to be paid for.
The owner of a variable annuity contract chooses a joint life with last survivor option. In choosing this options, the annuity payments will continue as long as one of the annuitants is alive and be smaller than if a life with period certain option has been chosen.
In joint w/survivor settlement options - annuity payments continue until the second person on the contract dies.
Which of the following choices describes the strategy most likely to be recommended to a fixed income client looking to reduce interest rate risk? Buy variable rate bonds.
Interest rate risk affects those investing in fixed income investments such as bonds or preferred stock. As interest rates rise, the value of those assets declines.
Balance sheet items affected by the issuance of new common stock would be total assets and net worth.
Issuing stock brings in new capital in the form of cash. This raises the assets and, because stock is equity, raises the net worth by the same amount.
Section 28-e of the Securities Exchange Act of 1934 deals with - a safe harbor for non-cash compensation from broker-dealers to investment advisers.
It creates a safe harbor describing what is permitted, such as research and custody for the IA's client funds and securities.
A limited partner is a passive investor with no partnership management responsibilities.
LLP are passive investors with no management responsibilities.
When the inside market (best bid and best offer) for XYZ stock was 17.30-17.60, a market maker sold 100 shares to a customer at 17.90. At the time of the trade, the market maker's quote was 17.25-17.70. What was the amount of the markup? 0.30
Markup is always based upon the inside quote. In this case, the inside offer is 17.60 and the difference between that and the 17.90 selling price represents a $.30 markup.
Jim and Pam Thomas have been married for many years. How will the estate be taxed when transferred to the remaining spouse if one of them dies? Taxes will not be owed on the estate until the death of the surviving spouse.
Married couples are allowed to transfer their entire estate to the surviving spouse at death with no tax imposed on any level; federal, state, or local. Taxes will however be owed at the death of the surviving spouse.
An investor who is considering the purchase of Mount Laurel, New Jersey, general obligation municipal bonds for an investment for his portfolio should know that the bonds are not subject to registration with the Securities and Exchange Commission (SEC), but are required to make full disclosure by delivering an official statement.
Municipal securities are exempt on both the state and federal level, meaning that they are not subject to registration with the SEC or any state, but do have a full disclosure document available to investors known as an official statement.
Your customer, divorced with two children and age 52, has a portfolio consisting of 80% equities with the remaining 20% diversified among several other products. Her annual income is $115,000. Which of the following events would most likely be cause to immediately reallocate her investments? She has been notified by her employer that due to corporate downsizing her position is being eliminated.
Of the scenarios listed, the loss of her job is likely to be the one that would generate the most immediate reallocation of investments. With two children and the loss of her income, a reallocation of investments from riskier equities to less risky instruments such as bonds might be in order.
One of the concerns of the Employee Retirement Income Security Act of 1974 (ERISA) is fair treatment of all employees. Towards that goal, ERISA established certain eligibility requirements to ensure there would be nondiscrimination.
One of the requirements under ERISA for a plan to be qualified is the absence of discrimination between highly and lower-paid employees.
When the holder - owner of an index option exercises the contract, the account of the holder will be credited the in-money amount
One will exercise an index option when it is in the money by more than the premium paid. Because exercise of an index option settles in cash, the account of the holder will be credited the in-the-money amount.
Certain order types on the order book are reduced for cash dividends on the exdividend date. These order types are buy limits and sell stop limits.
Only orders placed below the market, buy limits and sell stops (remember the acronym BLiSS), will be adjusted for cash dividends. Sell limits and buy stops are placed above the prevailing market and are not adjusted for cash dividends.
The flow of funds statement found within a municipal trust indenture relates to - revenue bonds only and is found within the bond resolutions.
Only revenue bonds have a flow of funds statement. The order and priority of handling, depositing, and disbursing revenues taken in by the project the bond has funded is set forth in the bond resolutions.
Stocks have statistically been in a bull market for several years. An investor that studies technical analysis is bearish on the stock market in the short term. They would like to invest 100,000.00 of an investment portfolio valued at 10million and try to take advantage of the coming stock market correction. Which of the following would be the wrong thing for a registered representative to recommend?
Place buy stops on the securities in the portfolio identified as the most likely to fall. Buy stops are placed above the current market value of securities and would not benefit a customer that expects the market to fall.
The common stock of Acheulean Stone works, Inc has a beta of 1.2 and has returned 10.4% over the past year. If the return of the market over that same period was 8% it would be correct to state that: ASWI generated positive alpha.
Positive alpha is the result when a stock's actual return exceeds the CAPM expected return based on its beta.
The alternative minimum tax - AMT: would be least likely to affect taxpayers who - earn interest from general obligation bonds.
Preference items, for purposes of the AMT, do not include interest received from general obligation bonds.
A customer is likely to experience the greatest purchasing power risk with which of the following investments? A 30-year U.S. Treasury bond
Purchasing power or inflation risk is greatest with long-term fixed income investments, regardless of their investment quality. ADRs represent equities and the convertible preferred has the opportunity to convert into equity.
If an investor holds certificates of beneficial interest in a real estate investment trust (REIT), the investor will receive income and capital gains distributions from the issuer and may sell the certificates in the secondary market to divest.
REITs are actively traded in the secondary market but are not redeemable by the issuer. They are not direct participation programs (DPPs), so while income and gains will flow through, there is no pass-through of operating losses.
An investor holds shares of the CTS Balanced Fund and wants to exchange them for shares of the CTS Growth Fund. One of the features the CTS fund family offers to shareholders is the conversion privilege. The exchange of one fund for another within the same fund family would have which of the following consequences?
Shares of the CTS Growth Fund would be purchased at the net asset value (NAV) without a sales charge and any gains from the sale of the CTS Balanced Fund would be taxable.
Your client wishes to sell XYZ short. You explain that this can be done at any time during the trading day.
Short sales can be done at any time during the trading day as long as the shares to be borrowed have been located first as per the locate requirement of regulation SHO.
A registered representative has had a well-established customer for over eight years who purchased penny stocks through the broker-dealer on numerous occasions. If the RR wants to make recommendations to the customer for penny stock purchases, the RR is required to
Take into account the customer's financial ability and investment objectives.
JGH 6.0% bonds are convertible into 25 shares of JGH common stock and are trading at 106. Later, when the JGH common is trading at $42, the bonds are called at 104. Which of the following choices would maximize the investment value for a holder of the JGH convertible bonds, once the call is announced?
Tender the bonds for the call.
A customer is short 200 shares of ABC at 32 and simultaneously writes 2 ABC January 30 puts at 2..50. The customer will break even on this strategy if the underlying stock subsequently trades at 34.50
The 2 sales generated proceeds of 34.50. This is the BE point for the position. Anywhere below 34.50 the customer is making a profit.
Designated Market Makers (DMMs) on the floor of the NYSE cannot handle odd-lot market orders.
The DMM cannot handle an order with a not-held instruction. Not-held orders are in the hands of the broker-dealer's commission house floor broker.
The MSRB has no jurisdiction or authority to regulate municipal bond issuers.
The MSRB has no jurisdiction over municipal issuers. It sets standards for quote and registration requirements for dealers and registered representatives.
Your customer is interested in up-to-the-minute price information for municipal securities transactions. This information is available through an approved portal within 15 minutes of a trade and is captured by which of the following? The MSRB's Real Time Transaction Reporting System (RTRS)
The MSRB's RTRS captures pricing information and makes it available to the marketplace through third-party data vendors within 15 minutes of a trade.
Your client, age 75 and not retired from his job of 45years, wants to continue contributing to a retirement plan as long as possible. What plans can he do? IRA, 401k, SEP IRA and Roth IRA
The SECURE Act removed the age limitation on all Retirement Investments if one is employed.
The volatility market index - VIX is best characterized as: a "fear" index, measuring the expectations of market volatility.
The VIX index is a measure of investor's expectations regarding market volatility. This index is referred to as the "fear" index and VIX options are traded on the Chicago Board Options Exchange. - CBOE
In examining the balance sheet of a corporation, you would expect to be able to determine the net worth of the firm on the date of the balance sheet.
The balance sheet provides a snapshot of the financial condition of the firm on that date. It does not provide information on the flow of expenses, revenues, and cash during the reporting period.
A customer buys 1,000 shares of XYZ at $47. Several months later, the stock is at $56. The customer, concerned about a possible pullback and wanting to best protect the unrealized gain, should buy 10 XYZ 55 puts.
The best way to protect a long position is to buy a put. Writing a call will only protect the customer to the extent of the premium received. Because the customer owns 1,000 shares, it will take 10 puts to hedge.
Your customer sells 2 IJK October 50 Calls at 4 and 2 IJK Oct 50 puts at 3. The customer will break even when the price of IJK is 43 and 57
The customer sells calls and puts with the same strike price and expiration date, so the position is a straddle
An investor sold short 1,000 shares of LUMN at 52 on January 10. If the investor covered the short position at 43 on January 15 of the following year, which if the following statements is true? The investor has a short term capital gain.
The customer would have generated a short term capital gain of $9,000 on the position by selling short at 52 and covering (buying the stock) at 43. Although the period of time that the investor remained short exceeded one year, there is no holding period for the stock (the customer did not own the stock for more than one year. There is no wash sale because there is no loss.
A customer purchases 300 XYZ at 35 and writes 3 XYZ October 35 calls at 3.. The customer will profit under all of the following circumstances except: If XYZ falls below 32 at expiration.
The customer's net outlay for each share is $35 minus the $3 premium. Once the stock falls below $32, the client stands to lose money. $32 per share is the clients breakeven for this covered call hedge position
Your client has sold securities in a long margin account. All of the following are affected by the sale of these securities in the account except equity.
The equity does not change when a sale takes place in a margin account. Equity will be affected only if the customer elects to withdraw some or all of the proceeds. The SMA will go up; debit balance and market value will go down.
An investor sells 1000 shares of DEF short at 50 and meets the initial margin requirement. If DEF falls to 45, what is the equity in the account? 30,000.00
The initial margin requirement for a $50,000.00 short sale is $25,000.00 When the stock drops $5,000, equity increases by that amount.
Of the following investors, the creditor with the lowest priority claim to the assets of a corporation during a liquidation would be the holder of its subordinated debentrues.
The lowest claim level of creditor of a corporation would be the holder of a subordinated debenture.
An investor is seeking tax advantages through an oil and gas direct participation program (DPP). With this type of partnership, he would expect to benefit most from depreciation allowances and intangible drilling costs.
The primary tax benefits found in oil and gas investment partnerships are the depletion allowances because of the depleting natural resource and intangible drilling costs. There is never a tax credit for oil and gas partnerships.
Regarding the performance of a variable annuity's separate account and the assumed interest rate (AIR), which of the following is true? If separate account performance is less than the AIR, next month's payment is less than this month's.
The relationship between the payment received and separate accounts performance as compared to the AIR is as follows: if separate account performance is greater than the AIR, next month's payment is more than this month's; if separate account performance is equal to the AIR, next month's payment stays the same as this month's; if separate account performance is less than the AIR, next month's payment is less than this month's. We never compare to the actual performance; only to the AIR.
The visible supply as shown in the Bond Buyer is the Percentage of new issues sold versus new issues offered for sale.
The visible supply refers to all new issue municipal bonds projected to be issued for sale within the next 30 days.
In a new margin account, a customer buys 100 XYZ at 62 and simultaneously writes 1 XYZ Jan 65 call at 2. The margin call will be for $2,900.
There is no margin requirement on the short call, as it is covered by the long stock. The requirement for $6,200 of stock is $3,100, but the call will be for $2,900 because the 2-point premium received when the call was written will be applied first.
A technical analyst notices a head and shoulders top formation on a chart. The formation is generally an indicator of the reversal of an upward trend.
This formation, found on a chart depicting a securities movement that is generally used by technical traders, indicates that the market has topped. Therefore, the future direction should be downward, a reverse of the trend that brought it to the top.
Your new client informs you that she has a variable annuity purchased several years ago and soon will begin taking distributions. The variable annuity is not part of an employer-sponsored plan or held in an IRA. She asks you how the withdrawals will be taxed. You should inform her that: If she decides to annuitize before she reaches age 59 1/2 , the taxable portion will be subject to the 10% penalty.
This is a nonqualified variable annuity where contributions are made with after-tax dollars. Those contributions are considered cost basis and returned tax free, but any earnings above cost basis are taxed as ordinary income.
A customer of a broker-dealer is long 1 MMS July 60 call and short 1 MMS July 70 call. Which of the following is true? The position has limited gain and loss potential.
This is a spread position. All spreads - Debit or credit, whether put or call spreads, have a limited gain and loss potential.
A Customer writes 1 XYZ Feb 50 put at 1 and buys 1 XYZ Feb 60 pout at 7. The Breakeven point is: 54
This put spread results in a net debit of six points. To calculate BE for a put spread on subtracts the net premium from the higher strike price. BE on a spread can never be outside the spread.
A firms has prepared a research report on the equity securities issued by the CDT corporation. Regarding the report and its distribution from broker-dealers to clients, which of the following statements is NOT true? The report must disclose whether, within the last five years, the firm has received fees for investment banking services from CDT corporation.
To avoid conflicts of interest the report must disclose whether, within the last 12 months - NOT 5 years, fir the firm has received fees for investment banking services from CDT corporation.
Which of the following statements is correct? Interest received on GNMA securities is taxable on both the state and federal level.
Unlike Treasury issues, which are taxed only on the federal level, the interest on GNMA securities is taxable on both the state and federal level. The increase to principal on a TIPS bond is reported each year and taxed as interest income. The difference between the discounted purchase price of a T bill and its maturity value is considered interest income.
Asked to point out the differences between open-end funds and closed-end funds, you could state that closed-end funds trade in the secondary market and can trade above or below the net asset value of their investment portfolio.
Unlike open-end funds that must be purchased from the issuer with sales charges assessed and have redeemable shares, closed-end funds trade in the secondary markets with commissionable transactions. Because they trade in the secondary market, their share prices are subject to the forces of supply and demand and therefore can trade above or below the net asset value of their investment portfolio.
When one of the partners in a partnership account dies, the registered representative (RR) must: allow existing orders to be executed or expire and then freeze the account until further instructions are received.
When a partner in a partnership account dies, all open - unexecuted orders should be canceled and the account frozen until an amended partnership agreement is received. Freezing the account does not require the assets to be liquidated.
An employee has enrolled in his company's nonqualified deferred compensation plan. The benefit paid at the time of the employee's retirement is: taxable as ordinary income to the employee and can be taken as a deduction by the employer's
When enrolled in a company's nonqualified deferred compensation plan, the benefit paid at the time of the employee's retirement is taxable as ordinary income to the employee and can be taken as a deduction by the employer when paid out.
A margin account has a market value of $24,000 and a debit balance of $20,000. The maintenance call will be for $2,000.
With equity of $4,000, this account is below minimum. The maintenance call will be for an amount necessary to bring the account back to minimum. Minimum is 25% of $24,000, which is $6,000. Because equity is $4,000, the call will be for $2,000.
One of your clients is interested in setting up an Achieving a Better Life Experience (ABLE) account for his son who was recently diagnosed with a disability at age five and is currently receiving benefits through Social Security Disability Insurance (SSDI). Regarding these accounts, you correctly explain that
income earned by the account is not taxed, and his son is eligible to be the beneficiary of such an account. Those who are already receiving SSDI are automatically eligible to establish and be the beneficiaries of ABLE accounts where income earned is not taxed.
One way in which real estate investment trusts (REITs) differ from direct participation programs (DPPs) is that a REIT
must distribute at least 90% of its taxable income to shareholders annually in the form of dividends while all of a DPP's income flows through to the investors.
A registered representative recommends a variable annuity with an income rider to a client. The client's investment objectives, tax bracket, investment experience, and risk tolerance all align well with a variable annuity recommendation. The client agrees to purchase the contract and informs the registered representative that he will be cashing out a variable annuity he purchased two years ago to fund the new contract and will forward the check as soon as he receives it. Based on this information, the representative should
reevaluate whether the recommendation for the variable annuity contract is still suitable based on the client's proposed funding of the investment.
A customer wants to know who guarantees that the contra party to a listed yield-based option on T-bonds she owns will deliver the cash if she exercises the option contract. Her registered representative should answer
the Options Clearing Corporation (OCC) because it guarantees all listed option contracts.
