Investment Vehicle Characteristics

A corporation has outstanding $5,000,000 of 9 1/2% 20-year debentures, with a conversion price of $40. If all the debentures were converted, how many shares of common stock would be issued? [A] 125,000 shares [B] 200,000 shares [C] 400,000 shares [D] 475,000 shares

A

All of the following securities are issued by the US Government or a US Government Agency EXCEPT: [A] A General Obligation Bond [B] A GNMA Bond [C] A Treasury Bond [D] A FNMA Bond

A

All of the following types of securities normally mature within one year or less, EXCEPT [A] Treasury Bonds [B] Commercial Paper [C] Municipal Notes [D] Treasury Bills

A

Junk bonds are also called [A] high yield bonds [B] low yield bonds [C] investment grade bonds [D] revenue bonds

A

Patrick has invested for most of his life. He is reviewing his investments in his Individual Retirement Account. He decides that he would like to invest part of his IRA portfolio in an Equity Income Fund since he is familiar with the fund and is looking for additional income in his portfolio. Which of the following is true with regard to Patrick's decision? [A] Since Patrick has investment knowledge and experience and can benefit from diversified equity investments, his decision to invest in the Equity Income Fund would be appropriate. [B] Since Patrick did not consult his IAR or RR about this investment decision, it would be deemed to be an inappropriate investment choice. [C] Equity Income Fund investments are considered to be inappropriate investment choices for all retired individuals. [D] Equity Income Fund investments are only appropriate investment choices for investors under 50 years of age.

A

The net asset value of a mutual fund is affected by which of the following: [A] appreciation [B] amortization [C] accretion [D] annuitization

A

When a corporate bond is issued as convertible it means that the bond can be converted into common stock and that the price of the bond: [A] will normally fluctuate upward and downward with movements in the common stock. [B] will normally move in the opposite direction of the movement in the common stock. [C] is in no way related to the price movement of the common stock. [D] is entirely based on the price of the common stock.

A

When evaluating the yield on a corporate bond verse the yield on a municipal bond, which of the following formulas would be used? [A] Taxable Equivalent Yield [B] Yield to Maturity [C] Current Yield [D] Nominal Yield

A

Which of the following U.S. Government securities are classified as money market instruments? [A] Treasury bills [B] Treasury notes [C] Treasury bonds [D] Treasury strips

A

Which of the following statements are TRUE of zero-coupon bonds? I.Investors can expect to receive returns that equate to the difference between their purchase price and the principal that is returned at maturity. II.Investors can expect to receive returns that always equate to or exceed the rate of inflation. III.Since interest is built into the market price of the zero-coupon bond, there is a higher level of volatility in price versus normal, coupon-bearing bonds. IV.Since interest is built into the market price of the zero-coupon bond, investors don't have to worry about tax consequences until they receive the face value of the bond at maturity. [A] I and III only [B] I and IV only [C] II and III only [D] II and IV only

A

Which of the following bonds pay all of their interest at maturity? [A] Defaulted Bonds [B] Zero-Coupon Bonds [C] Corporate Bonds [D] Government Bonds

B

Zero coupon bonds would be most suitable for an investor seeking which one of the following? [A] Tax free interest. [B] Dividend income. [C] Accumulation of capital. [D] Semi-annual interest income.

C

"Conversion" is best described by: [A] New bonds are exchanged for old bonds. [B] Bonds are tendered for equity securities. [C] Bonds are paid off by a corporation prior to maturity. [D] New bonds are sold and the proceeds used to redeem old bonds.

B

A corporate bond called at 108 1/8 would pay the bondholder: [A] $1,084.50 [B] $1,081.25 plus accrued interest [C] $1,081.25 minus accrued interest [D] $1,000 plus accrued interest of $1.25

B

A document which describes the rights and duties of a bonds issuer, underwriter, and investors, as well as sinking fund provisions, call provisions, and collateral requirements is referred to as which of the following? [A] Corporate Charter [B] Indenture [C] Pre-emptive Right [D] Trust Agreement

B

ABC's callable convertible 4% preferred stock ($100 par) is called for $70 per share. It is convertible into common stock at $25 per share. The current market value of the common stock is $15.50 per share. An ABC preferred stockholder should: [A] Hold the preferred stock to continue to get interest [B] Tender the preferred stock for the call [C] Convert to common and sell the common immediately [D] Convert to common because the common stock is selling above parity

B

All of the following are characteristics of commercial paper EXCEPT: [A] It is normally issued at a discount. [B] It is a non-negotiable promissory note issued by a corporation. [C] It can be issued directly by the issuer. [D] The maximum maturity is normally 270 days.

B

All of the following are money market instruments EXCEPT: [A] Repurchase agreements. [B] Treasury bonds. [C] Tax anticipation notes. [D] Bankers' acceptances.

B

Bob is considering buying a bond that is currently trading at 105 and matures in 15 years and calls and asks for your advice with regard to this investment. As Bob's agent you look into the bond and determine that it is callable at 102 in three years from now. As Bob's agent you would have to make sure that Bob understands that if he buys this bond and it does get called away from him that: [A] His resulting yield when the bond is called will be more than the coupon rate of the bond. [B] His resulting yield when the bond is called will be less than the coupon rate of the bond. [C] His resulting yield when the bond is called will be the same as the coupon rate of the bond. [D] His resulting yield on the bond will likely not change since you do not think that the bond will be called away from Bob.

B

Commercial paper in the money market: I.is usually priced based on the semi-annual interest payment. II.is a promissory note issued by a major corporation. III.is guaranteed by the FDIC up to $40,000 face amount. IV.is usually priced to yield less than Treasury Bills for the same maturities. [A] I only [B] II only [C] II and IV [D] All

B

If a corporation issues either preferred stock or bonds which are convertible, which of the following is true? [A] Since the securities are issued as convertible, they will be offered with a higher dividend or coupon rate. [B] Since the securities issued are convertible, their price will fluctuate with the movement of the common stock therefore allowing the holder of the convertible to participate in the capital appreciation of the common stock, if converted. [C] Since the securities are issued as convertible, they will always also be issued as callable. [D] Even though the securities are issued as convertible, they will not be impacted by movements in the market price of the common stock.

B

Investments made in investment companies are generally done for which of the following? [A] short term trading opportunities [B] diversification and professional management [C] guaranteed yield and return of principal [D] to avoid market fluctuation risks

B

Of the instruments listed below, which is the most actively traded in the secondary market? [A] certificates of deposit [B] treasury bills [C] commercial paper [D] bankers' acceptances

B

On a fully registered bond, a customer would receive his interest in what manner? [A] By sending in one of the coupons attached to the bond. [B] By check mailed to him semi-annually. [C] By presenting the bond to the paying agent. [D] By check mailed to him once a year.

B

"Junk Bonds" can also be called a corporate bond which: I.is a non-rated bond. II.Has lower yields than Investment Grade bonds. III.Has a rating of BB or lower. IV.Are also referred to as "high yield" bonds. [A] I and II only [B] II and III only [C] I, III, and IV only [D] I, II, III, and IV

C

ABC Corporation has little or no track record of sales and earnings and wants to raise capital by issuing debt securities. The corporation would most likely issue securities that would be called: [A] Debentures [B] Preferred Stock [C] Junk Bonds [D] Subordinated Bonds

C

ABC Corporation wants to issue $20,000,000 of debentures each of which would be convertible in 20 shares of common stock. How many common shares are issued if all the debentures are converted? [A] 100,000 [B] 200,000 [C] 400,000 [D] 600,000

C

All of the following are true concerning commercial paper EXCEPT: [A] It is frequently issued by corporations directly to investors. [B] It can be issued either at a discount or with a coupon rate. [C] It must be registered with the SEC before it can be sold. [D] Any discount is taxable as ordinary income to the investor.

C

Corporate bonds normally pay a higher rate of interest (coupon rate) than other issuers of debt because: [A] The IRS requires corporations to pass on a certain percentage of their profits to their bondholders. [B] Other issuers of debt are limited by law to the rate and amount of interest which can be paid. [C] Corporate bond interest is fully taxable at the federal, state and local levels. [D] Corporate bond interest when received by individual investors is a deduction from ordinary income for tax purposes.

C

Jerry is an investment advisor and he is reviewing the current financial situation of one of his clients. His client is retired, receiving social security, a small pension from his former employment, and has several Certificates of Deposit from his bank. Two of his CD's will soon reach maturity and Jerry thinks that his client could benefit from investing in other securities in order to obtain more income and liquidity without giving up safety. Of the investments listed below, which would be most appropriate for Jerry's client? [A] Common Stock paying a regular dividend [B] Corporate Bonds with a 6% coupon rate [C] Municipal Bonds with a 5% coupon rate [D]

C

Jerry is an investment advisor and he is reviewing the current financial situation of one of his clients. His client is retired, receiving social security, a small pension from his former employment, and has several Certificates of Deposit from his bank. Two of his CD's will soon reach maturity and Jerry thinks that his client could benefit from investing in other securities in order to obtain more income and liquidity without giving up safety. Of the investments listed below, which would be most appropriate for Jerry's client? [A] Common Stock paying a regular dividend [B] Corporate Bonds with a 6% coupon rate [C] Municipal Bonds with a 5% coupon rate [D] An interest in an Oil and Gas Partnership

C

The "Call Protection" period on an outstanding callable bond would be most advantageous to which of the following? [A] Common stock holder [B] Issuer of the bonds [C] Bondholder [D] Preferred stockholders

C

When a corporate preferred stock or bond is exchangeable for shares of common stock, this feature would be referred to as [A] Callable [B] Securitized [C] Convertible [D] Participating

C

When it comes to pricing a zero-coupon bond, which of the following are true? I.The pricing of a zero-coupon bond will factor in the rate of inflation as a key consideration. II. The pricing of zero-coupon bonds is very similar to pricing of normal bonds, aside from the fact that semi-annual interest payments will not be received. III.The pricing of zero-coupon bonds takes into consideration the original yield, accreted value, and face value, as well as market conditions. IV. The pricing of zero-coupon bonds take into consideration the bond's coupon rate and accrued interest. [A] I and III only [B] I and IV only [C] II and III only [D] II and IV only

C

Which of the following are true of bondholders? I.The are equity owners of the issuing entity. II.They are considered creditors of the issuing entity. III.They receive a fixed rate of interest, also called the coupon rate. IV.They normally will receive dividends on a quarterly basis. [A] I and III [B] I and IV [C] II and III [D] II and IV

C

Which of the following investments is best described as a debt security that matures in one year or less that is considered close to riskless? [A] Zero-Coupon Treasury Securities [B] CMOs (Collateralized Mortgage Obligations) [C] Money Market Instruments [D] Notes issued by the U.S. Treasury

C

Which of the following is TRUE of revenue bonds? [A] They are issued and paid for by the US Treasury Department. [B] They are commonly paid for with property taxes levied at the state and local levels. [C] They are commonly paid for by money coming from user charges. [D] They are always considered risky investments.

C

Which of the following statements are true regarding registered bonds? I.Coupons are permanently attached to the bonds. II.Ownership of the bond is transferable only upon proper endorsement. III.Principal payments are sent directly to the registered owner of the bond. [A] I only [B] I and III only [C] II and III only [D] I, II, and III

C

Which two of the following might allow a bond issuer to pay a lower coupon on a bond issuance when compared to similar bonds? I.A non-convertible feature II.A conversion feature III.A non-callable feature IV.A call feature [A] I and III [B] I and IV [C] II and III [D] II and IV

C

Adrien is comparing different possible bond investments. He has been considering purchasing a municipal bond trading at par with a coupon of 3%. There are also several different corporate bonds he is considering. What would the corporate bond have to yield in order to provide Adrien with the same or better yield if Adrien is in a 29% tax bracket? [A] 23.6% [B] 2.36% [C] 42.3% [D] 4.23%

D

All of the following are characteristics of REITs EXCEPT: [A] They are publicly-traded securities and can be traded on an exchange or OTC. [B] They generally own income-producing properties like apartment buildings. [C] They distribute 90% of their income to shareholders. [D] They must be registered under the Investment Company Act of 1940.

D

All of the following are true of a corporate bond with a call feature EXCEPT: [A] Interest payments cease after the bond is called. [B] It limits the upside potential on the bond. [C] If the bond has a call premium, it normally declines in later years. [D] The bond will be sold for a higher price because of the call feature.

D

Bond buyers examine both the "duration" and the "convexity" of a bond before buying it. All of the following are TRUE about duration and convexity of a bond EXCEPT [A] Duration measures the price sensitivity of a bond for a given change in interest rates. [B] Convexity measures the rate of change in the bond's duration as interest rates change. [C] The duration of a zero coupon bond is its maturity [D] The duration number and the convexity number are fixed like the coupon on the bond.

D

If a corporate convertible bond with a conversion price of $25 is currently trading @ 80, while the common is at $23, this situation would be best described as: [A] Premium [B] Discount [C] Parity [D] Disparity

D

Which of the following are characteristics of corporate "Junk Bonds." They are: I.Issued by corporations with questionable credit strength. II.Also called "high-yield" bonds. III.Sometimes used to finance the takeover of one corporation by another. IV.Bonds issued with credit ratings of BB or lower. [A] I, II, III [B] II and III [C] II and IV [D] I, II, III, and IV

D

Which of the following are collateralized by zero-coupon U.S. Treasury Bonds? [A] Domestic Corporate Bonds [B] Foreign Corporate Bonds [C] Foreign Government Bonds [D] Brady Bonds

D

Zero Coupon Bonds are purchased primarily by investors who are looking for [A] Interest income [B] Income from dividends [C] Accretion [D] Capital accumulation

D

Zero coupon bonds are frequently used to: [A] amortize the cost of the bond [B] provide a steady stream of dividend income [C] provide a steady stream of interest income [D] accumulate capital to fund a particular investment goal

D