Last Review Set

What is NOT susceptible to reinvestment risk

Zero Coupon bonds

A limited tax GO is

a bond secured by a specific tax at a specified maximum rate.

If an investor wants to buy stock immediately to take advantage of an expected increase that will happen soon, the investor should place

a market order.

The notation .15q indicates

a quarterly dividend of $.15 per share

If a bond is "held firm for 1 hour with a 5 minute recall", it means

a rep has an hour to find a buyer for the security and is subject to a 5 minute warning if, during the hour, another broker-dealer wants to place an order for the security.

If a customer tells their registered representative she wants to sell their securities only at "$30 or above" the rep would place

a sell limit order at $30.

To take advantage of a support level on a stock, an investor would place either

a sell stop or sell stop limit order.

If a customer is concerned their position will decrease in value, they could place

a sell stop order to protect their gain.

A capital appreciation bond is

a zero coupon bond.

Under Regulation NMS, for stocks priced at or above $1, the minimum order price increment

is $.01. For stocks priced below $1, the minimum increment is $.0001.

A banker's acceptance (BA)

is a short-term time draft with a specified payment date drawn on a bank—essentially a postdated check or line of credit. American corporations use banker's acceptances extensively to nance international trade; that is, a banker's acceptance typically pays for goods and services in a foreign country.

The market value of a warrant

is connected to the value of the underlying stock.

If a specialist "stops stock" at a specific price, the broker

is guaranteed that price on an order but can look for a better price in the market.

Federal Funds Rate

is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis.

An additional bonds test is used by an issuer to determine if

it has sufficient financial strength to issue additional bonds, given that it already has outstanding debt.

A private placement would have the

least after-market activity vs. a primary offering or a secondary offering

For zero coupon bonds, the bond's duration equals

maturity.

CMOs pay interest

monthly.

In a period of stable interest rates, the price of the convertible bond will be

more volatile than other types of debt.

Revenue bonds are

municipal bonds, not corporate debt.

In a riskless principal trade, the broker

must disclose the commission to the customer.

The Dow Jones Industrial Average is the

narrowest gauge of the stock market.

If an investor's goal is call protection, they would likely purchase a

non-callable bond.

A DNR order (Do Not Reduce) is an order that is

not reduced by a cash dividend on the ex-dividend date.

A trade confirmation must be sent

on or before settlement date

Sallie Mae securitizes loans from

other educational lenders.

A net revenue pledge bond

pays expenses from gross revenue first, and then subtracts debt service from net revenues. In a net revenue pledge, debt service is paid from the net revenues, meaning operations and maintenance costs are paid first.

ERISA was established to

prevent abuse and misuse of pension funds. ERISA guidelines apply to private sector (corporate) retirement plans and certain union plans—not public plans like those for government workers.

Orders are required to be approved

promptly after execution by a supervisor.

During periods of falling interest rates, an issuer may

redeem callable bonds. For Bond ETFs, if one of the underlying bonds owned by the fund is called, the fund will typically reinvest the proceeds in new bonds (however typically at lower interest rates).

For reverse convertibles, if the market price of the related asset (common stock) trades and closes below the knock-in price, the issuer may choose to

redeem the reverse convertible with shares that will be worth less than par value (thus likely causing the investor to suffer a loss).

Variable rate municipal bonds are sometimes called

reset bonds.

Property tax is not important in

revenue bond analysis.

A limited tax GO would be

riskier than a comparable GO bond backed by the full taxing authority of the municipality.

When a broker dealer buys securities in order to sell them to a customer, it is called a

riskless principal transaction (or a riskless and simultaneous transaction)

A bond would trade flat if the

settlement date coincides with the interest payment date, if the settlement date coincides with the dated date, if the bond is in default, or if it is a zero coupon bond.

Build America Bonds are

taxable municipal bonds where the federal government subsidizes 35% of the interest expense to bondholders.

The after-tax yield on the bond

taxable yield x (100%-tax rate)

Given a change in interest rates, long-term bonds are more volatile

than short-term bonds and low coupon bonds are more volatile than high coupon bonds.

On the Consolidated Tape, the message "SLD" indicates

that a trade was reported out of sequence.

The term trading flat means that

the bond is not trading with accrued interest.

The main advantage of a variable rate municipal bond investment is that

the bond's price should remain relatively stable

Accrued interest is calculated beginning on

the dated date.

When a dealer receives a comparison for a trade that it does not recognize

the dealer will send the other party a DK (Don't Know) notice.

Prime rate

the lowest rate of interest at which money may be borrowed commercially.

Discount rate

the minimum interest rate set by the Federal Reserve for lending to other banks.

It is not a discretionary transaction when

the registered rep only chooses the time and/or price of a trade. This is known as a market not held order.

If a Registered Representative puts the wrong account number on an order ticket and the order is filled,

the rep can bring the situation to a supervisor who will "cancel and correct" the ticket.

If a T-Note is quoted 102.20 bid-102.24 ask,

the spread is $1.25. Note that the difference between the bid and ask is 4/32% of par, not $.04.

A revenue bond would not be issued

to build a high school.

The purpose of Regulation NMS (National Market System) is

to promote efficient and fair price formation across securities markets by fostering competition among individual markets and among individual orders.

A mutilated bond is never in good delivery form, unless it is

validated by a trustee, registrar, transfer agent, paying agent or issuer of the securities.

The bond counsel

validates tax-exempt status and legal authority of the municipality to issue bonds.

Build America Bonds (BABs)

were created under the Economic Recovery and Reinvestment Act of 2009 to assist in reducing costs to issuing municipalities and stimulating the economy. While bonds to fund municipal projects have traditionally been sold in the tax-exempt arena, BABs are taxable obligations. Bondholders pay tax on interest received from BABs, but tax credits are provided in lieu of the tax-exempt status usually afforded the interest on municipal securities.

The name of the paying agent is not important

when assessing municipal bond credit risk

If the current bid-offer is 10.10-10.40, a client's limit order to buy at $10.30

will not be executed because the customer's limit cannot be satisfied at the current offer.

The money market consists of debt securities

with 1 year or less to maturity. T-Bonds with 1 year or less to maturity can be part of a money market fund.

Bonds that are insured against the risk of default must be delivered

with some proof of insurance, in addition to disclosing the information on the trade confirmation.

Equity transactions must be reported

within 10 seconds of execution. Importantly, the price reported excludes transaction fees, such as markups, markdowns, and commissions.

Treasury bills and treasury notes differ in that t-bills are

zero coupon securities and typically quoted on a discounted yield basis whereas t-notes pay a semi-annual coupon and are typically quoted as a percentage of par in 1/32.

The Wilshire 5000 Index is composed of

5,000 exchange-listed and OTC common stocks.

Accrued Interest

= (Days of accrued ÷ Days in year) × Annual interest o CorporatesorMunis=30/360basis;T+3settlement oTreasuries=Actualdays/365dayyear;T+1settlement

When a cash dividend is declared

Retained earnings are lowered and current liabilities are increased

If a municipality wants to even out its cash flow, it is most likely to issue which of the following securities?

A. TANs

Auction Rate Securities:

were issued by municipalities or corporations are long term, variable rate bonds tied to short term interest rates Have interest rates reset through a Dutch auction process, at predetermined short term intervals, usually 7, 28, or 35 days. The lowest bid rate at which all the shares can be sold at par establishes the interest rate known as the "clearing rate". have interest paid in the current period based on the interest rate determined in the prior auction period. trade at par (the price doesn't fluctuate, the interest rate does) and are callable at par on any interest payment date at the option of the issuer are issued and rated as long term bonds (20 to 30 years) but are priced and traded as short term instruments were typically of good credit quality, not so recently will fail if there are not enough bids received on the securities or when there are not enough bids below the maximum rate established by the issuer In a failed auction, the interest rate is a set to a maximum rate defined by the issuer

A penny stock is a non-Nasdaq equity security in the OTC market with a price of

$5 or less.

Threshold that triggers the filing of a suspicious activity report is

$5,000

SIPC - Securities Investor Protection Corporation

$500,000 are covered, with cash claims not to exceed $250,000

Sales charge

(POP - NAV) ÷ POP

Lagging indicators

-Corporate profits !!!! -Unemployment !!! -Labor cost per unit of output (manufacturing) -Ratio of inventories to sales -Commercial and industrial loans outstanding

Leading economic indicators

-Money supply!!! -Building permits (housing starts)!!! -Average weekly initial claims for state unemployment -New orders for consumer goods!!!! -Machine tool orders !!! -Changes in inventories of durable goods -Stock prices!!!! -Changes in business and consumer borrowing -Inventories!!!

Coincident indicators

-Number of hours worked (As a proxy for personal income) -Employment levels -nonagricultural employment -Personal Income!!!! -Industrial production !!! -GDP!!!1 -Manufacturing and trade sales

When a U.S. corporation receives dividends form another U.S. Corporation, 70% of the dividends are excluded form taxation. This means that the dividends received are

30% taxable

Technical Analysis

Attempts to predict the direction of prices on the basis of historic price and trading volume patterns Market averages and indexes, trading volume, advances and declines, trend lines, consolidations, reversals, support and resistance levels

If a registered representative witnesses or believes unethical trading or business practices are occurring

A regulatory tip may be filed with FINRA via the Regulatory Tip Line in Washington, DC

Trust Indenture

A series of promises between the issuer and the trustee for the benefit of the bondholder

Margin Interest

A tax-deductible expense (other than municipal securities)

Which of the following statements regarding a unit investment trust is not correct? A. It issues redeemable securities to investors B. It will have a specific termination date C. It will regularly adjust the composition of its portfolio D. It does not utilize the services of an investment advisor while the trust is active

A unit investment trust does not routinely alter the composition of its portfolio, unlike an open-end investment company or mutual fund which does regularly make adjustments to its portfolio. C. It will regularly adjust the composition of its portfolio

Trust Indenture Act of 1939

Applies to corporate bonds

Which of the following is not a leading indicator? A. Personal income B. Money supply C. Stock prices D. Housing starts

A. Personal income Personal income is a coincidental economic indicator.

Which of the following securities might a broker-dealer hold out firm for a customer for one hour with a five-minute recall? A. State G.O. bond B. AA Corporate bond C. Nasdaq listed equity D. U.S. Treasury bond

A. State G.O. bond This is a practice that would occur in the municipal bond market, owing to the comparably illiquid nature of this market place.

A client interested in capital preservation would be least likely to purchase a(n) A. Income Bond B. Treasury bill C. Banker's Acceptance D. AAA-rated ABC Inc. debenture

A. Income Bond An investor with a goal of capital preservation would not be interested in purchasing an Income Bond. These bonds are issued by companies experiencing challenging financial conditions; these funds may be needed to avoid bankruptcy or to otherwise stay in business.

Total equity in a margin account is A. Long market value + credit balance- debit balance-short market value B. Long market value +debit balance- short market value-credit balance C. Credit balance + short market value - debit balance - long market value D. Credit balance + debit balance - long market value - short market value

A. Long market value + credit balance- debit balance-short market value Total equity in a margin account is the long market value plus the credit balance, minus the debit balance less the short market value.

Which of the following is not a characteristic of negotiable certificates of deposit? A. They are generally issued in bearer form in minimum denominations of $10,000 B. They are short term issuances of a large bank C. They trade in the secondary market D. They are issued at a fixed interest rate or at a discount

A. They are generally issued in bearer form in minimum denominations of $10,000 The minimum denomination of a negotiable certificate of deposit is $100,000. All of the other statements are correct

The statement "I believe that government intervention is necessary in order for an economy to grow and reach a point of stability" was most likely made by A. an adherent of Keynesian economic theory B. the president of the NY Federal Reserve bank C. an advocate of supply-side economics D. the head of fixed-income trading at an investment bank

A. an adherent of Keynesian economic theory Keynesian economic theory espouses that the government needs to be the leading force in promoting economic growth and stability. Supply-side economics advocates that tax cuts provide incentives for consumers to save and invest, thereby producing benefits that will encompass the broad economy.

Call options can be beneficial if an investor A. is trying to protect a short position in an equity position B. wants to ensure he'll be able to sell a particular stock at a specific price C. is unsure about the future direction of the stock market D. seeks to hedge a long position in a security

A. is trying to protect a short position in an equity position Call options are commonly used to hedge (or protect) a short position in an underlying security. If the value of the security that has been sold short increases (thereby producing a potential loss), the value of the call option would increase, providing an offset to the total position.

123. The marketability of a municipal bond would be least affected by A. par value B. rating C. call features D. coupon

A. par value The par value of a municipal bond is not a significant factor in evaluating the marketability of a municipal bond. The other items are very important in making this assessment.

Pre-refunded bonds become

AAA-rated.

Bonds purchased at a discount

Accretion : increases the cost basis and increases reported interest income

Yield to maturity in a muni bond is the effective

After-tax yield

When a municipality deposits government securities in escrow sufficient to cover the interest and principal payments of a bond until maturity, the bond is said to be "escrowed to maturity".

An escrowed to maturity bond is considered to be defeased, or removed as a liability of the issuer. If a bond is escrowed to maturity, it must be noted as such on the trade confirmation.

Dividend yield

Annual dividend ÷ Current market value of the stock

Current Yield

Annual dividends per common share/ Market value per common share

XYZ Corporation has declared a cash dividend payable to holders of record on September 1. Which of the following events does not occur on the declaration date? A. Retained earnings are reduced B. Current assets are reduced C. Current liabilities are increased D. Working capital is reduced

B. Current assets are reduced On the declaration date, retained earnings are reduced and current liabilities are increased.

Registered representatives may engage in which of the following activities? A. Rebalancing a client portfolio based on recent suggestions offered to the client B. Entering a client order based on their verbal instructions C. Loaning money to a client to start a business D. Telling a client that they will recover their losses when the current market correction ends

B. Entering a client order based on their verbal instructions A registered representative may accept a verbal instruction from a client to place a trade. The other choices are not appropriate actions.

Which of the following statements concerning mutual funds is not correct? A. Both load and no-load funds have expense ratios B. Investors have one year to fulfill their obligation under a letter of intent C. Their net asset value must be determined at least once each business day D. The fund stands ready to issue and redeem shares as necessary

B. Investors have one year to fulfill their obligation under a letter of intent Investors have 13 months, not one year, to satisfy their obligation under a letter of intent.

Peter has been asked to analyze the latest data on corporate profits and the average duration of unemployment. Peter's current focus is on A. Leading indicators B. Lagging indicators C. The business cycle D. Coincidental indicators

B. Lagging indicators Corporate profits and the average duration of unemployment are lagging economic indicators.

When the XXXX Index is 2125, which of the following positions would be exercised? A. Short 2075 Put B. Long 2025 Call C. Short 2150 Call D. Long 2100 Put

B. Long 2025 Call A call option would be exercised when the market price of the security is higher than the strike price. A put option would be exercised when the market price of the security is lower than the strike price.

Prior to accepting a part-time job at a day- care center, RR Anna must A. Notify FINRA B. Notify her Firm C. Receive Permission from her Firm D. Notify Day-Care

B. Notify her Firm A registered representative (RR) must provide advance written notification to her employer prior to accepting a part-time position outside of her firm.

Shares of an IPO become marginable A. after 10 days B. after 30 days C. after 60 days D. after 90 days

B. after 30 days Shares of an initial public offering (IPO) become marginable (or may be used as collateral) after 30 days.

A rating agency characterizes an asset class as Not Prime. This is a reference to A. real estate investment trusts B. commercial paper C. collateralized mortgage obligations D. equity linked notes

B. commercial paper This is a reference to the Moody's rating scale for short term securities. A rating of Not Prime denotes a speculative rating for commercial paper or other very short- term instrument.

Which of these statements is true regarding equity-linked notes (ELNs)? A. Investors are guaranteed a minimum payout from the note B. repayment of principal is guaranteed C. they are issued as common or preferred shares and trade on exchanges D. the value of the note is unaffected by the credit quality of the issue

B. repayment of principal is guaranteed Equity-linked notes (ELNs) are typically issued by an investment bank in the form of a debt security. While the note offers principal protection, any payouts will be based on the performance of an underlying security or index, as well as the credit quality of the issuer.

Your client Barbara has investment objectives of growth and aggressive income. Her portfolio consists of blue chip stocks, high yield bonds, and treasuries. Barbara has been generally unhappy with the performance of her portfolio and is seeking your advice. You should tell her to A. buy more Treasury bills and sell some of her Treasury bond holdings B. sell the Treasuries and buy more blue chip stocks paying a steady dividend C.sell the high yield bonds and buy more treasuries D. increase her equity exposure and eliminate all fixed income from her portfolio

B. sell the Treasuries and buy more blue chip stocks paying a steady dividend You should advise Barbara to sell her Treasuries and buy more blue chip dividend paying stocks. This approach would have the best chance of helping her increase the return of her portfolio.

Dollar cost averaging investor would

Buy the same dollar amount of a stock

Which is a constant dollar plan?

Fixed amount in the portfolio regardless of market price

Current income with moderate risk

Fixed income security

Warrants

Warrants typically remain outstanding longer than rights. Warrants are generally not issued with intrinsic value.

Increase in S&P 500

Leading indicator

Assets=

Liabilities+ shareholder's equity

Accelerated depreciation generates larger deductions

Lower taxable income during the early years and smaller deductions during the later years

Your firm has just participated in the initial public offering of ABC Inc. Your firm may publish a research report on ABC A. Once the offering is complete B. After the 20 day cooling off period has ended C. After a period of 10 days has elapsed following the effective date D. After a supervisory analyst has approved the report

C. After a period of 10 days has elapsed following the effective date FINRA regulations dealing with research reports prohibit the publication of a research report for 10 days following the effective date of the initial public offering, provided the firm was involved in the offering as a manager or syndicate member.

When ABC Corporation pays a cash dividend to its shareholders, A. Stockholder's equity and working capital are reduced B. Assets are increased and liabilities are reduced C. Assets and liabilities are reduced D. Retained earnings are increased and assets are reduced

C. Assets and liabilities are reduced

Jeff has an investment objective of speculation. Which of the following securities is least likely to be held in Jeff's account? A. BB+ rated debenture B. ZZZZ Index call option C. Baa2 rated school district bond D. Equity-linked note

C. Baa2 rated school district bond Of the choices provided, Jeff would be least likely to own a bond with a rating of Baa2, as this is an investment grade rating. The other alternatives would be considered riskier, or speculative, and would be consistent with Jeff's investment objective.

The value of an investment is measured by subtracting fees and expenses from the total value of its investment holdings, and then dividing this by the number of shares that investors currently own. This calculation will provide the investments' A. POP B. expense ratio C. NAV D. sales charge

C. NAV The net asset value (NAV) of a mutual fund is found by adding the total value of the fund's investment holdings, subtracting the fund's fees and expenses, and dividing this figure by the number of shares of the fund that investors currently own.

According to the Capital Asset Pricing Model, the expected return of a security must equal the rate on a A. U.S. government bond adjusted for inflation B. zero coupon bond plus the current T Bill rate C. T Bill plus a risk premium D. short term money market instrument plus the current inflation rate

C. T Bill plus a risk premium The Capital Asset Pricing Model states that the expected return of a security must equal the rate on a risk-free security plus a risk premium; otherwise the investment should not be made.

Regulation T does not apply to which of the following? A. The purchase of a call option in a cash account B. The purchase of common stock in a margin account C. The purchase of a Treasury Bond in a margin account D. The short sale of an ETF in a margin account

C. The purchase of a Treasury Bond in a margin account Regulation T stipulates that proper payment must be made for a corporate security or an option contract in a timely manner, whether the trade is effected in a cash account or a margin account. Certain securities are exempt from Regulation T, including Treasuries and municipals.

Inflation is a general increase in price levels of goods and services over a period of time. Disinflation is: A. a general decline in price levels of goods and services over a period of time B. persistent high inflation accompanied by high unemployment C. a reduction in the rate at which the prices of goods and services increase D. two consecutive quarters of negative economic growth

C. a reduction in the rate at which the prices of goods and services increase Disinflation is characterized as a reduction in the rate of inflation. Prices are still rising, but at a slower pace. The general decline in price levels across the economy is deflation. An economic condition characterized by persistent high inflation along with high unemployment is stagflation. Two consecutive quarters of negative economic growth is a recession.

Various tax preference items are added back to adjusted gross income when considering A. estate tax liability B. individual net worth C. alternative minimum tax D. debt service coverage ratio

C. alternative minimum tax When computing the alternative minimum tax, certain tax preference items are added back to adjusted gross income. This will determine whether an individual is required to pay regular income taxes, or the alternative minimum tax (AMT).

Your clients Judy and Irwin own a life-cycle fund. This investment is characterized by A. regularly scheduled modifications to the fund's holdings based on recent returns in the S&P 500 Index B. a general shift from conservative to speculative assets in the fund's portfolio as an investor ages C. automatic adjustments to the fund's portfolio as an investor approaches retirement D. a heavy emphasis on tax-deferred investments to offset general tax liability

C. automatic adjustments to the fund's portfolio as an investor approaches retirement A life-cycle fund is a type of asset -allocation mutual fund in which the proportion of various asset classes in a fund's portfolio is automatically adjusted over the course of the fund's time horizon. Typically, the shift will be from more speculative assets to more conservative assets.

Exchange traded funds A. have higher operating expenses than traditional mutual funds B. may not be purchased on margin C. can be purchased and sold anytime during the trading day D. always have higher returns than open- end investment companies

C. can be purchased and sold anytime during the trading day

A cash dividend received by a retail investor would be taxed at a preferred rate if the investor A. purchased the shares at least 30 days prior to the ex-dividend date B. owns at least 20% of the outstanding shares of the issuer C. has held the stock for at least 60 days surrounding the ex-dividend date D. sells their shares no later than 60 days after receiving the dividend

C. has held the stock for at least 60 days surrounding the ex-dividend date cash dividend would be taxed at a preferred rate if the investor holds the shares for at least 60 days of the 121-day period surrounding the ex-dividend date. Otherwise, the dividend would be taxed at ordinary income tax rates.

All of the following are true of a municipality's debt limit EXCEPT A. the purpose of debt restriction is to protect taxpayers from excessive taxes B. revenue bonds are not affected by statutory limitations C. the debt limit is the maximum amount a municipality can redeem in a year D. a public referendum is required if an issuer wishes to issue GO debt that would put the issuer above its statutory debt limit

C. the debt limit is the maximum amount a municipality can redeem in a year Can INCUR in one year; have made revenue bonds more popular

Maintenance market value for short account

CR ÷ 1.3 o Maximum SMV (before a margin call)

A taxpayer's home is currently valued at $400,000. For property tax purposes, it is assessed a value equal to 50% of its market value. If the annual tax rate is 7 mills, what is the taxpayer's annual property tax liability?

Calculate the tax liability by multiplying the mill rate by the property's assessed value. $200,000 (50% of $400,000) × .007 (a mill is 1/1000) = $1,400.

Safety

Cash, money market funds, Certificates of deposit, US Treasury Securities, bank- grade corporate and municipal bonds, blue-chip stocks, and blue chip stock and bond mutual funds

Which organization unit sets fiscal policy?

Congress and the president

Qualified Retirement Plans

Contributions tax deductible Examples: 1) Defined benefit (e.g. pension plan) and 2) defined contribution (401(k)) 3)HR-10 or Keogh Plans (self- employed)

Current Yield

Current Yield (CY) = Annual interest ÷ Market value of bond

Which are affected when a corporation declares a cash dividend?

Current liabilities, Working capital, Total liabilities, and Net worth (because the dividend will be paid from retained earnings)

Parity price of stock

Market value of bond ÷ Conversion ratio

Parity price of bond

Market value of stock × Conversion ratio

Horacepurchased2,500sharesofMNOInc. in March at $18.50 per share. In June he gave half of his position away as a graduation gift to his niece Jill while MNO was trading at $21.75. Jill sold these shares at $24.25 in November. For tax purposes, Jill sold these shares using a cost basis of A. $31.25 B. $21.75 C. $24.25 D. $18.50

D. $18.50 The cost basis of shares given as a gift is generally the donor's original purchase price, so in this case Jill would be using a cost basis of $18.50.

Preferential tax treatment does not apply in which of these instances? A. Company X owns 18 percent of the preferred shares of Company Y and receives a $35,000 cash dividend from Y B. Jerry purchased 2,000 shares of Company K on May 1, 75 days prior to the ex-dividend date for the next common share distribution for which Jerry received $.20 per share C. Ben took a distribution of $12, 500 from his Section 529 Plan to cover his daughter's next tuition payment at her community college D. Abagail received a distribution of $2,500 from her real estate investment trust which she has owned for three years.

D. Abagail received a distribution of $2,500 from her real estate investment trust which she has owned for three years. Distributions from a Real Estate Investment Trust are subject to regular income tax, unlike ordinary cash dividends from common or preferred shares, which may be subject to regular tax liability depending on the length of time the shares were held surrounding the ex- dividend date. If the shares were held for at least 61 of the 121- day period surrounding the ex-dividend date, any dividends received would be taxable at a preferred rate. Distributions from a Section 529 plan are not taxed if used for qualified educational expenses. Dividends paid to a corporation are taxed at a preferred rate depending on the level of ownership the company has in the business.

Which of the following items is not associated with technical analysis? A. Trend lines B. Breakouts C. Moving averages D. Dilution

D. Dilution Dilution is a concept related to fundamental analysis, not technical analysis.

An investor purchasing a jumbo CD A. Will receive a lower rate of interest than available on a regular CD B. Is prepared to assume greater risk compared to a high yield bond C. Must spend at least $1,000,000 to receive an above market rate of interest D. Has purchased a low-risk, stable investment

D. Has purchased a low-risk, stable investment Jumbo CDs are usually issued with a minimum denomination of $100,000. These products are considered low-risk, stable investments for large investors. Due to their large denominations and longer time periods, jumbo CDs offer a higher rate of interest than traditional CDs.

Real Estate Investment Trusts pass through A. Losses to investors but not income B. Both income and losses to investors C. Capital gains to investors but not capital losses D. Income to investors but not losses

D. Income to investors but not losses Real Estate Investment Trusts are designed to provide income distributions to investors but do not pass losses through to investors.

Which of the following is an accurate statement regarding Build America Bonds? A. All Build America Bonds pay tax credits to the issuer. B. Build America Bonds are issued by both corporate and municipal issuers. C. All Build America Bonds offer tax credits to the bondholder. D. Interest payments received from Build America Bonds are taxable to bondholders.

D. Interest payments received from Build America Bonds are taxable to bondholders.

Which of the following statements is true? A. Required minimum distributions must be made from all types of IRAs B. Contributions to a traditional IRA are never tax deductible but they may be for Roth IRAs C. Distributions must be taken from traditional IRAs in the year in which an individual turn 59 1⁄2; otherwise, a penalty will be assessed D. Investors may withdraw more than the required minimum from their IRA, but will be taxed on these distributions accordingly.

D. Investors may withdraw more than the required minimum from their IRA, but will be taxed on these distributions accordingly. Investors are permitted to withdraw more than the required minimum amount from their traditional IRA in any given year. Any withdrawals made will be subject to appropriate income taxes. There are no required minimum distributions from a Roth IRA. Distributions from traditional IRAs must begin upon the individual reaching the age of 70 1⁄2. Failure to take the required minimum distribution from a traditional IRA may result in a penalty.

If Joe sells his 500 shares of XYZ Inc. on the ex-dividend date in a regular way transaction, A. The person who purchased these shares is entitled to the dividend B. Joe would need to provide a due bill to the buyer of the shares C. Any dividend will be shared between Joe and the buyer D. Joe is entitled to the dividend

D. Joe is entitled to the dividend When shares are sold on the ex-dividend date, the seller is entitled to the dividend. This is because the trade will settle after the record date, and the seller's name will still be on the issuer's records. When the trade occurs prior to the ex-dividend date, the buyer receives the dividend.

Marsha has established a vertical spread using option contracts on ABC Inc. Marsha will breakeven when the market price of ABC is A. zero at expiration B. below the lower strike price C. at the midway point of the two exercise prices D. above the lower strike price

D. above the lower strike price The breakeven point on a vertical spread will occur between the two strike prices, not necessarily at the midway point. It is correct to say that the breakeven point will be above the lower strike price, or below the higher strike price.

The Employee Retirement Income Security Act (ERISA) A. requires private sector employers to establish pension plans for their full time employees B. provides for tax free distributions to employees who work at least 1,000 hours each year C. requires that all full time public sector employees participate in a government sponsored retirement plan D. establishes minimum standards for private sector retirement plans

D. establishes minimum standards for private sector retirement plans ERISA is the federal guideline that establishes the legal standards for the implementation of private sector retirement plans. It does not govern public sector employers, such as the federal government.

Which of the following investments is least appropriate for a client primarily concerned with liquidity?

DPP, real estate, and annuities

Maintenance market value for long account

DR ÷ .75 o Minimum LMV before a margin call

Depreciation and depletion are commonly associated with A. CMO B. REIT C. DPP D. ADR

Depreciation and depletion are associated with direct participation programs. These are tax benefits an investor might receive in various types of limited partnership investments, such as natural resource (i.e. oil & gas) or real estate programs.

FRB sets the

Discount rate, not the federal funds rate

Stock dividends and stock splits

Does not affect shareholders equity

Blue chip stocks are included in the

Dow Jones Industrial Average (DJIA).

Depression

Downturn lasting for 6 quarters (18 months) or more

Progressive tax

Estate and income taxes

Business Cycle

Expansion, peak, contraction, trough

USA

For state registration of securities

Which is most suitable for an investor seeking monthly income

GNMA Mutual Fund

Short term capital gains

Holding period of 12 months or less and taxes at ordinary income

Disintermediation is most likely to occur when

Money is tight and interest rates are high

Not part of M1

Money market funds- they are considered time deposits and so are part of M2

Series I bonds

I bonds are designed for investors seeking to protect the purchasing power of their invest- ment and earn a real rate of return. I bonds are an accrual security, meaning that interest is added to the bond monthly and paid when the bond matures or is redeemed. I bonds are sold at face value, and they grow in value with in ation-indexed interest for up to 30 years.

Government bonds are sold easily, whereas DPPS are illiquid and extremely difficult to sell. Muni securities have

Regional markets rather than a national market; they may be less marketable than more widely held securities

Tax advantages

IRA and annuities- allow earnings to accumulate tax deferred (an investor pays no taxes until he withdraws money from his account) Muni bonds offer tax-free interest income

Participating Preferred

In addition to fixed dividends, participating preferred stock offers its owners a share of corporate pro ts that remain after all dividends and interest due other securities are paid.

Which characteristics best define the term growth?

Increase in the value of an investment over time

Discount on all bonds bought in the secondary market is taxed as

Interest income

Regulation NMS

Is a broad sweeping regulation that was enacted to bring trading and reporting uniformity to the U.S. securities markets.

Once a dividend is paid

It reduces cash in current assets and also reduces current liabilities

Decrease in the duration of unemployment

Lagging indicator

Tax-free income

Muni bond

Buying a muni bond at a premium

Must amortize the premium

POP

NAV÷(100%-SC)

Variable Annuity Contributions

NO contribution limits Tax deferred Pre-Tax available for qualified annuities, such as 403(b) plans, for employees of non profits The earnings on dollars invested into a variable annuity accumulate tax deferred.

Margin interest paid on muni bonds is

NOT deductible

Current Assets- Current liabilities =

Net worth

The CMO tranche with the lowest level of risk for investors is the

PAC tranche.

Conversion Ratio

Par value ÷ Conversion price o Note:Set at the time a bond is issued. The conversion ratio and conversion price do not change, unless there is an anti-dilution covenant.

Income bond

Pays interest only if the corporate meets targeted earnings level

Dollar cost averaging

Periodic purchases of a fixed dollar amount in one or more common stocks or mutual funds. Helps control the cost of investment

Front Running

Placing an order in front of the block order (has nonpublic knowledge of an impending block order to buy or sell)

Form an income oriented stock portfolio

Preferred stock and utility stocks

Agency CMOs would have a higher credit quality and therefore lower yield than

Private Label CMOs.

MBS are susceptible to

Reinvestment risk

Trust indentures are not required for municipal bonds by the Trust Indenture Act of 1939. Municipal issues are exempt from this act. The use of trust indentures is optional, but it greatly enhances the marketability of revenue issues.

Revenue bonds have either a trust resolution or trust indentures, whereas GOs commonly have a bond resolution.

Fitch credit ratings are the same as

S&P credit ratings.

Cash and margin accounts are combined for

SIPC coverage purposes

POP (Public offering price)

Sales charge (SC) + Net asset value (NAV)

Series EE Bonds

Series EE savings bonds earn a xed rate of interest for 30 years and are issued at face value. They can be purchased in minimum denominations of $25. Savings bonds can be redeemed after one year, the minimum holding period; however a three-month interest penalty is applied to bonds held less than ve years from the issue date to encourage longer-term bondholders. Series EE savings bonds are purchased by investors directly from the U.S. Treasury Department by setting up an online account with them through Treasury Direct. Investors can buy bonds, have bonds redeemed, and otherwise manage and monitor their account online. It should be noted that the ornate bond certi cates so often associated with savings bonds are no longer available and all savings bonds are issued electronically only. Interest, which is added to the bonds monthly, is compounded semiannually. The interest is exempt at state and local levels and therefore only taxable at the federal level. The federal income tax on the interest can be deferred until investors redeem the bonds or they stop earn- ing interest after 30 years.

Growth

Small capitalization stocks, stock options, nonbank-grade bonds, growth oriented limited partnerships, growth stock mutual funds, commodities funds and variable annuities

Speculation pyramid

Speculative stocks and stock options, low-rated debt securities, precious metals, commodities and futures, speculative limited partnerships and speculative mutual funds

Which of the following is NOT included in the definition of coterminous debt?

State

Keeps pace with inflation

Stock portfolio

Ginnie Mae pass-throughs

Subject to tax on ALL levels

In CMO's, the PAC tranche has a lower yield than the

TAC tranche.

Tax equivalent yield

Tax free yield ÷ (100% - Tax bracket) o Usedtoconvertatax-freeyieldintoataxableyield

Tax-free equivalent yield

Taxable yield × (100% - Tax bracket) o Usedtoconvertataxableyieldintoatax-freeyield

High beta stocks include

Technology and automobile companies

Securities ACTS Amendments of 1975 established

The MSRB

Which of the following items is least relevant in assessing a customer's investment profile? A. others assets held B. years living in current residence C. existence of a retirement plan D. household income

The amount of time someone has lived in their home is not as important as the other listed choices in this question in terms of measuring a client's investment profile.

Recession

When a decline in real output of goods and services lasts for six months or more

Keynesian economists believe in government intervention, whereas gaffer and supply-side economists believe

The government should step aside and let market forces take over

Duration

The lower the coupon rate, the greater a bond's duration

If a company issues 1 million shares

The net worth (shareholders equity) will increase by the additional capital raised, and the amount of cash on the asset side of the balance sheet will increase

The act of 1934

The secondary market Outstanding securities trading activities Consider it the People Act. It regulates ALL the persons involved in trading securities on behalf of customers

Fundamental analysis

The study of the business prospects of an individual company within the context of its industry and the overall economy

Shareholders of XYZ Inc. have received a letter advising them of an opportunity to sell their shares back to XYZ at a specified price on a specific date. XYZ Inc. is conducting a A. Leveraged buyout B. Tender offer C. Repurchase agreement D. Wash sale

This would be an example of a tender offer. The offer is usually made at a premium to the current market price of the security.

Annual Accretion

Total discount from par ÷ Years to maturity

Securities exempt from Regulation T

Treasuries and municipals.

The Consumer Price Index

Uses a constant dollar adjustment to account for inflation

low beta stocks include

Utilities and drug companies

In a municipal secondary joint account

all participants must sell the bonds at the same price.

American depositary receipts (ADRs)

are U.S. securities that facilitate the trading of foreign stocks in U.S. markets.

market orders to sell

are filled at the highest bid.

Market orders to buy

are filled at the lowest offer

PHAs (or NHAs)

are the only municipal issues backed in full by the U.S. government. They are also called Section 8 bonds.

A stop order, once triggered,

becomes a market order.

Treasury securities are entered in

book-entry form only.

Treasury Receipts are issued by

broker dealers and backed by U.S. Government Securities.

Reverse convertibles are best suited for investors who are

bullish on the underlying asset.

ADRs do not have

call risk; they have have currency risk.

Treasury bonds, because of their longer maturity, would be affected more by a

change in rates than t-notes or t-bills.

A bond would NOT trade flat if the settlement date coincided with the

company's record date.

The pricing of a CMO will consider the

credit of the underlying security and prepayment risk.

The credit quality of an Exchange Traded Note (ETN) is based on the

credit worthiness of the issuer (e.g. the investment bank that structures it) and not the underlying asset (common stock) that its performance is tied to

The general decline in price levels across the economy is

deflation

Brokers-brokers

do not work with the public, they cannot participate in new issues, they cannot maintain an inventory of securities, and they cannot make a market in a security. Brokers-brokers can work with other broker-dealers.

The tax treatment of ADRs is similar to that of other domestic stocks

e.g. investors are subject to the same capital gains and dividend taxes as U.S. investments. The only difference is that the foreign country may withhold taxes on the dividends paid. If this is the case, the investor can receive a tax credit from the U.S. Government.

For a municipal bond to be good delivery without the legal opinion, it must be marked

ex-legal.

Treasury Notes and Treasury Bonds are issued with

fixed coupons. However, Treasury Bills and Treasury Receipts are both zeroes which do not pay a fixed coupon.

The minimum face value (par value)

for a Negotiated CD is $100,000.

Overlapping debt (e.g. adjacent or coterminous) only applies to

general obligation bonds, not revenue bonds.

Commercial paper is

generally not callable.

Municipal bond insurance

guarantees the payment of both principal and interest on a bond issue if the issuer defaults.

Market orders

have priority over all other types of orders.

Tax-free municipal bonds are most suitable for those in

higher tax brackets.

Order tickets must include

if the order is discretionary and if the order is solicited or unsolicited. Trade confirmations do not include this information.

Variable annuities offer the advantage of

income guaranteed to some extent depending on how the contract is set up.

Under Regulation NMS, a market maker cannot execute a limit order at a price

inferior to the best price available on the other side of the market. For example, a buy limit order could not be executed at any price above the best offer - if the best offer in a stock is $34, any buy limit must be executed at $34 or below.

The fourth market is where

institutions trade securities between each other.

A vertical spread

involves buying and selling a call, a call spread, or buying and selling a put, a put spread, of the same expiration but different strikes. A vertical spread can be bullish or bearish and can be for debit or credit.