Missed questions chapter 1

Which of the following statements regarding Treasury Bills are TRUE? 1. They are sold at auction 2. They pay a fixed rate of interest semiannually 3. They mature at par 4. They mature in ten years or more

1 and 3

Rank the following from first to last in order of payment at liquidation of a corporation. 1. General creditors 2. Preferred stock 3. Subordinate debentures 4. Accrued taxes

4, 1, 3, 2

Which of the following interest rates is charged by banks to securities dealers for margin loans? - Securities rate - Margin rate - Broker call loan rate - Discount rate

Broker call loan rate

Which of the following statements describing the federal taxation of municipal bond fund distributions is TRUE? - Dividend distributions are taxable; capital gains distributions are tax free - Dividend distributions are tax free; capital gains distribution are taxable - Both dividend distributions and capital gains distributions are tax free - Both dividend distributions and capital gains distributions are taxable

Dividend distributions are tax free; capital gains distribution are taxable

If the RST Corporation has issued several different debt securities, an investor would expect the lowest income stream from RST's - speculative bonds - ordinary debentures - subordinate debentures - convertible debentures

convertible debentures

If interest rates increase, the interest payable on outstanding corporate bonds will: - remain unchanged - increase - change according to the inverse payout theory - decrease

remain unchanged

A customer bought a bond that yields 6.5% with a 5% coupon. If the bond matures at this point, the customer will receive

$1,025 (upon redemption, whatever current interest rates may be, the investor receives par ($1,000) plus the final semiannual interest payment ($25 in this case), for a total of $1,025)

A convertible preferred stock issue (par value $100) is selling at $125 and is convertible into five shares of common stock. The conversion price of the common stock is - $25 - $20 - $1,200 - $100

$20

An investor purchased a corporate bond for 97 3/8. If the bond is sold for 99 3/8, the investor has a profit of

$20 (profit of two points and each point is worth $10)

Which of the following represent ownership in a corporation? 1. Debentures 2. Convertible bonds 3. Preferred stock 4. Common stock

3 and 4

You have a client who is in the 30% tax bracket. She has an opportunity to purchase a 9% corporate bond. This would be tax-equivalent to a municipal bond with a coupon o - 6.3% - 6.9% - 2.7% - 12.9%

6.3%

The current yield on a bond with a coupon rate of 7.5% currently selling at 105 1/2 is approximately: - 8.5% - 8% - 7.1% - 7.5 %

7.1% (A bond with a coupon rate of 7.5% pays 75 interest annually. 75/1055 = 7.109%)

If ABC common stock closed at 20 yesterday and ABC is currently paying a quarterly dividend of $.40, what is the stock's current yield? - Less than 1% - Between 1% and 5% - More than 10% - Between 5% and 10%

Between 5% and 10% (The annual dividend is $1.60 (4x$0.40). The current yield is the dividend of $1.60, divided by the current price ($20). Thus, the yield of 8% is more than 5% (1/20) and less than 10% (2/20))

Which of the following statements regarding preemptive rights is true? - Neither common stockholders nor bondholders have the right to subscribe to a rights offering - Common stockholders do not have the right to subscribe to a rights offering - Bondholders do not have the right to subscribe to a rights offering - Both common stockholders and bondholders have the right to subscribe to a rights offering

Bondholders do not have the right to subscribe to a rights offering

Duration would be considered in evaluating which of the following investments? - Bonds - Equities - Growth funds - Variable annuities

Bonds

If all other factors are equal, an investor would expect which type of preferred stock to pay the highest stated dividend rate? - Straight - Callable - Cumulative - Convertible

Callable

A 5% bond is trading at a premium. Which of the following would be the bond's highest yield? - Yield to maturity - Coupon yield - Current yield - Dividend yield

Coupon yield

All of the following are characteristics of an investment in treasury notes except: - They are issued in a variety of denomincations - They are short term issues - They are issued with a variety of maturities - Interest is paid semiannually

They are short term issues

Which of the following securities is issued at par? - Treasury Bills - Zero coupon bonds - Treasury notes - Treasury STRIPS

Treasury Notes

One of the most important functions of a banker's acceptance is its use as a means of - facilitating trades of foreign securities in the United States - guaranteeing payment of an international bank's promissory note. - assigning previously declared distributions by foreign corporations - facilitating trades in foreign goods

facilitating trades in foreign goods

All of the following are features of preferred stock except - fixed rate of return - fixed maturity - typically no voting rights - priority claim to assets at the dissolution of a corporation

fixed maturity

T-bills are quoted - in 32nds - as a percentage of par - in 16ths - on an annualized discount yield basis

on an annualized discount yield basis

An investor has secured bonds maturing in two weeks. He plans to purchase some unsecured bonds he has identified on the secondary market that have a 6% coupon rate. If interest rates decline before the investor can purchase the new bonds, he can expect the income he will receive from the new bonds to: - remain at $60 per year - pay no interest - increase to more than $60 per year - decline to less than $60 per year

remain at $60 per year

The Federal Reserve Board would most likely implement a tight money policy if: - the gross domestic product is decreasing - interest rates are declining - the dollar is decreasing in value against foreign currencies - the consumer price index is rising rapidly

the consumer price index is rising rapidly

Common stockholders may take advantage of which of the following features of their security? 1. The right to vote 2. The potential appreciation of stock value 3. Tax free income 4. Guaranteed payment of dividends

1 and 2

Which of the following are not considered money market instruments? 1. Newly issued debentures rated Aaa 2. Treasury notes 3. Commercial paper 4. Treasury bonds maturing in six months

1 and 2

A common stockholder's voting rights apply to which of the following? 1. Election of the board of directors 2. Declaration of dividends 3. Authorization or issue of more common shares 4. Changing suppliers of raw material

1 and 3

In assessing the economy's productivity and the general health of the currency, the chief measures used include which of the following? 1. The CPI to measure inflation 2. The CPI to measure productivity 3. The GDP to measure productivity 4. The GDP to measure inflation

1 and 3

Which of the following are steps that Congress and the President may NOT take in attempting to benefit the economy? 1. Lowering the discount rate 2. Lowering taxes 3. Increasing the purchase of short-term government debt instruments 4. Reducing spending

1 and 3

Which of the corporate bonds listed below have a nominal yield in excess of its current yield? 1. ABC 8s of 2015 at 110 2. DEF 6.3s of 2018 at 100 3. GHI 5s of 2020 at 96 4. JKL cv 4s of 2015 at 125

1 and 4

Which of the following regarding T-Bills are true? 1. T-Bills trade at a discount to par 2. T-Bills have maturities of one to ten years 3. Most T-Bill issues are callable 4. T-Bills are a direct obligation of the US Government

1 and 4

Which of the following regarding T-Bills are true? 1. T-Bills trade at a discount to pay 2. T-Bills have maturities of one to ten years 3. Most T-Bill issues are callable 4. T-Bills are a direct obligation of the US Government

1 and 4

If your customer holds ten KP 6% bonds, how much money will he receive in total at the debenture's maturity?

10,300 (pays 6% annual interest so 60 per bond. Ten bonds is 600 per year but 300 semiannually. At maturity it would be 10,000+300)

If an investor purchases a US Treasury note quoted at 101.24, the investor must pay: - 1010.24 - 1012.40 - 1017.50 - 101.24

1017.50 (101 = $1,010 and 24/32 reduces to 3/4 of a point of 7.50, added together, the answer is $1,017.50)

Which of the following statements regarding corporate zero-coupon bonds are TRUE? 1. Interest is paid semiannually 2. The discount is in lieu of periodic interest payments 3. The discount is taxed annually as phantom income 4. The discount is not taxed until maturity

2 and 3

Your customer is interested in a mutual fund that specializes in foreign companies that manufacture products for export. He asks you what effect currency rates will have on his investment. You could tell him: 1. "If the dollar weakens, foreign exporters to the United States will do well." 2. "If the dollar weakens, foreign exporters to the United States will do poorly." 3. "If their own currency weakens, foreign exporters to the United States will do well." 4. "If their own currency weakens, foreign exporters to the United States will do poorly."

2 and 3

T-bills are direct obligation of the US government and 1. are issued at par 2. trade in the secondary market. 3. are redeemable 4. are issued at a discount

2 and 4

Which of the following statements about corporate bonds are true? 1. They represent ownership in the corporation 2. They generally involve less investment risk than common stock 3. They pay a variable rate of income 4. They are long term instruments

2 and 4

What is the conversion ratio of a convertible bond purchased at par value and convertible at $50? - 50:1:10 - 20:1 - 5:1 - 2:1

20:1 (1000 par divided by 50 conversion price equals 20 shares per bond)

A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year or for the two previous years. How much must the company pay the customer per share before it may pay dividends to the common stockholders?

24

A convertible bond of the KLP corporation has a conversion ratio of 20. This means that 1. The conversion price of the bond is $20 per share 2. One bond can be exchanged for 50 shares of KLP common stock 3. One bond can be exchanged for 20 shares of KP common stock 4. The conversion price of the bond is $50 per share

3 and 4

All of the following are characteristics of convertible bonds except 1. the price of the bond can be affected by the price of the underlying stock 2. the coupon is invariably lower than similar nonconvertible corporate bonds 3. the coupon is invariably higher than similar nonconvertible corporate bonds. 4. at issue, the conversion price is set lower than the market value of the underlying stock

3 and 4

US Treasury Bills are issued for all of the following maturities except - 39 weeks - 26 weeks - 13 weeks - 4 weeks

39 weeks

An investor owns a 9% convertible bond issued by the XYZ Corporation, a subsidiary of the ABC Corporation. The bond is convertible at $25. This investor may convert the bond into - 4 shares of common stock of the ABC Corporation - 40 shares of common stock of the ABC Corporation - 4 shares of common stock of the XYZ Corporation - 40 shares of common stock of the XYZ Corporation

40 shares of the common stock of the XYZ Corporation

The current yield of a 6% bond offered at 95 is:

6.3% (divide the annual interest payment ($60) by the current market price ($950).)

A client is in the 30% tax bracket. He owns a 10% XYZ Inc., debenture due to maturity shortly. What yield on municipal will give him the same after-tax return that he now has with his debenture?

7% (Investing in a 10% corporate bond would result in an annual taxable interest payment of $100 per bond. If the client paid taxes at the 30% rate, he would keep $70 after taxes. $70 annual income equals an after-tax rate of 7% (annual interest divided by par $70/$1000 = 7%)

All of the following statements regarding bonds registered as to principal only are true except - Interest payments are sent directly to the owner twice a year - Coupons are attached - The registered owner may sell the bonds before maturity - Such bonds can be purchased today in the secondary market

Interest payments are sent directly to the owner twice a year

If a customer's chief concern is to shelter as much of his portfolio earnings from tax as possible, which of the following securities would be most suitable? - Treasury STRIPS - Money market instruments - High-yield bonds - Municipal GOs

Municipal GOs

All of the following municipal securities are AA rated 20-year bonds with eight years to maturity. Which would you expect to have the highest yield? - Kneisewell County Courthouse Bond - Northern Wyoming Industrial Development Bond - Fairfield Borough School Bond - Nevada State GO Bond

Northern Wyoming Industrial Development Bond

What happens to outstanding fixed-income securities when market interest rates drop? - Coupon rates increase - Prices increase - Yields increase - Short-term fixed income securities are most affected

Prices increase

Interest rates in the United States have dramatically increased. This will tend to - Result in a surplus in the balance of payments - Strengthen foreign currencies - Result in a deficit in the balance of payments - Cause Americans to invest in foreign debt securities

Result in a surplus in the balance of payments

Which of the following statements regarding a corporate bond quoted as QRS Zr20 is true? - The bond pays $200 interest annually - The bond pays no interest until maturity - The interest payable is tax free - The bond pays $20 interest annually

The bond pays no interest until maturity

What would happen to the market value of existing bonds during an inflationary period coupled with rising interest rates? - The price of the bonds would decrease - The price of the bonds would increase - The price of the bonds would stay the same - The nominal yield of the bonds would increase

The price of the bonds would decrease

Your client invests in an open-end investment company whose portfolio consists of insured municipal bonds issued within his state. Which of the following statements is CORRECT regarding the taxation of distributions from this fund? - There is no federal income tax due on any capital gains distributions, but the dividends would be subject to tax - There is no federal income tax due on any dividend distributions, but the capital gains distribution would be subject to tax - There is no federal income tax due on distributions from a municipal bond mutual fund if they are all reinvested rather than taken in cash - There is no federal income tax due on distributions, whether dividends or gains, from a municipal bond mutual funds.

There is no federal income tax due on any dividend distributions, but the capital gains distribution would be subject to tax

Which of the following securities is considered the most junior in a corporate bankruptcy? - Prior lien preferred stock - Debenture - Mortgage bond - Common Stock

common stock

If the RST Corporation has issued several different debt securities, an investor would expect the lowest income stream from RST's - ordinary debentures - convertible debentures - speculative bonds - subordinate debentures

convertible debentures

The President would like to improve the economy by allowing business greater freedom to obtain funds for the pursuit of commercial projects and business opportunities. He might appoint Federal Reserve governors who: - would lower taxes significantly - favor lower interest rates - favor tight money policies - favor a high reserve requirement

favor lower interest rates

When a registered representative refers to a corporate bond using the term guaranteed, it means that bond is - a secured bond - required to maintain a self-liquidating sinking fund - guaranteed as to payment of principal and interest by the US Government - guaranteed as to payment of principal and interest by another corporation

guaranteed as to payment of principal and interest by another corporation

An investor might expect to receive the greatest gain on an investment in a corporate bond by purchasing - short term bonds when interest rates are high - short term bonds when interest rates are low - long term bonds when interest rates are high - long term bonds when interest rates are low

long term bonds when interest rates are high

There are a number of risks inherent in investing in equity securities. Which of the following stocks would be most affected by changes in interest rates? - Common Stock - Treasury Stock - Long term warrants - Noncumulative preferred stock

noncumulative preferred stock

A corporation's offer to current stockholders of the ability to purchase a proportionate number of new shares at a specific price for a limited time is called a - right - option - warrant - preference

right

If a corporation wanted to raise capital and offer stock at a given price for the next 30 days, it would issue - rights - convertible preferred stock - uncovered calls - warrants

rights

If a corporation wanted to raise capital and offer stock at a given price for the next 30 days, it would issue - rights - warrants - uncovered calls - convertible preferred stock

rights

In general, a corporation assumes the least risk when it obtains funds from the: - sale of zero coupons - sale of secured bonds - sale of preferred stock - sale of debentures

sale of preferred stock

When an option is trading, all of the following are fixed EXCEPT - the premium - the expiration date - the underlying security - the strike price

the premium