Review

Following are the prices of two mutual funds published at the end of the day on April 18. Investor A buys 300 shares of the Athens Fund at 10 a.m. April 18. He would pay a total of? Athena Fund NAV (5.72) Off Px ($6.08) Nav Change ($-.02) Troy Fund NAV ($8.65) Off Px ($9.25) Nav Change ($-.04)

$1,824 only When purchasing fund shares, investors pay the next calculated offering price after the order is entered 6.08 (300) = 1824 no commission on open end funds, but there may be a sales charge/load

A customer lives in Massachusetts. He owns $7M of U.S. Treasury Bonds with a 7% coupon. His federal tax bracket rate is 50% and his state tax rate is 10%. What is his total tax liability on the interest received?

$245 $ 70 Annual Interest per bond x 7 Bonds (7M = $7,000 principal value of bonds or 7, $1,000 par value bonds) $490 Total Interest Income on all 7 bonds x .50 Fed tax rate $245 Tax liability Note: Remember Treasury Bonds are subject to Federal tax but are exempt from state tax, therefore you would use the Federal rate of 50% but you did not use the state tax rate of 10%.

An investor owns a 7 1/2% US Treasury Bond, due 2015 that is trading @101. On a normal interest payment date, the investor would receive

$37.50 $1,000(par) x 7 1/2%(coupon) = $75 Semi Annually, divide in half (75/2 = $37.5)

An investor purchases 10 municipal bonds, each with a par value of $1,000, for 105, due in 5 years. He sells the bonds 2 years later at 95. What was the investor's loss for tax purposes?

$800 Rembmer that any premium paid for a municipal bond is amortized over the holding period of the bond to determine a new cost basis. The investor bought 10 bonds (10,000 /1000) at $1,050 each. He paid a $50 premium per bond. $50/5 (# of years to maturity) is $10 to be amortized each year. The investor sells his bond 2 years later, so $10 x 2 is 20 (1050-20). His amortized cost basis in two years is $1,030 -950 (his sale price) = $80

A customer buys securities and cannot pay for the purchase within the four business days allowed under Regulation T. The broker would be allowed to take which of the following actions? 1. Sell other securities in the customer's account to cover the call. 2. Request an extension of time for payment. 3. Borrow funds from another broker/dealer to cover the call. 4. Allow the customer to sell other stock short against the box to cover.

1 & 2

The legal opinion about a municipal bond issue attests to which of the following? 1. The tax status 2. "Blue Sky" status 3. Validity of the issue 4. Ability of the issuer to service the debt

1 & 3

Which of the following are characteristics of Federal Farm Credit Consolidated System-wide securities? 1. They issue discount notes, long-term, and short-term bonds. 2. Income is exempt from Federal income tax. 3. Securities are backed by the full faith and credit of the issuer. 4. Securities are as safe as government issues.

1 & 3

A municipal dealer is immediately reoffering some 7% bonds it has just purchased at par. Which of the following quotes would indicate prices nearest the recent purchase at par and, therefore, most likely to be considered bona fide quotes under MSRB Rules? 1. 6.8 less 1/2 2. 108 1/4 3. 101 1/8 4. 4.95 Net

1 & 3 Yield of 6.8% would be nearest 7% and the price of 101 1/8 would be closest to par, therefore representing the most bona fide quote.

A bond has a par value of $1,000 and a one year maturity. The yield on the bond decreases 10 basis points. This change in yield will represent what amount in dollars and cents?

1 basis point equals 1/100 of 1%. Therefore, 10 x .0001 = .001 x 1000 = $1

If a client, who is an officer of a commercial bank, opens a margin account with an NYSE member firm he: 1. can trade during and after the time his new account papers are received and are in good order. 2. must notify the exchange by separate letter that he is an officer of a commercial bank. 3. must receive prior written consent from this employer before the account can be opened. 4. must have duplicate confirmations and report sent to his employer.

1. Can trade during and after the time his new account papers are received an din good order

If an investor purchases Treasury Bills and keeps rolling them over at maturity, which of the following is true? 1. The investor will have a stable rate of return. 2. The investor will have a fluctuating rate of return. 3. The investor will maintain a stable principal. 4. The investor will face a possible capital loss.

2 & 3

Which of the following are true about Zero Coupon Gov bonds? 1. They cannot be purchased in Individual Retirement Accounts. 2. Interest is taxable to the investor each year. 3. Stripped coupons are not obligations of the U.S. Government. 4. Interest and principal payments are guaranteed by the U.S. Government.

2 & 4

When analyzing the creditworthiness of a municipal revenue bond which of the following would be applicable? 1. Per capita overlapping and direct debt of the issuer 2. Purpose for which the bonds are being issued 3. Debt service coverage based on projected revenues 4. Tax collection record of the issuer

2&3

The following municipal bonds have the same maturity date: 1. 4 2/4% at 5.10 2. 5 1/4% at 5.00 3. 5 3/4% at 6.20 4. 6 1/2% at 6.80

2. First % is the bonds coupon rate, second is the bonds yield. When a bond's yield is less than its coupon, the bond is trading at a premium.

Which of the following characteristics are the same for both US treasury bonds and US treasury notes? 1. Maturity 2. May be Callable 3. Fixed Interest Rate 4. Pay Semi-Annual Interest

3 & 4

Money to pay current expenses for a municipal revenue bond would normally be placed in which of the following funds? 1. Contingency fund 2. Surplus fund 3. Maintenance fund 4. SInking fund

3.

Which of the following is a municipal serial bond quote? 1. 7.20-7.00 2. 75 1/2 3. 75.25 - 75.30 4. 7.50%

4. Municipal serial bonds are quoeted at their basis (YTM) is always expressed as %

A legal opinion attached to a municipal bond applies to all of the following except 1. legal validity o fissue 2. tax status of bonds 3. effect of us treas dept arbitrage regulations 4. reoffering yields

4. bond attorneys duties include giving a legal opinion that the bonds have been legally issue dand qualify for tax exemption. Reoffering yields are a function of the secondary market for the bonds and would not be considered in the legal opinion

Which of the following is a municipal fond dollar quote? 1. 7.20-7.00 2. 75 1/2 3. 75.25 - 75.30 4. 7.50%

75 1/2 Muni dollar and corporate bonds are quoted using fractions, in eigth and 16th equivalents.

A customer who wishes to purchase mutual fund shares intends to invest a significant amount over the next 12 months. The customer sees that breakpoints are available for amounts that are similar to the amount that the customer intends to invest over the next year. If this customer wishes to take advantage of those breakpoints and receive a reduced sales load on the total funds invested, but does not have all of the capital available to invest today, which of the following is the BEST manner to achieve the goal of reduced sales loads?

A letter of intent between the customer and the fund.

The City of Boston recently issued municipal revenue bonds to finance a new airport. Revenues from the airport project are mistakenly commingled with other city revenues and credited to other revenue sources. What will be the effect on the Airport Revenue Bonds?

A lower debt service coverage ratio, lower price, and higher yield Debt service coverage would be lower since there would be less revenue available to service the debt.

The City of Detroit recently issued municipal revenue bonds to finance a new airport. Revenues from the airport project are mistakenly commingled with other city revenues and credited to other revenue sources. What will be the effect on the airport revenue bonds?

A lower debt service coverage ratio, lower price, higher yield EXPLANATION Because the money went to the wrong place, the airport will have less money to pay toward the revenue bonds, causing a lower debt service coverage ratio. A low debt service coverage ratio often leads to lower prices, which cause higher yields when investors buy at discounts.

A customer holds the following bonds: A 9%, 25-year municipal bond, callable in 8 years A 9% 25-year municipal bond, callable in 12 years Both of the bonds were purchased by the customer at a 7.5% yield. If yields move downward to 7.0%, which of the following is true about the pricing of these bonds?

A reduction in yield will cause the bond that is callable in 12 years to appreciate more in price Bonds with the shortest maturities react the fastest, while bonds with the longest maturities react the greatest/most.

The state of Alabama plans an advance refunding of its 8.5% bonds through a special bond issue amount to $400 million. Which of the following best describes this action?

Alabama will use the proceeds of a new bond issue, which it will hold in escrow until that time, to retire the outstanding 8.5% bond issue when it reaches its original maturity date

Sources of revenue for municipal revenue bonds include which of the following? 1. Legislative Appropriation 2. Rental or lease payments 3. Tolls 4. Special taxes

All

Which of the following statements are true about new issues of municipal bonds? 1. All members of the underwriting syndicate sign the Agreement Among Underwriters. 2. The Official Statement is the best source of information about the credit worthiness of a new municipal issue. 3. Designated orders entered on behalf of customers take priority ahead of member takedown orders. 4. If a syndicate manager allocates a new issue of municipal bonds in a different priority than established by the Agreement Among Underwriters, he must justify his actions to show that it was in the best interest of the syndicate.

All

A customer of a brokerage firm in liquidation has an individual account with $300,000 in securities. The customer and his wife have a joint account with $500,000 in securities. The wife has an individual account with $300,000 in securities. What will the customers receive under SIPC?

All of the securities for a total of $1,100,000.

Bids from a secondary market joint account could not be placed on which of the following?

An issue that is being advertised for sale by a municipal issuer

Under the securities exchange act of 1934, the municipal securities rulemaking board is allowed to make rules concerning which of the following? 1. Issuer Reporting Requirements 2. Fair Profits 3. Books and records

Books and records.

In regard to the analysis of G.O bonds, which of the following would be most likely to be reviewed: 1. Competitive facilities currently in existence 2. Budgetary Practices 3. Protective Covenants 4. Engineering Reports

Budgetary practices of a municipality would give an analyst a good idea as to the ability of the municipality to honor the debt obligation

A customer wants to open a cash account with instructions to hold in street name. The RR should explain that fully paid securities in such accounts

Can be registered later according to the customer's wishes

In a western/divided syndicate account on a new issue of municipal bonds, any unsold bonds would be

Confirmed to members having liability for unsold bonds

In appraising the value of specific municipal securities, what is MOST important factor?

Current market prices of securities that are similar

Treasury Bill rates have declined to an all time low. This indicates that

Dollar cost of bills has increased

For an open-end investment company (Mutual Fund) the redemption price is

Equal to the net asset value

Which of the following issues pass-through securities and purchases conventional residential mortgages from financial institutions?

Freddie Mac (deals only with "insured" lending institutions

Which of the following bonds would normally be supported by taxes assessed on real property>

General Obligation bonds

Which of the following securities normally settle on a next business day basis? US Gov Bonds, Options Contracts, US Gov Note traded on cash basis, Munis

Gov Bonds and Options settle next business day.

MSRB Rules dictate that certain aspects of a trade may be modified with the agreement of both parties, while other aspects of a trade may not be modified. Which of the following is NOT permitted to be modified, even if all persons involved in the trade agree?

Information which is provided on confirmations sent to both sides of the trade

All of the following factors considered when evaluating municipal revenue bond credit risks except 1. quality of management 2. competing facilities 3. interest rate movements 4. coverage ratios

Interest rate movements Once a bond is issued, its coupon never changes, therefore interest rate movements would not be a factor in evaluating the credit risk

A client is contemplating investing in a mutual fund focused on domestic bonds versus investing in a mutual fund focused on international bonds. When should this investor expect to see the international fund have higher levels of income than the domestic fund?

Interest rates in foreign countries are greater than US rates Value of the US dollar is going down in relation to the currencies of the other countries

The following article appeared in the Wall Street Journal: "The average return to investors on 13-week bills declined to 5.634% on yesterday's sale from 5.675% last week and are the lowest since a 5.632% return last month." This article indicates which of the following?

Investors paid less for these new bills than other purchasers paid last month

FINRA rules state that a b/d cannot carry a securities account for which of the following: A minor In the name of a person other than the customer A principal or officer of another b/d

Minor, Name of a person other than customer

Under MSRB rules, all municipal securities transactions must be approved by

Municipal securities principal

Normal settlement date for a transaction in US government Bonds is

Next business day after trade date

Supply and Demand will determine the price paid for all of the following securities EXCEPT

Open-End Investment Companies. Determiend by the value of the underlying assets held in the portfolio of the investment company and the number of shares of the fund are outstanding.

A new revenue pledge provision in a municipal revenue bond issue typically provides for revenue to be allocated first to which of the following? 1. Debt Service 2. SInking fund 3. Operations and maintenance 4. Reserve Funds

Operations and maintenance A new revenue pledge is typically found in the flow of funds provision of a municipal revenue bond issue. Typically, the flow of funds in decreasing order of priority is 1. Operations and maintenance, 2. Debt services 3. sinking fund for redemption of debt prior to maturity

The blue list total is

Par value of a municipal securities offered for sale in the blue list

A municipal syndicate manager is offering $750,000 worth of a new municipal issue. The syndicate manager has received Pre-Sale Orders of $500,000 and Group Net Orders of $250,000. Member Orders at the Takedown received by the syndicate total $400,000. Which of the following is true?

Pre-sale and Group net orders will be completely filled and Takedown Orders will not be filled at all Allocation priority on a new issue is: 1. presale 2. group net or group account 3. designated 4. Member orders at the take down

Advanced refunding

Proceeds of a new issue are invested in government securities until the original maturity date of the old bonds occurs

A registered representative recommends that a client purchase shares of a mutual fund today rather than tomorrow because the fund shares will go ex-dividend tomorrow. The registered representative explains that if the client waits until tomorrow to purchase the shares, the client will not receive the dividend. Such a recommendation by the registered representative is:

Prohibited, because such recommendation is selling dividends and is not in the clients best interest

They duty of a b/d firm and its individual broekrs to ensure that investment recommendations made to customers are suitable based on a specicfic customer's investment profile does not include

Refraining from making an investment reccomendation if the customer refuses to provide certain customer specific information.

Which would be least suitable for a customer most concerned with safety of principal?

Revenue Bonds

Instead of using the services of their b/d, a client purchased shares of a mutual fund directly from the wholesaler. Based on this information, which of the following is not correct

Sales charge would be lower than if purchased at the b/d

Which of the following would not be required for good delivery of a municipal bearer bond: 1. Signature of holder 2. Unused ocupons attached 3. Legal Opinion 4. Official or facsimile seal

Since bearer bonds are not registered in the investor's name, signature of the holder is not required

Which of the following statements is true about closed-end investment companies

Supply and demand in the secondary market determines the market price of a closed-end fund shares

Which of the following measures taxes collected vs the amount of taxes levied for a municipality?

Tax collection ratio

Which of the following is attested to by the legal opinion on a municipal security?

Tax exemption and legality of the issue

Prior to requesting bids for municipal bonds

The dealer must have the intention of selling the bonds

When determining the suitability of an investor to invest in a hedge fund, all of the following would be relevant except

The historical returns produced by the hedge fund

The primary obligator on a moral obligation bond defaults. Which of the following must act to appropriate funds to make debt service payments?

The legislative branch of the state government. Moral obligation bonds are backed by an authority created by the issuer

According to MSRB rules, a dealer who has a "control relationship" may effect a transaction if he discloses to the customer in writing the control relationship no later than:

The settlement date

All of the following statements about US treasury securities are correct except

They have very little interest rate risk

A municipal bond is purchased at a discount. Over the course of the life of the bond, the book value is increased while the customer holds the security. This is performed using which of the following accounting methods?

This is referred to as accretion of the security

One of your clients has been pleased with your recommendations and now wants to allow you, their RR, discretionary authority over their account. The client tells you that they have filled out and sent the appropriate forms to give written discretionary authority but the firm has not yet received the paperwork. An earnings report comes out on one of the securities in the customer's account and you expect a drop in price on the stock. You try to call the customer about the report, but the customer does not answer the phone. Assuming that the paperwork is in the mail, what action should you take in this situation?

Though it may result in a loss in the customer's account, you should hold off on taking action until you reach the customer or receive the paperwork.

All of the following statements concerning municipal securities transactions are correct except: 1. settlement date for securities transactions is referred to as a business day 2. settlement date for a regular way transaction in a municipal securities is the second business day following the trade date 3. trade date is the date used to calculate price and interest 4. settlement date for a cash transaction in municipal securities is the trade date

Trade date is the date used to calculate price and interest

Face-Amount cert, zero-coupon bond, T-bills, or UITs. Which are not issued at a discount and mature at par?

UITs

Which of the following securities would generally be considered to be most sensitive to changes in interest rates?

US Treasury Bonds Government securities are considered most sensitive to changes in interest rates

A municipality would choose to finance a project with revenue bonds for which of the following reasons: 1. Revenue bonds are not subject to debt limitations 2. Lack of statutory authority to use general oblication bonds 3. a small portion of the population will benefit from the project 4. project can pay debt service from users charges

all

All of the following are required for a municipal bearer bond to be in deliverable form except 1. legal opinion 2. unpaid coupons attached 3. signature of holder 4. official or fcsimile seal of issuer

signature

A bond dealer gives bonds firm for one hour with a ten-minute recall to a second dealer. If the bond dealer gives a "fill or kill" to the second deale

the second dealer now has ten minutes to purchase the bonds at the price established.

A customer of a SIPC member firm which is in liquidation and for which a trustee has been appointed must submit his claim to

the trustee

Sales charge breakpoints for investments in a variable annuity are based on

total amount invested in a variable annuity

The person who handles secondary market positions in municipal securities is known as which of the following

trade

If an individual realizes a profit at maturity on municipal bonds traded in the secondary market, these profits are

usually treated as ordinary income Interest income on a muni bond is tax free, but profits on secondary market trades are fully taxable as ordinary income oup to the accreted value of the bond prior to maturity