Series 6 Exam: Unit 1

If an investor purchases a U.S. Treasury note quoted at 101.24, the investor must pay: A) $1,017.50 B) $1,012.40 C) $1,010.24 D) $101.24

A) $1,017.50

An electric company issued mortgage senior lien bonds, with an 8-7/8 coupon, priced at 96. Each bond pays annual interest of: A) $88.75. B) $85. C) $85.51. D) $96.35.

A) $88.75.

A bond purchased at $900 with a 5% coupon and a five-year maturity has a current yield of: A) 5.6% B) 7.8% C) 7.4% D) 5%

A) 5.6%

Which of the following is a characteristic shared by debentures and equipment trust bonds? A) Both pay principal as it comes due. B) Both are a type of mortgage bond. C) Both must pay interest annually. D) Both are secured by assets of the corporation.

A) Both pay principal as it comes due.

Which of the following municipal issues are NOT backed by municipal taxes? I. A stadium bond. II. A school bond. III. A county courthouse bond. IV. A toll-bridge bond. A) I and IV. B) II and II. C) III and IV. D) I and II.

A) I and IV.

Your customer is a 66-year-old retired widower. He is seeking an investment of $50,000 that will keep pace with inflation. He currently survives on Social security and a pension and is very risk averse. Which of the following do you recommend? A) TIPS B) Fixed annuity C) Gold fund D) High-yield bond fund

A) TIPS

A common stockholder's voting rights apply to which of the following? I. Election of the board of directors II. Declaration of dividends III. Authorization or issue of more common shares IV. Changing suppliers of raw material A) I and IV. B) I and III. C) II and IV. D) II and III.

B) I and III.

Which of the following statements regarding industrial revenue bonds are TRUE? I. They are a primary obligation of the city issuing the bond. II. They are issued by municipalities to provide funds for local industries. III. The bonds' credit rating is the same as the municipality's credit rating. IV. The debt will be paid off by the corporation leasing the facility. A) I and IV. B) II and IV. C) I and III. D) II and III.

B) II and IV.

All of the following would be sources of revenue for debt service payment to revenue bond holders EXCEPT: A) tolls paid to use the turnpike. B) real estate taxes. C) water and sewer usage fees. D) airport parking lot charges.

B) real estate taxes.

In general, a corporation assumes the least risk when it obtains funds from the: A) sale of zero coupons. B) sale of preferred stock. C) sale of secured bonds. D) sale of debentures.

B) sale of preferred stock.

U.S. Treasury bills are issued for all of the following maturities EXCEPT: A) 26 weeks. B) 4 weeks. C) 39 weeks. D) 13 weeks.

C) 39 weeks.

Jack Smith, in the 35% tax bracket, has an opportunity to buy a 5.3% municipal bond. What corporate yield would provide an equivalent return? A) 15.2%. B) 3.5%. C) 8.15%. D) 5.3%.

C) 8.15%.

Securities issued by which of the following agencies offer direct government backing? A) Student Loan Marketing Association (Sallie Mae). B) Federal Intermediate Credit Bank. C) Government National Mortgage Association. D) Federal National Mortgage Association.

C) Government National Mortgage Association.

Which of the following are types of preferred stock? I. Participating. II. Adjustable price. III. Callable. IV. Fixed interest. A) II and III. B) II and IV. C) I and III. D) I and IV.

C) I and III.

A customer buys a long-term, 10% Treasury bond with a current yield of 12% and holds the bond until one year before maturity. She sells the bond when the short-term T-bill rate is 8%. Which of the following statements are CORRECT? I. The bond was purchased at a premium. II. The bond was purchased at a discount. III. The bond was sold at a premium. IV. The bond was sold at a discount. A) I and IV. B) II and IV. C) II and III. D) I and III.

C) II and III.

The dollar has significantly strengthened against the English pound. Which of the following statements best describes the consequences? A) This is bad news for American tourists. B) This is good news for English importers. C) The dollar will now buy more pounds. D) The pound will now buy more dollars.

C) The dollar will now buy more pounds.

An ADR is used to: A) finance foreign trade in which U.S. citizens are engaged. B) sweeten a bond offering. C) facilitate trading foreign securities in U.S. markets by U.S. citizens living in the United States. D) facilitate trading U.S. securities in foreign markets by U.S. citizens living abroad.

C) facilitate trading foreign securities in U.S. markets by U.S. citizens living in the United States.

Interest rates in the United States have dramatically increased. This will tend to: A) result in a deficit in the balance of payments. B) cause Americans to invest in foreign debt securities. C) result in a surplus in the balance of payments. D) strengthen foreign currencies.

C) result in a surplus in the balance of payments.

An electric company issued mortgage senior lien bonds, with an 8-7/8 coupon, priced at 96. Each bond pays annual interest of: A) $96.35. B) $85. C) $85.51. D) $88.75.

D) $88.75.

An investor interested in purchasing the stock of an electronics manufacturer based in Japan might prefer buying the American Depositary Receipt (ADR) to the actual stock because: I. any dividends are received in U.S. dollars rather than yen. II. payment for the purchase is made in U.S. dollars rather than yen. III. purchasing the ADR minimizes currency risk. IV. ADRs are issued by banks, thereby offering an additional level of protection against market risk. A) II and IV. B) I and III. C) III and IV. D) I and II.

D) I and II.

Which of the following statements regarding corporate zero-coupon bonds are TRUE? I. Interest is paid semiannually. II. The discount is in lieu of periodic interest payments. III. The discount is taxed annually as phantom income. IV. The discount is not taxed until maturity. A) II and IV. B) I and III. C) I and IV. D) II and III.

D) II and III.

Which type of nonmarketable security pays semiannual interest? A) Series EE bonds. B) Agency issues. C) Treasury bonds. D) Series HH bonds.

D) Series HH bonds.

Which of the following statements regarding significant interest rates in the U.S. economy is NOT true? A) The prime rate is the interest rate that large U.S. money center commercial banks charge their most creditworthy corporate borrowers. B) The discount rate is the rate the New York Federal Reserve Bank charges for short-term loans to member banks. C) The broker call loan rate is the interest rate banks charge broker-dealers on money they borrow to lend to margin account customers. D) The federal funds rate is the rate the Federal Reserve charges for overnight loans to member commercial banks.

D) The federal funds rate is the rate the Federal Reserve charges for overnight loans to member

Which of the following best describes book entry? A) The transfer of ownership is entered on the books of the SRO. B) The transfer of ownership is entered only on the books of the buyer. C) The transfer of ownership is entered on the books of the clearing agency. D) The transfer of ownership is entered on the books of the issuer or the issuer's transfer agent.

D) The transfer of ownership is entered on the books of the issuer or the issuer's transfer agent.