Series 65

Agent wants to be dual registered, WOTF is TRUE? 1. The agent would not be allowed to dual register 2. The agent would need approval from SEC for dual registration 3. The agent would need to register with both b/ds, disclose this to both the b/ds and be supervised by both b/ds. 4. The agent would be required to form a partnership with another registered person at the other b/d and split commission with the other registered representative

Answer: The agent would need to register with both b/ds, disclose this to both the b/ds and be supervised by both b/ds.

Treasury bills are A) issued in bearer form. B) issued at par. C) issued in book-entry form. D) callable.

All Treasury securities are issued in book-entry form. Treasury bills are always issued at a discount and are never callable.

When discussing the differences between purchasing a mutual fund and a hedge fund, the investor should be aware that A) hedge funds do not offer the transparency of mutual funds. B) hedge fund shares are generally listed on an exchange, while mutual fund shares are not. C) managers of hedge funds are generally registered with the SEC, while mutual fund managers are registered with the state(s). D) hedge funds only offer Class A shares, while mutual funds offer many different classes.

Answer: A) Because hedge funds are not registered with the SEC (or the states), there are limited disclosures—the transparency is not nearly what investors have with mutual funds. Mutual fund investment managers always register with the SEC, and the same is true of must hedge fund managers, typically those with AUM of at least $150 million. Neither hedge funds nor mutual funds trade on listed exchanges, and hedge funds do not have traditional share classes; they may offer a choice of different currencies, but that is totally different from the share classes of mutual funds.

A corporation has issued a 4% $60 par convertible stock with a conversion price of $20. With the preferred stock selling at $66 per share, an investor holding 100 shares of this stock will benefit by converting if the price of the common stock is A) above $22.00 per share. B) above $20.00 per share. C) above $18.20 per share. D) below $22.00 per share.

Answer: A) above $22.00 per share. With a conversion price of $20 and a par value of $60, this preferred stock is convertible into three shares of the company's common stock. We divide the current price of the preferred ($66) by the three shares to arrive at the parity price of $22. If the common stock is selling for more than the parity price, the investor can benefit by converting and selling the stock in the marketplace.

Which of the following investments would provide the highest after-tax income to your client in the 35% federal income tax bracket? A) 7% bond issued by Canadian Province M B) 8% debenture issued by the LMN Corporation C) 6% U.S. Treasury bond D) 5% general obligation municipal bond issued by State H

Answer: B) Only the State H bond is exempt from federal income tax. Using the tax-equivalent yield formula of the muni coupon divided by (100% minus the investor's tax bracket %), we get 5% divided by 65%, or 7.7%. That's a better deal than receiving 6% on the Treasury and paying taxes as well as 7% on the Canadian bond (although you learned that securities issued by Canadian provinces were exempt from registration under the Uniform Securities Act, that has nothing to do with U.S. income taxes). However, with a TEY of 7.7%, your client would take home more with the 8% taxable corporate security. You can also work backward to get the correct answer. Simply subtract 35% tax from each of the choices (other than the muni) and see which is the highest. In this case, 8% minus a 35% tax equals 5.2%—just a bit higher than the 5% coupon on the municipal bond.

Which of the following best describes a Yankee bond? A) U.S. dollar-denominated bond issued by a U.S. entity inside the United States B) U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States C) U.S. dollar-denominated bond issued by a U.S. entity outside the United States D) U.S. dollar-denominated bond issued by a non-U.S. entity outside the United States

Answer: B) Yankee bonds are issued by non-U.S. entities in marketplaces inside the United States. The bonds are issued in U.S. dollars, meaning these foreign issuers will have currency risk if the dollar drops in value against their local currency.

All of the following are characteristics of exchange-traded funds except A) they usually trade at or near their net asset value. B) they may not be sold short. C) large investors known as authorized participants buy or sell shares on an in-kind basis. D) they are generally tax efficient.

Answer: B) they may not be sold short. ETFs trade like stock and can be sold short. They are tax efficient compared to mutual funds, and large investors conduct trades by making in-kind exchanges, whereby they give or receive shares of stock that are in the fund. Perhaps you did not know that fact, but this is an example of the exam throwing in something very technical where the correct answer is quite simple. ETFs generally trade near net asset value (NAV), if not at NAV.

An American depositary receipt (ADR) is A) a type of derivative used to speculate in foreign currencies. B) a certificate representing ownership of a U.S. security that is deposited in a foreign bank. C) a document used with interest rate swaps. D) a certificate representing ownership of a foreign security that is on deposit at a U.S. bank.

Answer: D An American depositary receipt (ADR) is a certificate representing ownership of foreign securities that are on deposit at a U.S. bank. ADRs can be traded on U.S. stock exchanges, are quoted and pay in dividends in U.S. dollars, and receive all the shareholder protections of U.S. securities.

Which of the following statements regarding ADRs are true? I) They are issued by large domestic commercial banks. II) They are issued by foreign banks. III) They facilitate U.S. trading in foreign securities. IV) They facilitate a foreign investor who wants to trade U.S. securities.

Answer: I & III ) ADRs are issued by large domestic commercial banks to facilitate U.S. investors who want to trade in foreign securities.

An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks? I) Loss of principal can occur. II) Price volatility of preferred stock is closely related to interest rates. III) Preferred stock cannot be traded as readily as bonds. IV) If the stock is callable, the client's income can be suddenly lowered.

Answer: I,II,IV) Because bonds have seniority over any equity security, there is a greater risk of loss of principal with preferred stock than with bonds. The price volatility of preferred stocks, like bonds, is impacted by interest rate changes. Unlike bonds, however, preferred stock does not have a maturity date. This means that preferred shares may never return to their par value, as bonds do at maturity date. Because the preferred stock may have a callable feature, the company can redeem its shares anytime after the call protection period (if any) is over. This usually happens when interest rates have declined, so the client whose stock was called will not be able to reinvest the proceeds at the same rate and could, therefore, suffer an unexpected drop in income. Preferred shares, particularly those listed on the exchanges, are generally easier to trade than corporate bonds (and certainly no worse).

WOTF are considered sales or offers? 1. Grandpa gives his son stock 2. Customer opens margin acct pledges stock in the acct 3. Company in bankruptcy is reorganizing and shares of stock are exchanged for another security in this process 4. B/D loans stock to customer

Answer: None of these are sales or offers (Learn your shit)

The market price of a convertible bond depends on all of the following except A) current interest rates. B) the rating of the bond. C) the value of the underlying stock into which the bond can be converted. D) the conversion prices of bonds from similar companies.

D) the conversion prices of bonds from similar companies. There are two factors that impact the current market price of all bonds: current interest rates and the rating of the bond. A third factor is unique to convertible bonds and that is the conversion value. The conversion value is based on the price of the underlying stock into which the bond can be converted. Comparing the conversion price of one issuer's bond to another's tells us nothing about the value of a specific bond.

Gift of an assessable security? Which is it? 1. Exempt transaction 2. Sale of security 3. Unsolicited transaction 4. Issuer transaction

Sale of security