SIE
A Treasury bond is quoted 105.04 - 105.24. The purchase price that a customer would expect to pay would be:
$1,057.50 Calculation: Step 1: 105.24 is equal to 105 24/32 Step 2: convert 24/32 into a decimal, which is .75 Step 3: convert 105.75% into a dollar price (105.75% x $1,000 = 1.0575 x $1,000 = $1,057.50) The customer would pay $1,057.50.
The minimum denomination for negotiable certificates of deposit is: $100,000 $10,000 $5,000 $1,000
$100,000 Reason: The minimum denomination for negotiable CDs is $100,000. Typical denominations are often $1,000,000 or more.
A corporation has a 9% cumulative preferred stock issue outstanding. The company paid a $7 dividend two years ago and $8 last year. If the company wants to pay a common stock dividend in the current year, the cumulative preferred stockholders must first receive a dividend of: $12 $9 $3 $0
$12 Reason: The cumulative preferred stockholder should receive a yearly dividend of $9. Since it's a cumulative issue, any dividend that's not paid (in arrears) must be made up prior to a common dividend being paid. If a common dividend is to be paid in the current year, the cumulative preferred stockholders must first receive $12 ($2 missed from two years ago plus $1 missed from last year plus the full $9 for the current year).
A 5% $1,000 par value bond sells at $900 and matures in 10 years. What is the amount of each interest payment?
$25 Reason: Bonds pay interest every six months (semiannually). The dollar amount of interest payments is computed as a percentage of the par value. In this example, the coupon rate is 5%. The annual interest payment is $50 (5% of $1,000 par value). Each interest payment is one-half of that amount, or $25.00.
A U.S. Treasury bond is selling in the market at 95.18. The dollar value of this bond is:
$955.62 Calculation: U.S. Treasury bonds are quoted in full points and 32nds of a point. 18/32 = 0.562 95.562 -convert-> $955.62
What are GANs, BANs, RANs, and TANs?
A grant anticipation note (GAN) is normally paid from funding provided by the federal government. A bond anticipation note (BAN) is paid from proceeds from the issuance of long-term bonds. A revenue anticipation note (RAN) is paid from revenues to be received at a future date. A tax anticipation note (TAN) is normally paid from future tax receipts, such as property (ad valorem) taxes.
A husband and wife have combined earnings of greater than $300,000 in each of the last two years. If it's reasonably expected that this level of income will remain the same, the couple is considered: A qualified investor An accredited investor An institutional investor A qualified institutional buyer (QIB)
An accredited investor Reason: Accredited investors have a net worth of $1 million (excluding their primary residence) or annual income of $200,000 in each of the last two years. For married couples to be considered an accredited investor, they need to have income of at least $300,000. A qualified institutional buyer (QIB) must be institution with $100 million in assets under management (AUM), but is NOT a natural person.
A financial services firm that charges customers based on a percentage of the assets under management is BEST defined as: An institutional investor A broker-dealer An exchange An investment adviser
An investment adviser Reason: Investment advisers charge fees for providing advice to their clients. These fees are often based on a percentage of assets under management (AUM) and are charged regardless of whether any trades occurred in their clients' accounts. Broker-dealers earn compensation (e.g., commissions) for executing transactions and an exchange is a facility that brings together the buyers and sellers of securities.
Which of the following securities are generally used by importers and exporters to finance foreign trade? Banker's acceptances ADRs Eurodollar bonds Commercial paper
Banker's acceptances Reason: Bankers' acceptances are letters of credit that are issued by banks and often used to finance foreign trade. Eurodollar bonds are issued outside of the U.S., but denominated in U.S. dollars; however, they are not a means of financing foreign trade. Commercial paper is short-term corporate debt. ADRs are depository receipts for foreign equities.
Who derives the MOST benefit from a put provision attached to a bond offering? Preferred stock holders Issuers Bondholders Common stock holders
Bondholders Reason: A put provision allows the bondholder to redeem the bond on a specified date (or dates) prior to maturity. This provision is most likely to be utilized if market interest rates rise.
If a market maker has a current quote of 50.00 - 50.05 (15 x 20), this indicates that the firm is willing to: Sell 200 shares at $50.00 and buy 150 shares at $50.05 Buy 150 shares at $50.00 and sell 200 shares at $50.05 Sell 1,500 shares at $50.00 and buy 2,000 shares at $50.05 Buy 1,500 shares at $50.00 and sell 2,000 shares at $50.05
Buy 1,500 shares at $50.00 and sell 2,000 shares at $50.05 Reason: When reading a quote, the bid is always listed first (i.e., $50.00 in this question) and the offer/ask (i.e., $50.05 in this question) is listed second. The market maker willing to buy shares at $50.00 and sell them for $50.05. The numbers in parentheses or brackets refer to the number of shares represented by the bid and offer. Unless specified otherwise, it's assumed that the size is in round lots of 100 shares. Therefore, the market maker is willing to buy up to 1,500 (15 lots x 100 shares) at $50.00 and sell 2,000 (20 lots x 100 shares) at $50.05.
The FDIC provides coverage for: Fixed annuities Life insurance Variable annuities CDs
CDs Reason: The Federal Deposit Insurance Corporation (FDIC) provides coverage for deposits at a bank, in the event the bank has financial troubles. FDIC will cover CDs, but not insurance, or fixed and variable annuities.
The primary purpose of the North American Securities Administrators Association is to: Enforce rules that are established by the states Create rules, laws, and exam requirements for states Create rules, laws, and exam requirements for interstate transactions of securities Examine broker-dealers that are registered in a state
Create rules, laws, and exam requirements for states Reason: The provisions of the Uniform Securities Act (USA), which is a model law for the individual states, are established by the North American Securities Administrators Association (NASAA) and enforced by the individual states. Each state has its own securities regulations department and the person in charge of the department is referred to as the Administrator or Commissioner. NASAA membership includes Administrators of the 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico, Canada, and Mexico.
An individual is interested in an investment that offers annual income, has the potential of appreciating in value if interest rates decline and, in the event that the issuer fails to make a payment, having the missing amount added to future distributions. For this investor, which of the following securities is the most suitable? Callable preferred stock Cumulative preferred stock Participating preferred stock Convertible preferred stock
Cumulative preferred stock Reason: Individuals generally purchase preferred stock for income. As with any security that pays a fixed rate, there is the potential for appreciation if interest rates decline. There are several types of preferred stock. Cumulative preferred stock will add all unpaid dividends to a future payment if a cash dividend is to be paid to common shareholders. Participating preferred stock allows the owners to share in the extraordinary earnings of a company. Essentially, participating preferred has a stated dividend, but these shareholders may receive more than that amount based on the profits of the issuing company. Convertible preferred stock allows the owner to convert the stock into a fixed number of common shares. Callable preferred stock allows the issuer to retire (call) the stock in at a predetermined price.
A company in which your client owns stock is about to make a rights offering. The client informs you that he does not plan on subscribing to the offer. You would tell the client that his proportionate ownership interest in the company would: Decrease Increase Remain unchanged Depend on the market value of the stock
Decrease Reason: If an individual does not subscribe to additional stock in a rights offering, his proportionate ownership interest in the company will decrease.
Municipal bond rating organizations are concerned primarily with the risk of: Declining purchasing power Market price fluctuations Default Illiquidity
Default Reason: Municipal bond rating organizations, such as S&P and Moody's, are concerned primarily with the risk of default or the risk of the issuer not being able to pay interest and/or principal.
U.S. government agency issues are: Exempt from federal taxes. Exempt from registration under the Securities Act of 1933. Issued in bearer form only. General obligations of the federal government.
Exempt from registration under the Securities Act of 1933. Reason: Agency securities (e.g., pass through securities that are issued by GNMA, FNMA, and FHLMC) are exempt from the registration requirements of the Securities Act of 1933. Agency securities are fully taxable at the federal, state, and local levels. Although GNMA is backed by the U.S. government, none of the agency bonds are considered a general obligation of the U.S. federal government. While many debt instruments were originally issued in bearer form, today, most bonds are issued in book-entry form (electronic ownership).
The U.S. government does NOT guarantee the payment of interest and principal for which of the following securities? GNMA (Ginnie Mae) securities Treasury notes Treasury bills FHLMC (Freddie Mac) securities
FHLMC (Freddie Mac) securities Reason: The U.S. government guarantees the payment of interest and principal on all Treasury securities as well as securities that are issued by the Government National Mortgage Association (GNMA or Ginnie Mae). Securities that are issued by the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), which is a government-sponsored enterprise (GSE), are not guaranteed or backed by the U.S. government.
Which of the following organizations enforces municipal securities regulations for broker-dealers? FINRA The FRB The FDIC The MSRB
FINRA Reason: Although the MSRB creates rules governing municipal securities broker-dealers, its rules are enforced by other regulatory bodies. The appropriate regulatory agencies are the: The SEC or FINRA for broker-dealers The comptroller of the currency for federal banks The FRB for state banks that are members of the FRB The FDIC for member banks of the FDIC
A corporation has raised money to use for expansion of its plant within the next six months. In which of the following securities should the corporation invest the funds until they are used? High-quality commercial paper Long-term municipal zero-coupon bonds U.S. Treasury bonds High-quality preferred stocks
High-quality commercial paper Reason: The corporation intends to use the money in a short period and does not want to assume undue investment risks. Of the choices given, the most suitable investment is high-quality commercial paper since it is extremely safe and can be purchased with a short maturity to match the corporation's needs.
The purpose of a depository facility is to: Hold securities in book-entry form Clear transactions in equity securities Clear transactions in fixed-income securities Ensure that dividend payments are sent to investors by the issuers of the securities
Hold securities in book-entry form Reason: The Depository Trust Corporation (DTC) is a subsidiary of the Depository Trust & Clearing Corporation (DTCC) and its primary function is to hold securities in book-entry form. This allows broker-dealers to buy and sell securities on behalf of their customers without the costs and time associated with physical certificates. A change of ownership is made from the account of the selling broker-dealer to the account of the buying broker-dealer. The DTC is not a clearing facility.
An investor has purchased a Bristol County Public Power System revenue bond. Which of the following statements is TRUE concerning this investment? Earnings from the bond are exempt from federal, state, and local taxes Payment of principal and interest is ultimately the responsibility of Bristol County If the power system declares bankruptcy, the bonds will go into default The assets of the power system secure the bond
If the power system declares bankruptcy, the bonds will go into default Reason: Interest from a revenue bond (a type of municipal bond) is exempt from federal income tax. However, it is generally exempt from state and local taxes only if purchased by a resident of the state of issuance. In addition, a revenue bond is backed by a stream of income from a specific project or facility. Unlike a general obligation bond, it is not backed by a general promise by the issuer to repay the debt.
Which of the following is TRUE regarding the tax treatment of municipal bonds? Interest and capital gains are taxable. Interest and capital gains are tax-free. Interest is taxable, but capital gains are tax-free. Interest is tax-free, but capital gains are taxable.
Interest is tax-free, but capital gains are taxable.
MSRB rules do NOT apply to: Registered representatives Broker-dealers that prepare research Underwriters Issuers
Issuers Reason: Municipal Securities Rulemaking Board (MSRB) rules apply to all the parties listed except municipal bond issuers. The MSRB does not have the power to regulate municipal bond issuers.
A bond is selling at a discount and yields have remained constant. As the bond gets closer to its maturity, what happens to its price? It increases It decreases It remains the same It will experience significant price changes
It increases Reason: Although fixed income securities are subject to some degree of interest rate risk, that risk is of less concern if the bond is being held to maturity. Assuming there is no default by the issuer, the price of a bond that is selling at a discount will increase (move towards par value) as it gets closer to maturity.
Which of the following statements is NOT TRUE concerning a clearing corporation? It provides trade comparison and reporting services. It is responsible for automated book-entry changes in the ownership of securities. It assists broker-dealers in transferring assets in a customer account to another broker-dealer. It offers customers the ability to have real-time trade matching.
It is responsible for automated book-entry changes in the ownership of securities. Reason: The responsibility for automated book-entry changes in the ownership of securities is a function of a depository facility (e.g., the DTC), not a clearing corporation. Each of the other choices are functions of a clearing system, such as the National Securities Clearing Corporation (NSCC).
Which of the following is a characteristic of a subscription warrant? Lower fixed interest expense on the issuer's bonds Immediate dilution of the corporation's shares Immediate forfeit of control over the company A shareholder's ability to maintain ownership during an issuance of stock
Lower fixed interest expense on the issuer's bonds Reason: Warrants represent the right to buy shares of stock at a pre-determined price. Warrants are typically attached to bonds or preferred stock. The issuer attaches warrants to these securities in order to lower the interest or dividend rate on the new security being issued.
Of the choices listed, which one is Moody's lowest rating for a municipal note? MIG 1 MIG 3 Aaa D
MIG 3 (Municipal Investment Grade) Notes: Aaa - Moody's
Maturities of: Treasury bills Treasury notes Treasury bonds Treasury receipts
Money market instruments are defined as debt securities that have a maturity of one year or less. Treasury bills are typically issued with maturities of three months, six months, and one year. Treasury notes are issued with maturities of up to 10 years. Treasury bonds have maturities that exceed 10 years. Treasury receipts are essentially Treasury notes and Treasury bonds without interest payments included; therefore, they trade as zero coupon securities.
A corporation that has filed for bankruptcy is to be liquidated. Which of the following securities issued by that corporation has seniority in the liquidation process? Mortgage bonds Debenture bonds Common stock Participating preferred stock
Mortgage bonds Reason: When a corporation is liquidated, its assets are sold and the proceeds are distributed. Secured creditors are paid first (i.e., mortgage bondholders), then unsecured creditors (debenture holders), then preferred stockholders, and last the common stockholders. This would make mortgage bonds the senior security of those listed.
Which of the following bonds are secured by a specific revenue source from a project? Secured bonds Municipal revenue bonds Municipal general obligation (GO) bonds Treasury STRIPS
Municipal revenue bonds Reason: Municipal revenue bonds are backed by the revenues of a specific project or facility (e.g., toll road, bridge, college, or hospital). General obligation (GO) bonds are backed by the general revenue of the issuing municipality. Secured bonds are corporate bonds that are secured by an asset that's owned by the issuer (e.g., buildings or equipment). STRIPS are long-term zero-coupon bonds that are created from T-notes or T-bonds.
Under the Securities Exchange Act of 1934, which of the following is NOT an equity security? Common stock Non-convertible bond Warrant Preferred stock
Non-convertible bond Reason: Common stock, preferred stock, warrants, and options are all defined as equity securities. Non-convertible bonds are forms of debt securities, not equities.
An investor buys 200,000 shares of a private placement that's sold under Regulation D. The investor is not an officer or director of the company. How many shares is the investor permitted to sell three months later? All of the shares since he's not an officer or director of the issuer. 50% of the shares since he's not an officer or director of the issuer. All of the shares since he purchased less than 1 million shares. None, since the investor failed to satisfy the minimum holding period.
None, since the investor failed to satisfy the minimum holding period. Reason: When securities are sold in a private placement under Regulation D, there's a minimum holding period of six months for any investor. If a holding period of one year is satisfied, an investor may sell his shares without complying with the filing requirements that are established under SEC Rule 144.
The call premium of a bond refers to the amount: An investor must pay above par to buy a callable bond Over par value that the issuer must pay to exercise the call privilege The issuer must add to the semiannual interest payments to offset the call feature Added to the price at issuance to compensate for the call privilege
Over par value that the issuer must pay to exercise the call privilege Reason: The call premium of a bond refers to the amount the issuer must pay in excess of par value to exercise the call privilege. For example, if a bond is callable at 102, it has a 2 point ($20) call premium. The issuer must pay $1,020 ($20 more than par) if it wishes to call in the bond.
A customer sells 500 shares of stock to a broker-dealer that makes a market in the stock. The broker-dealer acted in a(n): Agency capacity and charged the customer a commission Principal capacity and charged the customer a commission Agency capacity and charged the customer a markup Principal capacity and charged the customer a markdown
Principal capacity and charged the customer a markdown Reason: A broker-dealer that's always willing to buy and/or sell shares of stock is considered a market maker. A market maker will normally act in a principal capacity and charge a customer a markdown when buying the stock from the customer and a markup when selling the stock to the customer. When acting in an agency capacity, the broker-dealer will not take the other side of the trade and normally charges the customer a commission.
The certificate which gives a person other than the stockholder the right to vote is referred to as a: Power of attorney Stock power Warrant Proxy
Proxy Reason: The certificate which gives a person other than the stockholder the right to vote is referred to as a proxy. Although stockholders have the right to attend shareholder meetings in person, most do not. Instead, the stockholders sign a proxy which directs a designated person on how to vote their shares.
Which of the following statements is TRUE regarding the role of SIPC? SIPC provides protection against employee theft. SIPC covers separate accounts. SIPC covers separate customers. All regulated investment companies must obtain SIPC coverage.
SIPC covers separate customers. Reason: SIPC covers separate customers of a broker-dealer. An individual would be viewed as a separate customer. An individual who holds a personal account and an IRA would be treated as two separate customers.
The third market is concerned with: Securities listed on an exchange that are traded directly between institutional investors Securities listed on an exchange, but traded in the OTC market Listed securities trading on an exchange OTC equity securities trading on an exchange
Securities listed on an exchange, but traded in the OTC market Reason: The third market is concerned with securities that are listed on an exchange (e.g., the NYSE or Nasdaq) that are traded in the OTC market. The fourth market refers to direct institution-to-institution trading and does not involve the public markets or exchanges.
If an investor wants to build a bond portfolio that maintains a stable value, she should purchase bonds with: Long maturities A combination of long and short maturities Short maturities Zero coupons
Short maturities Reason: Although short-term bonds are influenced by changing interest rates, the effect is relatively minor due to their short-term nature. For that reason, investors who want stability in their bond portfolios should invest in short-term debt.
A town has started the construction of public sewers. This project is likely paid by a(n): Special assessment bond Industrial development bond Moral obligation bond Equipment trust certificate
Special assessment bond Reason: Public sewers are often built with the proceeds of a special assessment bond. A special assessment is a charge against property that receives a benefit from the improvement. The ongoing cost of operating and maintaining the sewer system plus the payment of debt service on sewer bonds issued for this purpose, may be paid from property taxes or fees.
Interest on U.S. Treasury securities is: Subject to federal and state income tax Exempt from federal and state income tax Subject to federal income tax, but exempt from state income tax Subject to state income tax, but exempt from federal income tax
Subject to federal income tax, but exempt from state income tax
Which of the following choices does NOT hold customer cash or securities? The Depository Trust Company (DTC) A broker-dealer that maintains omnibus accounts A prime broker A broker-dealer
The Depository Trust Company (DTC) Reason: The Depository Trust Company (DTC) is a securities depository and national clearinghouse for the settlement of trades. The DTC holds broker-dealer (not customer) funds and securities in the name of member firms. An omnibus broker-dealer carries customer accounts, which means that it holds customer funds and securities. A prime broker performs centralized clearing and account maintenance functions for customers (often institutional) that execute transactions through several other broker-dealers. A broker-dealer carries customer accounts and receives or holds funds and securities.
Which of the following organizations provides clearing services for equity securities? The National Securities Clearing Corporation (NSCC) The Fixed Income Clearing Corporation (FICC) The Options Clearing Corporation (OCC) A transfer agent
The National Securities Clearing Corporation (NSCC) Reason: The National Securities Clearing Corporation (NSCC) provides clearing services for the majority of broker-to-broker equity trades in the United States. The NSCC is also a subsidiary of the Depository Trust and Clearing Corporation (DTCC) that provides custodial services. The Fixed Income Clearing Corporation provides clearing services for U.S. government and mortgage-backed securities (i.e., debt securities).
The issuer and guarantor of exchange-traded options is: FINRA The underwriter The Options Clearing Corporation The broker-dealer that's selling the option
The Options Clearing Corporation Exchange-traded options are issued and guaranteed by the Options Clearing Corporation (OCC). It's important to note that derivatives (e.g., options) are not issued by corporations in an attempt to raise capital. Instead, options are created when a buyer and seller agree to standardized terms. If either the buyer or seller cannot fulfill its side of the transaction, the OCC will step in and guarantee the other side of the option position.
How do you read this bond: ABC 6.50x 2050 was at 95?
The bond's last trade was done at a price of 95 or 95% of par, which is a discount. The 6.50 represents the bond's interest rate and 2050 is the bond's maturity date. The "x" is simply a placeholder and doesn't give any information about the bond.
If a customer exceeds SIPC limits: The customer will receive cash rather than his securities The customer is a secured creditor The customer doesn't have a claim to the excess amount The customer is a general creditor
The customer is a general creditor
The Investment Advisers Act of 1940 regulates which of the following? The markup charged by a financial services firm on a securities transaction The fee charged by an accountant for providing advice concerning securities The fee charged by a bank to hold securities The fee charge by an accountant when he files a client's tax return
The fee charged by an accountant for providing advice concerning securities Reason: The Investment Advisers Act of 1940 regulates firms that are established as investment advisers (IAs). The Act both defines the term investment adviser and provides a number of exclusions from the IA definition. Examples of investment advisers include firms that manage mutual fund portfolios as well as firms that manage wrap accounts and collect a single fee to cover the costs related to investment advice along with the costs of transactions. Exclusions from the IA definition are available to broker-dealers, specific types of professionals (lawyers, accountants, teachers, engineers), and publishers. However, for the professionals to be excluded, the investment advice being provided must be incidental to their actual profession. For example, if an accountant decides to hold himself out to the public as an investment adviser and charge a separate fee for that service, the exclusion will not apply. On the other hand, if an account collects a fee for completing and filing a client's tax return, he is not considered to be acting as an investment adviser.
A broker-dealer is clearing its trades through another broker-dealer but is not disclosing specific information regarding its clients. Who is responsible for maintaining the account records? The clearing broker-dealer. The introducing broker-dealer. The broker-dealer appointed by FINRA to prepare the records Both the clearing and introducing broker-dealers
The introducing broker-dealer. Reason: When a firm clears trades for another firm but is not given specific information regarding the introducing firm's clients, the account is said to be an omnibus account. Introducing firms are required to establish and maintain records for omnibus accounts.
A municipal bond is trading at $950, has a 4% coupon, and is callable at par. Which of the following statements about this bond is TRUE? The YTM is less than nominal yield. The YTC is less than the nominal yield. The YTC is equal to the nominal yield. The investor will receive $40 per year.
The investor will receive $40 per year. Reason: If a bond has a coupon rate of 4%, the investor will receive $40 per year ($1,000 par value x 4%). Since the bond is trading at a discount, both the yield-to-maturity (YTM) and yield-to-call (YTC) are higher than the nominal yield.
For an Industrial Development Bond (IDB), the primary source that backs the bond is: The issuing authority only The leasing corporation only The issuing authority and the leasing corporation The treasurer of the city or town of issuance
The leasing corporation only Reason: An IDB is issued by a municipality, but secured by a lease agreement with a corporation.
Which of the following statements about municipal revenue bonds is NOT TRUE? They are not subject to the debt limitations that apply to general obligation bonds The maturity of the bonds will equal the useful life of the facility being built They can be issued by states, political subdivisions, interstate authorities, and intrastate authorities The interest and principal payments are derived from the funds being generated by the facility
The maturity of the bonds will equal the useful life of the facility being built Reason: Municipal revenue bonds do not always have maturity schedules that equal the useful life of the facility being built. Instead, the facility's useful life should significantly exceed the maturity of the bonds. Municipal revenue bonds do not have the debt limitations that apply to general obligation bonds. A debt limitation is considered the statutory or constitutional maximum debt that an issuer may legally incur. Revenue bonds can be issued by states, political subdivisions (e.g., counties and townships), interstate authorities, and intrastate authorities. Municipal revenue bond interest and principal payments are derived from the funds being generated by the facility.
If an investment adviser has assets under management of less than $100 million, it's regulated by which of the following? The SEC The state(s) in which the adviser conducts business FINRA The MSRB
The state(s) in which the adviser conducts business Reason: An investment adviser with assets under management (AUM) of less than $100 million must register with the state(s) in which it conducts business. If an adviser has AUM between $100 and $110 million, it may register with either the SEC or the state(s). If an adviser has AUM in excess of $110 million, it must register with the SEC.
The value of the conversion feature on a convertible bond is determined by: Its interest rate Its maturity date The stock price The bond's trustee
The stock price Reason: Conversion price = Price of the bond/Conversion ratio Conversion Ratio = Par Value ($1000)/ Conversion share Price Convertible bonds can be converted into a pre-determined number of shares of the issuer's common stock (i.e., conversion ratio). Investors will likely convert their bonds if the price of the stock rises or is expected to rise. The other features on a bond (e.g., its maturity date or interest rate) will not have as significant an impact on the value of the conversion feature.
Preemptive rights provide which of the following benefits to their holders? The ability to vote when they cannot attend the shareholders' meeting. A guarantee that bonds can be purchased at a predetermined price from the issuer. Their proportionate ownership will not be diluted if additional shares are issued. That dividends will continue to be paid on their common stock.
Their proportionate ownership will not be diluted if additional shares are issued. Reason: If a company decides to issue additional shares, preemptive rights allow existing shareholders to maintain their proportionate interest in the company by exercising their rights.
All of the following statements are TRUE concerning both auction rate securities (ARSs) and variable-rate demand obligations (VRDOs), EXCEPT: Interest rates are set at specified intervals They are often issued by municipalities They are long-term securities with short-term trading features They have a put feature allowing the holder to redeem the security at par
They have a put feature allowing the holder to redeem the security at par Reason: Although they are both long-term securities with short-term trading features, only VRDOs have a put feature that permits the holder to sell the securities back to the issuer or third party. Auction rate securities (ARSs) do not have this feature and, if the auction fails, the investor may not have immediate access to her funds. In addition, ARSs use an auction process to reset the interest rate on the securities, whereas the interest rate on a VRDO is reset by the dealer at a rate that allows the securities to be sold at par value.
Which of the following is a characteristic of most agency securities? They're guaranteed by the full faith and credit of the U.S. Treasury They're guaranteed as to principal only They're backed by the full faith and credit of the agency that issued the securities They're guaranteed as to interest payments only
They're backed by the full faith and credit of the agency that issued the securities Reason: Fannie Mae (FNMA) and Freddie Mac (FHLMC) issue securities that are not guaranteed by the U.S. Treasury. Instead, these securities are backed by the full faith and credit of the agency that created them. Ginnie Mae (GNMA) is the only agency that's guaranteed by the U.S. Treasury.
A quote of 5.90 - 5.75 is a quote for which of the following securities? Treasury bills Treasury notes Treasury bonds A mortgage-backed security
Treasury bills Reason: Treasury bills are quoted on a discount yield basis while the other choices are quoted at a price. Since yield is inversely related (moves opposite) to price, the higher yield (5.90) represents the lower price and is the bid. The lower yield (5.75) represents the higher price and is the ask (offer). The other securities are all quoted as a percentage of par in 32nds.
Which of the following statements is TRUE regarding warrants? Warrants receive dividends when the common stock receives dividends Warrants can be perpetual Warrants are only issued by blue-chip corporations Warrants are guaranteed by the Options Clearing Corporation
Warrants can be perpetual Reason: Warrants can be perpetual in their duration and are issued by the corporation that also issues the common stock. Warrants give the holder the ability to convert the warrant into the common stock of the same corporation at a specified price and at the holder's option.
Which of the following represents the correct ranking of securities from longest to shortest life? Rights, options, warrants Options, warrants, rights Warrants, options, rights Warrants, rights, options
Warrants, options, rights Reason: Rights usually last less than 60 days. Options usually last for nine months or less, although some can exist for three years. Warrants usually have a life span of several years and they can even be perpetual.
For a bond owner, in which of the follow situations is call protection most valuable? When bond prices are fluctuating. When bond prices are stable. When bond prices are falling. When bond prices are rising.
When bond prices are rising. Reason: Call protection prevents an issuer from calling (i.e., buying back) their bonds. If bonds are ultimately called, investors must sell their bonds back to the issuer. Bonds are most often called when their prices have risen due to declining interest rates.
Commercial paper is .... and the maximum period is .... days.
short-term, unsecured debt instruments....270
