SIE Unit 5 - Other Investment Vehicles
Options trading for a customer's account requires the approval of A) a Registered Options Principal (ROP) of the firm. B) a branch manager. C) a registered representative. D) a firm principal.
A
On a long put, when the premium equals the intrinsic value, the put is A) past expiration. B) at parity. C) at its breakeven point. D) out of the money.
B
A REIT that owns and operates an office building in the Dallas Metroplex is an example of A) a leasing REIT. B) a hybrid REIT. C) an equity REIT. D) a mortgage REIT.
C
An investor is long a January 30 call at 2. Maximum loss for this position is A) $320. B) $30. C) $200. D) $280.
C
Which of the following securities would be least likely to be issued by a corporation? A) Preferred stock B) Common stock C) Call and put options D) Debentures
C
Which of these statements regarding options are true? Investors who are bullish on a stock should buy calls. Investors who are bullish on a stock should buy puts. Investors who are bearish on a stock should sell puts. Investors who are bearish on a stock should buy puts. A) I and III B) II and III C) I and IV D) II and IV
C
A 65-year-old investor is looking to earn additional income in her securities portfolio without much risk. Which of the following would likely be the least acceptable trading strategy for this investor? A) Covered call writing B) Purchasing junior preferred stock C) Purchasing debentures D) Naked call writing
D
A feature of direct participation programs is A) the ability for each partner to have her vote flow through to the general partner. B) general partners directly participating in the day-to-day management of the partnership. C) the ability of any partner, limited or general, to participate in the running of the partnership. D) flow through of profits and losses of the partnership to the individual limited partners.
D
All of these are potential risks of private, nontraded, REITS except A) liquidity. B) transparency. C) reliability of valuations. D) tax treatment.
D
The maximum gain on a long call is A) strike price - premium. B) the premium. C) strike price + premium. D) unlimited.
D
A call or put that can be exercised before expiration is A) a European-style options. B) a Western-style options. C) an American-style option. D) an Eastern-style options.
C
A registered representative is introducing options terminology to a client. Of the following, which would be the accurate explanation regarding owners and writers of listed equity option call contracts? A) The owner of a call has the right to exercise the contract, and the writer would then have the right to buy shares from the owner at the strike price. B) The owner of a call has the right to exercise the contract, and the writer would then be assigned the obligation to buy shares from the owner at the strike price. C) The owner of a call has the right to exercise the contract, and the writer would then be assigned and obligated to sell shares to the owner at the strike price, if exercised. D) The owner of a call is obligated to exercise the contract to sell shares to the writer, who may choose to purchase them or not.
C
All of these are true for an Achieving a Better Life Experience account except A) that the onset of the disability must have occurred before the owner turns 26. B) that the account owner and beneficiary must be disabled. C) that the account must be opened before the beneficiary turns 26. D) that the income is tax-free.
C
An investor is convinced that CDT stock will soon decline in value for a number of reasons. Which investment strategy will allow the investor to take advantage of the anticipated decline in share value with the smallest cash investment? A) Purchase a call spread B) Purchase a call option C) Purchase a put option D) Sell the company's stock short
C
An investor is long a January 30 call at 2. Maximum gain for this position is A) $30. B) $320. C) unlimited. D) $28.
C
Limited partnerships A) must end on a predetermined vote with no exceptions. B) can either exist in perpetuity or be designated to end on a specific date. C) must end on a predetermined date or can be dissolved earlier by vote. D) must exist in perpetuity.
C
Nolan Babbage owns several units of the Cray Leasing LP. He is frustrated by the lack of cash flow and begins consulting with the general partners on how best to market the partnership's services. Which of the following features of a limited partnership has he placed in jeopardy? A) The pass-through nature of a partnership B) The right to sue the general partner C) The limited liability of a limited partner D) The potential for profit
C
The holder of an in-the-money option contract gives a do not exercise instruction (notice) to your broker-dealer. This notice A) is standard, and given for all in-the-money contracts at expiration. B) is used to notify the writer that the contract will not be assigned to them. C) is used to avoid automatic exercise at expiration. D) can only be given at the time the contract is purchased.
C
The seller of a put has A) the right to buy the stock. B) the obligation to sell the stock. C) the obligation to buy the stock. D) the right to sell the stock.
C
The strike price is A) the amount the buyer of a call must pay for the shares. B) the cost per share of the contract. C) the price that will be paid for the shares if the option is exercised. D) the amount the writer of a call pays the seller of the call for the shares.
C
What is the intrinsic value of an XYZ 30 call purchased at a premium of 3 when the current market value of XYZ is at 40? A) $7 B) -$7 C) $10 D) -$10
C
Which of the following is not an investment company? A) A variable annuity B) An open-end management company C) A hedge fund D) A closed-end management company
C
Which of the following is the disclosure document for a 529 college savings plan? A) Letter of understanding B) Preliminary prospectus C) Official statement D) Investment letter
C
Which of the following is true for exchange-traded funds (ETFs)? A) The SEC has classified them as a type of open-end fund, and they have operating costs and expenses that are higher than most mutual funds. B) The SEC has classified them as mutual funds, and they have operating costs and expenses that are lower than most mutual funds. C) The Securities and Exchange Commission (SEC) has classified them as a type of open-end fund, and they have operating costs and expenses that are lower than most mutual funds. D) The SEC has classified them as mutual funds, and they have operating costs and expenses that are higher than most mutual funds.
C
Your customer has one position in her account and it poses an unlimited loss potential. Which of the following is it? A) Long call B) Long put C) Short call D) Short put
C
Your customer, Amelia, is excited about an investment she recently purchased from another firm. At maturity, in five years, she will receive her principal back plus an interest payment based upon the returns of five well-known technology companies. It pays no interest during the five years. She has likely invested in A) a VA. B) an ETF. C) an ETN. D) a mutual fund.
C
A member firm is assigned an exercise notice by the Options Clearing Corporation (OCC). The member firm may assign the exercise notice to one of its short customers by any of the following methods except A) on a random-selection basis. B) in any way that is fair and reasonable. C) to the customer having the oldest short position. D) to the customer having the largest short position.
D
A state sponsored investment pool designed for municipalities with short-term cash investment needs is called A) a city and county money plan. B) a 457 plan. C) a tax-free money market. D) an LGIP.
D
All of these are risks associated with limited partnerships except A) audit and recapture risk. B) business risk. C) liquidity risk. D) limited liability risk.
D
An example of securities that are established by states to provide other government entities such as cities, towns, school districts or state agencies with a short-term investment vehicle to invest funds include A) bond anticipation notes (BANs). B) tax anticipation notes (TANs). C) money market instruments. D) local government investment pools (LGIPS).
D
An investor considering the differences between purchasing open-end investment company shares or ETFs with a similar objective should understand which of these? Each time an investor purchases and sells ETFs there is a commission. The operating expense ratio for an ETF is generally very high because they usually track indexes such as the S&P 500. It is possible that an investor liquidating ETF holdings will receive less than the NAV per share. The margin requirements to purchase an ETF are higher than that for an open-end investment company. A) II and IV B) II and III C) I and IV D) I and III
D
An investor shorts 4 HAPY January 70 puts at a premium of 5 each when the market price of HAPY is 67. What is the investor's maximum potential loss? A) $26,000 B) Unlimited C) $5,425 D) $6,500
D
An investor shorts 4 HAPY January 70 puts at a premium of 5 each when the market price of HAPY is 67. What is the investor's maximum potential loss? A) $6,500 B) $5,425 C) Unlimited D) $26,000
D
At the time of a limited partnership's dissolution, who is the last to be paid? A) Secured lenders (creditors) B) General partners C) General lenders (creditors) D) Limited partners
D
At the time of dissolution, which of the following regarding a limited partnership is true? A) Limited and general partners are paid concurrently. B) Limited partners are paid after general partners. C) Limited and general partners are paid after the IRS. D) Limited partners are paid before general partners.
D
Automatic exercise will occur at expiration for any equity option contract that is in the money by at least A) 0.05. B) 1/4 of a point. C) 1/8 of a point. D) 0.01.
D
For options, each is a two-party contract, which allows A) neither the buyer nor the seller to exercise the contract. B) the seller to exercise the contract, with the buyer obligated to fulfill the terms of the contract. C) either the buyer or the seller to exercise the contract. D) the buyer to exercise the contract, with the seller obligated to fulfill the terms of the contract.
D
Identify two trading strategies that a hedge fund could employ in its portfolio but a mutual fund cannot. Limiting investments to a narrow group of securities within one industry Trading on margin to purchase portfolio securities Purchasing speculative or low rated securities Selling short stocks A) I and IV B) I and III C) II and III D) II and IV
D
The Achieving a Better Life Experience (ABLE) Act of 2014 enabled the establishment of ABLE accounts for certain individuals. All of the following regarding ABLE accounts are true except A) income earned in an ABLE account is not taxed. B) eligibility is limited to those whose onset of significant disability occurred before the age of 26. C) contributions can be made by any person, including the account beneficiary. D) contributions to ABLE accounts are tax deductible at the federal level.
D
The maximum loss on a long put is A) strike price - premium. B) strike price + premium. C) the strike price. D) the premium.
D
The price that the buyer of a contract pays, or the writer receives, on a per share basis for an option contract is called the A) intrinsic value. B) time value. C) strike price. D) premium.
D
What method is used to assign exercise notices to broker-dealers with short positions by Options Clearing Corporation (OCC)? A) First in, first out (FIFO) basis B) Any method considered fair and reasonable C) Last in, first out (LIFO) basis D) Random-selection basis
D
When XYZ is trading at 30, an XYZ 40 put sold at 3 would be A) at parity. B) at the money. C) out of the money. D) in the money.
D
When the Options Clearing Corporation (OCC) assigns exercise notices to a broker-dealer, the broker-dealer will in turn assign the exercise to customers with short positions using any of the following methods except A) using a random selection method. B) using any method that is considered fair and reasonable. C) on a FIFO basis. D) on a LIFO basis.
D
Which of following securities is least likely to have an active trading market? A) Preferred shares B) Real estate investment trusts (REITs) C) Municipal bonds D) Limited partnership interests
D
Which of the following is true of a European option? A) It may be exercised at any time. B) It may only be exercised on the last day of trading before expiration. C) It may be exercised in the last week before expiration. D) It will exercise at expiration.
D
Which of the following option strategies has the most risk? A) Short calls B) Long puts C) Long calls D) Short puts
D
Which of the following statements is true regarding Exchange-traded notes? A) Exchange-traded notes (ETNs) are junior, unsecured debt securities issued by a municipality B) Exchange-traded notes (ETNs) track performance to U.S. Treasury notes C) Exchange-traded notes (ETNs) are backed by the good faith and credit of the United States government D) Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution.
D
Who is responsible for managing the business in a limited partnership? A) The limited partner B) The federal government C) The board of directors D) The general partner
D
Your customer, Ford, wrote 5 SPX (S&P 500 equity index) 2990 call options. Today, Tuesday, he received word that his options have been exercised. The SPX closed at 3000. He will have to deliver A) 500 shares in two days. B) cash in two days. C) 500 shares tomorrow. D) cash tomorrow.
D
Yusef would like to save money for his 10-year-old daughter's college tuition costs. She has her heart set on a small liberal arts school with a growing reputation in the arts. His biggest concern is the potential increase in cost over the next several years. The program best suited to hedge against the increasing cost of college tuition at the school is a A) Coverdell ESA account. B) custodial account in the child's name. C) 529 college savings program. D) 529 prepaid tuition program.
D
A customer has expressed interest in exchange-traded funds (ETFs) and wishes to discuss them with you. You could tell him all of the following except A) short sales and trading on margin are not available for ETF transactions. B) a share of an ETF represents an entire portfolio, or a specific selection, of securities. C) real-time quotes are available for ETFs. D) ETFs have a NAV, calculated daily.
A
A security that is a contractual obligation between two parties and whose value is based on the specifics of the contract in relation to a different security is a A) derivative. B) hedge fund. C) investment company. D) contractual plan.
A
All of the following terms and phrases apply to the buy side of the options contract except A) has an obligation. B) exercises the contract. C) pays the premium. D) loses the premium if the contract expires.
A
An investor is short 1 December 15 put at 6. The investor's maximum loss on this position is A) $900. B) $1,500. C) $2,100. D) $60.
A
An investor is short 1 XYZ January 20 call at 3. This investor A) has received $300 for writing the call contract. B) can exercise the contract to sell XYZ stock at $20 per share. C) can exercise the contract to purchase XYZ stock at $20 per share. D) has the right to buy 20 shares of XYZ stock.
A
Investors in hedge funds are generally what type of investor? A) Accredited investors B) Income investors C) Equity investors D) Retail investors
A
Last year Brownstone Properties, LP distributed $200 per unit to investors and reported a $500 business loss per unit on the K-1. For tax purposes the investors received A) a $500 per unit passive loss. B) $200 per unit of passive income. C) a $500 reduction in ordinary income. D) a net $300 loss.
A
Pedro dislikes Seabird Coffee and thinks the company's stock is overvalued. He is currently short 1,000 shares of the company. He is concerned with the potentially unlimited risk he is exposed to and would like to use options to hedge that risk. His best option position would be A) buy 10 Seabird Coffee calls. B) sell 10 Seabird Coffee calls. C) buy 10 OEX (S&P 100 index) calls. D) buy 10 Seabird Coffee puts.
A
When adding options trading to a new account, which of the following steps are in the correct order? A) Determine suitability, principal approval, first trade, signed option application B) Signed option application, determine suitability, principal approval, first trade C) Determine suitability, first trade, principal approval, signed option application D) Principal approval, determine suitability, first trade, signed option application
A
Which of the following are the two basic types of Section 529 plans, which are products used for funding higher education? Savings plans Education savings accounts Secondary school funding plans Prepaid tuition plans A) I and IV B) I and III C) II and III D) II and IV
A
Which of the following for call option contracts is true? A) Breakeven is the same for both parties. B) Maximum gain is the same for both parties. C) Maximum loss is the same for both parties. D) Maximum gain and loss are the same for both parties.
A
Which of the following option positions would offer a full hedge to a short stock position? A) Long call B) Short call C) Long put D) Short put
A
Which of the following statements is true regarding Exchange-traded notes? A) Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution. B) Exchange-traded notes (ETNs) are backed by the good faith and credit of the United States government C) Exchange-traded notes (ETNs) track performance to U.S. Treasury notes D) Exchange-traded notes (ETNs) are junior, unsecured debt securities issued by a municipality
A
Which of these statements regarding a 529 plan is correct? A) The assets in the plan belong to the beneficiary. B) One person can be both the beneficiary and owner. C) Contributions are limited to $2,000 annually. D) The beneficiary must be below age 18.
A
Who are the typical investors in a local government investment pool? A) Municipal governments B) Aggressive investors C) Income investors D) Federal government agencies
A
Your customer is long 1 October 55 put at 4. The customer's maximum loss potential is A) 4 points ($400). B) 40 points ($4,000). C) 59 points ($5,900). D) 51 points ($5,100).
A
Your customer recently purchased three put contracts on First Mate Coffee, Inc., stock. The strike price is $75 and the premium was $2.50. He later executed the contract. How much did he pay for the three contracts? A) $750 B) $22,500 C) $250 D) $4,550
A
A customer believes the price of MJS stock will rise but is not currently in a position to purchase the stock outright. How could the customer use options to profit from a rise in the stock's price? Buy calls Write calls Buy puts Write puts A) II and III B) I and IV C) II and IV D) I and III
B
ABC Corporation's stock is trading at $35. A client has purchased a $50 strike call. The option's premium is made up of A) time value plus intrinsic value of $15. B) intrinsic value plus time value. C) intrinsic value only. D) neither time nor intrinsic value.
B
All of the following regarding a trust set up for the purpose of holding commercial property or mortgages on commercial property are true except A) gains can pass through to the owners of these shares. B) investors may never purchase shares in these trusts on an exchange or over the counter (OTC). C) these investments could not be considered open- or closed-end funds. D) ownership of these shares may provide for the receipt of dividends.
B
An accredited investor is one who meets which of the following criteria? A) Both the net worth and professional designations B) Income, net worth, or professional designation C) Only investment professionals may be designated accredited investors. D) Both income and net worth
B
An exchange-traded note is what type of security? A) Money market security B) Debt security C) Equity security D) Market place security
B
An investor owns one NMS June 40 call trading at 5. If the underlying value of NMS stock is 45, the contract is trading A) with no intrinsic value. B) at parity. C) out of the money. D) at the money.
B
Before an option trade may be entered for a customer, that customer's account must be approved for option trading by A) an executive officer. B) a Registered Options Principal. C) a branch manager. D) a firm principal.
B
In a limited partnership, which of the following best describes who is responsible for tax consequences of the business? A) The limited partners B) The investors C) The business D) The general partners
B
Intraday price changes due to normal market forces would be found with closed-end fund shares. exchange-traded fund shares. hedge fund shares. open-end (mutual) fund shares. A) III and IV B) I and II C) I and IV D) II and III
B
Limited partnerships sold through private placements involve A) a large group of investors, each contributing a small sum. B) a small group of investors, each contributing a large sum. C) a large group of investors, each contributing a large sum. D) a small group of investors, each contributing a small sum.
B
Obtaining the financial status of the customer, and whether or not they meet income and net worth criteria, could be required for all of the following except A) real estate limited partnerships. B) real estate investment trusts (REITs). C) oil and gas limited partnerships. D) equipment leasing limited partnerships.
B
On a short put, when the premium equals the intrinsic value, the put is A) out of the money B) at parity C) at its breakeven point D) past expiration.
B
The breakeven point on a long put is A) the premium. B) strike price - premium. C) strike price + premium. D) the strike price.
B
The four basic options transactions are A) long calls, sell calls, write puts, short puts. B) long calls, short calls, long puts, short puts. C) short calls, write calls, write puts, short puts. D) short calls, write calls, long puts, write puts.
B
The general partner of a limited partnership has responsibility for all the following except A) paying partnership's debts. B) providing all of the partnership capital. C) managing the day-to-day operations. D) organizing the business.
B
Which of following securities is least likely to have an active trading market? A) Municipal bonds B) Limited partnership interests C) Preferred shares D) Real estate investment trusts (REITs)
B
Which of the following positions or actions would cover a client who has shorted a call? A) A short stock position B) A long stock position C) Buying a put with a higher strike price D) Buying a call that expires sooner
B
Which of these statements regarding a general partnership is correct? A) Partners participate in the gains and losses of the business and are partially shielded from the businesses liabilities. B) Partners participate in the gains and losses of the business and are fully liable for the businesses actions. C) Partners participate in the gains but not the losses of the business and are fully shielded from the businesses liabilities. D) Partners participate in the gains and losses of the business and are fully shielded from the businesses liabilities.
B
Which of these trading strategies are employed by hedge funds but are generally prohibited to mutual funds? The act of limiting investments to a narrow group of securities The use of borrowed money to purchase portfolio securities The act of taking long positions in speculative stocks The act of taking short positions in NYSE listed stocks A) I and IV B) II and IV C) I and III D) II and III
B
Which type of DPP would be most likely to enable the investor to claim a deduction for depletion? A) Oil and gas exploratory program B) Oil and gas income program C) Real estate limited partnership D) Equipment leasing
B
While a branch office manager can initially approve an options account for trading, it must ultimately be approved by A) the registered representative opening the account. B) the firm's registered options principal (ROP). C) the Options Clearing Corporation (OCC). D) the forms trading department.
B
