Test Qs

limited partner ships are generally involved in

1. new construction 2. real estate 3. oil and gas

partnership acct for cash and margin accounts ***

1. partnership agreement 2. resolution

to open a corporate cash account you need***

1. resolution

to open a corporate margin account you need***

1. resolution 2. by laws

long term debt instruments that are maturing in less than a year are, ____________ instruments

money market

corporate bonds are quoted as a percentage of

par

number of shares into which a security is convertible

par value / conversion price

I.P.O.s and Investment Company Shares (UIT) (mutual funds) have what in common?

1. they are both new issues 2. after held for 30 days, they can be used as collateral in a margin acct

numbered accounts***

1. used for well-known public figures who want to maintain anonymity 2. must have a signature card on file

trading flat

1. zero coupon bonds 2. they are in default and do not pay interest

break even for combinations

since the strike prices are not the same in these: b/e (call) = s/p + both premiums b/e (put) = s/p - both premiums note: always add for the CALL, always subtract for the PUT

Under Regulation T, when a customer purchases securities, payment must be received by the broker/dealer no later than

two business days after settlement date

B/D for mutual funds is the _______ for the shares and is called the ________ / __________.

underwriter; distributor/sponsor

T Bills maturities

4, 13, 26, 52

Brokered CD

"negotiable CDs" min denomination $100,000 "jumbo CD"

what yield does a b/d have to disclose to customers?

"yield to worst" = 2 scenarios: 1. on a premium bond, YTC 2. on a discount bond, YTM

Placement ratio

$ amt munis sold last week / $ amt munis offered last week

OIDs if held to maturity, have a gain/loss of?

$0

LMV $150K Dr $80K Eq: $70K SMA: $5K Sell $18K Buy $20K Based on this info, what is the required deposit of the customer?

$0 SMA was increased to $14K from the sale of $18K. This can be used to purchase $28K in marginable securities. Therefore, the full purchase is allowed with no extra min deposit.

Purchase a bond at 110 and hold to maturity at par, what is the capital gain/loss?

$0 held to maturity so it is fully amortized

xyz inc was trading at $50, it is now at $80 per share, if the current yield is 5%, what is the quarterly dividend?

$1 = [$80*0.05 = $4]/4 note, we divided by four for the quarterly div

Purchase a bond at 110 that is a 20 yr bond and sell at 10yr mark at 106. What is the capital gain/loss?

$10 gain $100 premium amortized for half the life of the bond (10 yrs) puts the price of the bond to be $1050 for tax purposes. Thus, when sold at $1060, the gain is $10 realized.

A customer buys 800 shares of ABC at $70 per share in a new margin account. If the price of ABC drops to $50, the minimum maintenance margin requirement for this account is:

$10,000 The minimum maintenance margin requirement for a long account is 25% of the current market value. The CMV is $40,000 (800 shares × $50 = $40,000). Therefore, minimum maintenance equals $10,000 (25% × $40,000 = $10,000).

If an investor has an established margin account with a short market value of $24,000 and a credit balance of $30,000, the maintenance call will be for

$1200 Minimum maintenance requirement in a short margin account is 30% of the current market value. In this case, 30% of $24,000 is $7,200. The equity in the account is currently $6,000 ($30,000 − $24,000). Therefore, the amount of the maintenance call is $1,200.

A customer opens a new margin account, and the first trade is the short sale of 100 shares of ABC, at a price of $18 per share. What is the required margin deposit?

$2000 the minimum deposit amount is $2000

customer buys 1000 shares of XYZ at $40/sh. What is the customer's required depoit?

$20K reg- t 50%

Leveraged ETF that attempts to get 200% of the index' return. Index CMV $50 Day 1 market goes up 5% Day 2 market remains level Day 3 market goes down 10% What is the new CMV of the leveraged ETF day 3?

$44 Day 1 increase 2x index return (10%) to $55 Day 2 stays at $55 Day 3 decrease 2x index return (20%) to $44

A customer owns a 7-½% ABC convertible bond currently trading at 115. The conversion price is $40. What is the parity price of the common?

$46 115% x $40 = $46

Sally is long 300 shares of XYZ at $60. She simultaneously writes 3 XYZ 65 calls at 2. What is the investor's Break Even?

$58

In a new margin account, a customer sells short $60,000 worth of ABC stock and deposits $30,000 to meet the Regulation T requirement. If the value of ABC falls to $55,000, the SMA balance in the account would be:

$7500 For every $1 decrease in market value in a short account, $1.50 of SMA is created. Therefore, if the market value falls by $5,000, the SMA balance would be $7,500.

LMV: $10K Dr: $6K Cr: $12K SMV: $9K Combined equity?

$7K

Sally sells short 100 shares of XYZ stock. @ $80/sh. To protect her position, she writes 1 XYZ Oct 75 put at 3. The stock declines to $72 and the put is exercised. What is Sally's gain/loss for tax purposes?

$800 gain Computed: +8000 short stock +300 write put -7500 buy stock put exercised _______________________ $800 Gain

term bond quoted at 94? 101 1/2?

$940; $1015

Limited partnerships

- private placement - accredited investors - partnership agreement - attest to their net worth, sign off and agree the risks involved - general partner signs

Ascending order of treasury debt

1. Bill 2. Knows (Notes) 3. Bonds

Leveraged ETFs do what to get higher returns?

1. Buy on margin 2. Use options 3. Use futures i.e. derivatives

Straddles are either

1. Buying both types - long straddle 2. Selling both types - short straddle same strike price!!!

how much buying power does the line of credit from EE give you?

1. Buying power equal to 2x the amount of the line of credit 2. withdraw the cah equal to 1x the amount of the line of credit

What kids of investment company's shares are traded in the open-market? This is because they are not _________

1. Closed-end mgmt companies 2. ETFs not "redeemable"

What is a CMO? How often is interest paid in a CMO?

1. Collateralized Mortgage Obligations: Pooled MBS, or pools of pooled mortgages. Higher returns than MBS. 2. Monthly

Agency issues are issued by

1. GNMA 2. FNMA 3 FLHMC

Confirmation statement:

1. General info on the bond and issuer 2. dates 3. control relationships disclosed 4. yield to worst 5. capacity of the b/d (agency/principal) 6. CUISP

What is ineligible to be margined?

1. Options (because they expire in 9 mo, and are wasting assets) 2. penny stocks (not on FRB)

most likely to refund?

1. highest rate 2. lowest cost

tax credits for limited partner are with RE in

1. historical buildings 2. low income housing

margin agreement

1. hypothecation agreement - customer pledge securities as collateral for the loan 2. consent to loan agreement - allows b/d to take the securities on collateral and loan them to other customers (short sales) -> optional 3. credit agreement - interest rate for paid by customer for the loan amt

least likely for the issuer to refund?

1. lowest rate 2. highest cost

Common stock risk(s)

1. market/systematic risk; volatility; Beta 2. business risk (unsystematic risk)

T Bonds

10+ years semiannual % of par quote, in 32s 1000 par value

10 m

10,000; 10 bonds

In a new margin account, a customer buys 300 shares of ABC at $40 per share, 100 shares of the Ajax Mutual Fund at $24, and 10 PDQ Aug 30 calls at 4. The customer will receive a margin call for

12400 The customer must pay 50% of the value of the stock, and 100% of the value of the mutual fund shares and the options because these securities are non marginable (NMS) and must be paid for in full (50% of $12,000 = $6,000). To calculate the total payment required, add $6,000 (stock) plus $2,400 (Ajax) plus $4,000 (PDQ calls) which equals $12,400.

T notes

2-10 years semiannual interest % of par quote, in 32s 1000 par value

UTMA can designate which age up to age _____ for transfer

25

What comprises the Revdex?

25 revenue bonds with 30 yr maturities

Corporate debt securities (such as commercial paper) are exempt from registration under the Securities Act of 1933 if their maturities do not exceed how many days?

270

discretionary order

3 As 1. Amount - # shares 2. Action - buy/sell ? 3. Asset - Name You need all 3 of these, OR you need discretionary authority

The loan value of any eligible security is

50%

Your customer wants tbe highest after-tax income possible. They currently own a 5% muni bond and are in the 35% tax bracket. What would the equivalent yield have to be for a corporate bond to be competitive?

7.6% b/c TEY = 5 / (1-0.34) = 0.0757576

Repo

Repurchase agreements Securities loaned for short term cash financing to be repurchased at a slightly higher rate from a b/d - U.S. gov't securities - No secondary trading (between to financial institutions)

IDRs and IDBs are both subject to the

AMT

Political Contributions

Allows for a MFP to a maximum political contribution of $250 in a gov't entity that they engage in u/w or b/d relations with for muni issues

If a customer writes 1 ABC Jan 35 call at 13.50 and 1 ABC Jan 55 put at 12.50 when ABC is trading at 45, excluding commissions, this position will be profitable if ABC is: I. above 29. II. below 29. III. above 61. IV. below 61.

I and IV For the breakeven points, add the combined premiums (26) to the strike price of the call and subtract the combined premiums from the strike price of the put.

Under MSRB rules, when is an unsuitable trade allowed to be performed by the RR?

Any unsolicited transaction

New muni issues will be found on the

Bond Buyer

Treasury receipts are backed by the full faith and credit of the creator, the

B/D

Hedges break even

BE = T t is for t chart, the money out and in for the transactions

Class B

Back-end load (or Contingent Deferred Sales Charge) Less often sold nowadays

Spread

Buy AND Sell Same type

Which of the follwing order would a special automatically adjust for a cash dividend?

Buy limits and sell stops "BLSS"

spreads BE

CAL Call spreads Add net premium to Lower strike price PSH Put spreads Subtract net premium from Higher strike price

what may affect the alpha of a stock?

CEO resigns

M.V. @ Min Maintenance Short account

Cr / 1.3

Which of the following bonds would appreciate the most if the interest rates fell? A) 15-year discount. B) 30-year premium. C) 15-year premium. D) 30-year discount.

D Long-term maturities will have greater fluctuations in price than will short-term maturities, given the same move in interest rates. Furthermore, discounted bonds respond more favorably to falling rates than do premium bonds.

Limited Partnerships

D.P.P. Customers use this business as a form of investments There is a general partner, and a bunch of limited partners. The investment into the business is a capital contribution, and in return receive a limited liability in the business. Max loss: initial investment Investors have NO managerial role.

Participating preferred

Depending on the growth, you may be paid above and beyond the stated rate (additional dividends) Must be declared by the board

Sec Act 1934

SEC - established Credit- FRB oversees the extension of credit - RegD Anti-fraud provision Manipulating prices - fictitious trades etc.

Cumulative preferred

Dividends in arrears The fixed amount is paid in arrears

M.V. @ Min Maintenance Long account

Dr / 0.75

What kids of investment companies track an index and are not redeemable?

ETFs

A centralized online site intended for use by retail, non-professional investors to locate key information about municipal securities including real-time access to prices is known as:

Electronic municipal market access (EMMA)

Which of the following taxes does NOT impact the holder of an ADR?

Excise tax

The reasons people buy options:

Leverage

the INCOME of the bond is

FIXED

Preferred stock? Investment objective?

Fixed, stated dividend Income

How are the MBS of agency issue taxed?

Fully taxable, all levels

Agency issues that are fully backed by the faith and credit of the gov't?

GNMA

Agency Issue CMO

Higher ratings, lower risk (GNMA, FNMA, FHLMC CMOs mostly)

Custodian

Holder of the assets/cash

Eurodollar bonds are issued in bearer form, pay interest once a year, and are not subject to withholding taxes. They are issued outside the United States and are therefore not subject to

SEC registration.

Bond Ladder?

Invest in all short and long term bonds, to reduce the interest rate risk; preserving the capital.

JJ bonds

January and July interest payment dates i.e semi-annual

Combined Equity Equation

LMV + Cr - SMV - Dr

What does LIBOR stand for?

London Interbank Offered Rate

Private Label CMO ***

Lower ratings, high risk(Created by b/ds, can contain other debt obligations like car/credit loans)

If you are a representative for the underwriting of a municipaal issue, you are a

MFP Municipal Finance Professional

Maturity, quality and the size of the block affect marketability for a _______ bond. Not the dated date.

Muni

Customer refuses to disclose their financial information. Is the muni suitable for the client?

No. Do not recommend under MSRB rules

O.I.D. bonds are ________ and are taxed for capital gains using the ________ method.

Originally Issued Discount bonds; straight line accretion

PAC

Planned Amortization Class least default risk (5 yrs) Short-term what if - not refinanced - extension risk

You sell a put: Max gain: Max loss:

Premium received Strike price - premium received

You sell a call: Max gain: Max loss:

Premium received Unlimited

Treasury debt investment objective to the customer? Risk?

Preservation of principal. Interest rate risk.

Which of the following is NOT considered when trying to diversify a municipal bond portfolio?

Price

The Securities Act of 1933 exempts all of the following securities EXCEPT

REIT

Reverse/Inverse ETF

Shorts the market (hope the market goes down) If the underlying index goes down, the inverse ETF will increase in value.

Control Relationship

Someone who represents both the issuer AND the b/d. Must be disclosed on the CONFIRMATION

If a customer buys 5 ABC Sep 50 calls at 5 and 5 ABC Sep 50 puts at 3, this position is called a:

Straddle

A bond bought at a premium uses for the cost basis in calculations of capital gains/losses?

Straight line amortization You adjust the amount paid over par annually for the life of the bond. So bond bought at 110 will have $100 amortized (decreased by) over the life (20 years) at $5 annually.

Break Even for call options:

Strike price + premium for both the long and short positions

Break Even for put options:

Strike price - premium

You buy a put: Max gain? Max loss?

Strike price - premium paid Premium paid

corporate bonds are issued with ________ maturities

TERM they all mature together at some date in the future

Money market securities and new issues (primary market) among others are specifically excluded from the

TRACE reporting requirements.

T/F: zero coupons are taxed every year as interest income

TRUE

TAC

Targeted Amortization Class Most default risk (30yrs)

Which of the following allows investors to hold securities in either the name of the issuer or their transfer agent and facilitates the transfer of those securities from the issuer or their transfer agent to an investor's broker/dealer in a secure, efficient manner?

The Depository Trust Company through the Direct Registration System (DRS)

Which of the following interest rates is set by the Federal Reserve Bank (FRB)?

The Discount Rate

Who does not have to power to enforce MSRB rules?

The MSRB, instead the agency that oversees the entity will enforce the MSRB rules upon their base

UGMA transfer at

age of majority

Which of the following documents sets forth the priority of sale of securities?

The syndicate letter

Which of the following statements regarding puttable bonds is TRUE?

Their yields are usually lower than those of nonputtable bonds.

debit PUT spread are always

bearish

Investment companies which are redeemable?

Unit Investment Trusts (UITs) Open-end mgmt companies

Buy 300 shares of XYZ @ $60. Then you write 5 XYZ 65 calls. What is the max loss?

Unlimited This positions has 300 shares, covered The calls leftover are uncovered, and leave unlimited risk to the investor. This is called a RATIO WRITE

You buy a call: Max gain? Max loss?

Unlimited Premium paid

What does non-interested mean in terms of the BOD of mutuals?

Whether they are employed by the investment company or not.

Can a MFP sposor a golf tournament AND offer $69 golf clubs to muni officials at the tournament?

Yes. Sponsorship is allowed and the gift is allowed since it is under the $100 rule.

serial munis are quoted as?

Yield to maturity this is called a "basis quote"

What is the loan value for options?

Zero

when will a stock be expected to be highly volatile?

a. new product announcements b. anticipating an earnings announcement c. any anticipation of news that will greatly impact the price of the stock.

stop orders, can _______ markets because of their dynamics when triggered in lrg quantities

accelerate

buyer of a bond has in increase in amount payable from ________ ________

accrued interest

Hedges are the only option strategy that

actually holds the stock position

income wells DPP

already producing wells safest o&g programs

what do you need if a partner dies?***

an amended partnership agreement

current yield

annual income / CMV

All of the following will affect SMA in a short account EXCEPT:

appreciation of CMV.

customers buy at the _____ and sell at the _____

ask; bid

Sally is long 100 shares of XYZ stock. @ $50/sh. She fears a near-term correction, but remains overall bullish in the market. As a RR what would you recommend so that Sally could profit from the situation? a. Buy a $50 call b. Sell a $50 put c. Sell a $55 call d. Buy a $55 put

b Because this will result in a profit

Private label CMOs a. never use government issued securities as collateral b. can use government issued securities as collateral c. are considered as safe as agency issued CMOs d. can carry greater risk than agency issued CMOs

b and d

Reg U

b/d rehypothecation - to banks

Money market instruments guaranteed by a bank that are used to provide capital for exporters to foreign countries are called:

banker's acceptances. BAs provide short-term financing for importers and exporters.

credit CALL spreads are always

bearish

An unqualified legal opinion means that the:

bond counsel has rendered an opinion without any qualifying limitations.

Interest calculated in a margin account on the debit balance will be based on the

broker call loan rate

credit PUT spreads are always

bullish

debit CALL spread are always

bullish

Sally writes a combination. She is: a. bullish b. bearish c. neutral d. complicated

c neutral

Your customer wants tbe highest after-tax income and is considering a muni bond fund and a corporate bond fund. What, as the registered rep, is the most important consideration for your client? a. What is their time horizon b. What state do they reside? c. What is the tax bracket?

c. What is the tax bracket? b/c with muni's the most suitable are those in the highest tax bracket

What collateralizes a CMO? a. Mortgages b. Real Estate c. Asset-backed securities d. yo mama

c. asset-backed securities

Which of the following types of stock would be LEAST interest rate sensitive? a. straight b. cumulative c. convertible d. participating

c. convertible

a bonds will accrue interest up to and including what date? a. first date b. settlement date c. trade date d. independence date

c. trade date

Which bonds trade flat? a. trading at par b. not trading c. trading without accrued interest d. trading at a discount

c. trading without accrued interest

why is the callable feature on a bond bad to the investor?

call risk the PRINCIPAL will be reinvested at a lower rate

DPP in RE with new construction means

capital appreciation investor

historically, zero coupon bonds are most suitable for those saving for ________ ________

college tuition

credit max gain

combined premiums

debit max loss

combined premiums

short straddle max gain

combined premiums

CQS

consolidated quotation system dealer to dealer transactions OTC, from a listed exchange third market - listed, OTC

annual income for bond

coupon

nominal rate

coupon rate includes both inflation + real return

Right side:

credit spread

Risk of ADRs is _________ and is NOT ___________.

currency risk; liquidity risk

CMV

current share price

RR looks for what for the DPP investor? a. excellent tax benefits b. highly liquid c. freely transferrable d. economically profitable

d. economically viable tax benefits have to be secondary benefits we do not trade dpps so other answers don't swing

Leveraged ETFs attempt to get 200-300% return on a ______ basis. Not a ______ basis.

daily; annual

Left side:

debit spread

DPP in RE with existing properties means

income investor + depreciation (tax benefits flow through to the DPP investor)

The scale, or reoffering scale, represents the prices and/or yields at which new issue securities are offered for sale to the public by the underwriter. The syndicate uses this scale to

determine its bid on the issue.

debit max gain

difference in strike price - net premiums paid

credit max loss

difference in strike prices - net premiums collected

a RR inherently has the time and price at their

discretion

annual income for stock

dividends

The terms of municipal general obligation (GO) and revenue bond offerings may be set by the issuer as:

either competitive bid or negotiated underwritings.

Marginable

eligible to be used as collateral

DEBIT or CREDIT max gain + max loss

equals the difference between the two strike prices

what does a beta of 1.0 represent?

equals the overall market

alpha is measured as the

excess returns of a fund relative to the return of a benchmark index is the fund's alpha

According to the MSRB: the amount of markup or markdown must be ________ and _________, but need not be. ________

fair and reasonable; disclosed

AM Best rates

insurance companies only

Banker's Acceptances

finances imports/exports Letter of credit with a bank, facilitates foreign trade

accrued interest =

for corporations and munis: 30 / 360 receive interest up to the day before settlement (T + 2) gov't securities: actual days receive interest up to the day before settlement (T + 1)

CUSIP

for identification and tracking purposes

Class A

front load

new account form

general customer information on, SS# address, etc must have ID ONLY signed by the principal send to customer within 30 days updated every 3 yrs

the SMA, once created, never ever

goes away

Treasury STRIPS are backed by the full faith and credit of the creator, the

gov't

Using listed options to reduce the market risk in a stock position by taking an opposing position in the options that represent an equivalent number of shares is known as

hedging

to determine the investor's market attitude, the option with the ________ ________ will determine which way the investor sways.

higher premium

Long straddles are for the investor who believes the stock is _________ volatile.

highly you make money if you reach a price increase or decrease equal to the COMBINED premiums (per share) paid for the position.

30-day visisble supply

how many NEW MUNIS are expected to be issued in the NEXT 30 DAYS

how do we lose principal due to interest rate risk?

if interest rates go up. the price of the bond price (par value) will fall. interest rate risk is the risk of the market price of the bond.

wildcatting

in search of (exploratory DPP) oil and gas very high risk

Preferred stock risk(s)

interest rate risk

UGMA is

irrevocable

without mention of principal approval, the dicretion of a RR on a discretionary account

is prohibited, whether the customer signed off or not

Transfer agent

keeps track of shares quantity, distributes to shareholders. i.e. shares and shareholders

developmental oil and gass DPP

known areas of gas extraction IDCs - intangible drilling costs - wages, fuels, (operating expenses) - write off not if AMT

One of the purposes of diversifying a municipal bond portfolio is to spread the risk among the portfolio's issues. This can be accomplished by buying bonds of differing

maturities, geographical locations, and quality.

the customer with excess equity will have automatic set-up a

line of credit based on the amount of excess equity

ECNs risk

liquidity, enough volume b/c after-hours networks

The distributor receives a _____ which is the spread for the service above the ______, whcih combined comprise the ______ price to customers of the fund. The load consists of the 10% ______ fee and the 90% ______, similar to the u/w sydicate without the takedown.

load; NAV; ask mgmt fee, concession

discretionary account have to frequently be reviewed by the princiapl b/c

looking for: 1. suitability 2. churning (size or activity levels of trades for commissions)

Inside Quote

lowest ask highest bid best available to the public OTC

A characteristic not associated with a Series EE bond is:

marketability Savings bonds are not marketable. They can be redeemed only by the government. They are not allowed to be transferred from one owner to another; hence, they are nonmarketable.

uncovered/naked call:

means the investor is short in a call with no underlying asses to back it. only position held by the investor is a CALL WRITTEN on the stock

covered calls are most suitable when the market is either _________ or ______ _______ market, but not in a very _______ market.

neutral, slightly bearish; bullish

if a bond is priced at a discount, is there increased income?

no ROI (yield) is increased, and is > coupon rate

Short straddles are for the investor who believes the stock is _________ volatile.

not you make money when the market price stays between the two break even points

covered call

own stock, sell a call

The investment advisor is paid based on a ____________ and represent the _______ expense of a mutual fund.

percentage of AUM; largest

whenever you buy an option, the most you can ever lose is the

premium

During the cooling-off period, a registered representative (in order to highlight key points) marks a preliminary prospectus and sends it to a client. This action is:

prohibited Under no circumstances may a registered representative mark a preliminary or final prospectus.

call provisions are an issuers way of

refunding - refinancing for bonds

ALL bonds have _______ risk

reinvestment risk risk that the INCOME to be reinvested at a lower rate than the coupon rate

A corporation with a single outstanding bond issue chooses to refund this debt. This means that the corporation:

replaces one debt with another.

Leverage ETFs are ________ than the avg ETF and attempt to get _______ to ______ percent of the daily return on the index

riskier; 200; 300

6 s

s is the stated rate so 6% coupon rate

long straddle break even

s/p + combined premiums s/p - combined premiums

short straddle break even

s/p + combined premiums s/p - compbined premiums

CMO has tranches which are

separations of risk separated by prepayment schedule (5, 10 ,15, 20yrs) shortest duration has least risk

most munis are issued with ________ maturities

serial over a series of years

always on a test

settlement DOES NOT include weekends

money market

short term, high quality debt instruments

commercial paper

short-term, corporate debt instruments (similar muni note, like: TAN, BAN, RAN)

DMM is a

specialist

The NET premium in a spread is the ________

spread

when you perform a short straddle you don't want to market price to ________ _________ _________

stay the same

In comparison a REIT does not pass through ________ like the RE DPP

tax benefits

how are you taxed on the zero coupon bond annually?

taxed using straight-line accretion

what is the credit balance of a short margin account?

the SMV + Reg T deposit

excess equity

the amount of the customer's equity that is above 50% (regT) of the CMV of the eligible security

If the bond is a discount bond you calculate capital gain/loss by

the amount paid from amount received at sale.

Straight line accretion

the cost basis is adjusted over the life of the bond (increased) to par value at maturity

All of the following are true of negotiable, jumbo certificates of deposit EXCEPT:

they are fully insured in any denomination by the FDIC.

m is the accounting symbol for

thousands. m = add (,000)

CALL premium calculation

time value + Intrinsic value intrinsic value = CMV(stock) less strike price if negative, zero

PUT premium calculation

time value + Intrinsic value intrinsic value = Strike price - CMV(stock) if negative, zero

A puttable bond grants the investor the right

to put the bond back to the issuer at par before maturity.

long straddle max loss

total premiums combined

money market securities and CMO securities in common?

trade among institutional traders

4th market

trades OTC between institutions through instinet

If an investor "closes their position" on an options they are

trading in the the option, NOT exercise

Business risk i s

unsystematic risk, tied to the products and management of the company

long straddle max gain

up side: unlimited down side: s/p - combined premiums

short straddle max loss

up side: unlimited down side: s/p - combined premiums

Beta

volatility in relations to the overall market if S&P500 goes up 10% and your stock (or portfolio) goes up 12% you are poisitively correlated to the market, with a volatility index of 1.2 (i.e. your growth in capital was 120% above the market)

For a CALL options the investment is "in the money" _____________. This is true regardless of __________.

when CMV of the stock is above the strike price. what side of the contract one is on. b/c it simply means the contract has INTRINSIC VALUE

For a PUT option the investment is "in the money" _____________. This is true regardless of __________.

when CMV of the stock is below the strike price. what side of the contract one is on. b/c it simply means the contract has INTRINSIC VALUE

intrinsic value for PUT options

when the CMV of the stock is LESS than the strike price of the option, it has real (intrinsic) value (in the money)

intrinsic value for CALL options

when the CMV of the stock is greater than the strike price of the option, it has real (intrinsic) value (in the money)

The reoffering yield on a new municipal bond issue is the:

yield at which the bonds are offered to the public.

Treasury STRIPS and Treasury Receipts are?

zero coupon bonds

what kind of bond does not have reinvestment risk?

zero- coupon bonds

A sale made at a profit from a customer's margin account would do all of the following EXCEPT

increase equity

With a moral obligation bond, issuers have the moral, but not _________, obligation to service the debt.

legal

A holder of an ADR assumes all of the following risks EXCEPT

liquidity risk

A corporate or municipal issuer might include a put option on a newly issued bond to

make the offering more attractive to investors

CMOs pay interest ________ and yield more than ________

monthly; Treasury securities

If a ___________ bond goes into default, bondholders do not have the right to sue to force a tax to pay off the bonds. The only way bondholders can recover the principle is through legislative apportionment. The issuer's legislative body has to appropriate funds to pay off the bonds.

moral obligation

Moody's Investment Grade (MIG) Ratings are applied to

municipal notes which are short-term municipal debts, such as bond anticipation notes (BANs).

All of the following are money market instruments EXCEPT

newly issued Treasury notes Treasury notes are issued with maturities of 2 to 10 years.

A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has:

no effective change in the value of the position.

You observe that a yield curve that was previously flat is moving toward having short- term interest rates lower than long-term interest rates. This new yield curve is considered to be

normal

Do not combine revenue bonds with GOs to determine

overlapping debt.

Callable preferred stock is advantageous to the issuer because it allows the company to

replace a high, fixed-rate issue with a lower issue after the call date

Stock rights are traded in the __________ market

secondary

A stock right is a ______________

security

All of the following option strategies could be effectively used in a bear market EXCEPT a

short straddle

For U.S. investors holding American Depositary Receipts (ADRs), dividends received are

subject to a foreign withholding tax

Capital gains on municipal bond transactions are

subject to tax as would be any other capital gain (FEDERAL and STATE) note: it is interest that is tax-exempt

A municipal bond underwriter looking in the bond buyer would recognize the percentage of new issues sold versus new issues offered for sale the prior week as

the acceptance or placement ratio

An informal network of market makers that offers to trade securities NOT listed on an exchange is called:

the over-the-counter market.

An investor has an established margin account with a short market value of $8,000 and a credit balance of $13,000, with Regulation T at 50%. A maintenance call would be triggered if the short market value increased above

$10K To find short market value at maintenance, divide the credit balance of $13,000 by 1.3 ($10,000).

A bond is convertible at $25. The market value of the stock is $30. What is the parity price of the bond?

$1200 If a bond is convertible at $25, each $1,000 bond will convert to 40 shares. Forty shares × $30 = $1,200 parity of the bond.

An investor's portfolio includes 10 bonds and 200 shares of common stock. If both positions increase by one point, what is the appreciation?

$300 The gain would be $100 for the bonds (one point for one bond is $10 × 10 bonds) and $200 for the common stock (one point is $1 × 200 shares). The total portfolio gain is $300.

When determining which bonds to call, the comparison in order of priority is:

(1) years to maturity, (longer = more likely) (2) coupon rate, (higher = more likely) (3) call premiums. (lower = more likely)

If a registered representative opens a joint account for three people, the registered representative should obtain information on

all of the tenants

Which of the following underwriting arrangements is associated with an invitation, typically found in The Bond Buyer, directed at investment bankers and broker dealers, intended to solicit interest in underwriting a new municipal issue?

Competitive bid

ZZTZ common stock is trading at $36 per share. Which of the following orders would normally be entered above the current market value of $36? 1. Buy stop 2. Sell stop 3. Buy limit 4. Sell limit

I and IV

Common stockholders of a publicly traded corporation have which of the following rights and privileges? 1. Residual claim to assets at dissolution 2. Right to a vote for stock dividends to be paid 3. Right to receive an audited financial report on an annual basis 4. Claim against dividends in default

1 and 3

If the market value in a long margin account increases, which of the following statements are TRUE? 1. The SMA increases. 2. The SMA decreases. 3. The equity increases. 4. The equity decreases.

1 and 3

In treasury auctions a bidding system known as a Dutch auction is used. With this auction process the winning bid is the 1. lowest yield at which all of the securities can be sold 2. highest yield at which all of the securities can be sold 3. the price paid by bidders who bid at or below the winning yield bid 4. the price paid by bidders who bid at or above the winning yield bid

1 and 3

A member firm registered as a broker/dealer may charge a customer for 1. forwarding proxy materials 2. safekeeping of securities 3. collection of dividends and interest 4. providing research reports

2 and 3

Ratio call writing exposes an options investor to 1. limited loss 2. unlimited loss 3. limited gain 4. unlimited gain

2 and 3

Which of the following scenarios would be TRUE about a step-down CD? 1. When initially purchased, the CD pays a lower rate 2. When initially purchased, the CD pays a higher rate 3. Later the interest rate adjusts to a lower rate than when it was purchased 4. Later the interest rate adjusts to a higher rate than when it was purchased

2 and 3

ABC Corporation declares a 5-4 stock split. On the ex-date, the price of ABC common will be reduced by

0.2 After a 5-4 split, the investor will have 125 shares (100 × 5/4); the total ownership interest of $5,000 is divided by the new number of shares to determine the per share price of $40. The decrease of 50 to 40 is a 20% reduction. Generally, the percent decrease in price will always be less than the percent increase in the number of shares. The percent increase in shares in a 5-4 split is 25%.

Accrued interest on a bond confirmation is 1 added to the buyer's contract price 2 added to the seller's contract price 3 subtracted from the buyer's contract price 4 subtracted from the seller's contract price

1 and 2

If a customer places an order to buy 500 ABC at 62 stop limit, after the order is elected, at which of the following prices may the order be executed? 1. 61.50 2. 62 3. 62.50 4. 63

1 and 2

The delivery of which of the following to a broker/dealer would be considered a fail to deliver? 1 A mutilated certificate 2 A municipal bond without the legal opinion attached 3 A bond trading ex-legal without a legal opinion attached 4 Certificates delivered in par value denominations totaling the amount of the transaction

1 and 2

Which of the following are characteristics of a REIT? 1. It is traded on an exchange or over the counter. 2. It is professionally managed. 3. It passes through both gains and losses to investors. 4. It is a type of limited partnership.

1 and 2

Which of the following statements are TRUE of a discretionary account? 1. It must be approved by a principal of the firm. 2. It must be reviewed frequently. 3. Orders must be approved before entry. 4. It must be approved by the SEC.

1 and 2

A customer has just opened a new account at your firm and given her lawyer limited power of attorney. Which of the following statements are TRUE? 1. Confirmations of trades will be sent to the account owner. 2. Confirmations will be sent to the party given the power of attorney only. 3. The POA ceases upon the death of either party. 4. The POA must be renewed annually.

1 and 3

Under the Uniform Practice Code, which of the following statements regarding the transfer of customer accounts are TRUE? 1. Upon receipt of the ACAT Form, the carrying firm has 1 business day to validate the account positions. 2. Upon receipt of the ACAT Form, the carrying firm has 3 business days to validate the account positions. 3. Upon validation, the carrying firm must effect the transfer within 3 business days. 4. Upon validation, the carrying firm must effect the transfer within 4 business days.

1 and 3

Which of the following are discretionary orders? 1. A customer sends a check for $25,000 to an agent and instructs the agent to purchase bank and insurance company stocks when the price appears favorable. 2. A customer instructs an agent to buy 1,000 shares of ABC Corporation at a time and price determined by the agent. 3. A customer instructs an agent to purchase as many shares of XYZ as the agent considers appropriate. 4. A customer instructs an agent to sell 300 shares of LMN, Inc., when the agent deems the time and price appropriate.

1 and 3

A customer wishes to open a cash account and give trading authorization to a sibling. The required documentation would include which of the following? 1. New account form 2. Joint account agreement 3. Customer agreement 4. Limited power of attorney

1 and 4

The federal funds rate is which of the following? 1. Computed daily 2. Generally higher than the discount rate 3. Set by the Federal Reserve 4. The rate charged in bank-to-bank lending

1 and 4

When the U.S. dollar is devalued against other currencies 1. U.S. products become more competitive abroad 2. U.S. products become less competitive abroad 3. foreign products become more competitive in the U.S. 4. foreign products become less competitive in the U.S.

1 and 4

Warrants

1. issued at a price above CMV 2. long term

Preemptive rights

1. issued at a price below CMV 2. short term

ABC Corporation has a 10% noncumulative preferred stock outstanding at $100 par value. Two years ago, ABC omitted its preferred dividend, and last year, it paid a dividend of $5 per share. To pay a dividend to common shareholders, each preferred share must be paid a dividend of

10 Because this is noncumulative preferred stock, the company must pay only this year's full stated dividend of $10 per share before paying dividends to the common shares.

A customer is long 300 shares of COD and simultaneously short 200 shares of COD. To sell the 300 shares held long, the order ticket must be marked

100 shares long and 200 shares short The customer is long 300 shares and short 200 shares of the same stock. Therefore, the customer's net long position is 100 shares. The order ticket must be marked 100 long, 200 short. In other words, the customer is long only to the extent of his net long position.

A corporate bond valued at $1,012.50 is shown in the Standard & Poor's Bond Guide as

101-1/4

Settlement for actively traded currencies will take place in ____ business day and for less actively traded currencies in ____ business days.

1; 2

Which of the following statements regarding put and call features of bonds are TRUE? 1. The put feature would likely be exercised if interest rates fall. 2. The put feature would likely be exercised if interest rates rise. 3. The issuer will likely call bonds if interest rates fall. 4. The issuer will likely call bonds if interest rates rise.

2 and 3

When a customer purchases a newly issued municipal bond or corporate bond, the accrued interest is calculated 1. from the trade date 2. from the dated date 3. up to the interest payment date 4. up to, but not including, the settlement date

2 and 4

Which of the following statements regarding real estate investment trusts are TRUE? 1. Hybrid REITs invest in both commercial property and residential property. 2. Some REITs hold no real property but hold mortgages on commercial property instead. 3. All dividend disbursements made by REITs will be recognized as qualified dividends by the IRS. 4. Dividends are taxed at the investor's ordinary income tax rate.

2 and 4

Under FINRA rules on account transfers, the carrying member must transfer the positions in the account to the receiving member within how many business days of validation?

3

A legal opinion issued for a municipal bond covers which of the following? 1. Feasibility of public works projects 2. Creditworthiness of the issuing municipality 3. Tax status of the municipal debt 4. The constitutionality and legality of the municipal debt

3 and 4

After opening a new account, how many days does a firm have to provide the customer with a copy of the account record?

30

Which of the following is NOT good delivery for 300 shares of stock?

4 certificates for 75 shares each Shares must be stackable or breakable into 100- share units or multiples of 100

GHI currently has earnings of $4 and pays a $.50 quarterly dividend. If GHI's market price is $40, the current yield is

5% The quarterly dividend is $.50, so the annual dividend is $2; $2 /· $40 market price = 5% current yield.

A bond purchased at $900 with a 5% coupon and a 5-year maturity has a current yield of

5.6% Current yield is determined by dividing annual interest payment by the current market price of the bond ($50 / $900 = 5.6%). Years to maturity is not a factor in calculating current yield.

A customer places an order to sell short 100 DEF 52.25 STOP. After placing the order, DEF trades as follows: 53, 52.60, 52.20, 52.10, 52.25. Which trade will first trigger (elect) the order before it is executed?

52.2

An investor unaffiliated with the issuer is permitted to sell restricted stock without being subject to volume restrictions after having held the shares, fully paid, for a period of at least

6 months

All of the following statements describe stock rights EXCEPT: A) they are most commonly offered with debentures to make the offering more attractive. B) they are traded in the secondary market. C) they are short-term instruments that become worthless after the expiration date. D) they are issued by a corporation.

A

Instead of signing on the back of a security sold to meet the requirements of good delivery, the registered owner could sign on a separate paper called

A stock (or bond) power

An example of overlapping debt would be a school district and A) corporate debt of the county's largest employer B) county general debt C) a water pollution control facility D) a local utility power plant

B

The market attitude of a customer who establishes a credit call spread is

Bearish

The issuer of an ADR is a: A) domestic branch of a foreign bank. B) domestic branch of a domestic bank. C) foreign branch of a domestic bank. D) foreign branch of a foreign bank.

C Everything is in English and in U.S. dolla

Who has the final responsibility for debt service on an industrial revenue bond?

Corporation leasing the facility

Which of the following is NOT a risk to a U.S. resident owning a Eurodollar bond?

Currency risk Eurodollar bonds are denominated in dollars; therefore, no currency risk exists for a U.S. resident.

A customer signs a trading authorization form granting written discretion over the account to the registered representative. All of the following practices are permitted EXCEPT A) notifying the customer periodically of the account's performance B) shifting funds among several mutual funds within a fund family, based upon the representative's expectations for market performance C) buying or selling stocks without notifying the customer D) leaving order tickets unmarked as either solicited or unsolicited

D

Several investors open an account in joint tenancy. Which of the following statements regarding the account is TRUE? A) Checks need not be endorsed by all parties to the account in order to be deposited. B) Checks may be made payable to one tenant of the account. C) Only one designated account holder need sign a margin agreement or other forms pertinent to the account. D) Mail need only be sent to one of the parties to the account.

D

If a customer writes 2 ABC Feb 90 puts at 8 and buys 2 ABC Feb 80 puts at 2, which of the following statements are TRUE? 1. The spread is bullish. 2. The spread is bearish. 3. The breakeven point is 84. 4. The breakeven point is 86.

I and III

Which of the following bonds trade flat?

Income Bonds Bonds that trade flat do not trade with accrued interest. These include income bonds (also known as adjustment bonds), zeroes, bonds in default, and bonds that settle on an interest payment date.

Federal Funds rate

It is considered the most volatile rate in the economy and generally fluctuates on a daily basis. The federal funds rate is set by the market, not the banks.

Warrants usually have

Lifetimes of 2-10 years; rights expire in 30-45 days. A corporation may attach warrants to other securities, such as bonds, to make the bonds more marketable. Warrants have no intrinsic value when issued and may expire without ever having intrinsic value. Before expiration, they may be, and often are, traded in the secondary market.

Your firm is bidding on a new general obligation bond issue. As the issuer weighs and evaluates the competitive bids, what factor will be most important in deciding who will be awarded the winning bid?

Net Interest cost measures an issuer's overall cost of borrowing for a particular bond issue.

The interest on which of the following municipal securities may be considered preference income for alternative minimum tax purposes?

Private purpose bonds

Most volatile?

The longer the duration of a bond, the greater the volatility will be of its market price when interest rates change. Because zero-coupon bonds do not make interest payments but are priced at a deep discount to par value, they are more volatile than coupon-bearing bonds.

If your customer wants to set aside $40,000 for when his child starts college, but does NOT want to endanger the principal, you should recommend

Treasury STRIPS Treasury STRIPS are guaranteed by the U.S. government so there is no chance of default. They are zero-coupon bonds and offer no current income, which is appropriate for a client who wants 100% return paid at a future date for college expenses.

In administering a joint account, a member firm's responsibilities concerning suitability determination and information disclosure apply to

all parties to the account

The official notice of sale contains the information a syndicate needs to prepare a bid, including the amount of the good faith deposit the syndicate must submit with the bid. The delivery date

has not been determined.

Which of the following statements regarding ADRs are TRUE? a. They are issued by large domestic commercial banks. b. They are issued by foreign banks. c. They facilitate U.S. trading in foreign securities. d. They facilitate a foreign investor who wants to trade U.S. securities.

a and d

When a customer wishes to open an account as guardian, you would ask for

a copy of the court order and other guardianship papers

When issued, warrants have what time of value? a. time value b intrinsic value c. time AND intrinsic value d. current market value

a. time value because they are issued at a price ABOVE CMV

CMOs

are issued by financial institutions, including banks and broker/dealers, and are not backed by the U.S. government.

Spot rates

are prices are those quoted for immediate payment and delivery of foreign currencies.

When a member firm opens an account for a registered representative of another member, the employer-member must be sent written notification

before executing an order

PACs provide protection against ________ while TACs provide protection against _________

both prepayment and extension risk; prepayment risk only.

A registered representative who learns of a customer's death should

cancel all open (unexecuted) orders currently working in the market

A short sale of stock will be marked to market

daily

Warrants, not rights, are often issued with ______ to sweeten the offering.

debentures

Equity-linked notes are

debt instruments where the final payment at maturity is based on the return of a single stock, a basket of stocks, or an equity index. Some, but not all, are exchange traded and those that are can be referred to as exchange-traded notes (ETNs).

Under MSRB rules, a final official statement must be

delivered to customers on or before settlement date

Interest on CMOs is subject to

federal, state, and local taxation.

Moody's bond ratings are based primarily on an issuer's

financial strength

The issuer of an ADR is a:

foreign branch of a domestic bank.

Upon being informed that one party to a tenants in common account has died, a registered representative should

freeze the account and await the proper documents