The Series 7 Exam
YTC - Yield to Call - Formula
(Annual Interest + Annual Accretion to the call date)/((Purchase Price + Call Price)2)
What is the maximum amount of shares that an investor can sell in the 90 days, after filing a Form 144?
1% of the outstanding shares, OR the average weekly trading volume for the previous 4 weeks. Whichever is greater.
Comparative Safety of Debt Securities: Highest to Lowest
1. US Government Securities: The highest degree of safety is in secuities backed by the full faith and credit of the US government. These securities include: - US Treasury Bills - bonds - notes - saving bonds (Series EE and HH Bonds) 2. Government Agency Issues -- GNMA or Ginnie Mae (General National Mortgage Association) -- (FFCB) Federal Farm Credit Banks --- FHLMC or Freddie Mac (Federal Home Loan Mortgage Corp) --- FNMA or Fannie Mae (Federal National Mortgage Assosication) 3. Municipal Issues
Commercial paper is corporate debt securities that mature in _____ days or less.
270 days or less. Therefore, commercial paper is exempt from SEC registration
How many business days does it take for a regular-way stock transaction to settle?
3 Business Days.
After filing a Form 144 with SEC, how long does the investor have to sell the stock registered with the SEC?
90 days.
An options trader goes long 1 XYZ Oct 60 put at 6 and purchases 1 XYZ Oct 60 call for 6. If XYZ is at 68 at expiration, what is the investor's gain or loss? A) $400 loss. B) $1,200 loss. C) $400 gain. D) $200 gain.
A) $400 loss If the market price of XYZ is at $68 per share, the put is out-of-the-money and will expire worthless. The call could be sold for the intrinsic value of 8. (There is no time value, since the option is at the expiration date.) Since the investor originally spent $1,200 (a premium of $600 was paid for each option), the net result is a loss of $400.
Your client is considering 2 bonds: an ABC Corporation mortgage bond with a yield to maturity of 9% and a municipal bond issued by his state. If your client is in the 32% tax bracket, what is the tax-free equivalent yield for the municipal bond? A) 0.0612. B) 0.0822. C) 0.041. D) 0.0215.
A) 0.0612. The tax-free equivalent yield is calculated as follows: corporate rate × (1 − investor's tax bracket). In this case .09 × (1 − .32) = .0612 or 6.12%.
If XYZ stock is trading at 25.75 and XYZ Jul 25 calls are trading at a premium of 2, what is the time value of the Jul 25 calls? A) 125. B) 75. C) 200. D) 0.
A) 125 The time value is the premium minus the intrinsic value. The premium is 2 (or $200), and the intrinsic value is $75 ($200 − $75 = $125).
A customer enters an order to sell 100 TCB at 49 stop limit. Prior to the order, TCB was trading at 49.25. Subsequent trades are reported on the Tape as follows: TCB 48.75, 48.85, 49, 49.25 Which trade triggered the order? A) 48.75. B) 48.85. C) 49. D) 49.25.
A) 48.75 This is an order where the stop price and limit price (Stop, Limit) are the same. A sell stop limit order is triggered (elected) by the first trade that is at, or below the stop price. It is subsequently executed at a price at, or better than the limit price
Stabilizing bids may be entered at: a) a price at or below the public offering price b) the stabilizing price stated in the final prospectus c) a price at or slightly above the public offering price d) a price deemed reasonable by the feds
A) A price at or below the public offering price
Bond laddering is intended to: A) add diversification and decrease reinvestment risk in fixed income portfolios B) lessen both diversification and liquidity in fixed income portfolios to target higher yields C) maximize return through selective timing when purchasing bonds D) increase diversification in equity portfolios
A) Add diversitification to decrease reinvestment risk in fixed-income portfolios Bond laddering is intended to increase diversification, maintain steady cash flow, and decrease reinvestment risk by spreading maturities of smaller face value bonds over greater periods of time.
The net asset value of an international bond fund can be expected to increase if: interest rates rise abroad. interest rates fall abroad. the U.S. dollar strengthens. the U.S. dollar weakens. A) I and IV. B) II and IV. C) I and III. D) II and III.
A) II and IV If interest rates fall, bond prices will rise, thus increasing the NAV of a bond portfolio. If the U.S. dollar weakens, the value of other currencies will rise. This would also increase the NAV for a portfolio of international bonds.
Mutual fund shareholders are NOT taxed on: A) unrealized capital gains. B) interest distributions. C) capital gains distributions. D) reinvested dividends.
A) Unrealized capital gains. Interest, dividends, and realized capital gains are all taxed. However, unrealized capital gains are not taxed. Unrealized gains contribute to NAV appreciation and to a shareholder's capital gain upon redemption.
All of the following would be considered when evaluating a municipal revenue bond's creditworthiness EXCEPT: A) collection ratio. B) competing facilities. C) management expense. D) coverage ratio.
A) collection ratio. The collection ratio shows the percentage of property taxes that are actually collected. This would be relevant in evaluating GO bonds, which are backed by the taxing authority of the issuer. Revenue bonds, however, are backed by user fees, not taxes.
In a municipal offering, which of the following would ordinarily be found in the agreement among underwriters? I) The legal opinion II) The appointment of the bond counsel III) The concession IV) The takedown A) III and IV B) I and II C) I and IV D) I only
A)Your answer, III and IV, was correct!. Of the four answer choices only the concession and the takedown would generally be found in the agreement among underwriters which is found in the syndicate agreement. The agreement among underwriters does not include the legal opinion or the appointment of the bond counsel. The legal opinion and the appointment of the bond counsel would be found in the official statement.
A Rule 147 offering is....
An offering of securities only within the issuer's home state. Exempt from SEC registration provided the issuer conducts business only in one state and sells securities only to residents of that same state. 80% of the issuer's assets must be located within the state, and atleast 80% of the offering proceeds are used within the same state.
A customer is interested in diversifying a portfolio by using an investment technique known as bond laddering. Regarding suitability, which of the following are applicable and should be brought to the investors attention? I) Liquidations needed to be made before maturity may II)expose one to interest rate risk. The strategy can not be used to reduce investment risk. This strategy is best suited for someone with an income objective. This strategy is best suited for someone with a growth objective. A) I and III B) I and IV C) II and III D) II and IV
Answer: A Bond laddering reduces both interest rate risk and reinvestment risk because it spreads investments made in smaller bond denominations over time. This lends itself to smaller bonds maturing with proceeds needing to be reinvested at set intervals. It is most suitable for those seeking protection of principal and income from the bond's interest payments. However, if unexpected liquidations need to be made, the ill-timed liquidations could expose the portfolio to heightened interest rate risk if rates happen to be high at the time. This would deflate the prices of the bonds being liquidated
A mutual fund must, at a minimum, provide which of the following periodic reports to shareholders? I. Audited annual reports. II. Unaudited annual reports. III. Audited semiannual reports. IV. Unaudited semiannual reports. A) II and IV. B) I and IV. C) I and III. D) II and III.
Answer: B An investment company must send an unaudited report to shareholders at least semiannually and an audited report of its financial condition at least annually.
An investor wants to purchase fixed-income securities (bonds) as a safe haven because he is uncomfortable with risk associated with stock volatility currently in the market. Before making a suitable recommendation, a registered representative should advise that I) bonds are interest rate sensitive in all environments II) bond prices are always stable when equities are volatile III) bond prices can rise sharply when interest rates rise IV) bond prices may fall as interest rates begin to rise A) II and IV B) I and IV C) I and III D) II and III
Answer: B Bonds are interest rate sensitive in all environments. Their prices have an inverse relationship to interest rate movements. Therefore, if interest rates begin to rise, bond prices will fall, exposing investors who sought them out as a safe haven to risk they might not have been aware of.
Which of the following characteristics are associated with bond laddering? I) Purchasing fewer bonds, each having larger face values II) Purchasing more bonds, each having smaller face values III) Purchasing bonds with maturity dates spread over periods of time IV) Purchasing bonds all maturing on the same date A) I and III B) II and IV C) II and III D) I and IV
Answer: C Bond laddering is a strategy for fixed income portfolios involving the purchase of more bonds with smaller face values having maturities spread over greater periods of time. The strategy is used to decrease the overall risk of a bond portfolio by spreading risk over longer sections of the interest rate curve. This is considered a form of diversification.
In the sale of open-end investment company shares, the prospectus must be delivered: A) before the sales solicitation . B) at or before redemption. C) to the client either before or during the sales solicitation. D) within 7 days of request.
Answer: C Potential mutual fund customers must receive a prospectus before or during the sales solicitation.
Investment company shareholders must receive financial reports at least semiannually. All of the following are true regarding these reports EXCEPT A) one of the semiannual reports must be audited B) a valuation of all securities in the IC portfolio as of the date of the balance sheet provided in the report must be included C) a statement of all compensation paid to the board of directors (BOD) must be included D) the report is regulated under FINRA's rules regarding communications with the public
Answer: D The reports are required to be supplied to IC shareholders under the Investment Company Act of 1940. They are prepared and distributed by the investment companies. Unless forwarded by broker/dealers to their customers, the semiannual reports would not be regulated under FINRA's communication with the public rules for broker/dealers.
In the sale of open-end investment company shares, the prospectus: A) is not necessary. B) must be delivered before the sales solicitation . C) must be delivered at, or before, the delivery of the fund share certificate. D) must be delivered to the client either before or during the sales solicitation.
Answer: D The sale of mutual fund shares requires that the client receive the prospectus before, or during, a sales solicitation.
Under the Investment Company Act of 1940, mutual funds must send financial statements to shareholders at least: A) monthly. B) quarterly. C) annually. D) semiannually.
Answer: D Under the Investment Company Act of 1940, mutual funds must provide semiannual and annual reports to shareholders.
If an investor buys 1 KLP Oct 95 put at 6.50, what is the investor's maximum potential gain? A) 9650. B) 8850. C) 9500. D) 10150.
B) 8850 The maximum gain on a long put is calculated by subtracting the premium from the strike price (95 − 6.50 = 88.50 per share). One contract represents 100 shares, so the buyer's maximum gain is $8,850 if the stock declines to 0. Because put buyers are bearish, they will make money if the stock falls below the breakeven point of 88.50.
American style options traded on the CBOE are priced higher than European style options on the same underlying stock, having the same expiration because: A) European style option positions cannot be traded out of. B) American style options can be exercised at any time until expiration, while European style options can be exercised only at expiration. C) European style options are not adjusted for stock splits and stock dividends. D) US investors cannot use European style options thus the demand is much less leading to lower premiums.
B) American style options can be exercised at any time until expiration, while European style options can be exercised only at expiration.
A customer enters an order to buy 1,000 ABC at 50, good for the week only. How will this order appear on the order book? A) Buy 1000 ABC 50 Day. B) Buy 1000 ABC 50 GTC. C) Buy 1000 ABC 50 GTW. D) Buy 1000 ABC 50 GTM.
B) Buy 1000 ABC 50 GTC Your answer, Buy 1000 ABC 50 GTW., was incorrect. The correct answer was: Buy 1000 ABC 50 GTC. Limit orders and stop orders are entered on the order book as either GTC or day orders. Orders that are good for only a particular time frame (good for the week) will appear as GTC. It is the responsibility of the broker/dealer that entered the order to cancel it at the end of the week, if unexecuted.
In a bull call spread, an investor: buys the lower exercise price and sells the higher exercise price. buys the higher exercise price and sells the lower exercise price. anticipates the spread will narrow. anticipates the spread will widen. A) I and III. B) II and IV. C) I and IV. D) II and III.
B) II and IV. In a bull call spread (debit spread), a call with a lower strike price is purchased and a call with a higher strike price is sold. Because the long call has a lower strike price than the short call, it is more expensive, resulting in a net debit. In a bull call spread, the investor hopes the market prices rise. Maximum profit occurs if both calls are exercised, and because this is a debit spread, the spread is profitable if it widens.
All of the following might be used to measure the marketability of a new municipal GO issue EXCEPT: A) S&P's ratings. B) Revdex. C) placement ratio. D) visible supply.
B) Revdex Your answer, Revdex., was correct!. Revdex is an index of yields on 25 revenue bonds with 30-year maturities that are traded in the secondary market.
A zero-coupon bond would be an appropriate investment for which of the following investors? a) A retired person who needs regular income to supplement social security b) Someone who needs a lump sum in 10 years to pay off the balloon mortgage on his house
B) Someone who needs a lump sum in 10 years to pay off the balloon mortgage on his house Zero-coupon bonds are generally suitable for investors who need a lump sum at some point in the future.
If a customer buys 500 shares of ABC at 48 and writes 5 ABC 50 calls at 2, what is the maximum loss? A) 23000. B) 4600. C) 1000. D) Unlimited.
B) Your answer, 4600., was incorrect. The correct answer was: 23000. The investor pays $48 per share for the stock and receives $2 for selling the calls. The maximum loss is $48 per share minus the option premium collected, or ($48 − $2) × 500 shares = $23,000.
A customer enters a day order to sell 300 XYZ stock at 34.60. XYZ continues to trade in a 33 to 33.60 range. An hour before the close, he considers changing the order to a GTC order. You respond that he might consider allowing the order to remain on the books as a day order, and if it remains unexecuted at the close, to re-enter it the next day as a GTC order. You would have based this recommendation on concern for which of the following? A) Additional cost to the firm of changing the order twice in a day. B) An existing order has precedence over a new order when it comes to execution. C) Weakening the customer's risk tolerance by encouraging him to change orders frequently. D) Day orders are less risky than GTC orders. Your answer, An existing order has precedence over a
B. Time priority (first come, first served) of an order is lost if there are any changes in the terms of an order.
When a corporation wishes to open a margin account with a broker-dealer, which of the following is required? I. A corporate resolution from the Board of Directors II. A copy of the corporation's trust indenture III. A copy of the corporation's charter or by-laws IV. An agreement that the stock of the corporation will not be traded by the broker dealer as a market-maker a. I,II b. I,III c. II, IV d. I, II, III, IV
B. Whenever a corporation opens an account with a broker-dealer, a resolution by the board of directors appointing specific individuals who have trading authority must accompany the application. In addition, if the company wishes to open a margin account, the company must also provide a copy of its charter or by-laws as evidence that the company is legally permitted to trade on margin.
An investor purchased an 8% bond which matures in 10 years at 95. How much will the investor receive when the bond matures? a) $800 b) $950 c) $1,040 d) $1,080
C) $1,040 The investor will receive full par value (face value) of his bond when in matures. Unless otherwise indicated, always assume that the par value of a bond equals $1,000. The investor will also receive a final interest payment of $40.
A project that was funded with a revenue issue has been condemned by the state under an eminent domain proceeding. The outstanding bonds would be subject to which of the following call provisions? A) Defeasance call. B) Prerefunding call. C) Catastrophe call. D) Refunding call.
C) Catastrophe call. If a revenue project was condemned under eminent domain, the bonds would be subject to a catastrophe call.
An investment company share purchased at its NAV that can always be redeemed later at its then-current NAV is a: A) Class D share. B) Class A share. C) Class C share. D) Class B share.
C) Class C Shares Class A shares are purchased at NAV plus sales charge. Class B shares pay the sales charge upon redemption. Class D shares have a level load plus a redemption fee. Class C shares have only a level load (a 12b-1 fee) which is taken from net assets during the year. Reference: 10.7.5.5 in the License Exam Manual.
A customer has several accounts with a single brokerage firm. These include a single account in his own name, a joint account with his wife, and a custodial account for each of his two children. If this firm were to become insolvent, how would SIPC protect these accounts? A) The single account would be treated first. If the maximum coverage were not reached, then the joint account would be covered and, finally, the two custodial accounts. B) The single account and the two custodial accounts would receive the coverage for cash and securities. The joint account would not be covered. However, he and his wife would become general creditors of the firm. C) Each account would be treated separately. D) Only one account would be covered, but the client would be allowed to select which account would be covered.
C) Each account would be treated separately. SIPC provides coverage on a per-customer basis in the event of broker/dealer default. In this situation, there are four separate customers: the customer's individual account in his own name, his joint account, and the two custodial accounts. Each of these four customers is eligible for SIPC maximum coverage of $500,000.
Which of the following projects is most likely to be financed by a general obligation rather than a revenue bond? A) Municipal hospital. B) Public golf course. C) New high school. D) Expansion of an airport.
C) New High School Hospitals, airports, and golf courses all generate revenue and can be financed with revenue bond issues. Schools are financed through GO bond sales.
A municipality is allocating the revenues from an industrial revenue bond under a net revenue pledge. The first priority is: A) sinking fund payment. B) bond interest. C) operation and maintenance. D) reserve funds.
C) Operation and Maintenance Under a net revenue pledge, operations and maintenance are paid first, with debt service following. In a gross revenue pledge, debt service is paid before operations and maintenance.
At 2:15 pm EST, a customer gives his registered representative a market order to buy 100 shares of ABC at the close. What should the registered representative do with the order? A) Execute the order at the closing price first thing next morning. B) Hold it at his desk until just before market close. C) Send the order to the floor immediately. D) Send in the order after the close to ensure receiving the closing price.
C) Send the order to the floor immediately The registered representative should mark the order ticket at close. His firm's floor broker will take on the responsibility for proper execution.
If an investor writes 2 DWQ Jan. 60 puts at 3 in September and the investor buys back the 2 puts at 4.50 two months later, the result for tax purposes is a: A) $150 short-term capital gain. B) $150 short-term capital loss. C) $300 short-term capital loss. D) $300 short-term capital gain.
C) Short Term Capital Loss A $900 closing cost minus $600 opening proceeds equals a $300 short-term loss.
If a March 80 Canadian dollar call option is trading at 6 and the Canadian dollar is at $.85, which of the following statements is TRUE? A) The contract is out-of-the-money. B) The contract has no time value. C) The contract has intrinsic value. D) The contract is at parity
C) The Contract has intrinsic value A call is in-the-money whenever the market value of the underlying instrument is above the strike price. The Canadian dollar is currently at $.85 (85 cents) which is above the strike price of $.80 (80 cents), so this call is in-the-money and therefore has intrinsic value of .05 (5 cents). This contract is trading .01 greater than the intrinsic value of .05. Therefore, it also has a time value of .01 (1 cent)
A customer is long 100 XYZ currently trading at $40 per share. To generate income, the customer writes 2 XYZ Aug 40 calls at 4 for a maximum loss potential of: A) 3200. B) 3600. C) unlimited. D) 4000.
C) Unlimited This is an example of ratio writing where a customer writes more calls than he has stock to cover. Because only one of the calls is covered, the other is uncovered and loss potential is unlimited.
A customer buys an 8% bond on an 8.20 basis. If the bond is callable in 5 years at par and matures in 10 years, which of the following statements is TRUE? A) YTC is lower than YTM. B) Nominal yield is higher than YTM. C) YTC is higher than YTM. D) Nominal yield is higher than YTC.
C) YTC is higher than YTM A bond with a YTM (basis) greater than its coupon is trading at a discount. When a bond is trading at a discount, the YTC is greater than the YTM. Nominal yield is lower than both YTM and YTC.
The placement ratio, as shown in the "Bond Buyer", is: A) bonds sold/bonds unsold. B) bonds issued/bonds unsold. C) bonds sold/bonds issued. D) bonds issued/bonds sold.
C) bonds sold/bonds issued The placement ratio is a measure of investor demand for new issue municipal bonds. It is computed by dividing the amount of bonds sold each week by the amount issued that week.
If an open-end investment company bought preferred stock directly from a bank through an electronic communication network (ECN), this trade took place in which of the following markets? A) Secondary. B) Third. C) Fourth. D) Primary.
C. Fourth The fourth market is where direct trades between institutions, pension funds, broker/dealers, and other financial entities occur, utilizing electronic communications networks (ECNs). In theory, there are no brokers involved in these transactions.
Current Yield of Stock Formula
CV= Annual Dividends/Market Price
A member of a $5 million Eastern account that has a $500,000 participation fails to sell $200,000 of bonds. At the close of the offering, if $1 million of bonds remains unsold, the member must take down: A) 300,000. B) 500,000. C) 200,000. D) 100,000.
D) 100,000 In an undivided (Eastern) syndicate, each member is responsible for its portion of the offering regardless of how many bonds it has already placed. If the member was liable for 10% of the issue's original dollar value, it is committed to take down 10% of any bonds remaining unsold (10% of $1 million equals $100,000).
Under the Investment Company Act of 1940, redemption payments for mutual fund shares must be made within how many days? A) 15. B) 10. C) 5. D) 7.
D) 7 days Under the Investment Company Act of 1940, if a customer tenders mutual fund shares for redemption, payment must be made within 7 calendar days, unless the NYSE is closed on other than a weekend or holiday, or the SEC grants an exception.
If a customer writes 1 Jul 80 put at 7 and the put is exercised when the market price is at 70, for tax purposes, what is the effective cost basis of the stock put to the seller? A) 70. B) 80. C) 87. D) 73.
D) 73 The cost basis is 80 (price at which the writer must buy) minus 7 (premium the writer was paid), or $73 per share.
You sell a municipal bond that has been advance refunded. It will be called at 102 four years from now. On the confirmation, the yield must be stated as the yield to: A) maturity or yield to call, whichever is higher. B) maturity. C) maturity or yield to call, whichever is lower. D) call.
D) Call MSRB rules require that, when a call date has been fixed by a prerefunding, the yield to call so fixed must be reflected on the confirmation statement. Because of the prerefunding, this bond issue will be called at the call date. There is no uncertainty surrounding this event. Therefore, it is appropriate to price the bond to the call date. The old maturity on the bond has no further significance.
If an investor has received dividends and capital gains distributions on mutual fund shares she has held for 4 months, the investor will pay: A) no tax until she liquidates the shares. B) ordinary income tax rates on the capital gains and dividends. C) long-term or short-term capital gains rates, depending on the length of time the customer has held the fund shares. D) capital gains rates on capital gains distributions and ordinary income rates on dividends.
D) Capital gains rates on Capital gains distributions and ordinary income rates on dividends Capital gains distributions are taxed as capital gains, with their holding status depending on how long the fund has held the securities, not how long the investor has held the mutual fund shares. Dividend distributions are taxed as ordinary income.
A customer writes 1 ABC July 60 put at 3 when ABC is at 61. ABC subsequently declines to 54 and the option is exercised. If the customer later sells his long stock position at 58, the customer has a: A) gain of $400. B) loss of $400. C) loss of $100. D) gain of $100.
D) Gain of $100 The investor receives $300 for writing the put, then pays $60 per share to acquire the stock when the put is exercised, giving him a cost basis of $5,700. Because the stock is later sold for $58, the investor ends up with an overall gain of $100 ($5,800 - $5,700).
Debt service on an industrial revenue bond is secured by: A) sales taxes. B) ad valorem taxes. C) special assessments. D) lease payments paid by a corporation.
D) Industrial revenue bonds are issued by a municipality or an authority established by a municipality. No municipal assets or general revenues are pledged to secure the issue. The net lease payments by the corporate user of the facility are the only source of revenue for debt service.
A market order to buy should be executed at the a) Highest Bid Available b) Lowest Bid Available c) Highest Offer Available d) Lowest Offer Available
D) Lowest Offer Available
A corporation is in the process of issuing stock has not filed a registration statement with the SEC. An account executive may do which of the following relating to the new issue? a) Accept money from customers b) Obtain indications of interest c) Guarantee to customers that they will be able to purchase 1,000 shares of the new issue d) Nothing.
D) Nothing
What is a bank-qualified municipal issue? A) An escrow receipt. B) One considered safe enough for a bank to invest in-same as investment grade. C) One in which the bank guarantees the payment of interest and principal. D) One that receives preferential treatment by allowing a bank to exclude from gross income 80% of the interest expense incurred to carry the bond
D) One that receives preferential treatment by allowing a bank to exclude from gross income 80% of the interest expense incurred to carry the bond A bank-qualified municipal issue is one that receives preferential treatment by allowing a bank to exclude from gross income 80% of the interest expense incurred to carry (issue) the bonds. An issue is qualified if it is for a public purpose and the issuer issues no more than $10 million in the calendar year of the issue. Bank qualified has no bearing on the quality of the issue.
The interest on which of the following municipal securities may be considered preference income for alternative minimum tax purposes? A) PHAs. B) Original issue discount bonds. C) TANs. D) Private purpose bonds. Your answer, TANs., was incorrect. The corre
D) Private Purpose Bonds Interest on private activity municipal bonds is included in the taxable income of an investor who is subject to the alternative minimum tax.
Which of the following would have the least market risk? A) Fannie Maes. B) Corporate or municipal bonds with long-term maturities. C) AAA corporate debentures. D) Revenue anticipation notes.
D) Revenue Anticipation Notes Anticipation notes are the shortest term, which gives them the least market risk (the risk that price will fluctuate during the time left to maturity).
The visible supply includes all of the following EXCEPT: A) industrial development bonds. B) revenue bonds. C) GO bonds. D) municipal notes.
D) Short-term notes are not part of the visible supply, which measures the dollar amount of new issues scheduled over the coming month.
In a mutual fund portfolio, it is permissible to buy all of the following EXCEPT: A) index options. B) junk bonds. C) shares of other mutual funds. D) stock on margin.
D) Stock on Margin Mutual funds may not purchase securities on margin because, in the event of a margin call, they have no recourse to investors' funds. A fund is not prohibited from buying options, low-quality bonds, or any other mutual funds.
A letter of intent for a mutual fund does NOT contain which of the following provisions? A) The time limit is 13 months. B) The letter can be backdated 90 days to include a previous deposit. C) The fund will keep some of the initially issued shares in an escrow account to ensure payment of the full sales load. D) The fund can halt redemption during the period of time the letter of intent is in effect.
D) The fund can halt redemption during the period of time the letter of intent is in effect. A letter of intent is not binding on the client in any way. Should the client decide to liquidate the account before completing the letter, the company will reduce the redemption by the amount of shares held in escrow.
All of the following must be considered by an investment adviser representative before recommending a municipal security to a customer EXCEPT: A) Municipal security's rating. B) Customer's state of residence. C) Customer's tax status. D) The municipality's coverage ratio.
D) The municipality's coverage ratio The coverage ratio is specific to revenue bonds only and tells how many times annual revenue from that issue will cover the debt service of the issue. It is not a factor of suitability to be considered when recommending a municipal bond but more of a factor to consider when comparing two municipal revenue bonds. The customer's state of residence and tax status are essential when determining suitability for a municipal security. The security's rating is also important because it measures the overall safety and quality of the bond.
Methods used to raise capital include: a. Debt Financing b.Grants c. Equity Financing d. Both A and C
D) The two basic methods used by corporations to raise capital include Debt financing and Equity Financing.
A customer establishes the following positions: Long 1 ABC Jun 25 call at 2 Long 1 ABC Jun 25 put at 2 What is the customer's expectation of the stock price between now and expiration? A) Bearish. B) Neutral. C) Bullish. D) Volatility.
D) Volatility The investor has purchased a long straddle (both a call and put with the same strike prices and expiration months). While straddle investors are uncertain about the market's direction, long straddles require substantial price movement (volatility) for profit because the two premiums paid must be recovered. In this example, the market must either move up by 4 (total premiums paid) or down by 4 to reach breakeven. For profit, the market must be above or below the breakeven points.
If a Nasdaq market maker is selling stock to a customer from inventory and the firm has held the shares to be sold for several months, what price should the dealer use as a basis for a markup? A) Price at which it purchased the securities. B) Broker/dealer's own current offer price. C) Offer price shown in the electronic "OTC Pink" on the day of the current sale. D) Best offering price quoted in the interdealer market.
D) Your answer, Best offering price quoted in the interdealer market., was correct!. FINRA rules require that a dealer's markup to a customer be based on the current market rather than the dealer's cost in an active, competitive market. The dealer's potential loss on inventory is considered to be a risk of making a market.
Which of the following statements regarding municipal bonds with call provisions are TRUE? Call provisions are advantageous to the issuer. Call provisions are advantageous to the investor. Bonds are likely to be called in a falling interest rate environment. Bonds are likely to be called in a rising interest rate environment. A) II and III. B) I and IV. C) II and IV. D) I and III.
D) Your answer, II and IV., was incorrect. The correct answer was: I and III. Municipal bond call provisions are advantageous to issuers because they provide the ability to redeem bonds before maturity to reduce fixed costs. Issuers call bonds when interest rates are falling. They issue new bonds at the new lower rate to raise the funds to call the outstanding bonds with the higher rate.
A customer of your broker/dealer is bullish on US equity securities across a broad spectrum of industries. He would like to participate in an anticipated upward movement of an equity stock index. Which of the following investments would you recommend as being closely related to the movement of equities in general? A) American depositary receipts (ADRs) B) Standard & Poor's depository receipts (SPDRs) C) Real Estate Investment Trusts (REITs) D) Variable rate demand obligations (VRDOs)
Your answer, Standard & Poor's depository receipts (SPDRs), was correct!. The spider (SPDR) is an index fund designed to replicate and track the performance of the S&P 500, a broad based equity index. Reference: 10.10.1 in the License
A customer who buys 1 CDE Oct 60 call at 4 and sells 1 CDE Dec 60 call at 6 has created a: A) calendar spread. B) price spread. C) long straddle. D) combination.
Your answer, calendar spread., was correct!. Long a call and short a call is known as a call spread. If the strike prices are the same and the expiration months are different (Oct and Dec), it is a calendar spread. Calendar spreads are sometimes called time spreads or horizontal spreads.
Joe Miller has held restricted stock for 6 months. When must Joe file a Form 144 with the SEC to sell stock publicly?
at time of sale.
An investor purchased an 8% bond which matures in 10 years at 95. This bond was purchased at: a) Premium b) Discount
b) Discount A bond selling at 95 is selling less than its par value, which would be 100. A bond selling for less than its par value is selling at a discount. A bond selling for more than its par value is selling at a premium.
Under MSRB Rule G-34, which of the following is responsible for applying for the CUSIP numbers on a new issue of municipal bonds? A) The Bond Counsel B) The Syndicate Manager C) The trustee bank D) The Issuing Authority
b) Rule G-34 requires that the syndicate manager make application for the issue's CUSIP numbers
An investor purchased an 8% bond which matures in 10 years at 95. How much did the investor pay for this bond? a)$9.95 b)$95 c)$950 d)$9500
c) $950 A bond selling at 95 is selling for 95% of its par value ($1,000). 95% of $1,000 equals $950
All of the following may be determined by the managing underwriter EXCEPT: a) the takedown b) the public offering price c) the effective date d) the allocation of orders
c) The Effective Date
A corporation is a form of business enterprise that is a
legal entity
