unit 2

A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the security's 5-year term, the inflation rate is 4%. What is the amount of the final semiannual interest check?

$21.33. Because the principal increases with the inflation rate, at the end of the 5-year term, it has grown to $1,219 ($1,000 × 102% ten times). Therefore, the final interest check is for $1,219 × 1.75% (remember it is a semiannual check).

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

101-¼.

hedging with options is

A long stock position is hedged with a long put. A short stock position is hedged with a long call.

When does a customer have to receive the OCC Options Disclosure Document?

Before accepting the customer's first order to trade options covered by the ODD

Your customer is asking if either exchange-traded funds (ETFs) or exchange-traded notes (ETNs) might be suitable investments for his portfolio. The customer makes several statements regarding his understanding of the products, but only 1 of them is accurate. Which is it?

ETNs are issued by financial institutions; therefore, I should be concerned about the credit worthiness of the issuer.

What rate of interest would a bank in England charge another British bank for a short-term loan?

LIBOR

Which of the following best describes the death benefit provision of a variable annuity?

The principal amount at death is the greater of the total of premium payments or the current market value.

chartist interested in

The short interest, the volume of shares traded during the past month, The advance-decline line.

An American Depositary Receipt (ADR) is a:

certificate representing ownership of a foreign security that is on deposit at a U.S. bank.

When a corporation issues a long-term bond, one of the factors influencing the bond's interest rate is the credit rating of the issuer. Another factor is the:

cost of money in the marketplace.

An analytical tool used to predict the future price of a common stock using projected dividends is the:

dividend discount model.

Brian is an employee of Toeva Manufacturing Co, (TMC) listed on the CHX. TMC offers Brian incentive stock options on December 16, 2011 to purchase 100 shares of the company's stock at $20 per share. Brian exercises the option on December 22, 2012 when TMC is trading on the CHX at $30. Then, on December 28, 2013, Brian sells the stock for $40 per share. Brian:

has a long-term capital gain of $2,000.

Treasury bills are:

issued in book entry form.

All of the following are common to both DPPs and REITs

pass-through of income. centralized management. capital gains distributions.

When comparing exchange-traded funds (ETFs) to mutual funds, some features available in ETFs that are NOT found in the mutual funds would include the ability to:

sell short. be bought and sold on margin.

When doing cash flow analysis on a mortgage-backed pass-through security, you would want to know:

the average maturities.

Flexible premium payments are a feature of:

universal variable life.

A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client?

Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis.

Regarding open-end investment companies, what is based on the NAV per share?

Redemption fee

the following statements regarding investment companies is true?

When investors sell or redeem their open-end fund shares, they receive the net asset value (NAV) as of the close of the day the order was issued, When an open-end investment company, or mutual fund, registers its offering with the SEC, it does not specify the exact number of shares it intends to issue, the Investment Company Act of 1940 classifies investment companies into three types: face-amount certificate companies, unit investment trusts, and management investment companies.

In general, the most common form of organization chosen by hedge funds is

a limited partnership

A high net worth client expresses an interest in adding a hedge fund to her portfolio and asks for your advice. Among the points you could make is that

adding the hedge fund increases the portfolio's diversification

Under industry rules, customers who wish to trade options must receive a copy of the options disclosure document (ODD)

at or before account approval

A retiree contacts an agent to discuss investing his retirement savings of approximately $2.1 million; his investment objective is long-term growth. The representative and customer discuss the advantages and disadvantages of diversifying among 5 different mutual funds within 2 fund families, as opposed to purchasing just 1 fund. Consequently, the agent made the following purchase recommendations: XYZ Emerging Growth Class B $495,000. XYZ Research Class B $310,000. XYZ Investors Growth Stock Class B $495,000. ABC Capital Enterprise Class B $495,000. ABC Capital Opportunity Class b $310,000. Total $2,105,000. These recommendations are:

unsuitable because Class A shares in either (or both) fund family could be purchased for a sales charge breakpoint discount at or near zero percent.