4311 unit 1 + 2 review

Which of these is in correct order of priority for a corporate liquidation? A) Guaranteed bond, secured bond, debenture, common stock B) Secured bond, debenture, subordinated debenture, common stock C) Convertible bonds, participating preferred stock, common stock, subordinated debentures D) Subordinated debenture, participating preferred stock, common stock, convertible preferred stock

B: Any debt issue is superior to any equity issue. Any preferred stock is senior to any common stock. A guaranteed bond is unsecured debt, or a debenture.

Jon owns 100 shares of the Bayside Fishing Company. Bayside has 1,000,000 shares outstanding and operates under a statutory voting system. At the next election for the board, there are two open seats. All of these are true except A) Jon has a right to freely transfer his shares. B) Jon has control of 200 votes, which he can cast any way he likes among the two open seats. C) Jon has control of 200 votes, and he can cast up to 100 of those votes for each open seat. D) Jon owns 1/10000 of the Bayside Fishing Company.

B: Jon has control of 200 votes, which he can cast any way he likes among the two open seats. Owners of common stock have a right to vote on several issues (including who sits on the board of directors and the right to transfer their ownership to another person). Jon's 100 shares is 1/10,000 (100/1,000,000) of the company. In a statutory voting system, an owner may vote once per share per open seat. In a cumulative voting system, the owner has a number of votes equal to the shares they own multiplied by the number of open seats, and may cast them any way they choose among the open seats.

The United States Supreme Court decision that provided our current definition of a security is A) SEC v. Lorenzo B) SEC v. Howey C) County of San Francisco v. State of California D) Hawkins v. Florida

B: The Howey decision (SEC v. Howey, 1946) gives us our current four-prong test, which defines what a security is. SEC v. Lorenzo is a recent case involving fraud. The other cases are made up. LO 1.a

An American depositary receipt is a A) domestic security trading in foreign markets. B) foreign security representing a domestic security in foreign markets. C) domestic security representing a foreign security in U.S. markets. D) foreign security trading in U.S. markets.

C) domestic security representing a foreign security in U.S. markets. An ADR is a domestic security issued under U.S. law and registered with the SEC. It represents ownership in a non-U.S. security. It is used to ease ownership and trading of foreign securities in U.S. markets and for U.S. customers

Which of these reasons would allow for a municipality to issue revenue bonds easier instead of general obligation bonds? Revenue bonds do not require voter approval. Revenue bonds generally have a higher rating than GO bonds from the same issuer. Revenue bonds are not constrained by a statutory debt limit. Revenue bonds are supported by ad valorem taxes. A) II and IV B) I and III C) I and IV D) II and III

1 and 3 Because revenue bonds are designed to be self-supporting from the revenue derived from the project funded by the bonds, voter approval is not required. On the other hand, because GO bonds are backed by taxes, such as ad valorem taxes, voter approval is generally required and there is a debt ceiling or limit imposed on the issuer

Which of these Treasury securities is in correct order of shortest to longest maturities? A) Bills, notes, bonds B) Notes, bonds, bills C) Notes, bills, bonds D) Bonds, notes, bills

A bills notes bonds

Equity is to debt as A) stock is to bond. B) stock is to preferred stock. C) hedge fund is to mutual fund. D) stock is to mutual fund.

A stock is to bond

Squidco, Inc., is issuing 100 million dollars in 4 ½% bonds maturing in 20 years. When purchased at issue, the buyers will receive an additional security that allows them to purchase 20 shares of Squidco common stock at $50 a share, anytime in the next 10 years. Squidco common is currently trading at $29.95 a share. This is an example of a A) stock right. B) follow-on offering. C) warrant. D) call.

C: warrant A warrant is normally issued attached to a fixed-income security to attract more interest in the debt issue. Warrants are generally longer term (five or more years) and have an exercise price that is higher than the current stock price.

An example of an independent broker-dealer is: FINRA BoA Merrill LYnch Charles Schwab Morgan Stanley

Correct! Charles Schwab

In the context of broker-dealer registrations, a principal differs from a representative because: a principal does not require the SIE exam for registration . a representative trades with clients money, while a principal is in a management position. Answer A principal must be sponsored by a full-service investment bank. a principal requires a CPA or CFA designation.

Correct! a representative trades with clients money, while a principal is in a management position. Correct Answer A principal must be sponsored by a full-service investment bank.

`Which of these statements regarding Treasury bills is correct? A) They are issued with initial maturities of 3, 12, 24, and 50 weeks. B) They have the highest interest rate risk of all Treasury securities. C) They are usually issued at a slight premium to par value. D) Treasury bills are the only type of Treasury security issued without a stated interest rate.

D treasury bils are theonly tyope of treasury secuity issued wihtout a stated interest rate Treasury bills are always issued at a discount, without a stated interest rate. Receiving par value back at maturity represents the interest income to the investor. Because of their short-term maturities, they have the lowest interest rate risk for Treasury securities, not the highest. T-Bills are issued in initial maturities of 4, 13, 26, and 52 weeks.

All of the following statements regarding penny stocks are true except A) established customers of the firm need not sign a suitability statement. B) the SEC rules require that prospects, before their initial transaction in a penny stock, be given a copy of a risk disclosure document. C) if an account holds penny stocks, broker/dealers must provide a monthly account statement to the customer. D) penny stock rules apply to both solicited and unsolicited transactions.

D) penny stock rules apply to both solicited and unsolicited transactions.

Which of these is not backed by the full faith and credit of the U.S. government? A) Treasury STRIPS B) Treasury bills C) Treasury receipts D) Treasury bonds

trasury receipts Treasury bills, bonds, and notes are backed in full by the U.S. government. Treasury STRIPS are also backed in full by the U.S. government but Treasury receipts are not because they are issued by broker-dealers. Therefore the government's backing can only be as good as the credit rating of the broker-dealer that issued them.

Morgan Stanley is an example of: a discount broker-dealer. a self-regulatory agency. a retail broker. wirehouse broker dealer

wirehouse broker dealer

A wirehouse firm is best described as: buys or sells securities, but only for clients a full-service broker-dealer. a discount retail broker-dealer. issues variable annuity products.

a full-service broker-dealer

The Alta Loma High School District is asking voters to approve a bond to fund the purchase of new computers and software. The bond will mature in 40 years and the interest and principal payments will be funded from real estate taxes. This is an example of a A) a debenture. B) an equipment trust bond. C) revenue bond. D) GO bond.

a go bond If a municipal bond requires a vote it is most likely a GO bond. Generally revenue bonds do not require a vote (note that there is no revenue generating source here). Debentures and equipment trust certificates are issued by corporations, not municipalities

Lando Entertainment, Inc., issues a bond collateralized by a trust holding the company's Las Vegas headquarters. This type of bond is called a A) mortgage bond. B) collateral trust bond. C) guaranteed bond. D) headquarters debenture.

a mortage bond A secured bond backed by real estate is called a mortgage bond. Collateral trust bonds hold other securities in trust as collateral. A guaranteed bond is an unsecured bond backed by a third party. A headquarters debenture is a fictional thing.

Treasury bond (T-bond) interest is stated as a percentage of the purchase price. a premium over the price paid. a discount to the face value. a percentage of par value.

a percentage of par value.

If you got a job as a muni bond analyst, which of the following designations or exams would be most useful for you? Series 7, series 24, and a CPA designations Series 3, CPA and CFP designations SIE, Series 63, and a CFA designation Series 24, series 99, and ADPA designation

SIE, Series 63, and a CFA designation

If you got a job advising clients on what stocks to invest in for retirement, which of the following designations or exams would be most useful for you? SIE, CPA and CAMS designations SIE, series 7, and CFP designation SIE, Series 63, and a CFA designation Series 50, series 3, and CFA designation

SIE, series 7, and CFP designation

Which of the following is not necessarily a security? bonds issued by the state of Texas. common stock in Tesla. US dollars. an exchange traded fund (ETF).

US dollars.

Evan is a 75 year old customer with $100,000 to invest. He would like the money to generate additional income. He relates that he intensely hates paying taxes and dislikes the government in general. He is, however, interested in tax-free municipal bonds. All of these are important to gather before making a recommendation except A) the makeup of his portfolio. B) why he hates the government. C) his current tax bracket. D) his liquid net worth.

WHY HE HATES THE GOVT

Your customer calls you with a question. They tell you that they received a phone call from the bond desk telling them that they bought 20 bonds at 100. They want to know how much they paid for the bonds before any commission or other charges. You tell them A) $20,000. B) $1,000. C) $200,000. D) $2,000.

a 20k 100 means they paid 100% of par ($1,000) per bond. They purchased 20 bonds, so the total amounts to $20,000. Note that the question asked how much they paid for the bonds, not the price per bond. LO 2.a

Your customer is a resident of the state of Utah. She owns bonds issued by Puerto Rico. The interest from these bonds is A) tax free at all levels for U.S. citizens. B) taxable at the state and local level because she is not a resident of Puerto Rico, but still tax free at the Federal level. C) taxable at the state level only. D) taxable at all levels because the bonds are not issued by a state.

a tax free at all levels for us cotizens

Which of the following is true about individual registration with FINRA? a. Requires a candidate to pass the the SIE test, a "series" test, a U-4 form, and to be sponsored by a broker-dealer employer b. Requires a online course, a fee, a background check, and 3 exams. c.Requires only an online course and a fee d. Requires a candidate to pass the the SIE test, an undergraduate degree in Finance, and to be sponsored by a broker-dealer employer

a. Requires a candidate to pass the the SIE test, a "series" test, a U-4 form, and to be sponsored by a broker-dealer employe

All of the following are considered securities except A) U.S. minted gold coins. B) Treasury bonds. C) common stock of XYZ corporation. D) 15 British pound put contracts.

a. US minted gold coins Stocks, bonds, and options are all examples of securities. Gold and gold coins are a commodity, not a security.

In 2011, RST Corp. had both common stock and $100 par value 4% noncumulative preferred stock, outstanding. The preferred stock, like the common stock, pays dividends on a quarterly basis. Because of financial difficulties, the company stopped paying dividends after 2011. After resolving its problems in 2015, the company resumed dividend payments in 2016. Before paying the first quarterly common stock dividend that year, the company would have to pay a quarterly dividend to the preferred stockholders of A) $1.00. B) $17.00. C) $20.00. D) $4.00.

a: 1 n the case of a noncumulative preferred stock, skipped dividends are forever lost. So, when the company is able to pay a dividend, which is always the case, it must pay the current preferred dividend prior to paying common. The question states that dividends are paid quarterly. Therefore, the quarterly dividend on a stock paying $4.00 annually would be $1.00—an amount that must be paid before the quarterly common dividend can be paid.

For this election cycle, Big Trucks, Inc., has three open board seats. Big Trucks operates under a cumulative voting system. Your customer owns 300 participating preferred shares of Big Trucks. He has A) no voting rights. B) 900 votes he can divide anyway he wants among the three seats. C) 300 votes each for the open seats. D) 300 votes total to spread among the three open seats.

a: NO VOTING RIGHTS Your customer owns preferred stock. Preferred stock carries no voting rights.

Your client holds ADRs of Daikon Motors, Inc., an automobile manufacturer based in Asia. All of these are true about the position except A) they have the same voting rights as an owner of the common stock. B) the security may be traded in U.S. markets. C) they have the right to request the underlying common shares be issued to them directly. D) they will receive dividends in U.S. dollars.

a: they have the same voting rights as an owner of the common stock. It is important to remember that American Depositary Receipts (ADR) are issued by a depositary bank and the bank is the registered owners of the shares. Depository banks are not required to pass voting proxies through to the ADR holders.

A call or put that can be exercised before expiration is an American-style option. a Western-style option. an Eastern-style option. a European-style option.

americaqn

Which of the following is not a legal requirement for something to be a security? be denominated in US dollars . an expectation of profit involves efforts of a 3rd party. a common enterprise.

be denominated in US dollars

Which of these risks are not normally associated with bonds? A) Business risk B) Purchasing power risk C) Interest rate risk D) Default risk

business risk Business risk is related to the growth prospects of a business and is most closely associated with common stock. Bond prices are subject to changes in interest rates. Default occurs when a company fails to meet its obligations to the bond holders. Most bonds are subject to a loss of purchasing power due to inflation.

The FinPro system is used: a. when a broker-dealer buys securities for a client. b. when a firm issues securities. c. for individual registration with FINRA d.when a CFA designation is granted to a firm.

c

A zero-coupon bond pays interest A) annually and is taxed at maturity. B) semi-annually and is taxed annually. C) at maturity and is taxed annually. D) semi-annually and is taxed at maturity.

c at maturity andis taxed annualy A zero-coupon bond is purchased at a deep discount and pays no interest until it matures; however, the interest is taxed on an annual basis, called phantom income.

All of these dates are declared by the board of directors of a corporation except the A) declaration date. B) payable date. C) ex-dividend date. D) record date

c ex dividend date

All of the following characteristics are true of securities issued by the Government National Mortgage Association except A) they pay monthly. B) they are backed by the federal government. C) they generate tax-free interest. D) they are called pass-through securities because the payments are made up of both interest and principal

c they generate tax free interst gnma interst is fully taxable

Under Rule 144, which of these sales are subject to volume limitations on the number of shares sold? Control person selling registered stock held for 1 year Control person selling restricted stock held for 2 years Nonaffiliate selling registered stock held for 1 month Nonaffiliate selling restricted stock held for more than 6 months A) II and III B) I and IV C) I and II D) III and IV

c: 1 and 2 Control persons are always subject to volume limitations. Nonaffiliates have no volume (or any other restrictions) in the sale of registered stock. If the shares are restricted, the volume limits for nonaffiliates end after 6 months. Registered shares have no Form 144 filing requirement. LO 1.g

Which of these securities would likely provide the greatest potential for capital appreciation? A) A convertible bond B) A preferred stock C) A common stock D) A U.S. Treasury STRIP

c: cs Common stocks would be the most suitable for investors seeking capital appreciation (growth). Bonds and preferred stocks are better suited for conservative investors since each is primarily an income investment and has limited growth prospects.

Preferred shares have: only the characteristics matching those of debt securities. only the characteristics matching those of equity securities. characteristics of both equity and debt securities. characteristics of neither equity nor debt securities.

characteristics of both equity and debt securities.

Which of the following is a money market security? A) A newly issued T-note B) A short-term T-bond mutual fund C) A TAN maturing in 14 months D) A 30-year T-bond issued by the Treasury 29 years ago

d A 30-year T-bond issued by the Treasury 29 years ago money market security is a high quality and highly liquid security with one year, or less, left to maturity. Both the T-note and the Tax Anticipation Note are more than a year form maturity. The mutual fund has no maturity.

Another term for stocks and bonds is A) taxable and tax-free. B) shares and units. C) voting and nonvoting. D) equity and debt.

d equity and debt

Included under the term, equity security, would be A) equipment trust certificates. B) collateral trust certificates. C) debentures. D) participating preferred.

d participating preffered

A customer says they have a diversified portfolio of notes and bonds. This means their portfolio consists primarily of A) equity securities. B) limited partnerships. C) hedge funds. D) debt instruments.

debt instuments

A bond's rating is used primarily as a measure of its A) volatility risk. B) interest rate risk. C) purchasing power risk. D) default risk.

default risk

A 6% corporate bond trading on a 7% basis is trading A) a discount. B) with a coupon rate below 6%. C) a premium. D) with a current yield above 7%.

disocunt The term a 7% basis means that the YTM is 7%. YTM is higher than the coupon rate (6%), so the bond trades at a discount. Current yield must be between the coupon rate and the YTM.

The U.S. federal government is the nation's: smallest borrower and considered least safe credit risk. largest borrower and therefore considered least safe credit risk. smallest borrower and therefore considered best credit risk. largest borrower and considered the best credit risk.

largest borrower and considered the best credit risk.

A corporation that has issued cumulative preferred stock: pays the preferred dividend before paying the interest payments due on its outstanding bonds. pays past and current preferred dividends before paying dividends on common stock. pays only current dividends with no liability for missed or past-due dividends. pays only the current dividends on the preferred, before paying a dividend on the common and then pays any past-due dividends.

pays past and current preferred dividends before paying dividends on common stock.

All of these are debt-security-maturity schedules except A) balloon. B) term. C) serial. D) series

series

U.S. government securities are issued by the U.S. Treasury in book-entry form. the U.S. Treasury with physical certificates evidencing ownership. the Federal Reserve Board (FRB) with physical certificates evidencing ownership. the Federal Reserve Board (FRB) in book-entry form

the U.S. Treasury in book-entry form.

An investor lending money to an entity receives back the principal amount of the loan on the interest payment date. the maturity date. the record date. the payable date.

the maturity date.

The buyer of a call has the right to sell the stock. the right to buy the stock. the obligation to buy the stock. the obligation to sell the stock.

the right to buy the stock.

For collateral trust bonds, all of the following are true except the issuer deposits securities it owns into a trust. a trust serves as a depository holding the securities to serve as collateral. these are unsecured debt securities. securities backing the debt can be securities of either fully or partially owned subsidiaries.

these are unsecured debt securities.

our customer, Eleanor, purchased an InDebt Inc., 5% debenture at a price of 94. It matures in 12 years. What is the yield to maturity? A) 5.73 B) 4.69 C) 5.32 D) 5

5.73 You do not have to calculate YTM for this problem. You could if you really wanted to, but it is not necessary for the question. You do need to recall the bond inverse relationship chart. The bond is trading at a discount so the YTM must be higher than the coupon of 5%; that eliminates two responses. Note that YTM is higher than current yield, and that you do need to calculate CY. The bonds annual interest divided by the price (50/940) is 5.32% (the CY). Only one response is higher than 5.32%.

Five years ago your client purchased at par $100,000 of New Brunswick City GO bonds maturing in 20 years from now and callable in six months. Interest rates have gone down over the last five years. Which of these should your client do? Your client should recognize that the bonds have a high probability to be called. Your client should recognize that the bonds are unlikely to be called. Your client should expect the bond is trading at a large discount. Your client should expect the bonds are trading at a small premium. A) I and IV B) II and IV C) II and III D) I and III

A: 1 and 4 If rates have declined the bonds are likely trading at a premium and very likely to be called at the first call date in six months. The proximity of the call date means the bonds premium will be small.

Which of these would most likely require shareholder approval? A) Changing the corporation's name B) Hiring a new CFO C) Declaring a dividend D) Firing the CEO

A: Changing the corporation's name is a significant matter that will likely need shareholder approval. Declaring a dividend and the hiring and firing of senior executives is well within the board's power. LO 1.c

Big Company, Inc., an NYSE listed manufacturer of large objects, has declared a 50-cent-per-share-dividend payable next month. Big Company also has options available for trade. The actual ex-dividend date will be declared by A) the OTC. B) the NYSE. C) the CBOE. D) FINRA.

B NYSE Ex-dividend dates are set by the market center where trades will likely take place. In the case of an NYSE listed stock, the New York Stock Exchange will determine the ex-date. The fact that Big Company, Inc., has listed options is not relevant to the question. LO 1.d

Your customer, MJ, has a strong preference for investing in equity securities; however, she is hoping to increase the amount of current income her portfolio generates. Which of these is the least suitable for her? A) Generic Motors, Inc., 4 ¾% preferred stock B) Duratech common stock, an exciting new tech manufacturer C) BuyMore, Inc., a big-box retailer with a long history of healthy dividend payments D) Long Beach Electric, a utility

B) Duratech common stock, an exciting new tech manufacturer New, rapidly growing companies tend to pay little or no dividends. The others all sound like decent sources of dividend payments

A CMO consists of A) bonds and money market instruments. B) an FNMA, FHLMC, and other mortgage backed securities. C) different sorts of nonmortgage debt. D) various government backed mortgages

B) an FNMA, FHLMC, and other mortgage backed securities.

Mary owns 8% of Doyle Inc., a publically traded publishing company. She has recently married John, a doctor who owns 3% of Doyle. John wants to sell some of his shares to pay off the debt from the wedding and honeymoon. When he does so he will need to A) file Form 144 because he is a doctor. B) file Form 144 because he is a control person. C) not file Form 144 because only owns 3% and is not a control person. D) not file Form 144 due to the spousal exception.

B) file Form 144 because he is a control person. Because married couples aggregate their position, and collectively the Mary and John own 11% of the company, John is a control person and will need to file Form 144 to sell his shares of Doyle. There is no exception for spouses nor special requirements just for doctors.

American Liquidators Corporation (the ticker is LQDT) has 100 million outstanding common shares. The company would like to raise capital by selling 100 million new shares. In order to do this they must give their existing shareholders an opportunity to buy shares sufficient to maintain the shareholders percentage of ownership. In order to accomplish this they would A) offer warrants to existing shareholders. B) offer stock rights to existing shareholders. C) suggest that existing shareholders go to the market and double their existing position. D) perform a stock split.

B) offer stock rights to existing shareholders. LQDT would give the right to purchase a portion of the newly issued shares to existing shareholders sufficient to maintain their current percentage of ownership via a stock rights offering. Warrants are long term and normally attached to a fixed-income offer. Neither the stock split nor investors buying in the market generates capital for the company.

For investors engaging in the trading of option contracts, which of the following is true? Sellers receive the premium, which represents the right to exercise the contract. Sellers pay the premium and for the right to exercise the contract. Buyers receive the premium, which represents the right to exercise the contract. Buyers pay the premium for the right to exercise the contract.

Buyers pay the premium for the right to exercise the contract.

An investor who is seeking income might choose a corporate bond because A) corporate bond interest is tax free. B) bonds pay a higher dividend than stocks. C) a corporate bond pays a steady income and are generally reliable. D) bonds can grow faster than the rate of inflation.

C) a corporate bond pays a steady income and are generally reliable.

Your customer, Shea, has a large portfolio of bonds and dividend paying stocks. Her primary interest is generating current income. She is trying to understand how taxes work for her T-bonds. You explain that A) the interest from her T-bonds is exempt at the federal level, but she will still owe taxes at the state and local level. B) the interest from her T-bonds is exempt at all levels. C) the interest from her T-bonds is exempt at the state level, but she will still owe taxes at the local and federal level. D) the interest from her T-bonds is exempt at the state and local level, but she will still owe taxes at the federal level.

D:the interest from her T-bonds is exempt at the state and local level, but she will still owe taxes at the federal level.

Your customer asks to buy a bond that carries a very attractive yield. When checking the bond you see that it has a B rating from the major credit rating agencies. When communicating this information to the customer, all of the following terms are commonly used in describing a B rated bond except A) high-yield. B) junk bond. C) lower grade. D) noninvestment grade.

LOWER GRADE Though a B rating is certainly a lower investment grade rating, that is not a typical term used in the industry. All of the other terms are terms normally associated with these bonds carrying a greater risk of default. LO 2.c

Your customer is in the 30% federal tax bracket. They consider purchasing a 7% corporate bond. Their after-tax yield would be A) 10%. B) 2.1%. C) 7%. D) 4.9%.

The formula for the calculation is 7% (corporate rate) × (100% — 30% (tax bracket)). 7 × (1 - 0.3) = = 7 × 0.7