KAPLAN SUCKSS

Which of the following have equity positions in a corporation? I. Common stockholders II. Preferred stockholders III. Convertible bondholders IV. Mortgage bondholders A. III and IV B. I and II C. I and III D. II and IV

B. Common and preferred stockholders have equity, or ownership positions. Bondholders (mortgage or otherwise) are creditors, not owners

With respect to the specific commodity that is the subject of the contract, all of the following are standardized parts to an exchange-traded futures contract EXCEPT A. The quality B. The market price C. The time for delivery D. The quantity

B. It is the delivery price which is standardized, not the market price (that is continuously fluctuating). Exchange-traded futures contracts offer standardized quantities and qualities (grade of the commodity) as well as a standardized time for delivery

Which of the following statements correctly expresses requirements under the Investment Company Act of 1940? A. No registered investment company may acquire less than 3% of the shares of another investment company B. No investment advisory contract may be entered into that does not provide for termination with no more than 60 days' notice in writing C. A registered open-end investment company using a bank as custodian must choose one that has FDIC coverage D. Renewal of the advisory contract can only be done with majority vote of the fund's board of directors

B. One of the provisions of the Investment Company Act of 1940 is that the maximum permitted termination notice is 60 days in writing. The custodial bank does not need FDIC coverage and the 3% limit is the maximum, not a minimum. In order to renew the advisory contract, it is either a majority of the funds directors or by a vote of a majority of the outstanding voting securities of the fund

Among the reasons to consider investing in a variable annuity would be all of the following EXCEPT A. Basically, no limit on the amount that can be contributed B. Avoiding probate upon the death of the investor C. Capital gains treatment on any realized gains upon withdrawal D. A guaranteed death benefit for death before annuitization

C. In return for granting tax deferral on all gains in the account, the IRS taxes everything over the investor's cost basis as ordinary income. There is never a capital gain with a variable annuity. Some insurance companies will place a limit on the amount that may be invested, especially for older clients, but unlike IRS rules on retirement plans, this is strictly a company-by-company decision, not a law. Variable annuities are generally sold with a death benefit provision guaranteeing that the beneficiary will receive the higher of the amount invested or the current value of the account

When a customer wants income from an annuity and chooses the option of lie with 20-year period certain, how will distributions be taxed? A. As capital gains based on LIFO accounting B. As capital gains based on an exclusion ratio C. As ordinary income based on an exclusion ratio D. Ad ordinary income based on LIFO accounting

C. Life with 20-year period certain is an annuitization option. When an annuity is annuitized, ordinary income taxes are paid based on an exclusion ratio (cost basis divided by expected return = how much of the distribution is a return of cost basis (the original principal invested)

Mr. Brown has received preemptive rights from one of the stocks held in his portfolio. Which of the following is NOT an alternative regarding these stock rights? A. Giving the rights to his son B. Exercising C. Redeeming them from the issuer for cash D. Selling at the market

C. Rights are not redeemable by the issuer. They may be sold in the secondary market or be given to someone else to exercise. If exercised, rights are exchanged for an appropriate number of shares of the underlying common stock

Hermon industries is operating in a sector where the average prospective price-to-earnings ratio is currently eight times. If Hermon's earnings per share are expected to be $0.30 per quarter, the implied value of a Hermon share is closest to A. $8.00 B. $2.40 C. $9.60 D. $7.70

C. The P/E ratio is the relationship between the market price and the annual earnings per share. Because this question stated the quarterly earnings, they must be multiplied by 4 to get to the $1.20 annual rate. Therefore, the shares would be selling at 8 x expected EPOS = 8 x 1.20 = $9.60

Investing in which of the following would maximize after-tax income and diversify the portfolio for a high-tax bracket investor? A. Preferred stock mutual fund B. GNMAs C. A unit investment trust whose portfolio consists of municipal bonds D. Short-term municipal notes

C. The key word here is "diversify". Muni bond UITs will own a number of different tax-exempt municipal issues. Short-term municipal notes, although paying tax-free interest, will not offer as high a return due to the short maturities and do not indicate that there is a diversification as to issuers

The present value of a dollar A. Is the amount of goods and services the dollar will buy in the future at today's rate price level B. Cannot be calculated without knowing the level of inflation C. Indicates how much needs to be invested today at a given interest rate to equal a specific cash value in the future D. Is equal to its future value if the level of interest rates stays the same

C. The present value of a dollar will indicate how much needs to be invested today at a given interest rate to equal a cash amount required in the future

A bond analyst who determines the value of a debt security by adding the present value of the future coupons to the present value of the maturity value is using which of the following valuation methods? A. Dividend discount B. Future value C. Present value D. Discounted cash flow

D

Which of the following are features of Class C mutual fund shares? I. Typically charge no front-end load II. Typically charge a front-end load III. Typically impose lower CDSCs than Class B shares for a shorter period IV. Typically convert to Class A shares after they are held for a defined period A. II and IV B. I and IV C. II and III D. I and III

D. Class C shares generally have the following features: no front-end sales charge, lower CDSCs than Class B shares for a shorter period, and no conversion to Class A shares regardless of how long they are held. Because of these features, Class C shares may be less expensive for investors with shorter time horizons. They may be more expensive for investors who plan to hold their shares for a long time, because the level load never discontinues

Which of the following statements best describes cumulative preferred stock? A. Owners are allowed to vote for directors using the cumulative voting procedures B. Owners receive an extra dividend, along with common shareholders, in addition to the preferred dividend C. Owners lose any claim to dividend that are not paid in any one year D. Owners have a continuing claim to their dividends, and all arrears must be paid any dividends can be paid on common stock

D. Owners of cumulative preferred stock have a continuing claim to their dividends, even when the directors pass a dividend. Their claim accumulates, which means that all past dividends (arrears), as well as current dividends, must be paid before any dividend can be paid on common stock. By contrast, the owners of noncumulative preferred stock lose their claim to dividends that are not paid in any one year

Fundamental analysts give significant credence to financial ratios. Which of the following tends to give an indication of the profitability of the enterprise? A. Price-to-earnings ratio B. Current ratio C. Debt-to-equity ratio D. Sales-to-earnings ratio

D. The P/E ratio reveals the relationship between the market price of the company's stock and its earnings, but it doesn't tell us anything about the degree of profitability of the enterprise. If we know that the P/E ratio compares the price to the earnings, then it makes sense that the sales-to-earnings ratio compares to net sales of the business with its earnings. Companies with a higher percentage of earnings from each dollar of sales are more profitable.

When determining whether to make an investment in a real estate limited partnership, Bill is concerned with the discount rate that equates the net investment cash inflows to the net investment cash outflows. Which calculation is Bill using to make this prudent investment decision? A. Duration B. Future value C. Net present value D. Internal rate of return

D. The internal rate of return (IRR) is the discount rate that, when applied to the cash flows of an investment, equates the net cash inflows to net cash outflows. if the IRR calculated is greater than or equal to the investor's required rate of return, then the investor should consider making the investment, all other factors being equal. If the IRR is less than the investor's required rate of return, the investment should not be made

An investor is looking for a packed product that can provide rental income as well as potential capital gains. You would most likely recommend A. A growth mutual fund B. A GNMA pass-through C. A mortgage REIT D. An equity REIT

D. When you see "rental," you immediately think of renting real estate. Of the two basic types of REITs, an equity REIT is the one that owns property. Rental income received from the users of those properties. As an owner of real estate, there is always potential to sell the property for a gain. Think of the difference between an equity REIT and a mortgage REIT