Midterm questions: (series 7)

An investor would like to market an intermediate term investment in a debt security whose duration is equal to its maturity.

A zero coupon bond is the answer

All of the following securities are issued at a discount EXCEPT; - commercial paper -CDs -T Bills -zero coupon bonds

CDs because CDs are interest-bearing debt instruments issued by banks at their face value.

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

Financial strength. Bond ratings measure the issuer's ability to repay principal and interest

Which of the following is an issuer of federal agency securities

The Tennessee valley authority

An individual younger than age 70.5 may contribute to a traditional IRA

If she has earned income. Bc even minors can contribute

Sam Brown has several stock rights. Which of the following is NOT an alternative regarding these stock rights?

Redeeming them from the issuer for cash

For US investors holding American despositary receipts (ADRa( dividend received are

Subject to a foreign withholding tax

With regard to a variable annuity, all of the following may vary except

THE NUMBER OF ANNUITY UNITS

Shakirah buys a TIP bond with a 3% coupon, during the first year, if inflation rate is 8%, the principal value of the security at the end of that year will be closest to

$1,081.60 Bc the principal value of a TIP bond is adjusted semiannually by the inflation rate, the exact calculation would be $1,000 X 104% x 104%, which equals 1,081.60 Calculate 1000 x 8% then choose the answer that is higher than ur calculated price

ABC Corp. has outstanding a 10% non cumulative preferred stock. Two years ago, ABC omitted its preferred dividend, last year, it paid a dividend of $5 per share. In order to pay a dividend to common shareholders, each preferred share must be paid a dividend of?

$10 The stated dividend is 10% or $10 in the question 10% x par of $100 is $10

*****a customer has invested a total of $10,000 nonqualified deferred annuity through a payroll deduction plan offered by the school system where she works. The annuity contract is currently valued at $16,000, and she plans to retire. On what amount will the customer be taxed if she chooses a lump sum withdrawal?

$6,000. Payments into a nonqualified deferred annuity are made with after tax money, taxes only must be paid on the EARNINGS

Trade confirmations must show YTC in which of the following bonds? - 6.5% at par, callable 2025, maturing 2059 -6.5%, 7% basis, maturing 2038 -5.5%, 5 basis, maturing 2038 -5.5%, 5.5% basis, maturing 2038

5.5%, 5 basis, maturing 2038 Is the only right answer because jt is the only one trading at premium, when a bond is trading at premium, it must disclose YTC.

An investor wishes to open a cash account and give trading authorization to a sibling. The required documentation would include which of the following?

A limited power of attorney.

In a variable life annuity with 10-year period certain, a contract holder receives

A minimum of 10 years of variable payments, followed by additional variable payments for life. The owner of a life annuity with 10 year period certain will receive payments for life, subject to a minimum of ten years. If the contract holder does before the period expires, the remaining payments are made to the beneficiary. If a contract holder of a life annuity with ten year period certain died after five years, payments would continue for five more years to the beneficiary and then STOP

Which of the following investment companies registered under the investment company act of 1940 can include senior securities in its capital structure?

Close end management investment companies. Bc they are legally permitted to issue senior securities (bonds n stocks)

Investors who are subject to AMT must have which of the following preference items added to adjusted gross income to calculate their tax liability?

Interest on a private purpose municipal bond. On the exam, whenever you see a private purpose municipal bond, the interest on the bond is tax preference item for the purpose of the AMT

The unqualified legal opinion on a municipal bond states that:

The issuer has the authority to issue bonds that are legal, valid, and enforceable obligations of the issuer. In the case of tax-exempt bonds, the interest the issuer will pay on the bonds is exempt from federal taxation and the bonds are exempt from federal registration requirements.

In a scheduled premium variable life insurance policy,

The minimal cash value is NOT guaranteed

An investor owns a 6% bond issued by ABC corporation that is callable at 102 (1,020) next May first, all of following statements are true regarding the call EXCEPT -it is likely that once the bond is called, the investor will also be exposed to reinvestment risk -when bonds are called, they are usually called at a premium to par -the bond is probably being called by the issuer because interest rates went up -up until May 1, the investor has call protection

the bond is probably being called by the issuer because interest rates went up. When interest rates fall, look for a call. If interest rates fall to say 4% the issuer would want to get rid of the 6% debt and perhaps issue a new bond at the 4% rate.

All of the following would be reasons for an employer to choose a NONQUALIFIED PLAN over a qualified plan EXCEPT: - the nonqualified plan is NOT subject to ERISA reporting and disclosure requirements. - the nonqualified plan provides greater flexibility - the nonqualified plan can discriminate in favor of highly compensated employees -the nonqualified plan provides an immediate income tax deduction for the employer

-the nonqualified plan provides an immediate income tax deduction for the employer

****Which of the following statements concerning section 529 plans are true?

- qualifies withdrawals are exempt from federal income tax -up to 10,000 per year can be used for K-12 tuition expense The money invested in a section 529 plan is always AFTER TAX DOLLARS

*** a registered investment company whose share price fluctuated independently of its net asset value is most likely

A closed end fund. Closed end funds share prices can differ significantly from their NAV. Open end (mutual funds) are purchased and redeemed at their NAV. UITs are redeemable at NAV

When it comes to issuing a debt security, which of the following features will generally enable the issuing corporation to borrow at the lowest interest rate?

Convertible

Interest received from which of the following federal agency securities is exempt from all state and local taxatikn

Farm credit system bonds. A key to remembering this is that any agency with the title mortgage is fully taxes

Among the requirements of regulation SP is that a broker dealer must provide an initial and annual privacy policy statement to

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