Series 7 - Missed Questions

A US government bond quoted at 94.20 - 95.08 has a bid price of what? What does the investor pay?

$946.25 ($940 + 20/32 x $10) $952.50 ($950 + 8/32 x$10)

When does the NASD Segregation Rule apply?

1. Fully-paid securities purchased in a margin account 2. Securities held by the B/D in a margin account in excess of 140% of the client's debit balance (rehypothetication)

Independant underwriters must have how much experience to able to help bring a company public?

3 offerings in the last 3 years & 50% size and type of current company's offering

What is the maximum civil & criminal penalties for insider trading?

3x the amount gained/loss avoided & $5 million fine and/or 20 years imprisonment

What is the required minimum percent of disinterested directors in an investment company?

40%

What is the Treasury maintenance requirement?

5%

What act requires financial institutions to develop and implement procedures to prevent fraud?

Act of 1934

An investor puts in $10K into a $1 million DPP + recourse financing. What is the investor's cost basis?

$100K (10% of $1 mill - $100,000 = $900,000; .10 x $900,000 = $90,000; $10,000 + $90,000 = $100,000)

$1 of SMA is equivalent to what?

$2 of stock or $1 of option premiums

The maximum penalty on a business for false information to the SEC is what?

$2,500,000

Short 100 sh. FBN @ 50; MP = 30. What is the investor's equity in the short account?

$4,500 (Reg T of $2,500 + Profit of $5,000 = $7,500 total credit CMV down to $3,000 $7,500-$3,000 = $4,500)

CMV: $55,000; Debit: $30,000; SMA: $5,000. After withdrawing SMA, and if market value drops at what point will they be subject to a maintenance call?

$46,666/67 ($30,000 + $5,000 / .75)

SPIC coverage

$500,000 per customer; $250,000 for cash accounts

Total tax liability on $2 million pre-tax income of $100K dividends at a 34% tax bracket

$690,200 (dividend exclusion is 70%; $100,000 x .70 = $700,000 x (100-34%))

A beginning investor with limited funds wanting immediate exposure to a variety of investments, should consider what?

Fund of funds

Where must customer complaints received by NYSE member be maintained?

Home Office & must keep both written and oral complaints

What is considered unfair compensation to underwriters?

Issuer selling shares below POP to them from their own account & if the issuer gives the syndicate members warrants letting them purchase shares for the next 10 years at a set price (OK to offer shares before effective APO date)

Recourse debt

Increases each limited partner's cost basis

Russell 2000 Index

Index with a broad range of small-cap companies

Investment Advisor Fee

Part of a fund's operating expenses

Subchapter S Corporation or Limited Partnership investors are called what?

Participants

What are FINRA's main functions?

Self-regulation of OTC, self-regulation of national exchanges, monitoring compliance with rules of ethical practice (does NOT approve SEC rules)

What bonds are priced with basis points?

Serial bonds (EE, II, HH)

Issued stock

Stock actually sold

Registered secondary offerings can occur when?

When a party other than the issuer receives the proceeds from the offering

What is the cost basis on a 403(b)?

$0 (no taxes have been paid - at withdrawal the customer will be taxed at ordinary income)

Margin account with $11,000 market value, $4,500 debit balance. How much excess equity is there?

$1,000 (MP x 50% - (MP - debit))

Flow of funds governed by Gross Revenue Pledge-

1. Debt Service/Sinking Fund 2. Operations & Maintenance 3. Reserve Funds 4. Renewal and replacement funds

Flow of funds governed by Net Revenue Pledge-

1. Operations & Maintenance 2. Debt Service/Sinking Fund 3. Reserve Funds 4. Renewal & Replacement Fund

Typical flow of a customer's order through a B/D office-

1. Wire Room 2. Purchases & Sales 3. Margin Dept. 4. Cashier

Technical Analysis Indicators

200 day moving average, put/call ratio, short interest

A public corporation Director wants to sell company stock. The SEC Rule 144 holding period requires him to wait how long?

6 months

Double-barrel bond

A GO bond with unstable revenue sources (taxing authority of the municipality guarantees debt service payment in event of failure)

Market orders charge what?

A markup

Head & Shoulders Formation indicates what?

A reversal of an upward trend; good time to sell calls

Paid in capital surplus

Amount in excess of par paid on new issue common stock

Warrants

Are issued at a premium and have NO intrinsic value

If market price stays stable on the underlying stock, when does the investor realize a loss?

As a buyer because low volatility creates a loss

In a call spread, at what market price is every dollar of gain from the 60 call offset by a dollar of loss on the 70 call?

At 70 the gains are maximized b/c of duty to sell

How best to hedge a portfolio that's growing?

Buy puts

Fannie Mae (FNMA)

Buys government guaranteed/insured mortgages & mortgages from banks. Sells short-term discount notes at $10K + par value with semi-annual interest

How are SEC members appointed?

By the president for 5 year terms. Appointment is accompanied by advice & consent from Senate & they must engage in the Commission full time

A condemned building related to a Muni Rev. Bond can expect what?

Catastrophe call provision

Retired investors with stock, should invest it in what kind?

Defensive stock

Nonrcourse debt

Cannot be lost. The investor is only on the hook for the amount invested - not more

What is the rule when the customer has a proceeds transaction?

Combined proceeds to B/D on sale & purchase should not exceed 5% guideline based on inside buy side

Characteristics of an insurance company's general account

Conservatively invested & legally allowed to deal in options and margin trading

Registrars functions-

Ensures that no more than the authorized shares are in circulation

Coverdell Education Savings Accounts characteristics include

Contributions made with after-tax dollars, all distributions are taxed to the beneficiary if not for education, contributions cease when the beneficiary turns 18, money must be used by age 30 & cannot be rolled into an IRA

Who is responsible for the principal and interest payments on an IDR bond?

Corporate guarantor

Pension portfolio managers may engage in what investing strategies?

Covered call writing - but no other options trading

A fully vested 457(b) plan of a 52 year old. If money is withdrawn, what happens?

Customer must pay income tax - but no 10% penalty

Narrowest Index is-

DJIA

What would a credit analysis on an airport revenue bond include?

Debt coverage ratio, flow of funds, competing facilities

M1 money supply

Demand deposits, NOW accounts and money in circulation

MSRB rule on Muni security quotations states they must have what?

Distribution of and requests for bids & offers

EPS

Earnings - interest x 50% / outstanding shares

What does EPS measure?

Earnings available to stockholders

Characteristics of a SIMPLE Plan

Employers must match contributions up to 3% of employee annual wages

What regulatory body grants time extensions on trades?

FINRA and the SRO (not SEC)

When is a good-faith deposit lost during underwriting?

If syndicate fails to carry out underwriting provisions, when it is applied against payment for the issue & when it is returned to unsuccessful bidders (NOT returned to winning syndicate)

Goodwill falls under which category on a balance sheet?

Intangible assets (NOT current assets)

Variable annuity's separate account is governed by what act?

Investment Company Act of 1940

What is the primary consideration in a DPP?

Investor's net worth

Regulation M

Issuers offering additional share with average trading of $150 million outstanding capitalization & average daily trading volume of $1 million have NO restrictions prior to effective date. Operates under the Conduit/Pipeline Theory to avoid double taxation. (below that $100,000 + is 1 day and even less than that is 5 days)

Bond interest accrual period

Last payment date up to, but not including, settlement date

What is the Additional Bonds Test in a bond indenture related to?

Limits on future bonds

What does the 3rd market include?

Listed stocks trading OTC

A sale of a security in a long margin position account affects?

Market value, debit and SMA (NOT equity)

Moody's MIG rating applies to what debt instruments?

Muni notes (BANS)

Mutual fund redemption fee is based on what?

NAV

Variable Life AIR is...

NOT guaranteed. It is the annual rate of return required to maintain the level of annuity payments estimated in contract

Tape A reports what?

NYSE-listed stocks & rights of NYSE-listed stocks

1035 Exchange

Nontaxable transaction transferring cash - ok for life to annuity (NOT for WL to Term). Capital gains tax not a concern b/c it is deferred

Tender Offer

Offer to buy stock at a price ABOVE current market value

What is the role of a syndicator in a limited partnership?

Organizer and responsible for registering securities

What exchange do foreign currency option contracts trade?

PHLX

What does the Placement Ratio show investors?

Percentage of past week's new municipal bonds that have been placed with underwriters

Primary consideration for investing in an ERISA account.

Potential risk

Defeasance

Pre-refunded/advance refunding of bonds

Characteristics of a SEP IRA

Qualified plan, maximum allowable deductible contributions are greater than for a personal IRA, flexible contributions with immediate vesting

What info is on Pink Sheets?

Quotes on non-NASDAQ OTC stocks

What type of company does not provide limited liability for its owners?

Real estate partnership (assumed GP with unlimited liability)

How do stock dividends affect shareholder equity?

Reduce earnings, increase outstanding shares

Regulation S

Regulates off-shore sales of restricted stock

Freddie Mac

Restricted to buying conventional residential mortgages from financial institutions backed by government agencies. Sells pass-throughs & participation certificates at $25K with semi-annual interest

Cash flow

Revenue - operating expenses - interest - loan payments (do NOT include management fees)

Taxable income

Revenue - operating expenses - interest - management fees (do NOT include loan payments)

What governments can issue Eurodollar bonds?

Sovereign, state and local, & foreign (not US government)

Under the Wash Sale rule a loss on the sale of a security is deferred if, what?

The customer sells a put (if unexercised, they'll collect the prem as a gain & deduct the rest as a loss)

What is NOT used to calculate bond price?

The dated date (only used on new issue bonds)

Alpha

The difference between beta & actual return obtained from an investment

Ginnie Mae (GNMA)

Timely payment of principal & interest guaranteed. Issues $25K with monthly interest. Sells modified mortgage-backed pass-throughs. Buys FHA, VA & Farmer's Home Admin insured mortgages

When would a fundamental analyst use technical analysis techniques?

To determine timing & security price

Why do trades report within 20 seconds on the NASDAQ?

To provide current info to the investors

Who is responsible for customer name and address changes?

Transfer Agent

Characteristics of Dollar Cost Averaging Plans

Voluntary plans, have a minimum periodic investments, over time investors' cost per share is less than the average POP, does NOT protect against loss in declining market & does NOT guarantee profits

Broadest Index is-

Wilshire

Reduced Basis formula

cost basis - loss - depletion - distribution

What kind of instrument is an ELK?

debt instrument