Sie

A Hedge Fund investment would be best suited for which of the following types of investors 1.Senior Investors 2.Accredited Investors 3.Aggresive Investors 4.Qualified Investors

2 and 4

Place the following in order, highest to lowest, in terms of asset distribution if a corporation is liquidated: 1.Preferred stockholders 2.Owners of secured debt instruments 3.Common stockholders 4.Owners of unsecured debt instruments

2,4,1,2

An XYZ Corporation Debenture pays annual interest to its bondholders. The interest is taxable to the bondholders as [A]ordinary income subject to federal and state taxes. [B]a long-term capital gain. [C]ordinary income subject to federal tax only. [D]ordinary income subject to state tax only.

A

The interest rate in a collateralized mortgage obligation: [A]Is paid at the coupon rate over the life of a bond [B]Varies depending on the federal funds rate [C]Is based on variable coupon rates until stated maturity [D]Varies depending on a differential from Treasury bond rates

A

Of the securities listed below, which of the following would have the greatest market risk? [A]Common stock [B]Preferred stock [C]Debentures [D]Zero coupon bonds

A -Common Stock is considered the riskiest of the securities listed. This type of security is the last to receive residual claim on the corporate assets if liquidation occurs.

What of the following would be the effect on a collateralized mortgage obligation (CMO) if interest rates declined? [A]An increase in the market price of the CMO [B]Decrease the market price of the CMO [C]Lengthen the average life by 5 years or more [D]Lengthen the average life by 10 years or more

A A collateralized mortgage obligation (CMO) is subject to interest rate risk and implied call risk. CMOs are fixed income securities, so they are subject to the same effect that all fixed income instruments (bonds) are subject to: their current market prices will rise when interest rates fall. Also, when interest rates go down (including home mortgage rates) homeowners will refinance their mortgages to take advantage of the lower mortgage rates. Consequently, they will pre-pay their existing mortgage prior to maturity and thus shorten (not lengthen) the average life of the CMO that is comprised of these mortgages.

A corporation may issue refund bonds to accomplish any of the following EXCEPT: [A]To increase the capitalization of the company [B]To retire an existing bond issue [C]To reduce its interest costs [D]To take advantage of a substantial drop in interest rates

A A refund is a new bond issue that is used to retire an existing bond issue. Capitalization is the corporation's long term debt, stock and net worth. The capitalization of the corporation would remain unchanged because the amount of the debt would remain unchanged. Refund bonds are frequently issued when there is a substantial drop in interest rated to reduce interest costs

Which statement is correct regarding negotiable CDs? [A]They can be issued as long-term CDs. [B]Minimum deposit is $10,000. [C]No penalties incurred if CD is cashed in prior to maturity.[D]They are guaranteed by the U.S. Treasury.

A The correct statement is they can be issued as long-term CDs, which could have maturities of 3,5, or even 10 years. The other statements are incorrect: minimum deposit is $100,000; penalties will be incurred if cashed in prior to maturity and they are not guaranteed by the U.S. Treasury (but they are by the banks that issue them)

In a normal market, when there is a change in interest rates how do the yield to maturity and the current yield of a bond react? [A]They move in the same direction. [B]They move in opposite directions. [C]They are unaffected by bond price movements. [D]There is no relationship to each other.

A The current yield and the yield to maturity of a bond are always expected to move in the same direction and will both react when there is change in interest rates. The yield to maturity will always make the biggest move up or down because it considers the time to maturity whereas current yield does not consider time to maturity.

hich of the following statements is TRUE with regard to a mutual fund prospectus? [A]It must be part of the SEC registration statement.[B]It states that SEC registration constitutes approval.[C]It may be highlighted to show important information.[D]It is the same as the SEC registration statement.

A The prospectus of a mutual fund must be included in the filing of the registration statement with the SEC.

A stock dividend would be paid on which of the following securities? [A]Common stock [B]Preferred stock [C]Treasury notes [D]Treasury bills

A Treasury notes and bills are forms of debt issued by the US Government. They do not pay dividends and would not pay stock dividends. Normally, preferred stock pays dividends in the form of cash, not stock. It is more typical to have stock dividends with common stocks.

All of the following positions have unlimited gain potential except [A]long put [B]long call [C]long stock and a long put [D]long stock

A if we have a long put position, we would want the market value of the security to decrease. The market value cannot decrease below zero, so we would have limited profit potential. Buyers of Puts want the Market Value to go down because buyers of puts, have the right to sell stock. If the market value of the underlying stock goes down, then we can buy the stock for a lower price than exercise the option and sell the stock for the higher price. For example, if we are long a 50 put and the market value drops to 40 dollars. We can buy the stock at 40 dollars, and then exercise the option to sell stock at 50 dollars.

n a normal market, when there is a change in interest rates how do the yield to maturity and the current yield of a bond react? [A]They move in the same direction. [B]They move in opposite directions. [C]They are unaffected by bond price movements. [D]There is no relationship to each other.

A The current yield and the yield to maturity of a bond are always expected to move in the same direction and will both react when there is change in interest rates. The yield to maturity will always make the biggest move up or down because it considers the time to maturity whereas current yield does not consider time to maturity.

he yield on a convertible bond will decrease when the price of the underlying stock [A]increases. [B]decreases .[C]is at parity with the bond [D]remains unchanged.

A he yield on a convertible bond will decrease when the price of the underlying stock [A]increases.[B]decreases.[C]is at parity with the bond[D]remains unchanged.

Exercising American style or European style options differ in which two of the following ways? a.American style may be exercised anytime before the expiration date. b.American style may only be exercised at expiration c.European style may be exercised anytime before the expiration date. d.European style may only be exercised at expiration.

A and D

he two issuance formats used when Corporate Bonds are issued, are Serial Form and Series Form. In describing Series Form, the issue would have Different issuance dates The same issuance date Different maturity dates The same maturity date [A]I and III [B]I and IV [C]II and III [D]II and IV

A bond issued as Series Form, would have different issuance dates and the same maturity date

A sales load is best defined as the [A]difference between the selling price and the net asset value.[B]commissions paid on the purchase or sale of securities.[C]fee paid to the investment advisor.[D]difference between the expense ratio and the total return of the fund.

A sales load is the difference between the selling price (offering price the public customer must pay) and the net asset value.

Assuming all of the following products are available, which provides the customer with the BEST opportunity to invest in a foreign stock? [A]An American Depository Receipt (ADR) [B]An international fund that includes the stock [C]A global fund that includes the stock [D]A domestic corporation that is within the same sector

American depository receipt - Assuming that American Depository Receipts (ADRs) are available on this foreign stock, this product provides the customer with the BEST opportunity to invest in a foreign company. Each of the other alternative answers does not provide direct investment for the investor in the specified stock. Both international and global funds would be diversified and hold small amounts of the stock in question. The domestic company may be an alternative if the investor is seeking to invest within a particular sector, but it is NOT a direct investment in the company that is specified

Open-end investment companies may NOT do which of the following? [A]Borrow money[B]Lend money[C]Purchase call options[D]Issue senior securities

An open-end investment company may only issue one class of common shares. It may not issue senior securities (i.e. preferred stock or bonds). However, a closed-end fund may issue senior securit

If the basis price of a bond is 5.25% and the coupon rate 4.75%, the bond is selling [A]At par[B]Below par[C]Above par[D]Cannot determine

B

The disclosure requirements of the Securities Act of 1933 are intended to provide investors with [A]an objective third party review by the SEC of all new issues.[B]a basis for judging the merits of new issues of securities.[C]financial information on new issues, the accuracy of which has been verified by the SEC.[D]financial information on the broker-dealer offering the new issue.

B

When an investment grade corporate bond is downgraded to a Junk bond, it is referred to as a: [A]sleeper[B]fallen angel[C]debenture[D]general obligation

B

redictions about the future performance of mutual funds and variable annuities are [A]permitted if the basis of the prediction is provided.[B]not permitted, regardless of the situation.[C]permitted if prepared by an outside and unbiased analyst.[D]not permitted unless reviewed by FINRA 10 days before first use

B

The most senior claim against assets of a corporation in the event of a corporate liquidation would be which of the following? [A]Preferred stock [B]Common stock [C]Mortgage bonds [D]Subordinated debentures

C The sequence of claims would be 1.Secured Debt (includes Mortgage Bonds) 2.Unsecured Debt 3.Preferred stock 4.Common stock "Secured Debt" means that the bonds are backed by specific assets - mortgages would be specific assets. "Unsecured" would mean that the bonds are not back by any specific assets.

An investor living on a fixed income has $10,000 to invest. His investment objectives are safety of principal and capital appreciation. Which of the following would be the most suitable investment? [A]Common stock in a growth company [B]A convertible corporate bond, rated grade A or better [C]U.S. Savings bonds [D]Money market fund

B A convertible corporate bond graded A or better would most likely achieve the results that the investor desires. The fact that the bond is rated A or better means that it is a high quality bond with little chance of defaulting on debt service payments. The convertible feature will offer the investor the appreciation potential that he is seeking because an increase in the underlying stock will cause the market value of the bond to also increase.

guaranteed bond is a bond in which? [A]Principal and interest are always paid promptly. [B]The payment of interest and principal of a subsidiary corporation is guaranteed by a parent corporation. [C]There is absolutely no risk associated with the bond. [D]Interest and principal is only paid if earnings by the parent corporation exceed a specified level.

B Guaranteed bonds are issued by a subsidiary corporation, but the parent corporation guarantees payment if the subsidiary is unable to meet their obligation.

When evaluating investments for a client, a municipal bond portfolio would be MOST appropriate for which of the following investors? [A]A young investor who has few liabilities who is seeking growth and needs no income [B]A middle-aged investor in a high tax bracket who is seeking income but looking to reduce tax burden [C]A middle-aged investor in a middle tax bracket who is investing funds in their retirement plan [D]A senior investor in a low tax bracket looking for a combination of income and growth

B Municipal bonds and municipal bond funds are most appropriate for investors who are seeking income from the fixed-income securities, but also looking to reduce their tax burden, since munis are not subject to federal income tax. These would not be appropriate for investors with no need for income or for investment in retirement plans, since retirement plans are tax-deferred and higher rates of growth from other taxable securities would be more appropriate. A muni bond portfolio would not be appropriate for someone seeking both income and growth, as fixed-income securities don't provide high levels of growth.

An investor purchases the following bonds, all at a premium above par value: XYZ 5% non-callable bonds maturing in 15 years XYZ 5.10% non-callable bonds maturing in 20 years XYZ 5.25% non-callable bonds maturing in 25 years Several months after these bonds are purchased, the going rates on bonds have moved an average of 20 basis points. Of this investor's purchases, which will show the largest adjustment in terms of price because of the change in the going rate? [A]The bonds are all trading in the secondary bond market and will all be affected equally. [B]The 25-year bonds will be affected the most. [C]The 15-year bonds will be affected the most. [D]The bonds are all trading in the secondary bond market and have fixed coupons, so their prices will not be affected by fluctuations in new bond rates.

B Remember that short-term bonds react the quickest while long-term bonds react the most or greatest. So in this case, the 25-year bonds will see the largest adjustment over time.

hedge fund is not considered an investment company. Hedge funds are normally established in the form of a limited partnership. Hedge funds could also be called private investment partnerships.

B Unit Investment Trusts pay investors interest - not dividends.

Hedge Funds are normally established in the form of: [A]an investment company[B]a limited partnership[C]a variable annuity[D]a CMO

B hedge fund is not considered an investment company. Hedge funds are normally established in the form of a limited partnership. Hedge funds could also be called private investment partnerships.

Which of the following mutual funds would generally be considered the MOST liquid? [A]Aggressive Growth Fund[B]Money Market Fund[C]Balanced Fund[D]Bond Fund

B Money market funds allow investors to make deposits and withdrawals at any time without penalty and would therefore be the most liquid of the funds listed.

Municipal securities which have interest and principal payments dependent on rental income from corporate facilities built to improve local environment are [A]special tax bonds. [B]industrial revenue bonds. [C]special assessment bonds. [D]limited tax general obligation bonds.

B The key words in the questions are "corporate facilities." Municipal bonds issued on behalf of corporations are called Industrial Revenue Bonds.

Of the securities listed below, which one is subject to Federal, State, and local tax? [A]Treasury Notes [B]Equipment Trust Certificates [C]Federal Farm Credit notes [D]Federal Land Bank Bonds

B Because they are coporate bonds and coporate bonds are fully taxable

The sales charge on money market funds is usually [A]spread loaded.[B]no load.[C]front end loaded.[D]deducted from the initial investment only.

B There is no sales charge for money market funds

During the past three months, Mr. No Ledge, a customer, has acquired more than 10% of the outstanding shares of the Nudele Corporation. If Mr. Ledge indicates a desire to sell these shares immediately, the registered representative should inform him that: [A]By exercising a put, he can sell the stock without any consequences.[B]Any profit from the sale may have to be forfeited.[C]If the stock is sold to more than 35 buyers, he can make the sale.[D]The position can be sold without any consequences if he files a Form 144.

Because Mr. Ledge owns more than 10% of the outstanding shares, he is considered an affiliated person of the company. Any profit he realizes from a short swing (profit within 6 months of purchase) is recoverable by the company.

A customer who wishes to purchase mutual fund shares intends to invest a significant amount over the next 12 months. The customer sees that breakpoints are available for amounts that are similar to the amount that the customer intends to invest over the next year. If this customer wishes to take advantage of those breakpoints and receive a reduced sales load on the total funds invested, but does not have all of the capital available to invest today, which of the following is the BEST manner to achieve the goal of reduced sales loads? [A]A rights of accumulation agreement related to the fund[B]A withdrawal plan from the customer's bank to the broker-dealer[C]A letter of intent between the customer and the fund[D]A margin agreement between the customer and the broker-dealer

Because the customer wishes to achieve the breakpoint or reduced sales load on the total of funds invested (not just future funds), the letter of intent (LOI) is the best choice for this customer. A letter of intent allows the customer to reach a volume discount over a period of up to 13 months on the total amount invested. Rights of accumulation allow the investor to use the sum of accumulated value of fund shares that have already been purchased in addition to new funds invested in order to receive a breakpoint or reduced sales load on new purchases of shares (not the total amount of funds invested)

A broker-dealer bought ABC stock at 8 for its inventory position. A month later when the inter-dealer market for ABC was 10.50 -- 11.25, the broker-dealer sold the stock to a customer. The dealer's markup will be based on: [A]8.00 [B]8.75 [C]10.50 [D]11.25

Broker-dealers must trade with customers based on the current bid and ask. 10.50 Bid for customers selling11.25 Ask for customers buying

A debt security that can be backed by various assets such as auto loans, mortgages, or credit card debt is called a(n) [A]REIT [B]ETN [C]CDO [D]ETF

C

All of the following are true of covered call option "writing" EXCEPT: [A]The writer can increase the overall yield on his portfolio. [B]It is considered a conservative option strategy. [C]The premium received guarantees the writer cannot have a loss on the underlying security. [D]The writer will have a capital gain if the option expires unexercised.

C

Assuming normal market conditions, place the following in order of their yields. (Highest to lowest) I U.S. Government bonds. II AAA municipal bonds. III AAA corporate bonds. [A]I, II, III [B]II, I, III [C]III, II, I [D]III, I, II

C

Corporate bonds normally pay a higher rate of interest (coupon rate) than other issuers of debt because: [A]The IRS requires corporations to pass on a certain percentage of their profits to their bondholders. [B]Other issuers of debt are limited by law to the rate and amount of interest which can be paid. [C]Corporate bond interest is fully taxable at the federal, state and local levels. [D]Corporate bond interest when received by individual investors is a deduction from ordinary income for tax purposes.

C

Open-end investment companies are regulated by all of the following EXCEPT: [A]The Securities Act of 1933.[B]The Investment Company Act of 1940.[C]The Trust Indenture Act of 1939.[D]Securities laws in the state in which the fund is sold.

C

Securities issued under the provisions of Reg D are [A]registered and can be freely traded.[B]held for 30 days prior to sale.[C]restricted for 6 months[D]sold only to residents of the state of issue.

C

The Trust Indenture Act of 1939 regulates corporate debt issues and requires the designation of a trustee. What duty does this trustee have? A)The trustee is charged with ensuring that the proper filing procedures take place with relation to the issue and SEC registration. (B)The trustee is charged with allocating any remaining bonds that may not have been sold in the initial issuance. (C)The trustee is charged with acting on behalf of bondholders and ensuring that the rights of these bondholders are not infringed upon. (D)The trustee is charged with being the liaison to the SEC in relation to all matters associated with the bond issue.

C

he rules for regulating insider activity are established by the: [A]Rules of Fair Practice[B]Securities Act of 1933[C]Securities Exchange Act of 1934[D]Securities Investor Protection Corporation

C

hich of the following statements is true concerning yield spreads between Collateralized Mortgage Obligations (CMOs) and U.S. Treasuries of comparable maturities? [A]U.S. Treasury Security yields are slightly higher than CMO yields.[B]U.S. Treasury Security yields are substantially higher than CMO yields. [C]CMO yields are higher than U.S. Treasury yields. [D]U.S. Treasury and CMO yields are always equal.

C

which of the following investment companies invests in a fixed portfolio with little or no management fee and a low percentage sales charges? [A]Open End Fund[B]Closed End Fund[C]Unit Investment Trust[D]Face Amount Certificate Co.

C

Higher quality debt issues of the same face value, maturity, and coupon, when compared to low quality debt issues, exhibit which two of the following? I Lower Yields II Lower Market Prices III Higher yields IV Higher Market Prices [A]I and II [B]I and III [C]I and IV [D]III and IV

C High quality debt generally has lower yields, because the investor forfeits yield in lieu of quality. With lower yields you also have higher prices. When investors buy bonds of higher quality they "give-up" yield in order to get the safety they are looking for - remember the old adage "The greater the risk, the greater the return" also goes the other way, "The lower the risk, the lower the return" which is the case here. A bond that is offering a lower yield will have a higher price, which is what causes the "yield" to be lower since the customer pays more to buy the bond.

One of your clients has large holdings of a few blue-chip corporations. The investor wishes to hold onto the stock for multiple reasons, but she is uncertain about price fluctuations in the short-term future. How can she use options to provide the MOST downside protection? [A]She can purchase call options on the securities in her portfolio.[B]She can sell call options on the securities in her portfolio. [C]She can purchase put options on the securities in her portfolio.[D]She can sell put options on the securities in her portfolio.

C If an investor is looking for the "most" or "maximum" amount of protection on the downside and currently has holdings in a security, the investor should purchase put options on the securities in question. This will allow the investor to "put" the stock to the seller of the put contract at the strike price on the contract if the market price of the stock goes down. Though selling calls does provide some downside protection, the "maximum" protection is provided by the purchased puts.

In a limited partnership, which one of the following would represent the least potential for a conflict of interest? [A]The general partner is allowed to lend money to the limited partnership.[B]The general partner owns leases next to leases owned by the limited partnership.[C]The general partner has a substantial amount of funds at risk in the limited partnership. [D]The general partner is allowed to borrow money from and lend money to the limited partners

C If the general partner has a substantial amount invested in the partnership that would not be a conflict of interest, it would help assure that the general partner will work toward the success of the partnership.

Which of the following would be considered "insider" information when such information is related to a publically traded company under SEC Rules? [A]A CEO makes comments at a luncheon that are then released to the public.[B]Proxy information distributed to the company's shareholders[C]material information in an unreleased press report[D]an offering circular distributed to potential investors

C The key word here is "unreleased" - when information has not been released to the public and it is material information about a publicly traded company it would be considered to be "inside" information.

Which of the following describe two classifications associated with municipal bonds issued by state and local governments? [A]No Load and Insured[B]Zero Coupon and Bills[C]Revenue and General Obligation[D]Income and Tax-Exempt

C The most common classification of municipal bonds is the distinction between general obligation bonds which are backed by the taxing power of the municipality and revenue bonds which are backed by the revenue from the specific public works project financed by the bond

An investor who owns closed-end investment company shares must do which of the following to sell his shares? [A]Redemption by the investment company[B]Redemption by the investment company at a discount[C]Sale in the open market[D]Sale through an underwriter

C The owner of shares in a closed-end investment company would dispose of his shared by selling them in the open market. The owner of shares in an open-end investment company would redeem his shares at the net asset value through the fund.

Which of the following describe two classifications associated with municipal bonds issued by state and local governments? [A]No Load and Insured [B]Zero Coupon and Bills [C]Revenue and General Obligation [D]Income and Tax-Exempt

C EXPLANATION The most common classification of municipal bonds is the distinction between general obligation bonds which are backed by the taxing power of the municipality and revenue bonds which are backed by the revenue from the specific public works project financed by the bond.

What is the maximum loss potential for a customer that is long a put option on a debt security? [A]the difference between the strike price and the market price [B]the difference between the strike price and zero [C]the premiums paid at the time the contract was purchased [D]Unlimited

C When you purchase an option (put or call), the most you can lose is the premium paid to buy.

The Board of Directors of a mutual fund may change the investment objectives of the fund if [A]at least two-thirds of the Board of Directors votes for a specific change.[B]shareholders are given the opportunity to switch to a similar fund with the same objectives.[C]more than 50% of the outstanding shares voted in favor of the change.[D]less than 10% of the stockholders voted against the change and the Board of Directors approved.

C or if "majority shares of the vote vte"

Collateral Mortgage Obligations are collateralized by all of the following EXCEPT: [A]Conventional issuers. [B]FHA mortgages.[ C]Fannie Maes. [D]Sally Maes.

CMO pools are issued and collateralized (secured with collateral) with mortgage loans from:Ginnie MaeFannie MaeFreddie MacFHA Mortgage LoansConventional / Private Mortgage IssuersCMOs are NOT collateralized by Sally Mae (student loans).

In terms of the market for Collateralized Mortgage Obligations (CMOs), CMOs usually trade in the [A]listed market with commissions. [B]listed market with mark-ups and mark-downs. [C]over-the-counter market with commissions. [D]over-the-counter market with mark-ups and mark-downs.

D

Which of the following is true regarding "bearer bonds"? [A]A check will be sent in payment of interest. [B]The security of the bond is greatly affected by a "bear" market.[C]Demonstration of ownership is required for redemption.[D]Coupons will be attached to the bonds.

D

Which of the following would NOT qualify as an investment company under the Investment Company Act of 1940? [A]A closed-end investment fund[B]A face amount certificate company[C]A unit investment trust[D]A limited partnership

D

t is accurate to state that interval funds [A]have an IPO and then trade actively in the secondary market.[B]are considered closed-end funds and are issued and trade in an almost identical manner to a typical closed-end fund.[C]periodically repurchase shares from shareholders at secondary market prices.[D]allow investors to sell shares back to the fund, but do not obligate investors to sell shares back to the fund.

D

A mutual fund investor is seeking aggressive growth. Which of the following funds would be most appropriate for the customer to invest in? [A]Balanced Fund.[B]Hedge Fund.[C]Money Market Fund.[D]Sector Fund.

D Balanced Funds and Money Market Funds are relatively conservative investments for Investment Companies. A Sector Fund is one that invests in a specific industry of geographic area (e.g., biotechnology, gold mines, European countries). A Hedge Fund provides a hedge against market moves by having long and short positions.

A conservative investor with a need for income tells his registered representative that he understands that both bonds and preferred stock are considered to be fixed income securities, but he doesn't understand the difference between the two investments. The representative could explain that all of the following are differences between two investments EXCEPT: [A]Bonds mature on a set date. Preferred stock has an indefinite life [B]Bonds have a priority over preferred stock on liquidation of the assets of the company [C]Bondholders have a legal right to receive interest payments. Preferred stockholders only have a right to dividends if and when they are declared by the Board of Directors [D]Both bondholders and preferred shareholders have a right to vote

D Bondholders are creditors of the company and don't have a right to vote. Preferred shareholders are equity owners, but unlike common shareholders, they usually don't have a right to vote.

If a customer believes that interest rates will decline substantially, she should invest in [A]a 1 yr Certificate of Deposit @ 10%. [B]a long term variable rate Corporate Bond yielding 12 1/2%. [C]a long term Corporate Bond with a coupon rate of 10%, callable in 3 years @ par, at a 9% basis. [D]a long term Corporate Bond with a coupon rate of 10% at a 12% basis, non callable.

D If a customer believes that interest rates will decline substantially, she should invest in [A]a 1 yr Certificate of Deposit @ 10%.[B]a long term variable rate Corporate Bond yielding 12 1/2%.[C]a long term Corporate Bond with a coupon rate of 10%, callable in 3 years @ par, at a 9% basis.[D]a long term Corporate Bond with a coupon rate of 10% at a 12% basis, non callable.

Funded Debt

Funded Debt is a corporate term used to describe debt that has one year or more to maturity, therefore the corporate mortgage bond would represent funded debt.

Which of the following would be the best choice if a client has $30,000 to invest but needs monthly income of $600? [A]An aggressive growth fund[B]Blue chip stocks[C]A sector fund[D]A money market fund

D Of the choices offered, the money market fund would be most appropriate because it offers income, safety and liquidity. You would not choose Aggressive Growth Fund because growth stocks generally do not pay dividends and would not provide income. Blue Chip stocks do pay dividends but NOT monthly. Dividends are paid quarterly, therefore, Blue Chip stocks would not work. A Sector Fund is too general since we do not know what sector it is in.

A change of 10 basis points would produce the greatest change in the dollar price on which of the following bonds? [A]Coupon Rate: 5% Maturity: 2018 YTM: 5% [B]Coupon Rate: 5% Maturity: 2021 YTM: 6% [C]Coupon Rate: 5% Maturity: 2025 YTM: 6.75% [D]Coupon Rate: 5% Maturity: 2030 YTM: 7.2%

D Short-term bonds are affected the quickest and long-term bonds are affected the greatest when there is a change in interest rates. Therefore, the bond with the latest maturity (2030) would produce the greatest price change.

If a client has concerns about the liquidity of her investments, which of the following would be LEAST suitable for such an investor? [A]Investing in 30-year bonds issued by a corporation[B]Investing in a mutual fund[C]Investing in securities issued in a secondary offering[D]Investing in the offering of a private placement

D Reg D offerings, or private placements, place a 6-month restriction on the sale of the securities purchased in the offering. If an investor is concerned about liquidity, then a private placement would not be appropriate.

An investor wishing to switch from his growth fund to an income fund within the same family would do so by using the: [A]Reinvestment Privilege[B]Sale and Repurchase Plan[C]Redemption Reinvestment Plan[D]Conversion Privileges

D The conversion privilege is used by investors that wish to switch from investment objective to another within the same family of funds.

Which of the following bond offerings would be required to have a trust indenture under the Trust Indenture Act of 1939? [A]U.S. Treasury Bond [B]airport authority revenue bond [C]general obligation bond [D]mortgage bond

D ince the Trust Indenture Act of 1939 is applicable only to corporate bonds, the mortgage bonds would be the only bonds required to have a trust indenture.

Which of the following is FALSE concerning rights? [A]They are required to be traded OTC . [B]They are freely transferable. [C]They normally have a short-term life span. [D]They may be listed on a stock exchange.

D Rights allow the holder to subscribe to stock at less than the current market price. Rights can be freely traded on the exchanges and usually have a maximum maturity of 90 days. Rights can be traded on an Exchange or OTC.

Which of the following instruments/asset classes would generally be considered to be the least liquid? [A]Over the counter stock [B]Listed stock [C]General obligation municipal bonds [D]Direct participation program units

Direct partnership program units -Direct participation program (i.e., Limited partnership) units can be difficult to sell because there is not an active secondary market for limited partnerships and because the limited partners (the investors) generally need the approval of the general partners before they can sell their units.

During the Call Protection period of a callable bond issue, bondholders want [A]interest rates to decline and prices to rise.[B]interest rates to decline and prices to decline.[C]interest rates to rise and prices to rise.[D]interest rates to rise and prices to decline.

During the Call Protection period of a callable bond issue, bondholders want [A]interest rates to decline and prices to rise.[B]interest rates to decline and prices to decline.[C]interest rates to rise and prices to rise.[D]interest rates to rise and prices to decline.

Mr. Long writes a call on WLD stock. Which of the following does NOT cover this short call in Mr. Long's margin account? [A]A long call on WLD stock which has a strike price that is lower than the call that Mr. Long is writing [B]A long put on WLD stock which has a strike price that is lower than the call that Mr. Long is writing [C]A depository or escrow receipt for WLD stock [D]Convertible bonds that are immediately convertible to more than 100 shares of WLD stock

EXPLANATION Short calls can be covered with ownership of the underlying stock or evidence thereof (depository or escrow receipt). Convertible bonds can also be used to cover a call, because they can be converted to the underlying stock. A long call with a lower strike price would cover, because it provides the ability to exercise and buy at a price that is lower than the strike on the sold option. The long put would NOT cover the sold call, because long puts lock in a price at which stocks can be sold, not purchased to cover.

Assuming normal market conditions, place the following in order of their yields. (Highest to lowest) U.S. Government bonds. AAA municipal bonds. AAA corporate bonds.

Highest to lowest yields: Corporate bonds- ( pay higher yeild because riskiest) Municipal government (pay lower yield because safest)

A designated market maker (DMM) trades Mollari Industries Inc. on the NYSE. The DMM has a customer order on the book to buy 1000 shares at $25.50. The DMM also wants to buy shares for the firm's trading account. The DMM is permitted to enter which of the following prices for the firm account order? [A]$25.50 [B]$25.45 [C]$25.49 [D]$25.55

If a designated market maker bids for or offers stock for the DMM's own account, the DMM must bid at a price above any order on the book to buy and offer (sell) at a price below any offer to sell on the book. In other words, the DMM cannot directly compete against customer orders on the book. There is a customer on the book already to buy Mollari Industries shares at $25.50. The DMM wants to buy shares as well so the DMM can only enter orders above $25.50.

The best strategy to hedge a short stock position against the possibility of an increase in the market price of the security would be to [A]buy a call. [B]sell a call. [C]buy a put. [D]sell a put.

If you sell stock short you are expecting a decline in the market value of the stock and would be looking for upside protection. The best upside protection would be to buy a call.

Which of the following would a company most likely issue in order to stabilize cash flow? [A]Common stock [B]Banker's acceptance [C]Commercial paper [D]Certificates of deposit

In order to stabilize its cash flow, a company would most likely issue commercial paper. Commercial paper is unsecured, short-term corporate debt which has a maximum maturity of 270 days.

An investor is long 1 OEX Aug 500 put @10 when the index is at 550. The index closes at 450. The investor decides to exercise his option. What will he get at settlement? [A]$10,000 [B]$5,000 [C]$50,000 [D]5,000 shares.

Index options are always settled in cash when exercised. The cash settlement amount is the difference between the contract value ($500 x 100 multiplier = $50,000) and the index value ( $450 x 100 multiplier = $45,000) at the time of exercise. Therefore, $50,000 - $45,000 = $5,000 cash settlement. This is the in-the-money amount of the option.

Assume an investor sells short 100 shares of ABC and while the investor has the short stock position, ABC pays a dividend. The investor: [A]Owes the dividend to the lender of the stock. [B]Will Receive the dividend from the lender of the stock .[C]Will not be involved in the dividend situation in any way. [D]Will receive the dividend from the company and also from the lender of the stock.

Investors that have short positions in a stock owe any dividends that are paid while they are short.

Which of the following investment choices would provide an investor the least liquidity? [A]money market funds [B]limited partnership participation [C]certificate of deposit [D]long-term convertible corporate bond

Limited partnership participation

Ashley is an IAR. She has a client who owns 1,000 shares of Theorem Inc. The stock has been volatile recently so the client asks Ashley how she can get downside protection using options without the risk of selling her shares. The IAR should recommend [A]long puts. [B]short puts. [C]long calls. [D]short calls.

Long Puts EXPLANATION An investor would buy or go long put options if there is an expectation or concern that the underlying stock's price will drop. If the price does decline significantly, the put option will increase in value. In this case, if Theorem Inc. shares drop the client will be able to offset the loss in her stock with the increase in the value of the put options. Also, because the client is long options, she does not have to worry about selling the stock as the case would be if the client sold or was short call options.

Which of the following terms are synonymous when referring to open-end investment company shares? [A]Net asset value and redemption price[B]Bid and offering price[C]Ask and net asset value[D]Net asset value and sales price

Nav= redemption prce= Bid

An investor elects to exercise their option contract and ends up buying 100 shares of a common stock at the exercise price listed on the contract. This is the result of the investor exercising a: [A]Long Call [B]Short Call [C]Long Put [D]Short Put

Only the buyer of an option contract can choose or "elect" to exercise their option contract. So if the buyer of an option contract elects to exercise and ends up buying 100 shares of a common stock at the exercise price listed on the contract, this would be the result of exercising a long call option.

Shares of an open-ended investment company can be redeemed at the [A]market maker's quote.[B]net asset value of the fund shares.[C]offering price of the fund.[D]par value of all of the securities in the fund.

Shares are always redeemed at the NAV (Net Asset Value) which is also called the Bid Price. When purchasing shares, the investor will pay the Ask or Offering Price.

An investor buys 100 shares of ABC stock for $50 per share. He also buys one ABC January 50 put for a premium of $5. What is the maximum profit that the investor can make at expiration of the option? [A]$40[B]$45[C]$50[D]Unlimited

Since the investor is long the stock, the investor would have unlimited profit potential because, theoretically, the price of the shares has no upside price limit. The long put option is not a factor in deciding the correct answer in this question.

Regular-way settlement for options transactions is

T+1

Flow through principal

The "flow-through principal" refers to the flow of profits and losses from the partnership to the investor. This is what made limited partnerships attractive tax shelter investments prior to change in the legislation.

Which of the following is responsible for the issuing of exchange traded option contracts? [A]Options Clearing Corporation [B]Member Firm [C]Securities and Exchange Commission [D]Chicago Board Options Exchange

The Options Clearing Corporation (OCC) is the issuer and guarantor of all listed option contracts.

All of the following statements are true of limit orders EXCEPT: [A]A partial execution may occur. [B]It will be entered in the designated market makers book. [C]It may only be executed at a specific price or better.[D]A floor broker must hold the order at post until it is executed.

The designated market maker would enter limit orders in the book. Floor brokers do not wait at the post to execute the order.

he initial step in determining the overall conversion value of a convertible bond when converted to common stock begins with [A]the current market value of the bond.[B]the par value of the bond.[C]the market value of the common stock.[D]the price of the common stock at the time of initial issuance.

The initial step in determining the overall conversion value of a convertible bond when converted to common stock begins with determining the number of shares that will be received in a conversion. The number of shares received is based on the par value (or face value) of the bond, divided by the conversion price on the bond. For this reason, the best answer is the par value of the bond.

A call option is considered "in-the-money" when?

The market price of the underlying security is greater than the strike price listed on the option contract. Call up, Put down

A customer sells short 100 shares of ABC at $40 and writes 1 ABC May 40 put at 3. The maximum loss potential to the customer is [A]$300. [B]$3,700. [C]$4,000. [D]unlimited.

The unlimited loss potential comes from the short sale. Remember that when we sell a stock short, we are borrowing the stock and selling it. Our obligation is to buy 100 shares to replace the 100 borrowed shares, and we must do this at some point in the future. The market price of the stock can go up an unlimited amount, so this is why we have an unlimited loss potential.For example, a client borrows 100 shares of ABC stock from the B-D and sells the stock for $50 dollars. If the market to goes down to $20. The client will then buy the stock at $20 to give to the broker-dealer. The client bought the stock for $20 and sold the stock for $50, so the client made $30 per share profit. However, if the market price goes up to $1,000,000 per share (theoretically), the client still has to buy the stock at that price; the market can go up an "unlimited amount."

All of the following are TRUE of unit investment trusts EXCEPT that they are [A]regulated.[B]managed.[C]diversified.[D]redeemable.

UIT's are supervised but not manaed

Of the following forms of bringing securities to market, which is most commonly used by the US Government for Treasury Securities? [A]Initial Public Offering (IPO) B]Registered Secondary Distribution [C]Competitive Bid Auction [D]Negotiated Market

US Government Securities are generally brought to market using a competitive bidding auction process. IPOs and registered secondary distributions are typically used for OTC corporate common stock. Negotiated markets can be used for listed corporate securities and certain municipal bond offerings(revenue bonds).

When the owner of a mutual fund tenders his shares for redemption to the investment company, the owner must be paid within [A]1 business day.[B]2 business days.[C]4 calendar days.[D]7 calendar days

Upon redemption of shares customers must be paid within 7 calendar days. When a customer purchases shares they are required to pay for shares purchased within 2 business days after the purchase date.

Securities sold under the provisions of Regulation A are [A]restricted for one year[B]sold only to residents of the state of issue[C]held for 30 days prior to sale[D]registered and freely transferable upon issuance

eg A is "short form registration" therefore the securities issued are registered and freely transferable upon issuance.

Diff between hedge funds and investment companies

oth a hedge fund and an investment company are comprised of a managed portfolio of investments. A hedge fund is not heavily regulated as compared to an investment company. Investment companies and hedge funds are redeemable, however, investment companies are priced at the end of every business day and hedge funds are priced monthly, quarterly, or annually. Investment companies can be offered to the general public while hedge funds are limited to accredited investors, qualified clients, and semi-affluent investors.