#9

For both U.S. Treasury notes and Ginnie Maes A) quotes are as a percentage of par, in 32nds B) settlement is next business day C) interest income is taxed at the federal level only D) interest is computed on an actual-day basis

A Interest from U.S. T-notes is taxed at the federal level only, while interest on Ginnie Maes is taxed at all levels. GNMA bonds are treated like corporate bonds in many ways. T-notes settle next day; Ginnie Maes normally settle T+2. Interest on T-notes is computed on an actual day basis; Ginnie Mae interest is computed on a 30 day month/360 day year basis. Both Ginnie Maes and T-notes are quoted in 32nds. Reference: 3.10.8 in the License Exam Manual

If a customer places an order to buy 200 shares of ABC stock at $25, and he wants to meet the margin call by depositing fully-paid listed stock currently trading at $10, how many shares must he deposit? A) 500. B) 700. C) 600. D) 1000.

A To meet a margin call with marginable stock, an investor must deposit twice the value of the call. In this example, the margin call on the $5,000 purchase is $2,500. Because the customer must deposit $5,000 of marginable stock, at $10 per share, the customer must deposit 500 shares of the stock to meet the call. Reference: 7.1.5 in the License Exam Manual

If a customer wishes to buy 1 XYZ option and sell another XYZ option, but he is not willing to spend more than $300, which of the following orders should be entered? A) A straddle order. B) A spread order. C) 2 stop orders. D) 2 limit orders.

B Explanation A spread involves the simultaneous purchase and sale of different option contracts of the same type. A spread incurs a gain or loss depending on what happens to the difference in the premiums between the two contracts. Because this investor wants to limit his risk to $300, he would buy the spread at a net debit of $300 or less (this is one order, not two). Reference: 4.4 in the License Exam Manual

Your client owns a variable annuity contract with an AIR of 4%. In March, the actual net return to the separate account was 8%. If this client is in the payout phase, how would his April payment compare to his March payment? A) It cannot be determined until the April return is calculated. B) It will be higher. C) It will stay the same. D) It will be lower. Explanation

B If the separate account of a variable annuity with an AIR of 4% had actual net earnings of 8% in March, the April payment will be higher than the March payment. Reference: 3.18.2 in the License Exam Manual

Five years ago, the ABCD mutual fund bought 200,000 shares of Comet Industries at an average price of $42.25. After a series of accounting scandals, the shares are now trading at $6. If the fund decides to sell its shares, what will be the impact of the sale of Comet shares on the NAV of the ABCD fund? A) The NAV will fall. B) This depends on whether the fund can claim a tax loss on the sale. C) The NAV will not change. D) The NAV will rise.

C Portfolio holdings in a mutual fund are marked to the market each day. Therefore, the NAV of the fund already reflects the current value of each security in its portfolio, including Comet Industries. When the fund sells the position, the value of the stock is replaced by an equivalent amount of cash, so net asset value does not change. Reference: 3.15 in the License Exam Manual

From first to last, in what order would claimants receive payment in the event of bankruptcy? I. Holders of secured debt. II.Holders of subordinated debentures. III. General creditors. IV. Preferred stockholders. A) I, II, III, IV. B) III, I, II, IV. C) IV, I, II, III. D) I, III, II, IV.

D The liquidation order is as follows: wages, taxes, secured debt holders, unsecured debt holders (including general creditors), holders of subordinated bonds, preferred stockholders, and common stockholders. Reference: 3.10.2 in the License Exam Manual

Which of the following plans requires an actuary's services? A) Profit-sharing. B) Defined contribution. C) Defined benefit. D) 401(k).

c In a defined benefit plan the payout is established, and employers must contribute annually to assure payment of the benefit amount. An actuary must calculate the annual contribution amount necessary to meet the benefit requirement. Reference: 2.6.1 in the License Exam Manual