MOnday

Which of the following would be considered in the fundamental analysis of a security? I.Support and resistance levels. II. Trading volumes. III. Liquidity ratios. IV. Historical earnings trends. A) III and IV. B) I and IV. C) I and II. D) II and III.

A) III and IV. Fundamental analysts are concerned with information relating to the economy, industries, and individual companies. A company's liquidity ratios and past earning trends fall within these areas of concern. Concerns about the stock price and volume of trading would be of primary interest to a technical analyst.

Which of the following strategies is intended to be profitable with either a significant upside or significant downside move in the underlying stock? A) Long straddle. B) Vertical spread. C) Short straddle. D) Horizontal spread.

A) Long straddle. If the stock moves sharply up or down, the customer will profit from owning a long straddle.

A customer owns 1,000 shares of ABC corporation. Which of the following actions on the part of ABC would dilute her equity? A) Registered primary offering of shares. B) Payment of a 10% stock dividend. C) Registered secondary offering of shares. D) 2-1 stock split.

A) Registered primary offering of shares. An additional primary issue of shares would dilute a present shareholder's ownership, unless she personally purchases a portion of the new shares (as in a rights offering). In a secondary offering, ownership of existing outstanding shares is simply changing hands. With a stock dividend or stock split, percent equity does not change.

The individual responsible for the overall supervision of all of a firm's options activities on behalf of its customers must be: A) a registered options principal (ROP). B) an office manager. C) the general securities principal. D) the financial and operations principal

A) a registered options principal (ROP).

Each of the following is affected by the sale of securities in a restricted margin account EXCEPT: A) equity. B) SMA. C) market value. D) debit balance.

A) equity. When securities in a margin account are sold, the market value in the account will decline, the debit balance will be reduced by the cash proceeds, and SMA will increase by 50% of the sale. Equity in the account will not be affected unless the customer decides to withdraw some of the proceeds through the use of SMA.

When operating a Keogh plan, a self-employed individual must make contributions for A) full-time employees who are at least 21 years old and have worked for the company for at least one year B) all employees C) part-time employees who have worked for the company for 3 or more years D) all employees scheduled to work for 1,000 hours per year or more

A) full-time employees who are at least 21 years old and have worked for the company for at least one year

A convertible bond callable at 101 is trading at 105. The bond is a 4% bond convertible at $25. The common stock is trading at $27. If an investor bought the bond and converted, his profit would be: A) $40. B) $30. C) $20. D) $75.

B) $30. First, calculate the number of shares each bond will convert to: $1,000 (par) / $25 per share = 40 shares per bond. With market value at 105, each bond costs $1,050. What is the stock parity price? $1,050 / 40 shares = $26.25 per share stock parity price. CMV of the stock minus stock parity price equals profit (or loss). $27.00 − $26.25 = $.75 per share × 40 shares = $30.

If an investor writes 2 DWQ Jan. 60 puts at 3 in September and the investor buys back the 2 puts at 4.50 two months later, the result for tax purposes is a: A) $300 short-term capital gain. B) $300 short-term capital loss. C) $150 short-term capital gain. D) $150 short-term capital loss.

B) $300 short-term capital loss. A $900 closing cost minus $600 opening proceeds equals a $300 short-term loss.

If a customer's margin account shows a long market value of $6,000 and a debit balance of $5,000, the maintenance margin call will be for: A) 3000. B) 500. C) 2000. D) 1000.

B) 500. The account equity is $1,000 which is below the minimum maintenance requirements of 25% of market value. The maintenance call will be an amount necessary to bring the account back to minimum, which is $1,500 (25% × $6,000), therefore, the call will be for $500.

If a client is moderately risk-averse and has an investment objective of capital preservation, what types and allocation of investments would you recommend for this customer? A) A preponderance of growth stocks and limited partnership vehicles. B) A mix of investment-grade bonds and cash/cash equivalents. C) A mix of high yield bonds and cash/cash equivalents. D) A preponderance of speculative stocks and high-yield bonds.

B) A mix of investment-grade bonds and cash/cash equivalents. An individual with an investment objective of capital preservation should be investing in a mix of investment grade bonds and cash/cash equivalents. Lower risk capital appreciation vehicles, such as large-cap common stock, should also be considered. The other choices noted are too risky for a risk-averse investor.

Which of the following orders may be used to acquire a security at a specific price or better? I. A buy stop limit. II. A buy limit. III. A sell stop. IV. A sell limit. A) II and IV. B) I and II. C) I and III. D) II and III.

B) I and II. Only buy orders can acquire stock. Only buy limit orders can acquire stock at a specific price or better.

Which of the following statements are TRUE of Ginnie Maes? I. They are quoted in 1/8ths. II. They are quoted in 1/32nds. III. They are traded with an accrued interest computed on an actual day basis. IV. They are traded with an accrued interest computed on a 30/360 basis. A) I and IV. B) II and IV. C) I and III. D) II and III.

B) II and IV. Like governments, Ginnie Maes are quoted in 32nds, but, like corporates, Ginnie Maes compute accrued interest on a 30/360 day basis.

Which of the following documents would include information about the issuer's financial condition? A) Bond resolution. B) Official statement. C) Trust indenture. D) Notice of sale.

B) Official statement. The official statement is used to disclose all material information about the issuer an investor would need to know to make a decision regarding issue purchase.

Covered put writing is a strategy where an investor: A) sells a put and buys a call on the same stock. B) sells a put on a stock he has sold short. C) sells a put and sells a call on the same stock. D) sells a put on a stock that he owns.

B) sells a put on a stock he has sold short. The customer sells the put to generate income. The short stock position provides the necessary cash should his short put be exercised, forcing him to buy the stock.

For U.S. investors holding American Depositary Receipts (ADRs), dividends received are: A) tax-free in the country of origin. B) subject to a foreign withholding tax. C) taxed as a capital gain in the U.S. D) tax-free in both the country of origin and in the U.S.

B) subject to a foreign withholding tax. Any tax taken on dividends received from ADRs is taken in the country of origin. This is a foreign withholding tax for U.S. investors. The foreign withholding tax may later be taken as a credit against any U.S. income taxes owed by the U.S. investor.

The MSRB rules that require uniformity of business practices by municipal dealers may be altered or modified by a mutual agreement between the dealers concerned EXCEPT: A) the rules regarding the price and date of delivery. B) the rules regarding the content of confirmations. C) the rules regarding the terms of delivery. D) the rules regarding the payment of shipping costs.

B) the rules regarding the content of confirmations. The contents of confirmations are specified by the MSRB and cannot be altered by a mutual agreement.

A company reported annual earnings of $2.40 per share and paid annual dividends of $.60. If the dividends were distributed quarterly, what was the amount and payout rate? A) $.60 at 10%. B) $.15 at 6.25%. C) $.15 at 25%. D) $.60 at 25%.

C) $.15 at 25%. One quarter of $.60 is $.15. $.60 is 25% of $2.40.

A May and November Treasury bond is traded the regular way on Wednesday, June 8th. The number of days of accrued interest is: A) 45. B) 38. C) 39. D) 44.

C) 39. Accrued interest on government bonds is based on actual days in a year. Settlement occurs on the next business day. This bond pays interest in May and November, with the most recent payment on May 1st. Interest has accrued on this bond for 31 days in May and 8 days in June, for a total of 39 days. Settlement date is Thursday, June 9th.

An investor has an established margin account with a long market value of $6,500 and a debit balance of $3,750, with Regulation T at 50%. A maintenance call would be triggered if the long market value decreased below: A) 4875. B) 8666.67. C) 5000. D) 2812.5.

C) 5000. To determine long market value at maintenance, divide the debit balance of $3,750 by 75% ($5,000).

When does a customer have to receive the Options Disclosure Document? A) Within 15 days of account approval by the firm's ROP. B) With the confirmation of his first options transaction. C) Before the first order. D) Within 5 business days of the first options trade.

C) Before the first order.

Your customer, a small business owner likes investments that are short term, relatively safe from credit risk and liquid. He's heard that higher rates of return can be realized from auction rate securities than the rates he is currently getting on the Treasury bills in his portfolio. He asks you to explain them to him. Which of the following would you note as being reasons why they are not suitable for your customer? I. Auction rate securities are intended as long-term investments. II. Interest or dividend rates are reset at established intervals based on a Dutch auction. III. If the auction fails, holders of ARSs may not have immediate access to his funds. IV. The interest or dividend rate is set as the lowest rate to match supply and demand at the time of the auction. A) I and IV B) II and IV C) I and III D) II and III

C) I and III Auction rate securities (ARSs) are long-term variable rate bonds with maturities of 20 to 30 years tied to short-term interest rates. As long-term instruments they are not suitable for an investor favoring short-term investments. Additionally, interest rates are reset using a Dutch auction method at predetermined intervals, typically 7, 28, or 35 days. A failed auction can occur due to lack of demand and hence no bids are received to reset the rate. This risk would not align with investment objectives such as safety and liquidity.

Which of the following is a leading economic indicator? A) Duration of unemployment claims. B) Industrial production. C) S&P 500 index. D) Gross domestic product.

C) S&P 500 index. Broad stock market indices are generally leading indicators. GDP and industrial production are coincident indicators, and the duration of unemployment claims is a lagging indicator.

Listed options on U.S. exchanges are available on all of the following currencies EXCEPT the: A) Euro. B) Japanese yen. C) U.S. dollar. D) Canadian dollar.

C) U.S. dollar.

All of the following statements regarding the short sale of a listed security are true EXCEPT: A) a short sale can be effected at any time in the trade sequence. B) short sales may take place at the closing. C) the buyer must be advised that he is purchasing borrowed shares. D) short sales may take place at the opening

C) the buyer must be advised that he is purchasing borrowed shares.

If a municipal bond rated BBB is pre-refunded, all of the following statements are true EXCEPT A) funds required to meet debt servicing have been set aside in escrow B) the rating of the issue will increase C) the marketability of the issue will decrease D) the issue is now backed by U.S. government securities

C) the marketability of the issue will decrease When funds are escrowed to call in a bond at a predetermined call date, the bond is said to be pre-refunded. The money set aside is invested in government securities, which makes the issue very safe and highly marketable. The rating of pre-refunded bonds is AAA, as they are now backed by U.S. government securities.

Your married customers, ages 48 and 50, have a combined annual income of more than $200,000. They are concerned about the effects of rising inflation, and since they are heavily invested in bonds, they seek to invest a portion of their portfolio in a fund that will provide additional diversification. Which of the following mutual funds is the most suitable for these customers? A) XYZ Government Income Fund. B) NavCo Tax-Free Municipal Bond Fund. C) ABC Investment-Grade Bond Fund. D) ATF Overseas Opportunities Fund.

D) ATF Overseas Opportunities Fund. Investment in an overseas equity fund will provide diversification not necessarily subject to U.S. inflation. The tax-free fund will not provide additional diversification or the best hedge against inflation. A high-grade bond fund will not add diversification.

Which of the following is NOT part of the Federal Farm Credit System (FFCS)? A) Bank For Cooperatives. B) Federal Intermediate Credit Bank. C) Federal Land Bank. D) Federal Home Loan Bank.

D) Federal Home Loan Bank The Federal Land Bank, Bank for Cooperatives, and Federal Intermediate Credit Bank are all parts of the FFCS. The Federal Home Loan Bank is not part of the FFCS.

An account initially approved only for covered call writing must be reapproved for which of the following? I. Ratio writing. II. Spreads. III. Naked option writing. IV. Straddles. A) III and IV. B) I and II. C) II and III. D) I, II, III and IV.

D) I, II, III and IV. An options account only approved for covered call writing must be reapproved in writing for any other option-related activity.

Which of the following may only be accomplished after applying the additional bonds test for a revenue bond? A) Prerefunding an outstanding bond issue. B) Spending revenues already allocated for project expansion. C) Increasing the project's user charges. D) Issuing new bonds with an equal lien on the project's revenues.

D) Issuing new bonds with an equal lien on the project's revenues. The additional bonds test must be met under the provisions of a revenue bond indenture before additional bonds with an equal lien on project revenues can be issued. The conditions under which additional bonds may be issued are specified in the bond indenture. This is an open-end covenant.

In a buy stop limit order, once the stop price is hit: A) the order is immediately executed. B) a purchase can only occur at the limit or above. C) the order becomes a market order. D) a purchase can occur only at the limit or below.

D) a purchase can occur only at the limit or below. A buy stop limit order becomes a limit order when triggered. The execution occurs at a price that is at, or below, the stated limit price.

All of the following will affect the working capital of a corporation EXCEPT: A) declaration of a cash dividend. B) an increase in assets. C) a decrease in liabilities. D) payment of a cash dividend.

D) payment of a cash dividend.

If a customer submits a redemption order to her broker/dealer after the close of the New York Stock Exchange, she will receive a price based on the net asset value computed: A) the previous business day. B) the same day regardless of when the order is received. C) within the next 2 business days. D) the next time the fund computes it.

D) the next time the fund computes it. Orders to redeem shares are executed at the next computed price.