Progress Exams SIE
A brokerage firm purchases 600 shares of stock from a customer and places the securities into its inventory. In this case, the firm likely acted as a(n): ADealer BDesignated market maker CAgent DUnderwriter
.When a broker-dealer buys a security from a customer by using its own funds and places the securities into its inventory, it has acted as a dealer (principal). In this situation, the customer is charged a markdown on the transaction. If the firm bought the security for a customer or sold a security to a customer without being the other side of the transaction, it would be acting as a broker (agent) and it would charge the customer a commission. An underwriter assists an issuer in raising capital in the primary market by purchasing the securities from the issuer and selling them to customers. The firm that controls trading on an exchange for a specific stock is referred to as a designated market maker (DMM).
The major disadvantage to a limited partner in a direct participation program (DPP) is: ACorrelation to the stock market BLack of liquidity CFlow through of income and expense DLimited liability
A limited partnership is a type of DPP. An investor has limited control (management) in equity investments and no control (management) in bond or DPP investments. The major disadvantage of a DPP is the lack of liquidity meaning that the investor cannot easily sell his portion of ownership.
A fund which invests in companies that pay high dividends is: AA growth fund BAn equity income fund CA sector fund DA no-load fund
A mutual fund investor who is most interested in current yield (i.e., regular dividend checks) as an investment objective will most likely purchase an equity income fund. A growth fund invests in companies that are growing rapidly and pay out a small percentage of earnings in dividends. Investors who are seeking capital gains will most likely purchase a growth fund. A no-load fund is an open-end investment company that does not have a sales charge and whose investment objectives may be income or capital gains. A sector fund is a mutual fund that invests primarily in a particular industry or geographical area, such as the energy or high technology industries.
Which of the following choices best describes the price that a mutual fund investor receives when she redeems her shares? AThe bid price of the previous day's close BThe current offering price CThe next computed bid price on the day that the shares are redeemed DThe next computed asked price on the day that the shares are redeemed
A mutual fund investor who redeems her fund shares will receive the next computed bid price on the day that the shares are redeemed.
Which of the following features applies to a variable annuity, but not to a mutual fund? ASales charge BManagement fees CAdministrative expenses DSurrender charge
A person who invests in an annuity may cancel (surrender) his variable annuity at any time during the accumulation period and receive the annuity's current value. A disadvantage is that the person may be required to pay surrender charges that are determined by how long he has held the annuity.
What type of bond would MOST likely be secured by an excise tax, cigarette tax, or gasoline tax? AGO bond BSpecial tax bond CDouble-barreled bond DSpecial assessment bond
A special tax bond is a type of revenue bond and is usually financed by a tax on certain items such as cigarettes, liquor, or gasoline (excise taxes).
An individual purchased XYZ Corporation common stock at $30 per share. Today, the stock is paying a dividend of $1.10 and is selling for $25. The stock's current yield is: A3.7% B14.6% C17.6% D4.4%
A stock's current yield (also referred to as its dividend yield) is computed by dividing the current annual dividend by the stock's current market price. In this question, the current annual dividend of $1.10 is divided by the current price of $25, which results in a current yield of 4.4%.
The market price of ABC Corporation common stock is $56 and its quarterly dividend is $0.75. What is the stock's current yield? A0.0536 B0.0134 C0.026 D0.068
A stock's current yield is found by dividing the annual dividend by the current market price of the stock. In this example, the stock's annual dividend is found by multiplying the $0.75 quarterly dividend by 4, which is $3.00. Therefore, the current yield is 5.3% ($3.00 ÷ $56).
A vote of the common shareholders is required for a corporation to declare a: ACash dividend BStock dividend CStock split DStock buyback
A vote of the common shareholders is required for a corporation to declare a stock split. Shareholder approval is not required for cash and stock dividends, which are decided by the board of directors. A stock buyback would also be decided by the board of directors.
If an investor wants to build a bond portfolio that maintains a stable value, she should purchase bonds with: AShort maturities BLong maturities CA combination of long and short maturities DZero coupons
A. Although short-term bonds are influenced by changing interest rates, the effect is relatively minor due to their short-term nature. For that reason, investors who want stability in their bond portfolios should invest in short-term debt
Which of the following organizations enforces municipal securities regulations for broker-dealers? AThe FRB BThe FDIC CFINRA DThe MSRB
Although the MSRB creates rules governing municipal securities broker-dealers, its rules are enforced by other regulatory bodies. The appropriate regulatory agencies are the: The SEC or FINRA for broker-dealers The comptroller of the currency for federal banks The FRB for state banks that are members of the FRB The FDIC for member banks of the FDIC
All of the following statements are TRUE of 529 plans, EXCEPT: AWithdrawals that are used for educational purposes are not subject to federal taxation. BThere are no income limits placed on contributors. CContributions are unlimited. DA married couple may make a lump-sum contribution of $150,000 without incurring federal gift taxes.
Although the contribution limits for a 529 plan are quite high, they are not unlimited. Each state establishes the maximum amount that may be contributed to all 529 plans maintained for one beneficiary. All of the other statements are correct. However, it's important to note that an investor who contributes the maximum amount allowable to a 529 plan may incur federal gift taxes. A single investor may contribute up to $15,000 per year ($30,000 for a couple) for each beneficiary without incurring gift taxes. An investor may also aggregate five years' worth of annual contributions and give a lump sum of $75,000 ($150,000 for a married couple) without incurring federal gift taxes.
An individual is short XYZ stock. Which of the following options will provide them with protection? ALong an XYZ call BLong an XYZ put CShort an XYZ call DShort and XYZ put
An individual who sells stock short is betting that the stock will decline in value. However, if the stock's value increases, the investor is subject to unlimited upside risk since the stock will need to be purchased in the market to cover the short position. If the individual purchased a call option, the stock can be purchased at the strike price, thereby locking in the price at which the stock can be purchased. A long put gives the individual the ability to sell the stock at a fixed price, which is not protective for a short seller. Selling options is a means of generating income, but doesn't protect stock positions
If a bond has a basis of 4.35 and a coupon rate of 4.95%, the bond is selling at: AA discount BPar value CA premium DA price that cannot be determined from the information given
Bonds may be quoted based on their yield-to-maturity, which in this example is 4.35 (basis and YTM are synonymous). Since the bond has a yield-to-maturity (basis) of 4.35%, which is lower than the 4.95% nominal yield (coupon rate), the bond is selling at a price that is above the par value of $1,000 (i.e., a premium). On the other hand, if the yield-to-maturity was higher than the nominal yield, the bond would be selling at a discount.
Which of the following statements is NOT TRUE regarding the characteristics of options and warrants? AWarrants are created by the corporation whose stock underlies the instrument; options are created by contract between an option buyer and an option writer. BBoth options and warrants can expire worthless if they are not exercised. CIf options are exercised, a set price must be paid for the underlying security; if warrants are exercised, the securities are received at no additional cost. DBoth options and warrants can be bought and sold in the secondary market.
Both options and warrants have a strike price—if exercised, the transactions for the underlying security will occur at that set price. It is in the case of convertible bonds or preferred stock that investors can convert the security into the underlying stock with no additional payment of money. All other statements are true.
Which of the following interest-rate environments makes call protection MOST valuable to a purchaser of bonds? AIncreasing interest rates BStable interest rates CVolatile interest rates DDecreasing interest rates
Call protection would be most valuable to a purchaser of bonds when interest rates decline. If interest rates fall, existing bond prices rise. A municipality or any issuer would likely call bonds when interest rates decline so it can issue new bonds with lower rates of interest. Although bonds may be callable at a small premium above par value, if the bonds are not callable, the investor may realize the full benefit of an increase in the market price of the bonds.
An advantage a corporation receives when it issues a convertible bond is that: AIt's able to offer bonds with a higher rate of interest to investors BIt's able to offer bonds with a longer maturity to investors CIt's able to borrow money at a lower rate of interest DIt's able reduce the number of shares that it has outstanding
Convertible bonds allow corporations to borrow money at a lower rate of interest (lower coupon) since the convertible feature is an attraction for investors. Investors are willing to accept the lower interest rate in exchange for the opportunity to convert the bonds into common stock. In addition, the investor has some downside protection because, even if the price of the stock falls, the convertible bond still has inherent value as a bond.
Which of the following securities trades in fractional units of 1/32 of a point? AConvertible bonds BMunicipal bonds CTreasury bonds DCorporate bonds
Corporate and municipal bonds trade in increments of 1/8 of a point, while Treasury notes and Treasury bonds trade in increments of 1/32 of a point. A convertible bond is a type of corporate bond
Which of the following sources of revenue is NOT used to pay the debt service on general obligation bonds? AIncome taxes BProperty taxes CLicensing fees and traffic fines DTolls collected at a tunnel located in the municipality
D. A general obligation (GO) bond is backed by the full faith and credit of the municipality. Items that may be used to pay the debt service on GO bonds include fines, sales taxes, property taxes, income taxes, and licensing fees. Items such as tolls, concessions, and lease rental payments would be used to back a revenue bond
An issuer includes warrants with a bond offering that it's conducting. This is done to: AEliminate the dilution of its stock BIncrease the value of its stock CIncrease the yield on the bonds DDecrease the coupon rate on the bonds
D.Warrants are generally considered a "sweetener," which gives holders the ability to purchase stock at a predetermined price for a long period. When issued with bonds, the issuer can typically lower the coupon rate and reduce its interest cost
Which of the following statements is TRUE concerning electronic communication networks (ECNs)? AThey can be used only by retail investors. BThey can be used by investors who want to trade anonymously. CThey can be used only by institutional investors. DThey can be used by clients who don't want to use a broker-dealer.
Electronic communication networks (ECNs) are securities trading systems that are designed to anonymously match buyers with sellers. These systems can be used by both institutional and retail investors. One of the benefits of their use is immediate automatic execution if a matching buy or sell order can be found on the system. ECNs do not allow investors to trade directly with one another; however, they do allow subscribers (e.g., broker-dealers) to use these systems to execute orders that they receive from their clients.
John Trask, one of your customers, is long 100 shares of Plantation, Inc. 6% cumulative preferred stock ($100 par). Over the last three years, Plantation, Inc. has had negative net income and Mr. Trask hasn't received any dividends during that time period. How much must Mr. Trask receive in dividend income this year before common stockholders can receive a cash dividend? A$6 B$24 C$600 D$2,400
Even though the stated dividend is 6%, the Board of Directors must still declare it. Without sufficient earnings for the previous three years, the dividend could not be paid and therefore no common dividends could be paid. Currently, there is $1,800 (6% x $100 par x 100 preferred shares x three years) of preferred dividends in arrears that must be paid to Mr. Trask before a dividend can be paid to common shareholders. Add the $600 that Mr. Trask would need to be paid for this year to the $1,800 from past years and $2,400 must be paid to him before a common dividend can be paid.
What is the typical maturity for an ETN? A180 days or less B270 days or less C1 year D10 to 30 years
Exchange-traded notes (ETNs) are long-term securities which typically have maturities between 10 and 30 years.
A bond with a 4% coupon is priced at a 3.20 basis. If the bond's yield-to-maturity decreased by 10 basis points, the yield would be: A3.90% B3.30% C4.10% D3.10%
If a bond is priced at a 3.20 basis, this means that it is priced to yield 3.20 or has a YTM of 3.20%. If the bond's basis decreased by 10 basis points, the new yield-to-maturity is 3.10%. The fact that the bond has a 4% coupon rate is relevant for determining whether the bond is trading at a premium or discount to par value. Since the bond's YTM is less than 4%, the bond is trading at a premium.
A bond with a 6% coupon is priced at a 7.20 basis. If the bond's yield-to-maturity increases by 40 basis points, the yield would be: A5.60% B6.40% C7.60% D6.80%
If a bond is priced at a 7.20 basis, this means that it is priced to yield 7.20 or has a YTM of 7.20%. If the bond's basis increased by 40 basis points, the new yield-to-maturity is 7.60%. The fact that the bond has a 6% coupon rate is relevant for determining whether the bond is trading at a premium or discount to par value. Since the YTM is greater than 6%, the bond is trading at a discount.
If an options contract is exercised, which of the following statements is TRUE? AThe buyer of a call must deliver the underlying stock BThe buyer of a put will receive the underlying stock CThe seller of a put will be required to buy stock DThe seller of a call will lose the premium
If a put option is exercised, the buyer has the right to put (deliver) the underlying stock to the seller at an agreed-upon price. The seller or writer has the obligation to accept delivery of the stock at the exercise or strike price.
A REIT will receive preferential tax treatment if it distributes at least what percentage of its income to shareholders? A10% B20% C75% D90%
If an REIT distributes at least 90% of its ordinary income to shareholders, the income will only be taxed once (at the investors' level).
Which of the following choices will eliminate a short position in a listed option? AOpening sale BOpening purchase CClosing sale DClosing purchase
If an investor has an open short position that he wishes to liquidate, he will do so through a closing purchase. The following table indicates the different opening and closing transactions. Opening Purchase Establishes a long position Opening Sale Establishes a short position Closing Purchase Liquidates an existing short position Closing Sale Liquidates an existing long position
Interest on U.S. Treasury securities is: ASubject to federal and state income tax BExempt from federal and state income tax CSubject to state income tax, but exempt from federal income tax DSubject to federal income tax, but exempt from state income tax
Interest on U.S. Treasury securities is subject to federal income tax, but exempt from state income tax. This is the opposite of the tax treatment on municipal (state) bond interest, which may be subject to state tax, but is exempt from federal tax.
A decrease in which of the following would cause the price of a bond to increase? AThe bond's rating BThe bond's liquidity CThe issuer's financial strength DThe general level of interest rates
Interest rates and bond prices are inversely related. When interest rates increase, bond prices will fall. When interest rates decrease, bond prices will rise. A decrease in a bond's rating choice (a), a bond's liquidity choice(b), or an issuer's financial strength choice (c), would usually have a negative effect on a bond's price.
A financial services firm that charges customers based on a percentage of the assets under management is BEST defined as: AAn institutional investor BA broker-dealer CAn investment adviser DAn exchange
Investment advisers charge fees for providing advice to their clients. These fees are often based on a percentage of assets under management (AUM) and are charged regardless of whether any trades occurred in their clients' accounts. Broker-dealers earn compensation (e.g., commissions) for executing transactions and an exchange is a facility that brings together the buyers and sellers of securities
Which of the following objectives is the least suitable reason for investing in a mutual fund? ADiversification BProfessional management CShort-term trading DLiquidity
Investors in mutual funds usually seek all of the objectives listed except short-term trading.
The Bond Buyer Index is based on which of the following securities? ATreasury bonds BMunicipal bonds CCorporate bonds DMortgage bonds
Municipal bond indices are created by The Bond Buyer. The Bond Buyer is a financial publication that specializes in the municipal market.
Which of the following investments is the MOST suitable for a person who is interested in aggressive growth? ACommon stock BHigh-yield bond fund CHigh-rated bond DPreferred stock
Of the choices listed, common stock has historically provided the greatest potential for growth. Bonds and preferred stock are typically suitable for investors who are seeking income
The Securities Investor Protection Corporation (SIPC) insures all of the following accounts, EXCEPT: ACorporate accounts BJoint accounts CCommodities accounts DMargin accounts
SIPC insures all of the accounts listed except commodities accounts. Commodities are not securities and therefore are excluded from SIPC coverage.
What is the market outlook for the sellers of call options? ABullish BBearish CNeutral DVolatility
Sellers of call options are bearish (i.e., they want the value of the underlying stock to fall).
Which of the following choices does NOT hold customer cash or securities? AA broker-dealer that maintains omnibus accounts BThe Depository Trust Company CA prime broker DA broker-dealer
The Depository Trust Company (DTC) is a securities depository and national clearinghouse for the settlement of trades. The DTC holds broker-dealer (not customer) funds and securities in the name of member firms. An omnibus broker-dealer carries customer accounts, which means that it holds customer funds and securities. A prime broker performs centralized clearing and account maintenance functions for customers (often institutional) that execute transactions through several other broker-dealers. A broker-dealer carries customer accounts and receives or holds funds and securities.
The purpose of a depository facility is to: AClear transactions in equity securities BClear transactions in fixed-income securities CHold securities in book-entry form DEnsure that dividend payments are sent to investors by the issuers of the securities
The Depository Trust Corporation (DTC) is a subsidiary of the Depository Trust & Clearing Corporation (DTCC) and its primary function is to hold securities in book-entry form. This allows broker-dealers to buy and sell securities on behalf of their customers without the costs and time associated with physical certificates. A change of ownership is made from the account of the selling broker-dealer to the account of the buying broker-dealer. The DTC is not a clearing facility.
Which of the following is controlled by the Federal Reserve Board (FRB)? AInterest rates on bank deposit BThe discount rate CInsurance on deposits that are held at a financial services firm DTrading regulations on U.S. government securities
The FRB controls or sets the discount rate. The discount rate is what the FRB charges its member banks on short-term loans. Any adjustments it makes to the discount rate will influence the fed funds rate, which is the rate that member banks charge one another on overnight loans.
Which of the following government agencies is NOT involved in the housing market? AFederal National Mortgage Association (FNMA) BFederal Home Loan Mortgage Corporation (FHLMC) CFederal Home Loan Banks (FHLB) DGovernment National Mortgage Association (GNMA)
The Federal Home Loan Banks are not involved in the housing market. Instead, the FHLB provides liquidity to savings and loan institutions by lending them money if/when they are in need of funds
What organization acts as the counter-party in all option contracts and provides guarantees in option trading? AOptions Guarantee Association BOptions Guarantee Society COptions Clearinghouse Organization DOptions Clearing Corporation
The Options Clearing Corporation removes counter-party risk by guaranteeing the exercise of all option contracts.
Who creates the Options Disclosure Document? AThe SEC BFINRA CEach broker-dealer DThe OCC
The Options Disclosure Document that's provided to options clients is created by the Options Clearing Corporation (OCC).
The federal securities regulation that provides rules for the secondary market is: AThe Securities Exchange Act of 1934 BThe Investment Advisers Act of 1940 CThe Securities Act of 1933 DThe Securities Investor Protection Act of 1970
The Securities Exchange Act of 1934 establishes the rules for activities that are conducted in the secondary market. The two most recognized secondary markets are the New York Stock Exchange (NYSE) and Nasdaq. The Act of 1934 created the Securities and Exchange Commission (SEC) and gave it preeminent regulatory authority over domestic securities dealings in both the primary and secondary markets.
A bond is selling at a premium. This indicates that: AThe yield to maturity is greater than the nominal yield BThe market price is less than the par value CInterest rates have decreased since the bond was issued DThe nominal yield is less than the current yield
The amount that the market price exceeds the par value is known as a premium. One reason for selling at a premium is a decrease in interest rates after the bonds were issued. When looking at the yields for premium bonds, the nominal yield is the highest, followed by the current yield, with the yield to maturity being the lowest yield of the three.
An annuitant is receiving payments from a variable annuity and, at the time of his death, his beneficiary receives a lump-sum payment. The annuity payout option is: AStraight life annuity BJoint and last survivor life annuity CUnit refund life annuity DStraight life annuity with period certain
The annuity payout option that provides the beneficiary with a lump-sum payment at the time of the annuitant's death (which reflects the value of the remaining annuity units) is referred to as a unit refund life annuity.
When a bond is called, the bondholder receives the: ACall price BCall price plus accrued interest CMarket price DMarket price plus accrued interest
The bondholder receives the call price (either at par or at a premium) plus accrued interest earned up to the call date.
Southern California Gas is issuing 5 3/4% first mortgage bonds at a price of 96.35% of their par value. The payment of interest and principal on the bond is secured by: ARevenue from the Southern California Gas company BThe mortgages on property owned by the state of California CThe state of California DProperty owned by Southern California Gas
The bonds are first mortgage bonds, which means they are secured by property that is owned by the Southern California Gas Company. Since the company is publicly owned, the bonds are not secured by property that is owned by the state of California.
A 5% $1,000 par value bond sells at $900 and is maturing in 10 years. What is the amount of interest per year? A$10 B$40 C$45 D$50
The dollar amount of interest a bond pays is computed as a percentage of the par value. In this example, the coupon rate is 5%. The interest income per year is $50 (5% of $1,000 par value equals $50).
The earnings in Section 529 Savings Plans: AAre taxable in the year in which they are earned BAre taxable to the account owner when distributions are made CMust be distributed and taxed to the beneficiary each year DAccumulate on a tax-deferred basis as long as the money stays in the plan
The earnings generated from the investments in a Section 529 Savings Plan accumulate on a tax-deferred basis as long as the money remains in the plan. Qualified withdrawals that are used for higher education expenses will not be subject to federal taxes.
A corporate bond is convertible at $25 and the underlying stock is currently selling at $30 per share. If the corporation indicates that the bond will be called at 115 ($1,150) on the next call date, what is the BEST advice to give to the bondholder? AConvert the bond BLet the bond be called CWait until the corporation makes a better offer DPurchase additional bonds
The first step is to determine the conversion ratio. To calculate the conversion ratio, the bond's par value ($1,000) is divided by its conversion price ($25), which equals 40 shares. The conversion value is then found by multiplying the conversion ratio (number of shares received) by price per share, which is $1,200 (40 shares x $30 per share). The best advice to the bondholder is to convert the bond into stock (value of $1,200), rather than to allow the bond to be called (value of $1,150)
The fourth market is BEST defined as: AExchange-listed securities trading in the OTC market BUnlisted securities trading on regional exchanges CUnlisted securities trading in the OTC market DTrading directly between institutional investors
The fourth market refers to direct institution-to-institution trading and does not involve the public markets or exchanges. The third market is the term used to describe a situation in which a security that's listed on the exchange is traded in the OTC market
A client is interested in determining the expense ratio of a mutual fund. Which of the following actions is the MOST appropriate for a registered person to take? AInstruct the client that the information can be obtained from FINRA BRefer the client to the fund's sponsor since the RR may not be authorized to release this information CInstruct the client that the information can be obtained from the SEC database of mutual fund prospectuses DInform the client that this information can be obtained by reviewing the front of the fund's prospectus
The front of a mutual funds prospectus is required to provide a standardized table of all its fees. The fee table must include the expense ratio, which is the percentage of a fund's assets that is used to pay its operating costs. The ratio is determined by dividing total expenses by the average net assets in the portfolio.
The member of a limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management is the: AGeneral partner BSenior limited partner CManagement committee which is chosen by the limited partners DSyndicator
The general partner is the member of the limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management.
What is the breakeven point for the buyer of a call option? AThe strike price minus the premium BThe strike price plus the premium CThe strike price DThe market price plus the premium
The holder (purchaser) of a call expects the market price of the underlying security to rise and therefore will profit from a rise in the security. The breakeven point for the buyer of a call option is the strike (exercise) price plus the premium. For example, a customer who purchases an XAM June 40 call at 3 would break even if XAM was trading at $43. The breakeven point for the buyer of a put option is the strike price minus the premium.
Shares of a closed-end fund are available on the NYSE at $21.50 per share. The customer will pay: A$21.50 + a sales charge B$21.50 + a commission C$21.50 with no commission or sales charge D$21.50 less a commission
The key to this question is in recognizing that the customer is buying shares of a closed-end fund. Closed-end fund shares are exchange-traded securities and are purchased with commissions or sold less a commission. On the other hand, shares of open-end companies (mutual funds) trade for their NAV plus any applicable sales charges. The NAV + sales charge is considered the mutual fund's public offering price (POP).
As far as variable annuities are concerned, which of the following statements is TRUE? AThe investment risk is borne by the insurance company as in a fixed annuity BPayments of a variable annuity can be decreased because of an increase in the expenses of the insurance company CRRs selling variable annuities are not required to register with the SEC or FINRA DVariable annuity nonqualified separate accounts are registered under the Investment Company Act of 1940
The only true statement listed concerning variable annuities is variable annuity nonqualified separate accounts (the mutual fund portion) are registered under the Investment Company Act of 1940. The investment risk (fluctuation in the market value of the separate account) is borne by the annuity owner, not by the insurance company as in the case of a fixed annuity. Payments of a variable annuity cannot be decreased because of an increase in the expenses of the insurance company. RRs selling variable annuities are required to register with the SEC and FINRA.
A company has a noncumulative preferred stock outstanding that pays a $5 dividend per year. If dividends on the preferred stock were not paid last year, but will be paid this year, how much will the preferred stockholder receive? A$5 B$10 C$15 D$20
The preferred stock is noncumulative, which means that if the dividend is not paid, it does not accumulate to the next year. Therefore, the preferred stockholder will receive only $5 for this year
The shares of a closed-end fund that trades on the NYSE has a current price of $21.70. A customer who purchases the shares will pay: A$21.50 plus a commission B$21.50 plus a sales charge C$21.70 plus a commission D$21.70 plus a sales charge
The purchasing customer will pay $21.70 plus a commission. Shares of a closed-end fund are purchased and sold like any other stock that trades on the NYSE. The customer will pay the offer price plus a commission on purchases or receive the bid price less a commission on sales. The term sales charge refers to the built-in compensation that's assessed by open-end (mutual fund) companies when a customer buys the fund's shares.
Two years ago, an investor bought mutual fund shares. Today, if the investor intends to purchase additional shares, she can obtain a reduced sales charge by using: AA letter of intent BDividend reinvestment CDollar cost averaging DRights of accumulation
The rights of accumulation provision gives investors the ability to receive cumulative quantity discounts when purchasing additional mutual fund shares. Under the rights of accumulation provision, rather than using the original purchase price, the current market value of the investment plus any additional investments is used to determine the applicable sales charge. Once a breakpoint is reached, all future purchases qualify for the reduced sales charge. On the other hand, a letter of intent qualifies an investor for a discount that's made available through breakpoints without initially depositing the entire amount required.
Which of the following terms is NOT associated with a variable annuity? ASurrender charge BDeath benefit CCommission DSales charge
The term commission is associated with buying and selling individual securities, not annuities. On the other hand, the term sales charge or load is associated with buying or redeeming units of a variable annuity or shares of a mutual fund.
A customer contacts a registered representative and wants to invest a large sum of money in four different mutual fund families. Which of the following statements is the MOST important disclosure the RR should make to the client? AThe customer will not be able to diversify his assets BThe customer will not be able to switch mutual funds within each family CThe customer will not be able to receive a single account statement DThe customer will not be able to receive sales breakpoints
The term fund family or fund complex is used to define a single investment company or mutual fund company with many different types of mutual funds that a customer may choose to purchase. The objective is to provide a large number of mutual funds providing a broad range of suitability for investors. A customer may be able to invest a large sum of money with one fund family, receive a sales breakpoint (reduced sales charge), diversify his assets, and have the ability to switch between mutual funds. The most important disclosure that should be made to the client is that there is no advantage to allocating his investment in four different fund families, thereby losing the possibility of receiving a reduced sales charge (sales breakpoints). The ability to receive a single account statement is not an important disclosure and this information is usually provided to clients that have different fund families with a single broker-dealer.
A customer purchased a premium bond which gives the issuer the ability to redeem the entire issue prior to maturity. Which yield is MOST relevant? AYield-to-call BYield-to-maturity CCurrent yield DNominal yield
The yield-to-call (YTC) represents a bond's yield if it is called or redeemed prior to maturity; however, the yield-to-maturity (YTM) represents the bond's true yield if it is held to maturity. Since a premium bond's YTC is lower than its YTM, the YTC must be used when quoting the yield to a customer. A bond's nominal yield is its coupon rate or annual return, while a bond's current yield measures what the investor will receive each year based on her (potential) purchase price.
A convertible bond has a conversion price of $40 and is currently selling in the market at $950. The conversion ratio is: A25 B23.75 C40 D38
To find the conversion ratio of a convertible bond, the bond's par value ($1,000) is divided by the conversion price ($40). In this question, the conversion ratio is $25 ($1,000 ÷ $40). To calculate the conversion ratio, the market price of the bond is irrelevant.
When purchasing Treasury notes, an investor should understand: ADelivery is in either book entry or physical form BInterest is paid at maturity CInterest is paid semi-annually DPrincipal is adjusted for inflation
Treasury notes and bonds pay interest semi-annually. Treasury securities are only issued in book entry form. Treasury Inflation Protected Securities (TIPS) are adjusted for inflation
A U.S. government bond is selling in the market at 95.28. The dollar value of this bond is: A$950.87 B$952.80 C$958.75 D$9,587.50
U.S. government bonds are quoted as a percentage of par with a fraction in 32nds of a point. Therefore, a T-bond quoted at 95.28 is equal to 95 28/32. By converting the fraction to a decimal, the quote becomes which is 95.875% of the par value of $1,000. $1,000 x 95.875% = $958.75.
Which of the following is defined as an investment company? AHedge fund BPrivate equity fund CUnit investment trust (UIT) DReal estate investment trust (REIT)
Unit investment trusts, face amount certificates, and management companies (open-end and closed-end) are defined as investment companies. Although hedge funds, private equity funds, and REITs have characteristics that are similar to investment companies, they are not investment companies
While saving for her retirement, a variable annuity owner investing $1,000 per month will buy a: AFixed number of annuity units BFixed number of accumulation units CVarying number of annuity units DVarying number of accumulation units
When investors purchase a variable annuity contract, they are purchasing accumulation units. Once a contract has been annuitized, distributions are made by liquidating annuity units. Since the value of the subaccounts will fluctuate, a client investing $1,000 per month will purchase a different number of accumulation units with each purchase.
When an investor sells her mutual fund shares back to the fund, she is assessed a fee which is returned to the fund. The fee is referred to as which of the following? A12b-1 fee Redemption fee CContingent deferred sales charge DBack-end load
When mutual fund shares are redeemed, some funds deduct a small redemption fee from the amount that's paid to the investor. This fee is returned to the fund's portfolio and is not considered compensation to a salesperson. The purpose of the fee is to discourage investors from redeeming their shares too quickly. Some funds allow investors to buy shares at the NAV and will then assess a sales charge when the investors redeem their shares. Usually, the longer an investor owns the shares, the greater the reduction in the sales charge. Due to the decreasing charge, this form of load is referred to as a back-end load or a contingent deferred sales charge (CDSC).
If a stock is sold before the ex-dividend date, but delivered after the record date, it must be accompanied by: AA letter from the transfer agent BThe signature of the owner of the stock CA power of attorney DA due bill
When the selling party delivers a security after the date on which the new owner is entitled to receive a cash dividend, the seller must deliver the security with a due bill attached. The due bill recognizes that the buyer is owed the dividend.
