Series 65 Quiz Missed Questions
Which of the following are subject to the holding period requirements of Rule 144 of the Securities Exchange Act of 1934? Registered securities held by a control person Unregistered securities held by a noncontrol person Registered securities held by a noncontrol person Unregistered securities held by a control person A) II and IV B) I and IV C) II and III D) I and III
A) II and IV The holding period requirement of Rule 144 applies to unregistered securities, no matter who the owner is.
Treasury bills are A) issued in book-entry form. B) issued at par. C) callable. D) issued in bearer form.
A) issued in book-entry form. All Treasury securities are issued in book-entry form. Treasury bills are always issued at a discount and are never callable.
Which of the following has the least exposure to inflation risk? A) Preferred stock B) Common stock C) Cash D) Fixed annuity
B) Common stock The returns on common stock have historically outperformed inflation, making them less vulnerable to loss of purchasing power among the choices presented. Cash is a store of present purchasing power that inflation will erode. Fixed annuities have more exposure to inflation than common stock because their payments are fixed in nominal dollars. Preferred stock has the same exposure to inflation risk as do all fixed-income instruments.
Which of the following statements concerning equity securities is not correct? A) Common stock is an equity security representing an ownership interest in a corporation. B) Equity securities represent a lending interest in a corporation. C) Equity securities provide a residual claim, after payment of all obligations to fixed-income claims, on the income and assets of a corporation. D) Preferred stock is an equity security with an intermediate claim (between the bondholders and the common stockholders) on a firm's assets and earnings.
B) Equity securities represent a lending interest in a corporation. Equity securities represent an ownership interest in a corporation. Preferred stock, as a senior security, has a claim ahead of common but behind debt securities.
A client is trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are equal and your client is in a 28% marginal income tax bracket, which bond do you tell the client to purchase and why? A) The municipal bond because its equivalent taxable yield is 6.30% B) The municipal bond because its equivalent taxable yield is 6.60% C) The corporate bond because the after-tax yield is 4.50% D) The corporate bond because the after-tax yield is 6.25%
B) The municipal bond because its equivalent taxable yield is 6.60% If we compute the tax-equivalent yield of the muni, we see that it is 6.60%, which is a higher return than the 6.25% on the corporate bond. The formula to get this starts by taking the investor's tax bracket and subtracting it from 100%. 100% − 28% = 72%. We then divide the muni coupon of 4.75% by the 72%, and the result rounds off to 6.6%
One of the features of convertible preferred stock is that A) the dividend is paid ahead of all other securities. B) the owner has the opportunity to participate in the growth of the company. C) the holder is able to select the conversion price. D) the owner has the opportunity to convert the stock into the issuer's bonds.
B) the owner has the opportunity to participate in the growth of the company. Any convertible security, preferred stock, or debenture is convertible into the issuer's common stock. As a result, if the business is successful, the common stock's price will rise to the point where conversion is a wise idea. Although the investor can generally select when to convert, the conversion price or ratio is set at the time of issuance. Interest on debt securities is paid before the dividends on any stock. When it comes to preferred stock, there is frequently a pecking order, such as a prior lien preferred or first preference preferred that would come ahead of the other preferred shares.
One of the rights of being a common stockholder is the ability to vote on important corporate matters, such as the election of members to the board of directors. The date that determines which shareholders are eligible to vote is A) the election date. B) the record date. C) the last day of the company's fiscal year. D) the ex-dividend date.
B) the record date. The record date is a date announced by the company as the official date you must be an owner on the company's records in order to participate in the annual meeting and corporate election. A fact not tested is there is no standard regarding how far in advance of the voting date this should be other than it must be at least the normal settlement period, currently two business days.
An investor purchased a bond with a 6% coupon rate exactly three months after its most recent interest payment. As a result, the buyer will pay $15 accrued interest. the buyer will receive $15 accrued interest. the seller will pay $15 accrued interest. the seller will receive $15 accrued interest. A) II and IV B) II and III C) I and IV D) I and III
C) I and IV First of all, a 6% bond pays $30 semiannually (half of $60 per year). Therefore, the accrued interest on this bond purchased halfway between interest payments is half of $30 or $15. That $15 dollars is added to the purchaser's cost and will be paid to the seller as it represents the interest the seller earned for holding the bond for three months. At the next interest payment date, the purchaser will receive the full $30 payment representing the accrued interest paid to the seller plus the interest earned for the three months the purchaser held the bond.
Which two of the following investments would offer your clients the best chance of minimizing inflation risk? Common stock Callable preferred stock Money market mutual funds TIPS A) II and III B) III and IV C) I and IV D) I and II
C) I and IV Historically, common stock has been the best hedge against inflation. TIPS (Treasury Inflation-Protected Securities) are government-guaranteed debt issues that automatically adjust the principal based upon the inflation rate.
ABC Corporation has a 10% noncumulative preferred stock outstanding at $100 par value. Two years ago, ABC omitted its preferred dividend, and last year, it paid a dividend of $5 per share. To pay a dividend to common shareholders this year, each preferred share must be paid a dividend of A) $15. B) $5. C) $25. D) $10.
D) $10. This stock has a par value of $100 and a dividend rate of 10%. That means the annual dividend will be 10% of the $100 par, or $10. Because this is noncumulative preferred stock, the company must pay only this year's full stated dividend of $10 per share before paying dividends to the common shareholders. Any dividends from previous years that were not paid are ignored. If this had been a cumulative preferred stock, all of the dividends in arrears (past unpaid) would have to be paid before the common shareholders could get a dividend. In that case, it would have been $10 for two years ago, $5 for the balance of last year's dividend, and $10 for this year's (a total of $25).
An investor interested in monthly interest income should invest in A) utility company stock. B) corporate bonds. C) Treasury bonds. D) GNMAs.
D) GNMAs. GNMAs pay monthly interest and principal, treasury bonds pay semiannual interest, utility stocks pay quarterly dividends, and corporate bonds pay semiannual interest.
Which of the following statements concerning international direct investing is correct A) The addition of foreign securities to a portfolio may result in increased portfolio risk due to the different movements of foreign markets and U.S. markets. B) Foreign markets are usually mature and offer no growth advantages. C) The rates of return on foreign securities are generally less than those available from U.S. markets. D) Information is not as readily available on foreign investments as on domestic ones
D) Information is not as readily available on foreign investments as on domestic one In general, foreign investments don't have the transparency of domestic ones. Rather than directly investing in the foreign security, trading the ADR has the advantage of the full disclosure requirements of the SEC. Investors may earn higher returns in foreign markets, and including foreign securities in an investment portfolio may lower risk through greater diversification. This is because there may be a low correlation with U.S. markets. Although securities markets in most developed economies are mature, that doesn't mean they can't grow, and the markets in emerging economies offer great potential growth commensurate with their greater risk.
An investor holding which of the following equity securities would not expect to have preemptive rights? A) Control stock B) Common stock acquired in a private placement C) Common stock D) Preferred stock
D) Preferred stock Preferred stockholders do not have preemptive rights. Preemptive rights allow common stockholders to subscribe to additional issues of shares before they are offered to the public, to maintain their percentage ownership.
What rate of interest would a bank in England charge another British bank for a short-term loan? A) Prime rate B) Discount rate C) Fed funds rate D) SOFR
D) SOFR For more than 40 years, the London Interbank Offered Rate—commonly known as LIBOR—was a key benchmark for setting the interest rates charged on adjustable-rate loans, mortgages, and corporate debt. Over the last decade, LIBOR has been burdened by scandals and crises. Effective January 2022, LIBOR is no longer being used to issue new short-term loans in the U.S. It was replaced by the Secured Overnight Financing Rate (SOFR) which many experts consider a more accurate and more secure pricing benchmark
One year ago, ABC Widgets, Inc., funded an expansion to its manufacturing facilities by issuing a 20-year first mortgage bond. The bond is secured by the new building and land and is callable at par 15 years after the issue date. The bond was issued with a 5.5% coupon and is currently rated Aa. If the current market price of the bond is 105, A) the yield to call is higher than the current yield. B) the yield to maturity is higher than the current yield. C) the nominal yield is lower than the current yield. D) the yield to call is lower than the yield to maturity.
D) the yield to call is lower than the yield to maturity. When a bond is selling at a premium (105 means 105% of $1,000, or $1,050), the order—from highest to lowest yield—is nominal (coupon) yield, current yield, YTM, and YTC. If the bond is callable at a premium, the order could be changed, but it is highly unlikely that the exam will present that situation in a question.
All of the following are true of negotiable, jumbo certificates of deposit except A) they are usually issued in denominations of $100,000 to $1 million or more. B) they usually have maturities of one year or less. C) they are readily marketable. D) they are secured obligations of the issuing bank.
they are secured obligations of the issuing bank. Negotiable CDs are general obligations of the issuing bank; they are not secured by any specific asset. They do qualify for FDIC insurance (up to $250,000), but that is not the same as stating that the bank has pledged specific assets as collateral for the loan.
