22

All of the following securities trade in the over-the-counter market EXCEPT: A) Open-end investment companies. B) American depositary receipts. C) Nasdaq securities. D) Government and agency securities.

A) Open-end investment companies.

The Options Clearing Corporation uses which of the following methods to assign exercise notices? A) Random selection. B) Assign it to the member firm holding a long position that first requests an exercise . C) First in, first out (FIFO). D) Assign it on the basis of the largest position.

A) Random selection

The MSRB is authorized under the Securities Exchange Act of 1934 to make rules about all of the following EXCEPT: A) information provided by municipal issuers. B) municipal dealer recordkeeping. C) the dissemination of price and yield quotes by municipal dealers. D) dealers obtaining fair and reasonable prices for customers.

A) information provided by municipal issuers.

When a customer sells $20,000 of securities from a margin account, all of the following are affected EXCEPT: A) the equity. B) the long market value. C) the debit balance. D) the SMA.

A) the equity Equity is only affected by changes in market prices and never by sales of securities in the account.

A customer requests information on a new mutual fund and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted: A) under no circumstances. B) if approved by a principal. C) if accompanied by an unmarked prospectus. D) without restriction.

A) under no circumstances.

MNO is planning to raise capital through an offering of 30-year bonds. Which call price would be most beneficial to MNO? A) 104. B) 102. C) 106. D) 110.

B) 102. MNO would benefit most from the ability to call bonds at the lowest possible price. The call feature enables MNO to buy the bonds before maturity to reduce their fixed interest costs. A call price of 102 requires the lowest call premium of the options shown.

SEC regulation SHO mandates a locate requirement for short sales that is applicable to I. corporate bonds. II. NYSE issues. III. Nasdaq securities. IV. Municipal bonds. A) I and III. B) II and III. C) I and IV. D) II and IV.

B) II and III. This regulation mandates a locate requirement: before the short sale of any equity security, firms must locate the securities for borrowing to ensure that delivery will be made on settlement date.

Index options are frequently used to protect a portfolio against which of the following risk types? A) Inflation. B) Systematic. C) Business. D) Credit.

B) Systematic. Index options protect investor portfolios from the risk of overall market movement, also known as systematic risk.

Which of the following are required to be given to retail customers at settlement in municipal new issue transactions? I. Confirmation showing the purchase price. II. Official statement. III. Names of syndicate members with their participation amounts. IV. Copy of the agreement among underwriters. A) II and IV. B) I and III. C) I and II. D) III and IV.

C) I and II.

Which two statements are TRUE regarding margin calls? I. Customers are entitled to an extension of time. II. Customers are not entitled to an extension of time. III. Firms can sell securities without first contacting the customer. IV. Firms cannot sell securities without first contacting the customer. A) I and III. B) I and IV. C) II and III. D) II and IV.

C) II and III.

Which of the following bonds may be secured by a leaseback arrangement? A) Housing authority bonds. B) Variable-rate demand obligations. C) Lease-rental bonds. D) Toll-bridge bonds.

C) Lease-rental bonds.

Which of the following is the broadest index? A) The Dow Jones Industrial Average. B) The S&P 500. C) The Wilshire Index. D) The S&P 100.

C) The Wilshire Index. (Wilshire 5000)

The placement ratio, as shown in the "Bond Buyer", is: A) bonds issued/bonds unsold. B) bonds sold/bonds unsold. C) bonds sold/bonds issued. D) bonds issued/bonds sold.

C) bonds sold/bonds issued. The placement ratio is a measure of investor demand for new issue municipal bonds. It is computed by dividing the amount of bonds sold each week by the amount issued that week.

All of the following should be considered when creating a diversified municipal bond portfolio EXCEPT: A) geographic location of the issuer. B) revenue source backing the bonds. C) denomination of the bonds included in the portfolio. D) credit rating.

C) denomination of the bonds included in the portfolio

An intrastate offering is exempt from: A) blue-sky registration. B) state registration. C) federal registration. D) all registrations.

C) federal registration.

A Tier 1 securities offering under Regulation A+ allows small to medium sized companies to A) raise up to a maximum of $5 million in a 12-month period B) raise up to a maximum of $10 million in a 12-month period C) raise up to a maximum of $20 million in a 12-month period D) raise up to a maximum of $15 million in a 12-month period

C) raise up to a maximum of $20 million in a 12-month period

All of the following statements concerning investment companies are true EXCEPT: A) an investment company that invests the majority of its assets in one industry may still qualify as a diversified company. B) a nondiversified company is any management company not classified as a diversified company. C) to be considered a diversified investment company, the company must invest in both equity and debt instruments. D) a diversified company can be either an open-end or a closed-end investment company.

C) to be considered a diversified investment company, the company must invest in both equity and debt instruments.

A customer in the 28% tax bracket owns a 9% ABC Corporation 20-year bond that currently is yielding 8.7%. He is considering buying tax-exempt securities. What is the comparable yield for a municipal bond? A) 0.1208. B) 0.0648. C) 0.125. D) 0.0626.

D) 0.0626. When comparing the yield of a taxable corporate bond to a tax-free municipal bond, use the formula: interest on corporate bond × (100% − tax bracket). In this case, 8.7% × .72 = 6.264%. Remember to use the yield to maturity, not the coupon rate. The bond is currently priced to yield 8.7%. In this case, a tax-exempt bond yielding more than 6.264% will provide a higher after-tax return.

An investor purchases a corporate bond at 105 with a 10-year stated maturity and pays $30 of accrued interest. If he elects not to amortize the premium and holds the bond to maturity, what is his cost basis for tax purposes? A) 1080. B) 1020. C) 1000. D) 1050.

D) 1050.

Which of the following actions would increase SMA in a long margin account? A) A stock dividend received. B) A long purchase. C) A decline in CMV. D) A long sale.

D) A long sale. Of these choices, an increase in SMA can only be accomplished by a sale of securities held long in the account. A purchase would decrease the SMA if it is used to make the purchase. Stock dividends have no effect on the balances in a long margin account, only the number of shares is changed. A decline in the CMV would not change the SMA.

Badentown is planning to raise money in 3 months to build a new city hall. The mayor wishes to start ground preparation immediately. How could money be raised to fund the work? A) Special assessment bond. B) Limited tax bond. C) Construction loan note. D) Bond anticipation note.

D) Bond anticipation note.

If a customer establishes a debit spread, the customer profits if the: I. spread widens. II. spread narrows. III. option expires. IV. options are exercised. A) I and III. B) II and III. C) II and IV. D) I and IV.

D) I and IV.

Which of the following trades settle next business day? I. U.S. government debt. II. U.S. government agency debt. III. Municipal bonds. IV. Listed options. A) I and II. B) I and III. C) II and III. D) I and IV.

D) I and IV. U.S. government debt and listed options settle next day; government agency debt and municipal bonds are subject to regular way settlement of T + 3.

To narrow the spread between the bid and the asked price of one of his stocks, a specialist enters a bid to buy for his own account, acting in this transaction as a: A) broker (or agent). B) floor broker. C) broker/dealer. D) dealer (or principal).

D) dealer (or principal) A specialist (designated market maker) buying for his own account is operating as a dealer, which means he is acting as a principal in the transaction.

After-hours trading in large blocks of stock by institutional investors can be accomplished through: A) the intermarket. B) Nasdaq. C) any regional exchange. D) electronic communications networks (ECNs)

D) electronic communications networks (ECNs)

Communications with the public include all of the following EXCEPT: A) independently prepared reprints forwarded to your firm's customers. B) television appearances by an officer of the firm. C) institutional sales material. D) informational material on a new mutual fund intended for sales personnel.

D) informational material on a new mutual fund intended for sales personnel. Material intended for internal use only is not considered a communication with the public.

An insured municipal bond is purchased by your client in the secondary market. After the sale, MSRB rules would require you to: A) include a copy of the insurance policy with delivery of the certificates. B) send a copy of the Official Statement. C) indicate that the bonds are insured on the confirmation because this is the only requirement. D) make delivery of the certificates accompanied by evidence of insurance, either on the face of the certificates or in a separate document.

D) make delivery of the certificates accompanied by evidence of insurance, either on the face of the certificates or in a separate document.

The term that describes options of the same exercise price and expiration date for the same underlying security is: A) issue. B) type. C) class. D) series.

D) series.