Series 7 Missed Questions - Test 1

A member of a $5 million Eastern account that has a $500,000 participation fails to sell $200,000 of bonds. At the close of the offering, if $1 million of bonds remains unsold, the member must take down:

100000 In an undivided (Eastern) syndicate, each member is responsible for its portion of the offering regardless of how many bonds it has already placed. If the member was liable for 10% of the issue's original dollar value, it is committed to take down 10% of any bonds remaining unsold (10% of $1 million equals $100,000).

Under OCC rules regarding options communications with the public, if an educational piece making no projected performance figures or recommendations is distributed to customers it:

need not be preceded by an options disclosure document (ODD) ****Still Requires Options Principal Review****

When determining whether a tax swap of municipal bonds will result in a wash sale, each of the following are considered EXCEPT:

principal amount. In judging whether bonds purchased are substantially identical to bonds sold for a loss, the tax code considers maturity, issuer, and coupon rate. If at least two of the three are different, a wash sale will generally not result.

A quote on Nasdaq is as follows: Bid Ask 10 10.50, 1300 x 1500 The market maker is obligated to execute all of the following customer transactions in their entirety EXCEPT:

sell 1,500 shares at 10. This market maker has quoted a size of market of 1,300 − 1,500, which means it stands ready to buy a maximum of 1,300 shares at $10 and sell a maximum of 1,500 shares at 10.50. A sale of 1,500 shares at 10 is outside the size of this quote.

In rating a general obligation (GO) bond, all of the following factors would be considered by an analyst EXCEPT

the flow of funds General obligation bonds are backed by the full faith and credit of a municipal issuer which is based on its ability to levy and collect taxes. Therefore, among the considerations for an analyst, total outstanding debt, the tax collection ratio, and the public's attitude toward more municipal debt are prominent. The flow of funds is one of the protective covenants associated with municipal revenue bonds.

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:

$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.

An investor owns $100,000 of convertible bonds with a conversion price of $50. By depositing these bonds into his account, how many covered calls could he write?

20 These bonds are convertible into 20 shares for each $1,000, making a total of 2,000 shares. That's enough stock to cover 20 calls.

Trading in expiring options series concludes the same day as expiration at

4:00 pm ET The official close is 4:00 pm ET on the 3rd Friday of the expiration month. Expiring options may be exercised until 5:30 pm ET on the same day.

A customer places an order to sell short 100 DEF 52.50 STOP. After placing the order, DEF trades as follows: 53, 52.60, 52.20, 53 SLD, 52.10, 52.25. At which trade can the order be executed?

52.10 After the sell stop order is triggered (at 52.20), it becomes a market order to sell at the next price in the trade sequence. The trade at 53 is qualified by SLD, which indicates a delayed report of a previous trade and is not part of the tick sequence. Therefore, the order will be executed at 52.10.

Which of the following is TRUE of the visible supply in "The Bond Buyer"?

It is a weekly listing of bonds to be offered in the next 30 days.

A convertible bond has a conversion price of $40 per share. If the market value of the bond rises to a 12½ point premium over par, which of the following are TRUE?

Conversion ratio is 25:1 Parity price of the common stock is $45 The conversion ratio is computed by dividing par value by the conversion price ($1,000 par / $40 = 25). Parity price of the common stock is computed by dividing the market price of the convertible bond by the conversion ratio ($1,125 / 25 = $45). Or, 112½% × $40 = $45.

Which of the following risks would impact CMO investors the least?

Liquidity risk CMO investors are always subject to rate risk, which includes maturity and prepayment risk. Because CMOs trade OTC they are fairly liquid allowing investors to purchase or sell them easily at fair market value.

Super Display Book (SDBK) is the electronic order processing system used by which of the following markets for trading common stocks?

New York Stock Exchange (NYSE)

In a municipal underwriting, total takedown can be described as:

additional takedown plus concession. The total takedown has two components: concession and additional takedown.

Compared to defined contribution plans, defined benefit plans give the highest return to employees who:

are highly compensated have fewer years until retirement

A broker/dealer that is a financial adviser to a municipal issuer

cannot act as an underwriter of the issuers bonds in a negotiated underwriting and receive compensation for both services. cannot act as an underwriter of the issuers bonds in a competitive bid underwriting and receive compensation for both services.

Working capital is

current assets - current liabilities

The ABCD Corporation has a beta coefficient of 1.25. Your client's portfolio contains $20,000 of ABCD. After a rise in the overall market of 10%, we would expect the value of this client's ABCD to:

increase by $2,500 A stock with a beta coefficient of 1.25 could be expected to rise in value at a rate 25% greater than the overall market. Since the market has increased by 10%, this stock should increase by 12.5% or $2,500 (10% × 1.25 × $20,000 = $2,500).

A new bond issue will include warrants to:

increase the attractiveness of the issue to the public.