Series 7 Unit 2 Test

Which of the following mortgage-backed securities would provide investors with the most predictable maturity date? A. PACs B. TACs C. GO bonds D. Revenue bonds

A. PACs

A bond is selling at a premium over par value. Therefore, its A. current yield is less than its nominal yield B. nominal yield is less than its current yield C. yield to maturity is greater than its current yield D. none of the above

A. current yield is less than its nominal yield

An investor buys a convertible bond at part with a conversion price of $25, and the current market value of the common stock is $23. Interest rates fall significantly, increasing the bond's price to 110; the stock market responds and the stock's price appreciates to $27 a share. Which of the following is the best option? A. do not convert the bond at this time B. convert on a plus tick C. convert and sell the stock at a profit D. convert and sell the stock short exempt

A. do not convert the bond at this time

A type of zero-coupon bond issued by broker/dealers is referred to as a Treasury: A. receipt B. certificate C. note D. series

A. receipt

Which of the following bonds trade flat? A. Revenue bonds B. Income bonds C. GO bonds D. Mortgage bonds

B. Income bonds

Intrest rates have been rising for the past few days, which means that the price of bonds traded in the secondary market has A. increased B. decreased C. stayed the same D. bond prices are not affected by interest rates

B. decreased

A customer buys a 6% T-bond, maturing in 10 years, at a price of 91.07. The YTM is A. less than nominal yield B. greater than nominal yield C. less than current yield D. same as current yield

B. greater than nominal yield

All of the following statements regarding convertible bonds are true EXCEPT A. holders may share in the growth of the common stock B. holders receive a higher rate of interest C. the issuer pays a lower rate of interest D. holders have a fixed rate of interest

B. holders receive a higher rate of interest

The term trading flat means A. the bond is in default B. there is no accrued interest C. the price of the bond has remained level D. the bond is sold without markup or commission

B. there is no accrued interest

A client acquires a newly issued $1,000 par, 5% convertible corporate bond convertible into common at $40 per share. The common stock increases 20% from initial parity as the result of a hopeful earnings projection. What is the parity price of the bond after the rise in the common stock's price? A. $800 B. $1,000 C. $1,200 D. $1,250

C. $1,200

A corporate bond is quoted at 102 5/8. A customer buying 10 bonds would pay A. $10,025.80 B. $10,258.00 C. $10,262.50 D. $10,285.00

C. $10,262.50

During periods when the yield curve is normal, as market interest rates change, which of the following is TRUE? A. both short-term and long-term bond prices move equally B. short-term bond prices move more sharply C. long-term bond prices move more sharply D. there is no relationship between the relative price movements of short-term and long-term bonds

C. long-term bond prices move more sharply

All of the following are characteristics associated with equity-linked notes (ELNs) EXCEPT A. they can be exchange traded or traded OTC B. they have final payments at maturity linked to the return of an underlying stock or basket of stocks C. they are equity securities D. all ELNs offer principal protection

C. they are equity securities

Of the following S&P ratings shown here, below which one of them would all other S&P rating be considered speculative? A. A B. B C. BB D. BBB

D. BBB

Debt obligations of which of the following are directly guaranteed by the federal government? A. Federal Home Loan Banks B. Federal Housing Loan Guarantee Corporation C. Federal National Mortgage Association D. Government National Mortgage Association

D. Government National Mortgage Association

A 10-year bond, callable in 5 years at par, is sold at a discount. Rank the following yields from lowest to highest. I. Nominal yield II. Current yield III. Yield to call IV. Yield to maturity

I. Nominal yield II. Current yield IV. Yield to maturity III. Yield to call

Which of the following would most likely be found in a money market fund's portfolio? I. T-bills II. T-bonds with less than 1 year to maturity III. Negotiable CDs IV. Common stock

I. T-bills II. T-bonds with less than 1 year to maturity III. Negotiable CDs

Which of the following statements regarding eurodollar bonds are TRUE? I. US investors are not subject to currency risk II. Non-US issuers are not subject to currency risk III. They are issued outside of the United States IV. Interest and principal are paid in US dollars

I. US investors are not subject to currency risk III. They are issued outside of the United States IV. Interest and principal are paid in US dollars

Accrued interest on a bond confirmation is I. added to the buyer's contract price II. added to the seller's contract price III. subtracted from the buyer's contract price IV. subtracted from the seller's contract price

I. added to the buyer's contract price II. added to the seller's contract price

Which of the following are true? Bonds: I. represent a loan to the issuer II. give the bondholder ownership in the entity III. are issued to finance capital expenditures or to raise working capital IV. are junior securities

I. represent a loan to the issuer III. are issued to finance capital expenditures or to raise working capital

A convertible corporate bond has been issued with an anti dilution covenant. If the issuer declares a 5% stock dividend, which of the following statements are TRUE as of the ex-date? I. the conversion ratio increases II. the conversion ratio decreases III. the conversion price increases IV. the conversion price decreases

I. the conversion ratio increases IV. the conversion price decreases

Which of the following regarding US government agency obligations are TRUE? I. They are direct obligations of the US government II. They generally have higher yields than direct US obligations III. The Federal National Mortgage Association is a publicly traded corporation IV. Securities issued by GNMA trade on the NYSE floor

II. They generally have higher yields than direct US obligations III. The Federal National Mortgage Association is a publicly traded corporation

Which of the following statements regarding Treasury bills are TRUE? I. They are sold in minimum denominations of $10,000 II. They mature in less than 1 year III. Their interest is exempt from taxation at the state level IV. They are callable by the US Treasury at any time before maturity.

II. They mature in less than 1 year III. Their interest is exempt from taxation at the state level

Identify the sequence that correctly orders the claim of obligations below, from first to last, on the assets of a corporation in bankruptcy. I. Taxes II. Unpaid wages III. Preferred stock IV. Subordinated debt

II. Unpaid wages I. Taxes IV. Subordinated debt III. Preferred stock

In a new municipal bond transaction, the accrued interest is calculated I. from the trade date II. from the dated date III. up to the interest payment date IV. up to, but not including, the settlement date

II. from the dated date IV. up to, but not including, the settlement date