SIE

An investor is long 1 XYZ May 40 call and XYZ has a current market value of 44. Which of the following is true? A. The May 40 call is @ the money B. The May 40 call is in the money C. The May 40 call is out of the money D. The May 40 call has no intrinsic value

A

If a customer had a large cash position and was interested in purchasing stock at prices below where they are today, and possibly generating some income in the process, an option strategy would be: A. write covered puts that are currently out of the money B. write uncovered calls that are out of the money C. buy out-of-the-money calls D. place a buy stop order below the market

A

Mr. Darey owns 5,000 shares of English Manor Properties. It is his belief that the company is unlikely to grow much over the next year. He is curious how he might generate some additional income from the position. A. writing calls against his stock is conservative and generates income B. writing calls against his stock but doesn't generate income C. selling covered calls is aggressive and generates income D. buy puts its the best hedge

A

Your customer is in the 30% federal tax bracket. He is considering a 7% corporate bond. The after-tax yield would be: A. 4.9% B. 2.1% C. 10% D. 7%

A ( 7 x (1-0.3) = 4.9)

In 2011, RST Corporation had both common stock and $100 par volume 4% noncumulative preferred stock outstanding. The preferred, like common stock, pay dividends on a quarterly basis. Because of financial difficulties, the company resumed dividend payments in 2016. Before paying the 1st quarterly dividend to the preferred stockholders of: A. $1.00 B. $4.00 C. $17.00 D. $20.00

A ($100 par value 4% = $4 a year pay @ a quarterly basis = $1.00 per quarter. Noncumulative = doesn't ass up)

A 6% corporate bond trading on a 7% basis is trading: A. @ a discount B. @ a premium C. with a current yield above 7% D. with a coupon rate below 7%

A (7% basis = 7% YTM; 7% YTM > 6% YTM)

Which of the following statements regarding options are true? I. Investors who are bullish on a stock should buy calls II. Investors who are bullish on a stock should buy puts III. Investors who are bearish on a stock should sell puts IV. Investors who are bearish on a stock should buy puts A. I and IV B. I and III C. II and III D. II and IV

A (Buying calls is bullish and buying puts is bearish)

CMOs are backed by A. Mortgages B. Real Estate C. Municipal taxes D. the full faith and credit of US government

A (CMO = Collateralized Mortgage Obligation)

Another term for stocks and bonds is: A. equity and debt B. shares and units. C. voting and nonvoting D. taxable and tax free

A (Stock = Equity; Bonds = Debt)

All of the following securities are issued by the US Treasury, except: A. treasury receipts B. STRIPs C. T-Bills D. TIPS

A (Treasury receipts are offered by broker dealers)

Squidco, Inc., is issuing 100 million dollars in 4 ½% bonds maturing in 20 years. When purchased at issue, the buyers will receive an additional security that allows them to purchase 20 shares of Squidco common stock at $50 per share anytime in the next 10 years. Squidco common is currently trading at $29.95 a share. This is an example of A. a warrant. B. a stock right. C. a follow-on offering. D. a call.

A (Warrants have time and attached to the bonds)

All of the following are considered securities except: A. US minted gold coins B. common stock of XYZ Corp C. 15 British pound put contracts D. Treasury bonds

A (commodities are not securities)

An investor who is seeking income might choose a corporate bond because: A. A corporate bond pays a steady income and are reliable B. Bonds pay a higher dividend than stocks C. bonds can grow faster than the rate of inflation D. Corporate bond interest is tax free

A (corporate bonds are generally reliable producers of steady income)

Mr. Perez dislikes Seabird Airlines because of a bad experience on a flight to Portland. He thinks the company's stock is overvalued. He is currently short 1,000 shares of the company. He is concerned with the potentially unlimited risk he is exposed to and would like to use options to hedge that risk his best option position would be: A. by 10 Seabird Airlines Call B. buy 10 OEX calls C. sell 10 Seabird Coffee calls D. buy 10 Seabird Coffee puts

A (to hedge his fat push)

An investor writes a September 65 ABC put for $3 when the stock is trading @ $63. Which of the following is true? A. The intrinsic value is $3 B. The intrinsic value is $2 and the time value is $1 C. The intrinsic value is $1 and the time value is $2 D. The investor has the right to purchase ABC stock @ 65

B

Which of the following money market instruments are routinely used in import/export activities? A. GNMA B. BAs C. T-Bills D. Repurchase agreements

B (BA = Banker's Agreements; used for this purpose (import/export))

Which of the following securities is not backed by the full faith and credit of the US Treasury? A. GNMA B. FNMA C. STRIPs D. Treasury Bills

B (FNMA = Federal National Mortgage Association, not backed by the US government)

For this election cycle, Big Trucks, Inc., has three open board seats. Big Trucks operates under a cumulative voting system. Your customer owns 300 participating preferred shares of Big Trucks. He has A. 900 votes he can divide anyway he wants among the three seats. B. no voting rights. C. 300 votes each for the open seats. D. 300 votes total to spread among the three open seats.

B (Preferred stock has no voting rights)

Under Rule 144, which of the following sales are subject to volume limitations on the number of shares sold? I. Control person selling registered stock held for 1 year II. Control person selling stock held for 2 years III. Non-affiliate selling registered stock held for 1 month IV. Non-affiliate person selling restricted stock held for 6 months A. III and IV B. I and II C. I and III D. I and IV

B (Rule 144 applies to control persons)

A newly issued treasury security that matures in five years is A. T-Bill B. T-Note C. T-Bond D. Treasury Receipt

B (T-Bill (less than 1 year), T-Note (2-10 yrs), T-Bond (>10yrs))

If a bond has a feature that allows the issuer to pay off bondholders prior to maturity, the bond has A. a put feature B. a call feature C. a conversion feature D. a presale feature

B (call = allows issuer to pay a bond off earlier than maturity date)

A BB-rated 6% corporate callable bond that matures in 12 years that is trading @ 100.25 is priced @ A. a discount B. a premium C. with a current yield above 7% D. with a coupon rate below 6%

B (trading @ 100.25 > par of 100; therefore trading at a premium)

A customer of a BD is opening a new options account. The customer must return the options agreement A. signed before the account can be approved B. before the first transaction can occur C. signed and not later than 15 days D. before he will be allowed to new the options

C

Which of the following positions has unlimited risk? A. short 5 BCC puts B. Long 500 BCC and short 5 BCC calls C. Short 500 BCC and short 5 BCC puts D. short 500 BCC and long 5 BCC calls

C

Your client holds ADRs of Daikon Motors, Inc., an automobile manufacturer based in Asia. All of the following are true about the position except A. they will receive dividends in U.S. dollars. B. the security may be traded in U.S. markets. C. they have the same voting rights as an owner of the common stock. D. they have the right to request the underlying common shares be issued to them directly.

C (Bank owns ADR shares, no voting rights)

Your customer would like current monthly income from a very safe investment which of the following would you recommend? A. T-Bonds B. FNMA C. GNMA D. T-Notes

C (GNMA pays monthly income)

Your customer, Mr. Garcia, lives in Scottsdale, AZ. He owns general obligation (GO) bonds issued by the city fo San Juan, Puerto Rico. The interest from the bonds will be taxed at: A. the federal, but not the state level B. the state, but not the federal level C. neither D. both the state and the federal levels

C (GO bonds pay no tax)

Treasury Bills may be issued with all of the following maturities expect: A. 4 weeks B. 13 weeks C. 39 weeks D. 52 weeks

C (T-Bills are issued with 4, 13, 26, and 52 week maturities)

Which of the following binds would have the most price volatility? A. 3% 10-year T-note B. 2% 5-year T-note C. 5% 20-year T-bond D. 5% 15-year corporate bond

C (The more time to maturity, the more volatile)

A security that is contractual obligation between two parties and whole value is based on the specifics of the contract in relation to a different security is A. A contractual plan B. An investment company C. a derivative D. A hedge fund

C (a contract that derives its value from another security is called a derivative)

American Liquidators Corporation (Ticker LQDT) has 100 million outstanding common shares. The company would like to raise capital by selling 100 million new shares. In order to accomplish, this they would A. offer warrants to existing shareholders. B. suggest that existing shareholders go to the market and double their existing position. C. offer stock rights to existing shareholders. D. perform a stock split.

C (rights are short term and warrants are attached to things like bonds)

Interest from a zero-coupon board A. pays monthly and is taxed annually B. Pays annually and is taxed at maturity C. pays at maturity and is taxed annually D. pays and is taxed at maturity

C (zero-coupon bonds pay @ maturity and are taxed annually)

Which of the following is not a security that an investor would purchase? A. Common shares of ABC Petroleum B. Debt issue by ABC Petroleum C. Bitcoins D. Windmill Growth Fund

C. Bitcoin = Commodity; which is not a security

According to Standard and Poor's rating system the four highest grades of bonds (from best to worst) are: A. Aaa, Aa, A, Baa B. A, Aa, Aaa, B C. B, A, AA, AAA D. AAA, AA, A, BBB

D

Which of the following would most likely require shareholder approval? A. Declaring a dividend B. Firing the CEO C. Hiring a new CFO D. Changing the corporation's name

D

Your customer, Mr. Newsome, recently purchased one put contract on Napa Valley Spirits Inc, stock. The strike price is $50 and the premium was $4.50. He later executed the contract. How much did he pay for the contract? A. $5,000 B. $500 C. $4,500 D. $450

D (1 contract is 100 shares @ $4.50 = $450)

Your customer calls you with a question. The customer tells you that they received a phone call from the bond desk telling the customer that a trade to purchase 20 bonds @ 100 has been executed. The customer would like to know how much they paid for the bonds before any commission or other charges. The answer to the question is: A. $2,000 B. $200,000 C. $1,000 D. $20,000

D (20 bonds @ 100 = $20,000)

Lando Entertainment, Inc., issues a bond collateralized by a trust holding the company's Las Vegas headquarters. This type of bond is called A. a collateral trust bond. B. a guaranteed bond. C. a headquarters debenture. D. a mortgage bond.

D (A secured bond backed by real estate = mortgage backed bond)

Below which of the following S&P ratings would a bond be considered speculative? A. A B. B C. BB D. BBB

D (Everything below BBB is speculative)

All of the following would most likely be found in a money market fund's portfolio expect: A. T-Bills B. T-Bonds with less than one year to maturity C. negotiable CDs D. common stock

D (common stock does not equal the criteria for money market)

Ms. Johansen purchased 100 shares of Natasha Publishing 2 years ago for $40 a share. The stock has risen to $62 a share. She is concerned that the recent death of the founder and CEO may negatively impact the stock. As a hedge she buys a 60 put on the stock for $2. Her breakeven price on this position is: A. $64/share B. $62/share C.$58/share D.$42/share

D (purchased for $40 + $2 premium cost = $42/share)