Study series 65 SIE **** tard
What percentage of stock does a person need to own to be considered a control person
25%
Treasury notes are quoted as
32nds
What is SEC rule 144
Applies to the sale of unregistered securities owned by affiliates or nonaffiliates and the sale of control stock
A customer bought a 10-year 6% AAA bond at par when it was issued. Two years later, if the CPI has increased from 2% to 4%, the price of the bond most likely A) has stayed at par. B) has declined. C) has increased. D) cannot be determined.
B
An investor purchased a bond with a 6% coupon rate exactly three months after its most recent interest payment. As a result, I the buyer will pay $15 accrued interest. II the buyer will receive $15 accrued interest. III the seller will pay $15 accrued interest. IV the seller will receive $15 accrued interest. A) II and IV B) II and III C) I and IV D) I and III
B
An investor purchases a Treasury note and the confirmation shows a price of $102.25. Rounded to the nearest cent, the investor's cost, excluding commissions, is A) $102.25. B) $1,027.81. C) $1,022.50. D) $1,020.25.
B
Assume that a corporation issued a 5% Aaa/AAA rated debenture at par. Two years later, similarly rated debt issues are being offered in the primary market at 5.5%. Which of the following statements regarding the outstanding 5% debenture are true? I The current yield on the debenture will be higher than 5%. II The current yield on the debenture will be lower than 5%. III The dollar price per bond will be higher than par. IV The dollar price per bond will be lower than par. A) I and III B) I and IV C) II and III D) II and IV
B
For a bond selling at a discount, the yield to maturity will be A) lower than the nominal yield. B) higher than the nominal yield. C) equal to the nominal yield. D) higher than the yield to call.
B
Julie owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will she own? I 125 shares II 100 shares III Cost basis of $25 IV Cost basis of $20 A) I and II B) I and IV C) II and IV D) II and III
B
Rule 144 applies to the sale of all of the following except A) unregistered securities by a nonaffiliated shareholder of the issuer. B) registered securities by a nonaffiliated shareholder of the issuer. C) unregistered securities by an officer of the issuer. D) registered securities by an officer of the issuer.
B
The market price of a convertible bond depends on all of the following except A) the value of the underlying stock into which the bond can be converted. B) the conversion prices of bonds from similar companies. C) current interest rates. D)
B
Which of the following would you not expect to see issued at a discount? A) Zero-coupon bond B) Bank jumbo CD C) Commercial paper D) Treasury bill
B
Your client in the 35% federal income tax bracket currently owns some corporate bonds with a coupon yield of 7%. In order to receive the same income after taxes, he would need to buy municipal bonds with a coupon of A) 9.45%. B) 7.00%. C) 4.55%. D) 2.45%.
B
A client is considering the purchase of American depositary receipts (ADRs). She is looking to further diversify her portfolio. Which of the following is not a feature of this type of investment vehicle? A) ADRs are denominated and pay dividends in U.S. dollars. B) ADRs are traded on exchanges and the OTC markets. C) They are not subject to exchange rate, or currency, risk. D) Information regarding the foreign company is easily attainable.
C
A corporation has issued a 4% $60 par convertible stock with a conversion price of $20. With the preferred stock selling at $66 per share, an investor holding 100 shares of this stock will benefit by converting if the price of the common stock is A) above $20.00 per share. B) above $18.20 per share. C) above $22.00 per share. D) below $22.00 per share.
C
An individual purchases a $10,000 CD with a 5-year maturity from her local bank branch. In doing so, she is eliminating A) inflation risk. B) opportunity cost. C) interest rate risk. D) purchasing power risk.
C
An investor in an equity security A) has a say in the day-to-day operations of the business. B) is assured of a minimum rate of return. C) acquires an ownership interest in the company. D) becomes a creditor of the company.
C
An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks? I Loss of principal can occur. II Price volatility of preferred stock is closely related to interest rates. III Preferred stock cannot be traded as readily as bonds. IV If the stock is callable, the client's income can be suddenly lowered. A) III and IV B) I, II, III, and IV C) I, II, and IV D) I and II
C
Corporations have found that one way to increase employee motivation is to grant options to purchase stock in the company. Incentive (qualified) options differ from nonqualified options in all of the following respects except A) ISOs may only be granted to employees, while NSOs may be given to virtually anyone. B) there is a maximum 10-year limit for exercising an ISO; no such time limit exists for an NSO. C) at the time of the grant, the recipient of the grant of the ISO has no income tax consequences while the recipient of the NSO treats the bargain element as compensation. D) the holder of an ISO can recognize capital gain (loss) as a result of exercise and sale, whereas ordinary income (loss) is the result with an NSO.
C
GHI currently has earnings of $4.00 and pays a $0.50 quarterly dividend. If GHI's market price is $40.00, the current yield is A) 1.25%. B) 10.00%. C) 5.00%. D) 15.00%.
C
If a customer owns 7% of a publicly traded company's stock and his spouse owns 6% and wants to sell her shares, which of the following statements is true? A) The spouse is not an affiliate and Rule 144 applies. B) The spouse is an affiliate and Rule 144 does not apply. C) The spouse is an affiliate and Rule 144 applies. D) The spouse is not an affiliate and Rule 144 does not apply.
C
If a woman owns 9% of the common shares of XYZ and her spouse owns 2% and wishes to sell his shares, which of these is true? I He is considered an affiliate. II He is not considered an affiliate. III He must file a Form 144 to sell. IV He does not have to file a Form 144 to sell. A) II and III B) I and IV C) I and III D) II and IV
C
Investing in emerging market stocks is least likely to expose your client to which of the following risks? A) Liquidity B) Political C) Interest rate D) Currency
C
Many fixed-income investors are looking to avoid loss of principal. Which of the following would likely have the lowest degree of exposure to credit risk? A) Baa-rated municipal revenue bond B) A-rated general obligation municipal bond C) Aa-rated corporate debenture D) Ba-rated corporate mortgage bond
C
Three years ago, an investor purchased 1,000 shares of stock in the Equity Protective Life Insurance Company (EPLIC). The purchase price was $53 per share. The current market value of EPLIC stock is $79 per share. If the investor is in the 24% federal income tax bracket, it is correct to state that A) the investor owes tax on a $26,000 short-term capital gain. B) the investor owes tax on a $26,000 long-term capital gain. C) no tax is owed by the investor. D) the investor's tax liability is $3,900.
C
Under Rule 144, which of the following sales are subject to volume limitations? I Control person selling registered stock held for one year II Control person selling restricted stock held for two year III Nonaffiliate selling registered stock held for one year IV Nonaffiliate selling restricted stock held for two year A) I and III B) III and IV C) I and II D) II and IV
C
When a U.S. resident investor purchases foreign bonds, A) depreciation of both the bonds and the foreign currency benefits the domestic investor. B) appreciation of the bonds and depreciation of the foreign currency benefit the domestic investor. C) appreciation of both the bonds and the foreign currency benefits the domestic investor. D) depreciation of the bonds and appreciation of the foreign currency benefit the domestic investor.
C
Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144? A) Unregistered stock acquired by a nonaffiliate under an investment letter B) Unregistered stock acquired by a corporate affiliate in a stock option program C) Stock acquired on the NYSE by a corporate affiliate D) Stock acquired by a corporate affiliate in a private placement
C
Under rule 144, what type of investor is subject to volume limitations?
Control person
A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the security's 5-year term, the annual inflation rate is 6%. What is the principal value of the bond at the end of 4 years? A) $1,300 B) $1,240 C) $1,344 D) $1,267
D
A bond with a par value of $1,000 and a coupon rate of 5%, paid semiannually, is currently selling for $1,200. The bond matures in 10 years and is callable in six years at 103. In the computation of the bond's yield to call, which of the following would be a factor? A) Present value of $1,030 B) Future value of $1,200 C) 20 payment periods D) Interest payments of $25
D
A customer purchased new issue bonds at par two years ago. Since then, the cost of living as measured by the consumer price index (CPI) has declined by almost half and the current yield on the bonds has also declined. Which of the following best describes the value of the bonds purchased? A) Their market price has remained unchanged. B) Their market price has declined. C) It cannot be determined from the information presented. D) Their market price has increased.
D
All of the following statements regarding incentive stock options (ISOs) are correct except A) the exercise of ISOs does not create taxable income B) if the holding period is satisfied, the gain upon the sale of ISO shares will be a long-term capital gain C) upon the exercise of an ISO, income for AMT purposes is created D) the favorable tax treatment associated with ISOs is lost if the shares acquired through the ISO exercise are sold before 1 year from the date of grant or 2 years from the date of exercise
D
An investor interested in investing in sovereign debt would most likely purchase A) bonds issued by the Bank of the United States. B) European Central Bank debt issues. C) bonds backed by gold sovereigns. D) Sweden 2.5s of 2032.
D
An investor is analyzing various risks related to corporate and government bonds. She is interested in finding a risk that is more specific to corporate bonds than to government bonds. Which of the following options correctly defines that risk? A) Liquidity risk B) Purchasing power risk C) Interest rate risk D) Default risk
D
An investor is considering the purchase of $100,000 maturity value of zero-coupon AAA rated corporate bonds scheduled to mature in 20 years. Which of these are among the risks that this investor will be assuming? I Default risk II Interest rate risk III Prepayment risk IV Reinvestment risk A) I and IV B) III and IV C) II and III D) I and II
D
An investor wishing to add some diversification to his portfolio wants to purchase 200 shares of an ADR for a Japanese electronics manufacturer. The ADR is listed on the NYSE. Which of the following risks should be of most concern to this investor? I Business IICurrency III Inflation IV Liquidity A) III and IV B) I and IV C) II and III D) I and II
D
If a woman owns 9% of the common shares of XYZ and her spouse owns 2% and wishes to sell his shares, which of these is true? I He is considered an affiliate. II He is not considered an affiliate. III He must file a Form 144 to sell. IV He does not have to file a Form 144 to sell. A) II and III B) I and IV C) II and IV D) I and III
D
Municipal bonds are often called tax-exempts. This refers to the exemption of their income from A) federal estate taxes. B) state, federal, and inheritance taxes. C) state income taxes. D) federal income taxes.
D
The board of directors of DDC omitted dividends in 2020 on their $100 par 6% noncumulative preferred stock. In 2021, a $2 preferred dividend was paid. For DDC, 2022 has been a good year, and the board wishes to pay a common dividend. How much must be paid per share on the preferred for 2022 in order to pay a common dividend? LO.c A) $8 B) $16 C) $12 D) $6
D
The current yield on a bond with a coupon rate of 7.5% currently selling at 105½ is approximately A) 7.50%. B) 8.00%. C) 6.50%. D) 7.11%.
D
What securities does Interest rate risk apply too
Fixed income securities
BB, Junk or Investment Grade
Junk Bond
Are their tax consequences for ISOs and NSOs at the time of grant
No
What is the simple way too calculate annual inflation
Par*Inflation rate=annual amount Annual amount*Years=inflation amount Inflation amount+face value=Answer
How do you find price parity when given par and conversion price
Par/Conversion Price = conversion ratio current price/ Conversion ratio = Parity
How to determine debenture price
Par/conversion price = conversion ratio Current price*Conversion ratio=price
Tf is pro rata
Proportional
How do you find tax equivalent yield
Take the bond yield / 1-tax bracket
How to calculate dividend per share
Total divided payments/Total shares
What are TIPS
Treasury Inflation-Protected Securities
What is a Yankee Bond
U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States
What type of stock is not subject to the holding period restriction specified in SEC Rule 144?
Unregistered
What is a debenture
Unsecured loan certificate
Why does price drop with the rating
When the bond quality declines investors want a bigger return
When are muni bonds state tax exempt
When the investor purchases them in the state that they pay taxes in
When are capital gains or losses taxed
When they are Realized
Are ADRs subject to exchange rate, or currency risk
Yes
Are government bonds fully taxed on the federal level
Yes
Current yield and Market price have an inverse relationship
Yes
Do ginnie mae's have the direct backing of the US treasury
Yes
Is preferred stock callable?
Yes
The higher the rating, the lower the credit risk
Yes
Do ISOs receive long term capital game treatment
Yes, Assuming the time limit conditions are met
An investor buys 10M RAN 6.6s of 32 at 67. What is the total purchase price?
6,700
How to calculate what Muni you need to cover tax loss
((Yield per bond - (tax percentage*Yield per bond))/1000
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) $10. B) $15. C) $25. D) $5.
A
An employee wishing to obtain long-term capital gain treatment would prefer the employer to offer A) incentive stock options. B) portable stock options. C) listed stock options. D) nonqualified stock options.
A
An investor owns a debenture convertible into 20 shares of the issuer's common stock. After a 2-for-1 stock split, the terms of the debenture provide for conversion into 40 shares. This is because the debenture has A) an antidilution clause. B) increased its par value to $2,000 to account for the split. C) warrants attached. D) preemptive rights.
A
DERP Corporation has issued 5% convertible debentures maturing in 2040. The conversion price is $40 and the common is currently trading at $48 per share. One would expect the DERP debentures to be selling somewhat A) above $1,200. B) below $1,200. C) below $1,000. D) above $1,000.
A
One of the benefits of adding foreign debt securities to an investor's portfolio is A) potentially higher yields. B) potentially higher risk. C) receiving income in foreign currency. D) reduced taxation.
A
One of the likely consequences of a rating downgrade on a bond is A) a reduction in the market price of the bond. B) the current yield will be reduced. C) the call feature will be employed. D) an increase to the coupon by the issuer.
A
The market price of a convertible bond depends on all of the following except A) the conversion prices of bonds from similar companies. B) the rating of the bond. C) current interest rates. D) the value of the underlying stock into which the bond can be converted.
A
Which of the following projects is most likely to be financed by a general obligation rather than a revenue bond? A) Public library B) Municipal hospital C) Public golf course D) Expansion of an airport
A
Your client in the 25% federal income tax bracket lives in a state where his earnings place him in the 6% bracket for state income tax purposes. If he were to purchase a 4% bond issued by a political subdivision of another state, his total tax-equivalent yield would be A) slightly less than 5.33%. B) 4.00%. C) slightly more than 5.33%. D) approximately 12.90%.
A
Which is not a control person?
An individual who owns 9% and has as cousin who owns 5% of companies stock
What's the difference between an antidilution clause and preemptive rights
Antidilution has to do with splits and preemptive rights deal with rights
Your customer owns 1,000 shares of the XYZ $100 par 5½% callable convertible preferred stock convertible into four shares of XYZ common stock at $25. What should she be advised to do if the board of directors were to call all the preferred at 106 when the XYZ common stock is trading at $25.50? A) Hold the preferred stock to continue the 5½% yield. B) Present the preferred stock for the call because the call price is $4 above the parity price. C) Convert her preferred stock into common stock because it is selling above parity. D) Place irrevocable instructions to convert the preferred stock into common stock and sell short the common stock immediately.
B
When current interest rates are at 6%, you would expect a bond with a nominal yield of 4% to be A) in danger of default. B) selling at par. C) selling at a discount. D) selling at a premium.
D
Which of the following are subject to the holding period requirements of Rule 144 of the Securities Exchange Act of 1934? I Registered securities held by a control person II Unregistered securities held by a noncontrol person III Registered securities held by a noncontrol person IV Unregistered securities held by a control person A) I and IV B) II and III C) II and IV D) I and III
C
A bank is advertising a no-cost DDA. Your client asks you to describe what that is. You would respond that DDA stands for A) direct deposit account. B) deferred deposit account. C) demand deposit account. D) digital deposit account.
C
A bond of standard size has a nominal yield of 6%, paid in the customary fashion. The bond matures in 10 years, is callable at $105 in 5 years, and is currently priced at $110. An investor calculating the bond's yield to call would include A) the loss of $100 at maturity. B) the gain of $50 when called. C) the semiannual interest payments of $30. D) 20 payment periods.
C
Which of the following statements regarding convertible debentures is true? A) The debenture holders receive a variable rate of interest. B) The issuer has the right to convert the debentures during the time period specified in the indenture. C) When compared with similar nonconvertible debentures, convertible debentures are issued with a lower coupon rate. D) The issuer pays a higher rate of interest compared with a comparable nonconvertible debenture.
C
Your client in the 28% federal income tax bracket currently owns some U.S. government bonds with a coupon yield of 6%. In order to receive the same income after taxes, she would need to buy municipal bonds with a coupon of A) 6.00%. B) 1.68%. C) 4.32%. D) 7.68%.
C
One way in which incentive stock options (ISOs) differ from nonqualified stock options (NQSOs) is that A) gains on an ISO are always short term, while those on an NQSO are long term. B) there is a maximum five-year limit for exercise on the ISO, while the time limit on the NQSO is 10 years. C) the bargain element of the ISO is reported as wages on the tax returns of the employer and the employee. D) the bargain element of the ISO is an AMT preference item.
D
One of the advantages of owning a corporation's debentures is that you have prior claim over A) general creditors. B) secured creditors. C) employees. D) preferred stockholders.
D
Securities issued by which of the following issuers have the direct backing of the U.S Treasury? A) Federal Agricultural Mortgage Corporation (Farmer Mac) B) Federal National Mortgage Association (Fannie Mae) C) Federal Home Loan Mortgage Corporation (Freddie Mac) D) Government National Mortgage Association (Ginnie Mae)
D
Which of the following best describes a Yankee bond? A) U.S. dollar-denominated bond issued by a non-U.S. entity outside the United States B) U.S. dollar-denominated bond issued by a U.S. entity inside the United States C) U.S. dollar-denominated bond issued by a U.S. entity outside the United States D) U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States
D
Which of the following expressions describes the current yield of a bond? A) Annual interest payment divided by par value B) Yield to maturity divided by par value C) Yield to maturity divided by current market price D) Annual interest payment divided by current market price
D
Which of the following indicates a bond selling at a premium? A) 8% coupon yielding 8.5% B) 5% coupon yielding 5.0% C) 10% coupon yielding 11.0% D) 8% coupon yielding 7.5%
D
Which of the following statements concerning international direct investing is correct? A) Foreign markets are usually mature and offer no growth advantages. B) The rates of return on foreign securities are generally less than those available from U.S. markets. C) 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. D) Information is not as readily available on foreign investments as on domestic ones.
D
Which of the following statements regarding ADRs are true? I The securities are vehicles used to facilitate U.S. trading of foreign securities. II Dividends are received in the foreign currency. III Holders have foreign currency risk. IV The receipts are issued by a foreign branch of a domestic bank. A) I, II, and III B) I, III, and IV C) II and IV D) I and III
D
When are CDs free of interest rate risk
Face value of 100,000 or more
BBB, Junk or Investment Grade
Investment Grade
Why does a bond with a high yield sell at a discount because
Investors make up the principal loss in interest
What is diffrent about TIPS
The principal value of TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index (CPI).
What is Yield to Maturity
a measure of the total return on a long-term bond, including capital appreciation and interest
What does sovereign debt mean
bonds and other debt instruments issued by a specific country
What are two factors that impact the current market price of all bonds?
current interest rates and the rating of the bond
What is Nominal Yield
measures the interest rate stated on the face of the bond.
