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5 Written questions

5 Matching questions

  1. An individual may roll over a lump-sum distribution from a corporate pension plan to an IRA without tax consequences if it is done within:

    10 days
    30 days
    60 days
    90 days
  2. If ABC Corporation pays a $0.25 dividend to its shareholders, all of the following would result, EXCEPT:

    a. Retained earnings remains the same
    b. Working capital is decreased
    c. Current assets are decreased
    d. Current liabilities are decreased
  3. Which of the following cannot delegate power of attorney to a third party for the purpose of making securities transactions?

    A husband
    A wife
    A corporation
    A custodian
  4. A municipal bond which is issued at par, is purchased at a discount and later sold at par or above. This transaction would result in:

    A taxable gain
    A tax-deductible loss
    A tax-free gain
    No gain or loss
  5. Which of the following insure municipal bonds?


    I and II only
    II, III, and IV only
    III and IV only
    I, II, III, and IV
  1. a A.
    If a municipal bond is purchased at a discount in the secondary market (not an original issue discount), there will be a taxable gain at maturity. A taxable gain would also result if the bond was sold prior to maturity, above the original cost.
  2. b C.
    When a lump-sum withdrawal from a corporate pension plan, Keogh, or IRA is deposited into an IRA, it is referred to as a rollover. If the rollover is done within 60 days, the investor will avoid a taxable event. If the distribution is from a qualified plan other than an IRA, the distributing company must withhold 20% of the distribution for the IRS. Only one rollover is permitted each year.
  3. c D.
    Of the choices given, the only one that cannot delegate power of attorney to a third party for the purpose of making securities transactions is a custodian for a minor.
  4. d B.
    When a cash dividend is paid, current assets (cash) and current liabilities (dividends payable) are decreased. Since both are reduced proportionately, working capital (current assets minus current liabilities) remains the same.
  5. e C.
    The Municipal Bond Investors Assurance Corporation (MBIAC) and AMBAC Indemnity Corporation (AMBAC) are two insurance companies that insure new municipal issues. The insurance policy guarantees that should the issuer fail to pay interest or principal, the insurance company will meet all interest and principal payments when due. S&P and Moody's typically assign an AAA rating to any insured issue. Another insurer is Financial Guarantee Insurance Company (FGIC).

5 Multiple choice questions

  1. B.
    Three- and six-month T-bills are auctioned weekly. All T-bills are auctioned on a discount yield basis with noncompetitive tenders awarded first and receiving the highest yield of the accepted competitive tenders.
  2. B.
    If interest rates rise, bond prices will fall, so that the manager should sell calls (or buy puts). Since the portfolio is made up of long-term government securities, selling T-bond calls is the best answer.
  3. A.
    Since a qualified variable annuity is funded with pretax dollars, payments from a qualified annuity are fully taxable as ordinary income. Withdrawals made before age 59 1/2 are subject to a 10% penalty tax.
  4. D.
    Corporations may exclude a portion of the dividends received from investments in the common and preferred stocks of other corporations.
  5. C.
    All of the choices given should be taken into consideration by an over-the-counter dealer when determining the commission to charge in an agency transaction except the purchase price of securities held in inventory by the dealer. The commission charged should be based on the current market price, not the cost of the inventory position.

5 True/False questions

  1. The market price of which of the following types of stock is most affected by swings in the interest rate cycle?

    Soft drink
    ERISA gave the government jurisdiction over private pension plans and protects employees from improper investments by their employers. It does not apply to government employer plans.


  2. In May a customer sells a STC July 40 listed Call for a $6 premium and buys a STC July 30 listed Call for $10. Near expiration, STC is selling at $39. The 40 Call expires and the customer closes out the 30 Call at its intrinsic value. The net result is:

    $100 loss
    $100 profit
    $500 profit
    $500 loss
    The customer has the right to call the stock at $50. The customer paid a $600 premium per straddle. The breakeven point on the call is determined by adding the $50 strike price to the premium of $6. This equals a breakeven of $56. The customer also has the right to sell the stock to the writer at $50, but has paid a $600 premium. The breakeven point on the put would be six points below the strike price of $50, which equals $44. The buyer's breakeven points will therefore be $44 and $56.


  3. To determine the yield on a municipal bond, all of the following are needed, EXCEPT:

    Dated date
    Settlement date
    The dated date is only used to calculate accrued interest on a new issue. When pricing a bond (determining the yield when price is known or determining the price when yield is known), the coupon, settlement date, and maturity are required.


  4. EASY MONEYSecurities that pool debt obligations and pass through the principal and interest payments made by debtors to the security holders. To create a mortgage pass-through, a group of mortgages are collected to form a pool. Interests in the pool are then sold to investors in the form of pass-through certificates. Each certificate represents an undivided interest in the pool.


  5. Broker-dealers are permitted to:

    I. Tell investors to buy mutual funds shortly before a dividend or capital gain distribution is to be paid
    II. Arrange for a customer to obtain credit to buy open-end investment company (mutual fund) shares
    III. Assign loan value to mutual fund shares owned by a customer for more than 30 days
    IV. Continue to compensate a retired registered representatives for contractual plan sales if a contract is signed with the registered representative who has retired

    a. I and IV only
    b. II and III only
    c. III and IV only
    d. II, III, and IV only
    Under industry rules, broker-dealers are permitted to continue to compensate retired registered representatives for contractual plan sales if a contract is signed with the registered representative who has retired. These commissions are known as "continuing commissions" or "trails." To induce an investor to buy mutual fund shares shortly before a dividend or capital gain distribution is to be paid is a violation of the Conduct Rules and is called "selling dividends." There is no benefit to the customer because the value of the mutual fund will decline when the fund sells ex- (without the) dividend or when there is a capital gain distribution. The customer can wait and receive the same value in shares. Although broker-dealers cannot obtain credit for a customer to buy open-end shares, loan value can be assigned to fully-paid shares which the customer has owned for more than 30 days.


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