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5 Written questions

5 Matching questions

  1. For tax purposes, corporations may exclude a portion of the dividends received from:

    Corporate bonds
    Municipal bonds
    Preferred stocks
    Common stocks

    I only
    I and III only
    II only
    III and IV only
  2. 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
  3. A client buys 100 shares of Miramar at $42/share. One week later she buys 1 Miramar Nov 40 put and pays a premium of $300. In November the stock is at $48/share and the put expires worthless. The tax consequences of these trades are:

    Miramar stock has a basis of 42
    Miramar stock has a basis of 45
    There is a capital loss of $300 on the put
    No loss is reported on the put until the stock is sold

    II only
    I and III only
    I and IV only
    II and III only
  4. State governments receive the least amount of revenues from:

    Sales taxes
    Gasoline taxes
    Excise taxes
    Property taxes
  5. Which TWO of the following statements are TRUE regarding Eurodollar bonds?

    They are denominated in U.S. dollars only.
    They are denominated in foreign currencies only.
    They are only traded outside of the U.S.
    They are traded in the U.S. and international markets.

    I and III
    I and IV
    II and III
    II and IV
  1. a B.
    Because the transactions took place on different days, each component is treated separately. The client owns stock at a cost basis of 42. When the put expires, the client has realized a $300 capital loss. If the trades were done on the same day, the strategy is referred to as a married put and the cost basis of the stock is 45. With the married put, no loss would be taken if the put expired worthless.
  2. b D.
    State governments receive the least amount of revenues from property taxes. States raise money primarily from income taxes, sales taxes, excise taxes, and license fees. Local municipalities raise most of their funds from property taxes (real estate taxes).
  3. c 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.
  4. d D.
    Corporations may exclude a portion of the dividends received from investments in the common and preferred stocks of other corporations.
  5. e B.
    Eurodollar bonds are dollar denominated bonds issued and sold outside the U.S. They may trade in the U.S. after a period of at least three months after issuance.

5 Multiple choice questions

  1. C.
    The loss would not be allowed if the customer purchased the same or substantially identical security within 30 days. Purchasing a call is considered substantially identical since it gives the investor the right to buy 100 shares of XYZ stock.
  2. D.
    Of the choices given, Ba is the most speculative. The highest Moody's rating is Aaa.
  3. 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).
  4. A.
    In periods of "easy money" when interest rates are declining, yields on shorter maturities would be less than those of longer maturities. Yield curves would tend to slope upward from the shorter to the longer maturities.
  5. D.
    The minimum equity requirement for a short account is $2,000. Since this is a new account, the customer must deposit $2,000.

5 True/False questions

  1. A brokerage firm's research department has issued a buy recommendation on XYZ Corporation common stock. The report must contain all of the following information, EXCEPT:

    The firm was the managing underwriter in a recent public offering of the stock
    The number of shares the firm owns of the stock
    Partners of the firm hold options to purchase the stock
    The firm makes a trading market in the stock
    B.
    The report must contain all of the items listed except the number of shares the firms owns of the stock. The firm does need to disclose that it owns shares of the stock, but not the actual number.

          

  2. A client would like to invest $250 a month and have broad exposure to the U.S. equity market. Which of the following recommendations would be the most suitable?

    An S&P 500 index mutual fund
    A managed closed-end fund
    An S&P 500 index Exchange Traded fund
    An DJIA Exchange Traded Fund
    B.
    Because the transactions took place on different days, each component is treated separately. The client owns stock at a cost basis of 42. When the put expires, the client has realized a $300 capital loss. If the trades were done on the same day, the strategy is referred to as a married put and the cost basis of the stock is 45. With the married put, no loss would be taken if the put expired worthless.

          

  3. Under MSRB rules, a broker or dealer participating in the distribution of a new issue of municipal securities must disclose which of the following to customers?

    I. The nature of any control relationship with the issuer
    II. Fees received by the managing underwriter
    III. The amount of any financial advisory fee received from the issuer in connection with the issue
    IV. The fact that no final official statement will be prepared by the issuer

    a. I and IV only
    b. II and III only
    c. I, III, and IV only
    d. I, II, III, and IV
    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.

          

  4. All of the following are money-market instruments, EXCEPT:

    T-bills
    BAs
    ADRs
    CDs
    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. A 65-year-old individual receives money from a qualified variable annuity. This payment would be:

    Subject to a 10% penalty

    Fully taxable at the investor's tax bracket

    Treated as a capital gain for tax purposes
    Partially taxable at the investor's tax bracket

    a II only
    IV only
    I and III only
    I and IV only
    B.
    When a bond is pre-refunded, the only applicable date is the first call feature. Therefore, the bond must be priced to the first call date.

          

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