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5 Written questions

5 Matching questions

  1. A stock index call option is exercised. The writer must:

    Deliver cash
    Deliver the underlying index
    Purchase the underlying index
    Close out his position
  2. A customer shorts 100 shares of ABC at 16 in a new margin account. How much must he deposit?

    $2.50 per share
    $800.00
    $1,600.00
    $2,000.00
  3. Which of the following statements is/are TRUE relating to the auction of T-bills?

    Three- and six-month T-bills are auctioned weekly.
    Noncompetitive tenders are awarded at the highest yield of the accepted competitive tenders.
    Three- and six-month T-bills are auctioned on a discount yield basis but one-month T-bills are auctioned on a coupon equivalent yield basis.
    I only
    I and II only
    II and III only
    I, II, and III
  4. PASS-THROUGH SECURITIES
  5. (#70)
    The following dividend information for New York Stock Exchange listed common stocks is reported in The Wall Street Journal:

    Quarterly Dividend Record Date Payable Date
    Cummings Corporation 50 cents 4/10 5/15
    Federal Corporation 85 cents 4/13 5/25
    General Electric Corp. 95 cents 4/8 5/21

    Based on the information stated above, a buyer of Cummings Corporation on May 10th:

    Would be entitled to receive the 50 cents quarterly dividend
    Would not be entitled to receive the 50 cents quarterly dividend
    Would be entitled to receive the 50 cents quarterly dividend if the trade was made for "cash"
    None of the above
  1. a A.
    When an index option is exercised, the writer must pay the buyer the in-the-money amount of the option in cash.
  2. b A buyer of Cummings Corporation would not be entitled to receive the 50-cent quarterly dividend because the purchase was made on May 10th. This was after the stock had sold ex-dividend (without the dividend). The ex-dividend date is not given but the record date is April 10th. Stocks sell ex-dividend on the 2nd business day preceding the record date. This would be two business days prior to April 10th, which is more than one month before the customer bought the stock. Even if the purchase was made "for cash" which requires a same-day payment, it would still be one month too late for the buyer to receive the dividend.
  3. c D.
    The minimum equity requirement for a short account is $2,000. Since this is a new account, the customer must deposit $2,000.
  4. d 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.
  5. e Securities 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 Multiple choice questions

  1. C.
    REITs manage a portfolio of real estate. They can have an equity position in real estate (own the buildings) or be involved in mortgage activities (lend money). They must distribute 90% of their income in order to qualify for preferential tax treatment. They are not limited partnerships; they do not have a flow through of losses. An investor's risk is limited to his or her investment.
  2. 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.
  3. B.
    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. C.
    If a customer sells securities and then fails to deliver the securities, the broker-dealer must buy the securities in the market to satisfy delivery within 10 business days from the settlement date.
  5. C.
    The underwriting spread includes the manager's fee, the additional takedown, and the concession. The additional takedown plus the concession equals the total takedown. A member of the syndicate is entitled to the total takedown for bonds it sells. The manager's fee always goes to the managing member of the syndicate.

5 True/False questions

  1. In periods of "easy money" when interest rates are declining, yield curves would tend to:

    Slope upward from the shorter to the longer maturities
    Slope downward from the shorter to the longer maturities
    Remain flat
    Do none of the above
    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.

          

  2. Which of the following Moody's ratings is the most speculative?

    Aa
    A
    Baa
    Ba
    D.
    Of the choices given, Ba is the most speculative. The highest Moody's rating is Aaa.

          

  3. Which of the following are characteristics of GNMA pass-through certificates?

    Interest and principal payments are received monthly
    Timely payment of interest and principal is guaranteed by the U.S. government
    Interest is subject to federal tax but exempt from state and local tax
    Secured by commercial mortgages

    I and II only
    I, II, and IV only
    I, III, and IV only
    II, III, and IV only
    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. EASY MONEYAn account in which the customer gives the broker or someone else authorization to buy and sell securities or commodities. Discretionary authority includes control over selection, timing, amount, and price to be paid or received.

          

  5. A customer purchases a municipal bond with 25 years remaining to maturity. The bond has been pre-refunded to its first call date. The issue is callable in 7 years at 108, declining to par in 14 years. It also has a sinking fund call provision which begins in 17 years at par. For confirmation purposes, the bond should be priced to the:

    First par call
    First call date
    Sinking fund date
    Final maturity date
    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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