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5 Written questions

5 Matching questions

  1. A major difference between an open-end and closed-end investment company is:

    The composition of their portfolios
    The types of securities that each may issue
    The method of calculating Net Asset Value
    That a closed-end investment company is exempt from new issue registration requirements
  2. Which of the following would qualify for a sales breakpoint on large purchases of mutual fund shares?

    A partnership formed to buy the securities
    A husband and wife who are joint tenants with rights of survivorship
    A joint account formed between two unrelated individuals
    An investment club coordinated by a registered representative
  3. 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
  4. 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
  5. Which of the following Moody's ratings is the most speculative?

  1. a D.
    Of the choices given, Ba is the most speculative. The highest Moody's rating is Aaa.
  2. b C.
    When the market price of STC is at $39, the July 30 call has intrinsic value of 9 points. Since the investor paid a debit of $400, this will result in a profit of $500 ($900 intrinsic value - $400 debit).
  3. c A.
    Although all of these investments would be suitable for a client seeking broad exposure to the U.S. equity market, the mutual fund would be the most cost-effective method for an investor to accomplish this goal with $250 per month. The closed end fund and ETFs are purchased on an exchange and the client pays the current market price plus a commission. Most index mutual funds do not charge the client a sales charge (no-load). If the investor were purchasing a large dollar amount at one time any of these funds may be appropriate.
  4. d B.
    Quantity discounts are only allowed for individuals and individual entities such as corporations. Partnerships and investment clubs are not entitled to a quantity discount. Joint accounts normally do not qualify for breakpoints except in cases where there is a dependency relationship in the account (e.g., husband and wife).
  5. e B.
    A major difference between open-end and closed-end investment companies is their capitalization, the types of securities they issue to raise money. Open-end companies may only issue common stock. Closed-end companies may issue common stock, preferred stock, or bonds.

5 Multiple choice questions

  1. 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.
    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.
  3. A.
    The premium paid on a municipal bond must be amortized over the life of the bond. If held to maturity, the cost basis is reduced to par value and there is no loss.
  4. An 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. 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.

5 True/False questions

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

    Dated date
    Settlement date
    A specialist can accept all of the orders listed except a "not-held" order which allows a floor broker to use discretion in executing an order. Open (GTC) and day orders may be accepted by the specialist and placed in the specialist book. A specialist can accept a market order but must execute it immediately and cannot place it in the specialist book.


  2. An investor owns 280 shares of XYZ Corporation. XYZ Corporation pays a 15 cents quarterly dividend. XYZ Corporation announces a 5 for 4 split with a corresponding decrease in the per share dividend. How much will the investor receive in dividends each quarter after the split?

    None of the choices listed would guarantee that there would be no loss on the position. A buy stop becomes a market order once triggered and does not guarantee a specific price. A buy limit does not guarantee execution. The purchase of the call would not totally prevent a loss since it would reduce the investor's sale proceeds to $29 and the strike price of the call only guarantees a purchase price of $30 (resulting in a one point loss if exercised).


  3. A customer gives his registered representative the following instructions. Buy 100 shares of General Motors "whenever you think the price is right." Under current regulations the order:

    Can be accepted
    Must be marked "discretionary" and approved by a branch manager
    Cannot be accepted
    Must be executed as soon as possible after it is received
    The order can be accepted and is not a discretionary order which requires written power of attorney. The customer told the registered representative which stock to buy (GM) and the amount (100 shares). The phrase "whenever you think the price is right" means the registered representative can use his or her judgement as to when the stock should be purchased. The order is not a market order and does not have to be executed as soon as possible after it is received. The order, however, should be executed sometime during the day it was received.


  4. Mr. Jones, a client of XYZ brokerage firm, buys $12,000 of ABC stock and, on the same day, sells short $10,000 of DEF stock. Regulation T margin requirement is 50%. The member firm will issue a margin call for:

    The client made two separate transactions that would each require a margin deposit. At a 50% margin requirement, the long purchase of $12,000 would require a cash deposit of $6,000 (50% of $12,000 = $6,000). The short sale of $10,000 would require a cash deposit of $5,000 (50% of $10,000 = $5,000). A total margin call of $11,000 must be met ($6,000 + $5,000 = $11,000). It is important to note that in this example there are two separate transactions. A margin call for each is necessary. This differs from other margin questions where there is a same-day substitution in a restricted margin account and offsetting transactions are made.


  5. A customer wishes to establish a tax loss and sells 100 shares of XYZ Corporation. The loss would not be allowed if the customer, within 30 days:

    Bought an XYZ Corporation put
    Sold an XYZ Corporation put
    Bought an XYZ Corporation call
    Sold an XYZ Corporation call
    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.


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