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5 Written Questions

5 Matching Questions

  1. 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
  2. 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
  3. 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
  4. 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
  5. 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
  1. a A.
    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.
  2. b 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.
  3. c D.
    Corporations may exclude a portion of the dividends received from investments in the common and preferred stocks of other corporations.
  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.
    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. B.
    Stopping stock is done by the specialist to guarantee a price for a public order. The specialist does not need the permission of an exchange official to do so.
  3. 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.
  4. D.
    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.
  5. 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).

5 True/False Questions

  1. State governments receive the least amount of revenues from:

    Sales taxes
    Gasoline taxes
    Excise taxes
    Property taxes
    C.
    T-bills, BAs, and CDs are money-market instruments (short-term debt securities). ADRs represent a claim to foreign securities and are used to facilitate the trading of foreign stocks in the United States.

          

  2. 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
    D.
    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.

          

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

    T-bills
    BAs
    ADRs
    CDs
    C.
    T-bills, BAs, and CDs are money-market instruments (short-term debt securities). ADRs represent a claim to foreign securities and are used to facilitate the trading of foreign stocks in the United States.

          

  4. A municipal bond pays interest on February 1st and August 1st. A customer purchasing the bond on Monday, April 30th would have to pay the seller the purchase price plus accrued interest for:

    91 days
    92 days
    93 days
    96 days
    B.
    The trade date is Monday, April 30th. The bond pays interest on February 1st and August 1st. Accrued interest is calculated from the last interest payment date, up to but not including the settlement date. The settlement date is Thursday, May 3rd. The following calculation illustrates the answer:

    February 30 days
    March 30 days
    April 30 days
    May 2 days
    92 days

          

  5. 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
    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.

          

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