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5 Written Questions

5 Matching Questions

  2. 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
  3. 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
  4. The Federal Reserve Board margin requirement is 50%. A customer, in his margin account, buys 100 shares of XYZ Corporation at $80 per share and 1 call option on XYZ Corporation at 2. The customer will have to deposit:

  5. All of the following should be taken into consideration by an over-the-counter dealer when determining the commission to charge in an agency transaction, EXCEPT the:

    Costs involved in executing the trade
    Dollar value of the security
    Cost price of the securities held in inventory by the dealer
    Availability of the security
  1. a 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.
  2. b 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.
  3. c 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. d B.
    The customer will have to deposit $4,200. Margin on the $8,000 stock purchase would be $4,000. The premium of $200 for the option has to be paid in full. Options cannot be purchased on margin, although they may be purchased in a margin account. The total deposit would be $4,200 ($4,000 margin purchase + $200 option premium).
  5. e 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 Multiple Choice Questions

  1. 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.
  2. 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.
  3. 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. 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. 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 True/False Questions

  1. The major provisions of ERISA provide protection for:

    Investors in limited partnerships
    Employers against fraud by their employees
    Government employees against improper investments by their employer
    Private sector employees against improper investments by their employer in pension plans
    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. The market price of which of the following types of stock is most affected by swings in the interest rate cycle?

    Soft drink
    Restricted persons are not permitted to purchase shares of a new issue under the New Issue Rule. Immediate family members of a person associated with a member firm, portfolio managers and owners of a broker-dealer would be considered restricted persons. Aunts, uncles, and cousins are not defined under the rule as immediate family members and are therefore not considered restricted persons. A buy-side trader would have the ability to make trading decisions and would be defined as a portfolio manager, who are individuals considered restricted persons under the rule.


  3. 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
    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.


  4. A fundamental analyst, evaluating the common stock of a corporation, would examine all of the following, EXCEPT the:

    a. Sales of the corporation
    b. Management of the corporation
    c. Current amount of earnings paid out as dividends to the shareholders
    d. Current amount of short interest positions for the stock
    A fundamental analyst would examine all of the factors listed relating to a common stock except the current amount of short interest positions for the stock. Short interest is a statistic examined by a technical analyst. It represents the total amount of shares sold short that will be covered in the future.


  5. 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
    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.


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