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5 Written questions

5 Matching questions

  1. A member of a municipal syndicate is entitled to which of the following?

    Underwriting spread
    Additional takedown
    Manager's fee
    I and III only
    II and III only
    II and IV only
    I, II, III, and IV
  2. Choose from the items below, the one that is best described by the following.

    Tax credit

    The largest deduction generated by a DPP in real estate.

    Tax credit
  3. 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
  4. A stock index call option is exercised. The writer must:

    Deliver cash
    Deliver the underlying index
    Purchase the underlying index
    Close out his position
  5. Which of the following are characteristics of REITs?

    Formed as a limited partnership
    Provide limited liability for shareholders
    Invest in mortgage-related activities
    Distribute a minimum percentage of income
    I and III
    I, II, and IV
    II, III, and IV
    I, III, and IV
  1. a D.
    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.
  2. b 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.
  3. c A.
    When an index option is exercised, the writer must pay the buyer the in-the-money amount of the option in cash.
  4. d A.
    The largest deduction in a real estate program is generally depreciation.
  5. e 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.

5 Multiple choice questions

  1. 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.
  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.
    The customer has the right to call the stock at $50. The customer paid a $600 premium per straddle. The breakeven point on the call is determined by adding the $50 strike price to the premium of $6. This equals a breakeven of $56. The customer also has the right to sell the stock to the writer at $50, but has paid a $600 premium. The breakeven point on the put would be six points below the strike price of $50, which equals $44. The buyer's breakeven points will therefore be $44 and $56.
  4. C.
    The NYSE minimum maintenance requirement is $6,000. For a long account, the equity must equal at least 25% of the market value to satisfy the NYSE minimum maintenance requirement. This equals $3,000 (25% of $12,000 = $3,000). For the short account, the equity must equal at least 30% of the market value to satisfy the NYSE minimum maintenance requirement. This equals $3,000 (30% of $10,000 = $3,000). A total of $6,000 ($3,000 for the long account + $3,000 for the short account = $6,000) is required.
  5. 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 True/False questions

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

    Dated date
    Settlement date
    Corporations may exclude a portion of the dividends received from investments in the common and preferred stocks of other corporations.


  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?

    To find the new number of shares, multiply the shares owned by the ratio of the split (280 x 5/4 = 350). To find the new dividend per share, multiply the dividend by the reciprocal of the split ($.15 x 4/5 = $.12). The investor would receive a 12 cent dividend on 350 shares for a total of $42.00. Note that the stock split did not alter the total dividend received.


  3. 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
    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.


  4. An investor purchases $10,000 face value of an 8-year municipal bond at a price of 108 and holds the bond to maturity. The investor would report:

    No loss or gain
    $800 capital loss
    $800 capital gain
    $800 accreted interest
    Since the investor purchased Swiss francs, the investor is predicting that the price of the Swiss franc will rise. The investor also bought a put for protection in case the value declined. This strategy will be profitable if the U.S. dollar weakens and the spot price of the Swiss franc rises above 61.50 (cost of the Swiss francs plus the premium for the put).


  5. A customer sells short 100 shares of XYZ at 34. The customer wishes to protect herself against a loss. Which of the following would prevent a loss on the short position?

    Buy stop at 34
    Purchase of an XYZ 30 call at 5
    Buy limit at 32
    The customer will be exposed to the possibility of loss no matter which of these additional positions or orders is used
    The minimum equity requirement for a short account is $2,000. Since this is a new account, the customer must deposit $2,000.


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