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5 Written questions

5 Matching questions

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

    Sales taxes
    Gasoline taxes
    Excise taxes
    Property taxes
  3. Which of the following Moody's ratings is the most speculative?

  4. A 65-year-old individual receives money from a qualified variable annuity. This payment would be:

    Subject to a 10% penalty

    Fully taxable at the investor's tax bracket

    Treated as a capital gain for tax purposes
    Partially taxable at the investor's tax bracket

    a II only
    IV only
    I and III only
    I and IV only
  5. 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
  1. a D.
    State governments receive the least amount of revenues from property taxes. States raise money primarily from income taxes, sales taxes, excise taxes, and license fees. Local municipalities raise most of their funds from property taxes (real estate taxes).
  2. b 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
  3. c 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).
  4. d D.
    Of the choices given, Ba is the most speculative. The highest Moody's rating is Aaa.
  5. e A.
    Since a qualified variable annuity is funded with pretax dollars, payments from a qualified annuity are fully taxable as ordinary income. Withdrawals made before age 59 1/2 are subject to a 10% penalty tax.

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. 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.
  3. A.
    The investor bought the more expensive call; therefore, this is a debit spread. A call debit spread is a bullish strategy.
  4. C.
    The loss would not be allowed if the customer purchased the same or substantially identical security within 30 days. Purchasing a call is considered substantially identical since it gives the investor the right to buy 100 shares of XYZ stock.
  5. A.
    GNMA pass-through certificates are guaranteed by the U.S. government. Interest and principal payments are received monthly. The interest is subject to federal, state, and local taxes. GNMAs are secured by residential, not commercial mortgages.

5 True/False questions

  1. A customer shorts 100 shares of ABC at 16 in a new margin account. How much must he deposit?

    $2.50 per share
    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).


  2. An insurance company has a portfolio of long-term government securities. The portfolio manager anticipates that interest rates will rise and would like to hedge the portfolio. He should sell:

    T-bill calls
    T-bond calls
    T-bill puts
    T-bond puts
    If interest rates rise, bond prices will fall, so that the manager should sell calls (or buy puts). Since the portfolio is made up of long-term government securities, selling T-bond calls is the best answer.


  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
    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.


  4. 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
    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. A specialist can accept all of the following orders, EXCEPT a:

    Not-held order
    Market order
    Good-until-cancelled (open) order
    Day order
    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.


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