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5 Written Questions

5 Matching Questions

  1. Choose from the items below, the one that is best described by the following.

    Depreciation
    Depletion
    Recapture
    Tax credit

    The largest deduction generated by a DPP in real estate.

    Depreciation
    Depletion
    Recapture
    Tax credit
  2. (#70)
    The following dividend information for New York Stock Exchange listed common stocks is reported in The Wall Street Journal:

    Quarterly Dividend Record Date Payable Date
    Cummings Corporation 50 cents 4/10 5/15
    Federal Corporation 85 cents 4/13 5/25
    General Electric Corp. 95 cents 4/8 5/21

    Based on the information stated above, a buyer of Cummings Corporation on May 10th:

    Would be entitled to receive the 50 cents quarterly dividend
    Would not be entitled to receive the 50 cents quarterly dividend
    Would be entitled to receive the 50 cents quarterly dividend if the trade was made for "cash"
    None of the above
  3. Which of the following cannot delegate power of attorney to a third party for the purpose of making securities transactions?

    A husband
    A wife
    A corporation
    A custodian
  4. A member of a municipal syndicate is entitled to which of the following?

    Underwriting spread
    Additional takedown
    Manager's fee
    Concession
    I and III only
    II and III only
    II and IV only
    I, II, III, and IV
  5. PASS-THROUGH SECURITIES
  1. a D.
    Of the choices given, the only one that cannot delegate power of attorney to a third party for the purpose of making securities transactions is a custodian for a minor.
  2. b A.
    The largest deduction in a real estate program is generally depreciation.
  3. c 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.
  4. d Securities that pool debt obligations and pass through the principal and interest payments made by debtors to the security holders. To create a mortgage pass-through, a group of mortgages are collected to form a pool. Interests in the pool are then sold to investors in the form of pass-through certificates. Each certificate represents an undivided interest in the pool.
  5. e 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.

5 Multiple Choice Questions

  1. 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.
  2. A.
    Utilities are usually highly leveraged (a high percentage of capital is borrowed) and are therefore most affected by interest-rate swings.
  3. D.
    Corporations may exclude a portion of the dividends received from investments in the common and preferred stocks of other corporations.
  4. 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. 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.

5 True/False Questions

  1. 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
    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.

          

  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
    D.
    Of the choices given, the only one that cannot delegate power of attorney to a third party for the purpose of making securities transactions is a custodian for a minor.

          

  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
    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.

          

  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
    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.

          

  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
    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.

          

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