1-4) An investor purchases a BAT Sept 30 put @ 2 and also writes a BAT Sept 40 put @ 8. The investor will profit if:
This is a credit spread, therefore the investor wants the spread to narrow. He will profit if they expire.
1-11) All of the following may be used to pay the debt service on general obligation bonds... (5)
A GO bond is backed by the full faith/credit of the municipality. To pay: fines, licensing fees, income tax, property tax, and sales tax. For rev: tolls, concessions, and lease rental payments.
1-14) Where would bid limitations for a new bond issue be found?
The Notice of Sale is published by the issuer announcing intent to sale and inviting firms to compete for the issue.
1-15) A stock trades ex-dividend on Monday the 20th. What is the last day an investor can purchase the stock and be entitled to the dividend?
Entitlement to a dividend depends on the stock being purchased prior to ex-dividend. Friday the 17th is the last day, since it's the business day prior to ex-dividend.
1-17) A sell stop limit order for 100 shares is entered at 18.50. With: 18.25, 18.38, 18.50, and 18.63, the trade was executed at:
After trigger at 18.25, the order became a limit to sell at 18.50 or better. 18.50 is the first place that meets the requirement.
1-20) A corporation has $125,000,000 of outstanding convertible bonds with a $50 conversion. If $75,000,000 are refunded, how many additional shares of common stock will be outstanding after the remaining bonds are converted.
After refunding, $50,000,000 in bonds remain. After conversion, 1,000,000 shares of common stock remain.
1-26) What provides the best return for a corporation in the 34% tax bracket?
The 7.50% preferred. If a corporation own 20% of the distribution corporation, then 80% of dividends are excluded. If less than 20% ownership, then 70% excluded.
1-36) Which of the following would probably be the most leveraged?
The utility company would be most leveraged since they are the heaviest users of debt and have the greatest amount of interest charges.
1-38) If a corporation reports a loss, it would not have to pay interest on:
Corporations must pay interest on debt obligations whether they have earning or not except for Adjustment/ Income bonds. They require only when there are earnings.
1-45) The initial FRB margin requirement is 50%. A customer purchased 100 XRX at $100 per share and deposited $5,000. If XRX increased to $150, how much SMA would the customer have?
$2,500. The debit balance of $5000 is the market value of $10,0000 minus the $5000 margin. At $150 per share, market value jumps to $15,000. SMA is required equity $7500 (50% of $15,000) minus actual equity ($10,000)
1-60) Which is not a Bond Buyer Index?
The Visible Supply. Indices include the 20-Bond index, the 11-Bond index, and the Revenue Bond index.
1-63) What is the total cost for a British pound Apr 135 call @ 7.50, when the pound is trading at $140.37 at a 31,250 contract sie,
$2.343.75. British pound options contracts are quoted in cents per pound. To convert to dollars, move the decimals two places to the left. Therefore, 31.250* .075 = $2,343.75.
1-67) The Federal Reserve can make money easy by: (2)
Decreasing the discount rate and buying securities. By easy, they mean more available
1-68) NASD broker-dealers are permitted to: (2)
(1) Although BD cannot lend credit to a customer to buy open-end shares (since Mutuals cannot be bought on margin) loan value can be assigned to fully paid shares owned for more than 30 days. (2) Also, RRs can continue to receive compensation after retirement, if a contract was signed before.
1-73) A revenue bond is backed by a pledge of net revenues indicating:
The first use of net revenues is to pay for debt service since grows revenue first pay operating and maintenance expenses.
1-83) In which of the following situations would an investor have unlimited risk?
Selling a put and shorting a stock. A short position has unlimited risk if the stock increases, as long positions a limited by a decline to zero.
1-84) A buyer of a call option would have: (3)
Limited risk, Protection against a short position, and Leverage, since you control 100 shares of stock for a small cost.
1-85) Relative to custodian accounts, who's responsible for the tax consequences and the income generated.
The minor is responsible for tax consequence, Income is taxed as received, not at adulthood.
1-88) Accrued interest on new municipal bonds is calculated from the:
Dated date, which is the date from which interest starts to accrue.
1-91) What is the semiannual interst payment on the purchase of ten 7% $1,000 par alue bonds selling at a discount with a 9% YTM?
$350 or $700/2
1-95) When setting prices for a competitive municipal bid, the underwriter will consider al lot the following EXCEPT:
Good faith deposit. This serves as partial payment for the issue, but not a considered factor like Call Premiums, Maturity, and Coupon Rate.
1-97) A brokerage firm's research department has issued a buy recommendation for XYZ Corporation's common stock. The report must contain all of the following information EXCEPT:
That the firm was part of the selling group. They disclose managing underwriter, held options, and market making.
1-101) All of the following are true regarding the SuperDOT system EXCEPT:
All orders may be entered into the system regardless of share quantity since the NYSE sets limits on number.The Designated Order Turnaround provides a direct computer tie in with the specialist bypassing floor brokers. Used for odd-lot, consolidated odd, market, and limit orders.
1-102) A registered rep holding limited discretionary authority over a customer's account may:
Buy or sell securities without consulting the customer. Only full allows for money to be withdrawn form the account. The account exec may not receive a fee for discretion, and borrowing client assets is never allowed.
1-103) When buying listed puts versus selling underlying stock short, which is not an advantage:
The put has a time value beyond an intrinsic value than gradually dissipates. Time value is Premium-Intrinsic value.
1-108) A charity receives restricted stock from the director of a corporation. The director owned the stock for two years. According to SEC Rule 144, the charity can sell the stock:
Freely since the one year holding was met by the director. The stock is still restricted (unregistered) and must be sold under Rule 144.
1-114) Which two circumstances would lead to disintermediation?
(1) When interest rates at savings banks are lower than money market like(2) when the FRB is pursuing a tight monetary policy. Disintermediation describes withdrawal of funds from savings banks and loan assoc by depositors to reinvestor in higher yielding money markets.
1-119) All of the following are TRUE regarding variable annuities and mutual funds EXCEPT:
The owner of a variable annuity has income tax deferred, therefore, taxes aren't paid each year, but at withdrawal. Owners of mutual funds do have to pay taxes on dividend payments, however.
1-120) MSRB rules apply to all of the following EXCEPT:
Municipal bond issuers. They only apply to Salespeople, Firms, and Underwriters.
1-122) Closing spot prices for foreign currencies are disseminated daily by the:
Federal Reserve Board.
1-124) The option strategy that provides the greatest potential gain for an investor would be:
Buying euro calls since there are no listed options on US dollars, and selling options have a gain limited by the premium. Short straddles are profitable only if the underlying option remains stable.
2-1) A director of a company owns 180,000 shares of BDG purchased in the secondary market, and wants to sell 17,000, owned for 9 months, which is TRUE?
The director is permitted if the trade is reported. The shares are control not restricted since purchased in secondary so no holding req. Insiders are officers or directors with more than 10% voting stock, and officers and directors must report trades with 2 biz days to SEC.
2-19) The exercise (strike) prices of listed options are NOT adjusted for:
Cash dividends. Listed options are adjusted for stock splits, rights offering, and stock dividends. OTC traded options are adjusted for cash in addition to the other adjustments.
2-21) A client would like to invest $250/month and have broad exposure to the US equity market. Which is the most suitable recommendation?
S&P 500 mutual fund. All are suitable, but mutual fund most cost-effective as closed end and ETFs pay a commission, while most mutuals are no-load.
2-26) For a long margin account with a $12,000 market value, and a $8,400 debit balance, how much cash would the customer have to deposit to be nonrestricted?
Equity in account is $3,600 (Market 12k - Debit 8.4k) FRB initial margin requirement is $6,000 (50% of $12,000) Therefore, $2,400 (6k - 3.6k) Accounts are restricted when equity is less than initial FRB margin req.
2-27) If interest rates are expected to rise over a period of time, a municipality that must raise money would probably issue securities with:
Long-term maturities to lock in current relatively low interest.
2-31) A level debt service bond issues one in which:
Combined interest and principal payments are equal.
2-39) If a customer has $10,000 in a cash account, $10,000 in a SMA account, and a $60,000 credit balance in a short margin account, the total amount of cash that can be withdrawn is:
$20,000 All the cash and all of the SMA may be withdrawn.
2-42) Refunding a debt issue accomplishes the following: (3)
(1) Reduce interest costs, (2) Change the maturity schedule of the corporation's debt, and (3) Removes restrictive provisions from the indenture
2-55) A customer buys bonds with a $50,000 par at 85 1/2 callable at 110. If held to maturity, how much does the investor receive?
At maturity, the holder of the bond receives the par value or $50,000.
2-56) The investment banking department does all of the following EXCEPT:
Make a secondary market for new issues, but does Underwrite new issues, provide financing, and distribute large blocks of already outstanding securities.
2-58) Which of the following employees of a NYSE firm must receive permission from their employer to open an accountant another firm?
Any employee of an NYSE firm must have permission from his or her employer to open an account at another firm.
2-61) For secondary market transaction, a muni securities BD may use a broker's broker to:
Disseminate the availability of securities and sell securities anonymously.
2-63) A muni bond paying interest on February 1st and August 1st will accrue interest over how many days if purchased on Wednesday, May 31st.
124 days. 30 days for February-May and 4 in June as the bond settles on Monday, June 5th. Accrued interst is calculated from last interest payment, up to but not including settlement.
2-66) Which of the following is an employee of an options exchange?
Order book official. The CBOE uses the market maker system. Each underlying security is assigned several MMs that buy and sell for their own accounts. The board Broker is an exchange member acting as an agent in executing orders for other members.
2-70) When does the Risk disclosure document have to be sent to a customer?
At or prior to the time that the account has been approved for options trading.
2-74) Mr. Smith buys 1 XYZ Oct 70 put at $16. XYZ declines to $52. Then buys 100 shares of XYX at market, putting it to the writer. By IRS rules, the proceeds rec'd by the customer from the sale is:
$5,400=$7,000 - $1,600
2-76) A T-bond purchased on Friday, February 20, maturing January 1, 2012, will have how many days of accrued interest?
53. 31 days for Jan (Last payment January 1) and 22 days for February (excluding settlement date) for a 53 days total.
2-77) In most cases, muni bond investors can obtain: (2)
(1) Diversification by investing in issues with different maturities, and (2) Federal tax exemption from the interest income received. May be taxable at the state level.
2-82) On January 16th, an investor sells XYZ at $34 for a 2-point loss. On the 24th, he purchases at $36. For tax purposes, the cost basis on 1/24 is:
38. The two point loss must be added to the new $36 cost. If a security is sold at a loss, and repurchased within 30 days, the loss is disallowed and added to an investors cost basis. Had the investor waited 31 days, the loss would allowed, and the basis $36.
2-87) An investor seeks a security with a fixed return, held for a long period of time, with no reinvestment risk. Which is most suitable?
Treasury STRIPS for zero-coupon status.
2-90) To determine what happens to revenue bonds when future bonds are issued, one examines...
The additional bonds test, which sets the minimum level of debt service coverage for interest and principal for all outstanding and future debt.
2-91) When considering the credit strength of a municipal issuer, one should analyze: (3)
(1) The condition of the local economy, (2) the current financial status of the municipality, and (3) the general capability of the municipality's fiscal officers.
2-92). A new convertible bond is not callable for 5 years. This call protection provision would benefit the purchaser if:
Interest rates are falling
2-93) Which of the following is TRUE regarding a call option purchaser?
The purchaser would limit the amount of money he could lose if the underlying stock declined. Option purchases limit their loss by the premium paid.
2-94) When an option contract is exercised, the writer:
The writer must fulfill the obligation to buy or sell the underlying instrument.
2-95) As far as rights offerings are concerned:
Preferred shareholder do not have the right to subscribe to rights offering.
2-96) All of the following muni bond transactions occur in the secondary market EXCEPT:
The placing of a designated order, an order directed to a syndicate manager by an institutional account designated 2 or more underwriting account members to receive credit for the order. Placed with syndicate member during order period.
2-97) All of the following are prohibited according to the Secutities Exchange Act of 1934
Short sales of muni bonds. Prohibited: Trader buying late in the day to prevent the fall of a securities' price, selling short without borrowing shares, two traders entering transaction without changing ownership to increase trade volume.
2-98) According to MSRB rules, which must be disclosed to a customer in a negotiated sale of muni bonds?
The amount of the underwriting spread, the initial offering of each maturity, and any fee received as agent for the issuer.
2-102) ABC's issuance of $100,000,000 worth of bonds at a $1000 par would have the effect of an increase in: (3)
(1) Working capital, (2) Total liabilities, and (3) Total assets. Working capital=current assets -current liabilities. The cash from sale ups current assets and total assets. Long-term liabilities increase.
2-104) A customer sells short 100 shares ABC @ $40 and sells 1 ABC Oct 40 put @ $500. BE is:
$45. The 5 loss by an increase offsets the $500 premium received.
2-108) What company would likely pay a dividend in stock rather than cash?
A company with a small amount of cash whose earnings are growing at a rate of 20%/ year. High growth rtes would pay in stock than in cash.
2-114) What's true about IRA contributions? (2)
(1) Must be in the form of cash, and (2) are permitted regardless of whether the individual is covered by an employer's plan.
2-116) The maximum passive losses a limited parter investing $30,000 in an oil and gas with a $50,000 recourse loan is:
2-122) The Securities Exchange Act of 1934: (3)
(1) Created the SEC, (2) provided for the regulation of credit, and (3) provided for the regulation of exchanges.
2-124) What's false regarding the Interbank market for foreign currencies?
It is unaffected by actions taken by a government's central bank. The interbank is decentralized, unregulated, but affected by actions taken by central banks. Transaction settle spot (2 business days), order ward (more than 2)
3-12) An investor writes an XYZ Oct 70 call at 3 and an XYZ Oct 70 put at 1. This is called:
A short straddle, consisting of selling a put and call with same underlying, strike, and expiration. A long is the buying with the same features.
3-25) If a put or call expires, the premium paid by the purchaser is considered for tax purposes:
A capital loss
3-26) What's true about convertible bonds? (3)
(1) Coupon rates are usually lower than non-convertible. (2) Convertible bond holders are creditors of the corporation. (3) It's possible that a convertible sells at a price based solely on bonds inherent value.
3-32) What is NOT TRUE regarding bonds selling at a discount.
Interest rates most likely decreased after the bonds were issued. Bonds sell at discounts due to interest increases.
3-33) When securities are sold in a restricted margin account: (3)
(1) The debit balance decreases, (2) SMA increases, and (3) account market value decreases.
3-38) After the customer pays for the margin purchase of $12,000 of stock by depositing $12,000 in marginable securities, the debit balance would be.
$12,000, because the customer did not deposit any cash.
3-48) A market measurement based on 65 stocks is known as :
Dow Jones Composite Average, consisting of 30 industrial, 20 transportation, and 15 utility. S&P is 500, with 400 industrial.
3-57) A muni bond trading at 92, callable at par in 10 years, must have what effective yield disclosed on the customer's confirmation?
The effective yield on discount bonds is yield to maturity, disclosed as regulated by the MSRB.
3-63) If 250,000 shares are being offered by shareholders and 250k by Briana Corp, these shares can be bought on margin:
under no circumstances. The offering sold would be sold with prospectus, and must be listed on an exchange or Nasdaw for 30 days before eligibility for purchase on margin.
3-68) The FRB's Open Market Committee buys and sell which of the following most often, to accomplish its aims?
3-71) A muni bond dated January 1st pays interest each April and Oct. 1st. If purchased from the issue with a Thursday, Januay 31st settlement, how many days of accrued interest are owed?
30. Municipal issue accrued interest are calculated form the dated date up to, but not including the settlement date.
3-76) A registered representative of a firm expected to do the underwriting for planned public stock issue cannot:
(1) Obtain indications of interest, until filed registration statement, (2) receive monies from customers who intend to purchase the issue, or (3) guarantee a customer the purchase of $1,000 shares.
3-83) If the president of MaxCo bought 3,000 shares in the OTC at $33, two months later the stock appreciation to $40. If the president wants to sell:
The profit must be forfeited according to the short-swing profit rule. Insiders cannot profit on stock held for less than six months.
3-84) In periods of easy money, when interest rates decline, yield curves tend to slope.
Upward from shorter to longer maturities. Yields of shorter would be less than that of longer maturities.
3-86) A company has chosen accelerated depreciation instead of straight-line depreciation. Which of the following is true:
Since large deductions are taken in the early year, earnings will be understated. Small deductions in later years will overstate earnings.
3-87) When the FRB buys US government securities in the open market, the effect on the banking system will be: (2)
(1) An increase in deposits, and (2) an increase in reserves.
3-88) ABC Corp issued two $1000 par securities, one paying infest annually and the other semiannually. If both mature in 10 years, the bond paying annual interest will return:
Less than the bond paying semiannually, because YTM assumes a compounding of interest from reinvestment.
3-95) A customer owns a stock that declared a $1 dividend to holders of record on Monday, December 22. If the customer wishes to sell, but retain entitlement to the dividend, he should sell on:
Thursday, December 18th regular way or Tuesday , December 23rd, cash settlement. (same-day delivery, same-day payment). Record date is the last day to own and receive a dividend. Ex-dividend is two days before record (12/18).
3-97) A municipal securities principal must approve: (4)
(1) Memos in response to customer complaints, (2) opening of accounts, (3) advertisement to be used for a seminar, and (4) correspondence to customers.
3-102) What are 3 characteristics of an ECN?
(1) They permit anonymous, (2) electronic, (3) after-hours trading. Participants are subscribers.
3-105) Place their order of yield, highest to lowest: Aaa utility, treasury, and AAa muni bond.
Muni lowest for federal tax exemption. Utility lower quality than treasury, and, therefore, higher yielding.
3-110) A revenue bond's indenture will include: (3)
(1) The legal opinion, (2) the rate covenant, and (3) the maturity feature.
3-111) A client purchased 300 shares of XYZ at $28. The client wrote 2 October 35 calls at 5. If the market price at expiration is $35, what's the realized gain?
$2,400. $1,000 premium + $1,400 (200 sold shares*35)
3-118) A quote of 5.90 - 5.75 would be a quote for which of the following securities?
Treasury bills, which are quoted on a discount yield basis, while the others are quoted at price. The higher yield represents the lower price and bid, and the lower yield represents the higher price and offer.
3-125) Relative to 13-week and 26-week Treasury bills, which of the following are TRUE: (4)
(1) They are auctioned weekly, (2) they are issued at a discount, (3) Noncompetitive tenders receive the lowest price of the awarded competitive tenders, and (4) Noncompetitive tenders are awarded before competitive tenders.
4-3) What's the intrinsic value of a British pound 160 put at 4, whe the pound is at 157?
3. A foreign currency put option is in the money when spot is less than strike. Since 157 is less than 160, the contract's in-the-money.
4-7) Relating to a new municipal issue, the legal opinion:
Attests to the validity of the issue. Will state the interest is free from federal tax and is valid and legal.
4-9) Which of the following statement are correct regarding spreads?
A put spread written for a net debit would be bearish.
4-12) As far as variable annuities are concerned, which of the following is TRUE?
Variable annuity nonqualified separate accouns are registered under the Investment Company Act of 1940.
4-15) All of the following are TRUE regarding municipal official statements:
Muni issuers are exempt from full disclosure and prospectus requirements. They cannot be required to prepare an Official Statement by any regulatory body.
4-17) A customer is short 100 ABC at $120, the customer instructs his broker to cover the short position at the market on the close. The order will be executed:
The order will be executed at the closing price or cancelled.
4-25) Which of the following is a benefit of the 529 Plan?
Beneficiaries may be changed. Contributions are made on an after-tax basis, but state rules vary from state to state. Contributions a are limited, and vary from state by state.
4-26) ABC mutual fund has an NAV of $11 and a POP of $11.88. For investments of $25-50k, there is a 6% sales charge. With $40,000 an investor can purchase:
3,419 shares. Divide the bid ($11) by the complement of the sales charge (94%). This equals an $11.70 Offering. Divide 40,000 by 11.70 equaling 3,419.
4-29) A municipal trader can do all of the following: (3)
(1) Request, (2) and Accept bids. (3) Also, they negotiate settlement dates in the secondary market.
4-36) Which of the following are needed to open a corporate margin account? (3)
(1) Corporate chair and resolution, (2) New account form, and a (3) Hypothecation agreement. A trust agreement is needed when opening a trust or retirement account.
4-45) The tool most commonly used by the FRB to regulate the amount of money and credit in the banking system:
Open market operations.
4-50) A municipality borrowing for a short-term period to finance a capital project would issue:
Bond anticipation notes are used to finance capital projects, while tax anticipation notes are used to meet operational expenditures.
4-51) Rank the components of the Dow Jones Composite Index in order of number of stocks, from least to greatest.
Industrials, Transportations, and Utilities.
4-52) If the FRB increased the discount rate, you would expect:
If the discount rate increases, interest rates would increase. Long-term bonds would decrease more in price than short-term bonds.
4-53) A 1% increase in the federal funds rate would have an effect on all of the following:
The fed funds rate is the rate banks charge each other when loaning excess reserves. It is the most sensitive of interest rates and would affect all but the discount rate set by the FRB.
4-56) What is true relative to the transaction for ABC wt 52s5?
ABC wt insides warrants and the s indicates round lots of 100, this 5,200.
4-57) What is true relative to the transaction for STC pr 11?
STC pr indicates preferred. If no volume is indicated, then a 100-share trade is assumed.
4-64) The BG mutual fund has a NAV of $11.72 and a max offering of $12.67. What's the max sales charge?
7.5%. Difference between NAV and POP / POP
4-65) An Eastern Account based syndicate is formed to sell $10 million of a muni bond issue. A dealer commits to sell $1 million / 10% of the issue. The dealer sells $1,000,000, but $2 million remain unsold. The dealer is:
Liable to sell 10% of the unsold bonds. In Easterns, the dealer is liable for a proportionate amount of bonds in the account.
4-67) A customer purchased a muni bond for $960 in the secondary market that matured in 4 years. All of the following are true: (3)
(1) The interest is exempt fom federal income tax, (2) the customer will have taxable icons if the bond if held to maturity, and (3) if the bond was a new issue, and held to maturity, the customer wouldn't have to pay any federal tax.
4-72) An investor purchased $200,000 6% GO bonds on margin, has a $50,000 debit bal, paying 10% interest on the balance. How much interest can be deducted for federal taxes?
None. Interest charges on money borrowed to purchase federally tax-exempt muni securities cannot be used as an interest deduction.
4-73) An investor longs 10 KDK Oct 60 call. Then, a 3:2 stock split. After, the investor owns:
10 contracts for 150 shares with a $49 strike price. In an even split, option contacts increase, with each contract representing 100 shares. In an odd split, the number of contracts remains the same and shares increase.
4-91) An investor purchased a discount muni bond currently selling at a premium, which is an example of:
Appreciation. The bond won't have a capital gain unless sold.
4-95) An investor purchases a US Treasury bond in the secondary market. When is settlement?
Treasury security transactions settle on the next business day.
4-97) Which factors affect a GO bond credit analysis? (2)
(1) The tax collection record of the municipality and (2) evaluation of the debt:real estate values in the municipality. Tax collection is used to compare to other municipality and prior year tax bases. Debt real estate ratio compares ability to meet debt with real estate values.
4-102) A customer opening a new options account provides the firm with background and financial information. Failing to receive response to verification, the brokerage firm:
... can consider the information as being verified.
4-103) A customer wishes to open an options account, but refuses to provide information. The brokerage firm:
Must record the customer's refusal on its record and use whatever information it can in determining whether to accept the account for options trading.
4-113) An investor longs DEF April 3 put at 3, and sells DEF April 30 put at 1.
$200. This is a debit spread. The investor paid $200 more buying than received selling. If they expire, $200 would be his maximum loss.
4-114) An investor longs DEF April 35 put at 3, and sells DEF April 30 put at 1. The maximum profit is:
$300 ($500-$200) Difference between strike minus original debit amount.
4-118) A muni bond issued at par is later purchased at a discount and redeemed for par at maturity. The profit is taxed as:
Ordinary Income. Considered ordinary income because it was already outstanding, and not original issue.