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5 Written questions

5 Matching questions

  1. In periods of "easy money" when interest rates are declining, yield curves would tend to:

    Slope upward from the shorter to the longer maturities
    Slope downward from the shorter to the longer maturities
    Remain flat
    Do none of the above
  2. 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
  3. 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
  4. A customer wishes to establish a tax loss and sells 100 shares of XYZ Corporation. The loss would not be allowed if the customer, within 30 days:

    Bought an XYZ Corporation put
    Sold an XYZ Corporation put
    Bought an XYZ Corporation call
    Sold an XYZ Corporation call
  5. (#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
  1. a 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.
  2. b A.
    In periods of "easy money" when interest rates are declining, yields on shorter maturities would be less than those of longer maturities. Yield curves would tend to slope upward from the shorter to the longer maturities.
  3. c 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.
  4. d 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. e B.
    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.

5 Multiple choice questions

  1. 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.
  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 order can be accepted and is not a discretionary order which requires written power of attorney. The customer told the registered representative which stock to buy (GM) and the amount (100 shares). The phrase "whenever you think the price is right" means the registered representative can use his or her judgement as to when the stock should be purchased. The order is not a market order and does not have to be executed as soon as possible after it is received. The order, however, should be executed sometime during the day it was received.
  4. D.
    Corporations may exclude a portion of the dividends received from investments in the common and preferred stocks of other corporations.
  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 TWO of the following statements are TRUE regarding Eurodollar bonds?

    They are denominated in U.S. dollars only.
    They are denominated in foreign currencies only.
    They are only traded outside of the U.S.
    They are traded in the U.S. and international markets.

    I and III
    I and IV
    II and III
    II and IV
    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.


  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. Which of the following persons may purchase a new issue from a member firm according to the New Issue Rule?

    The brother-in-law of a person associated with a member firm
    The uncle of a person associated with a member firm
    A buy-side trader employed by a mutual fund
    The owner of a broker-dealer firm
    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.


  4. A customer buys 10 ABC January 50 Calls paying a $3 premium and 10 ABC January 50 Puts also paying a $3 premium when the market price of the stock is $49 per share. The buyer's breakeven points will be:

    I and III only
    I and IV only
    II and III only
    II and IV only
    The investor bought the more expensive call; therefore, this is a debit spread. A call debit spread is a bullish strategy.


  5. A municipal bond which is issued at par, is purchased at a discount and later sold at par or above. This transaction would result in:

    A taxable gain
    A tax-deductible loss
    A tax-free gain
    No gain or loss
    If a municipal bond is purchased at a discount in the secondary market (not an original issue discount), there will be a taxable gain at maturity. A taxable gain would also result if the bond was sold prior to maturity, above the original cost.