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5 Written questions

5 Matching questions

  1. If ABC Corporation pays a $0.25 dividend to its shareholders, all of the following would result, EXCEPT:

    a. Retained earnings remains the same
    b. Working capital is decreased
    c. Current assets are decreased
    d. Current liabilities are decreased
  2. MSRB rules require that a municipal securities principal must approve all of the following, EXCEPT:

    All municipal transactions
    Municipal advertising
    Finalized bid forms
    Correspondence sent to customers
  3. An individual may roll over a lump-sum distribution from a corporate pension plan to an IRA without tax consequences if it is done within:

    10 days
    30 days
    60 days
    90 days
  4. A customer shorts 100 shares of ABC at 16 in a new margin account. How much must he deposit?

    $2.50 per share
  5. 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?

  1. a C.
    A municipal securities principal does not have to approve a bid form. A bid form is submitted by a municipal syndicate in relation to a competitive bid.
  2. b C.
    When a lump-sum withdrawal from a corporate pension plan, Keogh, or IRA is deposited into an IRA, it is referred to as a rollover. If the rollover is done within 60 days, the investor will avoid a taxable event. If the distribution is from a qualified plan other than an IRA, the distributing company must withhold 20% of the distribution for the IRS. Only one rollover is permitted each year.
  3. c D.
    The minimum equity requirement for a short account is $2,000. Since this is a new account, the customer must deposit $2,000.
  4. d B.
    When a cash dividend is paid, current assets (cash) and current liabilities (dividends payable) are decreased. Since both are reduced proportionately, working capital (current assets minus current liabilities) remains the same.
  5. e B.
    To find the new number of shares, multiply the shares owned by the ratio of the split (280 x 5/4 = 350). To find the new dividend per share, multiply the dividend by the reciprocal of the split ($.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.

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. 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.
  3. 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.
  4. 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.
  5. The client made two separate transactions that would each require a margin deposit. At a 50% margin requirement, the long purchase of $12,000 would require a cash deposit of $6,000 (50% of $12,000 = $6,000). The short sale of $10,000 would require a cash deposit of $5,000 (50% of $10,000 = $5,000). A total margin call of $11,000 must be met ($6,000 + $5,000 = $11,000). It is important to note that in this example there are two separate transactions. A margin call for each is necessary. This differs from other margin questions where there is a same-day substitution in a restricted margin account and offsetting transactions are made.

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
    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. 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
    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).


  3. Which of the following insure municipal bonds?


    I and II only
    II, III, and IV only
    III and IV only
    I, II, III, and IV
    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).


  4. A brokerage firm's research department has issued a buy recommendation on XYZ Corporation common stock. The report must contain all of the following information, EXCEPT:

    The firm was the managing underwriter in a recent public offering of the stock
    The number of shares the firm owns of the stock
    Partners of the firm hold options to purchase the stock
    The firm makes a trading market in the stock
    The report must contain all of the items listed except the number of shares the firms owns of the stock. The firm does need to disclose that it owns shares of the stock, but not the actual number.


  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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