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5 Written questions

5 Matching questions

  1. All of the following should be taken into consideration by an over-the-counter dealer when determining the commission to charge in an agency transaction, EXCEPT the:

    Costs involved in executing the trade
    Dollar value of the security
    Cost price of the securities held in inventory by the dealer
    Availability of the security
  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. In May a customer sells a STC July 40 listed Call for a $6 premium and buys a STC July 30 listed Call for $10. The customer has created a:

    Bullish spread
    Bearish spread
    Debit spread
    Credit spread

    I and III
    II and III
    I and IV
    II and IV
  4. An investor purchases $10,000 face value of an 8-year municipal bond at a price of 108 and holds the bond to maturity. The investor would report:

    No loss or gain
    $800 capital loss
    $800 capital gain
    $800 accreted interest
  5. A client buys 100 shares of Miramar at $42/share. One week later she buys 1 Miramar Nov 40 put and pays a premium of $300. In November the stock is at $48/share and the put expires worthless. The tax consequences of these trades are:

    Miramar stock has a basis of 42
    Miramar stock has a basis of 45
    There is a capital loss of $300 on the put
    No loss is reported on the put until the stock is sold

    II only
    I and III only
    I and IV only
    II and III only
  1. a A.
    The premium paid on a municipal bond must be amortized over the life of the bond. If held to maturity, the cost basis is reduced to par value and there is no loss.
  2. b C.
    All of the choices given should be taken into consideration by an over-the-counter dealer when determining the commission to charge in an agency transaction except the purchase price of securities held in inventory by the dealer. The commission charged should be based on the current market price, not the cost of the inventory position.
  3. c 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.
  4. d A.
    The investor bought the more expensive call; therefore, this is a debit spread. A call debit spread is a bullish strategy.
  5. e B.
    Because the transactions took place on different days, each component is treated separately. The client owns stock at a cost basis of 42. When the put expires, the client has realized a $300 capital loss. If the trades were done on the same day, the strategy is referred to as a married put and the cost basis of the stock is 45. With the married put, no loss would be taken if the put expired worthless.

5 Multiple choice questions

  1. 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.
  2. 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.
  3. A.
    A specialist can accept all of the orders listed except a "not-held" order which allows a floor broker to use discretion in executing an order. Open (GTC) and day orders may be accepted by the specialist and placed in the specialist book. A specialist can accept a market order but must execute it immediately and cannot place it in the specialist book.
  4. 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. D.
    Corporations may exclude a portion of the dividends received from investments in the common and preferred stocks of other corporations.

5 True/False questions

  1. 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.

          

  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?

    $40.00
    $42.00
    $52.50
    $80.00
    D.
    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?

    FDIC
    SIPC
    MBIAC
    AMBAC

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

          

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

    $2.50 per share
    $800.00
    $1,600.00
    $2,000.00
    D.
    The minimum equity requirement for a short account is $2,000. Since this is a new account, the customer must deposit $2,000.

          

  5. 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
    D.
    The minimum equity requirement for a short account is $2,000. Since this is a new account, the customer must deposit $2,000.

          

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