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43 Cards in this Set
- Front
- Back
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Which statement is TRUE regarding Regulation A?
A .Offerings are limited to a maximum of 35 non-accredited investors B. Offerings are limited to a maximum size of $50,000,000 C. A Prospectus must be delivered to purchasers D. The Offering is exempt from registration with the Securities and Exchange Commission |
The best answer is B. Regulation A is intended to make it easier for smaller issuers to raise capital. There are 2 "tiers" to the rule. Tier 1 gives an "E-Z" registration process to offerings of no more than $20 million in a 12 month period. Tier 2 requires more detailed information, including audited financial statements, and can be used for offerings of up to $50 million. While no prospectus is required, each buyer must be given disclosure in an Offering Circular. Anyone can purchase a Regulation A offering - it is not limited solely to accredited (wealthy) investors. Customers in any state can buy - this is not being sold under an "intrastate exemption" (Rule 147) that limits purchasers to residents of 1 state. |
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Exhibit from Specialist's/DMM's Book Sell 36.09 100 SL GTC 36.08 200 GS Day
36.06
Buy 300 DB GTC 36.05 300 GS Day 36.04 The first price at which a customer buy order on the book will be filled is: A. 36.00 B. 36.04 C. 36.05 D. 36.06 |
The best answer is C.
The "open" area on the book is where the stock is currently trading since any orders that were there would have been filled by the Specialist/DMM (Designated Market Maker). Therefore, the stock is trading around 36.06 - 36.07. If the market drops, the Specialist/DMM will have to buy for the customers on the book. The first order to buy as the market drops is at 36.05. The Specialist/DMM can buy HIGHER than this price for his own account, but cannot buy at 36.05 until the customer order is cleared. |
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Treasury bills:
I are issued in minimum $100 denominations II are issued in minimum $10,000 denominations III mature at par IV mature at par plus accrued interest A. I and III B. I and IV C. II and III D. II and IV |
The best answer is A.
Treasury bills are original issue discount obligations that mature at par, in minimum denominations of $100 each. |
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Which of the following terms are synonymous?
I Open end fund / Mutual fund II Closed end fund / Mutual fund III Open end fund / Publicly traded fund IV Closed end fund / Publicly traded fund A. I and II B. III and IV C. I and IV D. II and III |
The best answer is C.
An open-end fund portfolio is managed and the fund continuously issues and redeems its common shares - so it is an "open end" management company. A closed-end fund has a 1 time stock issuance and then "closes" its books to new investment and then lists its stock on an exchange or NASDAQ. The stock then trades like any other common stock, except the company is in the business of making investments; instead of say, making cars, beer, or computers. Thus, this type of fund is a "publicly traded" fund. |
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Under FINRA rules to find the best available market in an OTC security, over-the-counter traders are obligated to obtain at least:
A. 2 quotes B. 3 quotes C. 4 quotes D. 5 quotes |
The best answer is B.
Under FINRA rules, to find the best available market for an OTC security (OTCBB or Pink OTC Market), an over-the-counter trader must obtain at least 3 quotes (if that many are available). |
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Which statement is FALSE?
A. The customer's signature is required on a new account form to open a cash account B. The registered representative's signature is required on a new account form to open a cash or margin account C. The manager's or principal's signature is required on new account form to open a cash or margin account D. The customer's signature is required on a margin agreement to open a margin account |
The best answer is A.
A customer signature is not needed to open a cash account (thus accounts can be opened over the phone). A signature is required for margin accounts only, since such an account requires that the customer pledge all the securities in the account to the brokerage firm in return for a margin loan. The registered representative and the manager (principal) must sign the new account form. By signing, the registered representative indicates that the information is written as stated by the customer; and the manager is signing that the information has been reviewed prior to accepting the account for the firm. (Also note that this is very much a "test world" question. In the real world, pretty much every brokerage firm, as part of the new account form, has an embedded arbitration agreement and has the customer sign it when opening the account. However, this is a firm requirement and not an SEC or FINRA legal requirement. If a brokerage firm wanted to open a customer cash account without the customer signing an arbitration agreement, it could.) |
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When the O.C.C. receives an exercise notice from a brokerage firm, it selects a short contract to be exercised on a:
A. method of reasonable fairness B. LIFO basis C. FIFO basis D. random order basis |
The best answer is D.
If an option contract is exercised by a holder, a writer is selected by the Options Clearing Corporation to perform on the contract on a random order basis. |
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The Official Statement for a new municipal issue discloses that the issue consists of the following general obligation bonds:
Issue Size:$20,000,000 Dated Date:January 1, 2015 Due As Follows: January 1, 2016:$10,000,000 January 1, 2017:$5,000,000 January 1, 2018:$5,000,000 The average life of the issue is: A. 1.25 years B. 1.75 years C. 3.75 years D. 4.25 years |
The best answer is B. The average life of a serial bond issue is:
35,000 20,000= 1.75 Years Average The computation of bond years and number of bonds is shown below: Years To Maturity Number of $1,000 Par Bonds Bond Years1 10,000 10,0002 5,000 10,0003 5,000 15,000Total 20,000 35,000 |
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Which statement is TRUE about non-competitive bids placed at Treasury auctions?
A. Non-competitive bids have priority over competitive bids B. Competitive bids have priority over non-competitive bids C. Both non-competitive and competitive bids have the same priority D. All bids are given priority based on the size of the bid |
The best answer is A.
In the weekly T-Bill auction, the amount of non-competitive bids is set aside from the total securities to be auctioned and is always filled at the average winning rate. The remaining T-Bills to be auctioned are filled from the lowest interest rate bid on up. Once the issue is "sold out," the remaining higher rate competitive bids are void. Thus, non-competitive bids have priority at the weekly auction. |
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The provisions of the Securities Exchange Act of 1934 apply to which of the following activities?
I Trading rules for exempt securities II Trading rules for non-exempt securities III Anti-fraud rules for exempt securities IV Anti-fraud rules for non-exempt securities A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV |
The best answer is C.
The Securities Exchange Act of 1934 relates to the secondary (trading) market. The provisions of the Act apply to non-exempt securities only, with the exception of the "anti-fraud" provisions of the Act. The "anti-fraud" provisions apply to both exempt and non-exempt securities. |
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Which statements are TRUE about the parties to a brokerage account?
I The "first party" to an account is the customer II The "first party" to an account is the broker III The "second party" to an account is the customer IV The "third party" to an account is anyone other than the broker or customer A. I and IV only B. II and III only C. I, III, IV D. II, III, IV |
The best answer is D.
The "First Party" to a brokerage account is the brokerage firm; the "Second Party" to a brokerage account is the customer; the "Third Party" to a brokerage account is anyone other than the broker or customer. |
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A new issue has a Public Offering Price of $21 per share. Which of the following are likely stabilizing bids?
I $22.00 II $21.00 III $20.88 IV $20.00 A. I and II B. III and IV C. II and III D. I, II, III, IV |
The best answer is C.
Stabilizing bids are permitted at, or below the Public Offering Price - never above. When placing the bid, the manager will not drop the price by much below the Public Offering Price, so the likely stabilizing bids are $21 and $20.88. A bid of $22 is prohibited because it is higher than the $21 Public Offering Price; a bid of $20 is too far below the $21 Public Offering Price. |
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Under the circuit breaker rule, a trading halt in NMS stocks will be INITIATED if the Standard and Poor's Index drops by:
A. 7% prior to 3:25 PM (EST) B. 13% prior to 3:25 PM (EST) C. 20% prior to 3:25 PM (EST) D. 25% prior to 3:25 PM (EST) |
The best answer is A.
Under the circuit breaker rule, if the Standard and Poor's 500 Index moves down by 7% or more from the prior day's closing price, the listed equity markets will be shut down for 15 minutes. After reopening, if the index falls by a total of 13% or more from the prior day's closing price, the markets will close again for 15 minutes. This is intended to allow investors to calmly evaluate market conditions, so that a "domino effect" of panic selling does not occur. Finally, after reopening, if the index falls by a total of 20%, the markets will close until the next day. Also note that any 7% or 13% drop that occurs after 3:25 PM will not close the markets - they will stay open until the 4:00 PM close. This is the case because funds base their NAVs on closing prices, and it was felt that having a lack of pricing to investors would be overly disruptive. On the other hand, any 20% drop at any time will shut the markets until the next day, since such a dramatic price drop is usually caused by a major news event |
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A customer buys 100 shares of ABC stock at $39 and sells 1 ABC Jan 45 Call @ $2 on the same day in a cash account. The customer's maximum potential gain until the option expires is:
A. $200 B. $300 C. $700 D. $800 |
The best answer is D.
If the market rises above $45 the short call will be exercised. The customer must deliver the stock that he bought at $39 for the $45 strike price, resulting in a $600 gain. Since $200 was collected in premiums as well, the total gain is $800. This is the maximum potential gain while both positions are in place. |
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Distributions from variable annuity contracts at retirement age are:
A. non-taxable B. taxable as ordinary income on any amount above the customer's cost basis C. taxable as long term capital gains on any amount above the customer's cost basis D. 100% taxable |
The best answer is B.
Contributions to variable annuity contracts are not tax deductible. Therefore, they go into the separate account as "after-tax" dollars and are considered to be the "cost basis" in the account for tax purposes. Any "build-up" (earnings) in the account is tax deferred. When distributions commence, only the "build-up" portion is taxed - this is the amount above the cost basis in the account. |
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Dark Pools:
I display their quotes with size II do not display their quotes with size III are obligated to report completed trades to the tape IV are not obligated to report completed trades to the tape A. I and III B. I and IV C. II and III D. II and IV |
The best answer is C. |
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All of the following are considered to be coincident economic indicators EXCEPT:
A. Stock market prices B. Personal income levels C. Index of industrial production D. Gross Domestic Product |
The best answer is A.
Stock market prices (as measured by the Standard and Poor's 500 Index) are a leading indicator, since as stock prices rise, people spend more. Personal income, the index of industrial production, and the level of Gross Domestic Product show current levels of economic output and are all considered coincident indicators. |
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Payments received by the owner of a tax qualified variable annuity are:
A. 100% taxable as investment income B. only taxable to the extent of earnings above the holder's cost basis C. only taxable to the extent of the holder's cost basis D. non-taxable |
The best answer is A.
Funds paid into "tax qualified" retirement plans were never subject to tax, since the contribution amount was deductible from income at the time it was made. Earnings build up tax deferred in the plan. When distributions are taken, since all of the dollars in the plan were never taxed, all of the distribution is taxable. Funds paid into "non-tax qualified" retirement plans are not tax deductible. Any earnings build up tax deferred. When distributions are taken, the portion that represents the return of original after tax investment is not taxed; while the portion that represents the tax deferred earnings buildup is taxable. |
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An investor purchases $10,000 worth of marginable stock in his margin account. If the investor wishes to pay for this trade using $5,000 of fully paid marginable stock, how much more in cash, if any, will the investor need to deposit?
A. 0 B. $2,500 C. $5,000 D. $10,000 |
The best answer is B.
To buy $10,000 of stock requires a margin deposit of 50% of $5,000. The deposit of $5,000 of fully paid stock generates $2,500 of SMA - this is the cash that is available to be borrowed. Thus, of the $5,000 margin call, $2,500 is satisfied by the stock deposit. The remaining balance due is $2,500; either to be paid in cash; or another $5,000 of fully paid stock must be deposited. |
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A value investor would consider all of the following EXCEPT a company's:
A. Price / Earnings ratio B. Price / Book Value ratio C. Stock price growth rate D. Market share |
The best answer is C.
Value investors invest in undervalued companies - as measured by low Price/Earnings ratios and low Price/Book Value ratios - that have good market prospects. Thus, they also consider product line, market share, management, etc. Growth investors select investments based simply on growth in earnings or growth in market price; on the assumption that these will always be the best performing investments. |
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The opinion as to the federal tax-exempt status of a municipal bond is provided by the:
A. Internal Revenue Service B. Bond attorney C. Underwriter's counsel D. Securities and Exchange Commission |
The best answer is B.
The bond counsel renders an opinion as to the legality, validity, and tax exempt status of a new municipal issue. To do this, the bond attorney examines municipal statutes, state laws, judicial edicts, and tax regulations |
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The provisions of the Investment Company Act of 1940 include: which of the following?
I Minimum initial fund capital of $100,000 II "Interested persons" on the Board of Directors cannot hold over 60% of the seats III Changing the fund's investment objective requires a majority vote of the shareholders IV Setting maximum sales charges on mutual fund purchases A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV |
The best answer is C.
The Investment Company Act of 1940 requires that the minimum capital to start a fund is $100,000; that no more than 60% of the Board of Directors be "interested parties" - that is, they are affiliated with the sponsor, custodian, transfer agent, or firms in the selling group; and that the fund have a stated investment objective that can only be changed by majority vote of the shareholders. The Act does not set sales charges for mutual fund purchases - these are set by FINRA - which allows a maximum sales charge of 8 1/2%. |
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The minimum maintenance margin requirement for a short stock position valued at $10 per share is?
A. $2.50 per share B. $3.00 per share C. $5.00 per share D. $10.00 per share |
The best answer is C.
For short stock positions that are valued at $5 per share or more, the minimum maintenance margin is the greater of $5 or 30% of market value. For a $10 stock, the minimum maintenance margin is 30% of $10 = $3.00 or $5.00, whichever is greater. The greater amount is $5 per share. |
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Long Margin Account Market Value: $80,000
Debit Balance: $30,000The "Buying Power" in this account is: A. $10,000 B. $20,000 C. $40,000 D. $50,000 |
The best answer is B.
With a market value of $80,000, the customer can borrow 50% or $40,000. Since the debit balance is only $30,000, the customer can borrow an additional $10,000 from the account. Thus, there is $10,000 of SMA. With $10,000 of SMA, the customer can buy $20,000 of marginable stocks. Buying Power refers to the amount of stocks that can be purchased without depositing cash. |
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Which statements are TRUE when comparing traditional CDs to market index linked CDs?
I Traditional CDs have market risk if redeemed prior to maturity II Traditional CDs do not have market risk if redeemed prior to maturity III Market index linked CDs have market risk if redeemed prior to maturity IV Market index linked CDs do not have market risk if redeemed prior to maturity A. I and III B. I and IV C. II and III D. II and IV |
The best answer is C.
Market Index Linked CDs are a type of "structured product" that consists of a "zero-coupon" synthetic bond component that grows based on the returns of an equity index; and that has a maturity established by an embedded option, typically 3 years from issuance. Market Index Linked Certificates of Deposit tie their investment return to an equity index, usually the Standard and Poor's 500 Index. This can give a potentially better rate of return than that of a traditional CD. If held to maturity, there is no penalty imposed on any CD. For an early withdrawal, traditional CDs may reduce the interest earned, but there is no loss of principal. In contrast, market index linked CDs typically impose a 3-5% principal penalty for early withdrawal. This "early withdrawal" penalty is imposed because the embedded option that established the maturity of the instrument was paid for and now is not being used. Both regular and market index linked CDs qualify for FDIC insurance. Finally, the minimum life for market index linked CDs is typically 3 years; whereas traditional bank CDs can have lives as short as 3 months |
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Net tangible asset value per share is the same as:
A. net asset cost per share B. book value per share C. fair market value of assets per shareD. net working capital per share |
The best answer is B.
Book Value Per Share is the same as Net Tangible Asset Value per share. |
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Under FINRA rules, to ascertain which investments are suitable for the customer, the registered representative would inquire about the customer's:
I Existing investment holdings II Current investment objective III Financial situation and needs IV Daily living expenses A. I only B. II and III C. I, II, III D. I, II, III, IV |
The best answer is C.
"Suitability" means that securities which are recommended to a customer are appropriate for that customer. To ascertain which investments are suitable for the customer, FINRA states that the basis for making the recommendation are the facts disclosed by the customer about his other security holdings and financial situation and needs. Inquiry should be made as the customer's investment objective, tax status, and financial status. Inquiring about the customer's daily living expenses might be a little too intrusive to ask. |
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A husband and wife are self-employed and have 3 children, ages 4, 7, and 9. They have a combined income of $200,000. They wish to open Coverdell ESAs for each of their children to pay for qualified education expenses. Which statement is TRUE?
A. They can open the account for each child and make an annual $2,000 tax-deductible contribution for each B. They can open the account for each child and make an annual $2,000 non tax-deductible contribution for each C. They are prohibited from opening an account for each child because they earn too much D. They are prohibited from opening an account for each child because Coverdell ESAs cannot be opened by self-employed individuals |
The best answer is C.
Both Roth IRAs and Coverdell ESAs are not available to high-earning individuals. There is an income phase-out range, above which contributions are prohibited to either of these. For 2015, the income phase out range for individuals is $116,000 - $131,000 and for couples it is $183,000 - $193,000. |
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In order to protect a gain on a long stock position, a customer could:
I place a sell stop order II place a sell limit order III buy a put IV sell a put A. I and III B. I and IV C. II and III D. II and IV |
The best answer is A.
A gain on a long stock position will be lost if the market falls. The sell order that is placed below the current market is a sell stop order (sell limits are placed above the current market). Alternately, the investor could buy a put which gives him or her the right to sell the stock at the strike price. |
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A customer has completed an account transfer instruction form at broker-dealer "B," instructing that his account be transferred from carrying broker-dealer "A." Once the positions are validated, any new orders must be placed through:
A. Broker-dealer "A" B. Broker-dealer "B" C. Broker-dealer "A" only after all securities are transferred D. Broker-dealer "B" only after all securities are transferred |
The best answer is B.
Once a customer has completed an account transfer instruction at a "new" receiving broker-dealer ("B"), this form is sent by that firm to the old carrying broker-adealer ("A"). Broker-dealer "A" must validate the positions on the form within 1 business day and complete the physical transfer within another 3 business days. Upon receipt of the form, carrying broker-dealer "A" must freeze the account. Any new orders must be placed through the new broker-dealer "B," who can execute them once the positions are validated. There is no requirement to wait until the physical transfer is completed |
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A customer buys 1 Swiss Franc October 90 Put @ 6 when the Franc is trading at 85. The contract is:
A. trading at parity B. "in the money" C. "out the money" D. "at the money" |
The best answer is B.
Puts go "in the money" when the market price falls below the strike price. Since the market price is 85 (cents) while the contract allows the customer to sell at a strike price of 90 (cents), the put is "in the money" by 5 cents. |
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A balance of payments deficit would be narrowed by which of the following?
I Decreased levels of U.S. imports II Increased sales of U.S. securities to foreign holders III Increased levels of foreign tourists visiting the United States IV Increased dividends paid to foreign holders of U.S. securities A. I and III only B. II and IV only C. I, II, III D. I, II, III, IV |
The best answer is C.
As the deficit narrows, fewer dollars are being spent abroad and more are being spent in the U.S. Decreased levels of U.S. imports will cause more dollars to stay the U.S., strengthening the dollar and narrowing the deficit.Increased sales of U.S. securities to foreign holders will increase the value of the dollar (foreigners have to spend their currency to buy dollar-denominated securities), narrowing the balance of payments deficit. Increased levels of foreign tourists visiting the U.S. will narrow the deficit, since dollars are being spent in the U.S. by more foreigners. Finally, increased dividends paid to foreign holders of U.S. securities will cause dollars to leave the U.S., widening the deficit. |
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A corporation has issued 10% convertible debentures, convertible into 40 shares of common stock. The current market price of the common stock is $25.25. If the bonds are trading at 5 points above parity, they are priced at:
A. 100 B. 101 C. 106 D. 107 |
The best answer is C.
The bonds are convertible into 40 shares of stock. The current market value of the stock is $25.25, so the parity price of the bonds is 40 x $25.25 = $1,010. Since the bonds are trading at 5 points ($50) above parity, they are priced at $1,010 + $50 = $1,060 per bond = 106. |
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A registered representative of a member firm markets private placements to wealthy accredited investors. Before the member firm can market these private placement securities, it MUST:
A. conduct a reasonable investigation concerning the security and the issuer's representations about it B. register the securities with the SEC C. determine that each potential purchaser is sophisticated D. list the issue on a recognized stock exchange |
The best answer is A.
FINRA requires that when a private placement is offered, the broker-dealer or its representatives must conduct a reasonable investigation concerning that security and the issuer's representations about it. FINRA states that a broker-dealer "may not rely blindly upon the issuer for information concerning a company and it cannot rely on information provided by the issuer in lieu of its own reasonable investigation." The fact that a BD's customers are accredited does not obviate this investigation. The BD must conduct a reasonable investigation concerning the: issuer and its management; business prospects of the issuer; assets held by the issuer; claims being made; and intended use of the proceeds of the offering.Note that if registered securities are being offered, this detailed "due diligence" investigation by the BD offering the investment is not required - it is only a requirement for private placement offerings (because in a registered securities offering, the issuer and underwriters perform the required due diligence). Also note that there is no requirement for accredited investors in a private placement to be sophisticated (they are rich!) - this is only a requirement for sales to non-accredited investors. |
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The "death benefit" associated with a variable annuity contract means that if the contract holder dies:
A. prior to annuitization, the amount invested in the contract is returned to a beneficiary B. after annuitization, the amount invested in the contract is returned to a beneficiary C. prior to annuitization, the insurance company will make a lump sum payment to complete the terms of the contract D. after annuitization, the insurance company will pay for the insured's burial expenses |
The best answer is A.
The "death benefit" of a variable annuity contract is not really much of one. If the contract holder dies prior to annuitization, the insurance company pays the greater of current NAV or the amount invested to a beneficiary. If the contract holder dies after annuitization, there is no more "death benefit." |
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A corporation has posted a large financial loss for this year. It has a legal obligation to pay interest on all of the following bonds EXCEPT:
A. debentures B. subordinated debentures C. adjustment bonds D. equipment trust certificates |
The best answer is C.
Adjustment (also known as "income") bonds obligate the issuer to pay interest only if the company meets a specified earnings test. If the earnings are not sufficient, no interest payment is legally required. All other bonds obligate the issuer to pay interest, regardless of events. |
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In January, a customer buys 100 shares of ABC stock at $50. Eleven months later in December, the stock is trading at $60. The customer buys 1 ABC Feb 60 Put @ $3. In February, the stock is trading at $51 and the customer exercises the put. The tax consequence is:
A. $700 short term capital gain B. $700 long term capital gain C. $300 short term capital loss D. $300 long term capital loss |
The best answer is A.
If a customer buys stock and does not buy a put on the same day, then the put is not married to the stock. The worry of the IRS is that the customer might attempt to buy a put on stock that has appreciated in value to lock in a gain while the holding period is short-term, and then simply wait until the holding period is long term to sell the stock (either in the market or by exercising the put and be taxed at the lower 15% rate) without having been at risk. So if the put is purchased when the stock is held short-term, the IRS wipes out the holding period and it does not start counting again until the put expires (and it starts from day 1 at this point). In this example, the customer bought the stock at $50 and11 months later when the stock is at $60, bought a 60 Put. This wipes out the stock's holding period. When the stock is sold via the exercise of the put, the stock is sold for $60 Strike - $3 Premium = $57 Sale Proceeds. The customer's Cost Basis is $50, so the customer has a $700 gain, and it is short term because the customer has no holding period! |
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Fiscal policy encompasses which of the following?
I Government spending II Social security payment levels III Tax policy IV Monetary policy A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV |
The best answer is C.
Fiscal policy is set through Government Actions (approved by Congress) that influence economic activity. Fiscal policy encompasses the tax code, government transfer payment levels, and government spending. Monetary policy is controlled by the Federal Reserve Board. |
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Which of the following economic events would have a negative long term impact on common stock prices?
I Rising interest rates II Rising capital gains tax rates III Rising employment rates IV Rising inflation rates A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV |
The best answer is C.
Rising interest rates are bad for stock prices. More investors will switch from investments in stocks to bond investments. A rising capital gains tax rate also makes stocks less attractive to investors (why would an investor want to invest in stocks if the capital gains tax is so high?) Rising employment indicates that the economy is expanding. This is bullish (not bearish) for corporate profits and hence, stock prices. Rising inflation means that interest rates are likely to rise. This makes long term debt unattractive due to their greater price volatility in response to market interest rate changes and also makes stocks unattractive since corporations are not able to increase prices in line with rising costs, hurting profits. In inflationary times, investors switch from stocks and long term bonds to money market instruments which are paying current high rates of interest; and "hard" assets such as gold and real estate that tend to keep up with inflation. |
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A 10 year 8% municipal bond, quoted on a 6.00 basis, is priced at 105. A 10 year 7% municipal bond, quoted on a 6.00 basis, is priced at 101. What is the price of a 10 year, 7.5% municipal bond, quoted on a 6.00 basis?
A. 103 B. 104 C. 104.10 D. 105.20 |
The best answer is A.
This question is asking for the following: 8%Coupon6.00 Basis1057.5%Coupon6.00 Basis?7%Coupon6.00 Basis101 The difference in price between the 7% and 8% bonds is 4 points. The 7.50% bond is 50% of the way from 7%. 50% x 4 points difference = 2 point price increment from the 7% price. 101 + 2 = 103 price for the 7.5% bond. |
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A variable annuity is a(n):
A. open end management company B. closed end management company C. fixed unit investment trust D. participating unit investment trust |
The best answer is D.
A variable annuity is a participating unit investment trust. The trust is an "umbrella vehicle" used to collect payments from annuity contract holders. The trust invests the funds in one type of security only - shares of management companies. These are held in a "separate" investment account; and the performance of the securities in the separate account determines the amount of the annuity to be received. |
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The market theory that states that technical and fundamental analysis is of no use in selecting stocks for a portfolio is known as the:
A. Efficient market theory B. Keynesian theory C. Monetarist theory D. Market equilibrium theory |
The best answer is A.
Efficient market theory is an academic approach to securities pricing in the market that states that securities prices instantaneously and fully reflect all available information. Thus, the use of analysis to find "undervalued" stocks is futile. |
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A customer buys $100,000 of a new issue 30 year General Obligation bond at 80. At maturity, the customer will have:
A. no capital gain or loss B. a $2,000 capital gain C. a $20,000 capital gain D. a $20,000 capital loss |
The best answer is A. T
he discount on all original issue discount bonds (corporate, government and municipal) must be accreted over the life of the bond. If the bond is held to maturity, the entire discount has been accreted and the adjusted cost basis is par. Since the bonds are redeemed at par, there is no capital gain or loss at maturity. |
