Term
A registered representative receives an order from the president of XYZ Corporation to sell unregistered XYZ shares. The client purchased the shares in a private placement 90 days ago. This order:
a. Will require the filing of Form 144 with the SEC
b. May be executed without any restrictions
c. Must be approved by a principal prior to execution
d. Is a violation of Rule 144 if executed |
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Definition
D - Is a violation of Rule 144 if executed
According to Rule 144, an affiliated person (e.g., the president of a company) must hold unregistered (restricted) stock for at least six months before it may be sold. Since the president of XYZ Corporation owned the stock for only 90 days, the order to sell violates Rule 144, if executed. |
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Term
XYZ Corporation will need to borrow funds in the bond market soon. While current interest rates are not attractive from its viewpoint, the company knows that interest rates could drop suddenly. The company would like to be ready to sell the bonds quickly. It would also like the bonds to be as liquid as possible in order to attract investors. Which of the following choices is most appropriate for its needs?
a. A private placement under Regulation D
b. An intrastate offering under Rule 147
c. A traditional registration statement
d. A shelf registration under Rule 415 |
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Definition
D - Shelf registration under Rule 415
By using SHELF REGISTRATION, the firm can fulfill all registration-related procedures beforehand and go to market quickly when conditions become more favorable. |
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Term
Which of the following short positions violates SEC rules?
a. A customer short stock that he borrowed from the brokerage firm
b. A customer short and long the same stock at the same time
c. A customer borrowing stock in order to profit from a tender offer
d. A customer short stock while owning bonds convertible into that stock |
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Definition
C - customer borrowing stock to profit from a tender offer
Tender offer = when a entity offers to buy a corporation's shares at a price HIGHER than the current MP.
Usually done to acquire control of the company. |
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Term
A mutual fund buys stock from the portfolio of an insurance company. This is a trade executed in the:
a. Over-the-counter market
b. Exchange market
c. Third market
d. Fourth market |
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Definition
D
INSTITUTION to INSTITUTION trade = Fourth market |
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Term
An announcement in The Wall Street Journal states that New York State plans an advance refunding of its 7 1/2% Dormitory Bonds through the issuance of a special $50,000,000 bond issue. This means that:
a. Existing bondholders will receive a new bond with a lower rate of interest
b. Existing bondholders will receive a new bond with a higher rate of interest
c. Proceeds from the sale of a new bond issue will be put in an escrow account to retire the existing bond issue
d. The Dormitory bonds will be convertible into Treasury bonds |
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Definition
C
Advance Refunding = Proceeds from the new bond issue sale will be put in an escrow account to return the existing bond issue |
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Term
ABC Corporation has issued two $1,000 par value bonds with the same coupon rate, one paying interest annually and the other paying interest semiannually. If both bonds are held to maturity in 10 years, the bond paying interest annually will have a total return that is:
a. Less than the bond paying interest semiannually
b. More than the bond paying interest semiannually
c. The same as the bond paying interest semiannually
d. Two times greater than the bond paying interest semiannually |
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Definition
A - Bond w/annual interest will have a LOWER total return than Bonds w/semiannual
Reinvestment/Compound interest causes greater interest accumulation for the SEMIANNUAL |
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Term
All of the following government agencies are involved in the housing market, EXCEPT:
a. FNMA
b. FHLMC
c. SBA
d. GNMA |
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Definition
C
SBA = Small Business Administration; provides financial help to small businesses |
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Term
Which TWO of the following securities are typically sold at a discount?
I. TIPS
II. Treasury bills
III. Bankers' acceptances
IV. Collateralized mortgage obligations
a. I and III
b. I and IV
c. II and III
d. II and IV |
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Definition
C - II and III
TIPS - indexed to inflation in order to protect investors from the negative effects of inflation.
Bankers' Acceptance - short-term debt instrument issued by a firm that is guaranteed by a commercial bank. |
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Term
Which TWO of the following events may be reasons for a revenue bond issue to be called?
I. There is a change in the tax status of the issuer
II. Surplus funds are not available
III. Interest rates rise dramatically
IV. The facility is destroyed by fire
a. I and III
b. I and IV
c. II and III
d. II and IV |
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Definition
B - I and IV
If the tax status of an issuer is in doubt, there is usually a provision requiring that the issue be called if the tax status of the issuer changes and the bonds become taxable. |
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Term
Buyers of municipal bonds would normally NOT include:
a. Insurance companies
b. Banks
c. Defined benefit plans
d. Mutual funds |
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Definition
C - defined benefit plans
DB plans are already tax deferred, no point in investing in muni tax exemptions |
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Term
The recommendation to purchase a private activity bond would NOT be appropriate for a:
a. Husband and wife, both of whom have recently retired
b. High-net-worth client who has an advisory account
c. Client who is subject to the alternative minimum tax
d. Client with a large portfolio of municipal bonds |
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Definition
C - client subject to AMT
PABs are muni bonds for non-public things (airport terminal)
Interest is taxable at the Federal level |
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Term
An individual's home has a resale value of $500,000 and an assessed value of $200,000. If the tax rate is 10 mills, the property tax is:
a. $2,000
b. $5,000
c. $20,000
d. $50,000 |
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Definition
a- $2k
1 mill = .001
or
$1 per $1,000 of ASSESSED VALUE |
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Term
Bergen County has issued Build America Bonds to improve its transportation system. Which TWO of the following statements are TRUE concerning these bonds?
I. The bonds are federally tax-free
II. The bonds are federally taxable
III. The issuer will receive a federal tax credit
IV. The issuer will receive a federal reimbursement
a. I and III
b. I and IV
c. II and III
d. II and IV |
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Definition
D - II and IV
BABs are federal taxable, but the Treasury reimburses 35% of the interest paid. |
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Term
| Define: Presale Order; Group Order; Designated Order; Member Order |
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Definition
A presale order is any order placed before the syndicate that actually purchases the issue from the issuer
A group order is a situation where all members of the syndicate share in the profit
A designated order is usually placed by a large institution that designates two or more members to receive credit for the sale
A member order is an order placed by members for their customers |
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Term
On Monday, June 15, an investor purchases for regular-way settlement, $20,000 face value of 8% municipal bonds that mature on November 1, 2035. What is the dollar amount of accrued interest that the investor is required to pay?
a. $75.55
b. $208.88
c. $213.33
d. $1008.88 |
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Definition
B - $208.88
Accrued Interest = (Principal x Rate x Days of Int) / 360 |
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Term
All of the following choices are benefits of a limited partnership, EXCEPT:
a. Limited liability
b. Recapture
c. Flow-through of income and expense
d. Tax credits |
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Definition
B
Recapture - previously taken tax benefits are paid back to the government. no good |
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Term
Which of the following statements is NOT TRUE regarding a SEP IRA?
a. An employer makes contributions to an employee's IRA
b. An employer is not required to make annual contributions
c. Employees are permitted to make contributions to the account
d. Employees are immediately vested for any contributions made to the account |
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Definition
C
SEP = simplified employee pension plan
- Employee cannot make contributions (Unlike Keogh's where they can) |
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Term
A variable annuity would be MOST suitable for which of the following customers?
a. A client in a high tax bracket who is purchasing the annuity for his spouse's retirement needs
b. A client in a high tax bracket who is purchasing the annuity for short-term liquidity needs
c. A client who is purchasing the annuity in a 401(k) for his retirement needs
d. A client who is purchasing the annuity in order to have the funds available by the age of 50 |
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Definition
A - high tax bracket purchasing for spouses retirement
It would be unsuitable for a client purchasing the annuity in a tax-qualified account such as a 401(k) or IRA, since these accounts already have the benefits of tax-deferred growth. |
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Term
| A broker-dealer owns 100 shares of ABCO stock, which it purchased at 28. If the stock is sold to a customer, the broker-dealer will base a markup on: a. The inventory cost of 28 b. The highest bid on the Nasdaq system c. The lowest offer on the Nasdaq system d. A price that is fair and reasonable |
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Definition
| C - lowest offer When selling stock to a customer, a markup should be based on the lowest offer on the Nasdaq system, not the price the dealer paid to purchase the stock (dealer's inventory cost). |
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Term
Which of the following is NOT required to be filed with FINRA?
a. A retail communication concerning direct participation programs
b. A retail communication concerning collateralized mortgage obligations
c. A retail communication that provides information on a broker-dealer
d. A retail communication that provides information on variable insurance products |
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Definition
C
Retail communication that does not make any financial or investment recommendation, or promote a product or service, such as providing information about a broker-dealer, does not need to be filed with FINRA. |
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Term
When interest rates are trending upward, the economy will normally be in which phase of the business cycle?
a. Expansion
b. Contraction
c. Trough
d. Peak |
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Definition
a - expansion
Increasing interest rates = expanding economy
Inflation is caused, Fed will raise Int Rates to curb demand |
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Term
Rising inflation tends to:
I. Negatively impact the stock market
II. Positively impact the stock market
III. Negatively impact the bond market
IV. Positively impact the bond market
a. I and III only
b. I and IV only
c. II and III only
d. II and IV only |
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Definition
a - I and III only
Inflation = assumption that Fed will raise Int Rates
Which lead to decreased economic activity. |
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Term
In easy money periods, bonds of similar quality generally will have:
I. Short-term yields lower than long-term yields
II. Long-term yields lower than short-term yields
III. Both short-term and long-term yields below normal
IV. Both short-term and long-term yields higher than normal
a. I and III
b. I and IV
c. II and III
d. II and IV |
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Definition
a - I and III
Easy Money = availability of money; leaders to lower int rates
Both short and long term yield will be lower |
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Term
Which of the following formulae is used to determine the total equity in a combined margin account?
a. LMV + DR - CR - SMV
b. LMV - DR + SMV - CR
c. LMV + CR - DR - SMV
d. LMV - CR - DR + SMV |
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Definition
c. LMV + CR - DR - SMV = TOTAL EQUITY
LMV - Debit = Equity |
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Term
An investor shorts a stock at $6 per share. What is the SRO minimum maintenance requirement for this position?
a. $1.50 per share
b. $1.80 per share
c. $3.00 per share
d. $5.00 per share |
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Definition
D - $5/share
The SRO minimum maintenance requirement for a stock sold short at $5 per share or above is $5 per share or 30% of the market value, whichever is greater.
If greater than $16.67 |
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Term
The dividend policy of most money-market funds is to declare dividends:
a. Daily and pay, credit, or reinvest the dividends on a monthly basis
b. Monthly and pay, credit, or reinvest the dividends on a monthly basis
c. Monthly and pay, credit, or reinvest the dividends on a quarterly basis
d. Quarterly and pay, credit, or reinvest the dividends on a quarterly basis |
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Definition
| a - most funds declare dividends daily and pay/credit the dividends on a monthly basis |
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Term
Blue-Sky laws apply to which TWO of the following choices?
I. Registered representatives
II. Securities issued by the City of Chicago
III. Commercial paper
IV. Securities issued by a REIT
a. I and III
b. I and IV
c. II and III
d. II and IV |
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Definition
B - I and IV
Blue sky laws refer to the registration of: SALES PERSONNEL and NONEXEMPT SECURITIES |
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Term
Dedicated Securities has been invited to join a syndicate selling a new offering of common stock. The head of the firm's syndicate department notices that the agreement among underwriters mentions a penalty bid. Which of the following choices is an example of a penalty bid?
a. If Dedicated fails to sell its allotment, it will be liable for twice its normal commitment
b. If Dedicated fails to solicit a certain number of indications of interest, it will be required to pay a fee to the syndicate manager
c. If Dedicated sells some of the issue to a customer, who later sells the stock back to the syndicate at the stabilizing bid, Dedicated will forfeit the concession on those shares
d. If Dedicated sells some of the issue to a customer, who later sells the stock back to the syndicate at the stabilizing bid, Dedicated could be penalized for failure to maintain the public offering price |
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Definition
| C Penalty bid allows an underwriter to reclaim a selling concession when originally sold securities are repurchased in stabilizing transactions. |
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Term
When comparing high-grade bonds to low-grade bonds, lower-grade bonds have which TWO of the following choices?
I. Higher yields
II. Lower yields
III. Higher market prices
IV. Lower market prices
a. I and III
b. I and IV
c. II and III
d. II and IV |
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Definition
B - I and IV
Greater risk, greater return |
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Term
An investor purchases $40,000 of a mutual fund when the price of the fund is $18.50. In the same year, the investor receives a $700 dividend distribution and a capital gain distribution of $1,100. Both distributions are reinvested in additional shares at a price of $17.90. If the fund has a current value of is $22.80 and the investor sells $9,000 worth of the fund, what is the investor's capital gain using the average cost method?
a. No gain or loss is reported
b. $118
c. $456
d. $1,710 |
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Definition
AVERAGE COST METHOD
Sales Proceeds - Cost basis = Gain
$40,000 shares @ $18.50 = 2,162.16 shares
$1,800 @ $17.90
$41,800 invested ; Total shares 2,262.75
Avg cost = $18.47
$9,000/22.80 = Number of shares sold 394.74
394.74 x 18.47 (avg cost) = $7,290
$9,000 - $7,290 = $1,710 cap gain |
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Term
A customer has a cash account that has securities valued at $320,000 and $180,000 in cash. The customer and a spouse also have a joint account with securities valued at $120,000 and $270,000 in cash. If the member firm were to become bankrupt, the coverage under SIPC would be:
a. Full coverage of cash and securities for both accounts
b. $500,000 for the individual account and $290,000 for the joint account
c. $500,000 for the individual account and $390,000 for the joint account
d. $500,000 for the individual account and $370,000 for the joint account |
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Definition
D
Both the individual account and the joint account are considered separate customers and will each receive independent coverage of $500,000, of which no more than $250,000 may be for cash. |
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Term
Which of the following choices will qualify for a sales breakpoint on large purchases of mutual fund shares?
a. A partnership formed to buy the securities
b. A joint account formed between two unrelated individuals
c. A husband and wife who are joint tenants with right of survivorship
d. An investment club coordinated by a registered representative |
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Definition
C
Quantity discounts are allowed only for individuals and individual entities such as corporations. Partnerships and investment clubs are not entitled to a quantity discount. Joint accounts normally do not qualify for breakpoints except in cases where there is a dependency relationship in the account (e.g., husband and wife). |
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Term
Which TWO of the following securities pay a dividend that is NOT eligible for the corporate dividend exclusion?
I. Common stock
II. Preferred stock
III. A real estate investment trust
IV. A money-market fund
a. I and II
b. II and III
c. II and IV
d. III and IV |
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Definition
D - III and IV
Corporate exclusion rate only applies to common and preferred stock |
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Term
A client purchases $900,000 of stock in a margin account and deposits the Regulation T margin requirement. If the current value of the stock is $800,000 and the broker-dealer declares bankruptcy, SIPC would cover:
a. $100,000
b. $350,000
c. $450,000
d. $500,000 |
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Definition
b - $350,000
When the customer met the original Reg. T call, he deposited $450,000 (50% of $900,000) and borrowed $450,000, which is the debit balance. Now the market value (MV) has fallen from $900,000 to $800,000, so the new equity level is $350,000 ($800,000 MV minus the debit balance of $450,000 equals $350,000). SIPC will cover the customer's current equity in the margin account of $350,000. SIPC does not cover a decline in the market value of securities. |
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Term
A customer has the following accounts with a brokerage firm.
Cash Account $20,000 securities (market value)
$10,000 cash
Long Margin Account $60,000 securities (market value)
$30,000 debit balance
$10,000 SMA
Short Margin Account $40,000 securities (market value)
$60,000 credit balance
The Federal Reserve Board margin requirement is 50%. The total equity in all the accounts is:
a. $50,000
b. $60,000
c. $70,000
d. $80,000 |
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Definition
D - $80,000
The equity in the cash account equals $20,000 market value of the securities plus $10,000 in cash, for a total of $30,000. The equity in the long margin account is the market value of the securities ($60,000) minus the debit balance ($30,000). This equals $30,000. The $10,000 SMA is not taken into account when computing equity. The equity in a short margin account is computed by subtracting the current market value of the securities ($40,000) from the credit balance ($60,000). This equals $20,000. Adding the equity in all of the accounts, the total equity is equal to $80,000. ($30,000 equity in the cash account + $30,000 equity in the long margin account + $20,000 equity in the short margin account = $80,000.) |
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Term
Which of the following statements is NOT TRUE of industrial development revenue bonds?
a. They are issued by local municipal governments
b. They may be used to finance the construction of commercial property that will be used by private corporations
c. Their credit rating is determined by an analysis of the municipal government issuing the bonds
d. Interest is paid from rents received from private corporations |
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Definition
C
Industrial development revenue bonds are issued by local municipal governments to build factories or other commercial properties. The plant or property is leased by the municipality to a corporation. The interest on the bonds is paid from the lease rental payments made by the corporation. The credit rating of the bond is based on the credit rating of the corporation and not on an analysis of the credit rating of the municipal government issuing the bonds. |
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Term
The initial FRB margin requirement is 50%. A customer purchased 100 XRX at $100 per share depositing the required margin. If Xerox increased in value to $150 per share, how much SMA would the customer have in the account?
a. $1,000
b. $1,500
c. $2,500
d. $5,000 |
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Definition
HALF OF INCREASE
First, determine the amount of the debit balance. If the customer purchased $10,000 worth of stock at a 50% margin requirement and deposited $5,000, the debit balance is $5,000. ($10,000 market value - $5,000 margin requirement = $5,000 debit balance). XRX increased to $150 per share, making the market value $15,000. The equity then increases to $10,000. The SMA (excess equity) is found by subtracting the FRB required equity of the current market value in the account (50% x $15,000 = $7,500) from the actual equity in the account ($10,000). The SMA is, therefore, $2,500. |
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Term
When calculating cost depletion for an oil program, all of the following items are necessary, EXCEPT the:
a. Adjusted basis of the property
b. Recoverable reserves
c. Amount extracted and in storage
d. Amount extracted and sold |
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Definition
C - Amount extracted and in storage
Still stored, has not yet been used. |
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Term
The interest rate that fluctuates the most is the:
a. Prime rate
b. Broker loan rate
c. Discount rate
d. Federal funds rate |
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Definition
D - Federal funds rate
Short-term rates fluctuate more than long-term rates. The federal funds rate, which is the rate of interest one bank charges another bank for the use of excess reserves for short-term periods (usually overnight), fluctuates the most since it has the shortest maturity.
Although long-term bond prices fluctuate more than short-term bond prices, the yields of short-term securities fluctuate more than those for long-term securities. |
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Term
Which of the following sources of revenue is NOT used to pay the debt service on general obligation bonds?
a. Income taxes
b. Property taxes
c. Licensing fees and traffic fines
d. Tolls collected at a tunnel located in the municipality |
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Definition
D
GO bonds include fines, sales taxes, property taxes, income taxes, and licensing fees |
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Term
A variable annuity has an AIR of 4%. This past year, the separate account grew at a rate of 12%. The appreciation in the separate account:
a. Will be taxed to the investor during the accumulation period as ordinary income
b. Is taxable only to the separate account
c. Will increase an annuitant's monthly payment from the annuity
d. Will have no effect on the investor because the investor is guaranteed only a 4% payment increase during the year |
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Definition
C
If the separate account of a variable annuity grows at a greater rate than the AIR, monthly payments from the annuity will increase. |
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Term
ASSETS LIABILITIES
Cash
$
2,000,000 Notes Payable $ 100,000
Accounts Receivable 3,000,000 Accounts Payable 1,400,000
Inventories 10,000,000 Taxes Payable 1,500,000
Goodwill 20,000,000 Notes due 2021 8,000,000
Land 30,000,000 Debentures 20,000,000
The net working capital is:
$12,000,000
$12,100,000
$12,500,000
$13,000,000 |
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Definition
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Term
A customer may make a single, lump-sum contribution of which of the following amounts to a 529 college savings plan without incurring any taxes?
a. An unlimited amount
b. The annual gift tax exclusion
c. Five times the annual gift tax exclusion
d. Ten times the annual gift tax exclusion |
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Definition
C - 5x annual gift tax exclusion
States that offer 529 plans determine the specific plan rules such as allowable contributions, investment options (e.g., mutual funds), and deductibility of contributions for state tax purposes. A person may contribute to a 529 college savings plan up to the federal annual gift tax exclusion ($14,000) without paying a gift tax, or the contributor may make a single, lump-sum gift of up to the five-year cumulative limit ($70,000) for tax-free gifting. |
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Term
An investor purchases $40,000 of a mutual fund when the price of the fund is $18.50. In the same year, the investor receives a $700 dividend distribution and a capital gain distribution of $1,100. Both distributions are reinvested in additional shares at a price of $17.90. If the fund has a current value of is $22.80, what is the investor's cost basis using the average cost method?
a. $18.47
b. $18.20
c. $20.65
d. $20.50 |
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Definition
a
To calculate the cost basis using the average cost method, divide the sum of all investments by the total shares owned by the investor. The investor purchased $40,000 of the fund at a price of $18.50. The total number of shares purchased was 2,162.16. The investor also received a total of $1,800 in distributions, all reinvested in additional shares when the price was $17.90. The total number of shares purchased is 100.56. The total amount invested is $41,800. The total number of shares owned is 2,262.72. Therefore, the average cost is $18.47. The current value of the fund is not relevant. |
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Term
Ms. Jones, a shareholder of XYZ Corporation, reads in the newspaper that XYZ Corporation intends to issue new shares through a rights offering. The terms of the rights offering are as follows:
10 rights plus $10.50 are required to subscribe to one new share of stock
Fractional shares become whole shares
The record date is Friday, October 17
JPMorgan Chase and Bank of America are the transfer agents
Goldman Sachs and Morgan Stanley are the standby underwriters
Ms. Jones owns 87 shares of the XYZ Corporation. How many shares can she subscribe to and how much will it cost her?
8.7 shares plus $91.35
8 shares plus $84.00
9 shares plus $91.35
9 shares plus $94.50 |
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Definition
D
87 shares = 8.7 = 9 ROUNDED UP
9 x 10.50 = $94.50 |
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Term
Roundville Bank is considering an investment in Roundville County bonds. The bonds contain a provision that permits banks to deduct 80% of the interest cost being paid to depositors on the funds used to purchase the bonds. These securities are known as:
a. Alternative minimum tax bonds
b. Bank-qualified bonds
c. Private activity bonds
d. Moral obligation bonds |
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Definition
B - bank-qualified bonds
Bank-qualified municipal bonds allow banks to deduct 80% of the interest cost paid to depositors on the funds used to purchase the bonds. This is done to encourage banks to invest in municipal securities. To qualify, a municipality may only issue up to $10,000,000 annually. |
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Term
Which TWO of the following statements are TRUE concerning a Health Savings Account?
a. The contribution is made in pretax dollars
b. The contribution is made in after-tax dollars
c. The funds grow tax-free if used to pay qualified medical expenses
d. The funds grow tax-deferred if used to pay qualified medical expenses
a. I and III
b. I and IV
c. II and III
d. II and IV |
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Definition
a - I and III
A Health Savings Account (HSA) is a tax-advantaged account that can be used by individuals to pay for qualified medical expenses.
An HSA is not open to all individuals. It is generally open only to those persons who are not enrolled in any type of health plan other than a qualified, high-deductible health plan.
Contributions are made in pretax dollars (which are limited under IRS guidelines), grow tax-free, and withdrawals are tax-free if used to pay qualified medical expenses.
All funds withdrawn that are used for nonqualified medical expenses are taxable and subject to a 20% IRS tax penalty. |
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Term
Which of the following choices is NOT a factor in secondary-market municipal joint accounts?
a. Members may not publish different offering prices
b. They require a good faith deposit
c. There may be an order period
d. There may be a takedown |
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Definition
B
Good faith deposit = NEW ISSUE of muni bonds |
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Term
Investors may receive disclosure and secondary market information concerning municipal securities:
a. Through the EMMA system
b. Through the TRACE system
c. Directly from the issuer
d. From the OATS system |
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Definition
A - EMMA is the primary market disclosure service for official statements, other related primary market documents, and info.
EMMA also contains disclosure for secondary market transactions submitted by muni dealers. |
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Term
Which of the following choices gives the best indication of current interest rates on revenue bonds?
a. Visible supply
b. Placement ratio
c. List of 20 bonds
d. List of bonds with 30-year maturities |
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Definition
D
REVDEX = avg yield of 25 REV bonds with 30-yr maturities |
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Term
A customer has a long margin account with a market value of $30,000 and a debit balance of $20,000. His short margin account has a $7,000 market value and a $10,000 credit balance. The FRB margin requirement is 50%. How much cash may the customer withdraw from the account?
a. 0
b. $10,000
c. $17,000
d. $23,000 |
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Definition
a - 0
Equity it the LONG acc ($10,000) is less than the FRB req of 50%, ($15,000)
No excess equity (SMA) in SHORT acct bc the $3k in equity is not up to the $3,500 req. |
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Term
Corporations repurchase their own stock in the open market to:
I. Increase the number of voting shares that the corporation holds
II. Increase earnings per share
III. Have stock available for stock option plans for key employees
IV. Make the stock more marketable
a. I and II only
b. I and III only
c. II and III only
d. I and IV only |
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Definition
C - II and III only
Increase EPS and have stock available for stock option plans for employees |
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Term
Which of the following statements is TRUE concerning a customer who purchases an original issue discount (OID) corporate bond?
a. Each year the customer will pay both federal and state income tax
b. Each year the customer will pay only federal income tax
c. Each year the customer will not pay any tax
d. The customer will only pay tax at bond maturity |
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Definition
A - both Federal and State Income tax
OIDs ACCRETE every year, the amount accreted each year is considered INTEREST INCOME, which may or may not be taxable depending on the type of security. |
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Term
A reverse repurchase agreement is sometimes called a(n):
a. Repo
b. Arbitrage
c. Matched sale
d. Treasury sale |
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Definition
C
Reverse Repo - FOMC sells securities with intention of buying back at a future date. |
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Term
When an investor sells an interest in a limited partnership, her cost basis for tax purposes is the:
a. Original investment
b. Adjusted basis
c. Accredited value
d. Original investment plus accretion |
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Definition
B
An investor's basis will be reduced by any claimed losses and any cash distributions. This reduced (adjusted) basis is the cost basis at the time of sale. |
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Term
A customer's margin account has a credit balance of $20,000 and a debit balance of $15,000. On what amount will the customer be charged interest?
a. 0
b. $5,000
c. $15,000
d. $20,000 |
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Definition
C
Customers are charged interest based on the DEBIT balance in the margin account |
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Term
A listing of coincident economic indicators includes:
a. Expenditures for capital goods
b. The S&P Index
c. Housing starts
d. The industrial production index |
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Definition
D - Industrial production index
The industrial production index is a coincident indicator. Coincident indicators tend to move directly with the business cycle and show what is currently happening in the economy. |
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Term
An analysis of a revenue bond issue normally addresses the:
a. Per capita debt of the municipality
b. Per capita income of the municipality
c. Assessed valuations of the municipality
d. Debt service coverage ratio |
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Definition
D
Rev bond investors are interested in the DEBT SERVICE COVERAGE ratio, because it indicates the # of times revenue covers interest and principal payments on a bond |
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Term
The advance-decline theory states that:
a. A bull market exists if the Dow industrials and transportations averages make new highs
b. A bear market exists if more put options have been purchased by investors than call options
c. It is bullish if more stocks go up than go down during the day
d. A large number of shares sold short is bullish |
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Definition
| C - advance decline theory is a technical analysis indicator that measures the strength of the market by comparing the number of stocks that INCREASE and DECREASE |
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Term
Which of the following statements is TRUE concerning Rule 144A transactions?
a. The securities may be offered only to accredited investors
b. The securities may be offered only to qualified institutional buyers
c. An investor buying these securities must hold them for six months
d. Only domestic issuers may offer securities under this type of offering |
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Definition
B
RULE 144A = Qualified Institutional Buyers (financial institutions w/at least $100 mill.) |
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