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waterbrat
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48304
Filename:
quiz1
Updated:
2010-12-07 16:38:54
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7
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  1. which of the following are typically done during the 20-day cooling-off period?
    I The issuer will blue sky the issue in the states where the underwriter plans to sell the securities
    II a preliminary prospectus is prepared and sent out to prospective investors
    III the sec reviews the issuers registration statement and evaluates the investment merit of the issue
    IV the issuer and underwriter hold a due dilligence meeting

    a I and II
    b I, II, III
    c I, II, IV
    d I II, III IV
    • c
    • during the 20-day cooling-off period, the sec will review the issuer's registration statement for completeness. the sec does not evaluate (pass on) the investment merits of the issue. also, during the cooling off period, the issuer will blue sky the issue, send out preliminary prospectuses, and hold a due diligence meeting
  2. which of the following would be considered nonexempt securities according to the securities act of 1933

    a us government and municipal securities
    b securities of a publicly held finance company
    c securities of a small business investment company
    d securities of a nonprofit organization
    • b
    • nonexempt securities are securities that are subject to the registration requirements of the securities act of 1933. securities of a publicly help finance company are the only nonexempt securities. all of the other securities listed would be exempt from the registration requirements of the securities act of 1933
  3. the securities exchange act of 1934 regulates

    I securities trading
    II stock exchanges
    III extension of credit for margin purchases
    IV new issues

    a IV
    b I II
    c I II III
    d I II III IV
    C
  4. a customer enters a stop-limit order to sell 100 shares at 18.50. the last round-lot sale that took place before the offer was entered was 18.85. round lot sales that took place after the order was entered occurred at 18.25, 18.35, 18.50, 18.60.

    the trade was executed at
    a 18.25
    b 18.35
    c 18.50
    d 18.60
    • c
    • after the order was activated by the round-lot sale of 18.25 the order became a limit order to see 100 shares at 18.50
  5. the following appears on the nyse ticker tape: X67.3s.10

    a us steel is quotes at 67 to 67.10
    b someone is bidding for 100 shares of us steel at 67 and someone else is offering 300 at 67.10
    c 100 shares of us steel trades at 67 followed by a trade of 300 at 67.10
    d us steel opened at 67 followed by a trade of 300 shares at 67.10
    • c
    • the answer is 100 shares X traded at 67 followed by a trade of 300 shares at 67.10. when 100 shares of stock trade, only the symbol of the stock and price are printed. then the amount is from 200 to 9900 the last two zeros are omitted and the symbol for the 100 share round lot is added.
  6. the trade VMO SLD 18 indicates

    a 100 shares of VMO were sold
    b 100 shares of VMO were sold but were reported out of sequence
    c an exchange distribution in VMO took place
    d 1800 shares of VMO were sold
    b

    the trade VMO SLD 18 indicates that 100 shares sold at 18 but was reported out of sequence
  7. which two of the following statements are true regarding the trading restrictions placed on a director of a publicly traded company?
    I there is a limit on the amount of registered stock the director may purchase
    II there is no limit on the amount of registered stock the director may purchase
    III there is a limit on the amount of unregistered stock the director may sell
    IV there is no limit on the amount of unregistered stock the director may sell

    a I III
    b I IV
    c II III
    d II IV
    • c
    • restricted stock is stock that is not registered and is typically acquired by an individual through a private placement. with regard to restricted stock, the purchaser must hold the stock for six months before she may dispose of it. control stock is registered stock that is acquired by an affiliate (control) person, such as an officer or director, in a secondary market. a control person who acquires stock through an open-market purchase may sell the stock anytime. there is no limit placed on the number of registered shares an insider may purchase. according to rule 144, there is a restriction on the sale of both restricted and control stock
  8. an over-the-counter trade, when talking about the "spread", is referring to
    a the difference between the bid and the asked price of a stock as the current market
    b the difference of his cost price and his selling price
    c the amount of his markup from his cost price
    d the 5% markup which is allowable under the conduct rules
    • a
    • the over the counter trader when referring to the spread is referring to the difference between the current bid and asked price of the stock
  9. which of the following can be found on the nasdaq level III system
    a the price of transactions as they occur
    b the cumulative volume stocks trades as they occur
    c firm quotes
    d all of the above
    • c
    • of the choices given, only firm quotes would be found on the nasdaq level III. Level I shows the highest bid and lowest offer. Level II shoes firm quotes and the market makers who are making a market in the security.
  10. decisions of the district business conduct committee regarding complaints
    a are final if between members
    b are final if between member firms and their employees
    c can be appealed to the national adjudicatory council
    d can be appealed to a federal district court
    • c
    • decisions of a hearing panel regarding complaints can be appealed to the national adjudicatory council. arbitration decisions are final
  11. level I of nasdaq indicates which of the following

    a the cumulative trading volume of the security listed
    b the inside market for the security listed
    c the price of transactions as the occur
    d the market makers for the security listed
    • b
    • nasdaq level 1 provides subscribers with the highest bid and the lowest offer for a security in which there are at least two market makers.
  12. the pink sheets show

    a the market makers for stocks not listed on the nasdaq system
    b all trades that occurred the previous day for non-nasdaq stocks
    c the specialist assigned to each stock that trades of the nyse
    d all trades that occurred the previous day for nyse-listed stocks
    • a
    • the pink sheets list market makers and their bid and asked quotations for over-the-counter stocks which are not listed on nasdaq.
  13. a customer gives his registered representative the following instructions: BUY 100 shares of GM "whatever you think the price is right" under current regulations

    a the order can be accepted
    b the order myst be marked discretionary and approved by a branch manager
    c the order must be executed as soon as possible after it is received
    d the order may not be accepted
    • a
    • the order can be accepted. it is not a discretionary order which requires written power of attorney. the customer told the registered representative which stock GM to buy and the amount 100 shares. the phrase "whatever you think the price is right" means the registered representative can use his judgement as to when the stock should be purchased.
  14. who approves an over-the-counter stock for purchase on margin?

    a state securities commission
    b the securities and exchange commission
    c the federal reserve board
    d FINRA
    • c
    • under regulation T the federal reserve board is responsible not only for setting margin requirements but also determining which securities may be sold on margin
  15. the initial FRB margin requirement is 50%. A customer purchased 100 XRX at $100 per share ($10,000) depositing $5,000 in the account. If Xerox increased in value to $150 per share, how much excess (SMA) would the customer have in the account?

    a $1000 excess
    b $1500 excess
    c $2500 excess
    d $5000 excess
    • c
    • 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 would have to be $5,000 ($10,000 market value-$5000 margin requirement = $5000 debit balance). XRX increased to $150 per share making the market value $15000. the equity would increase to $10000. the excess equity SMA is found by subtracting the FRB required equity of the current market value in the account (50 X $15,000= $7500 from the actual equity in the account os $10000. the excess equity is there fore $2500
  16. the initial FRB margin requirement is 50%. a customer has a margin account with a market value of $20,000 and debit balance of $12,000 and an equity of $8,000. If the customer were to sell $1000 worth of stock, the amount of the adjusted increase in the SMA would be
    a 300
    b 400
    c 500
    d 1000
    • c
    • this account is restricted since the equity of $8000 is less than the initial FRb requirement (505 of the long market value in the account) of $10000. when stock is sold from a restricted account, 100% of the sale proceeds goes to reduce the debit balance, In addition, SMA will be credited by an amount equal to half of the sales proceeds. In this example the proceeds of $1000 will be used to pay down the debit balance (12000-1000=11000). the market value in the account will decline by 1000 because of the sale. the equity in the account will remain unchanged. SMA will be credited by $500 (.5x$1000 the client can withdraw the $500 in SMA
  17. a customer makes an initial purchase of 100 shares of xyz on the nyse at $30 per share. the federal reserve margin requirement according to regulation t is 50%. the customer will have to deposit
    a 1500
    b 2000
    c 2500
    d 3000
    • b
    • industry rules require minimum initial equity in a margin accoun of the lesser of 2000 or 100% of the purchase price. if the customer already had an account with enough equity in it, the call would be for 1500 (50% of 3000). however the question states that it is an initial purchase and we must assume that this is a new margin account. therefore 2000 must be deposited
  18. a customer has a long margin account with the following securities in the account (assume a 50% FRB initial margin requirement)

    100 a co $30 $3000 $8400
    100 b co $25 $2500
    200 c co $15 $3000
    100 d co $25 $3500
    $12000
    the minimum maintenance requirement for the above account is

    a 2000
    b 2200
    c 3000
    d 5000
    • c
    • the minimum maintenance requirement states that the equity must equal at least 25% of the market value of the securities in the account. this would equal $3000 (25% of $12000= $3000)
  19. a customer has a long margin account with the following securities in the account (assume 50% FRB initial margin requirement)

    100 A co $30 $3000 $8400
    100 B co $25 $2500
    100 C co $15 $3000
    100 D co $35 $3500
    $12000
    how far could the market value of the securities in the account decline to before a maintenance call would be sent?

    a 8000
    b 11200
    c 11400
    d 12500
    • b
    • to determine how far the securities worth 12000 in the account could decline to before the customer revieved a maintenance call, multiply the debit balance of 8400 by 4/3. 8400 x 4 = 33600 divided by 3 = 11200. another method that can be used is to take 1/3 of the debit balance which would be 2800 and add it to the debit balance and would equal 11200(8400 + 2800= 11200
  20. a customer has the following accounts with a brokerage firm

    cash account 20000 securities market value
    10000 cash
    long margin account 60000 securities market value
    30000 debit balance
    10000 SMA
    short margin account 40000 securities market value
    60000 credit balance
    the federal reserve board margin requirement is 50%. the total equity in all the account it
    a 50000
    b 60000
    c 70000
    d 80000
    • d
    • the equity in the cash account would equal 20000 market value of the securities plus 10000 in cash, for the total of 30000. the equity in the long margin account is the market value of the securities 60000 minus the debit balance 30000. this equals 30000. the 10000 SMA is not taken into account when computing equity. equity in a short margin account is computed by subtracting the current market value of the securities 40000 from the credit balance 60000. this equals 20000 adding the equity in all of the accounts the total equity is equal to 80000 (30000 equity in the cash account + 30000 equity in the long margin account + 20000 equity in the short margin account = 80000
  21. if a customer wants to purchase securities in an account that has been frozen, when must he deposit the required cash in the account

    a on the same day of the purchase
    b no later than 3 business days
    c no later than 5 business days
    d before the purchase transaction is made
    • d
    • a frozen account requires the full amount of the money to be deposited in the account before the order is accepted in a cash account, the securities have to be in the account before the sale is made
  22. as far as rights offerings are concerned

    a common shareholders do not have the right to subscribe to rights offerings
    b preferred shareholders do not have the right to subscribe to rights offerings
    c both of above are correct
    d none of the above are correct
    • b
    • as far as rights offerings are concerned, preferred stockholders do not have the right to subscribe to the rights offerings, but common stockholders do
  23. which of the following would not be considered a defensive stock
    a construction company
    b tobacco
    c food
    d clothing
    • a
    • a defensive stock is the stock of a company that is not drastically effected by a downturn in the economy. those companies involved in the necessary areas of life are considered defensive, in addition to the choices given, tobacco, good and clothing, soft drink and candy companies are examples of defensive stock. construction, mining, steel, and heavy equiptment manufacturing companies are dramatically effected by an economic downturn
  24. who of the following investors are considered equity owners of a corporation
    I holders of common stock
    II holders of preferred stock
    III holders of warrants
    IV holders of rights
    A I IV
    B I II
    C I II III IV
    D I II IV
    B common and preferred shareholders are considered equity owners of a corporation. Rights and Warrants are securities which represent an option to buy the underlying stock. therefore, holders of these securities are not considered equity owners.
    (this multiple choice question has been scrambled)
  25. concerning moodys ratings, which is the most speculative in the investment grade category?
    a Aa
    b A
    c Baa
    d Ba
    • c
    • the top four ratings in both moodys and s &p are referred to as investment grade or bank quality
    • moodys s & P
    • Aaa AAA
    • Aa AA
    • A A
    • Baa BBB
    • if the question had simply asked for the most speculative then Ba would have been the answer
  26. a term bond has a mandatory sinking fund call feature. what method will be used to determine which specific bonds will be called
    a investors with the largest position
    b investors with the largest coupon
    c investors with the longest maturity
    d random lot
    • d
    • random selection is the method used to call bonds
  27. the purpose of a "sinking fund" is for redeeming a corporations
    a common stock
    b warrants
    c rights
    d bonds
    • d
    • a sinking fund is setting aside monies to be used for the purpose of redeeming a corporations bonds before or at maturity
  28. a corporate bond that has no specific collateral backing it and is guaranteed by the full faith and credit of the issuing corporation is called an
    a debenture
    b guaranteed bond
    c income bond
    d equipment trust certificate
    • a
    • a corporate bond that had no specific collateral backing it and is guaranteed by the full faith and credit of the issuing corporation is called a depenture. a strong financially sound well regarded company is able to borrow money backed by its full faith and credit and its reputation and does not have to provide collateral as a guarantee
  29. the barge towing corporation has announced in a tombstone ad that it will issue 5000000 of 10% convertible subordinated depenture bonds convertible into common stock at 10.50. the bonds will mature in november 2009 and are being issued at their 1000 par value, the conversion ratio of the bonds is approximately
    a 75 to 1
    b 85 to 1
    c 95 too 1
    d 100 to 1
    • c
    • the conversion price is given as 10.50. to find the conversion ration divide the par value 1000 of the bond by the conversion price of 10.50. this equals a conversion ration of 95 to 1.
  30. The barge towing corporation has announced in a tombstone ad that it will issue $5,000,000 fo the 10% convertible subordinated debenture bonds convertible into common stock at $10.50. The bonds will mature in November 2009 and are being issued at their $1000 par value. If the conds were subsecquently trading in the market at 102 ($1,020), the marekt price of the common atock, to be on partiy with the bond, would have to be approimately

    a 9.50
    b 10
    c 10.75
    d 11.50
    • C
    • To find parity for the stock, divide the market price of the bond by the conversion ratio. The market price of the bond is 102 ($1020) and the conversion ratio is 95 to 1. Therefore, $1020 divided by 95 would equal approximately $10.75.
  31. a convertible bond selling at $1200 is convertible into 50 shares of common stock. For the stock to be on parity with the bond, it will have to be selling at
    a $24
    b $25
    c $40
    d $45
    • a
    • to find the price that the stock would have to be selling at to be on partiy with the bond, divide the $1200 market price of the bond by the conversion ration of 50. This equals a parity price of $24 for the stock.
  32. a customer buys bonds with a $50,000 par value at 85 1/2. The bonds are callable at 110. If the customer holds the bonds to maturity he will reveive

    a 42500
    b 50000
    c 55000
    d 85000
    • b
    • at maturity the holder of the bonds will receive the par value, which in this example is $50,000
  33. all of the following are guaranteed by the us government EXCEPT

    a treasury notes
    b treasury bills
    c government national mortgage association (Ginnie Mae)
    d Federal National Mortgage Association (Fannie Mae) bonds
    • D
    • Of the choices given, the only obligations that are not guaranteed by the US government are FNMA (Fannie Mae) bonds. FNMA is a publicly owned corporation that purchases government-backed, as well as nongovernment-backed mortgages, from lenders and resells them to the public.
  34. An investor buys $10,000 par value of 8% treasury bonds due July 1, 2014. For tax purposes, the interest earned on these bonds is

    I subject to federal income tax
    II exempt from federal income tax
    III subject to state income tax
    IV exempt from state income tax

    a I III
    b I IV
    c II III
    d II IV
    b

    interest on US governement bonds is subject to federal income tax but exempt from state income tax. This is just the opposite of the tax teatment on municipal (state) bonds whre the interest is exempt form federal tax, but may be subject to state tax
  35. an investor purchased t-bonds that mature january 1, 2012. He purchased the t-bonds on friday, febuary 20 for regular way settlement. how many days of accrued interest did the investor owe?

    a 51
    b 53
    c 55
    d 56
    • b
    • accured interst is calculated from the last interst payment date up to but not including the settlement date. The last interest payment was made Janyary 1st (since marurity is january 1, 2012 interest payments are every january 1st ahd july 1st) the settle ment dae is monday february 23rd ( a transaction for government securities settles on the next business day). governement sercurities accrue interest on actual days alapsed. the investor would therefore owe 31 days for jan and 22 days for feb for a total of 53.
  36. if a municipal bonds has a basis of 5.25 (5 1/4%) and the rate of interst on its face (nominal yield) is 4 3/4 % the bond is selling

    a above par
    b below par
    c at par
    d cannot be determined from the information given
    • b
    • municipal bonds are quoted on a yield to maturity basis, which in this example is 5.25 basis. this meands the bond has a yield-to-maturity of 5 1/4%. if the nominal yield (coupon rate) is 4 3.4% this would mean that the bond would have to be selling as a discount, or below the par value of ($1000). if the yield to maturity is greater than the nominial yield (4 3/4%) the bond sells at a discount.
  37. accrued interest for municipal bonds is computed on

    a a 30-day month and a 360-day year
    b a 30-day month and a 365-day year
    c actual days elapsed and a 360-day year
    d actual days elapsed and a 365-day year
    • a
    • accured interest for municipal bonds is computed in the same manner as corporate bods which is based on a 30-day month and a 360-day year. accured interst for us governement bonds is figued on a 365-day year counting actual days elapsed. accrued interest on all bonds is calculated from the last interest payment up to but not including settlement date
  38. the interest paid on "special assessment bonds" is derived from

    a Ad Valoren taxes
    b toll road revenues
    c charges on the benefited property
    d excise takes
    • c
    • the interest paid by the issuer to holders of special assessment bonds are derived from the charges made to the users of the benefited property. these bonds are issues to finance the construction of water and sewer systems, sidewalks and streets.
  39. when considering the credit strength of a municipal issuer, one should include in the analysis

    I the condition of the local economy
    II the current financial status of the municipality
    III money supply figures
    IV the general capability of the fiscal officers of the municipality

    a I II
    b I II III
    c I II IV
    d I II III IV
    • c
    • the state of the local economy is an important factor in determining a municipality's worthless. for example communities at different stages of growth may requite more of less debt and this must be understood in the analysis. the current financial status is also improtant to determine the credit strenght of a municipality. The management capability of the fiscal officers is also important to insure they are able to implement the plans of the municipality. money supply figures which are published by the federal reserve board are irrelevant with regard to the credit and strngth of a municipality.
  40. a double-barrelled security is a municipal security that

    a is exempt from federal and state taxes
    b is exempt from state and local taxes
    c can be paid from the revenues of a project and is a general obligation of the US governement
    d can be paid from the revenues of a project and is a general obligation of a municipal governement
    • d
    • a double barrelled security is a municipal security that can be paid from the revenues of a promect and is also a general obligation of a municipal governement
  41. all of the following may be used to pay the debt service on a general obligation bonds except

    a tolls collected at a tunnel located in the municipality
    b property taxes
    c lincensing fees and traffic fines
    d income taxes
    • a
    • a general oblication (GO) bond is backed by the full faith and credit of the municipality. Items that my be used to pay the debt service on GO bonds include fines. sales taxes, property taxes, income taxes, and licensing fees, Items such as tolls, concessions, and lease rental payments would be used to back a revenue bond.
  42. a municipality borrowing for a short-term period to finance a capital project would issue

    a commercial paper
    b tax anticipation notes
    c debentures
    d bond anticipation notes
    • d
    • a municipality borrowing for a short-term period to finance a capital project would issue bond anticipation notes. commercial paper is primarily issued by corporations and some municipalities to raise short term funds for working capital, but not to finance captial projects. tax anticipation notes are used to meet operational expenditures.
  43. when a municipal bonds is to be adance refunded (pre-refunded), an escrow account is set up to insure the money will be avaliable, securities are deposited in the escrow account, the securities that are depostied in the escrow account are

    a revenue bonds
    b general obligation bonds
    c federal agency bonds
    d treasury bonds
    • d
    • only treasury obligations are acceptable securityes as escrow when a bond is advanced-refunded
  44. the condidtions of an "eastern" account provide that syndicate members

    a have no liablity if they have sold their allotted commitment
    b have a liablity in proportion to their participation even though they have sold their allotted commitement
    c have the same percentage liablity as all other members of the syndicate
    d belond to the nyse
    • b
    • the conditions of an "eastern" account provide that syndicate memebrs have a liablity in proprotion to their participation although they have sold their allotted commitment
  45. a water and sewer revenue project has $15,000,000 in total revenues. The operating and maintenance expenses are $9,000,000 bond interest is $2,000,000, and pricipal repayment is $1,000,000. How mysch is avaliable for debt service?
    a $3,000,000
    b $6,000,000
    c $9,000,000
    d $15,000,000
    • b
    • revenue issues are referred to as being net revenue issues since expenses are deducted from income prior to paying debt service. the one exception to this are hospital and revenue issues which are gross revenue issues. the amount avaliable to pay debt service (interest and pricipal due) is $6,000,000($15,000,000 gross income minus $9,000,000 operating and maintenance expenses)
  46. an account executive has limited discretion over a customers account. the account executive can

    a remove money freely from the account
    b have the account reviewed by a supervisor
    c not enter buy stop orders
    d have all confirmations of transactions sent only to himself
    • b
    • limited discretion does not permit free withdrawal of funds. the account owner must receive confirmations. but stop orders are permitted
  47. which of the following would be considered a fiduciary

    I a trustee
    II a guardian
    III an administrator of an estate
    IV an executor of an estate

    a I
    b I II
    c I II III
    d I II III IV
    • d
    • a fiduciary is an individual or organization acting in a position of trust.
  48. advertisements regarding options
    I must be submitted to the exchange 15 days prior to initial use
    II must be submitted to the exchange 10 days prior to initial use
    III must be kept on file by the member firm for six years
    IV must be kept on file by the member firm for three years

    a I III
    b I IV
    c II III
    d II IV
    • d
    • advertisements must be submitted to the exchange for approval at least 10 days prior to initial use. all advertisements must be maintained on file by the member firm for three years
  49. short call spread=short strike price + credit
    short call spread=short strike price + credit
  50. which of the following would be considered a fiduciary?

    I a trustee
    II a guardian
    III an admin of an estate
    IV an executor of an estate

    A I II
    B I
    C I II III IV
    D I II III
    B fiduciary is an indvidual or organization acting in a position of trust.
    (this multiple choice question has been scrambled)
  51. a corporation wishes to open a cash account. which of the following is required?

    a a corp resolution
    b a copy of the corp charter
    c a hypothecation agreement
    d a risk disclosure document
    • a
    • a corporate resolution authorizing a person to trade for the account would be necessary to open a corporate cash account. a risk disclosure document may be required but only if options or penny stocks are going to be traded in the account. a hypothecation agreement and corporate charter would be required to open a margin account
  52. a rr wantes to open a joint account for the dentisits in his office building. Dr white and dr enamel will each contribute equally to the account but each dentist wants his portion of the account to pass to his own estate, which tho of the following are correct?

    I the account should be established as joint tentans with right of survivorship
    II the account should be established as tenants in common
    III all dividends and capital gains in the account will be reported by the brokerage firm under one ssn
    IV all dividends and capital gains in the account will be reported by the brokerage firm on a percentage of ownership basis

    a I III
    b I IV
    c II III
    d II IV
    • c
    • the dentists should open a tenants in common account, if a joint tenants with right of survivorship account is used, all assets pass to the surviving owner upon death of one of the participants, all joint accounts use only one ssn for tax reporting purposes. the dentists must indicate the percentage of dividends, bond interest, and capital gains they are reponsible for on their individual returns
  53. which of the following could not be accomplished in a cash account?

    a covered call of put writing
    b the sale of preferred stock
    c sell short
    d the purchase of options
    • c
    • selling short can only take place in a margin account
  54. a customer wants to open a cash account. all of the following are required on a new account from exeprt

    a the rr signature
    b whether the customer is of legal age
    c the customers signature
    d the branch managers approval
    • c
    • the registered rep and the office manager must always sign the new account form. the customers signature would be required for a margin account but not a cash account. the rr must determine whether of not the customer is of leagl age
  55. which of the following communications must be filed with FINRA ten days prior to use?

    I options advertising
    II mutual fund advertising
    III CMO advertising
    IV unit invertment trust advertising

    a I II
    b I III
    c II III IV
    d I II III IV
    • b
    • advertising for most products, including optins and CMO's must be filed with FINRA 10 days prior to use. however investment company ads including ads for mutual funds and unit investment trusts, must be filed with 10 days following initial use.
  56. why would a new account be designated TOD?

    a to allow for joint trading on the account
    b to designate a pattern day trading account
    c to avoid probate
    d to prevent freeriding
    • c
    • TOD (transfer on death) is a form of account ownership that allows for the transfer of the account to a beneficiary upon the death of the primary owner. such an account enables the transfer of assets without probate.
  57. a client would like all trade confirmations sent to his investment adviser

    a a written letter from the client
    b approval by a partner in the firm
    c approval by a branch manager
    d all of the above
    • a
    • written approval is required only from the client
  58. a rr wants to open a new account for a client who is a resident of mexico. which two of the following statements are correct?

    I customer verification of the clients personal information is not required if the customer was referred by an existing client
    II customer verification of the clients presonal infomation is required under any circumstances
    III the client can have either a taxpayer id number or a passport number and county of orgin
    IV the client must have a taxpayer id number to open the account
    a I III
    b II IV
    c I IV
    d II III
    • d
    • if a non-US citizen wants to open a new account the member firm is required to obtain certain information as part of its AML procedures under its customer id program (CIP). for non-us citizens the firm must obtain the clients name, address, date of birth and one of the following passport and country of issuance, taxpayer id number, ir any governement issues document with a photograph. an rr would always need to verify the clients personal information regardless of whether or not the customer was referred by an existing client.
  59. mr smith is associated with two other partners in an insurance partnership. he opns a cash account for the partnership. if mr smith dies, what woule the firm do as fas as teh partnership account is concerned?

    a freeze the assets of the account
    b allow the account to continue trading as is
    c open new separate accounts for the remaining partners
    d await instuctions from the executor of mr smiths estate
    • a
    • if mr smith died, the firm would freeze the assets of the account becuase the death of a partner terminated the partnership. the firm would await the proper legal documents needed to release the assets
  60. a stock trades ex-div on monday may 20th. what is the last day an investor can purchase the stock and be entitled to the dividend?

    a monday the 13th
    b thursday the 16th
    c friday the 17th
    d monday the 20th
    • c
    • to be entitled to receive the dividend. the stock must be purchased prior to the ex-d date. friday the 17th is the last day an investor coupld purchse the stock and be entitles to the dividend, since it is the business day prior to the ex-date.
  61. the quarterly divident of ABC company is 32 1/2. the marekt price is $24 a share. What is the current yield?

    a 1.35%
    b 2.38%
    c 4.82%
    d 5.41%
    • d
    • the formula for computing current yield(also known as the dividend yield) is

    annual dividene/market price of the stock

    since the quarterly divident is 32 1/2 cents, the annual dividend is $1.30 (32 1.2 x 4 = $1.30). $1.30 dividend by the $24 mkt price equals 5.41%
  62. concerning moody's ratings, which is the most speculative in the investment grade category?
    a Aa
    b A
    c Baa
    d Ba
    • c
    • the top four ratings in both moody's and s & p are referred to as "investment grade of bank qualify".

    • Moody's Aaa Aa A Baa
    • S & P AAA AA A BBB
  63. the city of richmond, virginia is issuing a 8 1/4% go bonds at 100% of their par value. the bonds will mature in 20 years. an investor purchasing a bond at its offering price and holding the bond for 20 years will recieve a yield-to-maturity of:

    a 8.25%
    b less than 8.25%
    c more than 8.25%
    d cannot be determined
    • a
    • when a bond is purchased at its par value, the yield-to-maturity will be the same as the nominal yield or coupon rate.
  64. ABC corporation has a capitalization that consists of a large amount of debt securities relative to a small amount of equity securities. ABC corporation would be considered to have a capitalization that is

    a conservative
    b ordinary
    c under-leveraged
    d leveraged
    when a corporation has a capitalization that consists of a small amount of equity securities relative to a large amount of debt securities, that capitalization is said to be leveraged
  65. an outstanding muni bond would most likely be called when interest rates

    a rise above the bonds nominal yield
    b rise about the bonds yield to maturity
    c fall below the bonds nominal yield
    d fall below the bonds yield t maturity
    • c
    • bonds may contain a provision that allows the issuer, at its option, to redeem the nods before they mature. call provisions usually benefit the issuer, which has the option of calling in the bonds when interest rates decline. for instance, if the issuer's outstanding bond is paying a coupon rate(nominal yield) of 9% at a time when similar bonds are paying ony 5%, it can reduce its interest costs by calling in the 9% bonds and issuing new ones at 5%. As rates decline, the bonds yield to maturity or yield to call also would decline
  66. 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 the total return that is

    a less than the bonds paying interest semiannually
    b more the bond paying interest seminannually
    c the same as the bond paying interst semiannually
    d two times greater than the bond paying interest semiannually
    • a
    • the bond paying interst annually will have a yield-to-maturity which is less than the bond paying interst semiannually. yields-to-maturity assume a reinvestment and compounding of interest will be greater for the bond paying semiannual interest
  67. which of the following would have the least capital risk for a client

    a options
    b bonds
    c warrants
    d stocks
    • b
    • when compared to the other securities, bonds have the least capital risk. at maturity, the investor would receive the principal amount of the bond thus minimizing the capital risk
  68. when a bond is registered as to principal only, this means that the bond has been issued

    a with no coupons attached and the bond is registered in the name of the owner
    b in the name of the owner without coupons attached
    c with coupons attached only
    d in the name of the owner but with bearer coupons attached
    • d
    • when a bond is registered as to a principal only, the bond has been issued in the name of the owner with bearer coupons attached
  69. the current yield on a $1000 par value 5% bond selling at 4800 maturing in 10 years is

    a 5.00%
    b 5.60%
    c 6.25%
    d 8.50%
    • c
    • the current yield is found by dividing the yearly interest payment of 450 by the market price of $800. This equals 6.25%. The fast that the bond will mature in 10 years is not necessary to find the current yield
  70. relative to a municipal bond purchased at a discount, place the following in the proper sequence from lowest to highest

    I current yield
    II nominal yield
    III yield-to-maturity

    a I II III
    b II I III
    c III I II
    d III II I
    • b
    • a bond trading at a discount has a nominal yield that is less than its yield-to-maturity. current yield falls between the nominal yield and the yield-to-maturity. a bond trading at a premium has a nominal yield which is higher that the yield-to-maturity, with the current yield in between the other tow yields
  71. a company has $50,000,000 par value convertible bonds outstanding. The coupon rate is 8%. The bonds are currently selling at 96. What is the current yield?

    a 7.0%
    b 7.5%
    c 8.0%
    d 8.3%
    • d
    • to find the current yield of the bonds, divide the yearly interest paid on the bonds by the current market value of the bonds. the yearly interest is $80. The market value of a bond is $960. therefore, the current yield equals 8.3% ($80 divided by $960 equals 8.3%)
  72. which of the following would increase the most in price if the interest rate decline?

    a short-term bonds selling at a discount
    b long-term bonds selling at a discount
    c short-term bonds selling at a premium
    d long-term bonds selling at a premium
    • b
    • when interest rates decline, bond prices will rise. the longer maturities will rise more than th shorter maturities due to a market risk. bonds selling at a discount will rise more sharply than those selling at a premium
  73. which of the following would most likely have a mandatory sinking fund?

    a serial issue
    b balloon issue
    c term issue
    d convertible issue
    • c
    • a term issue is one in which all the bonds mature in one specific year. to accumulate monies to help retire the bonds, the issuer will deposit monies (above the amount to pay interest) into a sinking fund. these monies will generally be used to retire some of the bonds prior to maturity
  74. an investor purchases a 20-year 5% bond at par value which will yield 5 3/4% if called at the first call date in five years. the yield-to-maturity on bond is

    a 5%
    b more than 5%
    c between 5% and 5 3/4%
    d 5 3/4%
    a

    the bond has a coupon rate of 5%. if the bond is purchased at its par value and is not called but help do maturity, the bond yield will be the same as the coupon rate, which is 5%.
  75. term bond quote are based on

    a yield to maturity
    b current yield
    c nominal yield
    d dollar price
    • d
    • term bonds(bond issues which has one maturity date) are quoted based on a dollar price. term bonds are also known as dollar bonds. muni serial bonds (which have several maturity dates) are quoted on a yield-to-maturity basis
  76. a municipal bond with a a 6% coupon is prices to a 7% basis. if this bond's yield-to-matuirty increased by 40 basis points

    a the yield-to-maturity would be 5.6
    b the y t m would be 6.4
    c the ytm would be 6.6
    d the ytm would be 7.4
    • d
    • the 6% bond is prices to a 7% ytm basis if the bonds basis increased by 40 points, the new ytm would be 7.4
  77. from the issuer's perspecitive, when comparing term bonds and serial bonds, serial bonds have

    a declining interest payments and declining principal amounts
    b increasing interest payments and increasing principal amounts
    c stable interest payments and stable principal amounts
    d none of the above
    • a
    • serial bonds have different maturity dates with lesser amounts of debt outstanding as time goes by. the bonds will have declining interest payments and principal amounts. term bonds by comparison mature at the same time and would have stable interest payments with the principal paid on one maturity date
  78. a customer owns 500 shares of XYZ stock selling at $15 per share and $20,000 par value of state of alabama GO bonds selling at 101. if both securities increased by 2 1/2 points, the dollar value of the increase would be

    a $1,200
    b $1,300
    c $1,750
    d $2,500
    • c
    • the increase would be $1,750. each point for the stock is equal to $1. Each point for the bonds is worth $10. A 2 1/2 point increase in the stock position is equal to $1,250. a 2 1/2 point increase in the bond position is equal to $500 (20 bonds $25)
  79. an investor purchases a 4% bond at a premium and holds the bond to maturity, which of the following could represent the yield to maturity on the bond

    a 3.5%
    b 4%
    c 4.5%
    d 5%
    • a
    • since the investor purchased the bond at a premium, the ytm would have to be less than the nominal yield of 4%.
  80. four muni bonds have the same maturity date. which of the following would cost an investor the greatest dollar amount when purchased?

    a 4 3/4% coupon bond offered on a 5.1 basis
    b 5 1/4% coupon bond offered on a 5.00 basis
    c 5 3/4% coupon bond offered on a 6.00 basis
    d a 6 1/4% coupon bond offered on a 6.5 basis
    • b
    • when bonds are purchased at a discount the ytm will be greater than the coupon rate
  81. which of the following results in the highest real interest rate?

    a a bond yields 8% when inflation is at 3%
    b a bond yields 12% when inflation is at 8%
    c a bond yields 10% when inflation is at 7%
    d a bond yields 6% when inflation is at 4%
    • a
    • the real interest rate, also called the real rate of return, refers to yields adjusted for inflation(yield minus inflation rate). choice a provides the highest real interest rate (8% bond yield mins 3% inflation rate = 5% real interest rate)
  82. which two of the following conditions are generally TRUE when the yield curve inverts?

    I interest rates are relatively low
    II interest rates are relatively high
    III interest rates are expected to fall
    IV interest rates are expected to rise

    a I III
    b I IV
    c II III
    d II IV
    • c
    • the yield curve often inverts when interest rates are relatively high but are expected to fall in the near future.
  83. how would preferred stock most likely be affected by an increase in interest rates?

    a its mkt value would increase
    b its mkt value would decrease
    c its conversion ration would increase
    d there would be no effect
    • b
    • since preferred stock is a fixed-income security, it is affected by interest rates in the same way as bonds. if interest rates rise, the value of existing bonds and preferred stock will fall. if interest rates fall, the value of existing bonds and preferred stock will rise
  84. a new issue of municipal, government, or corporate securities with maturities greater than one year, must be issued in

    a bearer or registered form
    b bearer form only
    c registered as to principal form only
    d fully registered form only
    • d
    • all new issues of municipal government, of corp bonds with maturities greater than one year must be issued in fully registered form. depending on the specific security, there may or may not be certificated issued.
  85. which bond has the most interest-rate risk

    a 3 month treasury bill
    b zero coupon 30 year treasury STRIPS
    c 6% coupon 30 year treasury bond
    d 3% coupon 5-year treasury note
    • b
    • the bond with the most interest-rate risk of price volatility is the one with the longest marutiry and lowest coupon
  86. a corporate bond that has no specific collateral backing it and is guaranteed by the full faith and credit of the issuing corporation is called

    a debenture
    b guaranteed bond
    c income bond
    d equipment trust certificate
    • a
    • a corporate bond that has no specific collarteral backing it and is guaranteed by the "full faith and credit" if the issuing corporation is called a debenture
  87. XYZ corporation has $20 million convertible bond outstanding. each bond is convertible into 20 shares of common stock

    the conversion price is
    a $20
    b $25
    c $50
    d $100
    • c
    • to find the conversion price, divide the $1,000 par value by the 20 share conversion ratio.
  88. XYZ corporation has $20 million convertible bonds outstanding. each bond is convertible into 20 share of common stock

    if all the bonds were converted to common stock, how many additional shares of common stock would be outstanding?
    a 100,000
    b 200,000
    c 300,000
    d 400,000
    • d
    • $20 million par value (1,000) bonds, which equals 20,000 bonds ($20,000,000 divided by $1,000 equeals 20,000) multiplied by the 20-to-1 conversion ratio would result in 400,000 shares of additional common stock outstanding (20,000 bonds x 20=400,000)
  89. a bond is convertible at $40 and is selling in the market for 120. if the stock has a current market price of 450, the parity price for the bond would be

    a $960
    b $1200
    c $1250
    d $1500
    • c
    • it is necessary to find the conversion ratio to solve this problem. the bond is convertible at $40. $1,000 divided by $40 equals the conversion ratio of 25 shared of stock to one bond, or 25 to 1. to find the parity price of the bond multiply the market price of the stock of $50 by the conversion ratio of 25($50 x 25 = $1,250). this means that the bond must sell for $1,250 to be equal in value to the stock when the stock has a market value of $50 per share
  90. a convertible debenture is convertible at $25. it has a nondilutive feature in its indenture. if a stock dividend is distributed, which of the following will be true?

    I the conversion price will be reduced
    II the conversion price will be increased
    III the conversion ratio will be reduced
    IV the conversion ration will be increased

    a I III
    b I IV
    c II III
    d II IV
    • b
    • a nondilutive feature means that if there is a stock split or stock dividend, the bonds conversion features must be adjusted. the bondholder would receive more shares upon conversion because the conversion ratio would be increased.
  91. a guaranteed bond is

    a insured
    b one that has a mandatory sinking fund
    c backed by a pledge of another corporation to pay principal and interest
    d backed by a pledge of a federal agency to pay principal
    c

    guaranteed bond is a corporate bond guaranteed by a corporation other than the issuer
  92. if a corporation is in a liquidation, the holder of a subordinated debenture would be paid

    a before bank loans and before accounts payable
    b before bank loans and after accounts payable
    c after bank loans and before accounts payable
    d after bank loans and after the accounts payable
    • d
    • in a liquidation of a corporation, the subordinated debenture holders would be paid after the bank loans and after accounts payable or other creditors.
  93. ABC corp bonds are convertible at $50. if the bonds are selling in the market for 90 ($900) and the other common stock is selling for $43, which of the following two statements are true?

    I the stock is selling at a discount to parity with the bond
    II the stock is selling at a premium to parity with the bond
    III liquidating the stock after converting the bonds would be currently profitable
    IV liquidating the stock after converting the bond would not be currently profitable.

    a I III
    b I IV
    c II III
    d II IV
    • b
    • the conversion ratio is found by dividing the par value of the bond ($1000) by the conversion price ($50). this equals 20 to 1 ($1000 divided by $50 equals 20). the market price of the common stock is $43 per share. the stock is selling at a discount to parity with the bond ($43 stock x 20 shares = $860 which is below the $900 market price of the bond). if the bonds were converted and the stock was then sold at the market price, the investor would have a loss
  94. all of the following are true regarding convertible bonds except

    a the bonds can be used for collateral
    b the bonds are usually debentures
    c the coupon rate on the bonds is higher than on similar nonconvertible bonds
    d the bonds can be converted into common stock
    • c
    • the coupon rate on a convertible bond will be lower than on a similar nonconvertible bond
  95. relative to a convertible bond, which of the following would produce a desirable arbitrage situation?

    a stock at parity with the bond
    b stock at a premium to parity and the bond is trading at par
    c stock at a discount to parity and the bond is trading at par
    d yield on the bond equals the yield on the stock
    • b
    • an arbitrage situation occurs when there is a price difference in comparable securities. if stock is selling above parity, the value of the stock reveived from converting the bond would be more than the value of the bond and then convert the bond and use the stock to cover the short position
  96. when a corporation goes bankrupt, which of the following creditors would be the last to be paid?

    a irs
    b debenture holders
    c preferred stockholders
    d common stockholders
    • b
    • a creditor is someone to whom the corporation owes money. a stockholder is an owner of the corporation not a creditor
  97. a corporation has issued a bond with a 5% coupon that is convertible into common stocks at $40. the bond is selling at its par value.

    if the bond increased in the value by 20 points, what is parity for the stock?

    a $25
    b $40
    c $48
    d $50
    • c
    • if the bond increased by 20 points over its par value of $1,000 it would be selling for $1,200. the parity for the stock would be found by dividing the market value of the bond 9$1,200) by the converstion ration
  98. an investor purchasing a corporate bond regular way will have to pay the contract price plus accrued interest. accrued interest will be calculated

    a up to and including the trade date
    b up to but not including the trade date
    c up to but not including the settlement date
    d up to and including the settlement date
    accrued interest on corporate bonds is calculated from the last interest payment dat up to but not including the settlement date
  99. a tombstone as stated that southern ca gas is issuing 8 3/4% first mortgage bonds at a price of 96.35% of their par value.

    which of the following are true?

    I the bonds are being sold to yield 9.635% annually
    II the bonds will pay interest of $87.5 annually
    III the bonds are subject to the trust indenture act of 1939

    a I II
    b I III
    c II III
    d I II III
    • c
    • the rate of interest stated in the tombstone is 8 3/4%. this means the company will pay 8 3/4% of $1,000 or $87.50 per year in interest. the bonds are corporate bonds being issued by southern ca gas company
  100. an indenture of a bond has a closed-end provision, this means that:

    a additional borrowing is prohibited if the bonds will have the same level of claim against assets
    b additional borrowing is permitted if the bonds will have the same level of claim against assets
    c the bonds must be called before maturity
    d a sinking fund must be esyalished
    • a
    • a closed-end provision in a bond indenture means that additional borrowing against a particular source of revenue is prohibited. an open-end provision means additional borrowing against a revenue source is permitted
  101. these securities are issued by foreign governments and corporations, trade in US markets, and are demonicated in US dollars.

    a open-end investment company shares
    b eurodollar bonds
    c yankee bonds
    d repurchase agreements
    • c
    • yankee bonds are issued by foreign corporations and governments, are dollar-denominated securities, and trade in US markets. yankee bonds are normally issued by foreign entities when conditions in the US are better than in the foreign country
  102. during a period of stable interest rates, which bond has the most potential to show a significant change in price?

    a 7% 30-year US treasury bond
    b 8% 5-year high grade corporate bond
    c 6% 6-month revenue anticipation note
    d 7 1/2% 10-year convertible subordinated debenture
    • d
    • if interest rates are stable, most bond prices will have little movement. however a convertible debenture could show significant price apprecition or depreciation if the underlying equity changes in value becuase of the ptoential to convert. this keeps the bond price in the vicinity of vonversion parity. parity is achieved when the value of the bond equals the value of the common stock derived from conversion
  103. the trust indenture act of 1939 regulates

    i a purchase of 45,000,000 of treasure bonds
    II a private placement of $3,000,000 of corporate notes
    III a $20,000,000 sale of corporate bonds sold interstate
    IV a sale by a brokerage firm throughout the country of $25,000,000 of corporate debentures

    a I II
    b I III
    c III IV
    d I II III IV
    • c
    • trust indenture act of 1939 regulates the public issuance of corporate securities that are sold interstate. it does not cover US government securities or private placements. a $20,000,000 sale of corporate bonds sold interstate and sale by a brokerage firm throughout the country (also interstate) of $25,000,000 of corporate debentures would be covered under the trust indenture act of 1939
  104. an individual purchases $5,000 BRT corp 7 3/8% bonds that mature 10-1-29. the transaction was executed on thursday august 5 200X for regualr-way settlement. the bonds were sold on march 10th of the following year. how much interest must the individual report for tax purposes in 200X

    a $52.24
    b $132.13
    c $142.38
    d $220.22
    • a
    • on october 1st the investor will receive a semiannual interest payment of $184.37 ($5,000 x 7 3/8% divided by 2). the investor for tax purposes would deduct the amount of accrued interest (7 38% x $5,000 x 129/360= $132.12) paid at the time of the transaction from the amount received ($184.37) on october 1st and report the difference as income earned and received ($184.37 - $132.13= $52.24)
  105. all of the following are features of the GNMA pass-through certificates except

    a they are backed by the us government
    b interest is subject to federal tax but is exempt from state tax
    c interest and principal payments are made on a monthly basis
    d pools consist of fixed-rate residential mortgages
    • b
    • the government national mortgage association (Ginnie Mae) is an agency of the us government. it guarantees a pool of mortgages purchased by investors through ginnie mae pass-through certifictes. these instruments pay interest and principal monthly at a stated rate on the remaining principal. the repayment of principal and interest is guaranteed by the us government.
  106. interest on all of the following may be subject to state taxes except

    a GNMA bond
    b municipal bond
    c corp bond
    d treasury note
    • d
    • interst paid on corporate debt is subject to both federal and state taxes. interest on municipal debt, especially if the buyer resides in a state different from the issuer, may be taxable. interest on treasury notes as well as all direct us government debt obligations is subject to federal taxes but is exempt from state taxes
  107. All of the following are features of the GNMA pass-through certificates EXCEPT

    a they are backed but the US governement
    b interest is subject to federal tax but is exempt from state tax
    c interest and principal payments are made on a monthly basis
    d pools consist of fixed-rate residential mortgages
    • b
    • the governement national mortgage association (ginnie may) is an agency of the us government. it guarantees a pool o fmortgages purchased bu investors through ginnie mae pass-through certificates. these instuments pay interest and pricipal monthly at a stated rate on the remainint principal. the repayment of principal and interest is guaranteed by the us governement. ginnie mae pass-though certigicates are purchased in $25,000 minimums. interst received from ginnie may pass-through certicficates is subject to federal, state and local taxes.
  108. treasury notes have initial maturities of

    a less than one year
    b 2 to 10
    b 11 to 30
    d more than 30
    • b
    • treasury notes marute from two to ten years.
  109. a 3-month treasury bill is issues at a discount to yield 9.5% and a corporate bond is issued to yield 9.5%. the bond is to mature in 10 years. if both are offered on the same day on a bond equivalent yield basis, which of the following statements is true

    a the bill would have a greater yield than the bond
    b the bond would have greater yield than the bill
    c the yield would be the same for both
    d the bond equivalent yield and tax equivalent yield and tax equivalent yield are equal
    • a
    • t-bills are issued and quoted on a discount yield basis, whereas corporate bonds are quoted on a yield-to-maturity basis. these yields are calucualted in different manners. the bond equivalent of a t-bill is always higher than its discount yield.
  110. interest on all of the following may be subject to state taxes EXCEPT

    a GNMA bond
    b Municipal bond
    c Corporate bond
    d treasury note
    • d
    • interest paid on corporate debt is subject to both federal and state taxes. interest on municipal debt, especially if the buyer resides in a state different from the issuer, may be taxable, interst on the treasury notes, as well as all dirrect US government debt obligations is subject to federal taxes but is exempt from state taxes.
  111. a quote of 5.90-5.75 would be a quote for which of the following securities?

    a treasury bills
    b treasury notes
    c tresury bonds
    d debentures
    • a
    • treasury bills are quotes on a discount yield basis while the other choices are quoted at a price. since yield is inversely related (moves opposite) to price, the higher yield (5.90) represents the lower price and is the bid. the lowe yiels (5.75) represents the higher price and is the ask offer
  112. all of the following are true regarding negotiable CDs EXCEPT

    a the minimum demonination is $100,000 but they commonly have face values of $1,000,000 or more
    b they are unsecured and normally have a fixed rate of interest
    c owners can resell negotiable CDs in the seconday market
    d Maturities of more than one year are prohibited
    • d
    • negotiable CDs are traded in the secondary market in minimum denominations of $100,000 but typically trade in $1,000,000 denominations. They are issued by commercial bacnks and are secured only by the bank's credit. Maturities of less than one year are common but there is no time limit.
  113. all of the following are true of US treasury bills EXCEPT

    a they do not have a stated rate of interst
    b they mature in one year or less
    c they are sold in $5,000
    d they are issues at a discount
    • c
    • treasury bills are sold in a miniumum amounts of $100.
  114. all of the follwoing are trye of treasury bills EXCEPT

    a they are exempt from state tax but are subject to federal tax
    b they are purchased at a discount from face value
    c holders revieve interest by clipping coupond which are attached to the bill
    d they have a dollar amount face value which the holder revieves at maturity
    • c
    • all of the choices listed are true of treasury bills except holders reveive interst by clipping coupons which are attached to the bill.
  115. an investor buys $10,000 par value of 8% treasury bonds due july 1, 2014. for tax purposes, the interest earned on these bonds is

    I subject to federal income tax
    II exempt from fereral income tax
    III subject to state income tax
    IV exempt from state income tax
    • b
    • interest on us government bonds is subject to federal income take but exempt from state income tax. this is the opposite of the tax treatement on muni (state) bonds where the interest is exempt from federal tax, but may be subject to state tax
  116. collateralized mortgage obligations can be backed by securities issued by

    I FNMA
    II GNMA
    III FHLB
    IV FFCB

    a I II
    b II III
    c I II III
    d I II III IV
    • a
    • CMOs can be backed by securites issues by FNMA, GNMA and FHLMC. federal fan credit bank (FFCB) arranges loands for agreicultural purposes.
  117. all of the following are advantages of CMO's EXCEPT

    a various bond classes
    b Tax-free interest
    c AAA ratings
    d $1,000 demoninations
    • b
    • interest payments from CMO are fully taxable.
  118. an investor purchasing $1,000,000 par value of treasury notes at a price of 101-03 would pay
    a $1,010,300
    b $1,010,937.50
    c $10,101,300
    d $10,109,375
    • b
    • treasury notes are quoted as a percentage of par in 32nds of a percent. A quote of 101-03 equals 101 3/32% or 101.09375% (3/32 = .09375). 101.09375% x $1,000,000 - $1,010,937.50
  119. a client is seeking a safe incestment that pays interet on a monthly basis. which of the following would be an appropriate recommentdation?
    a income bonds
    b preferred stock issued by a blue chip corp
    c treasury notes
    d GNMA modifies pass-through certificates
    • d
    • intest (and principal) payments on GNMA pass-through certificates are made monthly, Treasury notes and bonds pay interest semiannually. preffered stock dividends are paid to shareholders only when declared by the corporation's board of directorys. income adjustemtns bonds only pay interest when a corporation has sufficeient earnings.
  120. governement-sponsored enterprise securities are comparable to direct governement obligations with regard to all of the following EXCEPT

    a they trade in the OTC market
    b all as governemetn guaranteed
    c short-term securities are quoted on a discount yield
    d long-term securities are quoted as a percentage of par
    • b
    • government sponsored enterprise securities are not guaranteed by the governement
  121. all of the following money market insturments trade in the secondary market EXCEPT

    a directly placed commercial paper
    b eurodollar CDs
    c repurchase agreements
    d bankers acceptances
    • c
    • repurchase agreements typically are not traded in the secondary market.
  122. eewhich two of the following may be included in the STRIPS progame to create zero-coupon securities?

    I treasury bills
    II treasury notes
    III savings bonds
    IV treasury bonds

    a I III
    b I IV
    c I III
    d II IV
    d
  123. the current yield for a a 9% treasury bond tradking at 101:14 is

    a 8.77
    b 8.87
    c 8.90
    d 8.93
    • b
    • current yield is the interest rate divided by the asked price. it is 8.87%(9% interest rate divided by the asked price of the 101 14/32 or 101.4375)
  124. a type of money-market security usually collateralized by US treasury sercurities in which an investor agrees to lend funds to a bd for a specified time and rate is called

    a federal funds
    b a reverse repurchase agreement
    c LIBOR
    d a repurchase agreement
    • d
    • in a repurchase agreement, a dealer sells securities (usually T-bills) to an incestor and agrees to repurchase them at a specific time, at a specifies price.
  125. a client purchases a step-up, long-term certificate of deposit. The initial interest rate offered would:

    a be higher than current market rates
    b be lower than current market rates
    c offer the clietn protection from interest-rate risk
    d offer the client protection against call risk
    b
  126. an investor is in the 25% tax bracket. which of the following incestments would afford him the best after-tax yield?

    a 5% muni bond
    b 5 3/4% corportate bond
    c 6 1/2% yankee bond
    d 6 3/4% convertible bond
    • a
    • the 5% muni bond would offer the best after-tax yield because the interst income is completely free from federal income taxes.
  127. an ad valorem tax is based upon

    a property values
    b population growth
    c family income
    d debt per capita
    • a
    • an ad valorem tax is based upon property values
  128. when computing coverage for revenue bonds the ratio used is

    a net revenue debt service
    b gross revenue to operating expenses
    c gross revenue to annual interest payments
    d net revenue to operating expenses
    a
  129. an investor in the 35% tax bracket can buy a 5.10% tax-free municipal bond at par. what yield would the investor need in a taxable corporate bond to receive the same after-tax yield in the municipal bond?

    a 6.9%
    b 7.85%
    c 8.8%
    d 10.22%
    • b
    • if an investor in a particular tax bracket would like to compare the benefit of tax-free interest income to after-tax income of a corporate bond, it is necessary to find the equivalent taxable yield. the formula is

    • municipal bond yield = equivalent taxable yield
    • 100% - investors tax bracket

    the customer is in the 35% tax bracket. the muni bond has a 5.1% coupon rate and sine it is purchased at par, the yield is also 5.1%

    • 5.10% (muni bond yield)= 7.85% equivalent tax
    • 65%(100%-35%)
  130. accrued interest on new municipal bonds is calculated from the:

    a purchase date
    b settlement date
    c dated date
    d last interest payment
    • c
    • interest on new municipal bonds is calculated from the dated date, which is the date from which interest starts to accrue on a municipal bond
  131. a level debt service bond issue is one in which

    A annual interest payments are equal
    B combined annual interest and principal payments are equal
    C all principal is paid at the issues final maturity
    D annual principal payments are equal
    B level debt service bond issue is one in which combined annual interest and principal payments are equal
    (this multiple choice question has been scrambled)
  132. the interest paid on special assessment bonds is derived from

    a ad valorem taxes
    b toll road revenues
    c charges on the benefitted property
    d excise taxes
    • c
    • the interest paid by the issuer to holders of special assessment bonds are derived from charges made to the users of the benefitted property. these bonds are issued to finance the construction of water and sewer systems, sidewalks and streets
  133. to determine what would happen to the coverage of revenue bonds when more bonds are to be issued in the future, one should examine

    a the rate covenants of the bond
    b feasibility studies
    c the refunding procedure of the bond
    d the additional bond test
    d
  134. a muni bond is currently trading at 92 and is callable in 10 years at par. what would be the effective yield that must be disclosed on a customer's confirmation?

    a yield to call
    b yield to maturity
    c fixed yield
    d current yield
    • b
    • the MSRB regulates the effective yield that must be disclosed in a clients confirmation. the effective yield on a bond trading at a discount is the yield to maturity
  135. a double-barreled security is a municipal security that

    a is exempt from federal and state taxes
    b is exempt from state and local taxes
    c can be paid from the revenues of a project and is a general obligation of the US government
    d can be paid from the revenues of a project and is a general obligation of a municipal governement
    • d
    • a double-barreled security is a municipal security that can be paid from the revenues of a project and is also a general obligation of a municipal governement
  136. industrial development revenue bonds are backed by

    a the local municipal district in which the facility is domiciled
    b the state in which the facility is domiciled
    c the corporate guarantor
    d both the corporate guarantor and the municipality
    c
  137. a corporate bond has a 12% nominal yield. to be equivalent, an investor in the 28% tax bracket would need a municipal bond with a yield of

    a 7.9%
    b 8.6%
    c 9.4%
    d 10.2%
    • b
    • to determine the net yield of a taxable bond, multiply the yield times the complement of the tax bracket. the net yield would be 8.6% (12% yield times 72% which is the complement of the tax brcket
  138. a municipality borrowing for a short-term period to finance a capital project would issue

    a commercial paper
    b tax anticipation notes
    c debentures
    d bond anticipation notes
    • d
    • a municipality borrowing for a short-term period to finance a capital project would issue bond anticipation notes. commercial paper is primarily issued by corporations and some municipalities to raise short-term funds for working capital, but not to finance capital projects. tax anticipation notes are used to meet operational expenditures
  139. a customer purchases a municipal bond for the settlement on tuesday, october 10th. the bond pays interest on january 15th and july 15th. the number of days of accrued interest the buyer owes to the seller is

    a 85 days
    b 86 days
    c 88 days
    d 90 days
    • a
    • interest is figured from the last interest payment date, july 15th, up to but not including the settlement date. Accrued interest is figured up to and including october 9th.

    the customer buying the bonds would have to pay accrued interest for 85 days. corporate and municipal bond interst is computed on the basis of a 30-day month and a 360-dat year. if interst is paid on the first of the month, there will be 30 days of accrued interest to calculate. if interest is paid on the 15th of the month, there will be 16 days of accrued interest to calculate for that particular month.

    • july 16 days
    • august 30 days
    • september 30 days
    • october 9 days
    • 85 days
  140. the taxing power of an issuer of a limited tax bond is limited to a specified

    a minimum rate
    b maximum rate
    c tax source
    d collateral
    • b
    • the taxing power of an issuer of a limited tax bond is limited to a specified maximum rate. a special tax bond is a type of revenue bond backed by a specific tax source, such as a gasoline tax
  141. if general obligation bonds are to be analyzed, the credit analysis would be affected by which of the following factors?

    I feasibility studies
    II the tax collection record of the municipality
    III debt service coverage ratio
    IV evaluation of the debt to real estate value in the municipality

    a I II
    b I III
    c II III
    d II IV
    • d
    • the tax collection record and the debt to real estate value ratios are two factors that would be considered when analyzing go bonds. the tax collection record informs the analyst of the tax bases being used by the municipality as a comparison of prior years tax bases and against other municipalities. the debt to real estate value ratios help the analyst study the relationship of debt to real estate valuation of the municipality and the municipality's ability to meet its debt compared with the real estate wealth of the municipality.
  142. if an investor was primarily interested in safety of principal which of the following would you least likely recommend?

    a state GO bond
    b GNMA security
    c railroad equipment trust bond
    d industrial development revenue bond
    • d
    • industrial development revenue bonds are secured by a lease agreement with a corporation and are only as secure as the corporation. state GO's are generally of high quality and GNMA is secured by the US government. the holder of the equipment trust bond has a lien on the equiptment that secures the issue
  143. an increase in personal income tax rates would most likely result in an increased demand for

    a municipal securities
    b AAA rated corporate bonds
    c mortgage-backed securities
    d treasury bonds
    • a
    • an increase in personal income taxes would result in more investor demand for municipal bonds. this is because the interest income is exempt from federal income taxes
  144. a water & sewer revenue project has $15,000,000 in total revenues. the operating and maintenance expenses are $9,000,000 bond interest is $2,000,000, and principal repayment is $1,000,000. How much is available for debt service?

    a $3,000,000
    b $6,000,000
    c $9,000,000
    d $15,000,000
    • b
    • revenue issues are referred to as being net revenue issues since expenses are deducted from income prior to paying debt service. (the one exception to this are hospital revenue issues which are gross revenue issues). the amount available to pay debt service (interest and principal due) is $6,000,000 ($15,000,000 gross income minus $9,000,000 operating and maintenance expenses)

    if the question had asked for the coverage or debt service ratio, you would compare the amount available, $6,000,000, to the debt service of $3,000,000 ($2,000,000 interest + $1,000,000 principle)
  145. all of the following statements about municipal revenue bonds are true EXCEPT

    a there is no debt limitation set by the issuing municipality
    b the maturity of the revenue bond usually coincides with the useful life of the facility being built
    c they can be issued by states, political subdivisions, interstate authorities, and intrastate authorities
    d the interest and principal are paid from the revenue received from the facility
    • b
    • municipal revenue bonds do not have maturity schedules that coincide with the usefulness of the facility being built. municipal revenue bonds do not have debt limitations as do general obligation bonds. a debt limitation is the statutory or constitutional maximum debt that and issuer can legally incur. revenue bonds can be issued by stated, political subdivisions(such as counties or townships), interstate authorities and intrastate authorities. the interest and principal are paid from the revenue received from the facility.
  146. tax-free municipal bonds would be least attractive to an

    a pension fund
    b insurance company
    c individual who has just inherited $1,000,000
    d officer of a corporation who is in the 28% tax bracket
    • a
    • a pension fund does not pay tax on its investments. therefore it would not find municipal bonds as attractive an investment as it would other higher yielding investment instruments
  147. the federal tax exemptions of municipal bonds was established by

    a the irs
    b the us treasury
    c an act of congress
    d supreme court decision
    • d
    • the federal tax exemption of municipal bods was established by supreme court decisions, the decisions stated that a state government could not tax the federal government and the federal government could not tax a state government
  148. all of the following would be found in a municipal revenue bond resolution EXCEPT

    a restrictions on the sale of additional bonds
    b rate covenants
    c sinking fund provisions
    d the yields-to-maturity of the bonds
    • d
    • the indenture or resolution is basically the contact between the issuer and the bondholder. it will specify the rights of the bondholders and the provisions to protect the bondholders interest. one of the provisions included is a rate covenant in which the issuer pledges to charge rates that are sufficient to cover expenses and debt service. an additional bonds test is included which sets requirements that must be met before additional bonds could be issued. the method of funding and the operation of the sinking fund(used to retire some bonds prior to maturity) would also be included. another important provision is flow of funds which state how the income generated by the project will be utilized
  149. the number of times the earnings of a municipal facility exceeds the interest charges and principal payments of a revenue bond for a period of time is called the

    a working capital ratio
    b dividend payout ratio
    c debt service coverage ratio
    d price-earnings ratio
    • c
    • the number of times the earnings of a revenue bond of a municipal facility exceeds the interest charges and principal payments (debt service) for a period of time is called the debt service coverage
  150. an investor purchased $100,000 face value of a 12% municipal bond that matures december 1, 2010. the transaction settles on august 1st. the investor owed accrued interest of

    a $200
    b $800
    c $2,000
    d $8,000
    • c
    • the bonds purchased by the investor will generate yearly interest of $12,000.
  151. the state of north carolina is offering $50,000,000 5 1/2% sewer improvement bonds

    the bonds are
    I exempt from the margin requirements of reg T
    II exempt from the sec act of 1933
    III exempt from the trust indenture act of 1939

    a I
    b I II
    c II III
    d I II III
    • d
    • the bonds are municipal revenue bonds which are exempt from all federal acts and regulations except antifraud provisions
  152. accrued interest formula=(principal x rate x days of interest)/360
    $20,000 x 8% x 47/360= $208.88
  153. if the federal tax exemption for a municipal bond interest were eliminated, one would expect yields on newly issued municipal bonds to

    a increase
    b decrease
    c remain the same
    d decrease temporarily but remain stable over a period of time
    • a
    • if the tax exempt status was eliminated, yields on newly issued municipal bonds would have to increase to compete with the higher yields on non-tax exempt bonds
  154. an analysis of go bond would be concerned with all of the following except

    a property valuations
    b ad valorem taxes
    c per-capita income
    d rate covenants
    • d
    • an analysis of go would be concerned with all of the choices listed except rate covenants. rate covenants are found in a indenture of a revenue bond and are agreements to maintain rates sufficient to the pay the interest and principal. rate covenants are not required for a go bond which is backed by the full faith, credit and taxing power of the issuing municipality
  155. treasury arbitrage restrictions generally prohibit issuers of municipal securities from:

    a selling municipal securities with coupon rates that are lower than treasury securities
    b selling municipal securities with coupon rates that are higher than treasury securities
    c investing bond proceeds into higher yielding treasury securities
    d investing bond proceeds into lower yielding treasury securities
    • c
    • due to the tax exemption allowed on municipal bond interest municipalities are normally able to issue bonds with coupon rates below those of treasury securities. this presents an excellent arbitrage opportunity. a munipcality can borrow at a low rate of interest and invest the money into higher yielding "risk free" treasury securities. congress has enacted laws knows as treasury arbitrage restrictions that prevent state and local governments from misusing the tax exemption
  156. a customer is most interested in safety of principal and wishes to avoid risk. list the securities you would recommend to the customer from those with the least risk to those with the most risk

    I general obligation bonds
    II treasury notes
    III treasury bills
    IV revenue bonds

    a III I II IV
    b II III I IV
    c III II I IV
    d I IV III II
    • c
    • the safest security with the shortest maturity would be treasury bills, followed by the longer-term treasury notes followed by general obligation bonds and then revenue bonds
  157. state governments receive the least amount of revenues from

    a sales taxes
    b gasoline taxes
    c excise taxes
    d property taxes
    d
  158. which of the following 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
    c
  159. which of the following would an analyst be most concerned with when evaluating a revenue bond?

    a the population growth of the municipality
    b debt to assessed valuation
    c a rate covenant
    d property taxes
    c
  160. the additional bonds covenant for a revenue bond would normally be found in the

    a official notice of sale
    b prospectus
    c bond indenture
    d syndicate agreement
    c
  161. what type of bond would most likely be secured bu an excise tax, cigarette tax or gasoline tax

    a GO bond
    b special tax bond
    c special assessment bond
    d water and sewer bond
    b
  162. a state agency revenue bond does not have sufficient revenue to meet debt service. a provision of the indenture allows the agency to request funds from the state legislature. the legislature has the option of providing or not providing the additional funds. what type of bond is it?

    a general obligation
    b double-barreled
    c special tax
    d moral obligation
    d
  163. which of the following would have the least amount of credit risk

    a preferred stock issued by a blue chip company
    b mortgage bonds
    c treasury notes
    d revenue bonds
    c
  164. when pricing a bond, which of the following would be required?

    I coupon
    II maturity
    III settlement date
    IV bond years

    a II IV
    b I III
    c I II III
    d I II III IV
    c
  165. auction rate security is a type of investment that has the interest or dividend rate reset periodically. the term "net clearing rate" refers to which of the following?

    a the average rate of all submitted bid
    b the highest rate to match supply and
    c the lowest rate to match supply and demand
    d the lowest rate of all submitted bids
    • c
    • based on submitted bids from holders and prospective buyers, the net clearing rate set by the auction agent will be the lowest rate that matches supply and demand. after the deadline for submission of orders the auction agent assembles all the orders from lowest to highest bid and determines the net clearing rate. the net clearing rate is the lowest rate bid sufficient to cover all the securities exposed for sale
  166. a grant anticipation note is normally paid from

    a proceeds from the issuance of long-term bonds
    b funds received from the federal government
    c revenues received at a future date
    d receipts of future property taxes
    b
  167. federal and state registration requirements apply to all of the following except

    a publicly trader limited partnerships
    b preferred stock
    c municipal securities
    d open-end investment companies
    c
  168. in order to have an issuer of securities exempt from the provisions of the securities act of 1933 under regulation d, which of the following is true?

    I purchasers must sign an investment letter
    II the size of the offering must be limited
    III the number of accredited buyers is unlimited
    IV the number of nonaccredited buyers is limited

    a I
    b I II
    c I II III
    d I III IV
    • d
    • according to the reg d certain conditions must be met for the securities to be exempt from the provisions of the sec act of 1933. the offering must be restricted to persons who are knowledgeable and experienced in business and financial matters and who are able to afford the economic risks involved. the issuer must provide the buyer with detailed financial information, the number of nonaccreditied purchasers must be limted to 35, and the offering must be made in direct negotiations between the issuer and the buyer of his purchaser representative. aslo the buyer must sign an investment letter stating that the purchase was made for investment and not for short-term trading purposes. the size of the offering is not limited
  169. if a new issue is to be offered in three neighboring states

    I the issue only has to be registered in the corporations home state
    II the issue can only be old by registered reps who are licensed to sell securities in the sates where they conduct sales
    III the underwriter must publish a tombstone ad in all the states
    IV the issuer must satisfy the blue sky laws (state securities laws) of the three states in which the issue will be sold

    a I II
    b II III
    c II IV
    d III IV
    • c
    • if a new issuer is to be offered in neighboring states. the issue can only be sold by account executives who are licensed to sell securities in those states. the new issue must satisfy the blue sky laws ( state securities laws) of the three neighboring states in which the issue will be sold. the underwriter does not have to publish a tombstone ad in all the states. the issue must be registered in all the states, not only its home state
  170. a syndicate is formed on an eastern account basis to sell $10 million of a new municipal bond issue. a dealer has committed to sell $1 million (10% of the issue). the dealer sells the $1,000,000 committed for, but $2 million of the issuer remain unsold the dealer is

    a not liable to sell any of the unsold bonds
    b liable to sell 10% of the unsold bonds
    c liable to sell $1,000,000 of the unsold bonds
    d liable to sell all of the unsold bonds
    b

    in an eastern or undivided account, the dealer is responsible for a proportionate amount of the bonds in the account. if the dealer sells all the bonds committed for and there are bonds left unsold in the account, the dealer is liable for bonds based on his original commitment.
  171. rule 415 allows shelf registration. this permits one registration statement to cover all securities to be issued during the next

    a six months
    b one year
    c three years
    d five years
    c

    shelf registration allows the issuer to file a registration statement with the SEC and then over a 3-year period, sell the securities when the issuer deems the time is appropriate
  172. a regulation A exemption would be allowed of an issuer

    a offering 500,000 shares or less
    b offering securities with a value not exceeding $10,000,000
    c offering securities with a value not exceeding $5,000,000
    d offering securities only to residents of a specific state
    • c
    • a regulation a offering is exempt from the registration and prospectus requirements under the sec act of 1933. the offering is limited to the issuance of $5,000,000 worth of securities during a 12-month period
  173. under the provisions of the sec act of 1933 which of the following are exempt securities?

    I securities issued by state chartered banks
    II municipal bonds
    III federal government securities
    IV securities issued by small business investment companies

    a II III
    b II III IV
    c I II III
    d I II III IV
    • d
    • the sec act of 1933 exempts government securities (both direct and agency) municipal securities, nonprofit organizations, and state chartered banks. small business investment companies are formed under the small business administration
  174. a reg d offering may be sold to a maximum of

    a 15 nonaccreditied investors
    b 15 accredited investors
    c 35 na investors
    d 35 a investors
    • c
    • a reg d offering may be sold to a maximum of 35 nonaccredited investors. there is no limit to the number of accredited investors. an individual will be considered an accredited investor if he has a net worth of $1,000,000 or has has $200,000 of income for the previous two years with an anticipation of continued earning at the same of a greater level
  175. where would bid limitations for a new municipal bond issue be found?

    a official statement
    b indenture
    c notice of sale
    d syndicate agreement
    • c
    • the notice of sale is published by the issuer. it announces the issuer's intention to sell an issue and invites securities firms to compete for the issue. all information pertaining to the bidding would be contained in the notice of sale
  176. which of the following municipal bonds would require a feasibility study to determine the issuer's ability to pay interest when due?

    a a special tax bond
    b a general obligation bond
    c a revenue bond
    d a revenue anticipation note
    • c
    • a feasibility study is made by a qualifies expert to determine if revenues of a project will be sufficent to pay interest when due. a revenue bond which is backed by the earning power of a specific project, such as tolls from bridges, tunnels, or turnpikes, would require a feasibility study by qualified experts to determine if the revenue generated will be sufficient to pay the interest on the bonds. a special tax bond is secured by a special tax, such as a gasoline tax, and would not require a feasibility study. a revenue anticipation not is considered a general obligation security.
  177. MSRB rules apply to all of the following EXCEPT

    a salespeople
    b firms
    c underwriters
    d issuers
    d
  178. three-month and six-month treasury bills are auctioned by the federal reserve board

    a daily
    b weekly
    c monthly
    d annually
    b
  179. a syndicate letter used in the formation of a municipal syndicate account will contain all of the following except

    a the account manager
    b the member participation
    c the reoffering yields
    d the duration of the account
    c

    a syndicate letter is used to form a syndicate (group of underwriters) to bid on a new municipal issue. it would be sent by the syndicate manager and would include each member's participation, the type of account and its duration, the priority of orders, and the amount of the good faith deposit. the reoffering yields would not be determined until after the syndicate was formed and was ready to submit its bid. the reoffering yields would be determined by market conditions including current supply, demand, and existing yields on similar outstanding bonds
  180. all of the following municipal bond transactions take place in the secondary market except

    a submitting an offer to sell bonds to a sinking fund
    b a tax swap
    c two municipal securities bds purchasing a block of bonds jointly
    d the placing of a designated order
    d
  181. the spread for a new municipal bond issue is as follows
    managers fee 1/4
    additional takedown 3/8
    concession 3/8
    a syndicate member who sold $25,000 of bonds would be entitles to
    a $62.50
    b $93.75
    c $187.50
    d $250.00
    • c
    • a member of the syndicate is entitled to receive the total takedown. the member would therefore receive 3/4 or $7.50 per $1000 face value for the total of $187.50
  182. relating to a new municipal issue, the legal opinion:

    a insures the legality of the syndicate
    b attests o the validity of the issue
    c is approved by the MSRB
    d attests to the issuer's ability to meet debt service
    • b
    • all municipal issues must have a legal opinion written by a qualifies bond counsel. it will state that the interest is free from federal tax and that the issue is valid and legal
  183. t-bills purchased at the weekly auction will have a settlement date on the

    a next business day
    b fifth business day
    c monday following the auction
    d thursday following the auction
    • d
    • the auction for 13- and 26-week t-bills is held each monday settlement is on thursday of the same week
  184. for a competitive offering of municipal securities, an issuer's right to reject any and all bids received will normally be contained in the
    a official statement
    b notice of sale
    c underwriting agreement
    d legal opinion
    • b
    • the notice of sale for a municipal bond offering will normally contain a provision stating that the issuers retains the right to reject any and all bids if it is considered to be in its best interest to do so. this is done to protect the issuer from being obligated to accept an unsuitable bid
  185. on a new municipal issue, what must be sent to a purchaser?

    I confirmation
    II copy of the indenture
    III official statement
    IV list of syndicate members
    a I III
    b I IV
    c II IV
    d I II III IV
    a
  186. the managing underwriter of a new municipal issue has an obligation to provide

    I an official statement to all selling members
    II an official statement to all purchasers of the issue
    III the named of the syndicate members to all purchasers of the issue
    a I II
    b I III
    c II III
    d I II III
    a
  187. when preparing a bid for a new municipal issue, the underwriting syndicate would first determine the
    a NIC
    b reoffering yields
    c bid price
    d coupon rates
    b
  188. a bond counsel would issue an unqualified legal opinion for a municipal bond issue to state that

    a the issuer has defaulted on previous issues of bonds
    b the official statement has not been filed with the sec
    c the bonds are very risky and are not a qualifies investment for some investors
    d there are no limitations or pending lawsuits that hinder the issuance of the bonds
    • d
    • a bond counsel would render an unqualified legal opinion if there were no situations in existence that could adversely effect the legality of the issue
  189. when an issuer is computing net interest cost, the premium for a new issue of bonds is

    a divided by the number of bond years
    b added to the underwriters profit
    c subtracted from the total interest cost to the issuer
    d added to the total interest cost to the issuer
    • c
    • net interest cost is a calculation to determine the bid that would yield the lowest cost to the issuer over the life of the bond issue. if the issuer sells the bonds at a premium the amount of the premium is subtracted from the total amount of interest that must be paid. if the issuer sells the bonds at a discount, the amount of the discount is added to the total interest that must be paid
  190. in new municipal issue, what is a group order?

    a an order placed by 3 or more members
    b an institution purchasing bonds from a syndicate
    c all members will benefit from the order
    d a dealer buying for a group of investors
    • c
    • there are four types of orders that can be placed with a syndicate
    • 1 a pre-sale order is any order placed before the syndicate actually purchases the issue from the issuer
    • 2 a group order is when all members of the syndicate share in the profit
    • 3 a designated order is usually placed by a large institution which designates two or more members to receive credit for the sale
    • 4 a member order is any order placed by members for their customers
  191. if a municipal issuer publishes an official notice of sale, this indicated the offering will be made

    a through a private placement
    b on a negotiated basis
    c on a competitive basis
    d available to the general public through a prospectus
    c
  192. what is a fidelity bond?

    a noncallable municipal bond
    b a nonconvertible corporate bond
    c insurance purchased by bds to protect them against fraud
    d insurance protecting customers in the event of a bd bankruptcy
    • c
    • evert bd is required to have a fidelity bond which provides insurance in the event of a fraud judgement against the bd
  193. which of the following is an indicator of the demand for municipal bonds in the primary market

    a wilshire index
    b visible supply
    c placement ratio
    d bony buyer index
    • c
    • the placement ratio is published weekly in the bond buyer and credit markets. it shows the percentage of new competitive issues that have been placed (sold) to investoers for the week
  194. when computing the dollar price of a municipal bond sold on a yield basis, which of the following call features would be used?

    I sinking fund
    II catastrophe call
    III in-whole call

    a I
    b II
    c III
    d I II III
    • c
    • when pricing a bond only a call feature that allows the issuer to call the entire issue is used
  195. a broker-dealer may reject a delivery of municipal bonds if

    a the bonds were called by the issuer and were identified as such
    b the market price increases after the trade date
    c the bonds are lacking a legal opinion
    d $1,000 denominations are delievered
    • c
    • a delivery of municipal bonds may be rejected if they do no meet good delivery requirements such as missing or mutilated coupons or lack of a legal opinion. a change in market price is not a reason for rejecting delivery of municipal bonds
  196. according to MSRB rules, which of the following is true regarding a secondary market joint account?

    a it is a violation of the rules if it contains less than three members
    b its members are not permitted to disseminate more than one quote relating to the accounts securities
    c it needs to submit an underwriting fee to the MSRB
    d it would be considered to have a control relationship with the issuer
    • b
    • members of a secondary market joint account must publish the same offering quote
  197. a municipal dealer purchased $100,000 face value of 6.00% bonds at a 6.00 basis. if the dealer reoffered the bonds, which of the following could be considered reasonable?

    I 101
    II 108
    III 5.80
    IV 4.00

    a I II
    b I III
    c III IV
    d I III IV
    • b
    • the dealer purchased the bonds at par (6% coupon at a 6 basis) when reoffering the bonds, the dealer's markup should be reasonable. a one point markup (101) would be considered reasonable whereas an eight point markup (108) would not. An offereing of 5.80 represents a reduction in yield of 20 basis points and would be considered reasonable. a reduction in yield of 200 basis points (6 basis minus 4 basis reoffering) would be excessive
  198. a customer is short 1000 shares of ABC. if the current market price of ABC is $30 per share, what is the minimum maintenance requirement for equity in the account?

    a $2500
    b $5000
    c $7500
    d $9000
    • d
    • the minimum maintenance requirement for a short margin account is 30% of the short market value or $5per share, whichever is greater.
  199. which of the following will not affect the SMA in a long margin account?

    a cash dividends paid on securities in a margin account
    b cash deposited in the account to reduce the debit balance
    c stock dividends paid on securities held in the margin account
    d appreciation in market value of the securities in a margin account
    • c
    • stock dividends paid on securities held in a margin account will not increase the SMA. The market value of the stock already in the account will be reduced bu the amount of the stock dividend as the number of shares of the stock increases.
  200. which TWO of the following statements are true regarding the maintenance requirements for selling short stock that is trading at less than $5 per share?

    I the maintenance requirement for shorting a stock at $2 per share is 100% of the market value
    II the maintenance requirement for shorting a stock at $2 per share is $2.50 per share
    III the maintenance requirement for shorting a stock at $4 per share is 100% of the market value.
    IV the maintenance requirement for shorting a stock at $4 per share is $2.50 per share

    a I III
    b I IV
    c II III
    d II IV
    • c
    • the industry maintenance requirement when shorting stock that is trading at less than $5 per share is the greater of $2.50 per share or 100% of the market value
  201. which of the following statements is FALSE regarding the characteristics of options and warrants?

    a warrants are created by the corporation whose stock underlies the instrument: options are created by contract between an option buyer and an option writer
    b both options and warrants can expire worthless if they are not exercised
    c if options are exercised a set price must be paid for the underlying security if warrants are exercised, the securities are received at no additional cost
    d both options and warrants can be bought and sold in the secondary market
    • c
    • both options and warrants have a strike price -- if exercised, the transactions for the underlying security will occur at the set price. it is in the case of convertible bonds or convertible preferred stock that investors can convert the security into the underlying stock with no additional payment of money
  202. closing spot prices for foreign currencies are disseminate daily by the

    a NYSE
    b IMM
    c FRB
    d FINRA
    • c
    • the federal reserve board disseminated closing spot prices of foreign currencies daily
  203. all of the following are true regarding the interbank market for foreign currencies except
    a it is decentralized
    b it is unregulated
    c transactions may settle on a spot or forward basis
    d it is unaffected by actions taken by a government's central bank
    • d
    • the interbank market relates to the trading of foreign currencies amongst large international banks. the interbank market is therefore not centralized. it is basically unregulated and is affected by national economic policies, actions taken by central banks, and other occurrences that would affect the relative value of currencies. foreign currency transactions may settle on spot or forward basis.
  204. which of the following statements are correct regarding spreads?
    a put spread written for a net debit would be bearish
    b a put spread written for a net credit would be bearish
    c a call spread written for a net credit would be bullish
    d a call spread written for a net debit would be bearish
    • a
    • a put spread written for a net debit is bearish. a bearish put (or call) spread involves selling the lower exercise price and buying the higher exercise price. for a put spread, the lower exercise price will have the lower premium and therefore the spread would be done at a debit

    • debit call spread - bull spread
    • credit call spread - bear spread
    • debit put spread - bear spread
    • credit put spread - bull spread
  205. an investor writes a treasury bond call option contract. he would be considered covered by a deposit of

    a a basket of bonds
    b specific t-bonds
    c one hundred shares of the underlying security
    d the required margin
    • b
    • a treasury bond call option writer would be considered covered only if the specific underlying t-bonds are deposited.
  206. an investor who sells index straddles or combinations is anticipating the market will be
    a bullish
    b bearish
    c neutral
    d volatile
    • c
    • an investor who sells straddles or combinations is selling both calls and puts on the same underlying security. this type of investor is neither bullish or bearish, but is anticipating the price of the underlying security will remain relatively stable or neutral.
  207. the spot prices of foreign currencies are determined

    a NYSE
    b PHLX
    c third market
    d interbank market
    • d
    • the spot prices for foreign currencies are determined in the interbank market which consists of commercial banks trading currencies
  208. currency values in a floating rate system are established by

    a supply and demand for the currency
    b government regulations
    c the world bank
    d the international monetary market
    • a
    • under a floating rate system, currency values are established by supply and demand for the currency. supply and demand for a currency many be influenced by the country's rate of inflation, level of interest rates, gold reserves, and trade deficit. the opposite of a floating rate system is a fixed rate system whereby countries agree to a currency exchange rate that will not fluctuate
  209. all of the following statements regarding the roth IRA are true except

    a contributions are tax-deductible
    b qualified distributions are not included in an individuals gross income
    c qualified distributions are not subject to the 10% early withdrawal penalty
    d an individual may contribute up to $5000 per year
    • a
    • while contributions to traditional IRAs are tax-deductible under certain conditions, contributions to a roth IRA are nondeductible. individuals may contribute up to $5000 per year if they have earned income and if they meet certain income eligibility requirements. qualified distributions are tax-free and are not subject to the 10% early withdrawal penalty
  210. in which two of the following circumstances will dollar cost averaging result in an average cost per share that is always less than the average price per share?

    I the price of the shares has fluctuated over a period of time
    II a fixed number of shares is purchased regularly
    III a fixed dollar amount is invested regularly
    IV the funds dividend yield is constant
    a I II
    b I III
    c II III
    d III IV
    • b
    • the average cost per share will be less than the average price per share when the price of the stock has fluctuated over a period of time and a fixed dollar amount is invested regularly
  211. under a functional allocation sharing arrangement in an oil and gas drilling program, the sponsor would pay:
    a all deductible expenses
    b all nondeductible expenses
    c some deductible and some nondeductible expenses
    d no expenses
    • b
    • under a functional sharing arrangement the sponsor pays all the nondeductible (tangible) expenses and the limited partners pay all the deductible (intangible) expenses
  212. the prospectus for a limited partnership stated that the subscription price for each unit is $20,000. According to industry rules, the maximum allowable underwriting compensation for this public offering is
    a $50 per unit
    b subject to the interpretations of the 5% markup policy
    c not subject to any limit but must be fair and reasonable
    d 10% of the gross proceeds of the offering
    • d
    • industry rules allow a maximum total compensation of 10% of the gross proceeds of the offering in a limited partnership
  213. in a limited partnership, a general partners minimum participation in profits and losses is
    a 1%
    b 5%
    c 10%
    d 15%
    • a
    • according to tax law, a general partner must have at least a 1% participation in profits and losses for a business to maintain limited partnership status
  214. which of the following would be the least important to an investor considering a bond "swap"?
    a accrued interest
    b annual income
    c capital loss
    d maturity dates
    • a
    • a bond swap is selling one bond and using the proceeds to buy another bond with either a different yield, interest rate, or maturity date. this is usually done to establish a capital loss for tax purposes.
  215. an investor had purchased a municipal bond at a discount which is currently selling at a premium. this is an example of

    a appreciation
    b accretion
    c capital gain
    d amortization
    • a
    • the bond has appreciated (increase) in value. the investor would not have a capital gain unless the bond was sold. accretion is associated with increasing the value each year of an original issue discount bond. amortization is associated with decreasing the value of a premium bond
  216. when a municipal bond is issued as an original issue discount, the upward adjustment in the purchase price is called

    a accretion
    b amortization
    c depreciation
    d depletion
    • a
    • the upward adjustment in the purchase price of an original issue discount bond is called accretion. if the bond is sold before its final maturity date, the bondholder must determine his adjusted cost basis. if the bond is bought at an original issue discount and held to maturity, the discount is considered to be interest and for municipal bonds exempt from taxes
  217. which of the following best defines a tax swap?

    a the purchase and sale of bonds to incur commissions
    b the exchange of convertible bonds for stock to avoid the receipt to taxable interest income
    c the purchase and sale of bonds to realize a capital loss to offset against a capital gain for tax purposes
    d exercising the exchange privilege of a mutual fund
    • c
    • a tax swap would be the sale and purchase of bonds (or other securities) to realize a capital loss that can be offset against a capital gain
  218. how is the discount on an OID accreted for tax purposes?

    a straight-line method
    b constant yield method
    c cost basis method
    d declining balance method
    • b
    • the accretion of the discount on an OID (original issue discount) is based on a constant yield method (also called constant interest method) which uses the bonds yield-to-maturity
  219. which two of the following circumstances would lead to disintermediation?

    I when interest rates as savings banks are lower thank money market instruments
    II when interest rates at savings banks are higher than money market instruments
    III when the FrB is pursuing a tight monetary policy which is causing a rise in interest rates
    IV when the FRB is pursuing a loose monetary policy causing interest rates to decline

    a I IV
    b II IV
    c I III
    d II III
    • c
    • the term disintermediation describes money being withdrawn from savings banks and savings and loan associations by depositors and reinvesting the funds in higher yielding money market instruments (treasury bills, certificates of deposit, money market funds). this would occur when interest rates at savings banks are lower than money market instruments. the FRB is pursuing a tight monetary policy, which is causing a rise in interest rates, creating a demand for the higher yielding money market securities
  220. money received by a corporation when it sells its stock above its par value is called

    a excess capital
    b earned surplus
    c paid in capital
    d stockholders capital
    • c
    • money received by a corporation when it sells its stock above its par value is called capital surplus or paid-in capital. this is different than earned surplus (retained earnings), which is profits that have been retained by the company and have not been paid as dividends
  221. the federal reserve boards open market committee (FOMC) buys and sells which of the following securities most often to accomplish its aims?
    a treasury bills
    b treasury notes
    c treasury bonds
    d agency bonds
    • a
    • the federal reserve boards open market committee (FOMC) purchases and sells US government securities in the open market to accomplish the federal reserves boards aims of influencing the money supply. the securities most often used are treasury bills
  222. in periods of easy money, when interest rates are declining, yield curves would tend to slope

    a upward from the shorter to the longer maturities
    b downward from the shorter to the longer maturities
    c remain flat
    d upward from the longer to the shorter maturities
    • a
    • in periods of easy money when interest rates are declining, yields on shorter maturities would be less than that of longer maturities. yield curves would tend to slope upward from the shorter to the longer maturities
  223. when the economy is peaking, what would be the expected sequence of the next three stages of the business cycle?

    I Trough
    II Expansion
    III Contraction
    a I II III
    b II III I
    c III I II
    d III II I
    c
  224. the tool most commonly used by the FRB to regulate the amount of money and credit in the banking system is

    a open market operations
    b the discount rate
    c moral suasion
    d reserve requirements
    a
  225. according to CAPM, all of the following would be examples of diversifiable, nonsystematic risks except
    a credit risk
    b interest rate risk
    c business risk
    d industry risk
    • b
    • interest rate risk is the systematic risk for bonds just as a beta measures the systmatic risk for stock. systematic risk is the market risk, which persists despite diversification
  226. balance sheet equation
    total assets = total liabilities + stockholders equity
  227. How long after a new issue is registered for sale will it be shown on the nasdaq system?

    a on the effective date
    b 10 days after the effective date
    c 30 days after the eddective date
    d 45 days after the effective date
    • a
    • a new issue will appear on the nasdaq system on the effective date of the issue. the effective date, which is determined by the SEC upon completion of the registration process, is the first date that the securities may be sold to the public.
  228. An investor is in hte 28% tax bracket. Which of the following investments would afford him the best after-tax yield?

    a a 5% municipal bond
    b a 5 3/4% corporate bond
    c a 6 1/2% yankee bond
    d a 6 3/4% convertible bond
    • a
    • the 5% municipal bond would offer the best after-tax yield because the interest income is completely free from federal income taxes. the other investments are types of corporate deblt subject to federal income taxes and 28% of the income received would be taxable. The taxable equivalent yield of the 5% municipal bond is 6.94%. This is calculated by dividing the 5% municipal yield by the complement of the tax bracket which is 72%.
  229. all of the following may be used to pay the debt service on a general obligation bonds EXCEPT

    a income taxes
    b property taxes
    c licensing fees and traffic fines
    d tolls collected at a tunnel lovated in the municipality
    d