8th Set

Question 1

KLP common stock has been trading at or near $25 per share all day. Your client would like to buy 500 shares of KLP at 25, but he is willing to accept fewer shares at that price. Which of the following orders fulfills his intentions?

A)
Limit order to buy 500 shares of KLP at 25 IOC (immediate-or-cancel)
B)
Limit order to buy 500 shares of KLP at 25 AON (all-or-none)
C)
Market order to buy 500 shares of KLP
D)
Limit order to buy 500 shares of KLP at 25 FOK (fill-or-kill)

Answer 1

a) limit to buy 500 KLP @ 25 IOC

Partial execution is permissible on an IOC order.

Question 2

T/F: Last sale information is always available for OTC, non-nasdaq securities

Answer 2

False
last sale info not always available for OTC

“Last-sale information is available for listed (exchange-traded) securities and for all Nasdaq securities. While there are a number of sources for last-sale information in general, it may not always be available for a security that is OTC non-Nasdaq.”

Question 3

Are listed warrants usually marginable?

Answer 3

Yes

“With some exceptions, warrants, stocks, and bonds may be purchased on margin.”

Question 4

T/F: With some exceptions, warrants, stocks, and bonds may be purchased on margin.

Answer 4

True

In general, all can be bought on margin

Question 5

T/F: With some exceptions, warrants, stocks, bonds, and listed options with expirations of less than nine months may be purchased on margin.

Answer 5

False, can’t buy options on margin

> warrants, stocks, bonds all marginable

Question 6

T/F: For a new issue of common stock, the prospectus will include the FINRA disclaimer on the front cover

Answer 6

False, it’s the SEC disclaimer that’s on the front cover

> prospectus also shows the effective date (not date of filing)

Question 7

T/F: The prospectus for a new issue of common stock will show the date of filing

Answer 7

False

prospectus shows the effective date, not the date of filing

Question 8

Will the effective date show up on the prospectus for a new issue of common stock?

Answer 8

Yes, effective date in on prospectus

date of filing is not

Question 9

T/F: Regarding a new issue of common stock, the prospectus will include an overview of history of the business as well as any risks associated with it

Answer 9

True, shows overview of history and risks associated

Question 10

T/F: The legal opinion will show up on the prospectus for common stock new issue

Answer 10

False, legal opinion does not apply to common stock

Question 11

Expressed as a % of par, one basis point equals ____

Answer 11

one-one hundredth of 1%

Question 12

T/F: collateral trust bonds are a corporate bond backed by other securities

Answer 12

True

collateral trust bonds are backed by a portfolio of other securities

Question 13

A customer must recieve a current options disclosure document at or before the time of ____

Answer 13

Account approval, must recieve ODD at or before time of account approval

(but the options AGREEMENT doesn’t have to be signed and returned till 15 days of account approval)

Question 14

Do customers have to complete (sign) the options agreement before entering the first options trade?

Answer 14

No, doesn’t have to be before first trade

> but agreement must be signed and returned within 15 days of account approval

Question 15

T/F: Cusomers don’t have to sign the options agreement before entering their first order, but it does have to be signed and returned within 15 days of account approval

Answer 15

True, don’t have to sign before first trade

> but need to sign and return within 15 days of account approval

Question 16

If a client of a member firm dies, what is the first thing you should do?

Answer 16

Cancel all open orders

> cancel open orders before freezing the account

Question 17

Can ETFs be bought on margin?

Answer 17

Yes, can be bought on margin

Question 18

A calendar aprerad is sometimes called a time spread or _____ spread

Answer 18

horizontal spread

Question 19

T/F: Another name for a calender spread is horizontal spread

Answer 19

True

can be called
>calendar spread
>time spread
>horizontal spread

Question 20

Calendar spread
Time Spread
Horizontal spread

all refer to the same options spread

Answer 20

True, the names can be used interchangeably

Question 21

T/F: A stock with a beta of 0.8 will move 20% less than the market

Answer 21

True, will move 20% less

Question 22

T/F: A stock with a beta of 1.2 will move 20% less than the market

Answer 22

False, will move 20% more

Question 23

Which of the following is the most stringent test of liquidity taken from a corporation’s balance sheet?

A)
Current ratio
 B)
Current assets / current liabilities
 C)
Assets / current liabilities
 D)
(Current assets – inventory) / current liabilities

Answer 23

D) quick ratio

“
Of the answers given, the quick ratio (or the acid test) is the most stringent because it excludes inventory in the calculation. The current ratio is defined as current assets divided by current liabilities.” Synthetic

Question 24

A corporation has a net income of $5.2 million after taxes. If 4 million shares of common stock are outstanding, the earnings per share (EPS) is

A)
$0.80.
 B)
$1.78.
 C)
$5.20.
 D)
$1.30.

Answer 24

D) 1.30

“Explanation
Earnings per share equals net income (less preferred dividends) divided by the number of common shares outstanding. In this case, $5.2 million divided by 4 million equals an EPS of $1.30.
“

Question 25

If a company issues $10 million in par value convertible debentures, all of the following balance sheet items will be affected except

A)
net worth.
 B)
liabilities.
 C)
working capital.
 D)
assets.

Answer 25

A) net worth not effected

Explanation
Net worth is not affected by the issuance of long-term debt because it does not represent ownership. Assets will be affected (increased) by the issuance of long-term bonds. Liabilities will be affected (increased) by the amount of the issuance. Working capital will also increase. How does the working capital increase if the net worth does not? Because this company now has $10 million more in cash, and the liability is the debenture that is included in long-term debt, not current liabilities.

LO 13.c

Question 26

Is debt/equity ratio a liquidity ratio?

Answer 26

No

“Liquidity ratios measure a firm’s ability to meet its current financial obligations and include the current ratio and acid test (quick) ratio. However, the debt/equity ratio is a capitalization ratio and measures the amount of leverage compared to equity in a company’s overall capital structure.0

Question 27

The common stock of Porcine Meat Products, Inc., is currently selling at $60 per share. It has a P/E ratio of 12:1 and pays an annual dividend of $3 per share. That would make Porcine’s EPS equal to

A)
$3.
 B)
$5.
 C)
$2.
 D)
$36.

Answer 27

B) 5$

Explanation
The P/E ratio measures the relationship between a stock’s market price and the earnings per share (EPS). The ratio for this company is 12 times the earnings. If the market price is $60, then the earnings must be 1/12th of that or $5 per share. The annual dividend is irrelevant to the question. It is one of those extra numbers that FINRA likes to include in a question.

Question 28

T/F: Declining inflation means declining interest rates. If interest rates decline, bond prices rise.

Answer 28

True

Inflation goring down means interest rates going down

Question 29

The alpha of a portfolio or security is ____

Answer 29

the difference in the expected return of the portfolio, given the portfolio’s beta, and the actual return the portfolio achieved.

Question 30

Question #1 of 5
Question ID: 1336845
The initial confirmation of a when-issued municipal bond contains which of the following?

Number of bonds involved in the transaction
Settlement date
Yield to maturity
Total dollar amount due

A)
I and III
 B)
II and IV
 C)
I and II
 D)
III and IV

Answer 30

A) 1 and 3

Explanation
On a new municipal bond offering, where the customer receives a when-, as-, and if-issued confirmation, the final settlement date is not known; therefore, the amount of accrued interest is unknown (because it is payable up to, but not including, settlement). Thus, the total dollar amount is unknown because it includes accrued interest. The number of bonds purchased and the yield to maturity (price) are known and must be included on the confirmation.

Question 31

T/F: Rollovers from pension plans into IRAs must be accomplished within 60 days to retain tax-deferred status.

Answer 31

True, Pension plan to Ira rollover 60 days tax exempt

Question 32

Open end management company is aka ____

Answer 32

Mutual fund

Means mutual fund

Question 33

Mutual fund (open end investment Company) has a continuous primary offering

Answer 33

True

Ongoing primary offering

Question 34

T/F: A buy stop can be used either to establish a position (with the underlying assumption that if price climbs to certain height it will continue to rise) or be used to protect against unlimited losses for short sales

Answer 34

True
>establish position after price climbs
>protect short sale
>set above current market price

Question 35

T/F: When securities are sold in a restricted margin account, half the proceeds go to reduce the debit and the other half are journaled into SMA.

Answer 35

True

Half and half

Question 36

T/F: Basis = Nominal Yield

Answer 36

FALSE!!!! Fucking FALSE
NOT TRUE
Basis means YTM!!!!!

Basis is Yield to Maturity!!!11

Question 37

Reinvestment risk is the chance that, after purchasing a bond, interest rates

A)
rise.
B)
remain stable.
C)
fall.
D)
become volatile.

Answer 37

C) Fall
>Risk that interest rates will fall

Reinvestment risk is the danger that after purchasing a bond, interest rates will fall. This means that the fixed interest payments received over the remaining life of the bond will be reinvested at lower rates.
The good news is that the price of the bond has probably risen due to falling rates.

Question 38

Market Risk

Answer 38

risk that an investor will experience losses due to day-to-day fluctuations in the prices of securities

Question 39

If quoted yeild of a bond is higher than nominal yeild, is the bond trading at a premim or discount?

Answer 39

At a discount

“Because the quoted yield is higher than the nominal yield, the bond is offered at a discount”

Question 40

A customer’s confirmation for a municipal bond callable at par and quoted higher than the nominal yield would show

A)
yield to maturity (YTM).
B)
coupon yield.
C)
yield to call (YTC).
D)
current yield.

Answer 40

a) YTM

Explanation
Because the quoted yield is higher than the nominal yield, the bond is offered at a discount; the lower of YTM or YTC is the bond’s yield to maturity.