8th Set Flashcards
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)
a) limit to buy 500 KLP @ 25 IOC
Partial execution is permissible on an IOC order.
T/F: Last sale information is always available for OTC, non-nasdaq securities
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.”
Are listed warrants usually marginable?
Yes
“With some exceptions, warrants, stocks, and bonds may be purchased on margin.”
T/F: With some exceptions, warrants, stocks, and bonds may be purchased on margin.
True
In general, all can be bought on margin
T/F: With some exceptions, warrants, stocks, bonds, and listed options with expirations of less than nine months may be purchased on margin.
False, can’t buy options on margin
> warrants, stocks, bonds all marginable
T/F: For a new issue of common stock, the prospectus will include the FINRA disclaimer on the front cover
False, it’s the SEC disclaimer that’s on the front cover
> prospectus also shows the effective date (not date of filing)
T/F: The prospectus for a new issue of common stock will show the date of filing
False
prospectus shows the effective date, not the date of filing
Will the effective date show up on the prospectus for a new issue of common stock?
Yes, effective date in on prospectus
date of filing is not
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
True, shows overview of history and risks associated
T/F: The legal opinion will show up on the prospectus for common stock new issue
False, legal opinion does not apply to common stock
Expressed as a % of par, one basis point equals ____
one-one hundredth of 1%
T/F: collateral trust bonds are a corporate bond backed by other securities
True
collateral trust bonds are backed by a portfolio of other securities
A customer must recieve a current options disclosure document at or before the time of ____
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)
Do customers have to complete (sign) the options agreement before entering the first options trade?
No, doesn’t have to be before first trade
> but agreement must be signed and returned within 15 days of account approval
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
True, don’t have to sign before first trade
> but need to sign and return within 15 days of account approval
If a client of a member firm dies, what is the first thing you should do?
Cancel all open orders
> cancel open orders before freezing the account
Can ETFs be bought on margin?
Yes, can be bought on margin
A calendar aprerad is sometimes called a time spread or _____ spread
horizontal spread
T/F: Another name for a calender spread is horizontal spread
True
can be called
>calendar spread
>time spread
>horizontal spread
Calendar spread
Time Spread
Horizontal spread
all refer to the same options spread
True, the names can be used interchangeably
T/F: A stock with a beta of 0.8 will move 20% less than the market
True, will move 20% less
T/F: A stock with a beta of 1.2 will move 20% less than the market
False, will move 20% more
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
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
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.
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.
“
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.
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
Is debt/equity ratio a liquidity ratio?
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
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) $36.
B) 5$
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.
T/F: Declining inflation means declining interest rates. If interest rates decline, bond prices rise.
True
Inflation goring down means interest rates going down
The alpha of a portfolio or security is ____
the difference in the expected return of the portfolio, given the portfolio’s beta, and the actual return the portfolio achieved.
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
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.
T/F: Rollovers from pension plans into IRAs must be accomplished within 60 days to retain tax-deferred status.
True, Pension plan to Ira rollover 60 days tax exempt
Open end management company is aka ____
Mutual fund
Means mutual fund
Mutual fund (open end investment Company) has a continuous primary offering
True
Ongoing primary offering
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
True
>establish position after price climbs
>protect short sale
>set above current market price
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.
True
Half and half
T/F: Basis = Nominal Yield
FALSE!!!! Fucking FALSE
NOT TRUE
Basis means YTM!!!!!
Basis is Yield to Maturity!!!11
Reinvestment risk is the chance that, after purchasing a bond, interest rates
A) rise. B) remain stable. C) fall. D) become volatile.
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.
Market Risk
risk that an investor will experience losses due to day-to-day fluctuations in the prices of securities
If quoted yeild of a bond is higher than nominal yeild, is the bond trading at a premim or discount?
At a discount
“Because the quoted yield is higher than the nominal yield, the bond is offered at a discount”
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.
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.
