9th Set Flashcards

You may prefer our related Brainscape-certified flashcards:
1
Q

Last week one of your customers placed a good-til-canceled order to sell 200 shares of ABC with an 18 stop when the stock was trading at $18.85. It is now the ex-date for a $0.55 dividend and the order has not yet been executed. What has happened to your customer’s stop order?

A)
It is reduced to $17.45.
 B)
It is increased to $18.55.
 C)
It remains at $18.
 D)
It is canceled.
A

A) It is reduced to $17.45.

“Unless the customer has given DNR (do not reduce) instructions, open buy limit orders and open sell stop orders are reduced on the ex-dividend date by the amount of the dividend.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

T/F: calendar spreads (or time

Spreads) are market neutral

A

True

Neutral outlook

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

T/F: Defeasance occurs when an outstanding bond issue is paid off prior to maturity through a refunding.

A

True

Advance refunding

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

A head and shoulders bottom formation is an indication of

A)
a bullish market.
 B)
the reversal of an upward trend.
 C)
a bearish market.
 D)
the reversal of a downtrend.
A

D) reversal of downtrend

“A head and shoulders bottom formation is also known as an inverted head and shoulders formation. It is that part of a graph in which a downtrend has reversed to become an uptrend. It is not, however, an indicator of the bullishness or bearishness of the market as a whole. It is an indication only of the direction of a trend, which may be either short or long in duration.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

T/F: New issues are sold at the public offering price without a commission or markup

A

True
Sold at POP without markup or commission

> but when on secondary market, traded on an agency basis (commission) or on a principal basis (markup or markdown).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Are marketable securities current assets?

A

Yes

Marketable securities and cash are current assets,

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Are convertible bonds outstanding included in the computation of working capital?

A

No


The working capital of a corporation is equal to its current assets minus its current liabilities (a current liability is payable within 12 months). Because all bonds—convertible or not—issued by the corporation are long-term liabilities, they are not included in the working capital computation. Marketable securities and cash are current assets, and accounts payable are current liabilities—all of which are included in the calculation of working capital.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Are investments in marketable securities included in working capital computation?

A

Yes, it’s a current asset so it’s included

The working capital of a corporation is equal to its current assets minus its current liabilities (a current liability is payable within 12 months

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

T/F: The Municipal Securities Rulemaking Board Real-Time Transaction Reporting System (RTRS) RTRS captures transaction data for municipal bonds and makes it available to the market place via numerous third-party vendors available to the public.

A

True

Does that

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the transactional reporting system for munis?

A

Real-Time Transaction Reporting System (RTRS)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

A father opens four custodial accounts for each of his children with the same mutual fund company. He invests $15,000 in each account. The fund company has breakpoints at $50,000, $100,000, and $200,000. The sales charge is

A)
ineligible for a breakpoint discount because these are custodial accounts.
B)
based on the total $60,000 investment and qualifies for the $50,000 breakpoint.
C)
based on a $15,000 investment and is levied for each account.
D)
based on the total $60,000 investment and qualifies for the $100,000 breakpoint.

A

B) qualifies for 50k breakpoint

Explanation
An investment made by one person in four custodial accounts for his children at the same fund company would qualify for the breakpoint that is applicable to the total amount invested. In this case, $60,000 was invested, so the applicable breakpoint is at $50,000.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Many investors, especially institutions, diversify their fixed-income portfolios by purchasing bonds issued outside of the United States. When a French corporation issues a bond denominated in Swiss francs, it is known as

A)
a Eurofranc bond.
 B)
a Eurodollar bond.
 C)
sovereign debt.
 D)
a eurobond.
A

D) Eurobond

Explanation
Eurobond is the name given to a long-term debt instrument issued and sold outside the country of the currency in which it is denominated. In this case, the French company is borrowing in Swiss francs instead of the domestic currency (the euro).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

To calculate a capital gain or loss on the sale of an original issue discount municipal bond, the discount must be

A)
depreciated.
 B)
amortized.
 C)
depleted.
 D)
accreted.
A

D) accreted

If discount bond accreted

The IRS term for adjusting the cost basis of a discount bond upward is accretion. Amortization is the means of adjusting a premium bond’s cost basis.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

T/F: Coverdell ESA (education saving) can only accept $2,000 per child, per year, so if a couple wants to contribute $400/month, should get 539 prepaid tutti on plan

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

T/F:
Mutual fund performance statistics must show results for one, five, and 10 years, or for the life of the fund—whichever is shorter.

A

True

1, 5, 10 years of life, whichever shorter

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Can A father and his 35-year-old son investing in separate accounts qualify for quantity discount together?

A

No, since son is adult

“For the purpose of qualifying for breakpoints, the definition of any person includes family units, but only minor children. Adults—other than a husband and wife—are separate persons.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Rule 144A regulates

A)
companies traded on the Nasdaq Global Select Market.
B)
the sale of restricted stock to institutional investors.
C)
the sale of restricted stock by control persons.
D)
personal trading by research analysts.

A

B) restricted stock sake to institutional

Rule 144A regulates the trading of restricted securities to institutional investors known as qualified institutional buyers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

T/F: Treasury STRIPS do not make regular interest payments.

A

True

No regular interest payments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What does EPIC stand for when taking about forgiven currencies?

A

Remember the acronym EPIC: Exporters buy Puts and Importers buy Calls.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

IBM sold computers to a Soho retailer and agreed to accept payment of 10 million British pounds in 65 days. In which of the following ways could the company protect the payment against adverse foreign currency fluctuations?

A)
Buy pound puts
 B)
Buy U.S. dollar calls
 C)
Buy pound calls
 D)
Buy U.S. dollar puts
A

A) buy pound puts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

The 5% markup policy would apply to all of the following equity transactions except

A)
a proceeds transaction.
 B)
a primary market transaction.
 C)
an agency trade done on an exchange.
 D)
a riskless principal transaction.
A

B) primary market

The 5% markup policy applies to secondary market transactions in nonexempt securities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Does the 5% markup policy apply to primary market transactions?

A

No

The 5% markup policy applies to secondary market transactions in nonexempt securities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Rules regarding restricted persons state that each of the following is considered immediate family except

A)
parents.
 B)
aunts and uncles.
 C)
parents-in-law.
 D)
brothers and sisters.
A

B) aunts and uncle not immediate family restricted person

Rules regarding restricted persons define immediate family as spouses, parents, brothers, sisters, in-laws, and children. Aunts and uncles are among those excluded.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

All of the following information is included in a municipal bond resolution except

A)
any call provisions that allow the issuer to redeem the bonds before their scheduled maturity.
 B)
restrictive covenants that are binding on the issuer.
 C)
an authorization to sell the securities.
 D)
compensation paid to the underwriters.
A

D) compensation paid to underwriters

The bond resolution is the document in which the issuer authorizes the issuance of municipal securities. Among other things, the resolution describes the characteristics of the proposed issue and the issuer’s duties to the bondholders. Compensation paid to the underwriters would be found in the official statement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

When a customer of a broker-dealer dies, all of the following documents may be required to release the decedent’s assets except

A)
a certified copy of the death certificate.
 B)
an affidavit of domicile.
 C)
an inheritance tax waiver.
 D)
a power of attorney.
A

D) power of attorney

Explanation
The power of attorney is the only document not required. If the decedent had executed a power of attorney, it would have become invalid upon death. An affidavit of domicile and an inheritance tax waiver may be required. A certified copy of the death certificate is always required.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Can an affidavit of domincile or an inherited tax waiver be required to release a dead persons assets?

A

Yes both cab be required

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

One of your customers buys a new issue municipal revenue bond on March 19. The trade settles on March 21, and the bond pays interest on February 1 and August 1. If the dated date of the bond is March 1, how many days of accrued interest are due?

A)
55
 B)
19
 C)
24
 D)
20
A

D) 20 days

28
Q

Which of the following statements is true regarding the mediation rules of the Code of Arbitration Procedure?

A)
If mediation is unsuccessful, the mediator will serve as an arbitrator.
B)
Both parties to a dispute must agree to mediation.
C)
Once mediation begins, neither party may withdraw without the consent of the other party.
D)
The decision of the mediator is final and binding.

A

B) both parties agree to mediation

If both parties agree, a meeting may be held in an attempt to mediate a settlement. Mediators do not make decisions regarding settlement. This is up to the parties involved. Either side may withdraw from mediation by providing written notice to the mediator and the other party. No consent is required. Finally, if the mediation is not successful, the mediator is prohibited from serving as an arbitrator in the subsequent arbitration.

29
Q

The individual responsible for the overall supervision of all of a firm’s options activities on behalf of its customers must be a ____

A

Registered options principal (ROP)

30
Q

Under the Code of Arbitration Procedure, all monetary awards must be paid within how many days of the decision date?

A)
45
 B)
30
 C)
60
 D)
15
A

B) 30 days

Explanation
All monetary awards in a Code of Arbitration Procedure decision must be paid within 30 days of the decision date. If payment is not made, the amount of the award begins to accrue interest as of the decision date.

LO 18

31
Q

T/F: Yield-based options expire like stock options—on the third Friday of the expiration month, which is the last day of trading.

A

True

Yield based expire like equity

32
Q

What is the 1, 5, 10 rule for mutual funds?

A

Mutual fund performance statistics must show results for one, five, and 10 years, or for the life of the fund—whichever is shorter.

33
Q

Can A father and his 35-year-old son investing in separate accounts be joined together under the definition of any person to receive a quantity discount?

A

No
Not minor

For the purpose of qualifying for breakpoints, the definition of any person includes family units, but only minor children. Adults—other than a husband and wife—are separate persons. The

34
Q

Are marketable securities current assets?

A

Yes they are

> they’re used in working capital calculations

35
Q

Rule 144A regulates

A)
companies traded on the Nasdaq Global Select Market.
B)
the sale of restricted stock to institutional investors.
C)
the sale of restricted stock by control persons.
D)
personal trading by research analysts.

A

B) sale restricted stock to institutional investors

Explanation
Rule 144A regulates the trading of restricted securities to institutional investors known as qualified institutional buyers.

36
Q

T/F: regarding the mediation rules of the Code of Arbitration Procedure, the decision of the mediator is final and binding

A

False, not final/binding

“If both parties agree, a meeting may be held in an attempt to mediate a settlement. Mediators do not make decisions regarding settlement. This is up to the parties involved”

37
Q

When do yield based options expire?

A

Third Friday of expiration month

Yield-based options expire like stock options—on the third Friday of the expiration month, which is the last day of trading.

38
Q

_____ is the name given to a long-term debt instrument issued and sold outside the country of the currency in which it is denominated.

A

Eurobond

Eurobond is the name given to a long-term debt instrument issued and sold outside the country of the currency in which it is denominated.

39
Q

To calculate a capital gain or loss on the sale of an original issue discount municipal bond, the discount must be

A)
depreciated.
 B)
amortized.
 C)
depleted.
 D)
accreted.
A

D) accreted

Explanation
The IRS term for adjusting the cost basis of a discount bond upward is accretion. Amortization is the means of adjusting a premium bond’s cost basis.

40
Q

Difference between nasdaq level 2 and level 3

A

Level 3 allows for the entry of quotes

“Level 3 is used by market makers. It contains the quotes from all market makers (as does Level 2), but it allows for the entry of quotes. That is the unique feature of Level 3.”

41
Q

Would market makers use level 2 or level 3?

A

Level 3

Level three allows for ppl to enter quotes

“Level 3 is used by market makers. It contains the quotes from all market makers (as does Level 2), but it allows for the entry of quotes. That is the unique feature of Level 3.”

42
Q

Are UITs redeemable?

A

Yes

UITs, just as mutual funds, offer redeemable securities,

43
Q

Do UITs compute NAV?

A

Yes

UITs, just as mutual funds, offer redeemable securities, and both types of investment companies compute their NAV.

44
Q

Is the portfolio of a UIT managed?

A

No

> differs from mutual fund in that way

“The most significant distinguishing characteristic of a UIT compared with other investment companies is the lack of ongoing portfolio management.”

45
Q

A customer buys 100 XYZ at $30. Two years later, with the stock trading at $70, the customer gifts the securities to his son. What is true value of the gift for tax purposes and what’s the cost basis?

A

For gift-tax purposes, the value of the gift is $7,000.
The son’s cost basis on the stock is $3,000.

When making a noncharitable gift of securities, the donor’s cost basis is passed to the recipient.

46
Q

Does trust indenture of a revenue bond show flow of funds and rate covenant ?

A

Yes, show both

the trust indenture for a revenue bond issue does include covenants (or promises) between the issuer and the trustee for the bondholders’ benefit. Among these covenants are the flow of funds and the rate covenant.

47
Q

T/F: the price paid for an option is always the premium multiplied by the number of shares in the contract, even if one contract is for 108 shares

A

True

Multiplier is amount of shares, not always 100x

48
Q

If the price of a option that is for 108 shares of stock is $2.5, what would the investor pay to buy the contract?

A

$270
(Not $250)

108 shares * $2.5 = $270

49
Q

T/F: Variable contracts or their underlying accounts cannot be advertised as mutual funds.

A

True

So advertisement that’s says “ABC Lifetime Income—income generated from mutual fund returns.” would be prohibitied

50
Q

An experienced investor wants to allocate 10% of an existing portfolio to real estate but does not want to maintain properties, be a landlord, or wait if cash is needed. Which of the following choices would be suitable, given the investor’s objectives?

A)
Purchase shares of a mortgage REIT
 B)
Purchase shares of mortgage companies
 C)
Purchase shares of an equity REIT
 D)
Purchase property and assign a management company
A

C) equity reit

Explanation
Equity real estate investment trusts (REITs) are a way to invest in real estate without having to own or manage properties. REITs trade on exchanges and over the counter; therefore, they are liquid investments. Both of these characteristics meet the investor’s objective and make equity REITs the most suitable recommendation of those offered here.

51
Q

T/F: CMOs are traded over the counter rather than listed on the exchanges.

A

True

>CMOS traded otc

52
Q

Are cmos traded in the secondary market on muse?

A

No

CMOS traded otc

53
Q

What CMO tranche is last in line for payouts?

A

Z tranche

The z-tranche is last in line when it comes to payouts.

54
Q

Is prepayments occur on a CMO, what tranche suffers the most?

A

The z tranche

The z-tranche is last in line when it comes to payouts. If prepayments occur at a rate faster than expected, this tranche suffers disproportionately more than the others.

55
Q

T/F: In general, an options account will be approved by a Limited Principal with a Series 10 license or a Registered Options Principal (ROP).

A

True, series 10 or ROP approves account usually

56
Q

Would a grandparent be a restricted person for buying new issues?

A

No

grandparent would not be considered a restricted person and would be allowed to buy shares of a new issue. Remember that while immediate family members are restricted, aunts, uncles, and grandparents are not considered to be immediate family members under the FINRA rule.

LO 20.f

57
Q

If a limited partner in a real estate direct participation program becomes involved in the management of the office building acquired by the partnership, which of the following is true?

A)
This is allowed, but only with a majority vote of the other limited partners and written approval of the sponsor.
B)
There are no adverse consequences if, in performing management functions, the limited partner’s expertise benefits the program.
C)
The limited partner’s participation is disallowed and the program continues as before, but the remaining partners are required to prorate the remaining unit.
D)
That limited partner’s limited liability is jeopardized.

A

D)That limited partner’s limited liability is jeopardized.

Explanation
While the limited partners usually have limited liability, that benefit can be lost if a limited partner engages in certain activities, including the day-to-day management of the property, representing himself as a general partner, and financial control of the partnership.

58
Q

T/F: 100% equity is required when purchasing the following:

1) new issues
2) options
3) mutual fund shares
4) common stock

A

False

100% required for new issues, options, and mutual fund shares but not common stock

59
Q

T/F: 100% equity is required when purchasing new issues

A

True

100% equity for:

1) new issues
2) options
3) mutual fund shares

60
Q

Why is municipal securities in a tax-favored account, such as an IRA, considered unsuitable?

A

because the interest paid by municipal bonds is already tax free.

“Remember that utilizing municipal securities in a tax-favored account, such as an IRA, would be considered unsuitable because the interest paid by municipal bonds is already tax free.”

61
Q

Do open end investment companies redeem shares?

A

Yes

Redeem shares

62
Q

Regarding a variable annuity,

a majority vote from the shareholders is required to change the investment objectives.

A

True

> Majority vote to change objectives for variable annuity

63
Q

The seperate account in a variable annuity acts like a mutual fund but you can never call it a “mutual fund”

A

True

can’t call mutual fund

64
Q

Variable annuities are a possible hedge against inflation

A

true

possible hedge

65
Q

All of the following will cover a short call except

A)
a long position in the underlying stock.
 B)
cash equal to the aggregate exercise value.
 C)
an escrow receipt for the stock.
 D)
a long call with a lower strike price and later expiration.
A

B) Cash equal to exercise value

Explanation
Cash never covers a short call because the cost to purchase the stock in the market for delivery at the strike price is unknown. If assigned, the customer must sell (deliver) at the strike price.