Chapters 6 & 7 Flashcards
On the ex-date of a cash dividend, the subject security would be:
Reduced by the amount of the dividend
Increased by the amount of the dividend
Valued at a greater amount
Unchanged
Reduced by the amount of the dividend
A corporation will be paying a cash dividend to its shareholders. On what date will the market price of the stock be reduced?
Declared date
Record date
Payment date
Ex-date
Ex-date
A bond with a 4% coupon was originally issued at $1,010 but is currently trading at a price of $975. If the bond is callable in three years at $1,025, how much interest will a bondholder receive each year?
40
40.40
39
41
40
XYZ company is paying a 25% stock dividend to its common stockholders. If an investor owns 100 shares at $120.00 before the stock dividend, how many shares will the investor own and at what price per share after the dividend is paid?
75 shares at $160
125 shares at $96
125 shares at $120.00
100 shares at $96
125 shares at $96
(new shares / cost basis)
A company is offering $200,000,000 of 8 1/2% bonds due July 1, 2038, at 99 1/2% of par value. The yield-to-maturity on the bonds is:
8 1/2%
Greater than 8 1/2%
Less than 8 1/2%
8%
Greater than 8 1/2%
A bond has a 6% coupon and is trading at a 6.78% basis. The bond is trading at which of the following price levels?
106 7/8
A premium
A discount
Par
A discount
What’s the value of one basis point?
0.001%
0.010%
1.000%
10.000%
0.010%
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?
8.3%
8.0%
7.0%
7.5%
8.3%
The cash flow received from dividends and/or interest, plus any appreciation or depreciation in the value of an investment, is referred to as the:
Realized gain
Return of capital
Total return
Basis
Total return
The total return calculation takes into account all of the cash flow received from dividends and/or interest, plus any appreciation or depreciation in the value of the investment. This return is expressed as a percentage and is typically calculated over a period of one year.
(37076)
Which of the following is considered an investment company under the Investment Company Act of 1940?
An American Depositary Receipt (ADR)
A Real Estate Investment Trust (REIT)
A Variable Rate Demand Obligation (VRDO)
A Unit Investment Trust (UIT) company
A Unit Investment Trust (UIT) company
According to the Investment Company Act of 1940, the three types of investment companies are 1) Face Amount Certificate Companies, 2) Unit Investment Trusts, and 3) Management Companies. There are two types of management companies—closed-end and open-end (i.e., mutual funds). REITs, ADRs, and VRDOs are all types of securities, not investment companies.
(17426)
Which of the following dates represents the first day an investor can purchase a stock without the dividend included in its price?
Declaration date
Ex-date
Record date
Payment date
Ex-date
The ex-date is the date on which a stock trades without the dividend included in its price. For regular-way trades (those that settle in one business day), the ex-date is the same day as the record date. For a purchaser to receive a dividend distribution, she must buy the stock (execute the trade) by no later than the business day prior to the ex-date.
(14692)
If a stock is sold before the ex-dividend date, but delivered after the record date, it must be accompanied by:
A letter from the transfer agent
The signature of the owner of the stock
A due bill
A power of attorney
A due bill
When the selling party delivers a security after the date on which the new owner is entitled to receive a cash dividend, the seller must deliver the security with a due bill attached. The due bill recognizes that the buyer is owed the dividend.
(37061)
Who keeps track of the shareholders of a mutual fund?
The custodian bank
The transfer agent
The investment adviser
The underwriter
The transfer agent
The mutual fund’s transfer agent is responsible for keeping track of all of the current owners of a mutual fund. Custodian banks provide for the safekeeping of the fund’s securities and cash. The fund’s portfolio is managed by the investment adviser.
(17430)
Which of the following entities is responsible for the safeguarding of the securities that are owned by a mutual fund?
The registrar
The custodian bank
The sponsor
The transfer agent
The custodian bank
The custodian bank is responsible for the safekeeping or safeguarding of the securities that are owned by a mutual fund. The custodian bank has no responsibility relating to the management of the fund’s portfolio.
(37347)
A “breakpoint sale” is best defined as:
The payment of compensation to a registered representative who has ceased to be employed by a member firm
The sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions
The sale of investment company shares in anticipation of an impending distribution
The sales amount in an IPO where institutional clients get a price discount
The sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions
A breakpoint sale is defined as the sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity purchases. Breakpoint sales are generally effected in order to assess higher sales charges on transactions and they are a violation of FINRA rules.
(31611)
When purchasing mutual fund shares, the ability to receive cumulative quantity discounts is referred to as:
Rights of accumulation
A breakpoint sale
A letter of intent
Dollar cost averaging
Rights of accumulation
The rights of accumulation provision gives investors the ability to receive cumulative quantity discounts when purchasing additional mutual fund shares. Rather than using the original purchase price, the current market value of the investment plus any additional investments are used to determine the applicable sales charge. A letter of intent qualifies an investor for a discount that’s made available through breakpoints without initially depositing the entire amount required.
(37338)
An investment company that diversifies its portfolio with stocks, bonds, and money market instruments, but will always hold some of each, is called:
Equity Income fund
Balanced fund
Growth fund
Asset allocation fund
Balanced fund
A balanced fund invests its portfolio among a variety of investment classes, such as equities, bonds, and “cash” (money-market investments). The fund manager might change the allocation based on market conditions, but they must always keep some of each.
(85182)
All of the following are likely to be found in the portfolio of a money-market fund, EXCEPT:
Bank certificates of deposit
Treasury bills
Treasury bonds that have a short time to maturity
Common stock
Common stock
For a money-market fund, the underlying securities are short-term debt securities. Therefore, common and preferred stock are not found in a money-market fund’s portfolio.
(85287)
Which investment company does NOT charge a management fee?
An exchange-traded fund
A unit investment trust
A closed-end investment company
An open-end investment company
A unit investment trust
A unit investment trust does not charge a management fee. The portfolio is fixed and there is no investment adviser since unit investment trusts are supervised, not managed.
(72115)
An individual received $500 in dividends from the common shares that she owns of an oil company. How much of this dividend income is subject to taxation?
0
$350
$400
$500
$500
Under current tax law, all cash dividends that individuals receive are fully taxable.
(37054)
What’s the value of one basis point?
0.010%
10.000%
0.001%
1.000%
0.010%
One basis point is 0.01% or one hundredth of a percent (1% ÷ 100). In every 1% there are 100 basis points. Basis points are used to represent small changes in interest rates and bond yields.
(10738)
A stock’s price has risen due to an overall market increase. This increase in price is considered:
A non-taxable capital gain
A taxable capital gain
An unrealized capital gain
Amortization
An unrealized capital gain
The increase in the stock’s price is considered an unrealized capital gain or appreciation. A capital gain is only realized if an asset has increased in value and it is subsequently sold at that higher price.
(37053)
In most cases, what’s the maximum time an investor is given to meet a letter of intent on a mutual fund purchase?
24 months
13 months
Six months
Three months
13 months
Letters of intent may be offered as a way for investors to reduce the front-end sale charges on mutual fund share purchases. If an investor signs a letter of intent, he’s committing to investing enough money over a 13-month period to meet a breakpoint. In exchange, the mutual fund will give the investor the breakpoint immediately (i.e., the sales charge is lowered). Letters of intent can also be backdated for up to 90 days, which allows the investor to use previous purchases to meet the breakpoint.
(17624)
Which of the following is BEST defined as a provision which provides a sales charge discount (breakpoint) for making mutual fund share purchases without initially depositing the entire amount required?
Dividend reinvestment
A letter of intent
Dollar cost averaging
Rights of accumulation
A letter of intent
A letter of intent qualifies an investor for a sales charge discount (breakpoint) for making mutual fund shares purchases despite the fact that the required amount has yet to be deposited. The rights of accumulation provision gives investors the ability to receive cumulative quantity discounts when purchasing mutual fund shares. Under the rights of accumulation provision, rather than using the original purchase price, the current market value of the investment plus any additional investments is used to determine the applicable sales charge. Once a breakpoint is reached, all future purchases qualify for the reduced sales charge.
(37339)
