Final Exam 8 Flashcards
Kyle, a client at TLC brokerage firm, anticipates a decline in the earnings of LPOP. LPOP is a thinly traded issue. Which of the following statements BEST describes what the RR should disclose to Kyle?
QID: 1893011Mark For Review
A
The stock may be difficult to sell short because the shares may not be available to borrow
B
All securities may be sold short provided the client has a margin account
C
As long as the order ticket is marked sell long, the stock could be sold short
Exchange-traded put options are available on all securities and are a less risky method to profit
The stock may be difficult to sell short because the shares may not be available to borrow
A client may sell short or buy a put to profit from a decline if the value of a security is anticipated. In order to sell short, the broker-dealer is required to borrow the security. Although short sales may be executed only in a margin account, if an issue is thinly traded, it may be difficult or impossible to borrow the security. A put option may be an attractive alternative to selling short. However, put options are unlikely to be available on a thinly traded security.
For a broker-dealer to be permitted to use a customer’s securities as collateral, the customer must sign:
QID: 1892986Mark For Review
A A hypothecation agreement B A credit agreement C A loan consent agreement D A trust agreement
A hypothecation agreement
For a customer to be permitted to purchase securities on margin, she must sign a margin agreement. Within a margin agreement, there are three sections—the credit agreement (mandatory), the hypothecation agreement (mandatory), and the loan consent agreement (optional). A signed hypothecation agreement verifies that the customer has pledged the purchased securities as collateral to support the margin loan. The credit agreement explains the terms and conditions of the loan and establishes the customer’s responsibility to pay interest on the debit balance. If signed, the loan consent agreement allows the firm to loan a customer’s securities to another customer (e.g., to short sellers).
Which of the following statements is characteristic of a closed-end investment company?
QID: 1892897Mark For Review
A
Shares may not sell below the net asset value
B
The investment company must distribute all income to shareholders
C
Shares are redeemed at the net asset value minus a redemption fee
D
Shares may sell at a premium or discount to the net asset value
Shares may sell at a premium or discount to the net asset value
The market price for a closed-end investment company is based upon supply and demand for the shares in the marketplace. A closed-end investment company share may sell at, above, or below its net asset value. Open-end investment company shares may never sell below the current net asset value. Shares are sold at the current market price; they are not redeemed like in an open-end fund.
Which of the following organizations administers the Automated Customer Account Transfer Service? QID: 1892951Mark For Review A The SEC B The OCC C FINRA D The NSCC
The NSCC
A municipal tombstone ad shows bonds maturing serially from 2022 through 2040. The 2040 maturity is a 6.00% bond offered at a 6.75 basis. The bonds maturing in 2030 and thereafter are callable beginning in 2028 @ 102, at 101 in 2029, and at par on any interest date after 2029. The bonds maturing in 2040 should be priced to the: QID: 1892950Mark For Review A 2028 call date B 2029 call date C 2030 call date D Maturity date
Maturity date
The bonds are being offered at a discount since the yield to maturity (6.75%) is greater than the coupon rate (6.00%). A discount bond is always priced to maturity.
The most significant factor affecting the net asset value of a fund on a day-to-day basis is the: QID: 1892964Mark For Review A Number of trades executed B Mark to market of the portfolio C Number of profits realized for tax purposes D Level of the DJIA
Mark to market of the portfolio
Mutual funds are required to calculate their NAV at the close of business each day. The NAV is based on the price of each security in the portfolio at the close of business in the market(s) that day. This process is called “marking the portfolio to market”. Regardless of the number of trades executed or the amount of profits realized during the day, it is the closing prices that are used. The level of the DJIA (or any other index), impacts the daily NAV only to the extent that the portfolio owns the components of that index.
The Bond Buyer Municipal Bond Index is based on: QID: 1892985Mark For Review A A 40-Bond Index B Noncallable long-term bonds C A cross section of zero-coupon bonds D Diversified bonds with approximately 40 years to maturity
A 40-Bond Index
The Bond Buyer Municipal Bond Index represents the average of the prices of 40 long-term municipal bonds adjusted to a yield of 6%.
An investor has purchased 1,000 shares of XYZ stock. Which of the following option transactions will provide the most effective means of reducing the cost of the stock? QID: 1892916Mark For Review A Buying 10 XYZ puts B Selling 10 XYZ puts C Buying 10 XYZ calls D Selling 10 XYZ calls
Selling 10 XYZ calls
An issuing company has hired an investment banking firm to act as an agent in its initial public offering. Subject to certain terms and conditions, the investment banking firm has agreed to sell a minimum of 3,000,000 shares up to a maximum of 4,000,000 shares on a best-efforts basis. Which of the following statements is TRUE?
QID: 1892937Mark For Review
A
The offering proceeds will go directly to the investment banking firm
B
The offering proceeds will go directly to the issuing company
C
If the investment banking firm has not received subscriptions for a minimum of 4,000,000 shares, the firm will promptly return all of the funds placed in the escrow account back to the subscribers
D
If the investment banking firm has not received subscriptions for a minimum of 3,000,000 shares, the firm will promptly return all of the funds placed in the escrow account back to the subscribers
If the investment banking firm has not received subscriptions for a minimum of 3,000,000 shares, the firm will promptly return all of the funds placed in the escrow account back to the subscribers
A broker-dealer that manages any offering being sold on a contingency basis (e.g., all-or-none or mini-maxi) must promptly deposit the funds in a separate bank account. In contingency underwritings, the payment of sales commissions and underwriting expenses occur after the deal closes. Any release of funds to the underwriters earlier than the closing date of the offering is a violation of SEC rules. These rules were created to ensure that investors are refunded their entire subscription funds in the event the offering is unsuccessful. In this example, the investment banking firm needs to receive subscriptions (sales) based on the minimum of 3,000,000 shares, but may sell up to a maximum of 4,000,000 shares.
A position in which a customer is long 1,000 shares of DEP and short 5 DEP September 50 calls is considered: QID: 1892923Mark For Review A Both a covered and uncovered option position B A covered option position only C An uncovered option position only D A speculative option strategy
A covered option position only
A transaction for a stock that is not DTCC eligible, settles on a regular-way basis. This means that settlement occurs: In two business days In four business days At the buyer's premises At the seller's premises QID: 1892929Mark For Review A I and III only B I and IV only C II and III only D II and IV only
I and III only
Regular-way settlement for stock transactions is in two business days. In most cases, settlement occurs electronically through DTCC. In this case, since the seller must make physical delivery of the securities, settlement takes place at the buyer’s premises.
A company has a noncumulative preferred stock outstanding that pays a $5 dividend per year. If dividends on the preferred stock were not paid last year, but will be paid this year, how much will the preferred stockholder receive? QID: 1892924Mark For Review A $5 B $10 C $15 D $20
$5
A municipal revenue bond is secured by the revenues of a toll road system showing the following information.
Annual Debt Service $3,000,000
Annual Gross Revenues $6,000,000
Annual Operating/Maintenance Expenses $2,000,000
Based on this information, the annual debt service coverage ratio is:
QID: 1892998Mark For Review A .667 to 1 B 1.33 to 1 C 2 to 1 D 3 to 1
1.33 to 1
Step 1: Calculate the net revenue for the municipal revenue bond.
Annual Gross Revenues $6,000,000
- Annual O/M Expenses $2,000,000
Net Revenue $4,000,000
Step 2: Divide net revenue of $4,000,000 by the debt service of $3,000,000 to calculate the annual debt service coverage ratio which is 1.33 to 1.
Rockland County has issued industrial development revenue bonds for the benefit of the Hudson Nail and Screw Co. In evaluating the credit quality of these bonds, an investor should look primarily at:
QID: 1892905Mark For Review
A
The tax collection ratio of Rockland County
B
The general credit of Rockland County
C
The revenue stream of Hudson Nail and Screw that will be committed to meet the lease payment obligation to Rockland County
D
The yield differential between Rockland County Revenue bonds and Hudson Nail and Screw unsubordinated debentures
The revenue stream of Hudson Nail and Screw that will be committed to meet the lease payment obligation to Rockland County
The security backing the industrial development revenue bond is the lease payment made by the corporation. An investor must assess whether Hudson Nail and Screw can meet this obligation by generating sufficient revenues from its primary business
On September 1, an underwriter offers stock that has been registered with the SEC. This is the first offering of stock made by the issuing company. The issue will be listed on the New York Stock Exchange. A dealer that subsequently sells the stock in the secondary market will be required to furnish a prospectus:
QID: 1892977Mark For Review
A
Only if the dealer was a member of the underwriting syndicate or selling group
B
For a period of 25 days following the initial offering
C
For a period of 40 days following the initial offering
D
For a period of 90 days following the initial offering
For a period of 25 days following the initial offering
Non - listed IPO 90
Non - listed follow on offering 40
IPO - listed 25
NY and Nasdaq follow on offering - 0
What information would NOT need to be disclosed by a broker-dealer in a research report?
QID: 1892880Mark For Review
A
The broker-dealer received compensation for assisting the company in an acquisition
B
The analyst provided a target price for the company
C
The analyst is a director of the company
D
The analyst had owned shares in the company one year before writing the report
The analyst had owned shares in the company one year before writing the report
A broker-dealer is required to make certain disclosures in its research reports. Any investment banking compensation paid during the last 12 months, the anticipated price target, and the fact that the analyst is a director of the company are all required disclosures. In addition, any ownership in the company held by the analyst or a member of the analyst’s immediate family at the time the report is issued must be disclosed. The fact that the analyst formerly owned shares that were sold does not need to be disclosed.
A corporation has $125,000,000 of convertible bonds outstanding. The conversion price is $50. The corporation refunds $75,000,000 of the bonds for nonconvertible bonds. How many additional shares of common stock will be outstanding if the remaining bonds are converted? QID: 1892881Mark For Review A 1,000,000 shares B 1,500,000 shares C 2,000,000 shares D 2,500,000 shares
1,000,000 shares
After the refunding, $50,000,000 of convertible bonds will remain outstanding. If these bonds are converted, there will be an additional 1,000,000 shares of common stock outstanding ($50,000,000 of bonds / the conversion price of $50 = 1,000,000 shares of common stock).
An investor purchases a municipal bond on Monday, June 6. The bond's interest payment dates are November 1 and May 1. The buyer will need to pay the seller of the bond the purchase price plus accrued interest for: QID: 1892970Mark For Review A 35 days B 36 days C 37 days D 39 days
37 days
Accrued interest is calculated from the last interest payment date (May 1) up to but not including the settlement date. The purchase is made Monday, June 6. The settlement date is two business days later, which is Wednesday, June 8. Accrued interest is calculated up to but not including the settlement date, which is from May 1 to June 7. This equals 37 days as follows.
May 1 to May 30 30 days
June 1 to June 7 7 days
Total 37 days
