Investment Vehicles

Question 1

Equity-linked notes are ______ instruments where the final payment at maturity is based on the return of a single stock, a basket of stocks, or an equity index. Some—but not all—are exchange traded, and those that are can be referred to as exchange-traded notes (ETNs).

Answer 1

debt instruments

Question 2

A__________ analyst is not concerned with any fundamental aspects of a company, including company financials. Open short interest theory, overall market movements, and advance/decline ratios are of concern to technical analysts.

Answer 2

technical analyst

Question 3

Going long a call means that you have ______ it.

Answer 3

bought

Question 4

Only ________ of options generate income.

Answer 4

sellers

Question 5

If you wish to ______ your long stock position, you buy a put, not a call.

Answer 5

hedge

Question 6

__________ are corporate bonds issued on the general credit of the corporation and are not backed by any specific assets.

Answer 6

Debentures

Question 7

When does a customer have to receive the OCC Options Disclosure Document?

______ accepting the customer’s first order to trade.

Answer 7

Before accepting the customer’s first order to trade options covered by the ODD

When opening an account to trade options, the owner must be told about the risks involved with trading options. By providing the owner with an options disclosure document entitled Understanding the Risks and Uses of Options, the broker-dealer satisfies the risk disclosure requirements. There are 2 alternatives for meeting the delivery requirement. It may be done before or at the time the broker-dealer approves that customer’s options account or accepts the customer’s first order to trade the listed options covered by the ODD.

Question 8

As a general practice, both traditional mutual funds (as opposed to index funds and ETFs) and hedge funds are______ traded.

Answer 8

actively

Question 9

The minimum face amount of a negotiable CD is:

Answer 9

$100,000 - These are called jumbo CDs and are traded in blocks of $1 million.

Question 10

Any ______ security, even a subordinated debenture, has a claim ahead of all equity. However, it is subordinated to all other debt.

Answer 10

debt

Question 11

Customers do not have to complete (sign) the options agreement prior to entering an order; under current rules, the agreement must be signed and returned by the customer within _____ days of account approval.

Answer 11

15

Question 12

The face value in an insurance policy is the _____ benefit

Answer 12

Death benefit

Question 13

In a _______ life policy, the face value will fluctuate with the separate account’s performance, but it will never decrease below the original minimum face value.

Answer 13

variable

Question 14

Book values, credit ratings, and the resignation of a company’s senior officer are of interest to ______ analysts.

Answer 14

fundamental

Question 15

A _________ is an investment that makes direct investments in real estate, generating its income from renting the property (e.g., apartments, shopping malls) to lessees. Alternatively, it can make mortgage loans and generate income from them. Depending on its distribution of income, it may qualify for the same type of special tax treatment as a regulated investment company.

Answer 15

real estate investment trust (REIT)

Question 16

A REIT can qualify for special tax treatment under Subchapter M of the Internal Revenue Code if it distributes at least ____% of its taxable income.

Answer 16

90%

Question 17

_______ life insurance provides a minimum guaranteed death benefit because some of the premium goes into the general account and some goes into a separate account.

Answer 17

Variable life insurance

Question 18

With universal variable life insurance, the entire premium goes into a _______ account, so that no guaranteed death benefit is provided, beyond a very small amount designed to meet funeral expenses.

Answer 18

separate account

Question 19

________ life has a scheduled premium payment for the life of the contract.

Answer 19

Variable

Question 20

An investor goes long one ABC May 45 Call @ 3 and short one ABC 40 Call @ 7. This would be known as:

1) a debit spread
2) a combination
3) a straddle
4) a credit spread

Answer 20

4) A Credit Spread
A spread option position is a long and short position of the same type of option on the same stock with different strike prices or different expiration dates.

In this case, the proceeds of $700 from the short position exceed the $300 cost of the long giving the investor a credit of $400.

Reference: 9.1.3.6* in the License Exam Manual

Question 21

Commercial paper, Treasury bills, and banker’s acceptances are debt instruments with maturities of 1 year or less and are therefore _________instruments.

Answer 21

money market

Question 22

A newly issued Treasury note would have a maturity of _______ to ______years.

Answer 22

2 to 10

Question 23

One of the benefits of ________ life insurance is the ability to borrow against the guaranteed cash value in the policy.

Answer 23

whole life insurance

At death, the amount of the loan is paid off from the death benefit, but the remainder is then paid to the beneficiaries of the policy.

Question 24

_______ measures how sensitive a bond will be to a small change in interest rates.

Answer 24

Duration

Question 25

The ________ the duration of a bond, the more volatile (sensitive to interest rate changes) it will be.

Answer 25

longer

Question 26

It is only the______-end investment company where shares trade at a premium or discount to the NAV per share.

Answer 26

closed-end investment company

Question 27

An investment adviser who is discussing forward contracts with a client would most likely be referring to an investment in an________ commodity

Answer 27

agricultural commodity

Question 28

ETFs, whether leveraged or not, are _______ companies and are not included in the definition of derivative.

Answer 28

investment companies

Question 29

Writing ______ calls provides unlimited liability and the most risk

Answer 29

naked

Question 30

Buying a call would be an attractive strategy in a _____ market with risk limited to calls paid.

Answer 30

bull market

Question 31

Writing ______ puts risks only the difference between the strike price and zero, less any premium received.

Answer 31

naked puts

Question 32

Buying a put is a ________ strategy with risk limited to the amount paid for the put.

Answer 32

bearish

Question 33

Regarding Expense Rations

Answer 33

Generally, most ETFs have a lower expense ratio than do comparable mutual funds. ETFs have other advantages over mutual funds in that they can be bought or sold at any time during the trading day (as opposed to end of day pricing), they can be bought on margin, and they can be sold short. Variable annuity expense ratios tend to be higher than mutual funds and those for hedge funds are the highest of all.

Question 34

A 64 year-old woman wishes to withdraw funds from her non-qualified single premium deferred variable annuity purchased a number of years ago. The withdrawal would be:

Answer 34

taxed as ordinary income.

Question 35

Because there is no standardization for forward contracts, they are considered to be

Answer 35

illiquid

Question 36

Corporate debentures are unsecured bonds backed by the _______ of the issuing corporation; they are not secured by underlying collateral.

Debentures are unsecured debt instruments.

Mortgage bonds are secured with real estate serving as collateral. Collateral trust bonds are secured by securities that a corporation owns in other companies or bonds. Equipment trust certificates are secured by transportation equipment owned by the corporation.

Answer 36

credit

Question 37

The variable life exchange provision allows a policyholder to convert the variable policy into a permanent form of life insurance policy within the first __months of variable policy ownership. The insurance company must use the initial contract date and can not require proof of insurability.

Answer 37

24 months

Question 38

________ life, does not have a minimum guaranteed death benefit.

Answer 38

Universal life - this includes Universal Variable Life

Question 39

Variable vs Universal Life Insurance Policy:

Answer 39

There is a minimum guaranteed death benefit in the variable life while no such minimum applies to a universal life policy.

Question 40

Whenever the yield is higher than the coupon, the bond is selling at a _____ from the par value.

Answer 40

discount

Question 41

The dividend growth model is a method to value the______ stock of a company on the basis of assumed constant growth of dividends in the future. Therefore, it can only be applied to a corporation whose dividends might be expected to increase.

It is far more likely that a large-cap stock will be paying dividends than a small-cap.

Answer 41

common stock

Question 42

A ________ consists of a put and call on the same stock with the same strike price and the same expiration date. Therefore, with two option positions, it is a multi-option strategy.

Answer 42

straddle

Question 43

A ________ analyst is concerned with market prices, trends, and volumes of securities, but not fundamentals such as book value and dividend returns.

Answer 43

technical

Question 44

A bond portfolio manager who anticipates periods of rising interest rates should ______ the duration of a bond portfolio to minimize the price decline.

Duration is inversely related to changes in market and coupon interest rates.

Answer 44

decrease

Question 45

________ life features flexible premiums that add to the cash value account although there are no guarantees and the cash value can disappear if insufficient premiums are paid.

Answer 45

Universal life

Question 46

_______ life insurance offers a unique conversion policy. Anytime during the first 24 months after policy issue, the policy may be exchanged for a whole life policy (or some similar form of permanent insurance if the company doesn’t offer whole life) using the age and medical condition at issue regardless of the insured’s current health. However, the face amount cannot be changed from its original amount.

Answer 46

Variable

Question 47

When does a customer have to receive the OCC Options Disclosure Document?

Answer 47

At or prior to the time the account is approved for options trading.

Prior to opening an account to trade options, the owner must be told about the risks involved with trading options. By providing the owner with an options disclosure document entitled Understanding the Risks and Uses of Options at or prior to the time of account approval, the broker-dealer satisfies the risk disclosure requirements.

Question 48

Details about 3x Leveraged Inverse Exchange-Traded Funds…

Answer 48

A leveraged inverse fund attempts to produce returns opposite of the targeted index in the amount designated by the leverage multiplier; in this case, 3 times. If the targeted index rose, the inverse fund would fall by the leverage multiplier and in that regard, substantial risk must be recognized due to the leverage. Leveraged funds will use derivative products like options and futures to help meet the desired goal and can use investment strategies such as margin to purchase securities for the fund portfolio as well. Lastly, because the fund shares are exchange traded, they can be purchased on margin by investors.