Kaplan Random #2

Question 1

Cost basis on gifted securities

Answer 1

The donor(person giving) of securities will pass his cost basis to the recipient if the market value at the time of the gift is greater than the donor’s cost.

Example, uncle bought shares for 16, gives them to a nephew when the value is 25…nephew’s cost basis is 16

Question 2

Convertible Bonds

Answer 2

A convertible Bond is converted into COMMON stock issued by the company.

If the stocks current price is above parity, it will tend to have an upward effect on the price of the bond,

Question 3

An Increase in bond market prices caused by a decrease in general interest rates would:

Answer 3

reduce the current yield of any outstanding bonds.

Question 4

Zr 20

Answer 4

Would represent a Zero Coupon bond maturing in the year 2020.

Question 5

Separate accounts and mutual funds both give investors voting rights

Answer 5

Separate accounts and mutual funds both give investors voting rights

Question 6

Treasury STOCK

Answer 6

Treasury Stock is a company’s stock that has been issued, sold through an offering, and then bought back by the company.

When a company repurchases it’s own stock, that stock has no voting rights or dividend rights and is held in the issuer’s treasury

Question 7

What does “Trade Flat” mean?

Answer 7

Trade flat means interest is not paid. Zero Coupon bonds TRADE FLAT because they don’t pay dividends(interest)

Question 8

Solo 401k

Answer 8

Solo 401k

Also known as a self employed 401k

This plan offers flexible contributions and loans on the principal.

It is for sole proprietorships that have NO FULL TIME EMPLOYEES but proprietor and spouse

Question 9

Who pays redemption fees?

Answer 9

Redemption fees are a cost incurred by the investor

Question 10

Bearer Bonds

Answer 10

Have the interest coupons attached to the bonds(physically bear the bond)

Question 11

Adjustment Bonds

Answer 11

Adjustment Bonds are sometimes called income bonds because they only pay interest when the company has sufficient income

So if a company has negative operating revenues for the year they would not be required to make interest payments on Adjustment Bonds.

Question 12

Bankers Acceptance

Answer 12

Bankers Acceptance are essentially a letter of credit from a bank guaranteeing payment of a debt

Bankers Acceptance are generally used in Facilitating trades in the IMPORT/EXPORT business.

They are money market instruments that trade in the secondary market at a discount until maturity

Question 13

FINRA Rule 2330-

Answer 13

Dealing with members responsibilities in regards to recommendations on the initial purchase or exchanging of a DEFERRED(not immediate) variable annuity and the recommendation of the initial sub account allocations.

Does not apply to sub account re allocations after the initial purchase

Question 14

Sales Literature/Prospectus

Answer 14

No literature my be used with a preliminary prospectus or red herring.

ONLY Final or Statutory prospectuses can be accompanied by such materials

Question 15

Common Stock Shareholder voting rights

Answer 15

Share holders can vote on such items as mergers, reorganizations, re-capitalizations and stock splits

Question 16

A defensive investment strategy

Answer 16

A defensive investment strategy is one that concentrates investments into those industries that are less likely to suffer during an economic decline.

Regardless of economic conditions, people still eat, smoke and use their utilities…

Question 17

Variable Life Insurance Separate Accounts

Answer 17

The Unit values are counted daily in a Variable Life Insurance separate account

The cash value is computed monthly in a Variable Life insurance separate account

Question 18

When is the regular way x dividend date for cash dividends?

Answer 18

The 2nd business day preceding the RECORD date

Question 19

What is traded on the 3rd Market?

Answer 19

LISTED securities over the counter(OTC)

LISTED SECURITIES OVER THE COUNTER ARE THIRD MARKET

Question 20

Credit Risk vs. Business Risk

Answer 20

A High Yield Bond fund would be subject to credit risk where as a Small Cap growth fund would be subject to Business Risk

Question 21

What is a Sponsor/Underwriter compensated from?

Answer 21

Underwrites are compensated from the SALES CHARGE,

Advertising is considered an Underwriter fee and also comes from the Sales Charge and NOT the fund expenses

Not from the mutual fund expenses…

Question 22

IRA and Roth IRA contribution limits

Answer 22

Contribution limits for both Roth and Traditional IRA’s are whatever the current year’s limit is or 100% of earned income WHICHEVER IS LESS.

Roth IRA’s have adjusted growth income limits in order to open/contribute to one.

excess contributions are subject to a 6% tax penalty which is cumulative and imposed each and every year the excess remains in the IRA

Question 23

SEP Ira contribution Limits

Answer 23

Simplified Employee Pension Plans (SEP IRA) have higher contribution limits than traditional and roth ira’s.

Employers can contribute to them however they are established and maintained by the employee

Question 24

How often must B/D’s inform customers of the Broker Dealer phone #/web address?

Answer 24

Annually