Key Facts Flashcards
The rating of a municipal bond may be withdrawn if the rating service is not furnished ______ by the issuer.
Financial Information
If a bond sells for less than its par value, the difference is called the “______”.
Discount
A(n) “______” computes the yield if the dollar price is known; it computes the dollar prices if the yield is known.
Basis Book
If the basis price is higher than the coupon rate, the market price will be ______ par.
Below
Long-term bonds are ______ sensitive to interest rate changes than short-term bonds.
More
If a bond appreciated from 20% above par or increased 20 points above par, its current market value is ______.
$1,200
Refunding convertible bonds with nonconvertible bonds will ______ the dilutive effect on the common.
Reduce
REIT securities are marketable but not ______.
Redeemable
Historically, the ______ was the source for secondary market information on municipal securities. Named for the blue paper it was printed on, it showed the par value of all of the municipal securities that are being offered for sale in the secondary market.
Blue List
Today, the MSRB operates ______, which provides investors access to official statement, advance refunding documents, and trade prices.
Electronic Municipal Market Access (EMMA)
On a new municipal issue, bonds go out of the syndicate for member orders at ______.
Net Price
The ______ of a new municipal issue is the most complete source of information as it describes the bonds and their security (similar to a prospectus).
Official Statement
The ______ describes the method of award.
Official Notice of Sale
When computing a bid, the syndicate considers the date of ______ and the date of the ______.
- Issue
2. First Coupon
Any premium paid to the issuer by the ______ is subtracted from the total interest the issuer has to pay.
Syndicate
Municipal issuers may use ______ to lower the interest cost.
Bond Insurance
The ______ contains the date that syndicate price restrictions will be lifted.
Agreement Amongst Underwriters
The NASDAQ National Market System Price Reporting does not include ______ transactions.
Odd-Lot
An odd lot is an order amount for a security that is less than the normal unit of trading for that particular asset. Odd lots are considered to be anything less than the standard 100 shares for stocks.
The NASDAQ Level ______ Service shows the following quotes: highest bid, highest ask, lowest bid, and lowest asked.
II (2)
A security may be suspended from trading on the NASDAQ if the ______ requests it, if a(n) ______ is about to be disclosed, or if the net worth of the company becomes ______.
- Issuer
- Material Fact
- Negative
A(n) ______ gives the seller the option to deliver the security during any time period ranging from 6-60 business days. It also locks in the right to buy and sell the security at a specific price.
Seller’s Option
Stopping stock is done for ______ only.
Customer Orders
If the investor changes the duration of an order, the order’s ______ will be changed.
Priority
______, not orders, contain the amount of commission.
Confirmations
The net overall debt of a municipality is the sum of the ______ plus the ______.
- Direct Debt
2. Overlapping Debt
Municipalities can issue ______ bonds and ______ bonds. ______ bonds are typically used if the project is going to be supported by user fees, if the laws require that it be user-supported, or if only some residents will use the project. ______ bonds are also not subject to statutory debt limitations.
- Revenue
- General Obligation
- Revenue
- Revenue
When the term ‘______’ is used in relation to municipal bonds, it refers to an earnings test (for example, determining adequate revenue to pay principal and interest).
Coverage
Treasury strips are traded on a(n) ______ and settled regular way in ______ business day.
- Yield Basis
2. One
Securities issued by federally-sponsored agencies are quoted as a(n) ______ of par value in ______.
- Percentage
2. 32nds
Monies needed to pay the current expenses of a project funded by a municipal revenue bond are put into the ______.
Maintenance Fund
If a municipal bond is ______ by escrowing the issue to maturity, the bonds will be redeemed according to their original schedule.
Advance Refunded
The longer the ______ of government and agency securities, the more they will fluctuate in price over time.
Maturities
A municipal broker’s broker does not ______ specific market offerings.
Underwrite
When the bond is sold, a muni capital gain is subject to ______ taxation.
Federal
To analyze the credit worthiness of a(n) ______ bond issuer, use the ratio of direct and overlapping debt to market valuation.
General Obligation
An investor in ______ bonds needs to know about legislative changes, creditors, call features, and market risk.
General Obligation
In considering the credit worthiness of a(n) ______, one should consider its financial condition, its attitude towards debt, its accounting practices, and its tax collections. Bond denominations should not be considered.
Municipality
A(n) ______ would forecast demand or use, give a financial review, and determine the economic justification for issuing muni review bonds.
Feasibility Study
Under a(n) ______ revenue pledge, the principal and interest are paid first. Any remaining revenue is used to keep the facility operable. A debt service fund receives revenues first.
Gross
Project notes are backed by the full faith and credit of the ______.
U.S. Government
Bond denominations have nothing to do with the ______ of a municipality.
Credit Worthiness
The legal opinion has nothing to do with the ______ status.
Blue Sky
An “unqualified legal opinion” means that there are no ______.
Qualifications
A(n) ______ may help secure enabling legislation for the issue.
Bond Attorney
A bond attorney does not prepare the ______ nor does he or she prepare the amortization schedule.
Official Statement
A(n) ______ charges commission for his or her services, does not sell to institutional investors, and does not require that the seller sell any bonds put out for the bid.
Broker’s Broker
A municipality might ______ an issue to reduce the interest cost.
Insure
The marketability of a bond is least affected by its ______ date.
Dated
______ account for the largest dollar value of money market securities.
Treasury Bills
The U.S. Treasury uses ______ to finance the federal deficit.
Treasury Bills
______ issued by federal agencies are priced at a discount with no commission.
Discount Notes
Freddie Macs are currently issued in ______ form.
Book-Entry
The Federal Reserve Board does not issue ______.
Securities
An order book official at the CBOE
DOES / DOES NOT trade for his or her own account.
DOES NOT
An investor who holds a call option on a debt security would benefit if yields
______ in the secondary market or if the Federal Reserve Board ______ open market purchases.
- Decreased
2. Increased
An investor with a diversified portfolio might buy ______ (______) in order to hedge against market risks.
Stock Index Options (Puts)
The following statement is true regarding options on U.S. Treasury bonds: “If current interest rates increase, the value of the bond will ______, the value of calls will
______, and the value of puts will ______.”
- Decrease
- Decrease
- Increase
If a corporation will be accepting payment in Euros, it can hedge its position by buying Euro ______ options.
Put
______ risks include the following:
- Currency exchange rates can be fixed or supported by government actions.
- Options may be exercised after the close of trading in the options markets.
- The option value depends upon the value of the foreign currencies.
- There is no central marketplace for reporting currency transactions.
Foreign Currency Option
An uncovered put writer IS / IS NOT entitled to a dividend if the put is exercised before the ex-dividend date.
IS
The buyer of a(n) ______ option has an unlimited profit potential.
Call
______ is the risk of an adverse move in the direction of the general market. It is best hedged against by using index options.
Systematic Risk
The amount of the premium is influenced by the price of the ______.
Underlying Security
If a(n) ______ option is exercised, the writer must deliver the underlying stock even if the underlying security has stopped trading on the exchange where it is listed.
Call
To produce ______ prior to expiration, an investor would buy calls in a number of companies.
Diversification
The maximum profit for the writer of a put is the ______. The maximum loss for the writer of a put is the ______.
- Premium
2. Strike Price - Premium
An investor would want the spread to ______ if he or she purchased an XYZ Oct 60 call and sold an XYZ July 60 call.
Widen
Customers’ orders must include the ______ of option, the underlying ______, and the ______ of contracts. They do not need to include the price limit desired on the order(s).
- Type
- Stock
- Number
Confirmations to customers must include the ______.
Settlement Date
A(n) ______ provides market leverage, a blue chip market indicator, liquidity, and a hedge against systematic risk.
S&P 100 Index Option
For foreign currency options, exchange rates are quoted in ______.
U.S. Dollars
______ allows any listed security (stocks or bonds) and any NASDAQ National Market System security to be purchased on margin. Municipal bonds and U.S. government bonds are exempt from ______.
Reg. T
Options may not be purchased on ______ because they have no loan value.
Margin
When a margin call is not met, a broker
may ______ securities from a customer’s account to meet the call. A broker may not
______ from another broker or extend additional credit.
- Sell
2. Borrow
If a customer sells stocks and withdraws the cash from the sale, the market value will ______.
Decrease
New issues may not be purchased on ______.
Margin
When an investor takes advantage of an exchange privilege, the investor may have to pay ______; however, he or she will not have to pay an additional ______.
- Taxes
2. Sales Charge
If a client signs a(n) ______ to invest money in a mutual fund over a period of time, the client must invest that amount of money to qualify for the breakpoint regardless of what the value of his or her original investment becomes.
Letter of Intent
Dividends and capital gains can be automatically reinvested in additional fund shares at ______ but they are still subject to ______.
- Net Asset Value (NAV)
2. Tax
A(n) ______ is one in which the investor receives a fixed, monthly payment from the investment company.
Fixed Dollar Withdrawal Plan
______ involves purchasing the same dollar amount of mutual fund shares, at regular intervals, regardless of price. Over time, dollar cost averaging will result in an average cost per share that is less than the average price paid per share.
Dollar Cost Averaging
A(n) ______ is a type of mutual fund withdrawal plan in which each month the same amount of money is paid out of the account. Since the share price fluctuates monthly, the number of share redeemed each month is different.
Constant Dollar Withdrawal Plan
A sole proprietor and/or general partner in a limited partnership has ______ liability.
Unlimited
A(n) _______ differs from a public corporation in its ownership transferability, length of existence, and use of the conduit concept.
Limited Partnership
______ DPPs are attractive because they can produce passive tax losses while generating cash flows.
Real Estate
The general partner of a real estate partnership does not provide a(n) ______ for partnership units.
Secondary Market
The ______ must be amended if any one of the following occurs:
- There is a change in the sharing arrangement.
- There is an increase in the general partner’s contribution.
- A new partner is admitted.
Partnership Certificate
Recourse loans are part of the DPP investor’s ______.
Cost Basis
A suitable DPP investor must be able to meet ______ requirements.
State
______ programs include condominium securities and agricultural programs.
Real Estate
An investor could not take a depreciation deduction on ______.
Raw Land
Disadvantages of a(n) ______ program include the fact that when the lease terminates, the equipment is obsolete and there is no capital appreciation.
Equipment Leasing
Characteristics of a(n) ______:
1 The benefit is received by the retiree and is taxable.
- The annual benefit is for a fixed amount.
- Contributions may vary from year to year.
- This type of plan is sometimes used for key employees who are close to retiring.
Defined Benefit Plan
______ allows for transactions in index options if their use conforms to the plan’s objectives.
Employee Retirement Income Security Act (ERISA)
A(n) ______ provision on a variable annuity contract means that payments will be made for at least 10 years.
10-Year Certain
If an investor has a nonqualified, variable annuity contract and begins receiving payments, those payments are considered both ______ and a(n) ______.
- Ordinary Income
2. Return of Capital
The amount invested in a variable annuity determines the sales charge ______.
Breakpoints
The amount included in the payout of an annuity that is over the original cost basis is taxable as ______.
Ordinary Income
On a balance sheet, the ______ of a corporation includes its bonds (debentures), its preferred stock, its common stock, its additional paid-in capital, and its retained earnings.
Capital Structure
The ______ of a corporation would be diluted if it issued additional warrants, rights, and/or convertible bonds.
Earnings Per Share
When the corporation pays a stock dividend, its net worth DOES / DOES NOT change.
DOES NOT
A technical analyst IS / IS NOT interested in earnings per share.
IS NOT
A ‘head and shoulders bottom formation’ is also known as a(n) ‘______’.
Inverted Head and Shoulders Formation
Orders for durable goods are a(n) ______ indicator.
Coincident
The Federal Reserve System does not participate in the ______ market.
Eurodollar
______ exchange rates are determined by market forces and interventions of central banks.
Floating
The federal funds rate IS / IS NOT set by the Federal Reserve.
IS NOT
Investors who use ______ have little or no price risk, little or no interest rate risk, and little or no liquidity risk. The interest rate is competitive with the ______ rate.
- Overnight Repurchase Agreements
2. Federal Funds
______ are guaranteed by the issuing bank, are issued in registered form, and mature in 14 calendar days or longer.
Certificates of Deposit
The Federal Reserve Board’s ______ seek to change the interest rates, the velocity of money, the exchange rate, and M-1.
Open Market Operations
The ______ in foreign currencies is a 24-hour market with no reporting of last sales. Risks associated with this market include economic and government policy changes of other countries and the fact that there is less legal protection for investors.
Interbank Market
______ matures on a specific date and is issued for a specific amount.
Commercial Paper
______ is a rating service for insurance companies. It does not rate commercial paper.
A.M. Best
As interest rates change, ______ rates change more sharply than ______ rates.
- Short-Term
2. Long-Term
If inflation is decreasing, then the value of fixed income securities is ______.
Increasing
The Federal Reserve Board’s ______ has a multiplier effect on the total amount of bank deposits.
Reserve Requirement
If a U.S. importer has no position in yen and buys merchandise from Japan which must be paid for in yen within 30 days from the date of purchase, the importer can hedge its currency risk by purchasing ______.
Yen Calls
If an investor purchased a municipal bond at a discount, sold it prior to maturity, and wanted to compute the accreted discount, he or she would not need to know the ______.
Resale Price
Wash sale rules apply to ______ transactions.
Short Sale
Losses on a short sale are disallowed if the seller sells substantially identical stock within ______.
30 Days (Wash Sale Rules)
According to wash sale rules, a call option to buy a corporation’s common stock is considered to be ______ to the common stock of that corporation.
Substantially Identical
Except on munis, interest paid in a(n) ______ is tax deductible income to the extent of the customer’s investment income.
Margin Account
An inverted head and shoulders formation indicates the ______ of a downward trend.
Reversal
If Treasury receipts are held to maturity, there is no ______.
Capital Gain
The amortization of a municipal bond affects the ______.
Adjusted Basis
Any premium paid on a municipal bond held to maturity does not qualify as a(n) ______.
Tax Loss
If a customer purchased convertible preferred stock, converted it, and sold the common, the profit or loss would be the difference between the monies received from the ______ and the ______.
- Sale of the Common
2. Cost of Obtaining the Preferred
Selling short-against-the-box does not turn ______ gains into ______ gains.
- Short-Term
2. Long-Term
The adjusted selling price equals the ______ minus the ______.
- Sales Price
2. Sales Expense
The ______ equals the acquisition cost minus depreciation plus capital improvement.
Adjusted Basis
Direct Participation Program (DPP)
Depreciation is subtracted as a(n) ______ when calculating taxable gain or loss.
Expense
Securities issued by states, municipalities, savings and loan associations, and the federal government are exempt from the ______.
Securities Act of 1933
Responsibilities of the ______ include reviewing registration statements and issuing deficiency letters.
SEC
If an R/R wants to be paid for helping a realtor sell units in a(n) ______, he or she must:
- Notify the firm of his of the desire to participate.
- Furnish duplicate copies of the offering materials to his or her firm.
- Receive prior approval of participation.
Private Placement
Underwriting contracts are not included in the ______.
Prospectus
Insiders MAY / MAY NOT exercise call options.
MAY
The Securities Investor Protection Corporation (SIPC) does not protect _______ investments.
Commodities
If a registered representative writes an evaluation of an investment for a customer, it must have a(n) ______ and it must be initialed by a principal of the ______.
- Reasonable Basis
2. Principal
If a registered representative issues a communication, he or she cannot promise ______.
Specific Results
______ occurs when a seller promptly delivers a properly endorsed certificate with all of the legal items attached.
Good Delivery
If a customer instructs his or her representative to buy 200 shares of a specific stock, the representative may decide ______ to make the purchase without written authorization from the customer.
When
An advertisement soliciting clients to invest in options should include an ______ that the investor may lose the entire amount of his or her investment in a relatively short period of time.
Indication
FINRA’s 5% mark-up policy DOES / DOES NOT apply to securities sold with a prospectus.
DOES NOT
FINRA’s 5% mark-up policy DOES / DOES NOT apply to secondary market transactions as agent or principal.
DOES
Under FINRA’s 5% policy, a bond transaction may have a(n) ______ percentage mark-up than a stock transaction of the same size.
Lower
Under FINRA’s Rules of ______, sales literature would not need to include the size of the firm’s position in a stock issue.
Fair Practice
A(n) “______” is one in which a broker/dealer who did not originally have a position in a security receives a firm order for that security, purchases it, marks it up, and sells it.
Riskless Transaction
Sales literature must include the ______ of member, the ______, and the ______.
- Name
- Price
- Date
A broker/dealer is required to send a confirmation date to his or her customer on or before the ______.
Settlement Date
To determine normal investment practice, the following must be taken into consideration:
- The ______ of new issues purchased;
- The ______ of the transaction(s); and
- The ______ of the transaction(s).
- Number
- Size
- Frequency
If a firm has a complaint against a customer, the dispute will only go to arbitration if the ______ agrees to it or has signed a(n) ______ as part of the account opening process.
- Customer
2. Pre-Dispute Arbitration Agreement
Under MSRB rules, a registered representative cannot supervise ______.
Other Registered Representatives
According to MSRB rules concerning suitability, suggestions made by a salesperson must be ______ for the investor.
Appropriate
A municipal securities dealer CAN / CANNOT guarantee the timely execution of an order.
CAN
If a municipal dealer makes a(n) ______ bid or offer but does not own the securities, he or she must be willing to sell them short.
Bona Fide
Letters to customers that solicit business are considered ______ per the MSRB.
Advertising
There are specific procedures which must be adhered to when opening a municipal account for any employee or partner of ______, an account for the spouse of a trader who works for ______, or a custodial account for the child of an employee who works for ______.
Another Dealer
______ may be based on the dollar amount of the trade plus the cost of transacting the trade.
Commissions
Research reports must be approved by a(n) ______.
Supervisory Analyst
The ______ of the firm must approve all initial transactions.
Principal
A registered representative DOES / DOES NOT have to disclose how much he or she makes on a discretionary transaction.
DOES NOT
