Missed Questions Flashcards
Mr. and Mrs. Able want to set up a 529 for their 4 grandchildren. What is the maximum amount he can contribute in 1 year without making a taxable gift in 2013 NOTE use $14,000
14000X5 - 70,000. 70,000 x4 kids = 280,000
In regards to the CFP(r) marks, which of the following can be used?
Certified Financial Planner (TM) NO, need caps
CFP(TM) proactitioner NO
C.F.P.(r) designee NO
CFP(r) certificant YES!
Bonnie will have to make payments of 10,000 per year 6 years from now. She will have to make payments at the beginning of the 6th year. She believes she can make 10% after-tax return on a fund she set aside now. How much does she have to put into the fund TODAY to make future payments?
"how much does she have to put in the fund today"= lump = pv PV = ? = 41,699 I = 10 N = 5 pmt = -10,000
FV= 41699 I = 10 N= 5 PV = ? 25,892
Which of the following retirement plans is not covered under the new unlimited bankruptcy protection
SEP-IRA
IRA contributions - ANSWER =only 1 million
SIMPLE IRA
Solo 401K
Mr. and Mrs Lawson are very wealth. Their children (minors) will never qualify for grants or loans for college expenses. even through they are in the highest tax bracket, they trigger AMT. Tey set up maximum 529 plan 6 years ago, any they want to take any tax advantage and graduate school costs. What else could they do?
Set up a UTMA account and gift some of their low basis stock? answer, no income limit
Not claim their children as dependents = answer
Buy EE bonds in an UTMA and have the interest declared annually = answer
Buy EE educational bonds for the children
Which of the following is NOT true about ESAs Coverdells
account gain are tax-free if the funds are used for qualified education purposes
Contributions are considered to be a gift of a future interest = answer this is false
the custodian cannot prevent the beneficiary from taking a distribution even if it is not to be used for qualified education expenses
the funds must be distributed by the time the beneficiary reaches age 30 or rolled to a new beneficiary.
College Savings Plans (QTPs) do not cover which of the following?
room and board
books
computer (if required)
Locked-in tuition prices = answer = prepaid one type of 529
Which of the following agencies does not monitor or oversee commercial banks?
FDIC
Federal Reserve
Comptroller of Currency
Department of Treasury = answer
Which of the following is NOT considered a leading economic indicator?
money supply stock prices industrial production = answer new manufacturing orders initial claims for unemployment
The Investment Company Act of 1940 regulates the functions of investment companies. What types of company does it regulate?
Mutual Funds Publicly Traded Funds Fixed Trusts UITs answer all the above
Brian Campbell, CFP(r) is ready to implement the client’s financial planning with an attorney. Brian is in what practice standard of the financial planning process?
300 400 500 - answer note Practice Standard is diff from 600 700
Mr. and Mrs. Newsome plan to send their son to a religious elementary school. Some years ago they set up various education savings programs for their son. Out of which of the follwoing accounts could they pay expense for tuition?
prepaid tuition
529 plan
Coverdell ESA = elementary
None of the above
Mr. and Mrs. Tice want to fund for their daughter’s education. Their daughter is in the 1st grade and will need a computer with software in 2 years. How should they fund the computer (tax wise) and other elementary education expenses if they are in a 28% marginal income tax bracket?
use cash flow
set up a Coverdell ESA = elementary ed
set up a UTMA account
Invest in a money market account
the “Fed” does NOT use which of the following tools to control the money supply
setting the fed funds rate = answer
setting the discount rate
establishing open market operations
setting reserve requirements
FYI
$50 for stolen cc responsibility
simply add number of cc and if under $50, don't add in more 500 50 500 25 =175 resp
Mutual funds regulated by which of the following?
NYSE FINRA SEC = ANSWER Comptroller of Currency investors
The provisions of the Securities and Exchange Act of 1934 do NOT apply to which of the following securities?
A. Issuance of municipal bonds
B. Trading of corporate bonds
C. trading of municipal bonds
D. Issuance of corporate financial statements
A. issuance of municipal bonds
Does the Code of Ethics Apply to candidates for CFP(r) Certification (have NOT passed the test yet)?
A. no
B. yes
C. no, they have not taken or passed the test yet
D. yet, it applies to candidats who are register as such with the CFP Board
C: No, they have not taken or passed the test yet.
A parent with one child in the first year of college SHOULD choose which of the following credit if he/she paid tuition
a) a Hope credit of $1800
b) American Opportunity Credit of $2500
c) a lifetime learning credit $800
d) a hope credit of $1000 and a lifetime learning credit of $1000
B. American Opportunity Credit of $2500
What is Practice Standard 600 of the financial planning process?
a) implementing the plan
b) monitoring the plan
c) presenting financial planning recommendations
d) selling the clients products
b. Monitoring the plan
FHA mortgages are guaranteed by which of the following?
a) federal government
b) department of treasury
c) FNMA
d) FDMAC
A) Federal Government
Fiscal policy activities of the federal government include which of the following? 1. expenditures 2. taxation 3 the money supply 4. open market operations
taxation
the money supply
in regards to the lifetime learning credit, all the following are true except which of the following? (the false one)
a. the credit is a per-period rather than a per student
b. the credit is based on 20% of the first $10,000 of qualified expenses
c. only the first 2 years of post-secondary expenses apply
d. qualifying expenses do not include room and board
only the first 2 years of post-secondary expenses apply
Which of the following is NOT included in the ADV part II of a SEC investment adviser filling?
a. form of business entity
b. fee structure
c. investment strategies
d. investment discretion
A. form of business entity
The IAA is an acronym for which of the following?
a. institute of Acturial Accounting
b. implied actual analysis
c. investment advisers act
d. investment accountability act
Investment Advisors Act
How is fiscal policy set?
a. federal reserve action
b. congressional action
c. presidential action
d. inflation
congressional action
when is a contraction a recession? a 3 mo b 6 mo c 2 consecutive quarters of decline in GDP d 2 years
2 consecutive quarters of decline in real GDP
Which of the following is true concerning EE education bonds?
1) they are normally purchased in the parents name
2) they are tax-free if redeemed for tuition if parent’s MAGI is uner certain thresholds
3) they are normally purchased in a UTMA account
4) they are normally issued in the name of the child
1&2
1) they are normally purchased in the name of the parent
2) they are tax free if redeemed for tuition if the parent’s magi is under certain thresholds
A small company wants to retire $10,000,000 of bonds at the end of 10 years. How much should the company set aside in semiannual deposits starting today to reach its target They feel they can earn 4% on the deposited money.
2 p/yr, begin mode fv = 10,000,000 g-n= 10 i = 4 pmt = ? 403,497.23
NOTE! if question doesn’t say “in today’s dollars” then keep the TVM calculation simple “she needs $40,000 available at age 18”
FV = 40,000 I = 8 = after tax return N= 16 years PV? beg mode
Can a financial planner be sued for failing to deliver services or plans required by a written agreement with a client?
Yes
Sandy has her Series 6 and all applicable state licenses. She may not sell which of the following investments?
a) variable annuity
b) variable life insurance
c) mutual fund traded on a major exchange
d) UIT
mutual fund traded on a major exchange
which of the following is true about budgeting?
- cash flow management is a form of budgeting
- budgeting provides a guideline to measure actual performance
- budgeting is creating a plan for spending and investing client resources
- budgeting should indicate the actual results
cash flow mgment is a form of budgeting
budgeting provides a guideline to measure actual performance
budgeting is creating a plan for spending and investing client resources.
The CFP Board Code of Ethics defines STANDARDS OF PROFESSIONAL CONDUCT of the CFP(r) certificate for the purpose of civil liablity
The Code of Ethic does not address civil liability
American Opportunity Credit coordinate (same dollars claimed) with which of the following? Lifetime Learning Credit 529 plans coverdell esas pell grants
Lifetime learning credit
529 plans
coverdell ESAs
Ted purchased a home. He took out a $300,000 (30 year at 8%) when mortgage rates declined 2 years later, he re-financed the remaining principal. To refinance at 6% for 30 years a fee of $1000 was added to the new loan. What principal will be remaining after the 6th year of the new loan?
think amortize
1) click on amortize button and plug in variables for 2 loans.
question 119 on test bank 1
Bob and Alice Green rent an apartment. They want to purchase a home for 200,000. They want to make a 20% down payment on the home. They have already earmarked $5000 of their savings as a down payment. They feel they can save $500 per month (end). Approximately how many months do they need to save to fund the down payment on the home if they can make 6% on their money?
20% of 200,000 = FV = 40,000 PV= -5000 (lump) pmt = -500 I = 6 N = ?
a young couple purchased their home 2 years ago. they used a 30 year arm and put 20% down on their home. The interest rate was 6% annually for the first and second year. The principal remaining after the second year is 155,948. The ARM just increased to 8%. They are thinking of re-financing. WHAT WAS THE ORIGIONAL COST OF THE LOAN? think 30 year 2year of payment 20% down
200,000
Jill wants to fund her daughters college needs. She needs $40,000 available at age 18. Her daughter is age 2. She feels that she can make an 8% after tax return and that inflation will be 3% over the pre-college years. How much does Jill need to deposit today to meet her goal?
!!!! problem gives information to calculate inflation adjusted, but doesn’t ask for it!!!
“does not say in todays dollars = don’t bite”
FV = 40,000
I= 8
N= 16
PV ? answer
Kate wants to save $50,000 in “todays dollars” for a future goal. She will need that sum by the end of 10 years. She plans to fund this goal by investing yearly at the end of each year. Kate believes that her after-tax earnings on investment will be 7% annually and that inflation will average 4% over the long term. How much does she need to save each year? = 2 steps right?
PV = 50,000
10 = N
4 = I
FV ? = 74,012.21
FV = 74,012,21
N = 10
7 = I
PMT
Todd purchased equipment worth 50,000 for the use in their business. It had to be modified for 10,000 cost. (the kick off) CF (-60,000) the rest of the game = 1 year cf 15,000 + 30,000+35,000 over 3 year period. the equipment it then worthless. If required rate of return is 8% what is the NPV
-60,000 cf0 \+15,000 \+30,000 \+35,000 I= 8 NPV
Jane is injured in a car accident. She has a personal disability policy that will replace all of her lost income. Sine she has been indemnified why can she also collect from the person at fault?
a) collateral source rules
b) negligence
c) Res ispa loquitur
d) Suborgation
e) absolute liability
Collateral source rule
Mr quinn has been suffering with Alzheimer’s disease for some time. Various family members take turns taking care of him. Yesterday, he fell down, and they had trouble lifting him up. The family feels they are unable to continue caring for him. If they put him in a skilled nursing facility, will he be covered by Medicare?
a) yes he has Alzheimers
b) yes, he fell down
c) no he has to have been in the hospital at least 3 days, and his condition must be expected to improve
d) no, he will be covered by Medicaid
No, he has to be have been in a hospital at least 3 days, and his condition must be expected to improve.
Uninsured motorist (UM) coverage does NOT apply to claims for which of the following.
a) medical expenses
b) lost wages
c) punitive damages
d) pain and suffering
Punitive damages
Jay, a 57 year old employee, is provided with $250,000 group term life insurance policy. For this coverage, Jay contributes $ .20 per $1000 of coverage ($250,000) per month. What amount is included in Jay’s income for the year of the table 1 rate is $.43 per $1000 of coverage per month?
.43 X 200 (b/c 50 tax free) = 86
.20 X 250 = -50
so = 36x12 = 432
Medicare Part A is available to whom?
a person age 65 who is entitles to SS cash benefits
a person age 65 who is entitle to monthly cash benefits from the Railroad retirement program
a disabled beneficiary receiving benefits for at least 2 years any age
all the above
What is the maximum fax free reimbursement for department care FSA?
$5000 per year
Toby Smith, age 65, bought whole life policy some years ago. He decides to SURRENDER the policy. The current values are as follows:
CV: 50,000
premium billed: 35,000
existing loan: 30,000
dividend reducing premium: 15,000
How much of the surrender value will be subject to income tax
What is the basis?
Billed - Dividend =
35-15= 20
CV - base =
50 - 20 = 30,000
Tim Johnson exchanges a $100,000 ordinary life insurance contract for an annuity contract. Tim paid $20,000 of premium over the life of the contract. The cash value of the contracts is $19,000. What is the basis of the annuity contract at issue?
What did he pay for it = 20,000
Cathy Thomas and Beth Adams own CB Inc. They are considering adopting a cross-purchase buy-sell arrangement using life insurance. Cathy’s husband is Bell, and beth’s husband is Tom. Who should own and be the beneficiary of the Beth’s policy?
Cathy should own the policy and be the beneficiary.
John, while driving his car during a violent storm, hit a prize bull which had wandered on the road. John’s car was destroyed, he was badly hurt, and the bull died. The farmer is suing John for negligent driving. Under which section of his PAP policy will he be covered?
BIPD = Liability = Bull = property damage.
Is severity of the loss more important than the probability of the loss?
SEVERITY is more important (think loss of my home)
Which of the following is a benefit provided by Medicare B
coverage for prescription drugs that can be self-administered = no
coverage for skilled care
routine physical care
hospital care beyond 150 days of one stay
routine physical care
Beth, age 45, earns $100,000. She is eligible for 5 times annual income in group life insurance. Non-key employees are only eligible for 1 times annual income. If the Table 1 rate $.15 per 1000 per month, how much income is she charged for this benefit?
.15X500X12 = $900
Tricky! She is a key employee, so the first 50,000 exemption is lost
In a corporation liquidation, when are common stockholders paid?
before all creditors
before bondholders and preferred stockholders
after bondholders and preferred stockholders
after creditors
after bondholders and preferred stockholders
HPR (taxes)
Beth (35% tax bracket) bought 1000 shares of Tech over 8 months for $40,000. It paid $1000 of dividends over the time she owned it. She just sold it for 60,000. What was her after-tax holding period return?
60,000-40,000+ 1000= 21,000
21,000X .35 = 13,650
13650/40,000 = 34.13%
Technical approaches include which of the following? Ratio analysis Profitability ratio debt ratio investment advisor opinions
Investment advisor opinions = technical analysis
ratios = fundamental
A stock with a beta of 1.5 is how much more volatile than an average stock?
50% more volatile
1 =1 exact
.5 = 1/2 as volatile
HPR margin
Bob Roberts bought PDQ stock at $100 per share (100 shares) on margin (50%). The Margin interest was 12% annually. After exactly 3 months, he sold teh shares for $150 per share. What is the HPR?
15,000 - (5,000 + 150) -5,000 / 5000 = 97%
1st 5000, = 10,000 * .5 (how much spent?) = 5000
150 = 5,000X.12 = $600/.25 = 150.
What tools can help client planner determine an optimal portfolio? a Monte Carlo Martkowitz efficient frontier strategic asset allocation tactical asset allocation
all of them can help
Which of the following is true concerning a new issue offering to a maximum of 35 non-accredited investors that has not been registered with the SEC? it is registered with the FINRA it is exempt under reg A it is exempt under reg D it is exempt under reg T
It is exempt under Reg D
Louie buys 100 shares of XYZ preferred stock at $80 per share. The par value is $100 per share. The dividend rate is 5%, with dividends paid semiannually. How much will Louie receive when the dividends are paid?
use the PAR to calculate interest
100X100 = 10,000 * .05 = 500/2 = $250 b/c semi annual
Which of the following are non diversifiable risks? industry risk unsystematic market risk interest rate
Market risk
Interest rate risk
Risk that hits the entire system
What does a correlation coefficient of -1 mean?
an increased variability of the portfolio return
an increased standard deviation
a possible risk-free portfolio construction
a changed weighted return of the portfolio
a possible risk free portfolio construction
tan oil and umbrellas, move opposite, no impact on each other.
Which of the following statements is NOT true about ADRs?
ADRs holders cannot vote for the Board of Directors
ADRs are listed on stock exchanges
ADRs declare dividends in U.S. Dollars
ADR dividends are eligible for the for the foreign tax credit
ADRs declare dividends in U.S. dollars
Which of the following risks can be GREATLY reduced through diversification? systematic risk market risk unsystematic risk PRIME
unsystematic risk
In regards to the EMH, which of the following is/are true?
the semi-strong form of EMH states that stock prices reflect all public and nonpublic information = no this is the strong
answers are 2,3,4
a market that is semi-strong form efficient is also weak-form efficient.
the weak form of the EMH refutes technical analysis but supports fundamental analysis
the strong form of EMH states the stock prices reflect all public and non public information
compare corp bond to muni, pick the muni and work it
Mrs. Summer is in the 28% tax bracket. She is considering the purchase of a municipal bond yielding 5% or a corporate bond yielding 7%. Both bonds have similar maturities and credit ratings. Which statement is true?
the effective yield on the corporate bond is higher…why?
Corporate bond yield is 7%
Muni - .05 / 1-.28 = 6.9%
Which of the following is trust about ADRs?
they eliminate currency risk (no - dividends paid foreign currency)
the dividends are declared in U.S. dollars (nope, se above)
they generally have low correlations with the U.S. securities
they allow the investor to sell the U.S. securities in overseas mkt
They generally have low correlations with the U.S. securities
your client wants you to analyze 2 funds based on the information below. If the risk free rate is 6% which fund should the client purchase and why? Q 39
note: Low r2 for both funds. alpha is eliminated, sharp or treynor. do i want a high or low sharp?
Fund X because it has the highest sharpe ratio
Ted Burns sell short 100 shares of LMN at $50 and sells LMN 50 put at $5. When will Ted make money?
when the market is stable
when the market falls
when the market rises
when the market is stable, the put he sold will expire and he gets to keep the premium. when the market falls, he sells short.
What is the macro aspect of the CAPM?
that pricing of securities in different markets cannot differ for any significant time
the specification of the relationship between risk and return for the individual assets
an alternative to the Black-Scholes option-pricing model
The development of the Captial market line
Which of the following is true concerning the beta of a portfolio?
it is greater than the weighted beta
it is equal to the weighted beta
it is less than the wighted beta
it is less than or equal to the weighted beta
the weighted beta is equal to the beta of the portfolio
In regards to charting, when a stock break through a resisance level, how is it considered? overpriced over bought Bullish bearish
bullish
Ted bought 100 shares of stock at $50 on Jan 1st. A year later, he wrote a 9 month call option when the stock was $60 option premium was $5. The price of the stock continued to rise, and the option was exercised. What amount of gain will he have to report, and is it long-term or short term?
100X50 = 5000 6000-5000 = 1000
sold call, premium was $5 = 500
1000+500= 1500 LTG, sale proceeds are lumped together.
Which of the following statements regarding EE bond and I bonds is/are true?
EEs are issued at full face value, I bonds are issued at full face value = T
EEs may qualify for tax benefits upon redemption when used for qualified education expenses; I bonds cannot be used for qualified education expenses = False
Both EEs and I bonds are backed by the full faith and credit of the US = True
EEs are fixed income securities; I bonds are an inflation-indexed accrual security = True
see answer
Mr and mrs steele are both professionals in their mid-40s. after putting their kids through college, they desperately need to save for retirement. Both make excellent income, but their employers do not provide retirement plans. They are concerned about taxes and AMT. Which of the following assets allocations do you recommend?
50% global 50% S&P 500 index = True
50% international; 50% muni bonds
50 % large cap; 50% s&p 500 index
50 % growth; 50 % GNMA
Which of the following statements are true about Eurodollar bonds?
the bonds are issued outside the U.S. = True
The bonds are issued in the U.S. = False
The purchaser are foreign residence = True
The purchaser are U.S. residence = fale
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Harry, age 35 and single, has a small money marekt account with $4500 in it he recently rented a vacant lot for 10,000 he has 30,000 in an IRA 10,000 corp bonds. he borrowed 5000 on a30 day note and has 2000 in credit card debt. What is his current ratio
4500 +10,000 (Accts receivable) + 10,000 bonds / CC and loan
3.5
Which sources of income are counted toward the 75% test requirement to qualify as a REIT?
property rental = yes
gains on real estate property sales = yes
interest income from mortgages = yes
GNMA Income = no
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Which of the following securities faces the greatest investment rate risk?
Zero coupon bond
BB, 8% coupon, 10 year maturity corporate
GNMA
STRIP
Reinvestment risk = GNMA, pay off early, int+principal
Which of the following terms des not apply to open-end funds? tradeable = answer, they are not continuously issued = yes redeemable = yes non-negotiable = yes
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Regulation T of the Federal Reserve Board controls credit from the broker to the customer (margin money). The act only applies to non-exempt securities. When of the following securities are not marginable? Securities listed on the AMEX NASDAQ National Market System issues Preferred stocks traded over the counter Call options = no
call options have no lending power, nothing to pledge
Which of the following is an OID obligation?
Original Issue Discount = like a zero = no interest until maturity
Treasury Bills
GNMA Certificate
FNMA bonds
U.S. Government bonds
None of the above
t-bills
Albert Livingston is a very conservative investor. He wants to buy some high-quality long term municipal bonds. How would you define the investment characteristics of the bonds? low return, TOTALLY tax free high inflation risk, low default risk low inflation risk; high market risk small duration; low interest rate risk
high inflation risk; low default risk
An investment in a STRIP would be for which type of account IRA VA Profit Sharing plan SEP
all selections
Which bond would be the most affected by an interest rate change? short duration bond long maturity bond low coupon bond large duration bond
Large DURATION bond
maturity= when it is over
duration = what is the time needed to get back the $
The Black-Scholes model uses 5 variables to value the option of a non-dividend paying stock. In regard to call options, which of the following is NOT correct?
an increase in the price of the underlying stock increases the call’s value T
an increase in the exercise price of a call, increase the call’s value = F
an increase in the the time remaining to the expiration of the option increases the call’s value =T
an increase in the interest rate increases the call’s value = T
an increase in the volatility of the underlying stock increases the call’s valueT
see the false
bob and mary anticipate having 300,000 in retirement funding when they retire in 15 years (assuming a 7% growth rate on current assets). When they retire, they expect to need $22,000 per year which will increase with inflation 3%. they can make 8.5% after-tax return no their money. They expect their joint life expectancy to be 21 years after retirement. What would you tell them?
Begin mode!
PV = ? PMT = 22,000 pmt I = 5.34 N= 21 pv = 288,081= they need
expected 300,000 = they are ok by 11,918
Which investment situation exposes the client to greater risk? buying a call buying a put selling a covered call selling a covered put selling stock short
sell stock short
a $1000 bond orginally issued at part matures in exactly 10 years bears a coupon rate of 8% (payable semi-annually) and a market price of $1150. The indenture agreement provides that the bond may be called after 5 years for 1050. What is the yield t call?
PV = -1150 (this is the trick, use Market value not par here) G-N = 5 (note semi annual pmts) pmt = $40 FV= $1050 I= ?
Dixie Home Products is trading at $50 and pays a dividend of $1.50. Due to outstanding product development, analysis predict a dividend growth rate of 8%. Mr. Conservative wants to know if he should purchase Dixie if he has required rate of return of 10%
Yes buy it, it is undervalued.
1.50 (1+.08) / .1-.08
= $81
Yoto, a Japanese exporter to the U.S., will receive payments in U.S. Dollars 2 months after shipment. To hedge agains a fall in the dollar, what should Yoto do? Buy yen calls buy yen puts sell yen calls sell yen puts
Buy yen calls why? He is receiving U.S. $so for protection buy Yen call .
They dollar could fall so buy his currency calls, he could make back the loss.
What is the price (or intrinsic value) of a bond originally sold at par with a 7% coupon with 5 years remaining until maturing if comparable bonds of the same maturity and grade are yielding 8%? This is a PV question
PV = ? FV = 1000 PMT = $35 I = 8 G-N = 5, 2 pmt/yr
PV = 959.45
CMO's has separate classes of security called tranches. Which tranche bears no coupon? a tranche aaa tranche z tranche zero tranche
z tranche
Which of the following statements about preferred stock is correct?
I. preferred stockholder’s claims to corporate assets receive the lowest priority.
II. the dividend is fixed
III the payment of preferred stock dividends is required before common stock dividends can be paid
IV. preferred stocks have more price variability than bonds do
II, III, IV
a stock has earning this year of 2.00 and earning are estimated to be 2.50 next year. The industry P/E is 20, and the stock historically trades at a 10% discount to the industry P/E. Based on next year’s earnings, what is the stock value?
20 x .1 = 2
20-2 = 18
18 x 2.5 = 45
Which of the following is/are true about TIPS?
1) TIPS are issued at a discount
2) TIPS are issued with a stated coupon rate
3) TIPS are marketable securities
4) TIPS interest payments vary as the principal is adjusted for inflation and deflation
II, III, IV
Alice Rogers bought 5 puts for $2 per share ($1000). The exercise price is $50. If the stock price drops t $47, what is the intrinsic value of the puts?
50-47 = 3 3X100x5 = 1500
Which statements are true regarding Treasury STRIPs?
I. Interest earned is subject to reinvestment risk (note - no int until maturity, not reinvesting, so inv rate eliminated)
II. Interest is paid semiannually
III. The bonds are issued at a discount
IV Interest income is accreted and taxed annually.
III, IV
What is the effective “Fed” Funds Rate
Rate charged by the member banks Reserve system
Average rate of the member banks throughout the U.S.
Rate charge by the U.S. Treasury
Average rate of the member banks throughout the U.S.
A publicly traded company would most likely not sell new bonds in which of the following situations?
When existing bonds are selling at a premium
When existing bonds are selling at a discount
When interest rates are expected to rise
When interest rates have fallen
When existing bonds are selling at a discount = interest rates have risen right!!!
Which of the following securities is NOT EXEMPT from state and local taxes. t-bills t-notes t-bonds GNMA *** test
GNMA
Lance purchased 10 listed bonds xyz 8s maturing 10/1/22 on july 1st of this year for $10,500. Lance’s transaction cost for the trade was $200. He paid the broker 10,900 for the bonds. How munch interest will he be paid and how much will be subject to income taxes this year?
400 interest received, $200 taxable interest
400 comes from the 1/2 year bond interest, 200 from 10,900-10,500+200
Bill Barnes lives in NYC, Bill federal tax rate is 31%; his NY state tax rate is 7%, and his NY city tax rate is 2%. Bill bought U.S. TREASURY BONDS with a 6% coupon. What is his after tax yield?
.06 (1-.31) = 4.14%
The PE ratio is current market price divided by earning per share.
What is the curent market price of stock if estimated earnings are $3 share and if it has a P/E ratio of 15?
PE = MP / Earnings per share
15= X/3 = 3x15 = $45
A REMIC is established as a corporation. How is its income taxed
at the corporate level (separate tax entity)
as capital gain
as pass through income
Real Estate Mortgage Investment Conduit
C = a pass through income
Which of the following is true about political risk?
I. it is risk of loss in value due to fluctuation in exchange rate
II. It is the risk from events that come from operating in a foreign country
III. It includes the effect of trades disputes, tariffs, corruption, and expropriation.
IV. The best way to deal with the risk is through diversification
II, III, IV
What is an ADR?
a) An instrument used to affect payment in import-export transactions
b) a receipt for shares of a foreign-based corporation
c) an instrument that contracts in the futures market for a foreign currency
d) a corporation organized under the laws of a foreign country
B a receipt for shares of a foreign based corporation
ADR vs Bankers Acceptance!
BA = shorter than 270 days maturity, facility foreign trade
Guarantee investment contracts GICs are not subject to which of the following?
purchasing power
inflation risk
reinvestment risk
interest rate risk
Interest rate risk - no, because they mature 2,3,5, years
By matching the duration of a bond or bond portfolio to the client’s investment horizon, the client can offset which risk?
Purchasing power risk
Financial risk
Interest rate risk
Market risk
Interest rate risk
Helen is in a 15% federal marginal tax bracket and pays 6% state income tax. She has $20,000 to invest. What is her best bond choice?
I. Corporate bond paying 8%
II. another state’s municipal paying 7%
III Her state’s municipal paying 6.5%
I tax exempt yield = 8%(1-.21) = 6.32
II tax exempt yield = 7%(1-.06) = 6.58
III 6.5% = no calculation
Assume a bond fund has a duration of 6.6 an average-weighted maturity of 5, (N/A) and a beta of 9 (N/A). If interest rates increase by 1.5, what is the expected change in price for this fund?
duration x rate change
6.6 X 1.5
9.9 decrease in portfolio
Johnny Comelately is interested in Google. However, the stock is currently priced at $500. He wants to buy 100 shares of the stock and lock in the price should price of the shares drop. What else should he do?
Buy a $500 put option = buy a put
EMH = efficient market hypothesis
Strong = can’t do squat to outperform the mkt
semi strong- can’t do squat to outperform ….maybe insider trading
weak - maybe fundamental
Technical analysis never helps
The bond indenture agreement does NOT cover which of the following?
A. the amount of the issue B. the premium paid over par C. the property pledged D. the call premium E. the current ratio
B.
ABC Corporation has declared a 5:2 stock split to stockholder of record with 100 shares will receive how many additional shares?
500/200 X 100 = 250
additional = 250-100 = 150
150
The following defines what investment technique? This technique is a “method in which an investor first looks at trends in the general economy and next selects industries and then companies that should benefit from those trends”
a. fundamental analysis
b. technical analysis
c. top-down method
d. bottom-up method
Top down method
Considering the following information on XYZ Utilities, Inc.
book value: $50 per share
preferred div paid: 2/share
common div paid: 1.5/share
EPS (after preferred dividends): $3/share
What is the ROE of XYZ?
ROE = EPS / book value per share
3/50 = 6%
