Missed Test Questions Flashcards
A letter of intent may be backdated to include a prior purchase up to
90 days
LOIs may be backdated up to 90 days. The obligation under the LOI must be met within 13 months from the date of the letter.
A company that is extensively overleveraged using debt financing whenever available would be exposing its investors to
Debt financing or utilizing debt leverage too much can lead to the inability to meet principal and interest payments on a company’s debt obligations. This is the definition of financial risk.
A client buys stock on Monday, August 14, in a cash account. Under Regulation T, when is the client’s payment due?
Regular-way firm-to-firm settlement is two business days after the trade date (T+2). Under Regulation T, payment must be made two business days after the settlement date (S+2 or T+4).
T+4
Which of the following funds would likely fall the most in a rising interest rate environment?
A) An intermediate-term corporate bond fund
B) A T-bill fund
C) A money market fund
D) A long-term corporate bond fund
A long-term corporate bond fund
Interest rate risk is defined as a potential change in bond prices caused by a change in market interest rates after an issuer offers its bonds. If interest rates rise post issuance, existing bonds (with a lower coupon) will be viewed as less attractive and will be priced in the market at a discount. Conversely, if rates fall, the existing bonds (with their higher coupons) will be viewed as desirable and will trade in the market at a premium. The prices of bonds with longer maturities will fluctuate more than bonds with shorter maturities, as this interest rate differential is potentially longer lived. In this question, the T-bond is the longest maturity security, so it will have the greatest price fluctuation. Duration is a word that is often used to express a bond’s price sensitivity to interest rate swings. The long-term corporate bond fund has the longest duration of the choices offered.
WRJ stock is quoted as 21 bid, 21.15 offer. For a customer order, which of the following is true?
- A purchase can be made at $21 per share if buying at the market.
- A purchase can be made at $21.15 per share if buying at the market.
- The spread is $0.15.
- A sale can be made at $21.15 per share if selling at the market.
A quote always represents the bid and an ask (offer) price. Investors pay the current ask price when purchasing (21.15) and receive the current bid price when selling (21). The spread is the difference between the bid and the ask price which in this quote is 0.15.
At expiration, for those who trade put options, which of the following is true?
A) Put writers want the contract to be in the money.
B) Put writers want the contract to be trading with intrinsic value.
C) Put buyers want the contract to be out of the money.
D) Put buyers want the contract to be in the money.
Put buyers want the contract to be in the money.
At expiration, put buyers (like call buyers) want the contracts to have intrinsic value and, therefore, to be in the money. Put writers (like call writers) want the contracts to be either at or out of the money and, therefore, have no intrinsic value.
A partnership would like to open a margin account. Which of the following is not needed?
A) A new account form
B) A partnership agreement that does not prohibit margin borrowing
C) A partnership agreement that specifically allows margin borrowing
D) A credit agreement
A partnership agreement that specifically allows margin borrowing
A partnership agreement is required. There is, however, no requirement that the agreement specifically allow margin. The agreement must only have no prohibition against margin. A new account form, a credit agreement, and a hypothecation agreement are required.
Which of the following corporate actions would not require the company to formally announce the action?
A) Interest on the issuer’s bonds
B) Issuance of warrants
C) A reverse split
D) Dividends on the issuer’s common stock
A
As interest rates rise, prices of preferred stock will
A) fall.
B) remain unaffected.
C) rise.
D) become volatile.
A) fall.
Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144?
A) Stock acquired on the NYSE by a corporate affiliate
B) Unregistered stock acquired by a nonaffiliate under an investment letter
C) Unregistered stock acquired by a corporate affiliate in a stock option program
D) Stock acquired by a corporate affiliate in a private placement
A
Which of the following bonds would be considered a high-yield bond?
A) 2% Treasury bond maturing in 12 years
B) 4% BB-rated corporate bond maturing in 10 years
C) 4% A-rated bond maturing in 30 years
D) 6% BBB-rated corporate bond maturing in 10 years
B) 4% BB-rated corporate bond maturing in 10 years
Explanation
You need to go by the bond rating, not the coupon rate. The coupon rate is based on the market and the specifics of the bond at issue. The rating reflects the issuer’s current circumstances. A Treasury bond is never high yield.
A corporate bankruptcy liquidation took place. Of the following—general creditors, secured bondholders, subordinated debenture holders, accrued taxes—who was paid first and who was paid last?
A) Secured bondholders first, subordinated bondholders last
B) Secured bondholders first, general creditors last
C) General creditors first, secured bondholders last
D) Secured bondholders first, accrued taxes last
A) Secured bondholders first, subordinated bondholders last
Which of the following is the highest noninvestment grade debt rating?
A)BBB
B)C
C)BB
D)B
C)BB
Most municipals pay interest that is tax free at the federal level. Which one of the following is a taxable municipal bond?
A)TANs
B)BABs
C)GANs
D)RANs
B
Explanation
BABs are Build America Bonds that were issued without the tax free status. The others are tax-free municipal notes. Though BABs are not covered in the SIE material, the other three items are, and are all tax free. Note that industrial development revenue bonds (IDRs or IDBs) are also taxable for investors subject to the alternative minimum tax (AMT).
Regarding bankruptcy proceedings,
A) liquidation of assets must occur first before the courts can offer protection from creditors.
B) courts protect both corporate and individual filers from creditors.
C) the procedure is only available to individuals seeking protection from creditors and not business entities.
D) a plan for reorganization must be submitted first before the courts can offer protection from creditors.
B) courts protect both corporate and individual filers from creditors.
