Practice Exam 3 Flashcards
You sell a municipal bond that has been advance refunded. It will be called at 102 four years from now. On the confirmation, the yield must be stated as the yield to:
A) maturity or yield to call, whichever is higher.
B) maturity.
C) maturity or yield to call, whichever is lower.
D) call.
call;
MSRB rules require that, when a call date has been fixed by a prerefunding, the yield to call so fixed must be reflected on the confirmation statement. Because of the prerefunding, this bond issue will be called at the call date. There is no uncertainty surrounding this event. Therefore, it is appropriate to price the bond to the call date. The old maturity on the bond has no further significance.
A confirmation sent to a customer must include:
A) all of these.
B) amount of any commission.
C) markup or markdown if the member acted as a principal in a Nasdaq security.
D) whether the member acted as agent or principal.
A customer confirmation must disclose the amount of markup for a principal transaction in a Nasdaq security, whether the member acted in an agency or a principal capacity, and the amount of commission if the member acted as an agent.
A municipal bond rating service would consider all of the following when evaluating a revenue bond EXCEPT:
A) operating revenues.
B) the debt service coverage ratio.
C) feasibility studies.
D) the public’s attitude toward debt.
the public’s attitude toward debt;
Debt service coverage ratio, feasibility studies, and projected operating revenues are important to the analysis of a municipal revenue bond. The public’s attitude toward debt is relevant in evaluating GO bonds, which are backed by the taxing authority of the issuer.
All of the following could be a redeemable security under the Investment Company Act of 1940 EXCEPT a(n):
A) investment company security sold as a continuous initial public offering.
B) security sold on an exchange at the market price buyers and sellers have established.
C) security that pays out each investor’s proportionate share of the company’s assets.
D) security issued by an open-end investment company.
security sold on an exchange at the market price buyers and sellers have established;
A redeemable security is purchased from and redeemed by the security’s issuer. A security that can be traded on a secondary market is not redeemable. Open-end shares are redeemable securities, closed-end shares are not.
The economic theory that says economic growth results from lower tax rates and lower government spending is:
A) supply-side theory.
B) Keynesian theory.
C) monetary theory.
D) demand-side theory.
Supply-side economics is the theory of Arthur Laffer, who believed that heavy taxing and government intervention have a negative effect on the economy.
All of the following events would cause FINRA to terminate quotations in a SmallCap stock EXCEPT
A) the issuer’s independent auditor rendering a disclaimer opinion
B) having only 2 broker/dealers making a market in the stock
C) FINRA deeming termination to be in the public’s best interest
D) the issuer declaring bankruptcy
having only 2 broker/dealers making a market in the stock;
Although 3 market makers are required initially for an issue to be included on Nasdaq, only 2 market makers are needed to continue being quoted on the system. The other answers, bankruptcy, a disclaimer opinion being rendered by auditors, or any reason FINRA deems termination to be in the general public’s interest, are sufficient reason for termination of quotations.
The trust indenture of a revenue bond will show all of the following EXCEPT the:
A) reoffering yields.
B) revenue pledge.
C) application of flow of funds.
D) rate covenant.
reoffering yields;
Reoffering yields are unrelated to trust indentures. However, the trust indenture for a revenue bond issue does include covenants (or promises) between the issuer and the trustee for the bondholders’ benefit. Among these covenants are the flow of funds and the rate covenant.
The MSRB is authorized to adopt rules concerning all of the following EXCEPT the:
A) form and content of price quotations.
B) information to be provided by municipal issuers.
C) sale of new issues to related portfolios.
D) regulation of municipal securities advertising.
information to be provided by municipal issuers;
The MSRB does not regulate issuers. Rather, it regulates the underwriting of municipal securities and subsequent secondary market trading. Disclosure requirements for issuers are mandated by the SEC.
Moody’s Investment Grade (MIG) rating would be applicable to:
A) a New York state revenue bond.
B) a New York State university bond.
C) a New York State GO bond.
D) a New York State revenue anticipation note.
a New York State revenue anticipation note;
A MIG rating is provided for short-term municipal debt commonly referred to as notes (revenue anticipation notes).
Smith and Company, a FINRA member firm, is preparing to underwrite securities to be issued by KLC Corporation for a new business venture. For which of the following will Smith and Company be responsible?
I. Filing the registration statement with the SEC and state regulatory bodies.
II. Providing advice on the type of security to be issued.
III. Distributing the security to the public.
IV. Providing advice on how KLC can best utilize the funds raised.
II. Providing advice on the type of security to be issued.
III. Distributing the security to the public;
The issuer is ultimately responsible for filing registration statements with federal and state regulatory bodies and has already determined how the money will be used. The underwriter confines his activities and advice to the type and sale of the securities.
An underwriting spread is the:
A) amount a selling group receives.
B) difference between an offering price and the proceeds to an issuer.
C) amount a managing underwriter receives.
D) amount a syndicate receives.
A spread is the difference between the public offering price and the price an underwriter pays an issuer.
The term “disintermediation” refers to:
A) the flow of money from money market instruments into traditional savings vehicles.
B) using margin to leverage one’s returns.
C) the flow of money from traditional, low-yielding savings accounts to higher- yielding money market instruments.
D) protecting a diversified portfolio through the purchase of index put options.
the flow of money from traditional, low-yielding savings accounts to higher- yielding money market instruments;
This is the industry-accepted definition of disintermediation, and it typically occurs when the Federal Reserve Board tightens the money supply and interest rates rise faster in the marketplace than at bank accounts.
Which of the following is least important to a municipal bond analyst?
A) Legality of the issue.
B) Debt service to annual revenues.
C) Tax collection ratio.
D) Revenue collection record.
A) Legality of the issue.
An investor purchases a corporate bond at 105 with a 10-year stated maturity and pays $30 of accrued interest. If he elects not to amortize the premium and holds the bond to maturity, what is his cost basis for tax purposes?
A) 1000.
B) 1050.
C) 1020.
D) 1080.
1050;
While most taxpayers do elect to amortize the premium paid for a corporate bond, it is not mandatory. The investor chooses not to amortize, thus his cost basis at maturity is simply what he originally paid for the bond. Accrued interest paid does not affect cost basis.
Which of the following describe an underwriter’s financial liability if a syndicate is established as an Eastern account?
I. Divided liability to purchase securities from the issuer.
II. Undivided liability to purchase securities from the issuer.
III. Divided responsibility for securities that remain unsold.
IV. Undivided responsibility for securities that remain unsold.
II. Undivided liability to purchase securities from the issuer.
IV. Undivided responsibility for securities that remain unsold;
An Eastern account has both undivided liability when purchasing the bonds from the issuer and undivided responsibility for bonds that remain unsold.
