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Series 7 > Series 7 B chapter 1 > Flashcards

Series 7 B chapter 1 Flashcards

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1
Q

customers not obligated to arbritate unless

A

they have agreed to the process in writing

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2
Q

code of arbitration

A

settles monetary disputes

pay up in 30 days

no appeals

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3
Q

code of procedure

A 
customer complaints
can lead to fines
suspension
expulsion
no jail time
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4
Q

are there appeals in arbitration

A

no

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5
Q

correspondence

A

personal communications

25 or fewer retail customers(once 26 it is sales literature)

can be electronic

does not require prior principal approval

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6
Q

sales literature includes

A 
research reports 
market letter
reprint of article
tv
radio ads
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7
Q

retail communication

A

communication electronic or written to 25 or more retail customers

requires prior principal approval

Must maintain records of this for 3 years

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8
Q

institutional investing

A

Written or electronic communication to institutional investors

No prior principal approval required.

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9
Q

securities act of 1933

A

Requires full and fair disclosure through a prospectus

timeline

Securities must be registered with SEC
20 day cooling off period
Due dilligance meeting(everyone except sec)
SEC clears
each transaction must provide Final prospectus

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10
Q

during 20 day period, you cannot

A

solicit
accept orders
advertise sales literature

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11
Q

during 20 day cooling off period you can

A

tombstone ads
take nonbinding indications of interest
deliver preliminary prospectus(red hering)

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12
Q

due diligence meeting

A

everyone shows up to meeting except the sec

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13
Q

Final prospectus vs preliminary

A

Final has the offer price

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14
Q

best efforts underwriting

A

no financial obligation or liability forany remaining unsold shares for underwriter

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15
Q

firm commitment underwriting

A

underwriters do have financial liability

firm commitment usually pays more

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16
Q

how is offering price determined

A

we can look at PE ratio of other companies within our industry

look at how much interest has been generated

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17
Q

how are underwriters compensated

A

underwriters get percentage.

if for example a new issue is 20$ per share. the underwriter may get 1$ for every share sold

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18
Q

offering price - proceeds to the issuer is the

A

spread

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19
Q

who pays spread

A

the issuer

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20
Q

managers fee

A

lead underwriter takes about 10% of spread

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21
Q

firm who actually sold share gets

A

majority (largest portion of spread

this is called selling concession

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22
Q

what is smallest portion of underwriting spread

A

managers fee

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23
Q

what is largest portion of underwriting spread

A

selling concession

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24
Q

underwriting fee

A

fee paid out to other sydicates for taking on risk

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25
Q

signatures that are required for new account form

A

principal

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26
Q

required to send new account form to customer within how long

and must be updated?

A

30 days

every 36 months

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27
Q

JTWROS who has authority to place trades

if one dies what happens to defendants portion of the assets

A

ether spouse can place trades

does not go through probate and spouse receives assets

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28
Q

JTIC(non spouses)

if one owner dies what happens to there assets

A

percentage ownership must be designated

goes to the estate

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29
Q

corporate customer needs what if just cash account

if they want to open a margin account

A

corporate resolution (designates who has authority to place trades)

need corporate bylaws and corporate resolution

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30
Q

partnership accounts require

what happens if one partner dies

A

partnership agreement and resolution no matter what type of account it is.

need an amended partnership agreement

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31
Q

numbered account

can do this with

A

this is useful for well know public figures

signature card on file which links numbered account with the customer

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32
Q

discretionary accounts (requirements)

does principal need to approve each trade

principal must however

A

written authorization from the customer

requires principal approval

no

frequently review suitability and churning(frequent transactions trying to generate commissions and the size of the trade(larger than normal transactions))

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33
Q

3 as or discretionary authority

A

amount(dollars or shares)
action(buy or sell)
asset

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34
Q

time and price does or does not require discretionary authority

A

does not

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35
Q

UGMA

whose SS is the account registered to

all gifts to account are

when can we register this account in the minors name soley

what is limit that a minor can be gifted in any one year

A

the minor

irrevocable

age of majority. The answer is different per state

no limit (tax consequence applies if it is over $14000) gift tax on the donor

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36
Q

UTMA uniform transfer to minors

whats the difference

A

The age of transfer into the minors single name can be designated up to 25 years of age

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37
Q

what is most important factor when determining suitability

A

making sure that everything matches with the investment objective

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38
Q

Growth recommendation

risks

A

100 equities(common stock)

common stock :

Large cap
Small cap(aggressive)

can diversify with international stocks (ADRS)

risk includes:
market risk which is quantified by beta

business risk based on alpha

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39
Q

Income recommendation

risks

A

70/30

coporate bonds
preferred stock
Blue chip stocks (large older stable companies that provide solid dividends)
REITS

risks:
interest rate sensitive.
credit risk
inflation risk

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40
Q

safety (preservation of capital)

A

30/70

Us government securities
bills
notes
bonds

investments should be spread around all the different maturities. this creates bond latter

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41
Q

liquidity

A

money market

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42
Q

tax advantages(high bracket)

A

muni bonds

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43
Q

long term(college savings)

A

zero coupon

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44
Q

what paperwork is required for margin

A

Margin agreement

hypothecation agreement-customer pledging securities as collateral for the loan.

Consent to loan agreement (optional)

credit agreement- stated interest rate customer is paying for loan amount

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45
Q

Where would you find credit agreement

where would you see information pertaining to interest rate charged

A

in margin agreement

in the the credit agreement

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46
Q

bank employee opens a margin account at their favorite broker dealer

all all required except

margin agreement
hypoth agreement
bank supervisors approval
credit agreement

A

bank supervisors approval

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47
Q

what securities are elibigle to be margined

A

anything listed on exchange
any nasdaq security
any other security that shows up on FRB list

ipos
mutual funds
uits

AFTER 30 days these 3^^

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48
Q

ineligible marginable securities

A

options

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49
Q

what is the loan value for options

A

none because they are ineligible

other securities not on FRB approved list
penny stocks

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50
Q

qualified plan vs non qualified plan

A

qualified plans are made with pre tax dollars
comes off of gross salary which reduces taxable income

non qualified plans are after tax dollars like a variable annuity or deferred compensation plan. Taxed on monies that are in excess of what we put into it.

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51
Q

what is the max contribution for Traditional IRA

A

11000

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52
Q

contributions can be made until

A

april 15

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53
Q

RMD

A

year after you turn 70 1/2 no later than april 1

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54
Q

traditional ira vs roth

A

T IRA grows tax deffered
RMD

Roth is tax free when distributions happen
no rmd
contributions can be made after 70 1/2(must be earned income)

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55
Q

403b(tax sheltered annuities)

Who is eligible

A

school employees
religious organizations
non profit organizations

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56
Q

ERISA

A

guidelines for private corporations

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57
Q

eligibility guidelines for ERISA. which employees must be eligible for retirement plans

A

the employee must be 21 and worked a minimum of 1000 hours in the past 12 months.

erisa defines this as full time

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58
Q

college savings plans differences

A

529
based on a formula
for college education only

or covernel
max contribution 2000 per child
must stop contributing once child is 18
must take distribution once child is 30
can be used for primary or secondary education

they both grow tax free if used for education
the donor retains control of the assets

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59
Q

margin

customer buys 1000 shares of xyz at 40$ per share

what is customer required deposit

if stock goes up to 50

How much buying power does excess credit give? withdraw?

does line of credit go away

what is stock goes down

A

reg t requires min deposit of 50%

so 20,000

customer debit balance is 20,000= what they owe

equit =market value- amount owe

Loan mv50000 - 20000= 30000 equity

Loan val(regt value) =25000 (50% of MV)

loan value=amount which we can borrow

eq 30000-25000loan value= Excess equity 5000

excess credit gives 2 times the buying power
can only withdraw in cash amount of credit

no line of credit stays

lma=30,000
DB=20,000
EQ=10,000
Loan value=15000      (=half of Loan value)
E.E.=0
SMA=5,000 from earlier
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60
Q

regu u

A

broker dealers rehypothecating to banks

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61
Q

how often will broker dealer recalculate math

A

once a day at the close of the market

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62
Q

Finra mimiumum maintaince requirment =

A

25%

=db/.75

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63
Q

when shares are sold

A

half goes to sma

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64
Q

(i think this is long)

in a new margin accct. cust byt 100 shares of xyz at 18 per share

what is required deposit

A

1800 because finra minimum deposit is 2000 or 100% of the transaction.

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65
Q

short margin accounts

A

a customer selling stock they do not own

this is done by borrowing the shares from BD

BD got shares from other customers margin accounts who signed the loan agreement

Customer is required to deposit 50% of the proceeds.(reg T)

Credit balance= cash generated in account from selling shares and 50%. This money eventually used to buy back.

if stock goes down its good in a short account. CR balance stays the same but the money that has to be paid back is less. EQ increases.

We want the price to go down.

Equity cant go below 30% of market value because thats finras requirement for SHORT ACCOUNTS

We can determine minimum by Credit balance/1.30

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66
Q

in a new margin account, customer sells short 100 shares at 18. what is the required deposit

A

2000 is the minimum in any short account regardless of what the stock price is.

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67
Q

long vs long

min maintaince
mkt val at min maintaince
min deposit req

A

for long its 25…..short its 30

DR/.75 CR/1.3

2000 or 100% (whichever is less) 2000(L)

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68
Q

combination of long and short positions

how would we determined combined equity.
what is formula used to determine combined equity

LMV 10k CR 12k
dr=6k smv 9

A

LMV+CR -SMV-Br= COMB EQ

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69
Q

in a combined margin account, LMV increases while at the same time the SMV decreases. Combined equity will do what

A

increase because these are both good events

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70
Q

fundamental analysis

A

means financials
balance sheet
income statement

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71
Q

balance sheet formula

A

assets=liabilities+ owners equity

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72
Q

balance sheet

A

currents assets such as cash
accounts receivables
inventories

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73
Q

Fixed asset

A

plant & equipment

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74
Q

current assets

A

cash, inventory, accounts recievables

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75
Q

current liability

A

interest on any outstanding loans

This years interest only

things owed in one year or less

accounts payable

wages

all things owed this year

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76
Q

Long term liability

A

this years interest

interest on outstanding bonds (excluding this years(

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77
Q

owners equity

A

common stock

retained earnings

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78
Q

retained earnings

A

this is from where cash dividends are paid

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79
Q

what if a company declares a cash dividend

A

because its just declared it becomes a liability that hasn’t been paid

becomes a current liability probably being paid less than a year

for declared dividends only owners equity and liabilities are effected

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80
Q

what if a corporation pays cash dividend

A

liabilities decrease and current assets goes down because cash is used to pay the dividend

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81
Q

Income statement

A

current picture of company

this is where current sales are

sales
-cost of goods sold
=gross profit 
-interest on loans
-taxes
-preferred dividends
=net earnings

earnings/shares outstanding

gives us Earnings per share

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82
Q

PE

A

current price/eps

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83
Q

technical analysis

A

stock charts that may help us forecast price or time

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84
Q

head and shoulders formation

A

indicates reversal of trend

means its going down

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85
Q

head and shoulders bottom formation

A

indication of reversal of trend but going up

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86
Q

which technical indicator states that small investors are always wrong?

A

odd lot theory

odd lots are bought by smaller investors.

if you track number of odd lot purchases you will find when that increases, market tendancy is to go down. basically saying smaller investors buy high and sell at lows(they suck )

small investors always wrong.

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87
Q

indexes are all

A

technical indicators

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88
Q

indexes that track stocks on nyse, amsx, and otc

is what

A

wilshire tracks 5000 stocks. by far broadest index

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89
Q

IPO

A

for example when a mom and pop shop wants to raise capital by issuing shares to the public

now there is shares outstanding(shares held in public hands)

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90
Q

less shares outstanding

A

shares are worth more

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91
Q

treasury stock

A

company (issuer)repurchases outstanding shares

instead of paying out dividends

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92
Q

How do we determine number of shares oustanding

A

number of shares issues
- shares that were repurchased
=outstanding shares

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93
Q

which of the following debt securities pays no interest

bills
bonds
notes
treasury stock

all following are back by government except

A

bills

treasury stock

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94
Q

rights of shares holders

A

voting rights
rights to dividends IF DECLARED

proportional ownership

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95
Q

share holders can’t vote for

A

officers

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96
Q

xyz declares 75 cent cash dividend. Dividend declaration date on dec 8

for all share holders of record as of jan 8

payable on february 8

A

3 days before record date.

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97
Q

ex dividend date is

A

2 days before record date.

2 late 2 days.

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98
Q

first day security can be sold(that is owned)
but would like to receive dividend.

when could they do this

A

after ex dividend date if they own it.

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99
Q

declaration date
ex div date
record date
payable date

boad determine all the following dates except

A

ex div determined by finra/nyse.

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100
Q

selling the dividend

is a

A

prohibited practice

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101
Q

selling the dividend is the idea that

A

registered rep recommending buying a stock before the ex dividend will result in a favorable dividend or rebate

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102
Q

types of dividends

A 
cash dividends
stock dividend (%)
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103
Q

customer owns 100 shares at 50$ per share

company declares 10% stock dividend

how much additional does the customer receive

A

10

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104
Q

start calling a split when its

A

5 for 4 split

which is 25%

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105
Q

1 for 5 would be what type of split

A

reverse

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106
Q

how are stock dividends taxed

A

when sold it is then going to affect capital gain or less because it now adjusts the investors cost basis.

taxed as capital gain or less when sold using an adjusted cost basis.

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107
Q

property dividend

A

product or

pay shares of stock from another company

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108
Q

xyz pays to existing shareholders shares of stock from abc inc. This is know as

A

Spin off(property dividend

A spinoff is the creation of an independent company through the sale or distribution of new shares of an existing business or division of a parent company.

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109
Q

warrants

A

right to buy common stock at a specific price at specific time

issued by corporations

generally warrants can go all the way out to 7 years.

issued at price above market value

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110
Q

when issued, warrents have what type of value

time value
intrinsic value
time and intrinsic value

A

only value is time

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111
Q

rights

A

always issued at price below market and very short term.

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112
Q

preferred stock

A

pays fixed stated dividend

this is for income

pays 8% of par value(typically 100$)

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113
Q

compare preferred stock with common stock

A

common stock for long term appreciation(growth)

Risk for CS
Market risk(systematic)
Business risk(unsystematic risk)

preferred stock
market price is interest rate sensitive

very bond like in respect to being sensitive to interest rates

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114
Q

Beta is a measure of

A

market volatility

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115
Q

alpha

A

difference in comparable betas

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116
Q

what may effect alpha of stock

A 
products 
mgt (changes in management)
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117
Q

whats a beta of 1.0=

A

equals overall market

s and p

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118
Q

straight preferred stock

A

pays fixed dividend but is not guaranteed

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119
Q

cumulative preferred stock

A

they promise to pay dividends even if they miss them

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120
Q

participating preferred

A

Additional dividends that must be declared by the board

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121
Q

convertible preferred

A

changes from debt to equity

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122
Q

Which of these types of preferred would be least interest rate sensitive

straight
cumulative
participating
convertible

A

convertible least interest rate sensitive.

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123
Q

ADRS

A

purpose to facilitate domestic trading of foreign securities

trade on our exchange
you can buy and sell in us dollars

value of ADR is tied to foreign security in foreign market

exchange rate can have effect(currency risk)

good for diversification

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124
Q

debt investors part owners?

principal amount?

amount investor receives at maturity

A

no,

they are creditors(loaners) they are loaning corporation capital

principal amount(par,face) is 1000

they receive interest which is fixed and stated.(coupon rate, nominal rate.

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125
Q

what does coupon rate tell us

6% pays what

A

tells how much interest investor paid on annual basis

semiannual a 6% coupon pays 30$ semi

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126
Q

corporate bonds have

invest objective

A

highest income

max income

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127
Q

whats the risk of corporate bonds

how do we lose principal

A

interest rate risk

inverse relationship

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128
Q

if interest rates go above coupon

A

bond price will fall

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129
Q

if interest goes below coupon

A

price will rise and become attractive

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130
Q

if an investor buys a bond at discount(920 for example) which of the following statements are true concerning the bonds income to the investor

increase
decrease
stay same

A

the income is fixed and stays the same.

no matter what price you pay you will get 60$ for 6% coupon

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131
Q

if the investor buys bond at discount how does that effect return on investment or “Yield”

A

if you pay less than par then your yield increases

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132
Q

current yield

A

annual income/ current market price

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133
Q

XYZ inc reports 3$ in earnings, pays a 25 cent quarterly dividend and is trading at 20$ per share. what is the current yield.

A

1/20=5%

25 cents (quarterly) *4=1 dollar

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134
Q

xyz inc was trading at 50

it is now at 80 dollars a share

if the CY is 5% what is the quarterly dividend.

A

4 bucks is annual

1$ is the quarterly dividend.

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135
Q

if we buy bond at discount(920), receive 60% a year, cy is 6%

what if we hold to maturity and get par value which would be a 80 profit, could we factor that profit into yield equation

A

yes that is the YTM (apparently we won’t need to calculate)

factor in profit yearly. so whatever 80 in how many years is plus

we need to know if its greater than or less than CY

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136
Q

Draw the premium par discount chart relative to cy ytm and ytc

A

draw it

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137
Q

what yield is BD required to disclose on customer confirm

A

defends on price that was paid

ytc if premium

if discount its lowest between ytm and ytc because cy doesnt matter in this case.

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138
Q

call provisions for bonds

good or bad

A

call provisions are a good thing.

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139
Q

Which of the following bonds would an issuer most likely refund

9% nominal mat 2025 callable at par

9% nom mat 2024 call at
101 1/2

  1. 5% nom mat in 2025 call at par
  2. 5 nominal mat 2024 call at 101 1/2
A

start with debt that has highest rate

refinance at lowest cost

par is lowest

answer is A

least likely do

opposite for this so it would be bottom D

mat is irrelevent

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140
Q

Investor side of call provisions. good or bad from this point

A

bad because of the risk of call risk.

With call risk, you are reinvesting the principal at a lower rate.

it effects YTC

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141
Q

what is the only bond that doesn’t pay interest/reinvestment risk

A

zero coupon bonds

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142
Q

All bonds will be issued in

A

term or serial maturities

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143
Q

term maturity

A

all matures on the same date.(all corporate bonds have this)

some can be munis

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144
Q

all term bonds are quoted

A

as a percentage of par

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145
Q

serial bonds

quoted

A

matures over a series of years

quoted as basis(yield)(YTM)

munis predominately

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146
Q

how do you make money on zero coupon bond

A

no interest but usually purchased at high discount and then when it matures you make a profit

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147
Q

how are zero coupon bonds taxed

when are we taxed

A

taxed as ordinary income

every year

taxes calculated using straight line accretion

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148
Q

who would be most suitable for zero coupon bond

A

saving for college tuition

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149
Q

what is jj

A

interest payments dates

jan and july 1rst

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150
Q

accrued interest

A

owed interest that has accrued since last payment date

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151
Q

what basis do corporate bonds and municipal bonds

A

those bonds will accrue interest on a 30/360 basis.

so february would count as 30 days

receive interest up to day before settlement (T +3)

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152
Q

settlement does not include______

Accrued interest ____

A

weekends

does

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153
Q

gov securities use actual

gov securities accrues up to

A

days

up to day before settlement (T+1)

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154
Q

Interest on us gov securities will accrue up to and including which day

First day
settlement
trade date
independence day

A

Trade date

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155
Q

Which of the following bonds trade flat

trading at par
not trading
trading w/o accrued interest
trading at a discount

A

trading flat means trading without any accrued interest.

because they are ether in default and arent paying interest

or are a zero coupon bond

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156
Q

which bonds trade add interest except (what does this mean)

A

means trading flat

still trading with out accrued interest

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157
Q

risks of corporate bonds

A

interest rate sensitive in inverse way

credit risk(default risk)

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158
Q

long term bonds vs short term bonds

A

those with longer maturities will fluctuate in price far me then short

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159
Q

how determine bond risk when bonds have same maturity

A

look at bond price that is farthest from 1000(par)

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160
Q

how can determine bonds for their credit risk

A

ratings from moodys or standard and poor

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161
Q

junk bonds

A

non investment grade

or high yield bonds(high risk)

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162
Q

investment grade sometimes referred to as

A

bank grade

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163
Q

wheres the line between investment grade and junk

A

if a bond starts with letter B it must have 3 letters to be considered investment grade

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164
Q

according to the office of comptroller of currency which of the following would be considered bank grade

Ba3
BB+
BBB-
B++

A

BBB-

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165
Q

rapidly decreasing rates does what to a curve based on maturity and interest rates

A

it flips it short term

every time inverted yield curve occurs it leads to recession.

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166
Q

eurodollar CD

A

prefix euro means non us

pays interest and principal in us dollars

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167
Q

euro bond

A

in foreign currency. Notice its missing dollar.

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168
Q

which of the following may represent currency risk for a us investor

Eurodollar cd
eurodollar bond
euro bond
adr

A

Euro bond

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169
Q

what if kingdom of norway issues a bond in our country trying to raise capital in us markets. us investor purchases bond and kingdom of norway takes norweigin taxes from your interest payments.

A

If i pay taxes to foreign country then i would get foreign tax credit on my us tax bond

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170
Q

convertible securities

A

bond that allows you to convert into common stock at a set price

171
Q

to calculate a parity price on bond

A

take the percentage price change of one and apply to other

172
Q

customer owns an xyz inc 8% convertible debenture. it has a conversion price of 50 dollars a share. Market price of bond decreases to 90. The common stock is trading currently 2 pts below the parity price. what is the market price of the stock.

A

for stock to remain equal it go down 10% as well. 10% of 50 is 5$. parity of price is 45.

answer is 43 because stock is trading 2 points below parity

173
Q

john owns xyz at 8% convertible debenture with a conversion price of 50$. BOD of xyz announce a call in 30 days at 103. current market price of bond is 101. Current market price of stock is at 55. As a Registered rep which would you recommend ?

sell bond
convert into stock
tender bond 30 days
sell short again the box

A

this is a forced conversion. If convertible bond is called

convert

174
Q

what determines what kind of investments go into pool for investment company

A

investment companies must have clearly defined investment objective

found in prospectus

175
Q

every share that customers buy in investment pool(Fractional of whole) is

A

a brand new share and because of this a prospectus is required

176
Q

how do we determine price of investment pool shares

A

based off all stocks or bonds in portfolio

we take net asset value/number of shares outstanding

nav = assets- liabilities

177
Q

when you sell your shares back to original issuer

A

redeemable

178
Q

closed end investment company

A

IPO where prospectus is used and then shares are bought and sold in secondary markets.(NYSE ,OTC)

NOT redeemable

179
Q

ETF

A

always track an index(like s&P)

Shares issued to public in IPO with prospectus

shares are bought and sold in secondary market

LOW cost

180
Q

levered ETFS

A

Attempting to get 200% or 300% of the daily return on the index

buy on margin
use options
futures

181
Q

achieved 200% leveraged ETF. on day 1 its goes up 5%. day 2 it does nothing. day 3 it goes down 10%. current market value is 50$ a share. what is current market price as of day 3

A

if index goes up 5% then cmv goes up 10% which would be 55

day 2 55 ‘

day 3

goes down twice as much which is 20%

which is 44

182
Q

reverse (inverse) ETF

if index goes down in value, the reverse etf will do what 
inc
dec
stay same
cannot be determined
A

means they are shorting market. Hoping it goes down.

increase

183
Q

Open end investment company

A

mutual funds

ran by board of directors

184
Q

non interested board of directors

A

whether or not they are employed by investment company or not.

Done so that outsiders can have an non biased views. To represent views of investing public

don’t worry about percentage on test

185
Q

investment advisor represent

A

the largest expense of running the fund. they get paid based on a percentage of assets under management

186
Q

where are the assets physically held of investment company

A

at the local bank who act as custodian(safe guarder/keeper)

187
Q

transfer agent

A

they sell and redeem shares and keep track of the number of shares outstanding.

188
Q

mutual funds will employee

A

broker dealers to issue the shares to their customers

fund sponsors/distributers

189
Q

class a shares

A

front load funds. Paying sales charge up front.

190
Q

class B shares

A

back end load

pay sales charge at end

sales charge decreases over time and completely go away(contingent deferred sales charge)

191
Q

breakpoints (quantity discount)

who may be eligible to receive quantity discounts

Jon doe
John and mary doe(joint married)
john doe inc
john doe(31) and John sr (58)
jan doe cust
FBO jimmy doe

all except 1 can be eligible

A

everyone except investment clubs

otherwise its john and his dead. they are independent adults like retired guys forming a club.

192
Q

investing investor money right up to breakpoint to maximize sales charge

A

this is a breakpoint sale and is illegal

193
Q

rep invests their customers monies in 7 different fund companies with the same objective and risk profile.

A

this is suspected breakpoint sale violation because they are using different funds for same objective.

194
Q

fixed annuity general account

A

investors moneys are co mingled with insurance companies moneys as well

if this is case, insurance company will guarantee fixed stated rate

would not recommend to someone with long
time horizon or someone adverse to inflation risk because of purchasing power risk

195
Q

variable annuity separate account

A

can invest in stocks, bonds, or any security product. our returns from these investments will vary.

we do have risk. little to no purchasing power risk.(testable topic)

separate account has clearly defined investment objective. we find this in prospectus.

this is registered as a UIT and mutual fund like (not a mutual fund tho. Its like a mutual fund inside of a insurance product)

196
Q

variable annuity qualified or non

A

non qualified

earnings will grow tax deferred

any withrdraws prior to 59 1/2 result in 10% penalty

vehicle for saving for retirement

197
Q

accumulation units

A

basically shares

will constantly change

value of these units are dependent on NAV

198
Q

variable annuity when money comes out

which moneys come out first in distribution

A

because these are non qualified it means they are already taxed. initial deposit is cost basis

over time we hope investment grows, when we take money out, taxed on LIFO basis. all taxable earnings come out first.

199
Q

what if you annuitize variable annuity

A

means income for life until you die.

accumulation units transform themselves into annuity units.

once you annuitize, the number of units now become fixed

200
Q

what determines value of my annuity units

A

it is somewhat based on NAV, but actuaries then take over because they have to determine when you will die. They try to determine how assets will do until you die.

come up with assumed the assumed investment rate

201
Q

lets say our actuaries make an assumption that our assets will grow 5% per year

A

this is bench mark to compare to actual value(nav) so if actual value only 3%, then the value of units decline as does your monthly check. Check will vary. if actual value is higher then assumed rate then value increases and so does monthly check

202
Q

value of the check during annuity stage based on value of

A

assets vs Assumed investment rate

203
Q

annuity payout options

A

life only- check every month until you die
no beneficiaries
largest monthly income option

life only w/ period certain
if i die within certain period of time then bene continues to get payments for that period of time and then it ends. if you live beyond period then you get a check still until you die.

204
Q

who is most suitable for variable annuity

a. 57 year old about to retire
b. 75 year old who wants fixed income
c. 36 year old who has maxed out qualified plans and still has money to invest tax deferred
d. 28 year old who wants down payment on a home in 5 years.

A

non qualified retirement plan

C. 36 year old who has maxed out qualified plans and still has money to invest tax deferred

205
Q

Investor buys 1 xyz june 30 call at 2 When xyz stock is trading at 27$ a share. Why does he do this. How much did this cost investor

A

200 dollars

206
Q

people buy opens because

A

leverage

allows us to profit from stock going up but at far less capital

207
Q

premium depends on

A

how much time we have to underlying stock to go up or down or whatever.

more time =higher premium

also fluctuates based on underlying price of stock.

208
Q

intrinsic value for call options

A

when market price of price is greater than strike price of option.

nothing to do with premium

209
Q

the investor closes their position. whats this mean

A

doesn’t mean exercising

210
Q

buy ibm october 90 call at 3 when ibm is trading at 86 dollars per share. at expiration ibm is trading at 98 dollars per share. investor closes their position. what is the net profit or loss.

breakeven

A

800-300 prem
=500

when it trades at 93

211
Q

investor sells ibm october 90 call at 3 when ibmis trading at 87$ per share. at expiration ibm trading at 98$ per share. what is intrinsic value. what if investor closes position

A

regardless of buy or sell. its 800

then investor loses 500

212
Q

buy 1 xyz jan 70 put at 2 when the stock is trading at 73$ per share.. intrinsic value is when . at expiration xyz is now trading at 61$ per share and the investor closes their position. what is profit or loss.

A

when stock price falls below strike price(in the money)

700 net value

213
Q

whenever you buy option most u can lose is

A

premium

214
Q

sells xyz jan 70 call at 2 and xyz is trading at 73$ per share. at expiration xyz is now trading at 61$ per share. they close position, what is profit or loss.

A

700 dollar loss

215
Q

when you sell most you ever gain is

A

premium

216
Q

hedges

A

investing in stock and using an option to do one of two things.

protect that stock
or to enhance profit on stock

hedges only position with stock

217
Q

protect=

A

guard against risk
or term hedge itself

hedge means protect

218
Q

profit=

A

increase return

or to generate income

219
Q

chester buys 100 shares of ibm at 90 at 2

whats breakeven

A
  • 9000
  • 200$

breakeven is

9200

220
Q

covered call for

A

neutral, bearish market

221
Q

sally long 100 shares xyz at 50. she fears a near term correction, but overall remains bullish. as registered rep, which would you recommend so that sally could profit from situation.

buy 50 call
buy 50 put
sell 55 call
sell 55 put

A

sell because of the word profit in there

remember buy for protection and sell to profit

222
Q

sells short 100 sh xyz at 80

and wants to protect stock what do we do

A

buy call

223
Q

investor and he sells short 100 shares xyz at 80 and investor simultaneously writes october 75 put at 3. the stock declines to 72$ a share and the put is then exercised. for tax purposes what is the gain or loss

a 1100 gain
b800 gain
c300 loss
dunlimited loss

A

8000 in
300 in

-7500

+800 dollars

224
Q

hedges cheat sheet draw it

A

draw it

225
Q

investor buys 300 shares of xyz at 60 and simultaneously writes xyz 65 calls at 2. what is investors break even

A

if you see multiple, just solve if it were one.

out 60
in 2

BE is 58 dollars per share

226
Q

buy 300 shares xyz at 60, writes 5 xyz 65 calls at 2

what is max loss

A

unlimited because 3 are covered and 2 are not

this is called ratio right

227
Q

straddle

A

buying both types or selling both types

calls and puts

228
Q

an investor is long 1 xyz sep 40 call at 3 and simultaniously is long 1 xyz sept 40 put @ 2

be

A

hes bullish and bearish. this is a long straddle. anticipate volatility

out 300
out 200

be is 45 for call
35 for put

needs to move a lot to break even

229
Q

short straddle

selling 1 xyz sept 40 call at 3
selling 1 xyz sept 40 put at 2

be

A

don’t want stock to move at all, that way we go home with the 500$ premium

be is 45 and 35

don’t want volatility

unlimited loss for both

230
Q

an investor is long in xyz 40 call at 4 and long xyz 45 put at 2.

be

A

called a combination

46 and 39

231
Q 
Sally writes a combination. she is 
a bullish
b bearish
c neutral
d consolidated
A

c neutral

232
Q

spread

A

buying and selling same type

ether call or put

233
Q

long 1 xyz oct 30 call at 4
short 1 xyz oct 40 call at 1

BE
MAX gain MAX loss

A

out 400
in 100

net out 300
this is called the spread

basically this is buying calls
so this is a bullish call spread because of the -300 premium

spread determines which it is

-300 is the max loss

CAL
call add premium
lower sp

30+3=33 ignore the + or - this is BE

max gain

max gain always = difference in strike prices. so basically use the 3 to determine its 700 because the spread between the strike prices is 10.

234
Q

long xyz 60 call at 5

short xyz 70 call at 3

A

out 500
in 300

net -200

long most we can lose is -200
max gain 800

be = 2+60=62

235
Q

straddle

A

buying both types or selling both types

calls and puts

236
Q

an investor is long 1 xyz sep 40 call at 3 and simultaniously is long 1 xyz sept 40 put @ 2

be

A

hes bullish and bearish. this is a long straddle. anticipate volatility

out 300
out 200

be is 45 for call
35 for put

needs to move a lot to break even

237
Q

short straddle

selling 1 xyz sept 40 call at 3
selling 1 xyz sept 40 put at 2

be

A

don’t want stock to move at all, that way we go home with the 500$ premium

be is 45 and 35

don’t want volatility

unlimited loss for both

238
Q

an investor is long in xyz 40 call at 4 and long xyz 45 put at 2.

be

A

called a combination

46 and 39

239
Q 
Sally writes a combination. she is 
a bullish
b bearish
c neutral
d consolidated
A

c neutral

240
Q

spread

A

buying and selling same type

ether call or put

241
Q

long 1 xyz oct 30 call at 4
short 1 xyz oct 40 call at 1

BE
MAX gain MAX loss

A

out 400
in 100

net out 300
this is called the spread

basically this is buying calls
so this is a bullish call spread because of the -300 premium

spread determines which it is

-300 is the max loss

CAL
call add premium
lower sp

30+3=33 ignore the + or - this is BE

max gain

max gain always = difference in strike prices. so basically use the 3 to determine its 700 because the spread between the strike prices is 10.

242
Q

long xyz 60 call at 5

short xyz 70 call at 3

A

out 500
in 300

net -200

long most we can lose is -200
max gain 800

be = 2+60=62

243
Q

long xyz 70 call at 3

short xyz 60 call at 6

A

bearish 3

be=63
max loss=700
max gain =300

short calls bearish

244
Q

long 1 xyz 80 put at 7

sell a xyz 70 put at 3

A

out 7
in 3
net debit 400 dollars

buying put (bearish)
most you can lose is premium=400
max gain =600

be= subtract premium from higher sp

be=80-4=76

245
Q

buy xyz 30 put at 3

sell 40 put at 5

A 
out 3
in 5
=credit 200
be=40-2=38
max gain 200
max loss 800
246
Q

spreads be
if t chart ends in a net debit that is our what
dominant(higher premium) determines

A

cal and psh
max loss(we can determine the other from this)
market attitude

247
Q

spreads without premiums

A

for calls the lower strike price will have the higher premium

puts- higher strike price has higher premium

248
Q

investor writes one xyz 70 put

buys xyz 60 put

A

can make up numbers but higher strike must have higher premium for puts

in 5
out 1

bullish
credit

249
Q 
customer long xyz 40 call at 4
short xyz 50 call at 2
to max profit customer would
a want spread to widen 
b wants spread to narrow
c exercise both options
d allow both to expire
A

depends if its debit(widen) or credit(narrow)

-2

debt so we will execise and widen

250
Q

cust owns 1 xyz 30 call. BOD announce a 12% stk div
on ex div date cust will own

1 xyz 28.80 call(100 shares)

2 xyz 28 80 call(112)

1 xyz 28.80 call (112)

2 xyz 28.80 call

A

shares is only thing that changes so its c

251
Q

what happens to options contract with cash div

A

no change

252
Q

investor buys 1 oex call 420 @12

CMV=445
what does investor recieve

A

exercise price- int value

445-420=25 or 2500.

intrinsic value does not take premium into consideration

253
Q

VIX used

what index does it track

A

to help track volatility of underlying stocks. helps determine price of option

s and p 500

254
Q

american vs european option

A

euro can only be exercised at expiration

american options can be exercised anytime

255
Q

foriegn currency options

boeing wants to import raw materials from a tokeyo manufactor with payment expected from boeing in yeng in 30 days

boeing concerned us dollar value will decrease. what could they use to hedge

buy y call
buy yen put
buy us dollar calls
buy us dollar puts

A

fear is really y will go up

buy call

256
Q

xyz inc exports hats to longdon corp w payments in pounds in 30 days. fear is us dollar increases

buy p call
buy p put
buy us dollar call
buy us dollar put

A

buy put because fear is pound goes down

257
Q

Draw the max gain max loss for each

A

lc gain Pre Loss u
sc gain u loss pre
lp sp-p pre
sp pre sp -p

258
Q

closing the position or selling the option

A

holder can sell option for a premium: there is no purchase or sale of underlying stock in this situation. the investor has profit or loss based on the increase or decrease of the options premium from the time the option was purchased

259
Q

exercises of listed equity options settle

A

two business days from exercise date

260
Q

price spread or vertical spread

A

is one that has different Strike prices but the same expriation date.

261
Q

time spread, calander spread, horizontal spread

A

includes option contracts with different expiration dates but the same SP

262
Q

diagonal spread

A

one in which option positions differ in both time and price

263
Q

debit=

widen narrow exercise exprie

A

widen and exercise

264
Q

credit =

widen narrow exercise exprie

A

narrow expire

265
Q

breakeven for spreads

A

CAL

PSH

Call ADD premium Lower SP

Puts Subtract premium from Higher SP

266
Q

debit call spreads used

A

by investors to reduce the cost of a long option position. potential reward is reduced. This investor is bullish

267
Q

credit call spread

A

created by investors to reduce the risk of a short option position. Potential reward is reduced. this guy is bearish

268
Q

debit put spread

A

used by investors to reduce cost of a long put position. Bearish

269
Q

credit put spread

A

created by investors to reduce risk of a short put position. reward reduced

bullish

270
Q

max gain and loss for credit spread

A

net credit

difference between the strikes prices-net credit

271
Q

max gain and loss for debit spread

A

difference between sp- net debit

272
Q

determining a spread investors market attitude

A

If you are buying the lower SP, you are bull

do T chart to determine credit or debit

273
Q

combination

A

composed of a call and a put with different SPS expiration months or both.

274
Q

index multiplier typically uses

A

100

275
Q

how to start limited partnership

A

partnership agreement

private placement

276
Q

what makes partnership effective

A

not a limited partner until GP signs off on

277
Q

investment objective for each

new construction-

existing property

exploratory(wildcatting)

income wells (programs)

A

capital appre

income, depreciation

very high risk

conservative(safest)

278
Q

reit vs vs real estate limited partnership

A

reit passes only gains and not tax benefits.

lp for re passes taxe benefits and losses

279
Q

what is idcs

A

intangible drilling costs, wages fees

280
Q

Dpps are the only

A

investment whee losses past through to investor

281
Q

what is the most difficult to avoid

centralized management
continuity of life

A

centralized management

282
Q

which characteristic is easiest to avoid

centralized management
continuity of life

A

continuity of life

283
Q

which two corporate characteristics are most likely to be avoided by a DPP

A

continuity of life and freeley transferable interests

284
Q

when considering the purchase of an lp, an investor should be most concerned with

A

economic variability which is the number 1 reason to purchase a limited partnership

285
Q

documents needed to limited partnership

A

partnership agreement
certificate of limited partnership
subscription agreement

286
Q

Lps are liable for a _____ assumed by partnerships.Lps have no liability for

A

proportionate share of recourse loans

non recourse loans except in real estate partnerships

287
Q

capital growth-
cash flow(income)
tax deductions-
tax credits-

A

appreciation of property
rent collection
mortgage interest expense and depreciation allowances for wear and tear of building and capital improvements
government assisted housing and historic rehabilitation

288
Q

intangible drilling cost

A

no salvage value

289
Q

tangible drilling costs

A

have salvage value

290
Q

depletion allowances

A

decreasing supply of oil or gas

291
Q

tax credits are

A

dollar for dollar

292
Q

the interest paid by margin customers on money borrowed is a variable rate based on

A

the broker call rate

293
Q

long margin account

A

customers purchase securities and pay interest on the money borrowed until loan is repayed

294
Q

short margin account

A

borrowed and then sold short, enabling customer to profit if value declines

295
Q

(long)when buying options customers must deposit

A

100% of premium.

296
Q

(long)covered call premium amount

A

50%

297
Q

(long)in a cash account premium is

A

100%

298
Q

(long)equity in long margin account formula

A

LMV-DR=EQ

Dr is debit register and lmv is long market value

299
Q

(long)in long margin account, minimum maintenance is

A

25% of LMV

300
Q

(long)Reg T=

A

50% of LMV

301
Q

whenever market value of securities goes up what doesnt change

A

DR

302
Q

(long)if equity in the account is less than reg T but greater than or equal to min maintance the account is

A

restricted

303
Q

(long)if securities are sold in restricted account, what is effected

A

everything except equity

304
Q

(long)restricted account rules

A

to purchase additional securites, put up 50%
To withdraw securites, customer must deposit cash equal to 50% of value of securites being withdrawn
if securities are sold in a restricted account, at least half the proceeds must be retained in the account to reduce the debit balance. This is called retention requirement, also 50% of proceeds credited to SMA

305
Q

(long)when equity in the account falls below the min maintence requirement, the customer recieves a

A

maintance margin call. this is a demand that the customer make a payment to bring account back to minimum

306
Q

(long)SMA

A

special memorandum account. this is a line of credit that customer can borrow from or use to purchase securities

307
Q

(long)sma can be borrowed

sma can be spend

A

dollar for dollar

2 for 1

308
Q

(long)SMA cannot be used

A

to meet a margin call

309
Q

(long)exempt securities are

A

not subject to reg t but are subject to min maintance requirments

exampt securities are bill bonds notes
gov agency securites
municipal securities

310
Q

short margin accounting formula

A

CR-SMV=EQ

311
Q

short margin min deposit

A

2000

312
Q

min maintance for short

A

30%

313
Q

short reg t

A

50%

314
Q

municipals securities traded on exchange or dealer to dealer

A

dealer to dealer

315
Q

specialist belong on

A

exchanges

316
Q

otc is where who lives

A

market makers

317
Q

nasdaq is

A

quotation service

318
Q

what potential risks are with ecns

A

enough liquidity and volume in trades

319
Q

sally has a large gain in xyz stock, shes concerned about downturn in market.

reccomend 
buy limt
sell limit
buy stop
sell stop

what do we need to ask ourselves

A

SL BS
CMV
BL SS

slobs and bliss

do they own or want to own?

what is anticipated market movement

Answer is sell stop

320
Q

bill has been researching abc stock and has noticed stock has down nothing and would like to take advantage if the stock should break out

what would you reccomeend

A

slobs bliss

he wants to own

anticipates going up

Buy stop

321
Q

which of the following orders may excelarate a bear market

A

Sell stop

you want to sell in a bear market

322
Q

which of the following orders may excelarate a bull market

A

buy stop

323
Q

xyz trading at different prices

  1. 75
  2. 58
  3. 65
  4. 60
  5. 48

customer places sell stop at 49.60

when would this be executed

A

49.58 triggered into market order

executued at 49.65

324
Q

Finra 5% markup policy

rule
policy
law
guidline

A

guideline

325
Q

does the 5% markup policy apply to agency transactions or principal transactions or both

what about ipos and mutual funds

A

applies to both

326
Q

which orders are reduced for cash dividends

A

only those placed below the market price are automatically reduced.

bliss( buy limits and sell stops) are placed below the market price and are reduced

327
Q

fill or kill or immediate or all or none

A

fill or kill

328
Q

markups and markdowns are charged when a market maker

A

is acting as a principal(dealing from inventory with financial risk

329
Q

firm quotes are good for

A

round lot only

330
Q

nominal quotes can be

A

given for informational purposes and can be printed only if clearly labeled as such

331
Q

a relatively widespread indicates

A

a thin trading market for the security

332
Q

securities identified as otc non- nasdaq may

A

not always have last-sale information readily available as that information may be difficult to find for these thinly traded securities

333
Q

the 5 % policy applies to

A

markups, markdowns, and commissions, meaning it is applicable to principal and agency transactions

334
Q

in the 5 percent policy what is the limit

A

5 % is not the limit. a transaction charge of more than 5% might be fine if it is reasonably based on the circumstances of the trade

335
Q

settlement same day

A

cash settlement

336
Q

settlement next day

A

regular way- trading options
regular way-trading or exercising nonequity options
regular way- bills notes bond

337
Q

2 business days settlement

A

regular way-equity
regular way- corporate and muni bonds
reg way-us gov agency

338
Q

2 days after regular way settlment

A

reg T

339
Q

no sooner than T +3 settlement

A

Seller’s option

340
Q

if question asks when customer confirmations must be sent answer is

when the broker to broker confirmations must be sent

A

no later than settlement date

no later than the business day following the trade date(T+1)

341
Q

Muni bond

A

Exempt from federal taxes. Exempt from state taxes(if resident of that state). Tax exemption is solely on income. Can still be capital gains taxes

342
Q

Who is most suitable for muni bond

A

those in the highest tax brackets

343
Q

General obligation bonds

State issues gos

other

A

backed by full faith and taxing of the federal government

income taxes, sales taxes, drivers fees

ad valorem(preoperty taxes)

gos have voter approval and debt limits

344
Q

double barrel bond

A

remember city

345
Q

What backs revenue bonds

A

User fees such as tolls, concessions(buying beer at stadium), leases

referred to as self-supportive

Do not require voter approval.

346
Q

Trust indenture act of 1939

A

Federal law that requires these trust indentures for all corporate bonds with face value greater than 50 million. It’s like a prospectus for corporate bonds specifically.

347
Q

Trust indenture(bond contract)

A

contract between issuer of bond and trustee for the benefit of the bondholder. Contains protective covenants(promises or obligations of issuer)

348
Q

Which comes with trust indenture

A

rev bonds because they are more risky because you are relying on beer drinkers instead of taxes. Trust indenture makes the bond more marketable

349
Q

rate covenants

A

We have to charge sufficient user rate to insure that the bond gets paid. Maintaince also has to be maintained. Insurance also needs to be met. This is where rate covenant comes in.

350
Q

Additional Bonds Covenants

A

used to expand facilities. Ether open end(can we issue additional bonds)(yes with test). Closed end (yes but any additional bond will be junior in claim to the original bond.

351
Q

call provisions
whole
partial
catastophe

A

call whole
call part

Natural act that helps when an earthquake or natural event happens. Would have to condemn legal facility.

352
Q

flaw of funds

*Prioritize in a net pledge and gross.

A

Prioritizes all the user fees and how they get dispersed. Trust indenture will come as gross revenue pledge or net revenue pledge(this describes priority of payments). In gross pledge, interest and principle(debt service) is paid first. Any and all op expenses are then paid. In net pledge, workers paid first and then rest used for debt service. Left over money moved into a sink fund( rainy day fund)

Sink, debt, op. answer is op expenses, debt, sink. For gross its debt, op, sink

353
Q

IDRS

A

ndustrial development revenue bonds-lease. These bonds are for “private purpose” of corporation. Interest these bonds pay may be taxable.

354
Q

Your customer subject to the alternative minimum tax, which would be least suitable-

A

IDRS or private purpose.

355
Q

Other thing effected by Alternative minimum tax is-

A

Intangible drilling costs

356
Q

Special Tax Bond

A

backed by alcohol, tobacco, gasoline,

357
Q

Moral obligation bond

what would be required to issue

A

no voter approval. This is rev bond backed by user fee. If user fee is insufficient then state legislature has obligation to pay this. Backed by state legislature ultimately.

358
Q

Auction Rate Securities

A

Money market alternative. Very liquid. Created portfolio of short term municipal notes. Investors invested money in. Broker dealer would ask underwriting investment firms to bid on the securities (Dutch auction) highest bid is the reset rate.

359
Q

What is the risk of auction rate securities

A

what if no underwriters show up to bid(failed auction)

360
Q

Municipal notes

A

Tans bans and rans. Purpose is cash flow. Fills in gaps for periods of low cash flow

361
Q

Analysis of different municipal bonds(quality) For gen obligation bond

A

Population growth, Income per capita of community, tax collection rate, / tax delinquency rate

362
Q

Overlapping debt (coterminous debt)

A

direct debt is what matters. Find direct debt and pick it for test.

conterminous refers to two or more taxing agencies that share the same geographic boundaries and are able to issue debt separetly

overlapping debt is when 2 or more issuers are taxing the same property to service their respective debt

363
Q

Determine quality of revenue bond

A

Economic justification for say a convention center. Feasibly study(if we build it..will they come) Do we have any competing facilities. *Coverage ratio(debt service coverage ratio)(are the user fees sufficient to cover the debt)

364
Q

Coverage ratio

A

2:1 is the minimum. calculated on net basis

365
Q

3 things that bond counsil needs to issue muni bonds(legal opinion)

A

Authority to issue
IRS officially signs off that interest is exempt from federal taxes
Bond is exempt from securities act of 1933(no registration and no prospectus)
Opinion comes to us qualified or unqualified. We would prefer unqualified.

366
Q

What document is similar to prospectus for municipal bonds

A

official statement (created by underwriters with the issuer to make bond more marketable because it gives the client something they can look at)

367
Q

Looking for rating, where do u go

A

official statement

368
Q

is there a law that requires official statement

A

no

369
Q

How liability is spread in best efforts-

A

Western(divided)-10% only. No additional liability

Eastern(undivided)-10% liability + additional liability=initial=10%

370
Q

How are munis traded

A

you have to find broker dealer who owns the bond or has customer who has bond and is willing to sell it. So were going dealer dealer(trading otc)

371
Q

Brokers Broker vs Broker Dealer

A

BB provides list of available bonds to be bought and sold(subscribe to service) Broker dealer maintains inventory of securities.

372
Q

Firm Quotes(out firm quote)

A

must stand behind this quote once issued for 1 hour with 5 minute recall(because someone else

373
Q

Muni dealer purchases 7% muni at par. They now wish to reoffer to public according to msrb which would represent fair quote. 2 are correct

A

5% markup policy needs to be taken into consideration

3 is fair and 1 is fair.

374
Q

What if we purchase bond issued by us territory (pureto rico, guam, us virgin islands)-

A

they are triple tax exempt(*fed,state, and local) for all us residents.

375
Q

Investor purchases a muni at 110, holds to maturity receiving par.

A

0

376
Q

Purchase muni bond at 110, matures in 20 years, we sell it however after 10 years at 106. What is gain or loss

A

have to adjust cost basis to 105

106-105 =10 gain

377
Q

If we buy bond at 94 and we are not the original creditor then how do we compute cap gain or loss- cost vs sale no adjustments.

A

What you sold vs what you bought

378
Q

What if we bought new issue at discount-

A

call original issue discounted bonds. If we buy one of these and hold to maturity then what. We have to adjust cost basis. We use straight line accretion. If held to maturity 0 gain or loss. Sold prior to maturity, sl accretion.

379
Q

A customer purchases muni at 108. It matures in 20 years. However is sold in 10 years at 102.
What is capital gain or loss

A

20 loss

Adjust half of the 8 in premium which makes it 104, sold for 102 making it a 20 dollar loss

380
Q 
Cust wants highest after tax income possible and is considering several bonds, mix of ether munis or corporate bonds. As registered rep, which would be most important.
What state they live in
What is there time horizon
Whose there mama
What tax bracket they currently are in.
A

tax bracket they are currently in

381
Q

They currently own 5% muni bond and in the 34% tax bracket. What would equivalent corp bond yield have to be.

A

Tax equivalent yield is muni yld/ 100-t.b so its 5%/100-34= 7.5%

382
Q 
All of the following may enforce frb rules except?
MSRB 
FINRA
NYSE
Office of com controller of currency
A

msrb

383
Q

What is required on muni confirmation statement-

A

Dates
Control relationships
Yield to worst
Capacity in which BD has. Do they act as agent or principal

384
Q

What is the cusip #

A

every security has this number for identification and tracking purposes.

385
Q

What if a customer refuses to disclose financial information

A

no recommendations

386
Q

Control relationship

A

Someone who represents both the issuer as well as the broker dealer. Relationship must be disclosed

387
Q

Political contributions

A

max contributions of up to 250 dollars.

388
Q

Broker dealer is sponsoring a golf tournament and providing to muni officals a free golf club worth $69. What is allowed under msrb

A

both are allowed

389
Q

Bond buyer-

A

specific to new munis

390
Q

What is in Revdex

A

25 rev bonds with 30 year maturities

391
Q

Visible supply

A

new munis issued 30 days

392
Q

Placement ratio

A

amt sold/offered

393
Q

PHAS or nhas

A

the only municipal issues backed in full by us government. also called section 8 bonds

394
Q

which municipal publication includes the 30 day visible supply index

A

the bond buyer

395
Q

which municipal publication provides the most up to minute information relevent to the secondary municipal bond market

A

thomson muni market monitor

396
Q

mangers fee vs takedown in size

A

takedown biggest and managers fee the smallest

397
Q

when can a syndicate member receive the full spread when a bond is sold

A

syndicate member recieves full spread if the member is also the syndicate manager.

398
Q

takedown=

A

concession+additional takedown

399
Q

7% bond 6.25 basis
7% bond 7.64 basis

premium or discount

A

premium

discount

400
Q

brokers brokers protect

A

identity of their customers

401
Q

msrb rule g-13

A

municipal brokers and dealers to give bona fide bids and offers for municipal securities (bona fide quotes are those good for trading)

402
Q

what type ownership allows for 50% exclusion of dividends from taxation

A

corporate ownership

403
Q

What is a bank-qualified municipal issue

A

One that receives preferential treatment by allowing a bank to exclude from gross income 80% of the interest expense incurred to carry the bonds.

404
Q 
All of the following are regulated by the MSRB EXCEPT:
quotes.
 B)
sales representatives.
 C)
dealers.
 D)
issuers.
A

issuers are not

405
Q

According to the Dow theory, reversal of a primary bullish trend must be confirmed by:

A

the Dow Jones Industrial Average and Transportation Average.

406
Q

When a member of the syndicate sells a bond they are entitled to

A

total takedown

407
Q 
Which of the following describes a quote on Nasdaq Level I?
A)
Inside market.
 B)
Lowest bid/highest offer.
 C)
Nominal.
 D)
Available to traders only.
A

Nasdaq Level 1 quotes represent the highest bid and lowest asking prices of all dealers. This is known as the inside market.

408
Q

A Designated Primary Market Maker on the floor of the CBOE may or may not trade for his own account

A

may

409
Q

f the owner of a variable annuity dies during the accumulation period, any death benefit will:

A

be paid to a designated beneficiary

410
Q

credit
Debit

narrow or wide
exercise or expire

A

credit-expire, narrow

debit- wide exercise

411
Q

Municipal bonds known as dollar bonds are generally quoted:

A

as a percentage of par

412
Q

Under which of the following circumstances may a member firm sell a new equity issue to one of its nonregistered employees?

A

under no circomstances

413
Q

Mutual funds that offer automatic reinvestment of dividends and gains distributions must do so at

A

net asset value

414
Q

Sell orders for equity securities must be marked

A

long or short

415
Q

According to the Investment Company Act of 1940, a diversified mutual fund may hold, at most, what percentage of a corporation’s voting securities

A

100%

416
Q

taxation on annuities

A

taxed as ordinary income when withdrawn.

417
Q

interest rate options have what kind of relationship with interest rates

A

DIRECT

418
Q

A variable-rate municipal bond investment’s main advantage is that:

A

it should remain relatively stable

419
Q

For real estate limited partnerships, nonrecourse loans

A

are included in the limited partners cost basis.

420
Q

Interest on funds borrowed to purchase municipal bonds is tax deductable or not

A

not

421
Q

When a municipal bond is backed by both a source of revenue and the taxing ability of the issuer, this is referred to as

A

double-barreled bond.

422
Q

muni bond at premium for adjusting cost basis

A

Amortization

reduceds cost basis and reduced reported interest income

423
Q

muni bond discount adjusting cost basis

A

increases cost basis

increates reported interest income

Series 7 (27 decks)

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