sie chapter 12-15

Question 1

What is the purpose of the Special Memorandum Account (SMA)?

a. Manage excess equity
b. Manage short positions
c. Manage margin calls
d. Manage initial deposits

Answer 1

a. Manage excess equity

• The Special Memorandum Account (SMA) is used to manage excess equity in a margin account, allowing the customer to take out cash or make additional stock transactions.

Question 2

What is the primary responsibility of a third party in a fiduciary account?

a. Manage the account for personal gain
b. Act in the best interest of the owner
c. Execute trades without authorization
d. Promote risky investments

Answer 2

b. Act in the best interest of the owner

In fiduciary accounts, the third party’s primary duty is to act in the best interest of the account owner, ensuring protection and benefit.

Question 3

In a custodial account, what is the main restriction regarding the type of accounts allowed?

a. Cash accounts only
b. Margin accounts only
c. Options trading allowed
d. Both a and c

Answer 3

a. Cash accounts only

Custodial accounts are limited to cash-only transactions, and they do not allow margin or specific options positions.

Question 4

Under UGMA, what happens to the account when the minor reaches adulthood?

a. The account remains with the custodian
b. The account is closed
c. The account reverts to the minor
d. The account transfers to a trust

Answer 4

C. The account reverts to the minor

Under UGMA, when the minor reaches adulthood, the account ownership reverts to the minor

Question 5

What is the purpose of the Special Memorandum Account (SMA) in a fiduciary margin account?

a. Manage excess equity
b. Restrict trading options
c. Record customer contact information
d. None of the above

Answer 5

a. Manage excess equity

The Special Memorandum Account (SMA) is used to manage excess equity in a fiduciary margin account

Question 6

When can a custodian be taxed at the parent’s tax bracket in a UGMA account?

a. When the minor is under 21
b. When the minor is under 18
c. When substantial income is generated
d. When the custodian is not a parent

Answer 6

c. When substantial income is generated

If the custodian is the parent and the minor is under 18, the parent’s Social Security number must be obtained, as substantial income generated is taxable at the parent’s tax bracket.

Question 7

What is the main characteristic of a Joint With Rights Of Survivorship (JWROS) account?

a. Each party specifies a % interest
b. Tenancy in common
c. Transfer on Death (TOD)
d. Sole ownership upon death

Answer 7

d. Sole ownership upon death

JWROS accounts grant sole ownership to the surviving party upon the death of one account holder.

Question 8

In a corporate account, what document is required for account opening?
a. Partnership agreement
b. Corporate charter
c. Investment agreement
d. Trust agreement

Answer 8

b. Corporate charter

A copy of the corporate charter is required to open a corporate account.

Question 9

What is the primary purpose of Regulation S?

a. Regulate corporate accounts
b. Facilitate private placements
c. Control option trading
d. Govern fiduciary accounts

Answer 9

b. Facilitate private placements

Regulation S allows companies to issue securities outside the U.S. without intending to sell them within the U.S.

Question 10

Who qualifies as an accredited investor under Regulation D?
a. Individual with a net worth of more than $1 million
b. Any individual with an annual income over $100,000
c. Financial institutions with assets over $1 million
d. Both a and c

Answer 10

D. Both a and c

An accredited investor is an individual with a net worth of more than $1 million or annual income of more than $200,000 (or $300,000 for couples), and financial institutions with assets exceeding $5 million.

Question 11

What distinguishes Rule 506(c) from Rule 506(b) under Regulation D?

a. Allows general solicitation
b. Requires a maximum of 35 nonaccredited investors
c. Is limited to offerings under $10 million
d. Does not require an accredited investor questionnaire

Answer 11

a. Allows general solicitation

Rule 506(c) under Regulation D allows general solicitation, distinguishing it from Rule 506(b).

Question 12

What is the primary purpose of the Securities Act of 1933?
a. Regulate secondary market transactions
b. Require disclosure of information for new issues
c. Control insider trading
d. Govern fiduciary accounts

Answer 12

b. Require disclosure of information for new issues

The Securities Act of 1933 mandates the disclosure of information for new issues in the primary market

Question 13

Which of the following is an exempt issue under the Securities Act of 1933?

a. Corporate stocks
b. Industrial machinery issues
c. Municipal bonds
d. Fixed annuity contract

Answer 13

b. Industrial machinery issues

Industrial machinery issues are not exempt under the Securities Act of 1933; they are subject to its regulations.

Question 14

What is the key characteristic of Rule 144a?

a. Allows unlimited selling to non-accredited investors
b. Facilitates offerings of less than $10 million
c. Permits trading of unregistered securities between qualified institutional buyers
d. Governs the resale of restricted securities

Answer 14

c. Permits trading of unregistered securities between qualified institutional buyers

Rule 144a allows qualified institutional buyers to trade unregistered securities without volume or holding period restrictions

Question 15

Under Rule 144, what is the holding period requirement for restricted securities held by affiliates?

a. 3 months
b. 6 months
c. 9 months
d. 12 months

Answer 15

B. 6 months

Rule 144 specifies a 6-month holding period for restricted securities held by affiliates before public sale.

Question 16

What is the main purpose of Regulation A?

a. Exempt small offerings of up to $75 million
b. Regulate private placements
c. Govern fiduciary accounts
d. Control option trading

Answer 16

a. Exempt small offerings of up to $75 million

Regulation A exempts small offerings of no more than $75 million of equity or debt over a one-year period.

Question 17

What is the first step in the underwriting process for a new issue?

a. Cooling off period
b. Filing a registration statement
c. Managing the offering
d. Negotiating underwriting fees

Answer 17

b. Filing a registration statement

The first step in the underwriting process is filing a registration statement, which includes key information about the offering

Question 18

In a firm commitment underwriting, what is the role of the underwriter?

a. Act as an agent
b. Purchase all securities at a discount
c. Collect payments in an escrow account
d. Assume no liability for unsold shares

Answer 18

b. Purchase all securities at a discount

In firm commitment underwriting, the underwriter purchases all securities at a discount and assumes liability for any unsold shares.

Question 19

What is the purpose of a tombstone ad during the cooling off period?

a. Encourage immediate stock purchases
b. Provide general information about the offering
c. Disclose final pricing information
d. Facilitate secondary market trading

Answer 19

b. Provide general information about the offering

Tombstone ads during the cooling-off period provide general information about the offering without encouraging immediate purchases.

Question 20

How is the underwriting spread calculated?

a. Difference between the public offering price and the underwriting fee
b. Compensation to the lead underwriter, syndicate, and selling group
c. Difference between the public offering price and the issuer’s proceeds
d. Management fee divided by the number of shares sold

Answer 20

c. Difference between the public offering price and the issuer’s proceeds

The underwriting spread is the difference between the public offering price and the issuer’s proceeds

Question 21

What document serves as the disclosure document for customers purchasing an IPO?

a. Preliminary prospectus (red herring)
b. Offering memorandum
c. Final prospectus
d. Underwriting agreement

Answer 21

c. Final prospectus

The final prospectus, filed with the SEC, serves as the disclosure document for customers purchasing an IPO.

Question 22

What is the primary responsibility of the SEC regarding broker-dealers?

a. Conducting market research
b. Registration of broker-dealers
c. Setting interest rates
d. Managing monetary policy

Answer 22

b. Registration of broker-dealers

• The SEC is primarily responsible for regulating and overseeing the registration of broker-dealers to ensure fair and transparent securities markets.

Question 23

Which of the following activities is NOT covered by SEC regulations?

a. Registration of broker-dealers
b. Stabilization of new issues
c. Regulation of commodities
d. Anti-fraud provisions for exempt securities

Answer 23

c. Regulation of commodities

• SEC regulations focus on securities, and commodities are regulated by different bodies, making regulation of commodities outside the SEC’s scope.

Question 24

What is the main purpose of the anti-fraud provisions according to SEC regulations?

a. Protecting commodities markets
b. Ensuring fair insurance practices
c. Deceiving investors
d. Regulating future contracts

Answer 24

C. Deceiving investors

• The anti-fraud provisions aim to prevent deceptive practices in securities markets, protecting investors from misinformation and fraud.

Question 25

What does the term “wash trades” refer to?

a. Buying and selling the same security to manipulate price
b. Coordinated trading to manipulate price
c. Placing orders to drive up the price and then dumping the inflated stock
d. Placing firm orders ahead of a large customer order

Answer 25

a. Buying and selling the same security to manipulate price

• Wash trades involve creating the appearance of trading activity by repetitively buying and selling the same security.

Question 26

Which prohibited activity involves placing firm orders ahead of a large (block) customer order?

a. Wash trades
b. Trading pools
c. Pump and dump
d. Front running

Answer 26

d. Front running

• Front running, placing firm orders ahead of a large customer order, is a prohibited activity as it can exploit privileged information to the detriment of clients.

Question 27

What is the purpose of a stabilization bid in a new issue?

a. To drive up the price of a security
b. To prevent the price from falling below the Public Offering Price (POP)
c. To manipulate trading activity
d. To facilitate private placements

Answer 27

b. To prevent the price from falling below the Public Offering Price (POP)

• Stabilization bids aim to support the market price of a new issue, preventing it from dropping below the POP.

Question 28

According to new issue regulations, who is prohibited from buying common stock IPOs?

a. Portfolio Managers
b. Municipalities
c. Fiduciaries of managing underwriters
d. Commodities traders

Answer 28

c. Fiduciaries of managing underwriters -

Individuals with a fiduciary relationship to the managing underwriter, like lawyers and accountants, are restricted from buying common stock IPOs

Question 29

What is the maximum time frame within which civil suits related to securities violations must be brought?

a. 1 year
b. 2 years of discovery, but no later than 5 years after the violation
c. 7 years
d. 10 years

Answer 29

b. 2 years of discovery, but no later than 5 years after the violation

• Civil suits related to securities violations must be brought within 2 years of discovery but no later than 5 years after the violation occurred.

Question 30

Who enforces MSRB rules for non-broker dealers?

a. FINRA
b. SEC
c. Federal Reserve Board
d. Office of the Comptroller of Currency

Answer 30

C. Federal reserve board

• For non-broker dealers, MSRB rules are enforced by the Federal Reserve Board, not FINRA or the SEC.

Question 31

What is the main function of the Federal Reserve regarding monetary policy?

a. Setting tax rates
b. Conducting open market operations
c. Regulating broker-dealer financial conditions
d. Managing municipal activities

Answer 31

b. Conducting open market operations

• One of the tools of the Federal Reserve for influencing the economy is conducting open market operations to adjust the money supply.

Question 32

According to Keynesian economic theory, what stimulates production and economic growth?

a. Lowering government spending
b. Higher government spending and increased borrowing
c. Tax rate reductions
d. Decreased government borrowing

Answer 32

b. Higher government spending and increased borrowing

• According to Keynesian economic theory, stimulating economic growth involves higher government spending and increased borrowing.

Question 33

How is the CPI used to measure inflation?

a. It tracks the flow of money in and out of an economy
b. It measures the difference between bond yields and benchmarks
c. It calculates the risk-free rate minus inflation
d. It measures price increases of a market basket of goods and services

Answer 33

d. It measures price increases of a market basket of goods and services

• The Consumer Price Index (CPI) measures inflation by tracking the changes in the prices of a basket of goods and services.

Question 33

Which indicator predicts future business cycles?

a. Coincident indicators
b. Leading indicators
c. Lagging indicators
d. Market rates

Answer 33

b. Leading indicators

• Leading indicators predict future business cycles and economic trends, providing insights into potential changes.

Question 34

What type of economic theory supports reducing regulation, lowering taxes, and decreasing government spending?

a. Keynesian Theory
b. Monetarist Theory
c. Supply Side Theory
d. Dow Jones Theory

Answer 34

c. Supply Side Theory

• Supply Side Theory advocates for reducing regulation, lowering taxes, and decreasing government spending to stimulate economic growth.

Question 34

What is the main purpose of SPIC (Securities Investors Protection Act of 1970)?

a. Protects customers from broker/dealer failure
b. Sets rules for selling stock short
c. Regulates penny stocks
d. Manages municipal activities

Answer 34

a. Protects customers from broker/dealer failure

• SPIC protects customers from broker/dealer failure by providing insurance coverage up to a certain limit.

Question 35

What does the term “Step-up Basis” mean in estate tax regarding inherited securities?

a. The cost basis is increased to the net asset value as of the date of death
b. The cost basis is decreased to the net asset value as of the date of death
c. The cost basis remains the same
d. There is no cost basis for inherited securities

Answer 35

a. The cost basis is increased to the net asset value as of the date of death

• Inherited securities receive a stepped-up basis, equal to the net asset value as of the date of the deceased’s death.

Question 36

What is the main purpose of a Roth IRA?

a. Tax-free growth and tax-free withdrawals in retirement
b. Tax-deductible contributions
c. Tax-free withdrawals only
d. Tax-free growth only

Answer 36

a. Tax-free growth and tax-free withdrawals in retirement

• A Roth IRA offers tax-free growth and tax-free withdrawals in retirement if certain conditions are met.

Question 37

What is the maximum amount of net capital losses that can be deducted per year?

a. $1,000
b. $3,000
c. $5,000
d. $10,000

Answer 37

b. $3,000

• Only $3,000 of net capital losses can be deducted per year, with any remainder carried forward.

Question 38

Which of the following events does NOT trigger a taxable event for investors in mutual funds?

a. Capital gains distributions
b. Dividend reinvestment
c. Sales of securities by the fund
d. Capital losses

Answer 38

b. Dividend reinvestment
- Dividend reinvestment is a taxable event for investors in mutual funds, as they are required to pay taxes on distributed dividends.

Question 39

What is the primary responsibility of the MSRB?

a. Registration of broker-dealers
b. Oversight of municipal issuers
c. Setting monetary policy
d. Conducting open market operations

Answer 39

b. Oversight of municipal issuers

• MSRB’s primary responsibility is to oversee market participants involved in municipal securities, excluding regulatory authority over municipal issuers.

Question 40

What does the term “Front Running” refer to in securities trading?

a. Placing orders to drive up the price of a security
b. Coordinated trading to manipulate price
c. Placing firm orders ahead of a large customer order
d. Trading a security to create the impression of trading activity

Answer 40

c. Placing firm orders ahead of a large customer order

• Front Running involves placing firm orders ahead of a large customer order, potentially exploiting non-public information.

Question 41

Which economic theory emphasizes managing the economy through changes in tax rates and government spending?

a. Keynesian Theory
b. Monetarist Theory
c. Supply Side Theory
d. Dow Jones Theory

Answer 41

a. Keynesian Theory

• Keynesian Theory supports managing the economy through fiscal policy, involving changes in tax rates and government spending.

Question 42

What is the main purpose of Regulation FD (Fair Disclosure)?

a. Preventing market manipulation
b. Requiring disclosure of information for new issues
c. Disclosing material non-public information to a limited group
d. Setting rules for selling stock short

Answer 42

c. Disclosing material non-public information to a limited group

• Regulation FD requires disclosure of material non-public information to a limited group, ensuring fair dissemination of information.

Question 43

Which of the following is NOT a function of the SEC?

a. Maintaining fair, orderly, and efficient markets
b. Enforcing MSRB rules
c. Facilitating capital formation
d. Registering representatives

Answer 43

b. Enforcing MSRB rules

• Enforcing MSRB rules is not a function of the SEC but falls under the jurisdiction of other regulatory bodies like FINRA.

Question 44

What economic indicator tracks the flow of money in and out of an economy?

a. Leading Indicators
b. Coincident Indicators
c. Lagging Indicators
d. Balance of Payments

Answer 44

d. Balance of Payments

• The Balance of Payments tracks the flow of money in and out of an economy, providing insights into a country’s trade surplus or deficit

Question 45

The price of an option contract is determined primarily by which of the following?

A) strike price
B) the share price of the related stock
C) the strike date
D) whether it’s a call or put

Answer 45

B) the share price of the related stock

options contracts are classified as derivatives. The value of a derivative is dependent on the price of the financial instrument the derivative is derived from. In the case of an option contract, the price is mainly derived from the share of stock in the option contract.

Question 46

Indexes can appeal to investors because they dictate which of the following

a) a minimum return on investment
b) amount of funds that can be withdrawn annually
C) types of Securities are included therin
d) the number of investors

Answer 46

C) types of Securities are included therin

Indexes are securities collections that dictate what securities are involved in the index and how much of these securities each investor can own. Investors can stay abreast of the securities involved in indexes and make decisions associated with these.

Question 47

Which of the following statements is true of an investment trusts (UIT) in relation to average investor interest in such trusts

a) average investors May deviate from investing in a uit because of high costs and lack of diversification
b) average investors may be inclined to invest in a uit because of higher risk but also higher payments
c) average investors may be inclined to invest in a uit because of possible lower fees and cheaper units

Answer 47

c) average investors may be inclined to invest in a uit because of possible lower fees and cheaper units

UITs provide various benefits to average investors, including its liquidity, lower fees, cheaper units, and overall diversification

Question 48

An investment manager would be required by FINRA to report all of the following actions except:

a) a firm employee is arrested for a misdemeanor shoplifting charge
b) a firm employee has a job at another financial institution but did not disclose this
c) a firm employee contributes $2,000 to a local election campaign
d) The Firm employee is arrested for a misdemeanor DUI charge

Answer 48

d) the correct answer is a firm employee is arrested for a misdemeanor DUI charge.

Since this is not a felony or financial crime, there is no reporting responsibility.

Question 49

If an individual wants to invest in a commercial property via a broker and expects to earn money off that property without concern about interest on funding, in which of the following should the individual invest?

a) privately traded, Bond REIT
b) publicly traded equity REIT
c) privately traded, hybrid REIT
d) publicly traded, mortgage REIT

Answer 49

B) publicly traded equity REIT

individuals work with brokers when investing in publicly traded REITs, which are real estate investment trusts. The individual wanting to earn money from the property itself would want to have an equity REIT

Question 50

Which of the following responses describes a margin account?

a) investors borrow money from brokers and trade with such money
b) investors increase the Robustness of their stock portfolios
c) investors are exempt from paying any brokerage fees
d) investors must be aware of Maximum balance requirements

Answer 50

a) investors borrow money from brokers and trade with such money

Margin accounts are those where investors borrow brokerage money to trade options. At times, there are minimums set forth on such accounts, and the investor may have to pay brokerage fees and interest charges.

Question 51

An investment manager would be required by FINRA to report all of the following actions except:

a) a firm employee is arrested for a misdemeanor shoplifting charge
b) a firm employee has a job at another financial institution but did not disclose this
c) a firm employee contributes $2,000 to a local election campaign
d) a firm employees arrested for a misdemeanor DUI charge

Answer 51

d) a firm employees arrested for a misdemeanor DUI charge

Since this is not a felony or financial crime, there is no reporting responsibility.

Question 52

An investment manager is reviewing potential investments for his clients. He identifies a stock that he would recommend based on the company projections. He believes this investment may be a good fit for specific customers. Which of the following components of the suitability rule has this investor just demonstrated?

a) reasonable basis obligation
b) investment potential obligation
c) customer specific obligation
d) qualitative obligation

Answer 52

a) reasonable basis obligation

An investment manager must first find an investment suitable for at least some of their clients. They can then determine if the investment is reasonable for a specific customer and as a standalone recommendation.

Question 53

Which of the following statements is true about all types of systematic risks associated with the stock market?

a) those with more diverse perforios or more negatively impacted by such risks
b) investors can protect themselves against such risks
c) such risks are easily predictable and can be avoided if investors are willing to trade large swaps of stock options prior to systematic distributions in the market
d) investors cannot do anything to avoid the negative implications and effects of such risk

Answer 53

b) investors can protect themselves against such risks

Question 53

Which of the following is true about all specialized securities accounts?

a) they all have increased fees
b) They must be approved by the Securities board
c) they all have uniquely combine characteristics of General Securities accounts
d) they all required non-discretionary Authority

Answer 53

c) they all have uniquely combine characteristics of General Securities accounts

Specialized security accounts deviate from standard security accounts by combining characteristics thereof. Thus, some may have fees while others do not, authority varies, and features may be unique from other types of specialized security accounts.

Question 54

An investor purchases a corporate bond for $1000 and will receive $1000 at the bond’s maturity, along with regular interest payments over the life of the bond. $1000 represents which of the following?

a) principle
b) risk
c) none of these
d) interest

Answer 54

a) principle

the principal of a corporate bond equals the amount paid by the investor to purchase the bond. In addition to receiving the principal back at maturity, the investor also receives interest over the term of the bond.

Question 55

All the following strategies are used in hedging stocks except

a) indexing
b) buying options in the same stock
c) shorting a similar stock
d) Investing in an ETF compromised of stocks and similar sections

Answer 55

a) indexing

Hedging is defined as minimizing the risk of loss. Methods of hedging when it comes to stock include shorting a similar stock, buying options in the same stock, and investing in an ETF comprised of stocks of similar sectors.

Question 56

Company LMN approaches an underwriter to market and sell part of its stock to gain funds. The underwriter values the stocks lower than the LMN anticipated. The company is willing to take a risk, as long as it can sell all its stocks, even knowing that having the underwriter purchase any unsold shares is not an option for the underwriter. Thus, the underwriter’s best approach is to:

a) develop a dual trade opportunity between LMN and another company
b) provide a firm commitment to LMN
c) provide a best effort communication to LMN
d) Dutch action LMN stocks

Answer 56

d) Dutch action LMN stocks

Question 57

What happens to the real GDP, price levels, and unemployment rates during an economic recession of a business cycle?

a) real GDP decrease, price level decrease, and unemployment rates decrease
b) real GDP decrease, price level decreased common unemployment rates increase
c) real GDP increases price level decrease in unemployment rates increase
d) real GDP decreases, price level and price, and unemployment rates increase

Answer 57

b) real GDP decrease, price level decreased common unemployment rates increase

Question 58

A stock order that will only be executed when a stock meets or falls below a certain market price is known as what?

a) limit order
b) stop order
c) Market order
d) cancel order

Answer 58

b) stop order

A limit order will not be executed until the stock reaches the pre-determined price. A limit order will not be executed at a price that is worse than the specified price, unlike a stop order, which becomes a market order when that price is reached.

Question 59

Which of the following is true regarding American depository receipts (ADR)?

a) ADRs are fixed rate bond certificates for countries outside the US
b) investors in adrs own stock in a foreign company represented by the certificates
c) ADRs are issued by Foreign companies
d) adrs are sold by the United States Department of the treasury

Answer 59

b) investors in adrs own stock in a foreign company represented by the certificates

ADRs) are issued by US banks. While the certificates represent ownership of stock in a foreign company, the investor does not actually own the shares; ownership of the shares belongs to the US bank that issued the ADRs.

Question 60

The primary purpose of a clearing broker in the context of buying or selling stock is to:

a) review transitions are approve or disprove of them
b) leverage trade negotiations and executions
c) sell investor stocks and funds to make room within their portfolios when investors want to purchase more stocks
d) collaborate with clearing and or caring corporations in relation to holding funds or assets

Answer 60

d) collaborate with clearing and or caring corporations in relation to holding funds or assets

A clearing broker acts as an intermediary and is responsible for collaborating with clearing or carrying corporations who will be responsible for holding onto an investor’s assets.

Question 61

A company has $100,000 in annual earnings with $75,000 in expenses. The company owes preferred shareholders $7,000, and it has 10,000 shares issued. Which of the following statements is true of the value of each share?

a) the valley of each share will be $2.20
B) share values for non-preferred shareholders will be set at $1.80
c) stockholders holding 10% of the company stock have shares valuing, minimum $5,000
d) the company should issue 10,000 more shares to increase the value of shareholder stock

Answer 61

B) share values for non-preferred shareholders will be set at $1.80

The per-unit-share price in the example would be $1.80. The shareholder’s equity would be determined by Net Income - Net liabilities = $25,000. Then, the preferred stock payments, $7,000 are subtracted from this = $18,000. This value is then divided by the number of issued shares of the stock (10,000), resulting in a price of $1.80 per share.

Question 62

Stock warrants may be best described by which of the following?

a) options to buy common stock, at a set price, available to all stockholders of a company
b) options to buy common stock, at a set price, available only to Preferred stockholders
c) options to buy preferred stock at a set price, available to all stockholders of a company
d) options to buy preferred stock at a set price, available only to Preferred stockholders

Answer 62

b) options to buy common stock, at a set price, available only to Preferred stockholders

Stock warrants give preferred stockholders the right to buy common stock at a set price. Stock warrants are sold at the warrant price and valid for a specific period of time

Question 63

If a hedge fund is trading aggressively and contains both short and long positions, which hedge fund strategy are they displaying?

a) relative value
b) Global Marco
c) event-driven
d) directional

Answer 63

d) directional

Hedge funds are similar to mutual funds but are limited to large investors, use borrowed money, and have higher fees. A directional investment strategy is aggressive and includes long-term and short-term investments.

Question 64

all of the following are advantages of exchange-traded funds except:

a) traded like stocks
b) high transparency
c) tax efficient
d) low trading cost

Answer 64

d) low trading cost

The trading cost for ETFs tends to be higher than the trading cost for stocks

Question 65

in relation to interest payments, treasury notes, treasury bonds, and TIPS offer which of the following?

a) monthly interest payments
b) quarterly interest payments
c) weekly interest payments
d) semi-annual interest payments

Answer 65

d) semi-annual interest payments

When treasury notes, treasury bonds, and TIPS are established, interest payments are made semi-annually, every six months

Question 66

James is a real estate investor. He bought a house to fix up in a certain suburban town at a cost of $200,000. He spent an additional $60,000 in costs renovating it. After a few months, he sold the house for $360,000. Calculate the return on investment (ROI) on James’s investment.

a) 50%
b) 55.56%
c) 38.46%
d) 27.78%

Answer 66

c) 38.46%

Total cost of the investment = 200,000+60,000=260,000

Net gain 360,000-260,000=100,000: ROI= 100,000/260,000*1000%= 38.46

Question 67

Which of the following is not a role of an investment banker

a) the investment Baker participates in the preparation of the prospects for the market offering
b) the investment Baker performs due diligence to ensure the company going public doesn’t result in a failure
c) the investment banker establishes an underwriting Syndicate when necessary
d) an investment Baker establishes the appropriate price of the stock or bond in the secondary markets

Answer 67

d) an investment Baker establishes the appropriate price of the stock or bond in the secondary markets

An investment banker does not establish the appropriate price of the stock or bond in the secondary markets. The price of a stock or a bond in the secondary market is dictated by the forces of supply and demand. An investment banker establishes the price of the stock or a bond during the public offering.

Question 68

If investor wants to buy an asset and a ETF at a low price at one market to sell it at a higher price in another Market, that investor is participating in which type of an exchange

a) inversion
B) arbtirage
c) indexing
d) leveraging

Answer 68

B) arbtirage

an arbitrage occurs when investors with ETFs (exchange traded funds) buy assets in a market at a lower price with the intention of selling that asset in a different market at a higher price.

Question 69

Which of the four components of gross domestic product (GDP) includes spending on capital goods?

a) net exports
b) government spending
c) consumption
d) business investment

Answer 69

d) business investment

business investment is one of the four components of GDP which includes capital goods purchases, such as machines and other equipment used in production.

Question 70

Which of the following is characteristic of a shell company

a) has no assets
b) is legitimate recognized
c) established foreign offshore accounts
d) is funded for legal means

Answer 70

a) has no assets

Shell companies are often associated with money laundering. Such companies appear as legitimate companies but do not partake in any business activities. As well, such companies hold no assets

Question 71

Which of the following acts requires mandatory registration of organizations that sell investment products publicly?

a) the Investment Company Act of 1940
b) the Securities Exchange Act of 1934
c) the Dodd-Frank Act of 2010
d) the Securities Act of 1933

Answer 71

a) the Investment Company Act of 1940

the Investment Company Act of 1940 requires investment companies that offer investment products publicly to register with the Securities and Exchange Commission. Investment companies may sell products like mutual funds.

Question 72

Inflation reduces the _____ to the _____

a) price of good, consumers
b) nominal interest rate, real interest rate
c) real interest rate, nominal interest rate
d) federal funds rate, discount rate

Answer 72

b) nominal interest rate, real interest rate