Wrong Answer investments

Question 1

Coefficient of Variation

Answer 1

A measure of variability used to compare investments with varying rates of return and standard deviation.

Cv is the standard deviation divided by the average mean or average return.

The higher the result the greater the relative risk.

Question 2

Market Premium

Answer 2

Return of market - risk free rate

(Rm - rf)

Question 3

Stock Premium

Answer 3

(Rm - rf) x beta

Question 4

Convertible Bond Formula

Answer 4

Conversion Value = Par/Conversion Price x Current Price of the Underlying Stock

Question 5

Property’s Intrisic Value

Answer 5

NOI / Cap Rate

Question 6

Exchange Rate Question Steps

Answer 6

1. Get it into the exchange currency
2. Increase value based on gain in question
3. Convert it back by dividing

Question 7

Euro Dollars

Answer 7

A denomination in any foreign bank that is denominated in dollars.

Question 8

Yankee Bonds

Answer 8

A bond issued by a foreign entirety that is issued/traded in the US and denominated in US dollars.

Question 9

Taxation of TIPs

Answer 9

It principle increases, so does basis.

Question 10

GIC

Answer 10

A contract between an insurance company and a guaranteeing a specified interest rate. Not subject to interest rate risk for that reason

Question 11

REIT Keys

Answer 11

-at least 75% of the REIT income must come from real estate investments
-no more than 15% can come from securities like GNMA
-mortgage reits income comes from the spread between the lending rate and the borrowing rate

Question 12

Futures Contract Daily Limit

Answer 12

The maximum number of permissible price increase or decrease relative to the settlement price of the previous day

Question 13

Tax Exempt Yield

Answer 13

Taxable yield * (1-marginal tax rate) … also known as after Tax yield

Question 14

Current Duration in a portfolio %

Answer 14

Add durations together and divide by total number of stocks. Then plug individual durations into percentages given in to see which comes closest to average

Question 15

PE Ratio Method to Value Stocks

Answer 15

Current Market Price = Earnings x PE Ratio

Question 16

Dividend Discount Model Shortcuts

Answer 16

-If the first growth rate is lower than the second, choose the next lowest number in the answer after doing the DDM formula using the higher rate,

-if the first growth rate is higher than the second growth rate, choose the next highest number using the same approach.

Question 17

If a client is being difficult about investment strategies, what is the proper step?

Answer 17

Educate the client, terminating the client relationship usually isn’t the appropriate step unless the client is doing something illegal.

Question 18

When a husband wants to do something without the wife in a JTROS account, what do you do?

Answer 18

Choose the option that consults both of them, if they are in a JTWROS account they are both your clients

Question 19

When a husband wants to do something without the wife in a JTROS account, what do you do?

Answer 19

Choose the option that consults both of them, if they are in a JTWROS account they are both your clients

Question 20

What do if commissions are added to a problem in a taxable sense?

Answer 20

Add to basis

Question 21

Equity REITs

Answer 21

Invest in income producing properties. Use a modest amount of leverage to finance the property purchases. To much leverage can affect the REITs cash flow resulting in decreased divided payments.

Question 22

Mortgage REITs

Answer 22

Make loans to develope property or finance construction. They can earn high interest rates but are subject to default risk if the developer is not able to sell the property or lease it after completion. Mortgage REITs are particularly vulnerable to purchasing power risk.

Question 23

REIT keys

Answer 23

-75% of income can come from real estate investments
-15% can come from securities like GNMAs
-If a REIT fails to distribute 90% then all the net investment income in a REIT is subject to tax.
-Shareholders may deduct 20% of pass through income from a REIT
-REITs are actively traded on an exchange

Question 24

UITs

Answer 24

An investment company with no day to day management. A UIT is typically an unmanaged security profile created by a sponsor.

-no new securities purchased or sold, the assets are frozen
-the sponsor makes a market for investors selling units and buyers of used units. They are generally redeemed at NAV

Question 25

Mutual Funds

Answer 25

Open end investment companies. The shares are nonnegotiable, redeemable securities. Each day they are marked to market at NAV with total market value divided by total number of shares.

Question 26

Closed end investment companies

Answer 26

Issue stock once then books are closed. The shares then trade on an exchange at premium or discount to their NAV. They trade like any other negotiable security

Question 27

Short Selling

Answer 27

Broker on being instructed to sell short will arrange for the investor to borrow security from those held in street name, in effect lending it to the short seller.

Then short seller instructs the broker to repurchase the security and cancel the short position by returning the security. That investor profits on the difference between what the borrow stock was sold and the price it was repurchased.

Question 28

What do do if it asks for the standard deviation of two funds and gives you the return and risk of each plus covariance…

Answer 28

Find the mean of the risks and select the next lowest answer from the mean

Question 29

Stock Split Keys

Answer 29

Distributions of more than 25% outstanding shares.
-they are accounted for as an adjustment to par value .
-in a split par value is reduced and the number of common shares is increased proportionally.
-tax neutral event

Question 30

Stock Split Keys

Answer 30

Distributions of more than 25% outstanding shares.
-they are accounted for as an adjustment to par value .
-in a split par value if reduced and the number of common shares is increased proportionally.
-tax neutral event

Question 31

Investment Grade Bonds

Answer 31

BB or above

Question 32

An investor in a publicly traded stock will receive what by mail each year?

Answer 32

Annual report

Question 33

Lognormal distributions can be used for…

Answer 33

To determine the possible ending value of a portfolio

Question 34

Qualified dividends and long term capital gains

Answer 34

Taxed at 15%

Question 35

Puerto Rico Bonds or US Territory Bonds

Answer 35

Triple tax exempt

Question 36

Who are restricted people that registered reps cannot sell IPO shares to?

Answer 36

Family members, friends are okay

Question 37

Warrants Keys

Answer 37

-Allow the holder to benefit from the appreciation of the underlying stock
-may be separated from the underlying stock and trade individually
-the excercise price will be higher than the market price at the time the warrant is first available
-to receive warrants and individually does not need to exchange the underlying security

Question 38

ROE Method

Answer 38

Divide book value by shares outstanding to get common shares outstanding and then divide by EPS

Question 39

Bullet Strategy

Answer 39

Buying bonds that all mature at the same time

Question 40

Market Value

Answer 40

The current price of a share of stock on a stock exchange

Question 41

Earnings per share divides

Answer 41

After tax profits by number of shares outstanding

Question 42

Par Value of Common Stock

Answer 42

Face value of a share of stock as listed on the stock certificate and on the issuers books. Does not reflect market value but valuable for account purposes

Question 43

Book Value

Answer 43

An accounting term that reflects the net worth of a company and stockholders equity