Term
If all of the following bonds mature on September 1, 2020, which would have the highest price?
A) 5-¾% coupon at 5.85
B) 6-¾% coupon at 6.80
C) 6-1/4% coupon at 6.10
D) 5-½% coupon at 5.50 |
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Definition
C - 6-1/4 coupon at 6.10
Choice C is the only one trading at a PREMIUM, which has a YTM lower than its coupon rate. |
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Term
Which two statements are TRUE regarding margin calls?
I. Customers are entitled to an extension of time.
II. Customers are not entitled to an extension of time.
III. Firms can sell securities without first contacting the customer.
IV. Firms cannot sell securities without first contacting the customer.
A) II and IV.
B) II and III.
C) I and IV.
D) I and III. |
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Definition
B - II and III
NO time extension, & the firm DOES NOT need to contact you before selling the securities |
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Term
If a customer buys $10,000 worth of stock in a cash account, then sells the shares for $12,000 without first paying for the buy side, and then requests the $2,000 profit, which of the following statements are TRUE?
I. The $2,000 profit cannot be sent to the customer until he pays for the buy side in full.
II. The $2,000 can be sent to the customer, but the account will be frozen for 90 days.
III. If the customer pays for the buy side in full on or before the fifth business day following trade date, status as a frozen account is lifted.
IV. Both trades must be switched to the customer's margin account, where buying and selling in this manner are acceptable practices.
A) II and III.
B) III and IV.
C) I and III.
D) I and II. |
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Definition
A - II and III
Selling prior to paying = FREERIDING
Penalty - account frozen for 90 days |
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Term
Dividends may be paid to holders of:
A) treasury stock.
B) warrants.
C) rights.
D) American depositary receipts. |
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Definition
D - ADRs
American depositary receipt (ADR) owners have most of the rights common stockholders normally hold. One of these includes the right to receive dividends when declared. |
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Term
A municipal issuer publishes an official notice of sale to indicate that the offering will be made:
A) on a competitive basis.
B) none of these.
C) on a negotiated basis.
D) through a private placement. |
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Definition
A - on a competitive basis
An official notice of sale is the issuer's method of INVITING competitive bids on a new issue.
It sets forth all of the information about the issue that a dealer would need in order to make a bid, including the size of the offering, the maturity dates, and the date, time, and place of the sale. |
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Term
An official notice of sale publicizes each of the following EXCEPT:
A) the issuer's name.
B) the bond counsel's name.
C) the bond's rating.
D) the amount of good faith deposit required. |
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Definition
C
Notice of Sale is the ad place by a municipality to SOLICIT BIDS. It does NOT include the bond's rating |
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Term
Which of the following order types is permitted in Nasdaq markets but NOT in NYSE equity markets?
A) Fill or kill (FOK).
B) Immediate or cancel (IOC).
C) Market.
D) Limit. |
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Definition
A
Fill-or-kill (FOK) and all-or-none (AON) orders may NO LONGER BE ENTERED in the NYSE equity market
but are still accepted in both the BOND market and NASDAQ. |
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Term
Market interest rates have risen steadily over the past several months. The market price of which 2 of the following shares would probably reflect the biggest impact of this change?
I. Growth stock.
II. Money market mutual fund.
III. Preferred stock.
IV. Public utility stock.
A) I and IV.
B) I and II.
C) II and III.
D) III and IV. |
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Definition
D - III and IV
Stocks that are interest rate sensitive will reflect the impact of a change to market interest rates more than others.
Preferred stock with its fixed dividend and utility stocks with their high degree of debt leverage are considered interest rate sensitive. |
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Term
A client of your member firm dies. In correct order, you should
I. freeze the account.
II. accept orders from the executor.
III. obtain the death certificate and other legal documents.
IV. cancel all open orders.
A) II, III, IV, I.
B) III, IV, I, II.
C) I, IV, III, II.
D) IV, I, III, II. |
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Definition
D - IV, I, III, II
IMMEDIATELY CANCEL ORDERS
THEN FREEZE ACCT |
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Term
A registered representative takes a customer order for a when-issued municipal bond. Payment is due:
A) 3 business days after the bond is available from the issuer.
B) on the next business day after issue.
C) 10 business days after order is taken.
D) 5 business days after the order is taken. |
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Definition
A - 3 business days after the bond is available from the issuer
When-issued means the security will be forthcoming at some time in the future.
The order can be taken now, but payment is not due until 3 business days (regular way settlement) after the bond is available from the issuer. |
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Term
According to the Insider Trading and Securities Fraud Enforcement Act, contemporaneous traders are all of the following EXCEPT:
A) persons granted the right to sue inside traders for damages under the act.
B) persons who make trades at approximately the same time as inside traders.
C) insiders such as corporate employees.
D) noninsiders. |
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Definition
C
Conntemporaneous traders are CORPORATE OUTSIDERS who make trades at the same time as insiders. THEY HAVE THE RIGHT TO SUE |
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Term
Which of the following statements regarding the economics of fixed-income securities are TRUE?
I. Short-term interest rates are more volatile than long-term rates.
II. Long-term interest rates are more volatile than short-term rates.
III. Short-term bond prices react more than long-term bond prices given a change in interest rates.
IV. Long-term bond prices react more than short-term bond prices given a change in interest rates.
A) II and III.
B) I and III.
C) I and IV.
D) II and IV. |
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Definition
C - I and IV
SHORT TERM RATES ARE MORE VOLATILE (ex - fed funds rate) |
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Term
When compared to statutory voting, cumulative voting gives an advantage to:
A) management rather than the board of directors.
B) minority stockholders.
C) majority stockholders.
D) participating preferred stockholders. |
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Definition
B - minority stockholders
Cumulative voting allows shareholders to aggregate their votes and cast them as they please - FOR EXAMPLE, they can cast all their votes for a single candidate, which makes their voice louder on the board.
STATUTORY VOTING - corporate voting procedure in which each shareholder is entitled to one vote per share and votes must be divided evenly among the candidates or issues being voted on.
CUMULATIVE VOTING - A corporate voting procedure in which each shareholder is entitled to one vote per share and votes must be divided evenly among the candidates or issues being voted on.
AKA - proportional voting
For example, if you owned 100 shares and there were three directors to be elected, you would have 300 votes. |
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Term
XYZ Corporation is preparing a registration statement for a new issue consisting of 300,000 new shares and 200,000 existing shares held by officers. The offering price is $30 per share and the spread taken by the underwriters is $2 per share. After the offering is complete, XYZ will receive:
A) 14000000.
B) 9000000.
C) 8400000.
D) 15000000. |
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Definition
C
They only give a shit about NEW SHARES, bc that's where they make money.
The 200k shares held by officers will benefit THEM, not XYZ Corp. |
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Term
The maximum sales load may be charged on the purchase of shares from an open-end investment company that offers all of the following EXCEPT:
A) quantity discounts.
B) exchange privileges.
C) dividend reinvestment at NAV.
D) rights of accumulation. |
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Definition
B - exchange privileges
YOU CAN ONLY CHARGE THE MAX 8.5% IF THE FUND OFFERS: 1) Dividend Reinvestment at NAV
2) Rights of accumulation
3) Quantity discounts (breakpoints) |
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Term
Your customer is interested in purchasing a brokered CD and asks how they trade in the event he would want to sell it before it matures. Which of the following statements best describes how brokered CDs trade?
A) Brokered CDs trade at a market driven price that typically moves inversely to the movement of interest rates.
B) Brokered CDs always trade at a discount to par value.
C) Brokered CDs trade at the original issue price until they mature, with no price fluctuation.
D) Brokered CDs always trade at a premium to par value. |
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Definition
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Term
Your customer is interested in purchasing a brokered CD and asks how they trade in the event he would want to sell it before it matures. Which of the following statements best describes how brokered CDs trade?
A) Brokered CDs trade at a market driven price that typically moves inversely to the movement of interest rates.
B) Brokered CDs always trade at a discount to par value.
C) Brokered CDs trade at the original issue price until they mature, with no price fluctuation.
D) Brokered CDs always trade at a premium to par value. |
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Definition
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Term
An underwriting bid for a municipal GO issue would include which of the following?
The dollar amount.
The coupon rate.
The yield-to-maturity.
The underwriting spread.
A) I and III.
B) I and II.
C) II and III.
D) II and IV. |
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Definition
B - I and II
ONLY INFO THEY MUST SHOW - 1) Dollar amount of bid and 2) Coupon Rate
From these, the issuer can determine lowest net interest cost and awards bonds on that basis |
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Term
The 5% markup policy would apply to all of the following equity transactions EXCEPT:
A) riskless principal transaction.
B) proceeds transaction.
C) primary market transaction.
D) agency trade done on an exchange |
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Definition
C
5% POLICY = SECONDARY MARKET ONLY |
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Term
All of the following statements about municipal brokers' brokers are true EXCEPT that they:
A) do not perform retail trades with individual investors.
B) perform specialized trades for institutions.
C) do not maintain inventories.
D) perform trades on a principal basis only. |
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Definition
B
Broker brokers DO NOT maintain INVENTORY, thus they do not act as principals.
They act as AGENTS between dealers or institutions.
They do NOT do RETAIL business. |
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Term
With respect to municipal discretionary accounts, all of the following statements are true EXCEPT
A) a municipal securities principal must approve all transactions in the account promptly after execution
B) unless a customer gives their express authorization, the broker/dealer cannot effect transactions to the customer's account for securities in which it has a control relationship with the securities' issuer
C) if a control relationship exists between the broker/dealer and issuer, that relationship must first be terminated in order for the BD to effect transactions of the issuers securities in their customer's discretionary account
D) all activity in the account must be reviewed at frequent intervals by a municipal securities principal |
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Definition
C
To effect such transactions, the broker/dealer must make full disclosure of the relationship and obtain the customers consent, but termination of the relationship is not required. |
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Term
All of the following appear on a corporation's balance sheet as fixed assets EXCEPT:
A) furniture.
B) real estate.
C) computer equipment.
D) inventory. |
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Definition
D
Inventory is a CURRENT ASSET not a FIXED ASSET, because the company expects to convert its inventory into cash in a short period of time |
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Term
When a customer instructs a registered representative to transfer and ship, the representative instructs the margin department to transfer ownership into the:
A) brokerage firm's name and deliver the securities to the customer.
B) brokerage firm's name and deliver the securities to the brokerage firm's commercial bank for safekeeping.
C) customer's name and deliver the securities to the customer's bank for safekeeping.
D) customer's name and deliver the securities to the customer. |
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Definition
C
The term "transfer and ship" means to transfer the securities into the name of the customer and to ship (deliver) the securities to the customer. Hold in street name would require the securities to be transferred into the name of the broker/dealer and held in safekeeping. |
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Term
A taxpayer's most advantageous tax benefit is:
A) straight-line depreciation.
B) a tax deduction.
C) a tax credit.
D) a depletion allowance. |
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Definition
C - tax credit
CREDIT REDUCES LIABILITY DOLLAR FOR DOLLAR..
DEDUCTIONS reduce taxable income |
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Term
Repurchase agreements, utilized by financial institutions to raise short term financing, include
I. a clause stipulating no interest rate risk exists
II. a clause stipulating no credit risk exists
III. a repurchase price
IV. a maturity date that may be fixed or left open
A) II and IV
B) I and IV
C) III and IV
D) I and III |
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Definition
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Term
Your customer owns shares of LMN stock that have gone up in value. He does not wish to sell the shares now because he does not want to realize the capital gain. To lock in the gain without selling those shares, he sells shares of LMN stock short, holding both the long and short positions simultaneously. You recognize this tax strategy as
A) advance or pre-refunding
B) commingling
C) selling or shorting against the box
D) a wash sale |
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Definition
C
Selling or shorting against the box is a tax strategy used to defer capital gains into the next tax year. |
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Term
Which of the following terms refer to municipal bond underwritings?
I. Standby.
II. Best efforts.
III. Preliminary prospectus.
IV. Firm commitment.
A) II and III.
B) II and IV.
C) I and III.
D) I and IV. |
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Definition
C - II and IV
STANDBY underwritings are used only for CORPORATE underwritings.
The term preliminary prospectus, or red herring, refers to a corporate underwriting. |
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Term
Under the Code of Arbitration, all monetary awards must be paid within how many days of the decision date?
A) 60.
B) 30.
C) 15.
D) 45. |
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Definition
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Term
Each of the following are generally used to service state GO bond issues EXCEPT:
A) motor vehicle license fees.
B) income taxes.
C) sales taxes.
D) real estate taxes. |
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Definition
D - real estate
STATES DO NOT LEVY REAL ESTATE TAX |
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Term
A mutual fund's unrealized loss last month results in which of the following?
I. Lower NAV per share.
II. Lower dividend payments to shareholders.
III. Reduction in the proceeds payable to shareholders who liquidate their shares.
IV. Higher tax liability to shareholders.
A) II and IV.
B) II and III.
C) I and IV.
D) I and III. |
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Definition
D
An unrealized loss is the same as a decrease in net asset value. An investor receives less at redemption than she would have received if the redemption had taken place before the asset's depreciation. |
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Term
Which of the following transactions would have to be reported on FinCEN electronic Form 112?
A) An investor purchases $40,000 worth of speculative and other low-grade bonds with a personal check.
B) A 60-year-old customer directs his registered representative to liquidate $40,000 worth of growth mutual funds in his account and use the proceeds to purchase shares in a long-term bond fund.
C) A new customer brings $40,000 worth of securities in to his broker/dealer firm for deposit into his account.
D) An investor purchases $12,000 worth of securities with twelve $1,000 postal money orders. |
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Definition
D
A cash or currency TRANSACTION totaling more than $10,000 on a single business day must be reported on FinCEN Form 112. |
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Term
An investor has an established margin account with a long market value of $6,500 and a debit balance of $3,750, with Regulation T at 50%. A maintenance call would be triggered if the long market value decreased below:
A) 5000.
B) 4875.
C) 2812.5.
D) 8666.67. |
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Definition
A - 5000
To determine long market value at maintenance, divide the debit balance of $3,750 by 75% ($5,000). |
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Term
Which of the following is NOT good delivery for 470 shares of stock?
A) 2 100-share certificates and 3 90-share certificates.
B) 8 50-share certificates, 1 40-share certificate, and 1 30-share certificate.
C) 4 100-share certificates and 1 70-share certificate .
D) 47 10-share certificates. |
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Definition
A
Shares must add up to 100 or be in multiples of 100, with the EXCEPTION of odd lots. |
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Term
An investment adviser representative recommending investments for an IRA should give primary consideration to:
A) liquidity.
B) maximum current income.
C) the beneficiary's tax status.
D) risk. |
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Definition
D - risk
Risk is the KEY CONSIDERATION in any retirement plan |
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Term
Which of the following registers the securities and packages the program for a limited partnership?
A) Limited partners.
B) Property manager.
C) General partner.
D) Syndicator. |
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Definition
D - Syndicator
A syndicator handles the registration of the limited partnership units. |
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Term
A broker/dealer has set up a prime brokerage account for one of its customers. This customer is most likely
A) an institutional customer
B) an investment club
C) 2 spouses, each having individual accounts and a joint account together
D) an individual retail customer |
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Definition
A - an institutional customer
Prime Brokerage Acct = customer (usually an INSTITUTIONAL INVESTOR) selects one broker (the prime broker) to do everything. |
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Term
For a registered representative, civil penalties under the Insider Trading and Securities Fraud Enforcement Act of 1988 may include
A) the greater of $1 million, or 300% of the profits made or losses avoided
B) 200% of any profits realized
C) no more than $1 million
D) any monetary penalty deemed appropriate and up to 20 years in jail |
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Definition
| A - the greater of $1 million, or 300% of the profits made or losses avoided |
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Term
Mutual fund Class B shares assess:
A) a front-end load.
B) a level load.
C) a deferred sales load.
D) no load. |
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Definition
| C - a deferred sales load |
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Term
A member of the investment banking department of ABC securities is explaining some of the advantages and disadvantages of rights and warrants to the board of directors of XYZ Corporation. Which of the following statements could he make?
I. The exercise prices of stock rights are usually below CMV of the underlying security at time of issue.
II. The exercise prices of warrants are usually above CMV of the underlying security at time of issue.
III. Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value.
IV. Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer.
A) I, II, III and IV.
B) I, II and III.
C) I and II.
D) I only. |
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Definition
D - I, II, III, and IV
All are true statements. The exercise prices of stock rights are usually below CMV of the underlying security at time of issue.
The exercise prices of warrants are usually above CMV of the underlying security at time of issue.
Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value.
Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer. |
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Term
A customer buys a real estate limited partnership interest by contributing $20,000 and signing a nonrecourse note for $50,000. The customer's beginning basis is:
A) 70,000.
B) 30,000.
C) 20,000.
D) 50,000. |
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Definition
A - 70,000
Generally, non recourse debt it not included.
However, In REITs, NON RECOURSE DEBTS are added |
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Term
SEC regulations for securities issued by investment companies prohibit which of the following?
I. Closed-end funds from issuing preferred stock.
II. Open-end funds from issuing preferred stock.
III. Closed-end funds from issuing bonds.
IV. Open-end funds from issuing bonds.
A) I and III.
B) II and III.
C) II and IV.
D) I and IV. |
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Definition
C - II and IV
OPEN END FUNDS CAN ONLY ISSUE COMMON STOCK. NOTHING ELSE.
Closed-end funds may issue more than one class of security, including debt issues and preferred stock. |
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Term
Investor information about the financial condition of a municipal issuer is most likely found in the:
A) legal opinion.
B) "The" "Bond Buyer".
C) official notice of sale.
D) official statement. |
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Definition
D
The official statement, which is the disclosure document used in new municipal offerings, will describe the issue's financial condition in detail. |
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Term
Under SEC Rule 134, a tombstone advertisement includes all of the following EXCEPT:
A) the public offering price.
B) net proceeds to the issuer.
C) names of the syndicate members.
D) number of shares to be sold. |
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Definition
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Term
If interest rates are falling, issuers will likely call which of the following bonds?
Bonds with low coupons.
Bonds with high coupons.
Bonds trading at a discount.
Bonds trading at a premium.
A) I and III.
B) I and IV.
C) II and IV.
D) II and III. |
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Definition
C - II and IV
Bonds at a PREMIUM are more desirable to investors because they have higher coupons |
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Term
Which of the following statements regarding investment companies is TRUE?
A) Retail communications for investment companies must be filed within 10 business days of first use if the communication does not include a performance ranking.
B) Retail communications for investment companies must be pre-filed 10 business days before first use when the communication does not include a performance ranking.
C) Pre-filing for investment company retail communications is never required.
D) Pre-filing for investment company retail communications is always required. |
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Definition
A
Retail communications for investment companies must be filed within 10 business days of first use if the communication does not include a performance ranking. For retail communications that do include a performance ranking, a 10 day pre-filing is required. |
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Term
The risk that time value may erode the premium of an equity option even while the underlying issuer remains financially sound is an example of:
A) interest rate risk.
B) currency risk.
C) reinvestment risk.
D) capital risk. |
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Definition
D - capital risk
CAPITAL RISK is associated with EQUITY instruments
It is the risk that invested dollars can be lost as the result of circumstances unrelated to an issuer's financial strength. |
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Term
If a married couple establishes a JTWROS account with a balance of $1 million and the wife dies, what is the husband's estate tax liability?
A) He pays federal taxes only on $500,000.
B) He pays federal and state taxes on $500,000.
C) He pays federal and state taxes on the entire balance.
D) He pays no estate tax. |
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Definition
D
Establishing a joint tenants with right of survivorship account allows for the transfer of assets to the survivor upon death. The surviving spouse is not taxed on assets transferred in this manner because under current tax law, there is an unlimited marital deduction. |
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Term
Bond trust indentures are required for:
A) municipal revenue bonds.
B) municipal general obligation bonds.
C) Treasury securities.
D) corporate debt securities. |
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Definition
D - corporate debt securities
The Trust Indenture Act of 1939 requires that corporate bond issues of $50 million or more sold interstate must be issued with a trust indenture. |
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Term
Your firm is interested in submitting a bid on a forthcoming general obligation municipal bond issue. Your firm could obtain the appropriate bid worksheets through a service provided by:
A) The Wall Street Journal.
B) Standard & Poor's.
C) the MSRB.
D) the Bond Buyer. |
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Definition
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Term
If an investor has received dividends and capital gains distributions on mutual fund shares she has held for 4 months, the investor will pay:
A) long-term or short-term capital gains rates, depending on the length of time the customer has held the fund shares.
B) ordinary income tax rates on the capital gains and dividends.
C) no tax until she liquidates the shares.
D) capital gains rates on capital gains distributions and ordinary income rates on dividends. |
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Definition
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Term
The over-the-counter market could be characterized as what type of market?
A) Auction.
B) Dealer.
C) Primary.
D) First. |
|
Definition
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Term
An insured municipal bond is purchased by your client in the secondary market. After the sale, MSRB rules would require you to:
A) indicate that the bonds are insured on the confirmation because this is the only requirement.
B) make delivery of the certificates accompanied by evidence of insurance, either on the face of the certificates or in a separate document.
C) send a copy of the Official Statement.
D) include a copy of the insurance policy with delivery of the certificates. |
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Definition
B
Although it is likely that the confirmation would include a statement that the bonds are insured, it is also necessary to provide the client with some proof of that insurance, either on the bond itself or, in the case of book entry delivery, as a separate document. |
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Term
A shareholder invested in a mutual fund and has signed a letter of intent to invest $25,000. Her original investment was $13,000, and her current account value is $17,000. For her to complete the letter, she must deposit:
A) 8000.
B) 13000.
C) 12000.
D) 27000. |
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Definition
C - 12000
Under a letter of intent, the full contribution is required for the letter to be completed. Appreciation is not considered. |
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Term
A client has a cash account with stock valued at $460,000 and $40,000 in cash and shares a joint account with a spouse that has a market value of $320,000 and $200,000 in cash. How much is the SIPC coverage?
A) $460,000 for the cash account and $320,000 for the joint account.
B) $500,000 for the cash account and $420,000 for the joint account.
C) Total of $880,000 for both accounts.
D) $500,000 for the cash account and $500,000 for the joint account. |
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Definition
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Term
FINRA's Trade Reporting Facility (TRF) electronically facilitates the reporting of trade data such as price and volume for
A) trades in Nasdaq-listed securities and exchange-listed securities when they occur off of the exchange trading floor
B) brokers acting as agents in all order execution scenarios
C) brokers executing orders as agents in an auction market on any exchange trading floors
D) trades in NYSE-listed securities occurring on the NYSE |
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Definition
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Term
Duration would be the greatest for which of the following bonds?
A) 5.5% coupon, maturing in 10 years.
B) 6% coupon, maturing in 10 years.
C) 6% coupon, maturing in 5 years.
D) 5.5% coupon, maturing in 5 years. |
|
Definition
A
DURATION = the amount of time it takes for a bond to pay itself |
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Term
After opening a new account, how many days does a firm have to provide the customer with a copy of the account record?
A) 30
B) 45
C) 90
D) 60 |
|
Definition
| A - 30 days to provide customers with a copy of the account record |
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Term
Which of the following scenarios would be TRUE about a step-down CD?
Initially purchased the CD at a lower rate.
Initially purchased the CD at a higher rate.
Later the interest rate adjusts to a lower rate than when it was purchased.
Later the interest rate adjusts to a higher rate than when it was purchased.
A) II and IV.
B) I and IV.
C) I and III.
D) II and III. |
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Definition
D - II and III
With a step-down CD the interest rate will pay a higher rate in the earlier months and adjust downward in later months to pay a lower rate than when it was initially purchased. |
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Term
Which of the following positions violate the rules governing position limits? (Assume SSS stock is subject to a 100,000 option position limit.)
Long 50,000 SSS Aug 40 calls; short 55,000 SSS Aug 40 puts.
Long 50,000 SSS Aug 40 calls; short 55,000 SSS Jan 40 puts.
Long 50,000 SSS Aug 40 calls; short 30,000 SSS Jan 40 calls.
Long 50,000 SSS Sep 40 puts; short 45,000 SSS Sep 40 calls.
A) III and IV.
B) II and III.
C) I and IV.
D) I and II. |
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Definition
D - I and II
The expiration dates and strike prices may be different or the same. However, the total number of contracts on the same side of the market is limited to 100,000 for this stock; long calls and short puts are on the same side of the market (the bull side); short calls and long puts are on the same side of the market (the bear side). |
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Term
Compared to defined contribution plans, defined benefit plans give the highest return to employees who:
are highly compensated.
receive lower compensation.
have fewer years until retirement
have many years left until retirement
A) II and IV.
B) I and IV.
C) II and III.
D) I and III. |
|
Definition
D - I and III
Highly compensated employees who have fewer years until retirement will experience advantages over other employees with this type of plan. Their retirement benefits are predefined and generally linked to the compensation level they attained while employed. After a short time with the company, a person may qualify for benefits comparable to those it would have taken many years to attain under a defined contribution plan. |
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Term
If a municipal bond is purchased at a discount which of the following is TRUE?
A) The discount is accreted and decreases cost basis each year until maturity.
B) The discount is amortized and increases cost basis each year until maturity.
C) The discount is accreted and increases cost basis each year until maturity.
D) The discount is amortized and decreases cost basis each year until maturity. |
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Definition
C
When a municipal bond is purchased at a discount the amount of the discount is accreted. Accretion is the process of adjusting the cost basis each year upwards, until maturity. At maturity the cost basis will equal PAR. |
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Term
An investor unaffiliated with the issuer is permitted to sell restricted stock without being subject to volume restrictions after having held the shares, fully paid, for a period totaling:
A) 3 years.
B) 6 months.
C) 2 years.
D) 1 year. |
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Definition
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Term
The accreted interest income from Treasury STRIPS is:
A) tax free.
B) taxed at the federal level.
C) taxed at all levels.
D) taxed at the state and local levels. |
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Definition
B
Treasury STRIPS are government-issued zero-coupon bonds. The discount must be accreted each year (phantom income) and is taxed at the federal level only. |
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Term
Which of the following securities would have a regular way settlement of T+3?
A) Convertible bonds
B) Mutual fund shares
C) U.S. Treasury bills
D) Options |
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Definition
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Term
How is the discount on an OID accreted for tax purposes?
A) Straight-line method
B) Constant yield method
C) Cost basis method
D) Declining balance method |
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Definition
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Term
Where are the priority provisions for allocating bond offering?
A) Official Statement
B) Underwriters agreement
C) Offering circular
D) Settlement letter |
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Definition
| B) Underwriters agreement |
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