Term
An investor has been following XYZ Corp. for several years and feels that the company is poised for some very profitable years. Since she wants to purchase a security that offers a consistent annual distribution and one that benefits from XYZ deciding to pay a significant cash dividend to its common stockholders, she should consider purchasing:
a. Cumulative preferred stock
b. Participating preferred stock
c. Collateral secured bond
d. Common stock |
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Definition
B
Participating PS entitles owners to a dividend ABOVE the amount based on company profits.
Cumulative PS adds all UNPAID dividends to a future payment.
Common stock only pays dividends if declared by the company board of directors |
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Term
Which of the following political contributions made by a municipal finance professional will NOT violate the provisions of the MSRB Rule G-37?
a. $100 to a candidate for whom you may vote
b. $100 to a candidate for whom you may not vote
c. $500 to a candidate for whom you may vote
d. $500 to a candidate for whom you may not vote |
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Definition
a - $100 to a candidate for whom you MAY vote
NOT ALLOWED TO CONTRIBUTE TO A CANDIDATE YOU ARE NOT ENTITLED TO VOTE FOR
$250 max contribution for any candidate you CAN VOTE FOR |
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Term
A customer owns 50 shares of ABC Corporation. ABC Corporation is engaging in a rights offering. Each existing share receives one right. The terms of the offering are that 10 rights plus $35 is required to buy one new share of stock. If the customer wanted to subscribe to the rights offering, how many additional rights would she need to buy 100 new shares of stock?
a. 95
b. 100
c. 350
d. 950 |
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Definition
D - $950
50 shares of stock = 50 rights -- EXISTING
1 share - 10 rights - NEW
Thus - they already have 50 old SHARES (50 rights), they need 950 more rights of NEW |
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Term
According to SRO rules, what information must be obtained when an RR opens an account in which mutual fund shares will be purchased?
a. The name of the beneficiary for the customer's account
b. Whether the customer is subject to IRS backup withholding rules
c. A written acknowledgment that the customer has received the fund's prospectus
d. The name of the RR responsible for the account and the manager who approved the account |
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Definition
D
The following MUST be obtained when opening an account:
1. The customer's name and residence
2. Whether the customer is of legal age
3. The name of the registered representative introducing the account and the signature of the member or partner, officer, or manager who accepted the account
4. If the customer is a corporation, partnership, or other legal entity, the names of any persons authorized to transact business on behalf of the entity |
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Term
An individual considering the purchase of an equity-indexed annuity should understand that:
a. The return over long periods of time will equal the underlying index
b. These products tend to outperform the stock market over long periods of time
c. These products do not have sales charges or surrender fees like mutual funds and should only be purchased by seniors who want a death benefit and life payout
d. The return over long periods of time will equal the greater of the participation rate of the underlying index (adjusted rate of return) or the guaranteed minimum |
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Definition
D
Equity-indexed annuities will yield the greater of the GUARANTEED MINIMUM or the underlying index performance |
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Term
If the federal tax exemption for municipal bond interest were eliminated, expectations are that yields on newly issued municipal bonds would:
a. Increase
b. Decrease
c. Remain the same
d. Decrease temporarily but remain stable over a period |
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Definition
A
To compete with other already non-tax exempt bonds, yield would need to increase. |
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Term
An investor establishes a long margin account and buys 1,000 shares of TMP at $55. The value of the securities increases and SMA is created. All of the following actions affect SMA, EXCEPT:
a. The value of the securities declines
b. The value of the securities increases
c. Cash is withdrawn from the account
d. The buying power of the accounts used |
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Definition
A - value of securities decline
SMA remains in the account until it is used. Market movements will never cause SMA to decrease.
An increase in MV of securities increases SMA, since equity increases.
Withdrawing cash/buying securities will reduce SMA. |
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Term
Which TWO of the following activities are normally functions of the investment banking department of a broker-dealer?
a. Working with issuers to raise capital
b. Selling securities to institutional investors
c. Assisting companies with mergers and acquisitions
d. Making a secondary market for new issues |
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Definition
a - I and III
Just know it. IBs work to raise capital for issuers, and assist with mergers and acquisitions |
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Term
An RR sees that a CMO is yielding 5.95% while the comparable Treasury is yielding 5.10%. This means that:
a. The CMO is rated below investment-grade
b. The yield pick-up on the CMO is 85 basis points
c. The annual cash flow from the CMO is $85 greater than the Treasury
d. The yield curve is inverted |
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Definition
B - yield pick-up on the CMO is 85 basis points
"Pick-up" = higher yield |
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Term
Which of the following statements regarding the opening of a new municipal account are TRUE according to MSRB rules?
I. An employee of a municipal securities firm may open a new account with another municipal securities firm without the employer being notified
II. An employee of a municipal securities firm may open a new account with another municipal securities firm as long as the employer is notified and duplicate confirmations are sent to the individual's employer
III. A bond attorney may open a new account without restriction
IV. An officer of a municipal issuer may open a new account without restriction
a. I and III only
b. II and IV only
c. III and IV only
c. II, III, and IV only |
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Definition
d - II, III, and IV only
Only restrictions for opening accounts apply to employees of other MSRB member firms. |
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Term
Which TWO of the following types of municipal securities does NOT require voter approval?
I. A general obligation bond backed by income taxes
II. A special tax bond
III. A bond backed by ad valorem taxes
IV. A certificate of participation
a. I and III
b. I and IV
c. II and III
d. II and IV |
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Definition
D - II and IV
GO bonds require voter approval, because they are backed by the full faith and credit of the issuing muni (taxes we pay). |
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Term
A corporation announced in an ad in The Wall Street Journal that it intends to call for the redemption of all its outstanding 7.25% callable bonds at 103 1/4 plus accrued interest. The market price of the bonds was 102 3/4 at the time of the announcement. Which of the following alternatives is MOST advantageous to an existing bondholder?
a. Redeem the bonds
b. Sell the bonds at the current market price
c. Do nothing and hope for a takeover bid from another company
d. Hold the bonds to maturity and continue to earn interest |
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Definition
a - redeem the bonds
When bonds are called for redemption, the bondholder can only redeem the bonds at the callable price or otherwise sell them in the market. The bondholder cannot continue to hold the bonds in anticipation of a better offer or until maturity. |
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Term
Municipal securities Dealer A quotes a price for a block of bonds to Dealer B for one hour with a five-minute recall. This means:
a. Dealer A may recall Dealer B within the one-hour period and demand a decision of Dealer B in five minutes
b. Dealer B may call Dealer A within the one-hour period and demand a decision of Dealer A in five minutes
c. Dealer B must take the bonds if he does not call Dealer A back within five minutes after the one-hour quote period has ended
d. Dealer A may cancel its quote within the one-hour period by recalling Dealer B within the first five minutes |
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Definition
a.
When municipal bonds are offered on a firm basis to Dealer B for one hour with a five-minute recall, the offering dealer, Dealer A, may not offer the bonds to anyone but Dealer B without giving Dealer B the first opportunity to take the bonds. Since the recall period is five minutes, if Dealer A recalls Dealer B, Dealer B then has five minutes to take the bonds or else Dealer A is free to sell the bonds to someone else. |
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Term
A customer's initial trade in a margin account is the short sale of 500 shares of DEF stock at $20. After making the required deposit, the credit balance in the account is:
a. $5,000
b. $10,000
c. $15,000
d. $20,000 |
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Definition
c - $15,000
CREDIT IN A SHORT ACCT = REG T + SALE PROCEEDS
SHORT SALE PROCEEDS = 50 shares x $20 = $10,000
REG T = $10,000 x 50% = $5,000
CREDIT BALANCE = $15,000 |
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Term
Under the Conduct Rules, the maximum sales charge on any transaction involving an open-end investment company share is:
A) 9% of the net asset value.
B) 8.5% of the offering price.
C) 8.5% of the net asset value .
D) 9% of the offering price. |
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Definition
| B - 8.5% of OFFERING PRICE |
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Term
A customer purchases ten 8% Treasury notes at 101-16. What is the dollar amount of this purchase?
A) $10,015.
B) $10,116.
C) $10,812.
D) $10,150. |
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Definition
D - $10,150
101-16 = 101 plus 16/32 , because GOVERNMENT NOTES AND BONDS ARE QUOTED IN 32nds |
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