Chapter 6
When is a due bill required?
If the trade occurs before the ex-dividend date, but the seller delivers after the record date.
Where can an investor find information on how to buy, redeem, or exchange their mutual fund shares?
The prospectus.
If not needed for a child's education, may the funds in a 529 plan be transferred to a relative's 529 plan ?
Yes
_____ partners are the primary contributors of capital to a limited partnership.
Limited
True or false: Call seller are bearish.
True!
What yield would be disclosed for a bond purchased at a discount?
What share class carries a front-end load?
Class A
Which are considered a security, fixed or variable annuity?
Variable
True or False: REIT's are exempt from the registration requirements of the Securities Act of 1933.
False!
What method does the OCC use when issuing a exercise notice to a B/D?
Random selection
______ return measures how much an investment returns in relation to the risk that was assumed to attain it.
Risk-adjusted
If the Green fund has a NAV of $12.70 and a sales charge of 5.5%, what is the POP?
Formula: NAV/(100%-sales charge %)
$12.70 / 94.5% = $13.44
What is the tax implication of the death benefit on a variable annuity?
Any amount above the contract's basis is taxable to the beneficiary.
What program generates no cash flow and is based on the speculation of land value appreciation?
Raw Land program
Is there any difference between the exercise of an index option and an equity option?
Yes, index options are cash settled while equity options are settled by delivery of a specific security.
What is the formula for calculating total return?
[(sales price - purchase price) + dividend or interest] / purchase price
If the Hi-Tech fund has a NAV of $4.25 and a POP of $4.50, what is it's sales charge percentage?
Formula: (POP - NAV) / POP
$4.50 - $4.25 = $0.25 / $4.50 = 5.5%
What percentage of the benefits received from a qualified annuity is subject to taxation?
100%, since the annuity is funded with pre-tax dollars.
What are the important numbers associated with REIT's?
90% income distributed
5 or less may not own 50%
100+ shareholders
75% of assets invested in real estate.
An investor buys OEX May 475 call at 10. What is his breakeven point?
475 + 10 = 485
(Strike price plus the premium)
If a bond has a basis of 5.68%, what is it's YTM?
Basis and YTM are synonymous; therefore the YTM also is 5.68%.
What is NOT included in a mutual funds expense ratio?
Sales charge, since only fees are included.
Which fee helps an insurance company continue to pay annuities when annuitants live longer than expected?
Mortality risk charges
A REIT can derive income from what different sources?
Interest (mortgage REIT), rent from both residential and commercial property, and capital gain (equity REIT)
Buy 1 ABC Dec 70 call at 4. When ABC rises to 80 the call is exercised and the stock is immediately sold. Result?
A $600 profit since the investor is bullish and the stock rose 6 points above the breakeven point of 74.