Chapter 1
In general, what are two types of securities markets?
Primary and secondary
What is FINRA's primary objective?
To adopt, administer, and enforce the rules in the securities industry.
True or false: All owners have the right to vote.
False, only common stock shareholders have the right to vote.
A bond trading at a price below par is a _____ bond.
Discount
What are the two main types of municipal bonds?
General Obligation (GO) bonds and Revenue bonds
The third market is the term used to describe ___-listed securities trading ________.
NYSE & over the counter
Which federal act created the NASD?
The Maloney act of 1938
What instruments are used to facilitate trading of foreign securities in the U.S?
American Depository Receipts (ADR's)
What is a forced conversion?
An issuer calls a bond at a point where the stock is worth more than the bonds call price.
How is interest on municipal bonds treated for tax purposes?
Federally tax exempt, may be subject to state and local taxes.
Ben's margin account has a market value of $800,000 and a debit balance of $350,000. How much SIPC coverage is provided?
In a margin account SIPC cover the net equity (market value - debit). In this example $450,000.
What is the advantage existing stockholders receive through a rights offering?
The ability to maintain the percentage of ownership and buy additional shares at a discount.
True or false: Bonds with call features have higher yields, while bonds with put features have lower yields.
True
At a treasury auction, ______ bids are awarded first.
Non-competitive
What is the general definition of a QIB?
An entity that owns and invests of a discretionary basis at least $100 million in securities of unaffiliated issuers.
What about of coverage is provided by FDIC.
$250,000 per depositor, per bank
Name 2 priorities that preferred stock has over common stock.
Order of liquidation and dividend.
True or false: Short-term bonds typically have higher coupon (interest) payments.
False. Long term bonds typically pay more interest since investors assume greater default risk.
What are TIPS?
Treasury inflation-protected securities.
What is a clearing firm?
A firm that is responsible for the efficient confirmation, settlement, and delivery of securities transactions.
Define wrap account.
A managed account that charges clients an annual fee to cover trading, research, and advisory services.
What is a derivative?
A financial product that derives its value from the value of an underlying asset such as stocks, bonds, or mortgages.
True or false: An issuer will perform a lottery for a full call.
False. Lotteries are only necessary for partial calls.
What are the two methods by which municipal bonds are sold in the primary market (as new issues)?
1) negotiated sales 2) competitive sales