Equities
Name the four types of common stock
Authorized, Issued, Outstanding, and Treasury
This type of municipal bond typically has a competitive underwriting and is supported by tax collection from the municipality
General Obligation (GO) Bonds
Calculate the max loss:
S 1 XYZ Dec 80 call @ 6
S 1 XYZ Dec 80 put @ 6
ML = Unlimited
(this is a short straddle)
An investor wants to buy 100 shares of XYZ stock at the next available price. What type of order was placed?
Market Order
Jack and Jill Jones (25 and 27 y/o) just sold a home and have $300,000 to invest. They plan to use the investment proceeds to purchase a new home in 10 months. What investment is suitable for this couple?
Money Market Fund
(need in short-term)
This type of preferred stock is eligible to receive a percentage of the common dividend above the fixed dividend amount
Participating Preferred Stock
An investor is in the 28% tax bracket and can invest in an 8% corporate bond or 6% municipal bond. Which bond do you recommend?
6% Municipal Bond
After-tax yields:
Muni: 6%, Corp: 5.76%
After Tax Equivalent Yield Calc: [8% x (1-0.28)] or 8% x 0.72
Find the BE:
L 100 ABC @ 40
S 1 40 call @ 5
BE = $35
(this is a covered call hedge)
An investor wants to sell 100 shares of XYZ if the stock drops to $50.00 but does not want to sell for less than $48.00. What order was placed?
Sell Stop Limit
Sell 100 shares of XYZ @ 50 Stop 48 Limit
Frank Cohen (age 45) has an investment objective of current income. His annual income is $70,000. He has low risk tolerance but wants a higher yield than what Treasury Funds are paying. Frank will need access to the money in 8 years. What investment is suitable for Frank?
Intermediate-Term Corporate Bond Fund
These are securities that represent ownership of a foreign security and trade in the U.S. securities markets
American Depository Receipts (ADRs)
This bond's credit rating is based on a corporation's ability to cover a leaseback agreement...but watch out for AMT
Industrial Development Revenue Bonds (IDRs)
Industrial Development Bonds (IDBs)
Private Purpose Bonds
Identify this position and market attitude:
L 1 XYZ Jan 40 call @ 8
S 1 XYZ Jan 30 call @ 12
Bearish Credit Call Spread
(Vertical/Price Spread)
An investor who is short ABC stock at $50.00 is concerned about the risk of a potential short-term stock rally and would like to limit losses if the stock goes above $52.00. What order was placed?
Buy Stop.
Buy 100 Shares of ABC @ $52 Stop
Gary Bloom (age 38) has an annual income of $300,000. Gary would like an investment that allows him to reduce his tax liability in his non-qualified account. What investment is suitable for Gary?
Municipal Bond Fund
(non-qualified accounts do not receive preferential tax treatment)
These give you the ability to purchase stock below market price in the near future
Preemptive Rights
This type of legal opinion is given by a legal counsel and states a new bond issue meets all legal requirements and tax-exempt status
Unqualified Legal Opinion
Womp, Womp: The Options Agreement was not returned within 15 days. What transaction is allowed if the client executed an opening sale of an XYZ Nov 40 call?
Closing Purchase (Buy a Call): L 1 XYZ Nov 40 call
What is the execution price?
Order: Buy 100 shares of ABC @ 30 Stop 30.50 Limit
Price Movement: 28.50, 29.05, 29.57, 30.03, 30.70, 31.00, 30.46, 30.52
Order filled at $30.46
(triggered at $30.03)
Beth Watkins (age 30) has an annual income of $50,000. She has a moderate risk tolerance and will not need the funds for several years. She inherited a portfolio of domestic stocks and bonds from her Aunt Helen and would like to further diversify her portfolio. What investment is suitable for Beth?
International Fund.
When purchasing penny stock, you are exempt from the suitability statement when you meet these requirements to be considered an existing customer
1. Made 3 unsolicited purchases, on 3 separate days, involving 3 separate issues
Or
2. Made deposit into account over 1 year before proposed penny stock trade
These bonds typically have a negotiated underwriting and are used to fund facilities that generate sufficient income
Revenue Bonds
Your client has a business in the US exporting luggage to Japan. They are concerned the dollar is going to increase in value. What options should they use as a currency hedge?
Buy Japanese Yen Puts
(EPIC)
An investor placed an order to buy 400 shares of ABC IOC, what was filled and at what price?
ABC Quote: 45.00-45.75 5x3
Order filled for 300 at $45.75 while the rest was cancelled.
(customers buy at the ask)
Grant Tomlinson (age 42) has an annual income of $115,000 and an aggressive investment style. Grant mentioned that he has been following many companies in Health Care and thinks many are currently undervalued. He is well-diversified and would like to add to his Roth IRA. What investment is suitable for Grant?
Health Care Sector Fund