Suitability Jeopardy Jeopardy Template

Stocks

Bonds

Options

Retirement/Savings Accounts

Misc/Combination

100

A customer wants to invest in preferred stock. His key objective is to maintain consistent current income from dividends. Which of the following types of preferred stock would be the most suitable for the customer?
[A]. Cumulative Preferred
[B]. Participating Preferred
[C]. Callable Preferred
[D]. Convertible Preferred

What is:

[A]. Cumulative Preferred

100

Anna purchases $20,000 XYZ Corporation 8% bonds for $18,700 and pays $350 in accrued interest. What is Anna's cost basis for the bonds?
[A]. $18,250
[B]. $18,700
[C]. $19,050
[D]. $20,000

[B]: $18,700, The cost basis of a bond does NOT include accrued interest.

100

Evi purchased one ABC January 30 listed call and an ABC January 30 listed put. This is a:
[A]. long spread
[B]. long straddle
[C]. short spread
[D]. short straddle

[B]. long straddle

100

Carson is a public-school teacher and earns a salary of $80,000. The school district has a retirement plan that invests into a tax deferred annuity. During the past year, $4000 was contributed from the salary deductions. What would be considered Carsons taxable income?
[A]. $0
[B]. $84,000
[C]. $80,000
[D]. $76,000

[D]. $76,000- Money contributed is pre-tax income and not taxed until withdrawn in retirement

100

An investor's portfolio includes 10 corporate bonds and 200 shares of common stock. If both securities decline in value by ½ point, the dollar loss is:
[A]. $110.00
[B]. $50.00
[C]. $105.00
[D]. $150.00

[D]. $150.00.

Stock Points: 1 so 1/2 point = $.50

Bond Points: 10 so 1/2 point = $5

(0.50 x 200) + (5 x 10) = 100 + 50 = 150

200

Jet Li owns 450 shares of ABC common stock trading at $36.50 per share. ABC announces a 4:3 stock split. How many more shares did he receive and at what price do they trade? (round your answer)
[A]. 150 Shares @ 42.52
[B]. 600 Shares @ 27.38
[C]. 600 Shares @ 28.38
[D]. 150 Shares @ 27.38

[D]. 150 Shares @ 27.38 (36.50/1.333333)

200

An investor who wishes to minimize market risk should buy:
[A]. short term bonds
[B]. high yield bonds
[C]. high-grade bonds
[D]. discount bonds

[A]. short term bonds

200

One of your clients is an option trader. He puts on the following position that would be considered:
L 1 ABC Jun 40 Call @ 5
S 1 ABC Jun 50 Call @ 2
[A]. Horizontal spread at a net credit
[B]. Horizontal spread at a net debit
[C]. Vertical spread at a net debit
[D]. Vertical spread at a net credit

[C]. Vertical spread at a net debit

200

Bafia is a participant in a 403(b) plan. She receives her first distribution today of $1,800. She is retired, 75 years old and in a federal 25% income bracket. What will be her tax penalty, if any, on this distribution?
[A]. $0
[B]. $450
[C]. $900
[D]. $1350

[B]. $450. Her tax bracket is not relevant to this question because this only asks what her tax penalty is, not her total tax liability.

200

In an established margin account a customer sells short 100 shares of ABC at $40 per share and writes 1 ABC July 40 put @ 4. What is the customers cash deposit requirement?
[A]. $1,600
[B]. $2,000
[C]. $2,400
[D]. $4,400

[A]. $1,600

With Reg T, you would be required to deposit 50% to cover the short sale which would be $2000 (1/2 of $4k) However, the proceeds from the sale of the option ($400) can be used to reduce the $2k deposit to $1.6k

300

Yessenia is long 500 LKE and short 500 LKE. The LKE company makes a cash tender offer substantially above the current market price. To take advantage of this tender offer, Yessenia should:
[A]. Sell the long position
[B]. Deliver the long position against the short
[C]. Tender the long position
[D]. Cover the short position

[D]. Cover the short position. Customers may only tender shares from a net long position.

300

Aidan calls and tells you that he believes interest rates will decline substantially and soon, he should invest in:
[A]. A 1yr CD @ 10%
[B]. A long-term variable rate Corporate Bond yielding 12.5%
[C]. A long-term Corporate Bond with a coupon rate of 10%, callable in 3yrs @ par at a 9% basis.
[D]. A long-term Corporate Bond with a coupon rate of 10%, at a 9% basis, non-callable.

[D]. A long-term Corporate Bond with a coupon rate of 10%, at a 9% basis, non-callable.
Bonds have an inverse reaction to interest movements. The non-callable protection also gives protection against a call.

300

A client sells one XYZ Nov 80 call for 6 and buys one XYZ Nov 60 call for 15 when the price of XYZ is 68. If the client sells the XYZ Nov 60 call for 24 and the XYZ Nov 80 call expires unexercised the profit or loss would be?
[A]. $600 loss
[B]. $900 loss
[C]. $900 profit
[D]. $1,500 profit

[D]. $1,500 profit

300

An employer wants to begin a pension plan for its employees but does not want the obligation of annual contributions because of wide cash flow swings due to plans for expansion. Which plan allows for flexibility and still provides immediate vesting on contributions?
[A]. Deferred compensation plan
[B]. Defined Benefit plan.
[C]. Simplified employee pension plan
[D]. Defined contribution plan

[C]. Simplified employee pension plan
allows flexibility in contributions and immediate vesting.

300

An investor calls and has $100,000 to invest in a fund. They are worried about the long-term outlook on the economy and are interested in something low risk with a lot of liquidity, they do not care about management or advisory fees. What fund would you recommend to them?
[A]. International Fund
[B]. Municipal Bond Fund
[C]. Money Market Fund
[D]. Hedge Fund

[C]. Money Market Fund

400

Hunter is long 100 shares of preferred stock trading @ $103; each share is convertible into common at a conversion price of $50 per share. The common stock is trading at $51.50, if the company published notice of redemption for all its preferred shares at $104, what should Hunter do?
[A]. Sell the preferred stock at current market price.
[B]. Redeem the preferred stock.
[C]. Convert the preferred shares into common stock.
[D]. Hold the preferred shares

[B]. Redeem the preferred stock. PAR100/COVPX50 = 2 x 51.50 = 103. Parity is lower and redemption is higher, so you should redeem the shares.

400

Mr. and Mrs. Smith have two small children and want to begin saving for their college education. They are in a low tax bracket and have $12,000 to invest right now. Of the choices offered, which would be best for the Smiths?
[A]. Zero Coupon Treasury Bonds
[B]. Treasury Notes
[C]. Municipal Bonds
[D]. Commodity backed bonds

[A]. Zero Coupon Treasury Bonds, because they could buy them at a discount now and interest would be accreted over the life of the bond.

400

Shaquille buys 200 shares of XYZ @ $35 per share and buys 2 XYZ July 35 puts @ 3 each. At what market price will he realize a proft?
[A]. $38
[B]. $35
[C]. $36
[D]. $39

[D]. $39. He would not have a profit at the breakeven of $38.

400

Which of the following is true about variable annuities?
[A]. During the accumulation period, monthly premium is fixed.
[B]. The investor cannot annuitize until they have held the variable annuity for longer than 5 years.
[C]. After annuitization, the monthly payout is fixed.
[D]. During the accumulation period, monthly premium varies.

[A]. During the accumulation period, monthly premium is fixed.

400

Tammy is in her early 20s and wants to open an account at a broker-dealer. She has $5,000 to invest. Her investment objective is growth, and her risk tolerance is moderate. She has no previous investing experience and no short-term cash needs. Which of the following asset allocations would be most suitable for Tammy?
[A]. 80% Blue Chip Stock and 20% Corporate Bonds
[B]. 75% Diversified Stocks, 25% Municipal Bonds
[C]. 75% Growth Fund, 25% Balanced Fund
[D]. 50% Stocks, 25% Bonds, 25% Commodities

[C]. 75% Growth Fund, 25% Balanced Fund. – This would mostly match her investment objective of growth with a risk mitigation of the balanced fun.

500

Brad is a single 27-year-old investment banker has an income of $800,000 and a net worth in excess of $3,000,000 dollars. His investment objective is capital appreciation. All the following would be appropriate for Brad except:
[A]. equities in emerging markets
[B]. small cap equity securities
[C]. high yield preferred stocks
[D]. aggressive growth funds

What is:

[C]. high yield preferred stocks

500

Mike has a portfolio of various corporate and treasury bonds. He tells his RR that he believes interest rates are going down and wants to maintain a portfolio of bonds. Given Mike’s concern, the RR should recommend that the client:
[A]. Begin swapping his bonds for bonds that are selling at a premium.
[B]. Extend the overall maturity and increase the call protection on his portfolio.
[C]. Attempt to shorten the overall maturity on his portfolio.
[D]. sell the corporate bonds and buy treasury bonds.

[B]. Extend the maturity, this will protect against the rise in interest rates.

500

An investor wants to hedge against the expected decline in the value of a portfolio made up of long term bonds, and will most likely use which of the following interest rate options?
[A]. Buy 30-year interest rate or yield based calls.
[B]. Sell 30-year interest rate or yield based calls.
[C]. Buy 30-year interest rate or yield based puts.
[D]. Sell 30-year interest rate or yield based puts.

[A]. Buy 30-year interest rate or yield based calls.

500

An investor who holds a variable annuity decides to annuitize and start receiving monthly annuity payments. The client is currently 59 ½ years old and the variable annuity is non-qualified. What can the investor expect to pay in terms of tax liability?
[A]. The 10% early withdrawal penalty will apply
[B]. Payments will be partially taxable on earnings in the annuity and partially tax-free with regards to principal that was invested in the variable annuity.
[C]. The portion of payments that was principal that was invested in the variable annuity will be fully taxable
[D]. The full amount of payout each month will be fully taxable.

[B]. Payments will be partially taxable on earnings in the annuity and partially tax-free with regards to principal that was invested in the variable annuity.

500

No more than what percent of a persons investment assets should be committed to the purchase of options?
[A]. 20% - 30%
[B]. 15% - 20%
[C]. 10% - 15%
[D]. 10%

[B]. 15% - 20%