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100
If a customer gives his broker/dealer an order to sell his stock if it falls to or below 69 and will not accept a price below 69, the order is:
What is a stop limit order
100
A corporate bond is quoted at 102-5/8. A customer buying 10 bonds would pay:
What is $10,262.50 Par ($1,000) × 102% = $1,020. 5/8 of one bond point ($10) = .625 × $10 = $6.25. Therefore, the quote reading 102-5/8 = $1,026.25 per bond ($1,020 + $6.25). Because we are told the customer is buying 10 bonds, we multiply $1,026.25 × 10 bonds which equals the amount the customer will need to pay in order to make the entire purchase; $10,262.50.
100
In early September, a customer buys 100 shares of QRS stock for $83 per share and simultaneously writes 1 QRS Mar 90 call for $4 per share. If the QRS Mar 90 call were exercised and the QRS stock delivered, what would be the customer's per share profit?
What is $11
100
22.An investor buys an 8% municipal bond in the secondary market at a 10.00 basis. If the bond is held to maturity, the investor's after-tax return will be: A) 8% B) between 8% and 10% C)10% D) Greater than 10%
What is B. Explanation: Since the yield (10%) is higher than the coupon (8%), the bond was purchased at a discount. Since the bond was purchased in the secondary market at a discount, the interest on the bond is exempt from federal taxation but the discount will represent ordinary income at maturity. Since the investor must pay federal income tax on the ordinary income, the after-tax return will be between 8% and 10%.
100
1.An open-end investment company has increased in value because of a rise in the market. This is best characterized as: A. A capital gain b. A profit c. Appreciation d. Ordinary income
What is C: Appreciation Explanation: An increase in the market price of an open-end investment company or other security from the purchase price is appreciation. There is only a capital gain when the security is sold and the appreciation is realized.
200
A client buys 100 shares of MCS at 20. If the stock rises to 30 and he wants to protect his gain, which of the following orders should be entered?
What is a Sell stop at $29
200
Moody's bond ratings are based primarily on an issuer's: A) expected marketability of a bond issue. B) expected trading volume of a bond issue. C) financial strength. D) capitalization.
What is C) Financial Strength
200
customer is short a DMF 50 call for which he received a premium of 4. Seven months later, the call was exercised when the current market for DMF was 56. Under the Internal Revenue Code, what were the proceeds of his sale?
What is $5400 Explanation: He wrote a call and received a premium of 4. He later sold the security at $50, which made his total receipts for the stock $54. Proceeds in this case refer to the total amount he took in (a $400 premium plus $5,000 upon the sale).
200
37.All of the following factors are of importance with regard to debt structure when analyzing a municipal bond, EXCEPT: a. Total bonded debt b. Total direct debt c. Overlapping debt d. Matured debt
What is D: Matured debt
200
36.A customer owns a call on ABC Corporation that has a $60 strike price. ABC Corporation has announced a 5-for-4 split. After the split, the customer will own: a. Two calls for 100 shares at a $30 strike price b. One call for 125 shares at a $60 strike price c. One call for 125 shares at a $48 strike price d. One call for 100 shares at a $60 strike price
What is C Explanation: The company has announced a 5-for-4 split. After the split, the customer will own one call contract representing 125 shares with a $48 strike price. In an odd split, the number of contracts remains the same. The number of shares per contract is increased by multiplying 100 times the split ratio (100 x 5/4 = 125). The strike price is reduced by multiplying it by the inverse of the split ratio (60 x 4/5 = 48).
300
On the order book, all of the following orders are reduced on the ex-date for a cash dividend EXCEPT: buy stop sell stop sell stop limit buy limit
What is buy stop
300
KLM Company has 10 million convertible bonds outstanding that are convertible at $25. The bonds contain an anti-dilution feature. If KLM declares a 10% stock dividend, the new conversion price will be: A) $22.73. B) $45.45. C) $50.00. D) $22.50.
What is A) $22.73 Explanation: Before the stock dividend, an investor would have received 40 shares of stock for each $1,000 bond ($1,000 / $25). A 10% stock dividend would now give an investor 44 shares on conversion (40 shares + 10% = 4 shares more). $1,000 / 44 shares = $22.73 per share for the new conversion price.
300
John Chance purchased a DMF May 90 call and simultaneously sold a DMF Jun 80 call. Which of the following best describes John's position? A) A bear spread. B) A bull spread. C) A long spread. D) A short spread.
What is A) a bear spread Explanation: This investor has established a net credit diagonal call spread. He bought the lower premium call (higher strike and earliest expiry) and sold the higher premium call (lower strike and longest expiry). He hopes the spread will narrow to zero (if the market falls below 80 and both calls expire worthless) so he can keep all of the premiums. He is a bear and so is the spread.
300
This is Moody's BEST rating for a municipal note?
What is MIG1
300
ABC Corporation is paying a $5 yearly dividend on its preferred stock. The market price of the preferred stock is $80. The current yield is:
What is 6.25%
400
A customer enters an order to buy 100 ABC at 47 stop GTC. After the order is elected, the order may be executed at what price?
What is any price
400
Which of the following is NOT part of the Federal Farm Credit System? A) The FICB. B) The Federal Bank for Cooperatives. C) The Federal Land Banks. D) The Federal Home Loan Banks.
What is D
400
If a customer writes one uncovered in-the-money put, the maximum gain would be:
What is 100% of the Premium
400
A customer has a federal tax rate of 35% and a state tax rate of 7%. Which of the following investments would afford him the BEST after-tax yield? A. A 6.25% in-state municipal bond B. A 6.65% out-of-state municipal bond C. A 9.95% investment-grade corporate bond D. A 10.35% mortgage bond
What is A Municipal Bond Yield / (100% - Investor's Tax Bracket) = Equivalent Taxable Yield The customer is in the 42% combined tax rate. The municipal bond has a yield of 6.25%. 6.25% (Municipal Bond Yield) / 58% (100% - 42%) = 10.78% Equivalent Taxable Yield The out-of-state municipal bond has a yield of 6.65% and the equivalent taxable yield is 10.23% (6.65% / 65%). The in-state municipal bond has the best or highest after-tax yield.
400
48.Which of the following choices is NOT a typical characteristic of a 401(k) plan? A. Employee contributions are fully and immediately vested B. Employers must match employee contributions C. An employee's taxable income is reduced by employee contributions D. Employee contributions grow on a tax-deferred basis
What is B
500
A technical analyst has been charting XYZ stock and notes that it fluctuates between $36 and $41. If the analyst expects a breakout through resistance, which of the following orders should be placed? buy xyz 35 gtc buy xyz 42 gtc buy xyz 35 stop gtc buy xyz 42 stop gtc
What is Buy xyz 42 stop gtc
500
Which of the following risk factors would be least important to disclose in recommending CMO securities to public customers? A) Prepayment risk. B) Credit risk. C) Interest rate risk. D) Extended payment risk.
What is B: Credit Risk Explanation: The majority of CMOs offered to the public are backed by mortgages held by government-sponsored corporations: Fannie Mae, Ginnie Mae, Freddie Mac, etc. Credit risk would be a minimal consideration. The other risks are inherent to mortgage-backed securities.
500
A customer writes 3 XYZ Sep 55 puts at 5 when the stock is trading at 53.50. How much aggregate time value do these contracts have?
What is $1050 Explanation: Puts are in-the-money (have intrinsic value) when the market price of the underlying stock is below the strike price. In this case, the contracts are in the money by 1.50. Therefore, the time value of each contract is 3.50 or $350 per contract. As there are 3 contracts, the aggregate time value is $1,050.
500
71.An individual in the 28% tax bracket can purchase an 8 1/2% municipal bond at par. What taxable yield would be required to equal the yield on the municipal bond?
What is 11.8% Explanation: The taxable equivalent yield of a municipal bond equals the municipal yield divided by the complement of the tax bracket (100% minus the tax bracket). In this example, the municipal yield (8 1/2%) divided by the complement of the tax bracket (72% or 0.72) equals 11.8%.
500
85.A municipal bond backed by an insurance company has gone into default. The insurance carrier will provide: a. Immediate payment of interest and principal b. Principal payment at maturity only c. Timely payment of principal and interest d. Accelerated principal only
What is C