1st set

Question 1

Can a corporation with no income pay dividends

Answer 1

Yes

Question 2

When referring to bonds, if you see “7.3s of ‘37” what does that mean?

Answer 2

The bond has a coupon rate of 7.3% and it matures in the year 2037

Question 3

Is interest on corporate bonds fully taxed

Answer 3

Yes

Question 4

When would a company issue income bonds

Answer 4

When it’s reorganizing and coming out of a bankruptcy

Question 5

Are dividends on a municipal bond fund exempt from federal income tax?

Answer 5

Yes

Question 6

Under the conduit (or pipeline) theory of taxation, a fund is liable for taxes only on the income retained, provided it distributes at least ____% of its net investment income

Answer 6

90 %

Question 7

When do income bonds pay interest

Answer 7

Income bonds only pay interest if the company declares a payment

Question 8

Condemnation only applies to what kind of bonds

Answer 8

Revenue bonds

Question 9

Taxes on interest income from mortgage backed securities

Answer 9

Fully taxed

Mortgage backed get fully taxed

Question 10

Taxes on interest income from US gov and agency securities

Answer 10

Usually interest income for US gov and agencies is only taxed at the federal level

Question 11

CAV mean the the _____ of a bond

Answer 11

Cost basis

Question 12

If someone dies in a tenants in common account, do the assets gets passed into the other person in the account

Answer 12

Nah

Question 13

When do corporate bonds pay interest

Answer 13

Semi annually

Question 14

When do Treasury bonds pay interest

Answer 14

Semi annually

Question 15

When do utility stocks pay dividends

Answer 15

Quarterly

Question 16

Basis is a common synonym for _____

Answer 16

Yield to Maturity

Question 17

Is a qualified distribution from a Roth IRA tax free?

Answer 17

Yes

Question 18

What makes a distribution from a Roth IRA a “Qualified distribution”

Answer 18

A qualified distribution is made after a five-year holding period and after the taxpayer has reached age 59½.

Question 19

Are municipal notes part of the visible supply

Answer 19

No

Short-term notes are not part of the visible supply, which measures the dollar amount of new issues scheduled over the coming month.

Question 20

Days used for calculating accrued interest on Muni bonds

Answer 20

30 day month

360 day year

Question 21

If a customer purchases the same stock that he just sold for a loss within 30 days, is the loss deductible?

Answer 21

No

If he repurchased the same shares that he took a loss on within in 30 days the loss is disallowed under the wash sale rule

Question 22

The bond resolution includes all covenants between ____

Answer 22

The issuer and the trustee acting for the bondholders.

The bond resolution describes not only the characteristics of the proposed offering, but also the obligations the issuer has to its bondholders.

Question 23

The City of Columbus issued a 20-year general obligation bond at a price of 50. An original purchaser sold the bond at 75 after holding it for 7 years. For tax purposes, that sale generated

Answer 23

The customer has realized a capital gain of $75. Original issue discount bonds must accrete the discount over the life of the bond. In this example, the amount of the discount (par value minus purchase price) is $500 ($1,000 − $500 = $500). The discount divided by the number of years to maturity determines the annual accretion added to the cost basis. In this question, the annual accretion is $25 ($500 divided by 20 = $25). The adjusted cost basis would be the original purchase price ($500) plus seven years of accretion (7 times $25 = $175) for a total of $675. Because the proceeds of the sale were $750, the customer has realized a capital gain of $75 ($750 − $675 = $75).

Question 24

Is the effective date (date the SEC releases the securities for sale) found in the preliminary prospectus?

Answer 24

No

Question 25

A deed of trust is another name for what?

Answer 25

An indenture on a debt security

Question 26

Formula for current yield on a bond

Answer 26

Annual interest payment / current market price

Question 27

What is tax equivalent yield useful for

Answer 27

Seeing how much yield a taxable bond (like a corporate bond) would have to yield to be equivalent to tax free interest

Question 28

Formula for computing tax equivalent yield

Answer 28

Nominal yield ÷ (1 − income tax rate)

Question 29

Would the tax equivalent yield on a muni bond be higher or lower than its nominal yield

Answer 29

The tax equivalent yield would be higher | A higher percentage

Question 30

For taxes on capital gains distributions from mutual funds, is the holding period determined by how long the investor held the mutual fund shares or how long the mutual fund held the securities

Answer 30

How long the mutual fund held the securities

Question 31

At settlement, does accrued interest increase or decrease the amount a buyer must pay

Answer 31

Accrued interest increases the amount the buyer must pay

Question 32

What is the average holding period for securities in a portfolio with a 25% turnover ratio

Answer 32

Four years

Question 33

Non recourse debt

Answer 33

Loan secured by collateral (usually real property) but for which the borrower is not personally liable

Question 34

Does recourse debt increase basis in a DPP?

Answer 34

Yes Recourse debt increases basis in any DPP

Question 35

Does non-recourse debt increase basis in a real estate limited partnership (RELP)

Answer 35

Yes So if an investor bought a unit of a RELP for $20k, and his allocable share NR debt was $50k. His cost basis would be increased to $70k

Question 36

Do distributions in a RELP add to or reduce from basis

Answer 36

Distributions reduce basis

Question 37

The Bond Buyer 20-Bond Index uses what in its index?

Answer 37

The average yield of 20 general obligation bonds w/ a rating of A or better and a maturity of 20 years

Question 38

What is the rating of bonds that are included in the 11 Bond index

Answer 38

Bonds that have a rating of AAA and AA are included in the 11-Bond Index.

Question 39

What kind of bond yields are reported in the Revdex 25 index

Answer 39

Revenue bond yields are reported in the Revdex 25.

Question 40

What is the maturity of bonds reported in the Revdex index

Answer 40

30 years But remember it’s the yields that are reported. Not the average maturity

Question 41

Is a quote on a municipal security between dealers allowed to be a non-firm quote?

Answer 41

No. Quotes between dealers are required to be bond fide, or firm, quotes.

Question 42

What are the two things that make up a municipal issuer’s Net Total Debt

Answer 42

Direct debt and overlapping debt constitute the municipality's net total debt.

Question 43

What is the dated date on a municipal bond issue?

Answer 43

The date on which newly issued bonds begin to accrue interest

Question 44

Are certificates of participation (COP) considered revenue bonds

Answer 44

Yes They are a form of municipal revenue bond

Question 45

In the case of default, can holders of a certificates of participation (COP) foreclose on the asset associated with the certificate?

Answer 45

Yes

Question 46

If a customer buys a new issue muni bond at a discount in the primary market, does the discount have to be accreted?

Answer 46

Yes The discount must be accreted

Question 47

Many states offer tax benefits to residents who open 529 plans in their home state. In general, are these same benefits available when opening out of state plans

Answer 47

No Usually STATE tax benefits are not available when opening out of state plans. (Federal tax benefits are available regardless of what state a plan as opened in)

Question 48

CMO

Answer 48

Collateralized morgatage obligation A bond that slices mortgage pools up into tranches based on risk, rewards or maturities

Question 49

Are T bills purchased at a discount?

Answer 49

Yes

Question 50

Can Nasdaq securities trade in the OTC market?

Answer 50

Yes

Question 51

What does the Bond Placement Ratio measure?

Answer 51

The percentage of new muni bonds offered last week that were sold last week

Question 52

What is the basis for stock that was inherited after someone dies

Answer 52

The costs basis is the fair market value of the stock on the date the descendent died

Question 53

What class of shares do breakpoints apply to?

Answer 53

Breakpoints apply to class A shares only | Contingent deferred sales charge applies to Class B & Class C shares

Question 54

Is the underwriter of a new issue responsible for filing the registration statements?

Answer 54

No The issuer is ultimately responsible

Question 55

During the order period of a municipal underwriting, would the manager of the syndicate consider time of submission when accepting/allocating orders?

Answer 55

No

Question 56

What is the Order Period in a muni bond underwriting?

Answer 56

A short time following the award of a municipal issue to the winning syndicate. During the order period, orders for an issue of muni bonds are allocated in accordance with the priority defined in the syndicate letter. (Not a first-come, first-served basis)

Question 57

Are REITs flow-through vehicles?

Answer 57

No

Question 58

If a REIT owns depreciable property, who will take the deduction: the REIT or the investor

Answer 58

The REIT will take the deduction, not the investor

Question 59

For a CREDIT calendar spread, what expirations are you buying/selling

Answer 59

But near term expiration | Sell long term expiration

Question 60

Are GNMA securities directly backed by the federal gov?

Answer 60

Yes

Question 61

Is the underwriter of a new issue responsible for distributing the securities to the public?

Answer 61

Yes

Question 62

Would mortgages likely be used to back a collateralized debt obligation (CDO)?

Answer 62

No Unlike CMOs, which are backed by mortgages, CDOs are invariably backed by some other form of asset.

Question 63

Max deduction of net capital losses against other income in 1 year

Answer 63

The maximum deduction of net capital losses against other income in any one year is $3,000

Question 64

Does a DPP pay federal income taxes?

Answer 64

No

Question 65

Are Public Housing Authority bonds (PHAs) backed by the full faith and credit of the us gov?

Answer 65

Yes

Question 66

Is prospectus filing a requirement of the Securities Exchange Act of 1934 or Securities Act of 1933?

Answer 66

Prospectus filing is a requirement of the Securities Act of 1933.

Question 67

Would an oil and gas income program or oil and gas exploration program have more risk

Answer 67

The exploration program would have more risk

Question 68

Do The Federal National Mortgage Association (FNMA) securities trade OTC?

Answer 68

Yes

Question 69

Do mutual funds that reinvest dividends and capital gains do so at the public offering price or NAV?

Answer 69

Mutual funds that offer automatic reinvestment of dividends and gains distributions must do so at net asset value.

Question 70

What’s the rating of bond in the bond buyers 20 index

Answer 70

A or better

Question 71

What makes a sales charge a front end load

Answer 71

The sales charge comes off the amount invested.

Question 72

When there might be a wash trade, what are 3 things looked at to see if the bonds were too similar?

Answer 72

In judging whether bonds are substantially identical to bonds sold for a loss, the tax code considers: Maturity Issuer Coupon rate

Question 73

Are discounts on an original issue of bonds accredited?

Answer 73

Yes

Question 74

When investors buy or sell mutual funds, at what price do they do so?

Answer 74

The buy/sell at the next computed NAV So if an investor sold his mutual fund shares at 1:00pm, the price he receives would be the NAV as computed at the end of the day

Question 75

What is a married put?

Answer 75

Buy 100 shares of ABC at $50 per share and simultaneously buy one ABC 50 put

Question 76

When a bond is issued by a national government, it is referred to as ______

Answer 76

sovereign debt

Question 77

For section 529 plan, does the income level of the contributor affect the contribution amount?

Answer 77

No Unlike Coverdell ESAs, income level of the contributor won’t effect the annual contribution amount

Question 78

How often can mutual funds distribute capital gains to shareholders?

Answer 78

Apparently, no more than once per year

Question 79

If falling interest rates & positive yield curve, what bond will appreciate more: 20-year bond selling at a discount Or 20-year bond selling at a premium

Answer 79

20 year bond selling at a discount will appreciate more

Question 80

In a scenario of falling interest rates and a positive yield curve, what bond will appreciate more: 1 year bond Or 20 year bond

Answer 80

The 20 year bond will appreciate more more

Question 81

When a bond issue is prefunded, how must the bonds be quoted?

Answer 81

They must be quoted in yield to call

Question 82

Interval fund

Answer 82

Closed end investment company where at certain intervals, investors can sell their shares back to the company for NAV

Question 83

When investors sell back shares to an interval fund, what amount do they receive?

Answer 83

Net Asset Value pussy

Question 84

Is an interval fund open end or closed end?

Answer 84

Closed end investment company

Question 85

If a customer has a few options positions but doesn’t return the signed agreement within 15 days of acct approval, can they still choose to maintain or close out of existing positions?

Answer 85

Yes

Question 86

How long after account approval must a customer return the signed options agreement?

Answer 86

15 days

Question 87

FINRA Rule 2330 deals with what kind of annuities

Answer 87

deferred variable annuities

Question 88

Investors who are subject to the alternative minimum tax (AMT) will lose the tax benefits normally associated with

Answer 88

tax preference items.

Question 89

Are stocks listed on NYSE marginable?

Answer 89

Yes

Question 90

Are recent IPOs marginable?

Answer 90

No you can’t buy recent IPOs on margin

Question 91

Are OTC stocks marginable?

Answer 91

No No OTC or bulletin board stocks are marginable

Question 92

If a bond is trading at par, are the following all equal: Coupon Current yield Yield to maturity Yield to call

Answer 92

Yes If trading at par they are all the same

Question 93

From left to right, what are the bond yields on the seesaw thing?

Answer 93

Nominal (or coupon) CY YTM YTC

Question 94

If a customer is buying a bond and the BD quotes either he YTM or YTC, how does he decide which one to quote? (Does he quote the higher/lower of the two)

Answer 94

Whichever is the lower of the two | Always have to quote “yield to worst”

Question 95

Regulation FD (fair disclosure) applies to who?

Answer 95

Issuers when they disclose information that people may trade off of

Question 96

What has greater interest rate risk: Long term bonds or Short term bonds

Answer 96

Long term bonds have greater interest rate risk

Question 97

Will a bond with a 1 year maturity trade close to par?

Answer 97

Yes, a bond with a only a 1 year maturity will trade very close to par

Question 98

Give an example of a debit call spread

Answer 98

Long Aug 50 call @ 5.5 Short Aug 55 call @ 3.5 (Debit spread because the option purchased costs more than the one sold)

Question 99

In a debit call spread, does the long option or short option cost more?

Answer 99

The long option costs more Example: Long Aug 50 call @ 5.5 Short Aug 55 call @ 3.5

Question 100

Define: ACATS

Answer 100

Automated customer account transfer service When transferring securities from one account to another one at a different BD or bank

Question 101

When transferring accounts to a new BD using ACATS, how long does the transfer have to be competed (assuming everything is in order)

Answer 101

If all is in order, the transfer must be completed within 3 business days

Question 102

When moving accounts to a new BD, who is responsible for sending the signed transfer initiation form (TIF) to ACATS: The sending firm or the receiving firm?

Answer 102

The receiving firm is responsible for sending the signed TIF to ACATS (the firm the account will be moved to)

Question 103

An ____________ indenture allows additional bonds to be issued and backed by the same collateral.

Answer 103

An open-end indenture allows additional bonds to be issued and backed by the same collateral

Question 104

Basic equation for combined equity

Answer 104

LMV + CR - DR - SMV =EQ

Question 105

T/F: Income on qualified plans grows tax deferred

Answer 105

True Tax deferred

Question 106

T/F: RMDs for non qualified annuities start at 59.5

Answer 106

False | >no RMDs for non qualified annuities