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Series 7 > 3rd Set > Flashcards

3rd Set Flashcards

1
Q

If assigned on a covered call, what is true sales proceeds fro the stock?

A

Strike price (cuz u sold at that price) + premium received from selling the call

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2
Q

If you get assigned on a covered call, is the cost basis for the stock adjusted?

A

No,

But premium form the option would be added to sales proceeds of the stock

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3
Q

How much total capital losses can you deduct from income?

A

Up to $3k against income

Remember, you first have to offset losses against capital gains

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4
Q

Accrued interest for U.S. government bonds (not muni’s) is computed on the basis of ______ (days)

A

Actually days elapsed

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5
Q

Are mutual funds and etfs open end funds?

A

Yes

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6
Q

Closed end fund

A

Raises money once through IPO then no more shares issued, shares still trade which can be at a premium/discount to NAV which is calculated regularly

Example: Muni bond funds

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7
Q

Are municipal bond funds closed end funds?

A

Yes, they’re the largest kind of closed end fund

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8
Q

Under FINRA rules, if a member wants to have the terms of a clearly erroneous trade adjusted, it must notify Nasdaq Market Operations within _______ of the execution

A

30 mins

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9
Q

If a couple buying mutual fund shares both have individual accounts and they also share a JTWROS and hey what to get rights of accumulation on their next purchase, can they combine their past purchases in all their separate account to reach the rights of accumulation number?

A

Yes

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10
Q

If a fundamental analyst is looking at a company’s income statement, cash flow from operations is net income plus ______

A

Cash flow from operations is the net income plus the depreciation.

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11
Q

To meet a margin call with STOCK, an investor must deposit ____ the value of the call.

A

Deposit stock worth twice the value of the call

So the value of the transaction

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12
Q

Are special tax bonds considered self supporting bonds?

A

No

A special tax bond is backed by one or more designated taxes (sales, cigarette, fuel, alcohol, etc.)

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13
Q

The ______ (PSA) is the source of historical data for prepayment projections on CMOs.

A

Public Securities Association

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14
Q

Can rulings made under the arbitration procedure be appealed?

A

No

Neither party can appeal the ruling if handled under arbitration

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15
Q

Can decisions under the Code of Procedure (disciplinary actions) be appealed?

A

Yes

But rulings under arbitration can’t be appealed

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16
Q

Are money market securities recorded in the Trade Reporting and Compliance Engine (TRACE)?

A

No

Money market securities are one of the specific exclusions from the trade reporting system.

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17
Q

Dated date of a new issue of bonds

A

Date when interest starts to accrue

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18
Q

Can stop orders be used to establish positions?

A

Yes

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19
Q

Is accretion from an original issue discount muni bond taxed?

A

No

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20
Q

A BD has to keep the minutes of board of director meetings for how long?

A

The life of the firm

The minutes of board of directors meetings has to be kept on file for the life of the firm

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21
Q

How long does a BD have to keep customer complaints

A

4 years

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22
Q

another term for yield to maturity is _____

A

Basis

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23
Q

If a company has negative working capital, what does that mean?

A

It might not be able to pay off its short term debts (without selling bonds or equity)

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24
Q

Formula for working capital

A

Current assets - current liabilities

(If number is positive, company can repay it’s sort term debts. If negative, it probably can’t without raising more capital)

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25
Q

Can correspondence be reviewed by the principal afterwards?

A

Yes

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26
Q

Is communication with the public that’s classified as “correspondence” required to be filed with FINRA ?

A

No

Filing with FINRA is not required

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27
Q

If an institution wants to put on a large bond position while staying anonymous, it’s would use ______

A

A municipal securities broker’s broker

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28
Q

Consolidation market

A

Market stayed within a narrow range

Trend line goes sideways

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29
Q

Is true aunt of an employee of a member firm considered a restricted person?

A

No

Unless they live in the same house

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30
Q

How would a syndicate member allocate orders if a new muni issue. Lost from first to last (4 orders)

A

1) Presale orders
2) group net orders
3) designated orders
4) member orders

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31
Q

Can a customer sign the options agreement after the initial order is placed?

A

Yes

Must sign options agreement within 15 days of initial order being placed

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32
Q

GO bonds are mainly supported by _____

A

Taxes

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33
Q

T/F: If a muni bond has been advance refunded (meaning it’s going to be called forsure), the confirmation must state the lower of yield to call or yield to maturity

A

False

If going to be called forsure, must show the yield to call (not YTM)

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34
Q

Are yield based options European style or American style?

A

European style

Also they’re settled in cash

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35
Q

Are yield based options settled in cash?

A

Yes

Also they’re European style

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36
Q

In basic option spreads (call spreads, put spreads) how do you know if it’s bearish or not?

A

If buying higher strike option, it’s bearish

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37
Q

For regular put and cal spreads, if buying higher strike option, is it bearish or bullish?

A

If buying higher strike option, the spread is bearish

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38
Q

Is there a requirement for min number of shareholders to be listed on NYSE?

A

Yes, this is a requirement if a company wants to list in NYSE

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39
Q

In order to be listed in NYSE, is there a requirement for minimum number of publicly held shares?

A

Yes

There is a minimum public held shares requirement

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40
Q

Can passive loses from a LP be offset against portfolio (investment) income?

A

No, cannot offset against portfolio income

things like dividends or capital gains

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41
Q

Are covered calls written more in stable markets or rising markets?

A

Stable market

If rising market, would limit upside potential

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42
Q

T/F: Call protection in bonds lasts for a certain amount of time

A

True

Maximum call protection would just be an noncallable bond

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43
Q

If a company is the target of a tender offer, how long does it have to tell shareholders weather it accepted or rejected the offer?

A

Within 10 days of the announcement that there is a tender offer, the company must provide shareholders a statement saying if it accepted or rejected the offer

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44
Q

75, 5, 10 rule for managed investment company

A

A 75-5-10 diversified management investment company will have 75% of its assets in other issuers and cash, no more than 5% of assets in any one company, and no more than 10% ownership of any company’s outstanding voting stock.

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45
Q

If customer calls a rep to complain, does the complaint have to be filed with FINRA

A

No

Only written complaints

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46
Q

Is a buy stop order placed above or below the current market price?

A

Above

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47
Q

Dollar cost averaging

A

Equal amount is invested periodically

48
Q

T/F: If someone dies in TIC account, property goes to estate. If someone dies in joint tenancy, property goes to surviving account holder

A

True

TIC agreements allow the passing of property as a portion of the owner’s estate. However, in a joint tenancy agreement, the title of the property passes to the surviving owner.

49
Q

T/f: If someone dies in joint tenancy account, property goes to their estate. If someone dies in TIC account, property goes to surviving owner

A

False

TIC agreements allow the passing of property as a portion of the owner’s estate. However, in a joint tenancy agreement, the title of the property passes to the surviving owner.

50
Q

Customer account information must be updated at least every ____ months.

A

36 months

51
Q

Customer account information must be updated at least every ____ months.

A

36 months

Customer account information must be updated at least every 36 months.

52
Q

T/F: If customer of a BD dies, you always need certificate of death before you can release assets

A

True

A certified copy of the death certificate is always required.

53
Q

T/F: GNMA securities, which are backed by the full faith and credit of the U.S. government, are considered to be the riskiest of the agency issues.

A

False

They’re the safest

54
Q

T/F: GNMA securities, which are backed by the full faith and credit of the U.S. government, are considered to be the riskiest of the agency issues.

A

False

They’re the safest

55
Q

Minimum denomination for most agency securities

A

$1k

GNMA securities, which are backed by the full faith and credit of the U.S. government, are considered to be the safest of the agency issues.

56
Q

T/F: Passive losses can be used only to offset passive income, which is earned from direct participation programs and rental real estate.

A

True

57
Q

Two ways passive income (only income u can offset passive losses to) is earning

A

earned from direct participation programs and rental real estate.

58
Q

What can you offset passive losses against

A

Only passive income

which is earned from direct participation programs and rental real estate.

59
Q

How is the placement ratio (measure of interest in muni bonds) computed?

A

placed (sold) each week by the dollar amount offered that wee

60
Q

How is the placement ratio (measure of interest in muni bonds) computed?

A

placed (sold) each week by the dollar amount offered that wee

61
Q

What is an intangible drilling cost

A

one that, after expenditure, has no salvage value.

Labor, fuel, or drilling rig rental

62
Q

Common stock that has no voting power, no rights to receive dividends, that has been authorized and issued but is not outstanding is known as

A

Treasury stock

63
Q

Cash dividends from REITs are taxed as _____

A

Ordinary income tax

64
Q

Can companies guarantee the principal value in an investment?

A

No

Companies cannot guarantee returns or even principal values in investments.

65
Q

What does takedown mean in “total takedown of bonds”

A

Initial price of the security

The takedown is jargon for the initial price of a stock, bond or other security offered on the open market.

66
Q

When a corporation receives dividends from an investment in another corporation, how much of those dividends is taxable?

A

50%

When a U.S. corporation receives dividends from another U.S. corporation it has invested in, 50% of the dividends received are excluded from taxation (tax free).

67
Q

For muni revenue bonds, what does debt service ratio show?

A

How much money it making from revenues compared to how much it has to pay the bond holders

68
Q

For bonds, what does the term “debt services mean?

A

It just means the interest plus the principal

69
Q

What’s the difference between a tax credit and things like deductions or depreciation?

A

A tax credit reduces a person’s tax liability dollar for dollar. Deductions, depreciation, and depletion reduce taxable income.

70
Q

What is the TIF form?

A

transfer initiation form (TIF)

Stats the process of transferring customers assets from one member firm to another

71
Q

Customer account info must be updated at least once every ____ months

A

36 months

72
Q

Can losses from a DPP be used to offset earned income from salary or commissions.

A

No

Passive losses can only offset passive income like income from a limited partnership

73
Q

If in a cash account, you buy stock and then sell calls, can u subtract the premium from the calls from the stock purchase price to deposit that amount (stock price -premium)

A

Yes

74
Q

What is general considered a good debt service ratio for muni revenue bonds

A

2:1
Generally, a sound debt service (interest and principal) coverage ratio for municipal revenue bonds is 2:1. In other words, $2 of revenue is collected for every $1 of debt service.

75
Q

Do treasure bills trade with accrued interest?

A

No

To trade with accrued interest, the security must pay interest.

76
Q

Do bankers acceptance trade with accrued interest

A

No

To trade with accrued interest, the security must pay interest.

77
Q

Do zero coupon issued trade with accrued interest?

A

No
There is no accrued interest on zero coupon issues
To trade with accrued interest, the security must pay interest

78
Q

Do negotiable (jumbo) CDs trade with accrued interest?

A

Yes

79
Q

When selling stock short in a new account, what is the minimum requirement of the short sale is 4K or less?

A

When selling short less than $4k, the min requirement is $2k
Above $4,000, the deposit is 50% of the short market value.

80
Q

Why are muni bonds usually not sold short?

A

Because the market is illiquid

81
Q

Basic equation for combined equity

A

LMV + CR – DR – SMV = EQ

82
Q

T/F: Dividends in a margin account that are not withdrawn within 30 days become a permanent reduction to the debit balance

A

True
If a customer wishes to withdraw cash dividends, the customer must do so within 30 days of receipt. Otherwise, they become a permanent reduction of the debit balance. The customer does not lose the dividend; rather, the dividend amount is now reflected as increased equity in the account. As the debit balance falls, equity in the account goes up dollar for dollar.

83
Q

In a margin account, $2,000 in an SMA will let u purchase _____ of stock

A

$4,000

The SMA has buying power of 2:1 when Regulation T is 50%, so $2,000 of SMA will purchase $4,000 of stock.

84
Q

Is the wtoree of a LEAP’s gains taxed as short term or long term

A

Short term gains

The writer gets paid short term

85
Q

If a buyer of a 12 month leap takes gains are they taxed as short term or long term gains

A

Long term gains

86
Q

When interest rates fluctuate, do the prices of long term bonds or short term bonds fluctuate more?

A

The prices of long term bonds fluctuate more

Long term debt fluctuated more when interest rates fluctuate

87
Q

T/F: STRIPS are subject to annual

taxation on the per year accredited amount

A

True

88
Q

T/F: Interest in direct debt issues by the us gov (T bills, t notes, t bonds, and strips) is taxable at federal level and state, but not local

A

FALSO

Interest on US debt is taxable only at the federal level, not state or local!

89
Q

If either side of a code of procedure hearing is displeased within the ruling, they have ____ days from the decision date to appeal

A

25 days from the decision date

90
Q

A buy stop is typically used to ____

A

Protect a short stock position

91
Q

Maid ends requirement of short position

A

30%

92
Q

Declining inflation means interest rates go ____

A

Down

Declining inflation means declining interest rates

93
Q

If an investoror buys a muni bond at 5.5% YTM, then sells the bond at 5% YT’, did he incur a capital gain or loss?

A

Capital gain

Since the bond had a lower yield she she sold it, the bond must have been sold for a higher price

94
Q

What is accretion

A

accretion is the capital gain expected when a bond is bought at a discount to its par value,

95
Q

When an investor of a muni bond buys it at a discount in the secondary market, will it be taxed as ordinary income upon redemption?

A

No it will be taxed as capital gains

96
Q

For long margin accounts, anytime the equity drops below ___% market value, the account is designated restricted

A

Drops below 50% market value

97
Q

Are EARNINGS in a variable annuity tax deferred? I

A

Yes earnings are deferred

98
Q

Would a variable annuity buy muni bonds in the separate account?

A

No

Since the tax free interest would be a waste

99
Q

What is the lowest ranking tranche of a CMO

A

The z tranche
Z tranche is the lowest-ranked tranche of a collateralized mortgage obligation (CMO) in terms of seniority. Its owners are not entitled to any coupon payments, receiving no cash flow from underlying mortgages until the more senior tranches are retired, or paid off.

100
Q

T/F: The z tranche of a CMO is the most volatile

A

True

101
Q

For the 5% markup policy, are proceeds transactions counted as a single transaction?

A

Yes

102
Q

T/F: When there’s a cash dividend, only orders in the order book that are placed below the market price are reduced by the price did the dividend

A

True

103
Q

For every dollar the debit balance falls, equity goes up by $____

A

$1

As the debit balance falls, equity in the account goes up dollar for dollar.

104
Q

When selling stock short, if he sale is less than $4k, must deposit the minimum of $___.

A

Must deposit min of $2k for short sales of $4k or less

Above $4k, deposit is 50% SMV

105
Q

When selling stock short, if he sale is less than $4k, must deposit the minimum of $___.

A

Must deposit min of $2k for short sales of $4k or less

Above $4k, deposit is 50% SMV

106
Q

If an investor opens a margin account and wants to short 100 shares at $32.50, what is the required deposit?

A

$2,000

Because transaction is less than $4k, min depot is $2,000, not just 50% SMV

107
Q

Naked short selling

A

Shorting shares without knowing there’s shares available to short

108
Q

If customer buys securities in a cash account, what’s the latest the BD can get payment from customer

A

Four days after trade

Regular war settlement + 2 days

109
Q

Do municipal labor brokers broker generally maintain an inventory?

A

No

They are not in the business of making a market; therefore, they maintain no inventory.

110
Q

Do municipal labor brokers broker generally maintain an inventory?

A

No

They are not in the business of making a market; therefore, they maintain no inventory.

111
Q

T/F: For stock trading under $5 per share, a customer must maintain 100% of SMV or $2.50 per share, whichever is greater.

A

True

112
Q

Are investment banks, pensions, or mutual funds considers accredited investors?

A

Yes

Assuming they meet the requirement

113
Q

T/F: Passive loses can be offset against earned income

A

False

Passive losses can only be offset against earned income

114
Q

If company wants to protect itself from foreign currency fluctuations, what acronym do you use to remember what options they buy?

A

EPIC: Exporters buy Puts and Importers buy Calls.

115
Q

T/F: both traditional and Roth IRAs are taxed upon withdrawal

A

True

Both taxed

116
Q

Do bankers acceptance pay accrued interest? The

A

No

No accrued interest

117
Q

Do t bills have accrued interest ?

A

No

Don’t even pay interest

Series 7 (64 decks)

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