9th Set Flashcards
Last week one of your customers placed a good-til-canceled order to sell 200 shares of ABC with an 18 stop when the stock was trading at $18.85. It is now the ex-date for a $0.55 dividend and the order has not yet been executed. What has happened to your customer’s stop order?
A) It is reduced to $17.45. B) It is increased to $18.55. C) It remains at $18. D) It is canceled.
A) It is reduced to $17.45.
“Unless the customer has given DNR (do not reduce) instructions, open buy limit orders and open sell stop orders are reduced on the ex-dividend date by the amount of the dividend.”
T/F: calendar spreads (or time
Spreads) are market neutral
True
Neutral outlook
T/F: Defeasance occurs when an outstanding bond issue is paid off prior to maturity through a refunding.
True
Advance refunding
A head and shoulders bottom formation is an indication of
A) a bullish market. B) the reversal of an upward trend. C) a bearish market. D) the reversal of a downtrend.
D) reversal of downtrend
“A head and shoulders bottom formation is also known as an inverted head and shoulders formation. It is that part of a graph in which a downtrend has reversed to become an uptrend. It is not, however, an indicator of the bullishness or bearishness of the market as a whole. It is an indication only of the direction of a trend, which may be either short or long in duration.”
T/F: New issues are sold at the public offering price without a commission or markup
True
Sold at POP without markup or commission
> but when on secondary market, traded on an agency basis (commission) or on a principal basis (markup or markdown).
Are marketable securities current assets?
Yes
Marketable securities and cash are current assets,
Are convertible bonds outstanding included in the computation of working capital?
No
“
The working capital of a corporation is equal to its current assets minus its current liabilities (a current liability is payable within 12 months). Because all bonds—convertible or not—issued by the corporation are long-term liabilities, they are not included in the working capital computation. Marketable securities and cash are current assets, and accounts payable are current liabilities—all of which are included in the calculation of working capital.”
Are investments in marketable securities included in working capital computation?
Yes, it’s a current asset so it’s included
The working capital of a corporation is equal to its current assets minus its current liabilities (a current liability is payable within 12 months
T/F: The Municipal Securities Rulemaking Board Real-Time Transaction Reporting System (RTRS) RTRS captures transaction data for municipal bonds and makes it available to the market place via numerous third-party vendors available to the public.
True
Does that
What is the transactional reporting system for munis?
Real-Time Transaction Reporting System (RTRS)
A father opens four custodial accounts for each of his children with the same mutual fund company. He invests $15,000 in each account. The fund company has breakpoints at $50,000, $100,000, and $200,000. The sales charge is
A)
ineligible for a breakpoint discount because these are custodial accounts.
B)
based on the total $60,000 investment and qualifies for the $50,000 breakpoint.
C)
based on a $15,000 investment and is levied for each account.
D)
based on the total $60,000 investment and qualifies for the $100,000 breakpoint.
B) qualifies for 50k breakpoint
Explanation
An investment made by one person in four custodial accounts for his children at the same fund company would qualify for the breakpoint that is applicable to the total amount invested. In this case, $60,000 was invested, so the applicable breakpoint is at $50,000.
Many investors, especially institutions, diversify their fixed-income portfolios by purchasing bonds issued outside of the United States. When a French corporation issues a bond denominated in Swiss francs, it is known as
A) a Eurofranc bond. B) a Eurodollar bond. C) sovereign debt. D) a eurobond.
D) Eurobond
Explanation
Eurobond is the name given to a long-term debt instrument issued and sold outside the country of the currency in which it is denominated. In this case, the French company is borrowing in Swiss francs instead of the domestic currency (the euro).
To calculate a capital gain or loss on the sale of an original issue discount municipal bond, the discount must be
A) depreciated. B) amortized. C) depleted. D) accreted.
D) accreted
If discount bond accreted
The IRS term for adjusting the cost basis of a discount bond upward is accretion. Amortization is the means of adjusting a premium bond’s cost basis.
T/F: Coverdell ESA (education saving) can only accept $2,000 per child, per year, so if a couple wants to contribute $400/month, should get 539 prepaid tutti on plan
True
T/F:
Mutual fund performance statistics must show results for one, five, and 10 years, or for the life of the fund—whichever is shorter.
True
1, 5, 10 years of life, whichever shorter
Can A father and his 35-year-old son investing in separate accounts qualify for quantity discount together?
No, since son is adult
“For the purpose of qualifying for breakpoints, the definition of any person includes family units, but only minor children. Adults—other than a husband and wife—are separate persons.”
Rule 144A regulates
A)
companies traded on the Nasdaq Global Select Market.
B)
the sale of restricted stock to institutional investors.
C)
the sale of restricted stock by control persons.
D)
personal trading by research analysts.
B) restricted stock sake to institutional
Rule 144A regulates the trading of restricted securities to institutional investors known as qualified institutional buyers.
T/F: Treasury STRIPS do not make regular interest payments.
True
No regular interest payments
What does EPIC stand for when taking about forgiven currencies?
Remember the acronym EPIC: Exporters buy Puts and Importers buy Calls.
IBM sold computers to a Soho retailer and agreed to accept payment of 10 million British pounds in 65 days. In which of the following ways could the company protect the payment against adverse foreign currency fluctuations?
A) Buy pound puts B) Buy U.S. dollar calls C) Buy pound calls D) Buy U.S. dollar puts
A) buy pound puts
The 5% markup policy would apply to all of the following equity transactions except
A) a proceeds transaction. B) a primary market transaction. C) an agency trade done on an exchange. D) a riskless principal transaction.
B) primary market
The 5% markup policy applies to secondary market transactions in nonexempt securities.
Does the 5% markup policy apply to primary market transactions?
No
The 5% markup policy applies to secondary market transactions in nonexempt securities.
Rules regarding restricted persons state that each of the following is considered immediate family except
A) parents. B) aunts and uncles. C) parents-in-law. D) brothers and sisters.
B) aunts and uncle not immediate family restricted person
Rules regarding restricted persons define immediate family as spouses, parents, brothers, sisters, in-laws, and children. Aunts and uncles are among those excluded.
All of the following information is included in a municipal bond resolution except
A) any call provisions that allow the issuer to redeem the bonds before their scheduled maturity. B) restrictive covenants that are binding on the issuer. C) an authorization to sell the securities. D) compensation paid to the underwriters.
D) compensation paid to underwriters
The bond resolution is the document in which the issuer authorizes the issuance of municipal securities. Among other things, the resolution describes the characteristics of the proposed issue and the issuer’s duties to the bondholders. Compensation paid to the underwriters would be found in the official statement.
When a customer of a broker-dealer dies, all of the following documents may be required to release the decedent’s assets except
A) a certified copy of the death certificate. B) an affidavit of domicile. C) an inheritance tax waiver. D) a power of attorney.
D) power of attorney
Explanation
The power of attorney is the only document not required. If the decedent had executed a power of attorney, it would have become invalid upon death. An affidavit of domicile and an inheritance tax waiver may be required. A certified copy of the death certificate is always required.
Can an affidavit of domincile or an inherited tax waiver be required to release a dead persons assets?
Yes both cab be required
