Final #3

Question 1

Investment company advertising is prohibited from showing what?

Answer 1

Performance projections

Question 2

What is synonymous with a consolidating market?

Answer 2

A flat market

Question 3

An order placed to buy or redeem mutual fund shares is filled at?

Answer 3

That day’s closing NAV

Question 4

How are ETF’s traded?

Answer 4

ETF’s are very similar to other stock, so they trade like any other stock and are NOT redeemable

Question 5

What are 3 attributes that are associated with ETF’s

Answer 5

• Marginable
• Benchmarked
• Passively managed

Question 6

What are the 3 theories of the Efficient Market theory?

Answer 6

• Weak
• Semi Strong (most widely accepted)
• Strong

Question 7

For SIPC coverage purposes, the securities in the account are valued on the date:

Answer 7

The date that SIPC FILES IN COURT to be the trustee in the bankruptcy of the failed broker-dealer

Question 8

What does it mean if a bond is trading flat?

Answer 8

That the bond is trading without accrued interest

Question 9

What are the 2 main things that the Sec. Act of 1934 Covers?

Answer 9

1. Secondary Market Trading (not issuance)

2. Corporate FS reporting

Question 10

What is the formula for SMA in a long account?

Answer 10

SMA = 50% LMV - Debit

Question 11

Section 529 Plans are established by:

Answer 11

The STATE

Question 12

What is the formula for the current yield?

Answer 12

Annual income / market price

Question 13

If the Fed tightens credit, what is happening to interest rates?

Answer 13

They are going up

Think of the current time. Fed has hiked interest rates 3x, because they are trying to control expansion

Question 14

If the Fed loosens credit, what is happening to interest rates?

Answer 14

The interest rates are going down

Question 15

What is another name for a subordinated royalty interest?

Answer 15

Reversionary working interest

Question 16

What are the 2 types of “Carried interests” in a Partnership?

Answer 16

1. Overriding royalty

2. Net profits interest

Question 17

In what currency do foreign option contracts settle?

Answer 17

They settle in US dollars

Question 18

What investments are 403(b) plans permitted to invest in?

Answer 18

The plans allow for investment in tax deferred annuity contracts, that can be funded by mutual fund purchases, as well as by traditional fixed annuities. Direct investments in common stocks are NOT allowed; the investments must be managed by a professional manager

Question 19

What are the advantages of buying a put instead of shorting a stock?

Answer 19

• lower capital requirement
• no requirement to borrow shares
• no requirement to pay interest on a stock loan

Question 20

What type of security is explicitly exempt from the Sec. Act of 1933?

Answer 20

Insurance company offerings (excluding variable annuities)

Question 21

For TAXABLE bonds, what type of bond MUST be accreted?

Answer 21

NEW Issue discounts.

For taxable bonds, everything is MAY except for new issue discounts, which is must

Question 22

For TAX-FREE bonds, what type of bonds MAY be amortized?

Answer 22

MARKET premiums

For tax-free bonds, everything is MUST except for market discounts

Question 23

What type of risk do ETN’s not have?

Answer 23

Reinvestment risk

ETN’s don’t have reinvestment risk because ETNs make no interest or dividend payments. The biggest concern for ETN’s is their credit risk

Question 24

A client surrenders a variable annuity contract 5 years after purchase because of poor performance. The customer invested $50,000 and redeemed it when the NAV was $40,000, however the customer only received $37,000 because a $3,000 surrender fee was imposed. The tax consequence is:

Answer 24

$10,000 deductible ordinary loss and $3,000 non-deductible loss

Question 25

Who decides what securities are marginable?

Answer 25

The Federal Reserve Board (FRB)

Question 26

Which securities are marginable?

Answer 26

• Listed securities

- Approved OTC securities

Question 27

Are Direct participation offerings required to registered with the SEC?

Answer 27

Yes

Question 28

What is CAPM?

Answer 28

Capital asset pricing model: a methodology for finding the most efficient investments - those that give the greatest return for the amount of risk assumed

Question 29

The spread on a new municipal offering is set at 3/4 point. The selling concession is 1/4 point and the additional takedown is set at 3/8 point. If a syndicate member places an order for the bond, how much will the syndicate member earn on that sale?

Answer 29

When a municipal syndicate member sells to the public, he earns the “total takedown,” which is the total of the selling concession plus the additional takedown. Since the selling concession is 1/4 point and the additional takedown is 3/8 point, the total takedown is 5/8 point

Question 30

Can SMA be used to reduce restrictions in an account?

Answer 30

NO. SMA cannot be used to reduce the restriction. Using SMA means that additional funds will be borrowed, increasing the restriction

Question 31

When must a disclosure document be provided to a customer wanting to open an NMFBA account?

Answer 31

At, or prior to, the account opening.

Question 32

What type of product is an NMFBA account?

Answer 32

An advisory product

Question 33

What are REITS not allowed to invest in?

Answer 33

Limited partnerships

Question 34

Can the named beneficiary in a UTMA or UGMA account be changed?

Answer 34

No. The gifts in these accounts cannot be transferred

Question 35

What type of issues are designated securities under the penny stock rule?

Answer 35

Share price under $5 and are OTCBB/Pink Sheet stocks

Question 36

What is the redemption value of stock from a mutual fund?

Answer 36

Redemption value is based on NAV and the redemption fee % is reduced from that

Question 37

Orders on the Specialist/DMM’s book are filled on a:

Answer 37

FIFO basis

Question 38

What agencies insure municipal bonds?

Answer 38

MBIA and AMBAC

Note: The SIPC does not insure municipal bonds. It insures brokerage accounts