First 100

Question 1

True or False: A market maker publishing a firm quote is obligated to honor the price and the number of shares quoted?

Answer 1

True. A BD providing a firm quote is obligated to honor both the price and size displayed.

Question 2

Define debt service.

Answer 2

The total of all interest and principal payments for a bond offering

Question 3

What type of stock may be entitled to extra dividends?

Answer 3

In profitable years, participating preferred stockholders may be paid both prior to, and after, common stockholders.

Question 4

The formula for finding conversion ratio on convertible preferred stock is: ______ ÷ ____________

Answer 4

The formula for finding conversion ratio is: Par ÷ Conversion Price (par for preferred is $100)

Question 5

True or False: The MSRB has no authority or control over municipal issuers.

Answer 5

True

Question 6

An investor who sells a bond between its coupon payments is entitled to _______ interest for the time he owned the bond.

Answer 6

Accrued

Question 7

List the government agencies that issue securities that are based on mortgages.

Answer 7

Government Nat. Mortgage Assoc. (GNMA), Federal Nat. Mortgage Assoc. (FNMA) and Federal Home Loan Mortgage Corp. (FHLMC)

Question 8

Identify the acronym: IC Act of ‘40

Answer 8

Investment Company Act of 1940

Question 9

Equity holders are owners and are entitled to receive __________, which are derived from corporate ________.

Answer 9

Equity holders are owners and are entitled to receive dividends, which are derived from corporate profits.

Question 10

List some examples of marketable Treasury securities

Answer 10

T-bills, T-notes, T-bonds, T-STRIPS, TIPS and Cash Management Bills

Question 11

May Eurodollar bonds be issued in the U.S.?

Answer 11

No, and they are not registered with the SEC.

Question 12

Which federal law governs the registration of RRs and their firms?

Answer 12

The Securities Exchange Act of 1934

Question 13

__________ stock is the amount of stock a corporation is legally permitted to issue.

Answer 13

Authorized

Question 14

What is the dollar price of a T-bond with a bid of 98-24 and a par value of $100?

Answer 14

98 and 24/32. Convert fraction into a decimal 24 ÷ 32 = .75. Now multiply $100 by 98.75% = $98.75.

Question 15

What is often required before a revenue bond can be issued?

Answer 15

Conducting a feasibility study

Question 16

What does ownership of a GNMA pass-through certificate represent?

Answer 16

An undivided interest in a pool of residential mortgages

Question 17

Ben’s margin account has a market value of $800,000 and a debit balance of $350,000. How much SIPC coverage is provided?

Answer 17

In a margin account, SIPC covers the net equity (market value minus debit). In this example, $450,000.

Question 18

True or False: Short-term bonds typically have higher coupon (interest) payments.

Answer 18

False. Long-term bonds typically pay more interest since investors assume greater default risk.

Question 19

True or False: Common stockholders have the right to vote for the payment of dividends.

Answer 19

False. Dividend payments are determined by the board of directors.

Question 20

True or False: SIPC is backed by the full faith and credit of the U.S. government.

Answer 20

False

Question 21

True or False: Investors may exercise a bond’s call privilege any time after issuance.

Answer 21

False. Only issuers may exercise the call privilege after the call protection period has passed.

Question 22

_________ stocks are associated with major companies that have records of high earnings and dividend payments.

Answer 22

Blue-chip stocks are associated with major companies that have records of high earnings and dividend payments.

Question 23

What are the Pink Sheets?

Answer 23

A real-time electronic quotation system for OTC equities

Question 24

Corporate bonds that are rated below investment grade are referred to as __________ or ____ bonds.

Answer 24

Corporate bonds that are rated below investment grade are referred to as high-yield or junk bonds.

Question 25

Standard & Poor’s four ratings for municipal notes are ______, ______, ______, ______.

Answer 25

Standard & Poor's four ratings for municipal notes are SP-1+, SP-1, SP-2, SP-3.

Question 26

How does the Dutch Auction set the interest rate on Auction Rate Securities?

Answer 26

It sets the lowest interest rate at which all the securities being offered will clear the market (net clearing rate).

Question 27

Is default possible on a municipal offering?

Answer 27

Yes. Only U.S. Government issues are considered free of default risk.

Question 28

True or False: Junk bonds typically offer lower yields.

Answer 28

False. Since the issuer is more likely to default, junk bonds offer a higher rate of return.

Question 29

For a Treasury auction, what's the difference between a competitive bid and non-competitive bid?

Answer 29

Competitive bids indicate both a quantity and price, while non-competitive bids only indicate a quantity.

Question 30

Who issues debt?

Answer 30

Corporations, municipalities, the U.S. government and its agencies

Question 31

In a ____, a dealer sells bonds to another dealer and agrees to repurchase them at a specific time and price.

Answer 31

In a repo, a dealer sells bonds to another dealer and agrees to repurchase them at a specific time and price.

Question 32

What group of stockholders receives dividends first?

Answer 32

Preferred stockholders

Question 33

True or False: The Investment Company Act of 1940 requires mutual fund managers to register.

Answer 33

False. The Investment Advisers Act of 1940 is the Act that requires money managers to register.

Question 34

Explain the concept of holding securities in street name.

Answer 34

This is when client securities are held by and registered in the name of the BD

Question 35

Describe an asset backed security.

Answer 35

A security whose value and income are collateralized by group of assets, usually bank receivables (e.g. mortgages).

Question 36

For what types of securities is a trustee required?

Answer 36

Bonds

Question 37

What are not considered equity securities?

Answer 37

Fixed-income products, such as bonds and notes

Question 38

What are some examples of tax-free money-market instruments?

Answer 38

Municipal notes and tax-exempt commercial paper

Question 39

ABC hasn't paid dividends in four years. If declared in year 5, what will a 3% non-cumulative preferred owner receive?

Answer 39

$3. Since the shares are non-cumulative, ABC is only required to pay the full amount for year 5.

Question 40

True or False: Interest paid on corporate bonds is entirely tax-exempt.

Answer 40

False. Corporate bond interest is taxed at the federal, state, and local level.

Question 41

The Securities Exchange Act of 1934 regulates the __________ _______.

Answer 41

the Secondary Market.

Question 42

A _____ call is a situation where an issuer redeems an entire bond issue before maturity.

Answer 42

A full call

Question 43

Issuers of bonds may be referred to as __________.

Answer 43

debtors.

Question 44

When interest rates go up, bond prices go ____.

Answer 44

Down

Question 45

Identify the acronym: OTC

Answer 45

Over-the-Counter

Question 46

If a bond's price has risen from 98 to 108, what has likely happened to interest rates?

Answer 46

Rates have probably fallen, which has caused the increase in the bond's price

Question 47

What are Auction Rate Securities (ARS)?

Answer 47

Long-term bonds (municipal or corporate) with a variable interest rate set periodically through a Dutch Auction

Question 48

True or False: A penny stock has a bid price of less than $1.00 per share?

Answer 48

False. A penny stock is an unlisted security whose bid price is less than $5.00 per share

Question 49

______ and _________ are generally bundled as single investment securities.

Answer 49

Warrants and bonds are generally bundled as single investment securities.

Question 50

True or False: With approval of the board, preferred dividends can be skipped in some years.

Answer 50

True. Unlike bond interest, preferred dividends are not required to paid each year

Question 51

Existing stockholders receive ______ right for every one share owned.

Answer 51

Existing stockholders receive one right for every one share owned.

Question 52

Who is a lock-up agreement meant to protect?

Answer 52

Shareholders/investors

Question 53

What does a put feature on a bond allow?

Answer 53

Bondholders may put (redeem) the bond back to the issuer prior to maturity.

Question 54

MIG stands for ___________________________.

Answer 54

Moody’s Investment Grade.

Question 55

______ stock is the amount of stock a corporation has already sold to investors.

Answer 55

Issued stock is the amount of stock a corporation has already sold to investors

Question 56

How does S&P and Moody’s further differentiate their ratings?

Answer 56

S&P uses + or - , while Moody’s uses 1, 2, 3.

Question 57

True or False: Marketable Treasury securities can be bought and sold between investors.

Answer 57

True

Question 58

True or False: SIPC provides coverage for both commodities and futures accounts.

Answer 58

False

Question 59

Under Rule 144, restricted stock must be held for ___ months before it can be sold.

Answer 59

Under Rule 144, restricted stock must be held for six months before it can be sold.

Question 60

Bond interest is stated ___________ and paid ________________.

Answer 60

stated annually and paid semi-annually.

Question 61

Industry disputes are handled through ______________.

Answer 61

Arbitration.

Question 62

What will SIPC cover in a customer's margin account?

Answer 62

Only the customer's equity (securities clear of any outstanding loan)

Question 63

Does the MSRB have the authority to enforce its own rules?

Answer 63

No. The MSRB has no enforcement authority.

Question 64

True or False: Callable preferred shares allow an investor to buy shares of common stock at a fixed price.

Answer 64

False. If preferred shares are callable, the issuer is allowed to buy back the shares at a fixed price.

Question 65

What voting method permits one vote for each share owned to be voted for each director?

Answer 65

Statutory

Question 66

Identify the acronym: NASAA

Answer 66

North American Securities Administrators Association

Question 67

Who is responsible for the formulation and interpretation of rules for the municipal industry?

Answer 67

The MSRB

Question 68

True or False: The FDIC is backed by the full faith and credit of the U.S. government.

Answer 68

True

Question 69

What system is used for the issuance of Treasury securities?

Answer 69

An auction

Question 70

True or False: MSRB rules regulate the municipal activities of BDs, banks, and the employees of these institutions.

Answer 70

True. The MSRB also regulates municipal advertising.

Question 71

How are voting issues determined, by shares or shareholders?

Answer 71

Voting issues are determined based on a majority of shares.

Question 72

How do shareholder's typically inspect their company?

Answer 72

By reviewing the annual and quarterly reports that are distributed by the corporation

Question 73

The maximum maturity of commercial paper is ____ days.

Answer 73

270 days

Question 74

Which Act created SIPC?

Answer 74

Securities Investor Protection Act of 1970 (SIPA)

Question 75

What is the longest duration for a warrant?

Answer 75

Perpetual

Question 76

List the types of secured corporate bonds.

Answer 76

Mortgage bonds, equipment trust certificates, collateral trust bonds and asset backed securities

Question 77

Issuers/affiliates repurchasing their own shares may not buy the shares in the last ____ minutes of the trading day.

Answer 77

Issuers/affiliates repurchasing their own shares may not buy the shares in the last 30 minutes of the trading day.

Question 78

Calculate the price of a Treasury bond that is quoted at 98 16/32.

Answer 78

Turn the fraction to a decimal: 16 ÷ 32 = .50, add it to the percentage of par, then multiply $1,000 by 98.50% = $985.

Question 79

The Maloney Act of 1938 is credited with creating which SRO?

Answer 79

The NASD. In 2007, the regulatory units of the NASD and NYSE merged to create FINRA.

Question 80

Local general obligation bonds are backed by what type of tax?

Answer 80

Property tax (e.g., school district bonds)

Question 81

Fixed-income investors receive _________, while stockholders receive __________.

Answer 81

Fixed-income investors receive interest, while stockholders receive dividends.

Question 82

A BD that does not hold a customer's cash or securities is known as a _____________.

Answer 82

A BD that does not hold a customer's cash or securities is known as a non-carrying firm.

Question 83

May a warrant be detached and traded separately?

Answer 83

Yes

Question 84

Municipal bond interest is exempt from __________ tax.

Answer 84

Municipal bond interest is exempt from federal tax.

Question 85

True or False: The interest rate reset periods on Auction Rate Securities range from 7, to 28, or 35 days.

Answer 85

True

Question 86

What is a market maker?

Answer 86

A person who enters quotes and stands ready to buy and sell securities for his own account on a regular basis

Question 87

Identify the acronym: SRO

Answer 87

Self-Regulatory Organization (such as FINRA)

Question 88

The ______________ is where trades of NYSE or AMEX exchange-listed securities occur in the over-the-counter market.

Answer 88

The third market is where trades of NYSE or AMEX exchange-listed securities occur in the over-the-counter market.

Question 89

The following would be a quote for what security? Bid 4.26 Asked 4.22

Answer 89

T-bill

Question 90

What is NASAA's primary responsibility?

Answer 90

To establish and modify the Uniform Securities Act (USA), which is the basis for most states' securities laws.

Question 91

What is forced conversion?

Answer 91

An issuer calls bonds at a point where the stock is worth more than the bond’s call price.

Question 92

Warrants are a ______-term right to buy stock at a preset price.

Answer 92

Warrants are a long-term right to buy stock at a preset price.

Question 93

Identify the acronym: COP

Answer 93

Code of Procedure

Question 94

Name some of the advantages of buying convertible bonds.

Answer 94

Consistent interest payments, appreciation if stock rises, downside protection if stock falls (since it’s still a bond).

Question 95

How often will VRDOs adjust their interest rate?

Answer 95

At specified intervals such as daily, weekly, or monthly. VRDOs may allow owners to put (sell) back to the issuer.

Question 96

What is the OTCBB?

Answer 96

The Over-the-Counter Bulletin Board -- provides electronic quotes for non-Nasdaq (OTC equity) stocks

Question 97

What are the two general types of Treasuries?

Answer 97

1) Marketable (negotiable) and 2) Non-marketable (non-negotiable)

Question 98

True or False: The Code of Procedure can be used by a customer against a member firm to resolve a monetary dispute

Answer 98

False. This situation would be handled under the Code of Arbitration.

Question 99

Calculate the price of a corporate bond quoted at 98 ¾.

Answer 99

Convert fraction into a decimal: 3 ÷ 4 = .75 and then multiply $1,000 by 98.75% = $987.50

Question 100

A Nasdaq-listed stock trades in the __________ market.

Answer 100

A Nasdaq-listed stock trades in the secondary market.