Kaplan incorrect

Question 1

How to calculate time value and intrinsic value of an option

Answer 1

intrinsic=how much it is ITM, premium-intrinsic=time value

prem=9 strike=130 trading at 123, 130-123=7, 9-7=2

Question 2

Long term capital gain

Answer 2

must own security more than 12 months before it is long term for tax purposes

Question 3

capital gains and losses tax rules

Answer 3

losses offset gains, $3k can be deducted from income in a single tax year, and the rest can be carried forward

Question 4

customer complaint records must be kept for

Answer 4

Finra: 4 years
SEC: 3 years

Question 5

Sell order tickets must show

Answer 5

long or short sale

Question 6

What are characteristics of structured products?

Answer 6

equity-linked notes (debt instruments), ETNs
high risk, must employ hightened suitability standards

Question 7

What is an Official Statement?

Answer 7

like a prospectus for new issue muni bonds
SEC requires it for MOST new muni issues, MSRB does not require, since it is not a regulatory agency

Question 8

Similarities and differences between T Bills, T Notes, T Bonds

Answer 8

Similarities:
Backed with full faith and credit of the US Government
Low risk, low return

Differences:
T-Bills
maturity <1year
sold at discount
minimum denominations of $100
T-Notes
maturity 2-10 years
T Bonds
maturity >10 years

Question 9

margin account deposit rules

Answer 9

initial transaction <$2k, 100% of market value must be deposited
>$2k must deposit $2k or 50% of market value, whichever is greater

Question 10

What are the three margin account agreement forms?

Answer 10

Hypothecation: allow BD to keep securities purchased as collateral for the margin loan
Credit: terms of the loan such as interest to be charged
Loan Consent: optional allows BD to lend out securities

Question 11

What is the Uniform Practice Code?

Answer 11

deliveries made in certificates in lots of 100s
ex: 3 certificates for 90 shares, 3 certificates of 10 shares, and one for 25 shares (90 and 10 can be combined into 100s

Question 12

What are the three types of investment companies?

Answer 12

Open-End Funds
Mutual funds
SALES CHARGES
continually issue and redeem shares based on demans
buy and sell shares directly from fund at NAV calculated at closing of each day
most liquid
NAV can DECREASE if dividends are distributed and increase if dividends are paid to the fund,. It will change if underlying portolio falls or rises
-long term capital gains cannot be distributed more than once a year
Closed-End Funds
NAV + COMMISSION
fixed number of shares issued by IPO
trade on exchanges, price determined by supply and demand, NOT NAV, can trade at premium/discount to NAV
intraday trading
liquid with price volatility
Unit Investment Trusts (UITs)
static portfolio established for a fixed period
investors purchase units of trust
not actively managed
at the end of trust period, UIT dissolves and assets are distributed
least liquid beause of fixed-structure and long-term holdings

Question 13

What are ADRs?

Answer 13

Long term growth/capital appreciation equity investments
represents shares of a foreign company held by US bank or custodian
transactions and dividends are in USD
overseen by SEC
Risks: exchange rate risk, politial risk, market risk

Question 14

How to calculate EPS?

Answer 14

[EBIT-(interest+taxes)-preferred dividends]/#common shares outstanding

Question 15

What is a C corp versus an S corp?

Answer 15

C corp: goal is to raise significant amount of capital
subject to double taxation

S Corp: pass-through taxation, limited to 100 shareholders

Question 16

liquidation order

Answer 16

wages
taxes
secured debt (general creditors)
subordinated debentures
preferred stock
common stock

Question 17

What is Rule 156?

Answer 17

Regulation D of Act of ‘33
sales of nonexempt securities can take place without SEC registration if it qualifies for transactional exemption
(private placement

Question 18

What is considered portfolio income?

Answer 18

qualified dividends, interest, net capital gains from selling securities

Question 19

What happens when you own a convertible debenture and a stock dividend is paid on the common stock?

Answer 19

assume convertibles have an anti-dilutive provision
investor must be able to convert into %dividend more shares
Par/100(100%+%dividend)

Question 20

What information is on a family’s balance sheet, versus an income statement?

Answer 20

balance sheet: assets and liabilities which determine net worth
income statement: salary and expenses

Question 21

When opening a corporate margin account, what documents are needed?

Answer 21

corporation’s charter and bylaws, names of natural persons authorized to trade, signed margin agreement

Question 22

What are special rules for accounts with penny stocks?

Answer 22

must receive monthly statement

Question 23

What strategy should be used if a stock price is believed to rise or fall sharply in the future?

Answer 23

buy a straddle (long a call and a put)

Question 24

What does it mean if muni securities are offered on an inverted scale?

Answer 24

yields on short-term bonds and higher than long-term

Question 25

tax rules

Answer 25

non-qualified dividend: ordinary income rates (RIETS) put these in deferred tax accounts like IRAs or 401ks qualified: holding period of 60 days for common, 90 for preferred, taxed at <20% capital gains: cap gains rate, considered long term

Question 26

When selling stock in a margin account, how much money is released to SMA?

Answer 26

if equity is below the 50% Reg T requirement, account is restricted. 50% goes to SMA If 50% Reg T requirement is met, 100% of the sales proceeds toes to SMA

Question 27

What is affected when a company declares a cash dividend?

Answer 27

Shareholders' equity and total liabilities -reduces retained earnings, increase current liabilities which increases total liabilities -assets are affected on payout date

Question 28

what is accelerated depreciation?

Answer 28

charged expenses are increased during early years of equipment life, and decreased later

Question 29

When must bond trades be reported to FINRA via TRACE and RTRS for munis?

Answer 29

15 minutes after execution

Question 30

What is the theoretical value of a right before ex-rights date?

Answer 30

(market value-subscription price)/(#rights+1)

Question 30

What is a bond's indenture?

Answer 30

also called deed of trust states obligation to pay back the bond on a specific date

Question 31

How are GNMAs and FNMAs priced?

Answer 31

$1k minimum denomination and increments of $1

Question 32

What happens to CMOs when interest rates fall?

Answer 32

subject to prepayment rate, and prices of tranches rise since average life is decreased

Question 33

When interest rates fluctuate, what prices are most volatile?

Answer 33

long-term bonds

Question 34

What are technical analysts?

Answer 34

forcast market trends and securities prices concerned with market prices, trading volumes, changes in DJIA, reversals, support and resistance levels, and others NOT concerned with individual corporations and their P/Es or earnings

Question 35

What options strategy is most risky in a bull market?

Answer 35

writing naked calls, since there is unlimited liability and the most risk

Question 36

How is working capital best described?

Answer 36

amount of money a corp has to work with if it liquidates current assets and pays off all current liabilities working cap=current assets-cuttent liabilities

Question 37

What is a qualified opinion?

Answer 37

legal opinion with restrictions placed by municipality's bond counsel