Practice Exam Flashcards
(31 cards)
The premium on the XYZ Jan 30 calls is 3 - 3.15, while the premium on the XYZ Jan 30 puts is quoted at 2.25 - 2.35. A customer establishing a short straddle receives total premiums of:
525.
To establish a short straddle, the customer sells a call and a put at the bid price.
Which of the following registers the securities and packages the program for a limited partnership?
Syndicator.
If a customer buys 2 Canadian dollar 78 calls and writes 2 Canadian dollar 80 calls, this position is a
bull call spread.
Bull positions in options spreads are established by buying the option with the lower strike price.
In a functional allocation oil and gas program, which of the following statements are TRUE?
The general partner picks up all tangible drilling costs.
The general partner picks up all intangible drilling costs.
The limited partners pick up all tangible drilling costs.
The limited partners pick up all intangible drilling costs.
The general partner picks up all tangible drilling costs.
The limited partners pick up all intangible drilling costs.
All of the following securities trade in the over-the-counter market EXCEPT:
Open-end investment companies.
Municipal bonds, government and agency securities, and corporate securities (listed and unlisted) all trade in the OTC market. Foreign securities trade in the United States if the companies comply with SEC registration and disclosure requirements. Mutual fund shares (open-end companies) do not trade.
Which of the following actions of XYZ Corporation would raise additional capital?
Issue callable preferred stock.
Declare a stock dividend.
Make a rights offering.
Encourage convertible bondholders to convert to common stock.
Issue callable preferred stock.
Make a rights offering.
In margin accounts, the interest rate charged to customers by a broker/dealer is most closely related to the:
call loan rate.
The interest rate is directly related to the call loan rate, which is the rate banks charge broker/dealers for loans on their customers’ hypothecated securities.
If XYZ closed at 41.10 and the XYZ Feb 50 calls closed at .35, the calls are:
out-of-the-money.
Call options are out-of-the-money when the market price is below the strike price.
Which of the following exemption provisions of the Act of 1933 may NOT be used for an initial offering of securities?
Rule 144.
Rule 144 does not pertain to primary offerings; it affects secondary market transactions in restricted or control securities.
A broker/dealer with a sales agreement with a mutual fund must return all concessions to the underwriter if a customer redeems his shares:
within 7 business days of purchase.
If any security issued by a mutual fund is tendered for redemption within 7 business days after the date of the transaction, the broker/dealer must refund to the underwriter the full concession allowed to the broker/dealer on the original sale.
Which of the following interdealer trades does NOT settle in clearinghouse funds?
U.S. government bonds.
Trades in securities backed by the federal government are settled in federal funds, not clearinghouse funds.
Which of the following does NOT issue commercial paper?
Commercial bank.
Commercial banks do not issue commercial paper. The commercial paper market was developed to circumvent banks so that corporations could lend to, and borrow from, each other more economically. Commercial paper is unsecured, short-term corporate debt.
A covered call could be written to:
improve the return on a portfolio.
Writing a call will not necessarily lock in the profit. In the form of increased cash flow, it will improve the return on the portfolio.
Under SEC rules, which of the following events require a broker/dealer to furnish a copy of the account record to a customer?
Change of broker/dealers address
Change of customer’s name or address
Change of customer’s investment objectives
Change in registered representative assigned to the account
Change of customer’s name or address
Change of customer’s investment objectives
Depletion allowances in oil and gas programs are based on the amount of oil:
sold.
Depletion allowances are allowed to compensate for a mineral resource, which is considered accomplished when it is sold.
When a customer enters a sell order and the customer is in possession of the certificates, a broker/dealer must determine all of the following EXCEPT:
whether the transfer agent has accepted the securities.
A firm must make an affirmative determination and be reasonably sure the client can make prompt delivery. Conversely, approval of the transfer agent is not a factor when accepting a sell order.
Your customer informs you that he has shares of stock restricted under Rule 144. He suggests that he wants to sell covered calls against the shares he owns to bring additional income into his account. Which of the following should you advise?
Selling calls against restricted (Rule 144) shares is prohibited because the restricted shares could not be delivered if the calls were exercised by the buyer.
The Nasdaq stock market permits listing for all of the following EXCEPT:
nonconvertible debt securities.
The Nasdaq stock market is an equity and equity equivalent market. Listed are common stock, preferred stock, warrants, limited partnerships, ADRs, and convertible bonds. Straight debt securities are not part of Nasdaq.
All of the following are true regarding Section 529 college savings plans EXCEPT:
tax-deductible contributions at the federal level.
Contributions are made with after-tax dollars and are not deductible.
Which of the following circumstances must be met for a fiduciary to trade options in a trust account?
Special circumstances determined by the broker/dealer.
The trust agreement states the trustee has the power to trade options.
The trust’s investment objectives are determined to be compatible with options trading.
Only covered options may be traded by a fiduciary.
The trust agreement states the trustee has the power to trade options.
The trust’s investment objectives are determined to be compatible with options trading.
A customer writes 1 ABC Jan 65 put at 6 and 1 ABC Jan 55 call at 7 when ABC is trading at 60. This position will be profitable if, at expiration, ABC is above 68 at 60 below 52 between 52 and 68
at 60
between 52 and 68
Your 65-year-old client owns a nonqualified variable annuity. He originally invested $29,000 4 years ago; it now has a value of $39,000. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal?
2800.
This annuity is nonqualified, which means the client has paid for it with after-tax dollars and has a basis equal to the original $29,000 investment. Consequently, the client pays taxes only on the growth portion of the withdrawal ($10,000). The tax on this is $2,800 ($10,000 x 28%). Because the client is older than age 59-½, he does not pay 10% premature distribution penalty tax.
A customer has a margin account which shows a market value of $190,000 and a debit balance of $90,000. In addition, the account has SMA of $5,000. The long market value at maintenance is:
120000.
Long market value at maintenance is the point to where an account must fall (in market value) to reach minimum maintenance (25% of market value). To compute, divide the debit balance by .75 ($90,000 / .75 = $120,000). If the market value were to fall to $120,000, the account would look like this: $120,000 − $90,000 = $30,000 (25%) (MV − DB = EQ).
What is the maximum potential loss for a naked put option?
Strike price minus premium.
The maximum loss on a naked put is equal to the breakeven (strike price minus premium for puts). The maximum loss is breakeven multiplied by the number of shares covered by the contracts.
