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NEW QUESTION # 201
If recaptured deductions are added to income, recaptured investment tax credits are added to:
- A. basis
- B. gains
- C. income
- D. taxes
Answer: D
Explanation:
Explanation/Reference:
Explanation: taxes. Tax credits are not deductible expenses and have no effect on basis.
NEW QUESTION # 202
The principal underwriter of an open-end investment company is frequently called:
- A. investment counselor
- B. participating investment advisor
- C. selling group member
- D. sponsor
Answer: D
Explanation:
Explanation/Reference:
Explanation: sponsor. Also called the "distributor", these terms are interchangeable for an open -end investment company.
NEW QUESTION # 203
When does a call option provide the most value to its holder?
- A. when there is a large open interest in that class of option
- B. when the underlying stock price is rising
- C. in the month prior to its expiration
- D. when the underlying stock is extremely volatile
Answer: B
Explanation:
when the underlying stock price is rising. That's why the holder of this option wants to have a right to "call" the stock.
NEW QUESTION # 204
Which of the information below does not appear in the official notice of sale?
- A. the amount of required good faith check
- B. the method and place of settlement
- C. the names of underwriting syndicate members
- D. the type of bond
Answer: C
Explanation:
Explanation/Reference:
Explanation: the names of the underwriting syndicate members. At the time the notice of sale is published, the syndicate has generally not been formed. All the other information is required.
NEW QUESTION # 205
A registered bond with "Happy Birthday" scrawled across the face of the certificate is delivered to a broker/ dealer in satisfaction of sale by another member firm. Assuming it is accompanied by an authentic assignment, power of substitution form, and tax stamps (if appropriate), this is good delivery only if:
- A. the certificate is validated by the transfer agent
- B. this is not a good delivery under any circumstances
- C. the marking did not cover the name of the registered owner or the principal amount of the bond
- D. the certificate is validated by the registered owner
Answer: A
Explanation:
Explanation/Reference:
Explanation: the certificate is validated by the transfer agent. A mutilated bond must be validated before it can be a good delivery. The validation can be made by the issuer or the transfer agent.
NEW QUESTION # 206
Regulation T is set at 50%. Bubba's account contains long positions in the following securities with the prices listed:
100 ABC $30
200 XYZ $70
200 QBB $40
200 KKK $25
Total market value = $30,000
Debit balance in the account = $12,000
Net equity balance of the account = $18,000
If Bubba wants to buy 100 shares of DUM at $30 per share, how much additional money must be deposited?
- A. $0
- B. $2,000
- C. $1,500
- D. $3,000
Answer: A
Explanation:
$0. The cost of Bubba's purchase is $3,000 (100 x $30). But Reg T only requires 50% in Bubba's account and he has that.
NEW QUESTION # 207
Which of the following persons would consider annual reports of a corporation as the most important factor in making investment decisions?
- A. a fundamental analyst
- B. a chartist
- C. a technical analyst
- D. a follower of the Dow theory
Answer: A
Explanation:
a fundamental analyst. These analysts are guided by computations about a company's performance using data in annual reports.
NEW QUESTION # 208
In the sale of open-end investment company shares, the amount at which the sales charge is reduced on quantity transactions is referred to as the:
- A. breakpoint
- B. spread
- C. split
- D. margin
Answer: A
Explanation:
Explanation/Reference:
Explanation: breakpoint. This is the dollar value at which the sales charge is reduced.
NEW QUESTION # 209
Although a corporation has no earnings in a particular year, it is obligated to pay interest on all its outstanding debt except the following:
- A. collateral trust bonds
- B. convertible subordinated debentures
- C. adjustment bonds
- D. equipment trust certificates
Answer: C
Explanation:
adjustment bonds. These bonds are also known as income bonds. Interest is paid only if there is income.
NEW QUESTION # 210
Bubba Brokerage Corporation announces through its wire system that it has a large block of stock for sale.
Customers purchasing the stock will not pay a commission. The block is crossed on the NYSE floor and is printed on the NYSE tape. This is called a:
- A. specialist block purchase
- B. special order
- C. exchange distribution
- D. secondary distribution
Answer: C
Explanation:
Explanation/Reference:
Explanation: exchange distribution. An exchange distribution is a large block sold internally by one firm that is crossed on the floor of the exchange. The trade would print on the tape identified by the letters "DIST".
NEW QUESTION # 211
After an extended period of backing and filling, a stock moves up sharply through a resistance level on heavy volume. A technical analyst would likely call this a:
- A. technical rally
- B. breakout
- C. buying climax
- D. buy-in
Answer: B
Explanation:
Explanation/Reference:
Explanation: breakout. An upward move through a resistance level that is confirmed by heavy volume is called a breakout.
NEW QUESTION # 212
Which of the following is not true about mutual funds and variable annuities?
- A. the holder of each must pay income taxes on the dividends received each year
- B. the payout of each depends on the investment results of the securities owned in the portfolio
- C. each is regulated under the Investment Company Act of 1940
- D. the registered representative must have FINRA registration to solicit either one
Answer: A
Explanation:
Explanation/Reference:
Explanation: the holder of each must pay income taxes on the dividends received each year. Only the holder of mutual fund shares must pay income tax on annual dividends. This is "not" true of annuity owners. The other choices are true statements.
NEW QUESTION # 213
Bubba is long spot Canadian dollars at 0.7400. If he wants to buy one put option on Canadian dollars with a strike price of 74 and a cost of $0.35, what is Bubba's breakeven price for Canadian dollars?
- A. 0.4900
- B. 0.7435
- C. 0.7365
- D. 0.7400
Answer: B
Explanation:
Explanation/Reference:
Explanation: 0.7435. The put protects against a decline in the exchange rate for Canadian dollars.
However, the cost of the put raises the breakeven point to 0.7435 (0.7400 + 0.0035).
NEW QUESTION # 214
Bubba Corporation has net income of $4,200,000. It has 100,000 outstanding shares of 8% preferred stock ($100 par value) and 400,000 shares of common stock ($10 par value).
What are the earnings per share of common stock?
- A. $6.00
- B. $10.50
- C. $8.50
- D. $4.20
Answer: C
Explanation:
Explanation/Reference:
Explanation: $8.50. Subtract the preferred dividend of $800,000 (100,000 x 8% x 100) from the net income.
Divide the result of $3,400,000 ($4,200,000 - $800,000) by the 400,000 common shares to obtain $8.50.
NEW QUESTION # 215
Which of the following securities provides the longest term of option privilege?
- A. calls
- B. rights
- C. puts
- D. warrants
Answer: D
Explanation:
Explanation/Reference:
Explanation: warrants. All of the others always have fixed maturity dates. Warrants often have no finite life and, if they do, it is a very long time.
NEW QUESTION # 216
Municipalities are most likely to issue notes for which of the following purposes?
- A. short-term cash needs
- B. long-term financing
- C. federal income tax payments
- D. repairs to infrastructure
Answer: A
Explanation:
short-term cash needs. Notes are generally used for short-term needs.
NEW QUESTION # 217
Which of the following does not decrease basis?
- A. losses
- B. income from extraordinary sources
- C. cash or property paid out
- D. depletion of real property
Answer: B
Explanation:
income from extraordinary sources. Single events, such as the sale of property, do not affect basis.
NEW QUESTION # 218
A CMO is issued that has three tranches. One has an average life of 2 years. A second has an average life of 10 years. The third has an average life of 30 years. Initially, interest payments are distributed in this order:
- A. first to the holders of the 30-year tranche
- B. first to the holders of the 10-year tranche
- C. first to the holders of the 2-year tranche
- D. equally to all CMO holders of any tranche
Answer: D
Explanation:
equally to all CMO holders of any tranche. All bondholders share equally in the interest payments. Only principal payments are directed to the owners in each tranche in sequential order.
NEW QUESTION # 219
Bubba's margin account has $1,000 of SMA. If he buys $20,000 of listed secu rities, how much fully paid margin stock must he deposit to respond to a Reg T requirement of 50%?
- A. $9,000
- B. $18,000
- C. 10,000
- D. $20,000
Answer: B
Explanation:
Explanation/Reference:
Explanation: $18,000. Fully paid marginable stock equal to the value of the purchase satisfies the requirement. Since Bubba's account already has $1,000 of SMA, this comprises buying power of $2,000.
Therefore, he only needs to deposit the remaining $18,000.
NEW QUESTION # 220
Under Rule 415 a corporation may file a single registration statement with the SEC covering its anticipated financing need for the next:
- A. two years
- B. three years
- C. one year
- D. five years
Answer: A
Explanation:
two years. The corporation can offer these securities in whole or in part for the ensuing two years.
NEW QUESTION # 221
Which of the following statements about the custodian for an open-end mutual fund is correct?
- A. the custodian takes part in the sale of fund shares
- B. the custodian may perform an essential clerical service for the fund and its shareholders
- C. the custodian performs all management, supervisory, or investment functions
- D. the custodian affords protection against decline in value of fund shares
Answer: B
Explanation:
Explanation/Reference:
Explanation: the custodian may perform an essential clerical service for the fund and its shareholders. The custodian holds the cash and securities of the investment company and performs the bookkeeping functions. It does not have a supervisory role.
NEW QUESTION # 222
A mutual fund with an 8% load and a 1% redemption fee carries a current quote of $6.25 - $6.79. If an investor has tendered his shares for redemption on that basis, the per share price he will receive is approximately:
- A. $6.79
- B. $6.72
- C. $6.19
- D. $6.25
Answer: C
Explanation:
Explanation/Reference:
Explanation: $6.19. The fund has a redemption fee of 1%. This is about 6 cents based upon the bid price.
Subtracting that from the $6.25 bid results in $6.19.
NEW QUESTION # 223
The initial Federal Reserve Bank margin requirement is set at 60% and Bubba purchases 100 shares of XYZ at $100 per share. He deposits $6,000 of the $10,000 purchase price in his account.
If XYZ increases in value to $150 per share, how much excess equity would Bubba have in his account?
- A. $1,500
- B. $2,000
- C. $3,000
- D. $1,000
Answer: B
Explanation:
Explanation/Reference:
Explanation: $2,000. Bubba started with $6,000 of equity and a debit balance of $4,000. The market value of his XYZ stock increased by $5,000 ($15,000 - $10,000). Therefore, his equity increased to $11,000.
Since Bubba only needs 60% equity, his Reg T requirement is $9,000 ($15,000 x 60%). His equity exceeds the requirement by $2,000.
NEW QUESTION # 224
To accommodate a customer's order to buy an over-the-counter stock, a broker/dealer is permitted to:
- A. sell these shares short to the customer
- B. all of the above
- C. sell him shares from the firm's inventory
- D. act as agent on this transaction
Answer: B
Explanation:
Explanation/Reference:
Explanation: all of the above. All of the choices are normal ways for the broker to fill the customer's order.
NEW QUESTION # 225
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