Deck 3: Assorted Securities and Investments

Question 1

The Bubba Corporation has 900,000 outstanding shares and holds 100,000 shares as treasury stock. At the end of the third quarter $450,000 is distributed as a dividend on the common. How much is the dividend per share?

A)$0.05
B)$0.45
C)$0.50
D)None of the above

Answer 1

C
The dividend per share is $0.50. Since treasury stock does not receive dividends, divide $450,000 by the outstanding 900,000 shares to arrive at $0.50 per share.

Question 2

In mid-September, Bubba sells one XYZ February 50 call at $6. It subsequently expires without being exercised. How is the premium taxed?

A)Bubba's cost of the underlying stock is reduced
B)the $600 premium is a capital gain
C)the $600 premium constitutes ordinary income
D)the $600 premium is rolled over into another XYZ call with the next longest expiration date.

Answer 2

B
the $600 premium is capital gain. That's simply how the tax law works.

Question 3

In June, Bubba bought 100 shares of XYZ at $35. In November, he bought a listed put in XYZ with a $35 strike price and a July expiration for a premium of $600. In April, Bubba exercises the put option and uses his stock for delivery. What is his resulting tax consequence?

A)a $600 capital loss
B)neither profit nor loss
C)cannot be determined without knowing the market price of XYZ upon exercise
D)this is a wash sale and cannot be included in the investor's tax calculations

Answer 3

A
a $600 loss. The strike price and Bubba's purchase price are the same. He has a $600 loss on the option for the premium he paid.

Question 4

Which of the following is an acceptable deposit to answer an NYSE maintenance call?

A)US savings bond
B)SMA
C)US treasury notes
D)all of the above

Question 5

Which of the following is the least important method of money control exercised by the Federal Reserve?

A)reserve requirements
B)open market operations
C)discount rate
D)Regulation T

Question 6

Bubba is a registered representative who wishes to buy shares of a new issue his firm is distributing. Under FINRA Conduct Rules, Bubba may:

A)not do so under any circumstance
B)do so if he has a history of buying hot issues
C)not do so for his own account, buy may purchase shares for his sister's account
D)do so if his allotment is insubstantial and not disproportionate to public orders

Question 7

Under the Investment Company Act of 1940, what is the minimum net worth of a registered investment company?

A)$100,000
B)$50,000
C)$25,000
D)$5,000

Question 8

Which of the following preferred issues is likely to fluctuate most in value?

A)cumulative preferred
B)callable preferred
C)convertible preferred
D)broker preferred

Question 9

A mutual fund characterized by a modest sales charge and an investment in a fixed portfolio of municipal securities is a:

A)face-amount certificate company
B)unit investment trust company
C)management company
D)open-end or closed-end company

Question 10

Bubba owns 200 shares of XYZ at $90, and wishes to hedge the position while generating income. What is the best recommendation?

A)sell calls
B)sell puts
C)buy calls
D)buy puts

Question 11

The Bubba Insurance Company is not incorporated. It consists of Bubba and his two brothers as general partners, who maintain an active securities account in the name of the company. If one of the partners should suddenly die, what course of actions should be undertaken by the registered representative at the brokerage?

A)freeze the account from further activity until a death certificate and new partnership agreement are furnished to the brokerage
B)no special action is required because the death of a single partner does not terminate the partnership agreement
C)distribute the assets in the account to the surviving partners
D)execute sell orders but do not accept buy orders or distribute assets from the account until a new partnership agreement is provided to the brokerage

Question 12

Which are the primary considerations in evaluating the worth of a limited partnership?

A)the size of the tax deductions
B)the cost of assets
C)the adequacy of funding
D)both B and C

Question 13

If recaptured deductions are added to income, recaptured investment tax credits are added to:

A)income
B)basis
C)gains
D)taxes

Question 14

To qualify as an intrastate offering under SEC Rule 147, which of the following is true of the issue?

A)it must be approved by the SEC
B)it must be sold only to bona fide residents of one state
C)it cannot exceed $1,500,000 in value
D)it must consist of common stock only

Question 15

Which of the following does not affect the public offering price of a new issue?

A)anticipated earnings of the issuer in the next year
B)dividend projections for the next year
C)the book value of the issuer
D)the selling group's determination of value in the prevailing market conditions

Question 16

The registration requirements of the federal securities acts are intended to protect the public interest by providing for a prospectus on new issues and its review by the SEC. Which of the following is the true of this process?

A)It provides the SEC with adequate information on which to base approval for new issues
B)It does not imply SEC approval of the issue
C)It guarantees purchasers against an untrue statement of material fact or an omission of material fact
D)It relieves participating underwriters from any further responsibility for checking essential facts before recommending purchase to the customers

Question 17

In a best efforts distribution of a new non-exempt issue, a broker/dealer:

A)may allow a selling concession to a bank or trust company
B)agrees to buy the issue at a specified price
C)is not required to use an offering circular or prospectus
D)acts as an agent for the issuer

Question 18

Who obtains and pays the municipal bond attorney rendering a legal opinion about the validity of the bond issue?

A)the purchaser of the bonds
B)the underwriter
C)the issuing municipality
D)the municipality's financial adviser

Question 19

CMOs are sold and priced based upon which of the following:

A)expected average life
B)stated maturity
C)current yield
D)par value

Question 20

A company may pay a declared dividend in which of the following ways:

A)with stock in a subsidiary company
B)with property
C)with cash
D)all of the above

Question 21

Book value of a corporation is also know as:

A)net tangible asset value per share
B)intangible value
C)par value
D)dilution value

Question 22

Under an initial federal requirement of 70% equity, Bubba purchases 100 shares of XYZ at $40 per share and wishes to satisfy the margin call by delivering another listed security into his account. He may do so by depositing stocks with a market value of:

A)$9,333
B)$5,714
C)$4,000
D)$2,800

Question 23

Bubba owns 100 shares of XYZ at $58. He needs to limit his loss to 5 points or less and will accept a longer time for the order to be executed, to make sure the loss does not exceed 5 points. Which of the following orders would be the best recommendation?

A)sell limit order
B)sell stop-limit order
C)sell stop order
D)buy stop order

Question 24

Under what conditions may an FINRA member firm sell an IPO to an employee of another broker/dealer?

A)if the amount of the purchase is small and the transaction accords with the employee's normal investment practice
B)if the member firm notifies the other broker/dealer of the transaction
C)if the employing broker/dealer guarantees that resale of the securities acquired by its employee will be restricted for two years
D)under no circumstances

Question 25

Under a leaseback arrangement used to finance construction of local schools, who is the issuer of the municipal bonds?

A)the state in which the schools are located
B)the local school district
C)a legal authority created for this purpose
D)a public housing authority commissioned by the federal government

Question 26

A financial institution requesting a quote on a block of 100 bonds from a dealer in government securities receives a quote of 98.02 bid, 98.06 asked. What is the dollar amount the institution will receive if the financial institution sells these bonds to the dealer?''

A)$98,062.50
B)$98,187.50
C)$98,250.00
D)$98,750.00

Question 27

Convertible preferred stock has all of the following characteristics except:

A)a lower dividend rate than non-convertible preferred
B)a dilution of earnings if converted into common stock
C)a requirement for shareholders to always accept the call price when called
D)required dividend payments to shareholders before any dividends are paid to holders of common stock

Question 28

Which of the following municipal bonds may be grouped under the classification of "revenue bonds"?

A)special tax
B)new housing authority
C)general obligation
D)limited tax

Question 29

In a triple net lease, which of the following is the tenant not responsible for paying?

A)taxes
B)financing charges
C)insurance premiums
D)maintenance