Deck 2: Investment and Securities

Question 1

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

Answer 1

convertible preferred

Question 2

Which of the following rights does an ADR holder not have?

A)preemptive rights
B)the right to vote for your mother-in-law as a board member
C)the right to transfer ownership
D)the right to see financial statements

Answer 2

preemptive rights

Question 3

A corporation makes a rights offering to raise $10 million of new capital by issuing one million shares of common stock. If it already has six million shares outstanding at the time of the offering. How many rights will the corporation distribute to its shareholders?

A)one million
B)six million
C)ten million
D)sixteen million

Answer 3

six million

Question 4

A corporation makes a rights offering to raise $10 million of new capital by issuing one million shares of common stock. If it already has six million shares outstanding at the time of the offering. What is the subscription price per share?

A)$4
B)$6
C)$7
D)$10

Question 5

A corporation makes a rights offering to raise $10 million of new capital by issuing one million shares of common stock. If it already has six million shares outstanding at the time of the offering. What subscription ratio is the corporation establishing for each new share?

A)6 rights per share
B)10 rights per share
C)6 million rights per share
D)10 million rights per share

Question 6

Bubba owns stock with cumulative voting rights. There are five vacancies on a board and he owns 100 shares of stock. Bubba is entitled to cast the following votes:

A)a total of 100 votes
B)a total of 100 votes per
C)a total of 500 votes
D)you are not allowed to vote

Question 7

The definition of debentures is:

A)a loan secured by real estate
B)collateralized securities
C)a worthless security
D)securities backed by the general credit of the issuers but no specific collateral

Question 8

Convertible bonds have all of the following features except:

A)an ability to protect a short position on the stock into which they are convertible
B)permissibility for use as collateral
C)a normally higher yield than non-convertible bonds of the same issuer
D)fluctuations influenced by changes in the price of the underlying common stock

Question 9

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)convertible subordinated debentures
B)collateral trust bonds
C)adjustment bonds
D)equipment trust certificates

Question 10

Interest rates rise from 5.10% to 5.30%. For a prospective buyer of five $1,000 bonds, what is the increase in interest payments as a result of the rise?

A)$20
B)$100
C)$2
D)$10

Question 11

Common stocks for which of the following industries are most likely to decline in value when interest rates rise?

A)automobile manufacturers
B)airlines
C)stock brokers
D)public utility companies

Question 12

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 13

Bubba buys a 5% bond that matures in 15 years with a 5.10 basis. How much did he pay for the bond?

A)5.00
B)98.96
C)100.00
D)105.10

Question 14

Bonds are most often quoted as a percentage of:

A)face value
B)book value
C)market value
D)whatever value the broker says

Question 15

Which of the following is a right for shareholders of common stock?

A)the right to have the stock price increase
B)the right to vote about important matters of the company
C)the right to dividends
D)both B and C

Question 16

Who owns a corporation?

A)the owners of debentures
B)the holders of common stock
C)the holders of common stock and the holders of preferred stock
D)the government

Question 17

Which of the following is true of treasury stock?

A)it has voting rights
B)it is entitled to receive dividends
C)it is stock that has not been issued
D)it is stock that has been reacquired by the issuer

Question 18

Bubba decides to buy equity securities. Which of the following statements is always true about what Bubba is buying?

A)they are readily marketable
B)they have a fixed rate of return
C)they have a fixed maturity date
D)they are not secured by collateral

Question 19

Which of the following securities provides the longest term of option privilege?

A)puts
B)calls
C)warrants
D)rights

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

Bubba owns a subordinated debenture in a company that is liquidating. When will he get paid?

A)after the company pays its outstanding bills, but before paying bank loans
B)after the bills are paid and the bank is paid, but before the preferred shareholders
C)before the holders of secured debt
D)after the shareholders of preferred stock

Question 22

When a corporation dissolves, who gets paid first?

A)bank lenders
B)senior bond holders
C)the tax collector
D)the lawyer

Question 23

Bubba wants to buy a $4 convertible preferred with that has a $50 par value and is exchangeable for common stock at $47.50. If the preferred stock is trading at 52, what does Bubba calculate as the common stock price in order to be at parity with the preferred?

A)47.50
B)52.00
C)a little less than 49.38
D)a little more than 54.50

Question 24

Which of the following is an analyst most likely to classify as a defensive issue?

A)the securities of a company that airplanes to the military
B)a stock of a large company
C)the common stock of a utility company
D)a corporate bond

Question 25

Which securities do not receive dividends?

A)ADRs
B)warrants
C)common stock
D)preferred stock

Question 26

Bubba buys a bond issued at par with a 5% coupon that is convertible into common stock at $40. What conversion ratio does Bubba determine?

A)40
B)30
C)25
D)15

Question 27

Bubba buys a bond issued at par with a 5% coupon that is convertible into common stock at $40. The bond increases in value by 20 points. What is the conversion parity of the stock?

A)$25
B)$40
C)$48
D)$50

Question 28

The most common type of bond issued by a well-established company is:

A)a debenture
B)a senior secured note
C)a convertible
D)an open-end mortgage

Question 29

A corporate bond is quoted as having a net change in value of plus one point. By how much did the bond price increase?

A)$1,000
B)$100
C)$10
D)$1

Question 30

A basis point is:

A)0.10%
B)0.01%
C)1.00%
D)0.001%

Question 31

Bubba buys a $4 convertible preferred with a $50 par value that is exchangeable for common stock at 47.50. If the preferred stock is trading at 52 and the common stock at 51, Bubba determines that the preferred stock is:

A)overpriced and will quickly decline
B)selling at a 4% premium over conversion value
C)underpriced and should rise quickly
D)going to be called when the common stock price is $52

Question 32

A case of leverage is:

A)selling common stock short and buying warrants for the equivalent number of shares followed by subscribing to the shares and covering the short
B)borrowing at 6% and investing the funds at 10%
C)buying stock on the NYSE and later selling it the same day on the CBOE
D)redeeming a convertible bond before maturity

Question 33

Bubba holds 200 shares of common stock in a utility company and receives rights to subscribe to an additional 100 shares at $20. The utility company is raising $40 million of new capital. How many rights does Bubba receive?

A)20
B)50
C)100
D)200

Question 34

Bubba holds 200 shares of common stock in a utility company and receives rights to subscribe to an additional 100 shares at $20. The utility company is raising $40 million of new capital. How many shares of common stock for the utility company were outstanding prior to the rights offering?

A)2,000,000
B)4,000,000
C)1,000,000
D)40,000,000

Question 35

Bubba owns a perpetual warrant to buy one share of Internet Corporation common stock at $30. Internet Corporation stock is trading at 41.50 and is ex-dividend today at $0.75. What is the market value of Bubba's warrant?

A)5.75
B)5.62
C)5.38
D)cannot be determined from this information

Question 36

The preferred stock of Greatest Technology Corporation has a $100 par and is convertible into four shares of common stock. The preferred is trading at 104.50. The preferred is callable at 101. If the common stock price is presently 27.89, which of the following actions would be a successful arbitrage:

A)purchase 400 shares of common stock and sell 100 shares of preferred stock as "short exempt" (that is, the sale is exempt from the uptick rule)
B)purchase the preferred stock and sell an appropriate amount of the common stock "short exempt"
C)purchase both the common and the preferred stocks as a hedge against further market risk
D)purchase the preferred stock and let it be called, which is inevitable at these market prices

Question 37

Commercial paper is typically issued with a maturity date not exceeding:

A)90 days
B)6 months
C)270 days
D)1 year

Question 38

Which of the following has the least active secondary market:

A)treasury bills
B)banker's acceptances
C)certificates of deposit
D)commercial paper

Question 39

Which of the following is not a characteristic of treasury bills?

A)they are quoted on yield-to-maturity percentages
B)their payments are exempt from state income tax
C)the bid price is higher than the offer price
D)they mature one to three years from the date of issuance

Question 40

Which of the following price quotes is representative of a treasury bill?

A)98.9 - 100
B)96 - 96½
C)5.78 - 5.73
D)5.55 - 5.75

Question 41

Bubba want to buy a CMO. In general, how often should he expect to receive interest payments?

A)every week
B)every month
C)every year
D)at maturity

Question 42

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 2-year tranche
B)first to the holders of the 10-year tranche
C)first to the holders of the 30-year tranche
D)equally to all CMO holders of any tranche

Question 43

Which of the following have a stated interest rate on the face of the certificates?

A)treasury bills
B)treasury notes
C)treasury bonds
D)both B and C

Question 44

Bubba buys a US treasury bond. The interest he earns is:

A)subject to federal and state income tax
B)exempt from federal and state income tax
C)subject to state income tax but exempt from federal income tax
D)subject to federal income tax but exempt from state income tax

Question 45

Which of the following does not issue debt securities that trade in the open market?

A)Fannie Mae
B)Freddie Mac
C)Federal Reserve Banks
D)Federal Land Banks

Question 46

When depositors withdraw money from savings institutions to invest in US treasury securities, this is called:

A)the multiplier effect
B)disintermediation
C)reverse repo
D)open market operations

Question 47

Smart Company, Inc., has cash it intends to use in six months for purchase of equipment. The most prudent investment during the six-month period is:

A)common stock
B)preferred stock
C)treasury bills
D)treasury bonds

Question 48

Which of the following is identified as a funded debt instrument?

A)US treasury bond
B)Series EE savings bond
C)corporate bond
D)Fannie Mae bond

Question 49

A typical money market instrument carries which of the following?

A)serial bond maturity date
B)long-term maturity date
C)medium-term maturity date
D)short-term maturity date

Question 50

An offering price of 102 plus accrued interest applies to which of the following securities?

A)treasury bills
B)certificates of deposit
C)commercial paper
D)banker's acceptances

Question 51

Bubba Corporation owes income tax. Which of the following may be tendered at par value for payment of the tax?

A)term bond
B)tax anticipation bill
C)special tax bond
D)pre-issue bond

Question 52

An advertisement for a CMO security by a member of FINRA should disclose which of the following?

A)the exact yield investor will earn
B)the yield based upon the prevailing discount rate
C)that the stated yield is an estimate that may vary passed upon prepayments and market factors
D)that the yield may be greater than the stated percentage but never less

Question 53

Which of the following statements incorrectly describes US securities markets?

A)a capital market comprised of long-term debt and equity issues
B)a money market comprised of short-term debt and equity issues
C)a municipal market comprised of tax-exempt issues of state and local governments
D)a government and agency market comprised of both short-term and long-term debt issues

Question 54

What rate of return takes into consideration appreciation or depreciation in market value relating to the par value of a debt security?

A)current yield
B)yield to maturity
C)nominal yield
D)basis yield

Question 55

Which of the following is not an attribute of US treasury bills?

A)an unusually high degree of liquidity
B)always sells at a discount to face value
C)is most often issued with three-month, six-month, and one-year maturities
D)interest is exempt from federal income taxes

Question 56

Under which of the following conditions are homeowners most likely to refinance existing mortgages?

A)when interest rates rise
B)when interest rates fall
C)when interest rates are stable
D)when the yield curve is inverted

Question 57

Which of the following is not true about US treasury bills?

A)they are issued at a discount
B)they are money market instruments
C)they are issued in denominations of $1,000 to $1,000,000
D)they are general obligations of the US government

Question 58

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 59

FINRA advertising standards permit a dealer to state that a CMO has an implied AAA rating if the securities are issued:

A)with an average life no longer than ten years
B)by a US government agency
C)by a private issuer who has not yet received an expected AAA rating
D)in amounts less than $1,000,000

Question 60

What is the term applied to a classification of CMO securities having a stated maturity, average life, and estimated yield?

A)tranche
B)tier
C)bracket
D)bucket

Question 61

Bubba is buying a Federal Home Loan Bank issue that is offered at 95.22. How much will he pay to purchase one bond?

A)$95.22
B)$951.63
C)$952.20
D)$956.88

Question 62

How much currency is one mil worth?

A)one-tenth of one cent
B)one-tenth of $1
C)one-tenth of $100
D)one-tenth of $1,000

Question 63

Which of the following securities has the highest amount of market risk?

A)US treasury bills
B)US treasury certificates
C)US treasury notes
D)savings bank deposits

Question 64

Which of the following is not a marketable security?

A)tax anticipation bonds
B)municipal bonds
C)treasury bonds
D)Series EE bonds

Question 65

What type of security is quoted with a bid price of 4.72 and an asking price of 4.68?

A)US treasury note
B)US treasury bill
C)US treasury bond
D)Series H bond

Question 66

Bubba is buying a treasury bill. The discount he receives results in Bubba's determination of:

A)face value
B)nominal yield
C)rate of return
D)yield to call

Question 67

A treasury obligation having no fixed rate of interest with a thirty day maturity due April 22 is most likely a:

A)treasury note
B)tax anticipation bill
C)Series H bond
D)Series EE bond

Question 68

Which of the following has the greatest risk?

A)a guaranteed corporate bond
B)a GNMA bond
C)a Series H bond
D)a treasury bill

Question 69

Bubba wants to buy a US treasury bond with a bid of 97.28 and an asking of 98.2. How were these prices established?

A)by the FINRA
B)by the Federal Reserve Board
C)by competitive biding
D)by the terms of the bond

Question 70

Which of the following are direct obligations of the US government?

A)Import-Export bank bonds
B)Series EE bonds
C)Farm Credit System bonds
D)both B and C

Question 71

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 72

Bubba plans to borrow some money and pledge securities as collateral. Which of the following can he not use as collateral?

A)Series EE bonds
B)US treasury bills
C)US treasury notes
D)US treasury bonds

Question 73

Big Easy Investment Banking, Inc., is participating in an Eastern account underwriting of $10 million of municipal bonds by agreeing to underwrite 10% of the issue. One week later, $4 million remains unsold but Big Easy has distributed $1.5 million of bonds. What is the liability of Big Easy remaining in the account?

A)$0
B)$400,000
C)$600,000
D)$1,000,000

Question 74

Big Easy Investment Banking, Inc., participates in a Western account underwriting of $10 million of municipal bonds by agreeing to underwrite 10% of the issue. One week later, $4 million remains unsold but Big Easy has distributed $1.5 million of bonds. What is the liability of Big Easy remaining in the account?

A)$0
B)$400,000
C)$600,000
D)$1,000,000

Question 75

Bubba buys "double-barreled" municipal bonds. What is the source of guaranteed repayment on these bonds?

A)a specific municipal project plus a federal subsidy
B)two specific municipal projects
C)all projects of the issuing municipality
D)one specific municipal project plus the full financial strength of the issuer

Question 76

Revenue bonds are least likely to provide constructions funds for:

A)a toll highway
B)an airport
C)a public school
D)a pollution control facility

Question 77

What percentage of maintenance charges and debt service are covered by the rate covenant of a revenue bond issued to finance a municipal toll road?

A)75%
B)100%
C)120%
D)150%

Question 78

Municipal bond brokers generally conduct the following:

A)trade for dealer banks
B)trade for non-bank dealers
C)trade for their own account
D)both A and B

Question 79

Smart Guys Securities Corporation has given a workable bid to Better Guys Securities Corporation. If market conditions change, Smart Guys may:

A)not change the bid
B)not change the bid unless first notifying the other dealer
C)change the bid only with prior approval of the other dealer
D)change the bid

Question 80

Municipalities are most likely to issue notes for which of the following purposes?

A)short-term cash needs
B)federal income tax payments
C)repairs to infrastructure
D)long-term financing