Which of the following choices does NOT hold customer cash or securities?
A) broker-dealer that maintains omnibus accounts
B) The Depository Trust Company
C) A prime broker
D) A broker-dealer
The Depository Trust Company
The Depository Trust Company (DTC) is a securities depository and national clearinghouse for the settlement of trades. The DTC holds broker-dealer (not customer) funds and securities in the name of member firms. An omnibus bro
If an investor wants to build a bond portfolio that maintains a stable value, she should purchase bonds with:
A) Short maturities
B) Long maturities
C) A combination of long and short maturities
D) Zero coupons
Short maturities
Although short-term bonds are influenced by changing interest rates, the effect is relatively minor due to their short-term nature. For that reason, investors who want stability in their bond portfolios should invest in short-term debt.
What type of bond would MOST likely be secured by an excise tax, cigarette tax, or gasoline tax?
A) GO bond
B) Special tax bond
C) Double-barreled bond
D) Special assessment bond
Special tax bond
A special tax bond is a type of revenue bond and is usually financed by a tax on certain items such as cigarettes, liquor, or gasoline (excise taxes).
Preemptive rights give a stockholder the right to:
A) Maintain his proportionate interest in the corporation
B) Purchase warrants
C) Serve as a director
D) Purchase bonds
Maintain his proportionate interest in the corporation
A stockholder's preemptive right gives the stockholder the right to maintain his proportionate interest in the corporation. For example, if a shareholder owns 1% of the corporation's common stock, and
The Securities Investor Protection Corporation (SIPC) insures all of the following accounts, EXCEPT:
A) Corporate accounts
B) Joint accounts
C) Commodities accounts
D) Margin accounts
Commodities accounts
SIPC insures all of the accounts listed except commodities accounts. Commodities are not securities and therefore are excluded from SIPC coverage.
A 5% $1,000 par value bond sells at $900 and is maturing in 10 years. What is the amount of interest per year?
A) $10
B) $40
C) $45
D) $50
$50
The dollar amount of interest a bond pays is computed as a percentage of the par value. In this example, the coupon rate is 5%. The interest income per year is $50 (5% of $1,000 par value equals $50).
A financial services firm that charges customers based on a percentage of the assets under management is BEST defined as:
A) An institutional investor
B) A broker-dealer
C) An investment adviser
D) An exchange
An investment adviser
Investment advisers charge fees for providing advice to their clients. These fees are often based on a percentage of assets under management (AUM) and are charged regardless of whether any trades occurred in their clients' accounts.
The fourth market is BEST defined as:
A) Exchange-listed securities trading in the OTC market
B) Unlisted securities trading on regional exchanges
C) Unlisted securities trading in the OTC market
D) Trading directly between institutional investors
Trading directly between institutional investors
The fourth market refers to direct institution-to-institution trading and does not involve the public markets or exchanges. The third market is the term used to describe a situation in which a security that
A decrease in which of the following would cause the price of a bond to increase?
A) The bond's rating
B) The bond's liquidity
C) The issuer's financial strength
D) The general level of interest rates
The general level of interest rates
Interest rates and bond prices are inversely related. When interest rates increase, bond prices will fall. When interest rates decrease, bond prices will rise. A decrease in a bond's rating choice (a), a bond's liquidit
What is the maximum coverage afforded to an investor under SIPC?
A) $500,000 per account
B) $250,000 per account
C) $500,000 per separate customer of which $250,000 may be cash
D) $500,000 per separate customer and $250,000 in cash
$500,000 per separate customer of which $250,000 may be cash
SIPC protects customers in the case of a brokerage firm's bankruptcy. The maximum coverage afforded to an investor under SIPC is $500,000 per separate customer of which $250,000 may be for cash.
A company has a noncumulative preferred stock outstanding that pays a $5 dividend per year. If dividends on the preferred stock were not paid last year, but will be paid this year, how much will the preferred stockholder receive?
A) $5
B) $10
C) $15
D) $2
$5
The preferred stock is noncumulative, which means that if the dividend is not paid, it does not accumulate to the next year. Therefore, the preferred stockholder will receive only $5 for this year.
An advantage a corporation receives when it issues a convertible bond is that:
A) It's able to offer bonds with a higher rate of interest to investors
B) It's able to offer bonds with a longer maturity to investors
C) It's able to borrow money at a lower
It's able to borrow money at a lower rate of interest
Convertible bonds allow corporations to borrow money at a lower rate of interest (lower coupon) since the convertible feature is an attraction for investors. Investors are willing to accept the lower i
A type of bond in which the amount of interest paid to the investor may change is referred to as a:
A) Convertible bond
B) Variable rate bond
C) Zero-coupon bond
D) Callable bond
Variable rate bond
For most bonds, the interest rate or payment is set at the time of issuance and generally remains fixed for the life of the bond. However, in some cases, as interest rates move up or down, the coupon rate will be adjusted to reflect mar
A corporate bond is convertible at $25 and the underlying stock is currently selling at $30 per share. If the corporation indicates that the bond will be called at 115 ($1,150) on the next call date, what is the BEST advice to give to the bondholder?
A) C
Convert the bond
The first step is to determine the conversion ratio. To calculate the conversion ratio, the bond's par value ($1,000) is divided by its conversion price ($25), which equals 40 shares. The conversion value is then found by multiplying the
Which of the following sources of revenue is NOT used to pay the debt service on general obligation bonds?
A) Income taxes
B) Property taxes
C) Licensing fees and traffic fines
D) Tolls collected at a tunnel located in the municipality
Tolls collected at a tunnel located in the municipality
A general obligation (GO) bond is backed by the full faith and credit of the municipality. Items that may be used to pay the debt service on GO bonds include fines, sales taxes, property taxes, incom
An issuer includes warrants with a bond offering that it's conducting. This is done to:
A) Eliminate the dilution of its stock
B) Increase the value of its stock
C) Increase the yield on the bonds
D) Decrease the coupon rate on the bonds
Decrease the coupon rate on the bonds
Warrants are generally considered a "sweetener," which gives holders the ability to purchase stock at a predetermined price for a long period. When issued with bonds, the issuer can typically lower the coupon rate and
The federal securities regulation that provides rules for the secondary market is:
A) The Securities Exchange Act of 1934
B) The Investment Advisers Act of 1940
C) The Securities Act of 1933
D) The Securities Investor Protection Act of 1970
The Securities Exchange Act of 1934
The Securities Exchange Act of 1934 establishes the rules for activities that are conducted in the secondary market. The two most recognized secondary markets are the New York Stock Exchange (NYSE) and Nasdaq. The Act o
Southern California Gas is issuing 5 3/4% first mortgage bonds at a price of 96.35% of their par value. The payment of interest and principal on the bond is secured by:
A) Revenue from the Southern California Gas company
B) The mortgages on property owned
Property owned by Southern California Gas
The bonds are first mortgage bonds, which means they are secured by property that is owned by the Southern California Gas Company. Since the company is publicly owned, the bonds are not secured by property that is
Interest on U.S. Treasury securities 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 inco
Subject to federal income tax, but exempt from state income tax
Interest on U.S. Treasury securities is subject to federal income tax, but exempt from state income tax. This is the opposite of the tax treatment on municipal (state) bond interest, which ma
A vote of the common shareholders is required for a corporation to declare a:
A) Cash dividend
B) Stock dividend
C) Stock split
D) Stock buyback
Stock split
A vote of the common shareholders is required for a corporation to declare a stock split. Shareholder approval is not required for cash and stock dividends, which are decided by the board of directors. A stock buyback would also be decided by