What is the maximum coverage afforded to an investor under SIPC?
A. $500,00 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
C
Which term is used for a member of a stock exchange that's responsible for providing liquidity by buying and selling throughout the trading day?
A. broker
B. underwriter
C. transfer agent.
D. market maker
D
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
D
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
D
Which of the following statements is TRUE if interest rates rise?
A. Both bond and bond fund prices will fall.
B. Bond prices will rise, but bond fund prices will fall.
C. Both bond and bond fund prices will rise.
D. Bond prices will fall, but bond fund p
A
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
B
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
D
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. combination of short and long maturities
D. zero coupons
A
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
A
State securities laws are also referred to as:
A. Self-regulatory rules
B. The Investment Company Act of 1940
C. The Blue Sky laws
D. The Securities Exchange Act of 1934
C
Which of the following choices does NOT hold customer cash or securities?
A. A broker-dealer that maintains omnibus accounts
B. The Depository Trust Company
C. A prime broker
D. A broker-dealer
B
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
B
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
D
Although most bonds are traded according to their maturity dates, which of the following investments are traded according to their average life?
A. corporate bonds
B. government bonds
C. fixed-rate capital securities
D. asset-backed securities
D
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
C
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
A
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
C
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
C
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
D
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
A
A double-barreled security is a municipal security that:
A. Is exempt from federal and state taxes
B. Is exempt from state and local taxes
C. Can be paid from the revenues of a project and is a general obligation of the U.S. government
D. Can be paid from
D
When a municipal bond is issued as an original issue discount, the upward adjustment in the purchase price is called:
A. Accretion
B. Amortization
C. Depreciation
D. Depletion
A
Which of the following statements regarding the opening of a new municipal account is NOT TRUE according to MSRB rules?
A. An employee of a municipal securities firm may open a new account with another municipal securities firm without notifying his emplo
A
A state agency revenue bond does not have sufficient revenue to meet debt service. A provision of the indenture allows the agency to request funds from the state legislature. The legislature has the option of providing or not providing the additional fund
D
A municipal bond that is issued at par is later purchased at a discount and redeemed for par at maturity. The investor's profit on the transaction is taxed as:
A. Capital gains
B. Ordinary income
C. Tax-deferred interest
D. Tax-deferred capital gains
B
(The investor purchased an already outstanding municipal bond at a discount and later redeemed it for par at maturity. The profit on the transaction is taxed as ordinary income. This is different from an example in which the investor purchased an origin
Which of the following municipal bonds requires a feasibility study to determine the issuer's ability to pay interest when due?
A. A special tax bond
B. A general obligation bond
C. A revenue bond
D. A revenue anticipation note
C
(A feasibility study is made by a qualified expert to determine if revenues of a project will be sufficient to pay interest when due. A revenue bond, which is backed by the earning power of a specific project, such as tolls from bridges, tunnels, or tur
A grant anticipation note is normally paid from:
A. Proceeds from the issuance of long-term bonds
B. Funds received from the federal government
C. Revenues received at a future date
D. Receipts of future property taxes
B
(A grant anticipation note (GAN) is normally paid from funding provided by the federal government. A bond anticipation note (BAN) is paid from proceeds from the issuance of long-term bonds. A revenue anticipation note (RAN) is paid from revenues to be r
A revenue bond is backed by a pledge of net revenues. This indicates that:
A. All revenues are pledged to pay debt service on the bonds
B. Net revenues are pledged to pay operating and maintenance expenses
C. The first use of net revenues is to pay the de
C
(The issue requires that operation and maintenance expenses are paid first from gross revenues. Gross revenues minus operating and maintenance expenses leaves net revenues. Debt service (also called bond service) would then be the first item paid from n
A broker-dealer that is an MSRB member firm sells bonds to one of its customers. If the broker-dealer is a member of the syndicate, the firm is entitled to the:
A. Takedown less the concession
B. Additional takedown plus the management fee
C. Total takedo
D
(A member of the syndicate is entitled to the additional takedown plus the concession, which is also known as the total takedown. Only the syndicate manager is entitled to the management fee. A broker-dealer that is not a member of the syndicate selling
A customer in the 28% tax bracket buys a 10% corporate bond at par. What is the investor's net yield?
A. 2.8%
B. 7.2%
C. 10%
D. 13.9%
B
(The interest earned on corporate bonds is fully taxable at the investor's tax bracket. The investor's yield from a 10% corporate bond purchased at par is 10%. Since the investor must pay taxes at a rate of 28%, the investor may keep 72% of all earnings
Which of the following factors would be LEAST useful when analyzing the credit risk of an issuer of general obligation bonds?
A. The London Interbank Offered Rate (LIBOR)
B. The tax base of the issuer
C. The amount of unfunded pension liabilities
D .The s
A
Under MSRB rules, all of the following statements are TRUE regarding customer confirmations, EXCEPT for the statement that the confirmation:
A. Must show commissions in an agency transaction
B. Need not show the markup in a principal transaction
C. Must d
D
The taxing power of an issuer of a limited tax bond is limited to a specified:
A. Minimum rate
B. Maximum rate
C. Tax source
D. Collateral
B
(The taxing power of an issuer of a limited tax bond is limited to a specified maximum rate. A special tax bond is a type of revenue bond backed by a specific tax source, such as an excise tax on gasoline.)
Tax-free municipal bonds will be least attractive to a(n):
A. Pension fund
B. Insurance company
C. Individual who has just inherited $1,000,000
D. Officer of a corporation who is in the 28% tax bracket
A
(A pension fund does not pay tax on its investments. Therefore, it will not find municipal bonds as attractive an investment as it will other higher-yielding investment instruments.)
An investor buys a 5% municipal bond at 102 1/2. The bond has a yield to maturity of 4 1/2%. If the investor holds the bond to maturity, he will have a loss for tax purposes of:
A. 0
B. $25
C. $50
D. $100
A
(The IRS requires that a premium paid for a municipal bond be amortized (written-off) over the life of the bond. At maturity, the investor will have an adjusted cost (after amortization) of par ($1,000). Since this is the amount received at maturity, th
Which of the following factors is not taken into consideration when determining the markup on a municipal securities transaction?
A. The dollar amount of the trade
B. The best judgement of the dealer
C. The fact that the dealer is entitled to make a profi
D
Relating to a municipal bond swap, which of the following would NOT be a consideration?
A. The coupon rate
B. The amount of accrued interest
C. The maturity
D. The quality
B
(A bond swap is simultaneously selling one bond and purchasing another. Bond swaps may be done to change the coupon, maturity, quality or rating, and for tax purposes. Accrued interest is not a consideration.)
The debt of other districts that the residents of a particular municipal district may be responsible for is called:
A. Self-supporting debt
B. Direct debt
C. Overlapping debt
D. Unsecured debt
C
(The debt of other districts that the residents of a particular municipal district may be responsible for is overlapping debt. Direct debt is the amount of debt a specific issuer may incur. Self-supporting debt is the amount that is paid from revenues t
A municipal bond confirmation sent to a customer need not include:
A. The capacity in which the broker-dealer acted
B. The par value of the bonds
C. A description of the bond
D. The bond rating
D
(MSRB rules require that a customer confirmation contains the par value and complete description of the bonds including coupon, maturity, and pertinent call features. The principal amount, accrued interest, and total amount must also be included. The fi
Which of the following new bond issues will MOST likely be purchased through competitive bidding?
A. Corporate bonds
B. General obligation bonds
C. High-yield bonds
D. Revenue bonds
B
(Of the choices given, the issues that will most likely be purchased through competitive bidding are general obligation bonds. This is usually the method by which most general obligation bonds are sold. Corporate, revenue, and high-yield bonds are usual
The mayor of a town, who is no longer in office, is asking for contributions to defray expenses incurred during her re-election campaign. According to MSRB rules, what dollar amount may a municipal finance professional contribute to defray costs?
A. Nothi
B
(In the event an individual has lost the election and is no longer in office, a municipal finance professional may contribute any amount to defray the expenses incurred during the election since the candidate can no longer influence underwriting decisio
Which of the following municipal issues is MOST likely be brought to market as a negotiated issue?
A. General obligation bond
B. Bonds issued by a city
C. School district bond
D. Industrial development revenue bond
D
An employee of a municipal securities firm would like to open an account with another municipal securities firm. Which of the following statements does NOT apply to the opening of the account?
A. The employer must receive duplicate copies of all transacti
D
A customer purchases a municipal bond at $960 in the secondary market that will mature in four years. Which of the following statements regarding the purchase is NOT TRUE?
A. The interest is exempt from federal income tax
B. The customer will have taxable
C
(If a municipal bond is purchased at a discount in the secondary market and held to maturity, there will be reportable taxable income. The investor may pay the tax each year or elect to report the entire gain at maturity. If a municipal bond is purchase
Which of the following factors would be LEAST useful when analyzing the credit risk of an issuer of general obligation bonds?
A. The diversification of economic activity
B. The budgetary pictures and legislative climate
C. Any pending litigation against t
D
The manager of a new issue municipal syndicate wants to allocate securities in a different manner than specified in the syndicate agreement. He may do this if he:
A. Notifies the SEC
B. Amends the syndicate agreement
C. Is prepared to justify the change t
C
The MSRB does NOT regulate municipal securities:
A. Dealers
B. Salesmen
C. Advertising
D. Issuers
D
(The MSRB has the power to regulate broker-dealers, their personnel, and their communications with the public. It does not, however, have the power to regulate municipal issuers.)
Which of the following sources of revenue would NOT be available to pay interest on a revenue bond issue?
A. Special taxes
B. Lease payments
C. Ad valorem taxes
D. Capitalized interest
C
(Ad valorem (property) taxes secure a general obligation bond, not a revenue bond. Special taxes, fees, lease payments, and capitalized interest may be used to pay interest on a revenue bond. Capitalized interest is earned on a portion of the proceeds o
Which of the following organizations does NOT enforce MSRB rules?
A. The Comptroller of the Currency
B. FINRA
C. The MSRB
D. The SEC
C
(The MSRB has no enforcement power. The SEC and FINRA enforce municipal regulations for broker-dealers. The Comptroller of the Currency, FRB, and FDIC enforce municipal regulations for dealer banks. The MSRB establishes its rules but has no enforcement
A municipality borrowing for a short-term period to finance a capital project would issue:
A. Commercial paper
B. Tax anticipation notes
C. Debentures
D. Bond anticipation notes
D
(A municipality borrowing for a short-term period to finance a capital project would issue bond anticipation notes. Commercial paper is primarily issued by corporations and some municipalities to raise short-term funds for working capital, but not to fi
When doing a municipal bond swap, which of the following items is NOT a factor when trying to avoid the wash sale rule?
A. The issuer
B. Maturity date
C. The rating
D. The coupon
C
(If a security is sold at a loss, and within 30 days (prior to and after the sale), substantially the same security is purchased, the IRS, considers it a wash sale and will disallow the loss. To avoid purchasing a security that the IRS will consider sub
A customer of a broker-dealer has purchased a new municipal bond at the public offering price and has received instructions on how to access the official statement from EMMA. The customer would prefer a printed copy. According to MSRB rules, the broker-de
D
A revenue bond purchased at a premium, whose cost is reduced in equal amounts each year, is using:
A. Straight-line accretion
B. Constant-yield accretion
C. Straight-line amortization
D. Constant-yield amortization
C
(A bond purchased at a premium is amortized (reduced) to par value over its life. If the adjustment is in equal amounts, straight-line amortization is being used. If the adjustments are not made at an equal rate, constant-yield amortization is being use
Which of the following statements is TRUE under MSRB rules?
A. A broker-dealer is not permitted to act as a financial adviser to an issuer of municipal securities
B. A broker-dealer is permitted to act as a financial adviser and underwriter for the same i
C
(Under MSRB rules, a financial advisory relationship exists when a municipal securities broker or dealer gives, or enters into an agreement with an issuer to give, financial advisory or consultant services regarding the issuance of municipal securities.
When computing coverage for revenue bonds, the ratio used is:
A. Net revenue to debt service
B. Gross revenue to operating expenses
C. Gross revenue to annual interest payments
D. Net revenue to operating expenses
A
An increase in personal income tax rates would MOST likely result in an increased demand for:
A. Municipal securities
B. AAA-rated corporate bonds
C. Mortgage-backed securities
D. Treasury bonds
A
(An increase in personal income taxes would result in more investor demand for municipal bonds. This is because the interest income is exempt from federal income taxes.)
Which of the following increases would NOT indicate a deteriorating credit situation for a municipality?
A. An increase in municipal assessed valuations
B. An increase in per-capita debt
C. An increase in tax delinquencies
D. An increase in personal bankr
A
An investor in the 35% tax bracket can buy a 4.50% tax-free municipal bond at par. What yield would the investor need in a taxable corporate bond to receive the same after-tax yield as the municipal bond?
A. 2.93%
B. 6.92%
C. 12.86%
D. 14.44%
B
(If an investor in a particular tax bracket would like to compare the benefit of tax-free interest income to after-tax income of a corporate bond, it is necessary to find the equivalent taxable yield. The formula is:
Municipal Bond Yield / (100% - Inves
The interest paid on special assessment bonds is derived from:
A. Ad valorem taxes
B. Toll road revenues
C. Charges on the benefitted property
D. Excise taxes
C
(The interest paid by the issuer to holders of special assessment bonds is derived from charges made to the users of the benefitted property. These bonds are issued to finance the construction of water and sewer systems, sidewalks, and streets.)
An investor has a federal tax rate of 35% and a state tax rate of 6% and is offered a 4.90% out-of-state municipal bond. What yield would the investor need in a taxable bond to receive the same after-tax yield as the municipal bond?
A. 7.54%
B. 8.31%
C. 1
A
(The major advantage of municipal bonds for most investors is that the interest received from the bond is exempt from federal taxes. In addition, most states also exempt interest from bonds issued within their state from a resident's state and local inc
A municipality issues an original issue discount bond. If an investor buys the bond when it is first issued and holds the bond until it matures, what is the tax treatment on the discount?
A. The discount is treated as a long-term capital gain
B. The disco
D
(If a municipality issues an original issue discount bond and the investor holds the bond until it matures, the discount is treated as part of the interest income and is exempt from federal taxes. If the bond is sold prior to maturity, then an adjusted
According to MSRB rules, a municipal bond dealer will NOT consider which of the following factors when determining a markup?
A. Expenses
B. Profit
C. Coupon rate
D. Total dollar amount of the transaction
C
An engineering report is used for a:
A. General obligation bond
B. Hospital revenue bond
C. Limited-tax GO
D. School bond
B
(An engineering report and a feasibility report are necessary for a revenue bond. The other choices represent general obligation securities.)
Which of the following statements is true regarding the concept of an annuity contract?
A. Payouts of an investment in a nonqualified annuity are all income tax-free
B. The kind of annuity selected partly determines the payment amounts to the annuitant
C.
B
Which of the following Form U4 reportable events results in a statutory disqualification?
A. A personal bankruptcy filing
B. A written customer complaint alleging misappropriation of assets
C. A felony theft charge
D. A felony conviction for a driving und
D
Under SEC Regulation S-P (Consumer Privacy), which of the following information must a firm include in its customer privacy and opt-out notices?
A. The addresses of the firm's website
B. The fee and opt out from the privacy program
C. The deadline by whic
D