A customer enters a sell stop-limit order for 100 XYZ at 25.50. XYZ trades occur as follows: 25.50, 25.25, 25.13, 25.45. The customer's order was
NOT EXECUTED -- it was activated at 25.50 but it never hit 25.50 again therefore it was never executed
A client owns shares of stock purchased at $46 a share. If the current market price is now $70 and the client wants to protect her profit if the price should fall 10%, the RR should recommend what type of order?
sell stop $63
This client only wants to sell her position if the stock declines by 10% or $7.00. The RR should recommend a sell stop at $63. A market order is not suitable since the client does not want to sell unless the price declines. A market order wi
MOST appropriate for an investor seeking to buy a new home within the next year
a long-term CD purchased in the secondary market, that matures in 12 months -- generally money-market securities (that mature in 1 year or less) are the most liquid. Securities with LONGER maturities are more volatile
What is the margin requirement when purchasing options?
100% of the premium
A BDC is most suitable for
an investor who is seeking a speculative investment in a portfolio of distressed companies and IS INTERESTED IN LIQUIDITY, a BDC raises capital
LEAST suitable for an oil and gas DPP
an investor concerned about the alternative minimum tax -- may have excess depletion and depreciation (+intangible drilling costs) which are all tax preference items subjecting an investor to the AMT
An investor writes an uncovered RST May 25 put for a premium of 4. When RST is at 16, the put option is exercised. If the stock is immediately sold at the current market price, what is the investor's profit or loss?
a. $500 loss
b. $500 profit
c. $900 los
$500 LOSS
If the stock is put to the writer, he would
have to buy the stock for $2,500. His cost basis for tax purposes would be $2,100 ($2,500 strike price - $400 premium received). Since he then sold the stock for $1,600, he would have a net $500 loss (
An investor purchases a $100,000 face value municipal bond with a 5-year maturity at 105. After two years, the bond is sold at 95. For tax purposes, the investor has a(n):
a. $2,000 loss
b. $4,000 loss
c. $8,000 loss
d. $10,000 loss
$8,000 LOSS
When a municipal bond is purchased at a premium, the bond's premium must be amortized to find an adjusted cost basis. If the bond is sold above the adjusted cost basis, the result is a capital gain. If the bond is sold below the adjusted cost
An investor buys 100 shares of XYZ at $50 per share and, at the same time, writes an XYZ May 50 call option for a $5 premium. Excluding commissions and dividends, at what price would XYZ need to be selling for the writer to break even?
a. $42
b. $45
c. $5
$45
The breakeven point for the writer of a covered call is the original cost of the stock minus the premium received on the option (50 - 5 = 45). If the market price were at 45 at expiration, the call would expire and the writer would keep the $500 premi
A customer's margin account has a market value of $15,000, a debit balance of $8,000, and SMA of $1,000. If the customer sold $1,000 of securities, what is the maximum amount the customer is permitted to withdraw after the sale?
a. None
b. $1,000
c. $1,50
$1,500
This account is restricted since the equity ($7,000) is less than the Reg T requirement of the account's market value ($15,000 x 50% = $7,500). When stock is sold in a restricted account, 100% of the sale proceeds will be used by the brokerage firm
Rosewood Securities LLC has been accused of buying and selling securities for the purpose of creating artificial trading activity. Which of the following choices BEST describes this activity?
Matched orders = painting the tape (ILLEGAL)
Group of market manipulators buying and/or selling a security among themselves to create artificial trading activity
A corporation calls for the redemption of 1,000,000 shares of convertible preferred stock. The corporation announces that the convertible preferred will be redeemed at a price of $20 plus an accumulated dividend of 12 cents. Each share of preferred can be
17.88
The preferred stock is convertible into 1/2 share of common stock. The common stock is selling for 35.75. Parity (or equality in dollar value) for the preferred stock is 1/2 of 35.75 (17.88).
ABC Corporation has net income of $10,000,000 and 5,000,000 common shares outstanding. ABC Corporation pays out $1,000,000 in dividends annually. ABC Corporation pays an annual dividend per share of:
a. $0.10
b. $0.20
c. $5.00
d. $10.00
$0.20
To determine the dividend being paid per share, divide the $1,000,000 in dividends by the 5,000,000 shares of common stock outstanding. $1,000,000 dividends divided by 5,000,000 shares equals $0.20.
A brokerage firm would like to increase its marketing efforts in option transactions through the use of certain retail communications. All of the following methods are considered forms of retail communications, EXCEPT:
a. Newspapers and magazines
b. The O
The OCC risk disclosure document
An investor reading the newspaper sees that yesterday's effective federal funds rate was 3.47%. On the previous day, the rate was 3.41%. This information indicates:
a. The average rate charged on overnight loans throughout the country increased
b. The Fed
A. the average rate charged on overnight loans throughout the country increased
The effective federal funds rate is the daily average rate that commercial banks charge throughout the country for overnight loans. It is influenced, but not set by, the Feder
Which of the following statements is TRUE concerning a customer who purchases an original issue discount (OID) corporate bond?
a. Each year the customer will pay both federal and state income tax
b. Each year the customer will pay only federal income tax
A. each year the customer will pay both federal and state income tax
The upward adjustment in the purchase price of an original issue discount bond is called accretion. The amount accreted each year is considered interest income, which may or may not be t
A person who purchases an annuity with an expectation that she may consider exchanging into another better performing annuity after three years, should consider purchasing:
a. B shares
b. L shares
c. A shares
d. None of these type of shares since a person
B. L shares
Variable annuity L shares, also referred to as short surrender annuities, generally have surrender periods of three to four years, after which no sales charges apply. B shares, the normal annuity shares with contingent deferred sales charges (
On the day prior to the ex-dividend date for an ordinary cash dividend, a holder of a call tenders an exercise notice. The investor will be:
a. Entitled to the dividend
b. Required to pay the dividend to the writer only if the writer owns the underlying s
A. entitled to the dividend
The holder of a call will get a dividend only if the option is exercised prior to the ex-dividend date. This will result in the buyer being listed as holder of record on the books of the transfer agent.
One of your clients, Kona Okemo, has a long-term objective of capital appreciation. Which of the following investment strategies will MOST closely achieve this goal?
a. 30% corporate bond fund, 30% municipal bond fund, and 40% in a U.S. government bond fu
C. 30% in an ETF that follows the S&P 500, 20% in an emerging markets fund, 15% in an REIT fund, 15% in a biotechnology fund, and 20% in a U.S. government bond fund
The investor is seeking long-term capital appreciation (also referred to as capital growth
A person purchases a non-qualified variable annuity and dies at the age of 57. The tax implication is:
a. No penalty and the entire amount is taxable
b. No penalty and the difference between the amount invested and the death benefit is taxable
c. A 10% pe
B. no penalty and the difference between the amount invested and the death benefit is taxable
As a general rule, if an annuitant withdraws the proceeds of his non-qualified variable annuity prior to age 59 1/2, a 10% tax penalty applies. However, this pen
How would preferred stock most likely be affected by an increase in interest rates?
a. Its market value would increase
b. Its market value would decrease
c. Its dividend would decrease
d. There would be no effect
B. its market value would decrease
Since preferred stock is a fixed-income security paying a fixed dividend each quarter, it is affected by interest rates in the same way as bonds. If interest rates rise, the value of existing bonds and preferred stock wi
Private label mortgage-backed securities are issued by which of the following entities?
a. The Federal National Mortgage Association
b. Real estate investment trusts
c. The Government National Mortgage Association
d. Financial institutions
D. financial institutions
Mortgage-backed securities (MBS) may be issued by a U.S. government agency, such as the Government National Mortgage Association (GNMA or Ginne Mae), or a government-sponsored enterprise (GSE), such as the Federal National Mortga
Your client owns a portfolio of blue-chip equity securities and wants to increase the overall rate of return through the use of options. The most conservative strategy to achieve this objective is to:
a. Write covered calls
b. Buy calls
c. Write covered p
A. write covered calls
The most conservative strategy for the investor to achieve her objective is to write covered calls. The call premium received will increase the yield on her portfolio of stocks because it will add to the income generated by the divi
Which TWO of the following types of securities may a Municipal Securities Representative sell?
I. General obligation bonds
II. Treasury notes
III. Variable-rate demand obligations (VRDOs)
IV. Unit investment trusts which contain municipal securities
I and III
A Municipal Securities Representative may sell any type of municipal security. General obligation bonds and VRDOs are two types of municipal securities. According to the MSRB, a Municipal Securities Representative is not properly registered to s
An investor purchases $25,000 of a mutual fund when the price of the fund is $13.20. In the same year, the investor receives a $400 dividend distribution and a capital gain distribution of $700. Both distributions are reinvested in additional shares at a
B. $13.18
To calculate the cost basis using the average cost method, divide the total sum of all investments by the shares owned by the investor. The investor purchased $25,000 of the fund at a price of $13.20. The total number of shares purchased was 1,8
Which of the following descriptions regarding the Capital Asset Pricing Model (CAPM) is NOT TRUE?
a. It predicts future values for the stock
b. It was developed to explain the behavior of security prices
c. It provides a mechanism to assess risk and retur
A. it predicts future values for the stock
CAPM does not establish a price objective for the stock. All of the other descriptions listed are correct.
An investor purchases a $100,000 face value municipal bond with a 5-year maturity at 105. After two years, the bond is sold at 95. For tax purposes, the investor has a(n):
a. $2,000 loss
b. $4,000 loss
c. $8,000 loss
d. $10,000 loss
C. $8,000 loss
When a municipal bond is purchased at a premium, the bond's premium must be amortized to find an adjusted cost basis. If the bond is sold above the adjusted cost basis, the result is a capital gain. If the bond is sold below the adjusted co
A fidelity bond is:
a. A noncallable municipal bond
b. A nonconvertible corporate bond
c. Insurance purchased by broker-dealers to protect them against fraud
d. Insurance protecting customers in the event of a broker-dealer bankruptcy
C. insurance purchased by broker-dealers to protect them against fraud
Every broker-dealer is required to have a fidelity bond, which provides insurance in the event of a fraud judgement against the broker-dealer.
Crossway Shopping Centers, a REIT, is making a public offering of 3,000,000 units at $20/share. An investor who buys the issue in the primary market must receive:
a. An offering memorandum
b. An offering circular
c. A prospectus
d. An educational brochure
C. a prospectus
REITs are regulated as securities under the Securities Act of 1933. An investor purchasing a REIT in the primary market must receive a prospectus.
What is the intrinsic value and the time value of the call premium if ABC is trading at 43 and the ABC April 40 call is trading at 4.50?
a. Intrinsic value is 3 and the time value is 1.50
b. Intrinsic value is 3 and the time value is 4.50
c. Intrinsic val
A. intrinsic value is 3 and the time value is 1.50
The call is in-the-money (has intrinsic value) since the market price is above the strike price. The in-the-money amount of 3 points is intrinsic value, and the balance of the premium is time value (1.50)
Which TWO of the following statements are TRUE regarding the buyer and writer of a combination?
I. The buyer of a combination expects the market to be volatile
II. The writer of a combination expects the market to be volatile
III. The buyer of a combinati
I and IV
The writer (seller) of a combination (a call and a put) believes the underlying security's price will remain stable. The buyer of a combination expects that the market price of the underlying security will be volatile.
Which of the following statements is TRUE about revenue bonds?
a. Interest is usually paid from the earnings of the facility for which the bond was issued
b. Interest is subject to federal taxes
c. Revenue bonds are considered safer than general obligatio
A. interest is usually paid from the earnings of the facility for which the bond was issued
The interest on a revenue bond is usually paid from the earnings of the facility for which the bonds were issued. The interest is exempt from federal income tax an
Which of the following items is NOT found by reviewing a company's balance sheet?
a. The dollar value of the inventory
b. The amount of interest paid on the company's bonds outstanding
c. The amount of short-term debt
d. The value of the treasury stock
B. the amount of interest paid on the company's bonds outstanding
The amount of interest paid on the company's bonds outstanding (interest expense) is found in a company's income statement. A company's assets (inventory), liabilities (debt or bonds), and
The amount of new issues sold, compared to those offered for sale, as of the close of business each Friday is reported in the The Bond Buyer's:
a. Visible supply
b. 20-Bond Index
c. Placement ratio
d. Notices of sale
C. placement ratio
The placement ratio is a means of gauging the amount of bonds that have been underwritten recently on a new-issue basis that have moved into the hands of the ultimate investor. In other words, it is the percentage of new bonds that were
If an investor wrote an ETF call option and is exercised against, he would:
a. Receive the cash difference between the strike price on the option and the closing value of the ETF
b. Deliver the cash difference between the strike price on the option and th
D. deliver shares of the ETF
An ETF option is similar to an equity option since the writer of an ETF call, after being exercised against (assigned), is obligated to deliver shares of the underlying ETF. On the other hand, if the writer an index option cal
An investor buys 100 shares of XYZ at $50 per share and, at the same time, writes an XYZ May 50 call option for a $5 premium. Excluding commissions and dividends, at what price would XYZ need to be selling for the writer to break even?
a. $42
b. $45
c. $5
B. $45
The breakeven point for the writer of a covered call is the original cost of the stock minus the premium received on the option (50 - 5 = 45). If the market price were at 45 at expiration, the call would expire and the writer would keep the $500 pr
Which TWO of the following statements are TRUE regarding the trading restrictions placed on a director of a publicly traded company?
I. There is a limit on the amount of registered stock the director may purchase
II. There is no limit on the amount of reg
II and III
Restricted stock is stock that is not registered and is typically acquired by an individual through a private placement. With regard to restricted stock, the purchaser must hold the stock for six months before she may dispose of it. Control sto
Cash dividends received from which of the following securities will be taxed as ordinary income?
a. Preferred stock issued by a bank
b. Common stock issued by an oil company
c. A real estate investment trust
d. Convertible preferred stock issued by a soft
C. a real estate investment trust
Currently, dividends paid on both common and preferred stock are taxed at a maximum rate of 20% if the stock is held for more than 60 days. Dividends from a REIT are still taxed at the same rate as ordinary income since a
A client is interested in obtaining the expense ratio of a mutual fund recommended by the RR. Which of the following actions would be BEST for the RR to take?
a. Instruct the client to obtain the information from FINRA
b. Refer the client to the fund's sp
D. inform the client that this information may be obtained by reviewing the front of the fund's prospectus
Mutual funds are required to disclose in the front of a prospectus a standardized fee table of all its fees. The fee table must include the expense
An investor purchased $200,000 of 6% general obligation bonds on margin. The customer has a debit balance of $50,000 and is paying interest of 10% yearly on the debit balance from the purchase of the municipal bonds. How much interest expense may the inve
A. none
The investor may not use any of the interest expense as a deduction against ordinary income. Interest charges on money borrowed to purchase federally tax-exempt municipal securities may not be used as an interest expense deduction for federal inco
A customer's margin account has a market value of $15,000, a debit balance of $8,000, and SMA of $1,000. If the customer sold $1,000 of securities, what is the maximum amount the customer is permitted to withdraw after the sale?
a. None
b. $1,000
c. $1,50
C. $1,500
This account is restricted since the equity ($7,000) is less than the Reg T requirement of the account's market value ($15,000 x 50% = $7,500). When stock is sold in a restricted account, 100% of the sale proceeds will be used by the brokerage f
Knowing a client's tax bracket is particularly useful when evaluating the suitability of which type of investment?
a. Variable annuities
b. Municipal bonds
c. Preferred stocks
d. Common stocks
B. municipal bonds
Knowing a client's tax bracket is particularly useful when evaluating the suitability of municipal bonds. The interest on municipal bonds is typically tax-exempt, which is less of an advantage if the client is in a low tax bracket.
Which of the following statements is NOT TRUE regarding the purchaser of a put option?
a. The purchaser has a right to sell stock
b. The purchaser limits the amount of money he could lose if the value of the underlying stock increases
c. The purchaser ben
D. the only way to realize a profit is to exercise the option
Choice (d) is not true. The investor could profit by either exercising or liquidating the put. The other choices are true statements. The purchaser of a put has a right to sell stock. The maxim
Which of the following items is NOT found on a sell ticket?
a. The customer's account number
b. The customer's original purchase price of the stock
c. The location of the securities
d. Solicited or unsolicited
B. the customer's original purchase price of the stock
All order tickets must contain the customer's account number and whether the registered representative solicited the order or it was unsolicited. A sell ticket must indicate if it is a short sale or a
Lindsay Depaul is a client seeking a balance between income and capital growth. Which of the following investment strategies MOST closely achieves this goal?
a. 30% corporate bond fund, 30% municipal bond fund, and 40% in a U.S. government bond fund
b. 20
B. 20% blue-chip fund, 20% in a technology fund, 20% in an emerging markets fund, 20% in a municipal bond fund, and 20% in a U.S. government bond fund
An investor seeking income and capital growth would want her assets allocated evenly between equity and
Relative to stock index options, which of the following statements is NOT TRUE?
a. There are options that expire each month
b. If traded, settlement is the next business day
c. If exercised, settlement is in cash in three business days
d. At exercise, an
C. if exercised, settlement is in cash in three business days
When exercised, a stock index option settles in cash on the next business day. On the other hand, if an equity option is exercised, the settlement is in three business days. For index options,
Which of the following statements concerning a tax-qualified annuity is TRUE?
a. It has a zero cost basis and grows tax-free
b. It is not subject to contribution limits
c. It has a zero cost basis and grows tax-deferred
d. It may be subject to tax-free di
C. it has a zero cost basis and grows tax-deferred
Tax-qualified annuities are employer-sponsored plans that are available to certain nonprofit organizations, public school, and/or state/city university/college employees. These annuities, sometimes referr
Which TWO of the following would be considered the MOST advantageous when considering an investment in a limited partnership?
I. Tax deductions
II. Tax credits
III. Loans secured are non-recourse
IV. Loans secured are recourse
II and III
Tax credits provide a dollar-for-dollar reduction on tax liabilities whereas tax deductions are used to reduce taxable income. Non-recourse loans are secured by the property owned by the partnership and is not the responsibility of the limited
In what order of priority do the following investors rank if a company declares bankruptcy?
I. Convertible preferred shareholders
II. Debenture holders
III. Common shareholders
IV. Secured bondholders
secured bondholders -> debenture holders -> convertible preferred shareholders -> common shareholders
In the event a corporation declares bankruptcy and must liquidate its assets, bondholders (creditors) have the first claim, followed by shareholders (own
A closed-end fund trading on the NYSE has a current bid price of $21.50 and an offer price of $21.70. A customer purchasing the fund would pay:
a. $21.50 plus a commission
b. $21.50 plus a sales charge
c. $21.70 plus a commission
d. $21.70 plus a sales ch
C. $21.70 plus a commission
The customer would pay $21.70 plus a commission. A closed-end fund is purchased and sold like any other stock traded on the NYSE. The customer would pay the offer price plus a commission or receive the bid price less a commissi
The provisions for the flow of funds of a revenue bond issue appear in the:
a. Syndicate letter
b. Account summary statement
c. Notice of sale
d. Indenture
D. indenture
The indenture contains all the agreements and covenants pertaining to a bond issue, and also contains the provisions for the application and allocation of funds of a revenue bond.
When interest rates are trending upward, the economy will normally be in which phase of the business cycle?
a. Expansion
b. Contraction
c. Trough
d. Peak
A. expansion
Increasing interest rates, along with increased costs and lower unemployment, are frequently associated with an expanding economy where there is an increasing demand for goods. As demand overtakes supply, prices begin to rise due to the scarc
Which of the following is NOT monitored by a technical analyst?
a. Advance/decline data
b. Chart patterns
c. Market momentum
d. Dividend payout ratios
D. dividend payout ratios
Technical analysts use price and trading volume information. Advance/decline data, chart patterns, and market momentum calculations are all methods used in analyzing this type of information. Dividend payout ratios would be impor
ABC Corporation has net income of $10,000,000 and 5,000,000 common shares outstanding. ABC Corporation pays out $1,000,000 in dividends annually. ABC Corporation pays an annual dividend per share of:
a. $0.10
b. $0.20
c. $5.00
d. $10.00
B. $0.20
To determine the dividend being paid per share, divide the $1,000,000 in dividends by the 5,000,000 shares of common stock outstanding. $1,000,000 dividends divided by 5,000,000 shares equals $0.20.
Which of the following choices gives the best indication of current interest rates on revenue bonds?
a. Visible supply
b. Placement ratio
c. List of 20 bonds
d. List of bonds with 30-year maturities
D. list of bonds with 30-year maturities
The Bond Buyer computes the Revenue Bond Index which is the average yield of 25 revenue bonds with 30-year maturities.
The term opening sale applies to a:
a. Buyer of an option
b. Writer of an option
c. Buyer of common stock
d. Seller of common stock
B. writer of an option
The term opening sale applies to the seller (writer) of a listed option. This designation must be written on the order ticket.
Which TWO of the following securities are typically sold at a discount?
I. TIPS
II. Treasury bills
III. Bankers' acceptances
IV. Collateralized mortgage obligations
II and III
Treasury bills and bankers' acceptances are typically sold at a discount. The amount of interest is based on the difference between the purchase price and the face value.
Which TWO of the following statements are TRUE concerning Section 457 plans?
I. These plans are state-sponsored and used to fund higher education expenses
II. These plans are used to fund retirement
III. These plans grow tax-deferred
IV. These plans grow
II and III
A Section 457 plan is a type of qualified retirement plan used by many public sector workers. 457 plans grow on a tax-deferred basis and are generally subject to the same contribution limits as 401(k) and 403(b) plans. Each has similar tax feat
A customer buys bonds with a $50,000 par value at 85 1/2. The bonds are callable at 110. If the customer holds the bonds to maturity, he will receive:
a. $42,750
b. $50,000
c. $55,000
d. $85,500
B. $50,000
At maturity, the holder of the bonds will receive the par value, which in this example is $50,000. The call price and market value are not relevant.
A newly issued bond has a provision that it cannot be called for five years after the issue date. This call protection would be MOST valuable to a recent purchaser of the bond if:
a. Interest rates are falling
b. Interest rates are rising
c. Interest rate
A. interest rates are falling
The call protection provision of five years would be most valuable to a recent purchaser of the bond if interest rates are falling. If interest rates fall, outstanding bond prices will rise. Issuers of bonds will call or reti
The tool that is most frequently used by the FRB to regulate the amount of money and credit in the banking system is the:
a. Open market operations
b. Discount rate
c. Margin requirements
d. Reserve requirements
A. open market operations
Of all of the tools that the Federal Reserve Board has at its disposal, the one that is most frequently used is open market operations. This is the most flexible tool and can be changed or fine tuned very easily by buying or sell
Which of the following factors is LEAST important when recommending a long-term brokered CD to a client?
a. The CD was issued by a bank located in a different state from where the client lives
b. The CD has a feature in which the interest rate is based on
A. the CD was issued by a bank located in a different state from where the client lives
The state in which the client or issuing bank is located is not an important factor when recommending a long-term brokered CD. The features that establish the interest
An individual owns 800 shares of stock at an original cost of $55 per share. If the company distributes a 15% stock dividend, what is the client's cost basis per share?
a. $63.25
b. $55.00
c. $47.83
d. $47.75
C. $47.83
A stock dividend is not a taxable event when received. The investor must adjust her cost basis. The investor would now own 920 shares (800 shares x 1.15). The new cost basis would be $47.83 (original cost of $44,000 [800 shares x $55] divided by
Roundville Bank is considering an investment in Roundville County bonds. The bonds contain a provision that permits banks to deduct 80% of the interest cost being paid to depositors on the funds used to purchase the bonds. These securities are known as:
a
B. bank-qualified bonds
Bank-qualified municipal bonds allow banks to deduct 80% of the interest cost paid to depositors on the funds used to purchase the bonds. This is done to encourage banks to invest in municipal securities. To qualify, a municipality
A customer opens a new margin account and buys 100 shares of XYZ Corporation at $40 per share. She then writes a call option against the position and receives a $2 premium. The customer must deposit cash in the account of:
a. $1,800
b. $1,900
c. $2,000
d.
A. $1,800
The purchase of $4,000 worth of stock would require a $2,000 deposit (50% of $4,000 = $2,000). Since the call is covered, there is no margin requirement. The customer received $200 in premiums. This would be deducted from the $2,000 margin call,
An exercise limit is the maximum number of options contracts that a customer may exercise in a five-consecutive-business-day period for each:
a. Account that she maintains at each brokerage firm
b. Underlying stock on each side of the market
c. Series of
B. underlying stock on each side of the market
Exercise limits relate to the maximum number of contracts that an individual may exercise during a five-business-day period for each underlying stock on each side of the market. Exercise and position limits a
RSR Corporation has earned $4 per share and has paid a 75 cent dividend per share. If the stock is selling at $38 a share, what is its price/earnings ratio?
a. 2.02
b. 9.5
c. 12.6
d. 50.7
B. 9.5
The price/earnings ratio is found by dividing the market price of $38 by the earnings per share of $4. This equals a price/earnings ratio of 9.5 ($38 / $4). The amount of the dividend is not relevant in calculating the price/earnings ratio.