Investment Securities Quiz: Stocks and Options Explained

Questions and Answers

A deterioration in the issuer's financial condition would impact the value of the ETN negatively.

True

Which statement is TRUE about customer verification for a client who is a resident of Mexico?

Customer verification of the client's personal information is not required if the customer was referred by an existing client.

The client can have either a taxpayer identification number or a passport number and country of origin. (correct)

The client must have a taxpayer identification number to open the account.

Customer verification of the client's personal information is required if the name is on the Office of Foreign Assets Control (OFAC) list.

In a direct participation program, which party is the last to be paid in a liquidation?

General partner (correct)

Limited partner

Secured creditor

General creditor

What would a municipality issue to borrow for a short-term period to finance a capital project?

Bond anticipation notes Signup and view all the answers

Which statement is EXCEPT concerning both auction rate securities (ARSs) and variable-rate demand obligations (VRDOs)?

Tax-exempt funds Signup and view all the answers

As a customer's tax bracket increases, an RR is likely to allocate more of a customer's portfolio to:

Tax-exempt funds Signup and view all the answers

If a registered representative discovers that a customer is on the Office of Foreign Assets Control (OFAC) list, who must be notified?

The Treasury Department Signup and view all the answers

Which of the following bonds would increase most in price if interest rates decline?

Long-term bonds selling at a discount Signup and view all the answers

To find the number of shares the bond is convertible into, divide the conversion price into the par value ($1,000 divided by what?)

25 Signup and view all the answers

If interest rates increase, which of the following securities has the largest price change?

A Treasury bond trading at a premium Signup and view all the answers

Which of the following approvals is required before a municipality can begin making payments on a moral obligation bond?

Approval by the state legislature Signup and view all the answers

Real estate investment trusts (REITs) invest in all of the following, EXCEPT:

Undeveloped land Signup and view all the answers

The minimum maintenance requirement for this account is:

$3,000 Signup and view all the answers

A municipal bond trader does NOT:

Commit to underwritings Signup and view all the answers

A broker-dealer is acting as a principal in which of the following scenarios?

Buying 500 bonds to fill an insurance company's order for 250 bonds Signup and view all the answers

Mike is long a yield-based put option in his account. Mike would like to see interest rates:

Fall Signup and view all the answers

A call premium is best described as the amount the:

Issuer pays above 100 to retire bonds prior to maturity Signup and view all the answers

A variable annuity would be most suitable for which of the following customers?

A client in a high tax bracket who is purchasing the annuity for his spouse's retirement needs Signup and view all the answers

Which of the following factors is the most important to consider when analyzing a client's investment portfolio with retirement as a primary objective?

Age Signup and view all the answers

What capacity is reported by a member firm that has conducted a net basis transaction?

Principal Signup and view all the answers

A client wants to invest $250 a month and have broad exposure to the U.S. equity market. Which of the following recommendations is the most suitable for this client?

An S&P 500 Index mutual fund Signup and view all the answers

A breakpoint sale is best defined as:

The sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions Signup and view all the answers

ABC Corporation has issued a call notice on its 5% convertible preferred stock. If the common stock is currently trading at $23, what should an RR recommend to an investor holding the preferred stock?

Convert the preferred stock into common stock and sell the common stock Signup and view all the answers

The penny stock rules apply under which of the following circumstances?

The stock is quoted on the OTC Bulletin Board Signup and view all the answers

If an individual reinvests all distributions from a mutual fund, what will the cost basis be when selling those shares?

The purchase price of these shares Signup and view all the answers

Which of the following choices is a feature of the Nasdaq Level II System?

Firm quotes of all the market makers in a stock Signup and view all the answers

How would preferred stock most likely be affected by an increase in interest rates?

Its market value would decrease Signup and view all the answers

Which of the following choices represent logical strategies for a technical analyst?

Buy calls when a stock breaks through a support level Signup and view all the answers

On Thursday October 7th, a customer purchases 1,000 shares of stock. The trade would settle on:

October 11th Signup and view all the answers

Which of the following statements is NOT TRUE regarding the purchaser of a put option?

The purchaser limits the amount of money he could lose if the value of the underlying stock increases Signup and view all the answers

Which of the following choices makes a financial commitment in the distribution of a new issue of securities?

The underwriting syndicate Signup and view all the answers

The credit rating agencies have downgraded an issuer of an exchange-traded note. Which of the following statements is TRUE?

It will have a negative impact on the security Signup and view all the answers

What is true about the current yield of a bond selling at a premium?

The current yield is lower than the nominal yield Signup and view all the answers

The income generated by a retirement housing program will most likely be used to pay the debt service on a(n):

Revenue bond Signup and view all the answers

Which choice is the least attractive alternative for a client with a convertible bond called at 104?

Allow the bond to be called Signup and view all the answers

If an issuer with an S&P A- rating has been upgraded by two notches, its new rating would be:

A+ Signup and view all the answers

Which of the following statements is FALSE regarding a broker-dealer acting as a market maker in a stock?

It makes money by charging commissions for executing transactions Signup and view all the answers

The PSA Model is used when pricing:

Collateralized mortgage obligations Signup and view all the answers

How much can a customer withdraw after selling $1,000 of securities from a restricted margin account?

$1,500 Signup and view all the answers

Upon selling a municipal bond at a loss, what is the TRUE tax result?

The investor has a $10 long-term capital gain. Signup and view all the answers

What tax treatment occurs upon full withdrawal of a nonqualified variable annuity?

Ordinary income on the amount in excess of the original investment Signup and view all the answers

What is the price/earnings ratio if a stock sells at $48 and has earned $1.10 per share for four quarters?

10.9 Signup and view all the answers

Which security provides protection against purchasing-power risk?

TIPS Signup and view all the answers

If an individual sells short shares and the stock price increases, which statement is TRUE?

The account will be adjusted on October 23 and a margin maintenance call will be issued Signup and view all the answers

Industrial development revenue bonds are backed by:

The corporation that leases the facility Signup and view all the answers

To diversify a portfolio with domestic equity and bond funds, which investment would be the best option?

An international fund Signup and view all the answers

Two types of stock that may contain a stock legend are:

Control stock and restricted stock Signup and view all the answers

Regulation NMS applies to which TWO choices?

Listed equity trades and Quotes available for electronic execution Signup and view all the answers

For a preferred stock dividend of $1.20 per share after a week, how will it be taxed?

The dividend will be taxed as ordinary income Signup and view all the answers

What happens when a corporation purchases machinery with cash?

Working capital remains the same Signup and view all the answers

Upon the death of the insured, the proceeds of a variable life policy:

Pass to the beneficiary free from federal income tax Signup and view all the answers

If an investor is bearish on small-cap stocks, which product should be avoided?

Russell Index ETFs Signup and view all the answers

For each penny stock transaction, a broker-dealer must provide all of the following items, EXCEPT:

A risk disclosure document on penny stocks Signup and view all the answers

Under Rule 10b-10, a confirmation sent to a customer must disclose which items?

The amount of markup charged on a Nasdaq principal transaction Signup and view all the answers

Which of the following positions/strategies is NOT bullish?

Writing a straddle Signup and view all the answers

Which of the following positions would be considered a covered option?

Short the stock, short a put Signup and view all the answers

Which of the following statements is NOT TRUE concerning the Student Loan Marketing Association (Sallie Mae)?

It issues securities that can be redeemed to pay for college education Signup and view all the answers

A new issue of municipal bonds has an aggregate par value of $10,000,000. The syndicate received $5,000,000 in designated orders, $5,000,000 in group orders, and $5,000,000 in member orders. How will the issue be allocated?

$5 MM group and $5 MM designated Signup and view all the answers

An investor purchases the following bonds: State of Florida 8% bond due 2020, State of California 8 1/2% bond due 2020, State of New York Housing Finance Agency 9% Revenue bond due 2030, and Wayne County, Michigan 8 1/2% Water and Sewer Revenue bond due 2030. This portfolio offers:

Geographical diversification Signup and view all the answers

Two individuals hold $100,000 in assets in a JTWROS account. Each party's ownership in the account may be described as:

Equal and undivided Signup and view all the answers

Which of the following statements is TRUE regarding spreads?

A put spread created for a net debit is bearish Signup and view all the answers

In a large private placement, an investment banking firm has purchased securities directly from an oil and gas company based in Houston, Texas. These securities may be resold immediately to:

Only qualified institutional buyers (QIBs) Signup and view all the answers

A Regulation A+ exemption is allowed for an issuer that's offering:

Securities with a value not exceeding $50,000,000 Signup and view all the answers

Which TWO of the following statements are TRUE about real estate investment trusts (REITs)? 1. They must distribute 90% of their earnings to shareholders 2. They may invest only in short-term construction loans 3. They must invest in mortgages and securities 4. Their profits are derived from the difference between the payments made on outstanding mortgages and the amount received in rental income.

I and IV Signup and view all the answers

A bond with a 6% coupon is priced at a 7.20 basis. If the bond's yield-to-maturity increases by 40 basis points, the yield would be:

7.6% Signup and view all the answers

Which of the following statements is TRUE concerning Modern Portfolio Theory?

Portfolio management should focus on diversification among different classes of assets Signup and view all the answers

Ms. Green buys 300 shares of RSW at $15 per share. She then writes 3 RSW July 20 calls at 1 and writes 3 RSW July 10 puts at 50 cents. Ms. Green's maximum potential loss on the entire position is:

$7,050 Signup and view all the answers

An investor owns a $100 convertible preferred stock that is convertible into 2 shares of common stock. The common is selling at $52 and the preferred is selling at $104. The preferred stock is called at 105. What should the investor do?

Allow the preferred to be called Signup and view all the answers

You are the portfolio manager for Home Fund, Inc., a mortgage-backed securities mutual fund. Which type of risk concerns you in a falling interest rate environment?

Prepayment risk Signup and view all the answers

On December 16, a Mr. Smith purchased 2 listed XYZ May 70 calls and paid a $4 premium for each call when the current market price of XYZ Corporation was $69 per share. If, in May, the market price of XYZ Corporation is $67 and the calls expire, Mr. Smith loses:

$800 Signup and view all the answers

A mortgage-backed security that is available in several 'tranches,' each with different cash flow characteristics, is a:

Collateralized Mortgage Obligation Signup and view all the answers

An investor has made the following purchases of XAM stock: Shares bought at $39 in May 2013, Shares bought at $56 in September 2013, Shares bought at $36 in January 2014, and Shares bought at $36 in June 2014. The investor sells some of his XAM shares in March 2015 at $51. Based on the various purchases, which shares may be sold to result in the greatest gain with the lowest tax liability?

Sell from the shares that were purchased in January 2014 Signup and view all the answers

A customer buys 10 ABC January 50 calls paying a $3 premium and 10 ABC January 50 puts also paying a $3 premium when the market price of the stock is $49 per share. The buyer's TWO breakeven points are:

II. $47 Signup and view all the answers

Securities purchased under a Rule 147 exemption may be sold to an out-of-state resident:

After six months Signup and view all the answers

A U.S. importer needs to purchase British pounds to pay for a shipment of goods. The exchange of U.S. dollars for British pounds would occur:

In the Interbank market Signup and view all the answers

The maximum underwriting compensation for selling limited partnerships in public offerings is:

10% Signup and view all the answers

If a bond is currently selling for less than par value, then:

The current yield is lower than the nominal yield Signup and view all the answers

Which of the following statements is TRUE regarding the cost covered by a broker-dealer?

A broker-dealer pays for the cost of a conference concerning the future of the computer software industry Signup and view all the answers

Which of the following statements is TRUE when a client buys 100 shares of MTB at $58 per share and writes 2 MTB October 60 calls at 3?

The maximum loss is unlimited Signup and view all the answers

Which of the following securities does NOT trade with accrued interest?

Treasury STRIPS Signup and view all the answers

A bond counsel will issue an unqualified legal opinion for a municipal bond issue to state that?

There are no limitations or pending lawsuits that hinder the issuance of the bonds Signup and view all the answers

A margin disclosure document must be provided to customers:

At the time the account is opened and annually thereafter Signup and view all the answers

A customer's margin account has a current market value of $10,000, a debit balance of $8,000, and SMA of $1,000. The customer could meet a maintenance call with:

$500 cash Signup and view all the answers

Which of the following investment allocations is the BEST recommendation for a customer with an aggressive risk tolerance?

50% large-cap equity funds, 20% small-cap equity funds, 20% international equity funds, 5% bond funds, and 5% cash Signup and view all the answers

If an equity option is exercised, when is the settlement date for the stock transaction?

Within two business days Signup and view all the answers

A customer has sold stock but failed to complete the transaction by delivering the securities. The latest date on which the broker-dealer may buy in the securities is:

Ten business days from the settlement date Signup and view all the answers

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:

Ordinary income Signup and view all the answers

A registered representative receives text messages on a mobile device from one of her customers. Which of the following is TRUE?

The broker-dealer is required to maintain a record of all communication with customers regardless of the device used. Signup and view all the answers

ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a customer's buy order. ABC has acted as a:

Agent Signup and view all the answers

The call premium of a bond refers to the amount:

Over par value that the issuer must pay to exercise the call privilege Signup and view all the answers

A registered representative should update a client's financial condition or status:

When there is a change in the client's purchases or sales that might indicate a different financial situation Signup and view all the answers

Which of the following communications does not qualify as a complaint under FINRA rules?

A telephone call Signup and view all the answers

According to MSRB rules, a municipal bond dealer will NOT consider which of the following factors when determining a markup?

Coupon rate Signup and view all the answers

When comparing long-term bonds to short-term bonds, all of the following statements about long-term bonds are TRUE, EXCEPT:

They usually provide greater liquidity than short-term bonds Signup and view all the answers

A bond is selling at a discount and yields have remained constant. As the bond gets closer to maturity, what happens to its price?

It increases Signup and view all the answers

An investor is interested in selling 500 shares of her listed REIT. The sale will be handled in a manner that's similar to the:

Liquidation of a stock on the NYSE Signup and view all the answers

On Monday, June 15, an investor purchases for regular-way settlement, $20,000 face value of 8% municipal bonds that mature on November 1, 2035. How many days of accrued interest is the investor required to pay?

46 Signup and view all the answers

Dividends and capital gain distributions in a variable annuity are:

Allowed to accumulate on a tax-deferred basis Signup and view all the answers

An investor purchases 200 shares of STC at $35 and subsequently purchases 2 STC Jan 35 puts at 2. If the puts expire, what is the investor's profit or loss?

$400 loss Signup and view all the answers

A prime brokerage account would MOST likely be established for a(n):

Hedge fund Signup and view all the answers

Which of the following statements is TRUE concerning Trade Reporting and Compliance Engine (TRACE) reports?

The system is used for corporate bonds Signup and view all the answers

An individual purchases 10 ABC June 90 calls @ 4 and writes 10 ABC June 95 calls @ 2. The individual's maximum loss is:

$2,000 Signup and view all the answers

At what price should the common stock be selling for it to be at parity with a convertible bond that is convertible at $25 and is selling in the market at 108?

$108 Signup and view all the answers

Study Notes

Bullish Strategies

Writing a Straddle: This strategy is not bullish; it expects a neutral market and profits if options expire worthless.
Other methods like married puts, short puts, and certain call combinations indicate bullish sentiment.

Covered Options

Short the Stock, Short a Put: This is the only covered strategy, where the writer can fulfill the obligation if the put is exercised by using the short stock position.
Covered options imply the ability to meet contractual obligations without excessive risk.

Student Loan Marketing Association (Sallie Mae)

Purpose: Provides liquidity by purchasing federally sponsored student loans but does not issue redeemable securities for education.
Securities issued are not backed by the U.S. government.

Municipal Bond Allocation

Prioritization: Allocation favors designated and group orders, with designated receiving $5 million and group also $5 million; no allocation for member orders.

Geographical Diversification

Portfolio Composition: A mix of bonds from different states provides geographical diversification for the investor.

Joint Tenancy with Right of Survivorship (JTWROS)

Ownership Description: Each party's ownership in a JTWROS account is equal and undivided, meaning all assets are jointly owned.

Option Spreads

Put Spread: A bearish strategy when created for a net debit, involving selling a lower exercise price option and buying a higher one, reflects bearish sentiment.

Securities Placement

Qualified Institutional Buyers (QIBs): Securities from private placements can only be resold immediately to QIBs according to SEC Rule 144A.

Regulation A+ Exemption

Offering Limit: Issuers can offer securities not exceeding $50 million during a 12-month period, exempting them from the registration requirements.

Real Estate Investment Trusts (REITs)

Distribution Requirement: Must pay out 90% of earnings to shareholders, focusing on real estate investment and profit from rental income and mortgage repayment differences.

Bond Yield Calculations

Yield-to-Maturity Increase: If a bond's yield increases by 40 basis points from 7.20%, the new yield-to-maturity is 7.60%, indicative of price adjustments.

Modern Portfolio Theory

Focus: Emphasizes diversification across various asset classes over individual security management in portfolio management.

Options Maximum Loss Calculation

Ms. Green's Position: The maximum potential loss from her option positions totals $7,050 if the underlying stock becomes worthless.

Convertible Preferred Stock Decision

Allowance for Calling: Preferred stock should be allowed to be called for $105, as this yields the highest return compared to conversion or sale.

Mortgage-Backed Securities Risk

Prepayment Risk: In falling interest rates, MBS are subject to increased prepayments, creating challenges for reinvestment of proceeds in lower-yielding securities.

Tax Liability on Stock Sales

Lowest Tax Liability Strategy: Selling shares from January 2014 provides the greatest gain with lower tax implications because they result in long-term gains.

Breakeven Points in Options

Breakeven Calculation: For the straddle, the breakeven points are $44 (put) and $56 (call), factoring in the premium paid.

Rule 147 Exemption

Selling Restrictions: Securities under Rule 147 may only be sold to out-of-state residents after a six-month holding period.

Foreign Currency Exchange

Exchange Context: The purchase of British pounds with U.S. dollars occurs primarily in the Interbank market, where foreign currency transactions are conducted.

Underwriting Compensation Limit

Maximum for Partnerships: The cap for underwriting compensation on public offering of partnership units is 10% of the gross amount raised.

Bond Pricing and Yields

Price Relation: If a bond is selling below par, its current yield will be higher than its nominal yield due to the inverse relationship between bond prices and yields.

Revenue Bonds

Income Application: Income from a housing program will usually cover the debt service on revenue bonds rather than general obligation bonds.

Client Alternatives for Callable Bonds

Least Attractive Option: Allowing the convertible bond to be called at 104 is the least favorable choice given market conditions and stock performance.### Bond Conversion and Comparison
Conversion ratio calculated as par value ($1,000) divided by conversion price ($40), resulting in 25 shares.
Selling converted stock at $41 per share yields $1,025, which is less than selling the bond for $1,070 or allowing it to be called for $1,040.
Therefore, converting the bond represents the least attractive alternative.

Rating Upgrades

An issuer with an S&P A- rating upgraded by two notches would achieve an A+ rating.
S&P rating scale ranges from AAA (highest) to D (lowest), with notches indicating minor adjustments in ratings.

Broker-Dealer Market Maker Roles

A broker-dealer as a market maker trades for its own account, acting as a principal rather than an agent.
Market makers profit from the spread between bid and ask prices, not from commissions which are earned when acting as brokers.
Must honor quoted prices unless they are clearly qualified.

PSA Model Application

The PSA Model is used for pricing collateralized mortgage obligations (CMOs).
CMOs have uncertain cash flows due to mortgage prepayments, leading to prepayment risk.
The model estimates the prepayment rate of mortgage-backed securities.

Margin Account and Withdrawals

In a restricted margin account with a market value of $15,000 and a debit balance of $8,000, maximum withdrawal after selling $1,000 of securities is $1,500.
100% of sale proceeds reduce the debit balance while SMA increases according to Reg T requirements.

Tax Implications on Bond Sales

Selling a municipal bond at 103 after purchasing it at 105 results in a $10 long-term capital gain after amortizing the premium.
Amortization reduces the cost basis over the bond’s life.

Tax Treatment of Variable Annuities

Withdrawal from a nonqualified variable annuity is taxed as ordinary income on the earnings above the original investment.

Price/Earnings Ratio Calculation

Price/Earnings (P/E) ratio for a stock selling at $48 with annual earnings of $4.40 is 10.9.
Dividend payout not relevant for P/E ratio calculation.

Securities Against Purchasing-Power Risk

Treasury Inflation-Protected Securities (TIPS) provide protection against purchasing-power risk due to inflation adjustments.

Short Selling and Margin Maintenance

Selling short shares incurs a margin maintenance call when market prices rise significantly, thus requiring regular account adjustments.

Investment Backing for Industrial Development Revenue Bonds

Industrial development revenue bonds are backed by the corporation leasing the facility, not the issuing municipality.

Diversification in Investment Portfolios

An international fund, which invests in foreign securities, offers the best diversification for a couple already holding domestic funds.

Transfer Restrictions on Stocks

Control stock and restricted stock both carry transfer restrictions, requiring compliance with specific conditions for lawfully selling securities.

Regulation NMS Compliance

Regulation NMS applies to listed equity trades and quotes available for electronic execution, ensuring clients receive best available prices.

Dividend Taxation on Preferred Stock

Dividends from preferred stock held for less than 60 days are taxed as ordinary income, rather than at the favorable capital gains rates.

Impact of Machinery Purchase on Financials

Purchasing machinery with cash reduces working capital while total assets remain unchanged, as an increase in fixed assets offsets a decrease in current assets.

Tax-Free Proceeds from Variable Life Policies

Proceeds from a variable life policy transfer to beneficiaries without incurring federal income tax, although they’re included in the policy owner's estate for estate tax.

Products to Avoid for Bearish Investors

Investors expecting small-cap declines should avoid Russell Index ETFs, which track small-cap performance.

Disclosure Requirements in Penny Stock Transactions

A risk disclosure document for penny stocks is only required prior to the first transaction, unlike other disclosures which are required for each trade.

Confirmation Disclosure Requirements

Broker-dealer confirmations for transactions must disclose the transaction time, the capacity of the broker-dealer, and markup amounts on principal trades.

Permitted Soft-Dollar Arrangements

A broker-dealer's payment for attendance at a relevant conference is a permissible soft-dollar arrangement, enhancing investment advice quality.

Maximizing Risk in Uncovered Call Options

Writing two calls against a single long stock position results in unlimited loss potential, making this a risky strategy.

Accrued Interest in Securities Trading

Treasury STRIPS do not trade with accrued interest, contrasting with other bonds that do, due to the nature of their interest payments.

Unqualified Legal Opinions for Municipal Bonds

An unqualified legal opinion confirms no pending litigation or restrictions affecting bond issuance, ensuring legality.

Margin Disclosure Document Requirements

A margin disclosure document is mandatory at account opening and annually, informing clients of the risks involved with margin trading.### Maintenance Call
The maintenance call can be met by $500 cash, as SMA cannot be used to increase the debit balance.
A long margin account requires equity of at least 25% of the market value; if equity is below $2,500, a maintenance call is triggered.

Investment Allocation for Aggressive Risk Tolerance

The best investment allocation for aggressive risk tolerance is 50% large-cap equity, 20% small-cap equity, 20% international equity, 5% bond funds, and 5% cash.
Aggressive investors seek high growth with a willingness to accept volatility and potential principal loss.

Equity Options Settlement

When an equity option is exercised, stock transaction settlement occurs within two business days.

Broker-Dealer Buy-In Rules

If a customer fails to deliver securities after selling, the broker-dealer has ten business days from the settlement date to buy in the securities.

Tax Implications on Municipal Bonds

Profit from purchasing a municipal bond at a discount and redeeming it at par is taxed as ordinary income.

Communication Record-Keeping Requirements

Broker-dealers must maintain a record of all communications with customers, regardless of the device used for communication.

Role of Broker-Dealer

ABC Brokerage acted as an agent when purchasing stock from a market maker to fill a customer's buy order.
Clients pay a commission for this service.

Call Premium of Bonds

The call premium represents the amount over par that an issuer pays to call a bond prior to maturity.

Updating Client Financial Status

A registered representative should update a client's financial status upon observing changes in the client's purchasing or selling activities.

FINRA Complaint Definition

A telephone call does not qualify as a complaint under FINRA rules, which require written statements for grievances.

Markup Considerations for Municipal Bond Dealers

Coupon rate does not influence the determination of the markup on municipal bonds.

Long-Term vs. Short-Term Bonds

Long-term bonds tend to offer higher yields and are more sensitive to interest rate changes, but they do not provide greater liquidity compared to short-term bonds.

Price Behavior of Discount Bonds

A discount bond's price will increase as it approaches maturity, assuming no default.

Secondary Market for REITs

REITs are traded similarly to stocks on the NYSE, with a secondary market available for transactions.

Days of Accrued Interest Calculation

For the purchase of municipal bonds, 46 days of accrued interest is owed, based on a 30-day month calculation.

Tax-Deferred Growth in Variable Annuities

Variable annuities allow dividends and capital gains to grow on a tax-deferred basis until distributions begin.

Loss from Expiring Options

If puts expire, the holder loses the entire premium paid for the options, resulting in a $400 loss for the example provided.

Prime Brokerage Accounts

Prime brokerage accounts are primarily established for hedge funds, providing a range of services tailored to active trading firms.

TRACE Reporting

TRACE reports are specifically used for corporate bond transactions to increase market transparency.

Maximum Loss for a Debit Spread

In a debit spread, where more is paid for the purchased call than received for the written call, the maximum loss is the total premium paid.

Conversion Price and Parity

A convertible bond's parity price is calculated based on the conversion ratio and the market price of the bond.

Interest Rate Impact on Bond Prices

Treasury bonds trading at a premium exhibit the largest price changes when interest rates rise.

Approval for Moral Obligation Bonds

State legislative approval is necessary before a municipality can begin making payments on a moral obligation bond.

REIT Investment Restrictions

REITs do not invest in undeveloped land, focusing instead on income-generating real estate properties.

Minimum Maintenance Requirement for Accounts

A margin account’s minimum maintenance requirement is calculated as 25% of the total market value, which sums to $3,000 in the provided example.

Municipal Bond Trader Duties

A municipal bond trader does not commit to underwritings, centralizing their role on secondary market activities.

Principal Role of Broker-Dealers

Broker-dealers operate as principals when buying for their inventory or selling from it, including fulfilling orders while retaining excess for themselves.

Interest Rate Effects on Yield-Based Options

Yield-based puts become profitable when interest rates fall, as lower yields increase the intrinsic value of such options.

Description of Call Premium

A call premium is the excess amount above par that an issuer pays when redeeming bonds prior to maturity.

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