Questions and Answers
What is it called when an investor tells his RR to purchase 50m EGG 11.7% debenture bonds, which are purchased for 113 and valued at 103 a year before maturity?
Amortization
In oil and gas limited partnerships, is the risk greater in developmental or exploratory programs?
Exploratory
What is the best way to measure the Gross National Product (GNP)?
Constant dollars
What is the broker's role in the term 'broker/dealer'?
Signup and view all the answers
What is the maximum federal tax rate for corporations on their dividends and other income?
Signup and view all the answers
What is the maximum federal tax rate for individuals on their dividends and other income?
Signup and view all the answers
What type of securities are exempt from registration under the Securities Act of 1933?
Signup and view all the answers
Under federal guidelines, how is the premium received by the writer of a put treated when the put is assigned?
Signup and view all the answers
How much income must a REIT generate from real estate properties?
Signup and view all the answers
How much must a REIT pass-through of its profits to investors?
Signup and view all the answers
What option position would a portfolio manager of a pension fund make if they desire income but want to protect the portfolio?
Signup and view all the answers
How many days does an investor have to pay when they buy a corporate bond?
Signup and view all the answers
What are the rating agencies for short-term, long-term, and municipal debt securities?
Signup and view all the answers
What does Best's Rating service rate?
Signup and view all the answers
How are CDs issued?
Signup and view all the answers
Where are CDs shown and for how long?
Signup and view all the answers
How are CDs quoted?
Signup and view all the answers
Who does not issue Eurodollar deposits?
Signup and view all the answers
What kind of taxes is the interest of corporate bonds subject to?
Signup and view all the answers
If a zero-coupon bond is held for one year and sold above its original value, what will the investor have?
Signup and view all the answers
If a zero-coupon bondholder holds it until maturity, what will they have?
Signup and view all the answers
What type of muni note does not get rated by MIG because they are backed by a government bond?
Signup and view all the answers
What does a bond indenture NOT include?
Signup and view all the answers
What is required before a revenue bond can be issued?
Signup and view all the answers
What must a muni bond being issued obtain from a bond counsel?
Signup and view all the answers
What three things does the bond counsel help do while making its opinion?
Signup and view all the answers
What are the three major bond rating organizations?
Signup and view all the answers
What does a broker's broker NEVER do?
Signup and view all the answers
Who determines the tax-exempt status of interest on muni bonds through the tax code?
Signup and view all the answers
Who assesses the tax-exempt status of the interest on the bond for the muni by checking local and state laws?
Signup and view all the answers
Who enforces MSRB rules?
Signup and view all the answers
What does MSRB Rule G-8 require when opening new accounts?
Signup and view all the answers
What does MSRB Rule G-19 suitability require?
Signup and view all the answers
What are the six exceptions to the 10% penalty rule?
Signup and view all the answers
When does a person have to start taking withdrawals from a qualified retirement plan?
Signup and view all the answers
Who does a defined benefit plan benefit?
Signup and view all the answers
What method of payment is the least suggestive of money laundering?
Signup and view all the answers
How many shares can be transmitted over Super DOT?
Signup and view all the answers
What is the only thing that can change hands in an index option?
Signup and view all the answers
What type of security requires the investor to calculate the alternative minimum tax in addition to regular tax?
Signup and view all the answers
What bodies have jurisdiction over the areas covered by the Securities Exchange Act of 1934?
Signup and view all the answers
A customer opens an options account with your firm. Under FINRA rules, who has to sign the new account form?
Signup and view all the answers
What value of the underlying stock determines whether the option has any real value?
Signup and view all the answers
An option that is in the money is said to have what?
Signup and view all the answers
Who has intrinsic value: the buyer, the writer, or the option?
Signup and view all the answers
A call option is IN THE MONEY when the market price is _________ the strike price.
Signup and view all the answers
A put option is IN THE MONEY when the market price is ________ the strike price.
Signup and view all the answers
What is the most important factor when determining the premium for an option?
Signup and view all the answers
A closing transaction of an option can be accomplished in what three ways?
Signup and view all the answers
When do stock, index, and interest rate options expire?
Signup and view all the answers
When do foreign currency options expire?
Signup and view all the answers
On a spread option position, what must be different?
Signup and view all the answers
What does a vertical/price spread have?
Signup and view all the answers
What does a horizontal/calendar spread have?
Signup and view all the answers
What does a diagonal spread have?
Signup and view all the answers
What are two ways investors incorporate option positions to hedge or enhance their stock position?
Signup and view all the answers
When investors buy options to protect their positions, they are considered to be what?
Signup and view all the answers
When is an investor considered to have a covered call?
Signup and view all the answers
When is an investor considered to have a covered put?
Signup and view all the answers
In an even stock split, what goes up?
Signup and view all the answers
In an odd stock split, what goes up?
Signup and view all the answers
In an even and odd stock split, what goes down?
Signup and view all the answers
In a reverse even stock split, what goes down?
Signup and view all the answers
In a reverse odd stock split, what goes down?
Signup and view all the answers
In a reverse even and odd stock split, what goes up?
Signup and view all the answers
What can options contracts never be adjusted for?
Signup and view all the answers
When opening a new options account, who is responsible for determining the suitability of a client based on financial objectives?
Signup and view all the answers
When does the OCC disclosure document have to be given to a client?
Signup and view all the answers
A customer can trade before they sign the OPTIONS AGREEMENT but not before they have seen the what?
Signup and view all the answers
Once the options agreement is sent to the customer, how many days do they have to sign in?
Signup and view all the answers
How much of a customer's investment portfolio should be committed to options trading?
Signup and view all the answers
When an options contract is first written, who clears all premiums?
Signup and view all the answers
When do all options trades settle?
Signup and view all the answers
Exercising an option before the ex-dividend date entitles who to the dividend?
Signup and view all the answers
What happens to any outstanding option contracts that are in the money by $0.01 or more on the expiration date?
Signup and view all the answers
When do equity options that are exercised settle?
Signup and view all the answers
When do index and interest rate options that are exercised settle?
Signup and view all the answers
In regards to taxation, what results from the trading of options when the option expires unexercised?
Signup and view all the answers
When asked for proceeds or cost basis of an option, what should you find?
Signup and view all the answers
Where do most index options trade?
Signup and view all the answers
In trading index options, who pays the seller the premium?
Signup and view all the answers
In exercising index options, who pays the buyer of the options?
Signup and view all the answers
What price can investors exercise an index option at?
Signup and view all the answers
Index options cannot be exercised before what?
Signup and view all the answers
If an investor wants to act on the price of an index option in the middle of the day, what is the only action that the investor can take?
Signup and view all the answers
Index options have a multiplier of what?
Signup and view all the answers
What represents the best hedge against systematic/market risk?
Signup and view all the answers
When do VIX options expire?
Signup and view all the answers
What do foreign currency options trade in?
Signup and view all the answers
How can foreign currency options be exercised?
Signup and view all the answers
How can a businessperson protect a payment if being paid in a particular currency in 30-60 days?
Signup and view all the answers
How can a businessperson protect a payment if being paid in US dollars in 30-60 days?
Signup and view all the answers
What three things cause the devaluing of the US dollar?
Signup and view all the answers
When the US dollar loses value, what happens to exports?
Signup and view all the answers
If the US dollar is DEVALUED, what happens to bonds, yields, and US goods?
Signup and view all the answers
If the US dollar is REVALUED, what happens to bonds, yields, and US goods?
Signup and view all the answers
Mutual fund shares are redeemed at the net asset value less a what?
Signup and view all the answers
Study Notes
Bonds and Securities
- Amortization occurs when a bond is purchased above par and later valued lower as it approaches maturity.
- Exploratory programs in oil and gas partnerships present greater risk than developmental programs.
- Government agency issues are exempt from registration under the Securities Act of 1933.
Financial Measurements and Taxation
- Gross National Product (GNP) is best measured in constant dollars to account for inflation.
- Maximum federal tax rate for corporations is 35% on dividends and other income, while individuals face a 20% maximum rate.
Real Estate Investment Trusts (REITs)
- A REIT must generate at least 75% of its income from real estate properties.
- To maintain its status, a REIT must pass through 90% of its profits to investors.
Account Management and Regulation
- A registered representative should request an extension for stock payment by the fifth business day.
- FINRA, the Comptroller of the Currency, and the Federal Reserve Board enforce MSRB rules.
Options Trading
- Covered calls are employed to generate income while protecting stock portfolios.
- A registered representative is responsible for assessing the suitability of a client before options trading.
Taxation of Investments
- Bondholders face federal and state income taxes on corporate bond interest.
- Zero-coupon bonds generate ordinary income and capital gains if sold above original value before maturity.
Bond and Municipal Ratings
- The main bond rating agencies include S&P, Moody's, and Fitch's.
- Fee studies and engineering reports are required before issuing revenue bonds, stressing the importance of due diligence.
Options Positioning and Hedging
- Options used for hedging involve buying for protection or writing for income.
- Index options serve as a hedge against systematic market risk, with a multiplier of 100.
Market Dynamics
- In an even stock split, the number of contracts increases while the strike price and premium decrease.
- Devaluation of the US dollar leads to competitive exports and increased yields, whereas revaluation has the opposite effect.
Miscellaneous
- The OCC clears all premiums from options contracts when first written.
- VIX options expire on the Wednesday 30 days before the third Friday of the next calendar month, impacting market speculation.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge on key concepts from Series 7 exam material through these flashcards. Covering topics such as bond valuation and partnership risks, this quiz is designed to enhance your understanding and preparation for licensing tests in finance. Challenge yourself and track your progress with these interactive questions.