Question 1

The Bubba Corporation has 900,000 outstanding shares and holds 100,000 shares as treasury stock. At the end of the third quarter $450,000 is distributed as a dividend on the common. How much is the dividend per share?
A)$0.05
B)$0.45
C)$0.50
D)None of the above

Accepted Answer

The dividend per share is $0.50. Since treasury stock does not receive dividends, divide $450,000 by the outstanding 900,000 shares to arrive at $0.50 per share.

Question 2

In mid-September, Bubba sells one XYZ February 50 call at $6. It subsequently expires without being exercised. How is the premium taxed?
A)Bubba's cost of the underlying stock is reduced
B)the $600 premium is a capital gain
C)the $600 premium constitutes ordinary income
D)the $600 premium is rolled over into another XYZ call with the next longest expiration date.

Accepted Answer

the $600 premium is capital gain. That's simply how the tax law works.

Question 3

In June, Bubba bought 100 shares of XYZ at $35. In November, he bought a listed put in XYZ with a $35 strike price and a July expiration for a premium of $600. In April, Bubba exercises the put option and uses his stock for delivery. What is his resulting tax consequence?
A)a $600 capital loss
B)neither profit nor loss
C)cannot be determined without knowing the market price of XYZ upon exercise
D)this is a wash sale and cannot be included in the investor's tax calculations

Accepted Answer

a $600 loss. The strike price and Bubba's purchase price are the same. He has a $600 loss on the option for the premium he paid.

Question 4

Which of the following is an acceptable deposit to answer an NYSE maintenance call?
A)US savings bond
B)SMA
C)US treasury notes
D)all of the above

Accepted Answer

US treasury notes. A maintenance call requires cash or negotiable securities. Only the treasury notes meet this standard.

Question 5

Which of the following is the least important method of money control exercised by the Federal Reserve?
A)reserve requirements
B)open market operations
C)discount rate
D)Regulation T

Accepted Answer

Regulation T. Because this regulates brokers extending credit to customers, it is important to the securities industry but does not have an extensive effect on the general economy.

Question 6

Bubba is a registered representative who wishes to buy shares of a new issue his firm is distributing. Under FINRA Conduct Rules, Bubba may:
A)not do so under any circumstance
B)do so if he has a history of buying hot issues
C)not do so for his own account, buy may purchase shares for his sister's account
D)do so if his allotment is insubstantial and not disproportionate to public orders

Accepted Answer

not do so under any circumstance. New issues may not be distributed to Bubba or members of his immediate family.

Question 7

Under the Investment Company Act of 1940, what is the minimum net worth of a registered investment company?
A)$100,000
B)$50,000
C)$25,000
D)$5,000

Accepted Answer

$100,000. This was a considerable amount of money in 1940.

Question 8

Which of the following preferred issues is likely to fluctuate most in value?
A)cumulative preferred
B)callable preferred
C)convertible preferred
D)broker preferred

Accepted Answer

convertible preferred. Because of the conversion feature, convertibles are more closely linked to the price of the common stock. In addition, since the dividend rate on convertible preferred is usually lower than other preferred issues, the convertibles are more sensitive to interest rate fluctuations.

Question 9

A mutual fund characterized by a modest sales charge and an investment in a fixed portfolio of municipal securities is a:
A)face-amount certificate company
B)unit investment trust company
C)management company
D)open-end or closed-end company

Accepted Answer

unit investment trust company. This is an example of a fixed trust, which is a type of unit investment trust.

Question 10

Bubba owns 200 shares of XYZ at $90, and wishes to hedge the position while generating income. What is the best recommendation?
A)sell calls
B)sell puts
C)buy calls
D)buy puts

Accepted Answer

sell calls. Calls are covered by the underlying stock. If the calls were exercised, the stock would be delivered to meet the obligation. The income also reduces the break-even of the stock.

Question 11

The Bubba Insurance Company is not incorporated. It consists of Bubba and his two brothers as general partners, who maintain an active securities account in the name of the company. If one of the partners should suddenly die, what course of actions should be undertaken by the registered representative at the brokerage?
A)freeze the account from further activity until a death certificate and new partnership agreement are furnished to the brokerage
B)no special action is required because the death of a single partner does not terminate the partnership agreement
C)distribute the assets in the account to the surviving partners
D)execute sell orders but do not accept buy orders or distribute assets from the account until a new partnership agreement is provided to the brokerage

Accepted Answer

execute sell orders but do not accept buy orders or distribute assets from the account until a new partnership agreement is provided to the brokerage. Sell orders may be accepted but not buy orders or distributions.

Question 12

Which are the primary considerations in evaluating the worth of a limited partnership?
A)the size of the tax deductions
B)the cost of assets
C)the adequacy of funding
D)both B and C

Accepted Answer

both B and C. The size of tax deductions is not a "primary" consideration.

Question 13

If recaptured deductions are added to income, recaptured investment tax credits are added to:
A)income
B)basis
C)gains
D)taxes

Accepted Answer

taxes. Tax credits are not deductible expenses and have no effect on basis.

Question 14

To qualify as an intrastate offering under SEC Rule 147, which of the following is true of the issue?
A)it must be approved by the SEC
B)it must be sold only to bona fide residents of one state
C)it cannot exceed $1,500,000 in value
D)it must consist of common stock only

Accepted Answer

it must be sold only to bona fide residents of one state. Under Rule 147 intrastate offerings are sold only to residents of one state and cannot be sold outside that state for nine months. All the other choices are incorrect about the rule.

Question 15

Which of the following does not affect the public offering price of a new issue?
A)anticipated earnings of the issuer in the next year
B)dividend projections for the next year
C)the book value of the issuer
D)the selling group's determination of value in the prevailing market conditions

Accepted Answer

the selling group's determination of value in the prevailing market conditions. The offering price is determined by factors related to the issuer.

Question 16

The registration requirements of the federal securities acts are intended to protect the public interest by providing for a prospectus on new issues and its review by the SEC. Which of the following is the true of this process?
A)It provides the SEC with adequate information on which to base approval for new issues
B)It does not imply SEC approval of the issue
C)It guarantees purchasers against an untrue statement of material fact or an omission of material fact
D)It relieves participating underwriters from any further responsibility for checking essential facts before recommending purchase to the customers

Accepted Answer

It does not imply SEC approval of the issue. The SEC does not approval an issue. It only attempts to see that sufficient information has been provided from which a proper investment determination may be made.

Question 17

In a best efforts distribution of a new non-exempt issue, a broker/dealer:
A)may allow a selling concession to a bank or trust company
B)agrees to buy the issue at a specified price
C)is not required to use an offering circular or prospectus
D)acts as an agent for the issuer

Accepted Answer

acts as an agent for the issuer. In a best efforts offering the investment banker acts as an agent for the issuer and makes no guarantee about selling the securities.

Question 18

Who obtains and pays the municipal bond attorney rendering a legal opinion about the validity of the bond issue?
A)the purchaser of the bonds
B)the underwriter
C)the issuing municipality
D)the municipality's financial adviser

Accepted Answer

the issuing municipality. The issuer pays for the attorney.

Question 19

CMOs are sold and priced based upon which of the following:
A)expected average life
B)stated maturity
C)current yield
D)par value

Accepted Answer

expected average life. The average life of a CMO is the length of time that each dollar of invested principal is expected to remain outstanding. Pricing of CMOs is based upon this factor.

Question 20

A company may pay a declared dividend in which of the following ways:
A)with stock in a subsidiary company
B)with property
C)with cash
D)all of the above

Accepted Answer

all of the above. Dividends can be paid in all of these ways. They can also be paid with treasury stock or authorized but unissued stock.

Quiz 3: Assorted Securities and Investments

The Bubba Corporation has 900,000 outstanding shares and holds 100,000 shares as treasury stock. At the end of the third quarter $450,000 is distributed as a dividend on the common. How much is the dividend per share?

In mid-September, Bubba sells one XYZ February 50 call at $6. It subsequently expires without being exercised. How is the premium taxed?

In June, Bubba bought 100 shares of XYZ at $35. In November, he bought a listed put in XYZ with a $35 strike price and a July expiration for a premium of $600. In April, Bubba exercises the put option and uses his stock for delivery. What is his resulting tax consequence?

Which of the following is an acceptable deposit to answer an NYSE maintenance call?

Which of the following is the least important method of money control exercised by the Federal Reserve?

Bubba is a registered representative who wishes to buy shares of a new issue his firm is distributing. Under FINRA Conduct Rules, Bubba may:

Under the Investment Company Act of 1940, what is the minimum net worth of a registered investment company?

Which of the following preferred issues is likely to fluctuate most in value?

A mutual fund characterized by a modest sales charge and an investment in a fixed portfolio of municipal securities is a:

Bubba owns 200 shares of XYZ at $90, and wishes to hedge the position while generating income. What is the best recommendation?

Which are the primary considerations in evaluating the worth of a limited partnership?

If recaptured deductions are added to income, recaptured investment tax credits are added to:

To qualify as an intrastate offering under SEC Rule 147, which of the following is true of the issue?

Which of the following does not affect the public offering price of a new issue?

The registration requirements of the federal securities acts are intended to protect the public interest by providing for a prospectus on new issues and its review by the SEC. Which of the following is the true of this process?

In a best efforts distribution of a new non-exempt issue, a broker/dealer:

Who obtains and pays the municipal bond attorney rendering a legal opinion about the validity of the bond issue?

CMOs are sold and priced based upon which of the following:

A company may pay a declared dividend in which of the following ways: