Unit 2 multiple choice

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Unit 2 multiple choice
2015-04-02 10:34:14
series 6
series 6 unit 2
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  1. The principal underwriter of an open-end investment company is also known as the
  2. The transfer agent of a mutual fund:
    The transfer agent redeems shares of a mutual fund at the price next calculated after receiving a request for redemption. The transfer agent also handles transfers of account ownership for such transactions as an inheritance or gift.
  3. the mutual fund investment adviser's contrac
    According to the Investment Company Act of 1940, shareholders or the board of directors must vote each year to renew the investment adviser's contract; the maximum term for the initial contract is two years.
  4. The role of the transfer agent for a mutual fund
    Recording the distribution of dividends and capital gains.
  5. The cost of _______ may not be deducted as an expense from an open-end investment company's investment income?
  6. Under SEC Rule 498, a summary prospectus may be used in a mutual fund sales presentation resulting in a sale
    only when the investor is able to access a statutory prospectus no later than the confirmation of the sale
  7. To be in compliance with the Investment Company Act of 1940, every registered investment company must report to shareholders no less frequently than every
    6 months.
  8. The primary objective of a particular mutual fund is the payment of dividends, regardless of the market's current state. Capital growth is a secondary objective. Which of the following industry groups would be appropriate for the fund's portfolio?
    Public utilities
  9. the following would affect the net asset value per share of a mutual fund
    • the fund pays a dividend.
    • The portfolio changes in value.
  10. When comparing a mutual fund with a growth objective to one that calls itself a value fund, you would explain to your clients that the value fund could be reasonably expected to
    have higher dividend yields.
  11. Shares are reported in round lots, which are ___ each
    100 shares each
  12. Stockholders can use what type of rights to maintain a proportionate ownership of a corporation
  13. Treasury stock is:
    stock repurchased by the issuer
  14. The conversion price of the common stock is
    Par value divided by conversion price equals the number of shares into which the security is convertible. Never use the current market value! If par is $100 and it can be converted into 5 shares, the conversion price must be $20 ($100÷5 = $20).
  15. If all other factors are equal, an investor would expect which type of preferred stock to pay the highest stated dividend rate?

    When the stock is called, dividend payments are no longer made. With callable preferred stock, to compensate for that possibility, the issuer pays a higher dividend than with straight preferred. Cumulative and convertible preferred have positive characteristics that would justify a lower fixed dividend than straight.
  16. Warrants or rights, are often issued with debentures to sweeten the offering?
  17. If a corporation wanted to offer the opportunity to purchase common stock at a given price for the next five years, it would issue:
    A warrant is a purchase option for stock for a long period (i.e., longer than one year). The warrant allows the holder to purchase common stock for a set price that is above what the market price was when the warrant was first issued.
  18. If a corporation wanted to raise capital and offer stock at a given price for the next 30 days, it would issue:
    A right is a purchase option for stock, at a set price, for a short period, typically four to six weeks. Warrants have long lives.
  19. Which of the following provides the right to buy a corporation's stock for the longest period of time?A) Preemptive right.B) Warrant.C) Long put.D) Long call.
    A warrant provides an investor a long-term right to buy an issuer's stock at a fixed price. The expiration period of a warrant is generally two to ten years. Calls have a nine-month maturity at issue, and rights have a 4 to 6 week lifetime.
  20. If an investor buys a put option with a strike price of 40, which of the following is TRUE?
    A) The investor has a right to buy the underlying stock at the strike price and is bullish.B) The investor has an obligation to sell the underlying stock at the strike price and is bearish.C) The investor has an obligation to buy the underlying stock at the strike price and is bullish.D) The investor has a right to sell the underlying stock at the strike price and is bearish.
    The investor has a right to sell the underlying stock at the strike price and is bearish.

    Buyers of contracts have rights, sellers of contracts have obligations. Buying a put contract gives the right to sell the underlying stock at the strike price. With a strike price of 40, the investor wants the price of the stock to fall (bearish). They can then exercise the right; selling the stock at 40 and then buying at a price less than 40.
  21. one bond point is equal to
  22. Banks pay the federal funds rate for:
    loans from other banks.
  23. Which of the following phrases describes the prime rate?A) Interest rate at which individuals borrow from banks for mortgages on residential purchases.B) Points or premium paid to obtain a mortgage on a residential purchase.C) Interest rate offered to a bank's most creditworthy commercial customers.D) Interest rate at which banks borrow from the Federal Reserve.
    C) Interest rate offered to a bank's most creditworthy commercial customers.
  24. Which of these rates is the most volatile?A) Broker Call Loan.B) Federal funds.C) Discount.D) Prime.
    B) Federal funds.
  25. Which of the following interest rates is determined by the Federal government rather than market forces?A) Prime rate.B) Discount rate.C) Federal funds rate.D) Broker call loan rate.
    B) Discount rate.
  26. Which of the following interest rates is charged by banks to securities dealers for margin loans?A) Securities rate.B) Discount rate.C) Broker call loan rate.D) Margin rate.
    C) Broker call loan rate.
  27. Which organization or governmental unit sets fiscal policy?A) Federal Reserve Board (FRB).B) Federal Open Market Committee (FOMC).C) Secretary of the Treasury.D) Congress and the President.
    D) Congress and the President.

    Congress and the President set fiscal policy, while the FRB sets monetary policy
  28. If the Federal Reserve Board (FRB) decides that the rate of inflation is too high, which is it most likely to do?
    If the FRB decides to attempt to curb inflation, it can raise the discount rate which in turn tightens the money supply.
  29. An increase in the Federal Reserve Board's (FRB) reserve requirement has which of the following effects?
    If the FRB increases the (cash) reserve requirements for banks, banks will have less money to lend customers, money will be tight, interest rates will rise, and the economy will contract.
  30. With regard to the suitability for a customer of buying shares of an international stock fund which invests in importers of U.S. goods; which of the following circumstances will benefit the fund?A strengthening dollar.A weakening dollar.A strengthening economy abroad.A weakening economy abroad.A) I and IVB) II and IVC) II and IIID) I and III
    C) II and III

    If the dollar weakens, foreign currencies can buy more U.S. goods; therefore benefiting the fund objective. Furthermore, a strengthening economy abroad should have a favorable impact on the foreign companies in which the fund invests.
  31. Interest rates in the United States have dramatically increased. This will tend to:A) result in a deficit in the balance of payments.B) cause Americans to invest in foreign debt securities.C) strengthen foreign currencies.D) result in a surplus in the balance of payments.
    High U.S. interest rates will attract foreign investment money into the United States and result in a balance of payments surplus. This will have the effect of strengthening the dollar and thus weakening foreign currencies compared to the dollar.
  32. Which of the following most quickly reflects changes in FRB policy?A) The prime rate.B) The call money rate.C) The CD rate.D) The discount rate.
    D) The discount rate.
  33. The Federal Reserve Board would most likely implement a tight money policy if:A) interest rates are declining.B) the gross domestic product is decreasing.C) the dollar is decreasing in value against foreign currencies.D) the consumer price index is rising rapidly.
    D) the consumer price index is rising rapidly.
  34. A 5% bond is trading at a premium. Which of the following would be the bond's highest yield?
    If a bond is trading at a premium, its coupon rate will represent the highest of its yields. Bonds do not have a dividend yield.
  35. A corporation is likely to call eligible debt when interest rates are:A) declining.B) rising.C) volatile.D) stable.
  36. A company has negative operating revenues for the year. It would NOT be required to make interest payments on which of its following issues?A) Adjustment bonds.B) Subordinated convertible debentures.C) Collateralized debt.D) Mortgage bonds.
    A) Adjustment bonds.
  37. What is the conversion ratio of a convertible bond purchased at par value and convertible at $50?A) 5:1B) 50:1:0C) 20:1D) 2:1
    • C) 20:1
    • The $1,000 par value divided by the $50 conversion price equals 20 shares per bond.
  38. A bond is convertible at $25. The market value of the stock is $30. What is the parity price of the bond?A) $1,200.B) $750.C) $800.D) $1,100.
    • A) $1,200.
    • If a bond is convertible at $25, each $1,000 bond will convert to 40 shares. 40 shares × $30 =$1,200 parity of the bond.
  39. Which of the following statements is true of Treasury STRIPS
    A) Investors may purchase it at its face amount.B) STRIPS are backed by the full faith and credit of the federal government.C) STRIPS may be stripped and issued by a securities broker/dealer.D) Its stripped-off interest coupons are retained by the federal government.
    B) STRIPS are backed by the full faith and credit of the federal government.
  40. All of the following are characteristics of an investment in Treasury notes EXCEPT:A) they are issued in a variety of denominations.B) they are issued with a variety of maturities.C) they are short-term issues.D) interest is paid semiannually.
    C) they are short-term issues.
  41. Which of the securities listed below is issued without a stated rate of return?A) Treasury bill.B) Treasury bond.C) Preferred stock.D) Treasury note.
    A) Treasury bill.
  42. If an investor purchases a U.S. Treasury note quoted at 101.24, the investor must pay:A) $1,012.40B) $1,017.50C) $101.24D) $1,010.24
    • Answer: B
    • 101 = $1,010 and 24/32 reduces to ¾ of a point or $7.50, added together, the answer is $1,017.50 ($1,010 + $7.50 = $1,017.50).
  43. U.S. Treasury bills are issued for all of the following maturities EXCEPT:A) 26 weeks.B) 39 weeks.C) 4 weeks.D) 13 weeks.
    U.S. Treasury bills are issued with 4, 13, 26, and 52-week maturities. There are no 39-week T-bills.
  44. Which of the following statements are NOT true concerning revenue bonds?They are secured by a specific pledge of property.They are a type of general obligation bond.Generally, their interest is tax-exempt at the federal level.They are analyzed primarily on the project's ability to generate earnings.A) III and IV.B) I and II.C) I and III.D) II and IV.
    B) I and II.