FINRA is a government agency that has a mandate to protect America’s investors by making sure the securities industry operates fairly and honestly. -FALSE The Securities Investor Protection Corporation protects investors against losses due to unfavorable market moves of up to $500,000. -FALSE Firms underwriting securities assist corporate clients in selling them in secondary markets. -FALSE Diversified full-line securities firms engage in all but which one of the following? Multiple Choice Trading and brokerage of existing securities Corporate restructuring and advice Issuing new securities Raising money via insured The trading activity involving purchases of large blocks of securities on the expectation of a favorable price move over the next several weeks or months is called: Multiple Choice program trading. pure arbitrage. day trading. position trading. hedging. An example of a pure arbitrage strategy is to simultaneously buy and sell the same security in two different markets at different prices. -TRUE A best efforts offering is one in which: Multiple Choice the underwriter bears the risk of an unsuccessful offering. the bid-ask spread is exceptionally high, but the investment banker does his best to sell the issue anyway. the investment banker acts as a principal for the issuer. the investment banker acts only as a distribution agent. the issue can only be privately placed. The major result of the NSMIA was to: Multiple Choice reduce state regulatory powers over securities firms. establish the SIPC. create the NASD. All of these choices are correct. None of these choices are correct. Although an investor can write checks on a cash management account held with a broker, regulations prevent the use of ATMs or debit cards on these accounts. -FALSE An investment manager directs a certain client’s orders to a certain broker for execution in exchange for research from the broker. This arrangement is referred to as a: Multiple Choice soft dollar arrangement. best effort arrangement. position trading. private placement. commission trades. An entrepreneur looking for financing to get her small personally owned business up and running should probably consider: an IPO. a seasoned stock offering. a public debt offering. a venture capitalist. a syndicated loan. ETFs are a direct competitor to ___________. Multiple Choice hedge funds money market mutual funds REITS index funds market neutral funds You have $15,000 to invest in a mutual fund. You choose a fund with a 3.5 percent front load, a 1.75 percent management fee, and a 0.5 percent 12b1 fee. Assume, for simplicity, that the management and 12b-1 fees are charged on year-end assets. The gross annual return on the fund's shares was 12.50 percent. What was your net annual rate of return to the nearest basis point? Multiple Choice 9.97% 6.12% 9.25% 5.42% 8.56% ou have $12,500 to invest and you are considering investing in Fund X. The fund charges a front-end load of 3 percent and an annual expense fee of 2.25 percent of the ending asset value over the year. You believe the fund's gross rate of return will be 8 percent per year. If you make the investment, what should your investment be worth in one year? Multiple Choice $12,125.20 $13,095.00 $12,654.80 $12,800.36 $13,162.50 A 12b-1 fee is an implicit load charge. -TRUE A hedge fund that goes long in a convertible bond and short in the equity of the same firm is employing a market neutral arbitrage strategy. -TRUE The market value of a fund's net assets divided by the number of mutual fund shares outstanding is called the NAV of the fund. -TRUE If you invest $10,000 in a mutual fund with an NAV of $50 per share and a 5.5 percent back-end load, you will receive less than 200 shares in the fund. -FALSE In 2019, combined assets in non-U.S. mutual funds were approximately _____ that invested in U.S. mutual funds alone. Multiple Choice 13.6 percent greater than 13.6 percent less than 12.7% greater than 12.7% less than equal to Open-end mutual funds guarantee: Multiple Choice investors a minimum rate of return. investors a minimum NAV. to redeem investor's shares upon demand at the current NAV. to earn the rate promised in the prospectus. None of these options are correct. Unit investment trusts (UITs) issue only a fixed number of shares redeemable at a specific termination date. -TRUE The Federal Mutual Fund Commission (FMFC) is the primary regulator of the mutual fund industry. -FALSE Accrued interest owed to the bond seller increases as the next coupon payment date approaches. -TRUE The ask yield on a 6 percent coupon Treasury bond maturing in eight years is 5.488 percent. If the face value is $1,000, what should be the QUOTED cost of the bond today using semiannual compounding? Multiple Choice 103-6 103-7 103-8 103-9 103-10 Standard revenue bonds are: Multiple Choice backed by the full taxing authority of the municipality. collateralized by the earnings from a specific project. backed by mortgages. backed by the U.S. Treasury. always offered with a best efforts offering. Eurobonds are bonds denominated in the issuer's home currency, but are issued outside their home country. -TRUE "Off the run" Treasury securities are considered to be more risky. -TRUE Treasury notes, Treasury bonds, and municipal bonds are default risk free. -FALSE The dirty price plus accrued interest is called the clean price of the security. -FALSE Which of the following statements about GNMA is/are true? 1. I. GNMA provides timing insurance. 2. II. GNMA creates pools of mortgages and issues securities. 3. III. GNMA insures only FHA, VA, HUD’s Office of Indian and Public Housing, and USDA Rural Development loans. 4. IV. GNMA requires that all mortgages in the pool have the same interest rate. Multiple Choice I, II, III, and IV are true. I, III, and IV only I, II, and III only II, III, and IV only III and IV only You want to buy a $250,000 house and you will use a conventional mortgage. What is the minimum down payment you have to make to avoid having to purchase mortgage insurance? Multiple Choice $10,000 $20,000 $30,000 $40,000 $50,000 The process of packaging and/or selling mortgages that are then used to back publicly traded debt securities is called: Multiple Choice collateralization. securitization. market capitalization. stock diversification. mortgage globalization. Private mortgage insurance (and hence, that part of the homeowner's monthly payment) is automatically removed from a mortgage when the loan-to-value ratio on the mortgage falls below 80 percent. -FALSE A(n) ___________________ is used to help retired people receive monthly income in exchange for the equity in their home. Multiple Choice SAM Equity Participation Mortgage RAM PLAM GEM A home buyer bought a house for $245,000. The buyer paid 20 percent down but decided to finance closing costs of 3 percent of the mortgage amount. If the borrower took out a 30-year fixed-rate mortgage at a 5 percent annual interest rate, how much interest will the borrower pay over the life of the mortgage? Multiple Choice $224,655 $180,622 $228,477 $188,265 $248,575 Risk attributes of collateralized mortgage obligations differ based on tranches. -TRUE An investor has a 38 percent ordinary income tax rate and a 20 percent long-term capital gains tax rate. The investor holds stock in a firm that could pay its usual $1 per share dividend or reinvest the cash in the firm. The stock price is currently $30 per share. If the firm does not pay the dividend, the share price will rise. If it pays the dividend, the share price will stay the same. By how much must the share price rise if the dividend is not paid in order to make the investor indifferent between receiving the dividend or not? Multiple Choice $1.00 $0.59 $0.78 $0.97 $0.50 Individuals and households indirectly invest in corporate stock through investments in mutual funds and pension funds. -TRUE The NASDAQ automatic order execution system for individual traders placing buy or sell orders of 1,000 or fewer shares is called the: Multiple Choice ECN Network. SOES. NASDAQ/AMEX Joint Program. Instinet Network. E*Trade Online Program. Which of the following information is not usually found in a Wall Street Journal stock quote? Multiple Choice Dividend yield Price-earnings ratio Closing price of the stock Stock rating Ticker symbol A shelf registration allows firms the opportunity to avoid the normal ______________ day waiting period by allowing preregistration of securities for up to ______________ years. Multiple Choice 20-; two 10-; one 15-; three 20-; one 30-; two Suppose a firm has 10 million shares of common stock outstanding and seven candidates are up for election to three seats on the board of directors. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure election to the board? Multiple Choice 3,000,000 4,285,715 5,000,000 7,500,001 10,000,000 The stamp on a prospectus accompanying a new issue that indicates the issue has not yet been approved for sale by the SEC is called the: Multiple Choice green hornet. seal of approval. red herring. eagle stamp. Reg FD. According to the strong form of efficient market hypothesis: According to the strong form of efficient market hypothesis: private information is of no help in earning abnormally high returns. using past price and volume information one can earn abnormally high returns from stocks. using insider information one can earn abnormally high returns from stocks. financial statement analysis can be used to earn abnormally high returns from stocks. equity analysts are always correct in predicting the best stocks.
