Series 7|361 Quiz Review Questions Correctly Answers|85Pages|2024
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Course
Series 7
Institution
Series 7
6s of 28 @ 109 means: - ️️6% coupon rate
2028 maturity
$1,090 price
A "Feasibility Study" is required before any municipality will issue a GO bond. - ️️False
Part of the revenue bond process.
A 25-year-old client who is saving for retirement plans to make contributions annually. He h...
A "Feasibility Study" is required before any municipality will issue a GO bond. - ✔ ✔ False
Part of the revenue bond process.
A 25-year-old client who is saving for retirement plans to make contributions annually. He has moderate
risk tolerance, no debt, and no immediate need for cash. In his IRA, he asks the RR to recommend an
asset allocation. Which is the most appropriate?
A 45-year-old customer wants to save for retirement. She may need cash soon as her children will
decide on whether they will attend college. She has $50,000 to invest. Her previous RR recommended
she purchase a variable annuity. Which is true?
A) It is a suitable recommendation because variable annuities are appropriate to meet retirement goals.
B) It is an unsuitable recommendation because she may have short-term cash needs and risks early
withdrawal penalties.
C) It is a suitable recommendation because variable annuities grow on a tax deferred basis.
D) It is an unsuitable recommendation because variable annuities do not offer investment options. - ✔
✔ B) It is an unsuitable recommendation because she may have short-term cash needs and risks
early withdrawal penalties.
,A Bank Guarantee Letter for a bank will provide cover for a put. - ✔ ✔ True
A basis point = $.10
10 basis points = $1.00 - ✔ ✔ True
A bond issuers is wanting to call a convertible bond. Based on the following terms, what is the best
option for the bondholder:
5% Convertible Bond
Conversion price is $25
Common stock is currently priced at $33
Bond price is currently $123
Call price of Bond is $110 - ✔ ✔ Convert to common stock for best value
1000/25 = $40
Stock: $40 * $33 = $1,320
Bond: $1,230
Call = $1,100
A bond should be converted if the market price is below parity. - ✔ ✔ False
A bond's indenture has all of the following EXCEPT:
A) a trustee that represents bondholders
B) information covering the bond's reserve fund needs
C) documents prepared by the underwriter
D) information covering the bond's rate schedules - ✔ ✔ C) documents prepared by the underwriter
Documents are prepared by bond counsel, not the underwriter of the bond.
,A Call Writer would be considered covered if the investor is long a call with a lower and longer (or equal)
exercise price. - ✔ ✔ True
Basically, a Vertical Bull Call Spread
A callable municipal bond is required to be priced to the ___________ of all possible yields, quoted on
the "__________ case scenario" yield of the bond. - ✔ ✔ Lowest; worst
A cash option account will allow the sale of spread positions. - ✔ ✔ False
Only:
buy calls
buy puts
write covered calls
write covered puts
A client buys 200 XYZ shares at $65 on margin and satisfies the margin call requirement. How low must
the market price per share go before the client receives a maintenance call?
A) $16.25
B) $43.33
C) $84.50
D) $86.33 - ✔ ✔ B) $43.33
200 x $65 = $13,000
$13, = $6,500
$6,500 / .75 = $8,666.67
$8,666. = $43.33
A client decides to buy 1 ABC Mar 50 Call @4 when ABC is trading at 46. Later ABC declines to 40 and
the call expires unexercised. The client would report which of the following on her tax return?
, A) $400 capital gain on the transaction
B) $400 capital loss on the transaction
C) $400 ordinary income on the transaction
D) $400 ordinary loss on the transaction - ✔ ✔ B) $400 capital loss on the transaction
A client owns a 6% convertible bond, with a conversion price at $20. The common stock is trading at
$27, and the bond is trading at 123. The bond is called, with a call parity of 130. What is best for the
client?
A) Sell the bond
B) Await the call
C) Convert the bond
D) Hold the bond - ✔ ✔ C) Convert the bond
1,000/20 = 50
50 * $27 = 1,350
Sell the bond = $1,230
Await the call: $1,300
Convert the bond: $1,350
Hold the bond: can't, it's been called
A closed-end bond covenant prohibits the sale of additional bonds payable from revenues of the project.
- ✔ ✔ True
A CMO has 4 tranches. Interest rates have dropped significantly recently and mortgage holders are
starting to prepay their loans because they are refinancing at lower rates. Which of the following
tranches would be most affected by these prepayments?
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