STC Series 7 Final Exam incorrect
answers (corrected)
Which TWO of the following statements are TRUE regarding Eurodollar bonds?
I. They are denominated in U.S. dollars only
II. They are denominated in foreign currencies only
III. They are only traded outside of the U.S.
IV. They are traded in the U.S. and international markets
A. I and III
B. I and IV
C. II and III
D. II and IV - ANS-B. I and IV
Eurodollar bonds are issued by both U.S. and foreign companies and are denominated
in U.S. dollars. Eurodollar bonds are actively traded in the U.S. after a seasoning period
of 40 days. Eurodollar bonds are issued outside the U.S. to foreign investors and are
exempt from SEC registration. Since they are not registered, they cannot be purchased
as new issues in the U.S.
When may a new issue become marginable?
A. 3 days from the effective date
B. 5 days from the effective date
C. 30 days from the effective date
D. 40 days from the effective date - ANS-C. 30 days from the effective date
When approved for margin trading by the FRB, a new issue becomes marginable 30
days from the effective date of the offering.
A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per
share. The manager of the underwriting syndicate receives $0.15 per share. The
syndicate members' compensation is $0.65 per share for each share they sell. The
selling group's concession is $0.40 per share for each share they sell. The syndicate is
allocated 4,000,000 shares and the selling group is allocated 1,000,000 shares. When
the issue is completely sold, the managing underwriter's fee will total:
A. $150,000
B. $600,000
C. $750,000
D. $2,600,000 - ANS-C. $750,000
,The syndicate manager receives $0.15 for every share. The manager will receive, in
total, $750,000 (5,000,000 shares x $0.15 per share).
Which of the following statements concerning ETFs is TRUE?
A. These funds are priced once per day.
B. These funds' values may fluctuate throughout the trading day.
C. Managers of these funds tend to trade individual portfolio positions frequently.
D. These funds tend to have very high portfolio turnover. - ANS-B. These funds' values
may fluctuate throughout the trading day.
Exchange-traded funds (ETFs) are investments that resemble unit investment trusts
(UITs). A fixed portfolio is constructed either to track a specific index (such as the S&P
500) or a given market segment (such as gold or semiconductors). An ETF's portfolio
typically remains constant unless there is a change to the underlying index or one of the
individual investments within the fund is affected by a corporate action such as a sale or
spin-off. ETFs are normally listed on NASDAQ or a traditional exchange and may
fluctuate in price throughout the day as a regular stock would. They have a bid and ask
as opposed to the NAV and POP found in mutual funds investments. Commissions are
paid when trading ETFs as opposed to sales charges when purchasing mutual funds.
TUV Sep 5.00 puts trade on the CBOE. With the approval of its shareholders, TUV
Corporation will reduce its outstanding shares by a factor of 20, which has the effect of
increasing its market price 20-fold. What effect will this have on the TUV Sep 5.00 put?
A. The TUV option will be closed out
B. Investors who previously owned 1 TUV Sep 5.00 put will now own 1 TUV Sep 100
put
C. Investors who previously owned 20 TUV Sep 5.00 puts will now own 1 TUV Sep 100
put
D. Investors who previously owned 1 TUV Sep 5.00 put contract will now own 20 TUV
Sep 5.00 puts - ANS-C. Investors who previously owned 20 TUV Sep 5.00 puts will now
own 1 TUV Sep 100 put
TUV Corporation has executed a reverse stock split. When a corporation's stock has a
reverse or forward stock split, all associated options contracts are adjusted. When a
reverse stock split occurs, the number of shares underlying each option will be reduced
and the strike price will increase. In the case of a 1-for-20 reverse split, the number of
shares underlying the contracts will be reduced to 5 (), and the strike price will
be increased by the inverse of the split ($5 x 20 = $100). The contract's aggregate
exercise price will remain the same after the adjustment. The number of contracts does
not change with a reverse split.
Which of the following securities are quoted and traded at a discount?
,A. Common stocks
B. Corporate bonds
C. U.S. Treasury notes
D. U.S. Treasury bills - ANS-D. U.S. Treasury bills
Of the choices given, the only securities that are quoted and traded at a discount are
U.S. Treasury bills.
Which of the following entities does not pass through both income and losses?
A. A limited liability company (LLC)
B. A limited partnership
C. A Subchapter S Corporation
D. A real estate investment trust (REIT) - ANS-D. A real estate investment trust (REIT)
A REIT is required to pass through a minimum of 90% of its income to its shareholders,
but it is NOT permitted to pass through losses. LLCs, limited partnerships, and
Subchapter S Corporations are all permitted to pass through both income and losses.
If a municipal bond has a basis of 4.33 and a coupon rate of 5.77%, the bond is selling
at:
A. A price that cannot be determined from the information given
B. Par value
C. A discount
D. A premium - ANS-C. A discount
Municipal bonds may be quoted on a yield to maturity basis, which in this example is a
4.33 basis. This means the bond has a yield to maturity of 4.33%. If the nominal yield
(coupon rate) is 5.77%, this means that the bond is selling at a premium, above the par
value ($1,000). If the yield to maturity (4.33%) is less than the nominal yield (5.77%),
the bond is selling at a premium.
A type of security that is issued in the U.S. by foreign governments and corporations,
trades in U.S. markets, and is denominated in U.S. dollars is called a:
A. Global mutual fund
B. Eurodollar bond
C. Yankee bond
D. Repurchase agreement - ANS-C. Yankee bond
Yankee bonds are issued in the U.S. by foreign corporations and governments, are
dollar-denominated securities, and trade in U.S. markets. Yankee bonds are normally
issued by foreign entities when conditions in the U.S. are better than in the foreign
country. Eurodollar bonds are issued by U.S. companies and sold to investors overseas
and pay their interest in Eurodollars (dollars on deposit in banks outside the U.S.). Since
, Eurodollar bonds are not initially offered to investors in the U.S., they are exempt from
SEC registration.
A Treasury bond with a par value of $1,000 has a quote of 95.15. The dollar value of
this T-bond is:
A. $955.00
B. $954.68
C. $956.50
D. $951.50 - ANS-B. $954.68
U.S. government Treasury notes and Treasury bonds are quoted on a percentage of par
plus a fraction basis. The fraction used to quote T-notes and T-bonds is 1/32 of a point.
To determine the dollar value, first convert the fraction 15/32 to a decimal. If 15 is
divided by 32, the result is .46875. Now the quote becomes 95.46875% of par. A T-bond
with a quote of 95.46875% of $1,000 is equal to $954.68.
A registered representative (RR) has changed broker-dealers. The RR is in the process
of implementing the Automated Customer Account Transfer Service (ACATS) for all of
the clients he has done business with over the past five years. The previous employer
may NOT take which of the following actions?
A. Attempt to convince the clients to remain with the firm
B. Refuse to transfer positions in proprietary mutual funds
C. Accept an order from a client to liquidate her entire account
D. Execute the balance of a partially executed GTC order in a validated account -
ANS-A. Attempt to convince the clients to remain with the firm
There is always tension when an RR leaves a firm. The representative considers the
clients to be his, while the former employer thinks the clients belong to the firm. Once
the carrying firm (the prior employer) receives written transfer instructions, it must
cancel all open orders and freeze the account. It may not accept new orders or
complete a partially executed order. The carrying firm may take exception to the transfer
instructions only for specific reasons, such as no record of the account exists,
incomplete transfer instructions, or improperly signed documents. The former employer
may attempt to convince clients to remain with the firm and, in some cases, may refuse
to transfer certain positions that are proprietary. Firm-specific or proprietary products,
such as mutual funds or annuities, are considered nontransferable assets. Accepting an
order from a client to liquidate her entire account is complicated. Clients may call the
firm and ask for a liquidation assuming ACATS has not yet been implemented.
The rights and obligations of limited and general partners are found in the:
A. Agreement of Limited Partnership
B. Certificate of Limited Partnership
answers (corrected)
Which TWO of the following statements are TRUE regarding Eurodollar bonds?
I. They are denominated in U.S. dollars only
II. They are denominated in foreign currencies only
III. They are only traded outside of the U.S.
IV. They are traded in the U.S. and international markets
A. I and III
B. I and IV
C. II and III
D. II and IV - ANS-B. I and IV
Eurodollar bonds are issued by both U.S. and foreign companies and are denominated
in U.S. dollars. Eurodollar bonds are actively traded in the U.S. after a seasoning period
of 40 days. Eurodollar bonds are issued outside the U.S. to foreign investors and are
exempt from SEC registration. Since they are not registered, they cannot be purchased
as new issues in the U.S.
When may a new issue become marginable?
A. 3 days from the effective date
B. 5 days from the effective date
C. 30 days from the effective date
D. 40 days from the effective date - ANS-C. 30 days from the effective date
When approved for margin trading by the FRB, a new issue becomes marginable 30
days from the effective date of the offering.
A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per
share. The manager of the underwriting syndicate receives $0.15 per share. The
syndicate members' compensation is $0.65 per share for each share they sell. The
selling group's concession is $0.40 per share for each share they sell. The syndicate is
allocated 4,000,000 shares and the selling group is allocated 1,000,000 shares. When
the issue is completely sold, the managing underwriter's fee will total:
A. $150,000
B. $600,000
C. $750,000
D. $2,600,000 - ANS-C. $750,000
,The syndicate manager receives $0.15 for every share. The manager will receive, in
total, $750,000 (5,000,000 shares x $0.15 per share).
Which of the following statements concerning ETFs is TRUE?
A. These funds are priced once per day.
B. These funds' values may fluctuate throughout the trading day.
C. Managers of these funds tend to trade individual portfolio positions frequently.
D. These funds tend to have very high portfolio turnover. - ANS-B. These funds' values
may fluctuate throughout the trading day.
Exchange-traded funds (ETFs) are investments that resemble unit investment trusts
(UITs). A fixed portfolio is constructed either to track a specific index (such as the S&P
500) or a given market segment (such as gold or semiconductors). An ETF's portfolio
typically remains constant unless there is a change to the underlying index or one of the
individual investments within the fund is affected by a corporate action such as a sale or
spin-off. ETFs are normally listed on NASDAQ or a traditional exchange and may
fluctuate in price throughout the day as a regular stock would. They have a bid and ask
as opposed to the NAV and POP found in mutual funds investments. Commissions are
paid when trading ETFs as opposed to sales charges when purchasing mutual funds.
TUV Sep 5.00 puts trade on the CBOE. With the approval of its shareholders, TUV
Corporation will reduce its outstanding shares by a factor of 20, which has the effect of
increasing its market price 20-fold. What effect will this have on the TUV Sep 5.00 put?
A. The TUV option will be closed out
B. Investors who previously owned 1 TUV Sep 5.00 put will now own 1 TUV Sep 100
put
C. Investors who previously owned 20 TUV Sep 5.00 puts will now own 1 TUV Sep 100
put
D. Investors who previously owned 1 TUV Sep 5.00 put contract will now own 20 TUV
Sep 5.00 puts - ANS-C. Investors who previously owned 20 TUV Sep 5.00 puts will now
own 1 TUV Sep 100 put
TUV Corporation has executed a reverse stock split. When a corporation's stock has a
reverse or forward stock split, all associated options contracts are adjusted. When a
reverse stock split occurs, the number of shares underlying each option will be reduced
and the strike price will increase. In the case of a 1-for-20 reverse split, the number of
shares underlying the contracts will be reduced to 5 (), and the strike price will
be increased by the inverse of the split ($5 x 20 = $100). The contract's aggregate
exercise price will remain the same after the adjustment. The number of contracts does
not change with a reverse split.
Which of the following securities are quoted and traded at a discount?
,A. Common stocks
B. Corporate bonds
C. U.S. Treasury notes
D. U.S. Treasury bills - ANS-D. U.S. Treasury bills
Of the choices given, the only securities that are quoted and traded at a discount are
U.S. Treasury bills.
Which of the following entities does not pass through both income and losses?
A. A limited liability company (LLC)
B. A limited partnership
C. A Subchapter S Corporation
D. A real estate investment trust (REIT) - ANS-D. A real estate investment trust (REIT)
A REIT is required to pass through a minimum of 90% of its income to its shareholders,
but it is NOT permitted to pass through losses. LLCs, limited partnerships, and
Subchapter S Corporations are all permitted to pass through both income and losses.
If a municipal bond has a basis of 4.33 and a coupon rate of 5.77%, the bond is selling
at:
A. A price that cannot be determined from the information given
B. Par value
C. A discount
D. A premium - ANS-C. A discount
Municipal bonds may be quoted on a yield to maturity basis, which in this example is a
4.33 basis. This means the bond has a yield to maturity of 4.33%. If the nominal yield
(coupon rate) is 5.77%, this means that the bond is selling at a premium, above the par
value ($1,000). If the yield to maturity (4.33%) is less than the nominal yield (5.77%),
the bond is selling at a premium.
A type of security that is issued in the U.S. by foreign governments and corporations,
trades in U.S. markets, and is denominated in U.S. dollars is called a:
A. Global mutual fund
B. Eurodollar bond
C. Yankee bond
D. Repurchase agreement - ANS-C. Yankee bond
Yankee bonds are issued in the U.S. by foreign corporations and governments, are
dollar-denominated securities, and trade in U.S. markets. Yankee bonds are normally
issued by foreign entities when conditions in the U.S. are better than in the foreign
country. Eurodollar bonds are issued by U.S. companies and sold to investors overseas
and pay their interest in Eurodollars (dollars on deposit in banks outside the U.S.). Since
, Eurodollar bonds are not initially offered to investors in the U.S., they are exempt from
SEC registration.
A Treasury bond with a par value of $1,000 has a quote of 95.15. The dollar value of
this T-bond is:
A. $955.00
B. $954.68
C. $956.50
D. $951.50 - ANS-B. $954.68
U.S. government Treasury notes and Treasury bonds are quoted on a percentage of par
plus a fraction basis. The fraction used to quote T-notes and T-bonds is 1/32 of a point.
To determine the dollar value, first convert the fraction 15/32 to a decimal. If 15 is
divided by 32, the result is .46875. Now the quote becomes 95.46875% of par. A T-bond
with a quote of 95.46875% of $1,000 is equal to $954.68.
A registered representative (RR) has changed broker-dealers. The RR is in the process
of implementing the Automated Customer Account Transfer Service (ACATS) for all of
the clients he has done business with over the past five years. The previous employer
may NOT take which of the following actions?
A. Attempt to convince the clients to remain with the firm
B. Refuse to transfer positions in proprietary mutual funds
C. Accept an order from a client to liquidate her entire account
D. Execute the balance of a partially executed GTC order in a validated account -
ANS-A. Attempt to convince the clients to remain with the firm
There is always tension when an RR leaves a firm. The representative considers the
clients to be his, while the former employer thinks the clients belong to the firm. Once
the carrying firm (the prior employer) receives written transfer instructions, it must
cancel all open orders and freeze the account. It may not accept new orders or
complete a partially executed order. The carrying firm may take exception to the transfer
instructions only for specific reasons, such as no record of the account exists,
incomplete transfer instructions, or improperly signed documents. The former employer
may attempt to convince clients to remain with the firm and, in some cases, may refuse
to transfer certain positions that are proprietary. Firm-specific or proprietary products,
such as mutual funds or annuities, are considered nontransferable assets. Accepting an
order from a client to liquidate her entire account is complicated. Clients may call the
firm and ask for a liquidation assuming ACATS has not yet been implemented.
The rights and obligations of limited and general partners are found in the:
A. Agreement of Limited Partnership
B. Certificate of Limited Partnership
