S7-Final 4 EXAM WITH VERIFIED
ANSWERS
The transfer agent is typically responsible for all of the
following functions EXCEPT:
A. maintaining the integrity of the record of all
shareholder names and addresses B. acting as
disbursement agent for the corporation C. issuing new
stock certificates D. canceling old stock certificates
The best answer is A.The transfer agent cancels old
shares and issues new shares. It is the responsibility of
the registrar to maintain the shareholder list, and to
ensure that the number of shares transferred from one
shareholder to another always matches. The transfer
agent typically performs the role of paying agent as well.
When a corporation makes a distribution, the paying
agent actually prepares and mails the checks (using the
current shareholder list provided by the registrar - the
registrar is responsible for maintaining the integrity of the
shareholder list).
XYZZ ADR represents 10% of the value of an XYZZ
ordinary share. The ordinary shares trade on the London
Stock Exchange, where the current price is 400 British
Pounds (BP). The current exchange rate for the British
Pound against the U.S. Dollar is $1.40. The ordinary share
pays an annualized dividend of 12 BP. The XYZZ ADR is
listed on the NYSE. If a customer places an order to buy
,$560,000 of the ADR on the NYSE, the customer will buy
how may shares of the ADR?
A. 1,000 B. 1,400C. 10,000 D. 14,000
The best answer is C.
Because the XYZZ ordinary share trades for 400 BP in
London, and the BP is worth $1.40, each ordinary share is
worth 400 x $1.4 = $560. The ADR created for the U.S.
market is 1/10th of this amount, or $56 per U.S. ADR. A
customer who invests $560,000 will buy $560,000 / $56
= 10,000 ADR shares.
Which statements are TRUE regarding warrants?
I Warrants generally have a life of 5 years or lessII At
issuance, the exercise price of the warrant is set higher
than the current market price of the underlying common
stockIII The price of the warrant will vary with the price
movements of the underlying stockIV The price of the
warrant will vary depending upon the time to expiration
of the warrant
A. I and II only B. III and IV only C. II, III, IVD. I, II, III, IV
The best answer is D.All of the statements are true
about warrants. Warrants generally have a life of 5 years
or less, because FINRA will not allow offerings of warrants
with a longer life (a longer life than 5 years is considered
to be unreasonable under FINRA rules). At issuance, the
exercise price of the warrant is set higher than the
current market price of the underlying common stock.
Thus, the warrant is issued at a price that is "out the
money" and the market price of the stock must rise to at
,least this level for it to be worthwhile to exercise the
warrant. The price of the warrant will vary with the price
movements of the underlying stock. As the stock's price
rises, the warrant becomes more valuable; as the stock's
price falls, the warrant becomes less valuable. The price
of the warrant will vary depending upon the time to
expiration of the warrant. The greater the time to
expiration, the greater the value of the warrant, since
there is a greater probability that the price will rise in the
remaining time to expiration.
LOOK AT Q 74!
TRACE reports trades of all of the following EXCEPT:
A. corporate bondsB. municipal bonds C. government
bonds D. agency bonds
The best answer is B.
TRACE is FINRA's Trade Reporting and Compliance Engine.
It reports trades of corporate, government, and agency
bonds. Municipal bond trades are reported via RTRS - the
Real Time Reporting System - operated by the MSRB.
Trades must be reported to TRACE "as soon as
practicable," but no later than 15 minutes after
execution. TRACE disseminates the trade report
immediately.
A new issue corporate bond with dated date of June 1st is
bought from the underwriter with settlement occurring on
Monday, June 28th. How many days of accrued interest is
owed the underwriter?
A. 26B. 27C. 28 D. 29
, The best answer is B.Accrued interest on a new issue is
calculated from the dated date up until, but not including
settlement date. This new issue is bought from the
underwriter. The customer pays the underwriter the price
of the bond plus any accrued interest. This interest
accrues from June 1st (the dated date) until, but not
including the settlement date of the 28th. Thus, 27 days
of accrued interest are due. (Note: Don't let the weekend
date fool you! Accrued interest for corporates is
calculated on an arbitrary 30 day month / 360 day year
basis. The weekend has no effect on the computation.)
A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9.
The note pays interest on Jan 1st and Jul 1st. A customer
buys 5M of the notes. Approximately how much will the
customer pay, disregarding commissions and accrued
interest?
A. $4,906.25B. $4,914.06C. $4,920.00 D. $4,945.00
The best answer is B."5M" means that the customer is
buying $5,000 par value of the notes (M is Latin for
$1,000). A customer will buy at the ask price, which is 98
and 9/32nds = 98.28125% of $5,000 par = $4,914.06.
Which statement is FALSE about CMBs?
A. CMBs are used to smooth out cash flow B. CMBs are
sold at a discount to parC. CMBs are sold at a slightly
lower yield than T-BillsD. CMBs are direct obligations of
the U.S. government
The best answer is C.CMBs are Cash Management Bills.
They are sold at auction by the Treasury on an "as
ANSWERS
The transfer agent is typically responsible for all of the
following functions EXCEPT:
A. maintaining the integrity of the record of all
shareholder names and addresses B. acting as
disbursement agent for the corporation C. issuing new
stock certificates D. canceling old stock certificates
The best answer is A.The transfer agent cancels old
shares and issues new shares. It is the responsibility of
the registrar to maintain the shareholder list, and to
ensure that the number of shares transferred from one
shareholder to another always matches. The transfer
agent typically performs the role of paying agent as well.
When a corporation makes a distribution, the paying
agent actually prepares and mails the checks (using the
current shareholder list provided by the registrar - the
registrar is responsible for maintaining the integrity of the
shareholder list).
XYZZ ADR represents 10% of the value of an XYZZ
ordinary share. The ordinary shares trade on the London
Stock Exchange, where the current price is 400 British
Pounds (BP). The current exchange rate for the British
Pound against the U.S. Dollar is $1.40. The ordinary share
pays an annualized dividend of 12 BP. The XYZZ ADR is
listed on the NYSE. If a customer places an order to buy
,$560,000 of the ADR on the NYSE, the customer will buy
how may shares of the ADR?
A. 1,000 B. 1,400C. 10,000 D. 14,000
The best answer is C.
Because the XYZZ ordinary share trades for 400 BP in
London, and the BP is worth $1.40, each ordinary share is
worth 400 x $1.4 = $560. The ADR created for the U.S.
market is 1/10th of this amount, or $56 per U.S. ADR. A
customer who invests $560,000 will buy $560,000 / $56
= 10,000 ADR shares.
Which statements are TRUE regarding warrants?
I Warrants generally have a life of 5 years or lessII At
issuance, the exercise price of the warrant is set higher
than the current market price of the underlying common
stockIII The price of the warrant will vary with the price
movements of the underlying stockIV The price of the
warrant will vary depending upon the time to expiration
of the warrant
A. I and II only B. III and IV only C. II, III, IVD. I, II, III, IV
The best answer is D.All of the statements are true
about warrants. Warrants generally have a life of 5 years
or less, because FINRA will not allow offerings of warrants
with a longer life (a longer life than 5 years is considered
to be unreasonable under FINRA rules). At issuance, the
exercise price of the warrant is set higher than the
current market price of the underlying common stock.
Thus, the warrant is issued at a price that is "out the
money" and the market price of the stock must rise to at
,least this level for it to be worthwhile to exercise the
warrant. The price of the warrant will vary with the price
movements of the underlying stock. As the stock's price
rises, the warrant becomes more valuable; as the stock's
price falls, the warrant becomes less valuable. The price
of the warrant will vary depending upon the time to
expiration of the warrant. The greater the time to
expiration, the greater the value of the warrant, since
there is a greater probability that the price will rise in the
remaining time to expiration.
LOOK AT Q 74!
TRACE reports trades of all of the following EXCEPT:
A. corporate bondsB. municipal bonds C. government
bonds D. agency bonds
The best answer is B.
TRACE is FINRA's Trade Reporting and Compliance Engine.
It reports trades of corporate, government, and agency
bonds. Municipal bond trades are reported via RTRS - the
Real Time Reporting System - operated by the MSRB.
Trades must be reported to TRACE "as soon as
practicable," but no later than 15 minutes after
execution. TRACE disseminates the trade report
immediately.
A new issue corporate bond with dated date of June 1st is
bought from the underwriter with settlement occurring on
Monday, June 28th. How many days of accrued interest is
owed the underwriter?
A. 26B. 27C. 28 D. 29
, The best answer is B.Accrued interest on a new issue is
calculated from the dated date up until, but not including
settlement date. This new issue is bought from the
underwriter. The customer pays the underwriter the price
of the bond plus any accrued interest. This interest
accrues from June 1st (the dated date) until, but not
including the settlement date of the 28th. Thus, 27 days
of accrued interest are due. (Note: Don't let the weekend
date fool you! Accrued interest for corporates is
calculated on an arbitrary 30 day month / 360 day year
basis. The weekend has no effect on the computation.)
A 5 year 3 1/2% Treasury Note is quoted at 98-4 - 98-9.
The note pays interest on Jan 1st and Jul 1st. A customer
buys 5M of the notes. Approximately how much will the
customer pay, disregarding commissions and accrued
interest?
A. $4,906.25B. $4,914.06C. $4,920.00 D. $4,945.00
The best answer is B."5M" means that the customer is
buying $5,000 par value of the notes (M is Latin for
$1,000). A customer will buy at the ask price, which is 98
and 9/32nds = 98.28125% of $5,000 par = $4,914.06.
Which statement is FALSE about CMBs?
A. CMBs are used to smooth out cash flow B. CMBs are
sold at a discount to parC. CMBs are sold at a slightly
lower yield than T-BillsD. CMBs are direct obligations of
the U.S. government
The best answer is C.CMBs are Cash Management Bills.
They are sold at auction by the Treasury on an "as
