Practice Exam #3 Study Guide with Complete Solutions

Practice Exam #3 Study Guide with Complete Solutions Popular Investment Securities, a FINRA member firm, produces short videos describing the general characteristics of different types of securities. Periodically, an interstitial appears during the video. Under FINRA's rules on communications with the public? - Answer️️ --the appearance of the interstitial defines the video as retail communication requiring filing. *Probably the best example of an interstitial is the pop-up ad. Sometimes it is a full-page ad causing the viewer to see the advertisement before being able to see the rest of the content. Without the interstitial, a generic video describing general characteristics of a type of security would not require filing. But, once that advertisement pops up, it is now retail communication and must be filed. Most business development companies (BDCs) are classified as? - Answer️️ -- Closed-ended investment company If your client has a $21,000 net capital loss this year, and he plans to apply the maximum deduction toward his ordinary income for the year, after this year, he may? - TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 2/40 Answer️️ --deduct a maximum of $3,000 per year and carry the remaining loss forward indefinitely. *Capital losses may be used to offset capital gains. Once all capital gains have been offset, $3,000 of net capital losses may be used to offset ordinary income annually. Remaining losses may be carried forward in future years until the loss is exhausted. An investor has a diversified portfolio of common stock with a market value of $1.7 million and a beta of 1.20. If the OEX (S&P 100) is currently quoted at 680, to protect the portfolio against a decline in value, the investor's best strategy is to buy? - Answer️️ --30 PUTS *Buying puts is the most effective strategy to hedge the risk of decline in a stock portfolio's market value.To determine the number of option contracts necessary to hedge:portfolio value ($1.7 million)/market value of the index (68,000).Multiply the result (25) by the beta of 1.20. The result is 30 contracts. Most investment professionals believe that a diversified portfolio is the best choice for the typical investor. Diversifying a portfolio can be accomplished by doing all of the following except? - Answer️️ --buying securities from different broker-dealers. Potential investment company clients should be advised to investigate a fund by looking at which of the following? - Answer️️ --Portfolio -Investment Policy TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 3/40 *Investment policy, track record, portfolio, and sales load should all be researched when assessing a fund. The identity of the custodian bank for the fund, or number of shares outstanding, does not bear on its performance or suitability. Which of the following is not considered when trying to diversify a municipal bond portfolio? - Answer️️ --Price *One of the purposes of diversifying a municipal bond portfolio is to spread the risk among the portfolio's issues. This can be accomplished by buying bonds of differing maturities, geographical locations, and quality. The writer of a combination expects the market to be? - Answer️️ --Stable *The writer, or seller, of a combination expects the market to be stable. The buyer of a combination expects the market to be volatile. Combinations and straddles are never bullish or bearish, as there are always both calls and puts involved in the strategy, which are both bullish and bearish. Remember, the definition of a combination is a put and a call on the same underlying security with the strike prices and/or the expiration months being different. In a new margin account, a customer sells short 1,000 shares of XYZ at $30 per share and deposits the required margin. If the stock subsequently falls to $25 per share, the equity in the account is? - Answer️️ --$20,000 TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 4/40 A customer sold 100 shares of QRS short when the stock was trading at 19. If QRS is now trading at $14, and she wants to protect her gain, which of the following orders should she place? - Answer️️ --Buy-Stop @ $14.25 *A buy limit order is used to buy at a lower price (when the market moves down). A buy stop order is used to buy in a short position at a higher price (when the market moves up). To protect the gain, a buy stop order would be placed just above where the stock is currently trading. Rank the following in the usual sequence of order allocation? 1-Syndicate 2-Member at the take down 3-Presale 4-Designated - Answer️️ --Presale, Syndicate, Designated and Member. *PGDM "Professional Golfers Don't Miss". *The standard order priority for allocation of municipal bond issues is (as stated within the syndicate letter): presale, syndicate, designated, and member. Orders that benefit all syndicate members have the highest priority. A direct participation program shows the following operating results for the year: Revenues: $3 million -Operating expense: $1 million TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 5/40 -Interest expense: $200,000 -Management fees: $200,000 -Depreciation: $3 million The cash flow from program operations is? - Answer️️ --$1,600,000 Million *Cash flow for a partnership is calculated in the following fashion:Gross revenue $3 millionLess operating exp -$1.2 millionLess debt interest -$200,000Less depreciation $3 million= Net income -1.4 million (loss)To complete the cash flow calculation add back in depreciation of $3 million= Cash flow = $1.6 million. Interest on direct debt issued by the U.S. government is taxable at? - Answer️️ -- Federal Level and exempt at the state level. *Interest on direct debt (T-bills, T-notes, T-bonds, and STRIPS) is taxable by the federal government but not by state or local governments. BAKE-ALL, a U.S. manufacturing corporation, has purchased shares of stock in RE- FORM, a U.S. corporation that refines raw materials. RE-FORM pays a dividend to its shareholders. For BAKE-ALL corporation, taxes will be due on what percentage of the dividends received from RE-FORM? - Answer️️ --50% TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 6/40 *When a U.S. corporation receives dividends from another U.S. corporation it has invested in, 50% of the dividends received are excluded from taxation (tax free). Therefore, 50% of the remaining dividends received are taxable. Which of the following statements regarding Coverdell Education Savings Accounts (ESAs) are true? - Answer️️ --After-tax contributions of up to an indexed maximum per student per year are allowed. -Contributions may not be made for students past their 18th birthday. *Coverdell Education Savings Accounts allow after-tax contributions of up to $2,000 per student, per year, for children until their 18th birthday. If the accumulated value in the account is not used by age 30, the funds must be distributed