Securities Industry Essentials
Mr. B is a conservative investor. Which of the following would you recommend to him?
a. Buying out options
B. Busing long-term income adjustment bonds
C. Buying common stock of an aggressive growth company
D. Buying treasury notes - Answer - ✔D. Buying treasury notes
Treasury notes are considered the safest of all securities
The initial maturity on a standard option is - Answer - ✔9 months
Options give the purchaser the right to buy or sell securities at a fixed price. Options are
considered derivatives (securities that derive their value from another security) they are
linked to underlying security. Standard options have an initial maturity of 9 months.
Which of the following companies would be MOST affected by interest rate fluctuations?
a. SKNK Perfume Corp
b. Bulb Utility Co
c. Crawford Vitamin Supplements Inc
d. LQD Water Bottling Co. - Answer - ✔B. Bulb Utility Co.
Although all companies maybe somewhat affected by interest rate fluctuations, the
question uses the word most. If interest rates increase, companies have to issue bonds
with higher coupon(interest) rates. This higher rate, in turn, greatly affects the
companies' bottom lines. Therefore you are looking for a company that issues lists of
bonds. Utility companies are most affected by interest rate fluctuations because they're
highly leveraged ( issue a lot of bonds)
A stockholder owns 800 shares of WHY common stock. WHY stockholders were given
cumulative voting rights. If there are 3 vacancies on the board of directors, stockholders
can cast any of the following votes EXCEPT
A) 800 for one candidate
B) 800 for each candidate
C)2, 400 for one candidate
D) 900 for each candidate - Answer - ✔D) 900 for each candidate
A: the stockholder can use 800 shares to vote for only one candidate - he doesn't have
to use all 2400 votes
B: another voting arrangement because nobody said the stockholder had to use all his
votes for one candidate
,C: the stockholders has a total of 2400 votes to cast
D. This is the number that the stockholders cannot cast because of the word except and
900x3 is 2700
In which order, from first to last, are the following actions taken when opening a new
options account?
I. Send the customer an ODD
II. Have the ROP approve the account
III. Execute the transaction
IV. Have the customer send in an OAA
A) I II III IV
B) II, I, IV, III
C) III, I, II, IV
D) I, III, II, IV - Answer - ✔A) I II III IV
Because option transactions are so risky the customer has RTO receive an options risk
disclosure document (ODD) prior to opening the account. After the client receives the
ODD, the registered options principal (ROP) needs to approve the account before any
transactions can be executed. The customer signs and returns an options account
agreement (OAA) within 15 days after the account is approved by the ROP.
Which TWO of the following are the minimum requirements for an investor to be
considered accredited ?
I. An individual with a net worth of $500,000
II. An invisible with a net worth of $1 mill
III. Am individual who earned $200000 per year in the most recent 2 years and has a
reasonable expectation of reaching that same level in that current year
IV. An individual who earned $300,000 per year in the most recent 3 years and has a
reasonable expectation that same level in the current year
A) I and iii
B) I and Iv
C) Ii and iii
D) Ii and iv - Answer - ✔Choice c - Ii and iii
Both statements deal with net worth
To be considered an accredited investor the minimum requirement is a net worth of 1
mill and/or yearly income of $200,000 in most recent 2 years, with a reasonable
expectation of reaching that same level in the current year. If minimum were not used
then answer IV would also be correct
All of the following are true about open-end funds EXCEPT
I. They issue common stock
II. They issue preferred stock
III. They issue debt securities
,IV. Shares can be purchased in the market
A) I only
B) II only
C) II, III, and IV only
D) I, II, III and IV - Answer - ✔C) II, III, and IV only
Open-end funds are mutual funds. Mutual funds are constantly issuing new shares.
Since mutual funds only issue common stock and can only be purchased directly from
the issuer, the only true answer is I. The question asked for exceptions. If the question
asked for what is true about closed-end funds the choice is D.
Good-will means: - Answer - ✔Good Will means a value placed on the reputation of a
company
A 55 year old investor purchased a 6% DEF convertible mortgage bond at 90 with 10
years until maturity. If the bond is currently trading at 97, what is the current yield?
A) 5.72%
B) 6 %
C) 6.19 %
D) 6.67 % - Answer - ✔C) 6.19%
When determining the yield all you need is the market price of the bond and the
coupon/interest rate. The investor is 55 y/o or the bond is a convertible mortgage bond
that was purchased at $900 ( 90% of 1000 par) with 10 years until maturity. You need
6%, 97, current yield
Current yield = annual interest / market price
= $60/$970 = 6.19%
Which of the following is TRUE of UGMA accounts?
A) there can be only one minor and one custodian per account
B) there can be more than one minor and one custodian per account
C) securities can only be purchased on margin
D) they must set up for children who have reached the age of minority - Answer - ✔A)
there can be only one minor and one custodian per account
Choices a and b oppose each other. If there are two opposing answers in almost all
cases one of the us right. Ignore c and d.
Uniform Gifts to Minors Act (UGMA) accounts are set up for minors who are too young
to have their own accounts. Each account is limited to one minor and one custodian
Which of the following is TRUE of the 5% markup policy?
I) it covers commissions charged to customers when executing trades on an agency
basis
II) it covers markups on stock sold to customers from inventory
Iii) it covers markdowns on stock purchased from customers for inventory
, Iv) risk less and simultaneous transactions are covered
A) I and Iv only
B) Iv only
C) Ii and iii only
D) I, Ii, iii, Iv
Answer is D
The 5% markup policy applies to nonexempt securities sold or purchased from
customers - Answer - ✔
Primary market or primary offer - Answer - ✔This is where securities are sold by the
issuer- a corporation or a government - to the investing public in what are known as
issuer transactions
It is an issuer that is selling a security to raise capital
Sale of securities to the public allows corporations to raise capital relatively quickly to
take advantage of changes in the economy
What is the primary purpose of the Securities Act of 1933 - Answer - ✔To require full
and fair disclosure in connection with the sale of securities to the public.
Requires that a new issue, unless specifically exempted from the act be registered with
the SEC before public sale.
All investors must receive a detailed disclosure document known as a prospectus
before purchase
What are the two types of offerings of securities to the public in the primary market? -
Answer - ✔1. Initial Public Offering (IPO)
2. Additional Public Offering (APO) aka Follow-on offering or a Subsequent public
offering
What is the difference between an IPO and an APO? - Answer - ✔The primary offerings
are the proceeds to go to the issuer.
The APO comes after the IPO that is the class of shares that is already available to the
public.
Issuers of Securities - Answer - ✔Can be:
- corporations
-municipalities
-federal government or its agencies
Corporations - Answer - ✔may issue both equities(stock) and debt issues (bonds)
Mr. B is a conservative investor. Which of the following would you recommend to him?
a. Buying out options
B. Busing long-term income adjustment bonds
C. Buying common stock of an aggressive growth company
D. Buying treasury notes - Answer - ✔D. Buying treasury notes
Treasury notes are considered the safest of all securities
The initial maturity on a standard option is - Answer - ✔9 months
Options give the purchaser the right to buy or sell securities at a fixed price. Options are
considered derivatives (securities that derive their value from another security) they are
linked to underlying security. Standard options have an initial maturity of 9 months.
Which of the following companies would be MOST affected by interest rate fluctuations?
a. SKNK Perfume Corp
b. Bulb Utility Co
c. Crawford Vitamin Supplements Inc
d. LQD Water Bottling Co. - Answer - ✔B. Bulb Utility Co.
Although all companies maybe somewhat affected by interest rate fluctuations, the
question uses the word most. If interest rates increase, companies have to issue bonds
with higher coupon(interest) rates. This higher rate, in turn, greatly affects the
companies' bottom lines. Therefore you are looking for a company that issues lists of
bonds. Utility companies are most affected by interest rate fluctuations because they're
highly leveraged ( issue a lot of bonds)
A stockholder owns 800 shares of WHY common stock. WHY stockholders were given
cumulative voting rights. If there are 3 vacancies on the board of directors, stockholders
can cast any of the following votes EXCEPT
A) 800 for one candidate
B) 800 for each candidate
C)2, 400 for one candidate
D) 900 for each candidate - Answer - ✔D) 900 for each candidate
A: the stockholder can use 800 shares to vote for only one candidate - he doesn't have
to use all 2400 votes
B: another voting arrangement because nobody said the stockholder had to use all his
votes for one candidate
,C: the stockholders has a total of 2400 votes to cast
D. This is the number that the stockholders cannot cast because of the word except and
900x3 is 2700
In which order, from first to last, are the following actions taken when opening a new
options account?
I. Send the customer an ODD
II. Have the ROP approve the account
III. Execute the transaction
IV. Have the customer send in an OAA
A) I II III IV
B) II, I, IV, III
C) III, I, II, IV
D) I, III, II, IV - Answer - ✔A) I II III IV
Because option transactions are so risky the customer has RTO receive an options risk
disclosure document (ODD) prior to opening the account. After the client receives the
ODD, the registered options principal (ROP) needs to approve the account before any
transactions can be executed. The customer signs and returns an options account
agreement (OAA) within 15 days after the account is approved by the ROP.
Which TWO of the following are the minimum requirements for an investor to be
considered accredited ?
I. An individual with a net worth of $500,000
II. An invisible with a net worth of $1 mill
III. Am individual who earned $200000 per year in the most recent 2 years and has a
reasonable expectation of reaching that same level in that current year
IV. An individual who earned $300,000 per year in the most recent 3 years and has a
reasonable expectation that same level in the current year
A) I and iii
B) I and Iv
C) Ii and iii
D) Ii and iv - Answer - ✔Choice c - Ii and iii
Both statements deal with net worth
To be considered an accredited investor the minimum requirement is a net worth of 1
mill and/or yearly income of $200,000 in most recent 2 years, with a reasonable
expectation of reaching that same level in the current year. If minimum were not used
then answer IV would also be correct
All of the following are true about open-end funds EXCEPT
I. They issue common stock
II. They issue preferred stock
III. They issue debt securities
,IV. Shares can be purchased in the market
A) I only
B) II only
C) II, III, and IV only
D) I, II, III and IV - Answer - ✔C) II, III, and IV only
Open-end funds are mutual funds. Mutual funds are constantly issuing new shares.
Since mutual funds only issue common stock and can only be purchased directly from
the issuer, the only true answer is I. The question asked for exceptions. If the question
asked for what is true about closed-end funds the choice is D.
Good-will means: - Answer - ✔Good Will means a value placed on the reputation of a
company
A 55 year old investor purchased a 6% DEF convertible mortgage bond at 90 with 10
years until maturity. If the bond is currently trading at 97, what is the current yield?
A) 5.72%
B) 6 %
C) 6.19 %
D) 6.67 % - Answer - ✔C) 6.19%
When determining the yield all you need is the market price of the bond and the
coupon/interest rate. The investor is 55 y/o or the bond is a convertible mortgage bond
that was purchased at $900 ( 90% of 1000 par) with 10 years until maturity. You need
6%, 97, current yield
Current yield = annual interest / market price
= $60/$970 = 6.19%
Which of the following is TRUE of UGMA accounts?
A) there can be only one minor and one custodian per account
B) there can be more than one minor and one custodian per account
C) securities can only be purchased on margin
D) they must set up for children who have reached the age of minority - Answer - ✔A)
there can be only one minor and one custodian per account
Choices a and b oppose each other. If there are two opposing answers in almost all
cases one of the us right. Ignore c and d.
Uniform Gifts to Minors Act (UGMA) accounts are set up for minors who are too young
to have their own accounts. Each account is limited to one minor and one custodian
Which of the following is TRUE of the 5% markup policy?
I) it covers commissions charged to customers when executing trades on an agency
basis
II) it covers markups on stock sold to customers from inventory
Iii) it covers markdowns on stock purchased from customers for inventory
, Iv) risk less and simultaneous transactions are covered
A) I and Iv only
B) Iv only
C) Ii and iii only
D) I, Ii, iii, Iv
Answer is D
The 5% markup policy applies to nonexempt securities sold or purchased from
customers - Answer - ✔
Primary market or primary offer - Answer - ✔This is where securities are sold by the
issuer- a corporation or a government - to the investing public in what are known as
issuer transactions
It is an issuer that is selling a security to raise capital
Sale of securities to the public allows corporations to raise capital relatively quickly to
take advantage of changes in the economy
What is the primary purpose of the Securities Act of 1933 - Answer - ✔To require full
and fair disclosure in connection with the sale of securities to the public.
Requires that a new issue, unless specifically exempted from the act be registered with
the SEC before public sale.
All investors must receive a detailed disclosure document known as a prospectus
before purchase
What are the two types of offerings of securities to the public in the primary market? -
Answer - ✔1. Initial Public Offering (IPO)
2. Additional Public Offering (APO) aka Follow-on offering or a Subsequent public
offering
What is the difference between an IPO and an APO? - Answer - ✔The primary offerings
are the proceeds to go to the issuer.
The APO comes after the IPO that is the class of shares that is already available to the
public.
Issuers of Securities - Answer - ✔Can be:
- corporations
-municipalities
-federal government or its agencies
Corporations - Answer - ✔may issue both equities(stock) and debt issues (bonds)
