November Study Question of the Month

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Question

Relevant to the SIESeries 7, Series 24, Series 79, and Series 82.

 

 

 

 

 

Which of the following would not necessarily be restricted shares when you purchase them?:

A. Shares sold by the CEO of the issuing company

B. Shares sold by the CEO’s wife of the issuing company

C. Shares sold by the assistant to the CEO of the issuing company

D. Shares sold by a major shareholder (more than 10% ownership) of the issuing company

October Study Question of the Month

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Congratulations to Megan K., this month’s Study Question of the Month winner!

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Question

Relevant to the Series 6, Series 7, Series 66, and Series 65.

 

 

 

 

 

The cost basis for inherited securities is:

A. The same as the deceased person’s cost basis

B. The same as the price of the securities on the date that the original owner dies

C. The same as the price of the securities on the date that the new owner takes possession

D. The lower of the deceased person’s cost basis and the price of the securities when the new owner takes possession

Answer: B.

In the event that the holder of securities dies and passes those securities to one of his heirs, the new owner gets to claim the price of those securities on the deceased person’s date of death as the securities’ new tax basis.

September Study Question of the Month

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Congratulations to Elizabeth H., this month’s Study Question of the Month winner!

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Question

Relevant to the Series 50 and Series 52.

 

 

 

 

 

A particular $5,000 bond matures in 5 years. What are the bond years on this single bond?

A. 5 bond years

B. 25 bond years

C. 25,000 bond years

D. 1,000 bond years

Answer: B.

When calculating bond years, the number of bonds is the number of $1,000 increments, even if the bonds are issued in a different denomination. Thus, this bond is considered to be 5 bonds (in $1,000 increments). Then multiply the number of bonds by the maturity of the bond (in years). 5 bonds x 5 years = 25 bond years.

July Study Question of the Month

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Congratulations to Terry F., this month’s Study Question of the Month winner!

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Question
Relevant to the Series 6Series 7Series 65Series 66

 

 

 

 

 

Which of the following is true of UGMA/UTMA accounts?

I. Only family members may contribute to a UGMA/UTMA
II. Annual contribution limit of $13,000 per year, per child
III. Assets may only be used for education expenses
IV. Earnings reported under adult custodian’s tax identification


A. I and II
B. III and IV
C. II and III
D. None of the choices listed

Answer: D. 

Anyone may contribute to a Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) account and there are no contribution limits. Assets in UGMA/UTMA accounts may be used for any purpose and earnings are reported on the minor’s social security account, not the custodian’s.

June Study Question of the Month

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Congratulations to Veronika J., this month’s Study Question of the Month winner!

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Question (Relevant to the Series 6Series 7, Series 65, Series 66)

In her junior year in college, Kim’s grandmother dies and leaves Kim several thousand dollars. Kim wants to put some of the money she received from her grandmother into a retirement account. Given Kim’s young age and status as a full-time college student, what would be her best option?

A. Traditional IRA
B. Roth IRA
C. SIMPLE IRA
D. None of the choices listed

Answer: D. You can only contribute earned income to an IRA or tax-deferred retirement plan and so unless Kim has earned income, she cannot contribute to a tax-deferred retirement plan. A SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees, is an employer-sponsored retirement plan and not available to individuals.

May Study Question of the Month

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Congratulations to Diane K., this month’s Study Question of the Month winner! 

See the answer below!

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Question (Relevant to the Series 7, Series 52, Series 65, Series 66, Series 79)

When the yield curve inverts, that is, when short-term interest rates are higher than long-term interest rates, all of the following are true EXCEPT: 

A. It indicates low or no inflation expectations.

B. It indicates higher demand for long-term bonds and lower demand for short-term bonds.

C. It indicates an economic recession.

D. It indicates an economic expansion.

Answer: D. A yield curve plots the yields of similar bonds based on the term of the bond (maturity) and the yield of the bonds, with term on the x-axis and yield on the y-axis.  A normal yield curve is upward sloping, indicating that the longer the term of the bond, the higher yield (interest rate).  This is because in normal economic conditions, the longer the term of the investment, the greater the risk that interest rates or the economy will change. Thus investors require greater compensation for uncertainties and risks associated with committing their money for longer time periods. This is called the risk premium.  When the yield curve is inverted, however, it slopes downward instead of upward. This means that there is higher demand for long-term bonds compared to short-term bonds because investors believe that interest rates will fall in the future.  Also, it means that investors are not concerned about inflation. These conditions are associated with a future economic recession.

April Study Question of the Month

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Congratulations to Margaret C., this month’s Study Question of the Month winner! 

See the answer below!

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Question (Relevant to the Series 6, Series 7, Series 62, Series 65, Series 66, Series 82)

To qualify as a long-term capital gain or loss, stock must be held for more than one year. At purchase, the holding period clock begins:

A. On the trade date
B. One day after the trade date
C. On the settlement date
D. One day after the settlement date

Answer: B. According to the IRS, the holding period clock begins the day after the shares were purchased.

March’s Study Question of the Month

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Congratulations to Dawn C., this month’s Study Question of the Month winner! 

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Question (Relevant to the Series 7, Series 65, Series 66)

studyQuestion

 

 

 

 

 

According to the Capital Asset Pricing Model, if the risk-free rate of return is 2%, the market rate of return is 6%, and the investment’s beta is 1.5, what is the required rate of return of an investment?

A. 6.5%
B. 7%
C. 8%
D. 18%

Answer: A. To calculate the required rate of return, according to the CAPM, subtract the risk-free rate from the market rate to get the market premium, then multiply the market premium by the beta and add that product to the risk-free rate to get the required rate of return of the investment.

As follows:

.06 – .02 = .04

.04 x 1.5 = .06
.06 + .02 = .08 or 8%

February’s Study Question of the Month

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Question (Relevant to the Series 7)

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A British company has signed a contract to purchase products in the US for resale in Britain.  However, the deal has been delayed.  In order to hedge themselves against a possible rise in the strength of the US dollar, of the following options, what would be the most logical strategy?

A. Buy puts on the pound
B. Write calls on the dollar
C. Buy puts on the dollar
D. Buy calls on the pound

Answer: A. In this question, the British company is an importer into Britain.  It is concerned that the dollar will rise and that therefore it might have to pay more in British pounds for the US products (which are denominated in dollars).  Using the mnemonic EPIC (Exporters buy Puts, Importers buy Calls), the British company is an importer and would buy a call on the dollar to hedge its currency risk.  A call on the dollar would permit the purchaser to buy dollars in the future at a fixed price, thus hedging the currency risk.  However, buying calls on the dollar is not one of the listed answer options, so the inverse of a call on the dollar would be a put on the pound, which is the correct answer.

Study Question of the Month – January 2017

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Congratulations to Nelson C., this month’s Study Question of the Month winner! 

See the answer below!

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studyQuestion

 

 

 

 

 

Question (Relevant to the Series 6)

Monique wants to invest in mutual fund shares, but she only plans to keep the shares for just over a year. Which shares are most suitable for Monique?

A. A shares
B. B shares
C. C shares
D. There is not enough information to answer the question.

Answer: C. C shares have no front-end or back-end charges, so breakpoints don’t apply, and there is no need to hold shares for a minimum amount of time to save money. The only exception is a 1% back-end charge if the investor redeems the shares less than a year after purchasing them. However, C shares have the highest annual 12b-1 fees, so they are not suitable for long-term investments. For Monique, however, they would work perfectly.