July Study Question of the Month

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Question

Relevant to the Series 6Series 7Series 62Series 65,  Series 66,  Series 82, and Series 99.

 

 

 

 

 

Bob owns convertible preferred stock in BigCo. Which of the following is a taxable event for Bob?
 
A. He converts it into common stock
B. Due to a corporate restructuring, he receives additional shares
C. He receives a cash dividend that is less than the amount that the share price declined last quarter
D. Due to a corporate merger, his shares are exchanged for shares in LargerCo

June Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

Question

Relevant to the Series 6Series 7Series 62, Series 65,  Series 66, and Series 82.

 

 

 

 

 

What does a value investor look for?

A. Increased P/E

B. Small-cap stocks

C. Trading above intrinsic value

D. Higher dividend yield

Answer: D. Value investing places primary emphasis on getting a bargain. Using fundamental analysis, a value investor looks for stocks that are trading below their “intrinsic” value. Value investors like growth as much as growth investors do, but value investors are wary of overpaying for that growth. Value investing’s bargain-hunting approach means value investors pay as much attention to the balance sheet as they do to the income statement, searching for gold that the market might have overlooked. Value stocks then, by definition, on average, have lower P/E ratios, lower price-to-book and price-to-sales ratios, and higher dividend yields.

May Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

Question

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

 

 

 

 

 

Bill is in a serious pinch and would like to take a loan against the value of his annuity. He is still in the accumulation period. Which of the following is true?

A. It is strictly prohibited by the IRS.

B. Many insurance companies allow it, but he will be subject to a 10% early withdrawal penalty.

C. Many insurance companies allow it, but it will be considered a distribution and therefore is taxable. A penalty may also apply.

D. Many insurance companies, allow it and there will be no tax or penalty implications provided it is repaid during the accumulation period.

Answer: C. Unlike a loan against a life insurance policy, a loan against an annuity is considered a distribution and will therefore be taxable. Interest charges are generally handled by reducing the number of accumulation units and if the owner pays back the loan, the number of units will increase. In cases where the customer is under 59 1/2, a 10% federal tax penalty may also apply.

April Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

Question

Relevant to the Series 7Series 6, and Series 52.

 

 

 

 

 

The “tax equivalent yield” tells an investor:

A. How much lower a yield he can accept from a corporate bond.

B. The impact of his Federal tax bracket on a municipal bond he purchases.

C. The risk-adjusted difference in par value of a corporate bond versus an insured municipal bond.

D. What the yield on a corporate bond would need to be to be equivalent to the yield of a municipal bond.

Answer: D. Given the fact that municipal bonds are exempt from federal tax, an investor can afford to accept a lower yield on a municipal than on a comparable corporate bond. For a taxpayer in the 30% tax bracket, a corporate bond yielding 5% offers the same after-tax return as a tax-free bond yielding 3.5%. The “tax equivalent yield” of the corporate bond is calculated by taking the yield of the municipal and dividing by 1 minus the tax rate. 3.5%/(1 – .30) = 5%. We can look at it from the corporate bond’s yield as well. The taxpayer pays 30% of the interest earned on a corporate bond in taxes, leaving him with 70% of the original interest. 70% of 5% equals 3.5%.

March Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

Question

Relevant to the Series 65 and Series 66.

 

 

 

 

 

Tammy analyzes the history of trading volume on the stock of company XYZ. She believes she finds a pattern which will predict an increase in the stock price of XYZ. Tammy plans to make trades using her strategy to make a profit. Tammy:

A. believes in the strong form of the efficient market hypothesis

B. believes in the weak form of the efficient market hypothesis

C. believes in the semistrong form of the efficient market hypothesis

D. does not believe in any form of the efficient market hypothesis

Answer: D. By thinking she can profit on information she discovered by examining the historical trading volume of XYZ stock, Tammy does not believe in any form of the efficient market hypothesis (EMH), which in general asserts that all available information is already reflected in a stock’s price. The weak form of the EMH asserts that a stock’s price already reflects all information that can be derived from market trading data, such as historical trading volume. The semistrong form asserts that all market trading data and all other publicly available information on the company, such as earnings reports, is reflected in a stock’s price. The strong form asserts all historical data and all company information – both publicly available and privately known only to insiders- is reflected in a stock’s price.

February Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

Question

Relevant to the Series 6, Series 7, Series 50, Series 52, and Series 65.

 

 

 

 

 

General obligation bonds

A. are secured bonds

B. are unsecured bonds

C. are typically secured bonds, but are occasionally unsecured bonds

D. are typically unsecured bonds, but are occasionally secured bonds

Answer: B.

General obligations are not funded by a revenue stream associated with a specific project, so they are unsecured. Instead, they are backed by the full faith and credit of the municipality and paid for by taxpayers.

January Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

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

Question

Relevant to the Series 24.

 

 

 

 

 

Which of the following does not have to be included in the margin agreement?

A. The interest rate

B. The method of computing interest charges

C. The conditions for interest charges to be imposed

D. The method of determining the debit balance

Answer: A.

The call loan rate and interest charges to the customer may change on a daily basis, so the actual interest rate does not have to be specified. This fact must be included in the margin agreement, along with the method of computing interest charges (computed daily), the conditions for interest charges to be imposed, and the method of determining the credit balance.

 

December Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

Congratulations to Jason W., this month’s Study Question of the Month winner!

Question

Relevant to the SIE, Series 6Series 7, Series 52, Series 62, Series 65, Series 66,  Series 79, and Series 82.

 

 

 

 

 

Juan has a bond with a YTM of 6.3%. He bought the bond for $1050. Which of the following is true?

I.  His current yield will be greater than his YTM

II.  His current yield will be less than his YTM

III.  His nominal yield will be greater than his YTM

IV.  His nominal yield will be less than his YTM

 

A.  I and III

B.  I and IV

C.  II and III

D.  II and IV

Answer: A.

For bonds that are purchased at a premium and held to maturity, the order of the yields from highest to lowest is nominal yield, current yield, YTM and YTC.. For bonds that are purchased at a discount, the opposite order is true (YTC > YTM > current yield > nominal yield).

November Study Question of the Month

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Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

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

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

Answer: C.

Securities that are held by control persons are called control securities. A control person, or affiliated person, is an individual in a position to exert direct influence on the actions of an issuer. For example, officers, directors, policy-making executives, major shareholders (generally own 10% or more of outstanding shares), and other people who are in a position to directly or indirectly control the management of the company are considered control persons. This includes spouses, family members who live with them, and other entities such as trusts or corporations affiliated with control persons, as defined in Rule 144. When control securities are sold, they become restricted securities even if they were not restricted securities previously.

October Study Question of the Month

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

Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

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.