ANSWER: Study Question of the Week (October 11, 2012 Edition)

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale (Relevant to the Series 7, Series 65, Series 66, Series 24 and Series 62). Continue reading

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale:

Question (Relevant to the Series 7, Series 65, Series 66, Series 24 and Series 62):

Todd finally hit the nail on the head when he sold short shares of Widget Corporation. He doesn’t see widgets coming around anytime soon, but would like to protect his profits in case the stock goes against him. What type of order would Todd most likely enter?

Answers:

A: Buy stop

B: Sell Stop

C: Market

D: FOK

Correct Answer: A

Rationale: Buy stop orders are commonly used to limit a loss or protect a profit on short sales. Because shares are sold to open a short position, they would need to be bought back in order to close the position. A stop order triggers a sale or purchase if the stock reaches a certain price. In this case, Todd would place the order above the current market and if the stock price increased to his ‘stop price,’ the order would become a market order and close his position. The order would still allow for Todd to potentially profit if the stock goes down. If a market order was entered, the stock would be immediately bought at the next available ask price. A Fill or Kill (FOK) is an order distinction used for limit orders which requires that all of the order be executed immediately and completely or cancelled.

*Questions featured in the weekly study question series are sampled from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: October 10, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available (Relevant to the Series 7, Series 65, Series 66, Series 24 and Series 62). Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale. Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available. Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale. Happy studying!

Question (Relevant to the Series 7, Series 65, Series 66, Series 24 and Series 62):

Todd finally hit the nail on the head when he sold short shares of Widget Corporation. He doesn’t see widgets coming around anytime soon, but would like to protect his profits in case the stock goes against him. What type of order would Todd most likely enter?

Answers:

A: Buy stop

B: Sell Stop

C: Market

D: FOK

 

Answer found here.

ANSWER–Study Question of the Week: October 1, 2012 Edition

As a follow up to yesterday’s licensing exam study question (Relevant to Series 65, Series 66, Series 7, and Series 79), here is your question PLUS answer and rationale: Continue reading

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale:

Question (Relevant to Series 65, Series 66, Series 7, and Series 79):

Given the following assumptions for stock ABC, what is its expected return using the Capital Asset Pricing Model (CAPM)?

Assumptions: Risk Free Rate: 1%; Expected Return on general stock market: 7%; Beta: 1.; Sharpe Ratio: 2.

Answers:

A. 10%

B. 13%

C. 11.5%

D. 15%

Correct Answer: A

Rationale: The formula for the Capital Asset Pricing Model (CAPM) is given by the following: Return on Stock = Risk Free Rate + Beta of Stock x (Return on Market – Risk Free Rate). Plugging in for Stock ABC gives Return on Stock ABC = 1% + 1.5 x (7% – 1%) = 10%. Note the Sharpe Ratio is not used in the CAPM formula.

*Questions featured in the weekly study question series are sampled from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: October 1, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available (Relevant to Series 65, Series 66, Series 7, and Series 79). Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale! Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available. Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale!

Happy studying!

Question (Relevant to Series 65, Series 66, Series 7, and Series 79): Given the following assumptions for stock ABC, what is its expected return using the Capital Asset Pricing Model (CAPM)?

Risk Free Rate: 1%; Expected Return on general stock market: 7%; Beta: 1.;, Sharpe Ratio: 2.

Answers:

A. 10%

B. 13%

C. 11.5%

D. 15%

ANSWER–Study Question of the Week: September 19, 2012 Edition

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale (Relevant to Series 7, Series 79, Series 24, Series 62, Series 99, and Series 82). Continue reading

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale:

Question (Relevant to Series 7, Series 79, Series 24, Series 62, Series 99, and Series 82):

Before allowing a customer to buy shares in an IPO, the member firm must receive a representation that the account is not restricted by the account owner. How can this form be obtained initially?
I. Negative consent letter
II. Positive affirmation letter

Answers:

A: I

B: II

C: Either I or II

D: Neither I nor II

Correct Answer: B

Rationale: Before allowing a customer to buy shares in an IPO, the member firm must receive a representation declaring that the account is not restricted by the account owner. The firm must receive a positive affirmation letter in which the customer states in writing that the account is not restricted. After the initial verification is obtained, annual verifications may be obtained through a negative consent letter. A negative consent letter is a letter that states that the person is not restricted unless they inform the firm otherwise.

*Questions featured in the weekly study question series are sampled from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: September 19, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale! Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available. Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale!

Happy studying!

Question (Relevant to Series 7, Series 79, Series 24, Series 62, Series 99, and Series 82):

Before allowing a customer to buy shares in an IPO, the member firm must receive a representation that the account is not restricted by the account owner. How can this form be obtained initially?
I. Negative consent letter
II. Positive affirmation letter

Answers:

A: I

B: II

C: Either I or II

D: Neither I nor II

ANSWER–Study Question of the Week: September 5, 2012 Edition

As a follow up to yesterday’s question, here is your question PLUS answer and rationale: Continue reading

As a follow up to yesterday’s question, here is your question PLUS answer and rationale:

Question (Relevant to Series 7, Series 62, and Series 24):

Sam bought 1,000 shares of XYZ Corporation three months ago and the stock has appreciated significantly over that time. Sam decides to go short against the box. What does this mean?

Answers:

A: Sam has decided to short 1,000 shares of XYZ.

B: Sam has decided to write 10 call options of XYZ stock.

C: Sam has decided to write 10 put options of XYZ stock.

D: Sam has decided to sell his shares of XYZ and then buy the shares back after a 30-day window.

Correct Answer: A

Rationale:

When an investor goes short “against the box” it simply means that the investor has shorted shares that they already own with no intention of delivering their own shares by the settlement date. This practice is called “against the box” because the owned shares are held safely in a box, while borrowed shares are sold. Shorting against the box used to be a common tax deferral strategy. By selling borrowed shares, the investor could defer a capital gain to a more favorable later time. Current tax law no longer permits shorting against the box to be used as a tax deferral strategy – when an investor shorts shares they already own it is treated as if they have sold the shares and the gain is recognized immediately.

*Questions featured in the weekly study question series are sampled from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: September 5, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Be sure to submit your answers in the comments section! Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.  Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale!

Happy studying!

Question (Relevant to Series 7, Series 62, and Series 24):

Sam bought 1,000 shares of XYZ Corporation three months ago and the stock has appreciated significantly over that time. Sam decides to go short against the box. What does this mean?

Answers:

A: Sam has decided to short 1,000 shares of XYZ.

B: Sam has decided to write 10 call options of XYZ stock.

C: Sam has decided to write 10 put options of XYZ stock.

D: Sam has decided to sell his shares of XYZ and then buy the shares back after a 30-day window.

ANSWER–Study Question of the Week: August 29, 2012 Edition

As a follow up to yesterday’s question, here is your question PLUS answer and rationale: Continue reading

As a follow up to yesterday’s question, here is your question PLUS answer and rationale:

Question (Relevant to Series 24, Series 55, Series 62, Series 7)

To calculate a markdown as a percentage, which of the following are used?

Answers

A: The lowest bid

B: The highest bid

C: The highest offer

D: The lowest offer

Correct Answer: B

Rationale: A markdown is calculated when a customer sells shares. The customer would sell their shares to the market maker who is willing to buy at the highest bid. The markdown is calculated by dividing the amount kept by the market maker by the highest bid.

Study Question of the Week: August 29, 2012 Edition

Today, we’ll be starting a weekly series highlighting a licensing exam study question from the Solomon Online Exam Simulator question database. Continue reading

Today, we’ll be starting a weekly series highlighting a licensing exam study question from the Solomon Online Exam Simulator question database.

Let’s get started!

Question (Relevant to Series 24, Series 55, Series 62, Series 7)

To calculate a markdown as a percentage, which of the following are used?

Answers

A: The lowest bid

B: The highest bid

C: The highest offer

D: The lowest offer

Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale!

Happy studying!