Series 62

Study Question of the Week: January 24, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 62, Series 65, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

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

“Phantom tax exposure“ is a characteristic of:

I. T-bonds

II. Treasury STRIPS

III. Zero-coupon bonds

IV. Municipal revenue bonds

Answers:

A. I, II and III

B. I and IV

C. II and III

D. None of the choices listed

Correct Answer: C. II and III

Rationale: Treasury STRIPS, which are sold at a discount and don’t pay annual interest to owners, are a type of zero coupon bond. Zeroes are taxed each year based upon the imputed annual value of the cumulative interest earned. “Phantom tax exposure“ means you pay taxes each year on interest you don’t receive. The trade-off is that you avoid reinvestment risk along the way.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: January 16, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 24, Series 55, and Series 62. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 7, Series 24, Series 55, and Series 62):
Which of the following is not true of an ECN?

Answers:

A: ECNs can act in an agency or a principal capacity

B: ECNs allow institutional investors to trade with other investors excluding the broker as a go-between

C: Subscribers to an ECN may include institutional investors, broker-dealers and market makers

D: ECN traders can remain anonymous

Correct Answer: A

Rationale: Some standard characteristics of ECNs include:

a. ECNs always act in an agency capacity and do not trade for their own account.
b. ECNs allow institutional investors to trade with other investors excluding the broker as a go-between. Fourth market participants rely on ECNs.
c. Subscribers to an ECN may include institutional investors, broker-dealers and market makers. Individuals that wish to trade through an ECN must have an account with a broker-dealer and their order can then be routed to the ECN for execution.
d. ECNs allow traders to remain anonymous.
e. ECNs are often open 24 hours a day, and are therefore often used by traders after regular market hours.
f. Subscribers pay a fee to the ECN to participate.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: January 3, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 62, Series 65, Series 66, Series 79, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 7, Series 62, Series 65, Series 66, Series 79, and Series 82):
Two corporate bonds have different durations, but are equivalent in other ways. Bond A has a duration of 6. Bond B has a duration of 4. Interest rates go down by 50 basis points. Which of the following is true?

Answers:

A: The price of Bond A will increase more than the price of Bond B

B: The price of Bond A will decrease more than the price of Bond B

C: The price of both bonds will increase by a similar amount

D: The price of both bonds will decrease by a similar amount

Correct Answer: A

Rationale: Duration is a measure of the sensitivity of a bond’s price to changes in interest rates. A price of a bond with a higher duration will be influenced more by a change in interest rates than a bond with a lower duration. Bond A has a higher duration so it will be influenced by a change in interest rates more than Bond B. When interest rates go down, the prices of existing bonds go up. Thus, a decline in interest rates will cause the price of both bonds to increase, but because Bond A has a higher duration than Bond B, its price will go up more than Bond B.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: December 26, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 24, Series 55, Series 62, Series 65, and Series 66. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 7, Series 24, Series 55, Series 62, Series 65, and Series 66):

ABCD is an actively traded security with an inside market of 19.25 – 19.95. A market maker receives an order to sell 100 shares and buys the security from the customer at a net price of ______________. Choose the net price that makes the most sense given what you know about markups, markdowns, and net prices.

Answers:

A: 18.75
B: 19.25
C: 19.95
D: 20.45

Correct Answer: A

Rationale: On a sell order in an active competitive market, the net price will contain a markdown from the best bid. In this case the only price that is lower than the best bid is the $18.75. The markdown amount is calculated by taking $19.25 – $18.75 = $.50. The markdown is $.50/$19.25 = 2.60%.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: December 20, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available.

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

A Oregon hazelnut farm exports all of their hazelnuts to China and a Chinese trampoline manufacturer exports all of their trampolines to the U.S. Which of the following is true?

Answers:

A: Both the hazelnut farm and the Chinese trampoline manufacturer prefer a strong dollar

B: Both the hazelnut farm and the Chinese trampoline manufacturer prefer a weak dollar

C: The hazelnut farm prefers a strong dollar and the Chinese trampoline manufacturer prefers a weak dollar

D: The hazelnut farm prefers a weak dollar and the Chinese trampoline manufacturer prefers a strong dollar

Correct Answer: D

Rationale: To get this kind of question correct, think about where the goods are being sold. Groups that sell goods in the U.S. prefer a strong dollar. Foreign exporters and U.S. importers both sell goods in the U.S. so they prefer a strong dollar. In contrast, groups that sell goods in a foreign country prefer a weak dollar. Foreign importers and U.S. exporters sell goods in a foreign country so they prefer a weak dollar. The hazelnut farm is selling their goods outside of the U.S. so they prefer a weak dollar. The Chinese trampoline manufacturer is selling their goods in the U.S. so they prefer a strong dollar.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: December 12, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 24, Series 79, and Series 62. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 24, Series 79, and Series 62):

Which of the following is not true regarding tender offers by third-parties?

Answers:

A: Whenever the bidder purchases or intends to purchase more than 5% of a company’s outstanding shares, it must file Schedule TO

B: While the same price must be given to all shareholders as in an issuer’s offer, third-party offers allow an exclusion for certain severance/benefits packages that have been approved by an employee compensation committee

C: The target firm’s management must communicate a position on the tender offer within 4 business days of the offer

D: All recommendations on the tender offer made by the targeted company, its affiliates, and certain other parties must be made using SEC Form, Schedule 14D-9

Correct Answer: C

Rationale: The following are tender offer rules relating to third-party tender offers.

–Whenever the bidder purchases or intends to purchase more than 5% of a company’s outstanding shares, it must file Schedule TO. It must also file a Form 13D, which is a beneficial ownership form.
— All recommendations on the tender offer made by (1) the targeted company and its affiliates, (2) shareholders of the target company, the bidder, and affiliates of either, and (3) anyone acting on behalf of the forgoing or on behalf of the bidder must be made using SEC Form, Schedule 14D-9. The bidder does not use Schedule 14D-9 if it has filed Schedule TO.
–While the same price must be given to all shareholders as in an issuer’s offer, third-party offers allow an exclusion for certain severance/benefits packages that have been approved by an employee compensation committee.
–The bidder cannot buy shares outside of the tender offer during the offer period.
–The target firm’s management must communicate a position on the tender offer within 10 business days of the offer. The recommendation can take the form of: (a) accept or reject; (b) remain neutral; or (c) take no position. The target firm’s management must explain why it takes that position. It cannot recommend that shareholders buy shares in the company.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: December 6, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 79, Series 24, Series 62 and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

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

An individual or group acting together must file a Schedule 13D form when:

Answers:

A: their stockholdings reach 5% of a corporation’s outstanding shares of common stock

B: their stockholdings reach 10% of a corporation’s outstanding shares of common stock

C: their stockholdings reach 20% of a corporation’s outstanding shares of common stock

D: their stockholdings reach 50% of a corporation’s outstanding shares of common stock

Correct Answer: A

Rationale: Section 13(d) requires an individual or group acting together to file a 13D form when their stockholdings reach 5% of a corporation’s outstanding shares of common stock. This rule gives a corporation that may be the target of an acquisition fair warning in advance. Schedule 13D requires the group to disclose the number of shares owned, background information on the individual filing the form, the purpose of the transaction, and the source of the funds to finance the acquisition of the shares. Schedule 13D must be filed within 10 days of the acquisition of the stock.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: November 27, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 62, and Series 82. –ANSWER POSTED– 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 below.

Question (Relevant to the Series 7, Series 62, and Series 82):

ABC Corporation 6% preferred stock is convertible at $20. ABC Common trades at $25/share. What is the parity price of ABC preferred stock?

Answers:

A: $30

B: $50

C: $125

D: $500

Correct Answer: C

Rationale: First we must take the convertible price and divide it into the par value for the preferred stock to find out how many shares of common stock would be received for one share of preferred stock. $100/$20 = 5 shares of common for each share of preferred. Then we must multiple the number of common shares times the price of the common stock. 5 shares * $25/share = $125/share. The parity price of ABC preferred is $125/share.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: November 8, 2012 Edition

This week’s exam study question from the Solomon Online Exam Simulator question database is now available. This week’s exam question is relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 65, Series 66, and Series 82. –ANSWER POSTED– 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 below.

Question (Relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 65, Series 66, and Series 82):

A couple has just had a baby and they want to start saving for college. What option does NOT offer the opportunity for their investment to grow free of federal taxes?

Answers:

A: Education Savings Account

B: UGMA/UTMA Account

C: 529 College Savings Plan

D: 529 Prepaid Tuition Plan

ANSWER & RATIONALE

Correct Answer: B

Rationale: Unlike the other options, UGMA/UTMA (Uniform Gifts to Minors Act/Uniform Transfers to Minors Act) accounts are subject to federal income and capital gains taxes.

Weekly study questions are 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.