Stock Broker Investment Products & Securities Types 1

Question 1

Which type of bond is backed by the full faith and credit of the US government and is considered the safest fixed-income investment?

Accepted Answer

US Treasury bonds

Answer

US Treasury bonds are backed by the full faith and credit of the US federal government and are considered the benchmark risk-free investment in the US.

Question 2

What is a convertible bond?

Accepted Answer

A bond that can be exchanged for a set number of the issuer's common shares

Answer

A convertible bond is a debt instrument that gives the holder the option to convert it into a predetermined number of the issuer's common shares at a specified price.

Question 3

Which type of preferred stock allows unpaid dividends to accumulate and must be paid before common stock dividends?

Accepted Answer

Cumulative preferred

Answer

Cumulative preferred stock requires that any missed dividend payments accumulate and must be paid in full to preferred shareholders before common shareholders receive any dividends.

Question 4

What is the primary characteristic of a zero-coupon bond?

Accepted Answer

It is issued at a discount and pays no periodic interest, returning face value at maturity

Answer

Zero-coupon bonds are issued at a significant discount to their face value and pay no periodic interest; the investor's return comes entirely from the appreciation to face value at maturity.

Question 5

An ETF (Exchange-Traded Fund) differs from a mutual fund primarily because ETFs:

Accepted Answer

Trade on exchanges throughout the day like stocks

Answer

Unlike mutual funds that price once daily after market close, ETFs trade continuously on stock exchanges throughout the trading day at market-determined prices.

Stock Broker Practice Test

Stock Broker Practice Test

Stock Broker Investment Products & Securities Types 1