STOCKBROKER Test 2

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Convertible preferred stock's price is more influenced by _______________ and less by _______________ than other types of preferred stock.

Correct! Wrong!

Explanation:
Convertible preferred stock includes a feature that permits investors to convert their shares into a specific number of common stock shares. Due to this convertible characteristic, convertible preferred stock is subject to many hazards as common stock, including market risk and company risk. Because the stock price is also related to the price of the underlying common stock that it can be swapped for, convertible preferred is less susceptible to interest rate risk than other preferred stocks. Because it is a fixed-income asset, convertible preferred stock is susceptible to interest rate risk.

Randy has suggested a particularly complicated collateralized debt obligation (CDO). He doesn't comprehend the CDO, but it has provided excellent returns in its five years of existence. According to Roger, customers with a high-risk tolerance should buy and hold the CDO. He proposes allocating up to 10% of a customer's portfolio depending on the individual.
Which of the following assertions about Roger's suitability duties is correct?

Correct! Wrong!

Explanation:
Randy has failed to meet his reasonable-basis suitability responsibility since he does not understand his suggested product. Randy must utilize his investment knowledge to decide whether it is appropriate for at least some clients.
Under the quantitative suitability mandate, Randy is prohibited from coercing consumers into excessively large or frequent trading activity. This appropriateness obligation primarily aims to artificially inflate commissions by exploiting clients' trust or by misusing discretionary accounts.
The third component of appropriateness is not mentioned above: the customer-specific suitability duty. Randy attempted to meet this commitment by limiting his recommendations to consumers willing to take on more risk. He doesn't know whether the CDO is suitable for anyone because he doesn't grasp it. He failed to meet the customer-specific appropriateness obligation as well.

Andrew has 200 ABC Corp shares at $60 each, with a long market value of $12,000. He has a $6,000 equity. What price will Andrew receive a margin call if ABC Corp falls?

Correct! Wrong!

Explanation:
A minimum of 25% equity is required for maintenance. Andrew's debt register (DR) is $6,000; consequently, if his DR reaches 75%, his equity will be 25%. $6,000 / .75 Equals $8,000. The Long Market Value (LMV) in this situation would be $8,000. Divide $8,000 by 200 shares to get $40.

Which of the following measures is the greatest for a bond investor to decrease credit risk while also guarding against buying power risk?

Correct! Wrong!

Explanation:
Diversifying a bond portfolio is the most common approach for a bond investor to guard against credit risk while retaining yield. This means he should buy bonds from a variety of different issuers. Depending on the issuer, municipal bonds can be safe or dangerous. While investing primarily in Treasuries will shield an investor from credit risk, the low yield on Treasuries may not protect against inflation risk. Finally, because high-yield bonds have a higher level of credit risk, investing solely in them would not be a viable strategy for a bond investor looking to lower credit risk.

Jane currently resides in the state of Minnesota. She's thinking about investing in a 5% Washington municipal bond. She pays 20% federal and 4% state taxes. To be similar to a municipal bond, what yield will the corporate bond have to pay?

Correct! Wrong!

Explanation:
Jane's municipal bond interest will be tax-free at the federal level but not at the state level because she lives in Minnesota. To calculate the tax-equivalent yield of a municipal bond, divide the bond's rate by 1 minus the total tax rate from which the bond is exempt. That's merely the federal rate of 20% in this scenario. As a result, the tax-equivalent yield is.05/(1-.20) =.0625, or 6.25 percent.

The subtotal that emerges from removing cost of goods sold and operating expenses from sales on a company's income statement is:

Correct! Wrong!

Explanation:
An income statement is a financial statement that summarizes a company's sales, expenses, and earnings for a specific period. The income statement begins with sales, also known as revenues, which are the total funds received by the company. The earnings are then calculated by subtracting the company's various expenses in a specific order.
The first expense deducted from sales is the cost of goods sold (COGS). COGS refers to the costs of manufacturing the company's goods and services, such as materials and labor. After subtracting COGS, gross profit is what's left. The operational expenses are the next set of charges to be deducted. These are business expenses that aren't directly tied to producing goods and services. Operating profit is the consequence of this calculation.

When is it permissible for a mutual fund to deliver a summary prospectus instead of a statutory prospectus?

Correct! Wrong!

Explanation:
A mutual fund can use a summary prospectus instead of a statutory prospectus if the statutory prospectus is easily available online.

The following positions are available to Joseph:
Long XYZ call on September 30th At 4
XYZ (short) Call at 1 p.m. on September 40.
On the expiration day, the price of XYZ is $42. How much money did Joseph make or lose if any of the money options were used?

Correct! Wrong!

Explanation:
A debit call spread, also known as a bull call spread or a long call spread, is an options strategy. If the stock price rises to $40, he will be able to earn her the maximum profit of $700. He will still make $700 if the price rises above 40.

In order to give an opinion on a new municipal bond issue, bond counsel will look at everything except:

Correct! Wrong!

Explanation:
The bond counsel provides an opinion on a new municipal issue's legality, validity, and tax-exempt status. He looks at local ordinances, state legislation, judicial rulings, and tax regulations. Municipal securities and those issued by the government and agencies are free from the Securities Acts' restrictions (save for the wide anti-fraud provisions). As a result, the bond counsel would not review these to offer a legal opinion.

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