The minimum dollar amount of a purchase of a mutual fund where a volume discount is given
bought and sold in the same manner as common stocks. customer wanted to sell he would receive the curret bid price (the market quote, not the net asset value). If a customer wanted to buy he could at the current offering or asked price (CMV +commision). The market price of shares can be at, above, or below the Net Asset Value. Closed-end investment co have only one issue of shares. Once issued no new shares, outstanding remain constant. May be listed OTC or on Exchange
1)owned by share holders who have limited liability
2) operate in majormarkets.
3)90% of profitsreturned back to shareholder
4)opérate in majormarkets with diverse employment.
5) allows the flow-through of income but not losses
In order to purchase an interst in a DPP, the inestor must complete the subscription agreement. It will specify suitability standards as well as the amount that the individual will contribute.
1)statement that investor has read prospectus and understands risk.2)statement that the GM will act as the agent. 3)investors SS# or tax ID #
statement that investor has sufficient annual income & net worth
List the following in the proper order for settling accounts in the event of a dissolution of a limited partnership.
Priority of claim on assets in dissolution of a general partner is secured lenders first, then general creditors, then limited partners, then general partners.
An investor in a direct participation program should:
4.Be able to tie up funds for a long period of time
1,2,3, and 4
An investment in a direct participation program is usually a long-term investment which provides tax benefits. The investor should be aware of the risks involved and have liquidity in other investments since the money will be tied up for a long time.
The IRS has identified free transferability of ownership shares as a corporate characteristic with regard to limited partnerships. This can be avoided:
By allowing transfer of partnership interests only with the consent of the general partner
The corporate characteristic of free transferability of ownership shares would be avoided by a partnership if the transfer of partnership interests can only be done through the consent of the general partner.
Listed options are adjusted for stock-splits, stock dividends, and rights offerings. over-the counter traded options are adjusted for cash dividends as well as the other distributions listed.
An account executive recommends that a customer sell uncovered options. The recommendation would not be a suitable one if the account executive:
The recommendation would not be a suitable one if the account executive failed to satisfy himself that the customer was aware of the risks involved and had the financial capacity to assume such risks. Written approval from the firm's registered option principal or branch manager is not required.
A class of options represents all the calls or all the puts of one underlying security, regardless of strike price and expiration. The XYZ October 60 put and the XYZ October 50 put are part of the class for puts. The XYZ October 60 call and the XYZ October 50 call are part of the class for calls.
A client writes an XYZ Corporation October 70 call and receives a $16 premium. What is the client's maximum loss?
The writer of a call option who does not own the underlying security is considered an uncovered call writer. If the market price of the underlying security rises above the exercise price, the stock will be called away. Since there is no limit as to how high a stocks price can reach, the writer of an uncovered call has an unlimited loss potential.
An investor writes an XYZ Aug 90 put at 4.50. If the put is exercised when XYZ is trading at 84.50, the investor would have:
1A cost basis of 85.50
If the put is exercised, the writer will be put stock (must buy stock) at the strike price regardless of the current market price. The writer's cost will be 85.50 (the 90 strike price minus the premium of 4.50). Since the stock has a market price of only 84.50, liquidating the stock will result in a $100 loss.
1)All profitable closing transactions are taxed as capital gains 2)Premiums received from unexercised options are treated as capital gains 3)The dollar amount of the premium received is deducted from the cost price of the underlying security to determine the covered call writer's "breakeven" point
-not allowed as ordinary loss deduction b/c they are subject to the maximum $3,000 capital loss restrictions.
Mr. Smith buys an XYZ Corporation October 70 put and pays a $16 premium for the put. XYZ declines to $52. Mr. Smith purchases 100 shares of XYZ at the market price and puts it to the writer. According to IRS rules, the proceeds received by the customer from the sale of the stock to the writer is:
($7,000 exercise price - $1,600 premium paid for the put option = $5,400 proceeds of the sale)
To find Mr. Smith's profit, subtract the $5,200 purchase price of 100 shares from the $5,400 proceeds from the sale.
Which TWO of the following statements are TRUE regarding a customer who buys a call option on a stock?
1)He expects the price of the stock to go up.
2)He pays for the privilege of having the ability to buy the stock at a specified price.
A customer who buys a call option on a stock expects the price of the stock to go up. He pays for the privilege of having the option to buy the stock at a specified price, which is called the strike price.
1)The resulting gain or loss is short-term.
2)The cost basis of the stock is the call premium plus the strike price.
When the buyer exercises the call option, the holding period for the stock begins. In this case, the period from February to June is ignored. The subsequent sale of the stock in April makes the holding period short-term. The cost basis for the stock is the call premium plus the strike price.
For all in-the-money options, calls or puts, the premium will consist of intrinsic value and time value. The amount by which the option is in-the-money represents intrinsic value. The market price minus the strike price oequals intrinsic value
Put options are commonly used to protect (hedge) a long stock position against a downward movement. As prices decline, the value of puts rise thus offsetting the decrease in the stock owned. For a portfolio consisting of companies from one industry, narrow-based index options are the best hedge since their performance would closely follow that industry.
Corporate bonds, U.S. government securities, and engage in a covered call option writing program. pension fund pays no taxes so no municipal bonds. The fund would not write uncovered options, since it is peculative. The most typical investment would be in high grade fixed income securities such as corporate bonds and U.S. government securities. The pension fund can also engage in a covered option writing program to increase its portfolio's overall rate of return
Which of the following ratios would be used by an analyst examining the capital structure of an industrial corporation?
The capital structure of a corporation is the dollar amount of the corporation's capitalization (equity and debt securities). An analyst would therefore be interested in the debt-to-equity ratio.( total liabilities / stockholders' equity) This is actually the ratio of those securities creating fixed charges (bonds plus preferred stock) to common stock.
computed by dividing the market price by the earnings per share. This equals a price-earnings ratio
Market Price Per Share/ Earnings Per Share
concerned with forces within the market such as new highs and new lows, trading volume, and the number of advances and declines.
In a repurchase agreement (Repo) , the Federal Open Market Committee would first buy the government securities. This action adds money to the banking system. A short time later the dealer would repurchase the securities from the Fed.
to inject additional money into the system, causing an increase in deposits and an increase in reserves.
If the discount rate was increased, interest rates in general would increase. Long-term bonds would decrease more in price than short-term bonds.
An announcement in the financial section of the newspaper states that the money supply (M1) has dropped for the week. This means that:
M1 is demand deposits (checking accounts) and cash in circulation in the economy and constitutes what is called the "money" supply. If the announcement in the financial section of the newspaper states that M1 (the money supply) has dropped for the week, this would mean that demand deposits (checking accounts) and currency in circulation have declined.