Series 66 Domain 2 (Quiz 1): Investment Vehicle Characteristics

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Domain 2 (part 1): Investment Vehicle Characteristics. (25 questions)

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Series 66, Investment Vehicle Characteristics,Series 66

Which of the following statements concerning equity securities is not correct?

A. A) Equity securities represent a lending interest in a corporation.

B. B) Equity securities provide a residual claim, after payment of all obligations to fixed-income claims, on the income and assets of a corporation.

C. C) Common stock is an equity security representing an ownership interest in a corporation.

D. D) Preferred stock is an equity security with an intermediate claim (between the bondholders and the common stockholders) on a firm's assets and earnings.

None

Series 66, Investment Vehicle Characteristics,Series 66

Which of the following statements about equity securities is NOT true?

A. A) Preferred stock is usually nonvoting.

B. B) Common stock is less sensitive to interest rate risk than preferred stock.

C. C) Preferred stock is an equity security while common stock is a hybrid.

D. D) Preferred stock pays a fixed dividend.

None

Series 66, Investment Vehicle Characteristics,Series 66

Investments in which of the following offer the best long-term protection against inflation?

A. A) Corporate bonds

B. B) Fixed annuities

C. C) Common stock

D. D) Government bonds

None

Series 66, Investment Vehicle Characteristics,Series 66

All of the following represent ownership in corporation except

A. A) preferred stock.

B. B) common stock.

C. C) mortgage bonds.

D. D) convertible preferred stock.

None

Series 66, Investment Vehicle Characteristics,Series 66

A corporate bond that pays interest semiannually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. What is the value of the bond today if the coupon rate is 8%?

A. A) $1,221.17

B. B) $922.78

C. C) $1,144.31

D. D) $1,051.23

None

Series 66, Investment Vehicle Characteristics,Series 66

A company's dividend on its common stock is

A. A) specified in the company charter

B. B) voted on by shareholders

C. C) mandatory if the company is profitable

D. D) determined by its board of directors

None

Series 66, Investment Vehicle Characteristics,Series 66

Mitch purchased a 30-year bond for 97¾ with a stated coupon rate of 8.5%. What is the approximate yield to maturity for this investment if Mitch receives semiannual coupon payments and expects to hold the bond to maturity?

A. A) 8.50%

B. B) 4.36%

C. C) 5.68%

D. D) 8.67%

None

Series 66, Investment Vehicle Characteristics,Series 66

Which of the following expressions describes the current yield of a bond?

A. A) Annual interest payment divided by par value

B. B) Yield to maturity divided by current market price

C. C) Annual interest payment divided by current market price

D. D) Yield to maturity divided by par value

None

Series 66, Investment Vehicle Characteristics,Series 66

An investor in an equity security

A. A) is assured of a minimum rate of return.

B. B) has a say in the day-to-day operations of the business.

C. C) acquires an ownership interest in the company.

D. D) becomes a creditor of the company.

None

10.

Series 66, Investment Vehicle Characteristics,Series 66

An investor holding which of the following equity securities would NOT expect to have preemptive rights?

A. A) Preferred stock

B. B) Common stock acquired in a private placement

C. C) Control stock

D. D) Common stock

None

11.

Series 66, Investment Vehicle Characteristics,Series 66

The primary defining characteristic of an equity security is

A. A) voting rights.

B. B) it represents ownership in a corporation.

C. C) the ability to keep pace with inflation.

D. D) it pays dividends, usually quarterly.

None

12.

Series 66, Investment Vehicle Characteristics,Series 66

On the initial public offering, an investor buys a $10,000 Aa-rated, 20-year corporate bond with a 4% coupon rate. One year later, the prevailing market rate is 5% and the bond has had its rating increased to Aa1. Which of the following is most likely TRUE with reference to the current market price of this bond?

A. A) Premium

B. B) Discount

C. C) Cannot be determined from the information given

D. D) Par value

None

13.

Series 66, Investment Vehicle Characteristics,Series 66

A common stockholder's rights include all of the following EXCEPT

A. A) the right to determine the par value of the stock

B. B) electing the board of directors

C. C) the receipt of dividends, if declared by the board of directors

D. D) preemptive rights

None

14.

Series 66, Investment Vehicle Characteristics,Series 66

The current yield of a callable bond selling at a premium is calculated

A. A) to its maturity date

B. B) as a percentage of its market value

C. C) as a percentage of its call price

D. D) as a percentage of its par value

None

15.

Series 66, Investment Vehicle Characteristics,Series 66

A bond is selling at a premium over par value. Therefore, its

A. A) current yield is less than its nominal yield

B. B) none of the above

C. C) yield to maturity is greater than its current yield

D. D) nominal yield is less than its current yield

None

16.

Series 66, Investment Vehicle Characteristics,Series 66

Richard purchased a 30-year bond for 103½ with a stated coupon rate of 8.5%. What is the approximate yield to maturity for this investment if Richard receives semiannual coupon payments and expects to hold the bond to maturity?

A. A) 8.50%

B. B) 9.36%

C. C) 8.19%

D. D) 8.68%

None

17.

Series 66, Investment Vehicle Characteristics,Series 66

A customer purchased new issue bonds at par 2 years ago. Since then, the CPI has declined by almost half and the current yield on his bonds has also declined. Which of the following best describes the value of the bonds he purchased?

A. A) Their market price has increased.

B. B) Their market price has declined.

C. C) This cannot be determined from the information presented.

D. D) Their market price has remained unchanged.

None

18.

Series 66, Investment Vehicle Characteristics,Series 66

Which of the following statements about dividends on common stock is NOT true?

A. A) Corporations are contractually obligated to pay dividends to their shareholders each year

B. B) Only those who are owners of the stock on the record date will receive dividends

C. C) Dividends may be paid in cash, property, or stock

D. D) Dividends represent a pro rata distribution of corporate profits to shareholders

None

19.

Series 66, Investment Vehicle Characteristics,Series 66

A $1,000 bond with a nominal yield of 8% will pay how much interest each year?

A. A) $80.00

B. B) $40.00

C. C) $800.00

D. D) $160.00

None

20.

Series 66, Investment Vehicle Characteristics,Series 66

A corporation issued a bond with a coupon of 6%, callable at 103. The bond matures in 2059. Current interest rates are 8%. It is most likely that

A. A) the bond is selling at a discount.

B. B) the bond will be called.

C. C) the coupon will be increased.

D. D) the bond will go into default.

None

21.

Series 66, Investment Vehicle Characteristics,Series 66

A bond offered at par has a coupon rate

A. A) greater than its yield to maturity

B. B) equal to its current yield

C. C) less than its current yield

D. D) less than its yield to maturity

None

22.

Series 66, Investment Vehicle Characteristics,Series 66

A customer buys a 10-year 6% AAA bond at par when it was issued. Two years later, if the CPI has increased from 2% to 4%, the price of the bond most likely

A. A) has stayed at par

B. B) has increased

C. C) cannot be determined

D. D) has declined

None

23.

Series 66, Investment Vehicle Characteristics,Series 66

The price of which of the following will fluctuate most with a change in interest rates?

A. A) Short-term bonds

B. B) Common stock

C. C) Money market instruments

D. D) Long-term bonds

None

24.

Series 66, Investment Vehicle Characteristics,Series 66

A bond's yield to maturity is

A. A) the annualized return of a bond if it is held to call date

B. B) the annualized return of a bond if it is held to maturity

C. C) determined by dividing the coupon rate by the bond's current market price

D. D) set at issuance and printed on the face of the bond

None

25.

Series 66, Investment Vehicle Characteristics,Series 66

The current yield on a bond with a coupon rate of 5.5% selling at 110 is

A. A) 5.5%

B. B) 6%

C. C) 2%

D. D) 5%

None

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