Series 65 Investment Vehicle Characteristics

1.Elena keeps $40,000 in a Harbor Bank checking account she can withdraw on request. The account is a demand deposit. Which statement fits that cash vehicle?

2.Marcus buys a $25,000 certificate of deposit from a commercial bank and agrees to leave the funds until maturity. Which description of that CD is accurate?

3.Aisha pays $9,850 for a Treasury bill with a $10,000 face amount that matures in 26 weeks. She holds it to maturity. What does she receive, and is the bill FDIC insured?

4.Devon buys $50,000 of 90-day commercial paper from a tool manufacturer. The paper is unsecured. Which statement is right?

5.Lila owns shares of a money-market mutual fund that holds Treasury bills and commercial paper. She asks whether those shares are FDIC insured. What is the accurate answer?

6.Jonah keeps $18,000 in a money-market deposit account at a bank and can write a limited number of checks. How does FDIC treatment differ from a money-market mutual fund?

7.Camille has $20,000 to place for four months. She wants a direct obligation of the U.S. Treasury rather than a corporate IOU or a bank deposit. Which instrument matches?

8.Hector buys a $100,000 face-amount Treasury bill for $98,400 and redeems it at maturity. How much discount income does he earn, and what is the FDIC status?

9.Ingrid owns a $30,000 bank certificate of deposit and $30,000 of shares in a money-market mutual fund. She asks which holding can be FDIC insured.

10.Nadia owns a Treasury note with a 4% coupon on a $1,000 face amount. She can sell it today for $800. What is the current yield?

11.Owen is choosing a Treasury note that matures in 7 years and a Treasury bond that matures in 30 years. Both pay semiannual coupons. Which description is accurate?

12.Priya buys a TIPS at $1,000 par. Over the year the inflation index rises 3%, and the coupon rate stays 2%. What happens to the principal used for the coupon?

13.Quentin buys a Treasury STRIPS with a $1,000 face amount for $760. It pays nothing until maturity. Which statement is right?

14.Rosa's Treasury bond pays an annual coupon of $50 on a $1,000 face amount. The bond's market price is $1,250. What is the current yield?

15.Samuel's Treasury note pays an annual coupon of $30. The note is quoted at $750. What is the current yield?

16.Talia's TIPS has a 1% coupon rate. After the inflation adjustment, the principal is $1,200. What annual coupon does that 1% rate produce?

17.Victor compares a 20-year Treasury bond that pays coupons with a STRIPS of that bond's principal. Both end on the same maturity date. Which cash-flow contrast is right?

18.Willa inherited a Treasury bond with a 6% coupon on a $1,000 face amount. The bond's market price is $1,200. What is the current yield?

19.Yasmin may buy a municipal bond with a 3% tax-free yield. Her marginal tax rate is 25%. What is the taxable-equivalent yield?

20.Andre buys a corporate bond with an 8% coupon and a $1,000 face amount for $1,080. He will hold it to maturity. Which statement fits that premium bond?

21.Bianca's municipal bond yields 4.5% tax-free. Her tax rate is 25%. What taxable yield matches that municipal yield?

22.Carlos buys a 3% corporate bond for $910. Similar new bonds yield more, and the face amount is $1,000. He plans to hold to maturity. What is true?

23.Diana is in a 40% tax bracket. A municipal bond she is reviewing yields 6% tax-free. What is the taxable-equivalent yield?

24.Elliot pays $1,150 for a corporate bond with a $1,000 face amount and a 7% coupon. A similar new bond yields about 5%. Which description is accurate?

25.Fatima buys a 4% corporate bond at $940. Face amount is $1,000, and she will hold the bond to maturity. What is the price gap, and is the bond at a discount?

26.George's municipal bond yields 2.4% tax-free. His marginal tax rate is 20%. He wants the taxable yield that would match it. What is that yield?

27.Hana compares two corporate bonds, each with a $1,000 face amount. Bond P costs $1,040. Bond D costs $960. Which statement is right?

28.Ivan owns a corporate bond the issuer may redeem at 102 after this year. Yields on similar bonds have fallen sharply. What is the likely issuer action?

29.Juliet's convertible bond has a $1,000 face amount and can be exchanged for 20 shares. The stock trades at $40. What is the conversion value?

30.Kenji buys a debenture from a retailer. The indenture pledges no real estate, no equipment, and no securities. What has he bought?

31.Lucia owns a bond secured by a first lien on an office building. The same issuer has a debenture with no collateral. If the issuer fails, which claim is ahead on that building?

32.Malik can convert his $1,000 bond into 25 shares. The common stock is $48. What is the conversion value, and how does it compare with face amount?

33.Nora's corporate bond is callable at 104. The face amount is $1,000, and the issuer calls the bond. What call price does Nora receive?

34.Oscar holds a subordinated debenture. The same company has senior unsecured bonds and a mortgage bond. In a liquidation, where does his debenture stand?

35.Paula is offered two bonds from the same issuer and the same maturity. One converts into common stock and the other does not. Which coupon pattern usually follows from that conversion right?

36.Rafael holds an equipment trust certificate on railroad cars and a debenture of an airline. He wants the bond that has a specific asset pledged. Which one is it?

37.Sofia bought a 5-year bond and a 15-year bond, both at par. Yields on comparable bonds have since risen. What happened to the two market prices?

38.Theo owns a 3-year Treasury note and a 30-year Treasury bond, both bought at par with similar coupons. Yields rise by the same amount for both. Which price reaction fits?

39.Uma must sell her bond today. She paid $1,000. After market yields rose, the price is $940. A similar bond maturing much sooner fell only a few dollars. What are her sale proceeds versus cost?

40.Walter holds one bond maturing in 2 years and another maturing in 20 years. He expects yields to rise and wants the bond whose price should fall less. Which bond is that?

41.Ximena watches two bonds that started at $1,000 par after a jump in yields. The 4-year bond is now $970. The 25-year bond is now $820. What do those prices show?

42.Yuri bought a 12-year bond at $1,000. His 2-year note barely moved, but after yields rose the 12-year bond trades at $910. What is true of that longer bond?

43.Zara expects yields to rise and must sell one bond before that move. One bond matures in 6 years and the other matures in 28 years. Which sale is more exposed to a price decline?

44.Aaron's 8-year bond falls from $1,020 to $990 after yields rise. His 22-year bond falls from $1,020 to $900. Which comparison of the losses is correct?

45.Bridget owns a 2-year note and a 30-year bond. She asks what a rise in market yields would do to the two prices, and which price would fall more. What is the result?

46.Caleb owns cumulative preferred stock with a $5 annual dividend. The issuer skipped that dividend for 2 years and is now declaring the current dividend too, before any common dividend. What must each preferred share receive first?

47.Dahlia owns common stock of a company that also has preferred stock and outstanding bonds. The company is liquidated and claims are paid in the usual order. Where does her common stock stand?

48.Emilio receives rights from a company that is issuing new shares. Each right lets him buy shares at $20 for the next 30 days, and the stock trades at $26. What are these rights?

49.Fiona buys a bond with a detachable warrant. The warrant lets her buy the common stock at $30 any time in the next 6 years. The stock is $22 today. What does the warrant give her now?

50.Gavin wants a U.S. listing, priced in dollars, on a French company's shares. A bank holds the foreign shares and issues receipts against them. What is Gavin buying?

51.Hope owns cumulative preferred stock with a $6 annual dividend. The company missed the dividend for 4 years. How much is in arrears on each preferred share?

52.Isaac owns preferred stock with a stated $4 dividend and common stock of the same company. The board is not required to declare a dividend this year. Which statement is accurate?

53.Jade must surrender 5 rights plus $40 to buy one new share under a rights offering. She already owns 5 rights. The common stock trades at $48. What cash does exercise require?

54.Karl's warrant has an exercise price of $18. The common stock is trading at $25. What is the warrant's intrinsic value?

55.Leila's mutual fund holds $50,000,000 of assets and has $2,000,000 of liabilities. There are 4,000,000 shares. What is the NAV per share?

56.Mateo's closed-end fund has an NAV of $18. The last trade on the exchange was $19.50. What is that price relative to NAV?

57.Nina's closed-end fund has an NAV of $25 and a market price of $22. She asks what to call the gap. What is the right label and amount?

58.Omar's mutual fund reports $12,000,000 of assets, no liabilities, and 800,000 shares outstanding. What is the NAV per share?

59.Petra wants shares she can buy or sell on an exchange throughout the trading day. She does not want a unit investment trust with a fixed portfolio and a set end date. Which vehicle fits?

60.Quinn is choosing between an ETF and a unit investment trust. He wants the portfolio that is generally fixed for its life and is not continually maintained by a manager. Which choice is that?

61.Ruby is computing her mutual fund's NAV. Assets are $9,000,000, liabilities are $900,000, and 600,000 shares are outstanding. What is the NAV?

62.Simon's closed-end fund has an NAV of $10. Buyers and sellers just traded the shares at $11. How large is the premium?

63.Teresa owns an ETF and a unit investment trust. She asks which she can typically trade throughout the day and which has a largely fixed basket with a planned ending date. What is the contrast?

64.Ulrich invests in a hedge fund that imposes an 18-month lock-up. Six months later he asks for his money back. What should he expect?

65.Vera's REIT owns apartment buildings and collects rent from the tenants. It does not own a portfolio of mortgages. What type of REIT is it?

66.Wesley buys a REIT whose assets are residential mortgages and mortgage-backed securities. The REIT does not operate buildings. What does he own?

67.Xenia can redeem her mutual fund every business day. Her hedge fund has a two-year lock-up and then allows redemptions only on quarterly dates. What does the lock-up do?

68.Yusuf holds two REITs. REIT A owns shopping centers. REIT B owns a pool of commercial mortgages. Which pairing is correct?

69.Zoe wants a REIT whose main assets are loans secured by real estate, not the buildings, and whose income comes from interest. Which should she buy?

70.Adam committed capital to a hedge fund 30 days ago. The agreement states a one-year lock-up and no early redemption. He sends a redemption notice today. What is the result?

71.Brooke owns an equity REIT and asks how its assets differ from those of a mortgage REIT. What is the accurate contrast?

72.Chris is told his hedge fund will not honor redemptions for 24 months. He also owns an equity REIT that owns hotels. Which statement fits both facts?

73.Dana buys a call with a $50 strike and pays a $4 premium. At expiration the stock is $60. What is her profit?

74.Ethan buys a put with a $55 strike and pays a $6 premium. At expiration the stock is $40. What is his profit?

75.Freya buys a call with a $40 strike and pays a $3 premium. At expiration the stock is $30. What is her profit on the call?

76.Grant owns shares and buys a put on those same shares because he wants protection if the price falls. What is that position called?

77.Helen owns an American call and a European call with the same strike and expiration. The stock jumps, and a month remains. She wants to exercise today rather than sell the option. Which contract allows that?

78.Ian buys a call with a $45 strike and pays a $5 premium. At expiration the stock is $50. What is his profit?

79.Joy buys a put with a $30 strike and pays a $2 premium. At expiration the stock is $24. What is her profit?

80.Kyle owns stock and a protective put with a $65 strike. He paid $3 for the put. At expiration the stock is $50. What is the put's payoff, and what is his profit on the put?

81.Mona holds a European put with two weeks left until expiration. The stock is below the strike, and she wants to exercise today. What is allowed?

82.Neil deposits $4,000 of initial margin on a futures contract. Maintenance margin is $3,000. A $1,500 loss is marked to his account. What is his equity, and is there a margin call?

83.Olive posts $6,000 of initial futures margin. Maintenance margin is $4,500. The position then loses $1,000. What is her equity, and is there a margin call?

84.Pablo's futures account starts at the $8,000 initial margin. Maintenance is $6,000. A loss of $2,500 is posted. How much must he deposit to restore initial margin?

85.Reese owns a mortgage-backed security. After mortgage rates fall, many homeowners in the pool refinance. What happens to prepayment?

86.Sasha has $10,000 of initial futures margin and a $7,500 maintenance level. Her position loses $3,000. What is her equity, and does that loss trigger a margin call?

87.Tomas owns a mortgage-backed pass-through and worries about reinvestment if rates drop. Which outcome matches a fall in mortgage rates?

88.Ursula posts $5,000 of initial futures margin. Maintenance is $3,800. The position loses $600. What is her equity, and is there a margin call?

89.Vince holds mortgage-backed securities. Rates fall and prepayments from the pool jump. Why is the early return of principal a problem for him?

90.Wendy's futures equity starts at $9,000 of initial margin. Maintenance is $6,500. A $3,000 loss is marked today. What deposit restores equity to the initial margin?

91.Xavier buys a variable annuity and allocates the premium to an equity subaccount. Where does that premium go, and what happens to the contract value?

92.Yolanda's variable annuity separate account loses 15% this year. No rider guarantees the account value. What happens to her contract value?

93.Zach buys a fixed annuity. The contract currently credits 3%, guarantees at least 1%, and the insurer supports that credit from its general account. Which statement is accurate?

94.Amelia's indexed annuity credits the index return up to a 7% cap and has a 0% floor. The index rises 11% this crediting period. What interest is credited?

95.Ben's indexed annuity has a 0% floor and a 9% cap. The index falls 6% during the crediting period. What is credited?

96.Clara owns a fixed annuity crediting 4% and a variable annuity invested in a stock subaccount. Who bears the investment risk of that stock subaccount?

97.Derek's indexed annuity has an 80% participation rate and, for this crediting period, no cap. The index gains 10%. What percent is credited?

98.Eva puts $40,000 into a variable annuity separate account. She asks whether that account is FDIC insured the way a bank certificate of deposit can be. What is the answer?

99.Felix compares a fixed annuity that guarantees at least 2% with an indexed annuity that has a 6% cap and a 0% floor. Which contrast is right?

100.Gina buys a 20-year term life policy with a $200,000 death benefit and no cash-value schedule. If she pays the premiums, what does the policy guarantee?

101.Hugo owns a whole life policy. The contract lists a fixed annual premium, a level death benefit, and a guaranteed cash-value table. Which statement fits that policy?

102.Iris owns universal life. The policy guarantees a minimum credit of 2% on the cash value, and this year the insurer credits 4.5%. What is guaranteed, and what can change?

103.Joel is choosing between term life and whole life. He wants a policy that guarantees a cash-value schedule. Which policy does that?

104.Kira's universal life policy lets her vary the premium. She skips most of this year's premium while insurance charges continue, and the cash value is nearly gone. What can happen?

105.Leo's participating whole life policy shows a guaranteed cash-value column and also illustrates a dividend. The agent says the dividend is not promised. What is guaranteed?

106.Maya, age 35, buys a 10-year term life policy. She is alive when the term ends, and she does not renew. What remains from that policy?

107.Nico's universal life contract lets him lower the death benefit, and the cost-of-insurance charge can rise up to a stated maximum. How does that compare with whole life?

108.Ophelia is shown term life with no cash value, whole life with a fixed premium and a guaranteed cash-value table, and universal life with a 2% minimum credit and a current credit that can change. Which summary is right?