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Question 1 of 10
1. Question
When an investor expects a certain stock to rise, he or she can assume a –
I. Bullish strategy
II. Bearish strategy
III. Naked strategy
IV. Neutral strategyCorrect
When an investor expects a certain stock to rise, he or she can assume a bullish strategy.
Incorrect
When an investor expects a certain stock to rise, he or she can assume a bullish strategy.
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Question 2 of 10
2. Question
Which of the following statement(s) is (are) true about Index Options?
I. Index options are options based on the performance of an exchange or industry segment, allowing investors to speculate on market movement in these industries or indexes.
II. Index options can be based on exchange indexes, like the NYSE, or on industry sectors, like retail.
III. The movement of this index, calculated by the under- lying securities’ value, decides the value of the index options traded.
IV. When index options are exercised, they always pay out in cash.Correct
Index options are options based on the performance of an exchange or industry segment, allowing investors to speculate on market movement in these industries or indexes. These options can be based on exchange indexes, like the NYSE, or on industry sectors, like retail. The movement of this index, calculated by the under- lying securities’ value, decides the value of the index options traded. When index options are exercised, they always pay out in cash.
Incorrect
Index options are options based on the performance of an exchange or industry segment, allowing investors to speculate on market movement in these industries or indexes. These options can be based on exchange indexes, like the NYSE, or on industry sectors, like retail. The movement of this index, calculated by the under- lying securities’ value, decides the value of the index options traded. When index options are exercised, they always pay out in cash.
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Question 3 of 10
3. Question
To limit the potential loss for the seller, index options are sometimes capped, or limited, at certain points-
Correct
To limit the potential loss for the seller, index options are sometimes capped, or limited, at certain points in-the-money.
Incorrect
To limit the potential loss for the seller, index options are sometimes capped, or limited, at certain points in-the-money.
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Question 4 of 10
4. Question
Which of the following statement(s) is (are) not true about Debt Options?
I. Debt options are options based on debt instruments, like government or corporate bonds.
II. Debt options speculate on the interest rate and value of the underlying debt instrument.
III. Debt options work like stock options, giving the holder the option to buy or sell the currency at a certain strike price.
IV. Debt options are not considered less risky than stock options.Correct
Debt options are options based on debt instruments, like government or corporate bonds. These options speculate on the interest rate and value of the underlying debt instrument. Although debt options speculate on low-risk debt instruments, they are not considered less risky than stock options.
Incorrect
Debt options are options based on debt instruments, like government or corporate bonds. These options speculate on the interest rate and value of the underlying debt instrument. Although debt options speculate on low-risk debt instruments, they are not considered less risky than stock options.
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Question 5 of 10
5. Question
Which of the following statement(s) is (are) true about LEAPS?
I. LEAPS have a long life span and make speculations on the long-term performance of an underlying security
II. LEAPS speculate on the two-to-five year performance of an underlying security.
III. LEAPS are traded on NYSE, Amex, and NASDAQ.
IV. LEAPS work the same as index options and debt options.Correct
LEAPS speculate on the long-term, two-to-five year performance of an underlying security, and are traded on NYSE, Amex, and NASDAQ. They work the same as the options you have already covered, but cover a longer term.
Incorrect
LEAPS speculate on the long-term, two-to-five year performance of an underlying security, and are traded on NYSE, Amex, and NASDAQ. They work the same as the options you have already covered, but cover a longer term.
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Question 6 of 10
6. Question
Which of the following statement(s) is (are) not true about Options?
I. Options are used to speculate on a stock’s performance in the market.
II. Options carry low risk.
III. Options usually require a larger amount of start-up capital to be effective.
IV. Options are only suitable for clients with the highest of risk tolerance.Correct
Options are used to speculate on a stock’s performance in the market and carry great risk. Options usually require a larger amount of start-up capital to be effective, so take a close look at your client’s avail- able investment capital if he or she is interested in entering the options market. Options are only suitable for clients with the highest of risk tolerance.
Incorrect
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Question 7 of 10
7. Question
Which of the following statement(s) is (are) true about Progressive taxes?
I. Progressive taxes cover income tax and gift and estate taxes.
II. Progressive taxes are set taxes on payroll, sales, property, etc.
III. Progressive taxes are set at the same rate for everyone, regardless of income.
IV. Progressive taxes affect higher income customers more.Correct
Progressive taxes cover income tax and gift and estate taxes — progressive taxes affect higher-income customers more.
Incorrect
Progressive taxes cover income tax and gift and estate taxes — progressive taxes affect higher-income customers more.
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Question 8 of 10
8. Question
Which types of income does the IRS differentiate?
I. Passive income
II. Active income
III. Progressive income
IV. Portfolio incomeCorrect
The IRS differentiates between three types of income: passive, active, and portfolio income.
Incorrect
The IRS differentiates between three types of income: passive, active, and portfolio income.
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Question 9 of 10
9. Question
Which of the following statement(s) is (are) true about Passive income?
I. Passive income is derived from activities in which an individual is not actively involved.
II. Passive income covers all income earned from an individual’s activities.
III. Passive income is taxed in that person’s tax bracket.
IV. You can only write off passive income against passive losses.Correct
Passive income is derived from activities in which an individual is not actively involved, like DPPs (or limited partnerships). You can only write off passive income against passive losses.
Incorrect
Passive income is derived from activities in which an individual is not actively involved, like DPPs (or limited partnerships). You can only write off passive income against passive losses.
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Question 10 of 10
10. Question
Portfolio income covers all income-
Correct
Portfolio income includes all income derived from securities investments; this book will cover this in detail in the next section.
Incorrect
Portfolio income includes all income derived from securities investments; this book will cover this in detail in the next section.