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Question 1 of 10
1. Question
Which of the following statements is true regarding Risks with purchasing a market neutral hedge fund?
Correct
Risks with purchasing a market neutral hedge fund that is priced monthly
An investor purchasing a market neutral hedge fund will face a number of risks. Two of the most important of these risks include liquidity risk and business risk. With any security that is priced monthly, it can be difficult for investors to adequately liquidate their position if there are substantial changes in either the position of the fund or if the investor’s personal situation changes such that liquidity is required. Additionally, with a liquidity restriction it may be more likely that multiple investors will choose to exit the fund at the same time, thus driving down the price each investor will receive for their share of the security.Incorrect
Risks with purchasing a market neutral hedge fund that is priced monthly
An investor purchasing a market neutral hedge fund will face a number of risks. Two of the most important of these risks include liquidity risk and business risk. With any security that is priced monthly, it can be difficult for investors to adequately liquidate their position if there are substantial changes in either the position of the fund or if the investor’s personal situation changes such that liquidity is required. Additionally, with a liquidity restriction it may be more likely that multiple investors will choose to exit the fund at the same time, thus driving down the price each investor will receive for their share of the security. -
Question 2 of 10
2. Question
Which of the following statements is true regarding Expected return and risk?
Correct
Expected return and risk
The relationship between risk and expected return is central to the evaluation of equity and fixed income investments. For equity securities, all else being equal, a security with greater risk (whether business risk, market risk, currency exchange risk, or others) will receive a lower price than an equity security with less risk. For fixed income investments, this variance in risk manifests itself through a difference in required yield.Incorrect
Expected return and risk
The relationship between risk and expected return is central to the evaluation of equity and fixed income investments. For equity securities, all else being equal, a security with greater risk (whether business risk, market risk, currency exchange risk, or others) will receive a lower price than an equity security with less risk. For fixed income investments, this variance in risk manifests itself through a difference in required yield. -
Question 3 of 10
3. Question
Which of the following statements is true regarding Over-the-counter/negotiated market?
Correct
Over-the-counter/negotiated market
One primary difference between an auction market and an over-the-counter or negotiated market is that an auction market typically has a physical location where buyers and sellers must converge to set prices. A negotiated market, however, need not have a centralized physical location as most of the buying and selling is done through dealers. Prices in a negotiated market are largely set by dealers, who are primarily responsible for buying and selling securities in these markets.Incorrect
Over-the-counter/negotiated market
One primary difference between an auction market and an over-the-counter or negotiated market is that an auction market typically has a physical location where buyers and sellers must converge to set prices. A negotiated market, however, need not have a centralized physical location as most of the buying and selling is done through dealers. Prices in a negotiated market are largely set by dealers, who are primarily responsible for buying and selling securities in these markets. -
Question 4 of 10
4. Question
Which of the following statements is false regarding New issue market?
Correct
New issue market
Most investors are familiar with secondary market transactions, in which a corporation’s securities are purchased from another investor or a dealer. The
primary market, or new issue market, is of critical importance to corporations as they raise money to finance their operations. When a corporation issues new securities (debt or equity), it can choose to issue through either a public offering or a private placement. In a private placement, all purchasers of the securities are qualified investors, such as banks, insurance companies, or large, sophisticated financial institutions.Incorrect
New issue market
Most investors are familiar with secondary market transactions, in which a corporation’s securities are purchased from another investor or a dealer. The
primary market, or new issue market, is of critical importance to corporations as they raise money to finance their operations. When a corporation issues new securities (debt or equity), it can choose to issue through either a public offering or a private placement. In a private placement, all purchasers of the securities are qualified investors, such as banks, insurance companies, or large, sophisticated financial institutions. -
Question 5 of 10
5. Question
Which of the following statements is not included in Insider Trading and Securities Fraud Enforcement Act of 1988?
Correct
Insider Trading and Securities Fraud Enforcement Act of 1988
The Act provided additional guidance and enforcement in a number of areas, including all of the following:
1. Broadening the scope of the legislation to include other firms or controlling persons who fail to take appropriate measures to prevent insider-trading
violations
2. Increasing potential civil penalties for violations
3. Increasing potential criminal penalties and jail time for violations
4. Clarification around those traders who were impacted by violations and classified as contemporaneous traders
5. Providing that the SEC can award bounty payments of up to 10 percent of the civil penalty for providing information
6. Enacting a five-year statute of limitations after the date of the last transactionIncorrect
Insider Trading and Securities Fraud Enforcement Act of 1988
The Act provided additional guidance and enforcement in a number of areas, including all of the following:
1. Broadening the scope of the legislation to include other firms or controlling persons who fail to take appropriate measures to prevent insider-trading
violations
2. Increasing potential civil penalties for violations
3. Increasing potential criminal penalties and jail time for violations
4. Clarification around those traders who were impacted by violations and classified as contemporaneous traders
5. Providing that the SEC can award bounty payments of up to 10 percent of the civil penalty for providing information
6. Enacting a five-year statute of limitations after the date of the last transaction -
Question 6 of 10
6. Question
Which of the following statements is false regarding Civil and criminal penalties?
Correct
Civil and criminal penalties
The Insider Trading and Securities Fraud Enforcement Act of 1988 provides for a number of civil and criminal penalties for violations of the act and improper insider trading, including:
1. The SEC can impose damages against violators of the Act in an amount up to three times the profit gained or loss avoided as a result of the illegal
transaction. These damages are limited to $1,000,000 for controlling persons.
2. Individuals may face fines of up to $1,000,000: the 1988 Act increased this limit from the previous limit of $100,000.
3. Non-natural persons may face fines of up to $2,500,000: the 1988 Act increased this limit from the previous limit of $500,000.
4. Violators may face a jail sentence of up to 10 years: the 1988 Act increased this limit from the previous limit of five years.Incorrect
Civil and criminal penalties
The Insider Trading and Securities Fraud Enforcement Act of 1988 provides for a number of civil and criminal penalties for violations of the act and improper insider trading, including:
1. The SEC can impose damages against violators of the Act in an amount up to three times the profit gained or loss avoided as a result of the illegal
transaction. These damages are limited to $1,000,000 for controlling persons.
2. Individuals may face fines of up to $1,000,000: the 1988 Act increased this limit from the previous limit of $100,000.
3. Non-natural persons may face fines of up to $2,500,000: the 1988 Act increased this limit from the previous limit of $500,000.
4. Violators may face a jail sentence of up to 10 years: the 1988 Act increased this limit from the previous limit of five years. -
Question 7 of 10
7. Question
Which of the following statements is true regarding Common stock?
Correct
Common stock
A share of common stock represents fractional ownership in the issuing company. As such, one feature of common stock is a voting right to elect the Board of Directors and other matters such as executive compensation and corporate financial policy. Another feature of common stock is the right to dividends and earnings of the company. Earnings that are reinvested into the company increase the value of the share price and dividends distributed are paid to common stockholders.Incorrect
Common stock
A share of common stock represents fractional ownership in the issuing company. As such, one feature of common stock is a voting right to elect the Board of Directors and other matters such as executive compensation and corporate financial policy. Another feature of common stock is the right to dividends and earnings of the company. Earnings that are reinvested into the company increase the value of the share price and dividends distributed are paid to common stockholders. -
Question 8 of 10
8. Question
Which of the following statements is false regarding Differences from preferred stock?
Correct
Differences from preferred stock
Common stock differs from preferred stock in rights to dividends because preferred shares typically have a fixed, stated dividend while dividends for
common shares can vary at the discretion of the company. Also, preferred shares have the first right to dividends and can also often have cumulative rights, so that any funds allocated to dividends will first be used to pay dividends, and any missed prior dividends, to preferred shareholders. Contrary to common stockholders, preferred stockholders typically do not have any voting rights.Incorrect
Differences from preferred stock
Common stock differs from preferred stock in rights to dividends because preferred shares typically have a fixed, stated dividend while dividends for
common shares can vary at the discretion of the company. Also, preferred shares have the first right to dividends and can also often have cumulative rights, so that any funds allocated to dividends will first be used to pay dividends, and any missed prior dividends, to preferred shareholders. Contrary to common stockholders, preferred stockholders typically do not have any voting rights. -
Question 9 of 10
9. Question
Which of the following statements is false regarding Treasury bills, treasury notes, and treasury bonds?
Correct
Treasury bills, treasury notes, and treasury bonds
Treasury bills are fixed income securities issued by the US government with durations of one year or less. Treasury notes are fixed income securities issued by the US government with durations of one to ten years and make semiannual coupon payments. Treasury bonds are fixed income securities issued by the US government with durations of greater than 10 years and make semiannual coupon payments. The primary difference between treasury bills, notes and bonds, and agency securities is that, unlike treasury securities that are issued by the US government and backed by the full faith of the US government, agency securities are backed by governmentsponsored entities.Incorrect
Treasury bills, treasury notes, and treasury bonds
Treasury bills are fixed income securities issued by the US government with durations of one year or less. Treasury notes are fixed income securities issued by the US government with durations of one to ten years and make semiannual coupon payments. Treasury bonds are fixed income securities issued by the US government with durations of greater than 10 years and make semiannual coupon payments. The primary difference between treasury bills, notes and bonds, and agency securities is that, unlike treasury securities that are issued by the US government and backed by the full faith of the US government, agency securities are backed by governmentsponsored entities. -
Question 10 of 10
10. Question
Which of the following statements is false regarding General obligation bonds, revenue bonds, and industrial revenue bonds?
Correct
General obligation bonds are issued without being associated with a specific project or revenue stream of the municipality. It is understood that these obligations will be met through the municipality’s ability to generate revenue through taxation. Revenue bonds are issued to finance a particular revenue-generating project and the revenues from that project are specifically earmarked to repay the bondholders. Industrial revenue bonds are similar to revenue
bonds in that the security is used to finance a revenue-generating project, the revenues of which are used to eventually repay debt holders.Incorrect
General obligation bonds are issued without being associated with a specific project or revenue stream of the municipality. It is understood that these obligations will be met through the municipality’s ability to generate revenue through taxation. Revenue bonds are issued to finance a particular revenue-generating project and the revenues from that project are specifically earmarked to repay the bondholders. Industrial revenue bonds are similar to revenue
bonds in that the security is used to finance a revenue-generating project, the revenues of which are used to eventually repay debt holders.