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series 7 top-off questions with 100% correct answers
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series 7 top-off questions with 100% correct answers
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series 7 top-offA convertible bond callable at 101 is trading at 105. The bond is a 4% bond convertible at $25. The
common stock is trading at $27. If an investor bought the bond and converted, his profit would be: -
correct answer ✔✔$30.
First, calculate the number of shares each bond will convert to: $1,000 (par) / $25 per share = 40 shares
per bond.
With market value at 105, each bond costs $1,050. What is the stock parity price? $1, shares =
$26.25 per share stock parity price.
CMV of the stock minus stock parity price equals profit (or loss). $27.00 − $26.25 = $.75 per share × 40
shares = $30.
XYZ Corporation has outstanding a 7% convertible bond currently trading at 102. The bond, which has a
conversion price of $50, was issued with an antidilution covenant. If XYZ declares a 10% stock dividend,
the new conversion price, as of the ex-date, will be: - correct answer ✔✔$45.45.
To compute a new conversion price, divide the current conversion price by 100% plus the percent
increase in shares. $% = $45.45.
conv price 50. ratio is 20:1
new conv price? new conversion ratio 22 (+10% more stock~10% of 20=2. 2=20=22)
1000/22=45.45
ABC Inc. has 1 million shares of common stock outstanding ($10 par value), paid-in surplus of $10
million, and retained earnings of $10 million. If ABC stock is trading at $20 per share, what would be the
effect of a 2-1 stock split? - correct answer ✔✔The par value would decrease to $5 per share.
,A stock split results in more outstanding shares at a lower par value per share. The total value of stock
outstanding is unchanged. Retained earnings are not affected by a stock split.
A customer purchases an ABC 6-½% convertible preferred stock at $80. The conversion price is $20. If the
common stock is trading 2 points below parity, the price of ABC common is: - correct answer ✔✔$14.
The conversion ratio is computed by dividing par value by the conversion price ($100 par / $20 = 5).
Parity price of the common stock is computed by dividing the market price of the convertible by the
conversion ratio ($ = $16). $16 − 2 = $14.
The board of directors of DMF, Inc., announces a 5:4 stock split. The market price of DMF after the split
should decrease in value by - correct answer ✔✔0.2.
make up #s to make equation easier
~cmv 20. 4*20=80
80/5shares= 16
the difference btwn the original price of 20 and 16=4
4/20 (old share price)=.2
STRIPS and T receipts - correct answer ✔✔forms of zero coupon bonds
interest payable - correct answer ✔✔nominal yield
A convertible bond callable at 101 is trading at 105. The bond is a 4% bond convertible at $25. The
common stock is trading at $27. If an investor bought the bond and converted, his profit would be: -
correct answer ✔✔$30.
, 1000/25=40
40*27=1080
1080-1050=30 gain
A customer purchases ten 8% Treasury notes at 101-16. What is the dollar amount of this purchase? -
correct answer ✔✔$10,150.
Though the denomination of the T-notes purchased is not given, always assume par ($1,000) unless told
differently in the question. Remember that government notes and bonds are quoted in 32nds.
Therefore, a quote of 101-16 means 101 plus 16/32. 101 plus 1/2 = $1,015; $1,015 × 10 bonds =
$10,150.
reinvestments when purchasing additional shares - correct answer ✔✔The option to have distributions
automatically reinvested allows those purchases to be made at NAV but a purchase made later would be
made at the POP like any other new purchase.
Value Investing - correct answer ✔✔strategy where investors actively look to add stocks they believe
have been undervalued by the market, and/or trade for less than their intrinsic values. Like any type of
investing, value investing varies in execution with each person.
focuses on stocks with low PE ratios, a low price-to-book value, and historically high dividend yields.
*CURRENTLY gets dividends.
growth investing - correct answer ✔✔A growth investor looks for stocks with above-average price-to-
earnings ratios
A bond's yield - correct answer ✔✔expresses cash interest payments.
*RELATES TO INTEREST RATES (what is this bond worth {yielding} in relation to the current interest rate)
accelerated depreciation - correct answer ✔✔allow for greater deductions in earlier years of the life of
the asset.
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