Series 6

Series 6 practice questions, page 11 of 13, with answer review and explanations.

Question 51

Which of the following statements regarding CMOs is false?

  1. CMOs are zero-coupon bonds that are backed by real estate.
  2. Relative to other bonds, CMOs are illiquid.
  3. CMO investors are divided into classes, and the class determines when the investor will receive payments of principal.
  4. CMOs are considered to have lower risk and, therefore, offer lower returns.

Question 52

You have a client, Richie Rich, who is in the 39.6% marginal tax bracket, and one of his investment goals is to minimize his payments to the IRS. Which of the following instruments would serve this purpose?

  1. U.S. Treasury bills
  2. general obligation bonds
  3. an investment-grade corporate bond
  4. Both Selections A and B would serve to minimize his payments to the IRS.

Question 53

Which of the following statements regarding callable bonds is false?

  1. Callable bonds offer a higher yield than non-callable bonds, all else equal.
  2. Investors in callable bonds are subject to prepayment risk.
  3. The issuer of a callable bond is most likely to redeem the bond early when interest rates fall.
  4. A callable bond protects the investor by allowing him to sell his bond back to the issuer and invest in another, similar-risk bond that pays a higher rate of

Question 54

Which of the following securities always sell at a discount from their face values? I. Treasury bills - II. Treasury notes - III. industrial revenue bonds - IV. bankers acceptances -

  1. I only
  2. I and II only
  3. II and III only
  4. I and IV only

Question 55

Which of the following is true about treasury bonds?

  1. have no default risk.
  2. have no interest-rate risk.
  3. have no prepayment risk.
  4. are totally risk-free.