Series 6

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

Question 26

Which of the following is not a function performed by an investment banker as part of a full commitment underwriting?

  1. provides advice to the issuing firm on the projects in which it should invest the money raised
  2. provides advice to the issuing firm on what type of security should be issued in order to raise the funds
  3. purchases the securities from the issuing firm
  4. provides short-term price support for the security after it begins trading in the secondary market

Question 27

A bond issued by the Needy Corporation pays an 8% coupon, matures in ten years, and is selling for its face value of $1,000. The yield-to-maturity on this bond is:

  1. less than its coupon rate of 8%
  2. greater than its coupon rate of 8%.
  3. equal to its coupon rate of 8%.
  4. indeterminable with the information provided.

Question 28

Which of the following bonds will experience the greatest percentage change in price for a given change in interest rates?

  1. a bond with 5 years to maturity that pays a 5% coupon
  2. a bond with 10 years to maturity that pays a 5% coupon
  3. a bond with 5 years to maturity that pays a 7% coupon
  4. a bond with 10 years to maturity that pays a 7% coupon

Question 29

Pete Prophet, the manager of a bond mutual fund, is expecting interest rates to increase. All else equal, which of the following bonds would be the best investment under this assumption?

  1. a Treasury strip with 15 years to maturity
  2. a bond with a 10% coupon and 5 years to maturity
  3. a bond with a 5% coupon and 10 years to maturity
  4. a zero-coupon corporate bond with 12 years to maturity

Question 30

Common stock and preferred stock differ in that:

  1. the firm is legally mandated to make the dividend payments on its preferred stock; there is no legal obligation to make dividend payments on its common stock.
  2. common stock pays a fixed dividend while the dividend associated with preferred stock will typically increase as the earnings of the firm increases.
  3. preferred stockholders have more voting rights than the common stockholders of the firm.
  4. preferred stockholders will receive their part of the proceeds if the firm is liquidated before the common shareholders receive anything.