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14 Cards in this Set

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If a company with 10 million shares outstanding with total earnings of $50 million pays a $2 dividend, the dividend payout ratio is:

Dividend payout ratio is determined by dividends paid per share divided by earnings per share. In this case, earnings per share (EPS) is $50 million ÷ 10 million shares = $5 per share. The company paid out in dividends $2 for each $5 earned for a 40% payout ratio ($2 ÷ $5).


Reference: 11.4.2.4 in the License Exam Manual

You are viewing two securities to place in a client’s portfolio. Security A has an expected return of 12%, and Security B has an expected return of 16%. If you were to place 25% of the portfolio into Security A with the balance going into Security B, the expected return of the portfolio is?

The expected return of a multi-security portfolio is computed by taking the probability of returns for each security. The computation then becomes: (25% of 12%) + (75% of 16%) or 3% + 12% = 15%.


Reference: 19.2.6 in the License Exam Manual


FNK reported earnings of $2.47 per share last year on its stock, which is trading at 24.75. It paid a $.93 dividend on its common stock. What was its dividend payout ratio?

The company earned $2.47 per share and paid a $.93 dividend per share, which is 38% of the earnings ($.93 ÷ $2.47 = 38%).


Reference: 11.4.2.4 in the License Exam Manual


An investor purchased 100 shares of ABC at $50 per share and sold them exactly four months later at $52 per share. The investor's holding period return was:
The investor's return was a profit of $2 on an investment of $50. This is a return for the period held of 4%.

Reference: 19.2.2 in the License Exam Manual

A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the security's 5-year term, the inflation rate is 4%. What is the principal value of the bond at the end of 5 years?

In addition to paying interest, a TIPS bond increases its principal value semiannually by the amount of inflation. If the inflation rate is 4% for 5 years, the principal value of the bond increases semiannually by that inflation rate. Allowing for compounding, the best choice would be the $1,219. This is computed by multiplying $1,000 by 102% 10 times.Reference: 5.1.1.4 in the License Exam Manual

Which of the following correlations would represent two assets that tend to move in tandem with one another?

The correlation coefficient ranges from −1.0 to +1.0 and measures the varying relationship of assets (or securities) to one another. A correlation close to +1.0 would indicate that the assets should move in tandem. A correlation close to 0 would indicate that the assets would have little relationship to one another, and a correlation of -1.0 would indicate that the assets should exhibit virtually opposite behavior.


Reference: 12.2.7 in the License Exam Manual

GHI stock is at $10 par value and is selling in the market for $60 per share. If the current quarterly dividend is $1, the current yield is

Current yield is determined by dividing the annual dividend of $4 ($1 per quarter × 4 = $4) by the current stock price of $60 ($4 ÷ $60 = 6.7%).


Reference: 19.1.1 in the License Exam Manual

Mr. Beale buys 10M RAN 6.6s of 32 at 67. What is his total purchase price?

For those of you not familiar with bond listings, this means that Mr. Beale bought $10,000 (10M) of the RAN Corporation bonds with a 6.6% coupon (interest rate stated on the face of the bond) that mature in 2032 (32). The price is 67, which represents 67% of $10,000, or $6,700.


Reference: 5.3.2 in the License Exam Manual

Which TWO of the following statements are TRUE?A customer will sell at the ask.A customer will sell at the bid.A customer will buy at the bid.A customer will buy at the ask.

When trading securities in the secondary market, investors sell at the bid price and buy at the ask (offering) price. (67489)

The Consumer Price Index (CPI) is released:

Monthly

The Capital Asset Pricing Model (CAPM) is most commonly used to determine an investor's

The expected return

A testamentary trust, which goes into effect after death, does not avoid probate. True or False

True

Which of the following vehicles make use of the unified estate tax credit?bypass trust.generation skipping trust.living trust.simple trust.

bypass trust. generation skipping trust.

One of your clients has been following a dollar cost averaging plan for the past five months. During that time, she has invested $200 each month on the 12th of the month. If the 12th was a non-business day, she invested the funds on the next available business day. Her monthly purchases were 30 shares, 22.5 shares, 25 shares, 20 shares and 18.1 shares. If she were to sell today at $10 per share, her cost basis is approximately:

The investor's cost basis is her average price per share. This is computed by taking the total investment for the 5 months ($1,000) and dividing it by the total number of shares acquired (115.6). $1,000/115.6 = $8.65.Reference: 16.7.1 in the License Exam Manu