Series 27: Chapter 7 Practice Question Answers

Chapter 7 Practice Question Answers

1. 1. Answer: A. A DK notice indicates that the party does not recognize the trade. Any discrepancies between trade confirmations should be promptly resolved.
2. 2. Answer: D. The company first Declares a dividend. The declaration date is sometimes called the announcement date. The Ex-dividend date is one business day before the Record date. The dividend is then Payable at some date after the record date. The acronym for remembering this is DERP.
3. 3. Answer: C. Some bonds trade flat, meaning that the bonds do not have accrued interest to factor into the transaction. A flat bond may be a zero coupon bond, where interest payments do not apply. Securities in default also trade flat, as do bonds that settle on the same day that interest is paid.
4. 4. Answer: C. A due-bill is a form used when a security traded before the ex-date is delivered too late for transfer on or before the record date. It indicates that the next dividend paid will be passed along from the seller to the buyer. Due-bills are necessary because the person who receives the dividend is the owner of record on the record date, so in the case of a late transfer, the seller still holds the title when the dividend is sent out. However, since the buyer purchased the securities before the ex-date, the buyer also purchased the right to receive the dividend.
5. 5. Answer: C. When-issued securities are generally traded “and interest” up to but not including the delivery or settlement date. The security earns interest from the trade date until the security is delivered.
6. 6. Answer: C. Pers