General Securities Representative (Series 7) Practice Exam

If an investment is trading at a premium and is being called, what type of call is it?

1. Optional call

2. In-whole call

3. Mandatory call

4. Convertible call

The correct answer is: In-whole call

When an investment is trading at a premium and is being called, it refers to a situation where the issuer of the bond or preferred stock is redeeming it before maturity, and the market price is above the call price. In this context, the correct answer is an "in-whole call." An in-whole call occurs when an issuer decides to redeem the entire outstanding issue of a bond or preferred stock, rather than just a portion of it. This typically can happen when interest rates have decreased, allowing the issuer to refinance debt at a lower cost, or when the issuer chooses to eliminate certain financial obligations. A mandatory call typically refers to clauses that require the issuer to call the security under specific conditions but does not necessarily indicate whether the security is trading at a premium. An optional call refers to the issuer's right, but not obligation, to call the bond, and it can still apply to a bond trading at any price level. A convertible call involves securities that can be exchanged for a predetermined number of the issuer's shares and does not directly relate to the repayment of the security itself. In summary, when an investment is trading at a premium and is being fully called, it indicates an in-whole call, reflecting the complete management of the