SIE Flash Cards

If a bond is called at 103.75, how much will an investor receive?

$1,037.50 plus accrued interest Bond prices are quoted in percentages of par. A bond with a call price of 103.75 is callable at 103.75% of par value. Since the par value for most bonds is $1,000, when this bond is called, the issuer must pay $1,037.50 ($1,000 x 103.75%) to each investor. However, if a bond is called before it matures or is sold prior to maturity, the seller is also entitled to accrued interest.

The minimum denomination for negotiable certificates of deposit is:

$100,000

A corporation has a 9% cumulative preferred stock issue outstanding. The company paid a $7 dividend two years ago and $8 last year. If the company wants to pay a common stock dividend in the current year, the cumulative preferred stockholders must first receive a dividend of:

$12. The cumulative preferred stockholder should receive a yearly dividend of $9. Since it's a cumulative issue, any dividend that's not paid (in arrears) must be made up prior to a common dividend being paid. If a common dividend is to be paid in the current year, the cumulative preferred stockholders must first receive $12 ($2 missed from two years ago plus $1 missed from last year plus the full $9 for the current year).

A 5% $1,000 par value bond sells at $900 and matures in 10 years. What is the amount of each interest payment?

$25 Bonds pay interest every six months (semiannually). The dollar amount of interest payments is computed as a percentage of the par value. In this example, the coupon rate is 5%. The annual interest payment is $50 (5% of $1,000 par value). Each interest payment is one-half of that amount, or $25.00.

If a broker-dealer declares bankruptcy, which of the following positions is fully covered by SIPC?

$300,000 in stock, $100,000 in cash

XYZ corporation has 7,000,000 shares of common stock ($1 par value) authorized, of which 5,000,000 shares have been issued. There are 500,000 shares of treasury stock. The current market price of XYZ is 20. The market capitalization of XYZ common stock is:

$90,000,000 company's market capitalization is found by multiplying the market value by the outstanding shares. $20 market value x 4,500,000 shares outstanding = $90,000,000.

The price for a Treasury bond with a principal value of $1,000 is 94-18. What's the dollar price of this bond?

$945.63

A U.S. Treasury bond is selling in the market at 95.18. The dollar value of this bond is:

$955.62

A U.S. government bond is selling in the market at 95.28. The dollar value of this bond is:

$958.75 U.S. government bonds are quoted as a percentage of par with a fraction in 32nds of a point. Therefore, a T-bond quoted at 95.28 is equal to 95 28/32. By converting the fraction to a decimal, the quote becomes which is 95.875% of the par value of $1,000. $1,000 x 95.875% = $958.75.

A convertible bond has a conversion price of $50 and is currently selling in the market at $1,100. The conversion ratio is:

20 To find the conversion ratio of a convertible bond, the bond's par value ($1,000) is divided by the conversion price ($50). In this question, the conversion ratio is 20 ($1,000 ÷ $50). To calculate the conversion ratio, the market price of the bond is irrelevant. (37049)

For corporate bonds, accrued interest is calculated based on:

30 days in every month and 360 days in the year

A security that works as a letter of credit and used for import-export financing when conducting international business is referred to as:

A bankers' acceptance

The most recent transaction in ABC 6.50x 2050 was at 95. This bond is trading at:

A discount The bond's last trade was done at a price of 95 or 95% of par, which is a discount. The 6.50 represents the bond's interest rate and 2050 is the bond's maturity date. The "x" is simply a placeholder and doesn't give any information about the bond.

What's an investment adviser?

A person in the business of giving investment advice for a fee

An investment that provides investors with a floating rate of interest, a stated maturity, and the ability to put the security back to an intermediary on a pre-determined basis is referred to as:

A variable rate demand obligation (VRDO)

In a Chapter 11 bankruptcy proceeding, which of the following has the highest priority claim?

AEquity holders BUnsecured debt holders C Secured debt holders DAdministrative claim holders

A customer has an account with a discount broker-dealer that specializes in online trading. If the customer is being charged a commission, the firm is MOST likely acting in which of the following capacities?

Agent

Government-sponsored enterprise securities are comparable to direct government obligations with regard to all of the following statements, EXCEPT:

All are government guaranteed Government-sponsored enterprise securities are not guaranteed by the government

A French company would like to have its stock traded in the U.S. securities markets. This would most likely be accomplished through the issuance of:

American Depositary Receipts

A company based in Europe with offices located in New Jersey would like to have its stock traded on the NYSE. This would most likely be accomplished through the issuance of:

American Depositary Receipts

Foreign stocks trade in U.S. markets as:

American Depositary Receipts (ADRs)

A husband and wife have combined earnings of greater than $300,000 in each of the last two years. If it's reasonably expected that this level of income will remain the same, the couple is considered:

An accredited investor. Accredited investors have a net worth of $1 million (excluding their primary residence) or annual income of $200,000 in each of the last two years. For married couples to be considered an accredited investor, they need to have income of at least $300,000. A qualified institutional buyer (QIB) must be institution with $100 million in assets under management (AUM), but is NOT a natural person.

A financial services firm that charges customers based on a percentage of the assets under management is BEST defined as:

An investment adviser

If a bond offering is issued with a call provision, it's MOST beneficial to:

An issuer that does not want to make the same interest payment until maturity A call provision on a bond offering allows the issuer to redeem its outstanding bonds before they reach maturity. The benefit to the issuer is that it will no longer be required to make periodic interest payments once the bond issue has been called. Issuers often call their bonds back due to a decline in interest rates.

Which of the following approvals is required before a municipality can begin making payments on a moral obligation bond?

Approval by the state legislature

Which of the following securities is subject to prepayment risk

Asset-backed securities

Which of the following securities is an example of a collateralized time draft?

Bankers' acceptances

A municipality borrowing for a short-term period to finance a capital project would issue:

Bond anticipation notes

Who derives the MOST benefit from a put provision attached to a bond offering?

Bondholders A put provision allows the bondholder to redeem the bond on a specified date (or dates) prior to maturity. This provision is most likely to be utilized if market interest rates rise.

Which of the following statements is TRUE if interest rates rise?

Both bond and bond fund prices will fall. Bond prices and interest rates move in the opposite direction. When interest rates rise, bond prices will fall and vice versa. Bond funds are simply mutual funds that invest in bonds. Bond fund prices will also move in the opposite direction as interest rates fluctuate.

If a market maker has a current quote of 50.00 - 50.05 (15 x 20), this indicates that the firm is willing to:

Buy 1,500 shares at $50.00 and sell 2,000 shares at $50.05 . When reading a quote, the bid is always listed first (i.e., $50.00 in this question) and the offer/ask (i.e., $50.05 in this question) is listed second. The market maker willing to buy shares at $50.00 and sell them for $50.05. The numbers in parentheses or brackets refer to the number of shares represented by the bid and offer. Unless specified otherwise, it's assumed that the size is in round lots of 100 shares. Therefore, the market maker is willing to buy up to 1,500 (15 lots x 100 shares) at $50.00 and sell 2,000 (20 lots x 100 shares) at $50.05.

If a corporation believes that its stock is undervalued, which of the following actions will cause the share price to rise?

Buying back some of the shares

The FDIC provides coverage for:

Certificates of deposit (CDs)

Which of the following investments is the MOST suitable for a person who is interested in aggressive growth?

Common stock. common stock has historically provided the greatest potential for growth. Bonds and preferred stock are typically suitable for investors who are seeking income

The primary purpose of the North American Securities Administrators Association is to:

Create rules, laws, and exam requirements for states

Investors who buy GNMA securities are not subject to which of the following risks?

Credit risk

Last year, a company failed to pay the full dividend to its preferred shareholders, but now wants to pay a cash dividend on its common shares. Which preferred stock must be paid all of the dividends in arrears before the dividend can be paid on its common shares?

Cumulative preferred

An individual is interested in an investment that offers annual income, has the potential of appreciating in value if interest rates decline and, in the event that the issuer fails to make a payment, having the missing amount added to future distributions. For this investor, which of the following securities is the most suitable?

Cumulative preferred stock

4 of 27A method of voting that gives smaller, less substantial stockholders a greater degree of voting power over the larger, more substantial stockholders is:

Cumulative voting

Four customers have accounts at a broker-dealer with the following balances: Securities Cash Commodities & Futures Options Customer 1 $50,000 $20,000 $0 $30,000 Customer 2 $40,000 $10,000 $0 $20,000 Customer 3 $30,000 $20,000 $10,000 $40,000 Customer 4 $50,000 $40,000 $0 $40,000 Under SIPC rules, which customer will not be fully covered if the broker-dealer declares bankruptcy?

Customer 3. In the event of broker-dealer bankruptcy, SIPC protects customers' securities positions and cash being held by the broker-dealer. SIPC provides $500,000 of coverage for each separate customer, of which no more than $250,000 may be in the form of cash. SIPC does not cover futures and commodities positions. Although each of the customers are under the SIPC coverage limits, the $10,000 in commodities and futures positions of Customer 3 will not be covered. (20954)

If ABC Brokerage (a broker-dealer) purchases 600 shares of stock from a customer and places the securities into its inventory, it likely acted as a(n):

Dealer

Each of the following are considered types of secured debt, EXCEPT:

Debentures

A company in which your client owns stock is about to make a rights offering. The client informs you that he does not plan on subscribing to the offer. You would tell the client that his proportionate ownership interest in the company would:

Decrease If an individual does not subscribe to additional stock in a rights offering, his proportionate ownership interest in the company will decrease.

Municipal bond rating organizations are concerned primarily with the risk of:

Default

Preferred shares:

Don't have the right to vote

The purpose of a depository facility is to:

Ensure that dividend payments are sent to investors by the issuers of the securities

U.S. government agency issues are:

Exempt from registration under the Securities Act of 1933.

Banks savings account are guaranteed and insured by the:

FDIC

The U.S. government does NOT guarantee the payment of interest and principal for which of the following securities

FHLMC (Freddie Mac) securities

Which of the following organizations enforces municipal securities regulations for broker-dealers?

FINRA. The SEC or FINRA for broker-dealers The comptroller of the currency for federal banks The FRB for state banks that are members of the FRB The FDIC for member banks of the FDIC

Which of the following is NOT typically associated with issuing a general obligation bond?

Feasibility study

Which of the following securities is NOT backed by the credit of the U.S. government?

Federal National Mortgage Association (FNMA) bonds

A grant anticipation note is normally paid from

Funds received from the federal government

If SIPC does not cover in full a customer's account in a brokerage firm that has gone bankrupt, the investor is a:

General creditor

Bonds that are backed by the taxing authority of state or municipal governments are referred to as:

General obligation bonds

A corporation has raised money to use for expansion of its plant within the next six months. In which of the following securities should the corporation invest the funds until they are used?

High-quality commercial paper

When warrants are issued, the exercise price is:

Higher than the current market price of the stock

An investor has purchased a Bristol County Public Power System revenue bond. Which of the following statements is TRUE concerning this investment?

If the power system declares bankruptcy, the bonds will go into default

The credit rating of a municipality will likely improve with a(n):

Increase in property taxes

When purchasing Treasury notes, an investor should understand:

Interest is paid semi-annually

Which of the following is TRUE regarding the tax treatment of municipal bonds?

Interest is tax-free, but capital gains are taxable

A bond is selling at a premium. This indicates that:

Interest rates have decreased since the bond was issued The amount that the market price exceeds the par value is known as a premium. One reason for selling at a premium is a decrease in interest rates after the bonds were issued. When looking at the yields for premium bonds, the nominal yield is the highest, followed by the current yield, with the yield to maturity being the lowest yield of

The department of a brokerage firm that advises a corporation regarding the structure and timing of a potential stock offering and also assists in the underwriting of securities is the:

Investment banking department

MSRB rules do NOT apply to:

Issuers

Who derives the MOST benefit from a call provision attached to a bond offering?

Issuers A call provision allows the bond issuer to redeem its outstanding bonds before they reach maturity. The benefit to the issuer is that, if the bond is called, it's no longer required to make periodic interest payments.

A bond is selling at a discount and yields have remained constant. As the bond gets closer to its maturity, what happens to its price?

It increases. Although fixed income securities are subject to some degree of interest rate risk, that risk is of less concern if the bond is being held to maturity. Assuming there is no default by the issuer, the price of a bond that is selling at a discount will increase (move towards par value) as it gets closer to maturity.

Which of the following statements is NOT TRUE concerning a clearing corporation?

It is responsible for automated book-entry changes in the ownership of securities.

If a company's insiders are buying its shares, what will most likely happen to the share price?

It will appreciate

Which of the following is TRUE regarding the ultimate responsibility for paying the principal and interest on a guaranteed bond?

It's the full faith and credit of another company.

Of the choices listed, which one is Moody's lowest rating for a municipal note?

MIG 3

Which term is used for a member of a stock exchange that's responsible for providing liquidity by buying and selling throughout the trading day?

Market maker

A municipality has issued a long-term municipal bond which indicates that the state legislature will provide support if the bond goes into default. What type of municipal bond offers this protection

Moral obligation bond

A corporation that has filed for bankruptcy is to be liquidated. Which of the following securities issued by that corporation has seniority in the liquidation process?

Mortgage bonds

Which of the following recommendations will protect assets if there's an impending large market decline?

Move investments into cash and equivalents

Which of the following bonds are secured by a specific revenue source from a project?

Municipal revenue bonds

Preferred dividends:

Must be satisfied before common dividends Preferred shares receive dividends before the common stock dividends can be paid. However, a company doesn't guarantee preferred dividends will be paid each year.

A broker-dealer executes but does not process transactions. If the firm processing the transactions does not know the identity of the customers, this is known as a(n):

Omnibus account

If a company is utilizing statutory voting, how many votes will a common shareholder receive per vacant seat on the board?

One vote for each share that the stockholder owns

The call premium of a bond refers to the amount:

Over par value that the issuer must pay to exercise the call privilege the call premium of a bond refers to the amount the issuer must pay in excess of par value to exercise the call privilege. For example, if a bond is callable at 102, it has a 2 point ($20) call premium. The issuer must pay $1,020 ($20 more than par) if it wishes to call in the bond.

A customer sells 500 shares of stock to a broker-dealer that makes a market in the stock. The broker-dealer acted in a(n):

Principal capacity and charged the customer a markdown

The primary purpose of a self-regulatory organization (SRO) is to:

Promote fair and equitable practices among members

The certificate which gives a person other than the stockholder the right to vote is referred to as

Proxy

Which of the following does a variable rate demand obligation (VRDO) offer to investors that an auction rate security (ARS) does NOT?

Put option

A corporation wants to offer its shareholders the ability to obtain shares at a fixed price. Which security should the corporation issue?

Rights. Rights (preemptive rights) are issued by corporations and offer existing shareholders the ability to purchase additional shares at a fixed price. Exchange-traded options (e.g., calls and puts) are not directly issued by an issuer as a means of raising capital

Which of the following regulates the resale of restricted securities?

Rule 144

Which of the following statements is TRUE regarding the role of SIPC?

SIPC covers separate customers.

What's the primary difference between STRIPS and Treasury receipts?

STRIPS are backed by the full faith and credit of the U.S. government, but Treasury receipts are not.

The third market is concerned with:

Securities listed on an exchange, but traded in the OTC market

How often do Treasury notes pay interest to investors?

Semiannually

If an investor wants to build a bond portfolio that maintains a stable value, she should purchase bonds with:

Short maturities Although short-term bonds are influenced by changing interest rates, the effect is relatively minor due to their short-term nature. For that reason, investors who want stability in their bond portfolios should invest in short-term debt.

A town has started the construction of public sewers. This project is likely paid by a(n):

Special assessment bond

A corporation's shareholders must vote for:

Stock splits

Interest on Treasury Inflation Protected Securities (TIPS) is

Subject to federal income tax, but exempt from state income tax

Interest on U.S. Treasury securities is

Subject to federal income tax, but exempt from state income tax

Treasury bonds are:

Subject to federal taxes, but exempt from state taxes

If there is a violation of securities laws, which of the following is responsible for taking criminal action?

The Department of Justice (DOJ)

The goal of which of the following entities is to increase the volume of securities transactions by eliminating physical delivery with a book entry system?

The Depository Trust & Clearing Corporation's (DTCC's)

Which of the following choices does NOT hold customer cash or securities?

The Depository Trust Company

Which of the following organizations provides clearing services for equity securities?

The National Securities Clearing Corporation (NSCC)

In the secondary market, the "spread" for a security represents the difference in:

The bid and offer prices

For a bond, what does a call provision describe to investors?

The call date and call price For a bond, the call provision is a part of a bond's indenture and stipulates the bond's call date and call price.

If a customer exceeds SIPC limits:

The customer is a general creditor

U.S. Treasury notes and bonds are quoted in 32nds of a point. When purchasing the bond, the customer would pay the offering price of 105.24. To convert 105.24 into a dollar price:

The customer would pay $1,057.50. Step 1: 105.24 is equal to 105 24/32 Step 2: convert 24/32 into a decimal, which is .75 Step 3: convert 105.75% into a dollar price (105.75% x $1,000 = 1.0575 x $1,000 = $1,057.50)

Common and preferred stock are similar in that:

The dividends for both must be declared by the board of directors

The Investment Advisers Act of 1940 regulates which of the following?

The fee charged by an accountant for providing advice concerning securities

A person has opened an account at a brokerage firm. In which of the following situations is her account protected by SIPC?

The firm files for bankruptcy and ceases doing business.

A decrease in which of the following would cause the price of a bond to increase?

The general level of interest rates. Interest rates and bond prices are inversely related. When interest rates increase, bond prices will fall. When interest rates decrease, bond prices will rise. A decrease in a bond's rating choice (a), a bond's liquidity choice(b), or an issuer's financial strength choice (d), would usually have a negative effect on a bond's price.

A broker-dealer is clearing its trades through another broker-dealer but is not disclosing specific information regarding its clients. Who is responsible for maintaining the account records?

The introducing broker-dealer.

If a municipal bond is backed by the revenues of a facility and the income is insufficient to make the debt service payment, which of the following statements is TRUE?

The issuer will default on its next payment.

For an Industrial Development Bond (IDB), the primary source that backs the bond is:

The leasing corporation only

The Pink Marketplace displays:

The market makers for stocks that are not listed on either the NYSE or Nasdaq

Which of the following statements about municipal revenue bonds is NOT TRUE?

The maturity of the bonds will equal the useful life of the facility being built

The value of the conversion feature on a convertible bond is determined by:

The stock price

Preemptive rights provide which of the following benefits to their holders?

Their proportionate ownership will not be diluted if additional shares are issued.

Which of the following statements is TRUE concerning electronic communication networks (ECNs)?

They can be used by investors who want to trade anonymously.

All of the following statements are TRUE concerning both auction rate securities (ARSs) and variable-rate demand obligations (VRDOs), EXCEPT:

They have a put feature allowing the holder to redeem the security at par

Which of the following is the role of the transfer agent?

To maintain a list of registered stockholders

A quote of 5.90 - 5.75 is a quote for which of the following securities?

Treasury bills. Treasury bills are quoted on a discount yield basis while the other choices are quoted at a price.. Since yield is inversely related (moves opposite) to price, the higher yield (5.90) represents the lower price and is the bid. The lower yield (5.75) represents the higher price and is the ask (offer).

Which bonds are considered the most liquid?

Treasury bonds

"Blue Sky Laws" were established by:

Uniform Securities Act

An investor would have the right to buy the stock of a corporation for the longest period of time by purchasing a:

Warrant

The security with the longest expiration date would normally be a:

Warrant

Which of the following statements is TRUE regarding warrants?

Warrants can be perpetual

Which of the following represents the correct ranking of securities from longest to shortest life?

Warrants, options, rights

Treasury stock:

Was previously issued stock that has been subsequently repurchased by the corporation

For a bond owner, in which of the follow situations is call protection most valuable?

When bond prices are rising.

Which of the following securities are generally used by importers and exporters to finance foreign trade?

Which of the following securities are generally used by importers and exporters to finance foreign trade?

If market interest rates increase, the prices of outstanding bonds:

Will decrease Bonds are subject to interest-rate risk. Interest-rate risk implies that as market rates increase, investors will not be interested in purchasing existing bonds at par since they're able to obtain higher yields by purchasing new bonds. Therefore, existing bonds will need to be offered at a discounted price in order to attract purchasers. In other words, if interest rates increase, outstanding bond prices will decrease. Conversely, if interest rates fall after a bond has been issued, the bond will likely trade at a premium to par.

A type of security that is issued in the U.S. by foreign governments and corporations, trades in U.S. markets, and is denominated in U.S. dollars is called a:

Yankee bond

Which of the following bonds has an interest payment which remains unchanged until maturity?

Zero-coupon bond For most bonds, the interest rate or payment is set at the time of issuance and generally remains fixed for the life of the bond. However, in some cases, as interest rates move up or down, the coupon rate will be adjusted to reflect market conditions. These adjustable rate bonds may be referred to as variable or floating rate bonds. A zero-coupon bond is one that makes no periodic interest payments during its life. In other words, the interest amount (zero) remains unchanged.

An investor who is searching for a quote on a non-listed stock may find it on:

over-the-counter bulletin board OTCBB