SIE Practice Exam 1

If an investor purchases $1,000 face amount of an 8% corporate bond at 93, and the bond is scheduled to mature in 2028, what will the investor receive at maturity?

$1,040 (The investor will receive $1,040 at maturity. This amount is comprised of the principal repayment of $1,000 plus the final semiannual interest payment of $40.)

Your Client, Sven, has an extensive portfolio of stocks and bonds. Last year, he had an income of $36,000, of which $200 a month was from a part-time job and the rest from his portfolio. How much can he contribute to a ROTH IRA for the previous year?

$2,400, which is not deductible from his ordinary income (You may only contribute earned income to an IRA, not investment income. The most he may contribute is $2,400, based on his earned income from the part-time job. ROTH IRA contributions are not deductible.)

All of the following accounts would be fully covered by the Securities Investor Protection Corporation (SIPC) in the event of a broker-dealer's failure except

$200,000 of Windmill Advisors Growth Fund and $300,000 in steel futures (Futures are not a security and not covered by SIPC)

Your customer, Rodrigo, is 40 years old. He is married and has four sons. Five years ago, he purchased a nonqualified variable annuity for $20,000. It has grown to $25,000 by the time he withdraws $10,000 to pay for his oldest son's college tuition. How will the withdrawal be taxed?

$5,000 tax free and ordinary income, plus a 10% penalty on the other $5,000

John, a customer, purchases 500 shares of the Sierra Verde Coffee Company at $22 a share in a margin account. What is John's initial margin requirement for this purchase?

$5,500 ( 500 * 22 = 11,000, 50% of 11,000 = 5,500)

Paula has applied for a representative position with Great Sky Securities, a broker-dealer firm and FINRA member. While in college, she was a bit of a trouble maker. Since completing her education four years ago, she's been a model citizen. Which of the following issues from her past may result in her disqualification from becoming a registered representative?

A conviction eight years ago for misdemeanor larceny for selling her classmates an interest in the Bay Bridge (Disqualifying events include convictions (not charges) of a felony or a misdemeanor "involving investments and related to fraud." Infractions like speeding tickets are not a disqualifying event.)

Achieving a Better Life Experience (ABLE) accounts may be opened for beneficiaries at what age?

Any age (The age limit for ABLE accounts is based on the onset of disability, not their current age. The onset must be before they turn 26 years old.)

Which of the following is not true regarding convertible bonds?

Coupon rates are usually higher than nonconvertible bond rates of the same issuer. (Coupon rates are not higher than nonconvertible bond rates. They are lower because of the conversion feature's value to the bondholder. The bondholders are creditors, and if the stock price rises above the conversion price, the conversion feature will greatly influence the bond's price.)

Details surrounding a termination must be included with a Form U-5 filing for all of the reasons below except

Death

All registered persons must complete a computer-based training session within 120 days of the person's second registration anniversary and every three years thereafter to comply with

FINRA's regulatory element regulation.

A client buys stock on Monday, May 2, in a cash account. Under Regulation T, when is the client's payment due?

In four business days

An investor owns a municipal bond fund. What is the tax status of distributions from the fund?

Income is tax free, but capital gains distributions are taxable

Your customer receives a 10% stock dividend on 1,000 shares owned. Regarding this dividend, you correctly explain that the position will do what?

Increase by 100 shares, but the price per share will be adjusted downward

If a registered representative terminates their employment to enter regular military service, what happens to their license?

It is placed in a special inactive status

Diversifying a portfolio may help mitigate which of these types of risk?

Legislative risk

If Edna moves $50,000 from a maturing certificate of deposit to her checking account, which of the following measures of money supply would change?

M1

Is Custodial accounts allowed to trade on Margin?

No

Under the Uniform Transfers to Minors Act (UTMA), Oscar wants to give some stock to his brother's son, a minor. The brother is the legal guardian of the child. If Oscar wants to name himself as custodian, which of the following needs to be done?

Oscar must open the account and name himself as the custodian. (Under the UTMA or Uniform Gifts to Minors Act, no special documentation is required. The account is opened in the name of the minor, with the minor's Social Security number and the name of the adult listed as custodian.)

Risk that is difficult to reduce by diversification within an asset class is called which of these?

Systematic risk

A registered representative (RR) wants to give employees of another broker-dealer located in the same office building $20 boxes of chocolates for the holiday season. Which of the following is true?

The gifts are permitted if no condition of sales or reciprocal business is expected, and the RR's employing firm gives prior approval.

A customer enters an order to buy 1,000 shares of XYZ at 21. Which of the following is true regarding these order instructions?

The order can be executed at 21 or lower. (Buy Limit)

Which of the following transactions may be made on margin?

The purchase of NYSE-listed closed-end fund shares

Supply-side economists believe that the government should

allow market forces to determine prices of all goods.

All of the following statements regarding the different securities offering types are true except

in an additional primary offering (APO), underwriting proceeds go to existing stockholders. (In a primary offering (IPO or APO), underwriting proceeds go to the issuing company. In a secondary offering, proceeds go to existing stockholders.)

The Securities Exchange Act of 1934 covers all of the following except

issuance of corporate securities.

One of the ways in which closed-end investment companies differ from open-end investment companies is in their ability to

issue preferred stock

When an investor wants to sell shares short, first the shares must be

located in order to be borrowed

You are recommending the purchase of the XYZ Growth Fund to one of your clients, and you explain that the fund operates pursuant to a 12b-1 plan. Under the terms described in the prospectus, the fee is

part of the expense ratio of the fund. (A 12b-1 fee is deducted each quarter from a mutual fund's assets to cover the costs of marketing and distributing the fund to investors.)

A new registered representative working for a broker-dealer is taking a part-time job at a restaurant on evenings and weekends to supplement current income. Regarding this activity,

prior written notice must be made to the member firm, who could reject or restrict the affiliation.

In a prime brokerage account, the prime broker

provides custody and clearing services and may share execution services with other broker-dealers.

The Conduct Rules

set out fair and ethical trade practices that member firms and their representatives must follow.

As participants in a firm commitment underwriting agreement, the underwriters know that

they, the underwriters, will be acting as principals buying the securities from the issuer

ABC Corporation's stock is trading at $35. A client has purchased a 50 call. The option's current value is made up of

time value only (The option is out of the money, which means its total premium is made up of time value)

All of the following are money market instruments except

warrants expiring within three months (Money market instruments are liquid debt securities maturing within a year. Warrants are equity securities)