SIE Practice Exam

The characteristics of a general and limited partnership are virtually identical except for: A. The owners in a general partnership share liabilities equally, whereas only the general partner(s) have personal liability in a limited partnership. B.A general partnership is taxed as a business entity but the taxes of a limited partnership flow through to the partners. C.Income flows through to owners in a general partnership, but not a limited partnership. D.Expenses flow through to owners in a limited partnership, but not in a general partnership.

A. The difference between a general partnership and a limited partnership has to do with liability. In a general partnership, all partners share in the profits and liabilities equally (unless otherwise stated in the agreement), whereas in a limited partnership, only the general partner(s) have personal liability, the remaining partners do not.

The characteristics of a general and limited partnership are virtually identical except for: A. The owners in a general partnership share liabilities equally, whereas only the general partner(s) have personal liability in a limited partnership. B.A general partnership is taxed as a business entity but the taxes of a limited partnership flow through to the partners. C.Income flows through to owners in a general partnership, but not a limited partnership. D.Expenses flow through to owners in a limited partnership, but not in a general partnership.

A. The difference between a general partnership and a limited partnership has to do with liability. In a general partnership, all partners share in the profits and liabilities equally (unless otherwise stated in the agreement), whereas in a limited partnership, only the general partner(s) have personal liability, the remaining partners do not.

Assume the par value for a cumulative preferred stock is $100, and that the stated dividend on the cumulative preferred stock is 3%. An investor purchased the cumulative preferred stock two years ago. Two years ago, the Board of Directors declared no dividend. Last year, the Board also declared no dividend. This year, the Board wishes to declare a dividend of 3% to the common stockholders. How much must be paid to the cumulative preferred stockholder before paying dividends to others? A. $9 B.$6 C.$0 D.$3

A. The distinguishing feature of a cumulative preferred stock vs. a typical preferred stock is that a company must make up "missed" dividend payments if it wants to pay dividends to the common stockholders. In this case, a payment of $100 x 3% = $3 was missed two years ago, and another $3 payment was missed last year for a total of $6 in missed payments. The cumulative preferred stockholder must also be paid the $3 for the current year's dividend, so the total owed from the corporation is $6 + $3 = $9.

An inverse ETF might be suitable for an investor A. Who wants to hedge against a drop in the stock market B.Who anticipates a rising market C.Who is living on a fixed income D.Who wants to invest for the long-term

A. Two kinds of non-traditional ETFs are leveraged ETFs and inverse ETFs. Leveraged ETFs use derivative products such as equity futures, options, and swaps to receive daily returns two to three times above the returns of the index they are tracking. For example, a triple leveraged ETF is one that projects returns three times the tracked index. Inverse ETFs use similar derivative products to profit from the decline of an index of underlying stocks. Both of these products are complex and carry high risks. Nontraditional ETFs are not to be held beyond a single day, and their riskiness is compounded the longer they are held.

Checkpoint Brokerage is a new firm that is preparing an introductory advertisement to promote the services offered by the firm. It wishes to mail the advertisement to potential investors in advance of its opening next month. Which of the following is true regarding this advertisement? A. It must be preapproved by a principal and filed with FINRA within 10 days of its initial mailing date B.It must be preapproved by a principal and filed with FINRA at least 10 days prior to its initial mailing date C.It must be preapproved by a principal and filed with FINRA by its initial mailing date D.It must be preapproved by a principal prior to mailing

B. First-year broker-dealers must submit all forms of retail communication to FINRA at least 10 days prior to their initial use. Retail communications that promote a product or service offered by the firm must also be preapproved by a principal before they are mailed to clients.

Becky is an investor with a margin account. Her brokerage firm requires 50% as the initial margin and 25% as the maintenance margin. She purchases a stock on margin for $14,000. The stock later drops to $10,000. What is Becky's initial margin amount and maintenance margin amount, respectively? A. $14,000 and $2,500 B.$7,000 and $2,500 C.$7,000 and $3,000 D.$7,000 and $10,000

B. The initial margin is the required initial deposit the firm will require Becky to have. If it is 50% then the initial margin amount is $7,000, or 50% of $14,000. Becky is also required to meet the maintenance margin of 25%. If the stock drops to $10,000 she has $3,000 in equity ($10,000-$7,000= $3,000). This will meet the required maintenance amount of $2,500 (25% of $10,000.) Hence, Becky will not have to make an additional deposit to meet the required minimum maintenance amount.

An inverse ETF might be suitable for an investor A. Who is living on a fixed income B.Who wants to hedge against a drop in the stock market C.Who anticipates a rising market D.Who wants to invest for the long-term

B. Two kinds of non-traditional ETFs are leveraged ETFs and inverse ETFs. Leveraged ETFs use derivative products such as equity futures, options, and swaps to receive daily returns two to three times above the returns of the index they are tracking. For example, a triple leveraged ETF is one that projects returns three times the tracked index. Inverse ETFs use similar derivative products to profit from the decline of an index of underlying stocks. Both of these products are complex and carry high risks. Nontraditional ETFs are not to be held beyond a single day, and their riskiness is compounded the longer they are held.

Which of the following conditions must an issuer meet in order to qualify for a Rule 147 exemption from the registration requirements of the Securities Act of 1933?I. The transactions must be intrastate sales where an entire issue is sold within one stateII. The transactions must be intrastate sales where 90% of an issue is sold within one stateIII. Until eighteen months after the last sale of the securities by the issuer, any resales of the securities must be made only to residents within the state of issuanceIV. Until six months after the last sale of the securities by the issuer, any resales of the securities must be made only to residents within the state of issuance A. II and III B.II and IV C.I and IV D.I and III

C. Rule 147 applies to intrastate transactions that are considered exempt from federal registration under the Securities Act of 1933. An intrastate transaction is exempt if all of the issue is sold within one state and certain other conditions are met. The issued securities must remain within the one state for six months after the last sale by the issuer before the securities may be resold in other states. Additional requirements include that the issuer's principal place of doing business must be located within the state the issue is being offered in. The issuer must also meet at least one of the following requirements: • 80% of revenues must come from within the state. • 80% of business assets must come from within the state. • 80% of proceeds must be used in-state. • The majority of people employed by the issuer live in the state. This question reflects updated Rule 147, effective April 20, 2017. For more information, please see your Resources folder.

An investor whose primary concern is capital preservation would most likely be concerned with which of the following? A. Capital gains tax B.Gaining a high yield C.Liquidity risk D.A rising rate of inflation

D. Investors whose primary concern is capital preservation typically invest in safe investments such as bank CDs, U.S. Treasuries, and money market funds. Each of these types of investments promises a fixed payment; however, since the payment is fixed, interest rates are the major concern for this type of investor. On the other hand, since these investments do not rely on capital appreciation, the capital gains tax rate is generally not a concern for their investors. Additionally, since each of these investments is extremely liquid and thus easy to turn into cash, liquidity risk is not a major concern. Finally, because investors who desire capital preservation are generally conservative, they usually avoid making so-called high-yield investments, which come with a higher level of risk.

Julian is an MFP at Dealer X, a municipal securities dealer. He contributes $225 to the re-election campaign of a Blue County official who is able to direct business toward municipal securities dealers. Since he lives just across the river in Green County, Julian is unable to vote in the election. Which of the following is true of Julian's contribution? A. Since it is for less than $250, it will trigger a ban on doing business with municipal entities under the official's control B.It will only trigger a ban on doing business with municipal entities under the official's control if the official wins the election C.Since it is for under $250, it will not result in a ban on business with any municipal entities D.Since Julian was unable to vote in the election, it will trigger a ban on doing business with municipal entities under the official's control

D. MSRB Rule G-37, also known as the 'pay to play' rule, prohibits municipal securities dealers from engaging in certain types of business with a municipality if they have made political contributions to an official of that municipality. However, the rule comes with an exception that allows MFPs (municipal finance professionals) who are allowed to vote in an election to contribute up to $250 without triggering the ban. But since Julian is unable to vote in the election in the example, his contribution does not meet the de minimis requirements. Additionally, whether an official is elected as a result of a campaign for which contributions were made is irrelevant for the purposes of the 'pay to play' rule.

Which of the following are typically true about bonds? I. Market risk is greater for long-term bonds. II. Market risk is greater for short-term bonds. III. As interest rates rise, the prices of bonds in the secondary market go up. IV. As interest rates rise, the prices of bonds in the secondary market go down.

D.I and IV As interest rates rise, the prices of bonds decline in the secondary market because investors can invest their money in higher-paying new issues. This is considered market risk, also called interest rate risk, for bond investors. Market risk is greater for long-term bonds than short-term bonds because there is more opportunity for interest rates to rise over the bond's life. To reduce market risk, investors could invest in short-term bonds over long-term bonds, because when interest rates rise, the prices of long-term bonds fall faster than the prices of short-term bonds.