SIE simulated exam (day of pt3)

Which of the following option contracts is in the money if ELN stock is currently trading at $80 per share? A) Jan 85 call B) Mar 80 put C) Jan 85 put D) Feb 80 call

C) Jan 85 put In, at, or out of the money has only to do with the option contract's strike price and the current market value of the stock. A call is in the money when the price of the stock exceeds the strike price of the call. A put is in the money when the price of the stock (80) is lower than the strike price of the put (85). Therefore, a Jan. 85 put is in the money when the stock is trading at 80.

Unique tax advantages associated with oil and gas direct participation programs are A) tax credits and cash flow allowances. B) tax credits and depreciation allowances. C) intangible costs and depletion allowances. D) intangible costs and cash flow allowances.

C) intangible costs and depletion allowances. Intangible drilling costs (IDCs) and depletion allowances are both unique tax advantages associated with oil and gas DPPs. IDCs can all be written off completely in the first year of the program instead of over the entire life of the program, and depletion allowances are allowable deductions that compensate for the depletion of the natural resource taken after it is sold.

Your customer has a large cash position and is interested in purchasing shares of Brick n' Mortar Stores stock (ticker: BMS) if it drops to $20 a share. The stock is currently trading at $23 a share. They are curious to know if there is a way to use options to generate some extra income and buy the shares if the stock drops. You might suggest A) writing uncovered BMS calls that are currently out of the money. B) placing a buy-stop order below the market for BMS. C) writing covered puts on BMS stock that are currently out of the money. D) buying out-of-the-money BMS calls.

C) writing covered puts on BMS stock that are currently out of the money. Writing the puts would generate premium income. If the stock declines in value and the option is exercised, the customer will buy the stock at a price lower than where the market is at this moment. The short calls would force him to sell the shares if exercised. Buying out-of-the-money calls costs money and the strike price would be higher than the market. The buy stop does not generate income.

Which of the following choices would best describe a follow-on offering? A) The common stock that is issued attached to a rights offering B) An offering to the employees of the issuing company C) An initial public offering (IPO) that has additional shares added by the issuer on the effective date D) An issue of shares by a public company that is already listed on an exchange

D) An issue of shares by a public company that is already listed on an exchange A follow-on public offer (FPO) is an issue of shares by a public company [registered and reporting to the Securities and Exchange Commission (SEC)] that is currently listed on an exchange and has previously gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in the capital markets through a stock issue.

ABC Corporation's earnings remained steady while its shares outstanding increased by 5%. How does this impact ABC's earnings per share (EPS)? A) EPS has stayed the same B) Not enough information to answer the question C) EPS has increased D) EPS has decreased

D) EPS has decreased EPS is calculated by dividing the company's earnings by the number of outstanding shares. If earnings remain the same while the number of shares increase, then the result (EPS) must decrease.

Regulation T, the initial margin requirement, is set by A) the president and Congress. B) the Comptroller of the Currency. C) the Securities and Exchange Commission (SEC). D) the Federal Reserve Board (FRB).

D) the Federal Reserve Board (FRB). Regulation T, the initial margin requirement currently at 50%, is set by the Federal Reserve Board (FRB).

Which of the following are required if a registered representative is to share in profits and losses with a customer? The trades must be done in a joint account. The customer must be a family member of the representative. The principal must give permission in writing for the arrangement. The broker-dealer firm must also be a tenant in the account.

I and III A registered representative may share in profits and losses with a customer if the customer gives consent and the principal gives permission in writing. The trades must be done in a joint account, and the representative must share in both profits and losses to the extent of his proportional investment in the account. The proportion requirement is waived if the customer is a family member of the representative.

A common stockholder's voting rights apply to which of the following? Election of the board of directors (BOD) Declaration of dividends Authorization or issue of more common shares Changing suppliers for raw material or parts used in production

I and III Common stockholders never vote directly on dividend payment or size. They may elect the BOD indirectly influencing the policy on payment of dividends) and may vote on issues concerning the company's capitalization, such as the issuance of more common stock. They do not vote on day-to-day business decisions, such as suppliers used.

Harry's Burgers has announced a tender offer for 20 million shares of Jim's Junkfood Corner at $30 a share. If Harry's secures all the shares then they will control Jim's. The shareholders of Jim's, that submit their shares to the tender offer, will realize which of these? A capital loss occurs if their cost basis is greater than the tender price. There is no effect. A capital gain occurs if their cost basis is less than the tender offer. Investment income is received equal to the value increase of the new shares.

I and III Shareholders who tender their shares effectively sell the shares at the tender price ($30) and realize a gain or a loss depending on what their cost was for the shares tendered.

Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal? A) Follow-on offering B) Best efforts underwriting C) Firm commitment underwriting D) Initial public offering

B) Best efforts underwriting In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement.

All else being equal, which of the following preferred would pay the highest dividend? A) Participating preferred B) Callable preferred C) Cumulative preferred D) Straight preferred

B) Callable preferred Callable preferred is a benefit to the issuer—not the investor—so callable has to pay a higher dividend than the others because the other features are neutral or benefit the investor.

Which of the following issuers are exempt from the registration requirements of the Securities Act of 1933? A) Windmill Growth Fund B) First National Bank C) ABC Corporation D) National Bank Holding Company

B) First National Bank Banks are exempt issuers, while bank holding companies are not. Corporations and mutual funds must register (nonexempt).

Regarding the sale of a new issue, a customer is considered a restricted person if the person is A) a grandparent of an associated person of a member firm. B) working as a salesperson who works for the issuing firm's underwriter. C) working as a salesperson for a supplier of the issuing corporation. D) working as a private investigator collecting information on the issuing firm's competitors.

B) working as a salesperson who works for the issuing firm's underwriter. Restricted persons include Financial Industry Regulatory Authority (FINRA) member firms and their associated persons, such as a salesperson working for an underwriter, plus immediate family members. Immediate family members do not include aunts and uncles or grandparents.

When speaking to a customer about exchange-traded funds (ETFs), a registered representative could make which of the following correct statements? A) ETFs have different potential tax consequences than mutual funds. B) ETFs can be purchased only by paying a sales charge added to the NAV. C) ETFs cannot be purchased using traditional limit or stop orders. D) ETFs cannot be bought on margin.

A) ETFs have different potential tax consequences than mutual funds. The potential tax consequences of owning an ETF can be different than those experienced when owning mutual funds. While an ETF can make a capital gains distribution, they generally do not—unlike a mutual fund, which generally would make such distributions on an annual basis. ETFs can be traded like other exchange products using traditional stock-trading techniques and order types and are priced by supply and demand. Customers pay commissions, not sales charges.

When an investor receives a final prospectus, the expectation should be that one of the following would not be found. Which is it? A) the Securities and Exchange Commission's (SEC's) verification of accuracy B) the intended use of the proceeds raised in the offering C) the effective or offering date D) all known risks to purchasers of the stock

A) the Securities and Exchange Commission's (SEC's) verification of accuracy The SEC does not verify the adequacy or accuracy of any information found in the prospectus. To the contrary, the prospectus will contain the SEC disclaimer which reads: "These securities have not been approved or disapproved by the SEC nor have any representations been made about the accuracy or the adequacy of the information."