SIE Final #4
An open end fund has a Net Asset Value of $10 per share. The minimum price at which a share can be purchased is:
$10
A customer sells short 100 shares of ABC stock at $38 and buys 1 ABC Mar 40 Call @ $5. The maximum potential loss is:
$700 (The long call limits loss on the short stock position in a rising market. The stock was sold for $38 and can be bought back at $40 by exercising the call. The loss is $2 per share on the stock position. Since $5 per share was paid in premiums, the total loss is 7 points or $700.)
A customer has purchased 1,000 shares of ABC stock at $58 per share, paying a commission of $2 per share for the transaction. ABC stock declares a 20% stock dividend. When the dividend is paid, the tax status of the investment is:
1,200 shares held at a cost basis of $50 per share
Which retirement plan is corporate sponsored and permits employees to make the greatest pre-tax contribution?
401(k)
All of the following callable municipal bonds are trading at an 8% basis. Which is MOST likely to be called?
8 3/4% coupon rate callable at 100 in 2021 (An issuer is most likely to call bonds which have high interest rates (high financing cost to the issuer) and low call premiums (the least expensive for the issuer to call in these bonds).)
Prior to the filing of a registration statement, which activity is permitted?
A member firm signing a syndicate agreement to become part of the underwriting group for the issue
Which of the following meets the definition of insider trading?
A registered representative has been told by his client, the Vice-President of DEF Corporation, that this quarter is looking bad and the representative immediately places an order to sell 1,000 shares of DEF at the market for his wife's account
Which statement is TRUE about donations into accounts opened under the Uniform Gifts to Minors Act?
Any adult can donate into a custodial account for a minor
Individual Retirement Account contributions can be made with:
Cash
Which statement is TRUE about hedge funds?
Hedge funds are illiquid investments that use aggressive investment strategies to maximize returns, and thus have high risk levels
A customer buys stock in a regular trade on Thursday, October 5th. The trade will settle on:
Monday, October 9th
Who is an accredited investor under Regulation D?
Officer or director of the issuer
Which statement is TRUE about changing the beneficiary on a Coverdell Education Savings Account?
The beneficiary can be changed to any relative of the same or later generation (The donor controls the funds in a Coverdell ESA and the funds can be transferred from one beneficiary to another beneficiary (e.g., transfer of the funds from a daughter to an account for a son). Note that the money cannot be transferred to a relative that is in an older generation, however.)
All of the following statements are true about opening a new margin account for the customer of an investment adviser EXCEPT:
The investment adviser must sign a margin agreement
A mother and father of twin girls (Girl "A" and Girl "B") want to open UTMA accounts to save for their college education. Who can be the custodian on the account(s)?
The mother on an account for Girl "A' and the mother on an account for Girl "B"
What will back a municipal revenue bond?
The specific revenue stipulated in the bond's Official Statement (A revenue bond is backed by a "revenue pledge" - these are specific revenues from an enterprise activity (such as the revenue from operating an airport financed with an airport revenue bond issue). Other revenues (such as the revenue from a nearby toll bridge) would be used to pay for a revenue bond issue used to finance the building of that bridge - not of the airport, making Choice A incorrect. Tax collections by states and municipal entities are used to back General Obligation bonds, not revenue bonds.)
A dual listed stock is one which trades in two different:
U.S. markets
The "after hours" market is characterized by:
Wide Spreads and Low Trading Volume (After hours trading is characterized by much lower trading volumes than during the regular trading day and, correspondingly, dealer bid-ask spreads are much wider.)
Equipment trust certificates would most likely be issued by a(n):
airline (Equipment trust certificates are issued by common carriers such as airlines, railroads, and trucking companies. The rolling (or flying) stock is the collateral for the debt.)
The principal difference between an open end management company and a closed end management company is:
capitalization (Both open-end and closed-end management companies use an investment adviser to manage a portfolio within the fund's stated objectives. Open-end funds continuously issue and redeem shares. Closed-end funds have a one-time stock issuance and the fund is closed to new investment. The shares are then listed on an exchange where they trade. Therefore, open-end and closed-end funds are capitalized differently. The expense ratio of a fund measures of the "cost" of running the fund, and applies to both open and closed end funds (the largest component of the cost of running either type of fund is the annual management fee).)
A customer has opened a margin account and has signed both the hypothecation agreement and the loan consent agreement. The brokerage firm can do all of the following with the customer's securities EXCEPT:
commingle the customer's securities with securities owned by the brokerage firm (When a customer signs a margin account agreement, he or she allows the brokerage firm to keep the securities in street name; to commingle them with other customers' margin securities; and to pledge those securities to a bank for a loan. The brokerage firm cannot commingle customer securities with its own stock positions. When the loan consent agreement is signed by the customer, the customer allows the securities in the account to be loaned out on short sales.)
The front-end load on a mutual fund is best described as the:
cost of investing in a fund (The front-end load cost of a mutual fund is the actual "cost" of investing in a fund. This is the sales charge. This charge is deducted from the gross dollars paid, with the net amount invested in the fund.)
Under the provisions of the Securities Exchange Act of 1934, all of the following must be registered EXCEPT:
customers of member firms
Common shareholders have all of the following rights EXCEPT the right to:
inspect the minutes of meetings of the Board of Directors
All of the following statements are true regarding a bond that is "registered to principal only" EXCEPT:
interest coupons are detached from the corpus of the bond
To take a second job, an employee of a FINRA member firm:
must amend his or her U 4filing with FINRA and the SEC
Text:A primary dealer buys Treasury Securities in a competitive bid at the weekly Treasury Auction. Settlement between the dealer and the Treasury occurs:
on issue date
The only call provision that must be considered when determining the purchase price of a municipal bond trade effected on a yield basis is a(n):
optional call
LGIPs marketed by broker-dealers are:
regulated by the MSRB
All of the following statements are true about repurchase agreements initiated by the Federal Reserve EXCEPT:
the Fed is selling securities to dealers which it promises to buy back at a later date
The option premium is:
the price of the contract
XYZ Company has issued 10%, $100 par non-cumulative preferred stock. Two years ago, XYZ omitted its preferred dividend. Last year, it paid a preferred dividend of $5 per share. This year, XYZ wishes to pay a common dividend. In order to make the distribution to common shareholders, each preferred share must be paid a dividend of:
$10 (Since the preferred stock is noncumulative, to make a dividend distribution to common shareholders, the company need only make this year's preferred dividend distribution. The stated dividend rate on the preferred is 10% based on $100 par, so $10 of preferred dividends must be paid per share. If this preferred were cumulative, then all omitted dividends must be paid before a distribution can be made to common. Please note that almost all preferred stock issues are cumulative - but non-cumulative issues must still be known for the exam.)
As the initial transaction in a new margin account, a customer sells short 100 shares of ABC stock at $28. How much must the customer deposit?
$2,000 (Even though Regulation T only requires that 50% of the sale amount be deposited ($1,400), because this is the initial transaction in the account, the customer must meet the $2,000 FINRA equity minimum required in a short account. Therefore, $2,000 must be deposited. The "trick" here is that this is the initial transaction in the account!)
The Public Offering Price for a new issue is set at $25 per share. Which of the following is most likely to be the stabilizing bid?
$24.88 (Stabilizing bids are entered at or just below the public offering price, never above. If the public offering price is $25 per share, $24.88 is a likely stabilizing bid. Bids of $20 and 23.01 are too low; a bid of $26 is too high since it is above the POP.)
In December, a customer sells 1 ABC Jan 45 Call @ $3 when the market price of ABC is $44. If ABC falls to $43 and stays there through January, the customer will gain:
$300 (The writer of a call receives the premium for the contract. For a call, the contract will remain unexercised if the market price is below the strike price. The premium received is the maximum gain if the contract expires "out the money.")
A 55-year old individual has just retired after working for the same employer for 20 years. She will collect an annual pension benefit of $55,000, but is not yet ready to stop working.She has lined up a part-time job that will pay $4,000 this coming year. How much can she contribute to a Traditional Individual Retirement Account for her first year in retirement?
$4,000
A customer buys 100 shares of ABC stock at $49 and sells 1 ABC Jan 50 Call @ $4. The breakeven point is:
$45 (The customer paid $49 for the stock and received a $4 premium from the sale of the call, for a net cost of $45. To breakeven, the stock must be sold for this amount. To summarize, the formula for breakeven for a long stock / short call position is: Long stock / short call breakeven = stock cost - premium)
The maximum coverage provided by Securities Investor Protection Corporation for securities held in a customer's account is:
$500,000 (Securities Investor Protection Corporation provides protection on customer securities up to $500,000 in total cash and securities, but only covers cash balances for $250,000 included within the $500,000 limit.)
A customer buys 100 shares of XYZ at $51 and buys 1 XYZ Jan 50 Put @ $5. The breakeven point is:
$56 (The customer paid $5 for the put and $51 for the stock, for a total outlay of $56. To breakeven, she must be able to sell the stock at $56. To summarize, the formula for breakeven for a long stock / long put position is: stock cost + premium)
At what age does a natural person have the legal capacity to open an individual account at a brokerage firm?
18
If an event occurs which requires an issuer to make an 8K filing with the SEC, the filing must be made:
4 business days after the event
Treasury Bills are issued by the U.S. Government in which form?
Book entry
Fiscal policy is set by:
Congressional Action
All of the following securities are redeemable EXCEPT:
Corporate Debentures (Mutual funds - common stock and bond funds - are redeemable securities which do not trade. Savings bonds (Series EE and HH) sold by the U.S. Government are redeemable securities. There is no trading in these issues. To "cash out," they are redeemed with an agent for the Government - a bank or savings and loan. Corporate debentures are negotiable (tradeable) - they cannot be redeemed with the issuer. They trade OTC and on exchanges.)
Which of the following is a non-qualified retirement plan?
Deferred compensation plan
Under the requirements of the USA PATRIOT Act, to open an account for a non-resident alien, which information is NOT required from the customer?
Driver's license number (To open an account for a non-resident alien, there is no requirement to get a driver's license number (remember, some people don't drive). The customer's passport number, tax identification number, and telephone contact number are all required.)
All of the following persons can approve the opening of an account under MSRB rules EXCEPT the:
Financial and Operations Principal (Under MSRB rules, new accounts are approved by either a resident Branch Office Manager (Series 9/10 license); a General Securities Principal (Series 24 license) or by an individual with the MSRB's full Municipal Principal (Series 53) license. The Financial and Operations Principal (Series 27 license) is the firm's accountant, and cannot approve the opening of customer accounts.)
A corporation declares a dividend of $3.00 on Tuesday, December 6th. The record date is set at Friday, December 30th, with the dividend payable on January 6th. Based on this information, the ex date is set at December 29th. For the recipient of the dividend, the "tax event" occurs on:
January 6th
Which annuity payout option usually results in the largest periodic payment?
Life Annuity (The shorter the expected annuity period, the larger the payment. A life annuity lasts only for that person's life - this is the shortest expected period of those given. A life annuity with period certain continues to pay for a fixed time period if the person dies early; a joint and last survivor annuity pays a spouse when one person dies; a unit refund annuity pays a lump sum if a person dies early.)
An inverse ETF is most similar to taking what options position(s) on the reference index?
Long Put (n inverse ETF is unprofitable when the market rises, and profitable when the market falls. So the answer is either a Long Put or a Short Call.)
Under MSRB rules, all of the following statements are true about a registered representative sharing in a customer account EXCEPT the:
MSRB must be notified in advance of the sharing arrangement
A customer wants to place an order to buy stock immediately. What order should be placed?
Market
All of the following are trades that take place in the Second Market EXCEPT trades of:
NYSE listed securities on the exchange floor
Which securities will trade with accrued interest?
Negotiable Certificates of Deposit (Negotiable CDs that mature in 1 year or less are issued at par and mature with accrued interest. Those issued for longer periods pay interest semi-annually and trade with accrued interest. The other choices are all original issue discount obligations, which trade flat.)
If it is now December, regular options contracts could be traded with all of the following expirations EXCEPT:
November (The maximum life of a regular stock option contract is 8 months (this may be tested as 9 months, though). Longer term stock options, known as LEAPs (Long Term Equity AnticiPation options) have a maximum life of 28 months.)
All of the following individuals are permitted to be included in arbitration panel EXCEPT:
Persons involved in the dispute
Under MSRB rules, inquiry should be made about all of the following in order to make suitable recommendations to customers EXCEPT:
Potential Inheritances
What does NOT have to be discussed with a customer when recommending a variable life policy?
Probate fees (Probate fees are the fees charged by attorneys to process the estate of a deceased person through probate court in that state. They have nothing to do with the recommendation of a variable life policy. Insurance companies are state-regulated and the way that the state gets reimbursed for the cost of this is by imposing a premium tax or fee on insurance premiums. This cost should be disclosed to the client. The mortality expense charge is essentially the fee charged by the insurance company to pay for risk of death - the older the person, the higher the fee. This should be discussed with the customer. Finally, the insurance company can charge a fee against the policy for its administrative expenses - another fee to be discussed with the client.)
Which of the following securities transactions would result in a short term capital gain?
Purchase 100 shares of ABC stock at $50 on January 2, 2020; Sell 100 shares of ABC stock at $60 on July 2, 2020
The FINRA suitability rule requires all of the following EXCEPT:
Qualitative Suitability (Reasonable Basis Suitability: This is a review of the features, returns, costs and risks of the recommended product or strategy. Only those products with the best combination can be recommended to clients. In essence, this rule requires that firms have an internal "recommended list" that has completed this review. Customer-Specific Suitability: Once the recommendation has completed "reasonable basis" suitability, that does not mean that it can be recommended to all customers. To recommend it to a customer requires that "customer-specific" suitability be determined. Quantitative Suitability: A single recommendation might be suitable for a customer, however a large number of similar recommendations might not be. It all depends of the customer's objectives, needs, and ability to pay for the recommended transactions. There is no such thing as "Qualitative" suitability.)
A registered representative must retain all of the following records related to each existing customer account EXCEPT:
Record of trade profit and loss
Under the requirements of the USA PATRIOT Act, if a member firm suspects that an account is engaging in money laundering, the firm is obligated to file a(n):
SAR (If a member firm suspects that a customer is engaging in money laundering, a Suspicious Activities Report ("SAR") must be filed with FinCEN - the Financial Crime Enforcement Network.)
In order to render an opinion on a new municipal bond issue, the bond counsel will examine all of the following EXCEPT:
SEC regulations (The bond counsel renders an opinion as to the legality, validity, and tax exempt status of a new municipal issue. To do this, he or she examines municipal statutes, state laws, judicial edicts, and tax regulations. Municipal securities are exempt and not subject to SEC oversight.)
The Securities and Exchange Commission was created by the:
Securities Exchange Act of 1934
Which of the following activities is NOT permitted after the registration statement is filed?
Solicitation of orders for the issue in registration (Once the registration statement is filed, a preliminary prospectus can be sent; indications of interest can be taken; and a "tombstone" announcement can be published. Legally, all of these are not considered to be "offers" of the security (offering the securities to the public is prohibited until the registration is effective). Once the registration is effective, orders can be accepted for the new issue if customers receive the final prospectus at, or prior to, confirmation of sale.)
You are in the middle of a discussion with an institutional client over the phone, where you recommend that the client buy 100,000 shares of ABC stock. It looks like the client may be interested in making the purchase. Your cubicle is within earshot of the neighboring cubicle. Just before your client tells you take the order to buy, you overhear your colleague, the representative in the neighboring cubicle, selling 10,000 shares of ABC stock to his client. Which statement is TRUE about this situation?
The colleague has committed a violation because your customer's order could move the price of ABC stock
If a U.S. corporation has the bulk of its sales overseas, which statement is TRUE?
The corporation would prefer a weak dollar
Which statement is TRUE about tax shelters that invest in raw land?
The main reason to invest in raw land is for the appreciation potential (Raw land is neither depreciable nor depletable. Nor are tax credits allowed on raw land purchases. The only reason to buy and hold raw land is for the appreciation potential.)
An officer of an issuer has received restricted stock as part of her compensation package. If she wishes to sell some of the stock under Rule 144, which statement is TRUE?
The officer can sell the stock within 90 days and 6 months of purchase
Which statement is TRUE about adjustment (income) bonds?
Timing of interest payments made is not predictable and any interest payment made is predictable in amount
A social security number or tax identification number is needed to open a securities account for:
a U.S. individual foreign individuals corporations (To open an account for a U.S. resident, a social security number is needed; to open an account for a U.S. corporation, the tax identification number is needed. If a foreign resident or foreign corporation wishes to open an account, then that person must have a U.S. tax identification number.)
The "death benefit" associated with a variable annuity contract:
applies during the accumulation phase - if the contract holder dies, a beneficiary will receive at least the amount invested in the contract (The "death benefit" of a variable annuity contract is not really much of one. If the contract holder dies prior to annuitization, the insurance company pays the greater of current NAV or the amount invested to a beneficiary. If the contract holder dies after annuitization, there is no more "death benefit.")
In November, a customer sells 1 ABC Jan 45 Call @ $3 when the market price of ABC is $44. If ABC rises to $48 and the writer is assigned, the customer will:
breakeven (The writer of a call receives the premium for the contract. For a call, as the market price rises above the strike price, the contract is exercised, forcing the writer (seller) to deliver shares at the strike price. Since he or she has to go in the market to buy the shares for delivery, we have: buy at -$48, deliver at +$45, for a -$3 loss offset by the +$3 premium received or a breakeven on the position.)
Orders that are placed below the current market are:
buy limits and sell stops (The orders that are placed lower than the current market are "OBLOSS" - Open Buy Limit orders and Open Sell Stop orders. Buy limit orders allow the purchase of a security at a price that is cheaper than the current market; sell stop orders allow the sale of a security at a price that is cheaper than the current market. Both of these orders are filled in falling markets.Conversely, the orders that are placed higher than the current market are "OSLOBS" - Open Sell Limits and Open Buy Stops. Sell limit orders allow the sale of a security at a price that is higher than the current market; buy stop orders allow the purchase of a security at a price that is higher than the current market. Both of these orders are filled in rising markets.)
Moody's ratings measure:
default risk of debt issues (Moody's measures default risk of debt issues. Moody's only rates bonds, not equity securities.)
All of the following features are common to both preferred stock and bonds EXCEPT:
fixed maturity date (Preferred stock has no maturity - its life is indefinite. Bonds have a stated maturity date. Both preferred and bonds are fixed rate, can be callable, and typically make semi-annual payments to holders.)
An issuer would MOST likely call bonds with:
high nominal yields
Which statement is TRUE about American Depositary Receipts?
holders are entitled to dividends if declared
An order ticket to sell may be marked "long" in all of the following circumstances EXCEPT the customer:
holds fully paid warrants to buy the underlying stock in custody of the broker-dealer
A U.S. automobile manufacturer buys a Korean automobile manufacturer. This is a:
horizontal merger (A horizontal merger is where 2 companies in the same industry merge, usually to achieve economies of scale.)
All of the following are defined as "institutional clients" for purposes of the FINRA communications rules EXCEPT:
investor with $25 million of assets (FINRA distinguishes between "retail communications" and "institutional communications" because "institutional communications" go to sophisticated investors who can take care of themselves. While retail communications must be approved by a principal prior to use, institutional communications are subject to "post use review and approval" by a principal. An institutional communication is defined as one that is distributed to an institutional investor - a bank, savings and loan, insurance company, registered investment company, registered investment adviser, employee benefit plan with at least 100 participants, government entity or a person with at least $50 million of assets for investment.)
The definition of Treasury stock is:
issued shares minus outstanding shares
The Bond Resolution is the contract between the:
issuer and bondholder
Stock held in the custodial account is the subject of a rights offering. All of the following actions by the custodian are appropriate EXCEPT:
letting the rights expire unexercised (The custodian cannot let the rights expire unexercised, since this is the same as "throwing away" money and is not in the best interests of the account. All the others would be considered appropriate actions.)
A customer buys 1 ABC Jul 65 Put at $5 when the market price of ABC is 64. ABC stock rises to $70 and stays there through July. The customer:
loses $500 (If the market rises to $70, the put expires "out the money" (since the strike price is $65). The customer loses the $500 premium paid.)
Payments to holders of Ginnie Mae pass-through certificates are made:
monthly and represent a payment of both interest and principal (All pass-through certificates pass on the monthly mortgage payments received from the pooled mortgages to the certificate holders. Thus, payments are received monthly. These represent a payment of both interest and principal on the underlying mortgages.)
All of the following terms are synonymous EXCEPT:
retained earnings (Retained earnings represents accumulated earnings of a corporation that have not been paid out as dividends. Capital in Excess of Par, Capital Surplus, and Additional Paid In Capital all refer the same account. Any monies that are paid by shareholders that are in excess of the stated par value are credited to this account.)
A pass through certificate is best described as a:
security which gives the holder an undivided interest in a pool of mortgages
Which transaction can only be performed in a margin account?
sell of a naked call (Short sales of stock and sales of naked options can only be performed in a margin account. The purchase of stock or the sale of covered options can be performed in either a cash or margin account.)
Mutual funds must send their financial statements to shareholders:
semi-annually
All of the following persons can contribute to a 403(b) plan EXCEPT:
student at college
A customer has signed a Letter of Intent to buy at least $50,000 of a mutual fund in return for getting a lowered sales charge. The customer has already invested $40,000, and the customer notices on his account statement that the current NAV of the position is $52,000. The fund is going to make a distribution of the $12,000 capital gain. The registered representative recommends that the customer take the capital gain as cash and use the proceeds to buy shares of the fund to finish the breakpoint. This suggestion by the registered representative is inappropriate because it was not disclosed that:
the capital gain would be automatically reinvested at NAV if not taken in cash while the purchase of the shares would occur at POP including a sales charge
The Federal Funds rate is:
the rate charged from one Federal Reserve member bank to another member bank that wishes to borrow reserves and is lower than the discount rate (The Federal Funds rate is the interest rate charged by Federal Reserve member banks for overnight loans to each other. The Fed Funds rate is lower than the discount rate because the discount rate is pegged by the Fed at 50 basis point over the Fed Funds rate. The discount rate is charged by the Federal Reserve itself to member banks that wish to borrow reserves directly from the Fed.)
Under MSRB rules, confirmation disclosure for bonds sold at a discount or premium must include all of the following EXCEPT:
the rating assigned to the bond by a national ratings agency
Declines in all of the following would likely result in the FOMC making net purchases of government securities in the open market EXCEPT a decline in (the):
unemployment levels (Falling unemployment levels means that economic activity is picking up. If this is true, the Fed would not want to stimulate the economy by loosening credit (the purchase of government securities by the Fed injects cash into the banks and loosens credit). A falling Gross Domestic Product (GDP) could cause the Fed to loosen credit to stimulate activity, as can falling bond prices (if bond prices are falling, yields are rising, which slows activity). A falling Consumer Price Index (CPI) means that the inflation rate is falling. The Fed will be more likely to loosen credit if inflation is low than if inflation is rising. To counteract rising inflation, the Fed will tighten credit.)
A customer sells short 100 shares of ABC stock at $60 and sells 1 ABC Oct 60 Put @ $6. The maximum potential loss is:
unlimited
The general partner in a limited partnership assumes:
unlimited liability (Any limited partnership must have at least 1 general partner and 1 limited partner. There can be multiples of each. The general partner is the manager of the venture, receives management fees, and assumes unlimited liability. The limited partner is the passive investor, similar to a stockholder. The limited partner cannot have a management role and can only lose the amount invested. If the limited partner financed part of the investment with a "recourse loan" (where the lender has recourse to the partner personally to repay the debt if the partnership cannot), then the limited partner is potentially liable for this as well.)
Once an individual has completed the SIE exam, he or she:
will become licensed upon passing the appropriate representative qualification exam
