SIE missed exam questions*
JIM Growth Fund has net assets of $75 million and liabilities of $3 million. The fund has 1.2 million outstanding shares. What is the fund's current net asset value (NAV) per share? A) $65.00 B) $61.50 C) $60.00 D) $62.50
D) $62.50 NAV is calculated by dividing the net assets of the fund by the number of outstanding shares. In this question the net assets are given; the liabilities are already in the figure. The math is 75 million / 1.2 million = $62.5 per share.
All of the following may be purchased on margin except A) call and put contracts. B) Nasdaq listed stocks. C) exchange-listed securities. D) municipal securities.
A) call and put contracts. Option contracts—calls and puts—are among those securities products that cannot serve as collateral for a margin loan and, therefore, may not be purchased on margin. In the case of options, their unpredictable intrinsic value, diminishing time value, and limited life make them inappropriate for securing any kind of loan.
Of the following, reinvestment risk is most closely associated with A) call risk. B) market risk. C) capital risk. D) inflation risk.
A) call risk. When interest rates fall, callable securities are likely to be called. While the investor may receive the redemption proceeds sooner than anticipated, it is often difficult to reinvest while maintaining the same level of return due to the lower interest-rate environment. This is why reinvestment risk and call risk can be viewed as being closely associated with each other.
As long as it is not restricted in any documentation, margin trading is permissible in which of the following accounts? I. Corporate II. IRA III. Partnership IV. Fiduciary
I and III Corporate accounts may utilize margin as long as it is not restricted in the corporation's charter or bylaws. Partnership accounts may utilize margin as long as it is not restricted in the partnership resolution. Fiduciary accounts such as IRAs (and other retirement accounts) and custodial accounts would generally not be permitted to trade on margin unless permission to trade on margin is specifically stated.
Which of the following allows investors to purchase partial shares as part of a primary offering? A) Closed-end funds B) Unit investment trusts C) Corporations D) Mutual funds
D) Mutual funds Open-end managed companies allow investors to purchase fractional shares in a primary offering. The others listed here do not normally allow that.
Which of the following is an example of an equity security? A) Debentures B) Mortgage bonds C) Equipment trust certificates D) Preferred shares
D) Preferred shares Both common and preferred shares are equity securities. Each of the other choices represents a debt instrument
Which of the following bonds would be considered a high-yield bond? A) 4% BB-rated corporate bond maturing in 10 years B) 6% BBB-rated corporate bond maturing in 10 years C) 4% A-rated bond maturing in 30 years D) 2% Treasury bond maturing in 12 years
A) 4% BB-rated corporate bond maturing in 10 years You need to go by the bond rating, not the coupon rate. The coupon rate is based on the market and the specifics of the bond at issue. The rating reflects the issuer's current circumstances. A Treasury bond is never high yield.
A customer purchased 1 MNO Jan 50 call at 2. What is the breakeven point for both the purchaser and the seller? A) 52 B) 50 C) 50 and 48 D) 52 and 48
A) 52 Whether long or short the call, the breakeven for a call is found by adding the premium to the strike price. For the call buyer, the contract is profitable above the breakeven. For a call seller, the contract stands to lose money if the price of MNO rises above breakeven.
Upon application for registration as a registered representative to ensure that any criminal past might be discovered by the employing firm, the Securities and Exchange Commission (SEC) requires A) the filing of a fingerprint card with the U.S. Attorney General. B) a personal interview at the nearest Financial Industry Regulatory Authority (FINRA) district office. C) obtaining a credit report from an established credit reporting agencies. D) the filing of a fingerprint card with the Securities and Exchange Commission.
A) the filing of a fingerprint card with the U.S. Attorney General. A fingerprint card is required to be filed with the U.S. Attorney General to ensure that any criminal past that might result in statutory disqualification from association with a member firm is discovered.
Investors in hedge funds should know that the funds are A) unregulated but must abide by laws that investors be accredited. B) highly regulated, including having to abide by laws that investors be accredited. C) unregulated and, therefore, have no requirements for those who invest in them. D) highly regulated, which is why there are no laws needed for investors to be accredited.
A) unregulated but must abide by laws that investors be accredited. Although hedge funds are unregulated (no Securities and Exchange Commission (SEC) registration is required), there are laws requiring that those who purchase shares of hedge funds be accredited investors. That is, they must meet minimum annual income and net worth criteria, as well as have considerable investment knowledge.
On Tuesday, July 3, your customer bought 15 SBRD 30 September calls at 4. On Friday, August 10, the calls are in the money and your customer issues exercise instructions. On which days did the trade and the exercise settle? A) July 5 and August 14 B) July 4 and August 11 C) July 5 and August 12 D) July 6 and August 13
A) July 5 and August 14 All option trades settle next business day. The exercise of an equity option settles in two business days. July 4 is a holiday. August 11 and 12 are on a weekend. July 4 and December 25 are the only holidays we expect you to see on the test.
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? A) The indexed maximum, which is not deductible from his ordinary income B) $2,400, which is not deductible from his ordinary income C) The legal maximum, which is deductible from his ordinary income D) $2,400, which is deductible from his ordinary income
B) $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.
MMS Corporation has 7% callable preferred shares outstanding. Over the past few years, benchmark interest rates have declined and hovered close to 3%. Which of the following is true? A) The issuer will covert these shares to common stock. B) The 7% shares are likely to be called. C) More 7% callable shares should be issued. D) The issuer is likely to reduce the fixed dividend to 3%.
B) The 7% shares are likely to be called. When interest rates fall, callable preferred shares are likely to be called. This allows the issuer to cease the higher dividend payments and reissue shares with lower dividend payments that align more with the current interest-rate environment. With interest rates now at 3%, the issuer would have no desire to issue more 7% shares, nor could they reduce the fixed dividend on these 7% shares. If the shares were convertible, conversion would be at the discretion of the shareholders, not the issuer.
Which of the following investment companies does not typically feature a portfolio manager? A) Closed-end management company B) Unit investment trust C) Open-end management company D) Mutual fund
B) Unit investment trust A fixed UIT's portfolio is static; there is no need for active management and little or no portfolio turnover. UITs do not generally assess management fees because there is no need to hire an investment adviser to monitor and trade positions within the portfolio.
Registered representatives who have not completed their regulatory element training in the prescribed time frame will have their registrations A) suspended and subject to a fine of not more than $500. B) deactivated by Financial Industry Regulatory Authority (FINRA) until the requirements of the program are met. C) permanently revoked and subject to criminal charges. D) suspended for a period of 60 days and reinstated when the requirements of the program are met.
B) deactivated by Financial Industry Regulatory Authority (FINRA) until the requirements of the program are met. If a person fails to complete the regulatory element within the prescribed time period, FINRA will deactivate that person's registration until the requirements of the program have been met.
Electronic market centers designed primarily for institutional investors describes A) the third market. B) the fourth market. C) the OTC market. D) the exchanges.
B) the fourth market. The market centers that operate through electronic communication networks are known as the fourth market. These centers were created to serve large institutional investors like mutual funds and pension plans. The fourth market reduces the transparency of trading activity by these organizations and allows them to trade more efficiently.
Rule 144 limits the amount of shares an affiliate of a company may sell to A) 5% of the shares outstanding. B) 1% of the shares outstanding or the average weekly volume of trading in the previous eight weeks, whichever is the lesser. C) 1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater. D) the average weekly volume of the previous four weeks.
C) 1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater. Rule 144 allows the selling of 1% of the outstanding shares every three months or the average weekly trading volume of the last four weeks, whichever is greater. Note that it is the greater of the two calculations, not the average or the lesser.
All of the following issuers are exempt issuers except A) ABC Railroad Trust. B) SmallTown Charitable Trust. C) ABC Railroad Power Systems, Inc. D) Smalltown Savings and Loan.
C) ABC Railroad Power Systems, Inc. The hint that leads to the correct response is "Inc." A for-profit corporation is not likely to be an exempt issuer. Common carriers (railroad), charities, and S&Ls are exempt issuers.
Regarding options positions, which of the following statements is true? A) Call writers may be obligated to purchase the underlying, and put writers are obligated to sell the underlying. B) Call buyers have the right to purchase the underlying, and put buyers have the right to purchase the underlying. C) Call buyers have the right to purchase the underlying, and put writers may be obligated to purchase underlying. D) Call writers have the right to sell the underlying, and put writers are obligated to sell the underlying.
C) Call buyers have the right to purchase the underlying, and put writers may be obligated to purchase underlying. Buyers of options have rights, and writers (sellers) of options may be in an obligatory positon if the buyer exercises the contract. Call buyers have the right to purchase stock, and put buyers have the right to sell stock. Call writers may be obligated to sell the stock, while put writers may be obligated to buy the stock.
Which of the following is not correct regarding a rights offering? A) The subscription period is typically 30 to 45 days. B) Rights are issued to existing shareholders on a one-right-for-one-existing-share basis. C) The exercise period is typically long term, five years or more. D) The rights offering allows the holder to exercise and purchase the stock at a price lower than the market.
C) The exercise period is typically long term, five years or more. A rights offering allows stockholders to purchase common stock below the current market price. The rights are valued separately from the stock and trade in the secondary market during the subscription period, which is typically 30 to 45 days. Existing shareholders receive one right per share owned. The number of rights required to purchase one share of the new issue depends on the number of outstanding shares and the number of new shares offered.
All of the following are nonsystematic risks except A) management risk. B) capital risk. C) business risk. D) purchasing power risk.
D) purchasing power risk. Purchasing power or inflation risk is a systematic risk. Capital risk, business risk, and management risk, among others, are nonsystematic risks, those that portfolio diversification can help to reduce. Management risk is the risk that your management stinks. It is really just a variation on business risk and appears on the exam as a distraction.
When customers open margin accounts, when must they be provided with a risk disclosure document? I. Before initially opening the account II. Quarterly III. Semiannually IV. Annually
I and IV The risk disclosure document is required before opening the account and annually after opening the account.
