SIE Missed exam questions :)

**The Federal Reserve sets which of these rates? A) Discount B) Prime C) Broker call D) Federal funds

A) Discount Only the discount rate is set by the Fed. The others are set by the banks.

A municipal securities dealer has just made a contribution to the mayor's reelection campaign. How long must the firm wait before it can enter competitive bids on proposed bond issues by the city? A) No waiting period B) Can never underwrite a bond for the city again C) Two years D) Six months

A) No waiting period If a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a two-year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not.

What government organization maintains the Specially Designated Nationals List? A) OFAC B) FINRA C) FBI D) FinCEN

A) OFAC This is one of the functions of the Office of Foreign Asset Control (OFAC), a division of the Treasury that enforces economic and trade sanctions.

Which of the following is a true statement regarding warrants? A) Warrants are normally issued along with a bond offering as a unit. B) Warrants are issued to existing shareholders on a basis of one right for one existing share. C) Warrants are short-term instruments, typically 30 to 45 days. D) The warrant allows the holder to exercise and purchase the stock at a price lower than the market.

A) Warrants are normally issued along with a bond offering as a unit. A warrant grants its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market price at the time the warrants are issued and at some time in the future. A warrant is usually a long-term instrument, normally five years or more until expiration. Warrants are usually offered in connection with other securities, such as debt instruments (bonds) or preferred stock, to make those securities more attractive.

DEF Growth Fund has total assets of $330 million and liabilities of $15 million. The fund has 10 million outstanding shares. What is the fund's current net asset value (NAV) per share? A) $34.50 B) $31.50 C) $33.00 D) $32.00

B) $31.50 To find the net assets, you subtract the fund's liabilities from the fund's total assets. In this question 330 million - 15 million = 315 million. NAV is calculated by dividing the net assets of the fund by the number of outstanding shares. In this question 315 million / 10 million = $31.5 per share.

**Which of the following is the highest bond rating? A) BBB B) Aaa C) A D) Aa

B) Aaa The highest rating is Aaa (Moody's), which is the same as AAA (S&P and Fitch).

**Which of the following securities may trade above or below their net asset value? A) Face-amount certificates B) Common shares of a closed-end investment company C) Units of a unit investment trust D) Common shares of an open-end investment company

B) Common shares of a closed-end investment company Supply and demand determine the bid price (price at which an investor can sell) and the ask price (price at which an investor can buy). Closed-end fund shares may trade above (at a premium to) or below (at a discount to) the shares' net asset value (NAV).

**During the cooling-off period of a new registration filed with the Securities and Exchange Commission (SEC) A) indications of interest received are binding on the broker-dealers. B) a red herring may be given to prospective investors. C) sales literature may be distributed with the preliminary prospectus. D) tombstone advertisements may not be published.

B) a red herring may be given to prospective investors. During the minimum 20-day cooling-off period, tombstone ads may be published, and a preliminary prospectus, also known as a red herring, may be distributed to prospective investors. Sales literature may not be distributed and indications of interest are not binding on either the investor or broker-dealer.

For the risk disclosures found in the margin agreement, all of the following would be accurate disclosures except A) firms can increase their in-house margin requirements without advance notice. B) if a maintenance call is not met, the customer must direct which securities to sell. C) customers can lose more money than initially deposited. D) customers are not entitled to an extension of time to meet a margin call.

B) if a maintenance call is not met, the customer must direct which securities to sell. If a maintenance call is not met it is the broker-dealer who determines which securities to sell, not the customer. The others are all accurate disclosures found in the margin agreement.

**Which of the following statements would describe the Fourth Market? A) These transactions take place through electronic communications networks (ECNs). ECNs are open 24 hours a day and act solely as principals B) These transactions take place through electronic communications networks (ECNs) which are open during normal trading hours and act solely as principals C) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers D) The after-hours market

C) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers The Fourth Market is a market for institutional investors in which blocks of stock trade through ECNs that are open 24 hours a day acting as agents.

**For restricted stock (unregistered) held by an affiliate (insider), which of the following applies? A) No holding period or any volume restrictions B) Six-month holding period, with sales allowed freely thereafter C) Six-month holding period, with volume limits thereafter D) No holding period, but volume limits always apply

C) Six-month holding period, with volume limits thereafter For restricted stock (unregistered) held by an affiliate (insider), there is a six-month holding period, with volume limits applicable thereafter. The volume limits would remain in effect for as long as the individual is an affiliate.

**Under Rule 2210 the rules regarding correspondence include all of the following except A) may be reviewed after use (postreview). B) must be in good faith. C) preapproval is always required. D) must be to 25 or fewer retail customers or prospects within 30 days.

C) preapproval is always required. Correspondence may be either pre-use approval or postuse review; it is the firm's decision. All communication with the public must be in good faith. Correspondence may go to 25 or fewer persons within 30 days. Unlike retail communication, correspondence does not need to be filed with FINRA.

**FOCUS reports, U4 forms, and order tickets are examples of records that must be kept for A) six years. B) 10 years. C) three years. D) four years.

C) three years

**Which of the following statements about warrants is false? A) The warrant is long term, typically five years or more until expiration. B) Warrants are most often issued with bonds as an added incentive to purchase the bond. C) Warrants are issued as part of a secondary offering of stock to allow existing shareholders to maintain their percentage of ownership. D) The warrant allows the holder to exercise to purchase the underlying stock at a price higher than the market price at the time of the warrant's issue.

C) Warrants are issued as part of a secondary offering of stock to allow existing shareholders to maintain their percentage of owners A warrant grants its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market price at the time the warrants are issued and at some time in the future. A warrant is usually a long-term instrument, normally five years or more until expiration. Warrants are usually offered in connection with other securities, such as debt instruments (bonds) or preferred stock, to make those securities more attractive.

**A customer writes an MMM January 70 put at 6. The maximum potential gain on this position is A) $760. B) $300. C) $600. D) $100.

C) $600 The potential gain on any short (written) option position, call or put, is the premium received on the transaction

The Doubleclick Tech Fund calculates net asset value two times every day. The first NAV is set at noon Eastern Time. When will the second calculation take place? A) After 4:00 pm B) At least one hour before or after the prior calculation C) At least one hour after the prior calculation D) After the close of trading

D) After the close of trading The NAV of a fund share is the amount the investor receives upon redemption. It must be calculated at least once per business day (but may be more often), and one of those calculations must occur after the close of trading on the U.S. exchanges. A typical fund calculates its NAV at the end of each business day (4:00 pm ET). Though the close is typically at 4:00 pm, markets occasionally close earlier.

**All of the following are true regarding customer account statements except A) customers must be alerted to report any inaccuracies or discrepancies promptly. B) customer statements containing penny stocks must be sent monthly, even if no activity occurred in the account. C) customer statements must be sent at least quarterly, activity or not. D) monthly statements need to be sent if the account activity is the receipt of interest or dividends.

D) monthly statements need to be sent if the account activity is the receipt of interest or dividends. Though most firms send a monthly statement, the requirement is that a BD send statements at least quarterly. In any month an account contains penny stocks, a statement is required to be sent. All statements sent require notice that inaccurate information should be reported promptly.

** Distributions from IRAs are taxed at A) ordinary income tax rates on the amount of the distribution that exceeds the amount contributed. B) long-term capital gains rate on the amount of the distribution that exceeds the amount contributed. C) long-term capital gains rate on the full amount of the distribution. D) ordinary income tax rates on the full amount of the distribution.

D) ordinary income tax rates on the full amount of the distribution. Because no taxes were paid on the amount deposited, the full amount is taxable at distribution, and even though some of the distribution is from capital gains, the whole amount is taxed at the ordinary income tax rate.

**The maximum loss on a long put is A) the strike price. B) strike price + premium. C) strike price - premium. D) the premium.

D) the premium. The maximum loss on any long option is the amount that was paid for the option (premium).

Your client, Bill Hearst, inherited several thousand shares of his grandfather's auto parts manufacturer, National Autoparts. He sells a portion of the position in order to raise some cash to buy a new boat. Which of these is true? This is a secondary market transaction. This is a primary market transaction. This is a long sale of the stock. This is a short sale of the stock (he never purchased it). A) I and IV B) II and III C) II and IV D) I and III

I and III The issuer has no part of this transaction; it is considered a secondary market transaction. It does not matter that Bill did not buy the shares; it matters that he owned them. This is a long sale.

Advantages to the investor offered by investment companies include ability to invest small amounts in many different securities. special securities prices available only to investment companies. elimination of market risk through pooling of investments. increased purchasing power in the marketplace. A) II and IV B) I and III C) II and III D) I and IV

I and IV Investors who can only invest relatively small amounts of money can nevertheless purchase interest in many different securities through investment companies. By the same token, they also gain access to increased purchasing power by pooling their investments with others.