FINRA SIE Exam
Which of the following are defined as investment companies under the Investment Company Act of 1940
1) Management Company 2) Unit Investment Trust 3) Face Amount Certificate Company ( Real Estate Investment Trust are not considered under this act)
XXYZ ADR (American Depository Receipt) represents 10% of the value of an XXYZ ordinary share. The ordinary shares trade on the London Stock Exchange, where the current price is 400 British Pounds (BP). The current exchange rate for the British Pound against the US Dollar is $1.40. The ordinary share pays an annualized dividend of 12 BP. The XXYZ ADR is listed on the NYSE. If a customer places an order to buy $560,000 of the ADR on the customer will buy how many shares of the ADR?
10,000 Shares with $560.,000 Explanation 400 BP x $1.4 = 560 $560,000 / 560 BP/share = 10,000 Shares of XXYZ
How would you quote a US Government bond with a dollar price of $1012.50?
101-8 US GOVT bonds are quoted on a percentage of par at 1/32nds 101 + 8/32 = 101.25 then multiply by 10x to get to par $1012.50
Trades of all of the following will settle in Fed Funds Except? 1) US Treasury Bonds 2) Treasury Bills 3) Prime Commercial Paper 4) Prime Banker's Acceptances
3) Prime commercial paper is not traded by the Federal Reserve therefore does not settle in Fed Funds Prime Banker's Acceptances, T Bills, T Bonds, are all settled in Fed Funds
Current Yield Formula
Annual Interest / Current Market Price
Nominal yield Formula
Annual Interest / Par Value
A corporation has issued 9%, $1,000 par convertible debenture which convert at $50. The common stock is currently trading at $60. If the bond and the common stock are trading at parity a customer purchasing 5M of the bonds will pay:
Answer $6,000. The bonds are convertible at $50, based on a $1,000 par value therefore each bond convert into 20 shares at $50. If the common stock is trading at $60 the bond must be trading at $60 x 20 = $1,200 Since they are buying 5M that means that are paying 5 x $1,200 = $6,000
When would a moral obligation bond be issued?
A moral obligation bond would only be issued in times of financial distress for the municipality that does not have enough taxing power or revenue generating ability to sell a revenue bond.
A customer owns 256 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 15 rights a shareholder may purchase one additional share.at $24 a share. Any fractional rights may be rounded up to buy an additional share. How many shares may the customer buy with these right?
A share holder can buy a maximum of 18 shares with these rights paying $432 for them. The 17.06 shares may be rounded up to 18.
All new corporate bonds are issued in what form? Fully registered Book entry Mega man entry Registered to principal
Book entry
New issues of Government debt are issued in what form? Fully registered Fully registered to principal Book entry Mega super registered to a bro
Book entry
What traits do preferred stock and bonds have in common? How are they different?
Can be callable by issuer, both have periodic payments. Both are senior securities to common stock. Neither have voting rights Preferred is paid dividends on a percentage of face value much like the yield of a bond. Preferred stock has no maturity date and can be held perpetually while bonds have a set maturity date. Payments to preferred stock are not mandatory unless a declared dividend has been issued to common stock Payments to bond holders are mandatory
All of the following are sources of income that can be used to service debt on municipal revenue bonds Except? 1) Toll Fees 2) Park Fees 3) Capitalized interest 4) Sales Tax
Capitalized interest (property tax) is not used in revenue bonds, it is only used in General Obligation Bonds
Dividends can be paid in the form of?
Cash or products Additional shares of ANOTHER company (yes another company) Additional shares of that company NOT Options and Not Tax deferments
Treasury notes and Bonds are registered in? A) Bearer securities B) Registered to interest only C) Registered to principal only D) Fully registered in book entry form
D Government and Corporate are registered in book entry form
A corporate bond which is backed solely by full faith and credit of the issuer..
Debenture
Rights are?
Exerciserable, Negotiable (can be traded), Giftable
Constitutional Debt Limits are imposed on the issuance of?
General Obligation bonds (Moral obligation bonds are not subject to debt limits they are issued in desperation)
If interest Rates fall the issuer will most likely call which bonds first?
High Dividend Rate preferred issues trading at a premium
An Open ended fund have a NAV of $10/share. The minimum purchase price is? I $10 II $10 plus commission III The market price IV The market price plus commission
I $10
A municipality wishes to sell a bond issue that is NOT backed by taxing power. Which of the following bonds can be issued? I Revenue Bond II Industrial Revenue Bond III General obligation Bond IV Lease rental bond
I , II, and IV Only General obligation bonds are required by taxing power. The rest are revenue backed
Which of the following is an ECN ( Electronic Communications Network) I INSTINET II Island III Archipelago IV Peninsula
I II and III Are all ECN's Peninsula is not an ECN
Stockholder approval is needed if a corporation wishes to do which of the following? I Split it's stock 1 for 2 II Split its stock 2 for 1 III Repurchases shares for it's Treasury IV Issue convertible securities
I II and IV Stock splits require a vote because they change the par value Issue of convertible securities
Which of the following are types of Oil and Gas direct participation programs? I Exploratory II Income III Balanced IV Combination
I II and IV Balanced is not a DPP
Which of the following securities trade in the secondary market? I Preferred II American Depository Receipts III Mutual Finds IV Municipal Bonds
I II and IV Mutual Funds do NOT trade in the secondary market
Which of the following are TRUE about GNMA Pass Through Certificates I They are quoted on a par basis in 32nds II They are issues in $1,000 denominations III They trade "and interest" IV Accrued interest on the certs is computed on a 30 day 360 year basis
I III and IV are TRUE II is NOT true they are issued on $25,000 minimum "and interest" means that they trade with accrued interest
A customer places an to buy bonds. The order reads "Buy 5M ABC 9s M'35 @ 90 GTC" At which of the following will the price be executed I 89 II 90 III 91 IV 92
I and II The order is a Limit Buy so the purchase will only be initiated at or below 90
Sell Limit Orders? I Used to sell at prices that are lower than current market prices II Used to sell at prices that are higher than the current market price III Guarantees a specific price IV Does not guarantee a specific price
II and III Sell above the current market price Guarantees a specific price (These securities can only be filled at the current market price or higher - so they do guarantee a specific price or better)
Treasury Receipts I Pay interest semi-annually II Pay interest at maturity III Are essentially zero coupon T-notes or T-Bonds IV Are essentially Zero Coupon T- Bills
II and III They pay interest at maturity basically zero coupon T note or T Bonds
Bankers Acceptances I Trade at a Premium to par II Trade at a discount to par III Have a thinly traded market IV Have an active market
II and III They trade at a slight discount and are not traded actively
At the time of "when and as if issued" trade the: I Amount of accrued interest due to the under writer is known II Amount of accrued interest due to the underwriters is not known III Settlement date is known IV Settlement date is not known
II and IV Interest due is now known Settlement date is not known
In 2018 a customer buys 5 GE 10% debentures, M'27 at 85. The interest payment dates are Feb 1st and August 1st. The bonds are callable as of 2022 at 103. The nominal yield is? I 10% II 10.81 % III 11.76^ IV 12.43%
Nominal Yield
Which of these Retirement plans are "Qualified"? I Roth IRA II SEP III 401k IV Traditional IRA
Only III and IV are Qualified
Preferred Stock is?
Performance based, participating, cumulative (dividends) It is not refundable or redeemable
When are common dividends declared and paid?
Quarterly for both
What are three rights of a shareholder of common stock?
Right to vote on members of the BOD Right to dividends Right to transfer shares
When do Mutual funds send financial statements to share holders?
Semi-Annually
Issuance of which of the following municipal issues are NOT subject to statutory debt limits
Special tax bonds Industrial Revenue Bonds Moral Obligation bonds COPS (General Obligation are subject to debt limits)
Which of the following statements are TRUE about tax shelters about tax shelters that invest in raw land?
Tax shelters for Raw land are NOT Allowed The main reason to invest in Raw land would be appreciation potential
Nominal Yield
the interest rate, also known as the "coupon rate" which is named on the bond certificate
What are some actions by a corporation will affect an individuals common shareholder's equity
Conversion of convertible preferred stocks or bond Repurchase of common shares Issuance of additional common shares (Stock splits do not effect shareholders equity but it must be voted on because it effects Par Value)
Benefits to a Convertible stock compared to a regular debenture
Convertible stock will have a slightly lower yield than non-convertible however it will raise in value as the market price of common stock rises
Which of the following are taxable in a year? I Interest earned from investments II Cash Dividends from investments III Stock Dividends from investments IV Stock Splits on Common Stock
I and II are considered taxable Stock dividends are not taxable because they are not paid in cash Stock splits are also not taxable
If a fund distributes a capital gain to shareholders which statements are true I The capital gain is taxable if taken as a check II The capital gain is not taxable if taken as a check III The capital gain is taxable if it is auto reinvested IV The capital gain is not taxable if it is auto reinvested
I and III The capital gain is taxable either way because it is distributed
zero coupon bond
a bond that makes no coupon payments and is thus initially priced at a deep discount
Which is true regarding warrants? I Are issues with an exercise price that is higher than the market value of the stock II Are issued with an exercise price that is lower than the market value of the stock III Warrants would be exercised when the stock market's price is below the warrant strike price IV Warrants would be exercised when the stock's market price is above the warrant strike price
I and IV Warrants are issued with an exercise price that is higher than the market value of the stock They would be exercised when the value of the stock is above the warrant strike price
Which of the following pay dividends? I Warrants II ADR's III Preferred Stocks IV Real Estate Investment Trust Shares
II , III , IV Warrants are the only ones that do not pay dividends
The money that bank has in excess of reserves is called the? I Clearing house funds II Federal Funds III Money Market Funds IV Available Funds
II Federal Funds
Which of the following are likely purchasers of commercial paper? I Individuals II Insurance Companies III Trust Companies IV Open- End Investment Companies
II III IV All but individuals are likely purchases of commercial paper
Which of the following actions by a corporation will affect an individual common shareholder's equity? I Declaration of stock dividend or Stock split II Conversion of convertible preferred stock III Repurchase of common shares outstanding (Stock buy back IV Issuance of additional common shares
II III and IV Will all effect an individual shareholders equity Stock splits and Stock dividends will not
Which is most subject to reinvestment risk? I Zero Coupon Bonds II Low Coupon Bonds III Medium Coupon Bonds IV High Coupon Bonds
IV High Coupon bonds are the most susceptible to reinvestment risk
A middle age woman widowed customer has an investment objective of stable income and wants minimal market and liquidity risk. What type of preferred stock would be the best recommendation I Participating II Convertible III Straight Preferred Stock IV Variable rate preferred
IV Variable Rate preferred
A Sell Stop order is executed when? I In falling markets II In rising markets III at the price specified IV At the market price
In falling markets at the market price Sell stop = Stop loss to prevent further losses it becomes a market order and must fill Buy stop = protects short sellers it becomes a market order once triggered Think of stop as a bomb going off Limit = doesn't trigger if not tripped over.
What benefits do oil drilling programs provide?
Intangible drilling costs are 100% deductible in the year the drilling takes place These programs give an immediate deduction
Trust indenture of a Bond contains the following information?
Interest Rate Maturity Collateral backing the issue Call Provisions
Preferred Stock market valuation is based primarily on what? Performance of stock? Inflation? Interest rates?
Interest Rates is the correct answer, remember that preferred stock is much like a bond in that it has fixed payments and is considered fixed income. Long term market interest rate levels determine the valuation.
What does it mean to be a qualified Retirement plan in your own words?
It means that contributions are tax-deferred and deductible. They are taxed when they are distributed.
Dividends can be paid out in which three ways
Making cash distributions on stocks (cash) Product distribution Stock distributions of that company or another company No taxable credits may be authorized
Which of the following is needed to compute the total dollar price of a municipal bond traded on a yield bases in the secondary market? I Dated Date II Maturity Date III Call Date IV Put Date
Maturity and Call Date are the only ones needed
Who rates commercial paper?
Moody's, Standard and Poor's, Fitch NOT BEST's BEST's DOESNT DO A THING
call premium
The call premium is an amount over the face value of the security and is paid in the event that the security is redeemed before the scheduled maturity date. Put another way, the call premium is the difference between the call price of the bond and its stated par value.
A corporation issued a 7% AA sinking fund debenture at par. Three years later, similar issues are being issues at 8%. Which of the following is true about the outstanding 7% issue? How does the current yield relate to the nominal yield
The current yield will be higher than the nominal yield. The nominal yield (stated yield) will be 7% The market price of the yield will drop when the new issues are at a higher yield. Current yield = annual interest $/ current market price market price = .07 / .08 = 875 Current yield = 70 / 875 Current yield = .08 Current yield > Nominal
A corporation has issued bonds at 8%. Three years later similar issues are being offered in the primary market at 7% which of the following statements will be true about the current yield and the nominal yield?
The current yield will be lower than the nominal yield. The dollar price of the bond will be at a premium. Nominal (stated) = .08 Market price of bond = .08/.07 = 1,143 Current Yield = 80 / 1143 = .06999
ABC Corp declares a 3:1 Stock split to shareholders of record on November 10th. The price of the stock will be reduced on the ex date by:
The stock will be reduced on the ex date by 67%
Who backs Jumbo CD's and are they considered negotiable? Which market trades Jumbo CD's
They are traded on the secondary market They are backed by the issuing financial institution They are considered negotiable
Which rights do shareholders in a management company have? I Vote for the Board of Directors II Vote for the investment adviser of the fund III Receive semi-annual and annual reports IV Choose the broker who executes the portfolio transactions
They have the following rights (Voting for BOD, Voting for the adviser, Receive reports)
Warrants vs Rights Which has time value Which has intrinsic
Warrants have time value Rights have intrinsic value
Which statements are true regarding the relationship interest rates and preferred stock?
When interest rates rise preferred stock prices will fall When interest rates fall the preferred stock prices will rise. They are inverse! Similar to Bonds
