SIE Exam Missed Questions
What is the intrinsic value of an XYZ 30 call sold at a premium of 3 when the current market value of XYZ is at 40? A) $7 B) $10 C) -$10 D) -$7
B) $10 B/C: Intrinsic value is the amount that a contract is in the money. The premium of the contract is not a factor. All calls are in the money when the market value of the stock is above the strike price.
Jim's Tech Fund has a public offering price of $75.28 per share. Your customer invests $40,000 at this price. How many shares will they receive? A) The customer must choose to round up or round down. B) 531.350 C) 532 with an additional demand for $48.93 D) 531 with a refund of $26.48
B) 531.350 B/C: Mutual fund shares may be purchased in either full or fractional shares. In this example, 40,000 / 75.28 = 531.350 shares.
A client buys stock on Monday, August 14, in a cash account. Under Regulation T, when is the client's payment due? A) At or before the time of order placement B) In four business days C) The same day D) In two business days
B) In four business days B/C: Regular-way firm-to-firm settlement is two business days after the trade date (T+2). Under Regulation T, payment must be made two business days after the settlement date (S+2 or T+4). *Got it right just feel its important/tricky
Common shareholders wanting to vote on issues at a shareholder meeting can do so in all of the following ways except A) by proxy delivered by mail. B) by telephone or text message. C) in person. D) by proxy delivered online.
B) by telephone or text message. B/C: Common shareholders wanting to vote at a shareholder meeting can do so in person or in absentia, using a proxy delivered by mail or online. Voting by text or telephone would not be permitted.
Money market instruments are typically A) equity securities with short-term maturities. B) fixed-income (debt) securities with short-term maturities. C) equity securities with short- to intermediate-term maturities. D) fixed-income (debt) securities with short- to intermediate-term maturities.
B) fixed-income (debt) securities with short-term maturities.
XYZ Income Fund has net assets of $12 million and liabilities of $500,000. The fund has 500,000 outstanding shares. What is the fund's current net asset value (NAV) per share? A) $24 B) $22 C) $25 D) $23
A) $24 B/C: 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 12 million / 0.5 million = $24 per share.
All of the following are self-regulatory organizations (SROs) except A) Securities and Exchange Commission (SEC). B) Financial Industry Regulatory Authority (FINRA). C) New York Stock Exchange (NYSE). D) Municipal Securities Rule Board (MSRB).
A) Securities and Exchange Commission (SEC).
Which of the following transactions, if any, must be done in a margin account? A) Sell 100 ABC to open B) Sell 100 ABC to close C) All of these must be done in a margin account D) Buy 100 ABC to open
A) Sell 100 ABC to open
What is the name for the legal framework of state laws for broker-dealers, registered representatives, investment advisors and investment advisor representatives? A) The Uniform Securities Act B) The Investment Advisor Act C) The Securities Act of 1933 D) The Securities and Exchange Act of 1934
A) The Uniform Securities Act B/C: The Uniform Securities Act is a template for state securities laws in the United States.
The board of directors of the Windmill Growth Fund have declared a dividend. The ex-date for the dividend will likely be on which of the following days? A) The first business day after the record date B) The day of record C) The first business day before the record date D) Two business days before the record date
A) The first business day after the record date B/C:
What is the time period required for a customer to qualify for a breakpoint discount under rights of accumulation? A) There is no time limit B) 13 months C) 180 days D) 90 days
A) There is no time limit
Which of the following investments has a predetermined termination date? A) Unit investment trust B) Mutual fund C) Closed-end management company D) Open-end management company
A) Unit investment trust B/C: A debt-based unit investment trust (UIT) typically purchases a portfolio of bonds and terminates when the bonds in the portfolio mature. An equity-based UIT purchases a portfolio of stocks and, because stocks don't have a maturity date, terminates at an arbitrary predetermined date. Management companies (the others listed here) do not have a set maturity or ending date.
Narcissus, Inc., a social media company, has shares selling at $50. Your customer is bearish. He would like to sell the stock short, but not until it retreats at least 10% from its current price. In order to catch the drop he could A) enter a sell short at stop 45. B) sell calls at strike price of 45. C) enter a buy stop at 45. D) enter a sell long at 50.
A) enter a sell short at stop 45.
All of the following would be included in the expense ratio of a fund except A) front-end or back-end load. B) 12b-1 fee. C) portfolio management fee. D) salaries and administrative fees.
A) front-end or back-end load. B/C: The expense ratio includes ongoing operating expenses but not sales charges. A front- or back-end load is a sales charge.
A statutory debt limitation imposed on a municipality restricts its authority regarding A) issuing general obligation (GO) bonds. B) raising tax rates. C) insuring municipal bond issues. D) selling municipal revenue bonds.
A) issuing general obligation (GO) bonds. B/C: A municipality may be limited by statute regarding the amount of GO debt it may incur, thus limiting the GO bonds it can issue.
T-notes pay interest A) semiannually. B) monthly. C) annually. D) quarterly.
A) semiannually. B/C: Treasury notes (T-notes) and bonds (T-bonds) pay interest on a semiannual basis.
All of the following are required for a discretionary account except A) the account must receive FINRA approval prior to the first trade. B) all trades must be promptly approved by a principal at the firm. C) a principal at the firm must authorize discretion. D) the customer must authorize discretion.
A) the account must receive FINRA approval prior to the first trade. B/C: FINRA approval is not required for opening accounts.
Isaac James has some call options in his account that he would like to exercise. He wants to know when the resulting purchase of the stock would settle. You would tell him A) trade date plus 2 business days. B) trade date. C) trade date plus 3 business days. D) trade date plus 1 business day.
A) trade date plus 2 business days. B/C: When purchasing or selling an option, the settlement is the next business day. When an option is exercised the resulting stock transaction is 2 business days following exercise.
Commercial paper is A) unsecured debt with a maximum maturity of nine months. B) secured debt with a maximum maturity of one year. C) unsecured debt with a maximum maturity of one year. D) secured debt with a maximum maturity of nine months.
A) unsecured debt with a maximum maturity of nine months. B/C: Issued by corporations, commercial paper, also known as prime paper or promissory notes, are unsecured money market instruments with maximum maturities of 270 days (nine months).
The maximum loss on a short put is A) the premium. B) strike price - premium. C) the strike price. D) strike price + premium.
B) strike price - premium.
All of the following are true regarding breakpoints for mutual funds except A) breakpoints must be disclosed to potential investors. B) the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold. C) a breakpoint sale is considered to be a sale just below a breakpoint. D) the greater the investment, the lower the sales charge.
B) the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold.
As an investment vehicle, and regarding the tax consequences, Real Estate Investment Trusts (REITs) are organized as A) debt instruments. B) trusts. C) corporations. D) mutual funds.
B) trusts.
The primary use for a revocable living trust is to A) limit the grantor access to items in the estate. B) use as a substitute for a will. C) prevent the grantor from liquidating his estate prior to death. D) avoid tax consequences for the grantor
B) use as a substitute for a will. B/C: While the grantor is alive he has full control of the trust. It is mainly used in place of a will.
All of the following terms and phrases are associated with the buy side of the contract except A) owns the contract. B) writes the contract. C) has a right. D) pays the premium.
B) writes the contract. B/C: The buyer of the contract pays the premium and loses it if the contract expires. The seller receives the premium and keeps it if the contract expires. The buyer has a right to exercise the contract. The seller has an obligation if the buyer decides to exercise. Buyer, holder, owner, and long all mean the same thing. Seller, short, and writer all mean the same thing.
The minimum initial requirement when purchasing 100 shares at $30 in a new account would be A) $750. B) $1,500. C) $2,000. D) $375.
C) $2,000. B/C: The requirement is normally 50% but not less than $2,000 unless the purchase price is less than $2,000. Then only 100% of the purchase price would be required.
Your customer sells an 8% corporate bond for 102. They purchased the bond at par one year ago. What is the total return of this position? A) 12% B) 8% C) 10% D) 5%
C) 10% B/C: The formula for calculating total return is (income + gains or - losses) / cost basis. For this question ($80 + $20) / 1000 = 100 / 1000 = 0.10 (10%).
Which of these is not correct? A) There are no earnings limits for those contributing to a 529 plan. B) There is no annual contribution limit for a 529 plan. C) A 529 plan's assets must be used by age 30, an ESA does not. D) Both a 529 College Savings Plan and an ESA may be used to pay for pre-college education expenses.
C) A 529 plan's assets must be used by age 30, an ESA does not. B/C: An education savings account (ESA) must be used by age 30, a 529 plan has no such limit. As of January 1, 2018, both plans may be used for pre-college education costs.
Your client, Janice Thomas, is an active trader and wants to invest in a managed equity portfolio that she can trade intraday. Which of the following should you recommend? A) An exchange-traded note (ETN) B) An exchange-traded fund (ETF) C) A closed end fund D) A mutual fund
C) A closed end fund B/C: A closed end fund is actively traded and most of them are equity funds. They trade on the exchanges like stocks. Mutual funds can be equity funds and can be actively managed, but because they only trade once per day, they are not good for active trading. ETF are actively traded but are not actively managed. ETNs are debt securities, not equities.
Which type of account fee structure is typically better for the moderate to active trader? A) A narrow-based account B) A broad-based account C) A fee-based account D) A commission-based account
C) A fee-based account B/C: With a fee-based account, the customer is charged a fixed fee regardless of the number of trades. With a commission-based account, the customer is charged a fee for each trade. The other two are just made up names.
A debt-based unit investment trust (UIT) will feature which of the following? A) A fixed portfolio of corporate bond mutual funds B) An actively managed portfolio of bonds C) A fixed portfolio of bonds D) A passively managed portfolio of bonds
C) A fixed portfolio of bonds B/C: UITs are not managed; once the portfolios are composed, they do not change. There is no manager, not even a passive one. Mutual funds are managed and do not have a fixed portfolio, therefore a portfolio of funds is not fixed.
Which of the following issues are exempt from registration under the Securities Act of 1933? A) ABC Corporation convertible callable preferred B) ABC Corporation 30-year bonds C) ABC Corporation commercial paper D) ABC Corporation 2-year notes
C) ABC Corporation commercial paper B/C: Commercial paper and other securities with maturities of 270 days or less are exempt from registration.
Which of the following reasons for separation would not require further disclosure on Form U5? A) Discharged B) Other C) Deceased D) Permitted to resign
C) Deceased B/C: Deceased is fairly self-explanatory. The others all require detailed disclosure.
Which of the following is not a tool of the Federal Reserve? A) FOMC activities B) Regulation T margin requirements C) Federal funds rate D) Discount rate
C) Federal funds rate B/C: The fed funds rate is set by the bank making the loan, not the Federal Reserve.
Which of the following describes the results of a 1 for 2 reverse stock split? A) Twice as many shares at the same price B) Twice as many shares at half the original price C) Half as many shares at twice the original price D) Half as many shares at the same price
C) Half as many shares at twice the original price B/C: Pay attention to Reverse split or other verbs
On February 29 of last year, when the stock was trading at $72, Seabird Airlines declared a 15% stock dividend, payable on April 15. On the close of trading, on the pay date, the stock was trading at $75. What would a customer who owned the stock all of last year report for tax purposes? A) $14 gain B) $11 investment income C) Nothing D) $3 loss
C) Nothing B/C: There are no tax implications for a stock dividend.
A partnership account wants to trade on margin. When would this be permitted? A) Always B) Never C) Only if it is not restricted from doing so in the partnership resolution D) Only if it is specifically stated as being permitted in the partnership resolution
C) Only if it is not restricted from doing so in the partnership resolution B/C: A partnership account will be allowed to trade on margin as long as there are no restrictions against doing so in the partnership resolution. This is the same standard used for corporate accounts.
A broker-dealer firm that maintains an inventory of a security and does transactions in the secondary market in that security is functioning in which of the following capacities? A) Broker B) Agent C) Principal D) Agency
C) Principal B/C: If the BD maintains an inventory, the firm is transacting as a principal (also called a market maker).
An investor receives a quote of 62.55—62.60 for Fontana Steel Corp. common stock. Which of these is true? A) The investor will receive $62.60 per share if selling. B) The spread is $0.15. C) Purchasing the stock will cost $62.60 per share. D) Purchasing the stock will cost $62.55 per share.
C) Purchasing the stock will cost $62.60 per share B/C: Quotes are provided in bid-ask form. The first number— the bid—is the price an investor can sell a security. The second number—the ask—is the price an investor will need to pay to buy the security. The spread is the difference between these two numbers.
Which of the following investment companies typically has a fixed portfolio? A) Closed-end management company B) Mutual fund C) Unit investment trust D) Open-end management company
C) Unit investment trust B/C: A fixed UIT's portfolio is static, so 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.
An affiliate has held restricted shares fully paid for six months. In anticipation of the desire to divest the shares, the affiliate should know that A) while no longer restricted, all sales of these shares must be approved by the issuer's board of directors (BOD). B) the shares are no longer restricted, having been held fully paid for six months. C) any shares sold will be subject to volume restrictions if still an affiliate. D) no limit on the number of shares that can be sold will be imposed.
C) any shares sold will be subject to volume restrictions if still an affiliate.
When the money supply in the economy decreases, A) interest rates go up, hence borrowing and spending for consumers is easier. B) interest rates go down, hence borrowing and spending for consumers is more difficult. C) interest rates go up, hence borrowing and spending for consumers is more difficult. D) interest rates go down, hence borrowing and spending for consumers is easier.
C) interest rates go up, hence borrowing and spending for consumers is more difficult.
Listed option transactions settle A) trade date + 2 calendar days. B) trade date + 3 calendar days. C) trade date + 2 business days. D) trade date + 1 business day.
D) trade date + 1 business day. B/C: Listed options transaction settle on the next business day. Commonly referred to as T + 1 business day or simply T + 1.
There are two types of do not call list. What are they and how long do names stay on the list? A) Broker-dealer list and a national list; names remain on list until removed by customer B) National list and names remain on list for five years, and broker-dealer list and names remain on list for 10 years C) Broker-dealer list and names remain until removed by the customer, and national list and names remain for five years D) Broker-dealer list and name remain on list for five years, and national list and names remain on the list for 10 years
A) Broker-dealer list and a national list; names remain on list until removed by customer B/C: For both the broker-dealer list and the national Do-Not-Call list, names are not to be called unless the customers request that their name be removed from the list. There was a prior law that only required the broker-dealer list to hold names for five years, but that has changed and names remain on the list indefinitely.
Which of the following must be opened as a cash account? I. Custodial accounts II. Individual retirement accounts III. Joint accounts IV. Partnership accounts A) I and II B) III and IV C) I and III D) II and IV
A) I and II
Intraday price changes due to normal market forces would be found with I. closed-end fund shares. II. exchange-traded fund shares. III. hedge fund shares. IV. open-end (mutual) fund shares. A) I and II B) III and IV C) II and III D) I and IV
A) I and II B/C: Both closed-end funds and ETFs trade in the open market and are priced by supply and demand. Open-end (mutual) funds use forward pricing and generally price only once per day (usually at the end of the trading day). Most hedge funds are organized as private investment partnerships and are considered illiquid. Some have minimum holding requirements known as lock-up provisions, and in that light, their interests do not reliably trade intraday.
Which of the following are the most likely to make monthly or quarterly payments for the life the investor? I.) Fixed annuity II.) Unit investment trust (UIT) III.) Mutual fund IV.) Variable annuity A) I and IV B) III and IV C) I and II D) II and III
A) I and IV B/C: Both a fixed and variable annuity is an insurance contract designed to provide retirement income. The term annuity refers to a stream of payments guaranteed for a certain period including the life of the annuitant. In the case of a variable annuity, the actual amount to be paid out may or may not be guaranteed, but the stream of payments itself is. Because an annuity can provide an income for life, the contract has a mortality guarantee. Mutual funds and UITs have no such guarantee.
Roth IRAs I. have no minimum required distributions at any age. II. have higher contribution limits than those allowed for a traditional IRA. III. allow the withdrawal of earnings tax free as long as the account has been opened for two years. IV. can be contributed to in the same year as a traditional IRA. A) I and IV B) I and III C) II and IV D) II and III
A) I and IV B/C: Roth IRAs have no minimum required distributions at any age. All earnings grow and may be withdrawn tax free as long as there has been an open Roth IRA for at least five years and the participant is at least age 59½. One may contribute to both a Roth and a traditional IRA in the same year, but the combined contribution may not exceed the annual maximum for any plan.
Which of the following would cause a mutual fund's net asset value (NAV) per share to fall? I. The fund purchases securities for the portfolio. II. The fund pays a dividend to shareholders. III. The market value of the portfolio declines. IV. A large number of shares are redeemed. A) II and III B) II and IV C) I and III D) I and IV
A) II and III B/C: Paying a dividend and suffering market decline both reduce the net assets of the fund without reducing the number of shares; hence, the NAV declines. Purchasing portfolio securities simply replaces portfolio cash with an equivalent value of securities; hence the NAV remains unchanged. Redemption of shares reduces the fund's net assets, but the number of shares declines by an equivalent proportion; hence, the NAV remains unchanged.
A number of authorized shares is distributed to shareholders as part of a corporation's capital formation. What are these shares called? A) Issued shares B) Authorized shares C) Treasury shares D) Outstanding shares
A) Issued shares
Your customer invests in a mutual fund that charges a 1% fee upon sale if they liquidate in the first year. Your customer is likely purchasing what share class? A) A shares B) C shares C) B shares D) No-load shares
B) C shares B/C: A one-year 1% contingent deferred sales charge (CDSC) is normally associated with C shares. These shares have no front- or back-end load (except for the minor 1% one-year CDSC) but do have an ongoing charge built in that never ends.
All else being equal, which of the following preferred would pay the highest dividend? A) Participating preferred B) Callable preferred C) Straight preferred D) Cumulative preferred
B) Callable preferred B/C: 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.
All of the following are true of Roth IRAs except A) Withdrawals are not required at age 72 B) Contributions may be deductible depending on income limits C) Contributions may be able to be made after 59½ D) Contributions are made after tax
B) Contributions may be deductible depending on income limits B/C: Contributions are not deductible. They are made with after-tax dollars and may continue past age 59½ if still working. Roths are not subject to RMDs.
Financial risk is most attributed to which of the following investments? A) U.S. government bonds B) Corporate bonds C) Municipal general obligation bonds D) Value stock
B) Corporate bonds
Seacoast Securities, a member firm, filled a customer's sell order for BigTech Computers common stock and did not charge a commission. The firm most likely acted in what capacity? A) Underwriter B) Dealer C) Agent D) Broker
B) Dealer B/C: When a broker-dealer acts as a principal (market maker, dealer), they are filling the trade through the firm's inventory. The firm profits on the difference between what the firm paid for the security and what the customer pays, which is called the spread (or mark-up). There is no commission when a firm acts in a principal capacity.
Which type of underwriting is characterized by the broker-dealer buying the entire issue from the issuer and then reoffering it to the public? A) All-or-none B) Firm commitment C) Mini max D) Best efforts
B) Firm commitment B/C: In a firm commitment, the underwriter buys the entire offer into inventory and then redistributes it to the public.
The preliminary prospectus for the IPO of the Big Shoes Sneaker Company indicates that the number of shares sold may be increased as much as 15% if market demand is sufficient. This is called a A) Secondary IPO offering B) Green Shoe option C) Flex offering D) Shelf offering
B) Green Shoe option B/C This is a Green Shoe offering, based on a rule first used in the IPO, for the Green Shoe Manufacturing Company (now known as Stride-Rite). A shelf offering occurs when the shares may be held and sold later under Rule 415. The other names are fictional.
A bond having an 8% coupon is selling with an 8.25% yield to maturity. Which of the following statements are true? I. Nominal yield is higher than yield to maturity (YTM). II. Current yield is higher than nominal yield. III. Nominal yield is lower than yield to maturity (YTM). IV. Current yield is lower than nominal yield. A) II and IV B) II and III C) I and IV D) I and III
B) II and III B/C: The bond is offered with a YTM of 8.25%. Because the YTM is higher than the 8% coupon, the bond is trading at discount to par. For discount bonds, the nominal yield is lower than both the current yield and the YTM.
Of the following stocks, which would be defined as penny stocks? I.) Nasdaq-listed stock trading at $4 per share II.) OTC Markets stock trading at $4 per share III.) Exchange-listed stock trading at $4 per share IV.) OTC Pink stock trading at $4 per share A) I and IV B) II and IV C) I and III D) II and III
B) II and IV A penny stock is a non-Nasdaq listed (OTC) stock trading under $5 per share. If a stock is listed on an exchange or listed on Nasdaq, it is not a penny stock, regardless of price.
Which of the following has an obligation and is bearish on the stock? A) Long call B) Short call C) Long put D) Short put
B) Short call B/C: Long calls have a right and are bullish. Short calls have an obligation and are bearish. Long puts have a right and are bearish. Short puts have an obligation and are bullish.
By the Securities and Exchange Commission (SEC) definition, when is the latest that payment in full for purchased securities may take place in a cash account? A) On the trade date B) T + 4 business days C) T + 3 business days D) Promptly
B) T + 4 business days
Who is responsible for meeting the desired returns on a defined contribution plan? A) The sponsor B) The employee C) The Pension Benefit Guaranty Corporation D) The custodian
B) The employee B/C: The employee chooses how the money is invested, so the employee takes responsibility for the returns.
Which of the following statements best describes financial risk? A) The risk that a security with a call feature might be called before maturity B) The risk that an issuer will be unable to meet interest and principal payments on debt obligations C) A risk generally caused by poor management and operating decisions D) The risk that when interest rates decline, it is difficult to invest proceeds from redemptions
B) The risk that an issuer will be unable to meet interest and principal payments on debt obligations B/C: Financial risk emanates from the use debt financing (leverage). It represents the potential inability to meet interest and principal payments on debt obligations, which can lead to bankruptcy. It is sometimes called credit risk or default risk.
Class B mutual fund shares are also known as A) deferred-load shares. B) back-end load shares. C) contingent-deferred shares. D) partially loaded shares.
B) back-end load shares. B/C: Class B mutual fund shares are bought with no sales charge at the time of purchase. The sales charge is paid instead at the time of redemption, or at the back end. Hence, they are known as back-end load shares. For this type of share, the sales charge percentage is reduced each year of ownership, typically becoming zero after five years. At this time, they convert to Class A shares.
Which of the following statements is true of income bonds? A) Unlike other bonds, they pay income quarterly. B) Unlike other bonds, they don't pay income unless declared by the board of directors. C) Unlike other bonds, they pay income monthly. D) Unlike other bonds, they pay income annually.
B) Unlike other bonds, they don't pay income unless declared by the board of directors.
When is the electronic filing of all information on customer complaints by broker-dealers with Financial Industry Regulatory Authority (FINRA) due? A) Within 15 days of the end of each calendar year B) Within 15 days of the end of each calendar quarter C) Within 30 calendar days of receipt of the complaint D) Semiannually, in June and December
B) Within 15 days of the end of each calendar quarter
Who benefits most from a defined contribution plan? A) Older employees B) Younger employees C) All benefit the same D) Employees with fewer years left to work
B) Younger employees B/C: Younger employees have more time for the money to grow.
Your broker-dealer, rather than clear its own securities transactions, chooses to introduce its business to another firm that will clear, processes and handle all back-office operations for it. The firm receiving the business is known as A) a depository trust. B) a carrying firm. C) a receivership. D) a fully disclosed firm.
B) a carrying firm. B/C: A firm that chooses to introduce its customers' business to another firm to clear and process transactions, as well as handle all back-office tasks such as sending trade confirmations and taking custody of customer funds and securities, is known as an introducing or fully disclosed firm. The firm receiving the business is known as the carrying or clearing firm.
A corporation sells shares to the investing public in order to raise capital. This is known as A) a secondary market transaction. B) an issuer transaction. C) an exchange market execution. D) a primary, or investor-to-investor, transaction.
B) an issuer transaction. B/C: The primary market is where securities are sold to the investing public by the issuer wishing to raise capital. These are known as primary market or issuer transactions.
Which of the following would cause a change in the net asset value (NAV) of a mutual fund share? I. Many shares are redeemed. II. Securities in the portfolio are sold for a capital gain. III. The fund pays a small dividend. IV. The market value of the portfolio declines. A) I and II B) II and III C) III and IV D) I and IV
C) III and IV B/C: Paying a dividend would reduce the net assets of the fund without reducing the number of shares outstanding, which would reduce the NAV per share. A decline in the market value of the portfolio would have the same effect. Sales and redemptions of shares change the net assets but also change the number of shares outstanding to the same degree, leaving the NAV per share unchanged. Selling securities for a capital gain simply replaces securities in the portfolio with an equivalent amount of cash, leaving the NAV unchanged.
Which of the following are true regarding mutual fund sales charges? I.) They are used to defray fund expenses, such as operating costs and salaries. II.) They are set by the fund's transfer agent. III.) They are not an expense to the fund, but to the investor. IV.) They are used to compensate the fund's underwriter and sales representatives. A) I and IV B) I and II C) III and IV D) II and III
C) III and IV B/C: Sales charges are not among the standard business expenses of a mutual fund and may not be considered part of them. They are intended to compensate the underwriter and broker-dealers and their sales representatives who sell the fund shares to the public, and are thus expenses to the investor, not to the fund.
Passive investments do not fall under the definition of an outside business activity (OBA). Which of the following investments would be considered a passive investment? A) A partnership interest in a local credit union B) A partial ownership in a car dealership C) Limited partnership unit D) A partnership interest in a real estate brokerage firm
C) Limited partnership unit B/C: A passive investment, such as the purchase of a limited partnership unit, is not considered an outside business activity (OBA). An associated person may make a passive investment for his own account without providing written notice to the employing broker-dealer.
Which of the following engages in a continuous public offering? A) Corporations B) Municipalities C) Mutual funds D) Closed-end funds
C) Mutual funds B/C: An open-end company only issues one class of security, which is common stock (no preferred shares or bonds). It does not specify the exact number of shares it intends to issue but registers an open offering with the SEC. In other words, mutual funds conduct a continuous primary offering of common stock. With this registration type, they can raise an unlimited amount of investment capital by continuously issuing new shares.
An investor has a bond maturing during a time when interest rates are falling. It is likely that the investor, wanting to keep the funds invested, would be most concerned with A) inflation risk. B) business risk. C) reinvestment risk. D) purchasing power risk.
C) reinvestment risk.
Investigations and hearings into alleged violations of FINRA's Code of Procedure are performed by A) the Arbitration Panel. B) the National Adjudicatory Council. C) the Department of Enforcement. D) the Division of Engagement.
C) the Department of Enforcement. B/C: This is the job of the Department of Enforcement (DOE). DOE decisions may be appealed to the NAC. Code of Procedure violations do not go to the arbitration panel. There is no Division of Engagement.
Fingerprint cards are required by the Securities and Exchange Commission (SEC) to be filed with A) Financial Industry Regulatory Authority (FINRA). B) the SEC. C) the U.S. Attorney General. D) any self-regulatory organization (SRO) approved by the SEC.
C) the U.S. Attorney General. B/C: The SEC upon application for registration requires that fingerprint cards be filed with the U.S. Attorney General.
To receive a dividend, the owner's name must appear in the transfer agent's books by A) the next business day. B) the payable date. C) the record date. D) the ex-date.
C) the record date.
Failure to complete the regulatory element continuing education (CE) requirement within the allotted time period will result in A) an automatic extension request, which Financial Industry Regulatory Authority (FINRA) will normally be grant. B) suspension of the individual until all CE requirements are met. C) the registration being deactivated until the requirements are met. D) an automatic bar from the industry for three years.
C) the registration being deactivated until the requirements are met. B/C: Failure to complete the regulatory element within the allowable time frame will lead to FINRA's deactivating that person's registration until the CE regulatory element is met.
If a preferred shareholder received a $3.50 annual dividend each year, it could be assumed that A) these shares are trading at $35.00. B) the common shareholders receive the same $3.50 annual dividend. C) this is a 3.5% preferred class. D) the shares had increased by 3.5% each year.
C) this is a 3.5% preferred class. B/C: An annual dividend of $3.50 simply tells you that this is a 3.5% preferred class of stock (3.5% × par ($100) = $3.50) or ($3.50 ÷ par ($100) = 0.035). The current market value is not used to calculate the fixed dividend, nor does this dividend amount tell us what common shareholders received.
Each of the following investments and practices are deemed ineligible for an IRA or any other retirement plan except A) margin account trading. B) life insurance. C) variable annuities. D) collectible fine art.
C) variable annuities. B/C: Annuities are eligible for IRAs. However, FINRA deems them generally unsuitable. The tax-deferred nature of a variable annuity comes with some cost. Placing this tax-deferred vehicle inside a tax-deferred account (like an IRA) will be hard to justify.
Which type of underwriting is characterized by the broker-dealer buying the entire issue from the issuer and then reoffering it to the public? A) Mini max B) All-or-none C) Best efforts D) Firm commitment
D) Firm commitment B/C: In a firm commitment, the underwriter buys the entire offer into inventory and then redistributes it to the public.
Which of the following is not part of the expense ratio of a mutual fund? A) Legal fees B) Manager's fee C) 12b-1 fees D) Front-end load
D) Front-end load
MNO stock is currently trading at $75 a share. The MNO Nov 80 put is trading at $7. Which of the following is true? I.) The time value is $2. II.) The intrinsic value is $5. III.) The time value is $5. IV.) The intrinsic value is $2. A) III and IV B) I and III C) II and IV D) I and II
D) I and II B/C: With the stock at $75, an 80 put is $5 in the money, or has $5 of intrinsic value. Using the (IV + TV = Pr) formula, the time value must be $2 (5 + 2 = 7).
Jim Davis bought 100 shares of QRS at $60 per share and then the company declared a 3:2 split. What is Davis' new cost basis and how many shares does he have now? I. Cost basis is $40 per share II. Cost basis is $90 per share III. He now has 150 shares IV. He now has 67 shares A) II and IV B) II and III C) I and IV D) I and III
D) I and III B/C: A 3:2 split (3/2) increases the number of shares 50%. 100 shares become 150 shares. The price per share drops proportionally. Multiply the current price by 2/3. $60 × 2/3 = $40 a share.
Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit? I. If the customer signs and returns a proxy statement but does not indicate how to the shares are to be voted II. If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting III. If the matters to be voted on are of major importance IV. If the matters to be voted on are of minor importance A) II and III B) I and IV C) I and III D) II and IV
D) II and IV B/C: A member firm holding stock in street name may vote the shares as it sees fit if the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting, and if the matters to be voted on are of minor importance. If the matters are of major importance (such as a change in the direction of the business or a merger or acquisition), the shares are simply not voted.
Regarding the Regulation T requirement, which of the following is true? A) It is currently 50% and must remain unchanged unless mandated by Congress. B) It is currently 30% and must remain unchanged unless mandated by Congress. C) It is currently 25% but can be changed at any time by the FRB. D) It is currently 50% but can be changed at any time by the Federal Reserve Board (FRB).
D) It is currently 50% but can be changed at any time by the Federal Reserve Board (FRB).
Which of the following option contracts is in the money if ABC stock is currently trading at $45 per share? A) Feb. 45 call B) Mar. 40 put C) Jan. 50 call D) Jan. 55 put
D) Jan. 55 put B/C: 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 (45) is lower than the strike price of the put (55). Therefore, a Jan. 55 put is in the money when the stock is trading at 45.
Each of the following is defined as an investment company except A) Fixed and nonfixed unit investment trusts (UITs). B) A closed-end management company. C) An open-end management company. D) Real estate investment trusts (REITs).
D) Real estate investment trusts (REITs). B/C: Real estate investment trusts (REITs) are not investment companies such as UITs and management companies (both open and closed-end).
Which of the following best describes how a buy stop at 39 would fill? A) The next price above 39 after the market price rises to 39 B) The next price below 39 after the market price falls to 39 C) The next available price after the market price falls to 39 D) The next available price after the market price rises to 39
D) The next available price after the market price rises to 39 B/C: A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.
A customer placed an order to purchase 20 GHI Corp. subordinated bonds at 102. The broker-dealer sourced the bonds from another broker-dealer that maintains an inventory of the bonds. The customer's firm acted as A) a dealer. B) an insurance agent. C) a market maker. D) a broker.
D) a broker. B/C: In this example the customer's firm is acting as an agent (broker), a go-between that sources the bonds from a dealer.
Regarding preferred stock, all of the following are true except A) the right to vote on corporate issues is not available for preferred shareholders. B) preferred shareholders have no preemptive rights that precede the preemptive rights of common shareholders. C) preferred shareholders are paid before common shareholders in the event of a corporate bankruptcy. D) a corporation issuing common shares must issue at least one class of preferred shares.
D) a corporation issuing common shares must issue at least one class of preferred shares. B/C: No corporation is required to issue any class of preferred stock. Preferred shareholders have no voting rights or preemptive rights but are paid before common shareholders in the event of a corporate dissolution.
If the portfolio of a variable annuity separate account is directly and actively managed by the insurance company, the separate account must be registered as A) a closed-end management investment company. B) an equity unit investment trust. C) a face-amount certificate company. D) an open-end management investment company.
D) an open-end management investment company. B/C: If managed by the insurance company's own investment advisor, a separate account must register as an open-end company. If it is managed by a third party, it must register as a unit investment trust.
Nate McCann is closing on a house tomorrow and wants to sell some securities to meet closing costs. He wants to know how soon he could get the money and what he needs to do. You should tell A) if he does the trade today he won't be able to get the money for 3 business days because regular way settlement is T + 3. B) if he does the trade today for cash settlement he would settle tomorrow. C) if he does the trade today he won't be able to get the money for 2 business days because regular way settlement is T + 2. D) if he does the trade today for cash settlement he could settle today.
D) if he does the trade today for cash settlement he could settle today. B/C: Cash settlement is same day settlement.
The MSRB has jurisdiction for making rules in all of the following cases except A) banks selling municipal securities. B) broker-dealers trading municipal securities. C) broker-dealers underwriting municipal securities. D) municipalities selling their own securities.
D) municipalities selling their own securities.
Those persons employed by a Financial Industry Regulatory Authority (FINRA)-registered broker-dealer to do nothing other than provide training for its associated persons A) need not be registered. B) are exempt from the firm element of the firm's continuing education requirement. C) must be registered as a representative. D) must be registered as a principal.
D) must be registered as a principal. B/C: Those who manage any part of a member's securities activities must be registered as a principal with FINRA, including those involved solely in training associated persons.
For tax purposes, investment income is A) always taxed at the highest ordinary income tax rate. B) always taxed at the capital gains tax rate. C) never taxable at ordinary income tax rates. D) normally taxed as ordinary income.
D) normally taxed as ordinary income. B/C: Investment income is included in ordinary income for income tax purposes. Long-term capital gains are taxed at the capital gains tax rate.
For investors, instability within an emerging economy is generally recognized as A) business risk. B) regulatory risk. C) currency risk. D) political risk.
D) political risk. B/C: While political risk can be interrelated with legislative risk, most attribute this risk specifically to the potential instability in the political underpinnings of a country or economy. This risk is often associated with emerging economies, though it can potentially exist anywhere.
Minimum maintenance for long margin is 25%. In a short account, the minimum maintenance requirement is 30%. Initial requirement under Regulation T is 50%.
Minimum maintenance for long margin is 25%. In a short account, the minimum maintenance requirement is 30%. Initial requirement under Regulation T is 50%.
