SIE Exam Study Guide

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?

$10 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.

To arrive at M3, one would add to M2 which of the following?

$100,000 and larger time deposits and repurchase agreements

An investor has a cash account with $300,000 in securities and $40,000 in cash. The investor also has a restricted long margin account containing securities with a market value of $220,000 and equity of $60,000. What is the extent of this investor's Securities Investor Protection Corporation (SIPC) coverage?

$400,000

The maximum coverage offered per separate customer under SIPC insurance was set by Congress at:

$500,000 for securities and cash combined SIPC was never intended to guarantee customers against investment loss. It's an insurance program providing ½ million dollars of account insurance in the event a customer's brokerage firm goes bankrupt, with the maximum CASH coverage the same as bank FDIC coverage: $250K.

A customer writes an MMM January 70 put at 6. The maximum potential gain on this position is

$600.

n investor purchases 1 KLP October 95 put at 6.50. What is the investor's maximum potential gain with this position?

$8,850 The maximum gain on a long put is calculated by subtracting the premium from the strike price (95 − 6.50 = 88.50 per share). Because one contract represents 100 shares, the owner's maximum gain is $8,850 and would occur if the stock falls to zero. Remember, put buyers are bearish; therefore, they will make money if the stock falls below the breakeven point—in this case, below 88.50.

When reviewing the definitions of broker-dealers and investment advisers, one would find that:

1. Broker-dealers can engage in securities transactions for compensation. 2. Investment advisers engage in providing advice relating to the advisability of investing or not investing in securities for compensation 3. An investment advisory firm must have an account at a broker-dealer in order to have the recommended transactions executed.

Pre-emptive Rights and Stock Warrants have a number of similarities. Which of the below represent characteristics these products have in common?

1. Each has a fixed price at which the holder may purchase shares of the issuer's common stock. 2. These products are tradable on securities exchanges

In what order would claimants receive payment in the event of a corporate bankruptcy?

1. Holders of secured debt 2. General creditors 3.Holders of subordinated debt instruments 4.Preferred stockholders

Recommending a limited partnership DPP investment to a customer would be a defendable recommendation for a client:

1. Seeking flow-through tax benefits 2. Who is not risk averse 3. Who does not have an immediate need for liquidity Investors seeking 'tax shelter' or 'tax advantage' are often suitable for the flow through benefits of DPPs (direct participation program--- limited partnerships).

Which of the following would cause a mutual fund's net asset value (NAV) per share to fall?

1. The fund pays a dividend to shareholders. 2. The market value of the portfolio declines.

What are the typical features of ETF

1. They are marginable 2. They often are sector-driven portfolios NOT TYPICAL FEATURE: They are traded each day based upon 4:00 pm NAV Exchange traded funds trade on exchanges at market prices determined by supply and demand - the same as regular corporate stocks.

Sweeteners as that term is used in the investment banking community refers to issue enhancements which include:

1. Warrants 2.Insurance 3.Convertibility Each of these when associated with a bond issue makes the bond more attractive from a client's point of view.

Straight preferred shares are

1. noncumulative, have no provision for paying missed dividends later

Unless otherwise specified, the size of a firm quote is

100 shares.

The Securities & Exchange Commission (SEC) was created by Congress in

1934

A corporation with 1 million shares of stock outstanding wishes to sell another 250,000 shares. When management conducts a rights offering, a shareholder owning 100 shares will be given stock rights to purchase how many additional shares?

25 shares

Firms must file a suspicious activity report (SAR) within how many days of becoming aware of a suspicious transaction?

30 days and are prohibited from notifying the customer involved that a report has been filed.

An order is entered by a customer to sell at 30 stop limit. Once the order is entered, the stock trades in the following sequence: 32, 29, 31, and 33. The order would be executed and the investor would receive a price of

31

Which of the following is not a T-bill maturity?

56 weeks

The term 'issuer' most often refers to:

A business, a municipality, or a federal governmental entity which is seeking to raise capital from the sale of securities.

A significant number of public investors do not have a solid understanding of how common stock is offered to the public. Two methods are the secondary offering and the follow-on offering. Which of the below are true statements regarding these methods?

A follow-on is an offering of new shares other than the initial public offering (IPO).

Which of the following would most closely match the meaning of a red herring?

A preliminary prospectus

When the market price of a company's common stock has reached triple digits ($100 or above), the Board of Directors may elect to declare which of the below to make the shares more affordable?

A stock split

Which type of securities are most susceptible to business risk?

Common stock

When a corporation goes public, it is issuing:

Common stock Going public means sharing equity ownership (common stock) with public investors, for the first time (Initial public offering, IPO).

Keynesian economic theory deals with:

Controlling the economy through budget/government spending and taxation policies (it focuses on government taxation and spending policies, which are fiscal in nature)

FINRA has promulgated various rules and procedures pertaining to the operation of broker-dealers and departments within member firms. The M&A Department:

Creates the firm's procedures pertaining to Merger and Acquisition activity

Which of the following is a unique risk incurred by investors in mutual funds that specialize in holding securities in the fund portfolio from foreign issuers?

Currency risk

Which of the following statements is correct concerning currency risk when investing in an American depository receipt (ADR)?

Currency risk is still a factor when purchasing an ADR.

When engaging in open-market operations, taking actions to either expand or contract the money supply, the Federal Reserve Board (FRB) will buy or sell

Treasury securities.

SIPC is an insurance organization designed to protect investors against loss:

When their broker-dealer goes bankrupt

When purchasing a bond, the investor is taking on

a creditor position.

All FINRA firms must have business continuity plans. Those plans must include all of the following except

a designated principal and member of senior management to conduct a quarterly review and update of the plan.

Proxy voting

allows the shareholder to vote their shares without attending the annual meeting.

Regulation SHO severely restricts short selling during the cooling offer period of a follow-on offering. Which of the below is true?

an investor may buy the new issue shares on the offering so long as any SHORT sale has been covered at least one business day prior to the effective date. SHO are the first 3 letters of the word 'short.' Answer C. best describes the basics of this regulation.

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

an open-end management investment company.

Accumulation units are most often associated with:

annuities Variable annuities sell 'accumulation units' to purchasers, whose price each day is based upon the 4 pm net asset value of the separate account.

A customer complaint is formally defined as a:

any written communication from a customer or legal rep of a customer regarding an allegation of a violation of one or more securities rules or federal regulations A written allegation: this is formally known as a complaint.

CDT Corporation has issued 4.5% callable preferred shares. If these shares are ever called in, stockholders should expect that the shares would be called in at

ar value or higher.

Advantages enjoyed by the limited partners in a partnership might be all of the following except

being in a fiduciary position with responsibilities to others.

When an investor is bearish on the broad stock market

buying puts on the S&P 500 index is an appropriate strategy Buying broad-based Index Put options will provide a hedge against the decline in the broad market.

Which of the following investment instruments trades on an exchange at a market price not directly related to its net asset value?

closed-end investment company Only the closed-end investment company trades at supply & demand pricing on an Exchange, and has no specific relationship to the fund's underlying asset value.

The principal difference between a selling syndicate and a selling group would be:

commitment Syndicate implies a firm commitment; group implies best efforts.

When growth is the principal objective of the investor, each of the below could be suitable except:

defensive issues Defensive: stable, utilities, basic food, the basic needs of life, these are NOT growth industries. Suitable: emerging industries, growth mutual fund, technology etf

Economists refer to longer, more severe contractions in the economy as

depressions.

The spread between bid and offer

gets narrower as the volume increases The more actively traded a stock (high volume), the narrower the spread between the bid and ask prices.

The firm element of a broker-dealer's continuing education (CE) requirement must be undergone by all registered persons who

have direct contact with the public.

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

if he does the trade today for cash settlement he could settle today.

An associated person of a Financial Industry Regulatory Authority (FINRA) member firm has been found guilty of forging a customer's signature on a document relating to a securities transaction. Under the Code of Procedure, FINRA could impose any of the following sanctions except

imprisonment for a specified period.

The least liquidity in the securities shown below would be found:

in securities traded on the Pink Quote system Pink sheets: the Pinks: the Pink quotes: All these terms speak of thinly traded, closely-held, low daily volume stocks, where liquidity is not especially present when compared to NYSE and NASDAQ stocks.

Under the Telephone Consumer Protection Act of 1991 (TCPA), administered by the Federal Communications Commission (FCC), a telephone solicitation is defined as a telephone call

initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services.

U.S. Treasury notes are U.S. government-issued

intermediate-term debt securities with maturities of 2-10 years.

A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm?

introducing/fully disclosed

Financial Industry Regulatory Authority (FINRA)'s Conduct Rules regarding gifts and gratuities would permit a branch manager to

invite a portfolio manager to see a popular Broadway show together.

Among the reasons a corporate Board would declare a stock split

is to make the stock more affordable The stock split lowers the market price of a stock, which makes buying a round lot (100 sh.) more 'affordable.'

All of the following are true of a revocable living trust except

its primary purpose is to avoid estate taxes for the grantor.

An August 15 call is written at 4. The call expires without being exercised by the owner. The writer of the call

keeps the $400 received when the call was written.

Selling shares not yet borrowed or located to be borrowed is

known as a naked short sale and is prohibited.

An analyst is trying to determine upcoming economic activity to better determine her recommended investment strategy. She would be most interested in

leading indicators.

A broker-dealer firm opening a corporate account must establish all of the following except

location of any account records the corporation will keep when received.

Stabilizing is a term generally used in Wall Street to refer to the practice of:

maintaining a market price at or near the POP of a new issue for the sole purpose of protecting the stock from decline during a new offering. Stabilizing implies keeping the price steady, which SEC allows in a new issue if done in accordance with strict guidelines of SEC---anti-manipulation guidelines.

The so-called 5% policy pertains to

mark ups on retail OTC transactions excepting new issues The FINRA markup markdown and commission policy does not apply to new issues as well as municipal bonds --- MSRB has its own such policy.

Carrying firms may not

mix customer funds and securities with their own.

An underwriting group is currently assisting an issuer with the preparation and filing of the registration statement for a new issue. Who is responsible for the accuracy of the information within the registration statement?

Issuing corporation

Among the differences between an introducing broker-dealer and a clearing carrying broker-dealer is that clearing firms:

Maintain possession and control of securities and introducing firms DO NOT. The terms 'clearing' and 'carrying' have to do with a brokerage firm's performance of certain functions most other firms are not permitted to do, such as have physical possession and custody of customers' cash and securities.

Which of the following for call option contracts is true?

Maximum gain is the same for both parties.

When a corporate Board announces a 10% stock dividend, shareholders know they will be receiving:

More shares Stock dividends are not Cash dividends - they are dividends in the form of additional shares.

All of the following are full disclosure documents used in the sale of securities with the exception of:

Notice of Sale

Which of the following would be least likely to directly impact a bonds yield?

Number of bonds in the issue

One of the more attractive features of common stock is that:

One cannot lose more than one's investment You cannot lose more than you've put at risk. A common stockholder cannot be held liable for any debts of the corporation, therefore they have limited liability.

In an effort to safeguard customer information which regulation specifies securing desktop and laptop computers and encrypting email?

Regulation S-P

Which of the following retirement plans does not require minimum distributions once the participant has reached age 72?

Roth IRA

SIPC, the securities investor protection corporation is:

SIPC was set up to protect customer ACCOUNTS in the event of a broker-dealer bankruptcy, not protect investments against loss. Be careful of the wording in this question. Cash & securities in customer accounts are 'insured' up to $500,000 in the event the B/D goes bankrupt and the cash and securities can't be located and properly returned to the customer.

The primary regulatory body for the securities industry would be which of the following?

Securities and Exchange Commission (SEC)

Mitigation of the risk of loss in a bearish market can be achieved by customers with vulnerable long stock positions placing:

Sell stop orders

Which of the following transactions has the least risk?

Short against the box

Reinvestment risk is least present in:

Since with a Zero coupon instrument there is no annual income to 'reinvest,' Zeroes have no reinvestment risk.

Boards of Directors in the publicly-traded sphere are elected by corporate stockholders, using which of the following methods?

Statutory voting, regular voting, cumulative voting

The primary difference between a stock dividend and a cash dividend is:

Stock dividends provide the corporate shareholder with additional shares in lieu of cash. The term 'STOCK' dividend tells you this is a distribution, NOT of cash, but of more shares of STOCK.

In most cases, Federal Securities Laws:

Supersede State securities laws

Which of the following earn interest but don't pay interest?

T-bills

Which of the following has the greatest influence on the money supply within the United States?

The Federal Open Market Committee (FOMC)

Which of the following acts requires the registration of most new issues?

The Securities Act of 1933

The term 'disclaimer' is most often associated with

The fact that the government cannot guarantee the accuracy of the information in a prospectus The SEC reviews the information in a registration statement, it does not approve or disapprove of the information, nor does it guarantee the accuracy of the information disclosures. Therefore no sales agent can say to a prospect that these are 'government approved' securities.

The Conduct Rules permit specific types of lending arrangements between registered representatives and their firms and customers. Which arrangement below would not be permitted?

The firm lends the customer's securities without a consent agreement.

Which of the following would not be expected to be found in a tombstone advertisement for a new issue?

The intended purpose for which to use the sales proceeds

Indications of interest taken during the cooling-off period are

nonbinding on the issuer and underwriters. nonbinding on the investor.

One of the most frequently issued money market instruments is commercial paper. Typically, this investment has a maximum maturity:

of 270 days (9 months)

Certain securities are marginable under Regulation T of the Securities & Exchange Act of 1934 except:

options Regulation T does not permit margin under normal circumstances on Option contracts.

All the following are leading indicators except

personal income.

All the following are cyclical industries except

precious metals.

The Uniform Securities Act (USA) provides a legal framework for the registration of

securities at the state level.

Regulation T, the initial margin requirement, is set by

the Federal Reserve Board (FRB).

All of the following self-regulatory organizations (SROs) function under the Securities and Exchange Commission's (SEC's) oversight except

the Federal Savings and Loan Insurance Corporation (FSLIC).

The Securities & Exchange Commission was formed as part of

the Securities & Exchange Act of 1934

Regarding the registration statement filed with the Securities and Exchange Commission (SEC) when new securities are to be issued, all of the following are true except

the accuracy and adequacy of the registration documents is the responsibility of the underwriters.

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

the filing of a fingerprint card with the U.S. Attorney General.

All of the following are true regarding breakpoints for mutual funds except

the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold.

An investor owns a bond carrying a 4% coupon. Interest rates in the marketplace have been moving downward and are currently at 2.5%. Given the current interest rates in the marketplace, this investor should see

the price of the bond move higher.

The Securities Industry Essentials examination gives a candidate

the right to take one or more of the top-off representative exams

The party who is short an option contract is known as

the writer and receives the premium.

When a corporation announces that it is seeking additional equity capital through a sale of additional authorized but unissued shares,

this is a primary distribution The 'trick' with this question is that anytime a company is selling NEW previously unissued shares from their Authorized shares maximum, those shares are NEW ---- Primary distribution means the shares being sold are NEW, never before issued, not previously owned by anyone.

A market maker is obligated

to maintain and honor firm quotes during trading hours Market making firms post firm quotes during the trading day at which they are obligating themselves to do business with other firms as well as retail customers.

Call option contracts are considered to have intrinsic value:

when CMV exceeds exercise price Call option contracts go 'in the money' (intrinsic value) when the current market value of the underlying security exceeds the exercise price (strike price) of the option. If a call option's exercise price is $20, and the underlying stock is trading at $25, the intrinsic value of the call option is $5.

The sales charge for Class A shares may not exceed

8.5% of the total investment.

The hours of operation of the Chicago Board Options Exchange are:

8:30 am to 3:00 pm CT NYSE hours and CBOE hours are the same. 9:30 to 4 ET for the NYSE is the same as 8:30 to 3:00 CT.

A customer wishes to liquidate 100 shares of ABC common at the market. If the current inside market is 904.78 - 905.57, the client's transaction will occur disregarding commissions and other charges at

904.78 The best (inside) bid is the price at which a client's liquidation (sell) order will be executed.

Which of the following are not considered money market securities?

ADRs Since the 'money market' includes short term debt instruments only, and since ADRs represent ownership (equity) in foreign stocks, ADRs are not debt.

Which of the following is true for debt instruments issued by the U.S. Treasury?

All are issued in book-entry form.

Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is true?

All reduce investor returns because they reduce the amount of money available for the fund to invest.

Which of the following could not be considered an institutional investor?

An accredited investor

Exercise of an equity put option involves the writer:

Buying the underlying instrument at the strike price When an investor shorts/writes/sells a put option, they agree to be OBLIGATED to BUY the underlying instrument at the strike price.

List the dates associated with dividend payment in their proper order.

Declaration date, ex-dividend date, record date, pay date

Underwriters who are assisting an issuer in bringing securities to the investing public can do which of the following between the time the registration was filed with the Securities and Exchange Commission (SEC) and the effective date?

Distribute a preliminary prospectus to the investing public.

Which of the following is considered to be the order of the stages in a business cycle?

Expansion, peak, contraction, trough

All investors with short option positions:

Have a contractual obligation to perform in accordance with the contract terms if the option is exercised.

Under the Investment Company Act of 1940, which of the following is not considered and investment company?

Hedge fund

Which of the following describes the position in a call option on a stock with a strike price of 20, a premium of 7, and a current market of 26?

In the money In this case, the strike price is less than the current market value, so a call option would be in the money by the difference between the strike price and the market price (6 points, in this case). At the money means the strike price and the market price are the same; at parity means the premium equals the intrinsic value.

The federal government could use which of the following to stimulate the economy?

Increase government spending

A customer buys an October 75 MMS put. MMS stock closes at 70. Which of the following is true?

The put has intrinsic value.

In a 20% stock dividend, what happens to the number of shares and the share price?

The share price goes down, and the number of shares goes up.

Every publicly-traded corporation is required to have a transfer agent and a registrar. The primary distinction between the two is:

The transfer agent ensures that dividend payments go out to all registered owners of record on the payable date. This is one of the functions of a Transfer Agent. Registrars make sure that a company does not issue more shares than authorized in the Charter.