SIE final exam 02

The minimum denomination for negotiable certificates of deposit is:

$100,000 The minimum denomination for negotiable CDs is $100,000. Typical denominations are often $1,000,000 or more.

A municipal finance professional (MFP) and her spouse make a political contribution of $400 from a joint account. Only the MFP signs the check. According to the MSRB political contribution rules, the contribution would be viewed as a:

$400 contribution from the MFP If the MFP is the only party who signs the check, the entire amount of the contribution is allocated to the MFP. In this case, the underwriting ban would be triggered since the amount exceeds $250. When both the MFP and her spouse sign the contribution check, the contribution is viewed as being split equally between the contributors. There is no limit if the spouse writes a check from his personal account, rather than the joint checking account.

A corporation has a 9% cumulative preferred stock issue outstanding. The company paid a $7 dividend two years ago and $8 last year. If the company wants to pay a common stock dividend in the current year, the cumulative preferred stockholders must first receive a dividend of:

12 The cumulative preferred stockholder should receive a yearly dividend of $9. Since it's a cumulative issue, any dividend that's not paid (in arrears) must be made up prior to a common dividend being paid. If a common dividend is to be paid in the current year, the cumulative preferred stockholders must first receive $12 ($2 missed from two years ago plus $1 missed from last year plus the full $9 for the current year). (18629)

An individual purchased 100 shares of stock at $35 per share. The stock is now trading at $44 per share and the issuer decides to split the stock 2-for-1. After the split, the individual's cost basis per share will be:

17.50 A stock split or dividend results in an adjustment in the number of outstanding shares. As a result, the current market value is adjusted to reflect the increase or decrease in shares. The same change would be made to the cost basis of all positions held by investors. A 2-for-1 stock split results in twice as many shares, with the values being adjusted to 1/2 of what they were before the split. The individual's stock would have an adjusted cost basis of $17.50 = $35 x 1/2.

A convertible bond has a conversion price of $50 and is currently selling in the market at $1,100. The conversion ratio is:

20 To find the conversion ratio of a convertible bond, the bond's par value ($1,000) is divided by the conversion price ($50). In this question, the conversion ratio is 20 ($1,000 ÷ $50). To calculate the conversion ratio, the market price of the bond is irrelevant.

A type of offering in which whatever is not sold is retained by the issuing corporation is:

A best-efforts underwriting

Which of the following bonds has the most interest-rate risk?

A bond maturing in 20 years The bond with the most interest-rate risk or price volatility is the one with the longest maturity and lowest coupon. As a result the bond maturing in 20 years will have the greatest interest-rate risk.

A bond has a 6% coupon and is trading at a 6.78% basis. The bond is trading at which of the following price levels?

A discount Basis is a different method of expressing yield to maturity. In this case, the yield to maturity is greater than the coupon rate. The only time a client's yield to maturity is greater than the coupon is when the bond has been purchased at a price less than par (lower price means higher yield). Therefore, the bond must be trading at a discount.

Which of the following is BEST defined as a provision which provides a sales charge discount (breakpoint) for making mutual fund share purchases without initially depositing the entire amount required?

A letter of intent

The arbitration panel for disputes that involve public customers will consist of:

A mix of individuals who represent the public and financial industry

What's an investment adviser?

A person in the business of giving investment advice for a fee

A 529A or ABLE account is permitted for which of the following persons?

A person who is disabled

Which statement best summarizes the difference between a primary and secondary distribution?

A primary distribution involves the sale of new shares by the issuer, while a secondary distribution involves the sale of shares that are already issued and outstanding. A primary issuance (distribution) of stock is when a company creates and sells brand new shares. The goal is to provide the company with additional capital (money) to expand their business or improve the financial health of the firm. Secondary distributions are for existing shareholders, typically large investors and insiders, to sell a large block of stock in one transaction. Secondary issuances don't create any new shares and instead provide money to the selling shareholders rather than the company.

Which of the following is subject to market risk?

A publicly listed partnership' Market risk represents the potential losses due to market fluctuations in the prices of securities. In this case, any security that's being bought and/or sold in the market can decline. Of the securities listed in the question, publicly listed partnerships have the most market risk, since they're the only choice that's exchange traded.

Which of the following employees of a broker-dealer is not required to be fingerprinted?

A senior officer of the firm who only provides capital to the firm. According to SEC Rule 17-2, all partners, directors, officers and employees of broker-dealers who are involved in the sale of securities, handling securities, monies, or records of original entry, or supervise any of the above must be fingerprinted. An officer of a firm who simply provides capital to the firm and is not involved in the handling of funds and/or securities, or dealing with the firm's books and records, is exempt from the fingerprinting requirement.

Which investment company does NOT charge a management fee?

A unit investment trust A unit investment trust does not charge a management fee. The portfolio is fixed and there is no investment adviser since unit investment trusts are supervised, not managed.

Which of the following is found in BrokerCheck?

Active registrations FINRA's BrokerCheck system provides certain information for both persons who are currently registered as well as any person who had been registered within the last 10 years. Some of the information includes any active registration, employment history, and specific disclosures concerning customer disputes, disciplinary events, as well as criminal and financial matters. Although BrokerCheck may contain some pending actions or allegations regarding customer disputes, disciplinary events and certain criminal and financial matters, it will NOT provide details on simply ANY pending investigations (i.e., it's somewhat selective). Exam scores or failed exam attempts are also not found in BrokerCheck.

The 5% Markup Policy applies when a member firm:

Acts as a dealer in a transaction with a customer A broker is an agent who acts for someone else and receives a commission when a trade is executed. A dealer is a principal who acts for his own account and adds a markup on a purchase. In both cases, they must conform to the 5% Markup Policy, which is a guide broker-dealers must follow. The 5% Markup Policy covers all transactions except municipal bonds and those requiring a prospectus (i.e., the sale of a new issue, mutual fund, and registered secondary). If a member was acting as an underwriter, the firm would be involved in a new issue and, if acting as a sponsor would be involved in the sale of a mutual fund. Since these transactions require a prospectus, they would not be covered by the 5% Markup Policy.

Which of the following situations is an example of reinvestment risk?

After interest rates decreased, issuers called their bonds back and issued new bonds with lower interest rates. For bond investors to realize the same return on new bonds, they are forced to purchase lower quality bonds.

A company based in Europe with offices located in New Jersey would like to have its stock traded on the NYSE. This would most likely be accomplished through the issuance of:

American Depositary Receipts (ADRS) merican Depositary Receipts (ADRs) facilitate U.S. investment in the stock of foreign corporations. When the foreign securities are deposited in a U.S. bank based in that country, a receipt for those securities is issued and traded in the U.S. as if it were the foreign security itself.

Types of ETF

An inverse ETF is designed to deliver the opposite of the performance of an index or other benchmark. An inverse ETF based on the S&P 500 Index seeks to deliver the opposite performance of that index. For example, if the S&P 500 rises by 1%, an inverse ETF would decrease by 1%, and if the S&P 500 falls by 1%, the inverse ETF would increase by 1% before fees and expenses are deducted. A leveraged exchange-traded fund (ETF) is suitable if the customer anticipates an increase in the S&P 500 and wants a multiple of that increase. A leveraged inverse exchange-traded fund (ETF) is suitable if the customer wants a return that is a multiple or higher return and anticipates a decrease in the S&P 500. An exchanged-traded fund (ETF) is suitable if the customer only wants to track the return of the S&P 500.

An investor with an investment objective of speculation wants to purchase a security that will increase by the same percentage as a decline in the S&P 500 Index. Which of the following securities should be recommended?

An inverse exchange-traded fund (ETF)

An employee of an exchange-traded company is allowed to buy or sell securities based on information without committing an insider trading violation in which of the following situations?

An outside research analyst and the employee discuss why the company's earnings per share could be dramatically lower than prior estimates.

A registered representative is planning to take a client to a sporting event where the tickets cost $85 each. On the day of the event, the RR is not able to attend and asks your advice. Which of the following choices is BEST for the principal to recommend?

Ask another RR at your firm to attend the event with the client

When a brokerage firm executes trades for customers in municipal securities, all material information should be disclosed:

At or prior to the time of the trade

If an associated person of a broker-dealer is executing private securities transactions, the person's compensation does NOT include:

Being paid a commission by the employing broker-dealer Private securities transactions are those that are executed outside of the regular scope of an associated person's employment with a member firm. If the associated person will be receiving compensation for the transaction, the member must (before the person can participate) specifically approve it in writing and must recorded the transaction on the member firm's books. Compensation for this activity can come in many forms, including commissions, finders' fees, securities (or the right to receive securities through the receipt of warrants), and tax benefits. However, it does not include commissions received from the person's employing firm. If the associated person will not be receiving compensation for the transaction, the member may still require the associated person to adhere to specific conditions in order to participate in the transaction.

When can broker-dealers make unsolicited telephone calls?

Between 8:00 a.m. and 9:00 p.m. Under the Telephone Consumer Protection Act, solicitors are only permitted to contact consumers between 8:00 a.m. and 9:00 p.m

secured bonds

Bonds that have specific assets of the issuer pledged as collateral.Secured bonds are corporate bonds that are secured by an asset that's owned by the issuer (e.g., buildings or equipment)

What is the market outlook for the buyers of call options?

Buyers of call options are bullish (i.e., they want the value of the underlying stock to rise).

Which of the following is NOT a pass-through entity?

C Corporation

Which of the following statements is NOT a characteristic of a 529 plan?

Contributions are unlimited Contributions to a 529 plan are not unlimited. Instead, each state determines the dollar value that may be contributed.

During an inflationary period when interest rates are rising, the market value of existing bonds would:

Decrease

An index option has been exercised. What is the writer of the option required to do to satisfy his obligation?

Deposit cash equal to the difference in the strike price and the value of the index. ndex options are cash settled, which means that they never require delivery of securities at exercise. If an index option is exercised, the amount of money by which the option is in-the-money must be delivered by the writer. Index call options are in-the-money (have intrinsic value) when the index value is above the strike price. Index put options are in-the-money when the index value is below the strike price

A fee-based account is most suitable for customers who:

Engage in frequent trading Fee-based accounts charge an annual fee for investment advice regardless of whether any transactions occur. These accounts are most suitable for customers who engage in frequent trading and want to avoid being charged commissions on each trade separately.

A FINRA member firm is NOT required to be notified if a registered person engages in which of the following activities?

Entering competitive cycling events

An investment company that is purchased in installments and that matures at a fixed-dollar amount is called a:

Face-amount certificate company

A Suspicious Activity Report should be filed:

For most types of suspicious activity depending on the facts and circumstances

All of the following are considered a good delivery in the sale of 500 shares of common stock, EXCEPT:

Four 50-share certificates and ten 30-share certificates Delivery must be made in 100-share certificates, multiples of 100, or any combination that adds up to 100 shares. Four certificates of 50 shares is acceptable, but ten 30-share certificates is not, since 30-share certificates cannot be combined to add up to 100 shares.

A person who invests in a fixed annuity is most concerned with the performance of the insurance company's:

General account

Which measure of economic activity is calculated by summing the value of goods and services that have been produced minus the value of the goods and services needed to produce them?

Gross domestic product (GDP)

A registered person wants to borrow funds from a neighbor who is also a customer of his firm. Which of the following statements is TRUE?

He is required to notify and receive approval from his firm.

A registered person wants to set up an investment program for a charity and will not be receiving compensation for his service. Which of the following statements is TRUE?

He is required to provide written notice to his broker-dealer.

The credit rating of a municipality will likely improve with a(n):

Increase in property taxes An increase in property taxes results in more funds becoming available to the municipality. As a result, the credit rating of the municipality will likely improve. Decreases in residents and fees being charged for licenses will generally result in a decline in the credit rating. An increase in tolls will provide a benefit to the facility, not the municipality

Stabilization:

Is used to prevent the price of newly issued stock from falling Stabilization is used to prevent the price of a new issue (e.g., IPO) from falling. If necessary, the broker-dealers involved in the new issue will buy shares back in the secondary market, effectively colluding to keep the price from falling. Broker-dealers are only allowed to stabilize at or below the public offering price (POP), but cannot try to influence the price to rise above the POP. In most circumstances, this sort of activity is prohibited; however, the SEC permits broker-dealers to stabilize a new issue without violating the Securities Exchange Act of 1934.

MSRB rules do NOT apply to:

Issuers

Which of the following statements is NOT TRUE concerning a clearing corporation?

It is responsible for automated book-entry changes in the ownership of securities. The responsibility for automated book-entry changes in the ownership of securities is a function of a depository facility (e.g., the DTC), not a clearing corporation. Each of the other choices are functions of a clearing system, such as the National Securities Clearing Corporation (NSCC).

An investor buys T-bonds on Friday, January 16 for cash settlement. This transaction will settle on:

January 16' Cash settlement for all securities takes place on the trade date.

A husband and wife have a joint account with right of survivorship. If one of the parties places an order, the RR:

May accept the order

A customer gives his registered representative the following instructions. Buy 100 shares of General Motors whenever you think the price is right. Under current regulations, the order:

May be accepted and may be executed anytime that day

Which of the following bonds are secured by a specific revenue source from a project?

Municipal revenue bonds Municipal revenue bonds are backed by the revenues of a specific project or facility (e.g., toll road, bridge, college, or hospital)

When an option contract is exercised, the writer:

Must fulfill the obligation to buy or sell the underlying instrument

A registered person of a broker-dealer is considering supplementing his income by working part-time at a local convenience store. To do this, the individual:

Must provide written notification to his employer

The purchase price of a no-load fund is determined by the:

Net asset value

A cash trade would settle:

On the trade date

Premature withdrawals of earnings from an IRA that qualify for an exception are subject to:

Ordinary income taxes on the amount withdrawn, but not a 10% tax penalty on that same amount If earnings are withdrawn from an IRA for any of the allowable exceptions, the individual avoids the 10% tax penalty; however, the amount withdrawn is subject to ordinary income taxes.

If a newly hired person is employed by a broker-dealer and will be offering corporate securities, she can become FINRA registered by:

Passing the SIE Exam and the Series 7 Exam

Which of the following is NOT a benefit of investing in a real estate investment trust (REIT)?

Passive losses

Pegging

Pegging is also illegal, but involves collusion with other market participants to keep the price of a stock from falling.

The 5% markup policy applies to:

Proceeds transaction The 5% markup policy does not apply to any trade requiring a prospectus (new issues, registered secondaries, and mutual funds) or a transaction involving an exempt security (municipal bond). The 5% policy applies to secondary market trades, which include proceeds transactions (using sale proceeds to buy another security) and riskless or simultaneous transactions.

The primary purpose of a self-regulatory organization (SRO) is to:

Promote fair and equitable practices among members

pump and dump scheme

Pump and dump (P&D) is a type of securities fraud in which a person spreads false or misleading information in an attempt to increase stock or bond prices (i.e., pump). Once the securities have risen in value, the person who spread the information then sells his securities (i.e., dump).

During periods of deflation, the FRB will likely:

Purchase securities in the open market In an effort to stimulate the economy, the FRB will attempt to move into a period of easy money. Easing money (making it available) may be accomplished by purchasing securities in the open market. On the other hand, selling securities, issuing new securities, or encouraging higher interest rates will have an opposite effect.

Reinvestment Risk

Reinvestment risk is the result of not being able to reinvest at the same rate after a bond matures or is called. Opportunity risk is the risk that a chosen investment will yield less than another investment that was not chosen. When interest fall, mortgages may be refinanced and paid off early, which results in prepayment risk on mortgage-backed securities. Credit risk occurs when a bond issuer is unable to make payments of interest and principal.

Information barriers are required between which of the following departments of a broker-dealer?

Research and trading Information barriers are required to prevent a trading department from learning of a pending research report regarding a security in which it has a position. The other departments don't require the establishment of information barriers.

pass-through entity

S Corporations, LLCs and REITs are considered pass-through entities

STRIPS

STRIPS are long-term zero-coupon bonds that are created from T-notes or T-bonds.

In a Chapter 11 bankruptcy proceeding, which of the following has the highest priority claim?

Secured debt holders In a bankruptcy proceeding, secured creditors are given the highest claim priority. For companies in the U.S., there are two types of bankruptcy proceedings—Chapter 7 and Chapter 11. Chapter 7 is when the company is going out of business and all of the assets owned by the company are sold. This type of bankruptcy is also referred to as liquidation. Chapter 11 is also referred to as reorganization because the company is not going out of business; instead, it's taking steps to come out of the proceedings in a healthier financial position.

The third market is concerned with:

Securities listed on an exchange, but traded in the OTC market

DCH, Inc., an investment banker, has entered into a firm-commitment underwriting with ABC Company to sell 10,000,000 shares of stock. What are the requirements of this arrangement for the investment banker?

Sell the entire issue or retain any shares left unsold . Firm-commitment arrangements ensure the issuer (ABC Company) of receiving the full amount of the offering.

A person who invests in a variable annuity would be MOST concerned with the performance of the insurance company's:

Separate account

The fund that would probably have the least price volatility is a(n):

Short-term corporate bond fund In general, bond funds are less volatile than equity funds. Within the bond category, the NAVs of short-term bond funds are considerably less volatile than long-term bond funds whether corporate or municipal.

Broker-dealers are required to send balance sheets to customers every:

Six months

Interest on Treasury Inflation Protected Securities (TIPS) is:

Subject to federal income tax, but exempt from state income tax

If an equity option is exercised, when does the stock transaction settle?

T + 2 ---settle on the second business da

A client has received an unsolicited email recommending a penny stock. The client then calls his registered representative (RR) to research the company. If the RR cannot find any financial information on the stock, it may indicate:

That the email is a part of a pump and dump scheme

Of the following broad-based indexes, the one with the largest measure of the market is the:

The Wilshire Associates Equity Index The Wilshire Index represents the dollar value of all the stocks and is considered the broadest of all indexes and averages. The Dow Jones Industrial average contains only 30 stocks. The S&P 500 Index contains 500 stocks, while the NYSE Composite Index consists of all of the common stocks that are listed on the NYSE.

A customer requests that a broker-dealer sell stock that she owns and, at the same time, use the proceeds of the sale to purchase a different stock. For this transaction:

The broker-dealer is permitted to charge a markup on both transactions, but is required to compute the markup based on the amount of money involved in the sale to the customer When a customer directs her broker-dealer to use the proceeds generated by the sale of one stock and, at the same time, purchase another stock, the transaction is referred to as a proceeds transaction. When the broker-dealer determines the markup it will charge, industry rules state that the firm may charge a markup or commission on both transactions, but should compute the markup based solely on the amount of money involved in the sale to the customer. The regulatory focus is to be certain that the total amount received for executing a proceeds transaction does not violate the 5% Markup Policy.

Who has the responsibility to investigate the accuracy of the information in a prospectus for a DPP?

The managing underwriter

All of the following statements are TRUE concerning the underwriting of a new issue, EXCEPT:

The preliminary prospectus (red herring) will contain all the relevant information including the final price of the issue in order to obtain indications of interest

Which of the following statements is TRUE regarding a registered representative who has not completed the Continuing Education Regulatory Element training within 120 days of his registration anniversary?

The representative will be placed in inactive status FINRA will notify a representative within 30 days of the second anniversary date of initial registration, and every three years thereafter. If the representative then fails to complete the required training within 120 days of the anniversary date, that person's registration will become inactive and any activity that requires registration, including receipt of commissions, will be prohibited.

Rights of Accumulation

The rights of accumulation provision gives investors the ability to receive cumulative quantity discounts when purchasing mutual fund shares. Under the rights of accumulation provision, rather than using the original purchase price, the current market value of the investment plus any additional investments is used to determine the applicable sales charge. Once a breakpoint is reached, all future purchases qualify for the reduced sales charge.

A breakpoint sale is BEST defined as:

The sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions. This practice is done to assess higher sales charges on transactions and is a violation of the Conduct Rules.

An investor wants to sell a specific amount of a base currency and exchange it for a counter currency. The main factor in determining the amount of the counter currency the investor is able to buy is:

The spot exchange rate Foreign currency transactions are based on current exchange rates, which are referred to as spot rates

Which of the following statements is TRUE concerning an account statement?

The statement must include a disclosure that clients should promptly notify the broker-dealer if they discover a discrepancy.

What is the basic balance sheet equation?

Total Assets = Total Liabilities + Stockholders' Equity

The payment date for securities purchased in a cash or margin account as stated by Regulation T is:

Two business days from the settlement date According to current FRB requirements, securities purchased in a cash or margin account must be paid for within two business days of the settlement date of the transaction.

Broker-dealers must provide a privacy notice to every customer:

When the account is opened

A corporation may choose to pay its shareholders with cash dividends or stock dividends. Which of the following statements concerning the tax status of these events is the most accurate?

While only the cash dividend is taxable when received, the receipt of stock dividends will require the investor to adjust her cost basis per share. Only cash dividends are taxable in the year in which they are received. The payment of a stock dividend increases the number of shares held by each shareholder. Since the stock's price will fall in the market, the IRS does not consider there to be a taxable event. However, shareholders are required to adjust their cost basis per share.

Which of the following bonds has an interest payment which remains unchanged until maturity?

Zero-coupon bond' For most bonds, the interest rate or payment is set at the time of issuance and generally remains fixed for the life of the bond. However, in some cases, as interest rates move up or down, the coupon rate will be adjusted to reflect market conditions. These adjustable rate bonds may be referred to as variable or floating rate bonds. A zero-coupon bond is one that makes no periodic interest payments during its life. In other words, the interest amount (zero) remains unchanged. (37036)

When an investor compares her portfolio's performance to an average or index, the average or index is considered a(n):

benchmark Investors often compare the performance of their portfolio to a given benchmark. The benchmark could be an average or index that monitors the performance of a group of securities.

SPDR is considered a type of:

exchange traded fund

When interest rates are falling, the market value of existing bonds will:

increase

Go bonds

issued for capital improvements that benefit entire community. projects typically don't produce revenues, so principal and interest MUST be paid by TAXES collected by municipal issuer: income taxs, license fee,s sales taxes (backed by municipality's taxing power). amount of debt can be limited by state and local statues to protect taxpayers from excessive taxes. need voter approval

Historically, a decline in the Real GDP for two consecutive quarters is an indication that the economy is in a(n):

recession