SIE missed simulated exam questions (day before)

Owning an American depositary receipt (ADR) effectively eliminates which of the following risks? A) Liquidity risk B) Market risk C) Currency risk D) Business risk

A) Liquidity risk As ADRs trade on domestic exchanges and OTC, there is almost no liquidity risk. ADRs are still subject to currency risk because the corporations are located in foreign countries. All corporate stocks are subject to business and market risk.

Which of the following allows investors to purchase partial shares as part of a primary offering? A) Mutual funds B) Closed-end funds C) Unit investment trusts D) Corporations

A) Mutual funds Open-end managed companies allow investors to purchase fractional shares in a primary offering. The others listed here do not normally allow that.

All of the following are possible actions of an investor who has received stock rights except A) hold the rights for a possible long-term capital gain. B) sell the rights for a short-term capital gain or loss. C) allow the rights to expire unexercised. D) exercise the rights to purchase the new stock at a discount.

A) hold the rights for a possible long-term capital gain. A long-term capital gain would require a holding period of more than one year. Rights expire four-six weeks after issue, so this would not be possible.

Securities and Exchange Commission Rule 144 regulates A) the sale of control and restricted securities. B) communications with public retail investors. C) the sale of new issue securities in the primary market. D) state-level (blue-sky) registration of securities.

A) the sale of control and restricted securities. Securities and Exchange Commission Rule 144 regulates the sale of control and restricted securities in the secondary market. The rule stipulates the holding period, quantity limitations, manner of sale, and filing procedures when divesting of control or restricted shares.

An investor sells short 1 MJS June 55 put at 2. The current market value of LMN is 56. The investor's maximum loss potential is A) unlimited. B) $5,300. C) $10,600. D) $5,425.

B) $5,300. Put sellers are bullish. Therefore, the maximum risk is if the stock falls to 0. The maximum potential loss, therefore, is the strike price less the premium received for the put (55 − 2 = 53). The maximum loss per contract is $5,300. The current market value of the stock at the time the put was sold short is of no consequence.

Information on the Form U4 is extensive and includes names (aliases) and addresses in addition to which of the following? A) 10 years of residency and 5 years of employment history B) 5 years of residency and 10 years of employment history C) 2 years employment and 3 years of residency history D) 3 years of employment and 3 years of residency history

B) 5 years of residency and 10 years of employment history Information required on Form U4 includes name, address, any aliases, 5-year residency history, and 10-year employment history.

All of the following are exempt issuers under the Securities Act of 1933 except A) Helpful Charities, Inc. B) ABC Broker-Dealer, which issues Treasury receipts. C) the U.S. Treasury. D) the State of Montana.

B) ABC Broker-Dealer, which issues Treasury receipts. A broker-dealer is not an exempt issuer. The federal government, states, and charities are examples of exempt issuers.

A company is looking to raise additional capital to fund an expansion plan. The company's senior management chooses to issue additional bonds to the general public. The best expression to explain this type of offering would be A) an initial public offering (IPO). B) a primary offering. C) a private securities offering. D) a secondary offering.

B) a primary offering. A primary offering is one in which the proceeds raised go to the issuing corporation, municipality, or government. The corporation in this case looks to increase its liquid capital by offering bonds. Primary offerings of bonds may be made by an issuer publicly, as is the case, or privately. This question points to an additional public offering (APO) of securities, not an initial public offering.

An option contract having no intrinsic value at expiration will likely be A) assigned to the holder. B) allowed to expire. C) exercised by the holder. D) exercised by the writer.

B) allowed to expire. With no intrinsic value at expiration, an option contract is worthless. Therefore, the owners of these contracts would most likely allow them to expire rather than exercise them.

In a stock rights offering, which of the following statements is true? A) The exercise period is typically long term, five years or more. B) The rights allow the holder to exercise and purchase the stock at a price higher than the market. C) Rights are issued to existing shareholders on a basis of one right for one existing share. D) The number of rights issued is based on the number of new shares to be issued.

C) Rights are issued to existing shareholders on a basis of one right for one existing share. rights offering allows stockholders to purchase common stock below the current market price. The rights are valued separately from the stock and trade in the secondary market during the subscription period, which is typically 30 to 45 days. Existing shareholders receive one right per share owned. The number of rights required to purchase one share of the new issue depends on the number of outstanding shares and the number of new shares offered.

A customer owns 1,000 shares of stock subject to a 1:3 reverse stock split. The position will now consist of A) more shares worth less per share with the same net position value. B) fewer shares worth less per share with a decreased net position value. C) fewer shares worth more per share with the same net position value. D) more shares worth more per share with an increased net position value.

C) fewer shares worth more per share with the same net position value. With a reverse split, the position will now consist of fewer shares, but each share's value will be adjusted upward. As with all adjustments, the net position value remains unchanged before and after the adjustment.

An existing shareholder receives 1,000 stock rights from the issuer, allowing the holder to do all of the following except A) allow the rights to expire unexercised or unsold. B) sell the rights and profit from any increased market value. C) hold the rights indefinitely for future use. D) exercise the rights to purchase more shares.

C) hold the rights indefinitely for future use. Holders of rights can do any of three things with them: exercise them, sell them in the open market, or allow them to expire unused or sold. Holding them indefinitely is not possible because all rights have a stated subscription period, generally short term (30-45 days), after which they expire.

Treasury bonds pay interest A) annually and mature at par value. B) monthly and mature at current market value. C) semiannually and mature at par value. D) at maturity and mature at current market value.

C) semiannually and mature at par value.

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) $22 B) $23 C) $25 D) $24

D) $24 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.

Which of the following is a type of investment company security as defined by the Investment Company Act? A) Grant anticipation note B) Exchange-traded note C) Hedge fund D) Variable life insurance subaccount

D) Variable life insurance subaccount The subaccounts of a variable life's separate account are organized as an investment company: either a UIT or an open-end managed company. Hedge funds are not covered by the Investment Company Act. ETNs and GANs are fixed income securities.

Purchased 15 years ago with a coupon of 6.25%, a corporate bond in an investor's portfolio has matured. With interest rates now substantially lower at 2.75%, this investor, having no immediate need for the proceeds, is now exposed to A) financial risk. B) call risk. C) interest-rate risk. D) reinvestment risk.

D) reinvestment risk. The inability to invest proceeds from an investment that had been earning a higher rate of return, at the now current lower rate, is known as reinvestment risk.

Which of the following records must be kept by a broker-dealer firm for six years? Customer new account forms Advertising the firm has published Stock records Minute books

I and III New account forms filled out when the customer account was opened and stock records showing all the securities held by the firm and where they are held must be kept for six years. Minute books showing the minutes of directors' meetings are lifetime records. Advertising need only be kept for three years.