SIE Unit 1, 4, 6 & 10 - E3 Terms

Which of the following orders need not be immediately filled in their entirety? I. Immediate or cancel (IOC) II. Fill or kill (FOK) III. Market at open IV. Buy stop limit A) I and IV B) II and IV C) I and III D) II and III

I. Immediate or cancel (IOC) IV. Buy stop limit Immediate or cancel (IOC) orders allow partial execution, with the unexecuted portion of the order being canceled. Limit orders may be partially filled. A limit order may be filled in pieces until the end of the day (if a day order), or until cancelled (if GTC). Both FOK and market at open orders are expected to be filled immediately and in their entirety. If unable, a FOK order would be canceled (killed).

ABC Fund has assets of $50 million and liabilities of $2 million. The fund has 20 million outstanding shares. What is ABC Fund's net asset value? A) $2.40 B) $2.50 C) $1.20 D) $5.00

$2.40 The formula is (net assets - liabilities) / outstanding shares. In this example, (50 - 2) / 20 = 2.4.

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? A) $620,000 B) $400,000 C) $100,000 D) $280,000

$400,000 Coverage under SIPC may not exceed $500,000 in cash and securities, of which up to $250,000 may be cash. In the cash account, his coverage is $300,000 in securities plus $40,000 in cash. In the long margin account, the coverage is only the equity, which is $60,000. Total: $300,000 + $40,000 + $60,000 = $400,000.

Which of the following would be included in a mutual fund's list of expenses? I. Shareholder records and service II. Investment advisor's fee III. Broker-dealer sales charges IV. Underwriter's sales loads A) III and IV B) I and II C) II and III D) I and IV

I. Shareholder records and service II. Investment advisor's fee Costs to maintain shareholder records, costs to provide services to shareholders, and the investment adviser's fees are all expenses to the fund. The costs paid in the form of sales charges (loads) to an underwriter or broker-dealers selling mutual funds to the public may never be treated as an expense to the fund. They are expenses to the investor.

The bid price represents I. the price the broker-dealer is willing to pay when buying a security. II. the price the customer will pay when buying a security. III. the price a customer will receive when selling a security. IV. the price the broker-dealer will receive when buying a security. A) I and III B) I and II C) II and III D) II and IV

I. the price the broker-dealer is willing to pay when buying a security. III. the price a customer will receive when selling a security. The broker-dealer buys at the bid and sells at the ask. The customer buys at the ask and sells at the bid.

When opening a new account with margin, all of the following documents are required except A) account agreement. B) consent to loan agreement. C) hypothecation agreement. D) credit agreement.

consent to loan agreement. The consent to a loan agreement is not a regulatory requirement. Note this is a new account, so the regular account agreement is required in addition to the margin documents.

All of the following self-regulatory organizations (SROs) function under the Securities and Exchange Commission's (SEC's) oversight except A) the Municipal Securities Rule Board (MSRB). B) the Federal Savings and Loan Insurance Corporation (FSLIC). C) the Financial Industry Regulatory Authority (FINRA). D) the Chicago Board Options Exchange (CBOE).

the Federal Savings and Loan Insurance Corporation (FSLIC). SROs function under the SEC's oversight. Each SRO is accountable to the Commission for enforcing federal securities laws, as well as supervising securities practices within an assigned jurisdiction. These include FINRA, MSRB, and CBOE.

Class C mutual fund shares are also known as A) intermediate shares. B) successive-load shares. C) level-load shares. D) periodic-load shares.

level-load shares. Class C mutual fund shares have no sales charge at the time of purchase, but have a percentage of their value withdrawn from the customer's account every quarter. The percentage, which can be as high as 0.75% of the value of the account, never ceases. The charge remains as long as the account does—it remains level—hence, the shares are known as level-load shares.

Secondary market transactions would include all of the following except A) sale of $10 million of municipal bonds by a broker-dealer acting as a market maker. B) sale of $10 million of corporate stock by a broker-dealer acting as a market maker. C) sale of $10 million of corporate bond by a broker-dealer acting as an underwriter. D) sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker.

sale of $10 million of corporate bond by a broker-dealer acting as an underwriter. Market makers are broker-dealer who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market.

Underwriters in a firm commitment offer A) will act as principals. B) do not provide the issuer with any guarantee that they will raise all of the capital needed. C) will not be at risk for any securities left unsold. D) will act as an agent for the issuer.

will act as principals. In a firm commitment, the underwriters contract with the issuer to buy the securities from them, and thus, they are acting as principals rather than agents. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately, all of the securities will be sold and all of the capital needed will be raised.

A 72-year-old customer has a $30,000 required minimum distribution (RMD) calculated to be taken from an IRA. If the customer is in the 20% income tax bracket and only withdraws $25,000 from the account, how much in taxes and penalties will be owed? A) $12,500 B) $10,000 C) $5,000 D) $8,500

$8,500 Failure to meet the required minimum distribution (RMD) results in a 50% penalty tax on the shortfall. In this case, taking only $25,000 when $30,000 should have been taken leaves $5,000 exposed to the 50% penalty tax. $5,000 × 50% equals $2,500. Note that the IRS will force the distribution of the RMD shortfall ($5,000). In addition to the penalty, the ordinary income tax on the amount withdrawn must also be paid (20% × $30,000 = $6,000). Total tax liability on this withdrawal equals $8,500 ($2,500 penalty tax plus $6,000 ordinary income tax).

The current quote for Generic Motors stock is bid 32-ask 32.05 5 × 2. Your customer places an order to sell 300 shares. How much will they likely receive, before commission? A) Cannot be determined because only 200 shares are available on this side of the quote B) $3,200 C) $9,600 D) $9,615

$9,600 Your customer will sell at the bid (32), or likely very close to it. The bid size is 500 shares so the market can absorb the entire order. 32 × 300 = $9,600. Customers who are selling receive the bid. Those who are buying pay the ask. The size shows bid × ask; 500 shares may be sold at 32 and 200 shares are available to buy at 32.05.

A letter of intent (LOI) must be completed within A) 90 days. B) 6 months. C) indefinitely. D) 13 months.

13 months. The obligation under the LOI must be met within 13 months from the date of the letter. LOIs may be backdated up to 90 days.

A registered representative needs which of the following licenses to solicit a variable annuity sale? A) A securities and a life insurance license B) A fixed annuity license C) A securities license only D) A life insurance license only

A securities and a life insurance license A variable annuity requires both a securities license (Series 6 or Series 7) and a life insurance license (issued by the states). There is no "annuity license."

Which of the following regarding open-end (mutual fund) and a closed-end management investment company is true? A) An open-end company may sell fractional shares, but a closed-end company may not. B) A closed-end company sets its own dividend ex-date, but an open-end company's ex-date is set by its self-regulatory organization (SRO). C) Only the closed-end company may issue additional shares without changing its charter. D) The price of open-end company shares is set by supply and demand, but not the price of closed-end shares.

An open-end company may sell fractional shares, but a closed-end company may not. Open-end shares are redeemable and may be purchased in specific dollar amounts. This results in fractional shares being sold. Closed-end shares trade on the open market, and are therefore traded in round lots of full shares only. The other choices reverse the characteristics of open-end and closed-end companies.

Your customer invests in a mutual fund that has a contingent deferred sales charge that begins at 5% and declines over a holding period of five years until it reaches zero. Your investor is likely purchasing what share class? A) No-load shares B) C shares C) B shares D) A shares Explanation

B shares A contingent deferred sales charge structured this way is common with back-end load (B shares). No-load means no sales charge.

A married couple opens a new account with a broker-dealer as tenants in common. In explaining the details of the account to the couple, the registered representative would not indicate which of the following? A) Mail may be sent to either party with the permission of the other party. B) In the event of death, the decedent's interest in the account goes to the decedent's estate. C) Orders may be given by either party. D) Certificates may be registered in the name of either party.

Certificates may be registered in the name of either party. With a joint account, certificates must be registered in the names of all parties to the account.

Which of the following investment companies has an actively managed portfolio? A) Closed-end company B) Debt fixed unit investment trust (UIT) C) Face-amount certificate company D) Equity fixed unit investment trust (UIT)

Closed-end company The portfolios of both face-amount certificate companies and UITs are nonmanaged. The closest they come to management is when the securities to make up the portfolio are selected. After that, the portfolio does not change. Closed-end companies have an investment adviser who actively manages the portfolio, buying and selling securities.

Which of the following characteristics are associated with face-amount certificates (FAC)? A) Variable returns B) In return for a future payment, the investor agrees to pay the issuer a set amount of money C) No specific maturity date D) Set death benefit

In return for a future payment, the investor agrees to pay the issuer a set amount of money An FAC is a contract between an investor and an issuer in which the issuer guarantees payment of a stated (face-amount) sum to the investor at some set date in the future. In return for this future payment, the investor agrees to pay the issuer a set amount of money, either as a lump sum or in periodic installments.

Which of the following is true regarding the primary market? A) The NYSE is an example of a primary market. B) Issuer transactions occur in the primary market. C) Price is determined by supply and demand. D) It is regulated by the Securities Act of 1934.

Issuer transactions occur in the primary market. The primary market is where securities are sold to the investing public through issuer transactions. It is regulated by the Securities Act of 1933. The NYSE is an example of a secondary market where price is determined by supply and demand.

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? A) Lead underwriter B) Issuing corporation C) Both the underwriters and the issuing corporation D) Underwriting group

Issuing corporation While underwriters can assist with preparation and filing, the accuracy and adequacy of these documents is the responsibility of the issuer.

Selling long is equivalent to which of the following? A) Selling short B) Selling to open C) Selling to close D) Selling to open then buying to close

Selling to close When a customer owns a position and then sells that position, that is referred to as selling long or selling to close.

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) Promptly B) T + 3 business days C) On the trade date D) T + 4 business days

T + 4 business days Regulation T, which applies to everyone who opens a brokerage account, specifies that payment in full for securities must take place no later than two business days after regular way settlement. Because regular way settlement is T + 2, it follows that T + 4 is the latest.

Which of the following are true of both qualified plans and nonqualified plans? A) The accounts grow tax deferred B) Contributions are tax deductible C) Tax on interest and dividends are deferred, but not on capital gains D) Contributions are not tax deductible

The accounts grow tax deferred With qualified plans, deposits go in before taxes and grow tax deferred. All withdrawals are taxable. With nonqualified plans, deposits are made after tax, and distributions above the cost basis are taxable.

A customer sells shares of the ABC Growth Fund and invests the proceeds into the Windmill Income Fund. Both investments are in Class A shares. What are the tax consequences for these transactions? A) The customer will realize any capital gains or losses but will not pay a new sales charge. B) The customer will defer any gains and will not pay a new sales charge. C) The customer will defer any gains and will pay a new sales charge. D) The customer will realize any capital gains or losses and will pay a new sales charge.

The customer will realize any capital gains or losses and will pay a new sales charge. This transaction will result in the customer realizing any capital gains or losses for tax purposes. The exchange (conversion) privilege would waive the new sales charge if this transaction was between funds within the same fund family (sponsor). In this question the funds are at different sponsors; any sales charges will apply to the new purchase.

John Christensen places a buy limit order at 42 when the market price of the stock is at 45. Which of the following best describes how the order would fill? A) The order would be filled at the next available price after the stock price drops to 42 B) The order would be filled between when the stock price is between 42 and 45 C) The order would be filled immediately because the market price is already above 42 D) The order can only be filled at a price of 42 or lower

The order can only be filled at a price of 42 or lower Buy limit orders are placed below the current market price and fill at the stated price or lower.

Which of the following sets of FINRA rules focuses on broker-dealers doing business with other broker-dealers? A) Conduct Rules B) Code of Procedures C) Uniform Practice Code D) Code of Arbitration

Uniform Practice Code The Conduct Rules deal with a broker-dealer's (and representative's) relationship with the customer and the public. The Uniform Practice Code deals with interactions with other broker-dealers.

Which of the following investments has a predetermined termination date? A) Mutual fund B) Unit investment trust C) Closed-end management company D) Open-end management company

Unit investment trust 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.

A customer enters an order that must be executed in its entirety when entered or canceled immediately. This is known as A) an all-or-none (AON) order. B) a fill-or-kill (FOK) order. C) a day order. D) an immediate or cancel (IOC) order.

a fill-or-kill (FOK) order. A FOK order must be canceled immediately if it cannot be filled in its entirety when entered. In this situation, there can be no partial executions. The entire order must be filled immediately, or it must be killed. An IOC order allows for partial executions, and an AON order can remain working as a good-till-canceled order if it cannot be filled immediately when entered.

A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would best be described as A) a municipal securities representative. B) a municipal advisor. C) a market maker. D) an investment adviser.

a municipal advisor. A municipal advisor is a person that provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities.

A customer placed an order to purchase 100 shares of Sierra Verde Corp. common stock. The broker-dealer sourced the shares from another broker-dealer that maintains an inventory in the stock. The customer's firm acted as A) an underwriter. B) a dealer. C) a market maker. D) an agent.

an agent. In this example, the customer's firm acted as an agent (broker), a go-between that sources the shares from a dealer.

The founder of a large, publicly traded company is looking to sell a very large number of shares of their personal holdings of the company stock. They enlisted the help of Great Plains Investments, LLC, a FINRA member broker-dealer based in Omaha, to run the sale. Great Plains is acting as A) an investment banker. B) a dealer. C) an owner. D) an issuer.

an investment banker. In this example, The broker-dealer is acting as an investment banker, assisting a person (the founder) in a secondary offering.