Unit 3- SIE Exam Practice
A 73-year old client in the 25% income tax bracket withdraws $20,000 from her traditional IRA. Based on her life expectancy, the withdrawal should have been $30,000. How much tax will she owe?
$10,000 Failure to meet the required minimum distribution results in a 50% penalty tax on the shortfall. In this case, she took $20,000 when she should have taken $30,000 so there will be a 50% tax on the $10,000 difference ($5000 penalty tax). In addition to that $5,000 penalty tax, the ordinary income tax on the amount withdrawn must also be paid (25% × $20,000 = $5,000). Total tax liability on the withdrawal equals $10,000 ($5,000 penalty tax plus $5,000 ordinary income tax).
A new client of the member firm has just opened a margin account. After account approval, the client's initial trade is an order to purchase 100 shares of LMN common stock at $25. With Regulation T at 50%, in order to be in compliance with all regulations, the client would need to deposit
$2,000 No borrowing can take place in a margin account without at least $2,000 in equity. It is only necessary to pay in full when the purchase is less than $2,000. It is only necessary to deposit more than $2,000 when the trade exceeds $4,000.
An investor has her registered representative enter a sell stop limit order at 50. Following the order entry, trades occur at 52, 50, 49, 51, and 53. The investor would receive
51 Once the order hits "$50", the order is now live and it is ready to sell when it goes above 50. Since the next price is $49, the order isn't triggered, but the next price is $51 where it is triggered.
Alan and Barbara Collins have three minor children; Dan, Ellen, and Frank. Which of the following UTMA accounts could be opened?
Barbara is a custodian for Ellen In an UTMA account, one adult is custodian for one minor. There is no such thing as joint custodians or joint beneficiaries.
A client and his spouse own shares in the KAPCO Fund as tenants in common. He has a 60% ownership interest in the account and the spouse has the balance. If the client dies, what happens to the shares in the account?
The other 40% would go to his spouse and the remaining balance would go to his estate. In a TIC account, securities owned by the decedent pass to the deceased owner's estate—in this case, 60% of the assets. The 40% belonging to the spouse is retained by the spouse.
Some securities are sold without a physical certificate. In those instances, evidence of ownership is kept on record at a central agency. One example of those securities would be
US Treasury Securities All treasury securities are book-entry, meaning there is no physical certificate.
Regarding the dividend disbursement process, there are 4 dates of consequence. There are 3 that are determined by the issuing corporation's board of directors. Which is the one determined by FINRA or the exchange that the security trades on?
ex-dividend date The declaration, record, and payment dates are determined by the board of directors (BOD). FINRA or the exchange determines the ex-dividend date
A registered representative handling a fiduciary account must be aware of the fact that
investment decisions must be made in accordance with the prudent investor rule the Uniform Prudent Investor Act of 1994 displays the rules. Speculative positions are forbidden. Margin Trading is authorized only if allowed by beneficiary of account. Fiduciaries can charge reasonable fees for their service but may not be compensated as a share of profits.
Which of the following is considered a standard corporate action where adjustments made to cost basis for outstanding shares are standardized?
Stock split most common corporate actions for standardizing cost adjustments: Dividends, splits, warrants/rights
Many investors like to put a "transfer on death" (TOD) designation on their brokerage accounts. Among the benefits of doing so are * the TOD designation avoids estate taxes * the TOD designation avoids probate * the account holder is relieved of decision making in the account * flexibility to change beneficiaries as conditions dictate
TOD Designation Avoids Probate and there is flexibility to change beneficiaries as conditions dictate
A customer of a broker-dealer sells 300 shares of stock at $50 per share and leaves the proceeds in the account. This would be considered *a free credit balance * a debit balance * available to the customer on demand *funds that must be reinvested within 30 days
A free credit balance and is available to the customer on demand Proceeds from a sale that are not reinvested and held in the account at the broker-dealer are considered a free credit balance. The "free" means that the funds are available to the customer on demand (freely available).
A customer has an account with a broker-dealer who provides a group of services, such as asset allocation, portfolio management, trade executions, and administration, for a single fee. This is known as
A wrap account Wrap accounts are accounts for which firms provide a group of services, such as asset allocation, portfolio management, executions, and administration, for a single fee rather than charging commissions for individual transactions. Wrap accounts are generally investment advisory accounts and can be cash accounts, margin accounts, discretionary accounts, or nondiscretionary accounts.
An investor has a long position in ABC Chemical Corp. (ABCCC) with a substantial unrealized loss. Wishing to use that loss to offset realized gains, the investor sells the stock. In reinvesting the proceeds of the sale, the investor could avoid violating the wash sale rule by purchasing
ABCCC Convertible Bonds In order to avoid the Wash Rule, an investor cannot buy the same position or substantially similar position within 30 days of selling a realized loss. Similar Positions include: rights, warrants, call options, convertible bonds
There are rules regarding customer statements. All of the following statements reflect those rules EXCEPT
Activity limited to stock splits or dividends only do not require monthly statements to be sent Any activity in an account such as purchases and sales, dividends and interest, and stock splits and stock dividends will trigger the requirement to send a monthly statement. If there is no activity, statements are only required quarterly, unless the account contains penny stocks in which case a statement is required for any month penny stocks are in the account. All statements sent require notice that inaccurate information be reported promptly.
A broker-dealer may extend credit under Reg. T for which of the following transactions?
Close-ended Investment Company trading on the NYSE Reg T governs margin accounts. Because the investment company is trading on the NYSE it is eligible to purchase via credit.
An investor purchased 100 shares of MJS on June 19, 2015 at a price of $40 per share. On June 1, 2016, MJS declared a 25% stock dividend. On July 1, 2016, the investor sold 50 shares of the MJS at $50 per share. Which of the following statements are correct? * The adjusted cost basis of the shares is $30 *The adjusted cost basis of the shares is $32 *There is a short-term capital gain on 25 shares, long-term gain on the other 25 shares *There is a long-term capital gain on all of the shares sold
Adjusted Cost basis of the shares is $32 and there is a long term capital gain on all the shares sold. When a company declares a stock dividend, the cost basis per share is always reduced. The computation is the original total cost ($4,000) divided by the new number of shares. 100 × .25 = 25 additional shares for a total of 125. $4000 / 125 shares equals a new cost basis per share of $32. When any of the shares are sold, including those received in the stock dividend, the holding period for capital gain or loss, is always the original purchase date. In this case, that was more than 12 months ago so any gains are long-term.
A customer was charged a $35 commission on a recent stock trade. The firm acted in what capacity on this transaction?
Agency
A suspicious activity report would probably be triggered if the broker-dealer suspects that a transaction involves funds derived from illegal activity and
Involves at least $5,000 in funds or other assets
Features of the Roth IRA include * there are no minimum required distributions after age 70½ with a Roth IRA * higher contribution limits to a Roth IRA than to a traditional IRA *withdrawal of earnings in the Roth IRA may be made without any taxation as long as a Roth IRA has been open for a minimum of one years and the participant is age 59 *the ability to contribute to both a Roth IRA and a traditional IRA
No minimum required distributions after age 70.5 and you have the ability to contribute to both a Roth IRA and a traditional IRA One of the primary benefits to the Roth IRA is that reaching age 70½ does not trigger the required minimum distributions found in other retirement plans. Probably the biggest benefit is that all earnings grow tax-deferred, and may be withdrawn free of any tax, as long as there has been an open Roth IRA for at least 5 years AND the participant is at least 59½. One may contribute to both types of IRA, but the combined contribution may not exceed that annual maximum for a single plan.