SIE Practice Finals - Incorrect
When a member firm receives a sell long order for a customer account the member must have reasonable assurance that the customer will deliver the securities within A: 2 business days B: 2 calendar days C: 4 business days D: 4 calendar days
A: 2 business days
An RR makes the following statements about private CMOs to his customer. Which statement is false? A: A private CMO is backed jointly by the issuer and the federal government. B.Private CMOs can include letters of credit C: Home builders can issue CMOs D: Credit agencies rate private CMOs
A: A private CMO is backed jointly by the issuer and the federal government. Private CMOs are backed by the issuer only.
Regular-way settlement for options contracts is A: T+1 B: T+2 C: T+3 D: T+4
A: T+1
Which of the following is NOT a reason why direct participation programs are formed as limited partnerships? A: The partnership is taxed at a lower rate than the rate of the partners B: The advantages of limited liability for the limited partners C: The tax advantages of the pass-through of profits and losses to the limited partners D: Limited partners do not participate in day-to-day management
A: The partnership is taxed at a lower rate than the rate of the partners The partnership is not taxed as an entity. Partners, both general and limited, are responsible for their own taxes related to the partnership after gains and losses are passed through. Limited partnerships have pass-through taxation. This creates a tax advantage when compared to a corporation, while also offering limited liability to limited partners since limited partners do not participate in the day-to-day management.
Which of the following is TRUE of closed-end investment companies? A: a fixed number of shares are issued which are then publicly traded B: shares are issued and redeemed daily C: a current prospectus must be provided to investor with each purchase D: a prospectus must be provided with the fund is purchased in the secondary market
A: a fixed number of shares are issued which are then publicly traded
An investor is interested in owning REIT securities. He is aware of an upcoming offering of a new hybrid REIT. The investor is not an accredited investor and is able to invest a maximum of $2,000 only. The investor A: can purchase the REIT B: cannot purchase the REIT because he does not meet the minimum investment threshold C: cannot purchase the REIT because he is not an accredited investor D: cannot purchase the REIT because it would be unsuitable for the investor
A: can purchase the REIT
A sales load is best defined as the A: difference between the selling price and the net asset value B: commissions paid on the purchase or sale of securities C: fee paid to the investment advisor D: difference between the expense ratio and the total return of the fund
A: difference between the selling price and the net asset value
A corporate bond was issued at par value and is now trading at a premium. The investor can conclude that the bonds A: face value is lower than the market price B: coupon rate must be lower than the current yield C: quality is higher than a bond selling at a discount D: maturity date must be approaching
A: face value is lower than the market price
Gertrude has a substantial amount of her portfolio in long-term, fixed-income bonds. A significant change in which of the following would present the greatest risk to Gertrude's fixed income investments? A: increase in the Consumer Price Index (CPI) B: decrease in the Consumer Price Index (CPI) C: Decrease to the rate of interest offered on new fixed-income products coming to market D: increase in the number of new bond issues coming to market
A: increase in the Consumer Price Index (CPI) Given that Gertrude has a portfolio of long-term, fixed-income bonds, she would be MOST concerned with inflation risk, which is generally measured by changes to the Consumer Price Index (CPI). If inflation rose significantly, Gertrude would lose money because the money she received from interest payments would be spent on goods and services that now cost more money given higher inflation.
Which of the following would NOT lead to intermediation? A: investors on a large scale deposit additional savings into banks and savings and loans B: savings bank rate are below money market rates C: the Federal Reserve has adopted a tight money policy D: Investors on a large scale withdraw savings from banks and savings loans.
A: investors on a large scale deposit additional savings into banks and savings and loans
What function does the credit agreement at a broker dealer firm accomplish? A: it describes the terms and conditions of the margin credit extended by the broker dealer to the customer B: it authorizes the rehypothecation the customer's securities by the firm C: it allows the broker-dealer to lend the customer's securities to other broker-dealers D: it allows the broker-dealer to lend the customer's securities to other customers
A: it describes the terms and conditions of the margin credit extended by the broker dealer to the customer
Which of the following statements is false about the interbank market? A: it is a centralized market B: it is essentially free from government regulation C: governments may take actions that affect their own currencies D: trading is generally conducted in large units
A: it is a centralized market The interbank market is an unregulated, decentralized market.
Investing in a direct participation program would provide investors with a portfolio of A: non-correlated assets which are expected to provide regular returns B: correlated assets which are expected to provide little or no returns C: non-correlated assets which are expected to provide above market returns D: correlated assets which are expected to provide well above average returns
A: non-correlated assets which are expected to provide regular returns DPPs are considered "Alternative Investments" or "non correlated assets" and are expected to provide regular or steady returns to the investor.
The purpose of ERISA was to establish guidelines for the protection of those employees working in the A: private sector B: public and private sector C: municipal sector D: public sector
A: private sector
Which of the following is not considered a fiduciary? A: registered representatives B: executors C: guardians D: investment advisers
A: registered representatives
An RR has a customer who is 55, has been making contributions to an IRA for many years and is in the top federal tax bracket. She has an urgent medical-related issue and needs $11,000 cash now to resolve it. She explains that the issue concerns payment of outstanding medical insurance premiums. The RR correctly responds that A: she can proceed with the withdrawal as stated but will have to pay income taxes B: withdrawals are not permitted before ages 59 1/2 C: she can withdraw up to $10,000 only because she is in the top federal tax bracket D: withdrawal can proceed but she will have to pay a 10% penalty
A: she can proceed with the withdrawal as stated but will have to pay income taxes. Under IRS rules, IRA account owners can withdraw from the account prior to age 59 1/2 without penalty if the withdrawal has a qualifying reason, but they must still pay income taxes. The 10% penalty would not apply.
Under the Bank Secrecy Act anti-money laundering rules, if a firm becomes aware of a suspicious transaction, it must file a Suspicious Activity Report within A: 10 days B: 30 days C: 90 days D: 180 days
B: 30 days
For purpose of the customer confirmation rule, which of the following is not considered to be a customer? A: A bank investment portfolio B: An issuer selling a new issue of its securities C: A casualty insurance company buying securities for its own account D: Individuals who now reside in a foreign country
B: An issuer selling a new issue of its securities Issuers are not considered to be customers. Customers purchase shares. Issuers DISTRIBUTE shares.
Regarding tax-qualified, profit sharing plans, which response below is not true? A: Under ERISA, such plans must meet the required non-discrimination test B: In order for a company to make profit sharing contributions, actual company profits are a requirement C: Such funds which have been accumulated can only be properly distributed at or after retirement has occurred D: In such plans, the assets must be held in trust before distribution
B: In order for a company to make profit sharing contributions, actual company profits are a requirement
Which of the following factors would cause Japanese and German investors to be purchasing securities issued in the US: UNITED STATES GERMANY/JAPAN GNP -5.3% +7.4% LONG BONDS 8.8% 4.6% TRADE BALANCE -150 bil +200 bil CURRENCY EXCH -6.7% +4.2 A: GNP B: Long Bonds C: Trade Balance D: Currency Exch.
B: Long Bonds
Which of the following options positions would give the investor MAXIMUM protection when hedging using options? A: Long Calls and Short Calls B: Long Calls and Long Puts C: Short Calls and Short Puts D: Short Calls and Long Puts
B: Long Calls and Long Puts When looking for maximum protection, long calls and long puts provide the most protection because the only benefit a writer (short the option) can get is the amount of premium received when the option is written.
Fannie Mae commonly securitizes which of the following forms of debt to create CMO products? A: US Government Treasury Bonds B: Residential Mortgages C: Commercial Mortgages D: Student Loan Debts
B: Residential Mortgages
A 10-year convertible bond issued by a corporation would be LEAST SUITABLE for which of the following types of funds? A: an income fund B: a money market fund C: a balance fund D: a corporate bond fund
B: a money market fund
A common stockholder has all of the following rights except: A: voting B: demand dissolution of the company's assets C: residual claim on the company's assets D: to examine certain books and records
B: demand dissolution of the company's assets A common stockholder cannot demand the company to sell of its assets.
Which of the following would be true of an open end investment company that only invests in municipal bonds? A: all returns from this type of fund would be tax free B: dividend payouts of interest received on the municipal bonds within the portfolio would be exempt from federal income taxes C: capital gains realized by the fund and paid out to investors would be exempt from federal income taxes D: because the municipal bonds are purchased within a fund, all distributions of both dividends and capital gains would be taxable
B: dividend payouts of interest received on the municipal bonds within the portfolio would be exempt from federal income taxes
The document that gives a registered representative the right to make purchase and sale decisions for a customer's account but does not allow the RR to withdraw cash or securities from the account is known as A: guardianship authorization B: limited power of attorney C: full power of attorney D: investment advisory authority
B: limited power of attorney
Which of the following best describes an order to buy or sell while the floor broker uses his judgement in the execution of the order? A: stop B: not held C: limit D: market
B: not held
All of the following are ways to acquire a variable annuity except: A: making a single premium payment with an immediate payout B: periodic payments with an immediate payout C: periodic payments over time using deferred payout D: single premium payment with deferred payout
B: periodic payments with an immediate payout
The Employment Retirement Income Security Act of 1974 (ERISA) covers which of the following? A: retirement accounts of public sector employees B: retirement accounts of private sector employees C: retirement accounts of public and private sector employees D: retirement account of municipal employees only
B: retirement accounts of private sector employees
A numerical measure of how much the return on a mutual fund has varied regardless of cause, from the historical average return of the fund is known as A: current yield B: standard deviation C: beta or alpha D: dividend payout ratio
B: standard deviation it's the measure of how much the return on a mutual fund has varied regardless of cause, from the historical average return of the fund
If a designated market maker says to a floor broker "You are stopped at 31" which of the following is true? A: the floor broker will receive an execution within .50 cents of $31 per share B: the designated market maker guarantees the broker an execution at 31 or better C: the designated market maker is not making any commitment on the order D: The floor broker will never be allowed to obtain a price higher or lower than 31.
B: the designated market maker guarantees the broker an execution at 31 or better
All of the following are required to be included in a preliminary prospectus according to the 1933 Act except: A: the financial status and history of the company B: the final offering price C: the purpose for which the funds are being raised will be used D: a written statement in red on the left border of a preliminary prospectus (Red herring) that states that the prospectus may be subject to changes
B: the final offering price the final offering price would be in the final prospectus but not in the preliminary prospectus because it has not yet been determined at the time the preliminary prospectus is distributed
A guaranteed bond is a bond in which? A: principal and interest are always paid promptly B: the payment of interest and principal of a subsidiary corporation is guaranteed by a parent corporation C: There is absolutely no risk associated with the bond D: Interest and principal is only paid if earnings by the parent corporation exceed a specified level
B: the payment of interest and principal of a subsidiary corporation is guaranteed by a parent corporation
Transactions that may be done in a cash account include all EXCEPT A: the sale of preferred stock B: the short sale of common stock C: the sale of a covered put option D: the sale of a covered call option
B: the short sale of common stock
An investor with a large portfolio of equity securities wants to write covered calls against his portfolio. All of the following are true about this type of strategy except A: the tax consequences with regards to any premiums received and the cost basis of the stock should be reviewed B: this strategy would work best during a bullish market C: the investor's profit on the long stock would be limited to the strike price of call options written against the portfolio of stock D: this is considered to be a conservative option strategy
B: this strategy would work best during a bullish market
All of the following are defensive except: A: automobile repair service B: tool and die manufacturer C: natural gas supplier D: supermarket chain
B: tool and die manufacturer Manufacturing, such as tool and die companies, are typically more cyclical and not considered defensive.
In an established margin account, a customer sells short 1000 shares of ABC @7. What is the required margin on this position? Regulation T is 50%. A: $2,000 B: $3,500 C: $5,000 D: $7,000
C: $5,000 When a low priced security is sold short, there are maintenance requirements imposed. The requirement when the stock is trading at 7 is $5.00 per share. $5.00 per shares x 1000 shares = $5,000
Copies of customer confirmations must be retained by the firm for A:1 year B: 2 years C: 3 years D: 5 years
C: 3 years
Chris has a portfolio of corporate bonds. The portfolio currently yields 7.5%, but then Chris has tax consequences related to the bonds. Chris is currently in the 25% tax bracket. Chris is considering switching over to a portfolio of municipal bonds, where he will have no tax consequences. With Chris paying 25% on his 7.5% corporate bonds, what would an equivalent municipal bond yield look like? A: 10% B: 7.5% C: 5.625% D: 1.875%
C: 5.625% .075 corporate yield x 0.75(100% - 0.25 tax bracket) = 0.05625 or 5.625%
All of the following are true regarding IRA contributions except: A: Although a tax return is filed prior to April 15, the IRA contribution may be delayed until April 15. B: Contributions may be made at any time between January 1 and April 15 of the following year. C: If an extension for a tax return is obtained, the IRA contribution may be delayed until the date the tax return is filed. D: Persons not participating in any other types of retirement plan may deduct their IRA contributions up to certain limits.
C: If an extension for a tax return is obtained, the IRA contribution may be delayed until the date the tax return is filed. If an extension is granted for the filing of a tax return, the IRA contribution must still be made no later than April 15.
An investor interested in obtaining an Official Statement for a particular state's 529 Plan would contact which of the following? A: SEC - Securities Exchange Commission B: FINRA - Financial Industry Regulatory Authority C: MSIL - Municipal Securities Information Library D: Governor of state
C: MSIL - Municipal Securities Information Library
The offering of which of the following securities would not be subject to the prospectus delivery requirements? A: Face Amount Certificates and Mutual Fund Shares B: Contractual Plan Certificates C: Secondary Closed-End fund share purchases D: variable annuity contracts
C: Secondary Closed-End fund share purchases
Which of the following is NOT required in order to open an options account? A: The RR must inquire about the investment objectives of the customer B: The RR must gather and keep record of customer financial background information and provide an Option Disclosure Document (ODD) C: The RR must provide a written explanation of why he believes the account is suitable D: The customer must sign a document agreeing not to violate position limit and exercise limit rules
C: The RR must provide a written explanation of why he believes the account is suitable
Which of the following is true about REITs? A: They are generally set up as limited partnerships, and they could be subject to double taxation B: They are generally set up as limited partnerships, and they pass through both profits and losses C: They are generally set up as publicly traded companies, and they could be subject to double taxation. D: They are generally set up as publicly traded companies, and they pass-through both profits and losses
C: They are generally set up as publicly traded companies, and they could be subject to double taxation.
A customer who wishes to purchase mutual fund shares intends to invest a significant amount over the next 12 months. The customer sees the breakpoints are available for amounts that are similar to the amount that the customer intends to invest over the next year. If the customer wishes to take advantage of those breakpoints and receive a reduced sales load on the total funds invested, but does not have all the capital available to invest today, which of the following is the BEST manner to achieve the goal of reduced sales load. A: a rights of accumulation agreement related to the fund B: a withdrawal plan from the customer's bank to the broker-dealer C: a letter of intent between the customer and the fund D: a margin agreement between the customer and the broker-dealer.
C: a letter of intent between the customer and the fund
A Keogh Plan may be referred to as all of the following EXCEPT: A: a tax deferred settlement B: An HR-10 plan C: a tax-free trust D: a self-employed retirement plan
C: a tax-free trust
A client wants a large sum of money invested for 6-8 months before he retires. Upon retirement, he will decide how he wants to reallocate his money. For the time being, all of the following would be appropriate investments EXCEPT A: a municipal money market mutual fund B: Treasury Bills C: an immediate annuity which charges a single premium D: a mutual fund designed for short-term investments and charges no sales load
C: an immediate annuity which charges a single premium Annuities are long-term investments and penalties could be imposed if the annuity is surrendered.
With regard to mutual funds and variable annuities, all of the following are TRUE statements EXCEPT: A: both are subject to market risk B: both are long-term investments C: both have tax deferred earnings D: Both generally provide active professional investment management
C: both have tax deferred earnings
Which of the following customers usually cannot issue a trading authorization to third party? A: corporation B: individual C: custodian D: joint tenant
C: custodian they are already acting as a third party for the account, therefore it could not issue such authorization to another person
An individual is in the process of becoming registered with a broker-dealer. All of the following are requirements of this individual, except: A: within 30 calendar days, the individual must obtain written consent of the employing member in order to maintain accounts that the individual has at other broker-dealer firms B: disclosure of any outside business activities that provide the individual with compensation C: disclosure of monthly income from a family trust D: if the individual has been found to have violated any provision of securities laws or regulations
C: disclosure of monthly income from a family trust
Which of the following investments would be the most appropriate for an investor in a low tax bracket who indicates that protection from inflation if their primary investment objective? A: GNMA's B: tax-exempt unit trusts C: money market funds D: treasury bonds
C: money market funds
All of the following mutual fund terms have the same meaning except: A: net asset value B: redemption price C: public offering price D: Bid
C: public offering price
All of the following are true regarding the conduct of customer accounts except A: stock held in a custodian account may not be held in street name B: a customer may open a numbered account provided a statement attesting to the ownership of the account is signed C: stock held in joint tenancy with rights of survivorship (JTWROS) escapes federal estate tax liability in the estate of the first to die D: margin trading in a fiduciary account requires documentation stating that such trading is permitted
C: stock held in joint tenancy with rights of survivorship (JTWROS) escapes federal estate tax liability in the estate of the first to die
Which of the following statement regarding a customer margin account is false? A: securities can be hypothecated B: interest is charged on the debit balance C: the loan consent agreement must be signed by the customer D: the customer must sign the margin agreement
C: the loan consent agreement must be signed by the customer
Following are the prices of two mutual funds published at the end of the day on April 18. Investor A buys 300 shares of the Athens Fund at 10am April 18. He would pay a total of: Athens Fund ----> NAV: $5.72----> Offering Price: $6.08---->NAV Change: $-.02 Troy Fund---->NAV: $8.65---->Offering Price: $9.25---->NAV Change: -.04 A: $1,716 only B: $1,716 plus commissions C: $1,824 plus commissions D: $1,824 only
D: $1,824 only $6.08(offering price) x 300 (shares) = $1,824 There is no commission on open end funds but there may be a sales charge/load.
A customer is short 1,000 shares of ABC @ $4 per share in his margin account. What is the initial margin requirement on this position? A: $2,000 B: $2,500 C: $3,000 D: $4,000
D: $4,000 For stock selling below $4.00 per share the deposit is 100% of the market value of $2,000, whichever is greater. Therefore, the required deposit = $4.00 x 1,000 shares = $4,000.
Which bond would be most suitable for an investor who invests for maximum liquidity? A: a bond selling at a premium B: a bond selling at a discount C: a bond with a high call premium D: a bond with a one year maturity
D: a bond with a one year maturity
All of the following would be considered advertising or sales literature under security industry regulations, EXCEPT A: a recommendation letter sent to 30 prospective clients B: telemarketing scripts C: a television ad D: a market letter sent to 20 prospective clients
D: a market letter sent to 20 prospective clients
A conservatively optimistic investor who wants to participate in a possible upward move of the market and at the same time limit her downside risk would most likely: A: buy LEAPS puts B: buy LEAPS calls that are out of the money and sell LEAPS calls that are in the money C: sell LEAPS puts that are out of the money D: buy LEAPS calls and buy Treasury notes
D: buy LEAPS calls and buy Treasury notes The best choice would be to buy calls for the upward move of the market and buy Treasury notes for the safety of downside protection. You would not "buy LEAPS calls that are out of the money and sell LEAPS calls that are in the money" because selling in-the-money calls increases the chance of the calls being exercised.
Which security has the lowest degree of capital risk? A: warrants B: options C: common stocks D: corporate bonds
D: corporate bonds
It is TRUE to state that junk bonds: A: are required to be rated but fall into the BB category or lower B: will normally have a lower coupon rate and lower market price when compared to investment grade bonds C: always begin and remain in the category of "junk bond" until maturity D: typically have a higher price volatility when compared to investment grade bonds
D: typically have a higher price volatility when compared to investment grade bonds
A customer sells short 100 shares of ABC at 40 and writes 1 ABC May 40 put at 3. The maximum loss potential to the customer is A: $300 B: $3,700 C: $4,000 D: unlimited
D: unlimited
When a client opens an options account at a firm, regulations dictate that the firm must receive an account agreement signed by the customer in what time frame? [A] Following approval of the account, the firm must receive the signed account agreement within 15 days. [B] The firm must receive the signed account agreement prior to approval of the account. [C] Following approval of the account, the firm must receive the signed account agreement within one month. [D] The firm must receive the signed account agreement no fewer than 10 business days before approval of the account.
[A] Following approval of the account, the firm must receive the signed account agreement within 15 days.
Mortgage Real Estate Investment Trusts generally invest in which of the following? [A] properties handled by developer or builders [B] income producing properties [C] residential mortgage loans [D] oil and gas properties
[A] properties handled by developer or builders
Mr. Smith, your client, has maintained about 80% of his portfolio in fixed income securities. Interest rates are expected to decline over the next 12 month period. Mr. Smith calls you because he is concerned about this prediction and his portfolio. Which of the following recommendations would be appropriate for you to give to Mr. Smith? [A] Move 50% of his portfolio into equity securities [B] Leave his portfolio the way it is now [C] Move 60% of his portfolio into Money Market funds [D] Move 25% of his portfolio into Limited Partnerships
[B] Leave his portfolio the way it is now If interest rates decline the value of the bonds will go up and his overall portfolio value will increase. He also would be able to continue to receive the income from the coupons on the bonds he currently owns.
When a bond is trading at a discount, the current yield on the bond is: [A] unrelated to its yield to maturity [B] less than its yield to maturity [C] equal to its yield to maturity [D] more than its yield to maturity
[B] less than its yield to maturity
Mary has sold 1 XYZ April 50 Call in her margin account. All of the following cover her call, EXCEPT: [A] 5 XYZ convertible bonds that can immediately be converted to 20 shares of XYZ common stock [B] A long position of 1,000 shares of XYZ common stock [C] A long position of 100 shares of XYZ preferred stock [D] A depository or escrow receipt showing that Mary holds 500 shares of XYZ common certificates in a safe deposit box
[C] A long position of 100 shares of XYZ preferred stock
A new client opens up a margin account at the firm. The client wishes to perform a short sale as their first transaction. They wish to sell short 1,000 shares of MNO corporation, which is currently trading at $2.25 per share. How much must this client deposit assuming no other deposits have been made at this time? [A] The client must deposit $1,125. [B] The client must deposit $2,250. [C] The client must deposit $2,500. [D] The client must deposit $4,500.
[C] The client must deposit $2,500. The minimum deposit required for low price stock with a market price between $0-$2.50 is $2.50 per share. Yes, this investor has to give $2.50 per share, not the current market value of $2.25.
If the price of an underlying stock increases substantially, all of the following options positions will be profitable, EXCEPT: [A] a long call [B] a bull spread [C] uncovered call writing [D] uncovered put writing
[C] uncovered call writing
When a customer opens a margin account at a broker/dealer, they are required to sign certain documents. Which of the following best describes the agreement between the customer and the broker/dealer related to the terms and conditions of financing involved in purchasing on margin? [A] This is covered in the customer's new account form. [B] This is covered in a consent by the client to the loan from the broker/dealer. [C] This is covered in the customer's hypothecation agreement. [D] This is covered in the Credit Agreement for a line of credit with the customer.
[D] This is covered in the Credit Agreement for a line of credit with the customer.