SIE Practice Questions

What is the par value of a bond?

$1,000

ABC Corporation issued a $1,000 10% coupon bond. At maturity, what is it required to pay out to its bondholders?

$1,050 = $1,000 (par value) + $50 interest payment - Assume interest paid semi-annually

Broker-dealers and RRs are not permitted to give gifts in excess of what dollar amount per person per year to another person if the gift is given in relation to the business of a person's employer?

$100

What is the maximum annual contribution allowed to a Coverdell education savings account?

$2,000

Suspicious Activity Reports (SARs) include detailed information about transactions that appear to be suspicious and need to be filed with FinCEN if a financial institution suspects such activity involving at least:

$5,000

The maximum protection SiPC provides per separate customer is:

$500,000

A mutual fund must have a minimum of how many investors?

100

How many shares of stock are in a round lot?

100

What is the name of the fee that can be paid by the fund out of its assets to cover distribution expenses and sometimes shareholder service expenses?

12b-1

ABC is quoted at 15 - 16 what is the ask?

16

How long can FINRA retain jurisdiction over one of its members or registered associated persons after they are no longer in the industry?

2 years

Within what time period can a terminated person reinstate their registration without retesting?

2 years

When must a registered person take and complete the regulatory element of their CE?

2 years from their initial registration and every 3 years thereafter

The cooling-off period is a minimum of _____ days

20

A bond has a yield of 6.00% initially but now it is only 5.75%. How many basis points did it drop?

25 = 600 - 575

If a person does not pass their qualification exam the first time, how long must they wait before they can retest?

30 days

A common stock is trading at $100 and recently paid a $1 quarterly dividend. What is the current dividend yield?

4% $1 x 4 = $4 annually Dividend Yield = $4 / $100 = .04 or 4%

What is the name of an employer-sponsored retirement plan in which the employee has the option of taking employer contributions in cash or directing them into the plan?

401(k)

The account holder of a qualified plan must take required minimum distributions no later than April 1 of the year after the account owner turns age:

72

If XYZ Corporation issued 10 million shares of common stock and has 1 million in its treasury, how many shares are considered outstanding?

9 million = 10 million - 1 million Outstanding Shares = Issued Shares - Treasury Shares

A letter of intent can be backdated for up to how many days?

90

A mutual fund may offer a reduced sales charges as an incentive to investors who purchase Class ___ Shares.

A

Which of the following debt instrument is considered a money market security?

A 10-year US treasury note 9 months prior to maturity

Who makes the investment decisions for an investment company?

A professional investment manager or investment adviser

A variable contract must be sold by:

A prospectus

Which of the following statement about bonds trading in the secondary market is correct?

Bond prices tend to move in the opposite direction of interest rates

An investor purchases 1,000 shares of XYZ stock. What risk does this investor face?

Business risk

When do issuers typically call bonds?

When interest rates are falling - So they can reissue new bonds with a lower coupon

All of the following are leading economic indicators, EXCEPT:

Employment duration - Some leading economic indicators are money supply, housing market, and stock market

Which of the following is a secured bond?

Equipment trust certificates

An owner of a convertible bond can:

Exchange the bond for common stock

Which of the following is the proper order of the economic business cycle?

Expansion, peak, contraction, and trough

What ratio is used as a method for measuring a mutual fund's annual expenses against the average net assets to show how efficient the fund is operating in comparison others?

Expense Ratio

The federal government has the moral obligation, but not the legal liability to back the issue of:

FNMA securities - FHLMC and SLMA not backed as well

If the Fed decreased the reserve requirement, interest rates would:

Fall

The primary reason investors buy stock in a corporation is to:

Financially benefit if the share price increases

Which the following underwriting agreements guarantees the issuer of an initial public offering (IPO) that all of the shares will be purchased?

Firm Commitment

What action would the Fed take to make interest rates fall?

Increase the money supply

The President and Congress can slow the economy by:

Increasing taxes and decreasing spending

If a fixed dollar amount will not buy the same amount of goods in the future as it does today, an investor is facing what type of risk?

Inflation or purchasing power risk

What is one advantage an investment company offers?

Instant diversification

What is a bond issuer responsible for paying to investors?

Interest on a timely basis

What type of relationship exists between bond prices and yields?

Inverse

Who receives the net proceeds from securities that are sold in the secondary market?

Investors

When an issuer sells securities in a primary offering, the net proceeds are paid to the:

Issuer

Debentures are backed by the:

Issuer's full faith and credit and promise to pay

All of the following are true regarding treasury stock, EXCEPT:

It has voting rights - Treasury stocks are authorized but not outstanding, does not receive dividends, and have been issued and repurchased by the company

How is the Real Gross Domestic Product (GDP) different from GDP?

It is calculated by subtracting the rate of inflation from GDP

Which of the following statements about diversification is true?

It reduces nonsystematic risk

A country would have a favorable trade balance when its:

Its exports are greater than its imports

Prior to making any suitable customer recommendations, a registered representative should:

Know their customer

Which of the following option contracts would a bearish investor seek?

Long Put (put buyers)

If a client opens a margin account, which of the following must be obtained in addition to the new account form?

Margin agreement

Which stock valuation method is determined by supply and demand?

Market value

Which of the following is considered an electronic trading exchange in the First Market?

NASDAQ

Exchanges within the same fund family are also called:

Net transactions

Morris owns 400 shares of RVL, an exchange traded stock. RVL paid a 20% stock dividend on August 5th. On the day before the ex dividend date, the stock closed at $20/share. What are the tax consequences of this event?

No immediate tax liability, but the cost basis per share will need to be adjusted

If an investor owns 100 shares of XYZ stock XYZ pays a 10% stock dividend, the investor will:

Now own 110 shares

What determines the number of votes a stockholder has?

Number of shares owned

All of the following are true regarding the trading of closed-end management company shares, EXCEPT:

Shares are redeemed through the fund

Retirement plans can be funded by all of the following, EXCEPT:

Spousal contribution

Which of the following underwriting agreements allows an underwriter to step in, buy remaining shares, and then sell those shares to the public?

Standby

Who is the sponsor 529 plans?

States

In the long term, which of the following investments is most likely to protect an investor's portfolio against the effects of inflation?

Stocks

In a variable annuity, the investment management fee is deducted from the:

Subaccount

If an investor is unable to attend a shareholder meeting and vote in person, what other option does the investor have to cast a vote

Submit a vote via proxy in a complete and timely manner

Which of the following bonds would pay out the highest interest rate to investors?

Subordinated debentures - Higher default risk so they must have higher interest rates

Which of the following has the longest maturity?

T-bonds

Which of the following is NOT a money market instrument?

T-bonds - Usually matures in 10-30 years

All of the following debt instruments are backed by the US government, EXCEPt:

T-receipts - Since they're issued by broker-dealers that own treasury securities

If an older investor wants to invest for future generations, it is recommended that they:

Take on the investing profile of the expected beneficiary

What happens if a customer refuses to provide all requested information at the time of account opening?

The account may still be opened at the firm's discretion

All of the following statements about corporate bonds are true, EXCEPT:

The higher the credit rating of the corporation, the higher the interest rate it will offer (FALSE) TRUE - Corporate bonds are debt instruments issued by corporations - The higher the credit rating of the corporation, the LOWER the interest rate it will offer - Bond interests paid to the investor is subject to ordinary income tax - Failure to pay the semiannual interest means the corporation is in default and can be forced into liquidation by the investors

Which of the following statements about a joint tenants with rights of survivorship account is false?

The joint tenants have to be related to one another - No they don't

Contributions to deductible IRA may be limited depending on all of the following factors, EXCEPT:

The state in which the taxpayer lives - May be limited by taxpayer's income, tax-filing status, and if the taxpayer can participate in an employeR-sponsored qualified retirement plan

What is the maximum loss for a corporation's stockholder?

The value of the investment in the company

Who is responsible for the preparation of mutual fund retail communication?

Underwriter

Which type of investment company is established or organized under a trust indenture, is operated by a Board of Trustees who supervise the operations, and traditionally invests in a fixed portfolio that may consist of equity securities (stocks) or debt securities (bonds)?

Unit Investment Trust

Hedge funds are:

Unregulated, typically unregistered, and not publicly traded

All of the following are considered fraudulent account activities, EXCEPT:

Unsolicited trading - Request based on the customer so this is not fraudulent

How can consumers research current and former BDs and RRs registered with FINRA within the past 10 years?

Use FINRA BrokerCheck

Which of the following voting methods gives smaller shareholders a better chance of gaining representation on the Board of Directors?

Cumulative voting

All of the following are characteristics of REITs, EXCEPT:

A REIT is set up as a corporation - REITs are trusts, that may be listed or unlisted, invest in property, mortgages, and shares of other REITs, and sell shares of beneficial interest

Which of the following securities is subject to currency risk?

American Depository Receipts (ADRs)

Investors do NOT vote on which of the following?

Amounts of dividend payments

All of the following are true statements regarding ADRs EXCEPT:

ADRs have voting rights - No voting rights, just foreign trading, dividends, and no preemptive rights

Which of the following is not a source of income used to back a revenue bond?

Ad valorem taxes - Designed to be self-sufficient so are not funded through taxes, but instead funded through tolls, enterprise activity income, and lease rental payments

A method used by con artists to gain a person's trust by identifying with a large target group is:

Affinity Fraud

Which of the following regarding custodial accounts is true?

Any gifts made to the account are irrevocable

To be defined as an Investment Company, a company is required to have all of the following, EXCEPT:

Approval of the SEC - Must have $100,000 in net assets, 100 shareholders, and a clearly defined investment objective

Which of the following activities constitutes market manipulation?

Creating the impression that a security is actively trading & Providing Falls market quotations

The possibility that an issuer will be unable to pay back the interest and/or principal due to its creditors is known as what type of risk?

Credit

Which of the following types of preferred stock pays dividends in arrears?

Cumulative

Which of the following is the exchange for options trading and the SRO for broker-dealers engaging in the options market?

CBOE - Chicago Board Options Exchange

The cost of goods and services purchased by a typical consumer in the United States is measured by the:

CPI

The value of a municipal bond will rise if credit rating agencies:

Change their ratings from BBB to A - S&P jump to higher rating

The disclosure document provided to a customer at or before an option account is approved his known as

Characteristics and Risks of Standardized Options

Following the execution of a trade, custody of client assets and securities are maintained by a(n):

Clearing broker-dealer

All of the following are relevant personal and financial info necessary for a registered representative to make a suitable recommendation, EXCEPT:

College degree earned

The XYZ Corporation is experiencing a problem with cash flow and it is short of funds to increase its product inventory for a special order. XYZ could alleviate this problem by issuing:

Commercial paper

Which type of security must all corporations issue?

Common stock

Which of the following has the lowest priority claim on assets if a corporation goes bankrupt?

Common stockholders

All of the following are true about the Roth IRAs, EXCEPT:

Contributions can be made even if the individual has no earned income - Contributions are made after tax, contributions are not age limited, there are no RMDs

Which type of preferred stock allows the investor the opportunity to increase overall value in their holdings as the company grows?

Convertible

A preferred share of stock was issued with a $100 par value and a fixed dividend rate of 5%. If interest rates increased to 7%, the market value of the 5% preferred stock will:

Decrease

What is the only rate set by the Fed?

Discount rate

All of the following are advantages of mutual fund investing, EXCEPT:

Distributions reinvested are always income tax-free

Which type of municipal bond is backed by two or more sources of repayment?

Double-barreled bond

Which of the following issues securities that are guaranteed by the full faith and credit of the US government?

GNMA pass-through certificates

An investor would sell an options contract to:

Generate income from the sale of the contract

How often does a zero coupon bond pay interest to its holder?

Only at maturity

Which of the following is the most often used tool by the Fed?

Open market operations

Which of the following only issues common stock to raise capital?

Open-end Management Company

Which of the following is an arbitrary number used for accounting purposes?

Par value

An investor buys a bond from an issuer for $1000. At maturity, interest rates have gone down dramatically. How much will the investor receive from the issuer?

Par value plus the last interest payment due

DPPs provide:

Pass-through income

Amanda owns 300 shares of ABC Inc. Recently, ABC issued 10 million shares of common stock and gave Amanda the ability to purchase some of the new shares prior to the public offering. This offering is known as:

Preemptive rights

What is a major advantage of preferred stock over common stock?

Preferred stock dividend have priority over common stock dividends

Which corporate bond has a current yield less than its coupon rate?

Premium

All of the following are tools used by the Federal Reserve to control the money supply, EXCEPT:

Prime rates - Tools used by the Federal Reserve to control the money supply includes: (D)iscount rate, (O)pen market operations, (R)eserve requirement, (M)argin requirement, and (M)oral suasion

When must all customers be provided with the most current mutual fund prospectus?

Prior to or at the time of confirmation

All of the following are contained in a confirmation statement, except:

Profit or loss on the security position traded

A _____ is used with the sale of municipal fund securities.

Program disclosure document

The SEC is a federal government agency responsible for all of the following, EXCEPT:

Prosecute violators of criminal activity - this is under the Department of Justice The SEC is responsible for: - creating/enforcing penalties for violation of federal securities law - Protect US investors - Require issuers to provide full and fair disclosure regarding their securities to investors

BFDIC is associated with which of the following?

Protecting bank account deposits in the US banks from bankruptcy

The main objectives of the Securities Act of 1933 are to:

Provide full and fair disclosures regarding new issues and to prevent misrepresentation and fraud in the sale of securities

What must an RR do if they care to engage in any outside business activity for compensation?

Provide prior written notification to their BD

Which of the following terms is NOT associated with the secondary market?

Public offering price - Only in the primary market

Under FINRA Suitability Standard Rule 2111, which of the following is not one of the three suitability obligations?

Qualitative

An investor owned a stock for 18 months before selling it to another investor. This trade placed in the:

Secondary market

When the money supply decreases, interest rates:

Rise

All of the following are characteristics of ETFs, EXCEPT:

They are actively managed and have high management fees - ETFs are listed and trade on an exchange, charge investors commissions on sales, and provide diversification that mirrors a specific index

All the following are characteristics of a bond, EXCEPT:

They represent an ownership position in the issuer - Bonds pay a fixed interest rate, matures in 10-30 years, and are actively traded in the secondary market

A bankers' acceptance is used for which of the following purposes?

To finance a transaction between companies in two separate countries

A stock split is used for all of the following reasons, EXCEPT:

To give the current shareholders more money right away - Usually stock splits are a form of payment to make stock more attractive in secondary market trading and more marketable

The major risk a client faces when giving a registered representative discretionary authority is:

Transactions that are excessive in size or frequency

Which of the following typically acts as the custodian for a mutual fund?

Trust companies or commercial banks

If the Quasinyx Corporation declares a dividend on August 8 to stockholders of record on Wednesday, August 23, on what date will the stock trade ex-dividend?

Tuesday, August 22

If the US dollar is weak compared to foreign currencies, which statement is true?

US exports are likely to rise - Because US goods becomes cheaper to foreign countries

Mutual funds are required to furnish all of the following reports, EXCEPT:

Unaudited annual reports to shareholders - Mutual funds must furnish: audited annual reports to SEC and shareholders, and unaudited semi-annual reports to shareholders

Broker-dealers, investment companies, and investment advisors must provide their customers with a notice of their privacy policies and practices at the time the relationship is established, and every:

Year after