SIE Study Set 5

6% XYZ debentures are trading for $1,200 while similarly rated bonds are being offered at 4.5%. What is the current yield on the 6% XYZ debentures? A) 5% B) 1.5% C) 7.5% D) 6%

A) 5% Current yield is defined as the annual income (or coupon rate) from a bond divided by the bond's current market price ($60 ÷ $1,200 = 0.05 or 5%). Accordingly, the current yield (5%) is lower than the coupon rate (6%) because the bond is trading at a premium.

Which of the following is true regarding accounts trading on margin? A) A fiduciary account may only trade on margin if it is specifically permitted in the trust or custodial agreement. B) A partnership account may only trade on margin if it is specifically permitted in the partnership resolution. C) A corporate account may only trade on margin if it is specifically permitted in the corporate charter. D) Joint accounts or those with more than one party titled on the account may never trade on margin.

A) A fiduciary account may only trade on margin if it is specifically permitted in the trust or custodial agreement. Both individual and joint accounts may trade on margin. While corporate and partnership accounts may trade on margin as long as they are not specifically restricted from doing so, a fiduciary account may only trade on margin if permission is specifically granted in the trust or custodial agreement. In the answers for the business accounts, it is the wording "only trade on margin if it is specifically permitted" that makes these responses incorrect.Corporate and partnership accounts may trade on margin as long as it is not prohibited.

During the cooling off period, underwriters would be allowed to do all of the following except A) advertise the issue. B) distribute a preliminary prospectus. C) publish a tombstone. D) take indications of interest.

A)advertise the issue. During the cooling off period sales, solicitations and advertising are not allowed. The tombstone ad, which is more of an announcement than a solicitation, is an exception to the rule.

Interest-rate sensitivity for preferred shareholders should be understood to mean that A) when interest rates rise, the prices for preferred shares can fall. B) when interest rates rise, so do the prices of preferred shares. C) preferred share prices are not impacted by (insensitive to) changes in interest rates. D) when interest rates fall, so do the prices of preferred shares.

A)when interest rates rise, the prices for preferred shares can fall. Preferred shares, like debt securities, are sensitive to and have an inverse relationship to interest rates. Rates up, prices down. Rates down, prices up.

A registered representative is explaining discretionary and nondiscretionary accounts to a customer. Only one of the following statements is accurate and can be made by the registered representative. Which is it? A) If I decide that the account should be a discretionary one you will no longer be able to enter orders yourself. B) In a nondiscretionary account no order can be entered without your prior approval. C) In a discretionary account you will have the opportunity to approve any order I want to enter before I enter it. D) I decide if the account should be set up as discretionary or nondiscretionary, but must do so in your best interest.

B) In a nondiscretionary account no order can be entered without your prior approval. In a nondiscretionary account no order can be entered without the customer's prior approval. In a discretionary account the customer's prior approval is not required. Only the customer can decide if the account should be a discretionary one and grants that discretion with a limited power of attorney giving trading authorization to the registered representative. Even in a discretionary account the customer may still enter their own orders.

On Tuesday, July 3, your customer bought 15 SBRD 30 September calls at 4. On Friday, August 10, the calls are in the money and your customer issues exercise instructions. On which days did the trade and the exercise settle? A) July 4 and August 11 B) July 5 and August 14 C) July 5 and August 12 D) July 6 and August 13

B) July 5 and August 14 All option trades settle next business day. The exercise of an equity option settles in two business days. July 4 is a holiday. August 11 and 12 are on a weekend. July 4 and December 25 are the only holidays we expect you to see on the test.

Margin calls can be met with deposits of A) fully paid for marginable securities only. B) cash or fully paid for marginable securities. C) cash only. D) either marginable or non-marginable securities.

B) cash or fully paid for marginable securities. Margin calls can be met using either cash (100% of the call) or fully paid for marginable securities (twice the amount of the call because securities are only marginable to 50% of their value).

Records of original entry must be recorded no later than the next business day and must be kept readily available for A) six years. B) two years. C) four years. D) three years.

B)two years. The records must be maintained for a period of six years, but must be readily available for two years.

SIPC coverage is best described by which of the following? A) Covers up to $500,000 in cash and $500,000 in securities B) Covers up to $500,000 in cash and securities but no more than $250,000 in securities C) Covers up to $500,000 in cash and securities but no more than $250,000 in cash D) Covers $500,000 in cash and securities

C) Covers up to $500,000 in cash and securities but no more than $250,000 in cash The maximum coverage is up to $500,000 in cash and securities but no more than $250,000 in cash.

Which of the following describes the position in a call option on a stock with a strike price of 20, a premium of 7, and a current market of 26? A) At the money B) Out of the money C) In the money D) At parity

C) In the money In this case, the strike price is less than the current market value, so a call option would be in the money by the difference between the strike price and the market price (6 points, in this case). At the money means the strike price and the market price are the same; at parity means the premium equals the intrinsic value.

The Office of Foreign Asset Control maintains a list of people and organizations with whom U.S. citizens and companies are not allowed to do business. This list is called the A) Known Criminal and Terrorist List. B) Banned and Barred Individuals List. C) Specially Designated Nationals List. D) Persona Non Grata List.

C) Specially Designated Nationals List. This list of prohibited organizations and individuals is called the Specially Designated Nationals List.

An industry whose products stay in high demand, and whose companies grow, without regard to the business cycle are called A) defense industries. B) cycling industries. C) growth industries. D) emerging industries.

C) growth industries. Growth industries do just that, grow. The business cycle has less impact on these growing businesses.

Inflation is most closely associated with which phase of the business cycle? A) Recovery B) Prosperity C) Contraction D) Expansion

D) Expansion Inflation is most associated with the expansion phase of the economy. During this phase, consumer demand has outstripped the economy's ability to produce more goods. The result is too few goods and too many buyers.

Which of the following describes the results of a 1 for 2 reverse stock split? A) Twice as many shares at the same price B) Twice as many shares at half the original price C) Half as many shares at the same price D) Half as many shares at twice the original price

D) Half as many shares at twice the original price If a stock price has become too low, for example for listing to continue on an exchange, a corporation may carry out a reverse stock split. In a 1:2 reverse split, the price of the stock is doubled, but the number of shares outstanding is halved. Any stock split, forward or reverse, must leave the total value of the outstanding stock unchanged before and after the adjustment.

Which of the following is a benchmark for large cap stocks? A) Russell 2000® Index B) Dow Jones Utilities Index C) Wilshire 5000 D) Standard and Poor's 500 Index

D) Standard and Poor's 500 Index The Standard and Poor's 500 Index is an index of 500 large companies.

The interest rate negotiated for an uncollateralized overnight loan between two money center banks is known as A) the repo rate. B) the prime rate. C) the discount rate. D) the federal funds rate.

D)the federal funds rate. The federal funds rate is the rate commercial money center banks charge each other for an overnight, unsecured (no collateral) loan.