SIE Master Exam
An investor holds a 4% corporate bond with a yield to maturity of 2.75%. How much will be received in interest on each of the scheduled interest payment dates?
$20.00. With a 4% coupon (nominal or stated yield), this corporate bond will pay $40 annually (0.04 × $1,000 par). For corporate bonds, this is paid in semiannual interest payments, where each payment would be $20.
Which of the following offering types would be used for a deal that will be sold exclusively to residents of one state?
A Rule 147 offering. Intrastate offerings are done under a Rule 147 exemption.
A breakpoint sale is defined as the sale of mutual fund shares in an amount just below the dollar amount at which the sales charge is reduced.
A breakpoint sale refers to a sale made just below the point at which the investor would otherwise receive the reduced sales charge. The unethical practice may earn a higher commission for the salesperson, but it is not in the best interest of the customer.
A member firm broker-dealer is found to be in violation of a Securities and Exchange Commission (SEC) federal regulation and could be subject to all of the following except: jail sentences for directors and officers.
A broker-dealer found to be noncompliant with an SEC rule or regulation may be subject to the following: censure; limits on activities, functions, or operations; suspension of its registration (or one of its associated person's license to do business); revocation of its registration; or monetary fines. Jail sentences can only be assessed in a criminal prosecution.
The gross domestic product (GDP) for a country is best defined as - all of the goods and services produced within the nation.
A country's annual economic output, which is comprised of all of the goods and services produced within the nation, is known as its GDP.
Which of the following companies is in a cyclical industry?
A heavy equipment maker. Heavy equipment is a cyclical industry, tending to move in tandem with the business cycle. Precious metals tend to be counter cyclical.
DRG Pharmaceuticals, Inc. common stock is currently trading at $52 a share. A put with a strike price of $50 a share would be described as which of the following? Having no intrinsic value
A put is out of the money when the price of the stock exceeds the strike price. An out-of-the-money option has no intrinsic value.
A risk within a business that represents a specific threat to that company is an example of which of the following?
A risk that applies to a specific issuer is a nonsystematic risk.
A risk within a business that represents a specific threat to that company is an example of which of the following? Nonsystematic risk
A risk that applies to a specific issuer is a nonsystematic risk. Market and purchasing power risks are examples of systematic risk.
ABC Corp stock is trading at BID 75.32, ask 75.35 5 x 12. What is the spread?
A) $0.03. The spread is the difference between the bid and ask. In this example it is three cents.
The Achieving a Better Life Experience (ABLE) Act of 2014 enabled the establishment of ABLE accounts for certain individuals. Which of the following statements regarding ABLE accounts is false? Contributions to ABLE accounts are tax deductible.
ABLE accounts are tax-advantaged savings accounts for individuals with disabilities and their families. The act limits eligibility to individuals with significant disabilities where the age of onset of the disability occurred before turning age 26. Contributions to ABLE accounts can be made by any person, including the account beneficiary, but must be made using after-tax dollars and are not tax deductible. Income earned by the accounts is not taxed.
Regular way settlement for the purchase of an equity option occurs: one business day after the trade date.
An equity option trade settles the next business day - T+1.
Your customer, Maya Jenyer, is 27 years old and in the 20% federal income tax bracket. She is interested in opening a Roth IRA as a supplement to her retirement savings. Her intention is to place the entirety of her contribution into the Windmill Growth Fund, which offers a choice of share classes. Which share class would likely be best for this customer?
B shares are also called back-end loads. The back-end load gets smaller over a holding period of five to seven years, eventually dropping to zero. B shares are good for small dollar investors with long time frames.
Which of the following may not be disclosed to a potential buyer while a security is in registration?
Brokerage reports may not be distributed while a security is in registration.
Your customer is interested in Sierra Verde Coffee Company stock, which is currently trading at $22 a share. She would like to buy 400 shares, but not for more than $20 a share. Which order best meets her request?
Buy limit at $20. The buy limit is the best order to fulfill her request to buy the shares for no more than $20 a share.
Which of the following mutual fund share classes has no back-end load, lower operating expenses, and low or no 12b-1 fees?
Class A shares, also known as front-end load shares, have an up-front sales charge that is usually subject to breakpoints. They have no back-end load and are sold with low or no 12b-1 fees and lower operating expenses.
The Achieving a Better Life Experience (ABLE) Act of 2014 enabled the establishment of ABLE accounts for certain individuals. Which of the following statements regarding ABLE accounts is false?
Contributions to ABLE accounts are tax deductible.
Which of the following is a common way to reduce nonsystematic risk? Diversification
Creating a diversified portfolio is a common way to reduce nonsystematic risk. Concentration is the opposite of diversification. Inflation is a measure of price increases. Stratification really doesn't apply here at all.
Regarding delivery for listed option contracts when exercised, which of the following is true?
Currency and index options are cash settled in U.S. dollars.
A customer has expressed interest in exchange-traded funds (ETFs) and wishes to discuss them with you. You could tell the customer all of the following except
ETFs have a NAV, calculated at the end of the trading day, that serves as the trading price until the next NAV is calculated.
Representative Gary Willikers recently passed his licensing exams and was hired by Seacoast Securities, Inc., a broker-dealer member firm. He was recommended to the position by his Uncle George, who has worked for the firm for over a decade. Gary would like to send out a mail advertisement to help generate new customers. In order to do this, Gary will need approval from a principal of the firm, and the communication must be filed with
FINRA within 10 days of use. Seacoast is an established firm and is required to file within 10 days of use. This is a FINRA rule, and all such filings go to FINRA, not the SEC.
A registered representative is required to participate in an annual training plan prepared by the broker-dealer, which takes into account—among other things—recent regulatory developments, the scope of the broker-dealer's business activities, and its supervisory needs to comply with FINRA's
FINRA's firm element requirements mandate that member firms prepare annual training programs that take into account such factors as recent regulatory developments, the scope of the member's business activities, the performance of its personnel in FINRA's regulatory element training, and its supervisory needs.
Regarding a member firm's fingerprint records for employees, which of the following statements is not true? Fingerprint records must be submitted to the Securities and Exchange Commission for processing.
Fingerprint cards (records) are submitted to the U.S. Attorney General (or designee) for identification and processing.
If the U.S economy were to enter a deflationary period, which of the following would likely occur?
Fixed-income payments become more valuable. Deflation is a prolonged period of falling prices.
If a customer wishes to open a cash account in his name only and allow a third party to make trading decisions but not withdraw cash and securities, he must instruct his broker-dealer to open: a cash account with limited power of attorney.
For a person other than the account owner to withdraw assets and make trading decisions, full power of attorney is required. A limited power of attorney allows someone other than the account owner to enter trades but not to withdraw assets
Which of the following is not information required for Form U4? Education
Form U4 does not inquire about a person's education, though the work history would include any time spent as a full-time student. The current residence is required as is a 10-year work history. A felony conviction within the prior 10 years must be disclosed.
DRG Pharmaceuticals, Inc. common stock is currently trading at $52 a share. A put with a strike price of $50 a share would be described as which of the following?
Having no intrinsic value. A put is out of the money when the price of the stock exceeds the strike price. An out-of-the-money option has no intrinsic value.
An existing shareholder receives 1,000 stock rights from the issuer, allowing the holder to do all of the following except: hold the rights indefinitely for future use.
Holders of rights can do any of three things with them: exercise them, sell them in the open market, or allow them to expire unused or sold. Holding them indefinitely is not possible because all rights have a stated subscription period, generally short term (30-45 days), after which they expire.
Your customer is very excited about Cavendish Carousel Corp., a maker of amusement park rides. He believes that the company is well poised to grow in the next several years. His attitude is described as: bullish.
If a customer thinks a business is going to grow, the customer's attitude is bullish.
In a cash account, an investor must pay for a purchase by: depositing the entire amount of the trade by the settlement day.
In a cash account, 100% of the funds required to pay for a purchase must be deposited in the account by the settlement day. Funds are only required beforehand if the account is frozen.
Juan owns 1,000 shares of the big box retailer Buystuff, Inc. (Ticker: BSTF). He has owned the shares for 10 years and they have appreciated nicely. If Juan desires to generate income from the BSTF position, he could do which of the following? Sell 10 BSTF calls
In order to generate an income with option, you must sell (write) the contract. Cash would be used to cover a short put, but against a long stock, you would sell (write) calls. This would be a covered call as the customer owns 1,000 shares and the 10 contracts would be for 1,000 shares - 100 shares per contract.
Which of the following risks is not a nonsystematic risk?
Interest rate risk.
Which of the following may be considered suspicious? A customer unconcerned about losses
It would not be unusual to transfer money between people with the same last name because they are presumably family members. However, substantial movement between accounts that are not related would be suspicious, as would customers not caring about losses. It might be because they are laundering money. Concern about substantial commissions is healthy. Transactions that alone, or in the aggregate, involve at least $5,000 in funds that appear to serve no business or lawful purpose would be considered suspicious.
Janet Johnson, a registered representative and licensed insurance agent, meets in the home with a 50-year-old widower to discuss what to do with life insurance proceeds of his deceased spouse. The widower is apprehensive about liquidity. Johnson hands him a prospectus for a variable annuity and recommends the funds be conservatively invested in separate accounts within the annuity. Johnson takes time to carefully explain and illustrate a 6% gross return over a 20-year period and further explains that earnings will grow tax deferred. What did Johnson do wrong?
Johnson recommended a variable annuity to an individual who is looking for liquidity. Suitability should be the concern when presenting variable annuities to people who desire liquidity. Annuities involve substantial charges and tax penalties for early withdrawal.
M1 is a measure of which of the following? Cash and funds in demand deposit accounts
M1 is the measure of cash and demand deposits, those funds most readily available to spend. M2 includes M1 plus consumer savings deposits. M3 includes M2 plus large time deposits like jumbo CDs. Liquid securities are those that are easily sold but are not part of these measures.
You notice a new customer, Malcolm Wren, has a pattern of buying and selling stocks with holding periods of just a day or two. He seems unconcerned with losses. Additionally, between trades, he wires the money to and from a number of offshore accounts. After informing your supervisor, the most likely action for your company is to: file a SAR with FinCEN.
Malcolm Wren's actions are rather suspicious and have the hallmarks of money laundering activity. Your firm should file a suspicious activity report (SAR) with the Financial Crimes Enforcement Center (FinCEN). A Currency Transaction Report would be used if the transactions involved currency (which they don't). You are not supposed to inform the subject of a SAR that one has been filed.
If a 40-year-old customer earns $65,000 a year and his 38-year-old spouse earns $40,000 a year, how much may they contribute to an individual retirement account (IRA)? They may each contribute 100% of earned income or the maximum annual allowable dollar limit, whichever is less.
No matter how much income individuals or couples receive, they may contribute to their IRAs if they have earned income. Each is entitled to contribute 100% of earned income up to the maximum allowed. However, if either or both of them are covered under a qualified plan, limits may exist on the deductibility of the contributions.
Automatic disqualification for an individual to be registered in the securities industry would not include: being charged with a non-securities-related misdemeanor.
Only misdemeanor convictions (not a charge) involving securities, money, or investments would lead to automatic disqualification.
Which of the following is considered a systematic risk?
Purchasing power risk. Purchasing power risk affects all fixed income securities to the same degree, making it a systematic risk.
A customer of a broker-dealer holding two penny stocks in her account, purchased on unsolicited trades, should expect to receive an account statement how frequently? Monthly
Regardless of activity in the account, if the account holds any penny stocks, broker-dealers must provide an account statement to the customer monthly.
Which of the following is a non financial consideration?
Risk tolerance. Risk tolerance is not defined this way and is a nonfinancial consideration.
Changes in the overall economy that negatively impact securities values are called: systematic risk.
Risks that effect the markets as a whole are systematic risks. Nonsystematic and unsystematic are different terms for risks that apply to a specific issuer or issue. Universal risk is not a term used for securities risk.
The maximum amount of securities that may be sold by an insider within a three-month period under Rule 144 is: 1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater.
Rule 144 allows the selling of 1% of the outstanding shares every three months or the average weekly trading volume of the last four weeks, whichever is greater.
An investor who is an affiliate of XYZ Corporation holds shares of restricted XYZ stock. These shares have: a six-month holding period and are subject to volume limits for as long as the investor is an affiliate.
Rule 144 mandates that restricted shares held by an affiliate are subject to a six-month holding period and will be subject to volume restrictions (limits) for as long as the individual continues as an affiliate of the corporation
Juan owns 1,000 shares of the big box retailer Buystuff, Inc. (Ticker: BSTF). He has owned the shares for 10 years and they have appreciated nicely. If Juan desires to generate income from the BSTF position, he could do which of the following?
Sell 10 BSTF calls
Registered Representative Jan Wu terminated her employment with her broker-dealer 18 months ago in order to return to school and complete a graduate degree in finance. She has completed her education and applies for a position with a new broker-dealer firm. She will
She has been away from her position with a member firm for less than two years; she is not required to retest. FINRA does not provide an allowance for full-time studies. She will need to complete a new U-4, but the number of changes are not relevant. unless there is a disqualifying event.
Which of the following orders wouldnot be a discretionary trade?
Spend up to $10,000 buying Seabird Airline stock. Only one option identifies all three aspects of the trade: the amount ($10,000), the asset (Seabird Airline), and the action (buy).
All of the following are U.S. government agency debt securities except: Treasury notes.
T-bills, notes, and bonds are issued directly by the U.S. Treasury and are not agency debt. However, agencies of the federal government also issue debt securities. GNMA, FNMA, FHLMC, and others such as the Farm Credit Administration are government agencies.
A customer submits a written complaint disputing monetary charges assessed against an account held at a member broker-dealer. Resolution of this complaint will take place by the Code of Arbitration (COA).
The Code of Arbitration (COA) governs the resolution of disagreements and claims between members, registered representatives, and the public; it addresses monetary claims. Written complaints may come in any form, including instant messages, tweets, texts, and emails.
Registered Representative Jim Terry recently purchased a list of potential investors and plans to begin to cold call them soon. In addition to the other rules of the TCPA of 1991, Jim needs to consult: the national and the firm's do-not-call registries and not call any number that appears on either list.
The TCPA only refers to the national and the firm's DNC registries. It is unlawful to cold call any number that appears on either list.
Which of the following interest rates is set by the FRB?
The discount rate is the rate of interest the Federal Reserve Bank (FRB) charges member banks for short-term loans.
Defined benefit retirement plans offer which of the following features?
The employee's benefits and length of service requirements are explained in the plan disclosure documents.
Regarding the third and fourth markets, which of the following is true?
The fourth market is for institutional investors and eliminates the need for brokers to act as intermediaries.
What does the BID represent?
The highest amount that someone can sell the security.
Max Larsson purchased stock of a company in the business of manufacturing yachts. Two years ago, his securities had lost most of their value immediately following a newly enacted luxury tax on purchases of more than $300,000. The investment most likely suffered a loss due to: legislative risk.
The investment in the yacht-building business suffered a loss as a result of legislative risk. In other words, the rules of the game (i.e., tax treatment) changed after Larsson purchased the security. Legislative risk is from a change in the law. Political risk rises from a change in the leadership of a nation.
Which of the following statements describing Section 529 plans is true?
The maximum contribution varies from state to state.
Seacoast Securities, LLC must maintain a copy of its membership agreement for how many years? Forever
The membership agreement is an organizational document for a limited liability corporation (LLC), similar to a corporation's articles of incorporation. Although LLCs are not specifically mentioned in the LEM, organizational documents are discussed.
Your customer purchased 100 shares of Cuesta Verde Homes at $15 per share in a margin account. How much must the customer deposit by settlement day to pay for the trade? $1,500
The minimum initial deposit under FINRA rules is 100% or $2,000, whichever is less. Reg T requires 50%. The higher requirement of the two is the FINRA requirement of $1,500 -v 100% of the trade if the trade is less than $2,000.
An investor has the following position in MES stock: 100 shares at $30. After a 2:1 stock split, this investor will have: 200 shares at $15 per share.
The position's net value will always remain unchanged before and after any split adjustment. In this case, 100 shares × $30 = $3,000. For an even stock split, the number of shares increases by the split ratio. Here, given a 2:1 split, 100 shares becomes 200 shares. Because we know the net value must be unchanged, we divide $3,000 by the new number of shares to calculate the new price per share - $3,000 ÷ 200 shares of $15.
Which of the following is correct concerning an uncovered call writer?
The premium is the maximum gain and the loss potential is unlimited.
The regulatory element of a representative's continuing education will need to be completed within 120 days of certain anniversaries of their licensing. Which of the following is not an anniversary where a representative would be required to complete the regulatory element of their continuing education?
The regulatory element must be completed at the second anniversary and every three years thereafter. 2nd, 5th, 8th, 11th, 14th, etc.
ABC Corp stock is trading at BID 75.32, ask 75.35 5 x 12. What is the spread?
The spread is the difference between the bid and ask. In this example it is three cents.
Regarding the third and fourth markets, which of the following is true? The fourth market is for institutional investors and eliminates the need for brokers to act as intermediaries.
The third market, or Nasdaq Intermarket, is a trading market in which exchange-listed securities are traded in the OTC market. In the third market, brokers registered as OTC market makers are used to do the transactions. The fourth market is for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers. These transactions take place through ECNs.
The residents of the city of Sandy Place, California, recently voted in favor of issuing a bond. The proceeds of the bond will be used to build a baseball stadium for the local minor league baseball team. Though the bond's costs are expected to be covered by the ticket revenue from the stadium, the bond contains a provision that requires the city to pay the bond's interest payments as well as pay the principal at maturity if the ticket sales are insufficient. This bond is an example of: a general obligation municipal bond.
This is a type of municipal bond called a double-barrel bond. Though revenue from ticket sales will be used to pay for the bond, ultimately, the cost of the bond may fall back on the taxpayer. That makes this a GO and is why, unlike a revenue bond, the issue had to be approved by the residents of Sandy Place in a vote.
Anna, a manager for Great Plains Securities, resigns her position and surrenders her principal registrations in order to return to being a registered representative with no management duties. She will continue at the same firm and in the same office. How many days does the firm have to file Form U5?
This is an example of a partial termination. Anna is terminating her principal registration, but not her representative registrations. The form must be filed within 30 days.
Your customer notices that the Japanese yen puts he is considering are European style and asks you what that means. Which of the following statements is correct?
This means that the option may only be exercised on the last trading day before expiration.
Which of the following persons would be allowed to purchase shares of an initial public offering (IPO)? The grandparent of a member broker-dealer employee
Those restricted from making purchases of an IPO at the public offering price include member firm employees and their immediate family members, as well as fiduciaries acting on behalf of the underwriters or issuer. While immediate family members include parents, in-laws, spouses, siblings, children, or any other individual to whom the person provides material support, aunts and uncles, as well as grandparents, are not considered immediate family members.
If a real estate investment trust (REIT) distributes 85% of its net investment income to shareholders, on how much of its net investment income must the trust pay taxes?
To qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, a REIT must pass at least 90% of its net investment income on to the shareholder.
Variable annuities include which of the following attributes? Guaranteed life income
Variable annuities will pay an income for the life of the annuitant if annuitized. Annuities are generally illiquid investments that grow tax deferred. The tax-deferred growth will be taxed on withdrawal, so it is not tax free. Qualified variable contracts are funded with pretax contributions, but these are limited to annual maximums similar to those found in 401(k) plans.
Regarding stock rights and stock warrants, which of the following is true?
Warrants are sometimes bundled with other securities. warrants are long term, can be bundled with other securities, and allow the owner to purchase shares at a price that is above the current market value at the time the warrants were issued.
A corporate stock transaction occurs regular way on Monday, August 3. Ownership of the securities is recognized as changing hands between buyer and seller on Wednesday, August 5.
When a regular way transaction occurs for corporate securities, ownership is recognized as changing hands on the settlement date. For corporate securities, settlement date is the trade date plus two business days T+2.
A customer has expressed interest in exchange-traded funds (ETFs) and wishes to discuss them with you. You could tell the customer all of the following except: ETFs have a NAV, calculated at the end of the trading day, that serves as the trading price until the next NAV is calculated.
While a NAV can be calculated for an ETF, the price is set by the market and changes throughout the trading day.
An investor sold MJS stock, a stock not currently owned in her portfolio. This is
a bearish position. With no other position in MJS stock when the stock is sold, this is an opening short transaction. Now being short the stock, this is a bearish position—hoping that the stock falls in price so that it can be purchased back later at a lower price for a profit.
Your customer, Leticia Ryan, loves to drive fast cars. She has been considering purchasing a very fast car from an Italian automaker. Recently, she read that changes in the dollar might impact what she will pay for the car. She asks you to help her understand and you explain to her that
a decrease in the value of the U.S. dollar versus the Eurodollar may increase what the car will cost her. If the U.S. dollar declines in value to the Eurodollar (Italy uses the Eurodollar), then the cost of the car in U.S. dollars (the money your customer uses) will increase. All of the other statements are incorrect.
Additional primary offering (APO):
a distribution of securities to the public after an IPO; proceeds go to the issuer.
Under the Investment Company Act of 1940, an investment company may take all of the following forms except
a limited partnership with partners as passive investors. An investment company is not a limited partnership. Investment companies are organized as open-end companies (mutual funds), closed-end companies, unit investment trusts, or face-amount certificate companies.
NuBuckle, Inc., is an established accessory maker that is listed on several major exchanges. If your client owns 200 shares of NuBuckle common shares, they have all of the following rights except
a right to a dividend. The payment of a dividend is not a legal obligation of the corporation, so not a right.
An investor holds a bond where the issuer is scheduled to repay the borrowed principal at intervals over a number of years. This investor is holding
a serial bond.
Your customer purchased MAS stock in September and sold it in the next year in February for a profit. This profit will be reported for tax purposes as
a short-term capital gain..
An investor who is an affiliate of XYZ Corporation holds shares of restricted XYZ stock. These shares have
a six-month holding period and are subject to volume limits for as long as the investor is an affiliate.
The gross domestic product (GDP) for a country is best defined as
all of the goods and services produced within the nation.
Initial public offering - IPO:
an issuer's first distribution of securities to the public; proceeds go to the issuer.
Numbers measuring the output of goods and services have been declining for just under two years. The economy would be characterized as
being in a depression. 18 months or more
If the Midlands Pencil Corporation has issued several different debt securities, an investor would expect the lowest income stream from
convertible debentures. Although convertible debentures have many positive features for the investor, the major negative is that, in exchange for those benefits, the investor accepts a lower rate of interest.
In a cash account, an investor must pay for a purchase by
depositing the entire amount of the trade by the settlement day
Your broker-dealer is a fully disclosed firm. This means that it
introduces its business to a clearing agent. Fully disclosed firms introduce their business to clearing firms.
In general, a corporation assumes the least risk when it obtains funds from the sale of
preferred stock.
Primary offering:
proceeds go to the issuer.
An investor who commits a sizable portion of her portfolio to long-term AAA rated bonds would be exposing herself to
purchasing-power risk.
When a security position is liquidated for a gain, cost basis
represents a return of capital invested (principal). Cost basis at liquidation represents a return of capital and therefore is not taxed.
Private securities offering:
securities sold to private investors.
Local government investment pools (LGIPs) are established by
states to provide municipalities a place to invest funds short term
Changes in the overall economy that negatively impact securities values are called
systematic risk.
The federal act that requires registration with the Securities and Exchange Commission (SEC) as a face-amount certificate company, unit investment trust company, or management company is
the Investment Company Act of 1940.
A registered representative is permitted to work from a home residence conducting normal business activities. Regarding the arrangement, all of the following statements are true except
the address and telephone number of this location may not be advertised.
All of the following statements about a bond selling above par value are true except
the nominal yield is lower than the current yield.
Secondary:
transactions between investors
Primary:
· issuers sell securities to raise capital.
Public securities offering:
· securities sold to the general public.
Your customers, Frank and Gracia Chen, are considering investing in a private placement to add to their portfolio. They mention they are accredited investors. If accurate, they have a net worth of at least
$1 million or had an annual income greater than $300,000 in each of the two most recent years.