SIE missed exam questions (day before pt4)

In a 20% stock dividend, what happens to the number of shares and the share price? A) The share price goes down, and the number of shares goes up. B) The share price goes up, and the number of shares goes down. C) The share price goes up, and the number of shares goes up. D) The share price goes down, and the number of shares goes down.

A) The share price goes down, and the number of shares goes up In a stock dividend the shareholder gets more shares of stock, but because the total value of the shareholder's position does not change, each share is now worth less.

Growth in a variable annuity is which of the following? A) Tax deferred until withdrawn B) Tax free upon withdrawal C) Tax exempt D) Taxable in the year realized

A) Tax deferred until withdrawn Growth in a variable annuity is tax deferred. No tax is due until the growth is withdrawn. Once withdrawn, the growth is taxed as investment income.

An order is entered by a customer to sell at 30 stop limit. Once the order is entered, the stock trades in the following sequence: 32, 29, 31, and 33. The order would be executed and the investor would receive a price of A) 30. B) 29. C) 32. D) 31.

D) 31. This is a sell stop order with a limit of 30. Once the stock trades at 30 or lower, the order is elected (triggered) and becomes a live working order. This occurs at 29. The order will then be executed at its limit (30) or better. This occurs at 31.

What is the penalty for not taking the required minimum distribution (RMD) for the year? A) 10% of the amount that should have been taken B) 50% of the annual contribution limit C) 10% of the annual contribution limit D) 50% of the amount short of what should have been taken

D) 50% of the amount short of what should have been taken There is a 10% penalty for early withdrawal. The penalty for missing a RMD is 50% of the amount missed.

If consumer prices are steadily dropping from month to month, this is known as what? A) Inflation B) Disinflation C) Stagflation D) Deflation

D) Deflation Deflation is a steady drop in consumer prices. Inflation is a steady increase in those process. An increase in prices combined with higher unemployment is stagflation. Disinflation is what happens when you let the air out of a balloon.

Class B mutual fund shares are also known as A) back-end load shares. B) contingent-deferred shares. C) deferred-load shares. D) partially loaded shares.

A) back-end load shares. Class B mutual fund shares are bought with no sales charge at the time of purchase. The sales charge is paid instead at the time of redemption, or at the back end. Hence, they are known as back-end load shares. For this type of share, the sales charge percentage is reduced each year of ownership, typically becoming zero after five years. At this time, they convert to Class A shares.

BigCo, Inc., common stock is an NYSE-listed security. BigCo's board declared a $0.25 per share dividend on Tuesday, May 2. The dividend will be paid to holders of record of BigCo common stock as of Tuesday, May 24 and will be paid out on Wednesday, June 8. Who will set the ex-dividend date? A) FINRA B) The SEC C) The board of directors D) The NYSE

D) The NYSE On the basis of the dividend record date, the Financial Industry Regulatory Authority (FINRA)—or the exchange if the stock is listed on an exchange—declares an ex-date. Because this stock is listed on the NYSE, it is the exchange that will set the date. The ex-date is typically one business day before the record date.

Which if the following may not be purchased on margin but can be used as collateral for a margin loan after being held for 30 days? A) Warrants B) Options C) Equities D) Mutual funds

D) Mutual funds Neither mutual funds nor new issues can be purchased on margin. However, both may be used as collateral for a margin loan after being held for 30 days. Options are not marginable securities, but equities, bonds, and warrants are.

A client calls a registered representative and states that she lives in New York City and is looking for a bond that would be triple tax free in New York. The registered representative tells the client that his firm has some bonds in inventory that are from the Albany New York School District that would be triple tax free for the client. Which of the following would be the registered representative's best course of action? A) Determine suitability prior to placing the trade and mark the trade solicited. B) No suitability determination is required because the bonds will be tax free for the client and mark the trade solicited. C) Determine suitability prior to the trade and mark the trade unsolicited. D) No suitability determination is required because these bonds will be tax free for the client and mark the trade unsolicited.

A) Determine suitability prior to placing the trade and mark the trade solicited. For a trade to be unsolicited, the client would need to specifically identify the bonds he wanted to purchase; instead the registered representative is the one who recommended these bonds, making the trade solicited. Suitability must be determined on solicited trades.

Which of the following is not a characterization of the Securities Act of 1933? A) Exchange Act B) Truth in Securities Act C) Prospectus Act D) Paper Act

A) Exchange Act The act that regulates exchanges and members is the Exchange Act of 1934. The Securities Act of 1933 regulates new issues (New Issues Act) requiring registration (Paper Act), along with full disclosure (Prospectus or Truth in Securities Act).

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 5 and August 14 B) July 6 and August 13 C) July 4 and August 11 D) July 5 and August 12

A) 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.

Which of the following issues only common stock? A) Mutual funds B) Corporations C) Closed-end funds D) Municipalities

A) Mutual funds An open-end investment company (like a mutual fund) only issues one class of security, which is common stock (no preferred shares or bonds). Closed-end funds may issue common shares, preferred shares, and bonds. Municipalities do not issue stock. Corporations may issue common stock, preferred stock, and debt.

Your customer is long 1 October 75 put at 2. The customer's maximum gain potential is A) $2,000. B) $7,300. C) $7,500. D) $7,700.

B) $7,300. The maximum potential gain for put owners is the option's strike price (75) less the amount of the premium paid (2)—in this case, 73. Note that this is the same as the contract's breakeven point. Remember that put owners are bearish and want to see the stock fall in price. A stock's price can potentially fall to zero; therefore, from the breakeven to zero (73 points) is the most that can be gained.

Betsy Bingham asks you what her current yield will be if she buys a 6% corporate bond at $1,200. The answer is A) 2%. B) 5%. C) 6%. D) 3%.

B) 5%. The formula for current yield is the stated rate (coupon rate) divided by the current market price. $60 divided by $1,200 equals 5%.

Which of the following would be a secondary market transaction? A) A broker-dealer arranges for a customer to purchase an APO B) A broker-dealer arranges for a customer's order to be executed on the NYSE C) A broker-dealer arranges for a customer to purchase an IPO D) A broker-dealer arranges for a customer to purchase mutual fund shares

B) A broker-dealer arranges for a customer's order to be executed on the NYSE IPOs, APOs, and mutual fund transactions involve the issuer selling to the public, which are primary market transactions. Secondary market transactions are between investors (which is what takes place on the NYSE as well as other exchanges and the OTC market).

Your customer owns four corporate bonds, all maturing in 10 years. They have different bond ratings. Which likely pays the least interest? A) The Ba-rated bond B) The A-rated bond C) The BB-rated bond D) The BBB-rated bond

B) The A-rated bond The lower the rating, generally the higher the interest because of increased risk. The higher the rating, the lower the risk, and the lower the interest. "A" is the highest rating on this list.

A firm's monthly financial report must be kept for how long? A) Two years B) Three years C) Indefinitely D) Six years

B) Three years

The maximum loss on a short put is A) strike price + premium. B) strike price - premium. C) the strike price. D) the premium.

B) strike price - premium. The maximum loss on a short put is limited by the fact the stock price cannot drop below zero. The maximum loss on a short put occurs if the stock drops to zero and the seller of the put is exercised. The seller is forced to buy the worthless stock for the strike price, but at least gets the premium to offset the loss.

A cash settlement trade settles A) in two business days. B) the same day as the trade. C) the regular way, but no margin borrowing is permitted. D) the next day.

B) the same day as the trade. A cash settlement trade settles the same day as the trade. A cash trade is a trade that occurs in a cash account (meaning no margin).

Your client bought 100 shares of ABC at $50 per share and later received a 10% stock dividend. What is her new cost basis per share? How many shares does she now have? A) 100 shares at $55.00 B) 100 shares at 45.45 C) 110 share at $45.45 D) 110 shares at $55.00

C) 110 share at $45.45 Her original cost basis was 100 × $50 = $5,000. She now has 110 shares still worth $5,000. $5,000 divided by 110 equals $45.45.

Which of the following statements is true regarding Exchange-traded notes? A) Exchange-traded notes (ETNs) track performance to U.S. Treasury notes B) Exchange-traded notes (ETNs) are backed by the good faith and credit of the United States government C) Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution. D) Exchange-traded notes (ETNs) are junior, unsecured debt securities issued by a municipality

C) Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution. ETNs are senior, unsecured debt securities issued by a bank or financial institution. They are backed only by the good faith and credit of the issuer. The notes track the performance of a particular market index but do not represent ownership in a pool of securities the way share ownership of a fund does. ETNs are bond like with a stated maturity date but do not pay interest and offer no principal protection. ETN investors receive cash payments linked to the performance of its underlying index less management fees when the note matures.

Which of the following would have no effect on the NAV per share of a mutual fund share? A) The fund pays its monthly operating expenses like utility bills. B) The portfolio's market value undergoes a large increase. C) Portfolio securities had to be sold for a big capital loss. D) The fund receives a dividend from one of the portfolio stocks.

C) Portfolio securities had to be sold for a big capital loss. Selling securities out of the portfolio, whether for a gain or a loss, simply replaces the securities with an equivalent amount of cash, leaving the NAV per share unchanged. The other choices involve changes in net assets with no accompanying change in the number of shares outstanding, which would change the NAV per share.

A customer writes (sells) a call. This customer will realize the maximum gain if A) the price of the option contract rises. B) the price of the underlying stock rises. C) the option contract expires without being exercised. D) the customer is assigned on the contract.

C) the option contract expires without being exercised. Those who write options contracts realize the maximum gain if the contract goes unexercised at expiation. The maximum gain is the premium received. If the contract is not exercised by the owner, the writer keeps the premium. For calls, remember that as the underlying security rises in price, so will the price of the call contract; while good for the call owner, it is not good for the call writer.

XYZ Corporation is guaranteeing a debt issue for the IHG Company. Regarding these bonds, which of the following is true? A) These bonds are secured, with the value of the guarantee being as good as the strength of IHG issuer. B) These bonds are secured, with the value of the guarantee being as good as the strength of XYZ. C) These bonds are unsecured, with the value of the guarantee being as good as the strength of IHG the issuer. D) These bonds are unsecured, with the value of the guarantee being as good as the strength of XYZ.

D) These bonds are unsecured, with the value of the guarantee being as good as the strength of XYZ. These are guaranteed bonds where the value of the guarantee is only as good as the financial strength (good faith and credit) of the company making the guarantee—in this case, XYZ Corporation. Because these bonds are backed by the good faith and credit of XYZ and not by any tangible asset, they are unsecured debt instruments. Always remember that even though the word "guaranteed" is used to describe such issues, the bonds are unsecured debt.

All of the following would require that updated account information be sent to the customer for confirmation within 30 days except A) the customer informs the firm of a change in investment objectives. B) 36 months have passed since the account was opened. C) the account is a newly opened one. D) the account records system has been changed to a new format.

D) the account records system has been changed to a new format. Updated account information must be sent to the customer with 30 days for confirmation upon the opening of the account, at least once every 36 months thereafter, and in the event of the customer notifying the firm of changes in any information shown or listed on the account form.