SIE Questions I've Gotten Incorrect
Which of the following orders must be adjusted accordingly on the ex-dividend date?
"Buy 2,000 shares of ABC at 15.75 AON"
An investor purchases 200 shares of STP stock for $64 per share and buys 2 STP 62 puts for 1.50 when the market price of STP is $65. What is the maximum loss?
$700 The investor loses money on the stock when the market price falls. But, the long put allows the investor to sell the stock at 62. Thus, the investor can lose $2 per share on the stock, plus the premium of $1.50 that was paid for a total of $3.50 per share. 200 shares x $3.50 = maximum loss of $700.
ABC stock is trading at 25.75. ABC Jul 25 calls are trading at a premium of 2. What is the intrinsic value of these calls?
$75 The intrinsic value of an option is the in-the-money amount. These calls have intrinsic value because the market price is greater than the strike price. Intrinsic value = 25.75 25 x 100 (shares/contract) = $75
Martin opens his first Roth IRA on March 31, 2014, at age 56. What is the first date on which he can take a qualified distribution that is tax-free?
1 Jan 19 Qualified distributions are available after meeting 2 criteria. 1) Five years after the first contribution (which is deemed to occur on Jan 1 of that year) and 2) after the account holder's 59½ birthday. In this case, five years after the first contribution is January 1, 2019 (Jan 1 2014 is year 1 and Dec 31, 2018 is the end of year 5. In 2019 Martin is also older than 59½
At maturity, an investor who holds a 6% bond issued by ABC Corporation will receive
1030 - A bond with a coupon of 6% pays $60 of interest per year, or $30 semi-annually. $1000 + $30 = $1030
Regulation T specifies that customers must pay for securities purchased within how many business days after trade date?
4
Under the Maintaining Qualification Program, a candidate in good standing can maintain their registration for up to:
5 years
When a redemption of mutual fund shares is requested, the fund must redeem shares within
7 calendar days
Who is the issuer of a banker's acceptance?
A borrower with a bank deposit account
A structured product is best defined as which of the following?
An investment product that produces a return based on the performance of one or more underlying securities
In establishing a Section 529 College Savings Plan, a donor should be aware that
Contributions can be made by multiple contributors to the account of a beneficiary
Establishes minimum standards for private sector retirement plans
ERISA
Which of the following statements about warrants are TRUE? I. They may be sold with a bond as a sweetener II. They have shorter expiration periods than options III. They function very much like call options IV. They trade exclusively on exchanges
I and III
Which of the statements below correctly describe the par value of common stock? I. Par value and market value are rarely equal II. Par value and market value are typically equal III. Par value of common stock is typically $1 or less IV. Par value of common stock is typically $100
I and III
An investor buys 100 shares of STP stock for $65 per share and later sells an STP 68 call for 1.50 when the market price of STP is $64. Which two of the following are TRUE? I. The investor's breakeven is 63.50 II. The investor's breakeven is 66.50 III. The investor's maximum loss is $6,350 IV. The investor's maximum gain is $6,650
I and III - This investor has written a covered call to generate additional income on stock that is already owned, and provide protection for the stock position equal to the amount of the premium. Because the investor earned money on the premium, the stock price can decline by the amount of the premium for the breakeven. BE = 65 - 1.50 or 63.50. The gain on the stock is limited to 3 per share (the short call obligates the investor to sell stock at the strike price of 68) + the premium received or $450. The investor can lose the full downside of the stock less the premium or 65 - 1.50 x 100 shares = $6,350
An investor writes an S&P 500 2025 put for 10. Just prior to expiration the S&P is 1980. Which two of the following statements are TRUE? I. The contract will be exercised II. The contract will expire III. The investor profits in this transaction IV. The investor has a loss in this transaction
I and IV
With the current level of the S&P 500 index at 1815.94, an investor buys a three-month SPX call option with a strike price of 1820 that is currently trading for 54.40. At expiration, the value of the index is 1850. Which two of the following statements are TRUE? I. The investor will receive cash at expiration II. The investor must pay cash at expiration III. The breakeven is 1761.54 IV. The contract is in the money at exercise
I and IV - An SPX index call is in the money when the index value is above the strike price, as in this example. At expiration, the holder of the call receives cash equal to the intrinsic value. The breakeven is calculated by adding the premium to the index strike price. 1820 + 54.40 = BE of 1874.40. Although this contract was in the money, the investor did not profit because the index was not higher than the BE point at exercise
Which two of the following statements are true about the OCC? I. It is the largest U.S. options exchange II. It guarantees the performance of options contracts III. It creates listed equity options and makes them available for trading IV. It is a clearinghouse for equity options and derivatives
II and IV
Which of the following statements is true?
Investors may withdraw more than the required minimum from their IRA, but will be taxed on these distributions accordingly
Which of the following statements about the separate account of an insurance company is TRUE?
It must be registered with the Investment Company Act of 1940
Which two of the following options contracts are subject to automatic exercise at expiration if the market price of ABC is 45.25?
Long ABC 42 call and Long ABC 46 put
All of the following statements are true about newly issued U.S. government securities EXCEPT
New issues of Treasury securities can be sold only after the SEC has received their registration statement - U.S. gov securities are exempt from registration
Which of the following best describes the role of the Options Clearing Corporation (OCC)?
Provides clearing services for listed option trades
A 62- year-old investor who does not participate in a qualified retirement plan would like to open an account and continue making contributions after reaching age 70, and not be required to take distributions at any time. This individual should consider a
Roth IRA Contributions may be made beyond the age of 70 and there are no required minimum distributions
Which of the following funds subjects investors to a broad range of equity securities with the lowest management fees?
S&P 500 index ETF - index funds offer lowest mgt fees and the S&P 500 offers a broader range of companies
A bond that was yielding 3.65% yesterday is currently yielding 3.75%. Which two of the following statements are true?
The bond's price went down since yesterday (since bon price and bond yield have an inverse relationship) and he bond's yield is 10 basis points more today
An investor purchases 2 ABC Mar 76 calls for 2.50. Which two of the following statements are TRUE?
The breakeven is 78.50 and the incestor wants the contract to be exercised
An investor has purchased an ABC 67 put for 4. If ABC stock is trading at 68.50 just prior to expiration,
The contract will expire and the holder will lose the premium
An investor has purchased an ABC 93 call for 9. If ABC stock is trading at 88.50 just prior to expiration,
The contract will expire and the investor will lose the premium b/c the MV of 88.50 is below the strike price of 93 so they bought a stock for 93 when it's worth 88.50 (OTM)
An investor establishes the following position: Long 1 XYZ 50 put at 3. All of the following statements about this contract are true EXCEPT
The investor holds the obligation to sell the stock
A refunding occurs when
The issuer replaces a high coupon bond with a low coupon bonds in the wake of falling interest rates
Which of the following transactions would be required to register under the Securities Act of 1933?
The sale of open-end investment companies to individual investors
With regard to municipal taxing authority, which of the following statements is TRUE?
The taxing authority of municipalities varies widely depending on applicable state or local laws
All of the following statements regarding broad-based index options are true EXCEPT
They are usually more volatile than their individual stock components index options are usually LESS volatile
which of the following is true about short sales?
They must be executed in a margin account
CDs cannot be resold (T or F)
True
If the U.S. trade deficit is decreasing, which two of the following are also likely to occur?
U.S. bond prices will rise and the value of the dollar has weakened against foriegn currency
Which two of the following statements regarding the securities held by a unit investment trust are true?
UITs can be invested in both bonds and equities and The portfolio of the trust is fixed
Which of the following statements regarding convertible bonds is correct?
While interest rates are stable, their price will tend to fluctuate more than other types of debt
Steven opened an options account with his RR Simon last week. Simon sent the options agreement to Steven but has not yet received the signed form in return. May Steven open new positions in this account?
Yes, but if he doesn't return the options agreement with his signature next week he will be able to liquidate existing options positions only
The best way to know when systematic risk is increasing is to watch out for
a decline in broad stock market indexes
An investor buys October 60 calls for a premium of $7 and sells the same contracts just prior to expiration for a premium of $3. If the market value at the time of closing sale is $58, the investor has
a loss of $400 per contract 7-3 = 4 4 x 100 = $400
When an investor purchases a put option as a hedge
a sale price for the security is set A put option allows an investor to sell securities at a specified price. If the value of the primary position (stock) falls, the value of the put option would increase
concerning credit risk,
a typical exchange traded note (ETN) carries credit risk whereas an exchange traded fund (ETF) has almost none
A bond with ten years to maturity is bought at a price of $860. The annual adjustment to its cost basis will be
accretion of $14 - Bonds purchased at a discount are accreted, meaning adjusted upwards towards par value each year. The accretion is calculated on a straight-line basis, by dividing the discount off par ($140) by the number of years to maturity (10). Assume a bond's par value is $1,000
An individual who has made an initial payment for a deferred variable annuity contract owns
accumulation units
Which distributions from a 529 plan are federally income tax-free?
all used to pay for the beneficiary's qualified college costs
In a self-directed retirement plan, such as a 401(k), what is an "elective deferral?"
an employEE contribution
nominal yield formula
annual interest / par
How is interest usually paid to holders of commercial paper?
as a discount to maturity value
When can VIX options be exercised?
at expiration
When the strike price of an option contract is the same as the market value of the underlying security, the option is
at the money
Which of the following best suits an investor seeking interest income and growth potential?
balanced fund
Hal has an unfilled GTC limit order with his broker to buy 500 shares of McDonald's at $120, with no further instruction. If the company declares a dividend of 60 cents per share, what will his order be after the ex-dividend date?
buy 500 at $119.40 reduced by the amount of the dividend
Patty is short 1,000 shares of ABC. She still believes that ABC will decline, but wants to make sure that she limits her potential losses on the position. How would you advise Patty to hedge this position?
buy calls Purchasing a call option would protect Patty regardless of how high ABC goes
What type of open orders must be adjusted for corporate events that affect a security's price and/or number of shares?
buy limit orders
Which of the following orders would NOT be reduced on the ex-dividend date? I. Buy limit order II. Open sell stop order III. Buy stop order IV. Sell limit order
buy stop order and sell limit order
If an investor wants to build a portfolio that will carry minimal capital risk, they should avoid
call options
GDP is what type of economic indicator?
coincident
The wife of a customer who has an individual IRA account calls the broker-dealer to request that the account statements be held by the firm while the family is vacationing in Europe over the summer. In this situation the firm is permitted to
continue to mail the statements to the customer's home unless the husband makes the request
A money market fund is least vulnerable to which of the following risks?
currency risk
If the Fed determines that the current economic growth rate is too slow it is most likely to do which of the following
decrease the dicount rate
The issuance of new shares by a closed-end fund
does not generally take place after the IPO
ADRs are used to facilitate the
domestic trading of foreign securities
What type of account is most appropriate for customers that prefer to make frequent trades as part of their investment strategy?
fee-based account - for large # of trades commission based accounts is for a small # of trades
An investor will be in need of cash in the coming months to make a down payment on a new home. Which of the following products would not be a smart choice for this investor?
hedge fund bc of the lockup period
Real Estate Investment Trusts pass through
income to investors but not losses
Your firm will be sending a communication promoting XYZ to 35 retail investors over the next two weeks. This communication
is considered retail communication A communication sent to more than 25 retail investors during a 30- day period is considered retail communication. If the same information is sent to 25 or fewer retail investors, it is considered correspondence
This year an individual has received interest and dividend income from his investment portfolio. No other income has been received. This individual
is not permitted to contribute to an IRA Only earned income may be contributed to an IRA
When a put option is out of the money its premium
is time value only When an option contract is out of the money, the premium of the contract consists of time value only. When an option contract is in the money, the premium will consist of both intrinsic value and time value
What is the best way to describe an investor's profit potential when writing a call option?
it is limited to the premium recieved
An investor sells a November 60 put option at a premium of $4. If the underlying stock is at $47 just prior to maturity, the position is
itm by $13 ignore premium 60-47
All of the following are characteristics of listed options EXCEPT
limited liquidity
The most PROFITABLE options strategy for an investor who believes that a stock will increase in value is a
long call - there is unlimited potential profit available with a long call
Which of the following options positions will have either the right or obligation to buy stock at exercise?
long call and short put
An investor that is bearish on an index could potentially benefit from which two of the following options positions? I. Long call II. Long put III. Short call IV. Short put
long put and short call An investor that is pessimistic or bearish about a index's performance would buy puts or write calls. Buying puts secures the right to sell stock. Call writers are obligated to sell stock if the call holder exercises the contract
An investor with no other positions sells 1 ABC Jan 72 call at 5.25. The call is exercised when the stock is trading for 80. What is the investors' profit or loss?
loss of $275 - The investor received $525 from the sale of the call. The exercise of the call requires the investor to sell the stock at the strike price, so the investor makes $7,200. However, the investor has to buy the stock to have it available to sell (the investor had no other positions). Buying the stock at the current price of $8,000 results in a $275 loss. (Paid $8,000, received $7,725)
puts are ITM when...
market price is below the strike price
During the accumulation phase of a variable annuity, dividends, interest, and capital gains
may be reinvested without any current tax liability
A 60-year-old customer is concerned with capital preservation and is uncomfortable with taking on substantial investment risk. As a result, you would be most likely to recommend which of the following investments for this customer's investment portfolio?
money market fund
XYZ Investments is experiencing a power outage and is unable to communicate with its clients using traditional channels. This firm
must activate its business continuity plan
Abby is a registered representative at a FINRA member firm and is interested in working part time for her uncle in his law firm. Abby
must notify her employer of this activity
All of the following are money-market instruments EXCEPT
newly issued treasury bonds Money market instruments provide short-term financing. It is defined as a fixed income security with a maturity of no more than one year. Newly issued treasury bonds have a maturity of 30 years
An investor writes a call to increase income to his portfolio. In establishing this position this investor has engaged in an
opening sale -
For the purpose of FINRA rules involving sharing in customer accounts, an immediate family member is a(n)
parents, mother-in-law or father-in-law, husband or wife, children or any relative to whose support the member or person associated with a member otherwise contributes directly or indirectly
A customer buys 100 shares of XYZ stock for 57 and writes a 60 call for 4. The stock price rises to 65 and the option is exercised. The profit or loss to the investor is
profit of $700 - The stock is purchased for $5,700 and sold for $6,000. In addition, the customer received a premium of $400 for writing the call. The investor has a profit of $700
All client orders must be approved by a supervisor
promptly after execution
Which of the following information would be included in a prospectus?
proposed use of the issue's proceeds
Brokerage accounts which are INACTIVE must receive account statements
quarterly
Securities that are included in the Pink OTC Markets are
quoted by market makers
Clearing member firms that have been assigned exercise notice by the OCC, assign to their customers in what manner?
random or FIFO only
Form U-4 is used by an individual to
register with a FINRA member firm
In the fixed income market, the risk that is created by a downward trend in interest rates is referred to as
reinvestment rate risk
Harrison owns 1,000 shares of Target stock, which he purchased at $30 per share. It currently is selling for $34 and he would like to protect his profits with a sell stop order. This order will be entered
right below $34 Buy stop orders generally are placed above the current market price. Sell stop orders are placed below the current market price
Martin purchased 20 ABC calls. Which of the following positions is he trying to hedge?
short 2000 shares of ABC Call options are commonly used to hedge short positions in a specific security.
At exercise a customer is obligated to sell stock in which of the following positions?
short call
An option strategy that may permit an investor to purchase stock and receive a premium is
short puts
An investor would be most vulnerable to credit risk in his portfolio as the result of his ownership of
subordinated debentures
When is the settlement date for physical delivery of stock when options have been exercised?
the 2nd business day after exercise
The par value of a callable bond is greater than its market value. Which of the following statements is true?
the YTM is less than the YTC
Which of the following statements is true about a callable bond that is trading at a premium?
the bond is most likely to be called to save interest expense
In order to receive a cash dividend payment based on regular way settlement process, an investor must purchase stock no later than
the business day before the ex-dividend date
If a company lowers its dividend and the stock price stays the same, what is the effect on the current yield?
the current yield is lower
In evaluating the credit of revenue bonds, it is most relevant to evaluate
the feasibility and revenue stream produced by the specific project financed
Your client Juan has just phoned in a market order to buy 10,000 shares of Block Industries at 10:00 a.m. This order will be filled at
the national best offer price at the time Juan's order is represented in the market Market orders to buy will be filled at the best available offer (asked) price at the time the customer's order is received by the trading center
An investor buys an 8.0% coupon bond to yield 7.0%. What will most likely happen to the price of the bond as maturity approaches?
the price will decrease towards par - the bond is trading at a premium
Just prior to expiration the market price of XYZ is stock is $63.27. If an investor holds an XYZ $63.25 put, which of the following statements is TRUE?
the put will expire The Options Clearing Corporation will automatically exercise any expiring equity call or put in a customer account that is $0.01 or more in-the-money. No notice is required. Calls are in the money when the market price is higher than the exercise price; puts are in the money when the market price is lower than the exercise price. This put is not in the money and will expire
A no-load fund has a public offer price that is
the same as its NAV
An investor bought a June 65 call when the stock price was $63. It will be exercised only if
the underlying stock is above $65 before expiration date
When an index option is exercised
the writer delivers cash to the buyer
speculating for profit on the rise in price of stock delaying a decision to buy stock diversifying holdings
these are objectives of call buyers
Which of the following is NOT TRUE about an investor that holds an equity LEAPS call contract?
they are subject to unlimited risk
exempt securities from the securities act of 1933: exempt transaction include:
treasuries, municipal bonds, commercial paper and commercial bank Private Placements (Reg D) and intrastate offerings (Rule 147)
Which of the following securities is the most liquid?
treasury bill
Which of the following legislative acts exclusively regulates debt securities?
trust indenture act of 1939
An investor in a unit investment trust holds
units that fluctuate in value
A registered representative may share in the profits and losses in an account of a customer
with written consent from the firm and the customer
