SIE- Exam Section 2: Understanding
Products and Their Risks-Questions
Fully Solved.
Common Stock - Answer Is a security that represents ownership in a corporation.
Exercise control by electing a board of directors and voting on corporate policy.
Are on the bottom of the priority ladder for ownership structure
Have rights to a company's assets only after bondholders, preferred shareholders and other
debt holders are paid in full.
Preferred Stock - Answer Is a class of ownership in a corporation that has a higher claim on its
assets and earnings than common stock.
Generally have a dividend that must be paid out before dividends to common shareholders, and
the shares usually do not carry voting rights.
Preferred stock combines features of debt, in that it pays fixed dividends, and equity, in that it
has the potential to appreciate in price. The details of each preferred stock depend on the issue
Rights - Answer _________ offering is a group of rights offered to existing shareholders to
purchase additional stock shares, known as subscription warrants, in proportion to their existing
holdings. In a rights offering, the subscription price at which each share may be purchased is
generally discounted relative to the current market price. Rights are often transferable, allowing
the holder to sell them in the open market.
Warrants - Answer are a derivative that give the right, but not the obligation, to buy or sell a
security—most commonly an equity—at a certain price before expiration.
An American depositary receipt (ADR) - Answer is a negotiable certificate issued by a U.S. bank
representing a specified number of shares (or one share) in a foreign stock traded on a U.S.
exchange.
Control & Restrictions SEC Rule 144 - Answer When you acquire restricted securities or hold
control securities, you must find an exemption from the SEC's registration requirements to sell
them in a public marketplace. Rule 144 allows public resale of restricted and control securities if
a number of conditions are met.
, A Treasury Bill (T-Bill) - Answer is a short-term debt obligation backed by the Treasury
Department of the U.S. government with a maturity of less than one year, sold in
denominations of $1,000 up to a maximum purchase of $5 million on noncompetitive bids.
________ have various maturities and are issued at a discount from par.
A Treasury Note - Answer is a marketable U.S. government debt security with a fixed interest
rate and a maturity between one and 10 years.
Treasury Receipts - Answer is a zero-coupon bond that does not pay interest at regular
intervals between the date of issue and maturity, but instead accrues the interest and pays it
with the principal at maturity.
A Treasury bond (T-bond) - Answer is a marketable, fixed-interest U.S. government debt
security with a maturity of more than 10 years. Treasury bonds make interest payments
semiannually, and the income received is only taxed at the federal level. Treasury bonds are
known in the market as primarily risk-free; they are issued by the U.S. government with very
little risk of default.
An asset-backed security (ABS) - Answer is a financial security collateralized by a pool of assets
such as loans, leases, credit card debt, royalties or receivables.
A mortgage-backed security (MBS) - Answer is a type of asset-backed security that is secured
by a mortgage or collection of mortgages.
Corporate Bonds - Answer is a debt security issued by a corporation and sold to investors. The
backing for the bond is usually the payment ability of the company, which is typically money to
be earned from future operations. In some cases, the company's physical assets may be used as
collateral for bonds.
Municipal Securities - Answer A municipal bond is a debt security issued by a state,
municipality or county to finance its capital expenditures, including the construction of
highways, bridges or schools. Municipal bonds are exempt from federal taxes and most state
and local taxes, making them especially attractive to people in high income tax brackets.
General obligation (GO) bonds - Answer A general obligation bond (GO) is a municipal bond
backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a
given project. General obligation bonds are issued with the belief that a municipality will be
able to repay its debt obligation through taxation or revenue from projects. No assets are used
as collateral.
Products and Their Risks-Questions
Fully Solved.
Common Stock - Answer Is a security that represents ownership in a corporation.
Exercise control by electing a board of directors and voting on corporate policy.
Are on the bottom of the priority ladder for ownership structure
Have rights to a company's assets only after bondholders, preferred shareholders and other
debt holders are paid in full.
Preferred Stock - Answer Is a class of ownership in a corporation that has a higher claim on its
assets and earnings than common stock.
Generally have a dividend that must be paid out before dividends to common shareholders, and
the shares usually do not carry voting rights.
Preferred stock combines features of debt, in that it pays fixed dividends, and equity, in that it
has the potential to appreciate in price. The details of each preferred stock depend on the issue
Rights - Answer _________ offering is a group of rights offered to existing shareholders to
purchase additional stock shares, known as subscription warrants, in proportion to their existing
holdings. In a rights offering, the subscription price at which each share may be purchased is
generally discounted relative to the current market price. Rights are often transferable, allowing
the holder to sell them in the open market.
Warrants - Answer are a derivative that give the right, but not the obligation, to buy or sell a
security—most commonly an equity—at a certain price before expiration.
An American depositary receipt (ADR) - Answer is a negotiable certificate issued by a U.S. bank
representing a specified number of shares (or one share) in a foreign stock traded on a U.S.
exchange.
Control & Restrictions SEC Rule 144 - Answer When you acquire restricted securities or hold
control securities, you must find an exemption from the SEC's registration requirements to sell
them in a public marketplace. Rule 144 allows public resale of restricted and control securities if
a number of conditions are met.
, A Treasury Bill (T-Bill) - Answer is a short-term debt obligation backed by the Treasury
Department of the U.S. government with a maturity of less than one year, sold in
denominations of $1,000 up to a maximum purchase of $5 million on noncompetitive bids.
________ have various maturities and are issued at a discount from par.
A Treasury Note - Answer is a marketable U.S. government debt security with a fixed interest
rate and a maturity between one and 10 years.
Treasury Receipts - Answer is a zero-coupon bond that does not pay interest at regular
intervals between the date of issue and maturity, but instead accrues the interest and pays it
with the principal at maturity.
A Treasury bond (T-bond) - Answer is a marketable, fixed-interest U.S. government debt
security with a maturity of more than 10 years. Treasury bonds make interest payments
semiannually, and the income received is only taxed at the federal level. Treasury bonds are
known in the market as primarily risk-free; they are issued by the U.S. government with very
little risk of default.
An asset-backed security (ABS) - Answer is a financial security collateralized by a pool of assets
such as loans, leases, credit card debt, royalties or receivables.
A mortgage-backed security (MBS) - Answer is a type of asset-backed security that is secured
by a mortgage or collection of mortgages.
Corporate Bonds - Answer is a debt security issued by a corporation and sold to investors. The
backing for the bond is usually the payment ability of the company, which is typically money to
be earned from future operations. In some cases, the company's physical assets may be used as
collateral for bonds.
Municipal Securities - Answer A municipal bond is a debt security issued by a state,
municipality or county to finance its capital expenditures, including the construction of
highways, bridges or schools. Municipal bonds are exempt from federal taxes and most state
and local taxes, making them especially attractive to people in high income tax brackets.
General obligation (GO) bonds - Answer A general obligation bond (GO) is a municipal bond
backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a
given project. General obligation bonds are issued with the belief that a municipality will be
able to repay its debt obligation through taxation or revenue from projects. No assets are used
as collateral.
