FINRA SIE EXAM QUESTIONS AND
ANSWERS
What traits do preferred stock and bonds have in common? How are they different? -
ANSWER -Can be callable by issuer, both have periodic payments. Both are senior
securities to common stock.
Neither have voting rights
Preferred is paid dividends on a percentage of face value much like the yield of a bond.
Preferred stock has no maturity date and can be held perpetually while bonds have a
set maturity date.
Payments to preferred stock are not mandatory unless a declared dividend has been
issued to common stock
Payments to bond holders are mandatory
When are common dividends declared and paid? - ANSWER -Quarterly for both
A customer owns 256 shares of ABC common stock. ABC declares a rights offering,
with the terms being that for every 15 rights a shareholder may purchase one additional
share.at $24 a share. Any fractional rights may be rounded up to buy an additional
share.
How many shares may the customer buy with these right? - ANSWER -A share holder
can buy a maximum of 18 shares with these rights paying $432 for them.
The 17.06 shares may be rounded up to 18.
XXYZ ADR (American Depository Receipt) represents 10% of the value of an XXYZ
ordinary share. The ordinary shares trade on the London Stock Exchange, where the
current price is 400 British Pounds (BP). The current exchange rate for the British
Pound against the US Dollar is $1.40. The ordinary share pays an annualized dividend
of 12 BP. The XXYZ ADR is listed on the NYSE. If a customer places an order to buy
$560,000 of the ADR on the customer will buy how many shares of the ADR? -
ANSWER -10,000 Shares with $560.,000
Explanation
400 BP x $1.4 = 560
$560, BP/share = 10,000 Shares of XXYZ
Preferred Stock market valuation is based primarily on what?
Performance of stock?
Inflation?
, Interest rates? - ANSWER -Interest Rates is the correct answer, remember that
preferred stock is much like a bond in that it has fixed payments and is considered fixed
income.
Long term market interest rate levels determine the valuation.
Rights are? - ANSWER -Exerciserable, Negotiable (can be traded), Giftable
Dividends can be paid in the form of? - ANSWER -Cash or products
Additional shares of ANOTHER company (yes another company)
Additional shares of that company
NOT Options and Not Tax deferments
Preferred Stock is? - ANSWER -Performance based, participating, cumulative
(dividends)
It is not refundable or redeemable
A corporate bond which is backed solely by full faith and credit of the issuer.. -
ANSWER -Debenture
If interest Rates fall the issuer will most likely call which bonds first? - ANSWER -High
Dividend Rate preferred issues trading at a premium
What are some actions by a corporation will affect an individuals common shareholder's
equity - ANSWER -Conversion of convertible preferred stocks or bond
Repurchase of common shares
Issuance of additional common shares
(Stock splits do not effect shareholders equity but it must be voted on because it effects
Par Value)
Benefits to a Convertible stock compared to a regular debenture - ANSWER -
Convertible stock will have a slightly lower yield than non-convertible however it will
raise in value as the market price of common stock rises
Trades of all of the following will settle in Fed Funds Except?
1) US Treasury Bonds
2) Treasury Bills
3) Prime Commercial Paper
4) Prime Banker's Acceptances - ANSWER -3) Prime commercial paper is not traded by
the Federal Reserve therefore does not settle in Fed Funds
Prime Banker's Acceptances, T Bills, T Bonds, are all settled in Fed Funds
ANSWERS
What traits do preferred stock and bonds have in common? How are they different? -
ANSWER -Can be callable by issuer, both have periodic payments. Both are senior
securities to common stock.
Neither have voting rights
Preferred is paid dividends on a percentage of face value much like the yield of a bond.
Preferred stock has no maturity date and can be held perpetually while bonds have a
set maturity date.
Payments to preferred stock are not mandatory unless a declared dividend has been
issued to common stock
Payments to bond holders are mandatory
When are common dividends declared and paid? - ANSWER -Quarterly for both
A customer owns 256 shares of ABC common stock. ABC declares a rights offering,
with the terms being that for every 15 rights a shareholder may purchase one additional
share.at $24 a share. Any fractional rights may be rounded up to buy an additional
share.
How many shares may the customer buy with these right? - ANSWER -A share holder
can buy a maximum of 18 shares with these rights paying $432 for them.
The 17.06 shares may be rounded up to 18.
XXYZ ADR (American Depository Receipt) represents 10% of the value of an XXYZ
ordinary share. The ordinary shares trade on the London Stock Exchange, where the
current price is 400 British Pounds (BP). The current exchange rate for the British
Pound against the US Dollar is $1.40. The ordinary share pays an annualized dividend
of 12 BP. The XXYZ ADR is listed on the NYSE. If a customer places an order to buy
$560,000 of the ADR on the customer will buy how many shares of the ADR? -
ANSWER -10,000 Shares with $560.,000
Explanation
400 BP x $1.4 = 560
$560, BP/share = 10,000 Shares of XXYZ
Preferred Stock market valuation is based primarily on what?
Performance of stock?
Inflation?
, Interest rates? - ANSWER -Interest Rates is the correct answer, remember that
preferred stock is much like a bond in that it has fixed payments and is considered fixed
income.
Long term market interest rate levels determine the valuation.
Rights are? - ANSWER -Exerciserable, Negotiable (can be traded), Giftable
Dividends can be paid in the form of? - ANSWER -Cash or products
Additional shares of ANOTHER company (yes another company)
Additional shares of that company
NOT Options and Not Tax deferments
Preferred Stock is? - ANSWER -Performance based, participating, cumulative
(dividends)
It is not refundable or redeemable
A corporate bond which is backed solely by full faith and credit of the issuer.. -
ANSWER -Debenture
If interest Rates fall the issuer will most likely call which bonds first? - ANSWER -High
Dividend Rate preferred issues trading at a premium
What are some actions by a corporation will affect an individuals common shareholder's
equity - ANSWER -Conversion of convertible preferred stocks or bond
Repurchase of common shares
Issuance of additional common shares
(Stock splits do not effect shareholders equity but it must be voted on because it effects
Par Value)
Benefits to a Convertible stock compared to a regular debenture - ANSWER -
Convertible stock will have a slightly lower yield than non-convertible however it will
raise in value as the market price of common stock rises
Trades of all of the following will settle in Fed Funds Except?
1) US Treasury Bonds
2) Treasury Bills
3) Prime Commercial Paper
4) Prime Banker's Acceptances - ANSWER -3) Prime commercial paper is not traded by
the Federal Reserve therefore does not settle in Fed Funds
Prime Banker's Acceptances, T Bills, T Bonds, are all settled in Fed Funds
