SIE Practice Exam 1
Form letters, telemarketing scripts, and seminar texts are examples of:
[A] Correspondence
[B] Advertisements
[C] Sales literature*
[D] Educational material - Answer- EXPLANATION
"Sales literature" is defined as marketing material where the recipients can be targeted and the firm can control who receives the materials. "Advertisements" are marketing materials where the firm cannot control who receives the information and cannot designate or specify a target audience.
Which of the following accurately describes a secondary offering or secondary distribution?
[A] An offering of securities that remained after an initial public offering that was not fully
sold
[B] A rights offering of primary shares that would take place after the completion of an initial public offering
[C] Transactions that take place within an underwriting syndicate before shares are actually made available to the public
[D] An offering in the secondary market of securities owned by one or more major owners wishing to sell large volumes of their shares.* - Answer- EXPLANATION
A secondary offering or secondary distribution is the redistribution or sale of a large block of securities held by one or more major shareholders who wish to sell a large volume of shares. Large shareholders are often restricted in the amount of shares that can be sold through normal channels in the secondary market. A registered secondary offering provides the opportunity for these individuals to sell larger volumes of shares than what may be permitted through normal secondary market trades.
Which of the following is generally NOT TRUE in relation to Corporate Commercial Paper?
[A] Commercial paper is normally offered in book-entry form.
[B] Commercial paper is normally issued in callable form.*
[C] Commercial paper is normally sold at a discount.
[D] Commercial paper is normally unsecured debt of a corporation. - Answer- EXPLANATION
Commercial paper represents unsecured, short-term debt of a corporation. Generally it is sold in book-entry form at a discount and redeemed at face value on a specified date.
Commercial paper is NOT normally issued as callable.
Good-till cancelled orders have all of the following characteristics EXCEPT:
[A] They will be confirmed or renewed periodically [B] They are permitted for round lots and odd lots
[C] They are also called open orders*
[D] They are permitted for common stock only - Answer- EXPLANATION
A good-till cancelled order (a.k.a. an open order) is a customer's order to buy a security,
usually at a particular price, that remains in effect until executed or cancelled. GTC orders can be entered on Common Stock, Preferred Stock, Bonds and Options therefore choice "D" is incorrect
All of the following are defensive except:
[A] automobile repair service
[B] tool and die manufacturer*
[C] natural gas supplier
[D] Supermarket chain - Answer- EXPLANATION
Service companies, public utilities, and supermarket chains would be less subject to react to changes in the economy, making these products/services defensive. Manufacturing, such as tool and die companies are typically more cyclical and not considered defensive.
Jane left the securities industry 5 years ago to raise her two children. The children are now in school full time and Jane has decided to go back to work at the same broker-
dealer where she previously worked. Which of the following is true regarding Jane's registration status with the firm?
[A] If Jane's firm paid the annual registration fees, Jane's license would still be valid and
she could come back to work without having to take the qualification exams again, provided she kept up with the continuing education requirements of her license.
[B] If Jane's firm paid the annual registration fees, Jane's license would still be valid and
she could come back to work without having to take the qualification exams again but she would be required to complete the continuing education requirements to reactive her license.
[C] Jane's licenses would have remained valid since she always intended to come back to work after her children went to school full time and had an agreement in place to come back to work at the firm.
[D] Jane's licenses have lapsed and she will be required to take the qualification exams again.* - Answer- EXPLANATION
When a registered person leaves a firm, a U-5 Form is filed and that person has 2 years
from the date of the U-5 to reinstate their license without having to test again. Since Jane was out of the business for 5 years, she would be required to re-qualify.
A broker/dealer firm has become insolvent. SIPC liquidation procedures have begun. Jill
and Jack are married and each of them have individual accounts along with a joint account with each other at the firm. The following are their account balances: Jill's individual account has $275,000 in fully-paid securities Jack's individual account has $265,000 in fully-paid securities Jill and Jack's joint account has $475,000 in fully-paid securities What would SIPC cover in relation to these accounts?
[A] SIPC coverage would total $500,000 for the three accounts since the two parties are
married.
[B] SIPC coverage would pay $275,000 for Jill's account, $265,000 for Jack's account, and $475,000 for the joint account.*
[C] SIPC coverage would pay $1,500,000 in this case, because each account is insured
for $500,000, regardless of the amount held when the broker/dealer firm became insolvent.
[D] SIPC would not cover any of these claims. - Answer- EXPLANATION
SIPC coverage handles the amounts within an account at the time the broker/dealer becomes insolvent. This would mean that Jill and Jack would be fully covered for the amounts in their individual accounts, and the joint account would also be fully covered, since the maximum coverage is $500,000 per separate customer. SIPC does not pay $500,000 to each account when the total value of the account is less than $500,000 in the account.
In 2019, an attorney who is not an active participant in a retirement plan earns $110,000
annually and the attorney's spouse is unemployed. The maximum tax deduction allowed
under IRS tax rules for IRAs for this couple is [A] $6,000.
[B] $2,000.
[C] $12,000.*
[D] $10,000. - Answer- EXPLANATION
The maximum deductible contribution to an IRA for the attorney on the eligible unemployed spouse in 2019 is $12,000 ($11,000 for 2018).
Which of the following BEST describes a call feature?
[A] This is a feature of a bond that allows the bond to be converted to common stock at the option of the issuer.
[B] A feature that allows the issuer of a bond to redeem the bond ahead of the final maturity date, typically including a premium above face value of the bond and most commonly used when interest rates have decreased.*
[C] This is a feature of a bond that allows the bond's coupon rate to be adjusted upward or downward in relation to interest rates in the current market.
[D] A feature that forces the issuer to redeem a bond ahead of schedule at the option of the bondholder. - Answer- EXPLANATION
A call feature allows the issuer of a bond to redeem or call in the bond ahead of the bond's final maturity date. If bonds are called, there is typically a premium that is added to the face or par value of the bond to compensate for payout ahead of final maturity. The most common reason that a bond is called is due to a reduction in interest rates, which would allow the issuer to reduce interest costs associated with the debt. Conversion features differ from call features in that they allow the bondholder to convert
Form letters, telemarketing scripts, and seminar texts are examples of:
[A] Correspondence
[B] Advertisements
[C] Sales literature*
[D] Educational material - Answer- EXPLANATION
"Sales literature" is defined as marketing material where the recipients can be targeted and the firm can control who receives the materials. "Advertisements" are marketing materials where the firm cannot control who receives the information and cannot designate or specify a target audience.
Which of the following accurately describes a secondary offering or secondary distribution?
[A] An offering of securities that remained after an initial public offering that was not fully
sold
[B] A rights offering of primary shares that would take place after the completion of an initial public offering
[C] Transactions that take place within an underwriting syndicate before shares are actually made available to the public
[D] An offering in the secondary market of securities owned by one or more major owners wishing to sell large volumes of their shares.* - Answer- EXPLANATION
A secondary offering or secondary distribution is the redistribution or sale of a large block of securities held by one or more major shareholders who wish to sell a large volume of shares. Large shareholders are often restricted in the amount of shares that can be sold through normal channels in the secondary market. A registered secondary offering provides the opportunity for these individuals to sell larger volumes of shares than what may be permitted through normal secondary market trades.
Which of the following is generally NOT TRUE in relation to Corporate Commercial Paper?
[A] Commercial paper is normally offered in book-entry form.
[B] Commercial paper is normally issued in callable form.*
[C] Commercial paper is normally sold at a discount.
[D] Commercial paper is normally unsecured debt of a corporation. - Answer- EXPLANATION
Commercial paper represents unsecured, short-term debt of a corporation. Generally it is sold in book-entry form at a discount and redeemed at face value on a specified date.
Commercial paper is NOT normally issued as callable.
Good-till cancelled orders have all of the following characteristics EXCEPT:
[A] They will be confirmed or renewed periodically [B] They are permitted for round lots and odd lots
[C] They are also called open orders*
[D] They are permitted for common stock only - Answer- EXPLANATION
A good-till cancelled order (a.k.a. an open order) is a customer's order to buy a security,
usually at a particular price, that remains in effect until executed or cancelled. GTC orders can be entered on Common Stock, Preferred Stock, Bonds and Options therefore choice "D" is incorrect
All of the following are defensive except:
[A] automobile repair service
[B] tool and die manufacturer*
[C] natural gas supplier
[D] Supermarket chain - Answer- EXPLANATION
Service companies, public utilities, and supermarket chains would be less subject to react to changes in the economy, making these products/services defensive. Manufacturing, such as tool and die companies are typically more cyclical and not considered defensive.
Jane left the securities industry 5 years ago to raise her two children. The children are now in school full time and Jane has decided to go back to work at the same broker-
dealer where she previously worked. Which of the following is true regarding Jane's registration status with the firm?
[A] If Jane's firm paid the annual registration fees, Jane's license would still be valid and
she could come back to work without having to take the qualification exams again, provided she kept up with the continuing education requirements of her license.
[B] If Jane's firm paid the annual registration fees, Jane's license would still be valid and
she could come back to work without having to take the qualification exams again but she would be required to complete the continuing education requirements to reactive her license.
[C] Jane's licenses would have remained valid since she always intended to come back to work after her children went to school full time and had an agreement in place to come back to work at the firm.
[D] Jane's licenses have lapsed and she will be required to take the qualification exams again.* - Answer- EXPLANATION
When a registered person leaves a firm, a U-5 Form is filed and that person has 2 years
from the date of the U-5 to reinstate their license without having to test again. Since Jane was out of the business for 5 years, she would be required to re-qualify.
A broker/dealer firm has become insolvent. SIPC liquidation procedures have begun. Jill
and Jack are married and each of them have individual accounts along with a joint account with each other at the firm. The following are their account balances: Jill's individual account has $275,000 in fully-paid securities Jack's individual account has $265,000 in fully-paid securities Jill and Jack's joint account has $475,000 in fully-paid securities What would SIPC cover in relation to these accounts?
[A] SIPC coverage would total $500,000 for the three accounts since the two parties are
married.
[B] SIPC coverage would pay $275,000 for Jill's account, $265,000 for Jack's account, and $475,000 for the joint account.*
[C] SIPC coverage would pay $1,500,000 in this case, because each account is insured
for $500,000, regardless of the amount held when the broker/dealer firm became insolvent.
[D] SIPC would not cover any of these claims. - Answer- EXPLANATION
SIPC coverage handles the amounts within an account at the time the broker/dealer becomes insolvent. This would mean that Jill and Jack would be fully covered for the amounts in their individual accounts, and the joint account would also be fully covered, since the maximum coverage is $500,000 per separate customer. SIPC does not pay $500,000 to each account when the total value of the account is less than $500,000 in the account.
In 2019, an attorney who is not an active participant in a retirement plan earns $110,000
annually and the attorney's spouse is unemployed. The maximum tax deduction allowed
under IRS tax rules for IRAs for this couple is [A] $6,000.
[B] $2,000.
[C] $12,000.*
[D] $10,000. - Answer- EXPLANATION
The maximum deductible contribution to an IRA for the attorney on the eligible unemployed spouse in 2019 is $12,000 ($11,000 for 2018).
Which of the following BEST describes a call feature?
[A] This is a feature of a bond that allows the bond to be converted to common stock at the option of the issuer.
[B] A feature that allows the issuer of a bond to redeem the bond ahead of the final maturity date, typically including a premium above face value of the bond and most commonly used when interest rates have decreased.*
[C] This is a feature of a bond that allows the bond's coupon rate to be adjusted upward or downward in relation to interest rates in the current market.
[D] A feature that forces the issuer to redeem a bond ahead of schedule at the option of the bondholder. - Answer- EXPLANATION
A call feature allows the issuer of a bond to redeem or call in the bond ahead of the bond's final maturity date. If bonds are called, there is typically a premium that is added to the face or par value of the bond to compensate for payout ahead of final maturity. The most common reason that a bond is called is due to a reduction in interest rates, which would allow the issuer to reduce interest costs associated with the debt. Conversion features differ from call features in that they allow the bondholder to convert
